Pacific Global Regulatory News (PCH)

24 Feb 2006 07:01

Pochin's PLC24 February 2006 Pochin's PLC Transition to IFRS In July 2002 the EU approved a regulation (IAS Regulation EC 1606/2002)requiring all EU listed companies to prepare consolidated financial statementsin accordance with International Financial Reporting Standards (IFRS), adoptedfor use in the EU (adopted IFRSs). The regulation applies to accounting periodsbeginning on or after 1 January 2005. Pochin's, in line with all publicly listed companies in the European Union (EU),will be reporting its financial results in accordance with InternationalFinancial Reporting Standards (IFRS) with effect from 1 June 2005. The group'sfirst report under the new standards will be the announcement of its half-yearresults for the period ended 30 November 2005. This report has been prepared to provide financial information showing theimpact of Pochin PLC's transition from a UK Generally Accepted AccountingPrinciples (UK GAAP) basis to an IFRS basis, in advance of the publication ofits first financial reporting under IFRS. The adoption of IFRS will have noimpact upon the underlying cash flows or trading activities of the group. This report contains the restatement of the group's results for the year to 31May 2005 and the half-year to 30 November 2004. The significant impact on thegroup accounts and all presentational changes are set out in full in thisreport. Financial impact Having reviewed the impact of IFRS on the group the main items that have asignificant financial effect on the group's results are as follows: •Investment property valuation movements are reflected in the income statement. •Deferred tax arising on revaluation movements is reflected in the financial statements. •The deficit on the defined benefit pension scheme is provided for in the financial statements. •Property sales are recognised based on completion of contract and not exchange of unconditional contract. •Proposed final dividends are only recognised in the financial statements when they become a legal obligation. •Interest rate hedges are recognised in the balance sheet and changes in value are reported in the income statement. POCHINS PLC Contents Section Content Page 1 Overview of impact 32 Consolidated income statement reconciliations - UK GAAP to IFRS As at 31 May 2005 4 As at 30 November 2004 5 Changes in accounting policies - income statement 6 3 Consolidated statement of recognised income and expense reconciliations - UK GAAP to IFRS As at 31 May 2005 9 As at 30 November 2004 10 4 Consolidated balance sheet reconciliations - UK GAAP to IFRS As at 31 May 2005 11 As at 30 November 2004 12 As at 1 June 2004 13 Changes in accounting policies - balance sheet 14 5 Consolidated cash flow statement for the year ended 31 May 2005 17 6 Statement of Pochin's PLC accounting policies under IFRS 18 Section 1 Overview of impact Year to 31 May 2005 6 months to 30 November 2004 UK GAAP IFRS UK GAAP IFRS Revenue (£'000) 96,126 93,886 45,174 45,709Profit from operations (£'000) 6,505 7,334 1,246 983Profit before tax (£'000) 5,804 6,108 870 538Profit for the period (£'000) 3,355 4,047 526 434Basic earnings per share (p) 16.6 20.0 2.6 2.1Diluted earnings per share (p) 16.5 19.9 2.6 2.1Net assets (excl net pension 49,973 47,483 45,734 44,315liability) (£'000)Net assets (£'000) 49,973 44,409 45,734 40,863Effective tax rate (%) 41.7 33.3 38.0 16.9Net assets per share (£) 2.40 2.14 2.20 1.96 Financial impact of IFRS for the year to 31 May 2005 Income Balance statement sheetStandard Details £'000 £'000 UK GAAP profit for the year/net assets (before 3,382 49,973 minority interests) IAS16 All revaluation surpluses on investment properties 2,459 - are recognised in the income statement. IAS18 Profit reduced by £1,077,000 (net) due to (1,077) (1,351) recognition of property sales on completion of contract rather than exchange of unconditional contract. However, £1,352,000 (net) of profit recognised in the year under UK GAAP is to be deferred until year ending 31 May 2006 under IFRS. IAS12 Deferred tax of £360,000 has been charged to the (360) (2,086) income statement on all revaluation surpluses. IAS19 Movement in pension scheme liability (net) (199) (3,074) IAS32/39 Provision of £262,000 (net) has been made for the (262) (262) change in fair value on an interest rate swap. IFRS3 Intangible assets arising on acquisitions are 148 148 attributed to specific assets such as customer lists etc and are to be written off over the period in