31st Oct 2005 07:00
Scapa Group PLC31 October 2005 31 October 2005 Scapa Group plc Restatement of financial information under International Financial Reporting Standards Adoption of International Financial Reporting Standards Scapa Group plc ("Scapa") announces that with effect from 1 April 2005 it hasadopted International Financial Reporting Standards (IFRS). The first set ofresults to be published under IFRS will be the interim financial statements forthe six months ended 30 September 2005. These will be released on 24 November2005. The Group's first Annual Report in accordance with IFRS will be for theyear ended 31 March 2006. This press release explains the impact of converting to IFRS on the Group'sprior period results for 2004/5. These comparatives will form the base for 2005/6 performance in both the interim financial statements and the Annual Report.Restated comparatives are set out for the income statement for the half year andfull year ended 30 September 2004 and 31 March 2005 respectively. Balance sheetcomparatives are restated as at 30 September 2004 and 31 March 2005. As 1 April2004 is the start of the earliest period for comparison, this constitutes thedate for transition to IFRS. The overall impact of adopting IFRS was to decrease full year 2004/5 Loss BeforeTax from £4.9 million under UK GAAP to £3.6 million under IFRS. This arises asa result of reduced goodwill amortisation under IFRS 3 (Business combinations)of £1.4 million, net of other adjustments totalling a charge of £0.1 million. The principle effects of the change from UK GAAP to IFRS on the Group'sreporting is summarised below. The details are provided in the IFRS documentalso attached. Information set out under IFRS is unaudited. Appendix 2 to theIFRS restatement document provides detailed reconciliations for the IncomeStatement and Balance Sheet as at 30 September 2004 and 31 March 2005. Summary of impact of IFRS on key performance indicators: 6 months ended 30 Sept 2004 Year ended 31 March 2005 UK GAAP IFRS Changes UK GAAP IFRS Changes £m £m £m £m £m £m Revenue 95.0 95.0 - 188.2 188.2 - Profit before tax 1.0 1.6 0.6 (4.9) (3.6) 1.3 Profit attributable to equity 1.0 1.3 0.3 1.3 2.1 0.8shareholders Basic and diluted profit/ 0.7p 0.9p 0.2p 0.9p 1.5p 0.6p(loss) per share (pence pershare) Net assets 46.1 46.3 0.2 39.6 40.2 0.6 For further information, please contact: Scapa Group plc Colin White, Finance Director Tel: 01254 580123 Financial Dynamics David Yates Tel: 020 7831 3113 Introduction Scapa Group plc has previously prepared its consolidated financial statementsunder UK Generally Accepted Accounting Practice (GAAP). For the year-ended 31March 2006 the Group is required to report in accordance with InternationalAccounting Standards (IAS) and International Financial Reporting Standards(IFRS) and Interpretations adopted by the European Union (EU). The interimresults for the six months ended 30 September 2005 will be prepared on thisbasis, as will the Annual Report for the year-ended 31 March 2006. In preparation for this the Group has restated its financial performance andposition for the interim period ended 30 September 2004 and the year-ended 31March 2005, as these periods will provide the comparative information in theIFRS* compliant financial statements. The main changes for the Group are as follows: • Goodwill is no longer amortised • Dividends are recorded as a liability only when approved (recorded when proposed under UK GAAP) • Deferred taxation balances are recognised based on taxable temporary differences In summary the restatement to IFRS had the following impact on the Group'sfinancial statements: • Headline** operating profit for the year-ended 31 March 2005 reduced by £0.1m from £3.6m to £3.5m • Statutory loss before tax for the year-ended 31 March 2005 reduced by £1.3m from £(4.9)m to £(3.6)m • Basic earnings per share for the year-ended 31 March 2005 increased from 0.9p to 1.5p • Net assets at 31 March 2005 increased from £39.6m to £40.2m * References to IFRS throughout this document relate to the application of IAS and IFRS ** Operating profit from continuing operations excluding goodwill amortisation and exceptional items Basis of Preparation The restated financial information presented in this document has been preparedin accordance with IFRS on the basis that all existing standards in issue fromthe International Accounting Standards Board (IASB) will be fully endorsed bythe EU. The financial information for the six months ended 30 September 2004 andthe year-ended 31 March 2005 prepared on this basis is unaudited. The failure of the EU to endorse all of these standards, the issue of any new orrevised standards, the publishing of further interpretation guidance or theemergence of a new industry consensus may mean that the financial informationcontained in this document is modified before the first full set of auditedfinancial statements are published for the year-ended 31 March 2006. Accordinglythe financial information should not be used as an indicator of futureadjustments between UK GAAP and IFRS due to the risks and uncertaintysurrounding events in the standard setting environment. Despite the changeability in the standard setting environment the informationdisclosed represents the best possible current indication of the impact of IFRSon the results of Scapa Group plc. It should be noted that the restatement hasnot had a significant impact on the reported Income Statement and Balance Sheet,and the actual cashflows of the Group have not been changed. First Time Adoption The following narrative considers the IFRS 1 exemptions taken, the effect of IAS32 & 39 Financial Instruments, the main accounting policy changes which haveresulted in an adjustment to the information previously reported in the primaryfinancial statements, and the impact of the transition to IFRS on disclosuresand presentation. Areas that have been reviewed but have not resulted in anyadjustments to the primary financial statements are not covered in thisdocument. 1. IFRS 1 exemptions IFRS 'First Time Adoption of International Financial Reporting Standards'determines that the transition date for Scapa Group plc is 1 April 2004. Itpermits certain exemptions to be taken by companies adopting IFRS for the firsttime during the transition period. Scapa Group plc has taken the followingexemptions: • Business combinations Business combinations prior to the transition date have not been restated to anIFRS basis and business combination accounting has been frozen at this date withall subsequent goodwill amortisation removed during the IFRS restatement. • Cumulative translation differences Under IAS 21 cumulative exchange differences on the translation of foreignoperations are included in the calculation of the profit or loss on disposal ofthe business. These cumulative exchange differences recognised in thetranslation reserve will be reset to zero on the date of transition to IFRS. • Share based payment transactions IFRS 2 Share Based Payments has only been applied to instruments that weregranted on or after 7 November 2002, and which had not vested by 1 April 2004. 