H&t Group Plc Regulatory News (HAT)

1 Aug 2007 11:48

H&T Group PLC01 August 2007 H&T Group Plc Change to IFRS Accounting From the year ending 31 December 2007 H&T Group Plc ("the Group") will prepareits consolidated accounts in accordance with International Financial ReportingStandards ("IFRS") as adopted by the European Union in order for the Groupfinancial statements to comply with the AIM rules. The document below has today been published on our website and outlines thedifferences that will arise when the financial statements are prepared underIFRS rather than UK Generally Accepted Accounting Practice ("UK GAAP"). The Group's first IFRS results will be its interim results for 30 June 2007 andthe first Annual Report under IFRS will be for the year ending 31 December 2007. 1 August 2007 For further information please contact:H&T Group plc 0870 9022 600 John Nichols, Chief Executive Laurent Genthialon, Finance DirectorHawkpoint Partners Limited 020 7665 4500 Lawrence Guthrie / Sunil DuggalNumis Securities Limited 020 7260 1000 Oliver Hemsley / Charles FarquharCollege Hill Associates 020 7457 2020 Gareth David / Paddy Blewer Contents Section 1 Introduction Section 2 Basis of preparation and first time adoption Section 3 Principal differences between UK GAAP and IFRSaffecting the Group Section 4 IFRS accounting policies Section 5 Reconciliations Section 1 Introduction From the year ending 31 December 2007 H&T Group Plc ("the Group") will prepareits consolidated accounts in accordance with International Financial ReportingStandards ("IFRS") as adopted by the European Union in order for the Groupfinancial statements to comply with the AIM rules. This document has beenprepared to illustrate the differences that will arise when the financialstatements are prepared under IFRS rather than UK Generally Accepted AccountingPractice ("UK GAAP"). The Group's first IFRS results will be its interim results for 30 June 2007 andthe first Annual Report under IFRS will be for the year ending 31 December 2007. Section 5 contains the reconciliations of the Group's UK GAAP balance sheets toits preliminary IFRS balance sheets as at 1 January 2006 (the "opening balancesheet"), 30 June 2006 and 31 December 2006 together with reconciliations of theGroup's UK GAAP income statements to its preliminary IFRS income statements forthe six months to 30 June 2006 and for the year to 31 December 2006. Thepreliminary IFRS financial statements will form the basis of the comparativeinformation in the first IFRS accounts and have been prepared on the basis ofIFRS expected to be in issue at 31 December 2007 but are still subject tochange. We will update the restated information for any such change. Theaccounting policies applied in preparing the preliminary IFRS financialstatements are set out in Section 4 of this document. The preliminary opening balance sheet and preliminary IFRS financial statementsfor the full year ended 31 December 2006 have been audited by Deloitte & ToucheLLP. The interim preliminary IFRS financial information for 30 June 2006 hasbeen reviewed by Deloitte & Touche LLP. Their reports, which draw attention tothe fact that there is a possibility that the preliminary opening balance sheetand the preliminary financial statements may require adjustment beforeconstituting final IFRS financial statements and that only a complete set offinancial statements can provide a fair presentation of the Group's financialposition, are set out at the end of this report. In summary, the impact of adopting IFRS on the accounts for the year ended 31December 2006 is as follows: Impact on income statement (Loss)/ profit Profit for the before financial taxation Taxation year £'000 £'000 £'000 UK GAAP 669 (903) (234) IFRS adjustments:IAS 12 Deferred tax on business combinations - 48 48IAS 17 Lease incentives 15 (5) 10IAS 38 Intangible assets amortisation (9) - (9)IAS 39 Interest receivable recognition (15) 4 (11)IAS 39 Interest hedging fair value 561 (168) 393IFRS 3 Business combinations: reversal of goodwill 779 - 779amortisation Total IFRS Adjustments 1,331 (121) 1,210 IFRS income statement 2,000 (1,024) 976 Change in accounting policy for stock 37 (11) 26 Preliminary IFRS income statement 2,037 (1,035) 1,002 Net assets £'000Impact on net assets UK GAAP net assets 19,003 IFRS adjustments (net of taxation where applicable): IAS 12 Deferred tax on business combinations (124)IAS 17 Lease incentives (66)IAS 38 Intangible assets amortisation (9)IAS 39 Interest receivable recognition (187)IAS 39 Interest hedging fair value 93IFRS 3 Business combinations: reversal of goodwill 779amortisation Total IFRS adjustments 486 IFRS net assets 19,489 Change in accounting policy for stock 117 Preliminary IFRS net assets 19,606 Section 2 Basis of preparation and first time adoption The IFRS financial statements for the year ended 31 December 2006 and the periodended 30 June 2006 have been prepared in accordance with the accounting policiesset out in Section 4 of this document, subject to the exemptions permitted byIFRS 1 as outlined below, which are the policies which the Group expects toadopt in its first set of financial statements prepared under IFRS for the yearending 31 December 2007. Previously, the Group's consolidated financial statements were prepared inaccordance with UK GAAP. UK GAAP differs in certain respects from IFRS.Therefore, in preparing this IFRS consolidated financial information, certainaccounting, valuation and consolidation methods applied under UK GAAP have beenamended. The Group has adopted IFRS from 1 January 2006 ("the date of transition"). IFRS 1 "First time adoption of IFRS" establishes the transitional requirementsfor the preparation of financial statements in accordance with IFRS for thefirst time. The general principle is to establish accounting policies under IFRS then toapply these retrospectively at the date of transition to determine the openingbalance sheet. IFRS 1 permits a number of first time adoption exemptions. The exemption whichthe Group has elected to take relates to business combinations. The Group haselected not to apply IFRS 3 "Business Combinations" retrospectively to businesscombinations before the transition date. As a result, the carrying value ofgoodwill recorded under UK GAAP has been fixed at 1 January 2006 as deemed costand will no longer be amortised. The goodwill will be tested for impairmentannually and whenever events or changes in circumstances indicate that thecarrying value may not be recoverable as outlined in the accounting policies insection 4. Section 3 Principal differences between UK GAAP and IFRS affectingthe Group The significant changes as a result of the transition to