CSLT.L Regulatory News (CSLT)

27 Jun 2006 07:01

Cosalt PLC27 June 2006 Cosalt plc("Cosalt" or "the Group") Interim Results for the 26 weeks ended 30 April 2006 Financial Highlights • Turnover of £57.09m (2005: £58.56m*) • Profit before tax of £114,000 (2005: £260,000*) • Earnings per share of 1.30p (2005: 1.34p*) • Interim dividend maintained at 6.0p *from continuing activities Operational Highlights • Actions being taken as part of strategic review:- - Sale of Banner Schoolwear/Childrenswear business underway - Actively appraising potential acquisitions in Marine & Industrial Safety • Industrial Services: good order prospects in H2 • Holiday Homes: improved production efficiencies, stock control and market share • Cash and working capital continues to be well managed John Kelly, Chairman, commented: "The marine safety business is trading well; at Cosalt:Ballyclare we willimprove margins going forward, with a carefully planned initiative to increaseprocurement from our Far East sources; Banner, whilst being prepared for sale,is operating from a lower cost base following last year's rationalisation andCosalt Holiday Homes will see an improved performance over last year. Cash is being well controlled and the 2006 year as a whole is expected todemonstrate a marked recovery in the Group's profitability." 27 June 2006 ENQUIRIES: Cosalt plc Tel: 020 7457 2020 (today)Bill Wood, Managing Director Tel: 01472 504504 (thereafter)Neil Carrick, Finance Director College Hill Tel: 020 7457 2020Mark Garraway Email: mark.garraway@collegehill.comMatthew Gregorowski Email: matthew.gregorowski@collegehill.com CHAIRMAN'S STATEMENT INTRODUCTION These interim results are reported for the first time under InternationalFinancial Reporting Standards (IFRS) adopted in the EU and the prior periodinformation included in these results has been re-stated on a comparable basis.An explanation of the transition and the financial impact of the Group's IFRSconversion is included in the notes accompanying this Statement and Accounts. Group turnover for the 26 weeks to 30 April 2006 at £57.09 million was similarto the £58.56 million achieved on continuing activities in the 26 weeks to 1 May2005. The Group achieved a profit of £114,000 before taxation, after taking intoaccount a profit of £305,000 on the sale of the Atherton freehold. This iscompared with a profit before tax of £260,000 at the Interim stage last year,after taking into account £100,000 of exceptional costs. Basic earnings pershare in accordance with IFRS were 1.30p (2005: 1.34p) on continuing activities. The Marine Safety business is performing particularly well and the results ofCosalt Holiday Homes for the full year are expected to be much better than thoseof 2005. Working capital is being well controlled and the Board is confidentthat the full year will demonstrate a marked recovery in the Group'sprofitability. This gives the Board confidence in maintaining the interimdividend at 6.00p. The dividend will be paid on 13 September 2006 toShareholders on the register on 18 August 2006. STRATEGIC REVIEW In the Group's results for the 2004-05 financial year announced in January 2006,we outlined that the Board had decided to conduct an internal strategic reviewin order to gain scale in the Group's core activities and improve Shareholdervalue. That review is ongoing but has already led to the decision to seekoffers for the Banner Schoolwear/Childrenswear business, as announced in May,with the aim of concentrating resources in the areas of the Group which theBoard believes offer the greatest competitive advantage and potential forgrowth. SUCCESSION PLANNING The strategic review being undertaken by the Board will result in a morefocussed business. As part of this review, the search has commenced to find ayounger Chief Executive with international business experience to succeed BillWood. Bill, who is now 60, has served most of his working life with the Group.He has been Group Managing Director for the last 11 years and has decided toretire from executive responsibility on 31 December 2007. The timing of Mr.Wood's retirement is intended to give the Board sufficient time to secure theright successor and ensure an efficient hand over process. REVIEW OF ACTIVITIES The Group is structured into two divisions. Industrial Services consists ofmarine and industrial safety, safetywear and protective clothing, and schoolwear/childrenswear. Leisure Products incorporates caravan holiday homes and leisurecustom homes. INDUSTRIAL SERVICES Turnover increased significantly to £35.87 million (2005: £33.51 million oncontinuing activities), resulting in an improved operating profit of £1.17million (2005: £0.92 million on continuing activities before exceptional items). Safety & Protection Turnover increased to £18.97 million (2005: £16.68 million), resulting in animproved operating profit of £1.07 million (2005: £722,000 before exceptionalitems). We continue to make good progress in this activity, particularly inmarine safety, specialist ropes and lifting and testing services. We have taken advantage of new legislation, which has been introduced this year,requiring commercial cargo vessels to be equipped with immersion suits. At thehalf year stage, we have delivered immersion suits to our customers to a valueof £2.3 million (compared with £113,000 in the first half of last year) and wehave significant orders in hand for delivery in the second half. Harnessing potential in the markets served by our leading Safety & Protectionbusiness is important to the Group and we continue actively to appraise severalcomplementary acquisitions in the marine and industrial safety markets, both athome and abroad. Safetywear & Protective Clothing Turnover increased to £9.97 million (2005: £9.32 million), although theoperating profit was reduced at £107,000 at the interim stage (2005: £185,000). Some of the new business gained, including the Environment Agency, Tarmac and DeWalt, is taking longer to come through than previously forecast. As reported inJanuary 2006, Cosalt:Ballyclare was awarded a three year contract to supplyNetwork Rail exclusively with high visibility protective garments and this willensure a continuation of the successful relationship which the Group has enjoyedwith Network Rail. To improve margins in a very competitive trading environment we are undertakinga major initiative to move significant quantities of procured finished productfrom the current East European supply base to our more cost effective FarEastern sources. We are confident that this initiative will facilitate marginimprovement in the 2006/07 financial year. Schoolwear/Childrenswear Turnover was £6.94 million (2005: £7.52 million on continuing activities)resulting in an operating loss of £10,000 in this highly seasonal activity(2005: profit £9,000). In the principal business of Schoolwear, the order position to date for the 2006back to school season is broadly in line with budget and the 2005 season,although £400,000 of orders originally budgeted in the first half of this yearare being delivered to customers in line with their requirements in May-July andwill therefore be reflected in the full year numbers. Cost savings resulting from last year's reorganisation of the Schoolwear U.K.manufacturing base are in line with plan and it is expected that this will leadto an improved result for the full year. LEISURE PRODUCTS Turnover at Cosalt Holiday Homes was £21.22 million (2005: £25.05 million),resulting in an operating loss at the interim stage of £794,000 (2005: profit£131,000). These results mask our successful achievement in improving market share in theCaravan Holiday Homes business, in a market where industry statistics show a 31%reduction in the number of units produced by U.K. manufacturers as a whole inthe six months to 30 April 2006. We have developed improved production systemsand managed our working capital well in the winter/spring period resulting in amuch lower level of finished stock. With a more comprehensive product rangeand a solid order book, we anticipate a much improved result for the full year. As we outlined in the January 2006 results announcement, trading has become moredifficult in our market leading Custom Homes business, which achieved recordprofits of £1.26 million in the 2005 financial year. Unit sales, compared withthe first half of last year, were down 38% in a market that has been adverselyaffected by a deterioration in customer confidence and which has seen the recententry of a number of park home manufacturers seeking to fill their factorycapacity. As a result, operating profits from Custom Homes were £656,000 lowerthan at the interim stage last year. Whilst the order position has nowimproved, we are unlikely to recover the short fall in the full year and thiswill partly offset the improvement expected in the caravan Holiday Homesbusiness in the current year. PENSIONS The Group's Defined Benefit Scheme continues to receive a high level ofattention. The deficit under IAS19 is now shown gross on the balance sheet andat £13.47 million is similar to the year end position. Although an IAS19valuation has not been undertaken at the half year stage, gilt yields haveincreased and consequently the valuation of scheme liabilities will be less. Inaddition, the scheme's assets have performed well and are greater than atOctober 2005. The scheme was closed to new entrants in 2000, pensionablesalaries were frozen for three years from April 2002, early retirement benefitswere reduced from April 2003 and members' contributions were increasedsignificantly at that time. We are presently examining a number of further measures, in conjunction with theScheme's Trustees, in order to manage, as far as we can, our future risks. BORROWINGS The seasonally high level of capital employed in the Holiday Homes business atthe interim stage has been managed better this season, with much lower stocklevels. Borrowings overall at the half year were £3m less than at 1 May 2005.Gearing at 72% (excluding IAS19 pension scheme deficit and related deferred taxasset) was slightly better than the 74% achieved at 1 May 2005. We confidentlyexpect lower borrowings at the October 2006 year end. OUTLOOK The marine safety business is trading well; at Cosalt:Ballyclare we will improvemargins going forward, with a carefully planned initiative to increaseprocurement from our Far East sources; Banner, whilst being prepared for sale,is operating from a lower cost base following last year's rationalisation andCosalt Holiday Homes will see an improved performance over last year. Cash is being well controlled and the 2006 year as a whole is expected todemonstrate a marked recovery in the Group's profitability. John KellyChairman 26 June 2006 Consolidated income statement for the twenty-six weeks to 30 April 2006 26 weeks ended 26 weeks ended 52 weeks ended 30 April 2006 1 May 2005 30 October 2005 £000 £000 £000Revenue 57,092 58,561 117,645 Operating profit before exceptional costs 376 1,047 2,491Redundancy, reorganisation and impairment - (100) (1,853)Profit on disposal of surplus properties 305 - -Operating profit 681 947 638 Financial income 30 20 40Financing costs (597) (707) (1,519) Profit/(loss) before taxation 114 260 (841) Income tax credit/(expense) 58 (80) 88 Profit/(loss) after taxation 172 180 (753) Loss on sale and post tax loss of - (51) (117)discontinued businessProfit/(loss) for period 172 129 (870) Earnings per ordinary shareBasic (total) 1.30p 0.96p (6.58p)Diluted (total) 1.29p 0.95p (6.55p)Basic (continuing operations) 1.30p 1.34p (5.70p)Diluted (continuing operations) 1.29p 1.34p (5.68p)Dividend per ordinary sharePaid in the period 12.75p 12.75p 18.75pArising in respect of the period 6.00p 6.00p 18.75p Consolidated balance sheet as at 30 April 2006 As at 30 April 2006 As at 1 May 2005 As at 30 October 2005 £000 £000 £000ASSETS Non- current assetsIntangible assets - goodwill 3,270 3,270 3,267Intangible assets - other 1,406 1,199 1,421Investment properties 1,226 1,281 1,281Property plant and equipment 13,437 13,561 14,338Investments 1,000 1,000 1,000Deferred tax assets 4,064 3,351 4,064 24,403 23,662 25,371Current assetsInventories 22,309 28,238 20,181Trade and other receivables 34,926 36,423 25,012Cash and cash equivalents 557 164 232 57,792 64,825 45,425 Total assets 82,195 88,487 70,796 LIABILITIESNon-current liabilitiesInterest bearing loans and borrowings 1,247 3,240 2,155Deferred tax liabilities 743 867 742Deferred Government grants 60 75 66Provisions 103 212 290Retirement benefit obligations 13,470 11,258 13,546 15,623 15,652 16,799 Current liabilitiesBank overdrafts 13,861 12,129 6,234Interest bearing loans and borrowings 6,360 8,906 4,677Provisions 461 387 1,283Trade and other payables 26,193 26,697 20,524 46,875 48,119 32,718 Total liabilities 62,498 63,771 49,517 Net assets 19,697 24,716 21,279 EQUITYShare capital 3,319 3,369 3,369Share premium 4,547 4,547 4,547Other reserves 1,148 1,148 1,148Hedging reserve (10) - -Retained earnings 10,693 15,652 12,215 Total equity 19,697 24,716 21,279 Consolidated cash flow statement for the twenty-six weeks to 30 April 2006 26 weeks ended 26 weeks ended 52 weeks ended 30 April 2006 1 May 2005 30 October 2005 £000 £000 £000 Cash generated from operationsProfit/(loss) for the period 172 129 (870) Adjustments for:Income tax expense (58) 80 (88)Depreciation 1,266 1,262 2,155Deferred government grants released (8) (75) (84)Net finance costs 567 687 1,479Share based payment charge 11 7 17Profit on disposals of property, plant and (305) - -equipmentPension contributions in excess of charge (76) (53) (406)Loss on disposal of discontinued operations - 51 117Operating profit/(loss) of discontinued - 33 62operationsCash flow before changes in working capital 1,569 2,121 2,382(Increase)/decrease in inventories (2,138) (3,144) 4,923(Increase)/decrease in trade and other (9,869) (5,708) 6,176receivablesIncrease/(decrease) in trade and other payables 5,585 (3,031) (9,356)(Decrease)/increase in provisions (1,008) (580) 515Net cash (used in)/from operations (5,861) (10,342) 4,640 Interest paid (462) (675) (1,511)Interest element of finance lease rentals (16) (27) (52)Dividends paid on preference shares (2) (2) (4)Income tax paid - (5) (140)Net cash from operating activities (6,341) (11,051) 2,933 Cash flows from investing activitiesAcquisitions of subsidiaries (net of cash - (778) (772)acquired)Disposal of subsidiaries - 2,344 2,344Proceeds from sale of property, plant and 1,405 68 84equipmentPurchase of property, plant and equipment (1,254) (170) (1,738)Purchase of intangible assets - software (96) (594) (910)Net cash from/(used) in investing activities 55 870 (992) Cash flows from financing activitiesDividends paid to shareholders (1,693) (1,693) (2,489)Finance lease principal payments (161) (183) (338)Repayment of bank borrowing (1,035) (1,185) (2,220)Net cash used in