17th Nov 2005 07:01
Applied Optical Technologies PLC17 November 2005 17th November 2005Applied Optical Technologies plcRestatement of financial information under International Financial ReportingStandards Introduction Applied Optical Technologies plc ("the Group") historically prepared itsconsolidated financial statements under UK Generally Accepted AccountingPractice ("UK GAAP"). Following the adoption of Regulation No. 1606/2002 by theEuropean Parliament on 19th July 2002 the Group has been preparing for theadoption of International Financial Reporting Standards(1) as its primaryaccounting base. IFRS will apply for the first time in the Group's financial statements for theyear ending 31st March 2006. Accordingly the financial results for the sixmonths ended 30th September 2005 have been prepared and reported under IFRS. Asthe Group publishes comparative information in its Annual Report and InterimStatement the date of transition to IFRS is 1st April 2004. To explain how the Group's reported performance and financial position areaffected by this change, information previously published under UK GAAP isrestated under IFRS in the attached appendices as follows: • Appendix 1 - Significant accounting policies revised under IFRS • Appendix 2 - Financial information on an IFRS basis for the year ended 31st March 2005, the six months ended 30th September 2004 and the transition balance sheet at 1st April 2004 • Appendix 3 - Reconciliations of income statement and balance sheet for the year ended 31st March 2005 with comments on the adjustments made • Appendix 4 - Reconciliations of income statement and balance sheet for the six months ended 30th September 2004 • Appendix 5 - Reconciliation of transition balance sheet at 1st April 2004 • Appendix 6 - Special Purpose Audit Report of KPMG Audit Plc to Applied Optical Technologies plc As noted below, this financial information has been prepared on the basis of adopted IFRSs as at 30th September 2005 that are effective (or available for early adoption) at 31st March 2006. These are subject to ongoing review by the EU or possible amendment by interpretive guidance from the IASB and are therefore still subject to change. We will update our restated information for any such changes when they are made. --------------------------(1) References to IFRS throughout this document refer to the application ofInternational Financial Reporting Standards as adopted by the EU ("IFRS"),including International Accounting Standards ("IAS") and interpretations issuedby the International Accounting Standards Board ("IASB") and its committees, andas interpreted by any regulatory bodies applicable to the Group. Basis of preparation The financial information has been prepared in accordance with IFRS. The accounting policies applied are set out in Appendix 1 and these assume that all existing standards in issue from the IASB will be fully endorsed by the EU. Both the transition balance sheet as at 1st April 2004 and the financial information for the year ended 31st March 2005, as prepared on the above basis, have been audited by KPMG Audit Plc. Their Special Purpose Audit Report toApplied Optical Technologies plc is set out on pages 26 to 28. The information for the six months ended 30th September 2004 is unaudited. Subject to no further changes by the EU or from the ISAB this information is expected to form thebasis for comparatives when reporting financial results for 2006, and for subsequent reporting periods. Overview of impact For the year ended 31st March 2005 the net increase in total recognised income and expense attributable to equity holders of the parent as a result of the conversion to IFRS was £1,038,000. This was largely made up of the elimination ofthe charge for goodwill amortisation. The reduction in loss after tax was £1,061,000. The details of these adjustments are given in Appendix 3. Six months ended Year ended 30th September 2004 31st March 2005 IFRS UK GAAP IFRS UK GAAP £'000 £'000 £'000 £'000 Operating loss (1,559) (2,029) (5,798) (6,859)Loss after tax (1,568) (2,038) (5,835) (6,896)Total recognised income and expense attributable to equity holders of the parent (1,327) (1,796) (6,281) (7,319)Basic loss per share (pence) (3.1) (4.0) (11.6) (13.7)Net assets 22,830 22,174 17,989 16,651 The most significant elements contributing to the changes in the financial information are: • The elimination of the charge for goodwill amortisation• The reclassification of certain fixed assets as assets held for resale IFRS 2 Share based payments will have a significant impact on future results but has not had a material impact on the numbers reported in this document. IFRS 1 exemptions IFRS 1 First Time Adoption of International Financial Reporting Standards, permits those companies adopting IFRS for the first time to takecertain exemptions from the full requirements of IFRS in the transition period. The Group has taken the following key exemptions: (a) Share based payments: The Group has elected to apply IFRS 2 Share based payments only to relevant share based payment transactions granted after 7 November 2002.(b) Business combinations: The Group has chosen not to restate business combinations completed prior to the transition date on an IFRS basis.(c) Exchange differences: The group has chosen not to separately disclose exchange differences arising on the translation of net investments in foreign operations arising prior to the transition date and has set cumulative translation differences to nil at 1st April 2004.(d) Financial instruments: The group has taken the exemption from applying IAS 32 Financial Instruments: Disclosure and Presentation and IAS 39 Financial Instruments: Recognition and Measurement to comparative information to be presented in its first IFRS financial statements and will adopt IAS 32 and IAS 39 with effect from 1st April 2005. Presentation of financial information The primary statements within the financial information contained in this document have been presented in accordance with IAS 1 Presentation ofFinancial Statements. However this format and presentation may require modification as practice develops and in the event that further guidance isissued. IFRS Accounting Policies This section provides a summary of the Group's new accounting policies under IFRS for the year ended 31st March 2005. Where policies have changed under IFRS as compared to UK GAAP this is indicated by *. (a) Basis of preparation The financial statements are presented in pounds sterling, rounded to the nearest thousand and are prepared on the historical cost basis. Non-current assets and disposal groups held for sale are stated at the lower