IFRS and of adoptingthe IFRS group accounting policies are described below. In addition to thesechanges there are a number of other assets and liabilities that are classifieddifferently under IFRS. These changes and reclassifications are shown inSection 5. IAS 12 "Income Taxes" General IAS 12 takes a balance sheet approach to deferred tax whereby deferred tax isrecognised in the balance sheet by applying the appropriate tax rate to thetemporary differences arising between the carrying value of the assets andliabilities and their tax base. This contrasts with UK GAAP (FRS 19) whichconsidered timing differences arising in the profit and loss account. Where the IFRS adjustments discussed in this document create a differencebetween the carrying amount of an asset or liability and the related tax base,and there are no initial recognition exemptions available under IAS 12, theGroup has recorded a deferred tax liability or asset as required. Theseadjustments are shown as a component of the related IFRS adjustment in section5. Deferred tax on business combinations IAS 12 requires that deferred tax is provided in full on differences between thecarrying value of assets and liabilities acquired in a business combination andthe related tax base, regardless of whether the business combination isaccounted for under IFRS 3. In the specific case of business combinations, theinitial recognition exemption available under IAS 12 not to recognise deferredtax on transactions which at the time of the transaction do not affectaccounting profit or taxable profit is not available. H&T Group plc acquired Harvey & Thomson Limited, in September 2004 in atransaction which was a business combination. Harvey & Thomson Limited had atthat date certain assets which did not qualify for tax deduction (non qualifyingassets). Under UK GAAP these non qualifying assets do not result in a timingdifference on which deferred tax is provided. Additionally, under IAS 12, in thenormal course of events, the initial recognition exemption referred to above isavailable on these non qualifying assets. Accordingly, the Group has provided for deferred tax on the full difference thebetween carrying amount of these assets acquired by the Group in September 2004and their tax base of £nil. The impact of this change for the Group has been anincrease to profit after taxation of £48,000 in the year to December 2006,£25,000 in the six months to June 2006 and a reduction in net assets of £172,000in the opening balance sheet at 1 January 2006. IAS 17 "Leases" Lease incentives Under UK GAAP the benefit of all incentives granted at the outset of a lease wastaken over the period to the first rent review (when the rent was expected to bereset to market rates), typically 5 years for the Group. IAS 17 requires thebenefit of all incentives granted at the outset of a lease to be spread over theterm of the lease. When compared with the UK GAAP treatment, this has theeffect of increasing the rental charge in the early part of a lease and reducingthe charge in the latter part of the lease. Over the whole lease term the totalcharge remains the same. The impact of this change for the Group has been an increase to operatingprofits of £15,000 in the year to December 2006, £11,000 in the six months toJune 2006 and a reduction in pre-tax net assets of £109,000 in the openingbalance sheet at 1 January 2006. IAS 19 "Employee Benefits" Holiday pay accrual IAS 19 requires an accrual to be made for earned but unpaid holiday pay. TheGroup's holiday year runs from January to December and no holiday carryover ispermitted. Accordingly, the requirement to record a holiday pay accrual has noimpact on the opening balance sheet or the 31 December 2006 balance sheet, butaffects each June half year balance sheet for timing differences between holidaybeing earned and being taken. An accrual of £199,000 has been made at 30 June 2006. The movement in thisaccrual has no impact to the income statement for the year to 31 December 2006but creates a charge of £199,000 to the income statement for the six months to30 June 2006. IAS 38 "Intangible Assets" Capitalised software Under UK GAAP, all capitalised software development costs are included withintangible fixed assets. IAS 38 requires that where such costs are not an integralpart of the associated hardware, they should be classified as intangible assets.Accordingly, certain items of property, plant and equipment have beenreclassified to intangible assets at each reference date where they are items ofsoftware that meet the recognition criteria of IAS 38. There is no net impact on the income statement as a result of thisreclassification, however, there has been a reclassification of the amountsrecorded as depreciation on these assets to amortisation charges. The impact onthe balance sheets are an increase in Intangible Assets and matching decrease inProperty, plant and equipment of £650,000 at 31 December 2006, £554,000 at 30June 2006 and £139,000 in the opening balance sheet at 1 January 2006. Intangible assets amortisation The Group has recognised additional intangible assets under IFRS 3 "BusinessCombinations", as discussed below. IAS 38 requires that amortisation isprovided where an intangible asset has a finite life. The adjustment arisingfrom this is discussed below in IFRS 3 "Business Combinations". IAS 39 "Financial Instruments: Recognition and Measurement" Interest receivable recognition Under UK GAAP, interest receivable on pawnbroking contracts is recognised on anaccruals basis by reference to the contract interest rate and the percentage ofpledge balances that are expected to be redeemed. IAS 39 requires interest to berecognised using the effective interest rate method ("EIR") on this financialinstrument which has been classed as a 'loans and receivables' balance. Thisrequirement is also present in IAS 18 "Revenue" with respect to all interestincome. The EIR is a method of calculating the amortised cost of a financialasset and of allocating the interest income over the life of the loan to producea constant rate on the outstanding balance. When compared with the UK GAAPtreatment, the effect is to reduce the income recognised in the earlier periodsof the pledge agreement and increase the interest income in the latter periods.The total interest received remains unchanged. The impact of this change for the Group has been a reduction to operatingprofits of £15,000 in the year to December 2006, £25,000 in the six months toJune 2006 and a reduction in pre-tax net assets of £252,000 in the openingbalance sheet at 1 January 2006. Interest hedging fair value IAS 39 requires all derivatives, including interest rate hedges, to be