James Halstead Regulatory News (JHD)

31 Mar 2008 07:00

James Halstead PLC31 March 2008 31 March 2008 JAMES HALSTEAD PLC INTERIM RESULTS FOR THE HALF-YEAR ENDED 31 DECEMBER 2007 Key Figures James Halstead plc, manufacturer and international distributor of commercialfloor coverings reports: • Turnover increased to a record £78.5 million - an increase of 14.8%• Operating profit increased to a record £12.6 million - an increase of 18.2%• Pre-tax profit increased to a record £13.1 million - an increase of 16.2%• Basic earnings per ordinary 5p share increased to a record 17.4p - an increase of 15.2%• Proposed interim dividend increased to a record 6.25p - an increase of 19% Chairman, Mr Geoffrey Halstead, commenting said: "These interim figures, once again, show a record performance with our UK andinternational sales driving forward to more than offset the increases in rawmaterial and energy costs. In addition, cash flows from operations continue tostrengthen the balance sheet and we move towards the full year very positively." Enquiries: Mark Halstead, Chief Executive Gordon Oliver, Finance Director Telephone: 0161 767 2500 Nick Lyon - Hudson Sandler Telephone : 020 7796 4133 CHAIRMAN'S STATEMENT International Financial Reporting Standards (IFRS) The interim financial results for the six months ended 31 December 2007 arepresented under International Financial Reporting Standards (IFRS) for the firsttime. The comparative results for the year to 30 June 2007 and six months to 31December 2006 have been re-stated in accordance with IFRS principles. The notesto the results give details of the material changes. Trading The first six months of the year showed a healthy increase in turnover to £78.5million (2006: £68.3 million) an increase of 14.8%. The growth in turnover offlooring, which represents the majority of sales, was 14.3% year on year. Therewas a slight positive effect on turnover from a lower value of sterling (some1.3% of the growth). Our Central European sales (Objectflor and Karndean GmbH)showed the strongest growth with just over 19% increase in sales. Gross margins,as a percentage, showed a decline but at less than 1% this was not significantand to an extent inevitable in the climate of significant adverse raw materialprice rises. The effects of increased volumes, positive sales mix (towards addedvalue / higher margin products) and improved exchange rates on export salesunderpinned this creditable performance on margins. Though the majority ofturnover relates to flooring, Phoenix, our motorcycle accessories business,reported revenue over 20% ahead of last year and the core Arai safety helmetbusiness performed very well. In terms of the benefit to the Group of a weaker Sterling, we have seen thelargest effect in the strength of the Euro against Sterling. Europe is ourlargest export market and the 14% appreciation in this currency has already hadan offsetting benefit and will continue to do so. In terms of raw materials,increased demand across Europe and Asia combined with the underlying increase inoil prices has meant increased cost and, at times, restricted supply. Inaddition, the oil prices have increased manufacturing costs not just for us butfor our raw material manufacturers who face not only commodity price increasesbut also the effects of being large energy users. The issue is of concern butour competitors also face these same cost increases and where they are Europeanbased (which for the main part is the case) the appreciation of the Euro thathas benefited us has had the exact opposite effect on them. Profit before tax of £13.1 million (2006: £11.3 million) was 16.2% ahead of thecomparative six months of the previous year. Operating profit grew by 18.2% andthe difference is a direct result of lower interest received on lower cashbalances following the special dividend paid in February 2007. Our balance sheet remains robust. Cash has, again, increased with cash inflowfrom operations at £14.2 million (2006: £12.9 million) and cash and cashequivalents now total £25.9 million. Inventory at £24.9 million (2006: £21.6million) is 15.2% above last year which is in part due to the increased level ofturnover but also includes stock build for new ranges launched in the firstquarter of 2008. For the second year in succession the Independent Flooring DistributorsAssociation (IFDA) voted our UK business the manufacturer of the year and weremain focused on supplying, servicing and supporting all our stockists. Thissupport is not only at point of sale and in marketing but also with active workto gain specifications from architects and ongoing training of contractors atthe grass roots of commercial flooring. As ever, the projects that we have supplied across the globe were varied andwidespread including the British forces' field kitchens in Afghanistan, the GeoCeltic, the largest purpose-built seismic vessel in the world, the centralpolice headquarters in Poznan in Poland, the Targu Secuiesc High School inRomania and Hamleys Toy Shop in Oxford Street, London. Each project illustratesthe breadth of the ongoing distribution of our commercial flooring worldwide. Earnings