24th Aug 2005 07:00
Brammer PLC24 August 2005 PRESS RELEASE Brammer FOR IMMEDIATE RELEASE 24 August 2005 The effects of International Financial Reporting Standards Introduction The purpose of this document is to provide guidance on the impact ofInternational Financial Reporting Standards (IFRS) on the financial results ofBrammer when they are adopted for the year ended 31 December 2005. This document is for guidance only and the effects detailed may be amended as aresult of further interpretive guidance from the International AccountingStandards Board (IASB) or ongoing review. The financial information presented in this document is unaudited. Background Brammer plc currently prepares its financial statements under UK GenerallyAccepted Accounting practice ("UK GAAP"). For the year ended 31 December 2005,the group will be required to prepare its interim and annual reports, includingcomparatives, for previous periods under IFRS. This document details the principle differences arising from this transition onthe opening balance sheet as at 1 January 2004 ("date of transition") and on theincome statement (previously the profit and loss account under UK GAAP) andbalance sheet for the six months ended 30 June 2004 and the year ended 31December 2004 as announced to the stock exchange today. ImpactHalf year to 30 June 2004 UK GAAP IFRS Variance £'000 £'000 £'000Continuing operationsProfit before tax 2,310 2,964 654 Total operationsProfit before tax 846 332 (514)Shareholders' equity 17,499 (205) (17,704)Basic loss per share - pence (1.7)p (3.3)p (1.6)p Year to 31 December 2004 UK GAAP IFRS Variance £'000 £'000 £'000Continuing operationsProfit before tax 4,948 6,247 1,299 Total operationsProfit before tax 3,552 3,683 131Shareholders' equity 16,345 (3,071) (19,416)Basic earnings per share - pence 1.9p 1.8p (0.1)p Summary of principle differences The principle differences for Brammer between reporting on the basis of IFRScompared to current UK GAAP are as follows Pensions The deficit on defined benefit pension schemes (mainly in the UK) has to berecognised on the balance sheet. The company has adopted the amended version ofIAS 19, and therefore the movement in the deficit as a result of the on-goingexpense is recognised in the income statement with any actuarial gains andlosses reflected through the 'Statement of changes in shareholders' equity'. Itshould be noted that these changes would largely have been required under UKGAAP once FRS 17 became fully applicable in 2005 (currently the information isgiven in the notes to the accounts). Goodwill Amortisation of goodwill is no longer permitted. Instead goodwill is subject toan annual impairment test. This has been performed at both 30 June 2004 and 31December 2004 with no impairment arising. Share options Under IFRS 2 an expense has to be recognised in the income statement to reflectthe fair value of the equity instruments granted to employees in return fortheir services rendered in the period. Dividends Dividends can only be recognised when the shareholders' legal right to receivepayment is established. Software Software which is not integral to the operation of the associated asset has tobe re-classified from property, plant and equipment to intangible assets. Deferred tax The deferred tax provision has to be adjusted as a result of the requirement toseparately report deferred tax assets and liabilities in the balance sheet asoffset is only allowed where there is a legal right to set off the amounts.Deferred tax has been recognised as a result of the IFRS to UK GAAP measurementdifferences where applicable. Translation reserves and foreign currency exchange A "translation reserve" is required which records the unrealised gains/lossesthat arose since transition to IFRS, on the re-translation of foreign currencynet assets. On disposal of a foreign entity, any cumulative un-realisedtranslation differences are included in the gain or loss on sale in the incomestatement. Under IFRS 1, companies are permitted, and Brammer have, reset thesedifferences to zero on adoption of IFRS. Further details Further details of each of these differences follow and are summarised intabular form in the following appendices Appendix 1 - Reconciliation of group shareholders' equity at 1 January 2004 Appendix 2 - Reconciliation of group profit for the six months ended 30 June2004 Appendix 3 - Reconciliation of group shareholders' equity at 30 June 2004 Appendix 4 - Reconciliation of group profit for the year ended 31 December 2004 Appendix 5 - Reconciliation of group shareholders' equity at 31 December 2004 Principle differences explained 1. Pensions Under UK GAAP, Brammer has accounted for pensions in accordance with SSAP 24,which spreads the costs of and any surplus or deficit arising in defined benefitschemes over the employees' working lives. Brammer has