27th Sep 2005 07:05
Havelock Europa PLC27 September 2005 Havelock Europa PLC Restatement of financial information under International Financial Reporting Standards Introduction Havelock Europa PLC (the Group) historically prepared its consolidated financialstatements under UK Generally Accepted Accounting Practice (UKGAAP). EuropeanUnion law (IAS Regulation EC 1606/2002) requires the Group to adoptInternational Financial Reporting Standards (IFRS) as its primary accountingbase. To explain how the Group's reported performance and financial position areaffected by this change, information previously published under UKGAAP isrestated under IFRS in the attached appendices as follows: • Appendix 1 - Accounting policies under IFRS; • Appendix 2 - Consolidated income statement, consolidated statement ofrecognised income and expense and consolidated statement of changes in equityfor the 6 months ended 30 June 2004 and year ended 31 December 2004,consolidated balance sheet at 1 January 2004 (the date of transition to IFRS),at 30 June 2004 and 31 December 2004, and consolidated statement of cash flowsfor the six months ended 30 June 2004 and year ended 31 December 2004; • Appendix 3 - Reconciliations between UKGAAP and IFRS of theconsolidated income statement for the year ended 31 December 2004, theconsolidated balance sheet at 31 December 2004, the consolidated incomestatement for the 6 months ended 30 June 2004, the consolidated balance sheet at30 June 2004 and the transition balance sheet at 1 January 2004, withexplanatory notes on the adjustments; • Appendix 4 - Explanatory notes on the impact of IAS 32 FinancialInstruments: Disclosure and Presentation and IAS 39 Financial Instruments:Recognition and Measurement as at 1 January 2005, the date from which the Groupprospectively applied these Standards; and • Appendix 5 - Special purpose audit report of KPMG Audit Plc toHavelock Europa PLC This financial information has been prepared on the basis of IFRS expected to beapplicable at 31 December 2005. These are subject to ongoing review andendorsement by the European Union or possible amendment by interpretativeguidance from the International Accounting Standards Board and are thereforesubject to change. Transition to IFRS The date of transition to IFRS was 1 January 2004, which was the beginning ofthe comparative period for the six months ended 30 June 2004 and for the yearended 31 December 2004. The Group has applied IFRS 1 for first-time adoption ofIFRS, and has elected to use the following exemptions: • IFRS 3 Business Combinations has not been applied retrospectively to business combinations that occurred before 1 January 2004; • The carrying amounts of certain properties revalued under UKGAAP before 1 January 2004 have been retained as deemed cost at the date of transition; • Cumulative actuarial gains and losses at the date of transition on the valuation of post-employment benefit assets and liabilities have been recognised as an adjustment to shareholders' equity; • Cumulative translation differences for foreign operations have been deemed to be nil at 1 January 2004. Any gain or loss on a subsequent disposal of a foreign operation will exclude translation differences that arose before 1 January 2004; • IFRS 2 Share-based Payment has not been applied to equity-settled share incentives granted before 7 November 2002, but not vested prior to 1 January 2004; and • IAS 32 Financial Instruments: Disclosure and Presentation and IAS 39 Financial Instruments: Recognition and Measurement have been adopted from 1 January 2005 with no restatement of comparative information. No adjustments have been made for any changes in estimates made at the time ofapproval of the UKGAAP financial statements upon which the IFRS comparativeinformation is based. Presentation of financial information The primary statements within the financial information contained in thisdocument have been presented in accordance with IAS 1 Presentation of FinancialStatements. However, this format and presentation may require modification aspractice develops and in the event that further guidance is issued. Appendix 1 Accounting policies Basis of preparation This financial information has been prepared on the basis of the recognition andmeasurement requirements of IFRS in issue that either are endorsed by the EU andeffective (or available for early adoption) at 31 December 2005 or are expectedto be endorsed and effective (or available for early adoption) at 31 December2005, the Group's first annual reporting date at which it is required to useadopted IFRS. Based on these adopted and unadopted IFRS, the directors have madeassumptions about the accounting policies expected to be applied, which are setout below, when the first annual IFRS financial statements are prepared for theyear ending 31 December 2005. In particular, the directors have assumed that the amendment to IAS 19 EmployeeBenefits covering actuarial gains and losses, group plans and disclosures willbe adopted by the EU in sufficient time that it will be available for use in theannual IFRS financial statements for the year ending 31 December 2005. In addition, the accounting standards adopted by the EU that will be effective(or available for early adoption) in the annual financial statements for theyear ending 31 December 2005 are still subject to change and to additionalinterpretations and therefore cannot be determined with certainty. Accordingly,the accounting policies for that annual period will be determined only when theannual financial statements are prepared for the year ending 31 December 2005. The financial information is presented in pounds sterling, rounded to thenearest thousand. It is prepared on the historical cost basis except forintangible assets acquired in a business combination, which are stated at theirfair values and derivative financial instruments, which from 1 January 2005, arestated at their fair values. The preparation of financial information in conformity with IFRS requires thedirectors to make judgements, estimates and assumptions that affect theapplication of policies and reported amounts of assets and liabilities, incomeand expense. The estimates and judgements are based on historical experience andvarious other factors that are believed to be reasonable under thecircumstances, the results of which form the basis of making judgements aboutcarrying values of assets and liabilities that are not readily apparent fromother sources. Actual results may differ from these estimates. The accounting policies set out below have been applied consistently to allperiods