1st Jul 2005 07:00
Weir Group PLC01 July 2005 1 July 2005 - Embargoed until 7am THE WEIR GROUP PLC Adoption of International Financial Reporting Standards ('IFRS') Restatement of 2004 financial information. The Weir Group PLC today announces the impact of the transition to InternationalFinancial Reporting Standards (IFRS) on its 2004 results previously prepared inaccordance with generally accepted accounting principles in the UK (UK GAAP). The impact on the audited 2004 key financial data is summarised as follows: UK GAAP IFRS % Comments on principal IFRS changes £ Million £ Million change Turnover 847.6 738.7 -12.8 Share of joint ventures and associates excluded.Profit from continuing 61.3 58.2 -5.1 Share of joint ventures and associatesoperations before tax and finance costs and tax included.finance costs (1) Profit before tax (1) 58.3 55.4 -5.0 Share of joint ventures and associates tax included. Profit after tax (1) 44.3 44.1 -0.5 Earnings per share (1) 21.5p 21.4p -0.5 Total equity 245.5 265.3 +8.1 Goodwill, dividends, associates and deferred tax. Net funds 12.3 12.6 +2.4 Short term highly liquid investments. Notes: (1) The UK GAAP profit and earnings per share figures exclude amortisation of goodwill. (2) The Weir Group PLC will adopt IAS32 and IAS39 prospectively with effect from 1 January 2005 and the effect of doing so is considered in Part I of the following document. Analysts' Teleconference: 10.30 am, Friday 1 July, 2005: Dial In: 020 7162 0092 - Quote: Weir Contact Details: The Weir Group PLC Chris Rickard, Finance Director Tel. 0141 637 7111Helen Walker, Public Relations Manager (Mobile: 07789 032296)Maitland Tel. 020 7379 5151Peter Spring The Weir Group PLC Restatement of Financial Information Under International Financial Reporting Standards 1st July 2005 CONTENTS Executive Summary PART I Transition from UK GAAP to IFRS Introduction Basis of preparation Relevant differences between UK GAAP and IFRS Presentational changes Prospective adoption of IAS32 and IAS39 PART II Restated audited preliminary comparative IFRS financial information - Consolidated income statement for the 53 weeks ended 31 December 2004 - Consolidated cash flow statement for the 53 weeks ended 31 December 2004 - Consolidated balance sheet as at 31 December 2004 - Consolidated statement of recognised income and expense for the 53 weeks ended 31 December 2004 - Consolidated summary of changes in shareholders' equity for the 53 weeks ended 31 December 2004 - Consolidated adjustment to opening shareholders' equity for the 53 weeks ended 31 December 2004 Notes to the restated financial information, including significant accountingpolicies under IFRS Independent auditors' report to the Directors of The Weir Group PLC on thepreliminary comparative IFRS financial information PART III Presentation of financial information prepared in accordance with UKGAAP in IFRS format - Consolidated income statement for the 53 weeks ended 31st December 2004 - Consolidated cash flow statement for the 53 weeks ended 31st December 2004 - Consolidated balance sheet as at 31st December 2004 EXECUTIVE SUMMARY Adoption of International Financial Reporting Standards ('IFRS') Restatement of 2004 financial information. The Weir Group PLC today announces the impact of the transition to InternationalFinancial Reporting Standards (IFRS) on its 2004 results previously prepared inaccordance with generally accepted accounting principles in the UK (UK GAAP). The impact on the audited 2004 key financial data is summarised as follows: UK GAAP IFRS % Comments on principal IFRS £ Million £ Million change changes Turnover 847.6 738.7 -12.8 Share of joint ventures and associates excluded. Profit from continuing 61.3 58.2 -5.1 Share of joint ventures and operations before tax and associates finance costs and tax finance costs (1) included. Profit before tax (1) 58.3 55.4 -5.0 Share of joint ventures and associates tax included. Profit after tax (1) 44.3 44.1 -0.5 Earnings per share (1) 21.5p 21.4p -0.5 Total equity 245.5 265.3 +8.1 Goodwill, dividends, associates and deferred tax. Net funds 12.3 12.6 +2.4 Short term highly liquid investments. NOTES: (1) The UK GAAP profit and earnings per share figures exclude amortisation of goodwill. (2) The Weir Group PLC will adopt IAS32 and IAS39 prospectively with effect from 1 January 2005 and the effect of doing so is considered in Part 1. PART I TRANSITION FROM UK GAAP TO IFRS Transition from UK GAAP to IFRS INTRODUCTION With effect from 1 January 2005, The Weir Group PLC ("The Weir Group") isrequired to prepare its consolidated financial statements in accordance withInternational Financial Reporting Standards (IFRS). As the Group's consolidatedfinancial statements for the 52 weeks ending 30 December 2005 will includecomparative information for the 53 weeks ended 31 December 2004 ("2004"), theGroup's date of transition to IFRS is regarded as 27 December 2003. Comparativeinformation for 2004 originally presented in accordance with UK GAAP, must berestated in accordance with IFRS. The first results to be prepared on an IFRSbasis will be contained in the Group's results announcement for the 26 weeksended 1 