11th Apr 2007 07:02
Aricom PLC11 April 2007 Aricom plc Adoption of International Financial Reporting Standards Restatement of 2005 and interim 2006 Financial Information CONTENTS Page 1. Summary of changes under IFRS 3 2. Basis of preparation 4 3. UK GAAP information 5 4. Significant accounting policies 5 5. Critical accounting judgements and key sources of 12 estimation uncertainty 6. Restated Group financial information for the year ended 13 31 December 2005 7. Restated Group Balance Sheet as at Transition Date of 1 17 January 2005 8. Restated Group financial information for the six months 19 ended 30 June 2006 9. Directors' responsibilities 23 10. Independent auditors' report to the Board of Directors of 24 Aricom plc on the opening IFRS balance sheet 11. Independent auditors' report to the Board of Directors of 25 Aricom plc on the comparative IFRS financial information 12. Independent review report to the Board of Directors of 26 Aricom plc on the comparative financial information for the six months ended 30 June 2006 1. Summary of changes under IFRS Aricom plc and its subsidiaries (Aricom or the Group) has historically preparedits consolidated financial statements under UK Generally Accepted AccountingPractices (UK GAAP). Aricom has elected to adopt International FinancialReporting Standards (IFRS) for reporting periods commencing on or after 1January 2006, ahead of the Alternative Investment Market's (AIM) requirementthat companies listed on AIM apply IFRS from 1 January 2007. This document sets out the 2005 and interim 2006 IFRS financial informationincluding reconciliations of the income statements, balance sheets and cash flowstatements between UK GAAP and IFRS. The financial information set out in thisdocument will form the comparative information for the accounts for the yearended 31 December 2006 and the interim accounts for the six months ending 30June 2007 respectively. The restated financial information has been prepared in accordance with IFRS,that is International Accounting Standards, International Financial ReportingStandards and related interpretations issued or adopted by the InternationalAccounting Standards Board (IASB) and endorsed by the European Union (EU). Theseare subject to ongoing amendment by the IASB and subsequent endorsement by theEU. Interpretation of the standards and best practice is currently evolving,both generally and with regard to certain sector specific issues. As part of the Group's transition to IFRS, the directors have prepared IFRSfinancial information for the opening balance sheet as at 1 January 2005 and theyear ended 31 December 2005 (the 2005 IFRS financial information). Additionallythe interim accounts for the six months ended 30 June 2006, which werepreviously published under UK GAAP, have been restated in accordance with IFRS(the interim 2006 IFRS financial information). The financial information relating to the year ended 31 December 2005 and thetransition date balance sheet at 1 January 2005 has been audited by Deloitte &Touche LLP. The financial information related to the period ended 30 June 2006has been reviewed by Deloitte & Touche LLP. The audit and review reports,addressed to the Directors of Aricom are included in this document. Changes to the Group's reported financial information for the year ended 31December 2005 as a result of the adoption of IFRS are summarised as follows: UK GAAP Change under IFRS IFRS $'000 $'000 $'000 Income Statement Revenue 7,363 (7,363) - -------------- ------------- ----------Net loss from continuing (3,634) (237) (3,871) operations -------------- ------------- ----------Profit from discontinued - 123 123 operations -------------- ------------- ----------Loss for the year (3,634) (114) (3,748) -------------- ------------- ----------Balance Sheet Net Assets 17,688 - 17,688 -------------- ------------- ----------Earnings per share Loss per share (basic) US$(0.03) US$(0.03) -------------- ------------- ---------- Changes arise principally due to the following adjustments: IFRS 2 Share-based Payment: The fair value of share-based payments is calculatedat the date of grant using an option pricing model and is recognised over theperformance period. This has resulted in an additional charge of $114 ,000in theincome statement for the year ended 31 December 2005. IFRS 5 Non-current Assets held for Sale and Discontinued Operations stipulatescertain criteria for an asset to be shown as held for sale, which differ fromthe provisions under UK GAAP (FRS3.4). It was concluded that under IFRS 5 at 31December 2005 LLC Chemelt and its subsidiaries ("LLC Chemelt") was held for saleas the Board had approved active marketing of the company for sale. The effect of determining LCC Chemelt as held for sale is to recognise all ofthe related assets on one line on the balance sheet "assets held for sale" anddisclose all liabilities related to those assets as "liabilities associated withassets held for sale". These assets and liabilities are measured at the lower oftheir carrying value and fair value less costs to sell, and are not depreciatedfrom the point at which they are considered to be held for sale. It wasanticipated that at the time that LLC Chemelt would be sold for a profit (as ithad net liabilities), and hence the assets and liabilities were measured attheir carrying amounts. As the LLC Chemelt Group was sold in the year ended 31 December 2006, IFRS 5requires the profit from the discontinued operations to be disclosed as one lineon the face of the Income Statement for both the year ended 31 December 2005 and31 December 2006. 2. Basis of Preparation Except as described below, the 2005 IFRS financial information on pages 10 to 13has been prepared on the basis of all IFRS Standards and Interpretationspublished by 31 December 2005. The interim 2006 financial information has beenprepared on the basis of IFRS Standards and Interpretations published by 30 June2006. A number of IFRS Standards and Interpretations are not yet mandatory but can beadopted early under their respective transition arrangements. The Group hasearly adopted IFRS 6 Exploration for and Evaluation of Mineral Resources. The Group's transition date to IFRS is 1 January 2005. The rules for first-timeadoption of IFRS are set out in IFRS 1 First time adoption of InternationalFinancial Reporting Standards. In preparing the 2005 and interim 2006 IFRSfinancial information, these transition rules have been applied to the amountsreported previously under UK GAAP. IFRS 1 generally requires full retrospective application of the Standards andInterpretations in force at the first reporting date. However, IFRS 1 allowscertain exemptions in the application of particular Standards to prior periodsin order to assist companies with the transition process. Aricom has applied thefollowing exemption: IFRS 3 Business combinations A first time adopter may elect not to apply IFRS 3 Business Combinationsretrospectively to past business combinations. Aricom acquired LLC Chemelt, Brasenose Services Ltd ("Brasenose"), RTC Ltd("RTC") and Arfin Ltd ("Arfin") on 31 December 2003, the date of flotation onAIM. The Company has elected not to retrospectively apply the requirements ofIFRS 3 to these acquisitions. Accordingly, the Company has elected not to applyIAS 21 The Effects of Changes in Foreign Exchange Rates retrospectively to fairvalue adjustments and goodwill arising in these business combinations. In addition, IFRS 1 requires that estimates made under IFRS must be consistentwith estimates made for the same date under UK GAAP except where adjustments arerequired to reflect any differences in accounting policies. 