11th May 2006 16:15
Treatt PLC11 May 2006 TREATT PLC UPDATE ON ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS(A pdf copy of this announcement can be found at www.treatt.com) Treatt Plc is preparing for the adoption of International Financial ReportingStandards ("IFRS") as its primary accounting basis for the year ending 30September 2006. As part of this transition, Treatt Plc is today presentingunaudited financial information prepared in accordance with IFRS for the yearended 30 September 2005. This announcement explains how the Group's previously reported UK GAAP financialperformance and position are reported under IFRS. It provides reconciliationsfrom UK GAAP to IFRS for the following: • the Group's unaudited consolidated income statement for the year ended 30 September 2005; • the Group's unaudited consolidated statement of recognised income and expense for the year ended 30 September 2005; • the Group's unaudited consolidated balance sheet as at 30 September 2005; • the Group's unaudited consolidated cash flow statement for the year ended 30 September 2005; • the Group's unaudited consolidated balance sheet as at 1 October 2004. The principal changes to Treatt Plc's reported financial information under UKGAAP arising from the adoption of IFRS are as a result of the: 1. requirement to recognise defined benefit pension scheme liabilities and change the way gains and losses on the R.C. Treatt & Co. Limited pension scheme are recognised; 2. requirement to recognise Treatt Plc dividend liabilities only after they have been formally approved or paid; 3. requirement to account for the cost of share-based payments relating to employee share option schemes; 4. requirement to recognise foreign exchange (FX) differences on foreign currency net investments in a separate foreign exchange reserve; 5. requirement to treat computer software previously included in tangible fixed assets as an intangible fixed asset. Richard Hope, Group Finance Director of Treatt Plc, commented: "The unaudited financial information provided today shows how IFRS impactsTreatt Plc's recent results in advance of its adoption in the 2005/6 financialyear. As can be seen, there has been no material effect on the Group's profitfor the period, whilst the most significant change is that Treatt Plc nowrecognises a pension liability net of deferred tax at 30 September 2005 of£2,267,000 (2004: £2,061,000) which has been offset by a reduction in dividendspayable of £949,000 (2004: £893,000)" Enquiries Richard HopeGroup Finance Director Tel: 01284 702500 INTRODUCTION Treatt Plc is preparing for the adoption of International Financial ReportingStandards ("IFRS") as its primary accounting basis following adoption ofRegulation No. 1606/2002 by the European Parliament on 19 July 2002. The financial information contained on pages 5 to 9 has been prepared inaccordance with applicable International Financial Reporting Standards("IFRS"), including International Accounting Standards ("IAS") andinterpretations issued by the Standing Interpretations Committee ("SIC") of theInternational Accounting Standards Board ("IASB") and its committees. Thesestandards are subject to ongoing amendment by the IASB and subsequentendorsement by the European Commission and are therefore subject to possiblechange. As a result, information contained within these statements may requireupdating at a future date. Therefore it is possible that the comparativeinformation included in the first complete set of IFRS financial statements asat 30 September 2006 may not be consistent with the disclosure below. The financial information has been prepared by management using their bestknowledge and judgement of the expected standards and interpretations of theIASB, facts and circumstances, and accounting policies that will be applied whenthe Company prepares its first complete set of IFRS financial statements as at30 September 2006. The first financial report prepared under IFRS will be forthe six months ending 31 March 2006. This announcement explains how the Group's previously reported UK GAAP financialperformance and position are reported under IFRS. It provides, on an IFRSbasis, reconciliations from UK GAAP to IFRS for the following: • the Group's unaudited consolidated income statement for the year ended 30 September 2005 (previously the profit and loss account); • the Group's unaudited consolidated statement of recognised income and expense for the year ended 30 September 2005 (previously the statement of recognised gains and losses); • the Group's unaudited consolidated balance sheet as at 30 September 2005; • the Group's unaudited consolidated cash flow statement for the year ended 30 September 2005; • the Group's unaudited consolidated balance sheet as at 1 October 2004. The financial information presented is unaudited. Attention is drawn to the fact that under IFRS, only a complete set of financialstatements comprising a balance sheet, income