1st Dec 2005 07:02
Findel PLC01 December 2005 Findel Plc IFRS Transition Document Contents Part I Introduction 1Basis of preparation 1Statement of directors' responsibilities 2Significant differences between UK GAAP and IFRS 2 Part II Preliminary comparative IFRS financial information 7 Part III IFRS Accounting Policies 12 Part IV Reconciliations to UK GAAP 20 Part V Independent auditors' report on the preliminary ComparativeIFRS financial information 23 IntroductionIn 2005, Findel Plc prepared its consolidated financial statements under UKgenerally accepted accounting principles ("UK GAAP"). With effect from 1 April2005, Findel is required to prepare its consolidated financial statements inaccordance with International Financial Reporting Standards ("IFRS"). The groupwill therefore prepare its consolidated financial statements for the year ending31 March 2006 in compliance with IFRS. Findel will present one year ofcomparative IFRS financial information for the year ended 31 March 2005 ("2005")and consequently, the date of transition to IFRS for the group is 1 April 2004being the first day of the comparative period ("the transition date"). The firstresults to be prepared on an IFRS basis will be contained in the group's resultsannouncement for the half year ended 30 September 2005 (which will be announcedon 1 December 2005). An explanation of the effect that the adoption of IFRS has had on the group'sresults is provided in Part I. Set out in Part II is the Comparative IFRS financial information. Part III shows the significant accounting policies adopted by the group inapplying IFRS. Part IV gives the reconciliation from the IFRS financial information to thatpreviously reported under UK GAAP. Part V sets out the independent auditor's report on the preliminary full yearcomparative IFRS information. Basis of preparation European law requires that the group's financial statements for the year ending31 March 2006 are prepared on the basis of IFRS as endorsed for use in theEuropean Union. IFRS are subject to amendment or interpretation by theInternational Accounting Standards Board ("IASB") and there is an ongoingprocess of review and endorsement by the European Commission. The financialinformation contained in this document has been prepared on the basis of IFRSthat the directors expect to be applicable as at 31 March 2006. For the reasonsoutlined above, it is possible that the restated information for 2005 presentedin this document may be subject to change before its inclusion in the 2006Report and Accounts, which will contain the group's first complete financialstatements prepared in accordance with IFRS. IFRS 1 "First time adoption of International Financial Reporting Standards" setsout the requirements for the first time adoption of IFRS. Generally, IFRS 1requires that accounting policies be adopted that are compliant with IFRS andthat these policies be applied retrospectively to all periods presented.However, a number of exemptions are permitted to be taken in preparing thebalance sheet at the date of transition ("the transition balance sheet") and inpreparing the financial information for the year ended 31 March 2005. The directors have not revised estimates required under IFRS that were alsorequired under UK GAAP as at 1 April 2004 and 31 March 2005 and in addition,where estimates were not required under UK GAAP, they have been based oninformation known at that time, and not on subsequent events. The group has elected to take the following permitted exemptions: •IFRS requires the tracking of all cumulative foreign exchange adjustments taken to reserves. These amounts are reversed upon any subsequent disposal of the business to which it relates. The cumulative translational foreign exchange difference that has been taken to reserves for foreign operations to the transition date has been assumed to be zero. •Cumulative actuarial gains and losses at the date of transition on the valuation of post-employment benefit assets and liabilities have been recognised as an adjustment to equity. •The acquisition accounting of business combinations completed prior to 30 September 2000 has not been restated. The net book value of goodwill at this date has been treated as deemed cost of goodwill under IFRS. Statement of directors' responsibilities The following statement, which should be read in conjunction with the auditors'statement of auditors' responsibilities set out in their report on page 23, ismade with a view to distinguishing for shareholders the respectiveresponsibilities of the directors and of the auditors in relation to thepreliminary full year comparative IFRS information. The directors consider in preparing the preliminary comparative IFRS financialinformation in Part II, on the basis set out in Part III, that the group hasused appropriate accounting policies, consistently applied and supported byreasonable and prudent judgements and estimates, including the assumptions thedirectors have made about the standards and interpretations expected to beeffective, and the policies expected to be adopted, when they prepare its firstcomplete set of IFRS financial statements as at 31 March 2006 and that allaccounting standards which they consider to be applicable have been followed. Significant differences between UK GAAP and IFRS The significant differences between UK GAAP and IFRS impacting the results andnet assets of Findel are described below. These differences impact the 2005comparative information which will be presented in the 2006 consolidatedfinancial statements and, unless otherwise stated, have been appliedretrospectively in arriving at the transition balance sheet under IFRS. Share-based payments Findel uses share awards to provide incentives to employees and encourage astrong ownership culture within management. Details of the share awards used bythe group can be found in the 2005 Annual Report & Accounts. IFRS 2 "share-based payments" requires the group to record a charge for allshare-based payments equivalent to the fair value of the award as at the date ofgrant. An expense is recognised to spread the fair value of each award over itsvesting period on a straight-line basis, after allowing for an estimate of theshare awards that will eventually vest. As permitted by the standard, the grouphas applied IFRS 2 to all unvested share awards as at the transition date. The group has calculated fair values for its relevant share awards using theBlack-Scholes Model. The key variables in arriving at the share option chargeare the expected future volatility in the Findel share price, the expectedperiod of time between grant and exercise for