presented in this financial information, subject to the exemptionscontained in IFRS 1 and noted on page 1 and except in relation to financialinformation where the accounting policies for periods prior to 1 January 2005are different (see below). Basis of consolidation The consolidated financial information comprises Havelock Europa PLC and itssubsidiaries, together with the Group's share of the results of its associate.The financial statements of subsidiaries and its associate are prepared to thesame reporting date using accounting policies consistent with those of theparent company. Intragroup transactions and balances, including any unrealisedgains and losses or income and expenses, arising from intragroup transactionsare eliminated in full. Subsidiaries Subsidiaries are entities controlled by the Company. Control exists when theCompany has the power, directly or indirectly, to govern the financial andoperating policies of an entity to obtain benefits from its activities. Thefinancial statements of subsidiaries are included in the consolidated financialinformation from the date that control commences until the date that controlceases. Associate The associate is an entity in which the Group has significant influence, but notcontrol, over the financial and operating policies. The consolidated financialinformation includes the Group's share of the total recognised gains and lossesof its associate on an equity accounted basis, from the date that significantinfluence commences until the date that significant influence ceases. Foreign currency translation Transactions and balances Transactions in currencies other than pounds sterling are recorded at theexchange rate ruling at the date of the transaction. Monetary assets andliabilities denominated in foreign currencies at the balance sheet date aretranslated to sterling at the foreign exchange rate ruling at that date.Non-monetary assets and liabilities denominated in foreign currencies that arestated at fair value are translated at the rates prevailing at the dates whenthe fair value was determined. Non-monetary assets and liabilities that aremeasured at historical cost in a foreign currency (e.g. property, plant andequipment purchased in a foreign currency) are translated using the exchangerate prevailing at the date of the transaction. Exchange differences arising ontranslation are recognised in the consolidated income statement for the period. Financial statements of foreign operations The assets and liabilities of foreign operations, including goodwill and fairvalue adjustments arising on consolidation, are translated to sterling atforeign exchange rates ruling at the balance sheet date. The revenues andexpenses of foreign operations are translated to sterling at average exchangerates for the period. Net investment in foreign operations Exchange differences arising from the translation of the net investment in aforeign operation are taken to the translation reserve. Such differences arereleased to the consolidated income statement upon disposal as part of the gainor loss on sale. Property, plant and equipment Property, plant and equipment is stated at cost less accumulated depreciationand net of any accumulated impairment losses. Certain items of property, plantand equipment that had been revalued under UKGAAP on or prior to 1 January 2004,the date of transition to IFRS, are measured on the basis of deemed cost, beingthe fair value at the date of transition. Land is not depreciated. For all other property, plant and equipment,depreciation is calculated on a straight-line basis to allocate cost lessresidual values of the assets over their estimated useful lives on the followingbases: • Freehold and long leasehold buildings 2% • Plant and equipment 10% - 33% • Fixtures and fittings 10% • Motor vehicles 25% Residual values and useful lives are reassessed annually. Assets held underfinance leases are capitalised and depreciated over their expected useful liveson the same basis as owned assets or, where shorter, over the term of therelevant lease. Intangible assets Goodwill All business combinations are accounted for by applying the purchase method. Inrespect of acquisitions that have occurred since 1 January 2004, goodwillrepresents the difference between the cost of the acquisition and fair value ofthe net assets acquired. In respect of acquisitions before this date, goodwillis included based on its deemed cost, which represents the amount recorded underUKGAAP. Goodwill is stated at cost or deemed cost less any accumulated impairment losses(see below). Goodwill is allocated to cash-generating units and is testedannually for impairment. In respect of the associate, the carrying amount ofgoodwill is included in the carrying amount of the investment in the associate. On disposal of a subsidiary or associate, the attributable goodwill is includedin the determination of the gain or loss on disposal. Negative goodwill arising from a business combination is recognised directly inthe consolidated income statement. Other intangible assets Other intangible assets acquired by the Group are stated at cost lessaccumulated amortisation and accumulated impairment losses. The cost ofintangible assets acquired in a business combination is the fair value atacquisition date. The cost of separately acquired intangible assets, includingcomputer software, comprises the purchase cost and any directly attributablecosts of preparing the asset for use. Amortisation of other intangible assets ischarged to the consolidated income statement when the asset is available for useso as to allocate the carrying amounts of the intangible assets over theirestimated useful lives as follows: • Computer software 3 - 5 years • Brands 10 years • Customer relationships 4 years • Contracted customer relationships 4 years • Order backlog 0.5 years • Non-compete clauses 2.5years • Design rights 10 years Impairment of assets The carrying amounts of the Group's non-current assets, other than deferred tax,are reviewed at each balance sheet date to determine whether there is anyindication of impairment. Additionally, goodwill is subject to an annualimpairment test. An impairment loss is recognised whenever the carrying amount of an asset orcash-generating unit exceeds its recoverable amount. Recoverable amount is thehigher of fair value, less costs to sell, and value in use. In assessing valuein use, the estimated future cash flows are discounted to their present valueusing a pre-tax discount rate that reflects current market assessments of thetime value of money and the risks specific to the