statement, statement of changesin equity, cash flow statement, together with comparative information andexplanatory notes, can provide a fair presentation of the Company's financialposition, results of operations and cash flows. Basis of preparation The financial information presented has been prepared based on the adoption ofIFRS, including IAS and interpretations issued by the IASB and its committeesas interpreted by any regulatory bodies relevant to the Group. These are subjectto ongoing amendment by the IASB and subsequent endorsement by the EuropeanCommission and are therefore subject to change. As a result, informationcontained herein may need to be updated for any subsequent amendment to IFRSrequired for first time adoption, or any new standards that the Group may electto adopt early. IFRS 1 exemptions IFRS 1, "First-time Adoption of International Financial Reporting Standards"sets out the procedures that the Group must follow when it adopts IFRS for thefirst time as the basis for preparing its consolidated financial statements. TheGroup is required to establish its IFRS accounting policies as at 30 September2005 and, in general, apply these retrospectively to determine the IFRS openingbalance sheet at its date of transition, 1 October 2004. However, IFRS 1 provides a number of optional exceptions to this generalprinciple. The most significant of these are set out below, together with adescription in each case of the exception adopted by the Group. (1) IFRS 2 - "Share-based payments" - IFRS 2 has been applied to all grants of equity instruments after 7 November 2002 that had not vested at 1 January 2005 and not to any grants prior to this date. (2) "Business Combinations" - in accordance with IFRS 1, the Group has chosen not to restate business combinations that took place before the date of transition (1 October 2004). (3) Translation of foreign subsidiaries - the Group has chosen not to reduce all translation reserves arising prior to transition into IFRS to a nil balance. Consequently, the newly created 'Foreign Exchange Reserve' includes all foreign exchange differences which arose prior to the introduction of IFRS. Presentation of financial information The primary statements within the financial information contained in thisdocument have been presented in accordance with IAS 1, "Presentation ofFinancial Statements". However, this format and presentation may requiremodification in the event that further guidance is issued and as practicedevelops. KEY IMPACT ANALYSIS The analysis below sets out the most significant adjustments arising from thetransition to IFRS. Presentation of Financial Statements The primary statements within the financial information contained in thisdocument have been presented in accordance with IAS 1, "Presentation ofFinancial Statements". Defined Benefit Pension Scheme In accordance with IAS 19, "Employee Benefits", the deficit (net of deferredtax) in the defined benefit pension scheme for certain UK employees isrecognised as a liability of the Group under non-current liabilities. This waspreviously disclosed as a note to the financial statements under thetransitional arrangements under FRS17 in accordance with UK GAAP. In addition, the service cost and expected return on assets net of interest onscheme liabilities is reflected in the income statement for the period, inplace of the actual cash contribution made. All experience gains or losses onthe assets and liabilities of the scheme, together with the effect of changes inassumptions is reflected as a gain or loss in the Statement of Recognised Incomeand Expense. Share-based Payments IFRS 2, "Share-based Payments" requires that an expense for equity instrumentsgranted be recognised in the financial statements based on their fair value atthe date of grant. This expense, which is in relation to employee share optionschemes for staff in the UK and US, is recognised over the vesting period of thescheme. IFRS 2 has been applied to all options granted after 7 November 2002 and notfully vested by 1 January 2005. The Group has adopted the Black Scholes modelfor the purposes of computing fair value of options under IFRS. Post Balance Sheet Events and Dividends IAS 10, "Events after the Balance Sheet Date" requires that final dividendsdeclared after the balance sheet date should not be recognised as a liabilityat that balance sheet date as the liability does not represent a presentobligation as defined by IAS 37, "Provisions, Contingent Liabilities andContingent Assets". Instead, final dividends for Treatt Plc should only berecognised as a liability once formally approved at the Annual General Meeting. Furthermore, interim dividends, in accordance with ICAEW Technical Release57/05, are no longer recognised as a liability until paid. The interim and final dividends in relation to the financial years ended 30September 2004 and 2005 of £893,000 and £949,000 have therefore been reversedin the respective balance