an award and the expected level offorfeiture that will occur between award grant and vesting. The impact on operating profit has been a charge of £281,000 in the year to 31March 2005 and a charge of £131,000 in the six months to 30 September 2004. Post Employment Benefits Under UK GAAP, Findel accounted for post employment benefits under SSAP 24"Accounting for Pension costs". This standard seeks to spread the cost ofproviding defined benefit pension and post retirement benefits over theestimated average remaining service life of the scheme members based upon atriennial valuation. Under IFRS, the group is required to calculate the pension cost for definedbenefit pension schemes and other post employment benefits using a ProjectedUnit Credit Method, with actuarial valuations being carried out at each balancesheet date. The group intends to present the current and past service pension costs as acharge to Profit from Operations. The unwinding of the discount on pensionliabilities and the expected return on pension assets will be presented as afinancing item. Actuarial gains and losses that exceed 10% of the greater of the present valueof the group's defined benefit obligation and the fair value of the plan assetsare amortised over the expected average remaining lives of the participatingemployees. The group's transition IFRS balance sheet reflects the assets and liabilities ofthe group's defined benefit schemes, totalling a net liability of £20,751,000and the creation of a related deferred tax asset of £6,225,000. The totaladjustment of £19,230,000 to the transition balance sheet comprises the reversalof SSAP 24 entries and related taxation balances under UK GAAP less therecognition of the IFRS amounts noted above. The application of IAS 19 to the group's results for the year to 31 March 2005increases profit from operations by £407,000 and increases the net financingcharge by £576,000 resulting in an increase in the underlying charge of£169,000. The application of IAS 19 to the group's results for the six months to 30September 2004 increases profit from operations by £105,000 and increases thenet financing charge by £276,000 resulting in an increase to the underlyingcharge of £171,000. Goodwill/brand intangibles amortisation Under UK GAAP, goodwill is amortised over its estimated life, which is normally20 years. Under IFRS 3 "Business Combinations", goodwill is considered to have anindefinite life and hence is not subject to amortisation. Instead it is reviewedfor impairment annually. IFRS also requires that, on acquisition, specific intangible assets areidentified and recognised and then amortised over their useful economic lives.These include such items as brand names and customer relationships, to whichvalue is attributed at the time of acquisition. We have applied IFRS 3 retrospectively for all acquisitions on or after 30September 2000. This ensures consistency of reporting for all acquisitions wherereliable historical information is available. Intangible assets in relation to acquired brand names are deemed to have anindefinite life, and are subject to annual impairment reviews. Intangible assetsin relation to acquired customer relationships are amortised over theirestimated useful life. The group's transition balance sheet reflects the recognition of acquiredintangibles and the non-amortisation of goodwill subsequent to 30 September2000. In addition deferred tax has been provided on all acquired intangibles, with acorresponding increase in goodwill. This adjustment results in the recognition of intangible assets of £21,011,000,a reduction in goodwill of £9,583,000 and an increase in deferred tax provisionof £6,303,000 in the transition balance sheet. The application of IFRS 3 to the results of the group for 2005 increasesreported earnings by £2,242,000 for the year to 31 March 2005 and by £970,000for the six months to 30 September 2004. Deferred tax Under UK GAAP, the group recognised deferred tax on timing differences thatarose from the inclusion of gains and losses in tax assessments in periodsdifferent from those in which they were recognised in the financial statements(an income statement approach). Under IAS 12 "Deferred tax", deferred tax is recognised in respect of nearly alltaxable temporary timing differences arising between the tax base and theaccounting book value of balance sheet items (a balance sheet approach). Thisresults in deferred tax being recognised on certain timing differences thatwould not have given rise to deferred tax under UK GAAP. The main adjustments to deferred tax arise from the pension and intangiblesadjustments note above. In addition, deferred taxation has been provided, whereappropriate, as a result of other IFRS transition adjustments. As a result the group has reduced its deferred tax liabilities by £4,157,000 inthe transition balance sheet. A reduction in deferred tax liabilities of£4,158,000 has been made at 30 September 2004 and a reduction in deferred taxliabilities of £633,000 has been recognised at 31 March 2005. Restructuring costs The group has classified the costs of expenses associated with the Restructuringof its Education Division as Restructuring costs, within the profit fromoperations. These amounts were previously disclosed as an exceptional item underUK GAAP. Associates Under UK GAAP, the group's investments in Confetti Network Limited and The WebbGroup Limited were accounted for as trade investments as the group did notexercise a significant influence over the operating policies of the businesses.Under IFRS, the group will account for these investments as associates using theequity method, as IFRS requires an investment to be classified as an associatewhere the investor has the potential to exercise significant influence,irrespective of whether this influence is actually being exercised. The netresult from associates after interest and tax is presented as a single linewithin the group's profit before taxation. Under UK GAAP the investments were carried at historical cost. The carryingvalue of associates under IFRS represents the initial cost of investment(including goodwill) adjusted for post acquisition profits and losses. Under IFRS income from associates has been recognised of £799,000 for the yearto 31 March 2005 and a loss from associates recognised of £168,000 for the sixmonths to 30 September 2004. The carrying value of associates is reduced by £7,637,000 in the transitionbalance sheet, by £7,805,000 at 30 September 2004 and by £6,838,000 at 31 March2005. Dividends payable Under UK GAAP, the group recognised a liability for dividends that were proposedin respect of a prior