initiallyrecognised and subsequently re-measured at fair value. The Group has an interestrate swap agreement in place covering £35,000,000 of the loan balances at 30June 2006 and 31 December 2006 (£31,147,000 at 1 January 2006). The Group hasnot adopted the hedging provisions of IAS 39 and accordingly, changes in fairvalue are taken to the income statement in the period in which they arise. The impact of this change for the Group has been a reduction charge to financecosts of £561,000 in the year to December 2006, £229,000 in the six months toJune 2006 and a reduction in pre-tax net assets of £428,000 in the openingbalance sheet at 1 January 2006. IFRS 3 "Business Combinations" Business combinations: Reversal of goodwill amortisation Under UK GAAP, the Company recognised goodwill as the difference between thefair value of assets and liabilities acquired and the fair value ofconsideration paid on all acquisitions of trade and assets and subsidiarycompanies. Goodwill was amortised over its useful economic life, generally being20 years. IFRS 3 prohibits the amortisation of goodwill. The standard requires goodwillto be carried at cost with impairment reviews both annually and when there areindications that the carrying value may not be recoverable. IFRS 3 "Business Combinations" (continued) Business combinations: Reversal of goodwill amortisation (continued) Accordingly, amortisation charged in the financial year ended 31 December 2006has been reversed, increasing operating profit by £779,000 for the year to 31December 2006 and by £384,000 for the six months to 30 June 2006. Additionally,the accumulated amortisation at the transition date has been eliminated againstthe cost of goodwill. Further adjustments have been made to the goodwill balanceresulting from the application of IFRS 3 to business acquisitions after thetransition date as detailed below. Goodwill which is recognised as an asset is reviewed for impairment at leastannually. Any impairment is recognised immediately in the Group income statementand is not subsequently reversed. In accordance with IFRS 1 and IAS 36, animpairment review on all assets was duly carried out at the transition date andsubsequently in September 2006 and no impairment loss was recognised. Business combinations: Intangible assets As stated in Section 2, the Group has chosen to apply IFRS 3 prospectively fromthe date of transition (1 January 2006) and has chosen not to restate previousbusiness combinations. For qualifying business combinations, goodwill under IFRS 3 represents theexcess of consideration over the fair values of acquired assets (including anyseparately identifiable and measurable intangible assets), liabilities andcontingent liabilities. As noted above, the Group has not applied IFRS 3 tobusiness combinations prior to the transition date of 1 January 2006. In theperiod subsequent to 1 January 2006, the Group made various acquisitions oftrade and assets through one of its subsidiaries, Harvey & Thompson Limited. TheGroup has assessed these business combinations under IFRS 3 and identifiedintangible assets relating to recurring customer relationships which have beenreclassified from goodwill to intangible assets. The impact on the balancesheets are an increase in Intangible Assets and matching decrease in Goodwill of£163,000 at 31 December 2006, £nil at 30 June 2006 and £nil at 1 January 2006. As required under IAS 38, these intangible assets are amortised over theirfinite lives (considered to be between 5 and 8 years) and subject to impairmentreviews annually and before the end of the accounting period in which they wereacquired. The impact of this change for the Group has been a reduction to operatingprofits of £9,000 in the year to December 2006, £nil in the six months to June2006 and £nil in pre-tax net assets in the opening balance sheet at 1 January2006. IFRS 5 "Non-current assets held for sale and discontinued operations" Assets held for disposal Under UK GAAP, non current assets held for sale are reported as fixed assetsuntil their disposal and are carried at depreciated historic cost. Under IFRS, non-current assets and disposal groups are classified as held forsale if their carrying amount will be recovered through a sale transactionrather than through continuing use. This condition is regarded as met only whenthe sale is highly probable and the asset (or disposal group) is available forimmediate sale in its present condition. Management must also be committed tothe sale which should be expected to qualify for recognition as a completed salewithin one year from the date of classification. After classification as held for sale, the non-current assets are measured atthe lower of carrying amount and fair value less costs to sell and they are alsosubject to an impairment review prior to classification as available for saleand subsequently at each reporting date. The Group disposed of various freehold properties during the year ended 31December 2006 and subsequently in February 2007. The Group has applied theprovisions of IFRS 5 to these disposals at each reporting date and reclassifiedthe properties as assets available for sale from the date at which the criterialisted above were met. There is no impact of this change for the Group on the income statement in theyear to December 2006 or the six months to June 2006 and there is no change innet assets in the opening balance sheet at 1 January 2006. Section 4 IFRS accounting policies Basis of preparation The preliminary IFRS balance sheets and income statements shown in Section 5have been prepared on the basis of IFRS expected to be in issue at 31 December2007. The preliminary IFRS financial statements will form the basis of thecomparative information in the first IFRS accounts and have been prepared on thebasis of IFRS expected to be in issue at 31 December 2007 but are still subjectto change. We will update the restated information for any such change in the31 December 2007 financial statements. The financial information set out in section 5 does not constitute the company'sstatutory accounts for the year ended 31 December 2006, or for the six monthsended 30 June 2006, or as at 1 January 2006. Statutory accounts for the yearsended 31 December 2005 and 31 December 2006 have been delivered to the Registrarof Companies prepared under the basis of UK Generally Accepted AccountingPractice. The auditors have reported on the 31 December 2005 and 31 December2006 accounts, under the afore mentioned UK GAAP basis of preparation; theirreports were unqualified and did not contain statements under s. 237(2) or (3)of the Companies Act 1985. Whilst the financial information included in section 5 has been prepared