asset. For an asset that doesnot generate largely independent cash inflows, the recoverable amount isdetermined for the cash-generating unit to which the asset belongs. Impairment losses are recognised in the consolidated income statement.Impairment losses recognised in respect of cash-generating units are allocatedfirst to reduce the carrying amount of any goodwill allocated to cash-generatingunits and then to reduce the carrying amount of the other assets in the unit ona pro rata basis. An impairment loss in respect of goodwill is not reversed. For other assets, animpairment loss is reversed if there has been a change in the estimates used todetermine the recoverable amount. An impairment loss is reversed only to theextent that the asset's carrying amount does not exceed the carrying amount thatwould have been determined, net of depreciation or amortisation, if noimpairment loss had been recognised. Inventories Inventories are stated at the lower of cost and net realisable value usingweighted average cost. Cost comprises directly attributable purchase andconversion costs and an allocation of production overheads based on normaloperating capacity. Net realisable value is the estimated selling price in theordinary course of business less estimated costs of completion and sellingexpenses. Cash and cash equivalents Cash and cash equivalents comprise cash at bank, which is available forimmediate withdrawal or on short-term deposit, and cash in hand. Bank overdraftsthat are repayable on demand and form an integral part of the Group's cashmanagement are included as a component of cash and cash equivalents for thepurpose of the statement of cash flows. Dividends Final equity dividends to the shareholders of Havelock Europa PLC are recognisedas a liability in the period that they are approved by shareholders. Interimequity dividends are recognised as a liability in the period that the directorsapprove them. Financial instruments Trade and other receivables Trade and other receivables are stated at their cost less impairment losses (anallowance for irrecoverable amounts). Trade and other payables Trade and other payables are stated at cost. Derivative financial instruments The Group uses interest rate swaps to hedge its exposure to interest rate risks.The Group does not enter into speculative derivative contracts. Accounting policies applicable up to 31 December 2004 Amounts payable or receivable in respect of interest rate swaps are recognisedas adjustments to interest expense on an accruals basis over the period of thecontracts. Accounting policies applicable from 1 January 2005Interest rate swaps are initially recognised at fair value and are subsequentlyremeasured at their fair value at each balance sheet date. Treatment of theresulting gain or loss depends on whether the interest rate swap qualifies forhedge accounting as a cash flow hedge. Interest rate swaps that qualify as cash flow hedges The portion of the gain or loss on the swap that is determined to be aneffective hedge is recognised in the consolidated statement of recognised incomeand expense, with any ineffective portion recognised in the consolidated incomestatement. When hedged cash flows result in the recognition of a non-financialasset or liability, the associated gains or losses previously recognised inshareholders' equity are included in the initial measurement of the asset orliability. For all other cash flow hedges, the gains or losses that arerecognised in shareholders' equity are transferred to the consolidated incomestatement in the same period in which the hedged cash flows affect theconsolidated income statement. Hedge accounting is discontinued when the hedging instrument expires or is sold,terminated or exercised, or no longer qualifies for hedge accounting. Anycumulative gain or loss on the hedging instrument recognised in equity remainsin equity until the forecast transaction occurs. If a hedged transaction is nolonger expected to occur, the net cumulative gain or loss recognised in equityis transferred to the consolidated income statement. Non-hedging interest rate swaps The gain or loss on remeasurement to fair value is recognised immediately in theconsolidated income statement. Interest-bearing borrowings Interest-bearing borrowings are recognised initially at the fair value of theconsideration received, net of attributable transaction costs. Subsequent toinitial recognition, interest-bearing borrowings are stated at amortised costwith any difference between cost and redemption value being recognised in theconsolidated income statement over the period of the borrowings using theeffective interest method. Borrowing costs Borrowing costs are recognised in the consolidated income statement as anexpense in the period in which they are incurred. Employee benefits The Group operates both defined benefit and defined contribution pension plans. Defined contribution plans Obligations for contributions to defined contribution pension plans arerecognised as an expense in the consolidated income statement as incurred. Defined benefit plans The Group's liability in respect of its defined benefit pension plan is thepresent value of the defined benefit obligation less the fair value of the planassets at the balance sheet date. The defined benefit obligation is calculatedby independent qualified actuaries using the projected unit credit method and isdetermined by discounting the estimated future cash outflows using interestrates on high quality corporate bonds that have maturity dates approximating tothe terms of the Group's obligations. Current service costs are recognised in the consolidated income statement tospread the cost of providing the benefit systematically over the employees'service lives. The expected return on plan assets, net of administrationexpenses, and the interest on pension plan liabilities, are recognised in theconsolidated income statement. All actuarial gains and losses as at 1 January 2004, the date of transition toIFRS, were recognised in shareholders' equity. All actuarial gains and lossesthat arise subsequent to 1 January 2004 in calculating the Group's obligation inrespect of a plan are recognised immediately in the consolidated statement ofrecognised income and expense. Share-based payment transactions The Group operates a number of equity-settled share-based compensation plans andSave-As-You-Earn (SAYE) schemes. The fair value of share incentives granted isrecognised as an employee expense in the consolidated income statement with acorresponding increase in shareholders' equity. The fair value is measured