Per Share and Interim Dividend Our basic earnings per share for the six months to 31 December 2007 of 17.4p(2006: 15.1p) has increased by 15.2% and having regard to the ongoing tradingand our cash position the Board will be paying an interim dividend of 6.25p(2006: 5.25p) which is an increase of 19%. Outlook It has been a good six months' trading. Our ranges have been specified for ahost of new build projects and refurbishments with the latter, as ever, the muchlarger part of all our businesses. Increasing manufacturing output andproductivity increases are, as always, a key part of price competitiveness andnew designs and ranges are vital to ongoing progress. In December we presentedour "Bevel Line" ranges of competitively priced luxury vinyl tiles and thesehave had an excellent response in the market. Additional launches of safetyflooring are at an advanced stage and I am fully confident that in the secondhalf we will see the benefit of these new ranges and that we shall, once again,report a full year of progress. Geoffrey HalsteadChairman31 March 2008 Consolidated Income Statementfor the half-year ended 31 December 2007 Half-year Half-year Year ended ended ended 31.12.07 31.12.06 30.06.07 £'000 £'000 £'000 Revenue 78,453 68,317 137,252 Operating profit 12,579 10,644 22,643Finance income 500 608 856 Profit before income tax 13,079 11,252 23,499 Income tax expense (4,208) (3,549) (7,657) Profit for the period 8,871 7,703 15,842 Earnings per ordinary share of 5p :-basic 17.4p 15.1p 31.1p-diluted 17.2p 15.0p 30.9p All the above figures relate to continuing operations. Details of dividends paid and proposed are given in note 3. Consolidated Balance Sheetas at 31 December 2007 Half-year Half-year Year ended ended ended 31.12.07 31.12.06 30.06.07 £'000 £'000 £'000AssetsNon current assetsProperty, plant and equipment 19,905 18,341 18,334Intangible assets 3,232 3,232 3,232Deferred tax assets 3,850 4,894 3,497 26,987 26,467 25,063Current assetsInventories 24,884 21,592 23,899Trade and other receivables 24,045 20,202 20,839Derivative financial instruments 59 144 54Cash and cash equivalents 25,922 33,202 22,756 74,910 75,140 67,548 Total assets 101,897 101,607 92,611 LiabilitiesCurrent liabilities 50,104 40,654 44,931 Non-current liabilitiesPension scheme deficit 7,158 12,186 6,431Deferred tax liabilities 1,063 1,063 1,063Other payables 662 3,316 506 Total liabilities 58,987 57,219 52,931 Net Assets 42,910 44,388 39,680 EquityEquity share capital 2,556 2,545 2,555Equity share capital (B shares) 160 160 160 2,716 2,705 2,715Share premium account 824 364 803Retained earnings 34,883 38,074 32,289Other reserves 4,487 3,245 3,873 Total equity attributable to shareholders of the parent 42,910 44,388 39,680 Consolidated Cash Flow Statementfor the half-year ended 31 December 2007 Half-year Half-year Year ended ended ended 31.12.07 31.12.06 30.06.07 £'000 £'000 £'000 Cash inflow from operations 14,151 12,915 26,309Interest received 624 750 1,303Interest paid (120) (91) (215)Taxation paid (3,428) (3,844) (8,182) Cash inflow from operating activities 11,227 9,730 19,215 Purchase of property, plant and equipment (2,702) (1,162) (3,489)Proceeds from disposal of property, plant and equipment 117 81 200Cash outflow from investing activities (2,585) (1,081) (3,289) Equity dividends paid (5,751) (4,072) (22,013)Shares issued 22 45 494Interest paid (6) (25) (143)Repayment of debt - (1,363) (1,539) Cash outflow from financing activities (5,735) (5,415) (23,201) Net increase / (decrease) in cash and cash equivalents 2,907 3,234 (7,275)Effect of exchange differences 259 (82) (19) Cash and cash equivalents at start of period 22,756 30,050 30,050 Cash and cash equivalents at end of period 25,922 33,202 22,756 Consolidated Statement of Recognised Income and Expensefor the half-year ended 31 December 2007 Half-year Half-year Year ended ended ended 31.12.07 31.12.06 30.06.07 £'000 £'000 £'000 Foreign currency translation differences 827 (24) 284Actuarial (loss)/gain on the pension scheme (537) (27) 4,160Fair value movements on hedged items (213) (180) (37) Net income/(expense) recognised directly in equity 77 (231) 4,407 Profit for the year 8,871 7,703 15,842 Total recognised income for the period 8,948 7,472 20,249 Attributable to :Equity holders of the company 8,948 7,472 20,249 Notes to the Interim Resultsfor the half-year ended 31 December 2007 1. Basis of preparation The interim financial statements are unaudited and do not constitute statutory accounts as defined within the Companies Act 1985. Prior to 1 July 2007, the group was required to prepare its consolidated financial statements under UK GAAP. For the year ended 30 June 2008, the group is required to prepare its annual consolidated financial statements in accordance with accounting standards adopted for use by the European Union (International Financial Reporting Standards - "IFRS"). The principle accounting policies applied in the preparation of the consolidated interim statements are those expected to be applicable to the consolidated financial statements for the year ended 30 June 2008. The relevant policies are set out