accounting period, even if the formal authorisation of thedividend did not take place until after the year-end. In accordance with IAS 10 "Events after the Balance Sheet", dividends declaredafter the balance sheet date are not recognised as a liability in the financialstatements, as there is no present obligation at the balance sheet date. Accordingly, no accrual is required for the final dividend declared of£9,405,000 in the transition balance sheet, £2,910,000 at 30 September 2004 and£10,728,000 at 31 March 2005. Similarly, the dividend payable to Minority Interests of Home Farm Hampers, asubsidiary company is not recognised as a liability in the financial statementsat 31 March 2004 and at 31 March 2005. Accordingly no accrual is required for the minority dividend declared of£705,000 in the transition balance sheet and £582,000 at 31 March 2005. Inaddition, the minority interest creditor is increased by £705,000 in thetransition balance sheet and by £582,000 at 31 March 2005 as a result of thisadjustment. Financial Instruments including Commodity Contracts Under UK GAAP, unrealised gains and losses on all of the group's hedgingarrangements were deferred until the underlying transaction, for which theyprovided a hedge, was completed. The group has applied IAS 32 and IAS 39 from the transition date. The groupcontinues to manage exposures using hedging instruments that provide theappropriate economic outcome. Due to the nature of many of the group's hedgingand derivative instruments, hedge accounting has not been adopted for thesehedging relationships. Consequently, movements in the fair value of derivativeinstruments have been recognised in the income statement within financing costs. The group recognised a net derivative liability of £494,000 in its transitionbalance sheet. The impact on financing costs for the year to 31 March 2005 is a charge of£283,000. In the six months to 30 September 2004 there is a net credit tofinancing costs of £470,000. Retranslation of foreign subsidiaries Under UK GAAP the profit and loss accounts and balance sheets of foreignsubsidiaries were translated into sterling at the appropriate closing rateprevailing at the balance sheet date. With IFRS the profit and loss account of foreign subsidiaries is translated atthe average rate for the period, with exchange differences taken to a separatetranslation reserve. The impact for the year ended 31 March 2005 is an increasein profit after tax of £26,000 and for the six months to 30 September 2004 adecrease in profit after tax of £10,000. Securitisation Under UK GAAP the group adopted the "linked presentation" method allowed in FRS3 in accounting for the securitisation of certain receivables in its HomeShopping business. Under IFRS there is no concept of "linked presentation". Consequently, theamounts previously offset against trade debtors have been separately classifiedwithin bank loans. In the transition balance sheet the amount reclassified into non-current bankloans was £70,615,000. At 30 September 2004 the amount reclassified asnon-current bank loans was £77,429,000 and at 31 March 2005 the amountreclassified to current bank loans was £79,389,000. Holiday pay As the group has an obligation to pay accrued holiday entitlements to itsemployees, IAS 19 requires it to accrue for holidays earned by its employees butnot taken by the balance sheet date. An accrual has been made in the transitionbalance sheet of £373,000, at 30 September 2004 no accrual was required, at 31March 2005 the accrual was £443,000. Income recognition The adoption of IAS 18 has resulted in a small number of changes to the reportedUK GAAP figures, primarily in relation to the recognition of carriage costsrecovered from customers in turnover. The impact in the year ended 31 March 2005was an increase in turnover of £15,584,000 and an increase in operating profitof £174,000. The impact for the six months to 30 September 2004 was an increasein turnover of £4,048,000 and a reduction in operating profit of £525,000. Home Shopping Debtor Book Under UK GAAP the group's debtor book in its Home Shopping division was statedat invoiced cost less a provision for doubtful debts. Under IAS 39 the debtor book is stated at amortised cost less a provision forimpairment. This application of IAS 39, resulted in an increase in the bad debt provision of£5,518,000 at transition and has increased the operating charge in respect ofbad debts by £2,774,000 for the year to 31 March 2005 and by £305,000 for thesix months to 30 September 2004. The application of IAS 39 has not resulted in a change to how the grouprecognises interest income from its Home Shopping customers. Cash flow All the significant changes to the cash flow statement arise from the aboveadjustments. Part II Preliminary comparative IFRS financial information 1. IFRS Consolidated Income Statement 2005 2004 Full Year Half Year Audited Unaudited £'000 £'000Revenue 474,031 191,805Cost of Sales (246,390) (95,995) -------- -------------Gross profit 227,641 95,810Trading costs (169,379) (88,196)Amortisation of intangibles (661) (263)Restructuring costs (3,274) - -------- -------------Profit from Operations 54,327 7,351Share of result in associates 799 (168)Finance costs (13,603) (5,285) -------- -------------Profit before Taxation 41,523 1,898Taxation (11,602) (736) -------- -------------Profit for the Year 29,921 1,162 ======== =============Attributable to:Equity holders of the parent 29,339 1,292Minority interests 582 (130) -------- ------------- 29,921 1,162 ======== =============Earnings per shareBasic 35.41p 1.56p -------- -------------All results relate to continuing operations 2. IFRS Consolidated Statement of Recognised Income and Expense 2005 2004 Full Year Half Year Audited UnauditedStatement of Recognised Income and Expense £'000 £'000Currency translation differences (106) 88 -------- -------------Net Expense recognised directly in equity (106) 88Profit for the financial year 29,921 1,162 -------- ------------- 29,815 1,250 ======== ============= 3. IFRS Consolidated Balance Sheet Full Year Half Year 31 March 30 September 2005 2004 Audited Unaudited £'000 £'000ASSETSNon-current assetsProperty, plant & equipment 57,147 56,163Goodwill 47,853 33,283Other intangible assets 35,615 20,748Investment in associates 8,383 7,416Deferred tax assets - -Derivative financial instruments - - ---------- ------------- 148,998 117,610 ---------- -------------Current AssetsInventories 103,212 102,928Trade and other receivables 199,362 201,055Derivative financial instruments 43 180Cash and cash equivalents 4,147 9,602 ---------- ------------- 306,764 313,765 ---------- -------------TOTAL