2. IAS 32 & 39 - Financial Instruments The main impact of these standards on the Group's financial statements will bethat instruments such as forward foreign currency contracts and interest ratecaps which were treated as off Balance Sheet items under UK GAAP will berecognised as assets or liabilities at fair value under IFRS. The treatment ofchanges in the fair value will depend on the designation of the financialinstrument and whether hedge accounting is applied. The Group intends to usehedge accounting where possible to minimise the exposure to fluctuations in theIncome Statement. Scapa Group plc has taken the exemption not to restate comparatives for IAS 32and IAS 39. In accordance with the transition rules of the standards theinformation in this restatement and the comparative information in the 2005/06financial statements will be presented according to existing UK GAAPrequirements. The Group has adopted IAS 32 and IAS 39 from 1 April 2005. 3. Accounting Policy Changes (i) IFRS 2 Share based payments IFRS 2 requires an expense to be charged in the Income Statement representingthe fair value of equity-settled share options granted to employees after 7November 2002. The expense is recorded over the period during which the employeeprovides services to the Group. The fair value of the charge has been calculated using the Binomial valuationmodel and will be recognised over the period from the date of the award to thedate of vesting. The charge is adjusted to reflect actual and expected levels ofvesting. The difference between the charges under UK GAAP and IFRS were not significantfor either the 6 months ended 30 September 2004 or the year ended 31 March 2005. (ii) IFRS 3 Business combinations The transitional arrangements of IFRS 1 allow companies to apply IFRS 3prospectively and to freeze the value of goodwill at the transition date ratherthan restating business combinations prior to 1 April 2004. Scapa Group plc haschosen to make use of this exemption rather than to restate previousacquisitions. Goodwill on acquisitions prior to 31 December 1997 remainseliminated against reserves, and goodwill shown as an asset on the Balance Sheetis frozen at the value at 1 April 2004, with amortisation since this datepreviously reported under UK GAAP removed. The impact of adopting IFRS 3 on the Profit and Net Assets is as follows: Impact in £m 6 months ended Year-ended 30th Sept 31st March 2004 2005 Operating profit 0.7 1.4Profit before tax 0.7 1.4 Net assets 0.7 1.4 (iii)IAS 10 Post Balance Sheet events IAS 10 requires that dividends are recognised as a liability only when they areapproved by Shareholders or paid by the Balance Sheet date. As final dividendsare usually approved and paid after the end of the accounting period to whichthey relate, they should be recognised in the following accounting period. UnderUK GAAP dividends were accrued when proposed. In addition dividends no longerappear on the face of the income statement but are instead shown within thestatement of recognised income and expense. In the year-ended 31 March 2004 a dividend of £0.4m was recognised in the UKGAAP financial statements. This was approved after the Balance Sheet date andunder IFRS has been recognised as an expense in the year-ended 31 March 2005. Nofull-year dividends were recognised in the UK GAAP accounts for the year-ended31 March 2005. In the half year ended 30 September 2004 a dividend of £0.1m wasrecognised in the UK GAAP financial statements. This was also approved after theBalance Sheet date and has been recognised in the second half of the year-ended31 March 2005 under IFRS. The impact of adopting IAS 10 on Profit, the Recognised Income & Expense and NetAssets is as follows: Impact in £m 6 months ended Year ended 30th Sept 31st March 2004 2005 Profit for the financial period - - Net assets 0.1 - (iv) IAS 12 Income taxes IAS12 requires deferred tax to be calculated based on all taxable temporarydifferences, except where they arise in certain specific circumstances.Deferred tax balances can no longer be discounted and any assets can only berecognised to the extent that it is probable that taxable profits will ariseagainst which the asset can be utilised. The impact of adjusting the tax balances for IAS 12 can be summarised asfollows: Impact in £m 6 months ended Year ended 30th Sept 31st March 2004 2005 Tax expense (0.3) (0.5) Net assets 0.7 0.5 The underlying adjustments making up this summary are as follows: • Recognition of a deferred tax asset in respect of the US goodwill (year ended 31 March 2005 £0.4m, period ended 30 September 2004 £0.7m). • Recognition of a deferred tax asset in respect of the liquidation of a dormant Irish subsidiary (year ended 31 March 2005 £0.1m, period ended 30 September 2004 £nil). Other adjustments made to the presentation of corporate and deferred tax in theBalance Sheet include: • Movement of a current tax provision to deferred tax as this represents a temporary difference (£4.0m at 31 March 2005 and 30 September 2004). • Movement of the deferred tax asset related to the pension deficit to deferred tax (£1.0m 31 March 2005, £0.9m 30 September 2004). This was previously netted off against the pension deficit on the UK GAAP Balance Sheet. (v) IAS 19 Employee benefits Under UK GAAP the Group accounted for pensions schemes according to therequirements of FRS 17. FRS 17 is similar to IAS 19, however the valuation ofscheme assets does change on transition to IFRS. Under FRS 17 the cost of the scheme was accounted for as three separateelements: . the ongoing service costs which will be charged to operating profit • the expected return on scheme assets less interest on scheme liabilities which will be disclosed in the Income Statement as finance costs adjacent to interest • the actuarial gains and losses will be taken directly to the Statement of Recognised Income and Expense The recognition of actuarial gains and losses in full in the Statement ofRecognised Income and Expense was not permitted in the original draft of IAS 19,however this treatment was proposed in the exposure draft "Actuarial Gains andLosses, Group Plans and Disclosures" which was adopted by the IASB in December2004. This is effective from 1 January 2006, however as early adoption ispermitted Scapa Group will apply the revised standard from the date oftransition. IAS 19 also allows a choice over the presentation of the charge tothe Income Statement, however the Group has elected to continue