of carrying amount and fair value less costs to sell. The accounting policies have been prepared on the basis of the recognition and measurement requirements of adopted IFRSs as at 30th September 2005 that are effective (or available for early adoption) at 31st March 2006, the Group's first annual reporting date at which it is required to use adopted IFRSs. The Directors have applied the accounting polices as set out below which they expect to apply when the first annual IFRS financial statements are prepared for the year ending 31st March 2006. However, the adopted IFRSs that will be effective (or available for early adoption) in the annual financial statements for the year ending 31st March 2006 are still subject to change and to additional interpretations and therefore cannot be determined with certainty. Accordingly, the accounting polices for that annual period will be determined finally only when the annual financial statements are prepared for the year ending 31st March 2006. The preparation of financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements and in preparing an opening IFRS balance sheet at 1st April 2004 for the purposes of the transition to IFRSs. The accounting policies have been applied consistently by Group entities. (b) Basis of consolidation(i) Subsidiaries Subsidiaries are entities controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. (ii) Joint ventures Joint ventures are those entities over whose activities the Group has joint control, established by contractual agreement. The consolidated financial statements include the Group's share of the total recognised gains and losses of joint ventures on an equity accounted basis, from the date that joint control commences until the date that joint control ceases. When the Group's share of losses exceeds its interest in a joint venture, the Group's carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the joint venture. (iii) Transactions eliminated on consolidation Intragroup balances and any unrealised gains and losses or income and expenses arising from intragroup transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with jointly controlled entities are eliminated to the extent of the Group's interest in the entity. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. (c) Foreign currency(i) Foreign currency transactions Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to pounds sterling at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement. (ii) Financial statements of foreign operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated to pounds sterling at foreign exchange rates ruling at the balance sheet date. The revenues and expenses of foreign operations are translated to pounds sterling at rates approximating to the foreign exchange rates ruling at the dates of the transactions. Foreign exchange differences arising on retranslation are recognised directly in a separate component of equity. (iii) Net investment in foreign operations Exchange differences arising from the translation of the net investment in foreign operations, are taken to a foreign currency translation reserve. They are released into the income statement upon disposal. In respect of all foreign operations only those translation differences arising since 1st April 2004, the date of transition to IFRS, are presented as a separate component of equity. (d) Financial instruments This financial information has been prepared in accordance with the financial instrument accounting policy applied under UK GAAP in the previously published financial statements. (e) Property, plant and equipment(i) Owned assets Items of property, plant and equipment are stated at cost less accumulated depreciation (see below) and impairment losses (see accounting policy j). Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. (ii) Leased assets Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Assets acquired by way of finance lease are stated at an amount equal to the lower of its fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation (see below) and impairment losses (see accounting policy j). (iii) Subsequent costs The Group recognises in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item when that cost is incurred if it is probable that the future economic benefits embodied with the item will flow to the Group and the cost of the item can be measured reliably. All other costs are recognised in the income statement as an expense as incurred. (iv) Depreciation Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Land is not depreciated. The estimated useful lives are as follows: • freehold buildings 50 years • leasehold improvements term of lease • plant and equipment 4 - 10 years • fixtures and fittings 3 - 5 years • motor vehicles 3 - 5 years The residual value, if not insignificant, is reassessed annually. (f) Intangible assets(i) Goodwill * All business combinations are accounted for by applying the purchase method. Goodwill represents amounts arising on acquisition of subsidiaries and joint ventures. In respect of business acquisitions after 1st April 2004, goodwill represents the difference between the cost of the acquisition and the fair value of the net identifiable assets acquired. In respect of acquisitions prior to 1st April 2004, goodwill is included on the basis of its deemed cost, which represents the amount recorded under previous GAAP. The classification and accounting treatment of business combinations that occurred prior to 1st April 2004 has not been reconsidered in preparing the Group's opening IFRS balance sheet at 1st April 2004. Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is no longer amortised but is tested annually for impairment (see accounting policy j). (g) Trade and other receivables Trade and other receivables are stated at their cost less impairment losses (see accounting policy j). (h) Inventories Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. The cost of inventories is based on the first-in first-out principle and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of overheads based on normal operating capacity. (i) Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the Group's cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows. (j) Impairment * The carrying amounts of the Group's assets, other than inventories (see accounting policy h) and deferred tax assets (see accounting policy q), are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated (see accounting policy j(i)). For goodwill, the recoverable amount is estimated at each balance sheet date. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the income statement. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to cash-generating units (group of units) and then, to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis. Goodwill was tested for impairment at 1st April 2004, the date of transition to IFRSs, even though no indication of impairment existed. (i) Calculation of recoverable amount The recoverable amount of assets is the greater of their net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. (ii) Reversals of impairment * An impairment loss in respect of goodwill is not reversed. In respect of other assets, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. (k) Share capital(i) Repurchase of share capital When share capital recognised as equity is repurchased, the amount of the consideration paid, including directly attributable costs, is recognised as a change in equity. Repurchased shares are classified as treasury shares and presented as a deduction from total equity. (ii) Dividends* Dividends are recognised as a liability in the period in which they are declared. (l) Employee benefits(i) Defined contribution plans Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement as incurred. (ii) Share-based payment transactions * The share option programme allows Group employees to acquire shares of the Company. The fair value of options granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options granted is measured using a binomial lattice model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest except where forfeiture is only due to share prices not achieving the threshold for vesting. For options granted before 7th November 2002 the recognition and measurement principles of IFRS 2 have not been applied in accordance with IFRS 1. (m) Provisions A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. (i) Warranties A provision for warranties is recognised when the underlying products or services are sold. The provision is based on historical warranty data and a weighting of all possible outcomes against their associated probabilities. (ii) Restructuring A provision for restructuring is recognised when the Group has approved a detailed and formal restructuring plan, and the restructuring has either commenced or has been announced publicly. Future operating costs are not provided for. (iii) Onerous contracts A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligations under the contract. (n) Trade and other payables Trade and other payables are stated at cost. (o) Revenue(i) Goods sold and services rendered Revenue from the sale of goods is recognised in the income statement when the significant risks and rewards of ownership have been transferred to the buyer. Revenue from services rendered is recognised in the income statement in proportion to the stage of completion of the transaction at the balance sheet date. No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due, associated costs or the possible return of goods also continuing management involvement with the goods. (ii) Rental income Rental income is recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total rental income. (iii) Government grants A government grant is recognised in the balance sheet initially as deferred income when there is reasonable assurance that it will be received and that the Group will comply with the conditions attaching to it. Grants that compensate the Group for expenses incurred are recognised as revenue in the income statement on a systematic basis in the same periods in which the expenses are incurred. Grants that compensate the Group for the cost of an asset are recognised in the income statement as other operating income on a systematic basis over the useful life of the asset. (p) Expenses(i) Operating lease payments* Payments made under operating leases are recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives received are recognised in the income statement as an integral part of the total lease expense. (ii) Finance lease payments Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. (iii) Finance income Finance income comprises interest receivable on funds invested and foreign exchange gains. Interest income is recognised in the income statement as it accrues, using the effective interest method. (iv) Finance expense Finance expenses comprise interest payable on borrowings calculated using the effective interest rate method and foreign exchange losses. The interest expense component of finance lease payments is recognised in the income statement using the effective interest rate method. (v) Research and development Expenditure on research activities, undertaken with the prospect of gaining new technical knowledge and understanding, is recognised in the income statement as an expense as incurred. (q) Income tax * Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. (r) Segment reporting* A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. (s) Non-current assets held for sale and discontinued operations * Immediately before classification as held for sale, the measurement of the assets (and all assets and liabilities in a disposal group) is brought up-to-date in accordance with applicable IFRSs. Then, on initial classification as held for sale, non-current assets and disposal groups are recognised at the lower of carrying amount and fair value less costs to sell. Impairment losses on initial classification as held for sale are included in profit or loss, even when there is a revaluation. The same applies to gains and losses on subsequent remeasurement. IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations is being applied from the date of transition to IFRS being 1st April 2004. Consolidated income statement +---------------------------------------+------------------+---------+---------------+| | six months ended| | year ended|| | 30th September| |31st March 2005|| | 2004| | |+---------------------------------------+------------------+---------+---------------+| | Unaudited| | Audited|+---------------------------------------+------------------+---------+---------------+| | £'000| | £'000|+---------------------------------------+------------------+---------+---------------+| | | | |+---------------------------------------+------------------+---------+---------------+|Revenue | 12,153| | 23,747|+---------------------------------------+------------------+---------+---------------+|Cost of sales | (8,680)| | (16,168)|+---------------------------------------+------------------+---------+---------------+| | | | |+---------------------------------------+------------------+---------+---------------+|Gross profit | 3,473| | 