also made additionaldisclosures in previous annual reports, giving details of the UK and Dutchpension fund deficits, liabilities and operating charges in accordance with FRS17. IAS 19 ("Employee benefits") requires the actuarial deficit arising underdefined benefit pension schemes to be recognised in the balance sheet. Themovement in the deficit as a result of the on-going expense has to be recognisedin the income statement. However, Brammer has adopted the amendment to IAS 19,whereby actuarial gains and losses are recognised through reserves as opposed tothe income statement. It should be noted that these changes would largely havebeen required under UK GAAP once FRS 17 became fully applicable in 2005. Consequently, a deficit of £31.0 million and a corresponding deferred tax assetof £9.5 million have been recognised on the balance sheet at the date oftransition; a deficit of £26.9 million and a corresponding deferred tax asset of£8.2 million at 30 June 2004 and a deficit of £32.4 million and a correspondingdeferred tax asset of £9.8 million at 31 December 2004. The SSAP 24 debtorsunder UK GAAP of £682,000 at the date of transition, £1,132,000 at 30 June 2004and £1,549,000 at 31 December 2004 have been reversed. The excess of theon-going costs over the SSAP 24 charge of £350,000 in the six months to June2004 and £735,000 for the year ended 31 December 2004 has been recognised in theincome statement. An exceptional curtailment gain of £1.3 million has also beenrecognised in both periods as a result of the Livingston employees leaving theUK group scheme resulting from the disposal of the Livingston Division on 31March 2004. The movements in the deficit due to the recognition of actuarialgains/losses have been reflected through the 'Statement of changes inshareholders' equity'. 2. Goodwill Under UK GAAP, goodwill is amortised by equal instalments over its estimateduseful economic life. However, under IFRS 3 (Business combinations),amortisation is prohibited and is instead replaced by a requirement for annualimpairment testing. The profit impact of this adjustment in the first half of 2004 is a credit of£1.2 million (£988,000 relating to continuing businesses and £201,000 relatingto discontinued businesses) and a credit of £2.3 million (£2.1 million relatingto continuing businesses and £201,000 relating to discontinued businesses) inthe full year of 2004 being the reversal of the amortisation previously chargedunder UK GAAP. Goodwill has been tested for impairment at each balance sheetdate and no impairment has been found. The reversal of the amortisation in the first quarter of goodwill relating tothe discontinued Livingston companies increases the carrying value of thosecompanies at the date of disposal by £201,000. Consequently the loss on sale ofthose companies under IFRS has been increased by this amount. Due to the fact that goodwill is a foreign currency denominated asset (mainly ineuros) the movements on the balance sheet are effected by exchange differencesof £10,000 and £114,000 and are £978,000 and £2.2 million respectively. Brammer has decided to take advantage of the IFRS 1 exemption whereby IFRS 3 canbe applied prospectively from the date of transition, hence removing the need torestate previous business combinations. 3. Share options IFRS 2 deals with equity-settled transactions and cash-settled transactionswhere the amount paid is based on the value of the entity's equity instruments.The standard only impacts share options granted after 7 November 2002 that havenot vested by the date of transition. IFRS 2 requires that the fair value of employee services received in a period becharged to the income statement. As it is not typically possible to estimatereliably the fair value of employee services, the fair value of the equityinstrument granted is used. The "Black-Scholes" model (one of the models recommended by IFRS 2) will be usedto calculate the fair value of shares and share options granted. Under UK GAAPthe charge was based upon the intrinsic value of all shares and options granted(including those granted prior to 7 November 2002). This results in a cumulative charge at 1 January 2004 of £158,000. For the sixmonths ended 30 June 2004 there is a further charge of £112,000 of which£128,000 was already recognised under UK GAAP resulting in a net credit of£16,000 and for the year ended 31 December 2004 a further charge of £226,000 ofwhich £169,000 was already recognised under UK GAAP resulting in a net charge of£57,000. 