July 2005. The purpose of this document is to: a. explain the basis on which The Weir Group has effected the transition to IFRS; b. identify the significant differences between IFRS and UK GAAP relevant to The Weir Group; c. set out the Group's significant accounting policies under IFRS; and d. show the impact of restatement in accordance with IFRS on the Group's previously reported results and financial position under UK GAAP. Part II of this document includes the Group's consolidated income statement,consolidated cash flow statement, consolidated balance sheet as at 31 December2004, consolidated statement of recognised income and expense and consolidatedsummary of changes in shareholders' equity for the 53 weeks ended 31 December2004 restated in accordance with IFRS. Part III includes schedules reclassifying the UK GAAP profit and loss accountand cash flow statement for the 53 weeks ended 31 December 2004 and the balancesheet at that date, into IFRS format. The financial information in Parts II and III has been audited by Ernst & YoungLLP and their audit report to the Directors of the Weir Group PLC is set out inPart II. BASIS OF PREPARATION European law requires that the Group's financial statements for the 52 weeksending 30 December 2005 are prepared on the basis of IFRS as endorsed for use inthe European Union. IFRS are subject to amendment or interpretation by the IASBand there is an ongoing process of review and endorsement by the EuropeanCommission. The financial information contained in this document has beenprepared on the basis of IFRS that the Directors expect to be applicable as at30 December 2005. For the reasons outlined above, it is possible that therestated information for 2004 presented in this document may be subject tochange before its inclusion in the Group's 2005 Report and Accounts, which willcontain the Group's first complete financial statements prepared in accordancewith IFRS. As a general rule, the Group is required to apply IFRS applicable as at 30December 2005 retrospectively to determine its restated financial position as at27 December 2003 ("the transition date"). However, under IFRS1 "First timeadoption of IFRS" there are certain exemptions to this general principle thatthe Group has adopted as follows: Business combinations The Weir Group has elected not to apply IFRS3 "Business Combinations" tobusiness combinations that took place before 27 December 2003. As a result: a. goodwill recognised as an asset under UK GAAP as at 27 December 2003 has not been revised retrospectively to identify and extract intangible assets to be recognised separate from goodwill. The carrying amount of goodwill brought forward in the opening IFRS balance sheet is that recorded under UK GAAP; and b. goodwill written-off directly to reserves under UK GAAP will not be taken into account in determining any gain or loss on the disposal of acquired businesses on or after 27 December 2003. Share-based payments The Weir Group has applied IFRS2 "Share-based Payment" retrospectively only toequity-settled awards that had not vested as at 1 January 2005 and were grantedon or after 7 November 2002. Financial instruments The Weir Group has elected to apply IAS32 "Financial Instruments: Disclosure andPresentation" and IAS39 "Financial Instruments: Recognition and Measurement"prospectively from 1 January 2005. Consequently, the relevant comparativeinformation for 2004 does not reflect the impact of these standards and isaccounted for on a UK GAAP basis. The impact of adopting IAS32 and IAS39 from 1 January 2005 is considered furtheron page 8. Cumulative foreign currency translation differences The Weir Group has elected to deem the cumulative differences on theretranslation into sterling of the Group's net investment in foreign operationsto be £nil as at 27 December 2003. As a result, in the event of the subsequentdisposal of a foreign operation, any gain or loss on disposal will only includecumulative translation differences arising on or after 27 December 2003. Post employment benefits All cumulative actuarial gains and losses on group defined benefit pensionschemes have been recognised in reserves as at the transition date. On anongoing basis all actuarial gains and losses will be recognised directly inreserves via the statement of recognised income and expense in the period inwhich they occur in a similar way to FRS 17. Property, plant and equipment The Weir Group has elected to use previous GAAP revaluations of property, plantand equipment prior to 27 December 2003 as deemed cost at the date of therevaluation. RELEVANT DIFFERENCES BETWEEN UK GAAP AND IFRS a. Goodwill As a consequence of the Group's election not to apply IFRS3 "BusinessCombinations" retrospectively, the basis of accounting under UK GAAP forbusiness combinations recognised before 27 December 2003 has not been revisitedunder IFRS and the carrying amount of goodwill recognised as an asset under UKGAAP has been brought forward unadjusted, as the cost of goodwill recognisedunder IFRS as at 27 December 2003. Under UK GAAP, goodwill was amortised over its useful economic life, tested forimpairment and provided against as