7,579|+---------------------------------------+------------------+---------+---------------+| | | | |+---------------------------------------+------------------+---------+---------------+|Distribution and selling costs | (1,765)| | (3,267)|+---------------------------------------+------------------+---------+---------------+|Administrative expenses | (2,739)| | (5,558)|+---------------------------------------+------------------+---------+---------------+|Exceptional administrative expenses | (528)| | (4,552)|+---------------------------------------+------------------+---------+---------------+|Total administrative expenses | (3,267)| | (10,110)|+---------------------------------------+------------------+---------+---------------+|Operating loss | (1,559)| | (5,798)|+---------------------------------------+------------------+---------+---------------+| | | | |+---------------------------------------+------------------+---------+---------------+|Share of profit of joint ventures | 368| | 735|+---------------------------------------+------------------+---------+---------------+|Dividend income | -| | 7|+---------------------------------------+------------------+---------+---------------+| | | | |+---------------------------------------+------------------+---------+---------------+|Group operating loss | (1,191)| | (5,056)|+---------------------------------------+------------------+---------+---------------+| | | | |+---------------------------------------+------------------+---------+---------------+|Finance income | 14| | 36|+---------------------------------------+------------------+---------+---------------+|Finance expenses | (13)| | (7)|+---------------------------------------+------------------+---------+---------------+| | | | |+---------------------------------------+------------------+---------+---------------+|Loss before tax | (1,190)| | (5,027)|+---------------------------------------+------------------+---------+---------------+| | | | |+---------------------------------------+------------------+---------+---------------+|Income tax | (378)| | (808)|+---------------------------------------+------------------+---------+---------------+| | | | |+---------------------------------------+------------------+---------+---------------+|Loss for the period attributable to | (1,568)| | (5,835)||equity holders of the parent | | | |+---------------------------------------+------------------+---------+---------------+| | | | |+---------------------------------------+------------------+---------+---------------+|Basic loss per share | (3.1)| | (11.6)|+---------------------------------------+------------------+---------+---------------+|Diluted loss per share | (3.1)| | (11.6)|+---------------------------------------+------------------+---------+---------------+ Consolidated statement of recognised income and expense six months ended year ended 30th September 2004 31st March 2005 Unaudited Audited £'000 £'000 Foreign exchange translation differences 241 (446) --------------- ---------------Net income/ (expense) recognised directly in equity 241 (446) Loss for the period (1,568) (5,835) --------------- ---------------Total recognised income and expense for the period attributable to equity holders of the parent (1,327) (6,281) --------------- --------------- Consolidated balance sheet 1st Apr 2004 30th Sep 2004 31st Mar 2005 Audited Unaudited Audited £'000 £'000 £'000ASSETSNon-current assetsProperty, plant and equipment 10,654 6,748 4,895Intangible assets 6,582 6,677 5,965Investments in joint venture 676 1,054 451Other investments 28 28 28Deferred tax assets 2,373 2,091 1,586 ---------------------------------------------Total non-current assets 20,313 16,598 12,925 --------------------------------------------- Current assetsInventory 2,522 2,699 2,101Trade and other receivables 6,090 4,127 4,090Cash and cash equivalents 1,851 1,370 3,954Assets classified as held for resale - 3,337 134 ---------------------------------------------Total current assets 10,463 11,533 10,279 --------------------------------------------- ---------------------------------------------Total assets 30,776 28,131 23,204 --------------------------------------------- LIABILITIESCurrent liabilitiesBank overdraft 702 349 -Interest-bearing loans and borrowings 33 30 14Deferred government grants 22 22 21Trade and other payables 5,918 4,868 5,158 ---------------------------------------------Total current liabilities 6,675 5,269 5,193 --------------------------------------------- Non-current liabilitiesInterest-bearing loans and borrowings 14 - -Deferred government grants 42 32 22 ---------------------------------------------Total non-current liabilities 56 32 22 --------------------------------------------- ---------------------------------------------Total liabilities 6,731 5,301 5,215 --------------------------------------------- ---------------------------------------------Net assets 24,045 22,830 17,989 --------------------------------------------- EQUITYCapital and reservesIssued capital 2,669 2,669 2,669Share premium account 53,160 53,160 53,160Translation reserves - 241 (446)Retained earnings (31,784) (33,240) (37,394) ---------------------------------------------Total equity attributable to equity holders of the parent 24,045 22,830 17,989 --------------------------------------------- Consolidated statement of cash flows six months ended year ended 30th September 2004 31st March 2005 Unaudited Audited £'000 £'000 Cash flows from operating activitiesLoss for the period (1,568) (5,835)Depreciation 1,035 1,912Impairment losses 126 1,791Profit on sale of property, plant and - (97) equipmentRelease of government grants (10) (21)Share based payment expense 112 225Share of joint venture income (368) (735)Dividend income - (7)Finance income (14) (36)Finance expenses 13 7Income tax expense 378 808(Increase)/decrease in inventory (157) 383Decrease in debtors 1,997 1,932Decrease in creditors (1,048) (849) ------------------ ------------------ Cash inflow/ (outflow) from operating activities 496 (522)Interest paid (13) (11)Income tax paid - overseas (83) (80) ------------------ ------------------Net cash inflow/(outflow) from operating activities 400 (613) Cash flows from investing activitiesAcquisition of property, plant and equipment (545) (920)Proceeds from sale of property, plant and equipment - 3,464Dividends received from joint venture - 932Income from other fixed asset investments - 7Interest received 14 41 ------------------ ------------------Net cash (outflow)/inflow from investing activities (531) 3,524 Cash flows from financing activities Payment of finance lease liabilities (17) (33) ------------------ ------------------Net cash outflow from financing activities (17) (33) ------------------ ------------------Net (decrease)/increase in cash and cash equivalents (148) 2,878 Cash and cash equivalents at the start of 1,149 1,149 the period Effect of exchange rate fluctuations on cash 20 (73) ------------------ ------------------Cash and cash equivalents at the end of the period 1,021 3,954 ------------------ ------------------ Consolidated statement of changes in equity Year ended 31st March 2005 Attributable to equity shareholdersAudited Share Share Translation Retained Total capital premium reserve earnings £'000 £'000 £'000 £'000 £'000 At 1st April 2004 2,669 53,160 - (31,784) 24,045 Total recognised income and expense - - (446) (5,835) (6,281)Share based payments 225 225 -------------------------------------------------------At 31st March 2005 2,669 53,160 (446) (37,394) 17,989 ------------------------------------------------------- Six months ended 30th September 2004 Attributable to equity shareholdersUnaudited Share Share Translation Retained Total capital premium reserve earnings £'000 £'000 £'000 £'000 £'000 At 1st April 2004 2,669 53,160 - (31,784) 24,045 Total recognised income and expense - - 241 (1,568) (1,327)Share based payments 112 112 -------------------------------------------------------At 30th September 2004 2,669 53,160 241 (33,240) 22,830 ------------------------------------------------------- Reconciliation of income statementFor the year ended 31st March 2005 +------------------------+-------------+--------------------------+-------------+| | UK GAAP| IFRS adjustments | IFRS|+------------------------+-------------+-------------+------------+-------------+| | | Goodwill| Assets held| || | | | for resale| |+------------------------+-------------+-------------+------------+-------------+| | | (a)| (b)| |+------------------------+-------------+-------------+------------+-------------+| | £'000| £'000| £'000| £'000|+------------------------+-------------+-------------+------------+-------------+| | | | | |+------------------------+-------------+-------------+------------+-------------+|Revenue | 23,747| | | 23,747|+------------------------+-------------+-------------+------------+-------------+|Cost of sales | (16,202)| | 34| (16,168)|+------------------------+-------------+-------------+------------+-------------+|Gross profit | 7,545| | 34| 7,579|| | | | | |+------------------------+-------------+-------------+------------+-------------+|Distribution and selling| (3,267)| | | (3,267)||costs | | | | |+------------------------+-------------+-------------+------------+-------------+|Administrative costs* | (11,137)| 1,060| (33)| (10,110)|+------------------------+-------------+-------------+------------+-------------+|Operating loss | (6,859)| 1,060| 1| (5,798)|| | | | | |+------------------------+-------------+-------------+------------+-------------+|Share of profit of joint| 735| | | 735||ventures | | | | |+------------------------+-------------+-------------+------------+-------------+|Dividend income | 7| | | 7|+------------------------+-------------+-------------+------------+-------------+|Group operating loss | (6,117)| 1,060| 1| (5,056)|| | | | | |+------------------------+-------------+-------------+------------+-------------+|Finance income | 36| | | 36|+------------------------+-------------+-------------+------------+-------------+|Finance expenses | (7)| | | (7)|+------------------------+-------------+-------------+------------+-------------+|Loss before taxation | (6,088)| 1,060| 1| (5,027)|| | | | | |+------------------------+-------------+-------------+------------+-------------+|Income tax | (808)| | | (808)|+------------------------+-------------+-------------+------------+-------------+|Loss for the period | (6,896)| 1,060| 1| (5,835)||attributable to equity | | | | ||holders of the parent | | | | |+------------------------+-------------+-------------+------------+-------------+|Net expense recognised | (423)| (23)| -| (446)||directly in equity | | | | |+------------------------+-------------+-------------+------------+-------------+|Total recognised income | (7,319)| 1,037| 1| (6,281)||and expense attributable| | | | ||to equity holders of the| | | | ||parent | | | | |+------------------------+-------------+-------------+------------+-------------+ * including exceptional administrative expensesExplanation of the IFRS adjustments to the Income Statement for the year ended31st March 2005 and six months ended 30th September 2004 (a) Amortisation of goodwill Principal difference Under UK GAAP goodwill acquired as part of an acquisition is amortised over the anticipated useful economic life. Under IFRS 3 goodwill is not amortised but is assessed annually for impairment. Impact Under UK GAAP the amortisation charge in respect of goodwill was £1,093,000 for the year ended 31st March 2005 (six months ended 30th September 2004; £567,000) and under IFRS the charge is £nil for the year ended 31st March 2005 (six months ended 30th September 2004; £nil). This resulted in a decreased charge to operating profit of £1,060,000 for the year ended 31st March 2005 being the net of the £1,093,000 reduced amortisation charge and the increased impairment of goodwill for the year ended 31st March 2005 from £417,000 to £450,000 (six months ended 30th September 2004; £567,000). The final impact of this adjustment is to change the exchange difference arising on the translation of the goodwill. Under UK GAAP the exchange difference in respect of goodwill was a charge of £144,000 for the year ended 31st March 2005 (six months ended 30th September 2004; income of £95,000) and under IFRS the charge is £167,000 for the year ended 31st March 2005 (six months ended 30th September 2004; income of £94,000) resulting in an increased charge recognised directly into equity of £23,000 for the year ended 31st March 2005 (six months ended 30th September 2004; £1,000). (b) Assets held for resale Principal difference Under UK GAAP, all fixed assets remained within Non-current assets and continued to be depreciated until the date of sale or disposal outside of the Group Under IFRS, fixed assets qualifying as 'held for resale' are transferred to current assets and are held at the lower of cost and fair value less costs to sell. No depreciation is charged on assets held for resale. Impact Under the new IFRS accounting policy the depreciation charge for the year ended 31st March 2005 has been reduced by £34,000 (six months ended 30th September 2004; £29,000) and the profit on disposal of the asset has been increased by £93,000 in addition during the six months ended 30th September 2004 a £126,000 impairment provision arose on the classification of the