Jersey Electricity Regulatory News (JEL)

18 May 2006 07:01

Jersey Electricity Company Limited18 May 2006 The Jersey Electricity Company Preliminary Announcement of Interim Results for the six months ended 31 March 2006 At a meeting of the Board of Directors held on 17 May 2006, the Board approvedthe Interim Accounts for the Group for the six months ended 31 March 2006 anddeclared an interim dividend of 55p gross (44p net of tax) compared to 50p gross(40p net) in 2005 on the Ordinary and 'A' Ordinary shares. The dividend will bepaid on 25 August 2006 to those shareholders registered in the books of theCompany on 11 August 2006. The Interim Accounts are attached and will be sent to all shareholders in duecourse, following which, copies will be made available to the public at theCompany's registered office, Queens Road, St Helier, Jersey, JE4 8NY. The Interim Accounts for 2006 have not been audited nor have the results for theequivalent period in 2005. The results for the year ended 30 September 2005 havebeen extracted from the statutory accounts for that period which had anunqualified audit opinion. P.J. RoutierCompany Secretary Direct telephone number : 01534 505253Direct fax number : 01534 505515Email : proutier@jec.co.uk 18 May 2006 The Powerhouse,PO Box 45,Queens Road,St Helier,Jersey JE4 8NY Jersey Electricity Company Limited Unaudited interim results for the six months to 31 March 2006 Financial Summary 6 months 6 months 2006 2005 % riseElectricity Sales -kWh (000) 355,949 338,465 5%Turnover £35.8m £30.6m 17%Profit before tax £5.1m £6.0m (15)%Profit in Energy business £3.9m £5.2m (25)%Earnings per share £2.55 £3.05 (16)%Net dividend proposed per ordinary share 44p 40p 10% Jersey Electricity is required to adopt International Financial ReportingStandards (IFRS) from 2006 and these interim results are the first to bereported in accordance with them. The adoption of IFRS represents a change inaccounting policy only and does not change the Group's underlying cash flows orbusiness strategy. Group profit before tax in the first half of 2006 was 15%lower than in the same period of the previous year, despite a 17% increase inturnover. This was principally due to a 25% fall in profits in our coreelectricity supply business, arising from our decision to absorb during 2006 and2007 a substantial share of the 55% increase in costs of electricity in theEuropean wholesale power market, from which we import virtually all of ourneeds. When announcing our decision last October to increase our tariffs by only9.7% in 2006, we forecast a significant fall in profits for the year and ourexpectations remain unchanged, despite exceptionally strong growth inelectricity sales in the first half of the year. Our earnings per share fell 16%to £2.55 in line with the profits decrease. Our aim remains to restore by the end of 2007, the profitability upon whichplanned investment in the continuing reliability of our electricity networkdepends. However, our hopes to achieve this without increasing our tariffs bymore than 10% next year have been undermined by significant further increases inthe cost of European wholesale power for delivery in 2007. Power importation remained at the same level as seen in recent years at 96% ofour requirements during the half-year. Our indigenous power generating plantprovided the balance of the electricity which we supplied and in addition to itsprincipal role as emergency standby capacity, it enabled us to make modest gainsfrom selling back power to our French supplier during their peak periods. Our Electrical Retailing business had a very strong first six months withyear-on-year turnover rising 53% and profits moving up from £0.1m in 2005 to£0.3m in 2006. This was aided by the opening of a new outlet in St. Helier inNovember 2005. Profits from our Property portfolio fell from £0.6m to £0.4m dueto the sale of an investment property which had an annual rental income of£0.6m. The Building Services business produced a £0.1m profit in the six monthperiod being at a similar level to last year. Losses at our data centre jointventure, Foreshore Limited, remained at £0.2m. Cash at bank, including short-term investments, rose £2.3m to £13.1m during thelast six months, with operating cash produced from trading activity offset by£2.6m of capital investment expenditure and the £1.0m final 2005 dividend. In addition, in October 2005, proceeds of £6.8m were received from the sale of aproperty in St Helier which the Jersey Electricity Company Limited occupiedprior to relocation of its retail outlet some years ago. This was paid toordinary shareholders by way of a special dividend of £4.44 per share, net oftax, in March 2006. Your Board proposes to pay an interim net dividend of 44p (2005: 40p) on theOrdinary and "A" Ordinary Shares payable on 25 August 2006. D.R. MALTWOOD - Chairman M.J.LISTON - Chief Executive 18 May 2006 INVESTOR TIMETABLE FOR 2006 18 May Announcement of interim results30 June Payment date for preference share dividends11 August Record date for interim ordinary dividend25 August Interim ordinary dividend for year ending 30 September 200615 December Preliminary announcement of full year results Group Income Statement (Unaudited) Six months ended Year ended 31 March 30 September 2006 2005 2005 Note £000 £000 £000 Revenue 2 35,759 30,589 56,096 Cost of sales (22,812) (16,606) (32,025) Gross profit 12,947 13,983 24,071 Revaluation of investment properties - - 2,370Operating expenses (8,095) (7,899) (15,897) GROUP OPERATING PROFIT BEFORE JOINTVENTURE 4,852 6,084 10,544Share of loss of joint venture (169) (173) (355) GROUP OPERATING