15th Sep 2005 07:03
Kingfisher PLC15 September 2005 KINGFISHER PLC CONSOLIDATED INCOME STATEMENT (UNAUDITED) For the half year ended 30 July 2005 Half year ended Half year ended Year ended 30 July 2005 31 July 2004 29 January 2005£ millions Notes Revenue 2 4,079.4 3,947.9 7,649.6Cost of sales (2,635.5) (2,501.3) (4,785.7)Gross profit 1,443.9 1,446.6 2,863.9Selling and distribution expenses (992.0) (932.3) (1,833.0)Administrative expenses (198.1) (186.3) (370.7)Other income 3 10.7 8.5 21.0Other expenses 3 - - (17.7)Share of post tax results of joint ventures and 5.5 5.9 14.6associatesOperating profit 2 270.0 342.4 678.1 Analysed as:Retail profit 289.1 367.3 742.0Central costs (16.0) (18.6) (37.3)Exceptional items 3 1.9 - (13.7)Share of joint venture and associate interest and (5.0) (6.3) (12.9)taxation FinancingTotal finance costs (23.2) (21.2) (43.9)Total finance income 9.4 8.1 15.2(Loss)/gain on retranslation of intercompany balances (5.4) (41.7) 12.0Net finance costs 4 (19.2) (54.8) (16.7) Profit before taxation 250.8 287.6 661.4 Income tax expense 6 (85.1) (94.1) (205.2)Profit for the period 165.7 193.5 456.2 Attributable to:Equity shareholders of parent company 165.5 193.6 455.7Minority interest 0.2 (0.1) 0.5 165.7 193.5 456.2 Earnings per share (pence) 7Basic 7.1 8.4 19.7Diluted 7.1 8.3 19.6 All results relate to continuing operations. Adjusted earnings per share information is provided in note 7. KINGFISHER PLC CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE (UNAUDITED) For the half year ended 30 July 2005 £ millions Notes Half year ended Half year ended Year ended 30 July 2005 31 July 2004 29 January 2005Actuarial gains/(losses) on defined benefit pension 11 7.3 (48.9) (79.3)schemesCurrency translation differences 11 10.0 51.5 47.0Hedging items - First time adoption of IAS39 11 (3.9) - - - Current period movement 11 11.5 - -Tax on items taken directly to equity 11 (5.8) 10.6 29.1Net income/(loss) recognised directly in equity 19.1 13.2 (3.2)Profit for the financial period 165.7 193.5 456.2Total recognised income and expense for the period 184.8 206.7 453.0 Attributable to:Equity holders of the parent 184.5 206.8 452.9Minority interests 0.3 (0.1) 0.1 184.8 206.7 453.0 KINGFISHER PLC CONSOLIDATED BALANCE SHEET (UNAUDITED) As at 30 July 2005 £ millions Notes 30 July 2005 31 July 2004 29 January 2005 Non-current assetsIntangible assets 10 2,624.9 2,528.7 2,533.0Property, plant and equipment 3,262.4 2,819.3 3,031.8Investment property 20.3 19.0 18.7Investments accounted for using equity method 184.3 170.9 176.6Available for sale financial assets - 0.2 -Other receivables 68.5 25.7 26.6 6,160.4 5,563.8 5,786.7Current assetsInventories 1,421.8 1,216.7 1,320.0Trade and other receivables 442.0 412.7 453.9Income tax 7.2 - 8.8Cash and cash equivalents 129.9 327.1 162.1 2,000.9 1,956.5 1,944.8Total assets 8,161.3 7,520.3 7,731.5 Current liabilitiesShort-term borrowings (364.9) (220.9) (184.9)Trade and other payables (1,864.1) (1,727.7) (1,696.2)Current tax liabilities (70.3) (102.5) (113.6) (2,299.3) (2,051.1) (1,994.7)Net current liabilities (298.4) (94.6) (49.9)Total assets less current liabilities 5,862.0 5,469.2 5,736.8 Non-current liabilitiesLong-term borrowings (859.0) (775.6) (818.3)Other payables (8.8) (17.1) (8.6)Deferred income tax liabilities (223.0) (190.8) (192.7)Post employment benefits (322.3) (297.3) (325.7) (1,413.1) (1,280.8) (1,345.3)Total liabilities (3,712.4) (3,331.9) (3,340.0) Net assets 4,448.9 4,188.4 4,391.5 Capital and reservesShare capital 2,442.9 2,401.2 2,434.9Other reserves 11 1,982.3 1,784.4 1,953.9Minority interests 23.7 2.8 2.7Total equity 4,448.9 4,188.4 4,391.5 Approved by the Board Duncan Tatton-BrownDirector14 September 2005 KINGFISHER PLC CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED) For the half year ended 30 July 2005 Half year ended Half year ended Year ended£ millions Notes 30 July 2005 31 July 2004 29 January 2005 Net cash flows from operating activities 8 339.7 475.9 531.5 Cash flows from investing activitiesPurchase of subsidiary and business undertakings 10 (152.1) - (0.4)Sale of subsidiary and business undertakings - 6.5 10.4Purchase of associates and joint ventures (2.2) - (3.4)Sale of associates and joint ventures - - 4.8Payments to acquire property, plant and equipment (256.5) (207.7) (413.3)and intangible assetsReceipts from sale of property, plant and equipment 17.2 2.1 20.9and intangible assetsSale of available for sale financial assets - - 0.4Dividends received from joint ventures and - - 2.3associatesNet cash used in investing activities (393.6) (199.1) (378.3) Cash flows from financing activitiesInterest paid (4.5) (12.2) (37.5)Interest element of finance lease (3.0) (3.0) (5.9)Interest received 9.7 16.5 25.2Exceptional finance receipt - 23.9 23.9Proceeds from issue of share capital 3.3 7.7 18.0Receipts from sale of own shares 3.0 1.4 14.0Increase in loans 201.2 15.7 94.8Capital element of finance lease rental payments (5.6) (5.1) (11.3)Receipts from sale of current investments - 9.4 7.9Dividends paid to Group shareholders (157.9) (136.1) (204.8)Dividends paid to minority interests - - (0.7)Net cash generated/(used) in financing activities 46.2 (81.8) (76.4) Net (decrease)/increase in cash and cash equivalents (7.7) 195.0 76.8 Cash and cash equivalents at beginning of period 105.9 28.1 28.1Currency translation differences 1.7 (2.8) 1.0 Cash and cash equivalents at end of period 99.9 220.3 105.9 For the purposes of the cash flow statement, cash and cash equivalents areincluded net of overdrafts repayable on demand. These overdrafts are excludedfrom the definition of cash and cash equivalents disclosed on the balance sheet. KINGFISHER PLC NOTES TO THE INTERIM FINANCIAL REPORT (UNAUDITED) For the half year ended 30 July 2005 1. General information a) Basis of Preparation The next annual financial statements of the Group will be prepared in accordancewith International Financial Reporting Standards (IFRS) as adopted for use inthe EU, whereas the Group has previously reported under UK GAAP. The interimfinancial report has been prepared in accordance with the accounting policieswhich the Group intends to adopt for the year ending 28 January 2006, which willbe in accordance with IFRS and with those parts of the Companies Act 1985applicable to companies reporting under IFRS. There is, however, a possibilitythat the directors may determine that some changes are necessary when preparingthe full annual financial statements for the first time in accordance with IFRS,in particular as the IFRS standards and IFRIC interpretations that will beapplicable and adopted for use in the European Union at 28 January 2006 are notknown with certainty at the time of preparing this interim financialinformation. In particular, the Directors have assumed that the European Commission (EC) willendorse the amendment to IAS 19 "Employee Benefits - Actuarial Gains and Losses,Group Plans and Disclosures" issued by the IASB in December 2004. The EC'sAccounting Regulatory Committee has to date only recommended endorsement of thisamendment to IAS 19, but the Directors have assumed that it will be adopted foruse in the financial statements for the year ending 28 January 2006. An amendment has been proposed to IAS 21 "The effects of Changes to ForeignExchange Rates" which may become effective before the end of the year. IAS 21requires exchange differences arising on a monetary item that forms part ofparent company's net investment in a foreign operation be recognised in equity.The application of this requirement is restricted to funding transacted directlybetween the parent and the foreign operation. The proposed amendment clarifiesthat exchange differences arising on a monetary item that forms part of areporting entity's net investment in a foreign operation should be recognised inequity irrespective of whether it is the parent or a fellow subsidiary thatenters into the transaction with the foreign operation. If this amendment isapproved by the EU and can be adopted for the financial year ending 28 January2006, the gains and losses on intercompany balances currently recognised in theincome statement of this interim financial report would no longer be recognisedin the income statement but rather directly in reserves which would offset theequal and opposite amount in reserve movements on consolidation. The disclosures required by IFRS 1 concerning the transition from UK GAAP toIFRS are provided in note 13. The Group has taken the option to defer the implementation of the standards IAS32 "Financial Instruments: Disclosure and Presentation" and IAS 39 "FinancialInstruments: Recognition and Measurement" until the financial year ending 28January 2006. In accordance with IFRS 1 paragraph 36A comparative informationfor financial instruments for the half year ended 31 July 2004 and the yearended 29 January 2005 has been prepared in accordance with UK GAAP. Details ofthe Group's accounting policies, as defined under UK GAAP, can