12th Jul 2005 07:02
Kingspan Group PLC12 July 2005 FOR IMMEDIATE RELEASE 12 July 2005 Kingspan Group plc IFRS UPDATE Kingspan Group plc, today announces the impact of the transition toInternational Financial Reporting Standards (IFRS) on its opening balance sheetat 1 January 2004 and on its 2004 results previously prepared in accordance withaccounting practice generally accepted in the Republic of Ireland (GAAP). TheGroup's financial statements for the six months ended 30 June 2005 and for theyear ended 31 December 2005 will be prepared under IFRS. The impact on the audited full year 2004 key financial data is summarised asfollows: Irish GAAP Comments on principal IFRS IFRS changes •mn •mn Revenue 958.1 958.1 Operating Profit (before goodwill Option costs and defined benefitamortisation) pension schemes 102.2 103.3 Net Profit before tax 88.0 96.4 Non-amortisation of goodwill Shareholders' Funds 302.2 304.6 Net debt 107.6 108.1 Inclusion of redeemable Preference shares euro cent euro centEarnings per shareBasic 42.3 47.1 Non-amortisation of goodwill Excluding Irish GAAP goodwill 47.0 47.1amortisation INTRODUCTION The Group currently prepares its primary financial statements under Irish GAAPwhich are consistent with UK GAAP. From 2005 onwards the Group will be requiredto prepare its consolidated financial statements in accordance withInternational Financial Reporting Standards (IFRS) as adopted by the EuropeanUnion. This change applies to all financial reporting for accounting periodsbeginning on or after 1 January 2005 and consequently, the Group's firstpublished IFRS results will be its interim results for the half year ended 30June 2005. The Group's first Annual Report under IFRS will be for the yearending 31 December 2005. The date for transition to IFRS is 1 January 2004,which is the start of the earliest period of comparative information. The financial information in this statement has been prepared in accordance withIFRS. The financial information for the opening balance sheet at 1 January 2004and for the full year ended 31 December 2004 has been audited by Grant Thornton. In order to explain how the Group's reported performance and financial positionare affected by this change, selected information previously published underIrish GAAP is restated under IFRS in the appendices as follows: - Appendix 1 Independent auditors' report to the Directors ofKingspan Group plc on the preliminary IFRS consolidated financial statements forthe year ended 31 December 2004. - Appendix 2 Group Income Statement, Group Statement ofRecognised Income and Expense for the year end 31 December2004 and Group Balance Sheet as at that date, together with reconciliations ofprofit and equity from Irish GAAP to IFRS. - Appendix 3 Unaudited Group Income Statement, Group Statementof Recognised Income and Expense for the six months ended 30 June 2004 andGroup Balance Sheet as at that date, together with reconciliations of profit andequity from Irish GAAP to IFRS. - Appendix 4 Adjustments required to the Irish GAAP GroupBalance Sheet at the transition date of 1 January 2004 for compliance with IFRS. - Appendix 5 Restatement under IFRS of selected segmentalinformation published in the 2004 Interim and Annual Reports. - Appendix 6 Accounting policies under IFRS. These financial statements have been prepared on the basis of the IFRS expectedto be applicable at 31 December 2005 and the interpretation of those standards.IFRS are subject to ongoing review and endorsement by the EU or possibleamendment by interpretative guidance from the IASB and are therefore stillsubject to change. These financial statements may, therefore, require amendmentbefore their inclusion in the IFRS statements for the 12 months to 31 December2005. 1. IMPACT OF TRANSITION TO IFRS IN OVERVIEW The standards which give rise to the most significant changes to theconsolidated results of the Group on the transition to IFRS are: IAS 19 Recognition of defined benefit pension scheme assets and liabilitiesIFRS 2 Expensing of share-based payments at fair valueIFRS 3/ IAS 38 Non-amortisation of goodwill; intangible assets on business combinationsIAS 10 Events after the Balance Sheet dateIAS 32/ IAS 39 Recognition and measurement of financial instruments - derivatives carried at fair value; classification of hedgesIAS 12 Income TaxesIAS 20 Accounting for Government Grants The impact of the transition to IFRS on the Group financial statements issummarised as follows: euro millions Full-year 2004* Interim 2004 (Unaudited) Irish GAAP IFRS Irish GAAP IFRSGroup Income StatementRevenue 958.1 958.1 