to show servicecosts and finance costs separately rather than to combine these as a net chargeto operating profit. Under FRS 17 the pensions deficit was shown net of the related deferred taxasset, however this is not permitted under IAS 19 and the gross liability willbe presented on the face of the Balance Sheet. The impact of adopting IAS 19 onthe Profit and Net Assets relating to pensions and other changes are as follows: Impact in £m 6 months ended Year ended 30th Sept 31st March 2004 2005 Operating profit (0.1) (0.1)Profit before tax (0.1) (0.1) Net assets (1.3) (1.3) (vi) IAS 38 Intangible assets IAS 38 requires that expenditure is capitalised when the requirements of thestandard are met. Under UK GAAP companies were permitted to continue to expensedevelopment costs even when the criteria permitting recognition as an asset weremet. The Group's policy under UK GAAP was to expense development costs asincurred. Research costs will continue to be expensed as incurred under IFRS. The Group'sdevelopment expenditure has been reviewed and no previously incurred expenditurehas been found to meet the criteria of IAS 38. Development costs are likely tocontinue to be expensed in the future as it is not believed that the Group candemonstrate sufficient control to restrict the access of others to the resultsof the development costs incurred. If control cannot be proven, no asset can berecognised. No adjustments have been made on adoption of IAS 38 therefore. 4. IAS 14 Segmental reporting Segmental reporting is required for both geographical and market segments underIFRS and these must be separated into primary segments and secondary segments,with fewer disclosures required for secondary segments. Scapa has applied therequirements of IAS 14 to the structure of the business and will reportgeographical segments as primary segments, and business unit segments assecondary segments. The existing geographical segments of Europe, North America and Asia and thefour business unit segments reported under UK GAAP will continue to be disclosedunder IFRS. Restated Income Statement for the 12 month period ended 31 March 2005 - UNAUDITED All on Continuing Operations £ms Mar 2005 Turnover 188.2 Changes in inventories of finished goods and work in progress 0.9Raw materials and consumables used (85.3)Other external charges (21.0)Employee compensation and benefit expense (52.0)Depreciation (6.9)Operating lease rentals (3.0)Auditors' remuneration and other fees paid to auditors (0.7)Other operating charges (16.7) _____Operating Profit before exceptional items 3.5 Reorganisation expenses (0.9)Fixed asset impairment (3.6)Loss on disposal of assets (0.2) _____Profit on ordinary activities before interest and taxation (1.2) Interest payable (1.3)Interest receivable 0.6Other finance costs - pensions (1.2)Unwinding of discount on provision (0.5) _____Profit before tax (3.6) Tax 5.8 _____Profit after tax 2.2 Minority interests (0.1) _____Profit for the financial year 2.1 _____Earnings per share for profit attributable to the equity holders of the Company during the year Basic and diluted earnings per share (pence) 1.5 _____ Restated Balance Sheet at 31 March 2005 - UNAUDITED £ms Mar 2005 Assets Non-current assetsGoodwill 21.0Property, plant & equipment 52.3Deferred tax asset 3.5Other 0.1 _____ 76.9 Current assetsInventory 19.3Trade and other receivables 43.8Current asset investments 10.9Cash and cash equivalents 8.1 _____ 82.1 Liabilities Current liabilitiesBorrowings and other financial liabilities (3.1)Trade and other payables (32.7)Current tax liabilities 0.0Provisions (2.1) _____ (37.9) Net current assets 44.2 Non-current liabilitiesBorrowings and other financial liabilities (20.2)Trade and other payables (2.0)Tax liabilities (3.0)Retirement benefit obligations (45.6)Provisions (10.1) _____ (80.9) _____ NET ASSETS 40.2 _____ Shareholder's equity Ordinary shares 7.3Retained earnings 31.6Translation reserve 1.3 _____ 40.2 Minority interest 0.0 _____ 40.2 _____ Restated Income Statement for 6 month period ended 30 September 2004 - UNAUDITED All on Continuing Operations£ms Sept 2004 Turnover 95.0 Operating Profit before exceptional items 2.7 Reorganisation expenses 0.0Fixed asset impairment 0.0Loss on disposal of assets 0.0 _____ Profit on ordinary activities before interest and taxation 2.7 Interest payable (0.6)Interest receivable 0.3Other finance costs - pensions (0.6)Unwinding of discount on provision (0.2) _____ Profit before tax 1.6 Tax (0.3) _____ Profit after tax 1.3 Minority interests 0.0 _____ Profit for the financial year 1.3 _____ Earnings per share for profit attributable to the equity holders of the Company during the year Basic and diluted earnings per share (pence) 0.9 _____ Restated Balance Sheet at 30 September 2004 - UNAUDITED £ms Sept 2004 Assets Non-current assetsGoodwill 21.4Property, plant & equipment 58.1Deferred tax asset 0.9Other 0.0 _____ 80.4 Current assetsInventory 20.7Trade and other receivables 44.6Current asset investments 11.5Cash and cash equivalents 8.3 _____ 85.1 Liabilities Current liabilitiesBorrowings and other financial liabilities (2.4)Trade and other payables (33.4)Current tax liabilities (1.4)Provisions (1.7) _____ (38.9) Net current assets 46.2 Non-current liabilitiesBorrowings and other financial liabilities (22.9)Trade and other payables (1.9)Tax liabilities (4.7)Retirement benefit obligations (39.7)Provisions (11.1) _____ (80.3) _____ NET ASSETS 46.3 _____ Shareholder's equity Ordinary shares 7.2Retained earnings 37.7Translation reserve 1.3 _____ 46.2 Minority interest 0.1 _____ 46.3 _____Appendix 1 Accounting Policies Unaudited 1. Summary of significant accounting policies The principal accounting policies applied in the preparation of theseconsolidated financial statements are set out below. As discussed in the Basisof Preparation note, these are unaudited and may be subject to change before thefirst full set of audited financial statements are published for the year-ended31 March 2006. 1.1 Basis of preparation The consolidated financial statements of Scapa Group plc have been prepared inaccordance with International Financial Reporting Standards (IFRS) and IFRICinterpretations and with those parts of the Companies Act 1985 applicable tocompanies reporting under IFRS. The consolidated financial statements have beenprepared under the historical cost convention, as modified by the revaluation offinancial assets and financial liabilities (including derivative instruments) atfair value through profit or loss. A summary of the more important Groupaccounting policies is set out below, together with an explanation of wherechanges have been made to previous policies owing to adoption of new accountingstandards in the year. The preparation of financial statements in conformity with generally acceptedaccounting principles requires the use of accounting estimates and assumptionsthat affect the reported amounts of assets and liabilities at the date of thefinancial statements and the reported revenues and expenses during the reportingperiod. Although these estimates are based on management's best knowledge of theamount, event or actions, actual results ultimately may differ from thoseestimates. 