3. UK GAAP information The UK GAAP financial information for the year ended 31 December 2005, presentedon pages 10 to 13, is based on the Group's full financial statements for thatyear, which were prepared in accordance with UK GAAP and on the historical costbasis. These financial statements have been filed with the Registrar ofCompanies. The auditors' report on the financial statements for the year ended 31 December2005 was unqualified and did not contain statements under section 237(2) of theUnited Kingdom Companies Act (regarding adequacy of accounting records andreturns) or under section 237(3) (regarding provision of necessary informationand explanations). The UK GAAP financial information for the period ended 30 June 2006, presentedon pages 14 to 16, is based on the Group's half year report for that period,which was prepared using accounting policies consistent with those applied inthe Group's full financial statements for the year ended 31 December 2005. Thisinterim financial information is unaudited but reviewed. Certain changes have been made to the presentation of the UK GAAP financialinformation reported in the Group's full financial statements for the year ended31 December 2005 and half year report for the period ended 30 June 2006, asfollows: • The formats of the balance sheet, profit and loss account and cashflow statement have been modified to align them with the IFRS formats, tosimplify presentation of the adjustments required to arrive at the IFRS figures. 4. Significant accounting policies a) First time adoption of IFRS The rules for first-time adoption of IFRS are set out in IFRS 1 First timeadoption of International Financial Reporting Standards. These transition ruleshave been applied to the amounts reported previously under UK GAAP to arrive atthe IFRS financial statements. While the applicable Standards andInterpretations in force at the first reporting date, 1 January 2005, have beenapplied to the financial statements from that date, the Group has availed itselfof certain exemptions given under IFRS 1 in the application of particularStandards to prior periods. These exemptions are: IFRS 3 Business combinations A first time adopter may elect not to apply IFRS 3 Business Combinationsretrospectively to past business combinations. Aricom acquired LLC Chemelt, Brasenose Services Ltd ("Brasenose"), RTC Ltd("RTC") and Arfin Ltd ("Arfin") on 31 December 2003, the date of flotation onAIM. The Company has elected not to retrospectively apply the requirements ofIFRS 3 to these acquisitions. Accordingly, the Company has elected not to applyIAS 21 The Effects of Changes in Foreign Exchange Rates retrospectively to fairvalue adjustments and goodwill arising in these business combinations. The following Standards have been adopted early by the Group: • IFRS 6 Exploration for and Evaluation of Mineral Resources isapplicable to the Group from 1 January 2006. However the Group has adopted thisstandard early from 1 January 2005. All other Standards and Interpretations applicable up to 31 December 2005 havebeen applied in the preparation of the financial statements for the year ended31 December 2005. The preparation of the interim 2006 IFRS financial information was in accordancewith IFRS applicable at 30 June 2006. b) Basis of accounting The financial information has been prepared in accordance with current IFRS andwith those parts of the Companies Act 1985 applicable to companies reportingunder IFRS. The financial information has also been prepared in accordance withIFRS adopted in the European Union and therefore comply with Article 4 of the EUIAS Regulation. The financial statements have been prepared under the historical cost basis,except for the revaluation of certain financial instruments. The principalaccounting policies adopted are set out below. The financial information does not constitute statutory accounts within themeaning of section 240 of the Companies Act 1985. Amounts described as "UK GAAP" have been reclassified to conform with IFRSformat. c) Basis of consolidation The consolidated financial statements incorporate the financial statements ofthe Company and entities controlled by the Company (its subsidiaries) made up to31 December each year. Control is achieved where the Company has the power togovern the financial and operating policies of an investee entity so as toobtain benefits from its activities. Minority interests in the net assets of consolidated subsidiaries are identifiedseparately from the Group's equity therein. Minority interests consist of theamount of those interests at the date of the original business combination andthe minority's share of changes in equity since the date of the combination.Losses applicable to the minority in excess of the minority's interest in thesubsidiary's equity are allocated against interests of the Group except to theextent that the minority has a binding obligation and is able to make anadditional investment to cover the losses. Where necessary, adjustments are made to the financial statements ofsubsidiaries to bring the accounting policies used into line with those used bythe Group. All intra-group transactions, balances, income and expenses are eliminated onconsolidation. d) Business combinations and goodwill The acquisition of subsidiaries is accounted for using the purchase method. Thecost of the acquisition is measured at the aggregate of the fair values, at thedate of exchange, of assets given, liabilities incurred or assumed, and equityinstruments issued by the Group in exchange for control of the acquiree, plusany costs directly attributable to the business combination. The acquiree'sidentifiable assets, liabilities and contingent liabilities that meet theconditions for recognition under IFRS 3 Business Combinations are recognised attheir fair value at the acquisition date, except for non-current assets (ordisposal groups) that are classified as held for resale in accordance with IFRS5 Non Current Assets Held for Sale and Discontinued Operations, which arerecognised and measured at fair value less costs to sell. Goodwill arising on acquisition is recognised as an asset and initially measuredat cost, being the excess of the cost of the business combination over theGroup's interest in the net fair value of the identifiable assets, liabilitiesand contingent liabilities recognised. If, after reassessment, the Group's interest in the net fair value of theacquiree's identifiable assets, liabilities and contingent liabilities exceedsthe cost of the business combination, the excess is recognised immediately inprofit or loss. The interest of minority shareholders in the acquiree is initially measured atthe minority's proportion of the net fair value of the assets, liabilities andcontingent liabilities