439.4 439.4Operating profit (EBITA) 102.2 103.3 44.4 43.6Profit before tax (PBT) 88.0 96.4 37.6 40.4Profit after tax 70.0 78.0 29.5 32.5 Tax rate (as a % of EBITA) 17.6% 17.8% 18.2% 18.1%Basic EPS (euro cent) 42.3 47.1 17.8 19.6EPS (Excluding Irish GAAP goodwill 47.0 47.1 20.2 19.6amortisation) Group Balance Sheet Total assets 713.8 722.5 681.4 685.0Total liabilities 411.6 417.9 392.5 402.3 ________ ________ ________ _______Total equity 302.2 304.6 288.9 282.7 ________ ________ ________ _______ Net debt 107.6 108.1 116.2 116.7 Reconciliation of net debt Year-end 30 June 2004 2004As reported under Irish GAAP 107.6 116.2Reclassification from minority interestof redeemable preference shares 0.5 0.5 Restated under IFRS 108.1 116.7 * Extracted from audited consolidated financial statements for year ended 31December 2004 The tables set out below provide a reconciliation of the changes to net profitbefore tax and shareholders' funds arising from the implementation to IFRS: NET PROFIT BEFORE TAX RECONCILIATION Full Year Interim 2004 2004 •mn •mnIrish GAAP 88.0 37.6 Defined benefit pension charge/ credit 2.3 (0.2) Share based Payment (1.8) (0.9) Goodwill amortisation 7.9 3.9 IFRS 96.4 40.4 SHAREHOLDERS' FUND RECONCILIATION Full Year Interim 2004 2004 •mn •mnIrish GAAP 302.2 288.9 Defined benefit pension deficit (15.9) (14.9) Share based Payment 0.4 0.2 Goodwill amortisation 7.9 3.9 Final dividend accrual 10.3 5.6 Others (0.3) (1.0) IFRS 304.6 282.7 2. BASIS OF PREPARATION The financial information has been prepared in accordance with IFRS and theaccounting policies applied in Appendix 6 and assumes that all IFRS, includingthe interpretation of those standards, issued by the International AccountingStandards Board (IASB) effective for 2005 reporting will be endorsed by theEuropean Commission. Grant Thornton have audited the financial information for the opening balancesheet at 1 January 2004 and for the full year ended 31 December 2004. Theiraudit report to the Group is set out in Appendix 1. The information for thehalf year ended 30 June 2004 is unaudited. Subject to EU endorsement ofunapproved standards and no further changes from the IASB, this information isexpected to form the basis for comparatives when reporting financial results for2005, and for subsequent reporting periods. 3. PRINCIPAL EXEMPTIONS AVAILED OF ON TRANSITION TO IFRS Exemptions under IFRS 1 First-time Adoption of International Financial ReportingStandards The rules for first time adoption of IFRS are set out in IFRS 1 First-timeAdoption of International Financial Reporting Standards. In general a companyis required to determine its IFRS accounting policies and apply theseretrospectively to determine its opening balance sheet under IFRS. The standardallows a number of exceptions to this general principle to assist companies asthey change to reporting under IFRS. In common with the majority of listed companies, Kingspan has availed of anumber of specified exemptions from the general principle of retrospectiverestatement as follows: • Business combinations undertaken prior to the transitiondate of 1 January 2004 have not been subject to restatement; accordingly,goodwill as at the transition date is carried forward at its net book value andtogether with goodwill arising on business combinations subsequent to thetransition date, is subject to annual impairment testing in accordance with IAS36 Impairment of Assets. As required under IFRS 1, goodwill was assessed forimpairment as at the transition date and no impairment resulted from thisexercise. • The fixed asset revaluation performed as at 31 December1980 and referred to in note 11 to the financial statements in the 2004 AnnualReport has been regarded as deemed cost and therefore remains unadjusted ontransition to IFRS. • The cumulative actuarial gains and losses applicable tothe Group's defined benefit pension schemes at the transition date have beenrecognised in full in the Transition Balance Sheet and adjusted against retainedincome. • IFRS requires that on disposal of a foreign operation,the cumulative amount of currency translation differences be transferred to theincome statement as part of the profit or loss on disposal. Kingspan has deemedthe cumulative currency translation difference applicable to foreign operationsto be zero as at the transition date. • As a result of the exemptions described above, financialresults and summarised historical financial information previously published forthe Group for periods prior to 2004 will not be stated under IFRS. Other options availed of on transition • In compliance