26th Apr 2006 07:01
Carr's Milling Industries PLC26 April 2006 CARR'S MILLING INDUSTRIES PLC RESTATEMENT OF FINANCIAL INFORMATION UNDER IFRS Following regulations passed by the European Parliament in July 2002, Carr'sMilling Industries PLC ("Carr's") is required to prepare its consolidatedaccounts for the 52 weeks ending 2 September 2006 (2005/06) under InternationalFinancial Reporting Standards (IFRS), as endorsed by the EU. Carr's previouslyprepared its consolidated accounts under UK Generally Accepted AccountingPrinciples (UK GAAP). The purpose of this release is to explain the impact of IFRS on the previouslyreported consolidated UK GAAP results and position for the 53 weeks ended 3September 2005 (2004/05) and for the 26 weeks ended 26 February 2005. For full details of the impact of IFRS on Carr's financial statements, referencecan be made to a further detailed document, which can be viewed on the Company'swebsite, www.carrs-milling.com. Summary of the IFRS impact on 2004/05 The following summarises the impact of the IFRS adjustments on the previouslyreported UK GAAP position for 2004/05: Profit Intangible Profit Net Adjusted Basic before asset before assets** EPS* EPS tax* amortisation tax and exceptional items £m £m £m £m pence pence As previously reported under UK GAAP 6.1 2.9 9.0 31.3 47.7 87.5 Associate adjustment 0.1 0.2 0.3 (1.9) 0.8 0.8 Pensions 0.7 - 0.7 (11.3) 5.7 5.7 Derivitive contracts (0.1) - (0.1) (0.1) (1.0) (1.0) Intangible amortisation - (1.0) (1.0) (1.0) - (9.3) Business combinations - 1.5 1.5 3.1 - 18.8 Proposed dividends - - - 0.9 - - Other 0.2 - 0.2 0.1 1.3 1.3 Deferred tax - - - 1.2 - (8.8) ---------------- ------ --------- ------ ------ ------- ------As restated under IFRS 7.0 3.6 10.6 22.3 54.5 95.0 ---------------- ------ --------- ------ ------ ------- ------ * stated before intangible asset amortisation and exceptional items ** IFRS adjustments are stated post-tax. 1. IFRS 1 - "First time adoption of International Financial Reporting Standards" IFRS 1 details the requirements and guidance to be used by first time adoptersof IFRS in preparing their first IFRS accounts. IFRS 1 requires Carr's to selectaccounting policies that comply with the IFRS in force at 4 March 2006 and toapply these policies retrospectively. The date of transition to IFRS for Carr's was 28 August 2004. The first annualstatements fully compliant with IFRS, with IFRS restated comparatives, will bethose for 2005/06. IFRS 1 provides optional exemptions to first time adopters. The exemptionsadopted by Carr's are as follows: 1.1 Business combinations Business combinations that took place prior to the date of transition to IFRShave not been restated. 1.2 Fair value as deemed cost Carr's has opted to use previous revaluations of property made under UK GAAP asdeemed cost. 1.3 Employee benefits Carr's has opted to recognise in equity all cumulative actuarial gains andlosses at the date of transition. Carr's has also opted to account for pensionbenefits under the amendment to IAS 19 issued in December 2004 in which allactuarial gains and losses are recognised in the Statement of Recognised Incomeand Expense (SORIE). This is consistent with the UK GAAP requirement under FRS17 'Retirement benefits', the effect of which has been disclosed previously inthe Annual Report. 1.4 Cumulative exchange differences IFRS 1 permits an exemption where Carr's cumulative foreign exchange translationdifferences are set to zero at the date of transition. Carr's has adopted thisexemption. On subsequent disposal of an overseas subsidiary, exchangedifferences arising after the date of transition will be recycled through theincome statement. 1.5 Share-based payments IFRS 1 permits a company to apply IFRS 2 only to equity-settled share-basedawards granted on or after 7 November 2002, which have not vested by the laterof the date of transition to IFRS (28 August 2004) and 1 January 2005. Carr'shas taken advantage of this exemption. 2. IFRS Adjustments The selection of IFRS accounting policies as required by IFRS 1 creates a numberof adjustments which are required to transition from UK GAAP to IFRS as endorsedby the EU. Each of these is discussed in turn below in the context of theappropriate standard and the guidance it gives: 2.1 Employee benefits (IAS 19) IAS 19 is more encompassing than the UK equivalent FRS 17. Specifically, IAS 19covers all employee benefits which include post-retirement benefits such aspensions and medical care and short term employee benefits payable in employment such as holiday pay. 2.1.1 Defined benefit pension scheme Carr's sponsors the Carr's Milling Industries Pension Scheme 1993 (the "Scheme")which