ASSETS 455,762 431,375 ---------- -------------LIABILITIESCurrent liabilitiesTrade and other payables 81,375 118,122Current tax liabilities 7,979 4,066Bank overdrafts and loans 102,558 7,964Obligations under finance leases 421 579Derivative financial instruments 820 204 ---------- ------------- 193,153 130,935Non-current liabilitiesBank loans 130,000 197,429Retirement benefit obligation 19,814 20,414Deferred tax liabilities 5,614 2,017Obligations under finance leases 1,110 1,118Derivative financial instruments - - ---------- ------------- 156,538 220,978 ---------- -------------TOTAL LIABILITIES 349,691 351,913 ---------- -------------NET ASSETS 106,071 79,462EQUITY ========== =============Share capital 4,233 4,208Other reserves 49,600 48,864Retained earnings 51,577 26,440 ---------- -------------Attributable to equity holders of theparent 105,410 79,512 ---------- -------------Minority interests 661 (50) ---------- -------------TOTAL EQUITY 106,071 79,462 ========== ============= 4. IFRS Consolidated Cash Flow Statement 2005 2004 Full Year Half Year Audited Unaudited £'000 £'000Profit from operations 54,327 7,351 Adjustments for:Depreciation of property, plant and equipment 6,928 3,746Amortisation of intangible assets 661 263Share based payment expense 281 131Gain on disposal of property, plant and equipment (647) (31) -------- ------------Operating cash flows before movements in working capital 61,550 11,460Increase in inventories (14,470) (19,776)Increase in receivables (20,254) (37,913)(Decrease)/increase in payables (657) 47,813 -------- ------------Cash generated by operations 26,169 1,584 Income taxes paid (11,779) (4,168)Interest paid (12,801) (5,092) -------- ------------Net cash from operating activities 1,589 (7,676) ======== ============Investing activities Interest received 102 54Proceeds on disposal of property, plant and equipment 2,578 83Purchases of property, plant & equipment (8,985) (5,140)Acquisition of Subsidiary (33,936) (93) -------- ------------Net cash used in investing activities (40,241) (5,096) -------- ------------ Financing activities Dividends paid (12,317) (9,407)Dividends paid to minority interests (706) (705)Capital element of finance leases repaid (897) (483)Proceeds on issues of Ordinary Shares 1,236 296Proceeds of new borrowings 33,774 26,087 -------- ------------Net cash from financing activities 21,090 15,788 -------- ------------Net (decrease)/increase in cash and cash equivalents (17,562) 3,016 Net cash and cash equivalents at 1 April 2004 3,594 3,594 Effect of foreign exchange rates (54) 27 -------- ------------Net cash and cash equivalentsat 31 March 2005/30 September 2004 (14,022) 6,637 ======== ============ 5. IFRS Reconciliation of Net Debt Net cash Bank Loans Obligations Total Net and cash Under Borrowings equivalents Finance Leases £'000 £'000 £'000 £'0001 April 2004 3,594 (180,615) (2,181) (179,202)Cash Flow forthe year (17,562) (33,774) 897 (50,439)Other non cashchanges - - (249) (249)Exchange rateadjustments (54) - 2 (52) -------------- -------- ----------- -------------At 31 March 2005 (14,022) (214,389) (1,531) (229,942) ============== ======== =========== ============= 6. Notes to the IFRS RestatedFinancial InformationSegmental reporting - primary segmentanalysis Revenue Profit from operations2005 Full Year £'000 £'000Home Shopping 239,114 40,131EducationalSupplies 163,523 15,495Services 71,394 2,636 ----------- ------------- 474,031 58,262RestructuringCosts - (3,274)Amortisationof Intangibles - (661) ----------- ------------- 474,031 54,327 =========== ------------- Segmental reporting - primary segmentanalysis 2004 Half Year Revenue Profit from operationsUnaudited £'000 £'000Home Shopping 101,271 3,435EducationalSupplies 74,689 5,729Services 15,845 (1,550) ----------- ------------- 191,805 7,614Restructuring Costs - -Amortisationof Intangibles - (263) ----------- ------------- 191,805 7,351 =========== ============= Restructuring costs and amortisation of intangibles relate entirely to the Educational Supplies business segment. Reconciliation of movements in reserves Full Year March 2005 Profit and Loss Minority Account Other Reserves Interest £'000 £'000 £'000 1 April 2004 34,555 48,473 785Exchange differences - (106) -Profit for Year 29,399 - 582Recognition ofshare basedpayments - 30 -Dividends (12,317) - (706)Issue of sharecapital - 1,203 - ---------- ----------- ----------At 31 March 2005 51,577 49,600 661 ========== =========== ==========Half Year - September 2004 Profit and Loss Other Reserves Minority Account £'000 £'000 Interest £'0001 April 2004 34,555 48,473 785Exchange Differences - 88 -Profit for Year 1,292 - (130)Recognition ofshare basedpayments - 15 -Dividends (9,407) - (705)Issue of sharecapital - 288 - ---------- ----------- ----------At 30 September 2004 26,440 48,864 (50) ========== =========== ========== Part III Significant IFRS accounting policies Basis of preparation 13Transition to IFRS 13Basis of consolidation 13Segment reporting 14Revenue recognition 14Foreign currency translation 14Share-based payments 15Restructuring costs 15Dividend distribution 15Property, plant and equipment 16Goodwill 16Other intangible assets 16Financial instruments 17Inventories 18Impairment of assets 18Deferred taxation 18Leases 18Retirement benefit costs 19 IFRS accounting policiesDetails of the group's principal IFRS accounting policies are set out below: Basis of preparation The consolidated financial statements of Findel plc are now prepared inaccordance with International Financial Reporting Standards and IFRICinterpretations and with those parts of the Companies Act 1985 applicable tothose companies reporting under IFRS. The group had previously reported under UKGAAP. The consolidated financial statements are prepared under the historical costconvention. The preparation of financial statements in conformity with IFRSrequires the use of certain critical accounting estimates. It also requiresmanagement to exercise its judgement in the process of applying the group'saccounting policies. Transition to IFRS The date of transition to IFRS was 1 April 2004, which is the beginning of thecomparative period for the year ending 31 March 2006. The group has applied IFRS1 for the first time adoption of IFRS, and has elected to use the followingexemptions: •IFRS 3 has not been applied retrospectively to business combinations that occurred before 30 September 2000; •Cumulative actuarial gains and losses at the date of transition on the valuation of postemployment benefit assets and liabilities have been recognised as an adjustment to equity; •Cumulative translation differences