with the transitional arrangements set outin IFRS 2 Share-based Payment, this standard has been applied in respect ofshare options granted after 7 November 2002. • The Group has opted to pursue early implementation of thefinancial instruments standards (IAS 32 and IAS 39) with effect from thetransition date taking account of the prohibition on the fair valuation offinancial liabilities imposed by the version of IAS 39 approved by the EuropeanCommission. Given the delay encountered in securing European Commissionapproval, the effective date of the revised versions of IAS 32 and IAS 39 is 1January 2005. • On the introduction of FRS 17 Retirement Benefits in 2001,Kingspan, together with the majority of publicly-listed entities, elected tocontinue to account for its pension obligations under SSAP 24 Accounting forPension Costs and to disclose the impact of FRS 17 in the notes to the financialstatements. IAS 19 Employee Benefits requires immediate recognition ofactuarial gains and losses on defined benefit pension schemes in the Statementof Recognised Income and Expense. The interest cost associated with pensionscheme liabilities under IFRS, together with the expected return on pensionscheme assets, are included within net finance costs on the face of the IncomeStatement. Current service costs and any past service items stemming frombenefit enhancements or curtailments are dealt with as components of operatingcosts. 4. PRINCIPAL CHANGES ON TRANSITION TO IFRS (1) IAS 19 Employee Benefits (Defined Pension Benefit Schemes) The Group has a number of legacy defined benefit schemes in the UK. All of theseschemes have been closed and the liability relates only to past service. UnderGAAP, differences between funding contributions and the amounts charged to theincome statement were treated as either prepayments or accruals in the balancesheet, and pension costs were spread over the working lifetime of activemembers. In accordance with IAS 19, the assets and liabilities of the definedbenefit pension schemes have been capitalised gross of deferred tax on the faceof the balance sheet within employee benefit obligations. Deferred tax has beencomputed in respect of the various defined benefit pension schemes and therelated deferred tax assets and liabilities are included in the restatements atthe various balance sheet dates. In accordance with the exemptions afforded by IFRS 1, the Group has elected torecognise all cumulative actuarial gains and losses attributable to its definedbenefit pension schemes as at the transition date. The alternative ofretrospective application of the corridor methodology under IAS 19 has not beenavailed of by the Group. In addition, in line with the Amendment to IAS 19 andIrish GAAP, actuarial gains and losses arising after the transition date aredealt with in retained income via the Statement of Recognised Income andExpense. Under IFRS, the pension deficit at the period end is recognised as a liabilityin the balance sheet of the Group. The impact of the change in accounting forthe pension deficit is a €2.3 million increase in profit before tax and areduction in shareholders' funds of €15.9 million for the full year 2004. Interest expenses related to pension obligations and returns on pension assetsare charged to the income statement under IFRS. The impact of IAS 19 on Kingspan is summarised as follows: euro millions Transition H1 2004 FY 2004Income StatementOperating costs 0.1 2.9Finance costs (0.3) (0.6)(Decrease)/ increase in profit before tax (0.2) 2.3Tax charge - (0.7)Net impact - (decrease)/ increase in profit after tax (0.2) 1.6 Balance SheetDeferred income tax asset /(liability) 5.2 6.4 6.8Employee benefits obligations (17.2) (21.3) (22.7)Total liabilities (12.0) (14.9) (15.9)Total assets less total liabilities (12.0) (14.9) (15.9) Other reserves (2.7) (5.4)Retained income (12.0) (12.2) (10.5)Total equity (12.0) (14.9) (15.9) (2) IFRS 2 Share - based Payment Under IFRS 2, the fair value of share-based payments is expensed to the IncomeStatement on a straight line basis. In accordance with IFRS, the fair valuecalculations have only been applied in respect of share based paymenttransactions granted after 7 November 2002. An expense of €1.8 million has beenrecognised in respect of the year ended 31 December 2004 (€0.9 million for thesix-month period ended 30 June 2004). A deferred tax asset has been recognised in the balance sheet on the deductibletemporary differences arising in respect of share options based on thedifference between the share price as at the balance sheet date and the exerciseprice of the