PROFIT 2 4,683 5,911 10,189 Interest receivable 452 122 354Finance costs (4) (4) (9) PROFIT FROM OPERATIONS BEFORE TAXATION 5,131 6,029 10,534 Income tax 3 (1,219) (1,351) (1,911) PROFIT FROM OPERATIONS AFTER TAXATION 3,912 4,678 8,623 Minority interest (5) (4) (33) PROFIT FOR THE PERIOD ATTRIBUTABLE TO THEEQUITY HOLDERS OF THE PARENT COMPANY 3,907 4,674 8,590 £ £ £EARNINGS PER SHARE - basic and diluted 2.55 3.05 5.61 DIVIDENDS PER SHARE - paid final/interim 4 0.62 0.56 0.96 - paid special 4 4.44 - - - proposed 4 0.44 0.40 0.62 Group Balance Sheet (Unaudited) As at 31 March As at 30 September 2006 2005 2005 Note £000 £000 £000Non-current assetsIntangible assets 92 165 130Property, plant and equipment 108,521 110,516 109,791Investment property 9,753 13,986 9,753Other investments 935 690 754 Total non-current assets 119,301 125,357 120,428 Current assetsInventories 3,505 2,749 3,927Trade and other receivables 11,747 10,289 14,578Derivative financial instruments 18 - -Short-term investments - cash deposits 1,500 - - Cash and cash equivalents 11,641 7,342 12,240 Total current assets 28,411 20,380 30,745 TOTAL ASSETS 147,712 145,737 151,173 LiabilitiesTrade and other payables 7,792 7,071 8,696Derivative financial instruments - - 528Current tax payable 1,195 792 1,195 Total current liabilities 8,987 7,863 10,419 Non-current liabilitiesProvisions 13,680 12,248 12,241Tax liabilities 1,219 1,208 1,154Financial liabilities - preference shares 235 235 235Retirement benefit obligations 299 3,331 725Deferred tax liabilities 10,705 9,625 10,506 Total non-current liabilities 26,138 26,647 24,861 TOTAL LIABILITIES 35,125 34,510 35,280 NET ASSETS 112,587 111,227 115,893 EquityShare capital 1,532 1,532 1,532Other reserves 18 - (528)Retained earnings 111,003 109,659 114,848Shareholders' funds 112,553 111,191 115,852 Equity minority interest 34 36 41 TOTAL EQUITY 5 112,587 111,227 115,893 Group Cash Flow Statement (Unaudited) Six months ended Year ended 31 March 30 September Note 2006 2005 2005 £000 £000 £000 Cash flows from operating activities Operating profit 4,852 6,084 10,544 Depreciation and amortisation charges 3,505 3,798 7,313Revaluation of investment property - - (2,370)Pension operating charge less contributions paid (324) (390) (779) Loss on sale of fixed assets - - 258 Operating cash flows before movement in working capital 8,033 9,492 14,966 Decrease/(increase) in inventories 423 (171) (1,343)Decrease/(increase) in trade and other receivables (3,618) (308) 2,195Increase/(decrease) in trade and other payables 1,973 (1,001) 246 Interest received 423 122 319 Preference dividends paid (4) (4) (9) Income taxes paid - - (779) Net cash flows from operating activities 7,230 8,130 15,595 Cash flows from investing activitiesPurchase of property, plant and equipment (2,277) (2,357) (5,395)Investment in intangible assets - (13) (13)Proceeds from disposal of investment property 6,802 - -Investment in joint venture (350) (438) (700)Short-term investments (1,500) - - Net cash flows from/(used in) investing activities 2,675 (2,808) (6,108) Cash flows from financing activitiesEquity dividends paid 4 (7,764) (870) (1,507)Repayment of overdraft (1,370) - - Net cash flows (used in)/from financing activities (9,134) (870) (1,507) Net increase in cash and cash equivalents 771 4,452 7,980Cash and cash equivalents at beginning of period 10,870 2,890 2,890 Cash and cash equivalents at end of period 11,641 7,342 10,870 Cash and cash equivalents Six months ended Year ended 31 March 30 September 2006 2005 2005 £000 £000 £000 Cash in hand and balances with banks 11,641 7,342 12,240Bank overdraft - - (1,370) Cash and cash equivalents at end of period 11,641 7,342 10,870 Group Statement of Recognised Income and Expense (Unaudited) Six months ended Year ended 31 March 30 September 2006 2005 2005 £000 £000 £000Profit for the financial period 3,907 4,674 8,590Actuarial gain on defined benefit scheme (net of tax) - - 1,660Fair value gain/(loss) on cash flow hedges 546 - (528) Total recognised income and expense for the period 4,453 4,674 9,722attributable to the equity holders of the parent Notes to the Interim Accounts 1. Accounting policies Basis of preparation For all periods up to and including the year ended 30 September 2005, the Groupprepared its annual report and accounts in accordance with UK Generally AcceptedAccounting Practice (GAAP). For the year ending 30 September 2006, the Group isrequired to prepare its annual report and accounts in accordance withInternational Financial Reporting Standards (IFRS). Accordingly, these interimaccounts have been prepared on the basis of the IFRS accounting policies thatmanagement expects to apply in the 30 September 2006 annual report and accounts. The Group's reconciliation of UK GAAP to IFRS for the year ended 30 September2005 has been prepared to describe the changes which arose on transition from 1October 2004. As such, it does not comprise a full set of financial statementsthat have been prepared to present fairly the results and financial position ofthe Group in accordance with IFRS. The Group's IFRS accounting policies as theyare to be applied for the year ended 30 September 2006 have been adopted on thebasis of all IFRS issued by the International Accounting Standards Board("IASB") and which have either been endorsed by the European Union ("EU") orwhere there is a reasonable expectation of endorsement by the EU by the time theGroup prepares its first annual accounts in accordance with IFRS for the yearending 30 September 2006. Due to the continuing work of the IASB, further standards, amendments andinterpretations