inaccordance with IFRS's as adopted for use by the European Union, it does notconstitute full IFRS compliant financial statements. In particular, theinformation contained in section 5 indicates the quantitative adjustments thatare expected to arise as a result of the transition to IFRS, but does notinclude all the primary statements that would be required under IFRS, nor doesit include the disclosures that are required for IFRS compliant financialstatements. The Group will comply with all these requirements (when it is required to doso), when it prepares its first annual IFRS statements covering the year ending31 December 2007. The preliminary IFRS financial statements have been prepared on an historicalcost basis, except for the measurement of balances at fair value as disclosed inthe accounting policies below. First time adoption The Group has adopted IFRS from 1 January 2006 ('the date of transition'). Inaccordance with IFRS 1 the Group is entitled to a number of voluntary andmandatory exemptions from full restatement , which have been adopted as follows: Business combinations The basis of accounting for pre-transition combinations under UK GAAP has notbeen revisited. Change in accounting policy During the current financial year, being the year ending 31 December 2007, theGroup has elected to change its accounting policy for the treatment of overheadsdirectly related to bringing inventory to its present location and condition. Under UK GAAP, the Group expensed these overheads in Administrative Expenses onthe basis that the amount that would be absorbed to the closing stock balancewas not material. Upon transition to IFRS the Group has revisited the accountingtreatment of these overheads and, whilst not material, has decided to includethese overheads as part of the cost of inventories in accordance with both IFRSand UK GAAP. This change in accounting policy has been accounted forretrospectively and the financial statements at 1 January 2006, 30 June 2006 and31 December 2006 have been restated. The impact on this change has been an increase in profit after taxation of£26,000 in the year to 31 December 2006, £24,000 in the six months to 30 June2006 and an increase in net assets of £91,000 in the opening balance sheet as at1 January 2006. Basis of consolidation The consolidated financial statements incorporate the financial statements ofthe Company and entities controlled by the Company (its subsidiaries) made up to31 December each year. Control is achieved where the Company has the power togovern the financial and operating policies of an investee entity so as toobtain benefits from its activities. Subsidiary undertakings have been includedin the Group financial statements using the acquisition method of accounting.Accordingly the Group income statement includes the results of subsidiariesacquired or disposed of during the year from the effective date of acquisitionor up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements ofsubsidiaries to bring the accounting policies used into line with those used bythe group. All intra-group transactions, balances, income and expenses are eliminated onconsolidation. Business combinations The acquisition of subsidiaries, or trade and assets, is accounted for using thepurchase method. The cost of the acquisition is measured at the aggregate of thefair values, at the date of exchange, of assets given, liabilities incurred orassumed, and equity instruments issued, or to be issued, by the Group inexchange for control of the acquiree, plus any costs directly attributable tothe business combination. The acquiree's identifiable assets, liabilities andcontingent liabilities that meet the conditions for recognition under IFRS 3 arerecognised at their fair value at the acquisition date, except for non-currentassets (or disposal groups) that are classified as held for sale in accordancewith IFRS 5 "Non Current Assets Held for Sale and Discontinued Operations",which are recognised and measured at fair value less costs to sell. Goodwill arising on acquisition is recognised as an asset and initially measuredat cost, being the excess of the cost of the business combination over theGroup's interest in the net fair value of the identifiable assets, liabilitiesand contingent liabilities recognised. If, after reassessment, the Group'sinterest in the net fair value of the acquiree's identifiable assets,liabilities and contingent liabilities exceeds the cost of the businesscombination, the excess is recognised immediately in profit or loss. The Group has taken the exemption conferred in IFRS 1, "First-time Adoption ofInternational Financial Reporting Standards", not to restate businesscombinations prior to the transition date of 1 January 2006 under IFRS 3. Property, plant and equipment Property, plant and equipment is stated at cost or deemed cost less accumulateddepreciation and any impairment in value. Depreciation Depreciation is provided on all property, plant and equipment, other thanfreehold land, at rates calculated to write off the cost, less estimatedresidual value based on prices prevailing at the date of acquisition, of eachasset evenly over its expected useful life, as follows: Freehold land and buildings: - Freehold buildings 50 years - Freehold improvements 10 yearsShort leasehold premises - Leasehold improvements Shorter of 7 years or life of leaseMotor vehicles 4 yearsComputer systems: - Computer hardware 5 yearsFixtures and fittings 10 years The carrying values of property, plant and equipment are reviewed for impairmentif events or changes in circumstances indicate the carrying value may not berecoverable. The asset's residual values, useful lives and methods are reviewed, and adjustedif appropriate, at each financial year end. Goodwill Goodwill represents the excess of the cost of acquisition over the Group'sinterest in the fair value of the identifiable assets and liabilities of asubsidiary, or acquired sole trade business at the date of acquisition. Goodwillis initially recognised as an asset at cost and is subsequently measured at costless any accumulated impairment losses. Goodwill which is recognised as an assetis reviewed for impairment at least annually. Any impairment is recognisedimmediately in the Group income statement and is not subsequently reversed. For the purpose of impairment testing, goodwill is allocated to each of theGroup's cash-generating units expected to benefit from the synergies of thecombination. Cash-generating units to which goodwill has been allocated aretested for impairment annually, or more frequently when there is an indicationthat the unit may be impaired. If the recoverable amount of the cash-generatingunit is