necessary. Under IFRS, goodwill is no longeramortised but must be tested for impairment as at 27 December 2003 (thetransition date) and at least annually thereafter. The impairment tests carriedout by the Group as at 27 December 2003 and 31 December 2004 revealed noimpairment loss. Goodwill amortisation, excluding share of associates, charged under UK GAAPduring 2004 was £7.2 million and this amount is credited back to the incomestatement under IFRS. b. Computer software Under UK GAAP, all capitalised computer software was included within tangiblefixed assets. Under IAS38 "Intangible Assets", capitalised computer softwaremust be presented as an intangible asset unless it is integral to an item ofproperty, plant and equipment. Under IFRS, non-integral computer software witha carrying value of £3.7 million has been reclassified from property, plant andequipment to intangible assets at 31 December 2004 (£3.0 million at 27 December2003). c. Development costs Under UK GAAP, research and development costs were written off in the period inwhich they were incurred. Under IAS38 "Intangible Assets", all research costsand most development costs will be written off in the period in which they areincurred. However, development costs associated with new products must becapitalised from the time at which the development project satisfies theconditions specified within IAS38 "Intangible Assets". Due to the nature of our businesses, much of the Group's development expenditureis directed towards the incremental improvements of existing products and doesnot qualify for capitalisation. Under the Group's IFRS accounting policies, development expenditure on newproducts will be capitalised only if it is incurred after the technicalfeasibility and commercial viability of the product has been proven. During2004, the Group incurred no development expenditure which satisfies theseconditions. Development expenditure incurred before 27 December 2003 has not beencapitalised retrospectively because the conditions specified within IAS 38 werenot met. d. Share-based payments Under UK GAAP, the cost of awards made under the Group's employee share schemeswas based on the intrinsic value of the awards, with the exception of SAYEschemes for which no cost was recognised. Under IFRS2 "Share-based Payment", the cost of employee share schemes, includingSAYE schemes, is based on the fair value of the awards that must be assessedusing an option-pricing model. Generally, the fair value of the award isexpensed on a straight-line basis over the vesting period. Adjustments are madeto reflect expected and actual forfeitures during the vesting period due tofailure to satisfy either service conditions or non-market performanceconditions, such as EPS growth targets. As a result of these changes, the costof employee share schemes recognised during 2004 has decreased by £0.2 million. e. Post employment benefits Under UK GAAP, post employment benefits were accounted for under FRS 17 "Retirement Benefits", whereby operating costs of providing retirement benefitsare recognised in the periods the benefits are earned by employees and financecosts are recognised in the periods they arise. Under FRS17, actuarial gainsand losses are reflected in the statement of total recognised gains and lossesin the period in which they arise. Under IAS19 "Employee Benefits", the fair value of assets is required to bebased on a bid market price whereas under FRS17 the mid market price was used.The value of defined benefit pension scheme assets have therefore been reducedby £1.0 million and £1.2 million as at 27 December 2003 and 31 December 2004respectively and the net finance income recognised during 2004 has decreased by£0.1 million. Under IAS19, a number of options for the recognition of actuarial gains andlosses are permitted. The Group's policy is to recognise immediately anyvariations in full, as opposed to applying the "corridor" approach, in astatement of recognised income and expense, as permitted in the IASB's amendmentto IAS19 entitled Actuarial Gains and Losses, Group Plans and Disclosures. TheEuropean Union has not yet endorsed this amendment and the above policy issubject to change, depending on the outcome of the endorsement process. Under UK GAAP, deferred tax is netted off against the related pension liabilitybut under IFRS deferred tax on the pension liability is included within thedeferred tax balance. As at 31 December 2004 the reclassification amounts to£29 million (£32.7 million as at 27 December 2003). f. Employee benefits - holiday pay IAS19 explicitly requires appropriate accrual to be made for the cost of allholiday entitlements not taken at the balance sheet date. This is moreprescriptive than was the case under UK GAAP and holiday pay accruals amountingto £0.4 million are incorporated as at 31 December 2004 (£0.5 million as at 27December 2003). As a result of this change, the cost of providing employeebenefits recognised during 2004 has decreased by £0.1 million. g. Proposed dividends Under UK GAAP, proposed dividends were recognised as a liability in the periodto which they related. Under IFRS, dividends are recognised as a liability inthe