could be applicable for the Group's accounts for the year ending30 September 2006 as practice is continuing to evolve. Consequently, the Group'saccounting policies may change prior to the publication of those accounts. Since transition to IFRS was 1 October 2004, the Group has taken advantage ofthe following exemptions to assist groups with the transition process containedwithin IFRS 1 'First-time Adoption of International Financial ReportingStandards': • Employee benefits: the cumulative actuarial losses relating to pensions and other post-retirement benefits at the date of transition to IFRS have been recognised in retained earnings, and prospectively, all actuarial gains and losses will be recognised immediately in full through the statement of recognised income and expense (SORIE); • Financial instruments: the Group has elected not to prepare comparative information in accordance with IAS 32 and IAS 39. These standards have been applied with effect from 1 October 2005. Details of the Group's IAS 32 and IAS 39 opening position are presented in note 6; and • Fixed assets : a deemed cost for the opening balance sheet carrying value of the fixed assets (with the exception of investment properties) by reference to their book value at the date of transition (1 October 2004) is established. The principal accounting policies comprise the following: Basis of consolidation The Group's consolidated IFRS financial information for the six months ended 31March 2006 incorporates the financial information of the company and itssubsidiaries to 31 March. Subsidiaries are those entities over which the Group has the power to govern thefinancial and operating policies, accompanying a shareholding that confers morethan half of the voting rights. The results of subsidiaries acquired or disposed of during the year are includedin the income statement from the effective date of acquisition or up to theeffective date of disposal, as appropriate. The consolidated IFRS financial information includes the Group's share of thepost-tax results and net assets under IFRS of associates and jointly controlledentities using the equity method of accounting. Associates are all entities overwhich the Group has significant influence, but not control, generallyaccompanying a shareholding that confers between 20% and 50% of the votingrights. Jointly controlled entities are those entities over which the Group hasjoint control with one or more other parties and over which there has to beunanimous consent by all parties to the strategic, financial and operatingdecisions. Foreign currencies The functional and presentation currency of the Company is pounds sterling.Transactions in currencies other than pounds sterling are recorded at the ratesof exchange prevailing on the dates of the transactions. At each balance sheetdate, monetary assets and liabilities that are denominated in foreign currenciesare retranslated at the rates prevailing on the balance sheet date. Non-monetaryassets and liabilities carried at fair value that are denominated in foreigncurrencies are translated at the rates prevailing at the date when the fairvalue was determined. Gains and losses arising on retranslation are included innet profit or loss for the period. Use of estimates The preparation of accounts in accordance with IFRS requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe accounts and the reported amounts of revenues and expenses during thereporting period. Actual results can differ from those estimates. Revenue Revenue is recognised to the extent that it is probable that economic benefitswill flow to the Group and revenue can be reliably measured. Revenue is measuredat the fair value of consideration received or receivable and represents amountsreceivable for goods and services provided in the normal course of business. The following specific criteria must also be met before revenue is recognised: Energy supply Revenue is recognised on the basis of energy supplied during the period. Revenuefor energy supply includes an assessment of energy supplied to customers betweenthe date of the last meter reading and the balance sheet date, estimated usinghistorical consumption patterns. Long-term contract accounting Profit on long-term contracts is taken as the work is carried out if the outcomecan be assessed with reasonable certainty. The profit included is calculated ona prudent basis to reflect the proportion of the work carried out at the periodend, by recording revenue and related costs as contract activity progresses.Revenue is calculated as that proportion of total contract value which costsincurred to date bear to total expected costs for that contract. Revenue derivedfrom variations on contracts is recognised only when they have been accepted bythe customer. Full provision is made for losses on all contracts in the year inwhich they are first foreseen. Interest Interest income is accrued on a time basis, by reference to the principaloutstanding and at the effective interest rate applicable. Indefeasible rights of use ("IRU") sales With the connection of the Channel Island Electricity Grid Ltd (CIEG) telecomnetwork between Jersey, France and Guernsey, the Group has the ability to selldark fibre to other telecom network operators seeking to extend their ownnetworks through IRU (Indefeasible Rights of Use) agreements. Income from IRU'swhere an IRU agreement does not transfer substantially all the risks andbenefits ownership to the buyer or is deemed not to extend for substantially allof the assets' expected useful lives, is recognised on a straight line basisover the life of the