recognised. e) Goodwill Goodwill arising on consolidation represents the excess of the cost ofacquisition over the group's interest in the fair value of the identifiableassets and liabilities of a subsidiary, associate or jointly controlled entityat the date of acquisition. Goodwill is initially recognised as an asset at costand is subsequently measured at cost less any accumulated impairment losses.Goodwill which is recognised as an asset is reviewed for impairment at leastannually. Any impairment is recognised immediately in the Income Statement andis not subsequently reversed. For the purpose of impairment testing, goodwill is allocated to each of theGroup's cash-generating units expected to benefit from the synergies of thecombination. Cash-generating units to which goodwill has been allocated aretested for impairment annually, or more frequently when there is an indicationthat the unit may be impaired. If the recoverable amount of the cash-generatingunit is less than the carrying amount of the unit, the impairment loss isallocated first to reduce the carrying amount of any goodwill allocated to theunit and then to the other assets of the unit pro-rata on the basis of thecarrying amount of each asset in the unit. An impairment loss recognised forgoodwill is not reversed in a subsequent period. On disposal of a subsidiary, associate or jointly controlled entity, theattributable amount of goodwill is included in the determination of the profitor loss on disposal. f) Non-current assets held for sale Non-current assets (and disposal groups) classified as held for sale aremeasured at the lower of carrying amount and fair value less costs to sell. Non-current assets and disposal groups are classified as held for sale if theircarrying amount will be recovered through a sale transaction rather than throughcontinuing use. This condition is regarded as met only when the sale is highlyprobable and the asset (or disposal group) is available for immediate sale inits present condition. Management must be committed to the sale which should beexpected to qualify for recognition as a completed sale within one year from thedate of classification. g) Revenue recognition Revenue is measured at the fair value of the consideration received orreceivable and represents amounts receivable for goods and services provided inthe normal course of business, net of discounts, VAT and other sales-relatedtaxes. Sales of goods are recognised when goods are delivered and title has passed. Interest income is accrued on a time basis, by reference to the principaloutstanding and at the effective interest rate applicable, which is the ratethat exactly discounts estimated future cash receipts through the expected lifeof the financial asset to that asset's net carrying amount. h) Leasing Leases are classified as finance leases whenever the terms of the lease transfersubstantially all the risks and rewards of ownership to the lessee. All otherleases are classified as operating leases. The group as lessor Equipment and other assets may be leased to contractors under an operatinglease, for use in the construction of mining properties. To the extent thatthese assets are used in the construction of the mining properties amounts duefrom lessees under these operating leases are set off against the cost ofconstruction in the period to which they relate. The group as lessee Assets held under finance leases are recognised as assets of the Group at theirfair value or, if lower, at the present value of the minimum lease payments,each determined at the inception of the lease. The corresponding liability tothe lessor is included in the balance sheet as a finance lease obligation. Leasepayments are apportioned between finance charges and reduction of the leaseobligation so as to achieve a constant rate of interest on the remaining balanceof the liability. Finance charges are charged directly against income, unlessthey are directly attributable to qualifying assets, in which case they arecapitalised in accordance with the Group's general policy on borrowing costs(see below). Rentals payable under operating leases are charged to income on a straight-linebasis over the term of the relevant lease. i) Foreign currencies The individual financial statements of each Group company are presented in thecurrency of the primary economic environment in which it operates (itsfunctional currency). For the purpose of the consolidated financial statements,the results and financial position of each Group company are expressed in UnitedStates dollars, which is the functional currency of the Company and itssubsidiaries, and the presentation currency for the consolidated financialstatements. In preparing the financial statements of the individual companies, transactionsin currencies other than the entity's functional currency (foreign currencies)are recorded at the rates of exchange prevailing on the dates of thetransactions. At each balance sheet date, monetary assets and liabilities thatare denominated in foreign currencies are retranslated at the rates prevailingon the balance sheet date. Non-monetary items carried at fair value that aredenominated in foreign currencies are translated at the rates prevailing at thedate when the fair value was determined. Non-monetary items that are measured interms of historical cost in a foreign currency are not retranslated. Exchange differences arising on the settlement of monetary items, and on theretranslation of monetary items, are included in the Income Statement for theperiod. Exchange differences arising on the retranslation of non-monetary itemscarried at fair value are included in the Income Statement for the period. In order to hedge its exposure to certain foreign exchange risks, the Groupenters into forward contracts and options (see below for details of the Group'saccounting policies in respect of such derivative financial instruments). j) Borrowing costs Borrowing costs directly attributable to the acquisition, construction orproduction of qualifying assets, which are assets that necessarily take asubstantial period of time to get ready for their intended use or sale, areadded to the cost of those assets, until such time as the assets aresubstantially ready for their intended use or sale. Investment income earned onthe temporary investment of specific borrowings pending their expenditure onqualifying assets is deducted from the borrowing costs eligible forcapitalisation. All other borrowing costs are recognised in profit or loss in the period inwhich they are incurred. k) Retirement benefit costs Payments to defined contribution retirement benefit schemes are charged as anexpense as they fall due. l) Taxation The tax expense represents the sum of the tax currently payable and deferredtax. The tax currently payable is based on taxable profit for the year. Taxableprofit differs from net profit as reported in the income statement because itexcludes items of income or expense that are taxable or deductible in otheryears and it further excludes items that are never taxable or deductible. TheGroup's liability for current tax is calculated using tax rates that have beenenacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differencesbetween