be found in theaccounting policies note of the annual report and accounts for the year ended 29January 2005. Details of the accounting policy change are provided in note 14. Kingfisher's significant accounting policies under IFRS are provided assupplementary information in note 15. b) Comparatives The half year results are unaudited and were approved by the Board of Directorson 14 September 2005. The results for the year ended 29 January 2005 includedin this report do not constitute statutory accounts for the purposes Section 240of the Companies Act 1985. A copy of the statutory accounts for that year underUK GAAP has been delivered to the Registrar of Companies on which an unqualifiedreport has been made by the auditors under Section 235 of the Companies Act1985. c) Use of adjusted measures Kingfisher believes that retail profit*, adjusted profit before tax, adjustedprofit after tax and adjusted earnings per share provide additional usefulinformation on underlying trends to shareholders. These measures are used byKingfisher for internal performance analysis and incentive compensationarrangements for employees. The terms 'retail profit', 'exceptional item' and 'adjusted' are not defined terms under IFRS and may therefore not be comparablewith similarly titled profit measures reported by other companies. It is notintended to be a substitute for, or superior to GAAP measurements of profit. Theseparate reporting of non-recurring exceptional items, which are presented asexceptional within their relevant consolidated income statement category, helpsprovide a better indication of the Group's underlying business performance. Theprincipal items that will be included as exceptional items are: • Non trading items included in operating profit such as profits and losses on the disposal of subsidiaries, associates and investments which do not form part of the Group's trading activities; • Gains and losses on the disposal of properties; and • The costs of significant restructuring and incremental acquisition integration costs. * Retail profit is defined as operating profit before central costs (the costsof the Corporate Centre), exceptional items and the share of joint venture andassociate interest and tax. 2. Segmental analysis The Group's primary reporting segments are geographical, with the Groupoperating in four main geographical areas. The segment results for the half year ended 30 July 2005 are as follows: £ millions United France Rest of Asia Total Kingdom Europe External Revenue 2,224.9 1,381.7 361.5 111.3 4,079.4 Segment result 150.5 101.9 32.4 (4.3) 280.5Share of post tax results of joint ventures and associates - - 0.7 2.0 2.8 5.5 150.5 102.6 34.4 (1.5) 286.0Unallocated central costs (16.0)Operating profit 270.0Net finance costs (19.2)Profit before taxation 250.8Income tax expense (85.1)Profit for the period 165.7 The segment results for the half year ended 31 July 2004 are as follows: £ millions United France Rest of Asia Total Kingdom Europe External Revenue 2,275.4 1,290.6 297.4 84.5 3,947.9 Segment result 225.1 102.0 32.2 (4.2) 355.1Share of post tax results of joint ventures and associates - - 0.5 3.4 2.0 5.9 225.1 102.5 35.6 (2.2) 361.0Unallocated central costs (18.6)Operating profit 342.4Net finance costs (54.8)Profit before taxation 287.6Income tax expense (94.1)Profit for the period 193.5 The segment results for the year ended 29 January 2005 are as follows: £ millions United France Rest of Asia Total Kingdom Europe External Revenue 4,277.3 2,546.7 613.9 211.7 7,649.6 Segment result 445.1 209.9 64.6 (2.3) 717.3Share of post tax results of joint ventures and associates - - 0.7 9.9 4.0 14.6 445.1 210.6 74.5 1.7 731.9Unallocated central costs (53.8)Operating profit 678.1Net finance costs (16.7)Profit before taxation 661.4Income tax expense (205.2)Profit for the year 456.2 The Group's revenues, although not highly seasonal in nature, do increase overthe Easter period and during the summer months leading to slightly higherrevenues being recognised in the first half of the year. 3. Exceptional items The following one-off items, as defined in note 1c), have been charged inarriving at operating profit: Half year ended Half year ended Year ended£ millions 30 July 2005 31 July 2004 29 January 2005Included within other income:Profit on disposal of properties 1.9 - 3.1Profit on disposal of fixed asset investments - - 0.9 1.9 - 4.0Included within other expenses:Loss on sale of operations - - (17.7) - - (17.7)Total exceptional items 1.9 - (13.7) 4. Finance costs Half year ended Half year ended Year ended£ millions 30 July 2005 31 July 2004 29 January 2005Bank and other interest payable 21.7 21.6 42.6Losses on financial instruments 0.1 - -Net interest charge on pension schemes 3.0 1.7 5.1Less amounts capitalised in the cost of qualifying assets (1.6) (2.1) (3.8)Total finance costs 23.2 21.2 43.9 Bank and other interest receivable (8.5) (8.1) (15.2)Gains on financial instruments (0.9) - -Total finance income (9.4) (8.1) (15.2) Loss/(gain) on retranslation of intercompany balances 5.4 41.7 (12.0)Net finance costs 19.2 54.8 16.7 Exchange differences on retranslation of intercompany balances which do not meetthe requirements of IAS 21 are accounted for in the income statement rather thanas reserve movements, giving rise to a pre-tax unrealised loss of £5.4m (2004:£41.7m) in net finance costs for the half year ended 30 July 2005. As theseamounts are generated by exchange movements they will vary from period toperiod. However, there is an equal and opposite amount in reserve movements onconsolidation and net equity is therefore unaffected. The intercompany loanscausing these foreign exchange gains and losses were repaid during the currentperiod. 5. Dividends Half year ended Half year ended Year ended£ millions 30 July 2005 31 July 2004 29 January 2005Amounts recognised as distributions to equity holders in theperiod:Interim dividend for the year ended 29 January 2005 of 3.85p - - 89.9per shareFinal dividend for the year ended 29 January 2005 of 6.8p 159.7 143.4 143.4(2004: 6.15p) per shareDividend paid to Employee Share Ownership Plan Trust (ESOP) (1.8) (1.9) (3.1)shares 157.9 141.5 230.2Proposed interim dividend for the half year to 30 July 2005of 3.85p per share 90.5 At 30 July 2005 the 2005 interim dividend had not been approved by the Board andas such was not included as a liability. Further details on the interimdividend can be found in note 16. 6. Income tax expense Half year ended Half year ended Year ended£ millions 30 July 2005 31 July 2004 29 January 2005Current tax:UK Corporation tax 22.5 52.2 120.0Foreign tax 37.5 35.8 74.1 60.0 88.0 194.1 Deferred tax 25.1 6.1 11.1 Total income tax expense 85.1 94.1 205.2 The effective tax rate for the interim period is 34.2% (2004: 32.7%)representing the best estimate of the effective rate for the full financialyear. The reduction in the UK current tax charge is predominantly offset by theincrease deferred tax charge during the period. 7. Earnings per share Basic earnings per share is calculated by dividing the earnings attributable toordinary shareholders by the weighted average number of ordinary shares in issueduring the year, excluding those held in the ESOP which are treated ascancelled. For diluted earnings per share, the weighted average number of ordinary sharesin issue is adjusted to assume conversion of all dilutive potential ordinaryshares. These represent share options granted to employees where the exerciseprice is less than the average market price of the Company's shares during theyear. The weighted average number of shares in issue during the period was 2,324.2million (2004: 2,301.3 million) and the diluted weighted average number ofshares in issue during the period was 2,334.5 million (2004: 2,318.7 million).For the year ended 29 January 2005, the weighted average number of shares inissue was 2,307.5 million and the diluted average number of shares in issue was2,324.4 million. Supplementary earnings per share figures are presented. These exclude theeffects of exceptional items (disclosed in note 3) and gains and losses on theretranslation of intercompany loan balances to allow comparison of underlyingtrading performance. The calculation of basic and diluted earnings per share for the total Group isbased on the profit on ordinary activities, after taxation and minorityinterests of £165.5 million (2004: 193.6 million). For the year ended 29 January2005, the profit on ordinary activites after taxation and minority interests was£455.7 million. Half year ended Half year ended Year endedPence per share 30 July 2005 31 July 2004 29 January 2005Basic earnings per share 7.1 8.4 19.7Profit on disposal of properties (0.1) - (0.2)Loss on sale of operations - - 0.8Loss/(gain) on retranslation of intercompany 0.2 1.8 (0.5)balancesTax impact arising on items above - (0.5) (0.1)Basic adjusted earnings per share 7.2 9.7 19.7Diluted earnings per share 7.1 8.3 19.6Profit on disposal of properties (0.1) - (0.2)Loss