period in which they are declared. Net assets at 31 December 2004 increaseby £19.4 million, representing the reversal of the accrual for the finalordinary dividend proposed in respect of 2004, (£18.5 million as at 27 December2003). h. Deferred tax Under UK GAAP, deferred tax was provided on timing differences between theaccounting and taxable profit (an income statement approach). Under IAS12 "Income Taxes", deferred tax is provided on temporary differences between thebook carrying value and tax base of assets and liabilities (a balance sheetapproach). Under IFRS the difference in approach means that deferred tax provisions of £9.3million relating to goodwill set off against reserves under UK GAAP and notreinstated under IFRS are written back as at 31 December 2004. A deferred taxasset has not been recognised because it does not meet the IAS12 recognitioncriteria. i. Foreign currency translation differences Under UK GAAP, cumulative foreign currency translation differences arising onthe retranslation into sterling of the Group's net investment in foreignoperations were recognised within reserves. Under IAS21 "The Effects of Changesin Foreign Exchange Rates", cumulative foreign currency translation differencesmust be recognised as a separate component of equity and should be taken intoaccount in calculating the gain or loss on the disposal of a foreign operation.As permitted under IFRS 1, The Weir Group has elected to deem cumulativetranslation differences to be £nil on 27 December 2003. Under UK GAAP, exchange differences that arise on translating a monetary itemwhich forms part of the reporting entity's net investment in a foreign operationand which is denominated in a currency other than the functional currency ofeither the reporting entity or the foreign operation are recorded as movementson reserves. Under IFRS, such exchange differences require to be reported inthe income statement. As a result of this change an exchange gain of £0.2million reported as a movement in reserves is now recognised in the incomestatement for the period ending 31 December 2004. j. Joint Ventures and Associates Under UK GAAP, joint ventures and associates are accounted for using the equitymethod. Under IAS31 "Interests in Joint Ventures" interests in joint venturesthat are jointly controlled entities may be recognised using either theproportionate consolidation method or the equity method. The Group's policyunder IFRS is to account for such joint ventures using the equity method. Under IAS 28 "Investments in Associates", the application of the equity methodrequires that the investees financial statements be prepared using accountingpolicies which conform to those of the investor. The adoption of IFRS by TheWeir Group results in a net £15.3 million reduction in the investments inassociates as at 31 December 2004 (£10.4 million at 27 December 2003) due toadjustments in respect of goodwill, intangibles, pensions and tax. Thisalignment to IFRS also results in a reduction of £0.4 million to the Weir shareof associates profits after tax for 2004. k. Construction Contracts IAS11 "Construction Contracts" requires balance sheet classifications whichdiffer from UK GAAP. This has no impact on the profit or net assets previouslyreported. PRESENTATIONAL CHANGES The primary financial statements contained in this document have been presentedin accordance with IAS1 "Presentation of Financial Statements", IAS7 "Cash FlowStatements" and IFRS5 "Non-Current Assets Held for Sale and DiscontinuedOperations". There are a number of presentational changes compared with UK GAAP, includingthe following, that affect the Group's reported profit from operations: • the results (after interest and tax) of joint ventures and associates are shown as single line items respectively in arriving at profit from operations. Associates results for 2004 were presented under UK GAAP as £9.1 million profit, £0.2 million interest charge and £2.6 million tax charge. Under IFRS the contribution from associates to the Group's profit from operations is presented as £6.3 million profit prior to any adjustment for the changes referred to in (j) above. The restatement impact on joint ventures is not significant. It is possible that the format and presentation of the primary financialstatements will change in the event that further guidance is issued by the IASBand as practice develops. The effect of presentational changes on the incomestatement, cash flow statement and the balance sheet are shown in Part III. PROSPECTIVE ADOPTION OF IAS32 'FINANCIAL INSTRUMENTS: DISCLOSURE ANDPRESENTATION' AND IAS39 'FINANCIAL INSTRUMENTS: RECOGNITION AND MEASUREMENT' As permitted under IFRS1, The Weir Group has elected to apply IAS32 and IAS39prospectively from 1 January 2005. As a result, the relevant comparativeinformation for 2004 does not reflect the impact of these standards and isaccounted for on a UK GAAP basis. The principal impact of applying IAS32 andIAS39 is detailed below. a. Derivatives and hedge accounting The Weir Group uses derivative contracts to manage economic exposure tomovements in currency exchange rates. Under UK GAAP, such derivative contracts are