1.2 Consolidation (a) Subsidiaries The consolidated financial statements include those of the parent company andits subsidiary undertakings up to 31 March in each year. Subsidiaries are allentities over which the Group has the power to govern the financial andoperating policies generally accompanying a shareholding of more than one halfof the voting rights. The existence and effect of potential voting rights thatare currently exercisable or convertible are considered when assessing whetherthe Group controls another entity. The results of subsidiary undertakingsacquired or disposed of during the year are included from the date ofacquisition or up to the date of disposal respectively. Inter-company transactions, balances and unrealised gains on transactionsbetween group companies are eliminated. Unrealised losses are also eliminatedunless the transaction provides evidence of an impairment of the assettransferred. Accounting policies of subsidiaries have been changed wherenecessary to ensure consistency with the policies adopted by the Group. The purchase method of accounting is used to account for the acquisition ofsubsidiaries by the Group. The cost of an acquisition is measured as the fairvalue of the assets given, equity instruments issued and liabilities incurred orassumed at the date of exchange, plus costs directly attributable to theacquisition. Identifiable assets acquired and liabilities and contingentliabilities assumed in a business combination are measured initially at theirfair values at the acquisition date, irrespective of the extent of any minorityinterest. The excess of the cost of acquisition over the fair value of theGroup's share of the identifiable net assets acquired is recorded as goodwill.If the cost of acquisition is less than the fair value of the net assets of thesubsidiary acquired, the difference is recognised directly in the incomestatement (see Note 1.6). The Group has no associates. 1.3 Segment reporting A geographical segment is engaged in providing products or services within aparticular economic environment that are subject to risks and returns that aredifferent from those of segments operating in other economic environments. A business segment is a group of assets and operations engaged in providingproducts or services that are subject to risks and returns that are differentfrom those of other business segments. Costs are allocated to segments based on the nature of the expense, theactivities conducted by the segment and the relative autonomy of the segment.Where jointly used assets are allocated to segments, their associated revenuesand expenses are also allocated to those segments. 1.4 Foreign currency translation (a) Functional and presentation currency Items included in the financial statements of each of the Group's entities aremeasured using the currency of the primary economic environment in which theentity operates ('the functional currency'). The consolidated financialstatements are presented in Sterling, which is the Company's functional andpresentation currency. (b) Transactions and balances Foreign currency transactions are translated into the functional currency usingthe exchange rates prevailing at the dates of the transactions. Foreign exchangegains and losses resulting from the settlement of such transactions and from thetranslation at year-end exchange rates of monetary assets and liabilitiesdenominated in foreign currencies are recognised in the income statement, exceptwhen deferred in equity as qualifying cash flow hedges and qualifying netinvestment hedges. Translation differences on non-monetary items, such as equities held at fairvalue through profit or loss, are reported as part of the fair value gain orloss. Translation differences on non-monetary items, such as equities classifiedas available-for-sale financial assets, are included in the fair value reservein equity. (c) Group companies The results and financial position of all the group entities (none of which hasthe currency of a hyperinflationary economy) that have a functional currencydifferent from the presentation currency are translated into the presentationcurrency as follows: (i) assets and liabilities for each balance sheet presented are translated atthe closing rate at the date of that balance sheet; (ii) income and expenses for each income statement are translated at averageexchange rates (unless this average is not a reasonable approximation of thecumulative effect of the rates prevailing on the transaction dates, in which case income and expenses aretranslated at the dates of the transactions); and (iii) all resulting exchange differences are recognised as a separate componentof equity. On consolidation, exchange differences arising from the translation of the netinvestment in foreign entities, and of borrowings and other currency instrumentsdesignated as hedges of such investments, are taken to the translation reserve.When a foreign operation is sold, such exchange differences are recognised inthe income statement as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreignentity are treated as assets and liabilities of the foreign entity andtranslated at the closing rate. Exchange differences are taken to thetranslation reserve. 1.5 Property, plant and equipment Land and buildings comprise mainly factories and offices. All property, plantand equipment is stated at historical cost less accumulated depreciation.Historical cost includes expenditure that is directly attributable to theacquisition of the items, including borrowing costs that are related to andincurred during the acquisition, construction or production of the asset (seenote 1.21). Cost may also include transfers from equity of any gains/losses onqualifying cash flow hedges of foreign currency purchases of property, plant andequipment. Subsequent costs are included in the asset's carrying amount or recognised as aseparate asset, as appropriate, only when it is probable that future economicbenefits associated with the item will flow to the Group and the cost of theitem can be measured reliably. All other repairs and maintenance are charged tothe income statement during the financial period in which they are incurred. Land is not depreciated. Depreciation on other assets is calculated using thestraight-line method to allocate their cost to their residual values over theirestimated useful lives, as follows: - Freehold buildings: 40 years- Leasehold buildings: life of the lease- Plant, machinery and fixtures: 5-20 years- Computer systems and software: 3-8 years The assets' residual values and useful lives are reviewed, and adjusted ifappropriate, at each balance sheet date. An asset's carrying amount is written down immediately to its recoverable amountif the asset's carrying amount is greater than its estimated recoverable amount(Note 1.8). Gains and losses on disposals are determined by comparing proceeds with carryingamount. These are included in the income statement. 