on sale of operations - - 0.8Loss/(gain) of retranslation of intercompany 0.2 1.8 (0.5)balancesTax impact arising on items above - (0.5) (0.1)Diluted adjusted earnings per share 7.2 9.6 19.6 8. Net cash flows from operating activities Reconciliation of operating profit to net cash flows from operating activities: Half year ended Half year ended Year ended£ millions 30 July 2005 31 July 2004 29 January 2005Group operating profit 270.0 342.4 678.1 Adjustments for:Depreciation and amortisation 86.5 75.3 159.1Share-based compensation charge 3.9 3.2 6.7Loss on sale of operations - - 17.7Share of post tax results of joint ventures and associates (5.5) (6.1) (14.6)(Profit)/loss on disposal of property, plant and equipment (0.4) 0.9 1.9and intangible assetsOperating cash flows before movements in working capital 354.5 415.7 848.9 Movements in working capital (excluding the effects ofacquisitions and disposals of subsidiaries and exchangedifferences on consolidation):Increase in inventories (90.2) (167.5) (246.6)Decrease/(increase) in trade and other receivables 21.9 18.1 (72.9)Increase in trade and other payables 152.9 276.6 173.7(Decrease)/increase in post employment benefits 0.9 1.0 (4.3) 85.5 128.2 (150.1) Cash generated by operations 440.0 543.9 698.8Income taxes paid (100.3) (68.0) (167.3)Net cash flows from operating activities 339.7 475.9 531.5 9. Reconciliation of net debt Net debt incorporates the Group's borrowings (together with related fair valuemovements of derivatives on the debt), bank overdrafts and obligations underfinance leases, less cash and cash equivalents. Half year ended Half year ended Year ended£ millions 31 July 2005 30 July 2004 29 January 2005Net debt at start of period (841.1) (891.4) (891.4)Net (decrease)/increase in cash and cash equivalents (7.7) 195.0 76.8Decrease in short-term investments - (9.4) (7.9)Amortisation of underwriting and issue costs of new debt (0.3) - -(Increase)/decrease in debt and lease financing (195.6) 11.0 (30.4)Currency translation differences and fair value (3.6) 25.3 11.8adjustments on financial instrumentsNet debt at end of period (1,048.3) (669.5) (841.1) 10. Acquisitions During the period the Group acquired OBI AG's Chinese home improvementoperations. Goodwill of approximately £76m has been recognised based onprovisional fair values. The purchase price is also provisional as it issubject to the finalisation of a completion accounts process. 11. Reserves The movements in the Group's consolidated reserves in the period to 30 July 2005and the comparative period are summarised as follows: £ millions Hedging Translation Non-distributable Retained Total reserve reserve reserves earningsBalance at 30 January 2005 - 47.7 159.0 1,747.2 1,953.9First time adoption adjustment in respect of IAS (3.7) - - (0.2) (3.9)39Restated balance at 30 January 2005 (3.7) 47.7 159.0 1,747.0 1,950.0 Actuarial gains on defined benefit pension - - - 7.3 7.3schemesTreasury shares disposed - - - (2.2) (2.2)Share-based compensation charge - - - 3.9 3.9Currency translation differences - 10.0 - - 10.0Gains and losses deferred in equity 8.2 - - - 8.2Transferred to initial carrying amount of asset 3.3 - - - 3.3Tax on items taken from/transferred to equity (3.5) (0.2) - (2.1) (5.8)Net gains and losses recognised directly in 8.0 9.8 - 6.9 24.7equityProfit for the period - - - 165.5 165.5Total recognised income and expense for the 8.0 9.8 - 172.4 190.2periodDividends - - - (157.9) (157.9)At 30 July 2005 4.3 57.5 159.0 1,761.5 1,982.3 Balance at 1 February 2004 - - 159.0 1,553.6 1,712.6 Actuarial losses on defined benefit pension - - - (48.9) (48.9)schemesScrip dividend alternative - - - 5.4 5.4Treasury shares disposed - - - (2.1) (2.1)Share-based compensation charge - - - 3.2 3.2Currency translation differences - 51.5 - - 51.5Tax on items taken from/transferred to equity - (5.4) - 16.0 10.6Net gains and losses recognised directly in - 46.1 - (26.4) 19.7equityProfit for the period - - - 193.6 193.6Total recognised income and expense for the - 46.1 167.2 213.3period -Dividends - - - (141.5) (141.5)At 31 July 2004 - 46.1 159.0 1,579.3 1,784.4 12. Critical accounting estimates and judgements The Group makes estimates and assumptions concerning the future. The resultingaccounting estimates will, by definition, seldom equal the related actualresults. The estimates and assumptions that have a significant risk of causing amaterial adjustment to the carrying amount of assets and liabilities within thenext financial year are discussed below. • Estimated impairment of goodwill The Group is required to test whether goodwill has suffered any impairment. Therecoverable amounts of cash generating units have been determined based onvalue-in-use calculations. These calculations require the use of estimates. • Income taxes The Group is subject to income taxes in numerous jurisdictions. Significantjudgment is required in determining the worldwide provision for income taxes.There are many transactions and calculations for which the ultimate taxdetermination is uncertain during the ordinary course of business. The Grouprecognises liabilities for anticipated tax audit issues based on estimates ofwhether additional taxes will be due. Where the final tax outcome of thesematters is different from the amounts that were initially recorded, suchdifferences will impact the income tax and deferred tax provisions in the periodto which such determination is made. See note 6 for further information. • Post employment benefits As disclosed in note 15, the Group operates various defined benefit arrangementsfor its employees. The present value of the defined benefit liabilitiesrecognised in the balance sheet is dependent on interest rates of high-qualitycorporate bonds. The net financing charge is dependent on both the interestrates of high-quality corporate bonds and the assumed investment returns onscheme assets. At the half year, the pensions scheme position has been updatedto reflect current market conditions for corporate bonds and to reflect actualinvestment returns. 13. Explanation of transition to IFRS Kingfisher plc reported under UK Generally Accepted Accounting Practice (UKGAAP) in its previously published financial statements for the year ended 29January 2005 and this is the first interim period that the company has presentedits interim report under IFRS. The analysis below shows a reconciliation of netassets and profit as reported under UK GAAP as at 31 July 2004 to the revisednet assets and profit under IFRS as reported in that interim report. Thepreliminary unaudited results for the year to 29 January 2005 and the Group'srestated balance sheets under IFRS were published on 18 March 2005 and can beaccessed on line at www.kingfisher.com within the 'Investors' section. To aid comparability, the UK GAAP numbers presented below have been reformattedusing the new IFRS format rather than in the previously disclosed UK GAAPformat. Reconciliation of the Consolidated Income Statement for the half year ended 31July 2004 Effect of transition to£ millions Notes UK GAAP IFRS IFRS Revenue 3,947.9 - 3,947.9Cost of sales (e) (g) (2,499.7) (1.6) (2,501.3)Gross profit 1,448.2 (1.6) 1,446.6 Selling and distribution expenses (b) (d) (e) (m) (929.2) (3.1) (932.3)Administrative expenses (b) (d) (i) (181.5) (4.8) (186.3)Other income 8.5 - 8.5Share of post tax results of joint ventures and (f) (k) (l) 12.7 (6.8) 5.9associatesOperating profit 358.7 (16.3) 342.4 Analysed as:Retail profit 376.7 (9.4) 367.3Central costs (18.4) (0.2) (18.6)Acquisition goodwill amortisation (net) (f) 0.4 (0.4) -Share of joint venture and associate interest (l) - (6.3) (6.3)and taxation FinancingNet finance costs before loss on retranslation of (b) (d) (l) (12.4) (0.7) (13.1)intercompany balancesLoss on retranslation of intercompany balances (a) - (41.7) (41.7)Net finance costs (12.4) (42.4) (54.8) Profit before taxation 346.3 (58.7) 287.6 Income tax expense (k) (l) (109.1) 15.0 (94.1)Profit for the period 237.2 (43.7) 193.5 Reconciliation of the Statement of Recognised Income and Expense for the halfyear ended 31 July 2004£ millions Notes UK GAAP Effect of IFRS transition to IFRSActuarial losses on defined benefit pension schemes (b) - (48.9) (48.9)Currency translation differences (a) 10.9 40.6 51.5Tax on items taken directly to equity (5.5) 16.1 10.6Net income recognised directly in equity 5.4 7.8 13.2Profit for the financial period 237.2 (43.7) 193.5Total recognised income and expense for the period 242.6 (35.9) 206.7 Attributable to:Equity holders of the parent 242.7 (35.9) 206.8Minority interests (0.1) - (0.1) 242.6 (35.9) 206.7 Reconciliation of Consolidated Balance Sheet as at 31 July 2004 £ millions Notes UK GAAP Effect of transition IFRS to IFRS Non-current assetsIntangible assets (c) 2,455.3 73.4 2,528.7Property, plant and equipment (c) (d) (n) 2,865.4 (46.1) 2,819.3Investment property (n) 25.3 (6.3) 19.0Investments accounted for using equity method (f) 152.1 18.8 170.9Available for sale financial