in the Appendix to these interim statements. The transition date for the group's application of IFRS is 1 July 2006 and the figures included in these interim statements for the year ended 30 June 2007 and the half-year ended 31 December 2006 have been restated to reflect the application of IFRS. The financial statements for the year ended 30 June 2007, prepared under UK GAAP, were audited and have been delivered to the Registrar of Companies. The restatement of these figures to reflect the introduction of IFRS has not yet been subject to audit and as such the figures included for that period are disclosed as unaudited. As is permitted by the AIM rules, the directors have not adopted the requirements of IAS34 'Interim Financial Reporting' in preparing the interim financial statements. Accordingly the interim financial statements are not in full compliance with IFRS. 2. Income tax has been provided at the rate of 32.2% (2006 : 31.5%). 3. Dividends Half-year Half-year Year ended ended ended 31.12.07 31.12.06 30.06.07 £'000 £'000 £'000 Equity dividends paid : Final dividend for the year ended 30 June 2006 - 4,072 4,072 Special dividend of 30p - - 15,269 Interim dividend for the year ended 30 June 2007 - - 2,672 Final dividend for the year ended 30 June 2007 5,751 - - 5,751 4,072 22,013 Equity dividends proposed at the end of the period Special dividend - 15,269 - Interim dividend 3,195 2,672 - Final dividend - - 5,751 Equity dividends per share, paid and proposed, are as follows : • 8p final dividend for the year ended 30 June 2006, paid on 1 December 2006 • Special dividend of 30p paid on 2 February 2007 • 5.25p interim dividend for the year ended 30 June 2007, paid on 23 May 2007 • 11.25p final dividend for the year ended 30 June 2007, paid on 7 December 2007 • 6.25p interim dividend for the year ended 30 June 2008, payable on 23 May 2008 to those shareholders on the register at the close of business on 25 April 2008. 4. Calculation of earnings per ordinary share Half-year Half-year Year ended ended ended 31.12.07 31.12.06 30.06.07 £'000 £'000 £'000 Basic earnings 8,871 7,703 15,842 Weighted average number of ordinary shares in issue 51,113,192 50,875,694 50,897,640 Weighted average number of ordinary shares in issue 51,558,120 51,284,522 51,273,344 (diluted for the effect of outstanding share options Basic earnings per 5p ordinary share 17.4p 15.1p 31.1p Diluted earnings per 5p ordinary share 17.2p 15.0p 30.9p 5. Copies of the interim results Copies of the interim results have been sent to shareholders. Further copies can be obtained from the company's registered office, Beechfield, Hollinhurst Road, Radcliffe, Manchester, M26 1JN. 6. Adoption of International Financial Reporting Standards (IFRS) As at As at 31.12.06 As at 1.07.06 £'000 30.06.07 £'000 £'000 Net assets under UK GAAP 45,454 40,616 42,025 Adjustments (before taxation) Intangible assets 114 228 - Derivatives and Hedge Accounting (117) (101) (27) 45,451 40,743 41,998 Taxation (1,063) (1,063) (1,063) Net assets under IFRS 44,388 39,680 40,935 Half-year Year ended ended 31.12.06 30.06.07 £'000 £'000 Net income under UK GAAP 7,499 15,651 Adjustments Intangible assets 114 228 Derivatives and Hedge Accounting 90 (37) Net income under IFRS 7,703 15,842 The adjustments made in converting UK GAAP financial information into IFRS information are summarised as follows; Intangible assets Under UK GAAP goodwill was amortised over its useful economic life, tested for impairment and provided against if necessary. Under IFRS goodwill is no longer amortised but must be tested for impairment at the date of transition to IFRS (1 July 2006) and at each balance sheet date thereafter. Goodwill amortisation charged, under UK GAAP, to the income statement in the year ended 30 June 2007, has been credited back under IFRS. Derivatives and Hedge Accounting Under IFRS all derivative financial instruments are accounted for at fair value whilst other financial instruments are accounted for at amortised cost or fair value according to their classification. Subject to strict criteria, under IFRS, movements in fair value of derivative financial instruments and financial assets and liabilities which form part of a hedging relationship may be recorded in a separate reserve within equity. Movements in fair value of such items which do not form part of a hedging relationship are taken direct to the income statement. Under UK GAAP, derivative financial instruments were not recorded in the balance sheet, and assets and liabilities which were hedged by such instruments were allowed to be recorded at the hedged rate. The group has, therefore, under IFRS recorded its derivative financial instruments at fair value in the balance sheet and restated the value of certain financial assets and liabilities previously recorded at a hedged rate under UK GAAP. Valuation of Properties and Deferred Tax Freehold land and buildings were included at valuation under UK GAAP. On the introduction of FRS 15, as permitted, the book values of freehold properties, as modified by subsequent additions and disposals, which had been the subject of past revaluations