atgrant date and spread over the period during which the employees becomeunconditionally entitled to the share incentives on a straight-line basis. Thefair value of the share incentives granted is measured using appropriatevaluation models, taking into account the terms and conditions upon which theshare incentives were granted. At each reporting date, the Group re-estimatesthe number of share incentives that are expected to vest based on non-marketconditions. Any adjustment is recognised in the consolidated income statement,with a corresponding adjustment to shareholders' equity, over the remainingvesting period. The Havelock Europa PLC Employee Share Trust holds shares in Havelock EuropaPLC, which are presented in the consolidated financial information as adeduction from retained earnings. Revenue recognition Revenue is measured at the fair value of the consideration received orreceivable net of trade discounts, cash discounts and volume rebates andexcluding value added tax. Revenue from the sale of goods is recognised in theconsolidated income statement when the Group has transferred the significantrisks and rewards of ownership of the goods and services to the customer, therevenue can be measured reliably and it is probable that the economic benefitsassociated with the transaction will flow to the Group. Revenue from goodsshipped subject to installation is recognised when the customer accepts deliveryand installation is complete. No revenue is recognised if there are significantuncertainties regarding recovery of the consideration due, associated costs orthe possible return of goods and continuing involvement with the goods such thatthe risks and rewards of ownership remain with the Group. Leases Finance leasesLeases are classified as finance leases where substantially all the risks andrewards of ownership are transferred to the Group. Finance leases arecapitalised at the inception of the lease at the lower of the fair value of theleased asset and the present value of the minimum lease payments. Thecorresponding liability to the finance lessor is included in the balance sheetas a lease obligation. Lease payments are apportioned between the liability and the finance charge toproduce a constant periodic rate of interest on the remaining balance of thefinance lease liability. Operating leasesLeases other than finance leases are classified as operating leases. Paymentsmade under operating leases are recognised in the consolidated income statementon a straight-line basis over the lease term. Segment reporting A segment is a distinguishable component of the Group that is engaged either inproviding products or services (business segment), or in providing products orservices within a particular economic environment (geographical segment), whichis subject to risks and rewards that are different from those of other segments.The Group's primary reporting format is business segments and its secondaryformat is geographical segments. Taxation Current and deferred tax is recognised in the consolidated income statement,unless the tax relates to items recognised directly in shareholders' equity, inwhich case the tax is recognised directly in shareholders' equity through theconsolidated statement of recognised income and expense. Current tax expense is the expected tax payable on the taxable income for thereporting period, using tax rates enacted or substantively enacted at thebalance sheet date, and any adjustment to the tax payable in respect of prioryears. Deferred tax is provided in full on temporary differences arising between thetax bases of assets and liabilities and their carrying amounts in theconsolidated financial information. Deferred tax arising from initialrecognition of an asset or liability, other than a business combination, thataffects neither accounting or taxable profit nor loss, is not recognised.Deferred tax is calculated using tax rates that are expected to apply when therelated deferred tax asset is realised or the deferred tax liability is settled. Deferred tax assets are recognised only to the extent that it is probable thatfuture taxable profits will be available against which the asset can beutilised. Appendix 2 Consolidated income statement Unaudited Audited 6 months year ended ended 30.06.04 31.12.04 £'000 £'000 Revenue 33,464 86,526Cost of sales (27,875) (69,988) _______ _______Gross profit 5,589 16,538Administrative expenses (4,918) (10,996) _______ _______Operating profit before financing costs 671 5,542 _______ _______ Financial income - interest receivable - 4Expected return on defined benefit pension plan assets 535 1,070Financial expenses - on bank borrowings and finance (491) (1,366)leasesInterest on defined benefit pension scheme liabilities (663) (1,325) _______ _______Net financing costs (619) (1,617) Share of profit of associates 31 121 _______ _______Profit before tax 83 4,046 Income tax credit/ (expense) 9 (1,152) _______ _______Profit for the period attributable to equity holders ofthe parent 92 2,894 _______ _______ ========= ========= Basic earnings per share 0.3p 9.1p Diluted earnings per share 0.3p 8.7p Consolidated statement of recognised income and expense Unaudited Audited 6 months year ended ended 30.06.04 31.12.04 £'000 £'000 Exchange differences on translation of overseas associate (11) (42)Actuarial losses on defined benefit pension plan (372) (975)Tax on items taken directly to equity 112 292 _______ _______Net expense recognised directly in equity (271) (725) Profit for the period 92 2,894 _______ _______Total recognised income and expense for the period (179) 2,169 _______ _______ ========= ========= Consolidated statement of changes in equity Unaudited Audited 6 months year ended ended 30.06.04 31.12.04 £'000 £'000 Shareholders' funds at beginning of period 5,524 5,524 _______ _______Total recognised income and expense for the period (179) 2,169Ordinary dividends (653) (928)Issue of ordinary shares 751 3,406Movements relating to share-based payments and ESOP trust 51 107 _______ _______Shareholders' funds at end of period 5,494 10,278 _______ _______ ========= ========= Consolidated balance sheet Audited Unaudited Audited as at as at as at 01.01.04 30.06.04 31.12.04 £'000 £'000 £'000 AssetsNon-current assetsProperty, plant and equipment 12,474 12,673 13,687Intangible assets 4,137 8,937 14,467Investments in associates 533 554 612Deferred tax assets 2,392 2,520 2,583 _______ _______ _______Total non-current assets 19,536 24,684 31,349 _______ _______ _______Current assetsInventories 7,112 11,609 9,629Trade and other receivables 15,281 15,643 16,777Cash