4. Dividends Under UK GAAP, proposed dividends are recognised in the financial results forthe period to which they relate. However, under IFRS, a dividend can only berecognised when the shareholders' legal right to receive payment is established. In practice this means that interim dividends are only recognised in theaccounts when they are paid and final dividends are recognised as a liabilitywhen they are approved at the annual general meeting. As the Brammer annual general meeting is generally held in May, this means thatthe final dividend for the year will become a liability in the following interimaccounts and the interim dividend will be recognised in the full year accountsas it is generally paid before the end of the calendar year. Consequently, the final dividend for 2003 of £1.4 million is not recognised as aliability in the balance sheet at the date of transition under IFRS, but it issubsequently recognised as a liability in the interim accounts to June 2004 asit was approved at the annual general meeting on 25 May 2004. Also, the interimdividend for 2004 of £718,000 is not recognised in the interim accounts to June2004 under IFRS but it is subsequently recognised when it is paid in the fullyear accounts for 2004. At 31 December 2004 the final dividend of £1.6 millionis not recognised as a liability in the IFRS balance sheet. 5. Software Under IFRS, software will generally be treated as an intangible asset. Onlywhere software is an integral part of related hardware is such software treatedas property, plant and equipment. Specialist software of £2.7 million has beenreclassified from property, plant and equipment to intangible assets at 1January 2004, £1.3 million at 30 June 2004 and £1.4 million at 31 December 2004. 6. Deferred tax IAS 12 requires the separate disclosure of deferred tax assets and liabilitieson the balance sheet with offset only allowed if there is a legal right to setoff the amounts and the entity intends either to settle on a net basis, or torealise the asset and settle the liabilities simultaneously. Deferred tax of£1.0 million has therefore been re-classified from liabilities to assets at 31December 2004. The deferred tax effect of accounting for pension costs and liabilities underIAS 19 is explained in section 1. 7. Translation reserves and foreign currency exchange Under both UK GAAP and IFRS, the exchange differences on re-translation ofoverseas net assets are taken to reserves together with the exchange movementson external borrowings acting as a hedge against those assets. Under IAS 21, net exchange differences classified as equity must be separatelytracked and the cumulative amounts disclosed. This means that a new reserve called the "translation reserve" is required. Thiscontains the unrealised gains/losses that arose since 1 January 2004 on there-translation of the net assets of the euro denominated subsidiaries net of thegains/losses arising on the re-translation of the external euro borrowingsdesignated as a net investment hedge against those euro denominated net assets.Amounts arising before this date remain as part of the profit and loss accountreserve. At June 2004 the translation reserve shows a gain of £1.2 million andat 31 December 2004 a gain of £122,000. On disposal of a foreign entity, this cumulative translation difference isincluded in the gain or loss on sale in the income statement. The gains/losseson the re-translation of the Livingston Division euro net assets of £2.5m havetherefore been recycled to the profit and loss account in 2004 and form part ofthe loss for the period from discontinued operations. 8. Balance sheet and income statement formats The attached reconciliations present the UK GAAP balance sheet and profit andloss accounts under the new headings required by IAS 1. Appendix 1 - Reconciliation of group shareholders' equity at 1 January 2004(date of transition to IFRS) Reclassifications UK Share Deferred GAAP Pension Goodwill options Dividend Software tax Reserves IFRS £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000Fixed assetsGoodwill 49,569 49,569Intangible assets - 2,663 2,663Property, plant and 23,783 (2,663) 21,120equipmentInvestment in associate 478 478Deferred tax assets - 9,489 9,489 73,830 83,319 Current assetsInventories 51,018 51,018Trade and other receivables 70,279 70,279Retirement benefits 682 (682) -Cash and cash equivalents 12,740 12,740 134,719 134,037 Current liabilitiesFinancial liabilities (28,583) (28,583)Trade and other payables (80,386) (80,386)Dividend (1,436) 1,436 -Deferred consideration (6,818) (6,818)Corporation tax liabilities (1,242) (1,242) (118,465) (117,029) Non-current liabilitiesFinancial liabilities (63,876) (63,876)Deferred tax liabilities (3,233) 205 (3,028)Provisions (2,474) (2,474)Deferred consideration (348) (348)Retirement benefit - (30,971) (30,971)obligation (69,931) (100,697) Net assets employed 20,153 (21,959) - - 1,436 - - - (370) Shareholders' equityOrdinary shares 9,573 9,573Share premium 3,552 3,552Translation reserve - -Retained earnings 7,028 (21,959) 1,436 (13,495) Total equity 20,153 (21,959) - - 1,436 - - - (370) Appendix 2 - Reconciliation of group profit for the six months ended 