not recognised as assets andliabilities on the balance sheet and gains or losses arising on them are notrecognised until the hedged item has itself been recognised in the financialstatements. Under IFRS, such derivative contracts must be recognised as assets andliabilities on the balance sheet measured at their fair values. Changes in theirfair values must be recognised in the income statement and this is likely tocause volatility, although under certain conditions specified within IAS39,hedge accounting may be used to mitigate income statement volatility. The Weir Group plans to continue using derivative instruments to manage economicexposure to movements in non functional currency exchange rates. The Groupsaccounting policy will be to apply hedge accounting to hedging relationshipswhere it is both permissible under IAS39 and practical to do so. b. Pro-forma effect of adopting IAS32 and IAS39 For illustrative purposes, the following table shows the Group's equity, netfunds, tax and other assets/liabilities as at 1 January 2005 on a pro-formabasis, prepared on the assumption that IAS32 and IAS39 is adopted as at 1January 2005: 1 January 2005 Other assets/ liabilities Tax Net Funds Equity £m £m £m £m Restated under IFRS 232.1 20.6 12.6 (265.3) Fair value adjustments 3.7 (1.0) (0.3) (2.4) Pro-forma under IAS32 and IAS39 235.8 19.6 12.3 (267.7) PART II Restated audited preliminary comparative IFRS financial information for the 53 weeks ended 31 December 2004 THE WEIR GROUP PLC RESTATEMENT OF CONSOLIDATED INCOME STATEMENT (PREPARED IN ACCORDANCE WITH IFRS)for the 53 weeks ended 31 December 2004 UK GAAP Penalties on Exchange Share Mid to bid Holiday Restated IFRS construction Goodwill on intra based pensions pay under IFRS Format contracts amortisation group payments valuation Associ- accruals Tax loans ates £000's £000's £000's £000's £000's £000's £000's £000's £000's £000's Continuing operationsRevenue 739,350 (688) 738,662Cost of sales (542,285) 688 56 (541,541)Gross profit 197,065 - - - - - - 56 - 197,121 Other revenue and 2,019 203 2,222incomeSelling and (95,850) (95,850)distribution costsAdministrative (51,965) 244 (51,721)expensesGoodwill amortisation (7,163) 7,163 -Share of results of - joint ventures 541 541 - associates 6,302 (408) 5,894 Profit from continuing operations before tax and finance costs 50,949 - 7,163 203 244 - (408) 56 - 58,207 Finance costs (6,395) (6,395)Finance income 2,693 2,693Employee benefits interest income 955 (68) 887 Profit before tax 48,202 - 7,163 203 244 (68) (408) 56 - 55,392 Income tax expense 11,280 51 48 (20) 17 (40) 11,336 Profit for the year from continuingoperations 36,922 - 7,163 152 196 (48) (408) 39 40 44,056 Attributable to:Equity holders of the parent 36,881 - 7,163 152 196 (48) (408) 39 40 44,015Minority interests 41 41 36,922 - 7,163 152 196 (48) (408) 39 40 44,056 Earnings per shareBasic - continuing operations 17.9p 21.4p Diluted - continuing operations 17.8p 21.3p THE WEIR GROUP PLC CONSOLIDATED CASH FLOW STATEMENT PREPARED IN ACCORDANCE WITH IFRSfor the 53 weeks ended 31 December 2004 Restated Restated under IFRS under IFRS £000's £000'sCash flows from operating activitiesCash generated from operations 67,010Exceptional pension contributions (12,096)Income tax paid (8,815)Net cash generated from operating activities 46,099 Cash flows from investing activitiesAcquisitions (897)Disposals 4,602Purchases of property, plant & equipment & intangible assets (24,250)Proceeds from sale of property, plant & equipment & intangible assets 489Purchases of other investments (550)Proceeds from sale of other investments 782Dividends received 5,298Interest paid (4,765)Interest received 2,675Net cash used in investing activities (16,616) Cash flows from financing activitiesProceeds from issuance of ordinary shares 5,488Proceeds from borrowings 80,842Repayments of borrowings (113,140)Foreign exchange hedging 2,478Dividends paid to equity holders of the parent (25,688)Dividends paid to minority interests (29)Net cash used in financing activities (50,049) Net decrease in cash and cash equivalents (20,566)Cash and cash equivalents at 27 December 2003 117,725Exchange losses on cash and cash equivalents (1,548)Cash and cash equivalents at 31 December 2004 95,611 Cash and cash equivalents at 31 December 2004 comprised:Cash & short term deposits 97,622Bank overdrafts (2,011) 95,611 Reconciliation of net increase in cash to movement in net debtDecrease in cash and cash equivalents (20,566)Decrease in debt 32,298Change in net debt resulting from cash flows 11,732Lease inception (216)Foreign currency translation differences 580Change in net funds during the year 12,096Net funds at 27 December 2003 504Net funds at 31 December 2004 12,600 THE WEIR GROUP PLC NOTE TO CONSOLIDATED CASH FLOW STATEMENT PREPARED IN ACCORDANCE WITH IFRSfor the 53 weeks ended 31 December 2004 As Goodwill Exchange Share Holiday Exceptional Construction Restated reported amortisation on intra based pay items contracts under under UK group payments accruals IFRS GAAP * loans £000's £000's £000's £000's £000's £000's £000's £000's Operatingprofit 44,106 7,163 203 244 56 51,772 Profit from