and cash equivalents 1,348 - 627 _______ _______ _______Total current assets 23,741 27,252 27,033 _______ _______ _______Total assets 43,277 51,936 58,382 _______ _______ _______LiabilitiesCurrent liabilitiesBank overdraft - (5,372) -Other interest-bearing loans and borrowings (1,349) (1,320) (1,322)Derivative financial instruments - - -Income tax payable (510) (1,001) (954)Trade and other payables (16,796) (16,719) (21,112) _______ _______ _______Total current liabilities (18,655) (24,412) (23,388) _______ _______ _______Non-current liabilitiesInterest-bearing loans and borrowings (10,505) (12,545) (13,842)Retirement benefit obligations (7,973) (8,400) (8,610)Other payables - (472) (1,426)Deferred tax liabilities (620) (613) (838) _______ _______ _______Total non-current liabilities (19,098) (22,030) (24,716) _______ _______ _______Total liabilities (37,753) (46,442) (48,104) _______ _______ _______Net assets 5,524 5,494 10,278 _______ _______ _______ ========= ========= =========EquityIssued share capital 3,107 3,186 3,430Share premium 307 979 1,808Other reserves 1,596 1,585 3,136Revenue reserves 514 (256) 1,904 _______ _______ _______Total equity attributable to equity holdersof the parent 5,524 5,494 10,278 _______ _______ _______ ========= ========= ========= Consolidated statement of cash flows Unaudited Audited 6 months year ended ended 30.06.04 31.12.04 £'000 £'000 Cash flows from operating activitiesProfit before tax 83 4,046Adjustments for:Depreciation 849 1,772Amortisation of intangible assets 83 452Gain on sale of property, plant and equipment (17) (30)Net financing costs 619 1,617Share of profit of associates (31) (121) Decrease in trade and other receivables 514 224Increase in inventories (3,720) (1,411)(Decrease)/ increase in trade and other payables (3,220) 731Movement relative to defined benefit pension scheme (73) (593) _______ _______Cash (absorbed by)/ generated from operations (4,913) 6,687 _______ _______Interest paid (475) (1,205)Income taxes paid - (1,244) _______ _______Net cash from operating activities (5,388) 4,238 _______ _______Cash flows from investing activitiesProceeds from sale of property, plant and equipment 6 84Acquisition of property, plant and equipment (1,010) (2,856)Acquisition of intangible assets (32) (51)Acquisition of subsidiaries, net of cash balances (2,470) (6,256)acquired _______ _______Net cash from investing activities (3,506) (9,079) _______ _______Cash flows from financing activitiesProceeds from the issue of share capital - 1,656Increase in bank loans 2,847 4,650Purchase of own shares and proceeds from exercise ofshare 12 95optionsRepayment of bank borrowings (624) (1,250)Repayment of finance lease liabilities (61) (103)Dividends paid - (928) _______ _______Net cash from financing activities 2,174 4,120 _______ _______Net decrease in cash and cash equivalents (6,720) (721)Cash and cash equivalents at 1 January 1,348 1,348 _______ _______Cash and cash equivalents at end of period (5,372) 627 _______ _______ ========= ========= Appendix 3 Explanation of transition to IFRS Reconciliation of profit for the year ended 31 December 2004 UKGAAP Pension Revalued Revenue Share- Business Other IFRS IFRS in IFRS costs property recognition based combinations adjustments formats plant and payments equipment £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Revenue 87,646 - - (1,120) - - - 86,526Cost of (70,989) 63 - 860 - 78 - (69,988)sales ------ -----Gross profit 16,657 16,538 ------ ----- Administrativeexpenses (11,016) 30 - - (13) - 3 (10,996) ------ -----Operatingprofit beforefinancingcosts 5,641 5,542 ------ ----- Financialincome -interestreceivable 4 - - - - - - 4Expectedreturn ondefinedbenefitpension planassets - 1,070 - - - - - 1,070Financialexpenses - onbankborrowings andfinance leases (1,263) - - - - (120) 17 (1,366)Interest ondefinedbenefitpension schemeliabilities - (1,325) - - - - - (1,325) ------ -----Net financingcosts (1,259) (1,617) ------ ----- Share ofprofit ofassociates 104 - - - - - 17 121 ------ -----Profit beforetax 4,486 4,046 ------ ----- Income taxexpense (1,569) 65 80 86 132 54 - (1,152) ------ -----Profit for theperiodattributableto equityholders of theparent 2,917 2,894 ------ ----- Explanation of transition to IFRS (contd.) Reconciliation of equity as at 31 December 2004 UKGAAP Reclassification Proposed Pension Revalued Revenue Share- Business in IFRS of UKGAAP dividend costs property recognition based combinations formats reserves plant and payments equipmentAssets £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Non-currentassetsProperty,plant andequipment 13,888 - - - - - - -Intangibleassets 14,196 - - - - - - 70Investments inassociates 575 - - - - - - -Deferred taxassets - - - 2,583 - - - - ------Totalnon-currentassets 28,659 ------ CurrentassetsInventories 7,730 - - - - 1,337 - -Trade andotherreceivables 20,861 - - (1,640) - (2,444) - -Cash and cashequivalents 627 - - - - - - - ------Total currentassets 29,218 ------ ------Total assets 57,877 ------ LiabilitiesCurrentliabilitiesOtherinterest-bearing loans andborrowings (1,322) - - - - - - -Income taxpayable (954) - - - - - - -Trade andother payables (21,772) - 823 - - 364 (92) 127 ------Total currentliabilities (24,048) ------ Non-currentliabilitiesInterest-bearing loans andborrowings (13,942) - - - - - - 100Retirementbenefitobligations - - - (8,610) - - - -Other payables (1,450) - - - - - - 24Deferred taxliabilities (1,164) - - 492 (140) 243 40 (309) ------Totalnon-currentliabilities (16,556) ------ ------Totalliabilities (40,604) ------ ------Net assets 17,273 ------ EquityIssued sharecapital 3,430 - - - - - - -Share 2,410 (602) - - - - - -premiumOther reserves 2,900 278 - - - - - -Revenuereserves 8,533 324 823 (7,175) (140) (500) (52) 12 ------Total equityattributableto equityholders of theparent 17,273 ------ Explanation of transition to IFRS (contd.) Reconciliation of equity as at 31 December 2004 Other IFRS IFRS adjustmentsAssets £'000 £'000 Non-current assetsProperty, plant and equipment (201) 13,687Intangible assets 201 14,467Investments in associates 37 612Deferred tax assets - 2,583 -------Total non-current assets 31,349 ------- Current assetsInventories 562 9,629Trade and other receivables - 16,777Cash and cash equivalents - 627 -------Total current assets 27,033 ------- -------Total assets 58,382 ------- LiabilitiesCurrent liabilitiesOther interest-bearing loans and borrowings - (1,322)Income tax payable - (954)Trade and other payables (562) (21,112) -------Total current liabilities (23,388) ------- Non-current liabilitiesInterest-bearing loans and