agreement, even when the payments are not received on sucha basis. Where agreements extend for substantially all of the assets' expecteduseful lives and transfer substantially all the risks and benefits of ownershipto the buyer the resulting profit/(loss) is recognised in the income statementas a gain/(loss) on disposal of fixed assets. Taxation The tax expense represents the sum of tax currently payable and deferred 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. Deferred tax is the tax expected to be payable or recoverable on the differencebetween the carrying amounts of assets and liabilities in the balance sheet andthe corresponding tax bases used in the computation of taxable profits, and isaccounted for using the balance sheet liability method. Deferred tax liabilitiesare recognised for all taxable temporary differences and deferred tax assets arerecognised to the extent that it is probable that taxable profit will beavailable against which deductible temporary differences can be utilised. Deferred tax is calculated at the tax rates that are expected to apply in theperiod in which the liability is settled or the asset is realised, on anon-discounted basis, and is charged in the income statement, except where itrelates to items charged or credited to equity via the statement of recognisedincome and expense, in which case the deferred tax is also dealt with in thestatement of recognised income and expense. Intangible assets The costs of acquired computer software costs are capitalised on the basis ofthe costs incurred to acquire and bring to use the specific software and areamortised over their operational lives. Costs directly associated with thedevelopment of computer software programmes that will probably generate economicbenefits over a period in excess of one year are capitalised and amortised overtheir estimated operational lives. Costs include employee costs relating tosoftware development and an appropriate proportion of directly attributableoverheads. Property, plant and equipment Tangible fixed assets are stated at cost (or 'deemed cost' as determined inaccordance with the transitional provisions contained within IFRS 1) and aredepreciated on the straight-line method to their residual values over theirestimated operational lives. Tangible fixed assets include capitalised employee,interest and other costs that are directly attributable to construction of fixedassets. Depreciation is charged on the following principal bases: Buildings 50 yearsInterconnectors up to 25 yearsPlant, mains cables and services up to 33 yearsFixtures and fittings 10 yearsComputer equipment up to 4 yearsVehicles 5 years The gain or loss arising on the disposal or retirement of an asset is determinedas the difference between the sales proceeds and the carrying amount of theasset and is recognised in the income statement. Capital grants and customer contributions in respect of additions to fixedassets are treated as deferred income within non-current liabilities andreleased to the income statement over the estimated operational lives of therelated assets. Impairment of tangible and intangible assets At each balance sheet date, the Group reviews its tangible and intangible assetsto determine whether there is any indication that those assets may have sufferedan impairment loss. If any such indication exists, the recoverable amount of theasset is estimated in order to determine the extent of the impairment loss, ifany. Where the asset does not generate cash flows that are independent fromother assets, the Group estimates the recoverable amount of the cash generatingunit to which the asset belongs. Investment Property Investment property, which is property held to earn rentals and/or for capitalappreciation, is stated at its fair value at the balance sheet date. Gains orlosses arising from changes in the fair value of investment property areincluded in the income statement for the period in which they arise. Other Investments The results and assets and liabilities of associates and joint ventures areincorporated using the equity method. Investments in associates and jointventures are carried in the balance sheet at cost as adjusted by changes in theGroup's share of net assets, less any impairment in the value of individualinvestments. Leased assets Rentals payable under operating leases, where a significant portion of the risksand rewards of ownership are retained by the lessors, are charged to the incomestatement on a straight-line basis over the period of the leases. The Group operates a sale and leaseback arrangement on the capital value of thesecond interconnector to France. This asset has been leased from CIEG whichoperates as a joint venture and the asset has been accounted for directly inGroup's books. Benefits arising from the sale and leaseback arrangement, beingup-front interest receipts, are initially capitalised and then amortised asappropriate over the length of the lease. Inventories Inventories are stated at the lower of cost and net realisable value. Costcomprises direct materials and, where applicable, direct labour costs and thoseoverheads that have been incurred in bringing the inventories to their presentlocation and condition. Cost is calculated using the average method with theexception of fuel oil which is calculated using the first in first out method.Net realisable value represents the estimated selling price less all estimatedcosts of completion and costs to be incurred in marketing, selling anddistribution. Financial Instruments Cash and cash equivalents Cash and cash equivalents comprise cash at bank and in hand and