assets as held for resale as on reclassification the assets must be stated at the lower of cost and fair value less costs to sell. (c) Share-based payments Principal difference The Group operates a number of share-based incentive schemes that are impacted by IFRS 2 Share-based payments. Under UK GAAP no expense has been recognised for awards under the Executive Share Option Schemes as the intrinsic value (the difference between the exercise price and the market value at the date of grant) was nil and for awards under the SAYE scheme as this was exempt under UITF17. Under IFRS, an expense is recognised in the income statement for all share based payments. This expense has been calculated based on the fair value at the date of the awards using pricing models appropriate to the schemes. Impact The income statement charge required in accordance with IFRS 2 is not significantly different to the charge previously included in the financial statements under UK GAAP. Therefore, this has not resulted in any adjustment for the year ended 31st March 2005 or the six months ended 30th September 2004. Reconciliation of balance sheet As at 31st March 2005 UK GAAP IFRS adjustments IFRS Goodwill Assets Translation Share held for of foreign based resale investments payments (a) (b) (c) (d) £'000 £'000 £'000 £'000 £'000 £'000ASSETSNon-current assetsProperty, plant and equipment 5,084 (189) 4,895Intangible assets 4,928 1,037 5,965Investments in joint venture 451 451Other investments 28 28Deferred tax assets 1,586 1,586 Current assetsInventory 2,101 2,101Trade and other receivables 4,090 4,090Cash and cash equivalents 3,954 3,954Assets classified as held for resale - 134 134 ----------------------------------------------------------------Total assets 22,222 1,037 (55) 23,204 ----------------------------------------------------------------LIABILITIESCurrent liabilitiesBank overdraft - -Interest-bearing loans and borrowings 14 14Deferred government grants 21 21Trade and other payables 5,514 (56) (300) 5,158 Non-current liabilitiesInterest-bearing loans and borrowings - -Deferred government grants 22 22 ----------------------------------------------------------------Total liabilities 5,571 (56) (300) 5,215 ----------------------------------------------------------------Net assets 16,651 1,037 1 300 17,989 ---------------------------------------------------------------- EQUITYCapital and reservesIssued capital 2,669 2,669Share premium account 53,160 53,160Translation reserves - (167) (279) (446)Retained earnings (39,178) 1,204 1 279 300 (37,394) ----------------------------------------------------------------Total equity attributable to equity holders of the parent 16,651 1,037 1 - 300 17,989 ---------------------------------------------------------------- Explanation of IFRS adjustments to the transition balance sheet at 1st April2004, interim balance sheet at 30th September 2004 and closing balance sheet at31st March 2005 (a) Amortisation of goodwill Principal difference Under UK GAAP goodwill acquired as part of an acquisition is amortised over the anticipated useful economic life. Under IFRS goodwill is not amortised but is assessed for impairment annually. Transition impact There is no impact on the transition balance sheet at 1st April 2004. Closing balance sheet impact Goodwill has been increased by £1,037,000 in the closing balance sheet (30th September 2004; £566,000) and an exchange loss of £167,000 has been separately disclosed from retained earnings (30th September 2004; exchange gain of £94,000). Goodwill is tested for impairment at transition and annually thereafter. No impairment provisions were required. (b) Assets held for resale Principal difference Under UK GAAP, the Group classified assets that were held for resale within fixed assets and continued to depreciate them. Under IFRS, the Group transfers the assets into current assets at the lower of cost and fair value less costs to sell and does not continue to depreciate the asset. Transition impact There was no impact on the transition balance sheet at 1st April 2004. Closing balance sheet impact Freehold property in the closing balance sheet with a net book value of £189,000 has been reclassified to current assets as held for resale (30th September 2004; £3,434,000). A balance of £56,000 relating to the freehold property identified as held for resale has been reclassified to current assets in accordance with IFRS 5. As at 30th September 2004 the fair value of the asset held for resale was adjusted by £97,000 being the net impact of the reduced depreciation of £29,000 and impairment provision of £126,000. The impairment provision arose on the classification of the assets as held for resale as on reclassification the assets must be stated at the lower of cost and fair value less costs to sell. This resulted in an increase in current assets of £134,000 (30th September 2004: £3,337,000). (c) Translation of investments in foreign subsidiaries Principal difference Under UK GAAP, foreign exchange differences arising on the translation of net investments in foreign operations were taken directly to retained earnings. Under IFRS these differences are taken to a separate reserve. Transition impact There was no impact on the transition balance sheet at 1st April 2004. Closing balance sheet impact Retained earnings have been increased by £279,000 at 31st March 2005 (30th September 2004; decreased by £147,000) with a corresponding decrease in other reserves of £279,000 (30th September 2004; increase of £147,000). (d) Share-based payments Principal difference The Group operates a number of share-based incentive schemes that are impacted by IFRS 2 Share-based payments. Under UK GAAP accruals for any costs recognised were included in the balance sheet within current liabilities. Under IFRS, equity-settled share based payments result in an increase in equity and the accrual has been reallocated to equity as a component of retained earnings. Transition impact Retained earnings have been increased by £75,000 and current liabilities decreased by £75,000 in the transition balance sheet at 1st April 2004. Closing balance sheet impact Retained earnings have been increased by £300,000 at 31st March 2005 (30th September 2004; £187,000) with a corresponding decrease in current liabilities of £300,000 (30th September 2004; £187,000). Group cashflow statement The move from UK GAAP to IFRS does not change the cashflow statement of the Group. The IFRS cashflow statement is similar to UK GAAP but presents various cashflows in different categories and in a different order from the UK GAAP cashflow statement. Reconciliation of income statementFor the six