continuing operations excluding joint ventures and associatesDepreciation,goodwillamortisation &grant credits 22,371 (7,163) 15,208 Depreciation & grant creditsGain ondisposal oftangibleassets &investments (173) (173) Gain on disposal of property, plant & equipment & investmentsFunding ofpension & postretirementcosts (733) (733) Funding of pension & post retirement costsIncrease inprovisions 2,507 (628) 16 1,895 Increase in provisionsEmployee sharescheme 600 (244) 356 Employee share scheme - (203) (203) Exchange gain on intra group loansIncrease instocks (633) 865 232 Decrease in inventoriesIncrease indebtors (40,808) (2,570) (43,378) Increase in trade & other receivables & construction contractsIncrease increditors 40,401 (56) 1,689 42,034 Increase in trade & other payables & construction contractsFundsgenerated byoperations 67,638 - - - - (628) - 67,010 Cash generated by operations Exceptionalpensioncontributions (12,096) - (12,096) Exceptional pension contributions Cash spent onexceptionalenvironmentalprovision (284) 284 -Cash spent onexceptionalclosure costs (344) 344 -Cash spent onexceptionalitems (628) - - - - 628 - - Taxation (8,815) (8,815) Income tax paid 46,099 - - - - - - 46,099 Net cash generated from operating activities * The order and description of items presented "As reported under UK GAAP" has been adjusted to ease the direct comparison with IFRS presentation. THE WEIR GROUP PLC RESTATEMENT OF CONSOLIDATED BALANCE SHEET (PREPARED IN ACCORDANCE WITH IFRS)as at 31 December 2004 UK GAAP Mid to bid Exchange Share Holiday IFRS Computer Goodwill Proposed pensions on intra base pay Restated Format Software amortisation dividend valuation Associate group pay- accruals Tax under loans ments IFRS £000's £000's £000's £000's £000's £000's £000's £000's £000's £000's £000's ASSETSNon-current assetsProperty, plant & equipment 109,750 (3,700) 106,050 Intangible assets 103,916 3,700 7,091 114,707Investments in joint ventures & associates 21,020 (15,295) 5,725Deferred tax receivable 31,813 366 123 (7,598) 24,704Total non-current assets 266,499 - 7,091 - 366 (15,295) - - 123 (7,598) 251,186 Current assetsInventories 93,170 93,170Trade & other receivables 177,652 177,652Construction contracts 45,905 45,905Income tax receivable 1,589 1,589Investments 213 213Cash & short term deposits 97,622 97,622Total current assets 416,151 - - - - - - - - - 416,151 Total assets 682,650 - 7,091 - 366 (15,295) - - 123 (7,598) 667,337 EQUITY AND LIABILITIES Share capital 25,882 25,882Share premium 26,451 26,451Other reserves 531 531Foreign currency translation reserve (2,805) (72) (152) (982) (4,011)Retained earnings 195,425 7,163 19,362 (855) (15,295) 152 (48) (287) 10,264 215,881Shareholders' equity 245,484 - 7,091 19,362 (855) (15,295) - (48) (287) 9,282 264,734Minority interest 573 573Total equity 246,057 - 7,091 19,362 (855) (15,295) - (48) (287) 9,282 265,307 Non-currentliabilitiesInterest-bearing loans and borrowings 81,994 81,994 Retirement benefit 94,113 1,221 95,334obligationsProvisions for liabilities & charges 6,958 6,958Deferred tax payable 17,418 48 (16,791) 675 Total non-current 200,483 - - - 1,221 - - 48 - (16,791) 184,961liabilities Current liabilitiesInterest-bearing loans and borrowings 3,028 3,028 Trade and other payables 186,705 (19,362) 410 167,753Construction contracts 29,836 29,836Income tax payable 5,123 (89) 5,034Provisions for liabilities & charges 11,418 11,418Total current liabili- ties 236,110 - - (19,362) - - - - 410 (89) 217,069 Total liabili- ties 436,593 - - (19,362) 1,221 - - 48 410 (16,880) 402,030 Total equity and liabili-ties 682,650 - 7,091 - 366 (15,295) - - 123 (7,598) 667,337 THE WEIR GROUP PLC CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE PREPARED IN ACCORDANCE WITH IFRSfor the 53 weeks ended 31 December 2004 UK GAAP IFRS IFRS adjustments Restated under Format IFRS £000's £000's £000's Actuarial losses (3,258) (179) (3,437)Tax on actuarial losses 918 54 972Share of associate's actuarial losses - (4,459) (4,459)Exchange differences arising on translation of (2,754) (1,257) (4,011)overseas operationsTax on exchange differences arising on translation of (51) 51 -overseas operations Net expense recognised directly in equity (5,145) (5,790) (10,935)Profit for the period 36,922 7,134 44,056Total recognised income and expense for the period 31,777 1,344 33,121 Attributable to:Equity shareholders 31,736 1,344 33,080Minority interests 41 - 41 31,777 1,344 33,121 CONSOLIDATED SUMMARY OF CHANGES IN SHAREHOLDERS' EQUITYfor the 53 weeks ended 31 December 2004 UK GAAP IFRS IFRS adjustments Restated under Format IFRS £000's £000's £000's Total recognised gains and losses attributable to 31,736 1,344 33,080equity shareholdersDividends on ordinary shares (26,525) 837 (25,688)New share issues (net of costs) 5,488 - 5,488Employee share scheme 600 (244) 356 Net addition to shareholders' equity 11,299 1,937 13,236Shareholders' equity at the beginning of the year 234,185 17,313 251,498Shareholders' equity at the end of the year 245,484 19,250 264,734 CONSOLIDATED ADJUSTMENT TO OPENING SHAREHOLDERS' EQUITYfor the 53 weeks ended 31 December 2004 IFRS adjustments £000's Proposed