the carrying amounts of assets and liabilities in the financialstatements and the corresponding tax bases used in the computation of taxableprofit, and is accounted for using the balance sheet liability method. Deferredtax liabilities are generally recognised for all taxable temporary differencesand deferred tax assets are recognised to the extent that it is probable thattaxable profits will be available against which deductible temporary differencescan be utilised. Such assets and liabilities are not recognised if the temporarydifference arises from the initial recognition of goodwill or from the initialrecognition (other than in a business combination) of other assets andliabilities in a transaction that affects neither the tax profit nor theaccounting profit. Deferred tax liabilities are recognised for taxable temporary differencesarising on investments in subsidiaries except where the Group is able to controlthe reversal of the temporary difference and it is probable that the temporarydifference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheetdate and reduced to the extent that it is no longer probable that sufficienttaxable profits will be available to allow all or part of the asset to berecovered. Deferred tax is calculated at the tax rates that are expected to apply in theperiod when the liability is settled or the asset is realised. Deferred tax ischarged or credited in the income statement, except when it relates to itemscharged or credited directly to equity, in which case the deferred tax is alsodealt with in equity. Deferred tax assets and liabilities are offset when there is a legallyenforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied bythe same taxation authority and the Group intends to settle its current taxassets and liabilities on a net basis. m) Exploration and evaluation expenditure The costs of exploration properties and leases, which include the cost ofacquiring prospective properties and exploration rights, are capitalised asintangible assets. Exploration and evaluation expenditure is capitalised within exploration andevaluation properties until such time that the activities have reached a stagewhich permits a reasonable assessment of the existence of commerciallyexploitable reserves when they are transferred to mining properties and leases.Capitalised exploration and evaluation expenditure is assessed for impairment inaccordance with the indicators of impairment as set out in IFRS 6 Explorationfor and Evaluation of Mineral Reserves. In circumstances where a property isabandoned, the cumulative capitalised costs relating to the property are writtenoff in the period. n) Property, plant and equipment Mining properties and leases The costs of mining properties and leases, which include the cost of acquiringand developing mining properties and mineral rights are classified as tangibleassets from the time that a resource estimate is available and it is the Group'sintention to exploit the value of the property through the development andproduction of the available resource. Pre-production expenditure is capitalised until the mining property is capableof commercial production. From that point, capitalised mining properties andleases costs are amortised on a unit of production basis over the totalestimated remaining commercial reserves of each property or group of properties. Commercial reserves are proven and probable reserves. Changes in the commercialreserves affecting unit of production calculations are dealt with prospectivelyover the revised remaining reserves. Mining Properties and Leases are reviewed for impairment annually and anyimpairment charge is taken to the income statement accordingly. Other property, plant and equipment Other tangible fixed assets are recorded at cost, net of accumulateddepreciation. Depreciation is provided on all such tangible fixed assets atrates calculated to write off the cost or valuation of each asset on astraight-line basis over its expected useful life or the life of the relevantlicence, whichever is less, as follows: Average life in years ----------------------- -------------------------- Land and buildings 50 Plant and machinery 7-20 Office equipment 3-10 Computer equipment 4-6 ----------------------- -------------------------- Until they are brought into use fixed assets and equipment to be installed areincluded within assets under construction. The cost of maintenance, repairs and replacement of minor items of tangiblefixed assets are charged to the income statement. Renewals and assetimprovements are capitalised. Upon sale or retirement of tangible fixed assets,the cost and related accumulated depreciation are eliminated from the financialstatements. Any resulting gains or losses are included in the income statement. o) Impairment of tangible and intangible assets excluding goodwill At each balance sheet date, the Group reviews the carrying amounts of itstangible and intangible assets to determine whether there is any indication thatthose assets have suffered an impairment loss. If any such indication exists,the recoverable amount of the asset is estimated in order to determine theextent of the impairment loss (if any). Where the asset does not generate cashflows that are independent from other assets, the Group estimates therecoverable amount of the cash-generating unit to which the asset belongs. The recoverable amount is the higher of fair value less costs to sell and valuein use. In assessing value in use, the estimated future cash flows arediscounted to their present value using a pre-tax discount rate that reflectscurrent market assessments of the time value of money and the risks specific tothe asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated tobe less than its carrying amount, the carrying amount of the asset(cash-generating unit) is reduced to its recoverable amount. An impairment lossis recognised as an expense immediately, unless the relevant asset is carried ata revalued amount, in which case the impairment loss is treated as a revaluationdecrease. Where an impairment loss subsequently reverses, the carrying amount of the asset(cash-generating unit) is increased to the revised estimate of its recoverableamount, but so that the increased carrying amount does not exceed the carryingamount that would have been determined had no impairment loss been recognisedfor the asset (cash-generating unit) in prior years. A reversal of an impairmentloss is recognised as income immediately, unless the relevant asset is carriedat a revalued amount, in which case the reversal of the impairment loss istreated as a revaluation increase. p) Inventories Inventories and work in progress are valued at the lower of cost and netrealisable value. Cost is determined on the following bases: • Raw materials and consumables are valued at cost on afirst-in-first-out (FIFO) basis; and • Finished products ready for sale are valued at the lower of cost ornet realisable value. q) 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 measured on initial recognition at fair value, and aresubsequently measured at amortised cost using the effective interest ratemethod. Appropriate allowances for estimated irrecoverable amounts