less than the carrying amount of the unit, the impairment loss isallocated first to reduce the carrying amount of any goodwill allocated to theunit and then to the other assets of the unit pro-rata on the basis of thecarrying amount of each asset in the unit. An impairment loss recognised forgoodwill is not reversed in a subsequent period. The Group considers each of itsstores to be a cash generating unit with the exception of the goodwill arisingon the acquisition of Harvey & Thompson Limited by the Group in September 2004,where the subsidiary undertaking as a whole is the cash generating unit. On disposal of a subsidiary the attributable amount of goodwill is included inthe determination of the profit or loss on disposal. Goodwill (continued) Goodwill arising on acquisitions before the date of transition to IFRS has beenretained at the previous UK GAAP amounts subject to being tested for impairmentat that date and subsequently as required by the provisions of IAS 36 "impairment of assets". Intangible assets Intangible assets with a finite useful life are carried at cost lessamortisation less impairment losses. Intangible assets represent intangibleswhich have been separately identified under IFRS 3 arising in businesscombinations, or meet the recognition criteria of IAS 38, "Intangible Assets". Amortisation of intangible assets acquired in a business combination iscalculated using the expected life of the customer relationships acquired. Amortisation of other intangible assets (computer software) is calculated usingthe straight-line method to allocate the cost of the asset less its assessedrealisable value over its estimated useful life (5 to 7 years). Non-current assets held for sale Non-current assets (and disposal groups) classified as held for sale aremeasured at the lower of 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 met only when the sale is highlyprobable and the asset (or disposal group) is available for immediate sale inits present condition. Management must be committed to the sale which should beexpected to qualify for recognition as a completed sale within one year from thedate of classification. Financial instruments Financial assets and financial liabilities are recognised on the Group's balancesheet at fair value when the Group becomes a party to the contractual provisionsof the instrument. Trade receivables Trade receivables represent amounts due from customers in the normal course ofbusiness. Trade receivables include certain amounts, namely pledge receivablesand Kwikloan debtors which are interest bearing. The accrued interest arising onthese interest bearing assets is included in prepayments and accrued incomeusing the effective interest method. All other amounts which are not interestbearing are stated at their nominal value as reduced by appropriate allowancesfor estimated irrecoverable amounts, which are charged to the income statement. Cash and cash equivalents Cash and cash equivalents include cash at hand and deposits held at call withbanks with original maturities of three months or less. Financial liabilities and equity instruments Financial liabilities and equity instruments are classified according to thesubstance of the contractual arrangements entered into. An equity instrument isany contract that evidences a residual interest in the assets of the Group afterdeducting all of its liabilities. Bank Borrowings Interest-bearing bank loans and overdrafts are recorded at the proceedsreceived, net of direct issue costs. Finance charges, including premiums payableon settlement or redemption and direct issue costs, are accounted for on anaccruals basis in the income statement using the effective interest rate methodand are added to the carrying amount of the instrument to the extent that theyare not settled in the period in which they arise. Where issue costs are incurred in a restructuring of loan finance, these costsare written off in the period in which they are incurred. Trade payables Trade payables are initially measured at fair value, and are subsequentlymeasured at amortised cost, using the effective interest rate method. Financial instruments (continued) Equity instruments Equity instruments issued by the Company are recorded at the proceeds received,net of direct issue costs. Derivative financial instruments The Group's activities expose it primarily to the financial risks of changes ininterest rates. The Group uses interest rate swap contracts to hedge theseexposures. The Group does not use derivative financial instruments forspeculative purposes. The Group has elected not to adopt the hedge accounting provisions of IAS 39,and accordingly derivative financial instruments are initially measured at fairvalue on the date that the contract is entered into and subsequently remeasuredto fair value at each reporting date. The gains and losses on remeasurement aretaken to the income statement and reported as finance income or costrespectively. Derivatives embedded in other financial instruments or other host contracts aretreated as separate derivatives when their risks and characteristics are notclosely related to those of host contracts and the host contracts are notcarried at fair value, with gains or losses reported in the income statement. Dividends Dividends are provided for in the period in which they become a bindingliability on the Group. 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 will be required to settle the obligation.Provisions are measured at the directors' best estimate of the expenditurerequired to settle the obligation at the balance sheet date, and are discountedto present value where the effect is material. Impairment of tangible and intangible assets excluding goodwill At each balance sheet date, the Group reviews the carrying amounts 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 of the impairment loss (if any). Where the asset does not generate cashflows that are independent from other assets, the Group estimates therecoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount is the higher of fair value less costs to sell and value inuse. In assessing value in use, the estimated future cash flows are discountedto their present value using a pre-tax discount rate that reflects currentmarket assessments of the time value of money and the risks specific to theasset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated tobe less than its carrying amount, the carrying amount of the asset(cash-generating unit) is reduced to its recoverable amount. An impairment lossis recognised in the income statement as an expense immediately, unless therelevant asset is carried at a revalued amount, in which case the