assets 0.2 - 0.2Other receivables 25.7 - 25.7 5,524.0 39.8 5,563.8Current assetsInventories (g) 1,228.7 (12.0) 1,216.7Trade and other receivables 411.6 1.1 412.7Cash and cash equivalents 327.1 - 327.1 1,967.4 (10.9) 1,956.5Total assets 7,491.4 28.9 7,520.3 Current liabilitiesShort-term borrowings (d) (220.0) (0.9) (220.9)Trade and other payables (b) (e) (i) (1,790.3) 62.6 (1,727.7) (j)Current tax liabilities (118.7) 16.2 (102.5) (2,129.0) 77.9 (2,051.1)Net current liabilities (161.6) 67.0 (94.6)Total assets less current liabilities 5,362.4 106.8 5,469.2 Non-current liabilitiesLong-term borrowings (d) (729.3) (46.3) (775.6)Other payables (17.1) - (17.1)Deferred income tax liabilities (k) (16.3) (174.5) (190.8)Post employment benefits (b) (24.4) (272.9) (297.3) (787.1) (493.7) (1,280.8)Total liabilities (2,916.1) (415.8) (3,331.9)Net assets 4,575.3 (386.9) 4,188.4 Capital and reservesShare capital 2,401.2 - 2,401.2Other reserves (b) (k) (n) 2,171.3 (386.9) 1,784.4Minority interests 2.8 - 2.8Total equity 4,575.3 (386.9) 4,188.4 Explanation of reconciling items between UK GAAP and IFRS (a) FX gains and losses Exchange differences on intercompany loan balances which do not meet the morestringent requirements of IAS 21 "The Effects of Changes in Foreign ExchangeRates" are shown in the income statement rather than as reserve movements,giving rise to a pre-tax unrealised loss of £41.7m in net finance costs for thehalf year ended 31 July 2004. As these amounts are generated by exchangemovements they will vary from period to period. However, there is an equal andopposite amount in reserve movements on consolidation and net equity istherefore unaffected. (b) Post employment benefits Under UK GAAP the Group applied the provisions of SSAP 24 which aresignificantly different to IAS 19. The Group has elected to early adopt theamendment to IAS 19 "Employment Benefits" issued by the IASB on 16 December 2004which allows all actuarial gains and losses to be charged to equity. Otherdifferences include valuing pension scheme assets at bid value as opposed to midvalue and the split of the charge to the income statement between operating(service charge) and financing (return on pension scheme assets and interest onpension liabilities). The Group's opening IFRS balance sheet reflects the assets and liabilities ofthe Group's defined benefit schemes totalling a net liability of £245.7m. Thetransitional adjustment of £220.6m to opening reserves comprises the reversal ofentries in relation to UK GAAP accounting under SSAP 24 less the recognition ofthe net liabilities of the Group's defined benefit schemes. The incrementalcharge arising from the adoption of IAS 19 on the Group's income statement inthe half year ended 31 July 2004 was £2.1m, being the total of £0.4m tooperating profit and £1.7m to net financing charges. The actuarial loss before tax of £48.9m arising in the half year ended 31 July2004 has been recorded in the statement of recognised income and expense. Thepension deficit under IFRS at 31 July 2004 was £297.3m. (c) Intangible assets - computer software Under UK GAAP all capitalised computer software was included within property,plant and equipment on the balance sheet. Under IFRS, only computer softwarethat is integral to a related item of hardware should be included as property,plant and equipment. All other computer software should be classified as anintangible asset. Accordingly, a net balance sheet reclassification has beenmade of £65.4m at the opening balance sheet date and £73.4m at 31 July 2004between property, plant and equipment and intangible assets. There was noimpact on the income statement from this reclassification. (d) Capitalisation of building leases IAS 17 "Leases" requires that the land element of leases on land and buildingsis considered separately for the purposes of determining whether the lease is afinance or operating lease. A majority of the Group's buildings are on leasesof 25 years or less which remain as operating under IFRS. There are a smallnumber of leases greater than 25 years where the building element of the leasehas been classified as a finance lease based on the criteria set out in IAS 17. As a result, the Group's IFRS opening balance sheet at 1 February 2004 includesadditional property, plant and equipment of £30.6m and additional finance leaseobligations of £47.7m included within current and non-current borrowings. Themain impact on the income statement is that the operating lease payment chargedto operating profit under UK GAAP is replaced with a depreciation charge for theasset (in operating profit) and an interest expense charge (in financing costs). Whilst the total charge over the life of the lease will be the same under UKGAAP and IFRS, the profile of the charge is different, with the charge beingmore front loaded under IFRS. The net pre-tax impact on the income statementfor the half year ended 31 July 2004 was a further charge of £0.7m. (e) Lease incentives Under UK GAAP, lease incentives were recognised over the period to the firstmarket rent review. Under IFRS (SIC 15), lease incentives are required to berecognised over the entire lease term. As a result, the Group's IFRS openingbalance sheet at 1 February 2004 includes additional deferred income of £21.7mand operating profit for the year ended 31 July 2004 was reduced by £1.6m. (f) Intangible assets - Goodwill IFRS 3 "Business Combinations" requires that negative goodwill is recognisedimmediately in the income statement as opposed to being amortised. The negativegoodwill that arose on the acquisition of the shares in Hornbach has beencredited back to opening reserves under IFRS and increases the Group's interestin joint ventures and associates by £19.3m. The removal of the amortisationcredit in the half year ended 31 July 2004 reduced profit before tax by £0.5m. (g) Inventories IAS 2 requires the inclusion of certain elements of income from suppliers andother similar items in the cost of inventories which is a more encompassingrequirement than UK GAAP. The value of inventories was reduced by £10.8m at 1February 2004 and £12.0m at 31 July 2004. (h) Cash IAS 7 "Cash Flow Statements" defines cash equivalents as being short-term,highly liquid investments that are readily convertible to known amounts of cashand which are subject to an insignificant risk of changes in value. Cashdeposits with a maturity of less than 3 months have therefore been reclassifiedat both balance sheet dates as cash. (i) Share-based payment IFRS 2 "Share-based Payment" requires that an expense for equity instrumentsgranted is recognised in the income statement based on their fair value at thedate of grant, with a corresponding increase in equity. This expense, which isprimarily in relation to employee option and performance share schemes, isrecognised over the vesting period of the scheme. Under UK GAAP, the incomestatement charge, if any, was based on the difference between the exercise priceand the market price on the date of issue with a corresponding increase inaccruals. The Group has elected to apply IFRS 2 only to relevant share-based paymenttransactions granted after 7 November 2002. The additional pre-tax chargearising from the adoption of IFRS 2 on the Group's income statement for the halfyear ended 31 July 2004 was £0.5m. The impact from the adoption of thisstandard is small as the Group ceased offering share options in 2003 andreplaced them with deferred shares for which a charge equating to the marketvalue of the deferred shares was recognised under UK GAAP. (j) Post balance sheet events IAS 10 "Events after the Balance Sheet Date" requires that dividends declaredafter the balance sheet date should not be recognised as a liability at thatdate as the liability does not represent a present obligation as defined by IAS37 "Provisions, Contingent Liabilities and Contingent Assets". The final dividend declared in March 2004 in relation to the financial yearended 31 January 2004 of £143.4m was reversed in the opening balance sheet andcharged to equity in the half year ended 31 July 2004. The interim dividendaccrued for the half year ended 31 July 2004 of £89.9m was reversed in the IFRSbalance sheet as at 31 July 2004. (k) Deferred and current taxes The scope of IAS 12 "Income Taxes" is wider than the corresponding UK GAAPstandards, and requires deferred tax to be provided on temporary differencesrather than just taxable timing differences as under UK GAAP. As a result, the Group's IFRS opening balance sheet at 1 February 2004 includedan additional deferred tax liability of £189.4m. The majority of thisadjustment related to the deferred tax provided on the deemed cost of propertyless the deferred tax asset recognised on the pension deficit at 1 February2004. The 'income tax expense' on the face of the consolidated income statementcomprises the tax charge of the Company and its subsidiaries under IFRS. TheGroup's share of its joint venture and associated undertakings' tax charges isshown