relevant outstanding options. As at 30 June 2004, the deferred tax asset amounted to €0.2 million andincreased thereafter to €0.4 million as at 31 December 2004. The fair value of the share options has been arrived at using a recognisedvaluation methodology for the pricing of financial instruments (i.e. thetrinomial model). The following are the inputs used in determining the fairvalue of share options: • The exercise price; the market price of Kingspan's sharesas at the grant date. • Time to maturity; the expected life of the option. • Expected volatility; future volatility was determined byanalysing historic volatility of quoted companies on the Irish and other StockExchanges, including analysis of the volatility of Kingspan's shares, anddisclosures regarding volatility by US-listed companies made as part of filingswith the US Securities and Exchange Commission. • The expected dividend yield on Kingspan's Ordinary Shares. • The first exercise date; options granted under each grantwill not be capable of exercise less than three years and more than ten yearsafter the grant date. • The risk free interest rate; this rate is based on theyield to maturity of an Irish Government Bond with a life similar to that of theoptions. • Expected dividend payments. The impact of IFRS 2 on Kingspan is summarised as follows: euro millions Transition H1 2004 FY 2004Income StatementOperating costs - share options expense (0.9) (1.8)Tax charge 0.2 0.3Net impact - decrease in profit after tax (0.7) (1.5) Balance SheetDeferred income tax asset/ (liability) - 0.2 0.4Total liabilities - 0.2 0.4Total assets less total liabilities - 0.2 0.4 Other reserves 0.1 1.0 1.9Retained income (0.1) (0.8) (1.5)Total equity 0.0 0.2 0.4 (3) IFRS 3 Business Combinations / IAS 38 Intangible Assets As noted above the Group has availed of the exemption under IFRS enablingnon-restatement of business combinations prior to the transition date of 1January 2004. Under IFRS, goodwill is not amortised but is subject to an annual impairmenttest. Therefore goodwill of €7.9 million has been credited to the full year2004 Group Income Statement (€3.9 million for the interim period) as restatedunder IFRS. The impact of IAS 38 on Kingspan is summarised in the following table: euro millions Transition H1 2004 FY 2004Income StatementTotal goodwill amortisation add-back - 3.9 7.9Net impact - increase in profit after tax - 3.9 7.9 Balance SheetIntangible assets - 3.9 7.9Total assets - 3.9 7.9 Retained income - 3.9 7.9Total equity - 3.9 7.9 (4) IAS 10 Events After the Balance Sheet date (Dividend Liability Recognition) Under IAS 10, Events After the Balance Sheet date, it is no longer acceptable torecognise a dividend declared and approved after the balance sheet date. Thefinal dividend for 2004 was declared in March 2005 and was subject to approvalby shareholders in May 2005 and accordingly the dividend provision has beenreversed as at 31 December 2004 and will be accounted for as a charge to theIncome Statement in 2005. The impact of this change in accounting policy on retained income is an increaseof €7.6 million at the transition date, €5.6 million at 30 June 2004 and €10.3million at 31 December 2004. (5) IAS 32 Financial Instruments; Disclosure and Presentation/ IAS 39 FinancialInstruments; Recognition and Measurement The Group uses financial instruments throughout its businesses. Borrowings,cash, cash equivalents and short-dated deposits are used to finance the Group'soperations. Trade debtors and trade creditors arise directly from operations.Derivatives, principally interest rate and currency swaps and forward foreignexchange contracts, are used to manage interest rate risks and currencyexposures and to achieve the desired profile of borrowings. The transition to IAS 39, which governs the recognition and measurement offinancial instruments under IFRS, requires that financial instruments arerecorded initially at fair value with subsequent measurement either at fairvalue or amortised cost dependent on the nature of the financial asset orfinancial liability. Under IAS 39, derivatives are always measured at fair value("market-to-market"). Irish GAAP focused on disclosure, rather than therecognition of financial instrument exposures. As highlighted in the qualifications section above, the financial instrumentsframework under IFRS has not been finalised at the date of issue of thisannouncement. The accompanying restatements have been undertaken based on theversion of IAS 39 approved by the European Commission which prohibits the fairvaluation of financial liabilities. The Group has