Implementation of IFRS Part I
February 24 2006 - 1:01AM
UK Regulatory
RNS Number:8769Y
Pochin's PLC
24 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 statements
in accordance with International Financial Reporting Standards (IFRS), adopted
for use in the EU (adopted IFRSs). The regulation applies to accounting periods
beginning 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 International
Financial Reporting Standards (IFRS) with effect from 1 June 2005. The group's
first report under the new standards will be the announcement of its half-year
results for the period ended 30 November 2005.
This report has been prepared to provide financial information showing the
impact of Pochin PLC's transition from a UK Generally Accepted Accounting
Principles (UK GAAP) basis to an IFRS basis, in advance of the publication of
its first financial reporting under IFRS. The adoption of IFRS will have no
impact 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 31
May 2005 and the half-year to 30 November 2004. The significant impact on the
group accounts and all presentational changes are set out in full in this
report.
Financial impact
Having reviewed the impact of IFRS on the group the main items that have a
significant 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 3
2 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 45,709
Profit from operations (#'000) 6,505 7,334 1,246 983
Profit before tax (#'000) 5,804 6,108 870 538
Profit for the period (#'000) 3,355 4,047 526 434
Basic earnings per share (p) 16.6 20.0 2.6 2.1
Diluted earnings per share (p) 16.5 19.9 2.6 2.1
Net assets (excl net pension 49,973 47,483 45,734 44,315
liability) (#'000)
Net assets (#'000) 49,973 44,409 45,734 40,863
Effective tax rate (%) 41.7 33.3 38.0 16.9
Net 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 sheet
Standard 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 statement
Year 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
associates
Revenue 96,126 (2,240) 93,886
Cost of sales (82,121) 701 (81,420)
Gross profit 14,005 - - - - - (1,539) - - - 12,466
Distribution costs (1,361) (1,361)
Administrative (9,772) 406 (258) (215) (24) (9,863)
expenses
Other operating 3,633 3,633
income
Gains on - 2,459 2,459
revaluation of
investment
properties
Operating profit 6,505 406 (258) - (215) (24) (1,539) - 2,459 - 7,334
Share of operating (177) (1) (178)
loss in joint
ventures
Share of operating 496 (79) 417
profit in
associates
Net interest (1,020) (375) (1,395)
Finance income - 922 922
Finance cost - (992) (992)
Profit before tax 5,804 406 (258) - (285) (24) (1,539) (375) 2,459 (80) 6,108
Taxation (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 - 4,074
year
Attributable to:
Equity holders of 3,355 406 (258) (360) (199) (17) (1,077) (262) 2,459 - 4,047
the company
Minority interests 27 - - - - - - - - - 27
Earnings per share 16.6 20.0
- basic (p)
Earnings per share 16.5 19.9
- diluted (p)
Consolidated income statement
6 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 45,709
Cost 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 1,775
Operating profit 1,246 161 (95) - (174) (10) (145) - 983
Share of operating loss (138) (6) (144)
in joint ventures
Share of operating 167 (28) 139
profit in associates
Net interest (405) (405)
Finance income - 461 461
Finance cost - (496) (496)
Profit before tax 870 161 (95) - (209) (10) (145) (34) 538
Taxation (331) 96 63 3 44 34 (91)
Profit/(loss) for the 539 161 (95) 96 (146) (7) (101) - 447
period
Attributable to:
Equity holders of the 526 161 (95) 96 (146) (7) (101) - 434
company
Minority interests 13 - - - - - - - 13
Earnings per share - 2.6 2.1
basic (p)
Earnings per share - 2.6 2.1
diluted (p)
Changes in accounting policies - income statement
Explanatory notes on the impact of IFRS adjustments to the consolidated income
statement
(1) & (2) IFRS 3 - Business combinations
IFRS 3 requires goodwill acquired in a business combination to be recognised by
the acquirer as an asset from the date of acquisition and prohibits the
amortisation of goodwill but instead requires it to be tested for impairment
annually, or more frequently if events or changes in circumstances indicate that
the asset might be impaired. IFRS also requires acquired intangibles to be
identified and written off over their estimated useful lives.
With regard to goodwill which had been recognised prior to 1 June 2004 this is
to be frozen at its carrying amount at 1 June 2004 with there being no
requirement to write back previously written off goodwill.
Under UK GAAP, goodwill arising on consolidation and purchased goodwill was
capitalised on the balance sheet and amortised over the assets' useful economic
lives.
No business combinations have been restated prior to their transition date, as
permitted by IFRS.
(3) IAS 12 - Income taxes
Under IAS, deferred tax is to be applied in respect of all fixed asset
revaluations included in the accounts, taking into account indexation of the
base cost.
(4) IAS 19 - Employee benefits
The increase in the present value of the liabilities of the group's defined
benefit pension scheme expected to arise from employee service in the period is
charged to the profit from operations. The expected return on the scheme's
assets and the increase during the period in the present value of the scheme's
liabilities arising from the passage of time are included in finance income or
finance costs respectively. Actuarial gains and losses are recognised in the
consolidated statement of recognised income and expense.
Charge to the income statement
31-May-05 30-Nov-04
#'000 #'000
Current service cost 557 279
Past service cost 132 132
Total operating charge 689 411
Interest on pension scheme liabilities 992 496
Expected return on pension scheme assets (922) (461)
Net finance charge 70 35
Total charge to income statement 759 446
(5) IFRS 2 - Share based payments
The group has long-term incentive plans for several directors and key employees
under which share options have been issued and, subject to certain performance
conditions, will vest to the relevant option holders over a period of three
years. In accordance with IFRS 2, the group is required to recognise an expense
for options granted on or after 7 November 2002 that have not vested by 1
January 2005.
The options have been valued at the date of grant and an expense recognised over
the period that the service benefit is to be provided by the employees under the
terms of the scheme.
(6) IAS 18 - Revenue recognition
Property sales have been recognised based on the completion of contract as
oppose to the exchange of unconditional contract.
(7) IAS 32 & IAS 39 - Interest rate swaps
Derivative financial instruments such as interest rate swaps create rights and
obligations that have the effect of transferring between the parties to the
instrument one or more of the financial risks inherent in an underlying primary
financial instrument.
On inception, derivative financial instruments give one party a contractual
obligation to exchange financial assets or liabilities with another party that
are potentially favourable or unfavourable.
Under IAS 39, derivatives are classified as held-for-trading instruments and are
remeasured to fair value with movements being taken to the income statement. At
31 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 the
financial statements.
(8) IAS 40 - Surpluses/deficits on revaluation of investment properties
Under IFRS, changes in the fair value of investment properties are to be
recognised separately in the income statement. Under UK GAAP, such revaluation
surpluses/deficits are recognised as a net movement within equity.
There is no material change in the value of investment properties for the 6
months 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 joint
ventures was presented on the face of the income statement after group operating
profit. The group share of interest and tax of associates was included within
the relevant group totals. Under IFRS, the group share of profit after tax of
associates and joint ventures is presented on the face of the income statement
after group operating profit. The group has followed the alternative treatment
of equity accounting as permitted by IAS 31.
Section 3
Consolidated statement of recognised income and expense
Year 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 pension
scheme (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 4,074
year
Total recognised income 5,841 406 (258) (360) (638) (17) (262) (1,077) - 3,635
and expense for the year
Attributable to:
Equity holders of the 5,814 406 (258) (360) (638) (17) (262) (1,077) - 3,608
company
Minority interests 27 27
5,841 406 (258) (360) (638) (17) (262) (1,077) - 3,635
Consolidated statement of recognised income and expense
6 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)
company
Minority 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
END
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