1.6 Goodwill Goodwill represents the excess of the cost of an acquisition over the fair valueof the Group's share of the net identifiable assets of the acquired subsidiaryat the date of acquisition. Goodwill is tested annually for impairment, or where an indication of impairmentis identified, and carried at cost less accumulated impairment losses. Gains andlosses on the disposal of an entity include the carrying amount of goodwillrelating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairmenttesting. Each of those cash-generating units are grouped at the lowest levelsfor which there are separately identifiable cash flows (Note 1.8). 1.7 Intangible assets (a) Research and development expenditure Research expenditure is expensed as incurred. Costs associated with developingor enhancing existing product lines are recognised as an expense as incurred.Costs that are directly associated with the development of new, innovative andunique products controlled by the Group, and that will probably generateeconomic benefits exceeding costs beyond one year, are recognised as intangibleassets. Direct costs include the development employee costs, production costsand an appropriate portion of relevant overheads. Development costs previouslyrecognised as an expense are not recognised as an asset in a subsequent period. Development costs recognised as assets are carried at cost less accumulatedamortisation. These are amortised from the commencement of commercial productionon a straight-line basis over the period of expected benefit (not exceedingthree years). No development cost assets are currently recognised on the BalanceSheet and it is not anticipated that any Group development expenditure will meetthe criteria for recognition as an asset in the near future. (b) Acquired intangible assets Separately acquired intangible assets are held at historic cost. Cost comprisesthe purchase price and any directly attributable costs incurred in preparing theasset for its intended use. Intangible assets acquired in a business combinationare held at fair value on the date of acquisition. Acquired intangible assets are amortised over their estimated useful lives.Where useful lives are indefinite, the asset is not amortised but is annuallytested for impairment (see note 1.8). 1.8 Impairment of assets Assets that have an indefinite useful life are not subject to amortisation andare tested annually for impairment. Assets that are subject to amortisation arereviewed for impairment whenever events or changes in circumstances indicatethat the carrying amount may not be recoverable. An impairment loss isrecognised for the amount by which the asset's carrying amount exceeds itsrecoverable amount. The recoverable amount is the higher of an asset's fairvalue less costs to sell and value in use. For the purposes of assessingimpairment, assets are grouped at the lowest levels for which there areseparately identifiable cash flows (cash-generating units). Value in use is determined based on the estimated future cash inflows andoutflows derived from the continued use of the asset and from its ultimatedisposal. These cash flows are discounted using the Group's pre-tax weightedaverage cost of capital, adjusted to reflect any risks specific to the asset forwhich the estimated future cash flows have not been adjusted. 1.9 Investments In the accounts of the company, investments in subsidiary undertakings arestated at cost less provisions for any impairment in value. Where circumstancesindicate that there may have been an impairment of the carrying value of theinvestment, an impairment review is carried out (see note 1.8). The Group classifies its investments in the following categories: financialassets at fair value through profit or loss, loans and receivables,held-to-maturity investments, and available-for-sale financial assets. Theclassification depends on the purpose for which the investments were acquired.Management determines the classification of its investments at initialrecognition and re-evaluates this designation at every reporting date. (a) Financial assets at fair value through profit or loss This category has two sub-categories: financial assets held for trading, andthose designated at fair value through profit or loss at inception. A financialasset is classified in this category if acquired principally for the purpose ofselling in the short term or if so designated by management. Derivatives arealso categorised as held for trading unless they are designated as hedges.Assets in this category are classified as current assets if they are either heldfor trading or are expected to be realised within 12 months of the balance sheetdate. (b) Loans and receivables Loans and receivables are non-derivative financial assets with fixed ordeterminable payments that are not quoted in an active market. They arise whenthe Group provides money, goods or services directly to a debtor with nointention of trading the receivable. They are included in current assets, exceptfor maturities greater than 12 months after the balance sheet date. These areclassified as non-current assets. Loans and receivables are included in tradeand other receivables in the balance sheet (Note 1.11). Purchases and sales of investments are recognised on trade-date - the date onwhich the Group commits to purchase or sell the asset. Investments are initiallyrecognised at fair value plus transaction costs for all financial assets notcarried at fair value through profit or loss. Investments are derecognised whenthe rights to receive cash flows from the investments have expired or have beentransferred and the Group has transferred substantially all risks and rewards ofownership. Available-for-sale financial assets and financial assets at fairvalue through profit or loss are subsequently carried at fair value. Loans andreceivables and held-to-maturity investments are carried at amortised cost usingthe effective interest method. Realised and unrealised gains and losses arisingfrom changes in the fair value of the 'financial assets at fair value throughprofit or loss' category are included in the income statement in the period inwhich they arise. Unrealised gains and losses arising from changes in the fairvalue