elected to pursue early adoption of both IAS 39 and IAS 32 witheffect from the transition date. Whilst the application of IAS 32 has no directimpact on this announcement, given its focus on disclosures and presentations,early application of this standard implies that the 2005 Annual Report willcontain full disclosures for the comparative period. The impact of application of IAS 32 and IAS 39 on the restated Group IncomeStatement and Balance Sheet may be summarised as follows: • Under IAS 32 and as disclosed in the Transition BalanceSheet in Appendix 4, €0.5 million of redeemable preference shares has beenreclassified from minority interest into current interest-bearing loans andborrowings and €0.3 million of accrued dividends has been reclassified fromminority interest into trade and other payables. • Under IAS 32, €3.8 million of deferred consideration hasbeen reclassified from deferred consideration into non-current interest-bearingloans and borrowings at the transition date (€3.6 million and €3.3 million as at30 June 2004 and 31 December 2004 respectively). • Unrealised losses on interest rates swaps are recognisedunder IAS 39 but were not recognised under Irish GAAP. The net impact on thehedging reserve in the restated Balance Sheet is (€0.1) million at thetransition date, (€0.8) million at 30 June 2004 and (€0.1) million at 31December 2004. As discussed in more detail in the accounting policies provided in Appendix 6,the following classifications have been adopted in respect of the financialinstruments employed by Kingspan: • Derivative financial instruments are measured at fair valuein all cases with hedge accounting employed in respect of those derivativesfulfilling the stringent requirements for hedge accounting laid down in IAS 39;in general, these criteria relate to the documentation of the hedgingrelationship, upfront designation of such in accordance with the subsequentparagraph and the expectation that the hedge will be highly effective throughoutits life from inception. Where the criteria enabling the employment of hedgeaccounting are not satisfied, movements in the related derivatives are reportedin the Group Income Statement either in operating costs or net finance costs asappropriate. • In applying hedge accounting, IAS 39 identifies threecategories of hedges - fair value hedges, cash flow and net investment. In thecase of fair value hedges, movements in fair value between the hedged item andthe hedging instrument are dealt with through the income statement with anymeasure of ineffectiveness being reflected either as a debit or a credit. Wherehedging instruments are classified as cash flow or net investment hedges,movements in fair value are accounted for through equity and released to theincome statement over time as changes in the hedged cash flow are recognised.Ineffectiveness on fair value, cash flow and net investment hedges is reflectedin the income statement. The impact of the application of IAS 32 can be summarised as follows: euro millions Transition H1 2004 FY 2004Balance SheetTrade and other payables 0.3 0.3 0.3Interest bearing loans - current 0.5 0.5 0.5Interest bearing loans - non current 3.8 3.6 3.3Deferred consideration (3.8) (3.6) (3.3)Minority interest (0.8) (0.8) (0.8)Total liabilities - - - Reconciliation of net debtAs reported under Irish GAAP 116.2 107.6Reclassification from minority interest - redeemablepreference shares 0.5 0.5Restated under IFRS 116.7 108.1 The impact of the application of IAS 39 can be summarised as follows: euro millions Transition H1 2004 FY 2004Balance SheetTrade and other receivables - 0.1Total assets - 0.1 Trade and other payables (0.2) (1.1) (0.2)Deferred income tax asset 0.1 0.3 -Total liabilities (0.1) (0.8) (0.2)Total assets less total liabilities (0.1) (0.8) (0.1) Hedging reserve (0.1) (0.8) (0.1)Total equity (0.1) (0.8) (0.1) (6) IAS 12 Income Taxes IAS 12, Income Taxes, requires that deferred tax be accounted for on the basisof temporary differences rather than timing differences which form the basis ofthe equivalent standard under Irish GAAP. The requirements of IAS 12 have beenretrospectively applied in the attached restatement of Kingspan's results withthe cumulative adjustment as at the transition date reflected in the TransitionBalance Sheet. The adjustments made to deferred tax assets and liabilities on transition toIFRS principally relate to the following issues: • Under Irish GAAP (FRS 19 Deferred Tax), deferred tax wasnot provided for on fair value asset uplifts in business combinations if theseuplifts did not give rise to timing differences between