borrowings - (13,842)Retirement benefit obligations - (8,610)Other payables - (1,426)Deferred tax liabilities - (838) -------Total non-current liabilities (24,716) ------- -------Total liabilities (48,104) ------- -------Net assets 10,278 ------- EquityIssued share capital - 3,430Share premium - 1,808Other reserves (42) 3,136Revenue reserves 79 1,904 -------Total equity attributable to equity holders of the 10,278parent ------- Explanation of transition to IFRS (contd.) Reconciliation of profit for the year ended 30 June 2004 UKGAAP Pension Revenue Share- Business Other IFRS IFRS recognition in IFRS costs based combinations adjustments formats payments £'000 £'000 £'000 £'000 £'000 £'000 £'000 Revenue 34,924 - (1,460) - - - 33,464Cost of (29,027) 52 974 - 126 - (27,875)sales ------ ------Gross profit 5,897 5,589 ------ ------ Administrativeexpenses (4,895) 21 - (46) - 2 (4,918) ------ ------Operatingprofit beforefinancingcosts 1,002 671 ------ ------ Expectedreturn ondefinedbenefitpension planassets - 535 - - - - 535Financialexpenses - onbankborrowings andfinance leases (500) - - - - 9 (491)Interest ondefinedbenefitpension schemeliabilities - (663) - - - - (663) ------ ------Net financingcosts (500) (619) ------ ------ Share ofprofit ofassociates 22 - - - - 9 31 ------ ------Profit beforetax 524 83 ------ ------ Income tax(expense)/credit (168) 16 134 27 - - 9 ------ ------Profit for theperiodattributableto equityholders of theparent 356 92 ------ ------ Explanation of transition to IFRS (contd.) Reconciliation of equity as at 30 June 2004 UKGAAP Reclassification Proposed Pension Revalued Revenue recognition in IFRS of UKGAAP dividend costs property formats reserves plant and equipmentAssets £'000 £'000 £'000 £'000 £'000 £'000Non-currentassetsProperty,plant andequipment 12,934 - - - - -Intangibleassets 8,657 - - - - -Investments inassociates 534 - - - - -Deferred taxassets - - - 2,520 - - --------Totalnon-currentassets 22,125 -------- CurrentassetsInventories 9,270 - - - - 1,631Trade andotherreceivables 19,838 - - (1,140) - (3,055)Cash and cash - - - - - -equivalents --------Total currentassets 29,108 -------- --------Total assets 51,233 -------- LiabilitiesCurrentliabilitiesBank overdraft (5,372) - - - - -Otherinterest-bearing loans andborrowings (1,320) - - - - -Income taxpayable (1,001) - - - - -Trade andother payables (16,846) - 255 - - 455 --------Total currentliabilities (24,539) -------- Non-currentliabilitiesInterest-bearing loans andborrowings (12,599) - - - - -Retirementbenefitobligations - - - (8,400) - -Other payables (500) - - - - -Deferred taxliabilities (791) - - 326 (220) 291 --------Totalnon-currentliabilities (13,890) -------- --------Totalliabilities (38,429) -------- --------Net assets 12,804 -------- EquityIssued sharecapital 3,186 - - - - -Share 1,581 (602) - - - -premiumOther reserves 1,318 278 - - - -Revenuereserves 6,719 324 255 (6,694) (220) (678) --------Total equityattributableto equityholders of theparent 12,804 -------- Explanation of transition to IFRS (contd.) Reconciliation of equity as at 30 June 2004 Share- Business Other IFRS IFRS based combinations adjustments paymentsAssets £'000 £'000 £'000 £'000Non-current assetsProperty, plant and equipment - - (261) 12,673Intangible assets - 19 261 8,937Investments in associates - - 20 554Deferred tax assets - - - 2,520 -------Total non-current assets 24,684 ------- Current assetsInventories - 97 611 11,609Trade and other receivables - - - 15,643Cash and cash equivalents - - - - -------Total current assets 27,252 ------- -------Total assets 51,936 ------- LiabilitiesCurrent liabilitiesBank overdraft - - - (5,372)Other interest-bearing loansand - - - (1,320)borrowingsIncome tax payable - - - (1,001)Trade and other payables (54) 82 (611) (16,719) -------Total current liabilities (24,412) ------- Non-current liabilitiesInterest-bearing loans and - 54 - (12,545)borrowingsRetirement benefit obligations - - - (8,400)Other payables - 28 - (472)Deferred tax liabilities (65) (154) - (613) -------Total non-current liabilities (22,030) ------- -------Total liabilities (46,442) ------- -------Net assets 5,494 ------- EquityIssued share capital - - - 3,186Share premium - - - 979Other reserves - - (11) 1,585Revenue reserves (119) 126 31 (256) -------Total equity attributable toequity 5,494holders of the parent ------- Explanation of transition to IFRS Reconciliation of equity as at 1 January 2004 UKGAAP Reclassification Proposed Pension Revalued Revenue property in IFRS of UKGAAP dividend costs plant and recognition equipment formats reservesAssets £'000 £'000 £'000 £'000 £'000 £'000Non-currentassetsProperty,plant andequipment 12,786 - - - - -Intangibleassets 3,825 - - - - -Investments inassociates 533 - - - - -Deferred taxassets - - - 2,392 - - -------Totalnon-currentassets 17,144 ------- CurrentassetsInventories 5,616 - - - - 819Trade andotherreceivables 17,951 - - (1,140) - (1,530)Cash and cashequivalents 1,348 - - - - - -------Total currentassets 24,915 ------- -------Total assets 42,059 ------- LiabilitiesCurrentliabilitiesOtherinterest-bearing loans andborrowings (1,349) - - - - -Income taxpayable (510) - - - - -Trade andother payables (16,909) - 653 - - 228 -------Total currentliabilities (18,768) ------- Non-currentliabilitiesInterest-bearing loans andborrowings (10,505) - - - - -Retirementbenefitobligations - - - (7,973) - -Deferred taxliabilities (791) - - 326 (220) 157 -------Totalnon-currentliabilities (11,296) ------- -------Totalliabilities (30,064) ------- -------Net assets 11,995 ------- EquityIssued sharecapital 3,107 - - - - -Share 909 (602) - - - -premiumOther reserves 1,318 278 - - - -Revenuereserves 6,661 324 653 (6,395) (220) (326) -------Total equityattributableto equityholders of theparent 11,995 ------- Explanation of transition to IFRS Reconciliation of equity as at 1 January 2004 Share- Other IFRS IFRS based adjustments paymentsAssets £'000 £'000 £'000Non-current assetsProperty, plant and equipment - (312) 12,474Intangible assets - 312 4,137Investments in associates - - 533Deferred tax assets - - 2,392 -------Total non-current assets 19,536 ------- Current assetsInventories - 677 7,112Trade and other receivables - - 15,281Cash and cash equivalents - - 1,348 -------Total current assets 23,741 ------- -------Total assets 43,277 ------- LiabilitiesCurrent liabilitiesOther interest-bearing loans and borrowings - - (1,349)Income tax payable - - (510)Trade and other payables (91) (677) (16,796) -------Total current liabilities (18,655) ------- Non-current liabilitiesInterest-bearing loans and borrowings - - (10,505)Retirement