financing activities (2,889) (3,061) (5,047) Net (decrease) in cash and cash equivalents (9,175) (13,242) (3,106) Cash and cash equivalents at beginning of (8,444) (5,338) (5,338)period Cash and cash equivalents at end of period (17,619) (18,580) (8,444) Note: The outflow of funds in the first half of the year is a normal feature ofthe Group's business. Consolidated statement of recognised income and expensefor the twenty-six weeks to 30 April 2006 26 weeks ended 26 weeks ended 52 weeks ended 30 April 2006 1 May 2005 30 October 2005 £000 £000 £000Effective portion of cashflow hedges taken (180) - -direct to equityActuarial losses on defined benefits scheme - - (2,356)Taxation on items taken directly to equity 54 - 707 (126) - (1,649) Profit/(loss) for the period 172 129 (852)Total recognised income and expense 46 129 (2,501) Effect of change in accounting policy Effect of adoption of IAS32 and IAS39, net oftax, on 31 October 2005Share capital (50) - -Hedging reserve 116 - -Retained earnings (13) - - 53 - - Total recognised income and expense for the 99 129 (2,501)period NOTES TO THE INTERIM STATEMENT 1. Basis of preparation This interim report has been approved by the Directors on 26 June 2006. EU law(IAS Regulation EC1606/2002) requires that the next annual consolidatedfinancial statement of the Company, for the year ending 29 October 2006, beprepared in accordance with International Financial Reporting Standards (IFRSs)as adopted by EU ("adopted IFRSs"). This interim financial information has been prepared on the basis of therecognition and measurement requirements of IFRSs in issue that either areendorsed by the EU and effective (or available for early adoption) at 29 October2006 or are expected to be endorsed and effective (or available for earlyadoption) at 29 October 2006, the Group's first annual reporting date at whichit is required to use adopted IFRSs. Based on these adopted and unadoptedIFRSs, the directors have made assumptions about the accounting policiesexpected to be applied, which are set out below, when the first annual IFRSfinancial statements are prepared for the year ending 29 October 2006. In addition, the adopted IFRSs that will be effective (or available for earlyadoption) in the annual financial statements for the year ending 29 October 2006are still subject to change and to additional interpretations and thereforecannot be determined with certainty. Accordingly, the accounting policies forthat annual period will be determined finally only when the annual financialstatements are prepared for the year ending 29 October 2006. The policies set out below have been consistently applied to all the periodspresented except for those relating to the measurement of financial instruments.The Group has made use of the exemption available under IFRS1 First TimeAdoption to only apply IA32 and IAS39 from 30 October 2005. The Group's consolidated financial statements were prepared in accordance withUnited Kingdom Generally Accepted Accounting Principles (UK GAAP) until 30October 2005. The comparative figures for the financial year ended 30 October2005 have been restated to comply with adopted IFRSs and are not the Company'sstatutory accounts for that financial year. Those accounts which are preparedunder UK GAAP have been reported on by the Company's auditors and delivered tothe Registrar of Companies. The report of the auditors was unqualified and didnot contain statements under Section 237(2) or (3) of the Companies Act 1985. Reconciliations and descriptions of the effect of the transition from UK GAAP toIFRS on the Group's equity and its net income are provided in the appendix tothis document for the six months ended 1 May 2005 and for the year ended 30October 2005. 2. Analysis by business segment At 30 April 2006 the Group is organised into four main business segments: Safety& Protection, Safetywear and Protective Clothing, Schoolwear and Childrenswearand Holiday Homes. The primary segment reporting format is determined to be the business segmentsas the Group's risks and returns are predominantly affected by differences inthe products and services provided by these different activities. The operatingbusiness segments are organised and managed separately. 26 weeks ended 30 April 2006 Industrial Services Leisure Products Safety & Safetywear & Schoolwear & Holiday Homes Continuing Discontinued Total Protection Childrenswear Activities Activities Protective Clothing £000 £000 £000 £000 £000 £000 £000Revenue 18,970 9,965 6,939 21,218 57,092 - 57,092Operating 1,073 107 (10) (794) 376 - 376profit/(loss)beforeexceptionalitemsProfit on - 305 - - 305 - 305disposal ofsurpluspropertiesOperating 1,073 412 (10) (794) 681 - 681profit/(loss) 26 weeks ended 1 May 2005 Industrial Services Leisure Products Safety & Safetywear & Schoolwear & Holiday Homes Continuing Discontinued Total Protection Protective Childrenswear Activities Activities Clothing £000 £000 £000 £000 £000 £000 £000Revenue 16,682 9,315 7,515 25,049 58,561 1,181 59,742Operating 722 185 9 131 1,047 33 1,080profit beforeexceptionalitemsExceptional (100) - - - (100)) - (100)itemsOperating 622 185 9 131 947 33 980profit 52 weeks ended 30 October 2005 Industrial Services Leisure Products Safety & Safetywear & Schoolwear & Holiday Homes Continuing Discontinued Total Protection Protective Childrenswear Activities Activities Clothing £000 £000 £000 £000 £000 £000 £000Revenue 33,944 18,390 19,642 45,669 117,645 1,364 119,009Operating 2,016 572 1,089 (1,186) 2,491 62 2,553profit/(loss)beforeexceptionalitemsExceptional (300) (179) (450) (924) (1,853) - (1,853)itemsOperating 1,716 393 639 (2,110) 638 62 700profit/(loss) 3. Summary of movements in equity Share Share premium Other Hedging Retained capital reserve reserve earnings Total52 weeks ended 30 October 2005 £000 £000 £000 £000 £000 £000 Balance brought forward at transition 3,369 4,547 1,148 - 17,210 26,274Loss for the period - - - - (870) (870)Share option charge - - - - 17 17Dividends paid - - - - (2,493) (2,493)Movements in pension deficit and - - - - (1,649) (1,649)related taxationBalance as at 30 October 2005 3,369 4,547 1,148 - 12,215 21,279 Share Share Other Hedging Retained capital premium reserve reserve earnings Total26 weeks ended 1 May 2005 £000 £000 £000 £000 £000 £000 Balance brought forward at transition 3,369 4,547 1,148 - 17,210 26,274 (1 November 2004)Profit for the period - - - - 129 129Share option charge - - - - 7 7Dividends paid - - - - (1,694) (1,694)Balance as at 1 May 2005 3,369 4,547 1,148 - 15,652 24,716 Share Share Other Hedging Retained Total capital premium reserves reserve earnings26 Weeks ended 30 April 2006 £000 £000 £000 £000 £000 £000 Balance brought forward at 31 October 3,369 4,547 1,148 - 12,215 21,2792005Profit for the period - - - - 172 172Share option charge - - - - 11 11Effect of adoption of IAS32 and IAS39 net (50) - - 116 (13) 53of tax on 31 October 2005Effect of hedges paid in the period - - - (126) - (126)Dividends paid - - - - (1,692) (1,692)Balance as at 30 April 2006 3,319 4,547 1,148 (10) 10,693 19,697 4. Earnings per share The basic earnings on total operations are calculated on the basis of totalprofits of £172,000 (£127,000 for 1 May 2005 and a loss of £874,000 for 30October 2005 and the average number of shares in issue for the period, being13,275,169 for 30 April 2006 (13,275,169) for 1 May 2005 and 13,275,169 for 20April 2005. The basic earnings per share on continuing