includes a defined benefit category providing members with benefits basedon pay and service. Under UK GAAP, the pension costs associated with the Scheme were accounted forunder SSAP 24 'Accounting for pensions costs' and detailed disclosures wereprovided in accordance with the transitional provisions of FRS 17. In terms of the initial recognition of the pension deficit, IAS 19 and FRS 17are similar. As such, in the 2004/05 opening balance sheet, the pre-taxreduction in net assets is £10.4m, being £10.9m relating to the FRS 17 deficitand £0.5m relating to the reversal of the SSAP 24 prepayment. An associateddeferred tax adjustment of £3.1m has also been recognised, being an asset of£3.3m on the deficit and £0.2m reversal of the deferred tax creditor associatedwith the SSAP 24 prepayment. The total reduction in opening net assets is thus£7.3m. The increase in pre-tax profit for 2004/05 is £0.7m, being the net IAS 19 costof £0.9m and the UK GAAP cost of £1.6m. The related deferred tax gives a chargeto the income statement of £0.2m. Thus the total increase in profit after tax is£0.5m. 2.2 Financial Instruments (IAS 32 and IAS 39) 2.2.1 Derivative financial instruments IFRS requires derivative financial instruments to be recorded in the balancesheet at fair value with any change in fair value charged or credited to theincome statement. Previously under UK GAAP, these were not required to berecorded in the balance sheet. Carr's uses interest rate collars and swaps to manage its exposure to interestrate fluctuations. The value of these derivatives is calculated as thedifference between the actual cost of each contract and the cost had thecontracts been taken out on the balance sheet date. There were no interest ratederivatives at the 2004/05 opening balance sheet. At 2004/05 closing balancesheet, the change in value of the net assets is a decrease of £0.1m, resultingin a charge to the income statement of the same amount. A subsidiary of Carr's entered into forward contracts to buy US dollars. Thevalue of these derivatives is calculated as the difference between the actualcost of each forward contract and the cost had the contracts been taken out onthe balance sheet date. In the 2004/05 opening balance sheet, the value isdeemed immaterial. There were no outstanding contracts at the end of 2004/05. 2.3 Deferred and income tax (IAS 12) IAS 12 is more encompassing than FRS 19 'Deferred tax', in that it requiresdeferred tax to be provided on all temporary differences rather than justtaxable timing differences. An example of this distinction is the revaluation of fixed assets with noobligation to sell. Under UK GAAP, deferred tax would not be provided becausethere is no obligation to transfer economic benefit in a subsequent period.However, under IFRS, deferred tax would be provided because the expectation isthat the re-valued assets will be realised for at least their carrying amount inthe form of the future economic benefits derived from the performance of thebusiness in subsequent periods. In the 2004/05 opening balance sheet, thereduction in net assets is £0.3m, being the deferred tax liability relating tothe £1.7m revaluation reserve. There is no material impact on the 2004/05 incomestatement. IAS 12 also requires that deferred tax assets should be presented withinnon-current assets and deferred tax liabilities within non-current liabilities.They are only offset on the balance sheet if the entity has a legallyenforceable right to set off current tax assets against current tax liabilitiesand they are levied by the same tax authority on either the same taxable entityor different taxable entities which intend to settle current tax liabilities andassets on a net basis. 2.4 Intangible assets (IAS 38) 2.4.1 Goodwill Carr's intangible assets under UK GAAP relate to goodwill and acquired know-how.IAS 38 prohibits goodwill amortisation. Carr's has opted to apply IFRS 3 prospectively from the date of transition.Goodwill has been frozen in the 2004/05 opening balance sheet at the 2003/04closing net book value of £0.04m. The non-amortisation of goodwill results in a £0.1m increase in pre-tax profitfor 2004/05. There are no associated tax implications. 2.4.2 Capitalised computer software Under UK GAAP, capitalised computer software is classified within tangible fixedassets. Under IFRS, computer software that is not integral to an item ofproperty, plant or equipment must be classified as an intangible asset. Thevalue of capitalised computer software is deemed immaterial and has not beenclassified as an intangible asset. 