for foreign operations have been deemed to be nil at 1 April 2004. Any gain or loss on a subsequent disposal of a foreign operation will exclude translation differences that arose before 1 April 2004. Basis of consolidation Subsidiaries Subsidiaries are fully consolidated from the date on which control istransferred to the group. They cease to be consolidated from the date that thegroup no longer has control. Inter-company transactions, balances and unrealised gains on transactionsbetween group companies are eliminated on consolidation. Unrealised losses arealso eliminated unless the transaction provides evidence of an impairment of theasset transferred. The financial statements of all subsidiaries are prepared to the same reportingdate as the parent company. Associates Associates are entities over which the group has significant influence but notcontrol. Significant influence is the power to participate in the financial andoperating policy decisions of the Investee but is not control or joint controlover those policies. The equity method is used to account for investments inassociates and investments are initially recognised at cost. The group's share of net assets of its associates, loans, and non-equityinvestments made to associates is included in the group balance sheet. Thegroup's share of its associates' post-acquisition profits or losses isrecognised in the income statement, and its share of post-acquisition movementsin equity is recognised in the group's equity. The cumulative post-acquisitionmovements are adjusted against the carrying amount of the investment. Thecarrying amount of an investment in an associate is tested for impairment bycomparing its recoverable amount to its carrying amount whenever there is anindication that the investment may be impaired. Segment reporting 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. A geographical segment is engaged inproviding products or services within a particular economic environment that aresubject to risks and returns that are different from those of segments operatingin other economic environments. The group is organised into three core divisions which are the primary businesssegments: • Home Shopping; • Educational Supplies; and • Services. The secondary reporting segments are the main geographic areas in which thegroup operates. Revenue recognition Revenue comprises the fair value of the sale of goods and services to externalcustomers, net of value added tax, rebates, discounts and returns. Revenue isrecognised as follows: Sales of goods Revenue is recognised when the significant risks and rewards of ownership of thegoods have passed to the buyer and the amount of revenue can be measuredreliably. A provision for estimated returns is made, representing the profit ongoods sold during the year which will be returned and refunded after the yearend. Revenue is reduced by the value of sales returns provided for during theyear. Interest income Interest income on customer credit accounts is recognised on a time-proportionbasis using the effective interest method. When a receivable is impaired, thegroup reduces the carrying amount to its recoverable amount, being the estimatedfuture cash flow discounted at the original effective interest rate. Rendering of services Revenue is recognised in respect of non-interest related financial income,delivery charges and parcel insurance. In addition, various services areprovided under the group's healthcare contracts. Income is recognised when therelevant service has been provided to the customer. Foreign currency translation Functional and presentational currency The consolidated financial statements are presented in Sterling, which is thecompany's functional and presentational currency. Items included in thefinancial statements of each of the group's entities are measured using thecurrency of the primary economic environment in which the entity operates (thefunctional currency). Transactions and balances Transactions in foreign currencies are recorded at the exchange rate prevailingon the date of the transaction. At each balance sheet date, monetary assets andliabilities denominated in foreign currencies are retranslated at the exchangerate prevailing at the balance sheet date. Translation differences on monetaryitems are taken to the income statement with the exception of differences ontranslations that are subject to effective cash flow hedges. Translation differences on non-monetary items are reported as part of the fairvalue gain or loss and are included in either equity or the income statement asappropriate. Group companies The results and financial position of overseas group entities are translatedinto Sterling as follows: •Assets and liabilities are translated at the closing rate at the date of that balance sheet; •Income and expenses are translated at the average exchange rate for the period; •All resulting exchange differences are recognised as a separate component of equity. On consolidation, exchange differences arising from the translation of the netinvestment in foreign entities, and of borrowings, are taken to equity. Taxcharges and credits attributable to those exchange differences are takendirectly to equity. When a foreign operation is sold, such exchange differencesare recognised in the 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 and aretranslated at the closing rate. Share-based payments The group operates a number of equity-settled, share-based compensation plans. The fair value of the employee services received under such schemes isrecognised as an expense in the income statement. Fair value is determined byuse of the Black Scholes Option Pricing Model. The amount to be expensed overthe vesting period is determined by reference to the fair value of shareincentives, excluding the impact of any non-market vesting conditions.Non-market vesting conditions are included in assumptions about the number ofshare incentives that are expected to vest. At each balance sheet date, thegroup revises its estimates of the number of share incentives that are expectedto vest. The impact of the revision of original estimates, if any, is recognisedin the income statement, with a corresponding adjustment to equity, over theremaining vesting period. Restructuring costs The restructuring of the group's existing operations and the integration ofacquisitions gives rise to significant incremental non-recurring costs. Thegroup views restructuring costs as costs associated with investment in futureperformance of the business and not part of the group's trading performance.These costs have a material impact on the absolute amount of and