of non-monetary securities classified as available-for-sale are recognisedin equity. When securities classified as available-for-sale are sold orimpaired, the accumulated fair value adjustments are included in the incomestatement as gains and losses from investment securities. The fair values of quoted investments are based on current bid prices. If themarket for a financial asset is not active (and for unlisted securities), theGroup establishes fair value by using valuation techniques. These include theuse of recent arm's length transactions, reference to other instruments that aresubstantially the same, discounted cash flow analysis, and option pricing modelsrefined to reflect the issuer's specific circumstances. The Group assesses at each balance sheet date whether there is objectiveevidence that a financial asset or a group of financial assets is impaired. Ifany such evidence exists for available-for-sale financial assets, the cumulativeloss - measured as the difference between the acquisition cost and the currentfair value, less any impairment loss on that financial asset previouslyrecognised in profit or loss - is removed from equity and recognised in theincome statement. Impairment losses recognised in the income statement on equityinstruments are not reversed through the income statement. 1.10 Inventories Inventories are stated at the lower of cost and net realisable value. Cost isdetermined using the first-in, first-out (FIFO) method. The cost of finishedgoods and work in progress comprises raw materials, direct labour, other directcosts and related production overheads (based on normal operating capacity)allocated on a systematic basis. It excludes borrowing costs. Net realisablevalue is the estimated selling price in the ordinary course of business, lessapplicable variable selling expenses. Provision is made for obsolete, slowmoving and defective inventory on a line by line basis, or by grouping similaror related items. 1.11 Trade receivables Trade receivables are recognised initially at fair value and subsequentlymeasured at amortised cost using the effective interest method, less provisionfor impairment. A provision for impairment of trade receivables is establishedwhen there is objective evidence that the Group will not be able to collect allamounts due according to the original terms of receivables. The amount of theprovision is the difference between the carrying amount of the asset and thepresent value of estimated future cash flows, discounted at the effectiveinterest rate where appropriate. The amount of the provision is recognised inthe income statement. 1.12 Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held at call withbanks, other short- term highly liquid investments with original maturities ofthree months or less, and bank overdrafts. Bank overdrafts are shown withinborrowings in current liabilities on the balance sheet. 1.13 Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or optionsare shown in equity as a deduction, net of tax, from the proceeds. Incrementalcosts directly attributable to the issue of new shares or options, or for theacquisition of a business, are included in the cost of acquisition as part ofthe purchase consideration. Dividend distribution to the Company's shareholders is recognised as a liabilityin the Group's financial statements in the period in which the dividends areapproved by the Company's shareholders or paid. 1.14 Borrowings Borrowings are recognised initially at fair value, net of transaction costsincurred. Borrowings are subsequently stated at amortised cost; any differencebetween the proceeds (net of transaction costs) and the redemption value isrecognised in the income statement over the period of the borrowings using theeffective interest method. Borrowings are classified as current liabilities unless the Group has anunconditional right to defer settlement of the liability for at least 12 monthsafter the balance sheet date. 1.15 Deferred taxation The charge for taxation, comprising both UK and non-UK taxation, is based on thetaxable profits for the year and also takes into account deferred taxation.Deferred taxation is provided in full, using the liability method, on temporarydifferences arising between the tax bases of assets and liabilities and theircarrying amounts in the consolidated financial statements. However, if thedeferred taxation arises from initial recognition of an asset or liability in atransaction other than a business combination that at the time of thetransaction affects neither accounting nor taxable profit or loss, it is notaccounted for. Deferred taxation is determined using tax rates (and laws) thathave been enacted or substantially enacted by the balance sheet date and areexpected to apply when the related deferred income tax asset is realised or thedeferred income tax liability is settled. Deferred taxation assets are recognised to the extent that it is probable thatfuture taxable profit will be available against which the temporary differencescan be utilised. Deferred taxation is provided on temporary differences arising on investments insubsidiaries and associates, except where the timing of the reversal of thetemporary difference is controlled by the Group and it is probable that thetemporary difference will not reverse in the foreseeable future. 1.16 Employee benefits (a) Pension obligations Group companies operate various pension schemes. The schemes are funded throughpayments to trustee-administered funds, determined by periodic actuarialcalculations. The Group has both defined benefit and defined contribution plans.A defined benefit plan is a pension plan that defines an amount of pensionbenefit that an employee will receive on retirement, usually dependent on one ormore factors such as age, years of service and compensation. A definedcontribution plan is a pension plan under which the Group pays fixedcontributions into a separate entity. The Group has no legal or constructiveobligations to pay further contributions if the fund does not hold sufficientassets to pay all employees the benefits relating to employee service in thecurrent and prior periods. The liability recognised in the balance sheet in respect of defined benefitpension plans is the present value of the defined benefit obligation at thebalance sheet date less the fair value of plan assets, together with adjustmentsfor unrecognised actuarial gains or losses and past service costs. The definedbenefit obligation is calculated biannually by independent actuaries using theprojected unit credit method. The present value of the defined benefitobligation is determined by discounting the estimated future cash outflows usinginterest rates of high-quality corporate bonds that are denominated in thecurrency in which the benefits will