30 June2004 UK Share GAAP Pension Goodwill options Exchange Tax Dividends Interest IFRS £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000Continuing operationsRevenue 136,876 136,876Cost of sales (95,993) (95,993) Gross profit 40,883 40,883 Distribution costs andadministrative expensesbefore amortisation ofgoodwill (35,720) (350) 16 (36,054)Amortisation of goodwill (987) 987 -Exceptional (274) (274) Total distribution costs andadministrative expenses (36,981) (36,328) Operating profit 3,902 4,555Share of associate's profit after tax (36) 1 (4) (39)Financing costs (1,556) 4 (1,552) 2,310 2,964Discontinued operationsProfit before tax 1,437 201 1,638Exceptional pension income 1,300 1,300Loss on sale of discontinued businesses (2,901) (201) (2,468) (5,570) Profit before tax 846 950 988 16 (2,468) - - - 332Tax (1,636) (285) (1,921) Profit after tax (790) 950 988 16 (2,468) (285) - - (1,589) Dividend (718) 718 - Loss for the period (1,508) 950 988 16 (2,468) (285) 718 - (1,589) Appendix 3 - Reconciliation of group shareholders' equity at 30 June 2004 Reclassifications UK Share Deferred GAAP Pension Goodwill options Dividend Software tax Reserves IFRS £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000Fixed assetsGoodwill 33,346 978 34,324Intangible assets - 1,345 1,345Property, plant and 11,629 (1,345) 10,284equipmentInvestment in associate 461 1 462Deferred tax assets - 8,244 8,244 45,436 54,659 Current assetsInventories 45,109 45,109Trade and other receivables 55,514 55,514Retirement benefits 591 (591) -Cash and cash equivalents 9,241 9,241 110,455 109,864 Current liabilitiesFinancial liabilities (14,312) (14,312)Trade and other payables (60,926) (541) (61,467)Dividend (2,154) 718 (1,436)Deferred consideration (4,686) (4,686)Corporation tax liabilities (293) (293) (82,371) (82,194) Non-current liabilitiesFinancial liabilities (52,584) (52,584)Deferred tax liabilities (3,142) 340 (2,802)Provisions - -Deferred consideration (295) (295)Retirement benefit - (26,853) (26,853)obligation (56,021) (82,534) Net assets employed 17,499 (19,401) 979 - 718 - - - (205) Shareholders' equityOrdinary shares 9,573 9,573Share premium 3,552 3,552Translation reserve - 1,217 1,217Retained earnings 4,374 (19,401) 979 718 (1,217) (14,547) Total equity 17,499 (19,401) 979 - 718 - - - (205) Appendix 4 - Reconciliation of group profit for the year ended 31 December 2004 UK Share GAAP Pension Goodwill options Exchange Tax Dividends Interest IFRS £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000Continuing operationsRevenue 270,786 270,786Cost of sales (189,337) (189,337) Gross profit 81,449 81,449 Distribution costs andadministrative expensesbefore amortisation ofgoodwill (70,847) (735) (57) (71,639)Amortisation of goodwill (2,089) 2,089 -Exceptional (850) (850) Total distribution costs andadministrative expenses (73,786) (72,489) Operating profit 7,663 8,960Share of associate's profit after tax (94) 2 (4) (96)Financing costs (2,621) 4 (2,617) 4,948 6,247Discontinued operationsProfit before tax 1,437 201 1,638Exceptional pension income 1,300 1,300Loss on sale of discontinued businesses (2,833) (201) (2,468) (5,502) Profit before tax 3,552 565 2,091 (57) (2,468) - - - 3,683 Tax (2,660) (173) (2,833) Profit after tax 892 565 2,091 (57) (2,468) (173) - - 850 Dividend (2,261) 2,261 - Profit before tax (1,369) 565 2,091 (57) (2,468) (173) 2,261 - 850 Appendix 5 - Reconciliation of group shareholders' equity at 31 December 2004 Reclassifications UK Share Deferred GAAP Pension Goodwill options Dividend Software Tax Reserves IFRS £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000Fixed assetsGoodwill 35,216 2,178 37,394Intangible assets - 1,367 1,367Property, plant and 11,924 (1,367) 10,557equipmentInvestment in associate - -Deferred tax assets - 9,776 1,037 10,813 47,140 60,131 Current assetsInventories 45,862 45,862Trade and other receivables 55,520 55,520Retirement benefits 1,549 (1,549) -Cash and cash equivalents 8,320 8,320 111,251 109,702 Current liabilitiesFinancial liabilities (13,564) (13,564)Trade and other payables (66,021) 804 (65,217)Dividend (1,580) 1,580 -Deferred consideration (2,762) (2,762)Corporation tax liabilities (2,696) (2,696) (86,623) (84,239) Non-current liabilitiesFinancial liabilities (51,797) (51,797)Deferred tax liabilities (2,790) 184 (1,037) (3,643)Provisions (637) (637)Deferred consideration (199) (199)Retirement benefit - (32,389) (32,389)obligation (55,423) (88,665) Net assets employed 16,345 (23,174) 2,178 - 1,580 - - - (3,071) Shareholders' equityOrdinary shares 9,573 9,573Share premium 3,552 3,552Translation reserve - 122 122Retained earnings 3,220 (23,174) 2,178 1,580 (122) (16,318) Total equity 16,345 (23,174) 2,178 - 1,580 - - - (3,071) This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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