were retained. Deferred tax was not provided as it was believed that such a liability would not crystallise. Under IFRS, the group will adopt the deemed cost basis for freehold property. As such the revaluation reserve, previously shown under UK GAAP, is transferred to retained earnings under IFRS. Under IFRS, deferred tax must be provided on the potential gain on the sale of the freehold property at its revalued level, hence the reduction to net assets shown above. Foreign exchange translation differences Under UK GAAP translation differences on the consolidation of foreign currency net investments were taken to the profit and loss account reserve. Under IFRS these differences must now be recorded in a separate reserve. The group has taken the transitional exemption allowed under IFRS 1 to apply this treatment from the date of transition only (1 July 2006). Since there is no effect on either net income or net assets this change does not affect the above reconciliations. Revenue Under UK GAAP settlement and volume discounts were included in selling and distribution costs. Under IFRS these are now classified within the consolidated income statement as a reduction in revenue. Since there is no effect on retained profit this reclassification does not affect the above reconciliations. Other Under IFRS the pension scheme deficit, previously recorded, under UK GAAP, in the balance sheet net of the associated deferred tax asset, must be recorded gross. The associated deferred tax asset, together with other deferred tax assets previously recorded in debtors under UK GAAP, must be shown in the balance sheet under non-current assets. The group has reviewed the impact of various other differences between UK GAAP and IFRS and where the impact of these differences is immaterial to the group's figures, no adjustment has been made to those previously reported. Appendix Summary of accounting policies The accounting policies set out below and used in the preparation of the interimfinancial statements represent the principal policies expected to apply in thepreparation of the group financial statements for the year ended 30 June 2008. Basis of preparation of accounts The group financial statements are prepared in accordance with EU endorsedInternational Financial Reporting Standards ("IFRS") as adopted by the EuropeanUnion and the applicable provisions of the Companies Act 1985. They are preparedunder the historical cost convention as modified by the statement of certainassets at deemed cost under the transition rules and the measurement ofderivative financial instruments, certain financial assets and liabilities andshare-based payments at fair value. The preparation of financial statements in conformity with generally acceptedaccounting principles requires the use of estimates and associated assumptionsthat affect the application of policies, the reported amounts of assets andliabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting period. Although these estimates arebased on management's best assessments of amounts, events or actions, actualresults may ultimately differ from those estimates. The estimates and underlyingassumptions are reviewed on a regular and ongoing basis. Basis of consolidation The group financial statements consolidate the accounts of the parent companyand all its subsidiaries. Subsidiaries are entities controlled by the group.Control exists when the company has the power, directly or indirectly, to governthe financial and operating policies of an entity so as to obtain benefit fromits activities. This is normally achieved by a majority shareholding. At 31December 2007, the company, directly or through an intermediate subsidiary owned100% of the share capital of all of its subsidiaries. The results ofsubsidiaries acquired are consolidated from the date on which control passes tothe group. The results of disposed subsidiaries are consolidated up to the dateon which control passes from the group. All intra-group transactions and balances and any unrealised profit arisingtherefrom are eliminated on consolidation. Foreign currencies Functional and presentation currency - the group's consolidated financialstatements are presented in pounds sterling, the functional currency of thegroup, being the currency of the primary economic environment in which the groupoperates. Transactions and balances - transactions in foreign currencies are recorded atthe rate ruling at the date of the transaction. Monetary assets and liabilitiesdenominated in foreign currencies are reported at the rates of exchangeprevailing at the balance sheet date. Exchange differences on retranslatingmonetary assets and liabilities are recognised in the income statement exceptwhere they relate to qualifying cash flow hedges, in which case the exchangedifferences are deferred in equity. Foreign subsidiaries - the results of foreign subsidiaries that have afunctional currency different from the group's presentation currency, aretranslated at the average rates of exchange for the year. Assets and liabilities of foreign subsidiaries, that have a functional currencydifferent from the group's