be paid, and that have terms to maturityapproximating to the terms of the related pension liability. Actuarial gains and losses arising from experience adjustments and changes inactuarial assumptions are charged or credited to shareholders' equity. Past-service costs are recognised immediately in income, unless the changes tothe pension plan are conditional on the employees remaining in service for aspecified period of time (the vesting period). In this case, the past-servicecosts are amortised on a straight-line basis over the vesting period. For defined contribution plans, the Group pays contributions to publicly orprivately administered pension insurance plans on a mandatory, contractual orvoluntary basis. The Group has no further payment obligations once thecontributions have been paid. The contributions are recognised as employeebenefit expense when they are due. Prepaid contributions are recognised as anasset to the extent that a cash refund or a reduction in the future payments isavailable. (b) Share-based compensation The Group operates an equity-settled, share-based compensation plan. The fairvalue of the employee services received in exchange for the grant of the optionsis calculated using the Binomial model and is recognised as an expense. The total amount to be expensed over the vesting period is determined byreference to the fair value of the options granted. At each balance sheet date,the entity revises its estimates of the number of options that are expected tobecome exercisable. It recognises the impact of the revision of original estimates, if any, in theincome statement, and a corresponding adjustment to equity over the remainingvesting period. The proceeds received net of any directly attributable transaction costs arecredited to share capital (nominal value) and share premium when the options areexercised. (c) Termination benefits Termination benefits are payable when employment is terminated before the normalretirement date, or whenever an employee accepts voluntary redundancy inexchange for these benefits. The Group recognises termination benefits when itis demonstrably committed to either: terminating the employment of currentemployees according to a detailed formal plan without possibility of withdrawal;or providing termination benefits as a result of an offer made to encouragevoluntary redundancy. Benefits falling due more than 12 months after balancesheet date are discounted to present value. (d) Bonus plans The Group recognises a liability and an expense for bonuses based on apre-determined formula for key performance indicators. The Group recognises aprovision where contractually obliged or where there is a past practice that hascreated a constructive obligation. 1.17 Provisions Provisions for environmental restoration, restructuring costs and legal claimsare recognised when the Group has a present legal or constructive obligation asa result of past events, if it is more likely than not that an outflow ofresources will be required to settle the obligation and if the amount has beenreliably estimated. Restructuring provisions comprise lease terminationpenalties. Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflowwill be required in settlement is determined by considering the class ofobligations as a whole. A provision is recognised even if the likelihood of anoutflow with respect to any one item included in the same class of obligationsmay be small. Where the effect is material, provisions are discounted in line with IAS 37using a pre-tax discount rate. The discount rate does not reflect risks forwhich the estimated future outflows have already been adjusted. 1.18 Revenue recognition Revenue comprises the fair value for the sale of goods and services, net ofvalue-added tax, rebates and discounts and after eliminating sales within theGroup. Revenue is recognised as follows: (a) Sales of goods Sales of goods are recognised when the significant risks and rewards ofownership of the goods have been transferred to the buyer, and when the Groupentity has no continuing managerial involvement nor effective control over thegoods. In most instances this occurs when a Group entity has delivered productsto the customer, the customer has accepted the products and collectibility ofthe related receivables is reasonably assured. Where items are sold with a right of return, accumulated experience is used toestimate and provide for such returns at the time of sale. (b) Interest income Interest income is recognised on an accruals basis using the effective interestmethod. When a receivable is impaired, the Group reduces the carrying amount toits recoverable amount, being the estimated future cashflow discounted atoriginal effective interest rate of the instrument, and continues unwinding thediscount as interest income. Interest income on impaired loans is recognisedeither as cash is collected or on a cost-recovery basis as conditions warrant. (c) Dividend income Dividend income is recognised when the right to receive payment is established. 1.19 Leases Leases in which a significant portion of the risks and rewards of ownership areretained by the lessor are classified as operating leases. Payments made underoperating leases (net of any incentives received from the lessor) are charged tothe income statement on a straight-line basis over the period of the lease.Lease incentives, including rent-free periods, are spread over the life of thelease on a straight-line basis. Leases in which substantially all of the risks and rewards of ownership aretransferred to the Group are classified as finance leases. Finance leases arerecognised as assets and liabilities in the balance sheet at the present valueof the minimum lease payments. The interest rate implicit in the lease is usedas the discount rate in calculating the present value of the cash outflows.Where the Group does not obtain ownership of the asset at the end of the leaseperiod, the asset is depreciated over the shorter of its useful life and thelease term. Where ownership does pass to the Group at the end of the leaseperiod, the policy for depreciating the asset is consistent with that fordepreciable assets that are owned. Minimum lease payments are apportioned between the finance charge and thereduction of the outstanding liability. The finance charge is calculated basedon the amount of borrowing outstanding, and is charged against profits over theprimary lease period. 1.20 Government grants Grants from the government are recognised at their fair value where there is areasonable assurance that the grant will be received and the Group will complywith all attached conditions. Government grants relating to tangible fixed assets are treated as deferredincome and are credited to the income statement over the expected useful livesof the assets concerned. 