arerecognised in the Income Statement when there is objective evidence that theasset is impaired. The allowance recognised is measured as the differencebetween the asset's carrying amount and the present value of estimated futurecash flows discounted at the effective interest rate computed at initialrecognition. Investments Investments are recognised and derecognised on a trade date where a purchase orsale of an investment is under a contract whose terms require delivery of theinvestment within the timeframe established by the market concerned and areinitially measured at cost, including transaction costs. Other investments are classified as either held-for-trading oravailable-for-sale, and are measured at subsequent reporting dates at fairvalue. Where securities are held for trading purposes, gains and losses arisingfrom changes in fair value are included in net profit or loss for the period.For available-for-sale investments, gains and losses arising from changes infair value are recognised directly in equity, until the security is disposed ofor is determined to be impaired, at which time the cumulative gain or losspreviously recognised in equity is included in the profit or loss for theperiod. Impairment losses recognised in profit or loss for equity investmentsclassified as available-for-sale are not subsequently reversed through profit orloss. Impairment losses recognised in profit or loss for debt instrumentsclassified as available-for-sale are subsequently reversed if an increase in thefair value of the instrument can be objectively related to an event occurringafter the recognition of the impairment loss. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, and othershort-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Financial liabilities and equity Financial liabilities and equity instruments are classified according to thesubstance of the contractual arrangements entered into. An equity instrument isany contract that evidences a residual interest in the assets of the Group afterdeducting all of its liabilities. Bank borrowings Interest-bearing bank loans and overdrafts are recorded at the proceedsreceived, net of direct issue costs. Finance charges, including premiums payableon settlement or redemption and direct issue costs, are accounted for on anaccrual basis in the Income Statement using the effective interest method andare added to the carrying amount of the instrument to the extent that they arenot settled in the period in which they arise. Trade payables Trade payables are initially measured at fair value, and are subsequentlymeasured at amortised cost, using the effective interest rate method. Equity instruments Equity instruments issued by the Company are recorded at the proceeds received,net of direct issue costs. Derivative financial instruments and hedge accounting The Group's activities expose it primarily to the financial risks of changes inforeign currency exchange rates. The Group uses foreign exchange forwardcontracts to hedge these exposures. The Group has not presently applied thehedge accounting provisions of IAS 39 Financial Instruments: Recognition andMeasurement. Accordingly, changes in the fair value of derivative financial instruments thatdo not qualify for hedge accounting are recognised in the income statement asthey arise. Derivatives embedded in other financial instruments or other host contracts aretreated as separate derivatives when their risks and characteristics are notclosely related to those of host contracts and the host contracts are notcarried at fair value with unrealised gains or losses reported in the incomestatement. r) Provisions Provisions are recognised when the Group has a present obligation as a result ofa past event, and it is probable that the Group will be required to settle thatobligation. Provisions are measured at the directors' best estimate of theexpenditure required to settle the obligation at the balance sheet date, and arediscounted to present value where the effect is material. s) Share-based payments The Group has applied the requirements of IFRS 2 Share-based Payment. Inaccordance with the transitional provisions, IFRS 2 has been applied to allgrants of equity instruments after 7 November 2002 that were unvested as of 1January 2005. The Group issues equity-settled share-based payments to certain employees andunder various contracts with third parties. Equity-settled share-based paymentsare measured at fair value (excluding the effect of non market-based vestingconditions) at the date of grant. The fair value determined at the grant date ofthe equity-settled share-based payments is expensed on a straight-line basisover the vesting period, based on the Group's estimate of shares that willeventually vest and adjusted for the effect of non market-based vestingconditions. Fair value is measured by use of a Black Scholes or binomial model as deemedmost appropriate for each individual issue. The expected lives used in themodels have been adjusted, based on management's best estimate, for the effectsof non-transferability, exercise restrictions and behavioural considerations. 5. Critical accounting judgements and key sources of estimation uncertainty Critical judgements in applying the group's accounting policies In the process of applying the Group's accounting policies, which are describedin note 4, management has made the following judgements that have the mostsignificant effect on the amounts recognised in the financial statements. Capitalisation of mining properties and leases on acquisition Aricom's accounting policy for the capitalisation of mining properties andleases at fair value on acquisition requires management to make certainestimates and assumptions as to future events, in particular the cost and timingof the development and future revenues of such properties and leases. Assumptions related to the valuation of share-based payments In order to value options granted, Aricom has made judgements as to thevolatility of its own shares, the probable life of the options granted and thetime of exercise of those options. Aricom has also made a judgement as to whichmethodology to use in valuing the options in each case. 6. Restated Group financial information for the year ended 31 December 2005 CONSOLIDATED INCOME STATEMENTfor the year to 31 December 2005 UK GAAP Effect of IFRS transition to IFRS US$'000 US$'000 US$'000 Continuing operations Revenue 7,363 (7,363) - Cost of sales (6,773) 6,773 - ------ -------- ------- Gross profit 590 (590) - ------ -------- ------- Distribution costs (429) 400 (29) Administrative expenses (3,158) (114) (3,272) Other operating expenses (235) - (235) ------ -------- ------- Operating loss (3,232) (304) (3,536) ------ -------- ------- Investment revenues 227 - 227 Finance costs (628) 67 (561) ------ -------- ------- Loss before tax (3,633) (237) (3,870) Tax (1) - (1) ------ -------- ------- Net (loss) for the year from continuing operations (3,634) (237) (3,871) ------ -------- ------- Discontinued operations Profit for the year from discontinued operations - 123 123 ------ -------- ------- Loss for the year (3,634) (114) (3,748) ====== ======== ======= Earnings per share Loss per share US$ (0.03) - (0.03) ====== ======== ======= CONSOLIDATED BALANCE SHEETas at 31 December 2005 UK GAAP Effect of IFRS transition to IFRS US$'000 US$'000 US$'000 Non-current assets Property, plant and equipment 18,445 (4) 18,441 Financial asset investments - 2,900 2,900 Other non current assets - 161 161 ------ -------- ------- 18,445 3,057 21,502 Current assets Inventories 1,371 (1,273) 98 Trade and other receivables 6,402 (3,642) 2,760 Cash and cash equivalents 9,543 (96) 9,447 Assets classified as held for sale - 1,954 1,954 ------ -------- ------- 17,316 (3,057) 14,259 ------ -------- ------- Total assets 35,761 - 35,761 ------ -------- ------- Current liabilities Trade and other payables (14,392) 10,690 (3,702) Bank overdrafts and loans - (10,013) (10,013) Obligations under finance leases - (502) (502) Liabilities directly associated with assets classified as held for sale - (175) (175) ------ -------- ------- (14,392) - (14,392) ------ -------- ------- Net current assets/(liabilities) 2,924 (3,057) (133) ------ -------- ------- Non-current liabilities Obligations under finance leases - (781) (781) Other non-current liabilities (3,681) 781 (2,900) ------ -------- ------- (3,681) - (3,681) ------ -------- ------- Total liabilities (18,073) - (18,073) ------ -------- ------- Net assets 17,688 - 17,688 ====== ======== ======= Equity Share capital 242 - 242 Share premium account 24,852 (326) 24,526 Other reserves - 553 553 Retained earnings (7,496) (227) (7,723) ------ -------- -------- Equity attributable to equity holders of the parent 17,598 - 17,598 Minority interest 90 - 90 ------ -------- ------- Total equity 17,688 - 17,688 ------ -------- ------- Explanation of reconciliation IFRS 2 Share-based Payment As detailed above, the only material adjustment to affect profit for the yearended 31 December 2005 relates to the adoption of IFRS 2. IFRS 2 requires shareoptions granted by the Group to be fair valued at grant date using an optionpricing model and charged to the income statement over the vesting period of theoptions. There was no requirement to account for these options under UK GAAP. This resulted in an increased charge to Administrative expenses of US$114,000for the year ended 31 December 2005. IFRS 5 Non-current Assets Held for Sale and Discontinued Operations The activities of LLC Chemelt have been reclassified as a discontinued operationin accordance with IFRS 5, as they represent a separate major line of business,that of trading, and have been classified as held for sale at 31 December 2005(as explained previously). As the Chemelt Group was sold in the year ended 31December 2006, the 31 December 2005 Income Statement has been restated toreflect the results from the discontinued operation in one line item asexplained in section 1 above. Under UK GAAP, LLC Chemelt was not required to beseparately presented in the balance sheet or income statement. CONSOLIDATED CASH FLOW STATEMENTfor the year to 31 December 2005 UK GAAP Effect of IFRS transition to IFRS US$'000 US$'000 US$'000 Net cash from operating activities (7,020) (422) (7,442) Investing activities Interest received 227 - 227 Purchases of property, plant and equipment (9,753) - (9,753) ------ -------- -------Net cash used in investing activities (9,526) - (9,526) ------ -------- ------- Financing activities Interest paid (422) 422 - Repayments of obligations under finance leases (778) - (778) New finance lease obligations 2,099 - 2,099 Proceeds on issue of shares 20,492 - 20,492 Share issue costs (1,970) - (1,970) New bank loans raised 6,114 - 6,114 ------ -------- ------- Net cash from financing activities 25,535 422 25,957 ------ -------- ------- Net increase in cash and cash equivalents 8,989 - 8,989 Cash and cash equivalents at beginning of period 1,157 - 1,157 Effect of foreign exchange rate changes (603) - (603) ------ -------- ------- Cash and cash equivalents at end of period 9,543 - 9,543 ====== ======== ======= 7. Restated Group Balance Sheet as at Transition Date of 1 January 2005 CONSOLIDATED BALANCE SHEET as at 1 January 2005 UK GAAP Effect of IFRS transition to IFRS US$'000 US$'000 US$'000 Non-current assets Property, plant and equipment 5,435 - 5,435 ------ -------- ------- 5,435 - 5,435 Current assets Inventories 492 - 492 Trade and other receivables 869 - 869 Cash and cash equivalents 1,157 - 1,157 ------ -------- ------- 2,518 2,518 Total assets 7,953 - 7,953 Current liabilities Trade and other payables (1,753) - (1,753) ------ -------- ------- (1,753) - (1,753) ------ -------- ------- Net current assets 765 - 765 ------ -------- ------- Non-current liabilities Other non-current liabilities (3,400) - (3,400) ------ -------- ------- (3,400) - (3,400) Total liabilities (5,153) - (5,153) Net assets 2,800 - 2,800 ===== ======== ======= Equity Share capital 169 - 169 Share premium 6,403 - 6,403 Other reserves - 113 113 Retained earnings (4,254) (113) (4,367) ------ -------- ------- Equity attributable to equity holders of parent 2,318 - 2,318 Minority interest 482 - 482 ------ -------- ------- Total equity 2,800 - 2,800 ===== ======== ======= Explanation of reconciliation IFRS 2 Share- based Payment The only material adjustment, and the only adjustment which affects totalequity, relates to the adoption of IFRS 2 Share- based Payment, and shareoptions granted prior to 1 January 2005. IFRS 2 requires share options grantedby the Group to be fair valued at grant date using an option pricing model andcharged to the income statement over the vesting period of the options. Therewas no requirement to account for these options under UK GAAP. This accounting change reduced the opening retained earnings by $113,000, andreduced consolidated net profit in the year ended 31 December 2005 by $113,000(as detailed below). 8. Restated Group financial information for the six months ended 30 June 2006 CONSOLIDATED INCOME STATEMENTfor the six months ended 30 June 2006 UK GAAP Effect of IFRS transition to IFRS US$'000 US$'000 US$'000 Continuing operations Revenue 6,997 (6,997) - Cost of sales (6,400) 6,400 - ------ ------ ------ Gross profit 597 (597) - ------ ------ ------ Distribution costs (566) 566 - Administrative expenses (2,223) - (2,223) Other operating expenses (76) - (76) ------ ------ ------ Operating loss (2,268) (31) (2,299) ------ ------ ------ Profit on sale of subsidiaries 45 - 45 Finance income 1,525 (57) 1,468 Finance costs (309) 20 (289) ------ ------ ------ Loss before tax (1,007) (68) (1,075) Tax (12) 5 (7) ------ ------ ------ Net (loss) for the year from continuing operations (1,019) (63) (1,082) ------ ------ ------ Discontinued operations Profit for the year from discontinued operations - 63 63 ------ ------ ------ Loss for the year (1,019) - (1,019) ===== ======== ======= CONSOLIDATED BALANCE SHEETfor the six months ended 30 June 2006 UK GAAP Effect of IFRS transition to IFRS US$'000 US$'000 US$'000 Non-current assets Property, plant and equipment 231,331 - 231,331 Financial asset investments 2,939 42 2,981 Other non current assets 18,200 - 18,200 ------ ------ ------ 252,470 42 252,512 ------ ------ ------ Current assets Inventories 17 - 17 Trade and other receivables 5,774 (42) 5,732 Cash and cash equivalents 114,149 - 114,149 ------ ------ ------ 119,940 (42) 119,898 ------ ------ ------ Total assets 372,410 - 372,410 Current liabilities Trade and other payables (4,196) - (4,196) Bank overdrafts and loans (7,006) - (7,006) Obligations under finance leases - - - ------ ------ ------ (11,202) - (11,202) ------ ------ ------ Net current assets 108,738 (42) 108,696 ------ ------ ------ Non-current liabilities Other non-current liabilities (289) - (289) ------ ------ ------ (289) - (289) Total liabilities (14,500) (14,500) Net assets 360,919 - 360,919 ======= ====== ======= Equity Share capital 816 - 816 Share premium 273,000 - 273,000 Other reserves 295 - 295 Retained earnings (8,654) - (8,654) ------ ------ ------ Equity attributable to equity holders of parent 265,457 265,457 Minority interest 95,462 - 95,462 ------ ------ ------ Total equity 360,919 - 360,919 ======= ====== ======= CONSOLIDATED CASHFLOW STATEMENTfor the six months ended 30 June 2006 UK GAAP Effect of IFRS transition to IFRS US$'000 US$'000 US$'000 Net cash from operating activities (3,627) (407) (4,034) Investing activities Interest received 1,517 - 1,517 Proceeds on disposal of available-for-sale - - - investments Disposal of subsidiary, net of cash disposed (311) - (311) Purchases of property, plant and equipment (8,751) - (8,751) Purchases of investments and other non current assets (11,940) - (11,940) Acquisitions, net of cash acquired (24,711) - (24,711) ------ ------ ------ Net cash used in investing activities (44,196) - (44,196) ------ ------ ------ Tax paid (12) 12 - Financing activities Interest paid (395) 395 - Repayments of borrowings (8,797) - (8,797) Repayments of obligations under finance leases (1,347) - (1,347) New finance lease obligations - - - Proceeds on issue of shares 169,199 - 169,199 Share issue costs (6,415) - (6,415) New bank loans raised - - - ------ ------ ------ Net cash from financing activities 152,245 395 152,640 ------ ------ ------ Net increase in cash and cash equivalents 104,410 - 104,410 Cash and cash equivalents at beginning of period 9,543 - 9,543 Effect of foreign exchange rate changes 196 - 196 ------ ------ ------ Cash and cash equivalents at end of period 114,149 - 114,149 ======= ====== ======= Explanation of reconciliation IFRS 2 Share-based Payment The UK GAAP interim financial statements were prepared under UK GAAP with theearly adoption of FRS 20 Share-based Payment which is comparable to IFRS 2Share-based Payment. There was therefore no difference in the reported figuresarising from the application of IFRS 2 to this interim period. As Chemelt was sold on 30 June 2006, the Income Statement has been restated toreflect the discontinued operation as one line item in the Income Statement asrequired by IFRS 5. 9. Directors' responsibilities The directors are required by United Kingdom company law to prepare financialstatements for each financial period which give a true and fair view of thestate of affairs of the Group as at the end of the financial period and of theprofit or loss and cash flows for that period. To ensure that this requirementis satisfied the directors are responsible for establishing and maintainingadequate internal controls and procedures for financial reporting throughout theGroup. For the year ended 31 December 2006, the directors will be preparing the Group'sfinancial statements in accordance with International Financial ReportingStandards (IFRS) for the first time. As part of the transition to IFRS, thedirectors are presenting financial information prepared under IFRS for theopening balance sheet as at 1 January 2005, the year ended 31 December 2005 andthe six months ended 30 June 2006. The directors are responsible for the selection and consistent application ofthe accounting policies and the selection of transition options under IFRS 1,including the assumptions made about the standards and interpretations expectedto be effective, and the policies expected to be adopted, when the Group's firstcomplete set of IFRS financial statements are prepared. The directors are responsible for maintaining proper accounting records and theyhave a general responsibility for taking such steps as are reasonably open tothem to safeguard the assets of the Group and to prevent and detect fraud andother irregularities. The directors are responsible for the maintenance and integrity of the Group'swebsite. The work carried out by the independent accountants does not involveresponsibility for any changes that may have occurred to the IFRS financialinformation since it was initially loaded onto the website. Directors' declaration The IFRS financial information for the year ended 31 December 2005 and periodended 30 June 2006 has been prepared in accordance with the basis of preparationand accounting policies set out on pages ( ) to ( ). We consider that theaccounting policies and transition options we have selected are appropriate forAricom's business and supported by reasonable and prudent judgements. The IFRS financial information has been prepared on the going concern basissince, in our opinion, each of the Aricom Group companies has adequate financialresources to continue in operational existence for the foreseeable future and topay its debts as and when they become due and payable. By order of the board G J Hambro 10 April 2006 10. Independent auditors' report to the Board of Directors of Aricom plc onthe opening IFRS balance sheet We have audited the opening International Financial Reporting Standards ("IFRS")consolidated balance sheet of Aricom plc and its subsidiaries (the "Group")("the opening IFRS balance sheet") as at 1 January 2005 and related notes 4 and5. This report is made solely to the Board of Directors, in accordance with ourengagement letter engagement dated 10 April 2007 and solely for the purpose ofassisting with the transition to IFRS. Our audit work has been 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 do 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 the openingIFRS consolidated balance sheet on the basis set out in note 4, which describeshow IFRS will be applied under IFRS 1, including the policies expected to beadopted, when the company prepares its first complete set of IFRS financialstatements as at 31 December 2006. Our responsibility is to audit the openingIFRS balance sheet in accordance with relevant United Kingdom legal andregulatory requirements and auditing standards and report to you our opinion asto whether the opening IFRS balance sheet is prepared, in all material respects,on the basis set out in note 4. We read the other information presented with the opening IFRS consolidatedbalance sheet as described in the contents section and consider the implicationsfor our report if we become aware of any apparent misstatements or materialinconsistencies with the opening IFRS balance sheet. 