activities are calculated on thebasis of profits of £172,000 (£178,000 for 1 May 2005 and a loss of £757,000 for30 October 2005 attributable to ordinary shareholders and the average number ofshares in issue for the period, being 13,275,169 for 30 April 2006 (13,275,169for 1 May 2005 and 13,275,169 for 30 October 2005). The diluted earnings per share on total operations are calculated on the basisof the profits of £172,000 (£127,000 for 1 May 2005 and a loss of £874,000 for30 October 2005 and the average number of shares in issue for the period plusthe average maximum potential number of shares which could be issued under thevarious Executive Share Option Schemes. The total number of shares used tocalculate the diluted earnings are 13,313,392 (13,337,894 for 1 May 2005 and13,329,975 for 30 October 2005). The diluted earnings per share on continuing activities of £172,000 (178,000 for1 May 2005 and a loss of £757,000 for 30 October 2005) are calculated on thebasis of the continuing profits attributable to ordinary shareholders and theaverage number of shares in issue for the period plus the average maximumpotential number of shares which could be issued under the various ExecutiveShare Option Schemes. The total number of shares used to calculate the dilutedearnings are 13,313,392 (13,337,894 for 1 May 2005 and 13,329,975 for 30 October2005). 5. Interim dividend The interim dividend of 6.00p per share will be paid on 13 September 2006 toshareholders on the register on 18 August 2006. In accordance with the requirements of International Accounting Standards, theproposed interim dividend has not been accrued in the consolidated financialstatements for the twenty-six weeks to 30 April 2006. 6. Taxation The taxation charge for the interim period is based upon the estimated rate forthe full year. The property disposals were not taxed due to the availability ofcapital losses Copies of this report are being sent to shareholders. Further copies may be obtained from the Company's Registered Office at Fish Dock Road, Grimsby North East Lincolnshire DN31 3NW Independent review report by KPMG Audit Plc to Cosalt Plc Introduction We have been engaged by the company to review the financial information for thetwenty-six weeks ended 30 April 2006 which comprises a consolidated balancesheet as at 30 April 2006 and the related consolidated statements of income,cash flows and the statement of recognised income and expenses for thetwenty-six weeks ended 30 April 2006 and related notes and we have read theother information contained in the interim report and considered whether itcontains any apparent misstatements or material inconsistencies with thefinancial information. This report is made solely to the company in accordance with the terms of ourengagement to assist the company in meeting the requirements of the ListingRules of the Financial Services Authority. Our review has been undertaken sothat we might state to the company those matters we are required to state to itin this report and for no other purpose. To the fullest extent permitted bylaw, we do not accept or assume responsibility to anyone other than the companyfor our review work, for this report, or for the conclusions we have reached. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of and has been approved by the directors. The directors areresponsible for preparing the interim report in accordance with the ListingRules which require that the accounting policies and presentation applied to theinterim figures should be consistent with those applied in preparing thepreceding annual financial statements except where any changes, and the reasonsfor them, are disclosed. As disclosed in note 1 to the financial information, the next annual financialstatements of the group will be prepared in accordance with IFRSs as adopted bythe European Union. The accounting policies that have been adopted in preparing the financialinformation are consistent with those that the directors currently intend to usein the next annual financial statements. There is, however, a possibility thatthe directors may determine that some changes to these policies are necessarywhen preparing the full annual financial statements for the first time inaccordance with those IFRSs as adopted for use by the European Union. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4Review of interim financial information issued by the Auditing Practices Boardfor use in the United Kingdom. A review consists principally of makingenquiries of group management and applying analytical procedures to thefinancial information and underlying financial data and, based thereon,assessing whether the accounting policies and presentation have beenconsistently applied unless otherwise disclosed. A review is substantially lessin scope than an audit performed in accordance with Auditing Standards andtherefore provides a lower level of assurance than an audit. Accordingly, we donot express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the 26 weeks ended30 April 2006. KPMG Audit Plc Chartered AccountantsLeeds 26 June 2006 Explanation of transition to IFRS As stated in Note 1, these are the Group's first Consolidated Interim FinancialStatements for part of the period covered by the first IFRS annual ConsolidatedFinancial Statements prepared in accordance with IFRS. The accounting policies noted below have been applied in preparing theConsolidated Interim Financial Statements for the twenty-six weeks ended 30April 2006, the comparative information for the twenty-six weeks ended 1 May2005 and for the year ended 30 October 2005 and the preparation of an openingIFRS balance sheet at 1 November 2004 (the Group's date of transition). In preparing these statements the Group has adjusted amounts reported previouslyin Financial Statements prepared in accordance with UK GAAP. An explanation for how the transition from UK GAAP to IFRS has affected theGroup's financial position, financial performance and cash flows is set out inthe following tables and the notes that accompany the tables. Notes on reconciliation of equity The most significant adjustment relates to the derecognition of dividends notdeclared at the period end but proposed for that period which were previouslyaccrued under UK GAAP. Notes on reconciliation of profit The most significant adjustments are in relation to the reversal of the goodwillamortisation charge that was previously recognised under UK GAAP and a chargefor share based payments and interest rate and currency hedges which were notpreviously required under UK GAAP. Exemptions taken IFRS1 First Time Adoption of International Financial Reporting Standards -contains certain optional exemptions to assist companies in their transition toIFRS, including classifying revalued assets at deemed cost. IFRS3 Business Combinations - advantage has been taken of the optional exemptionfrom full retrospective application of IFRS3 and consequently this standard hasnot been applied to acquisitions made before November 2004. IFRS2 - the Group has elected to only apply IFRS2 to the options that weregranted after 7 November 2002 and had not vested at the date of transition toIFRS. IAS32 and IAS39 Financial Instruments - under IFRS1 the Group can opt not topresent comparative financial information and account for the related financialinstruments under UK GAAP for these periods. Accounting for pension costs The Group adopted FRS17 in the last financial year