as part of "Share of post tax result of joint ventures and associates"within operating profit. (l) Presentation of joint ventures and associates The presentation of the Group's share of the results of joint ventures andassociated undertakings in the Group's consolidated income statement has changedunder IFRS. Under UK GAAP the Group's share of joint venture and associatedundertaking operating profit, interest and tax were disclosed separately in theconsolidated income statement. In accordance with IAS 1 "Presentation ofFinancial Statements", the results of joint venture and associated undertakingshave been presented net of interest and tax as a single line item. There is noeffect on the net result for the financial period from this adjustment. (m) Short-term compensated benefits IFRS is more prescriptive than UK GAAP in that when an employee has renderedservice during an accounting period, this must be recognised as an expense inthe income statement. Holiday pay balances as at the interim date must thereforebe accrued as per the employees' terms of employment. Most of the increase inthe accrual at the half year (£5.9m at July 2004) is expected to have reversedby the end of the financial year, as the holiday pay and financial years aregenerally coterminous. (n) Valuation of properties The Group has previously applied a policy of annual revaluations of propertyunder UK GAAP. The Group has now elected to treat the revalued amount ofoperating properties at 1 February 2004 as deemed cost as at that date and willnot revalue for accounts purposes in future. The Group will continue to providethe current market values as additional disclosure in its annual financialstatements. There is no impact as at 31 July 2004 as the revaluation exercisewas only undertaken on an annual basis. Investment property was also previously revalued annually under UK GAAP.Following the disposal of the Chartwell Land investment property portfolio in2003/2004, the amount of investment property now held by the Group isinsignificant. The Group has elected to restate the remaining investmentproperty to historical cost under IFRS. There was no impact on the incomestatement for the half year ended 31 July 2004 as no investment properties weredisposed during the period. (o) Significant changes to the cash flow statement under IFRS are asfollows: • Cash flows reported under IFRS and UK GAAP are defined differently -under IFRS, cash flows, referred to as 'cash and cash equivalents', include bankdeposits repayable within 3 months. Under UK GAAP, these were treated asshort-term deposits. • IFRS requires cash flows to be reported under the three headings ofoperating, investing and financing activities whereas UK GAAP requires cashflows to be reported in greater detail under the nine standard headings, such astaxation and interest. • IFRS requires foreign currency translation differences to be includedon the face of the cash flow statement in order that opening and closing cashand cash equivalent balances may be reconciled. This is not a requirement underUK GAAP. 14. First time adoption IAS 32 & 39 The adoption of IAS 32 "Financial Instruments: Disclosure and Presentation" andIAS 39 "Financial Instruments: Recognition and Measurement" with affect from 30January 2005 results in a change in the Group's accounting policy for financialinstruments. The impact of these standards on the Group's opening balance sheetis shown below. The principal impact of IAS 32/39 on the Group's financial statements relates tothe recognition of derivative financial instruments at fair value. Financialassets and financial liabilities that arise on derivatives that do not qualifyfor hedge accounting are held on the balance sheet at fair value with thechanges in value reflected through the income statement. The accountingtreatment of derivatives that qualify for hedge accounting depends on how theyare designated. The varying accounting treatments are explained below. Fair value hedges The Group uses interest rate and cross currency swaps to hedge the exposure tointerest rates and currency movements of it's issued debt. Under UK GAAP,derivative financial instruments held for hedging were accounted for using hedgeaccounting and were not recognised at fair value in the balance sheet. Under IAS 39, derivative financial instruments that meet the 'fair value'hedging requirements are recognised in the balance sheet at fair value withcorresponding fair value movements recognised in the income statement. For aneffective fair value hedge, the hedged item is adjusted for changes in fairvalue attributable to the risk being hedged with the corresponding entry in theincome statement. To the extent that the designated hedge relationship is fullyeffective, the amounts in the income statement offset each other. As a result,only the ineffective element of any designated hedging relationship impacts thefinancing line in the income statement. Cash flow hedges The Group hedges the foreign currency exposure on inventory purchases. Under UKGAAP, foreign currency derivatives were held off balance sheet. Under IAS 39,derivative financial instruments that qualify for cash flow hedging arerecognised on the balance sheet at fair value with corresponding fair valuechanges deferred in equity. Net investment hedges The gains or losses on the translation of currency borrowings and cross currencyswaps used to hedge the Group's net investments in foreign entities arerecognised in equity. Provided the hedging requirements of IAS 39 are met andthe hedging relationship is fully effective, this treatment does not differ fromUK GAAP. On the adoption of IAS32/39, there is no material impact for the Group of otherfinancial assets and liabilities that are not part of a designated hedgerelationship. The adjustments to the opening balance sheet at 30 January 2005 are as follows: Restated opening position Opening balance sheet Effect of adoption of at under IFRS IAS 32 and IAS 39 30 January 2005Non-current assetsOther receivables 26.6 24.9 51.5 Current assetsTrade and other receivables 453.9 0.9 454.8 Current liabilitiesTrade and other payables (1,696.2) (3.0) (1,699.2) Non-current liabilitiesLong-term borrowings (818.3) (28.4) (846.7)Deferred tax liabilities (192.7) 1.7 (191.0) Impact on net assets (3.9) Hedging reserve - (3.7) (3.7)Retained earnings 1,747.2 (0.2) 1,747.0 Impact on equity (3.9) SUPPLEMENTARY INFORMATION 15. Accounting policies The principal accounting policies applied in the preparation of this interimfinancial report are set out below. These policies have been consistentlyapplied to the information presented, unless otherwise stated. The interim financial report of the Company and it subsidiaries is made up tothe nearest Saturday to 31 July this year, except as disclosed in note 15 of the2004/05 UK GAAP financial statements. The consolidated interim financial report has been prepared under the historicalcost convention, as modified by the revaluation of available for saleinvestments, financial assets and liabilities (including derivative instruments)held at fair value through the income statement. The preparation of the interim financial report requires the use of certaincritical accounting estimates. It also requires management to exercise itsjudgements in the process of applying the Company's accounting policies. Theareas involving a higher degree of judgement or complexity, or areas whereassumptions and estimates are significant to the consolidated interim accounts,are disclosed in note 12. Basis of consolidation The consolidated interim financial report incorporates the financial statementsof the Company, its subsidiary undertakings, joint ventures and associatedundertakings. (a) Subsidiaries Subsidiary undertakings are all entities over which the Group has the power togovern the financial and operating policies generally accompanying ashareholding of more than one half of the voting rights. Subsidiaryundertakings acquired during the year are recorded under the acquisition methodof accounting and their results included from the date of acquisition. Theresults of subsidiary undertakings which have been disposed of during the yearare included up to the effective date of disposal. The purchase method of accounting is used to account for the acquisition ofsubsidiaries by the Group. The cost of an acquisition is measured as the fairvalue of the assets given, equity instruments issued and liabilities incurred orassumed at the date of exchange, plus costs directly attributable to theacquisition. Identifiable assets acquired and liabilities and contingentliabilities assumed in a business combination are measured initially at theirfair values at the acquisition date, irrespective of the extent of any minorityinterest. The excess of the cost of acquisition over the fair value of theGroup's share of the identifiable net assets acquired is recorded as goodwilland held as an intangible asset. If the cost of acquisition is less than thefair value of the