trend in thegroup Profit from Operations and Operating margins. Therefore such restructuringcosts are shown as a separate line item within Profit from Operations on theface of the income statement. Dividend distribution Dividend distributions to Findel Plc shareholders are recognised in the group'sfinancial statements in the period in which the dividends are approved. Property, plant and equipment Property, plant and equipment are held at cost less accumulated depreciation andany impairment in value. Depreciation is charged on a straight line basis as follows: •Freehold properties are depreciated over 50 years; •Leasehold premises with lease terms of 50 years or less are depreciated over the remaining period lease; •Plant, vehicles and equipment are depreciated over 3 to 20 years according to the estimated life of the asset; •Equipment on hire or lease is depreciated over the period of the lease; •Land is not depreciated. Goodwill Goodwill is the excess of the fair value of the consideration payable for anacquisition over the fair value of the group's share of identifiable net assetsof a subsidiary, associate or joint venture acquired at the date of acquisition.Fair values are attributed to the identifiable assets, liabilities andcontingent liabilities that existed at the date of acquisition, reflecting theircondition at that date. Adjustments are made where necessary to bring theaccounting policies of acquired businesses into alignment with those of thegroup. Goodwill on acquisitions of subsidiaries is included in intangible assets.Goodwill on acquisitions of associates and joint ventures is included in thecarrying amount of the investment. Goodwill is stated at cost less anyimpairment. Goodwill is not amortised but is tested annually for impairment. Animpairment charge is recognised for any amount by which the carrying value ofgoodwill exceeds its fair value. Gains and losses on the disposal of an entity include the carrying amount ofgoodwill relating to the entity sold, allocated where necessary on the basis ofrelative fair value. Other intangible assets Intangible assets acquired as part of an acquisition of a business arecapitalised separately from goodwill, if those assets are separable and theirfair value can be measured reliably. Intangible assets acquired separately fromthe acquisition of a business are capitalised at cost. The cost of intangible assets with finite useful economic lives is amortisedover that period. The carrying values of intangible assets are reviewed of forimpairment when events or changes in circumstances indicate that the carryingvalues may not be recoverable. Brand names Legally protected or otherwise separable trade names acquired as part of abusiness combination are capitalised at fair value on acquisition. Brand namesare assumed to have an indefinite life and are not amortised, but are subject toannual impairment tests. Customer relationships Contractual and non-contractual customer relationships acquired as part of abusiness combination are capitalised at fair value on acquisition and amortisedon a straight line basis over 20 years, representing the directors' bestestimate of their useful economic lives. Financial instruments Financial assets and financial liabilities are recognised on the group's balancesheet when the group becomes a party to the contractual provisions of theinstrument. Trade receivables Trade receivables are recognised and carried at original invoice amount lessprovision for impairment. A provision for impairment of trade receivables is established when there isobjective evidence that the group will not be able to collect all amounts dueaccording to the original terms of receivables. The amount of the provision isrecognised in the income statement. The cost of irrecoverable trade receivablesis recognised in the income statement immediately. Trade payables Trade payables are initially measured at fair value, and are subsequentlymeasured at amortised cost, using the effective interest method. 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. For the purposes of theGroup Cash Flow Statement, cash and cash equivalents are as defined above, netof outstanding bank overdrafts. Borrowings and borrowing costs All loans and borrowings are initially recognised at the fair value of theconsideration received net of issue costs associated with the borrowing.Borrowings are subsequently stated at amortised cost; any difference betweenproceeds (net of transaction costs) and the redemption value is recognised inthe income statement over the period of the borrowings using the effectiveinterest method. Borrowing costs are expensed in the period in which they areincurred, except for issue costs which are amortised over the period of theborrowing. Derivative financial instruments and hedge accounting The group's activities expose it to the financial risks of changes in foreignexchange rates and interest rates.The group uses derivative financialinstruments (primarily forward foreign currency contracts) to hedge its risksassociated with foreign currency transactions. The significant interest raterisk arises from bank loans. The group converts a proportion of its floatingrate debt to fixed rates. Derivative financial instruments are initially measured at fair value on thecontract date, and are remeasured to fair value at subsequent reporting dates. Changes in the fair value of derivative financial instruments that aredesignated and effective as hedges of future cash flows are recognised directlyin equity and the ineffective portion is recognised immediately in profit orloss. Changes in the fair value of derivative financial instruments that do notqualify for hedge accounting are recognised in profit and loss as they arise. InventoriesInventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course ofbusiness, less applicable variable selling expenses. Impairment of assets Assets that have an indefinite useful life are not subject to amortisation butare 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). 