and consequently there islittle change in the accounting treatment under IFRS in the form of IAS19.However, for disclosure purposes the scheme deficit is shown gross (beforedeferred taxation) in the balance sheet under liabilities and the correspondingdeferred tax asset is now shown in non-current assets under deferred tax assets.Past service costs, current service costs, gains and losses on settlements andcurtailments, the expected return on assets and interest on scheme liabilitiesare included with operating costs. Conclusion The transition to IFRS has not had a material effect on the consolidatedfinancial results of the Group. There is no material impact on the Group's cash flow, effective tax rate (pregoodwill charges) and ability to pay dividends. The group's banking arrangements are unaffected Reconciliation of profit for the twenty-six weeks to 1 May 2005 Previously IAS10 reported IAS 12 IAS 19 IFRS2 IFRS3 IFRS5 Events Effect of Restated after under IAS1 Income Employee Share-based Business Discontinued Balance Transition under UK GAAP Presentation Taxes Benefits Payment Combinations Operations Sheet to IFRS IFRS date £000 £000 £000 £000 £000 £000 £000 £000 £000 £000Revenue 59,742 - - - - - (1,181) - (1,181) 58,561 Operating 1,041 - - (157) (7) 92 (22) - (94) 947profitBeforefinancingcosts Finance (919) (20) - 210 - - 22 - 212 (707)costs Finance 20 - - - - - - 20 20income Profit 122 - - 53 (7) 92 - - 138 260before tax Income tax (43) - - (16) - - (21) - (37) (80)expense Profit after 79 - - 37 (7) 92 (21) - 101 180tax beforeloss on discontinuedoperationsLoss on sale (72) - - - - - 21 - 21 (51)ofdiscontinuedOperation,net of taxProfit for 7 - - 37 (7) 92 - - 122 129the period Dividends - (796) - - - - - - (896) (896) (1,692)ordinary - preference (2) - - - - - - - - (2) Transferred (791) - - 37 (7) 92 - (896) (774) (1,565)to reserves Reconciliation of profit for the year 30 October 2005 Previously IAS10 reported IAS 12 IFRS2 IFRS3 IAS19 IFRS5 Events Effect of Restated after under IAS1 Income Share-based Business Employee Discontinued Balance Transition under UK GAAP Presentation Taxes Payment Combinations Benefits Operations Sheet to IFRS IFRS date £000 £000 £000 £000 £000 £000 £000 £000 £000 £000Revenue 119,009 - - - - - (1,364) - (1,364) 117,645 Operating 878 - - (17) 188 (360) (51) - (240) 638profitbeforefinancingcosts Finance (1,858) (40) - - - 357 22 - 339 (1,519)costs Finance 40 - - - - - - 40 40income Loss before (980) - - (17) 188 (3) (29) - 139 (841)tax Income tax 128 - (18) - - 1 (23) (40) 88expense Loss after (852) - (18) (17) 188 (2) (52) - 99 (753)tax beforeloss on discontinuedoperationsLoss on sale (169) - - - - - 52 - 52 (117)ofdiscontinuedOperation,net of taxLoss for the (1,021) - (18) (17) 188 (2) - - 151 (870)period Dividends - (2,489) - - - - - - - - (2,489)ordinary - preference (4) - - - - - - - - (4) Transferred (3,514) - (18) (17) 188 (2) - - 151 (3,363)to reserves Reconciliation of equity as at 1 May 2005 Previously IAS10 reported IAS 12 IAS 38 IAS 19 IFRS3 Events Effect of Restated after under Income Intangibles Employee Business Balance transition under UK GAAP Reclassification Taxes & Goodwill Benefits Combinations sheet to IFRS IFRS date £000 £000 £000 £000 £000 £000 £000 £000 £000 Assets Property plant 14,760 - - (1,199) - - - (1,199) 13,561and equipmentIntangible assets 3,118 - - 1,199 - 152 - 1,351 4,469 Investment 1,281 - - - - - - - 1,281propertiesOther investments 750 250 - - - - - 250 1,000Deferred tax - - - - 3,351 - - 3,351 3,351assetsTotal non-current 19,909 250 - - 3,351 152 - 3,753 23,662assets Inventories 28,238 - - - - - - - 28,238Trade and other 36,673 (250) - - - - - (250) 36,423receivablesCash and cash 164 - - - - - - - 164equivalentsTotal current 65,075 (250) - - - - - (250) 64,825assets Total assets 84,984 - 3,351 152 - 3,503 88,487 Liabilities Interest-bearing 3,240 - - - - - - 3,240loans andborrowings Employee benefits 7,916 - - - 3,342 - - 3,342 11,258 Deferred 75 - - - - - - 75government grants Provisions 599 - - - - - - 599 Deferred tax 829 - 38 - - - 38 867liabilities Total non-current 12,659 - 38 - 3,342 - - 3,380 16,039liabilities Bank overdraft 12,129 - - - - - - - 12,129 Interest-bearing 2,050 6,856 - - - - - 6,856 8,906loans andborrowings Trade and other 34,289 (6,856) - - - 60 (796) (7,592) 26,697payables Total current 48,468 - - - - 60 (796) (736) 47,732liabilities Total liabilities 61,127 - 38 - 3,342 60 (796) 2,644 63,771 Net Assets 23,857 - (38) - 9 92 796 859 24,716 Equity Issued capital 3,369 - - - - - - - 3,319 Share premium 4,547 - - - - - - - 4,547 Reserves 1,658 (510) - - - - - (510) 1,148 Retained earning 14,283 510 (38) - 9 92 796 1,369 15,652 Total equity 23,857 - (38) - 9 92 796 859 24,716 Reconciliation of equity as at 30 October 2005 Previously IAS10 reported IAS 12 IAS 38 IAS 19 IFRS3 Events Effect of Restated after under Income Intangibles Employee Business Balance transition under UK GAAP Reclassification Taxes & Goodwill Benefits Combinations sheet to IFRS IFRS date £000 £000 £000 £000 £000 £000 £000 £000 £000 Assets Property plant and 15,759 - - (1,421) - - - (1,421) 14,338equipmentIntangible assets 3,079 - - 1,421 - 188 - 1,609 4,688 Investment 1,281 - - - - - - - 1,281propertiesOther investments 750 250 - - - - - 250 1,000Deferred tax - - - - 4,064 - - 4,064 4,064assetsTotal non-current 20,869 250 - - 4,064 188 - 4,502 25,371assets Inventories 20,181 - - - - - - - 20,181Income tax 257 - - - - - - - 257receivableTrade and other 25,005 (250) - - - - - (250) 24,755receivablesCash and cash 232 - - - - - - - 232equivalentsTotal current 45,675 (250) - - - - - (250) 45,425assets Total assets 66,544 - - - 4,064 188 - 4,252 70,796 Liabilities Interest-bearing 2,155 - - - - - - - 2,155loans andborrowings Employee benefits 9,449 - - - 4,097 - - 4,097 13,546 Deferred 66 - - - - - - - 66government grants Provisions 1,573 - - - - - - - 1,573 Deferred tax 686 - 56 - - - - 56 742liabilities Total non-current 13,929 - 56 - 4,097 - - 4,153 18,082liabilities Bank overdraft 6,234 - - - - - - - 6,234 Interest-bearing 1,925 2,752 - - - - - 2,752 4,677loans andborrowings Trade and other 24,968 (2,752) - - - - (1,692) (4,444) 20,524payables Total current 33,127 - - - - - (1,692) (1,692) 31,435liabilities Total liabilities 47,056 - 56 - 4,097 - (1,692) 2,461 49,517 Net assets 19,488 - (56) - (33) 188 1,692 1,791 21,279 Equity Issued capital 3,369 - - - - - - - 3,369 Share premium 4,547 - - - - - - - 4,547 Reserves 1,658 (510) - - - - - (510) 1,148 Retained earnings 9,914 510 (56) - (33) 188 1692 2,301 12,215 Total equity 19,488 - (56) - (33) 188 1,692 1,791 21,279 Reconciliation of equity as at 1 November 2004 Previously IAS10 reported IAS 12 IAS 38 IAS 19 Events Effect of Restated after under Income Intangibles Employee Balance transition under UK GAAP Reclassification Taxes & Goodwill Benefits sheet to IFRS IFRS date £000 £000 £000 £000 £000 £000 £000 £000 Assets Property plant 16,920 - - (743) - - (743) 16,177and equipmentInvestment 1,281 - - - - - - 1,281properties Intangible assets 2,740 - - 743 - - 743 3,483 Deferred tax - - - - 3,479 - 3,479 3,479assetsTotal non-current 20,941 - - - 3,479 - 3,479 24,420assets Inventories 25,673 - - - - - - 25,673Trade and other 31,656 - - - - - - 31,656receivablesCash and cash 1,743 - - - - - - 1,743equivalentsTotal current 59,072 - - - - - - 59,072assets Total assets 80,013 - 3,479 - 3,479 83,492 Liabilities Interest-bearing 4,413 - - - - - - 4,413loans andborrowings Employee benefits 8,089 - - - 3,507 - 3,507 11,596 Deferred 150 - - - - - - 150government grants Provisions 1,058 - - - - - - 1,058 Deferred tax 823 - 38 - - - 38 861liabilities Total non-current 14,533 - 38 - 3,507 - 3,545 18,078liabilities Bank overdraft 2,176 - - - - - - 2,176 Interest-bearing 2,167 5,160 - - - - 5,160 7,327loans andborrowings Trade and other 36,489 (5,160) - - - (1,692) (6,852) 29,637payables Total current 40,832 - 38 - - (1,692) (1,692) 39,140liabilities Total liabilities 55,365 - 38 - 3,507 (1,692) 1,853 57,218 Net assets 24,648 - - - (28) 1,692 1,626 26,274 Equity Issued capital 3,369 - - - - - - 3,369 Share premium 4,547 - - - - - - 4,547 Reserves 1,658 (510) - - - - (510) 1,148 Retained earnings 15,074 510 (38) - (28) 1,692 2,136 17,210 Total equity 24,648 - (38) - (28) 1,692 1,626 26,274 Accounting policies a Basis of accounting The financial statements have been prepared on the historical cost basis exceptthat derivative financial instruments and investment properties are stated attheir fair value. b Basis of consolidation The consolidated financial statements incorporate the financial statements ofthe Company and entities controlled by the Company (its subsidiaries). Controlexists when the Group has the power, directly or indirectly, to govern thefinancial and operating policies of an entity so as to obtain benefits from itsactivities. In assessing control, potential voting rights that are currentlyexercisable or convertible are taken into account. The financial statements ofsubsidiaries are included in the consolidated financial statements from the datethat control commences until the date that control ceases. The results of subsidiaries acquired or disposed of during the period areincluded in the consolidated income statement from the effective date ofacquisition or up to the effective date of disposal, as appropriate. On acquisition, adjustments are made to the financial statements of subsidiariesto bring their accounting policies into line with those used by other members ofthe Group. All intra-group transactions, balances, income and expenses are eliminated onconsolidation. c Business combinations The acquisition of subsidiaries is accounted for using the purchase method. Thecost of the acquisition is measured at the aggregate of the fair values, at thedate control passes of equity instruments issued, of assets given, lessliabilities incurred or assumed, plus any costs directly attributable to thebusiness combination. The acquiree's identifiable assets, liabilities andcontingent liabilities that meet the conditions for recognition under IFRS3Business Combinations are recognised at their fair values at the acquisitiondate. d Goodwill Goodwill arising on consolidation represents the excess of the cost ofacquisition over the Group's interest in the net fair value of the identifiableassets and liabilities of the subsidiary recognised at the date of acquisition.Goodwill is initially recognised as an asset at cost and is subsequentlymeasured at cost less any accumulated impairment losses, measured annually (seenote I). On disposal of a subsidiary, the attributable amount of goodwill is included inthe determination of the profit or loss on disposal. Goodwill arising on acquisitions before the date of transition to IFRS wastested for impairment at the transition date and has been retained at itsprevious UK GAAP value. Positive goodwill arising on acquisitions prior to 1998that was written off against reserves under UK GAAP, has not been reinstated andis not included in determining any subsequent profit or loss on disposal. e Foreign currencies For the purposes of the consolidated financial statements, the results andfinancial position of each entity are expressed in pounds sterling, which is thefunctional currency of the Companies within the Group and the presentationcurrency for the consolidated financial statements. Transactions in currencies other than the entity's functional currency (foreigncurrencies) are recorded at the rates of exchange prevailing on the dates of thetransactions. At each balance sheet date, monetary items denominated in foreigncurrencies are retranslated at the rates prevailing at the balance sheet date. Exchange differences arising on the settlement or retranslation of monetaryitems are included in the income statement for the period. Exchange differencesarising on the retranslation of non-monetary items carried at fair value areincluded in the income statement for the period. f Operating profit and exceptional items In order for users of the accounts to better understand the underlyingperformance of the group, the Board have separately disclosed transactionswhich, whilst falling within the ordinary activities of the group, are, byvirtue of their size or incidence, considered to be exceptional in nature. Non operating exceptional items arise from costs incurred or income receivedoutside the ordinary course of the group's business. Such items include siteclosure costs and profits or losses on the disposal of surplus properties andbusinesses. g Employee benefits The Group operates several occupational pension schemes, of both the definedbenefit and defined contribution type. (a) Defined contribution pension schemes Contributions to the Group's defined contribution schemes are recognised as anemployee benefit expense when they fall due. Prepaid contributions are recognised as an asset to the extent that they resultin either a cash refund or reduction in future payments. Outstanding contributions are recognised as a liability within accruals. (b) Defined benefit pension scheme The liability recognised in the balance sheet for the Group's defined benefitpension scheme is the present value of the defined benefit obligation at thebalance sheet date, less the fair value of the scheme assets. The definedbenefit obligation is calculated by independent actuaries using the projectedunit credit method and by discounting the estimated future cash flows usinginterest rates on high quality corporate bonds that have terms to maturityapproximating the terms of the related pension liability. Any asset resultingfrom this calculation is limited to the present value of available refunds andreductions in future contributions to the scheme. Pension expense for the Group's defined benefit schemes is recognised asfollows: 1. Within operating profit: • Current service cost - representing the increase in the present valueof the defined benefit obligation resulting from employee service in the currentperiod; • Past service cost - representing the increase in the present value ofthe defined benefit obligation resulting from employee service in prior periods,which arises from changes made to the benefits under the scheme in the currentperiod. To the extent that the changes to benefits vest immediately, pastservice costs are recognised immediately, otherwise they are recognised on astraight line basis over the vesting period; and • Interest cost on the liabilities of the scheme - calculated byreference to the scheme liabilities and discount rate at the beginning of theperiod and allowing for changes during the period; and • Expected return on the assets of the scheme - calculated by referenceto the scheme assets and long term expected rate of return at the beginning ofthe period and allowing for changes during the period. • Gains and losses arising on settlements and curtailments - where theitem that gave rise to the settlement or curtailment is recognised withinoperating profit. 