1.21 Borrowing costs Borrowing costs incurred for the construction of any qualifying asset arecapitalised during the period of time that is required to complete and preparethe asset for its intended use. Other borrowing costs are expensed. Reconciliation of Income Statement for the 12 month period ended 31 March 2005 - UNAUDITED All on Continuing Operations£ms UK GAAP Impact of IFRS IFRS Reclass IAS 19 IFRS 3 IAS 12 Turnover 188.2 188.2 Changes in inventories of finished goods and work in 0.9 0.9progressRaw materials and consumables used (85.3) (85.3)Other external charges (21.0) (21.0)Employee compensation and benefit expense (51.9) (0.1) (52.0)Depreciation (6.9) (6.9)Operating lease rentals (3.0) (3.0)Auditors' remuneration and other fees paid to auditors (0.7) (0.7)Other operating charges (16.7) (16.7) _____ _____ _____ _____ _____ _____ Operating Profit before goodwill amortisation and 3.6 0.0 (0.1) 0.0 0.0 3.5exceptional items Reorganisation expenses (0.9) (0.9)Fixed asset impairment (3.6) (3.6)Loss on disposal of assets 0.0 (0.2) (0.2) _____ _____ _____ _____ _____ _____ Operating Profit before goodwill amortisation (0.9) (0.2) (0.1) 0.0 0.0 (1.2) Goodwill amortisation (1.4) 1.4 0.0 _____ _____ _____ _____ _____ _____ Operating Profit (2.3) (0.2) (0.1) 1.4 0.0 (1.2) Loss on disposal of assets (0.2) 0.2 0.0 _____ _____ _____ _____ _____ _____ Profit on ordinary activities before interest and (2.5) 0.0 (0.1) 1.4 0.0 (1.2)taxation Interest payable (1.3) (1.3)Interest receivable 0.6 0.6Other finance costs - pensions (1.2) (1.2)Unwinding of discount on provision (0.5) (0.5) _____ _____ _____ _____ _____ _____ Profit before tax (4.9) 0.0 (0.1) 1.4 0.0 (3.6) Tax 6.3 (0.5) 5.8 _____ _____ _____ _____ _____ _____ Profit after tax 1.4 0.0 (0.1) 1.4 (0.5) 2.2 Minority interests (0.1) (0.1) _____ _____ _____ _____ _____ _____ Profit for the financial year 1.3 0.0 (0.1) 1.4 (0.5) 2.1 _____ _____ _____ _____ _____ _____ Earnings per share for profit attributable to the equity holders of the Company during the year Basic and diluted earnings per share (pence) 0.9 0.0 (0.1) 1.0 (0.3) 1.5 _____ _____ _____ _____ _____ _____ Reconciliation of Balance Sheet at 31 March 2005 - UNAUDITED £ms UK GAAP Impact of IFRS IFRS IAS 19 IFRS 2 IAS 21 IFRS 3 IAS 12 Assets Non-current assetsGoodwill 19.6 1.4 21.0Property, plant & equipment 52.3 52.3Deferred tax asset 6.0 1.0 (3.5) 3.5Other 0.1 0.1 ____ ____ ____ ____ ____ ____ ____ 78.0 1.0 0.0 0.0 1.4 (3.5) 76.9 Current assetsInventory 19.3 19.3Trade and other receivables 43.8 43.8Current asset investments 10.9 10.9Cash and cash equivalents 8.1 8.1 ____ ____ ____ ____ ____ ____ ____ 82.1 0.0 0.0 0.0 0.0 0.0 82.1 Liabilities Current liabilitiesBorrowings and other financial liabilities (3.1) (3.1)Trade and other payables (31.6) (1.1) (32.7)Current tax liabilities 0.0 0.0Provisions (2.1) (2.1) ____ ____ ____ ____ ____ ____ ____ (36.8) (1.1) 0.0 0.0 0.0 0.0 (37.9) Net current assets 45.3 (1.1) 0.0 0.0 0.0 0.0 44.2 Non-current liabilitiesBorrowings and other financial liabilities (20.2) (20.2)Trade and other payables (2.0) (2.0)Tax liabilities (7.0) 4.0 (3.0)Retirement benefit obligations (44.4) (1.2) (45.6)Provisions (10.1) (10.1) ____ ____ ____ ____ ____ ____ ____ (83.7) (1.2) 0.0 0.0 0.0 4.0 (80.9) ____ ____ ____ ____ ____ ____ ____ NET ASSETS 39.6 (1.3) 0.0 0.0 1.4 0.5 40.2 ____ ____ ____ ____ ____ ____ ____ Shareholder's equity Ordinary shares 7.2 0.1 7.3Retained earnings 32.4 (1.3) (0.1) (1.3) 1.4 0.5 31.6Translation reserve 0.0 1.3 1.3 ____ ____ ____ ____ ____ ____ ____ 39.6 (1.3) 0.0 0.0 1.4 0.5 40.2 Minority interest 0.0 0.0 ____ ____ ____ ____ ____ ____ ____ 39.6 (1.3) 0.0 0.0 1.4 0.5 40.2 ____ ____ ____ ____ ____ ____ ____ Reconciliation of Income Statement for 6 month period ended 30 September 2004 - UNAUDITED All on Continuing Operations£ms UK Impact of IFRS IFRS GAAP Reclass IAS 19 IFRS 3 IAS 12 Turnover 95.0 95.0 ____ ____ ____ ____ ____ ____ Operating Profit before goodwill amortisation and 2.8 0.0 (0.1) 0.0 0.0 2.7exceptional items Reorganisation expenses 0.0 0.0Fixed asset impairment 0.0 0.0Loss on disposal of assets 0.0 0.0 ____ ____ ____ ____ ____ ____ Operating Profit before goodwill amortisation 2.8 0.0 (0.1) 0.0 0.0 2.7 Goodwill amortisation (0.7) 0.7 0.0 ____ ____ ____ ____ ____ ____ Operating Profit 2.1 0.0 (0.1) 0.7 0.0 2.7 Loss on disposal of assets 0.0 0.0 ____ ____ ____ ____ ____ ____ Profit on ordinary activities before interest and taxation 2.1 0.0 (0.1) 0.7 0.0 2.7 Interest payable (0.6) (0.6)Interest receivable 0.3 0.3Other finance costs - pensions (0.6) (0.6)Unwinding of discount on provision (0.2) (0.2) ____ ____ ____ ____ ____ ____ Profit before tax 1.0 0.0 (0.1) 0.7 0.0 1.6 Tax 0.0 (0.3) (0.3) ____ ____ ____ ____ ____ ____ Profit after tax 1.0 0.0 (0.1) 0.7 (0.3) 1.3 Minority interests 0.0 0.0 ____ ____ ____ ____ ____ ____ Profit for the financial year 1.0 0.0 (0.1) 0.7 (0.3) 1.3 ____ ____ ____ ____ ____ ____ Earnings per share for profit attributable to the equity holders of the Company during the year Basic and diluted earnings per share (pence) 0.7 0.0 (0.1) 0.5 (0.2) 0.9 ____ ____ ____ ____ ____ ____ Reconciliation of Balance Sheet at 30 September 2004 - UNAUDITED £ms UK GAAP Impact of IFRS IFRS IAS 19 IAS 21 IFRS 3 IAS 12 IAS 10 Assets Non-current assetsGoodwill 20.7 0.7 21.4Property, plant & equipment 58.1 58.1Deferred tax asset 3.3 0.9 (3.3) 0.9Other 0.0 0.0 ____ ____ ____ ____ ____ ____ ____ 82.1 0.9 0.0 0.7 (3.3) 0.0 80.4 Current assetsInventory 20.7 20.7Trade and other receivables 44.6 44.6Current asset investments 11.5 11.5Cash and cash equivalents 8.3 0.0 8.3 ____ ____ ____ ____ ____ ____ ____ 85.1 0.0 0.0 0.0 0.0 0.0 85.1 Liabilities Current liabilitiesBorrowings and other financial liabilities (2.4) (2.4)Trade and other payables (32.4) (1.1) 0.1 (33.4)Current tax liabilities (1.4) (1.4)Provisions (1.7) (1.7) ____ ____ ____ ____ ____ ____ ____ (37.9) (1.1) 0.0 0.0 0.0 0.1 (38.9) Net current assets 47.2 (1.1) 0.0 0.0 0.0 0.1 46.2 Non-current liabilitiesBorrowings and other financial liabilities (22.9) (22.9)Trade and other payables (1.9) (1.9)Tax liabilities (8.7) 4.0 (4.7)Retirement benefit obligations (38.6) (1.1) (39.7)Provisions (11.1) (11.1) ____ ____ ____ ____ ____ ____ ____ (83.2) (1.1) 0.0 0.0 4.0 0.0 (80.3) ____ ____ ____ ____ ____ ____ ____ NET ASSETS 46.1 (1.3) 0.0 0.7 0.7 0.1 46.3 ____ ____ ____ ____ ____ ____ ____ Shareholder's equity Ordinary shares 7.2 7.2Retained earnings 38.8 (1.3) (1.3) 0.7 0.7 0.1 37.7Translation reserve 0.0 1.3 1.3 ____ ____ ____ ____ ____ ____ ____ 46.0 (1.3) 0.0 0.7 0.7 0.1 46.2 Minority interest 0.1 0.1 ____ ____ ____ ____ ____ ____ ____ 46.1 (1.3) 0.0 0.7 0.7 0.1 46.3 ____ ____ ____ ____ ____ ____ ____ This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
SCPA.L