20th Jul 2005 07:01
UK Coal PLC20 July 2005 20th July 2005 UK COAL PLC Restatement of financial information for 2004 under International Accounting Standards and International Financial Reporting Standards UK COAL PLC (UK COAL), the UK's largest producer of coal, today presents itsrestated audited results and financial position for the year ended 31 December2004, and its restated financial information for the 6 months ended 30 June2004, in accordance with International Accounting Standards and InternationalFinancial Reporting Standards (collectively referred to as "IFRS"). From 2005all companies listed on a recognised stock exchange in the EU are required toprepare their financial statements under IFRS. This change applies to accountingperiods beginning on or after 1 January 2005 and UK COAL is therefore requiredto prepare its financial statements for its year ending 31 December 2005 underIFRS. This announcement is intended to assist investors and other interestedparties in understanding the impact of IFRS on UK COAL's consolidated financialstatements. Under the transition rules to IFRS, companies are also required torestate comparative financial information under IFRS. The date of transition forUK COAL is 1 January 2004, being the start date of the earliest period ofcomparative information. UK COAL's underlying business is unaffected by IFRS, however, there are a numberof changes that impact the consolidated income statement and consolidatedbalance sheet which are summarised below. Overview of financial impact The following table shows the impact on the consolidated results for the yearended 31 December 2004 and the financial position at that date: UK GAAP IFRS Difference £000 £000 £000Loss before tax (51,630) (33,531) 18,099Basic loss per share (35.3)p (23.0)p 12.3pNet assets 170,634 56,789 (113,845) Improvement in loss before tax As a result of the implementation of IFRS, the loss before tax has been reducedby £18.1 million in 2004. Of this £10.8 million was due to the goodwillimpairment which was previously charged on the acquisition of Crouch Mining in2004. This is now recognised in 2003 as a requirement under the provisions ofIFRS 3 'Business combinations' which requires full retrospective accounting foracquisitions in the year of the transaction. A further reduction of £9.2 million on the loss before tax is reflected onrecalculation of the profit on disposal of Gloucester Coal and Lionheart'sheating services business in 2004. The charge initially made to the consolidatedprofit and loss account in respect of goodwill previously written off on theoriginal acquisition was reversed when the gain was calculated under theprovisions of IFRS 1. This does not require goodwill previously written off toequity to be recycled to the consolidated income statement. The above two adjustments did not affect net assets as they were in respect ofeither timing of recognition between accounting periods or reclassification of acharge from the consolidated income statement to reserves. Reduction in net assets As a result of the implementation of IFRS, net assets were reduced by £113.8million. This arises mainly from the recognition of the defined benefit pensionscheme obligations under IAS 19, 'Employee Benefits'. In total this amounted to£117.8 million and is in line with the deficit disclosed in note 29 of the 2004financial statements which was calculated in accordance with the UK AccountingStandard FRS 17 'Retirement Benefits'. Both standards require the deficit ondefined benefit pension schemes to be reflected on the balance sheet and in thecase of UK COAL the adjustments are identical. In total the charge to the incomestatement under IAS 19 was £0.2 million lower than under the predecessorstandard SSAP 24. As permitted, UK COAL has elected to adopt IAS 39 'Financial Instruments:Recognition and Measurement' with effect from 1 January 2005. Evaluation of thisstandard continues, but at the present time, no material adjustments areexpected to arise from the adoption of this standard in the year ending 31December 2005. The complete list of changes on adoption of IFRS for 2004 is: --------------------------------------------------------------------------------Impact on 2004 consolidated income statement STD £000--------------------------------------------------------------------------------Reduction in depreciation charge on certain freeholdproperties arising from a requirement to revise residualvalues to reflect current prices IAS 16 328 Decrease in defined benefit pension scheme cost IAS 19 192 Increase in charge made for concessionary fuel IAS 19 (1,687) Increase in holiday pay accrual IAS 19 (60)Change in the basis of recognising share based awards toemployees IFRS 2 211Adjustments to the gain on sale of subsidiaries forforeign exchange movements IAS 21 (854)Adjustment to the gain on sale of subsidiaries forgoodwill IFRS 1 9,164Elimination of goodwill impairment charge made in 2004.This is now charged directly to reserves in thetransition balance sheet IFRS 3 10,805--------------------------------------------------------------------------------Reduction in consolidated loss before tax 18,099----------------------------------------------------------------------------------------------------------------------------------------------------------------Impact on 2004 consolidated balance sheet--------------------------------------------------------------------------------Reduction in depreciation charge on certain freeholdproperties arising from a requirement to revise residualvalues to reflect current prices IAS 16 328Recognition on the balance sheet of defined benefitpension scheme net assets and liabilities IAS 19 (117,830)Decrease in provision for concessionary fuel reserve IAS 19 2,256Provision created for holiday pay IAS 19 (82)Removal of the proposed final dividend as a liability atthe year end IAS 10 1,483--------------------------------------------------------------------------------Reduction in consolidated net assets (113,845)-------------------------------------------------------------------------------- Changes in accounting policies A full set of UK COAL's accounting policies as modified by IFRS is set out inthe document 'Restatement of financial information' published at the same timeas this press release. A copy of the 'Restatement of financial information' willbe sent to all shareholder with the Interim Report 2005 and is also available bycontacting Investor Relations, UK COAL PLC, Harworth Park, Blyth Road, Harworth,Doncaster, DN11 8DB or from the UK COAL web site (www.ukcoal.com). Significantchanges in policy together with associated transitional arrangements and adescription of the reasons for adjustments to balances are summarised below: IAS 16 - 'Property, plant and equipment' UK COAL had previously accounted for tangible fixed assets under FRS 15. Incompliance with this standard, assumed disposal values at the end of the life ofthe assets (residual values) have been based on prices prevailing at the date ofacquisition. IAS 16 requires residual values to be reviewed annually andadjusted using prices current at the balance sheet date. Having conductedreviews of all categories of property, plant and equipment, certain freeholdproperties had residual values in excess of their net book values at the date oftransition. These properties have not been revalued upwards, however thedepreciation has been adjusted to nil in 2004 to reflect higher current values. As a result of this standard, the depreciation charge in the consolidated incomestatement has been reduced by £328,000 in 2004. UK COAL will continue todepreciate its freehold properties, however taking account of current marketvalues and the written down value of its properties, this is likely to result ina zero charge. On the adoption of IFRS, IFRS 1 allows property, plant and equipment to bemeasured at fair value on transition. As allowed under IFRS 1, UK COAL has notrevalued its property, plant and equipment which remain measured at historicalcost, less accumulated depreciation, in the IFRS consolidated balance sheet. IAS 19 - 'Employee benefits' Defined benefit pension schemes Under UK GAAP, UK COAL has adopted the principles of SSAP 24, 'Accounting forPension Costs' under which post retirement benefit surpluses and deficits havebeen spread over the expected average remaining service lives of relevantcurrent employees. This results in a prepayment or accrual in the financialstatements which does not necessarily reflect the surplus or deficit in theschemes. IAS 19 requires immediate recognition of the surplus or deficit in thepension scheme on the consolidated balance sheet. Using IAS 19 valuation principles UK COAL's pension schemes record a deficit of£113.2 million at 31 December 2004 which has been recorded in the consolidatedbalance sheet. Actuarial gains and losses in the year have been taken throughthe consolidated statement of recognised income and expense ('SoRIE'). The UKGAAP consolidated balance sheet included prepaid contributions of £4.6 millionthat had been recognised under SSAP 24 as an asset. This has been eliminated inthe consolidated balance sheet at 31 December 2004 giving a total reduction innet assets of £117.8 million as a result of the implementation of this standard. In recognising the deficit, UK COAL has included the full cumulative actuarialgains and losses through reserves on transition. The alternative 'corridorapproach' allowed under IFRS 1 which under certain circumstances recognises aportion of actuarial gains and losses in the consolidated income statement overa period of time has not been adopted. IAS 19 gives rise to a charge to the consolidated income statement consisting ofthe regular pension cost and an interest charge on any pension deficit, bothrecorded in cost of sales. This resulted in a regular pension cost of £11.2million and interest charge of £2.1 million. Under SSAP 24 the pension cost was£16.9 million of contributions less £3.4 million of reduced charges relating tothe prepayment of pension contributions made in the year. The charge to theincome statement under IFRS is therefore £0.2 million lower. Under IFRS, differences between the actual outcome in the pension scheme in theyear and the outcome based on actuarial assumptions made at the start of theyear are taken to reserves through the SoRIE. During 2004 a charge of £14.0million was recognised in the SoRIE and this related predominantly to assumedimproved life expectancy of members. IFRS and UK GAAP allow a deferred tax asset to be recognised on the pensiondeficit. UK COAL has not recognised a credit due to large tax losses broughtforward from prior years reducing the certainty over future taxable profitsagainst which the asset would be released. The International Accounting Standards Board (IASB) issued an amendment to IAS19 'Employee Benefits' in December 2004. In preparing the IFRS information inthis release, the directors have assumed that this revised standard will beendorsed by the EU and adopted in UK COAL's 2005 financial statements. Concessionary fuel reserve UK COAL makes full provision for the obligation to provide fuel benefits tocertain former employees. This is a provision which falls under IAS 19. UnderSSAP 24, the previous standard, the excess provision which had arisen due tochanges in actuarial assumptions of £2.3 million was being amortised