net assets of the subsidiary acquired, the difference isrecognised directly in the income statement. Intercompany transactions, balances and unrealised gains on transactions betweenGroup companies are eliminated. Unrealised losses are also eliminated unlessthe transaction provides evidence of an impairment of an impairment of the assettransferred. Accounting policies of subsidiaries have been changed wherenecessary to ensure consistency with the policies adopted by the Group. (b) Associates and joint ventures Associates are all entities over which the Group has the ability to exercisesignificant influence but not control, generally accompanying a shareholding ofbetween 20% and 50% of the voting rights. Investments in associates areaccounted for by the equity method of accounting and are initially recognised atcost. The Group's investment in associates includes goodwill (net of anyaccumulated impairment loss) identified on acquisition. The Group's share of its associates' post-acquisition profits or losses isrecognised in the income statement, and its share of post-acquisition movementsin reserves is recognised in reserves. The cumulative post-acquisitionmovements are adjusted against the carrying amount of the investment. When theGroup's share of losses in an associate equals or exceeds its interest in theassociate, including any other unsecured receivables, the Group does notrecognise any further losses, unless it has incurred obligations or madepayments on behalf of the associate. Unrealised gains on transactions between the Group and its associates areeliminated to the extent of the Group's interest in the associates. Unrealisedlosses are also eliminated unless the transaction provides evidence of animpairment of the asset transferred. Accounting policies of associates havebeen changed where necessary to ensure consistency with the policies adopted bythe Group. The equity method is used to account for the Group's interest in joint ventures. Foreign currency translation (a) Functional and presentational currency Items included in the financial statements of each of the Group's entities aremeasured using the currency of the primary economic environment in which theentity operates (the functional currency). The consolidated financialstatements are presented in Sterling, which is the Company's functional andpresentational currency. (b) Transactions and balances Transactions denominated in foreign currencies are translated into Sterling atcontracted rates or, where no contract exists, at average monthly rates. Monetary assets and liabilities denominated in foreign currencies which are heldat the year end are translated into Sterling at year end exchange rates.Exchange differences on monetary items are taken to the income statement, exceptwhen deferred in equity as qualifying cash flow hedges or qualifying netinvestment hedges. Translation differences on non-monetary items, such as equities held at fairvalue through the income statement, are reported as part of the fair value gainor loss. (c) Group companies The balance sheets of overseas subsidiary undertakings are expressed in Sterlingat year end exchange rates. Profits and losses of overseas subsidiaryundertakings are expressed in Sterling at average exchange rates for the year.Exchange differences arising on the retranslation of opening shareholders' fundsare recognised as a separate component of equity. On consolidation, exchange differences arising from the retranslation of the netinvestment in foreign entities, and of borrowings and other currency instrumentsdesignated as hedges of such investments, are taken to shareholders' equity.When a foreign operation is sold, such exchange differences are recognised inthe income statement as part of the gain or loss on sale. In accordance with the transitional provisions of IFRS 1 "First-time Adoption ofIFRS", the cumulative translation reserve by entity has been set to zero at thedate of transition to IFRS. Goodwill and fair value adjustments arising on the acquisition of a foreignentity are treated as assets and liabilities of the foreign entity andtranslated at the closing rate. Revenue recognition Turnover comprises retail sales and services supplied, interest receivable andother income from the provision of credit facilities, commission income andrental income and income. Turnover excludes transactions made between companieswithin the Group, Value Added Tax, other sales-related taxes and is net ofreturns, staff and trade discounts. Turnover relating to the sale of in-store product is earned at the point of cashreceipt. All other turnover is recognised when the product has been deliveredor, for installation income, when the service has been performed. Deliveredproducts and service income represent only a small component of the Group'sturnover as a majority of the Group's sales relate to in-store purchase ofproduct. Cost of sales Cost of sales is the expenditure incurred in the normal course of business inbringing the product to the point of sale, including warehouse andtransportation costs. Intangible assets (a) Goodwill Goodwill is carried at cost less accumulated impairment losses, is not amortisedand is tested annually for impairment by assessing the recoverable amount ofeach cash generating unit to which the goodwill relates. When the recoverableamount of the cash generating unit is less than the carrying amount, animpairment loss is recognised immediately in the income statement and is notsubsequently reversed. Gains and losses on the disposal of an entity include thecarrying amount of goodwill relating to the entity sold. The Group has taken advantage of the exemption permitted by IFRS 1 and has notrestated goodwill on acquisitions prior to the date of transition to IFRS. (b) Computer software Acquired computer software licenses are capitalised on the basis of the costsincurred to acquire and bring to use the specific software. These costs areamortised over their estimated useful lives of two to four years. Costs that are directly associated with the production of identifiable andunique software products controlled by the Group, and that are expected togenerate economic benefits exceeding costs beyond one year, are recognised asintangible assets. Direct costs include the software development employee andconsultancy costs and an appropriate portion of relevant overheads. Costsassociated with developing or maintaining computer software are recognised as anexpense as incurred. Property, plant and equipment (a) Cost or valuation Land and buildings held for use in the business are stated in the balance sheetat cost less accumulated depreciation and any provisions for impairment. Landand buildings held at the date of transition to IFRS are held at deemed cost,being the fair value of land and buildings at the date of transition to IFRS.Plant and equipment is stated at cost less accumulated depreciation and anyprovisions for impairment. (b) Depreciation Depreciation of property, plant and equipment is provided to reflect a reductionfrom cost to estimated residual value over the estimated useful life of theasset to the Group. Depreciation of property, plant and equipment is calculatedusing the straight line method, the annual rates applicable to the principalcategories being: Freehold and long leasehold buildings - between 2% and 5%Short leaseholds - over remaining period of the leaseTenants' fixtures - between 5% and 25%Computers and electronic equipment - between 25% and 50%Motor cars - 25%Commercial vehicles - between 10% and 33 1/3% Freehold land is not depreciated (c) Impairment Property, plant and equipment are reviewed for impairment if events or changesin circumstances indicate that the carrying amount may not be recoverable. Whena review for impairment is conducted, the recoverable amount is assessed byreference to the net present value of expected future post-tax cash flows of therelevant cash generating unit or net realisable value if higher. The discountrate is applied based upon the Group's weighted average cost of capital withappropriate adjustments for the risks associated with the relevant business.Any impairment in value is charged to the income statement in the year in whichit occurs. (d) Disposal The gain or loss arising on the disposal or retirement of an asset is determinedas the difference between the sales proceeds and the carrying amount of theasset and is recognised in the income statement. Sales of land and buildingsare accounted for when there is an unconditional exchange of contracts. (e) Subsequent costs Subsequent costs are included in the related asset's carrying amount orrecognised as a separate asset, as appropriate, only when it is probable thatfuture economic benefits associated with the item will flow to the Group and thecost of the item can be measured reliably. All other repairs and maintenanceare charged to the income statement during the financial period in which theyare incurred. Leased assets Where assets are