which the group is expected to derive a benefit from such assets. IFRS2 Share based payment liability (net) increased by (17) - £17,000. IAS10 Proposed dividends of £1,061,000 should only be - 1,061 recognised when they are declared. IFRS profit for the year/net assets (before minority 4,074 44,409 interests) Section 2 - Reconciliation - UK GAAP to IFRS Consolidated income statementYear ending 31 May 2005 Adjustments £'000 UK GAAP (1) (2) (3) (4) (5) (6) (7) (8) (9) IFRS 31-May-05 Business Deferred Retirement Share Property Interest Revaluation Investment 31-May-05 £'000 tax benefits options sales Rate gains in joint £'000 combinations swap ventures and associatesRevenue 96,126 (2,240) 93,886Cost of sales (82,121) 701 (81,420)Gross profit 14,005 - - - - - (1,539) - - - 12,466Distribution costs (1,361) (1,361)Administrative (9,772) 406 (258) (215) (24) (9,863)expensesOther operating 3,633 3,633incomeGains on - 2,459 2,459revaluation ofinvestmentpropertiesOperating profit 6,505 406 (258) - (215) (24) (1,539) - 2,459 - 7,334Share of operating (177) (1) (178)loss in jointventuresShare of operating 496 (79) 417profit inassociatesNet interest (1,020) (375) (1,395)Finance income - 922 922Finance cost - (992) (992)Profit before tax 5,804 406 (258) - (285) (24) (1,539) (375) 2,459 (80) 6,108Taxation (2,422) (360) 86 7 462 113 80 (2,034)Profit for the 3,382 406 (258) (360) (199) (17) (1,077) (262) 2,459 - 4,074yearAttributable to:Equity holders of 3,355 406 (258) (360) (199) (17) (1,077) (262) 2,459 - 4,047the companyMinority interests 27 - - - - - - - - - 27Earnings per share 16.6 20.0- basic (p)Earnings per share 16.5 19.9- diluted (p) Consolidated income statement6 months ending 30 November 2004 Adjustments £'000 UK GAAP (1) (2) (3) (4) (5) (6) (9) IFRS 30-Nov-04 Business Deferred Retirement Share Property Investment 30-Nov-04 £'000 tax benefits options sales in joint £'000 combinations ventures and associates Revenue 45,174 53535 45,709Cost of sales (40,220) (680) (40,900)Gross profit 4,954 - - - - - (145) - 4,809 Operating expenses (5,483) 161 (95) (174) (10) (5,601)Other operating income 1,775 1,775Operating profit 1,246 161 (95) - (174) (10) (145) - 983Share of operating loss (138) (6) (144)in joint venturesShare of operating 167 (28) 139profit in associatesNet interest (405) (405)Finance income - 461 461Finance cost - (496) (496)Profit before tax 870 161 (95) - (209) (10) (145) (34) 538Taxation (331) 96 63 3 44 34 (91) Profit/(loss) for the 539 161 (95) 96 (146) (7) (101) - 447period Attributable to:Equity holders of the 526 161 (95) 96 (146) (7) (101) - 434companyMinority interests 13 - - - - - - - 13Earnings per share - 2.6 2.1basic (p)Earnings per share - 2.6 2.1diluted (p) Changes in accounting policies - income statement Explanatory notes on the impact of IFRS adjustments to the consolidated incomestatement (1) & (2) IFRS 3 - Business combinations IFRS 3 requires goodwill acquired in a business combination to be recognised bythe acquirer as an asset from the date of acquisition and prohibits theamortisation of goodwill but instead requires it to be tested for impairmentannually, or more frequently if events or changes in circumstances indicate thatthe asset might be impaired. IFRS also requires acquired intangibles to beidentified and written off over their estimated useful lives. With regard to goodwill which had been recognised prior to 1 June 2004 this isto be frozen at its carrying amount at 1 June 2004 with there being norequirement to write back previously written off goodwill. Under UK GAAP, goodwill arising on consolidation and purchased goodwill wascapitalised on the balance sheet and amortised over the assets' useful economiclives. No business combinations have been restated prior to their transition date, aspermitted by IFRS. (3) IAS 12 - Income taxes Under IAS, deferred tax is to be applied in respect of all fixed assetrevaluations included in the accounts, taking into account indexation of thebase cost. (4) IAS 19 - Employee benefits The increase in the present value of the liabilities of the group's definedbenefit pension scheme expected to arise from employee service in the period ischarged to the profit from operations. The expected return on the scheme'sassets and the increase during the period in the present value of the scheme'sliabilities arising from the passage of time are included in finance income orfinance costs respectively. Actuarial gains and losses are recognised in theconsolidated statement of recognised