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 opening IFRSbalance sheet. It also includes an assessment of the significant estimates andjudgements made by the directors in the preparation of the opening IFRS balancesheet 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 opening IFRS balancesheet is free from material misstatement, whether caused by fraud or otherirregularity or error. In forming our opinion, we also evaluated the overalladequacy of the presentation of information in the opening IFRS balance sheet. We draw attention to the fact that, under IFRS, only a complete set of financialstatements comprising a balance sheet, income statement, statement of changes inequity, cash flow statement, together with comparative financial information andexplanatory notes, can provide a fair presentation of the company's financialposition, results of operations and cash flows in accordance with IFRS. Opinion In our opinion the opening IFRS balance sheet is prepared, in all materialrespects, on the basis set out in note 4 which describes how IFRS will beapplied under IFRS 1, including the assumptions the directors have made aboutthe policies expected to be adopted, when the company prepares its firstcomplete set of IFRS financial statements as at 31 December 2006. Deloitte & Touche LLP Chartered AccountantsLondon10 April 2007 11. Independent auditors' report to the Board of Directors of Aricom plc onthe comparative IFRS financial information We have audited the comparative consolidated IFRS financial information ofAricom plc and its subsidiaries (the "Group") for the year ended31 December 2005 (the "comparative IFRS financial information") which comprisesthe consolidated balance sheet, income statement and cash flow statement. This report is made solely to the Board of Directors, in accordance with ourengagement letter engagement dated 10 April 2007 and solely for the purpose ofassisting with the transition to IFRS. Our audit work has been 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 do 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 thecomparative IFRS consolidated financial information on the basis set out in note4, which describes how IFRS will be applied under IFRS 1, including theassumptions the directors have made about the standards and interpretationsexpected to be effective, and the policies expected to be adopted, when thecompany prepares its first complete set of IFRS financial statements as at 31December 2006. Our responsibility is to audit the comparative consolidatedfinancial information in accordance with relevant United Kingdom legal andregulatory requirements and auditing standards and report to you our opinion asto whether the comparative IFRS consolidated financial information is prepared,in all material respects, on the basis set out in note 4. We read the other information contained in the comparative IFRS financialinformation for the above year as described in the contents section and considerthe implications for our report if we become aware of any apparent misstatementsor material inconsistencies with the comparative IFRS financial information. 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 comparativeIFRS financial information. It also includes an assessment of the significantestimates and judgements made by the directors in the preparation of thecomparative IFRS financial information and of whether the accounting policiesare appropriate to the circumstances of the group, consistently applied andadequately 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 comparative IFRSfinancial information is free from material misstatement, whether caused byfraud or other irregularity or error. In forming our opinion, we also evaluatedthe overall adequacy of the presentation of information in the comparative IFRSfinancial information. 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 financial information and explanatory notes, can provide a fair presentation of the company'sfinancial position, results of operations and cash flows in accordance withIFRS. Opinion In our opinion the comparative IFRS financial information is prepared, in allmaterial respects, on the basis set out in note 4 which describes how IFRS willbe applied under IFRS 1, including the assumptions the directors have made aboutthe policies expected to be adopted, when the company prepares its firstcomplete set of IFRS financial statements as at 31 December 2006. Deloitte & Touche LLP Chartered AccountantsLondon10 April 2007 12. Independent review report to the Board of Directors of Aricom plc on thecomparative financial information for the six months ended 30 June 2006 We have reviewed the accompanying International Financial Reporting Standards("IFRS") consolidated financial information of Aricom Plc ("the Company") andits subsidiaries (together, "the Group") for the six months ended 30 June 2006which comprises the consolidated income statement, the consolidated balancesheet, the consolidated cash flow statement and related notes set out on pages14, 15, 16 and 3 to 9 inclusive (hereinafter referred to as "interim IFRSfinancial information"). This interim IFRS financial information is the responsibility of the Company'sdirectors. It has been prepared as part of the Company's conversion to IFRS inaccordance with the basis set out in note 4 which describes how IFRS will beapplied under IFRS 1, including the policies expected to be adopted, when thecompany prepares its first complete set of IFRS financial statements as at 31December 2006. Our responsibility is to express an opinion on this interim IFRSfinancial information based on our review. Our review report is made solely to the Company in accordance with Bulletin 1999/4 issued by the Auditing Practices Board. Our work has been undertaken so thatwe might state to the Company those matters we are required to state to them inan independent review report and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone other thanthe Company, for our review work, for this report, or for the conclusions wehave formed. Review work performed We conducted our review in accordance with Bulletin 1999/4 issued by theAuditing Practices Board. A review consists principally of making enquiries ofmanagement and applying analytical procedures to the interim IFRS financial information and underlying financial data and, assessing whether the accountingpolicies and presentation have been consistently applied unless otherwisedisclosed. A review excludes audit procedures such as tests of control andverification of assets, liabilities and transactions. It is substantially lessin scope than an audit performed in accordance with United Kingdom auditingstandards and therefore provides a lower level of assurance than an audit.Accordingly, we do not express an opinion on the interim IFRS financial information. We draw attention to the fact that, under IFRS, only a complete set of financialstatements comprising an income statement, balance sheet, statement of changesin equity, cash flow statement, together with comparative financial informationand explanatory notes, can provide a fair presentation of the Group's financialposition, results of operations and cash flows in accordance with IFRS. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the interim IFRS financial information for the six monthsended 30 June 2006 which has been prepared in accordance with the basis set outin note 4. Deloitte & Touche LLP Chartered AccountantsLondon10 April 2007 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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