the tax base and thebook value of the revalued assets. The recognition under IAS of deferred taxliabilities on the differences arising from such revaluations is the principalreason underlying adjustments of €0.2 million as at the transition date, as at30 June 2004 and as at 31 December 2004. • Due to the focus of IAS 12 on temporary differences and thefact that provisions may be discounted under IFRS, deferred tax assets arisewhich have previously not been recognised under Irish GAAP mainly in respect ofthe defined benefit pension schemes and share based payments as noted in note(1) and (2) above. In addition to the provisions of IAS described above, IAS 1 Presentation ofFinancial Statements requires separate disclosure of deferred tax assets andliabilities on the face of the balance sheet. The Group's restated BalanceSheets at the transition date and as at 30 June 2004 and 31 December 2004 therefore contain reclassifications of amountspreviously netted within the overall Group deferred tax liability; these amountswere €2.6 million, €0.7 million and €1.6 million as at the respective balancesheet dates. The impact of IAS 12 on Kingspan is summarised as follows: euro millions Transition H1 2004 FY 2004Balance SheetDeferred income tax asset- Reclassification from deferred tax liabilities 2.6 0.7 1.6Total assets 2.6 0.7 1.6 Deferred income tax liabilities- Reclassification to deferred tax assets (2.6) (0.7) (1.6)- On revaluation of assets (0.2) (0.2) (0.2)Total liabilities (2.8) (0.9) (1.8)Total assets less total liabilities (0.2) (0.2) (0.2) Revaluation reserve (0.2) (0.2) (0.2)Total equity (0.2) (0.2) (0.2) Note: the impact on deferred tax of Share based Payment (IFRS2), EmployeeBenefits (IAS 19) and Financial Instruments (IAS 39) is addressed in theindividual sections dealing with these issues. (7) IAS 20 Accounting for Government Grants and Disclosure of GovernmentAssistance Under IAS 20, Accounting for Government Grants and Disclosure of GovernmentAssistance, capital grants have been netted off the carrying value of the assetin the balance sheets restated in accordance with IFRS. The impact of thischange in accounting policy was to reduce assets by €1 million as at thetransition date and as at 30 June 2004 and by €0.9 million as at 31 December2004 as summarised in the following table: euro millions Transition H1 2004 FY 2004Balance SheetProperty, plant and equipment (1.0) (1.0) (0.9)Total assets (1.0) (1.0) (0.9) Capital Grants 1.0 1.0 0.9Total liabilities 1.0 1.0 0.9Total assets less total liabilities - - - Appendix 1 Independent auditors' report to the Directors of Kingspan Group plc on thepreliminary IFRS consolidated financial statements for the year ended 31December 2004 We have audited the accompanying preliminary International Financial ReportingStandards ("IFRS") consolidated financial statements of Kingspan Group plc ("theCompany") for the year ended 31 December 2004 which comprise the Group BalanceSheet as at 1 January 2004, the Group Income Statement and Group Statement ofRecognised Income and Expense for the year ended 31 December 2004, the GroupBalance Sheet as at 31 December 2004 together with the related accountingpolicies under IFRS and segmental reporting set out on pages 16 to 30 and 31 to41 respectively but excluding half year information. This report is made solely to the Directors in accordance with our engagementletter dated 11 November 2004. Our audit work has been undertaken so that wemight state to the Directors those matters we are required to state to them inan auditors' report and for no other purpose. To the fullest extent permitted bylaw, we do not accept or assume responsibility or liability to anyone other thanthe Company for our audit work, or for the opinions we have formed. Respective Responsibilities of the Company's Directors and Grant Thornton,Chartered Accountants and Registered Auditors These preliminary IFRS consolidated financial statements are the responsibilityof the Company's Directors and have been prepared as part of the Company'sconversion to IFRS. They have been prepared in accordance with the basis set outin sections 2 and 3 to the Restatement of 2004 Results under IFRS and Appendix6, which describe how IFRS have been applied under IFRS 1, including theassumptions management has made about the standards and interpretations expectedto be effective, and the policies expected to be adopted, when managementprepares its first complete set of IFRS consolidated financial statements as at31 December 2005. Our responsibility is to express an independent opinion on the preliminary IFRSconsolidated financial statements based on our audit. We read the otherinformation accompanying the preliminary IFRS consolidated financial statementsand consider whether it is consistent with the preliminary IFRS consolidatedfinancial statements. We consider the implications for our report if we becomeaware of any apparent misstatements or material inconsistencies with thepreliminary IFRS consolidated financial statements. Appendix 1Basis of audit opinion We conducted our audit in accordance with Auditing Standards issued by theAuditing Practices Board. Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether the preliminary IFRSconsolidated financial statements are free of material misstatement. An auditincludes examining, on a test basis, evidence supporting the amounts anddisclosures in the preliminary IFRS consolidated financial statements. An auditalso includes assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall presentation of thepreliminary IFRS consolidated financial statements. We believe that our auditprovides a reasonable basis for our opinion. Emphasis of matter Without qualifying our opinion, we draw attention to the fact that section 2 ofthe Restatement of 2004 Results under IFRS explains why there is a possibilitythat the preliminary IFRS consolidated financial statements may requireadjustment before constituting the final IFRS consolidated financial statements.Moreover, we draw attention to the fact that, under IFRS, only a complete set ofconsolidated financial statements with comparative financial information andexplanatory notes can provide a fair presentation of the Company's financialposition, results of operation and cash flows in accordance with IFRS. We also draw attention to the fact that we have not audited the Group BalanceSheet of the Company, the related Group Income Statement, Group Statement ofRecognised Income and Expense and related segmental information for the halfyear ended 30 June 2004. Opinion In our opinion, the preliminary IFRS consolidated financial statements for theyear ended 31 December 2004 have been prepared, in all material respects, inaccordance with the basis set out in sections 2 and 3 to the Restatement underIFRS and Appendix 6, which describe how IFRS have been applied under IFRS 1,including the assumptions management has made about the standards andinterpretations expected to be effective, and the policies expected to beadopted, when management prepares its first complete set of IFRS consolidatedfinancial statements as at 31 December 2005. Grant Thornton Chartered Accountants & Registered Auditors 24-26 City Quay Dublin 2 11 July 2005 Appendix 2 GROUP INCOME STATEMENTfor the year ended 31 December 2004 Restated under IFRS Audited Continuing Acquisitions Total Operations 2004 2004 2004 •mn •mn •mnRevenue 952.8 5.3 958.1Cost of sales (671.7) (4.0) (675.7)Gross operating profit 281.1 1.3 282.4Distribution costs (59.3) 0 (59.3)Administrative expenses (118.8) (1.0) (119.8)Operating profit 103.0 0.3 103.3Finance costs (net) (6.9)Profit before tax 96.4Income tax expense (18.4)Group profit after tax for the financial year 78.0Profit attributable to:Equity holders of the Company 78.0Minority interest -Group profit after tax for the financial year 78.0Basic earnings per share 47.1 c GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE 2004for the year ended 31 December 2004 •mn Profit for financial year attributable to Group 78.0shareholdersExchange adjustments (1.9)Cash flow hedges 0.1Pension deficit movement (5.4)Total recognized income and expense for the financial 70.8year Group Income Statement Full- Year 2004 - Reconciliation from Irish GAAP to IFRS Appendix 2 Previous Employee Share Intangible Dividends Effect of Restated Benefits based Assets transition under Payment GAAP IAS 19 IFRS 2 IAS 38 IAS 10 to IFRS's IFRSRevenue 958.1 958.1Cost of sales (675.7) (675.7)Gross profit 282.4 282.4 Distribution costs (59.3) (59.3)Administrative expenses (120.9) 2.9 (1.8) 1.1 (119.8)Finance costs (net) (6.3) (0.6) (0.6) (6.9)Goodwill amortisation (7.9) 7.9 7.9 - Profit before taxation 88.0 2.3 (1.8) 7.9 8.4 96.4Tax expense (18.0) (0.7) 0.3 (0.4) (18.4) Profit on ordinary activities 70.0 1.6 (1.5) 7.9 - 8.0 78.0after tax Profit attributable to:Shareholders 70.0 8.0 78.0Minority interest (0.0) (0.0) (0.0) 70.0 8.0 78.0Dividends paid (5.6) (5.6)Dividends proposed (10.3) 10.3 10.3 - 54.1 1.6 (1.5) 7.9 10.3 18.3 72.4 Appendix 2 Restated under IFRSGROUP BALANCE SHEET as at 31 December 2004 2004 •mnASSETSNon-current assetsProperty, plant and equipment 210.9Intangible assets- goodwill 