impairmentloss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset(cash-generating unit) is increased to the revised estimate of its recoverableamount, but so that the increased carrying amount does not exceed the carryingamount that would have been determined had no impairment loss been recognisedfor the asset (cash-generating unit) in prior years. A reversal of an impairmentloss is recognised as income immediately, unless the relevant asset is carriedat a revalued amount, in which case the reversal of the impairment loss istreated as a revaluation increase. Inventories Inventories are stated at the lower of cost and net realisable value. For stockacquired for retail sale the cost represents the purchase price plus overheadsdirectly related to bringing inventory to its present location and condition andis measured on a first in first out basis. For stock arising from unredeemedpledges the cost represents the amount originally loaned, plus overheadsdirectly related to bringing inventory to its present location and condition.Net realisable value represents the estimated selling price less all estimatedcosts of completion and costs to be incurred in marketing, selling anddistribution. Where necessary provision is made for obsolete, slow moving and damaged stocks. Employee share incentive plans The Group issues equity-settled share-based payments to certain employees(including directors). These payments are measured at fair value at the date ofgrant by use of a Binomial model. This fair value cost of equity-settled awardsis recognised on a straight-line basis over the vesting period, based on theGroup's estimate of shares that will eventually vest and adjusted for the effectof any non market-based vesting conditions. The expected life used in the modelhas been adjusted, based on management's best estimate, for the effects ofnon-transferability, exercise restrictions, and behavioural considerations. Acorresponding credit is recorded in equity in the share option account. No cost is recognised for awards that do not ultimately vest. Leases Leases taken by the Group are assessed individually as to whether they arefinance leases or operating leases. Leases are classified as finance leaseswhenever the terms of the lease transfer substantially all the risks and rewardsof ownership to the lessee. All other leases are classified as operating leases. Leases where the lessor retains substantially all the risks and benefits ofownership of the asset are classified as operating leases. Operating leaserental payments are recognised as an expense in the income statement on astraight-line basis over the lease term. The benefit of lease incentives isspread over the term of the lease. The Group currently has no material finance leases. Taxation The tax expense represents the sum of the tax currently payable and deferredtax. 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 the tax expected to be payable or recoverable on differencesbetween the carrying amounts of assets and liabilities in the financialstatements and the corresponding tax bases used in the computation of taxableprofit, and is accounted for using the balance sheet liability method. Deferredtax liabilities are generally recognised for all taxable temporary differencesand deferred tax assets are recognised to the extent that it is probable thattaxable profits will be available against which deductible temporary differencescan be utilised. Such assets and liabilities are not recognised if the temporarydifference arises from the initial recognition of goodwill or from the initialrecognition (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, and interests in jointventures, except where the Group is able to control the reversal of thetemporary difference and it is probable that the temporary difference will notreverse 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 in 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. Share capital and share premium There is one class of shares. When new shares are issued, they are recorded inshare capital at their par value. The excess of the issue price over the parvalue is recorded in the share premium reserve. Incremental external costs directly attributable to the issue of new shares(other than in connection with a business combination) are recorded in equity asa deduction, net of tax, to the share premium reserve. Revenue recognition Revenue is measured at the fair value of the consideration received orreceivable and represents amounts receivable for goods and services and interestincome provided in the normal course of business, net of discounts, VAT andother sales-related taxes. Revenue is recognised to the extent that it is probable that the economicbenefits will flow to the Group and the revenue can be reliably measured. Thefollowing specific recognition criteria must also be met before revenue isrecognised: • Retail comprises revenue from retail jewellery sales, of bothpurchased stock and from the sale of pledged security from unredeemed pawn loansand is recognised at the time of sale; • Pawn Service Charge (PSC) comprises interest on pledge book loans, plus auction profit and loss, less any auction commissions payable and less surplus payable to the customer. Interest receivable on loans is recognised as interest accrues by reference to the principal outstanding and the effective interest rate applicable, which is the rate that discounts the estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount; • Scrap comprises proceeds from gold scrap sales and is recognised atthe time of sale; • Cheque cashing comprises revenues from third party Cheque Cashing and Pay Day Advances. The commission receivable on cheque cashing is recognised at the time of the transaction; • Other financial services comprises revenues from other unsecured lending. Interest receivable on unsecured loans is recognised as interest accrues by reference to the principal outstanding and the effective interest rate applicable, which is the rate that discounts the estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount; and • Any other revenues are recognised on an accruals basis. Retirement benefit costs The Group operates a defined contribution pension scheme which is contractedinto the State Scheme. The amount charged to the income statement in respect ofpension costs and other post-retirement benefits is the contributions payable inthe year. Differences between contributions payable in the year and contributions actuallypaid are shown as either accruals or prepayments in the balance sheet. Operating profit Operating profit is stated after charging restructuring costs but beforeinvestment income and finance