2. Within the statement of recognised income and expense • Actuarial gains and losses arising on the assets and liabilities ofthe scheme. The Group has adopted early the amendment to IAS19 and full actuarial gains orlosses are recognised direct to equity. (c) Share-based Payments The Group will, under the new defined bonus plan, issue equity settledshare-based payments to certain employees. In addition a number of share optionshave been issued in the past to certain employees under the old executive shareoption scheme. Equity settled share-based payments are measured at fair value(excluding the effect of non market based vesting conditions) at the date ofgrant. The fair value determined at the grant date of the equity settledshare-based payments is expensed on a straight line basis over the vestingperiod, based on the Group's estimate of the shares that will eventually vest. For share options where there are no market based vesting conditions, fair valueis measured using the Black-Scholes pricing model. h Taxation The income tax expense represents the sum of the tax currently payable anddeferred tax. The tax currently payable is based on taxable profit for the year. Taxableprofit differs from net profit as reported in the income statement because itexcludes items of income or expense that are taxable or deductible in otheryears and it further excludes items that are never taxable or deductible. TheGroup's liability for current tax is calculated using tax rates that have beenenacted or substantively enacted by the balance sheet date. Deferred tax is recognised on differences between the carrying amounts of assetsand liabilities in the financial statements and the corresponding tax bases usedin the computation of taxable profit, and is accounted for using the balancesheet liability method. Deferred tax liabilities are generally recognised forall taxable temporary differences and deferred tax assets are recognised to theextent that it is probable that taxable profits will be available against whichdeductible temporary differences can be utilised. Such assets and liabilitiesare not recognised if the temporary difference arises from goodwill or from theinitial recognition (other than in a business combination) of other assets andliabilities in a transaction that affects neither the tax profit nor theaccounting profit. Deferred tax liabilities are recognised for taxable temporary differencesarising on investments in subsidiaries and associates, except where the Group isable to control the reversal of the temporary difference and it is probable thatthe temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheetdate and reduced to the extent that it is no longer probable that sufficienttaxable profits will be available to allow all or part of the asset to berecovered. Deferred tax is calculated at the tax rates that are expected to apply in theperiod when the liability is settled or the asset is realised. Deferred tax ischarged or credited to the income statement, except when it relates to itemscharged or credited directly to equity, in which case the deferred tax is alsodealt with in equity. Deferred tax assets and liabilities are offset when there is a legallyenforceable right to set off current tax assets against current tax liabilitiesand when they relate to income taxes levied by the same taxation authority andthe Group intends to settle its current tax assets and liabilities on a netbasis. i Other intangible assets (a) Computer software costs Acquired computer software licenses and software development costs, arecapitalised and amortised over their estimated useful lives. (b) Other intangible assets (including those arising on business combinations) Trade names: Trade names are measured as the present value of any royalty payments saved as aresult of ownership of the trade name. Trade names are amortised over theestimated useful life of the asset, typically 10-20 years. Customer relationships: Customer relationships are measured as the present value of cash flowsattributable to the relationship after deduction of appropriate contributoryassets charges. The relationship is amortised over its expected useful life,typically 10-20 years. Order book: Order book is the value of confirmed orders on the date of acquisition afterappropriate costs have been deducted. The order book is amortised over theperiod in which it is expected to unwind. j Property, plant and equipment Freehold land and buildings are carried at cost less accumulated depreciationand impairment losses. As allowed by IFRS1 First-time adoption of InternationalFinancial Reporting Standards, the Group has used the UK GAAP revalued carryingamount of its freehold land and buildings as its deemed cost at 1 November 2004. Other assets are carried at cost less accumulated depreciation and accumulatedimpairment losses. Subsequent costs are capitalised only when it is probable that they will resultin future economic benefits flowing to the Group and when they can be measuredreliably. All other repairs and maintenance expenditure is charged to the incomestatement in the period in which it is incurred. Freehold land is not depreciated as it has an indefinite life. Depreciation on other assets is calculated using the straight-line method towrite off their cost less their residual value over their estimated useful livesas follows: Freehold property 2%Buildings on land leased short-term tenancy agreements 2%Leasehold land and buildings over the expected term of the leasePlant and machinery (excluding leased garments) 5-20%Vehicles 20-25% Assets held under finance leases are depreciated over their expected usefullives on the same basis as owned assets or, where shorter, over the term of therelevant lease. Residual values and estimated useful lives are reviewed, and adjusted ifappropriate, at least at each financial year-end. An asset's carrying amount is written down immediately to its recoverable amountif the asset's carrying amount is greater than its estimated recoverable amount. Gains and losses arising on disposals are determined by comparing net salesproceeds with carrying amount and are recognised in the income statement in theperiod of the disposal. k Investment properties Investment properties are held at fair value. Values are determined inaccordance with the guidance notes on the valuation of assets issued by theRoyal Institute of Chartered Surveyors. A gain or loss arising from a change infair value is recognised in profit or loss. l Impairment of tangible and intangible assets (a) Goodwill For the purpose of impairment testing, goodwill is allocated to thecash-generating units expected to benefit from the combination. Cash-generatingunits to which goodwill has been allocated are tested for impairment annually,or more frequently, when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carryingamount of the unit, the impairment loss is allocated first to reduce thecarrying amount of any goodwill allocated to the unit and then to the otherassets of the unit pro-rata on the basis of the carrying amount of each asset inthe unit. An impairment loss recognised for goodwill is not reversed in a subsequentperiod. (b) Other tangible and intangible assets At each balance sheet date, the Group reviews the carrying amount of itstangible and intangible assets to determine whether there