presentation currency, are translated at the exchangerates prevailing at the balance sheet date. Exchange differences arising fromthe translation of the results of foreign subsidiaries and their opening netassets are recognised as a separate component of equity. When a foreign subsidiary is sold the cumulative exchange differences relatingto the retranslation of the net investment in that foreign subsidiary arerecognised in the income statement as part of the gain or loss on disposal. Thisapplies only to exchange differences recorded in equity after 1 July 2006.Exchange differences arising prior to 1 July 2006 remain in equity on disposalas permitted by IFRS 1. Intangible assets Goodwill - goodwill arising on the acquisition of a subsidiary undertaking isthe difference between the fair value of the consideration paid and the fairvalue of the assets and liabilities acquired, and is recognised as an asset andreviewed for impairment at least annually. Any impairment is recognisedimmediately in the income statement and is not subsequently reversed. Ondisposal of a subsidiary, the attributable amount of goodwill is included in thecalculation of the profit or loss on disposal. Goodwill arising on acquisitionsbefore the date of transition to IFRS has been retained at the UK GAAP value asat that date having been reviewed for impairment at that date and subsequentlyat least annually. Other intangible assets - other intangible assets that are acquired by the groupare stated at cost less accumulated amortisation. Amortisation is charged to theincome statement on a straight line basis in order to allocate the cost over theestimated useful life. The residual values and useful lives of the assets arereviewed at each group balance sheet date for continued appropriateness andimpairment and adjusted if necessary. Taxation Income tax on the profit for the year comprises current and deferred tax. Incometax is recognised in the income statement except to the extent that it relatesto items recognised directly in equity. Current tax assets and liabilities are measured at the amount expected to berecovered from or paid to taxation authorities based on tax rates and laws thatare enacted or substantively enacted at the balance sheet date. Deferred incometax is provided in full, using the liability method, on temporary differencesarising between the tax bases of assets and liabilities and their correspondingbook values as recorded in the group's financial statements with the followingexceptions : • where the temporary difference arises from the initial recognition ofgoodwill or of an asset or liability in a transaction that is not a businesscombination that at the time of the transaction affects neither accounting nortaxable profit or loss; • deferred income tax assets are recognised only to the extent that itis probable that taxable profit will be available against which the deductibletemporary differences can be utilised; • Deferred income tax is not provided on unremitted earnings of foreignsubsidiaries where there is no commitment to remit the earnings. Deferred income tax assets and liabilities are based on tax rates and laws thatare enacted or substantively enacted at the balance sheet date. Share based payments The group grants share options to certain of its employees. An expense inrelation to such options, based on their fair value at the date of grant, isrecognised over the vesting period. The group uses the Black Scholes model forthe purpose of computing fair value. Inventories Inventories are measured at the lower of cost and net realisable value. Costincludes expenditure incurred in acquiring the inventories and bringing them totheir existing location and condition. In the case of finished and partlyfinished goods, cost represents the cost of raw materials, direct labour, otherdirect costs and related production overheads on bases consistently applied fromyear to year. In all cases provision is made for obsolete, slow-moving ordefective items where appropriate and for unrealised profits on items ofintra-group manufacture. Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held at call with banksand bank overdrafts. Bank overdrafts are disclosed as current liabilities exceptwhere the group participates in offset arrangements with certain banks wherebycash and overdraft amounts are offset against each other. Pension scheme arrangements The Group operates several defined contribution pension schemes and a definedbenefit pension scheme for certain of its United Kingdom domiciled employees. A defined contribution scheme is a scheme in which the group pays contributionsinto publicly or privately administered schemes on a voluntary, statutory orcontractual basis. The group has no further payment obligations once thecontributions have been made. The amount charged to the income statement is thecontribution payable in the year. Differences between contributions payable inthe year and contributions actually paid are shown as receivables or payables inthe balance sheet. A defined benefit scheme is a scheme in which the amount of pension benefit thatan employee will receive on retirement