months ended 30th September 2004 UK GAAP IFRS adjustments IFRS Goodwill Assets held for resale+----------------------------+------------+------------+------------+------------+| | | (a)| (b)| |+----------------------------+------------+------------+------------+------------+| | £'000| £'000| £'000| £'000|+----------------------------+------------+------------+------------+------------+| | | | | |+----------------------------+------------+------------+------------+------------+|Revenue | 12,153| | | 12,153|+----------------------------+------------+------------+------------+------------+|Cost of sales | (8,709)| | 29| (8,680)|+----------------------------+------------+------------+------------+------------+|Gross profit | 3,444| | 29| 3,473|| | | | | |+----------------------------+------------+------------+------------+------------+|Distribution and selling | (1,765)| | | (1,765)||costs | | | | |+----------------------------+------------+------------+------------+------------+|Administrative costs* | (3,708)| 567| (126)| (3,267)|+----------------------------+------------+------------+------------+------------+|Operating loss | (2,029)| 567| (97)| (1,559)|| | | | | |+----------------------------+------------+------------+------------+------------+|Share of profit of joint | 368| | | 368||ventures | | | | |+----------------------------+------------+------------+------------+------------+|Dividend income | -| | | -|+----------------------------+------------+------------+------------+------------+|Group operating loss | (1,661)| 567| (97)| (1,191)|| | | | | |+----------------------------+------------+------------+------------+------------+|Finance income | 14| | | 14|+----------------------------+------------+------------+------------+------------+|Finance expenses | (13)| | | (13)|+----------------------------+------------+------------+------------+------------+|Loss before taxation | (1,660)| 567| (97)| (1,190)|| | | | | |+----------------------------+------------+------------+------------+------------+|Income tax | (378)| | | (378)|+----------------------------+------------+------------+------------+------------+|Loss for the period | (2,038)| 567| (97)| (1,568)||attributable to equity | | | | ||holders of the parent | | | | |+----------------------------+------------+------------+------------+------------+|Net expense recognised | 242| (1)| -| 241||directly in equity | | | | |+----------------------------+------------+------------+------------+------------+|Total recognised income and | (1,796)| 566| (97)| (1,327)||expense attributable to | | | | ||equity holders of the parent| | | | |+----------------------------+------------+------------+------------+------------+ (a), (b) - see Appendix 3 * including exceptional administrative expenses Reconciliation of balance sheetAs at 30th September 2004 UK GAAP IFRS adjustments IFRS Goodwill Assets Translation Share held for of foreign based resale investments payments (a) (b) (c) (d) £'000 £'000 £'000 £'000 £'000 £'000ASSETSNon-current assetsProperty, plant and equipment 10,182 (3,434) 6,748Intangible assets 6,111 566 6,677Investments in joint venture 1,054 1,054Other investments 28 28Deferred tax assets 2,091 2,091 Current assetsInventory 2,699 2,699Trade and other receivables 4,127 4,127Cash and cash equivalents 1,370 1,370Assets classified as held for resale - 3,337 3,337 ------------------------------------------------------------Total assets 27,662 566 (97) 28,131 ------------------------------------------------------------ LIABILITIESCurrent liabilitiesBank overdraft 349 349Interest-bearing loans and borrowings 30 30Deferred government grants 22 22Trade and other payables 5,055 (187) 4,868 Non-currentliabilitiesInterest-bearing loans and borrowings - -Deferred government grants 32 32 ------------------------------------------------------------Total liabilities 5,488 (187) 5,301 ------------------------------------------------------------Net assets 22,174 566 (97) 187 22,830 ------------------------------------------------------------ EQUITYCapital and reservesIssued capital 2,669 2,669Share premium account 53,160 53,160Translation reserves - 94 147 241Retained earnings (33,655) 472 (97) (147) 187 (33,240) ------------------------------------------------------------Total equity attributable to equity holders of the parent 22,174 566 (97) - 187 22,830 ------------------------------------------------------------(a), (b), (c), (d) - see Appendix 3 Reconciliation of balance sheetAs at 1st April 2004 UK GAAP IFRS adjustments IFRS Share based payments (d) £'000 £'000 £'000ASSETSNon-current assetsProperty, plant and equipment 10,654 10,654Intangible assets 6,582 6,582Investments in joint venture 676 676Other investments 28 28Deferred tax assets 2,373 2,373 Current assetsInventory 2,522 2,522Trade and other receivables 6,090 6,090Cash and cash equivalents 1,851 1,851 -------------------------------------------Total assets 30,776 30,776 ------------------------------------------- LIABILITIESCurrent liabilitiesBank overdraft 702 702Interest-bearing loans and borrowings 33 33Deferred government grants 22 22Trade and other payables 5,993 (75) 5,918 Non-current liabilitiesInterest-bearing loans and borrowings 14 14Deferred government grants 42 42 -------------------------------------------Total liabilities 6,806 (75) 6,731 -------------------------------------------Net assets 23,970 75 24,045 ------------------------------------------- EQUITYCapital and reservesIssued capital 2,669 2,669Share premium account 53,160 53,160Translation reserve - -Retained earnings (31,859) 75 (31,784) -------------------------------------------Total equity attributable to equity holders of the parent 23,970 75 24,045 -------------------------------------------(d) - see Appendix 3 Special Purpose Audit Report of KPMG Audit Plc to Applied Optical Technologiesplc ('the Company') on its preliminary International Financial ReportingStandards ("IFRS") Financial Information for the year ended 31st March 2005 andon its preliminary opening International Financial Reporting Standards ("IFRS")balance sheet as at 1st April 2004 In accordance with the terms of our engagement letter dated 4th October 2005 wehave audited the accompanying consolidated preliminary IFRS balance sheet ofApplied Optical Technologies plc as at 31st March 2005, and the relatedconsolidated statements of income, recognised income and expense, changes inequity and cash flows for the year then ended and the related accounting policynotes ("the preliminary IFRS financial information") set out on pages 4 to 16.Also in accordance with the terms of our engagement letter dated 4th October2005 we