short-termdeposits with a maturity of three months or less. Short-term investments Short term investments comprise cash deposits with a maturity greater than threemonths. Trade and other receivables Trade receivables do not carry any interest and are stated at their nominalvalue as reduced by appropriate allowances for estimated irrecoverable amounts. Trade payables Trade payables are not interest bearing and are stated at their nominal value. Derivative financial instruments and hedge accounting The Group uses foreign exchange contracts to hedge the risks of changes inforeign currency exchange rates as its imported power from Europe is priced andpayable in euros. Such contracts are stated at fair value. Changes in the fair value of derivative financial instruments which aredesignated as effective hedges of future cash flows are recognised directly inequity and the ineffective portion is recognised immediately in the incomestatement. If the cash flow hedge of a firm commitment or forecasted transactionresults in the recognition of an asset or a liability, then, at the time theasset or liability is recognised, the associated gains or losses on thederivative that had previously been recognised in equity are included in theinitial measurement of the asset or liability. For hedges that do not result inthe recognition of an asset or a liability, amounts deferred in equity arerecognised in the income statement in the same period in which the hedged itemaffects net profit or loss. Changes in the fair value of derivative financial instruments that do notqualify for hedge accounting are recognised in the income statement as theyarise. Hedge accounting is discontinued when the hedging instrument expires or is sold,terminated or exercised, or no longer qualifies for hedge accounting. At thattime, any cumulative gain or loss on the hedging instrument recognised in equityis kept in equity until the forecasted transaction occurs. If a hedgedtransaction is no longer expected to occur, the net cumulative gain or lossrecognised in equity is transferred to the income statement. Dividends Dividends are recorded in the Group's accounts in the period in which they areapproved by the Company's shareholders. Interim dividends are recorded in theperiod in which they are paid. Provisions Provisions are recognised when the Group has a present obligation (legal orconstructive) as a result of a past event, and where it is probable that anoutflow of resources embodying economic benefits will be required to settle theobligation and a reliable estimate can be made of the amount of the obligation. Retirement benefit obligations The Group provides pensions through a defined benefit scheme. The cost ofproviding benefits is determined using the projected unit credit method, withactuarial valuations being carried out at a minimum every three years.Actuarial gains and losses are recognised in full, directly in retainedearnings, in the period in which they occur and are shown in the statement ofrecognised income and expense. The net figure derived from the current servicecost element of the pension charge, the expected return on pension scheme assetsand interest on pension scheme liabilities is deducted in arriving at operatingprofit. The retirement benefits obligation recognised in the balance sheetrepresents the net deficit in the Group's defined pension schemes together withthe net deficit in the Group's other post-retirement benefit arrangements,principally healthcare benefits, which are accounted for on a similar basis tothe Group's defined benefit pension schemes. 2. Segmental information Revenue and profit information are analysed between the businesses as follows: Turnover Operating profit/ (loss) 2006 2005 2005 2006 2005 2005 31 March 31 March 30 31 March 31 March 30 September September £000 £000 £000 £000 £000 £000 Energy 28,006 24,602 44,231 3,919 5,227 6,711 Building services 1,544 1,174 2,258 139 57 141 Retail appliance sales 4,528 2,953 5,712 328 70 70 Property 789 1,032 2,100 350 558 3,200 Other 892 828 1,795 (53) (1) 67 35,759 30,589 56,096 4,683 5,911 10,189 The segmental operating profit for Property for the year ended 30 September 2005includes a £2,370,000 uplift in profit as a result of the revaluation ofinvestment property. 3. Income tax Six months ended Year ended 31 March 30 September 2006 2005 2005 £000 £000 £000Current income tax (1,022) (1,091) (1,465)Deferred income tax (197) (260) (446) Total income tax (1,219) (1,351) (1,911) 4. Dividends Six months ended Year ended 31 March 30 September 2006 2005 2005 £000 £000 £000 Distributions to equity holders and by subsidiaries in the period 7,764 870 1,507 The distribution to equity holders in the period consisted of £950,000 (62p netof tax per share) in respect of the final dividend for 2005 and £6,802,000(£4.44 net of tax per share) being a special interim dividend linked to theproceeds received in the period from the sale of an investment property. Inaddition £12,000 was paid by subsidiaries to minority interests. The Directors have declared an interim dividend of 44p per share, net of tax(2005 - 40p) for the six months ended 31 March 2006 to shareholders on theregister at the close of business on 11 August 2006. This dividend was approvedby the Board on 17 May 2006 and has not been included as a liability at 31 March2006. 