2.5 Impairment of assets (IAS 36) IAS 36 requires that at each balance sheet date all tangible and intangibleassets should be reviewed for indication of impairment. IFRS 1 requires that an impairment review of goodwill should be conducted inaccordance with IAS 16 at the date of transition and at the balance sheet date.Carr's has performed this review and no adjustment is required for 2004/05.There is no impact on the 2004/05 opening balance sheet or on the incomestatement for 2004/05. 2.6 Leases (IAS 17) IFRS requires property leases to be split into their separate land and buildingelements with leasehold land normally treated as an operating lease. A detailed review of the Company's lease portfolio has resulted in two leasesbeing reclassified as an operating lease, and being classified on the balancesheet as prepaid leases and amortised over the life of the lease. The impact on the income statement for 2004/05 is deemed immaterial. 2.7 Share based payments (IFRS 2) IFRS 2 requires that share-based payment transactions be expensed to the incomestatement. The expense is calculated with reference to the fair value of theaward on the date of the grant and is recognised over the vesting period of thescheme. Adjustments are made to reflect actual and expected levels of vestingCarr's granted sharebased awards on 17 February 2006 and 24 February 2006 andthe fair value of the award since these dates. At 4 March 2006, the adjustmentis deemed immaterial. IFRS 1 permits a company to apply IFRS 2 only to equity settled share-basedawards granted on or after 7 November 2002, which have not vested by the laterof the date of transition of IFRS (28 August 2004) and 1 January 2005. Carr'shas taken advantage of this exemption. There is no impact on the 2004/05 opening balance sheet. 2.8 Property, plant and equipment (IAS 16) Carr's has opted to use previous revaluations of property made under UK GAAP asdeemed cost. The impact on 2004/05 opening balance sheet is a reclassificationof £1.7m from the revaluation reserve to other reserves. There is no impact onthe income statement for 2004/05. No adjustment has been made to the carrying value on plant and equipment in the2004/05 opening balance sheet. 2.9 Post balance sheet events (IAS 10) 2.9.1 Proposed dividends IAS 10 requires that dividends declared after the balance sheet date should notbe recognised as a liability at that date as the dividend does not represent apresent obligation. Under UK GAAP, the year end balance sheet includes anaccrual for the proposed final dividend. The final dividend liability for £0.7m approved at the Company's Annual GeneralMeeting in January 2005 in relation to the 12 months ended 28 August 2004 hasbeen reversed in the transitional IFRS balance sheet and is recognised in theaccounts for the 6 months to 26 February 2005. Similarly, the final dividend of£0.9m approved in January 2006 in relation to the 12 months ended 3 September2005 has been reversed, and will be recognised in the accounts for the 6 monthsto 4 March 2006. The interim dividend liability for £0.4m declared in April 2005 in relation tothe 6 months ended 26 February 2005 has been reversed in the balance sheet as at that date and isrecognised in the accounts for the 53 weeks ended 3 September 2005. 2.10 Business combinations (IFRS 3) IFRS requires the acquirer of a business to identify and value acquiredintangible assets. The impact on the balance sheet as at 3 September 2005 is toadd £1.5m to intangible fixed assets, the value attributable to acquiredcustomer relationships and brands less deferred tax. The intangible asset isamortised over the life of the asset and £1.0m is recognised in the accounts forthe 12 months to 3 September 2005. IFRS 3 requires negative goodwill (excess of acquirer's interest in the fairvalue of acquiree's identifiable assets, liabilities and contingent liabilitiesover costs) arising on the acquisition of a business to be recognisedimmediately in the income statement; an amount of £1.5m has been recognised inthe accounts for the 12 months to 3 September 2005. 2.11 Cumulative translation differences (IAS 21) IAS 21 requires cumulative translation differences arising from translation offoreign operations to be recorded separately within equity and included in thegain or loss on disposal when the operation is sold. Carr's has adopted the exemption from reflecting this aspect of IAS 21retrospectively as permitted by IFRS 1. There is no impact on either the 2004/05 opening balance sheet or the incomestatement for 2004/05. The impact on the closing 2004/2005 balance sheet is areclassification of £0.1m from the profit and loss reserve to a new foreignexchange reserve. 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Carrs Group