financed by leasing agreements that give rights approximatingto ownership, the assets are treated as if they have been purchased outright.The amount capitalised is the present value of the minimum lease payments duringthe lease term at the inception of the lease. The assets are depreciated overthe shorter of the lease term or their useful economic life. Obligationsrelating to finance leases, net of finance charges in respect of future periods,are included as appropriate under creditors due within or after one year. Thefinance charge element of rentals is charged to the income statement over theperiod of the lease. All other leases are operating leases and the rental payments are charged to theincome statement in the financial year to which the payments relate. Where a lease is taken out for land and building combined, the building elementof the lease may be capitalised as a finance lease if it fits the criteria for afinance lease, but the land element will always be classed as an operatinglease. If the contracted lease payments are not split between land andbuildings in the lease contract, the split is made based on the market value ofthe land and buildings at the inception of the lease. Incentives received to enter into lease agreements are released to the incomestatement over the lease term. Investment properties The Group's investment properties were restated at original historic cost ontransition to IFRS and are held in the balance sheet at cost less accumulateddepreciation and accumulated impairment losses. Capitalisation of interest and borrowing costs Interest on borrowings to finance the construction of properties held asnon-current assets is capitalised from the date work starts on the property tothe date when substantially all the activities that are necessary to get theproperty ready for use are complete. Where construction is completed in parts,each part is considered separately when capitalising interest. Interest is capitalised before any allowance for tax relief. Borrowing costs are expensed in the period in which they are incurred, except tothe extent they are capitalised as indicated above. Inventories Inventories are stated at the lower of cost and net realisable value, on aweighted average cost basis. Cost includes appropriate attributable overheadsand direct expenditure incurred in the normal course of business in bringinggoods to their present location and condition. Costs of inventories include the transfer from equity of any gains or losses onqualifying cash flow hedges relating to purchases. Rebates received from suppliers Volume related rebates receivable from suppliers are credited to the carryingvalue of the stock to which they relate. Where a rebate agreement with asupplier covers more than one year the rebates are recognised in the accounts inthe period in which they are earned. Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held at call withbanks, other short-term highly liquid investments with original maturities ofthree months or less, and bank overdrafts. Bank overdrafts are shown withinborrowings in current liabilities on the balance sheet. Employee benefits (a) Pension obligations The Group operates various defined benefit and defined contribution pensionschemes for its employees, some of which are required by local legislation. Adefined benefit plan is a pension plan that defines an amount of pension benefitthat an employee will receive on retirement. A defined contribution plan is apension plan under which the Group usually pays fixed contributions into aseparate entity. In all cases other than some of the legally required schemes,a separate fund is being accumulated to meet the accruing liabilities. Theassets of each of these funds are either held under trusts or managed byinsurance companies, and are entirely separate from the Group's assets. The Group has chosen to early adopt the Amendment to IAS 19 "Employee Benefits -Actuarial Gains and Losses, Group Plans and Disclosures", the amendments onlybeing effective for annual periods beginning on or after 1 January 2006. TheEU's Accounting Regulatory Committee has to date only recommended endorsement ofthis amendment to IAS 19, but the directors have assumed that it will be adoptedfor use in the financial statements for the year ending 29 January 2006. The liability recognised in the balance sheet in respect of defined benefitpension plans is the present value of the defined benefit obligation at thebalance sheet date less the fair value of plan assets, together with adjustmentsfor actuarial gains or losses and past service costs. The defined benefitobligation is calculated annually by independent actuaries using the projectedunit credit method. The present value of the defined benefit obligation isdetermined by discounting the estimated future cash outflows using interestrates of high-quality corporate bonds that are denominated in the currency inwhich the benefits will be paid, and that have terms to maturity approximatingto the terms of the related pension liability. An independent 'IAS 19'actuarial valuation is carried out at each balance sheet date. Actuarial gains and losses arising from experience adjustments and changes inactuarial assumptions are charged or credited to the Statement of RecognisedIncome and Expenditure as they arise. Past service costs are recognised immediately in income, unless the changes tothe pension plan are conditional on the employees remaining in service for aspecified period of time (the vesting period). In this case, the past-servicecosts are amortised on a straight line basis over the vesting period. For defined contribution plans, the Group pays contributions to privatelyadministered pension plans on a contractual basis. The Group has no furtherpayment obligations once the contributions have been paid. The contributionsare recognised as an employee benefit expense when they are due. Prepaidcontributions are recognised as an asset to the extent that a cash refund or areduction in the future payments is available. (b) Share-based payment compensation 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 1February 2004. The Group operates several equity-settled, share-based compensation plans. Thefair value of the employee services received in exchange for the grant ofoptions or deferred shares is recognised as an expense, and is calculated usingthe Black Scholes model. The value of the charge is adjusted to reflect expectedand actual levels of options vesting. The total amount to be expensed over thevesting period is determined by reference to the fair value of the options ordeferred shares granted, excluding the impact of any non-market vestingconditions. Non-market vesting conditions are included in assumptions about thenumber of options that are expected to become exercisable. At each balance sheet date, the Group revises its estimates of the number ofoptions that are expected to become exercisable. It recognises the impact ofthe revision of original estimates, if any, in the income statement, and acorresponding adjustment to equity over the remaining vesting period. Taxation The income tax expense represents the sum of the tax currently payable anddeferred tax. 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 differences,and 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 goodwill or from the initial recognition (other than in abusiness combination) of other assets and liabilities in a transaction thataffects neither the tax profit nor the accounting profit. The carrying amountof deferred tax assets is reviewed at each balance sheet date and reduced to theextent that it is no longer probable that sufficient taxable profits will beavailable to allow all or part of the asset to be recovered. Deferred tax liabilities are recognised for taxable temporary differencesarising on investments in subsidiaries and associates, and interest in jointventures, except where the Group is able to control the reversal of thetemporary difference and it is probable that the temporary difference will notreverse in the foreseeable future. 