5. Reconciliation of movements in equity Six months ended Year ended 31 March 30 September 2006 2005 2005 £000 £000 £000Equity attributable to equity holdersAt beginning of period 115,893 107,348 107,348Total recognised income and expense for the period 4,453 4,674 9,722Net movement in minority interests and other equity (7) 63 294Dividends to equity holders (7,752) (858) (1,471) At end of period 112,587 111,227 115,893 6. Explanation of transition to IFRS Overview of IFRS reconciliations Detailed reconciliations of the Group's income statements for the six monthsended 31 March 2005 and for the year ended 30 September 2005 and balance sheetsat 1 October 2004 (the Group's date of transition to IFRS), 31 March 2005 and 30September 2005 under IFRS to the results and financial position previouslyreported under UK GAAP are set out below. The adoption of IFRS represents a change in accounting policy only and does notchange the Group's underlying cash flows or business strategy. The effect of moving from UK GAAP to IFRS had the following impact on the Groupfor the year ended 30 September 2005 : • Profit before taxation increased by £3.1m for the year ended 30 September 2005 due mainly to: o a lower pensions cost than under UK GAAP of £0.8m; and o the impact of recognising the £2.4m uplift in the revaluation of investment properties in the income statement previously shown as a movement in reserves under UK GAAP. A degree of volatility, that previously did not exist, has been introduced intothe income statement as the annual revaluation of the investment propertyportfolio now impacts profit before taxation. • Earnings per share increased by £1.95 as a result of increased profits. • Net assets in the balance sheet reduced by £5.3m as at 30 September 2005 mainly due to the remaining pensions prepayment established in 2003, when a lump sum payment of £7.0m was injected, being transferred to retained earnings on transition to IFRS on 1 October 2004. IFRS Summary of impact IFRS adjustments The adjustments that have been made to the amounts previously reported under UKGAAP are explained below: IAS 19 Employee Benefits - Defined Benefit Scheme Accounting The Group prepared its 2005 UK GAAP results in accordance with SSAP 24(Accounting for Pension Costs), with FRS 17 (Retirement Benefits) transitionaldisclosures provided in the notes to the accounts. Under SSAP 24, any pension surplus or deficit identified at the most recentactuarial revaluation is recognised gradually through the profit and lossaccount over the expected future working lifetime of employees. The net pensioncost under SSAP 24 therefore includes both the cost of providing an additionalyear of pension benefits to employees and an element of the surplus/deficitrelating to previous years. The difference between employer's contributions paid and the SSAP 24 net pensioncost is recognised as a prepayment/accrual, resulting in a balance sheetposition that does not necessarily reflect the actuarial position. Interest iscalculated on this balance sheet entry and is also included within the netpension cost. In accordance with IAS 19, any legal and constructive obligationfor post employment benefit plans is immediately recognised as an asset orliability on the balance sheet. Where actual experience differs from theassumptions made at the start of a financial year, actuarial gains and losseswill be recognised through the statement of recognised income and expense. The adoption of IAS 19 increases the 2005 profit before taxation by £0.8mcompared with UK GAAP. The derecognition of the UK GAAP SSAP 24 prepayment,reduced net assets at transition on 1 October 2004 by £6.6m (£5.3m net ofdeferred taxation). This prepayment reflected the unamortised lump sum paymentof £7.0m made in July 2003 which was previously recognised under UK GAAP. Inaddition net assets were further reduced by the recognition of the IAS 19pension scheme deficit of £3.7m (£3.0m net of deferred tax) at 1 October 2004which moved downwards to a £0.6m (net of deferred taxation) deficit as at 30September 2005. IAS 40 Investment Property Under UK GAAP any movement in the unrealised fair value of an investmentproperty is shown in the statement of total recognised gains and losses. Ineffect, changes in the market value of investment properties, based on an annualindependent review by an external expert, was a movement through reserves ratherthan an impact on profit before tax. IAS 40 requires all revaluations to bereflected in the income statement. The adoption of IAS 40 increases the 2005 profit before taxation by £2.4mcompared with UK GAAP. IAS 10 Dividends IAS 10 (Events After the Balance Sheet Date) and SSAP 17 (Accounting for PostBalance Sheet Events) both distinguish 'adjusting events' from 'non-adjustingevents' with similar definitions and applications. However, under IAS 10dividends may not be recognised until they have been approved and declared toshareholders and so are no longer at the discretion of the Directors. Therefore,if this occurs after the balance sheet date, the dividends are not recognised asa liability at the balance sheet date. However, they are disclosed in the notesto the accounts in accordance with IAS 1 (Presentation of Financial Statements).Furthermore, dividends are no longer recognised within the income statement andare instead reported in the movement of retained earnings. Under UK GAAP an accrual would have been made in the financial statements forthe final dividend. The final dividend of £1.0m included in the UK GAAPfinancial statements for 2005 is derecognised, thereby increasing the net assetsof the Group by this amount. IAS 32 Preference Shares The Group has preference share capital of £0.2m with no redemption date.Preference share capital under UK GAAP was disclosed as equity in the balancesheet and dividends payable shown as dividends in the profit and loss account.Under