is any indication thatthose assets have suffered an impairment loss. If any such indication exists,the recoverable amount of the asset is estimated in order to determine theextent, if any, of the impairment loss. Where it is not possible to estimate therecoverable amount of an individual asset, the Group estimates the recoverableamount of the cash-generating unit to which the asset belongs. An intangible asset with an indefinite life is tested annually for impairmentand whenever there is an indication that the asset may be impaired an impairmentloss is recognised immediately in the income statement unless the relevant assetis carried at the revalued amount. Reversal of an impairment loss for tangible and intangible assets other thangoodwill is recognised immediately in the income statement to the extent thatthe original impairment loss was recognised in the income statement. m Leases Leases are classified as finance leases whenever the terms of the lease transfersubstantially all the risks and rewards of ownership to the lessee. All otherleases are classified as operating leases. (a) Finance leases Assets held under finance leases are recognised as assets of the Group at theirfair value at the inception of the lease or, if lower, at the present value ofthe minimum lease payments. The corresponding liability to the lessor isincluded in the balance sheet as a finance lease obligation. Lease payments areapportioned between finance charges and reduction of the lease obligation so asto achieve a constant rate of interest on the remaining balance of theliability. Finance charges are charged to the income statement. (b) Operating leases Rentals payable under operating leases are charged to the income statement on astraight-line basis over the term of the relevant lease. Benefits received andreceivable as an incentive to enter into an operating lease are also spread on astraight-line basis over the lease term. (c) Rental garments Garments hired out under rental contracts where the group retains substantiallyall of the risks and rewards of ownership are capitalised and accounted for asoperating leases. The garments are depreciated on a straight-line basis overtheir estimated useful lives (typically two to five years) or the life of thecontract, whichever is the shorter. Revenue from these rental contracts accrueson a straight-line basis over the life of the contract. The expected cost ofrepairing and laundering garments under the contracts is matched against revenueon a similar straight-line basis. n Financial instruments The Group has taken advantage of the exemption available under IFRS1 not toapply IAS32: Disclosure and Presentation and IAS39 Financial Instruments:Recognition and Measurement to comparatives. UK GAAP has continued to be appliedto financial instruments in previous periods. Financial assets and liabilities are recognised on the Group's balance sheetwhen the Group becomes a party to the contractual provisions of the instrument. (a) Trade receivables Trade receivables are initially measured at fair value, do not carry anyinterest, and are reduced by appropriate provisions for estimated irrecoverableamounts. Such provisions are recognised in the income statement. (b) Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, and othershort-term highly liquid investments with original maturities of three months orless that are readily convertible to a known amount of cash and are subject toan insignificant risk of changes in value. (c) Trade payables Trade payables are not interest bearing and are initially measured at their fairvalue. (d) Borrowings Bank overdrafts, short-term fixtures and interest bearing loans are initiallymeasured at fair value, and obligations under finance leases are dealt with inaccordance with the Group's policy on leases (note m). (e) Equity instruments Equity instruments issued are recorded at the proceeds received, net of directissue costs. (f) Financial liabilities and equity Financial liabilities and equity instruments are classified according to thesubstance of the contractual arrangements entered into. o Provisions Provisions are recognised when the Group has a present obligation as a result ofa past event, and it is probable that the Group will be required to settle thatobligation. Provisions are measured at the Directors' best estimate of theexpenditure required to settle the obligation at the balance sheet date, and arediscounted to present value where the effect is material. p Non-current assets held for sale and discontinued operations Non-current assets classified as held for sale and discontinued operations aremeasured at the lower of the carrying amount and fair value less costs to sell. Non-current assets and disposal groups are classified as held for sale if theircarrying amount will be recovered through a sale transaction rather than throughcontinuing use. This condition is regarded as having been met only when the saleis highly probable and the asset (or disposal group) is available for immediatesale in its present condition. The Directors must be committed to the sale whichshould be expected to qualify for recognition as a completed sale within oneyear from the date of classification. Discontinued operations are separate major lines of business that have beendisposed of or classified as held for sale. q Inventories Inventories are stated at the lower of cost including an appropriate proportionof production overheads and net realisable values. r Long-term contracts The amount of profit attributable to the stage of completion of a long-termcontract is recognised when the outcome of the contract can be foreseen withreasonable certainty. Turnover for such contracts is stated at cost appropriateto their stage of completion plus attributable profits, less amounts recognisedin previous years. Provision is made for any losses as soon as they areforeseen. Contract work in progress is stated at costs incurred, less those transferred tothe profit and loss account, after deducting foreseeable losses and payments onaccount not matched with turnover. Amounts recoverable on contracts are included in debtors and represent turnoverrecognised in excess of payments on account. s Government grants Capital grants received for additions to buildings and plant are taken todeferred income and are released to the income statement in instalments relatingto the relevant asset lives. Other grants are recognised in the profit and loss account in the same period asthe related expenditure. t Share capital (i) Share capital Share capital is classified as equity if it is non-redeemable and any dividendsare discretionary, or is redeemable but only at the Company's option. Dividendson share capital are classified as a liability if it is redeemable on a specificdate or at the option of the shareholders or if dividend payments are notdiscretionary. Dividends thereon are recognised in the Consolidated IncomeStatement as a financial expense. (ii) Dividends Dividends on non-equity shares are recognised as a liability and expressed on anaccrual basis. Equity dividends are recognised as a liability in the period inwhich they are paid or approved by shareholders. u Revenue recognition Revenue 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 for the possible return ofgoods, or if there is continuing managerial involvement with goods. This information is provided by RNS The company news service from the London Stock Exchange