sheets. Effect of Changes in Foreign Exchange Rates Under IAS 21, "The Effects of Changes in Foreign Exchange Rates", cumulativetranslation differences which are recognised in the Statement of RecognisedIncome and Expense are separately accounted for within reserves and aretransferred from equity to the income statement in the event of the disposal ofa foreign operation. All such foreign exchange differences arising in relationto the Group's US subsidiary, Treatt USA, since its formation in 1990, have beentransferred from the 'Profit and Loss Reserve' to this newly created 'ForeignExchange Reserve'. Computer Software In accordance with IAS 38 "Intangible Assets" computer software is now requiredto be disclosed as a class of intangible assets rather than be included as partof tangible fixed assets as was the case under UK GAAP. FINANCIAL INFORMATION Income statement Reconciliation of UK GAAP consolidated profit and loss account to IFRSconsolidated income statement for the year ended 30 September 2005. Thisreconciliation is presented in the format required by IFRS 1 and is unaudited. The impact of deferred and current taxes on each adjustment is shown within therelevant column. TREATT PLC UNAUDITED INCOME STATEMENT(IFRS FORMAT)YEAR ENDED 30 SEPTEMBER 2005 IAS 19 IFRS 2 UK GAAP Employee Share IFRS Based 30/09/ Benefits Payments 30/09/ 2005 2005 £'000 £'000 £'000 £'000 Revenue 32,521 32,521 Cost of sales (21,952) (21,952) --------- -------- --------- ---------Gross profit 10,569 0 0 10,569 Administrative expenses (7,023) 15 (12) (7,020) --------- -------- --------- ---------Group operating profit 3,546 15 (12) 3,549 Finance revenue 176 176Finance costs (266) (53) (319) --------- -------- --------- ---------Profit before tax 3,456 (38) (12) 3,406 Taxation (1,082) 12 (1,070) --------- -------- --------- ---------Profit for the year attributable to 2,374 (26) (12) 2,336equity shareholders ========= ======== ========= ========= UNAUDITED STATEMENT OF RECOGNISED INCOME AND EXPENSE(IFRS FORMAT)YEAR ENDED 30 SEPTEMBER 2005 Profit for the financial year 2,374 (26) (12) 2,336 Currency translation on foreign 123 123currency net investmentActuarial loss on defined benefit (257) (257)pension schemeDeferred tax on actuarial loss 77 77 ------- ------- -------- -------Total recognised net income for 2,497 (206) (12) 2,279the period ======= ======= ======== ======= Earnings Per Share Profit after tax 2,374 2,336No. of shares - basic 10,024,533 10,024,533No. of shares - diluted 10,050,258 10,050,258 Earnings per share - basic 23.7p 23.3pEarnings per share - diluted 23.6p 23.2p Balance sheet Reconciliation of UK GAAP to IFRS consolidated balance sheet as at 30 September2005. This reconciliation is presented in IFRS format and is unaudited. The impact of deferred and current taxes on each adjustment is shown within the relevant column. TREATT PLC UNAUDITED BALANCE SHEET(IFRS FORMAT)AS AT 30 SEPTEMBER 2005 UK GAAP IAS 19 IAS 10 IFRS 2 IAS 21 IAS 38 IFRS 30/09/ Employee Events Share-Based of Effect Intangible 30/09/ 2005 Changes 2005 Benefits After Payments in Assets Balance FX Rates Sheet Date £'000 £'000 £'000 £'000 £'000 £'000 £'000ASSETSNon-currentassetsIntangible 730 730assetsProperty, plant 9,374 (730) 8,644and equipmentDeferred tax 521 521 --------- -------- --------- -------- --------- -------- --------- 9,374 521 0 0 0 0 9,895 --------- -------- --------- -------- --------- -------- --------- Current assetsInventories 11,395 11,395Trade and other 5,718 5,718receivablesCash and cash 297 297equivalents --------- -------- --------- -------- --------- -------- --------- 17,410 0 0 0 0 0 17,410 --------- -------- --------- -------- --------- -------- --------- LIABILITIESCurrentliabilitiesBank loans and (144) (144)overdraftsTrade and other (4,883) 949 (3,934)payablesCorporation tax (589) (589)payable --------- -------- --------- -------- --------- -------- --------- (5,616) 0 949 0 0 0 (4,667) --------- -------- --------- -------- --------- -------- --------- --------- -------- --------- -------- --------- -------- ---------Net current 11,794 0 949 0 0 0 12,743assets --------- -------- --------- -------- --------- -------- --------- Non-currentliabilitiesBank loans (2,179) (2,179)Post-employment (3,239) (3,239)benefitsDeferred tax (451) 451 0liabilities --------- -------- --------- -------- --------- -------- --------- (2,630) (2,788) 0 0 0 0 (5,418) --------- -------- --------- -------- --------- -------- --------- --------- -------- --------- -------- --------- -------- ---------Net assets 18,538 (2,267) 949 0 0 0 17,220 --------- -------- --------- -------- --------- -------- --------- SHAREHOLDERS'EQUITYCalled up share 1,029 1,029capitalShare premium 2,143 2,143accountOwn shares in (625) (625)share trustEmployee share 14 14optionreserveForeign (699) (699)exchangereserveRetained 15,991 (2,267) 949 (14) 699 15,358earnings --------- -------- --------- -------- --------- -------- ---------Total 18,538 (2,267) 949 0 0 0 17,220Shareholders' --------- -------- --------- -------- --------- -------- ---------Equity Cash flow statement Reconciliation of UK GAAP to IFRS consolidated cash flow statement for the yearended 30 September 2005. This reconciliation is presented in IFRS format andis unaudited. TREATT PLC UNAUDITED CASH FLOW STATEMENT(IFRS FORMAT)YEAR ENDED 30 SEPTEMBER 2005 UK GAAP Opening Repayment FX on IFRS 30/09/ Loan on Loan Loans 30/09/ 2005 Balance 2005 £'000 £'000 £'000 £'000 £'000Cash flow from operatingactivitiesProfit before taxation 3,456 3,456Adjusted for:Foreign exchange gain/(loss) 49 55 104 Depreciation of property, 963 963plant and equipmentLoss on disposal of property, 135 135plant and equipment --------- --------- --------- -------- --------- 4,603 0 0 55 4,658Changes in working capital:Decrease/(increase) in (3,040) (3,040)inventoriesDecrease/(increase) in trade 288 288and other receivablesIncrease/(decrease) in trade 642 642and other payables --------- --------- --------- -------- ---------Cash generated from 2,493 0 0 55 2,548operationsTax paid (812) (812) --------- --------- --------- -------- ---------Net cash from operating 1,681 0 0 55 1,736activities --------- --------- --------- -------- --------- Cash flow from investingactivities --------- --------- --------- -------- ---------Purchase of property, plant (862) (862)and equipment --------- --------- --------- -------- --------- Cash flow from financingactivitiesRepayment of bank loans (144) (144)Dividends paid (895) (895)Net acquisition of own shares (347) (347)by Share Trust --------- --------- --------- -------- --------- (1,242) 0 (144) 0 (1,386) --------- --------- --------- -------- --------- Net decrease in cash and cash (423) 0 (144) 55 (512)equivalentsCash and cash equivalents at (1,603) 2,412 809beginning of period --------- --------- --------- -------- ---------Cash and cash equivalents at (2,026) 2,412 (144) 55 297end of period ========= ========= ========= ======== ========= The effect of transition on the cash flow noted above relates to changes 30/09/in the composition of cash and cash 2005equivalents as detailed £'000below: Reconciliation of cash flow for period to 30September 2005Net debt under UK GAAP (2,026)Long term loans excluded from cash and 2,323cash equivalents ---------Cash and cash equivalents 297under IFRS ========= Cash and cash equivalentsconsist of:Cash at bank 297 ========= Opening balance sheet Reconciliation of UK GAAP to IFRS consolidated balance sheet as at 1 October2004. This reconciliation is presented in IFRS format and is unaudited. Theimpact of deferred and current taxes on each adjustment is shown within therelevant column. TREATT PLC UNAUDITED BALANCE SHEET(IFRS FORMAT)AS AT 1 OCTOBER 2004 UK GAAP IAS 19 IAS 10 IFRS 2 IAS 21 IAS 38 IFRS 30/09/ Employee Events Share-Based Effect Intangible 30/09/ 2004 Benefits After Payments of Changes Assets 2004 Balance in FX Sheet Rates Date £'000 £'000 £'000 £'000 £'000 £'000 £'000 ASSETSNon-currentassetsIntangible 936 936assetsProperty, plant 9,536 (936) 8,600and equipmentDeferred tax 364 364 --------- -------- --------- -------- --------- -------- --------- 9,536 364 0 0 0 0 9,900 --------- -------- --------- -------- --------- -------- --------- CurrentassetsInventories 8,355 8,355Trade and other 6,007 6,007receivablesCash and cash 809 809equivalents --------- -------- --------- -------- --------- -------- --------- 15,171 0 0 0 0 0 15,171 --------- -------- --------- -------- --------- -------- --------- LIABILITIESCurrentliabilitiesBank loans and (141) (141)overdraftsTrade and other (4,200) 893 (3,307)payablesCorporation tax (251) (251)payable --------- -------- --------- -------- --------- -------- --------- (4,592) 0 893 0 0 0 (3,699) --------- -------- --------- -------- --------- -------- --------- --------- -------- --------- -------- --------- -------- ---------Net current 10,579 0 893 0 0 0 11,472assets --------- -------- --------- -------- --------- -------- --------- Non-currentliabilitiesBank loans (2,271) (2,271)Post-employment (2,944) (2,944)benefitsDeferred tax (519) 519 0liabilities --------- -------- --------- -------- --------- -------- --------- (2,790) (2,425) 0 0 0 0 (5,215) --------- -------- --------- -------- --------- -------- --------- --------- -------- --------- -------- --------- -------- ---------Net assets 17,325 (2,061) 893 0 0 0 16,157 --------- -------- --------- -------- --------- -------- --------- SHAREHOLDERS'EQUITYCalled up share 1,029 1,029capitalShare premium 2,143 2,143accountOwn shares in (278) (278)share trustEmployee share 2 2optionreserveForeign (822) (822)exchangereserveRetained 14,431 (2,061) 893 (2) 822 14,083earnings --------- -------- --------- -------- --------- -------- ---------Total 17,325 (2,061) 893 0 0 0 16,157Shareholders' --------- -------- --------- -------- --------- -------- ---------Equity This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Treatt