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 assets and liabilities are offset against each other when theyrelate to income taxes levied by the same tax jurisdiction and when the Groupintends to settle its current tax assets and liabilities on a net basis. Current and deferred tax is charged or credited in the income statement, exceptwhen it relates to items charged or credited directly to equity, in which casethe current or deferred tax is also dealt with in equity. Financial instruments Although earlier application is permitted, the Group has decided to first adoptIAS 32 "Financial Instruments: Disclosure and Presentation" and IAS 39 "Financial Instruments: Recognition and Measurement" for the year ending 28January 2006, in accordance with the provisions prescribed in these standards.The impact from this change in accounting policy is provided in note 14. Financial assets and financial liabilities are recognised on the Group's balancesheet when the Group becomes a party to the contractual provisions of theinstrument. (a) Trade receivables Trade receivables do not carry any interest and are stated at their nominalvalue as reduced by appropriate allowances for estimated irrecoverable amounts. (b) 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. Investments can be classified either as held-for-trading or available for sale,and are measured at subsequent reporting dates at fair value. For available forsale investments, gains and losses arising from changes in fair value arerecognised directly in equity, until the security is disposed of or isdetermined to be impaired, at which time the cumulative gain or loss previouslyrecognised in equity is included in the income statement for the period. (c) Bank borrowings Interest bearing bank loans and overdrafts are recorded at the proceedsreceived, net of direct issue costs. Finance charges, including premiumspayable on settlement or redemption and direct issue costs, are accounted for onan accruals basis to the income statement using the effective interest method,and are added to the carrying amount of the instrument to the extent that theyare not settled in the period in which they arise. (d) Trade payables Trade payables are not interest bearing and are stated at their nominal value. Equity instruments issued by the Company are recorded at the proceeds received,net of direct issue costs. (e) Derivative financial instruments and hedge accounting Kingfisher's Treasury function is responsible for managing certain financialrisks to which the Group is exposed. The Board reviews the levels of exposureregularly and approves Treasury policies covering the use of financialinstruments required to manage these risks. The Group does not use derivativefinancial instruments for speculative purposes. Derivatives are initially accounted and measured at fair value on the date aderivative contract is entered into and subsequently measured at fair value. Theaccounting treatment of derivatives classified as hedges depends on theirdesignation, which occurs on the date that the derivative contract is committedto. The Group designates derivatives as: • A hedge of the fair value of an asset or liability ('fair valuehedge') • A hedge of the income/cost of a highly probable forecasted foreignexchange transaction or commitment ('cash flow hedge') • A hedge of a net investment in a foreign entity Changes in the fair value of derivative financial instruments that aredesignated and effective as hedges of future cash flows are recognised directlyin equity, and the ineffective portion is recognised immediately in the incomestatement. If the cash flow hedge of a firm commitment or forecastedtransaction results in the recognition of an asset or a liability, then, at thetime the non-financial asset or liability is recognised, the associated gains orlosses on the derivative that had previously been recognised in equity areincluded in the initial measurement of the non-financial asset or liability.For hedges that do not result in the recognition of a non-financial asset orliability, amounts deferred in equity are recognised in the income statement inthe same period in which the hedged item affects net profit or loss. For an effective hedge of an exposure to changes in the fair value, the hedgeditem is adjusted for changes in fair value attributable to the risk being hedgedwith the corresponding entry in the income statement. Gains or losses fromre-measuring the corresponding hedging instrument are recognised in the incomestatement. Changes in the fair value of derivative financial instruments that do notqualify for hedge accounting and any portion deemed ineffective are recognisedin the income statement as they arise. Where the Group hedges net investments in foreign entities through currencyborrowings, the gains or losses on the retranslation of the borrowings arerecognised in equity. If the Group uses derivatives as the hedging instrument,the effective portion of the hedge is recognised in equity with any ineffectiveportion being recognised in the income statement. Gains and losses accumulatedin equity are recycled through the income statement on disposal of the foreignentity. In order to qualify for hedge accounting, the Group is required to document inadvance the relationship between the item being hedged and the hedginginstrument. The Group is also required to document and demonstrate an assessmentof the relationship between the hedged item and the hedging instrument, whichshows that the hedge will be highly effective on an ongoing basis. The effectiveness testing isre-performed at each period end to ensure that the hedge remains highlyeffective. Hedge accounting is discontinued when the hedging instrument expires or is sold,terminated, or exercised, or no longer qualifies for hedge accounting. At thattime, any cumulative gain or loss on the hedging instrument recognised in equityis retained in equity until the highly probably forecasted transaction occurs.If a hedged transaction is no longer expected to occur, the net cumulative gainor loss recognised in equity is transferred to the income statement for theperiod. 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. 16. Shareholder information Copies of the results will be sent to shareholders on 7th October 2005 andadditional copies will be available from Kingfisher plc, 3 Sheldon Square,Paddington, London W2 6PX. The results can also be accessed on line at www.kingfisher.com as well as othershareholder information. Timetable of events 21st September 2005 Ex-dividend date for interim dividend23rd September 2005 Record date for interim dividend27th October 2005 Final date for receipt of Drip Mandate Forms by Registrars11th November 2005 Date for payment of interim cash dividend18th November 2005 Trade settlement date for the interim Drip dividend If shareholders wish to elect for the Dividend Reinvestment Plan (Drip), andhave not already done so, for the forthcoming interim dividend, a letter or DripMandate Form must be received by Kingfisher's Registrars, Computershare InvestorServices PLC, by 27th October 2005. Copies of the Terms and Conditions of the Drip can be obtained from Kingfisher'sRegistrars at the address below, by calling 0870 702 0129 or online atwww.kingfisher.com. Computershare Investor Services PLC PO Box 82 The Pavilions Bridgwater Road Bristol BS99 7NH INDEPENDENT REVIEW REPORT TO KINGFISHER PLC Introduction We have been instructed by the company to review the financial information forthe six months ended 30 July 2005 which comprises the consolidated incomestatement, the consolidated balance sheet, the consolidated statement ofrecognised income and expense, the consolidated cash flow statement and therelated notes 1 to 14. We have read the other information contained in theinterim report and considered whether it contains any apparent misstatements ormaterial inconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The directors areresponsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority. As disclosed in note 1, the next annual financial statements of the Group willbe prepared in accordance with IFRS. This interim report has been prepared inaccordance with the basis set out in note 1. The accounting policies are consistent with those that the directors intend touse in the next annual financial statements. As explained in note 1, there is,however, a possibility that the directors may determine that some changes arenecessary when preparing the full annual financial statements for the first timein accordance with IFRS. The IFRS standards and IFRIC interpretations that willbe applicable and adopted for use in the European Union at 29 January 2006 arenot known with certainty at the time of preparing this interim financialinformation. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom. A reviewconsists principally of making enquiries of Group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the disclosed accounting policies havebeen applied. A review excludes audit procedures such as tests of controls andverification of assets, liabilities and transactions. It is substantially lessin scope than an audit and therefore provides a lower level of assurance.Accordingly we do not express an audit opinion on the financial information.This report, including the conclusion, has been prepared for and only for thecompany for the purpose of the Listing Rules of the Financial Services Authorityand for no other purpose. We do not, in producing this report, accept or assumeresponsibility for any other purpose or to any other person to whom this reportis shown or into whose hands it may come save where expressly agreed by ourprior consent in writing. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 July 2005. PricewaterhouseCoopers LLP Chartered Accountants London 14 September 2005 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Kingfisher