have audited the accompanying preliminary opening consolidated IFRSbalance sheet and related notes of Applied Optical Technologies plc as at 1stApril 2004 ('the opening IFRS balance sheet') as set out on pages 4 to 16. Respective responsibilities of directors and KPMG Audit Plc The directors of the Company have accepted responsibility for the preparation ofthe preliminary IFRS financial information and the opening IFRS balance sheet,both of which have been prepared as part of the Company's conversion to IFRS.Our responsibilities, as independent auditors, are established in the UnitedKingdom by the Auditing Practices Board, our profession's ethical guidance andthe terms of our engagement. Under the terms of engagement we are required to report to you our opinion as towhether the preliminary IFRS financial information and the opening IFRS balancesheet have been properly prepared, in all material respects, in accordance withthe basis of preparation to the preliminary IFRS financial information and theopening IFRS balance sheet. We also report to you if, in our opinion, we havenot received all the information and explanations we require for our audit. We read the other information accompanying both the preliminary IFRS financialinformation and the opening IFRS balance sheet and consider whether it isconsistent with the preliminary IFRS financial information and opening IFRSbalance sheet. We consider the implications for our report if we become aware ofany apparent misstatements or material inconsistencies with the preliminary IFRSfinancial information and with the opening IFRS balance sheet. Our report has been prepared for the Company solely in connection with theCompany's conversion to IFRS. Our report was designed to meet the agreed requirements of the Companydetermined by the Company's needs at the time. Our report should not thereforebe regarded as suitable to be used or relied on by any party wishing to acquirerights against us other than the Company for any purpose or in any context. Anyparty other than the Company who chooses to rely on our report (or any part ofit) will do so at its own risk. To the fullest extent permitted by law, KPMGAudit Plc will accept no responsibility or liability in respect of our report toany other party. Basis of audit opinion We conducted our audit having regard to Auditing Standards issued by the UKAuditing Practices Board. An audit includes examination, on a test basis, ofevidence relevant to the amounts and disclosures in the preliminary IFRSfinancial information and in the opening IFRS balance sheet. It also includes anassessment of the significant estimates and judgements made by the directors inthe preparation of the preliminary IFRS financial information and opening IFRSbalance sheet, and of whether the accounting policies are appropriate to theGroup's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information andexplanations which we considered necessary in order to provide us withsufficient evidence to give reasonable assurance that the preliminary IFRSfinancial information and opening IFRS balance sheet are free from materialmisstatement, whether caused by fraud or other irregularity or error. In formingour opinion we also evaluated the overall adequacy of the presentation ofinformation in the preliminary IFRS financial information and opening IFRSbalance sheet. Emphasis of matters Without qualifying our opinion, we draw your attention to the following matters: •The basis of preparation to the preliminary IFRS financial information and opening IFRS balance sheet explains why the accompanying preliminary IFRS financial information may require adjustment before their inclusion and before its use as comparative information in the IFRS financial statements for the year ending 31st March 2006 when the Company prepares its first IFRS financial statements. •As described in the basis of preparation to the preliminary IFRS financial information, as part of its conversion to IFRSs, the Company has prepared the preliminary IFRS financial information for the year ended 31st March 2005 to establish the financial position, results of operations and cash flows of the Company necessary to provide the comparative financial information expected to be included in the Company's first complete set of IFRS financial statements for the year ending 31st March 2006. The preliminary IFRS financial information and the opening IFRS balance sheet do not themselves include comparative financial information for the prior period. •In respect of the opening IFRS balance sheet, under IFRS only a complete set of consolidated financial statements comprising a balance sheet, income statement, statement of changes in equity and cash flow statement, together with comparative financial information and explanatory notes, can achieve a fair presentation of the Company's financial position, results of operations and cash flows in accordance with IFRS. The opening balance sheet does not include the comparative information for the prior period . •As explained in the basis of preparation, in accordance with IFRS 1 First-time Adoption of International Financial Reporting Standards, no adjustments have been made for any changes in estimates made at the time of approval of the UK Generally Accepted Accounting Practices financial statements on which the preliminary IFRS financial information and the opening IFRS balance sheet are based. •As permitted by IFRS 1, IAS 32 Financial Instruments: Disclosure and Presentation and IAS 39 Financial Instruments: Recognition and Measurement have not yet been applied and there has been no related restatement of the opening IFRS balance sheet or the 31st March 2005 balance sheet. Any adjustments that arise from the application of those standards will be shown as an equity movement on 1 April 2005. Opinion In our opinion, the accompanying preliminary IFRS financial information for theyear ended 31st March 2005 and the opening IFRS balance sheet as at 1st April2004 have been prepared, in all material respects, in accordance with the basisset out in the basis of preparation, which describes how IFRS have been appliedunder IFRS 1, including the assumptions made by the directors of the Companyabout the standards and interpretations expected to be effective, and thepolicies expected to be adopted, when they prepare the first complete set ofconsolidated IFRS financial statements of the Company for the year ending 31stMarch 2006. KPMG Audit PlcChartered AccountantsQuayside House110 QuaysideNewcastle-upon-TyneNE1 3DX 17th November 2005 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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