dividend 18,525Mid to bid pensions valuation (682)Associates (10,428)Holiday pay accruals (326)Tax 10,224Net addition to opening shareholders' equity 17,313 THE WEIR GROUP PLC NOTES TO THE FINANCIAL INFORMATION PREPARED IN ACCORDANCE WITH IFRS 1 SIGNIFICANT ACCOUNTING POLICIES UNDER IFRS Basis of preparation The consolidated financial information has been prepared on the basis ofInternational Financial Reporting Standards ("IFRS") expected to be applicablefor the 52 weeks ended 30 December 2005. European law requires that the Group's financial statements for the 52 weeksending 30 December 2005 are prepared on the basis of IFRS as endorsed for use inthe European Union. IFRS are subject to amendment or interpretation by the IASBand there is an ongoing process of review and endorsement by the EuropeanCommission. The financial information contained in this document has beenprepared on the basis of IFRS that the Directors expect to be applicable as at30 December 2005. For the reasons outlined above, it is possible that therestated information for 2004 presented in this document may be subject tochange before its inclusion in the Group's 2005 Report and Accounts, which willcontain the Group's first complete financial statements prepared in accordancewith IFRS. The Weir Group PLC adopted IFRS with a transition date of 27 December 2003.Comparative figures for the 53 weeks ended 31 December 2004 that were previouslyreported in accordance with accounting principles generally accepted in theUnited Kingdom ("UK GAAP") have been restated in order to comply with IFRS, withthe exception of IAS32 "Financial Instruments: Disclosure and Presentation" andIAS39 "Financial Instruments: Recognition and Measurement". These will beapplied prospectively from 1 January 2005. IFRS1 "First-time Adoption of IFRS" allows certain exemptions from theretrospective application of IFRS prior to 27 December 2003. Where theseexemptions have been used, they are explained under the relevant headings below. The consolidated financial information has been prepared under the historicalcost convention except as described under the heading "Financial Instruments". Basis of consolidation The consolidated financial information includes the results, cash flows andassets and liabilities of The Weir Group PLC ("the Company") and itssubsidiaries (together, "the Group"), and the Group's share of its jointventures and associates results. The financial statements of subsidiaries,joint ventures and associates are prepared for the same reporting period as thecompany, using consistent accounting policies. A subsidiary is an entity controlled, either directly or indirectly, by theCompany, where control is the power to govern the financial and operatingpolicies of the entity so as to obtain benefit from its activities. The resultsof a subsidiary acquired during the period are included in the Group's resultsfrom the effective date on which control is transferred to the Group. Theresults of a subsidiary sold during the period are included in the Group'sresults up to the effective date on which control is transferred out of theGroup. All intragroup transactions, balances, income and expenses areeliminated on consolidation. Joint Ventures and Associates A joint venture is an entity in which the Group holds an interest on a long termbasis and which is jointly controlled by the Group and one or more otherventurers under a contractual arrangement. Joint ventures are accounted forusing the equity method. An associate is an entity over which the Company,either directly or indirectly, is in a position to exercise significantinfluence by participating in, but not controlling or jointly controlling, thefinancial and operating policies of the entity. Associates are accounted forusing the equity method. These investments are carried in the balance sheet at cost plus post-acquisitionchanges in the Group's share of net assets less any impairment in value. Theincome statement reflects the share of results of operations of theseinvestments. Where there has been a change recognised directly in theinvestee's equity, the Group recognises its share of any changes and disclosesthis when applicable in the statement of recognised income and expense. Foreign currency translation The financial statements for each of the Group's subsidiaries, joint venturesand associates are prepared using their functional currency. The functionalcurrency is the currency of the primary economic environment in which an entityoperates. The presentation currency of the Group and functional currency of theWeir Group PLC is Sterling. At entity level, transactions denominated in foreign currencies are translatedinto the entity's functional currency at the exchange rate ruling on the date ofthe transaction. Monetary assets and liabilities denominated in foreigncurrencies are retranslated at the exchange rate ruling on the balance sheetdate. Currency translation differences are recognised in the income statement. On consolidation, the results of foreign operations are translated into sterlingat the average exchange rate for the period and their assets and liabilities aretranslated into sterling