110.0Intangible assets - other 2.2Financial assets -Deferred income tax assets 1.6Total non-current assets 324.7Current assetsTrade and other receivables 220.8Inventories 89.2Cash and cash equivalents 87.8Total current assets 397.8 TOTAL ASSETS 722.5LIABILITIESNon-current liabilitiesInterest bearing loans 111.5Deferred income tax liability 3.9Deferred consideration 7.2Employee benefit obligations 22.7Minority interest 0.4Total non-current liabilities 145.7Current liabilitiesTrade and other payables 157.2Warranty provisions 18.4Interest bearing loans 76.6Current tax liability 19.4Deferred consideration 0.6Total current liabilities 272.2 TOTAL LIABILITIES 417.9 TOTAL ASSETS LESS TOTAL LIABILITIES 304.6 EQUITYIssued capital 21.8Share premium account 20.3Revaluation reserve 0.7Hedging reserve (0.1)Other reserves (38.3)Retained earnings 300.2 TOTAL EQUITY 304.6 Group Balance Sheet as at 31 December 2004 - Reconciliation from Irish GAAP to IFRS Appendix2 Previous Employee Share Based Intangible Dividends Financial Benefits Assets Instruments Payment (disclosure) GAAP IAS 19 IFRS 2 IAS 38 IAS 10 IAS 32Property, plant and 211.8equipmentGoodwill 102.1 7.9Intangible assets 2.2Deferred tax asset -Total non-current assets 316.1 - - 7.9 - - Trade and other 220.7receivablesInventories 89.2Cash and cash equivalent 87.8Total current assets 397.7 - - - -TOTAL ASSETS 713.8 - - 7.9 - Interest bearing loans 108.2 3.3Deferred tax liability 9.3 (6.8) (0.4)Deferred consideration 10.5 (3.3)Grants 0.9Employee benefits and - 22.7obligationsMinority interest 1.2 (0.8)Total non-current 130.1 15.9 (0.4) - - (0.8)liabilities Trade and other payables 156.7 0.3Warranty provisions 18.4Interest bearing loans 76.1 0.5Current tax liability 19.4Dividends 10.3 (10.3)Deferred consideration 0.6Total current liabilities 281.5 - - - (10.3) 0.8TOTAL LIABILITIES 411.6 15.9 (0.4) - (10.3) - 302.2 (15.9) 0.4 7.9 10.3 - TOTAL ASSETS LESS TOTALLIABILITIES Issued capital 21.8Share premium account 20.3Revaluation reserve 0.9Hedging reserve -Other reserves (34.8) (5.4) 1.9Retained earnings 294.0 (10.5) (1.5) 7.9 10.3TOTAL EQUITY 302.2 (15.9) 0.4 7.9 10.3 - Group Balance Sheet as at 31 December 2004 - Reconciliation from Irish GAAP to IFRS (cont) Appendix2 Financial Deferred Deferred Grants Restated Instruments tax revaluation tax reclass under (recognition) IAS 39 IAS 12 IAS 12 IAS 20 IFRSProperty, plant and (0.9) 210.9equipmentGoodwill 110.0Intangible assets 2.2Deferred tax asset 1.6 1.6Total non-current assets - - 1.6 (0.9) 324.7 Trade and other 0.1 220.8receivablesInventories 89.2Cash and cash equivalent 87.8Total current assets 0.1 - - - 397.8TOTAL ASSETS 0.1 - 1.6 (0.9) 722.5 Interest bearing loans 111.5Deferred tax liability 0.2 1.6 3.9Deferred consideration 7.2Grants (0.9) -Employee benefits and 22.7obligationsMinority interest 0.4Total non-current - 0.2 1.6 (0.9) 145.7liabilities Trade and other payables 0.2 157.2Warranty provisions 18.4Interest bearing loans 76.6Current tax liability 19.4Dividends -Deferred consideration 0.6Total current 0.2 - - 272.2liabilitiesTOTAL LIABILITIES 0.2 0.2 1.6 (0.9) 417.9 TOTAL ASSETS LESS TOTALLIABILITIES (0.1) (0.2) - - 304.6 Issued capital 21.8Share premium account 20.3Revaluation reserve (0.2) 0.7Hedging reserve (0.1) (0.1)Other reserves (38.3)Retained earnings 300.2TOTAL EQUITY (0.1) (0.2) - - 304.6 GROUP INCOME STATEMENT for the six months ended 30 June 2004 Appendix 3 Restated under IFRS 6 months ended 30 June 2004 (Unaudited) •mnRevenue 439.4Cost of sales (311.3)Gross operating profit 128.1Distribution costs (28.0)Administrative expenses (56.5)Group operating profit 43.6Finance costs (net) (3.2)Profit before tax 40.4Income tax expense (7.9)Group profit after tax for the financial period 32.5Profit attributable to:Equity holders of the Company 32.5Minority interest -Group profit after tax for the financial period 32.5 Basic earnings per share 19.6c GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE (Unaudited) •'mnGroup profit after tax for the financial period 32.5Exchange adjustments 16.1Cash flow hedges (0.7)Pension deficit movement (2.7)Total recognised income and expense for the financial period 45.2 Appendix 3 Group Income Statement for six months ended 30 June 2004 - Reconciliation from Irish GAAP to IFRS(unaudited) Previous Employee Share Intangible Effect of Restated Benefits based Assets transition GAAP Payment Dividends to IFRS's under IAS 19 IAS 38 IFRS IFRS 2 IAS 10Revenue 439.4 - 439.4Cost of sales (311.3) - (311.3) Gross profit 128.1 - - - - - 128.1 Distribution costs (28.0) - (28.0)Related Shares:
KGP.L