costs. Interim financial statements As permitted, the Group has not adopted IAS 34 "Interim Financial Reporting".Therefore the disclosures presented would not comply in full with therequirements of that standard. Section 5 Reconciliations Paste the following link into your web browser to download the PDF Section 5 relating this announcement: http://www.rns-pdf.londonstockexchange.com/rns/3026b_-2007-8-1.pdf Reconciliation of UK GAAP to preliminary IFRS consolidated balance sheet at 1January 2006 (date of transition) Reconciliation of UK GAAP to preliminary IFRS consolidated balance sheet at 30 June 2006 Reconciliation of UK GAAP to preliminary IFRS consolidated balance sheet at 31 December 2006 Reconciliation of UK GAAP to preliminary IFRS income statement for the 6 monthsended 30 June 2006 Reconciliation of UK GAAP to preliminary IFRS income statement for the yearended 31 December 2006 INDEPENDENT AUDITORS' REPORT TO THE BOARD OF DIRECTORS OF H&T GROUP PLC ON THEPRELIMINARY OPENING IFRS BALANCE SHEET We have audited the preliminary opening IFRS balance sheet of H&T Group plc asat 1 January 2006 and the related accounting policy note. This report is made solely to the Board of Directors, in accordance with ourengagement letter engagement dated 12 July 2007 and solely for the purpose ofassisting with the transition to IFRS. Our audit work will be undertaken sothat we might state to the Company's board of directors those matters we arerequired to state to them in an auditors' report and for no other purpose. Tothe fullest extent permitted by law, we will not accept or assume responsibilityto anyone other than the Company for our audit work, for our report, or for theopinions we have formed. Respective responsibilities of directors and auditors The Company's directors are responsible for ensuring that the Company and theGroup maintains proper accounting records and for the preparation of thepreliminary opening IFRS balance sheet on the basis set out in the accountingpolicies, which describes how IFRS will be applied under IFRS 1, including theassumptions the directors have made about the standards and interpretationsexpected to be effective, and the policies expected to be adopted, when thecompany prepares its first complete set of IFRS financial statements as atDecember 31, 2007. Our responsibility is to audit the preliminary comparativefinancial information in accordance with relevant United Kingdom legal andregulatory requirements and International Standards on Auditing and report toyou our opinion as to whether the preliminary opening IFRS balance sheet isprepared, in all material respects, on the basis set out in the accountingpolicies note. We read the other information presented with the preliminary opening IFRSbalance sheet as described in the contents section and consider the implicationsfor our report if we become aware of any apparent misstatements or materialinconsistencies with the preliminary opening IFRS balance sheet.(RTG1) Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing(UK and Ireland) issued by the Auditing Practices Board. An audit includesexamination, on a test basis, of evidence relevant to the amounts anddisclosures in the preliminary opening IFRS balance sheet. It also includes anassessment of the significant estimates and judgements made by the directors inthe preparation of the preliminary opening IFRS balance sheet and of whether theaccounting policies are appropriate to the circumstances of the Group,consistently applied and adequately 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 opening IFRS balancesheet is free from material misstatement, whether caused by fraud or otherirregularity or error. In forming our opinion, we also evaluated the overalladequacy of the presentation of information in the preliminary opening IFRSbalance sheet. Without qualifying our opinion, we draw attention to the fact that theaccounting policy note explains why there is a possibility that the accompanyingpreliminary opening IFRS balance sheet may require adjustment beforeconstituting the final opening IFRS balance sheet. Moreover, we draw attentionto the fact that, under IFRSs, only a complete set of financial statementscomprising a balance sheet, income statement, statement of changes in equity,cash flow statement, together with comparative financial information andexplanatory notes, can provide a fair presentation of the company's financialposition, results of operations and cash flows in accordance with IFRSs. Opinion In our opinion the preliminary opening IFRS balance sheet is prepared, in allmaterial respects, on the basis set out in the accounting policies note whichdescribes how IFRS will be applied under IFRS 1, including the assumptions thedirectors have made about the standards and interpretations expected to beeffective, and the policies expected to be adopted, when the company preparesits first complete set of IFRS financial statements as at December 31, 2007. Deloitte & Touche LLP Chartered Accountants Crawley, United Kingdom 31 July 2007 INDEPENDENT AUDITORS' REPORT TO THE BOARD OF DIRECTORS OF H&T GROUP PLC ON THEPRELIMINARY COMPARATIVE IFRS FINANCIAL INFORMATION We have audited the accompanying preliminary comparative IFRS financialinformation of H&T Group plc for the year ended 31 December 2006 which comprisesthe opening consolidated IFRS balance sheet as at 1 January 2006, theconsolidated IFRS balance sheet as 31 December 2006 and the consolidated IFRSincome statement for the year ended 31 December 2006, together with the relatedaccounting policy note. This report is made solely to the Board of Directors, in accordance with ourengagement letter dated 12 July 2007 and solely for the purpose of assistingwith the transition to IFRS. Our audit work has been undertaken so that wemight state to the Company's board of directors those matters we are required tostate to them in an auditors' report and for no other purpose. To the fullestextent permitted by law, we will not accept or assume responsibility to anyoneother than the Company for our audit work, for our report, or for the opinionswe have formed. Respective responsibilities of directors and auditors The Company's directors are responsible for ensuring that the Company and theGroup maintains proper accounting records and for the preparation of thepreliminary comparative IFRS financial information on the basis set out in theaccounting policies, which describes how IFRS will be applied under IFRS 1,including the assumptions the directors have made about the standards andinterpretations expected to be effective, and the policies expected to beadopted, when the Group prepares its first complete set of IFRS financialstatements as at December 31, 2007. Our responsibility is to audit thepreliminary comparative financial information in accordance with relevant UnitedKingdom legal and regulatory requirements and International Standards onAuditing (UK and Ireland) and report to you our opinion as to whether thepreliminary comparative IFRS financial information is prepared, in all materialrespects, on the basis set out in the accounting policies. We read the other information contained in the preliminary comparative IFRSfinancial information for the above year as described in the contents sectionand consider the implications for our report if we become aware of any apparentmisstatements or material inconsistencies with the preliminary comparative IFRSfinancial information. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing(UK and Ireland) issued by the Auditing Practices Board. An audit includesexamination, on a test basis, of evidence relevant to the amounts anddisclosures in the preliminary comparative IFRS financial information. It alsoincludes an assessment of the significant estimates and judgements made by thedirectors in the preparation of the preliminary comparative IFRS financialinformation and of whether the accounting policies are appropriate to thecircumstances of the Group, consistently applied and adequately 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 preliminarycomparative IFRS financial information is free from material misstatement,whether caused by fraud or other irregularity or error. In forming our opinion,we also evaluated the overall adequacy of the presentation of information in thepreliminary comparative IFRS financial information. Without qualifying our opinion, we draw attention to the fact that the basis ofpreparation in the accounting policies section explains why there is apossibility that the accompanying preliminary comparative IFRS comparativefinancial information may require adjustment before constituting the finalcomparative IFRS financial information. Moreover, we draw attention to the factthat, under IFRSs, only a complete set of financial statements comprising abalance sheet, income statement, statement of changes in equity, cash flowstatement, together with comparative financial information and explanatorynotes, can provide a fair presentation of the Company's and Group's financialposition, results of operations and cash flows in accordance with IFRSs. Opinion In our opinion the preliminary comparative IFRS financial information isprepared, in all material respects, on the basis set out in the basis ofpreparation in the accounting polices section which describes how IFRS will beapplied under IFRS 1, including the assumptions the directors have made aboutthe standards and interpretations expected to be effective, and the policiesexpected to be adopted, when the Company prepares its first complete set of IFRSfinancial statements as at 31 December 2007. Deloitte & Touche LLP Chartered Accountants Crawley, United Kingdom 31 July 2007 INDEPENDENT REVIEW REPORT TO THE BOARD OF DIRECTORS OF H&T GROUP PLC ON THEPRELIMINARY COMPARATIVE FINANCIAL INFORMATION FOR THE SIX MONTHS ENDED 30 JUNE2006 We have reviewed the accompanying preliminary International Financial ReportingStandards (IFRS) consolidated financial information of H&T Group plc ("theCompany") and its subsidiaries (together, "the Group") for the six months ended30 June 2006 which comprises the consolidated IFRS income statement, theconsolidated IFRS balance sheet and the accompanying accounting policies(hereinafter referred to as "preliminary financial information"). This preliminary financial information is the responsibility of the Company'sdirectors. It has been prepared as part of the Company's conversion to IFRS inaccordance with the basis set out in the accounting policies section whichdescribes how IFRSs have been applied under IFRS 1, including the assumptionsthe directors have made about the standards and interpretations expected to beeffective, and the policies expected to be adopted, when the Company preparesits first complete set of IFRS financial statements as at 31 December 2007. Ourresponsibility is to express an opinion on this preliminary IFRS comparativefinancial information based on our review. Our review report is made solely to the Company in accordance with Bulletin 1999/4 issued by the Auditing Practices Board. Our work has been undertaken so thatwe might state to the Company those matters we are required to state to them inan independent review report and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone other thanthe Company, for our review work, for this report, or for the conclusions wehave formed. Review work performed We conducted our review in accordance with Bulletin 1999/4 issued by theAuditing Practices Board. A review consists principally of making enquiries ofmanagement and applying analytical procedures to the preliminary financialinformation and underlying financial data and, assessing whether the accountingpolicies and presentation have been consistently applied unless otherwisedisclosed. A review excludes audit procedures such as tests of control andverification of assets, liabilities and transactions. It is substantially lessin scope than an audit performed in accordance with International Standards onAuditing (UK and Ireland) and therefore provides a lower level of assurance thanan audit. Accordingly, we do not express an opinion on the preliminary financialinformation. Emphasis of matter Without modifying our review conclusion, we draw attention to the fact that theaccounting policies explain why there is a possibility that the accompanyingpreliminary financial information may require adjustment before constituting thefinal IFRS comparative information for the six months ended 30 June 2006.Moreover, we draw attention to the fact that, under IFRSs, only a complete setof financial statements comprising an income statement, balance sheet, statementof changes in equity, cash flow statement, together with comparative financialinformation and explanatory notes, can provide a fair presentation of theGroup's financial position, results of operations and cash flows in accordancewith IFRSs. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the preliminary financial information for the six months ended30 June 2006 which has been prepared in accordance with the basis set out in theaccounting policies. Deloitte & Touche LLP Chartered Accountants Crawley, United Kingdom 31 July 2007 -------------------------- (RTG1)In ( ) as depends if there is such other information. This information is provided by RNS The company news service from the London Stock Exchange