at the exchange rate ruling on the balance sheet date.Currency translation differences, including those on monetary items that formpart of a net investment in a foreign operation, are recognised in the currencytranslation reserve. Differences on foreign currency borrowings that provide a hedge against a netinvestment in a foreign entity are taken directly to equity until the disposalof the net investment, at which time they are recognised in the consolidatedincome statement. In the event that a foreign operation is sold, the gain or loss on disposalrecognised in the income statement is determined after taking into account thecumulative currency translation differences that are attributable to theoperation. As permitted by IFRS1, The Weir Group PLC elected to deem cumulativecurrency translation differences to be £nil as at 27 December 2003. Accordingly,the gain or loss on disposal of a foreign operation does not include currencytranslation differences arising before 27 December 2003. In the cash flow statement, the cash flows of foreign operations are translatedinto sterling at the average exchange rate for the period. Revenue Revenue is recognised to the extent that it is probable that the economicbenefits will flow to the Group and the revenue can be reliably measured.Revenue from sales of goods is recognised when the significant risks and rewardsof ownership of the goods have passed to the buyer and can be reliably measured.Revenue from the sales of services and revenue from construction contracts isrecognised by reference to the stage of completion. A construction contract is defined as a contract that is specifically negotiatedfor the construction of an asset or a combination of assets that are closelyinterrelated or interdependent in terms of their design, technology and functionor their ultimate purpose or use. Where the time taken to complete suchcontracts extends over different accounting periods, revenue is recognised byreference to the stage of completion of the contract activity at the balancesheet date where the outcome can be estimated reliably, otherwise it isrecognised to the extent costs are incurred. Losses on contracts are recognisedin the period when such losses become probable. The stage of completion of a contract is determined either by reference to theproportion that contract costs incurred for work performed to date bear to theestimated total contract costs, or by reference to the completion of a physicalproportion of the contract work, dependent upon the nature of the underlyingcontract. Goodwill Business combinations are accounted for using the purchase method. Goodwill arises on the acquisition of subsidiaries, joint ventures andassociates and represents any excess of the cost of the acquired entity over theGroup's interest in the fair value of the entity's identifiable assets,liabilities and contingent liabilities determined at the date of acquisition.Goodwill in respect of an acquired subsidiary is recognised as an intangibleasset. Goodwill in respect of an acquired joint venture or associate is includedwithin investments in joint ventures and associates. Goodwill is tested at leastannually for impairment and carried at cost less any recognised impairmentlosses. Where the fair value of the interest acquired in an entity's assets, liabilitiesand contingent liabilities exceeds the consideration paid, the excess isrecognised immediately as a gain in the income statement. As permitted by IFRS1, The Weir Group PLC elected not to apply IFRS3 "BusinessCombinations" to business combinations that were recognised before 27 December2003. As a result: • goodwill recognised as an asset under UK GAAP as at 27 December 2003 has not been revised retrospectively to identify and extract intangible assets to be recognised separate from goodwill. The carrying amount of goodwill brought forward in the opening IFRS balance sheet is that recorded under UK GAAP; and • goodwill that was written-off directly to reserves under UK GAAP is not taken into account in determining the gain or loss on disposal of acquired businesses on or after 27 December 2003. Other intangible assets Other intangible assets are stated at cost less accumulated amortisation and anyrecognised impairment losses. a. Acquired intangible assets An intangible resource acquired in a business combination is recognised as anintangible asset if it is separable from the acquired business or arises fromcontractual or legal rights, is expected to generate future economic benefitsand its fair value can be measured reliably. An acquired intangible asset with afinite life is amortised on a straight-line basis so as to charge its cost,which represents its fair value at the acquisition date, to the income statementover its expected useful life. b. Research and development costs All research expenditure is charged to the income statement in the period inwhich it is incurred. Development expenditure is charged to the income statement in the period inwhich it is incurred unless it relates to the development of a new product andit is incurred after the technical feasibility and commercial viability of theRelated Shares:
Weir Group