income and expense. Charge to the income statement 31-May-05 30-Nov-04 £'000 £'000 Current service cost 557 279Past service cost 132 132Total operating charge 689 411Interest on pension scheme liabilities 992 496Expected return on pension scheme assets (922) (461)Net finance charge 70 35Total charge to income statement 759 446 (5) IFRS 2 - Share based payments The group has long-term incentive plans for several directors and key employeesunder which share options have been issued and, subject to certain performanceconditions, will vest to the relevant option holders over a period of threeyears. In accordance with IFRS 2, the group is required to recognise an expensefor options granted on or after 7 November 2002 that have not vested by 1January 2005. The options have been valued at the date of grant and an expense recognised overthe period that the service benefit is to be provided by the employees under theterms of the scheme. (6) IAS 18 - Revenue recognition Property sales have been recognised based on the completion of contract asoppose to the exchange of unconditional contract. (7) IAS 32 & IAS 39 - Interest rate swaps Derivative financial instruments such as interest rate swaps create rights andobligations that have the effect of transferring between the parties to theinstrument one or more of the financial risks inherent in an underlying primaryfinancial instrument. On inception, derivative financial instruments give one party a contractualobligation to exchange financial assets or liabilities with another party thatare potentially favourable or unfavourable. Under IAS 39, derivatives are classified as held-for-trading instruments and areremeasured to fair value with movements being taken to the income statement. At31 May 2005 a liability of £375,000 before tax had been quantified. Under UK GAAP, this liability had merely been disclosed by way of note to thefinancial statements. (8) IAS 40 - Surpluses/deficits on revaluation of investment properties Under IFRS, changes in the fair value of investment properties are to berecognised separately in the income statement. Under UK GAAP, such revaluationsurpluses/deficits are recognised as a net movement within equity. There is no material change in the value of investment properties for the 6months ended 30 November 2005 therefore no gains have been recognised. (9) IAS 28 - Investments in associates and IAS 31 - Interests in joint ventures Under UK GAAP, the group share of operating profits of associates and jointventures was presented on the face of the income statement after group operatingprofit. The group share of interest and tax of associates was included withinthe relevant group totals. Under IFRS, the group share of profit after tax ofassociates and joint ventures is presented on the face of the income statementafter group operating profit. The group has followed the alternative treatmentof equity accounting as permitted by IAS 31. Section 3 Consolidated statement of recognised income and expenseYear ending 31 May 2005 Adjustments £'000 UK Business Deferred Retirement Share Interest Property Revaluation IFRS GAAP £'000 tax benefits options rate sales gains £'000 combinations swap Gains on revaluation of 2,459 (2,459) -investment properties Actuarial losses on - (439) (439)defined benefit pensionscheme (net) Net income recognised 2,459 - - - (439) - - - (2,459) (439)directly in equity Profit/(loss) for the 3,382 406 (258) (360) (199) (17) (262) (1,077) 2,459 4,074year Total recognised income 5,841 406 (258) (360) (638) (17) (262) (1,077) - 3,635and expense for the year Attributable to: Equity holders of the 5,814 406 (258) (360) (638) (17) (262) (1,077) - 3,608companyMinority interests 27 27 5,841 406 (258) (360) (638) (17) (262) (1,077) - 3,635 Consolidated statement of recognised income and expense6 months ending 30 November 2004 Adjustments £'000 UK GAAP Business Deferred Retirement Share Property IFRS £'000 tax benefits options sales £'000 combinations Actuarial losses on defined - (871) (871)benefit pension schemes(net) Net income recognised - - - - (871) - - (871)directly in equity Profit/(loss) for the year 539 161 (95) 96 (146) (7) (101) 447 Total recognised income and 539 161 (95) 96 (1,017) (7) (101) (424)expense for the year Attributable to: Equity holders of the 526 161 (95) 96 (1,017) (7) (101) (437)companyMinority interests 13 13 539 161 (95) 96 (1,017) (7) (101) (424) This information is provided by RNS The company news service from the London Stock Exchange