benefit obligations - - (7,973)Deferred tax liabilities (92) - (620) -------Total non-current liabilities (19,098) ------- -------Total liabilities (37,753) ------- -------Net assets 5,524 ------- EquityIssued share capital - - 3,107Share premium - - 307Other reserves - - 1,596Revenue reserves (183) - 514 -------Total equity attributable to equity holdersof the parent 5,524 ------- Explanation of transition to IFRS (contd.) Notes to the reconciliation of equity and profit Reclassification of reserves An amount of £324,000, representing the net realised gain from the disposal ofthe Group's revalued properties and the cumulative difference betweendepreciation calculated on a historical cost basis and depreciation calculatedon the revalued amount has been transferred from the Revaluation reserve toRevenue reserves as at 1 January 2004. In addition, the premium arising on theshares issued in respect of the acquisition of ESA McIntosh in 2001 qualifiedfor merger relief under Section 131 of the Companies Act 1985, and as such, anamount of £602,000 originally credited to the share premium account has beentransferred to the Merger reserve. This adjustment, which is solely a balancesheet reclassification, does not affect earnings. Dividends Under UKGAAP, dividends relating to the current period but approved after thebalance sheet date are recognised as a liability at the balance sheet date.Under IAS 10 Events After the Balance Sheet Date, equity dividends arerecognised only when approved. Havelock Europa PLC declared its 2003 finaldividend and its 2004 interim and final dividends after the relevant balancesheet dates, and as such these dividends have been reversed. The effect of reversing the dividend accruals is to decrease Trade and otherpayables and increase Revenue reserves by £823,000 at 31 December 2004 (June2004: £255,000; January 2004: £653,000). Pension costs Under UKGAAP, pensions were accounted for under SSAP 24 Accounting for PensionCosts. This required the spreading of the cost of providing pension benefitsover the estimated average service life of employees. Contributions above theregular cost were recognised as a prepayment, with an associated deferred taxliability. IAS 19 Employee Benefits requires the Group's defined benefit pension schemedeficits to be carried on balance sheet at each reporting date. In accordancewith amendments to IAS 19, actuarial gains and losses are included in theconsolidated statement of recognised income and expense. At transition date, aspermitted by IFRS 1 First-time Adoption of International Financial ReportingStandards, the net deficit arising on the Havelock Europa PLC defined benefitscheme is recognised as a liability on the consolidated balance sheet at 1January 2004. The related deferred tax asset is carried in the balance sheet asit is anticipated that there will be sufficient profit in future years to allowrecoverability. The prepayment under UKGAAP has been reversed. The impact ofadopting IAS 19 on the consolidated income statement is to replace the SSAP 24regular cost with an actuarially determined current service cost, interest costand expected return on pension plan assets. The impact on the consolidated balance sheet at 31 December 2004 is to increaseDeferred tax assets by £2,583,000 (June 2004: £2,520,000; January 2004:£2,392,000); decrease Trade and other receivables by £1,640,000 (June andJanuary 2004: £1,140,000); increase Retirement benefit obligations by £8,610,000(June 2004: £8,400,000; January 2004: £7,973,000); reduce Deferred taxliabilities by £492,000 (June and January 2004: £326,000) and reduce Revenuereserves by £7,175,000 (June 2004: £6,694,000; January 2004: £6,395,000). The impact on the consolidated income statement from the increased pensioncharge for the year ended 31 December 2004 is to reduce Cost of sales by £63,000(half year: £52,000); reduce Administrative expenses by £30,000 (half year:£21,000); increase Expected return on defined pension benefit plan assets by£1,070,000 (half year: £535,000); increase Interest on defined benefit pensionscheme liabilities by £1,325,000 (half year: £663,000) and reduce Income taxexpense by £65,000 (half year: £16,000). Revalued property, plant and equipment Under UKGAAP, deferred tax is provided when items of income and expenditure arerecognised in the financial statements and for tax purposes in differentperiods. IAS 12 Income Taxes requires deferred tax to be provided on thedifference between the carrying amount and the tax base of assets andliabilities that give rise to taxable temporary differences and this has givenrise to an adjustment to deferred tax on revalued property, plant and equipment. The effect of recognising the deferred tax liability is to increase Deferred taxliabilities and reduce Revenue reserves by £140,000 at 31 December 2004 (Juneand January 2004: £220,000). The impact on the consolidated income statement for the year ended 31 December2004 is a reduction in Income tax expense of £80,000 (half year: £nil). Revenue recognition (i) Goods shipped subject to installation Under UKGAAP, revenue was recognised on certain items where goods had beenmanufactured and the customer had accepted title, but where installation had notbeen completed until shortly after the reporting date. Revenue from installationwas recognised in the period in which it was completed. Given the moreprescriptive guidance that IFRS offers in this regard, the directors consider itmore appropriate that under IFRS, revenue on goods shipped subject toinstallation, and where installation is a significant part of the contract, isrecognised when installation is complete. The revenue and associated costs ofgoods supplied in the reporting period, and which were installed in thefollowing period, have been reversed and their recognition deferred until thefollowing reporting period. (ii) Retrospective volume rebates Under UKGAAP, retrospective volume rebates were recognised as a charge againstcost of sales. IAS 18 Revenue requires that revenue be recognised net of volumerebates. Volume rebates have been removed from Cost of sales and recognised as areduction in Revenue. The effect on the consolidated balance sheet at 31 December 2004 is to increaseInventories by £1,337,000 (June 2004: £1,631,000; January 2004: £819,000);reduce Trade and other receivables by £2,444,000 (June 2004: £3,055,000; January2004: £1,530,000); reduce Trade and other payables by £364,000 (June 2004:£455,000; January 2004: £228,000); reduce Deferred tax liabilities by £243,000(June 2004: £291,000; January 2004: £157,000), and reduce