IAS 32: Financial Instruments: Disclosure and Presentation, the Group'spreference shares are classified as financial liabilities in the balance sheetand dividends are treated as financing payments in the income statement. The impact on the balance sheet is to reduce net assets by £0.2m and the incomestatement is less materially affected. IAS 39 Accounting for Derivatives The Group contracts with a European supplier for the importation of power,priced and payable in euros. Forward foreign exchange contracts are placed forfuture liabilities based on forecast purchases to hedge against volatility toallow tariff planning to be performed more effectively. The Group put cash flowhedges in place for future estimated monthly liabilities. The Group is takingthe exemption offered by IFRS 1 to apply IAS 39 with effect from 1 October 2005rather than 1 October 2004 as is the case for all other IFRS. The comparativeinformation for the year ended 30 September 2005 and the period ended 31 March2005 therefore reflects derivatives accounted for under the existing UK GAAPaccounting policy. However the transition adjustment required on 1 October 2005of £0.5m to recognise the fair value of derivatives and apply hedge accountingprovisions is disclosed below. For cash flow hedges, as described above, movements in the fair value ofderivatives are recognised in the balance sheet and deferred within reservesuntil they can be recycled through the income statement to offset the futureincome statement effect of changes in the hedged item. In order to apply this treatment, it must be demonstrated that the derivativehas been, and will continue to be, an effective hedge of the hedged item withinthe range deemed acceptable by IAS 39. Any hedge ineffectiveness is recognisedimmediately within the income statement. IAS 16 Revaluation of plant The Group has historically revalued certain plant assets and their carryingvalue is reviewed annually with reference to external indices regarding thereplacement of such plant. The Group has chosen to adopt under IFRS 1 theone-off transitional option that the deemed cost for the opening balance sheetcarrying value of plant assets is established by reference to their value at thedate of transition (1 October 2004). The Group has opted to account for theseassets at depreciated cost and will no longer revalue annually by reference toexternal indices. A review will be performed regularly to ensure the carryingvalue is reasonable. Under IFRS plant assets are stated at deemed cost less depreciation whereasunder UK GAAP plant was carried at valuation, by reference to industry indices,less depreciation. The impact on the 2005 balance sheet is to reduce net assets by £0.1m. Other : IFRS reclassifications All other material differences between IFRS and UK GAAP are included with theother column. The main adjustments are: • software costs move from tangible to intangible fixed assets in accordance with IAS 38; • investment property is separately disclosed on the face of the balance sheet; • tax balances are separately disclosed on the face of the balance sheet; and • the elimination of the revaluation reserve previously attributable to investment property. Under UK GAAP, goodwill is required to be amortised over its estimated usefuleconomic life. On transition to IFRS under IFRS 3 (Business Combinations), thebalance of goodwill recognised under UK GAAP at that date is "frozen" and nofuture amortisation is charged. However, the goodwill is subject to a mandatoryimpairment test on at least an annual basis and otherwise if there is anyindication of impairment. The JEC had a small balance of goodwill of £0.1m inits balance sheet at 1 October 2004 and due to immateriality this was writtenoff in the year to 30 September 2005 and has not been reversed in the incomestatement under IFRS. Analysis of IFRS adjustments to the Income Statement Year ended 30 September 2005 Investment Preference Pensions Property Dividends UK GAAP* IAS19 IAS 40 IAS 32 IFRS £000 £000 £000 £000 £000 Revenue 56,096 - - - 56,096 Cost of sales (32,078) 53 - - (32,025) Gross profit 24,018 53 - - 24,071 Revaluation of investment properties - - 2,370 - 2,370 Operating expenses (16,623) 726 - - (5,897) Group operating profit before joint venture 7,395 779 2,370 - 10,544 Share of loss of joint venture (355) - - - (355) Group operating profit 7,040 779 2,370 - 10,189 Interest receivable 354 - - - 354 Finance costs - - - (9) (9) Profit from operations before taxation 7,394 779 2,370 (9) 10,534 Taxation (1,755) (156) - - (1,911) Profit from operations after taxation 5,639 623 2,370 (9) 8,623 Minority interest (33) - - - (33) Profit for the year attributable to the equity 5,606 623 2,370 (9) 8,590 holders of the parent company Earnings per ordinary share (basic and £3.66 £5.61 diluted) \* This column represents the previously published results under UK GAAP in IFRSformat Analysis of IFRS Balance Sheet adjustments at 30 September 2005 Preference Cashflow Plant Other: Pensions Dividends Shares Hedges Revaluation IFRS reclass- UK GAAP* IAS19 IAS 10 IAS 32 IAS 39 IAS 16 ifications IFRS £000 £000 £000 £000 £000 £000 £000 £000AssetsIntangible assets - - - - - - 130 130Property, plant and 119,756 - - - - (82) (9,883) 109,791equipmentInvestment property - - - - - - 9,753 9,753Other investments - 754 - - - - - - 754sharesTotal non-current assets 120,510 - - - - (82) - 120,428Inventories 3,927 - - - - - - 3,927Trade and other 21,089 (6,511) - - - - - 14,578receivablesCash and cash equivalents 12,240 - - - - - - 12,240Total current assets 37,256 (6,511) - - - - - 30,745Total assets 157,766 (6,511) - - - (82) - 151,173 LiabilitiesTrade and other payables 10,841 - (950) - - - (1,195) 8,696Derivative financial - - - - 528 - - 528instrumentsCurrent tax payable - - - - - - 1,195 1,195Current liabilities 10,841 - (950) - 528 - - 10,419Non-current liabilitiesLong term provisions 13,395 - - - - - (1,154) 12,241Tax liabilities - - - - - - 1,154 1,154Financial liabilities - - - 235 - - - 235Retirement benefitobligations 495 230 - - - - - 725Deferred taxation 11,792 (1,447) - - - 161 - 10,506Non-current liabilities 25,682 (1,217) - 235 - 161 - 24,861Total liabilities 36,523 (1,217) (950) 235 528 161 - 35,280Net assets 121,243 (5,294) 950 (235) (528) (243) - 115,893 EquityShare capital - ordinary 1,532 - - - - - - 1,532 - preference 235 - - (235) - - - -Revaluation reserve 5,278 - - - - - (5,278) -Other reserves - - - - (528) - - (528)Retained earnings 114,157 (5,294) 950 - - (243) 5,278 114,848Shareholders' funds 121,202 (5,294) 950 (235) (528) (243) - 115,852Equity minority interest 41 - - - - - - 41Total equity 121,243 (5,294) 950 (235) (528) (243) - 115,893 \* This column represents the previously published results under UK GAAP in IFRSformat Analysis of IFRS adjustments to the Income Statement six months ended 31 March 2005 Investment Preference Pensions Property Dividends UK GAAP* IAS19 IAS 40 IAS 32 IFRS £000 £000 £000 £000 £000 Revenue 30,589 - - - 30,589 Cost of sales (16,632) 26 - - (16,606) Gross profit 13,957 26 - - 13,983 Revaluation of investment properties - - - - - Operating expenses (8,263) 364 - - (7, 899) Group operating profit before joint venture 5,694 390 - - 6,084 Share of loss of joint venture (173) - - - (173) Group operating profit 5,521 390 - - 5,911 Interest receivable 122 - - - 122 Finance costs - - - (4) (4) Profit from operations before taxation 5,643 390 - (4) 6,029 Taxation (1,273) (78) - - (1,351) Profit from operations after taxation 4,370 312 - (4) 4,678 Minority interest (4) - - - (4) Profit for the year attributable to the equity 4,366 312 - (4) 4,674 holders of the parent company Earnings per ordinary share (basic and diluted) £2.85 £3.05 \* This column represents the previously published results under UK GAAP in IFRSformat Analysis of IFRS Balance Sheet adjustments at 31 March 2005 Preference Plant Other: Pensions Dividends Shares Revaluation IFRS reclass- UK GAAP* IAS19 IAS 10 IAS 32 IAS 16 ifications IFRS £000 £000 £000 £000 £000 £000 £000AssetsIntangible assets - - - - - 165 165Property, plant andequipment 124,667 - - - - (14,151) 110,516Investment property - - - - - 13,986 13,986Other investments -shares 690 - - - - - 690Total non-current assets 125,357 - - - - - 125,357Inventories 2,749 - - - - - 2,749Trade and otherreceivables 16,813 (6,500) - - - - 10,313Cash and cash equivalents 7,318 - - - - - 7,318Total current assets 26,880 (6,500) - - - - 20,380Total assets 152,237 (6,500) - - - 145,737 LiabilitiesTrade and other payables 8,472 - (613) 4 - (792) 7,071Current tax payable - - - - - 792 792 Current liabilities 8,472 - (613) 4 - - 7,863Non-current liabilitiesProvisions 13,456 - - - - (1,208) 12,248 Tax liabilities - - - - - 1,208 1,208 Financial liabilities - - - 235 - - 235Retirement benefit obligations 462 2,869 - - - - 3,331Deferred taxation 11,346 (1,966) - - 245 - 9,625 Non-current liabilities 25,264 903 - 235 245 - 26,647Total liabilities 33,736 903 (613) 239 245 - 34,510Net assets 118,501 (7,403) 613 (239) (245) - 111,227 EquityShare capital - ordinary 1,532 - - - - - 1,532 - preference 235 - - (235) - - -Revaluation reserve 9,503 - - - - (9,503) -Retained earnings 107,195 (7,403) 613 (4) (245) 9,503 109,659Shareholders' funds 118,465 (7,403) 613 (239) (245) - 111,191Equity minority interest 36 - - - - - 36 Total equity 118,501 (7,403) 613 (239) (245) - 111,227 \* This column represents the previously published results under UK GAAP in IFRSformat Analysis of IFRS Balance Sheet adjustments at 1 October 2004 Preference Plant Other: Pensions Dividends Shares Revaluation IFRS reclass- UK GAAP* IAS19 IAS 10 IAS 32 IAS 16 ifications IFRS £000 £000 £000 £000 £000 £000 £000AssetsIntangible assets 100 - - - - 201 301Property, plant and equipment 126,183 - - - - (13,924) 112,259Investment property - - - - - 13,723 13,723Other investments -shares 427 - - - - - 427Total non-current assets 126,710 - - - - - 126,710 Inventories 2,584 - - - - - 2,584Trade and other receivables 16,474 (6,625) - - - - 9,849Cash and cash equivalents 2,890 - - - - - 2,890Total current assets 21,948 (6,625) - - - - 15,323Total assets 148,658 (6,625) - - - - 142,033 LiabilitiesTrade and other payables 10,678 - (858) - - (792) 9,028Current tax payable - - - - - 792 792Current liabilities 10,678 - (858) - - - 9,820Non-current liabilitiesProvisions 11,387 - - - - (1026) 10,361Tax liabilities - - - - - 1,026 1,026Financial liabilities - - - 235 - - 235Retirement benefitobligations 487 3,234 - - - - 3,721Deferred taxation 11,346 (2,069) - - 245 - 9,522Non-current liabilities 23,220 1,165 - 235 245 - 24,865Total liabilities 33,898 1,165 (858) 235 245 - 34,685Net assets 114,760 (7,790) 858 (235) (245) - 107,348 EquityShare capital - ordinary 1,532 - - - - - 1,532 - preference 235 - - (235) - - -Revaluation reserve 9,503 - - - - (9,503) -Retained earnings 103,446 (7,790) 858 - (245) 9,503 105,772Shareholders' funds 114,716 (7,790) 858 (235) (245) - 107,304Equity minority interest 44 - - - - - 44Total equity 114,760 (7,790) (235) (245) - 107,348 \* This column represents the previously published results under UK GAAP in IFRSformat This information is provided by RNS The company news service from the London Stock Exchange