is defined. For the defined benefitscheme, pension costs and the costs of providing other post retirement benefitsare charged to the income statement in accordance with the advice of qualifiedindependent actuaries. Past service costs are recognised immediately in theincome statement unless the changes are dependent on the employees remaining inservice for a particular period in which case the costs are recognised on astraight line basis over that period. The retirement benefit obligationsrecognised on the balance sheet represent the difference between the fair valueof the schemes' assets and the present value of the schemes' defined benefitobligations measured at the balance sheet date. The defined benefit obligationis calculated annually by independent actuaries using the projected unit method. Ongoing actuarial gains and losses are recognised in the period in which theyarise in the statement of recognised income and expense. Property, plant and equipment All items of property, plant and equipment are recorded at cost less subsequentdepreciation and impairment except for land which is shown at cost less anyimpairment. Cost includes expenditure that is directly attributable to theacquisition of the asset. The group has taken advantage of the exemption underIFRS 1 not to restate property previously revalued under UK GAAP and to treatthese earlier revaluations as deemed cost. Depreciation is calculated on thedepreciable amount (being cost less the estimated residual value) on a straightline basis on the over the estimated useful lives of the assets as follows: Freehold buildings 40 to 50 yearsLong and short leasehold property over period of leasePlant and machinery 2 to 20 yearsFixtures and fittings 3 to 10 yearsMotor vehicles 2 to 5 years Residual values and useful lives are reviewed at each group balance sheet datefor continued appropriateness and indications of impairment and adjusted ifappropriate. Revenue recognition Revenue comprises the amounts received or receivable in respect of the sale ofgoods and services provided in the normal course of business, net of tradediscounts, VAT and other sales related taxes. Revenue is recognised when the significant risks and rewards of ownership havebeen transferred to the buyer. Research and development Expenditure on research activities, undertaken with the prospect of gaining newscientific or technical knowledge and understanding, is recognised in the incomestatement as an expense as incurred. Development expenditure not meeting all the criteria for capitalisationcontained in IAS 38 - Intangible Assets, is recognised in the income statementas an expense as incurred. Dividends Interim dividends are recognised when they are paid. Final dividends arerecognised when they are approved by the shareholders. Leases Leases in which a significant portion of the risks and rewards of ownership areretained by the lessor are accounted for as operating leases. Payments madeunder such leases are charged to the income statement on a straight line basisover the period of the lease. Derivative financial instruments and hedging The group uses derivative financial instruments to hedge its exposure to foreigncurrency transactional risk. In accordance with its treasury policy the groupdoes not hold or issue derivative financial instruments for trading purposes. Derivative financial instruments are recorded at fair value on the date thederivative contract is entered into and are subsequently remeasured at fairvalue at each group balance sheet date. The method by which any gain or loss arising from remeasurement is recogniseddepends on whether the instrument is designated as a hedging instrument and ifso the nature of the item being hedged. The group recognises an instrument as ahedging instrument by documenting at the inception of the transaction therelationship between the instrument and the hedged items and the objectives andstrategy for undertaking the hedging transaction. To be designated as a hedginginstrument, an instrument must also be assessed, at inception and on an ongoingbasis, to be highly effective in offsetting changes in cash flows of hedgeditems. For derivatives not used in hedging transactions or those subsequentlyre-assessed as ineffective, the gain or loss on remeasurement of fair value isrecognised immediately in the income statement. Where a derivative financial instrument is designated as a hedge of thevariability in cash flows of a recognised asset or liability, or of a highlyprobable forecast future transaction, the gain or loss on remeasurement whichrelates to the portion of the hedge which is deemed effective is recogniseddirectly in equity, with the balance of the gain or loss, relating to theineffective portion, being recognised immediately in the income statement. Amounts accumulated in equity are recycled in the income statement in theperiods when the hedged item affects profit or loss. The fair value of forward foreign exchange contracts is determined using forwardexchange market rates at the balance sheet date. This information is provided by RNS The company news service from the London Stock Exchange