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 calculated using tax rates that are expectedto apply when the related deferred taxation asset is realised or the deferred taxation 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 arsing 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. Leases Finance Leases Leases of property, plant and equipment where the group has substantially allthe risks and rewards of ownership are classified as finance leases. Financeleases are capitalised at the lease's inception at the lower of the fair valueof the leased property and the present value of the minimum lease payments. Eachlease payment is allocated between the liability and finance charges so as toachieve a constant rate on the finance balance outstanding. The correspondingrental obligations, net of finance charges, are included in other long-termpayables. The interest element of the finance cost is charged to the incomestatement over the lease period so as to produce a constant periodic rate ofinterest on the remaining balance of the liability for each period. Property,plant and equipment acquired under the finance leases is depreciated over theshorter of the useful life of the asset and its lease term. Operating 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 are charged to the income statement on a straight line basisover the period of the lease. Incentives from lessors are recognised as asystematic reduction of the charge over the periods benefiting from theincentives. Retirement benefit costsThe group has both defined benefit and defined contribution plans. A definedbenefit plan is a pension plan that defines an amount of pension benefit that anemployee will receive on retirement, usually dependent on one or more factorssuch as age, years of service and compensation. A defined contribution plan is apension plan under which the group pays fixed contributions into anindependently administered fund. 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 cost of providing these benefits, recognised inthe income statement, comprises the amount of contributions payable to theschemes in respect of the year. For defined benefit retirement plans, the cost of providing benefits isdetermined using the Projected Unit Credit method, with actuarial valuationsbeing carried out at each balance sheet date. Actuarial gains and losses that exceed 10% of the greater of the present valueof the group's defined benefit obligation and the fair value of the plan assetsare amortised over the expected average remaining lives of the participatingemployees. 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. As allowed by IFRS 1, the cumulative deficit on defined benefit pension schemesat transition date has been recognised in full as an adjustment to equity. Part IV Reconciliations of IFRS financial Information to UK GAAP Reconciliations The following tables reconcile the previously reported UK GAAP numbers with those now prepared under IFRS. Reconciliation of UK GAAP profit to IFRS profit for the six months ended 30September 2004 Effect of transition to£'000 UK GAAP IFRS IFRSRevenue 187,836 3,969 191,805 ----------- -------- ----------Operating profit 6,874 477 7,351Income from Associates - (168) (168)Net Finance Costs (5,480) 195 (5,285) ----------- -------- ----------Profit before taxation 1,394 504 1,898Tax expense (736) - (736) =========== ======== ==========Net profit 658 504 1,162 =========== ======== ==========Attributable to:Equity holders of the parent 789 503 1,292Minority Interests (131) 1 (130) =========== ======== ========== 658 504 1,162 =========== ======== ========== Reconciliation of UK GAAP profit to IFRS for the year ended 31 March 2005 Effect of transition to£'000 UK GAAP IFRS IFRSRevenue 458,106 15,925 474,031 ----------- -------- ----------Operating profit 54,599 (272) 54,327Income from Associates - 799 799Net Finance costs (12,744) (859) (13,603) ----------- -------- ----------Profit before taxation 41,855 (332) 41,523Tax expense (12,651) 1,049 (11,602) =========== ======== ==========Net profit 29,204 717 29,921 =========== ======== ========== Attributable to:Equity holders of the parent 28,622 717 29,339Minority Interests 582 - 582 =========== ======== ========== 29,204 717 29,921 =========== ======== ========== Reconciliation of UK GAAP equity shareholders' funds to IFRS equity shareholders' funds At 31 March At April 2005 Effect of 2004 Effect of UK transition UK transition£'000 GAAP to IFRS IFRS GAAP to IFRS IFRS Property,plant andequipment 57,147 - 57,147 54,819 - 54,819Goodwill 65,218 (17,365) 47,853 42,773 (9,583) 33,190Intangibleassets - 35,615 35,615 - 21,011 21,011Investments inassociates 15,221 (6,838) 8,383 15,221 (7,637) 7,584 -------- --------- -------- ---------- ---------- ---------Totalnon-currentassets 137,586 11,412 148,998 112,813 3,791 116,604 -------- --------- -------- ---------- ---------- ---------Inventories 101,388 1,824 103,212 81,528 1,605 83,133Trade andotherreceivables 138,293 61,069 199,362 111,176 56,221 167,397Derivativefinancialassets - 43 43 - 183 183Cash and cashequivalents 4,147 - 4,147 6,707 - 6,707 -------- --------- -------- ---------- ---------- ---------Total currentassets 243,828 62,936 306,764 199,411 58,009 257,420 -------- --------- -------- ---------- ---------- ---------Total assets 381,414 74,348 455,762 312,224 61,800 374,024 ======== ========= ======== ========== ========== =========Trade andother payables (91,658) 10,283 (81,375) (78,564) 9,406 (69,158)Current taxliabilities (7,979) - (7,979) (7,498) - (7,498)Bankoverdrafts andborrowings (23,590) (79,389) (102,979) (3,993) - (3,993)Derivativefinancialinstruments - (820) (820) - (677) (677) -------- --------- -------- ---------- ---------- ---------Total currentliabilities (123,227) (69,926) (193,153) (90,055) 8,729 (81,326) -------- --------- -------- ---------- ---------- ---------Bank loans andborrowings (131,110) - (131,110) (111,301) (70,615) (181,916)Deferred taxliability (6,247) 633 (5,614) (6,175) (4,157) (2,018)Retirementbenefitobligations - (19,814) (19,814) - (20,751) (20,751) -------- --------- -------- ---------- ---------- ---------Totalnon-currentliabilities (137,357) (19,181) (156,538) (117,476) (87,209) (204,685) -------- --------- -------- ---------- ---------- ---------Totalliabilities (260,584) (89,107) (349,691) (207,531) (78,480) (286,011) ======== ========= ======== ========== ========== =========NET ASSETS (120,830) (14,759) 106,071 104,693 (16,680) (88,013) ======== ========= ======== ========== ========== =========EquityShare capital 4,233 - 4,233 4,200 - 4,200Other Reserves 49,676 (76) 49,600 48,473 - 48,473Retainedearnings 66,842 (15,265) 51,577 51,940 (17,385) 34,555 -------- --------- -------- ---------- ---------- ---------Attributable toequity holders 120,751 (15,341) 105,410 104,613 (17,385) 87,228 ======== ========= ======== ========== ========== =========Minorityinterest 79 582 661 80 705 785 ======== ========= ======== ========== ========== =========TOTAL EQUITY 120,830 (14,759) 106,071 104,693 (16,680) 88,013 ======== ========= ======== ========== ========== ========= Reconciliation of UK GAAP equity shareholders' funds to IFRS equityshareholders' fundsAt 30 September 2004 Effect of