over theremaining service lives of the employees. IAS 19 requires this surplus provisionto be written off to reserves on transition. As a result, there is a £2.3million reduction in the provision for concessionary fuel at 31 December 2004. IAS 19 requires the charge in the consolidated income statement for 2004 toreflect the current service cost and an interest charge (both recorded in costof sales) on the provision to the extent it is not funded by matching assets.The charge of £1.9 million under IFRS represents a regular service cost of £0.6million and interest costs of £1.3 million. The SSAP 24 charge comprised £0.5million of fuel benefits paid in the year offset by a £0.3 million amortisationof the surplus provision. The charge for concessionary fuel is therefore £1.7million higher under IFRS. The surplus provision on the concessionary fuel reserve of £2.3 millionpreviously amortised under SSAP 24 is reflected in the SoRIE. A deferred tax asset has not been recognised on the concessionary fuel reserveat either transition or at 31 December 2004 for the reasons as detailed underdefined benefit pension schemes. Holiday pay accrual UK COAL has previously made provision for untaken holidays for all weekly paidstaff. IAS 19 requires provision for all employee benefits where a commitmentexists to provide untaken holiday entitlement at the balance sheet date. An additional charge of £0.1 million is included in the consolidated incomestatement in 2004 and an accrual of £0.1 million is included at the year end. IFRS 2 - 'Share-based payments' UK COAL operates a number of share-based incentive schemes. Under UK GAAP theprofit and loss charge was based on the intrinsic value of the awards, that is,the difference between the exercise price and the market price at the date ofgrant of the awards. The charge was spread over the period for which anyperformance criteria were specified in making the awards based on the expectedachievement of those criteria. Under IFRS, an expense is recognised for all awards under share-based incentiveschemes, based on the fair value of the award at the date of grant, calculatedusing a valuation model. The fair value of the awards under the long termincentive plans and the bonus share matching plan has been calculated using anindustry accepted simulation model which is regarded as a reliable basis forvaluing employee options. The charge is spread over the vesting periods, adjusted to reflect expectedlevels of lapses and expected achievement of vesting conditions. The charge hasreduced by £0.2 million in the period due to the adoption of a longer vestingperiod. IAS 21 - 'The effects of changes in foreign exchange rates' IAS 21 requires foreign exchange differences to be written off in theconsolidated income statement on the disposal of a subsidiary. On the disposalof Gloucester Coal, cumulative exchange differences of £0.9 million were writtenoff to reserves as required under UK GAAP. There is no impact on net assets. IFRS 1 - 'First time adoption of International Financial Reporting Standards' Under UK GAAP, UK COAL was permitted, on the acquisition of Gloucester Coal, towrite off goodwill directly to reserves. On the subsequent disposal UK GAAPrequired the goodwill to be reinstated to the profit and loss account thusreducing the recorded profit on disposal. IFRS 1 does not adopt this approachrequiring previously written off goodwill to remain in reserves. As a result theprofit recorded on disposal of Gloucester Coal and Lionheart's heating servicesbusiness has been increased by £9.2 million. Net assets have not been affected. IFRS 3 - 'Business combinations' Under UK GAAP, UK COAL recognised, in 2004, an impairment to goodwill on theacquisition of Crouch Mining following a review of the fair value of assetsacquired. Crouch Mining was acquired in 2003. Under IFRS 3 adjustments to fairvalues are recognised as if the initial accounting had been completed at theacquisition date and prior years' figures are, if necessary, restated. As aresult, a charge of £10.8 million has been made in the 2003 accounting periodreducing the loss for 2004 by the same amount. Net assets have not beenaffected. IAS 10 - 'Events after the balance sheet date' UK COAL has, in accordance with common accounting practice, previously accrueddividends ahead of declaration at the AGM. IAS 10 does not follow this principleand as a result the accrual for the dividend at the year end has been removed.As a result net assets have increased by £1.5 million. IAS 40 - 'Investment properties' The accounts of UK COAL did not require reclassifications of investmentproperties or adjustments to the values of properties as a result of complyingwith IAS 40. In the future, UK COAL will account for new investment properties under IAS 40and revaluation gains and losses will be reflected in the consolidated incomestatement rather than reserves as required by SSAP 19. In 2004, UK COAL had oneinvestment property which recorded no gains or losses. IAS 12 - 'Income Taxes' The adoption of IFRS requires no adjustments for UK COAL in respect of currentor deferred tax. UK COAL made a loss in 2004 and the availability of tax lossesbrought forward gives rise to a deferred tax asset. As was the case under UKGAAP, it is not considered appropriate to recognise this asset in the financialstatements as at 31 December 2004 other than to the extent to which it cancels adeferred tax liability. For further information, please contact: UK COAL PLC Christopher Mawe Tel: 01302 751 751Gavin Anderson & Company Ken Cronin Tel: 020 7554 1400 Michael Turner This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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