transition to£'000 UK GAAP IFRS IFRS Property, plant and equipment 56,163 - 56,163Goodwill 41,633 (8,350) 33,283Intangible assets - 20,748 20,748Investments in associates 15,221 (7,805) 7,416 --------- ------------ ----------Total non-current assets 113,017 4,593 117,610 --------- ------------ ----------Inventories 99,017 3,911 102,928Trade and other receivables 141,665 59,390 201,055Derivative financial assets - 180 180Cash and cash equivalents 9,602 - 9,602 --------- ------------ ----------Total current assets 250,284 63,481 313,765 --------- ------------ ----------Total assets 363,301 68,074 431,375 ========= ============ ==========Trade and other payables (120,586) 2,464 (118,122)Current tax liabilities (4,066) - (4,066)Bank overdrafts and borrowings (8,543) - (8,543)Derivative financial instruments - (204) (204) --------- ------------ ----------Total current liabilities (133,195) 2,260 (130,935) --------- ------------ ----------Bank loans and borrowings (121,118) (77,429) (198,547)Deferred tax liability (6,175) 4,158 (2,017)Retirement benefit obligations - (20,414) (20,414) --------- ------------ ----------Total non-current liabilities (127,293) (93,685) (220,978) --------- ------------ ----------Total liabilities (260,488) (91,425) (351,913) ========= ============ ==========NET ASSETS 102,813 (23,351) 79,462 ========= ============ ==========EquityShare capital 4,208 - 4,208Other Reserves 48,761 103 48,864Retained earnings 49,894 (23,454) 26,440 --------- ------------ ----------Attributable to equity holders 102,863 (23,351) 79,512 ========= ============ ==========Minority interest (50) - (50) ========= ============ ==========TOTAL EQUITY 102,813 (23,351) 79,462 ========= ============ ========== Independent Auditors' Report to the board of directors of Findel Plc on thePreliminary Full Year Comparative IFRS Consolidated Financial Information We have audited the preliminary full year comparative IFRS consolidatedfinancial information of Findel plc which comprises the consolidated balancesheets as at 1 April 2004 (included on page 21) and 31 March 2005 (included onpage 8), the consolidated income statement (included on page 7), theconsolidated statement of movements in reserves (included on page 11), theconsolidated statement of recognised income and expense (included on page 7) andthe consolidated cash flow statement (included on page 9) for the year ended 31March 2005, the statement of significant accounting policies (included on pages13 to 19) and the related notes on page 10 excluding half year information. This report is made solely to the board of directors, in accordance with ourengagement letter engagement dated 29 November 2005 and solely for the purposeof assisting with the transition to IFRS. Our audit work will be undertaken sothat we might state to the company's board of directors those matters we arerequired to state to them in an auditors' report and for no other purpose. Tothe fullest extent permitted by law, we will not accept or assume responsibilityto anyone other than the company for our audit work, for our report, or for theopinions we have formed. Respective responsibilities of directors and auditors The company's directors are responsible for ensuring that the company and thegroup maintains proper accounting records and for the preparation of thepreliminary full year comparative IFRS consolidated financial information on thebasis set out in the statement of significant accounting policies (included onpages 13 to 19), which describes how IFRS will be applied under IFRS 1,including the assumptions the directors have made about the standards andinterpretations expected to be effective, and the policies expected to beadopted, when the company prepares its first complete set of IFRS financialstatements as at March 31, 2006. Our responsibility is to audit the preliminaryfull year comparative IFRS consolidated financial information in accordance withrelevant United Kingdom legal and regulatory requirements and auditing standardsand report to you our opinion as to whether the preliminary full yearcomparative IFRS consolidated financial information is prepared, in all materialrespects, on the basis set out in the statement of significant accountingpolicies (included on pages 13 to 19). Basis of audit opinion We conducted our audit in accordance with United Kingdom auditing standardsissued by the Auditing Practices Board. An audit includes examination, on a testbasis, of evidence relevant to the amounts and disclosures in the preliminaryfull year comparative IFRS consolidated financial information. It also includesan assessment of the significant estimates and judgements made by the directorsin the preparation of the preliminary full year comparative IFRS financialinformation and of whether the accounting policies are appropriate to thecircumstances of the group, 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 full yearcomparative IFRS financial information is free from material misstatement,whether caused by fraud or other irregularity or error. In forming our opinion,we also evaluated the overall adequacy of the presentation of information in thepreliminary full year comparative IFRS consolidated financial information. Without qualifying our opinion, we draw attention to the fact that page 1explains why there is a possibility that the accompanying preliminary full yearcomparative IFRS consolidated financial information may require adjustmentbefore constituting the final comparative IFRS financial information. Moreover,we draw attention to the fact that, under IFRSs, only a complete set offinancial statements comprising a balance sheet, income statement, statement ofchanges in equity, cash flow statement, together with comparative financialinformation and explanatory notes, can provide a fair presentation of thecompany's financial position, results of operations and cash flows in accordancewith IFRSs. OpinionIn our opinion the preliminary full year comparative IFRS consolidated financialinformation is prepared, in all material respects, on the basis set out in thestatement of significant accounting policies (included on pages 13 to 19) whichdescribes how IFRS will be applied under IFRS 1, and the assumptions thedirectors have made about the standards and interpretations expected to beeffective, and the policies expected to be adopted, when the company preparesits first complete set of IFRS financial statements as at March 31, 2006,included on page 1. Deloitte & Touche LLPChartered AccountantsLeeds 1 December 2005 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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