Revenue reserves by£500,000 (June 2004: £678,000; January 2004: £326,000). The net impact of these timing adjustments and volume rebates on theconsolidated income statement for the year ended 31 December 2004 is to reduceRevenue by £1,120,000 (half year: £1,460,000) and Cost of sales by £860,000(half year: £974,000) and reduce Income tax expense by £86,000 (half year:£134,000). Share-based payments Under UKGAAP, the cost of awards under the Group's employee share schemes wasbased on the intrinsic value of the awards, with the exception of SAYE schemesfor which no cost was recognised. Under IFRS 2 Share-based Payment, an expenseis recognised based on the fair value of the share incentives at the date ofgrant and is spread over the vesting period of the scheme. The Group appliedIFRS 2 to its active share-based payment arrangements at 1 January 2004 exceptfor equity-settled share-based payment arrangements granted before 7 November2002 and vested prior to 1 January 2004 as permitted by IFRS 1 First-timeAdoption of International Financial Reporting Standards. The IFRS 2 expense isdeductible for tax purposes when the shares are awarded or share optionsexercised. In accordance with IAS 12 Income Taxes, a deferred tax asset has beencalculated on the temporary difference between the share price at the balancesheet date and the exercise prices of the share incentives. As the estimatedfuture tax deduction in respect of share-based payments is less than the expensecharged in the income statement, the deferred tax credit has been recognised inthe consolidated income statement. The effect on the consolidated balance sheet at 31 December 2004 is to increaseTrade and other payables by £92,000 (June 2004: £54,000; January 2004: £91,000);reduce Deferred tax liabilities by £40,000 (June 2004: increase £65,000; January2004: increase £92,000); and reduce Revenue reserves by £52,000 (June 2004:£119,000; January 2004: £183,000). The impact on the consolidated income statement for the year ended 31 December2004 is to increase Administrative expenses by £13,000 (half year: £46,000) andreduce Income tax expense by £132,000 (half year: £27,000). Business combinations Under UKGAAP, business combinations were accounted for by comparing the purchaseconsideration and the fair value of net assets acquired, and recognising theresidual balance as goodwill in the consolidated balance sheet. Goodwill wasamortised over its useful economic life. Under IFRS 3 Business Combinations, theGroup recognises its share of the acquiree's identifiable assets, liabilitiesand contingent liabilities at their fair values at the date of the businesscombination. Goodwill is no longer amortised, but is tested annually forimpairment. IFRS 1 First-time Adoption of International Financial Reporting Standards allowscompanies to elect not to apply IFRS 3 Business Combinations retrospectively tobusiness combinations that occurred before the date of transition to IFRS. TheGroup has elected to take advantage of this exemption and has applied IFRS 3only to business combinations that have occurred since 1 January 2004.Accordingly, the Group has revised the measurement of the cost of businesscombinations to fair value at the date of the business combination. It has alsorecognised separately identifiable intangible assets for brands, customerrelationships, contracted customer relationships, order backlog, non-competeclauses and design rights and revised the measurement of stocks of finishedgoods and work in progress to fair value at the date of the businesscombination. The effect on the consolidated balance sheet at 31 December 2004 is to increaseIntangible assets by £70,000 (June 2004: £19,000); increase Inventories by £nil(June 2004: £97,000); reduce Trade and other payables by £127,000 (June 2004:£82,000); Interest-bearing loans and borrowings are reduced by £100,000 (June2004: £54,000); Other payables are reduced by £24,000 (June 2004: £28,000);Deferred tax liabilities are increased by £309,000 (June 2004: £154,000) andRevenue reserves increased by £12,000 (June 2004: £126,000). The impact on the consolidated income statement for the year ended 31 December2004 is to reduce Cost of sales by £78,000 (half year: £126,000); increaseFinancial expenses - on bank borrowings and finance leases by £120,000 (halfyear: £nil) and reduce Income tax expense by £54,000 (half year: £nil). Other IFRS adjustments Software costs Under UKGAAP, software is classified as Property, plant and equipment. Under IAS38 Intangible Assets, software that is not integral to a related item ofhardware is classified as an Intangible asset. The effect of this reclassification at 31 December 2004 is to reduce Property,plant and equipment and increase Intangible assets by £201,000 (June 2004:£261,000; January 2004: £312,000). Reclassification has not resulted in arevision to useful economic lives and has not affected the Group's results. Payments to account Under UKGAAP, payments to account were shown as a deduction from work inprogress within inventories. Under IFRS, payments to account are classifiedwithin current trade and other payables. The effect on the consolidated balance sheet at 31 December 2004 is to increaseInventories and Trade and other payables by £562,000 (June 2004: £611,000;January 2004: £677,000). Cumulative translation differences Under UKGAAP, cumulative translation differences arising from translation offoreign operations were recognised directly in equity shareholders' funds in theGroup's profit and loss account reserve. IAS 21 The Effects of Changes inForeign Exchange Rates requires cumulative translation differences to beclassified separately in equity, with a reconciliation of the opening andclosing cumulative translation differences. These exchange differences arerecycled as a gain or loss on disposal when the foreign operation is sold. IFRS 1 First-time Adoption of International Financial Reporting Standardspermits an exemption from IAS 21 such that at 1 January 2004 cumulativetranslation differences are deemed to be zero and are not recycled on disposalof the foreign operation. The Group has taken advantage of this exemption. Under IFRS, retranslation differences for the year ended 31 December 2004 of£42,000 (half year: £11,000) have been transferred from Revenue reserves toOther reserves. Associate (i) Goodwill Under UKGAAP, goodwill is amortised over its expected useful life, and is testedfor impairment in specific circumstances. IAS 28 Associates requires thatgoodwill is not amortised but is reviewed annually for impairment. The Group'sgoodwill amortisation charge has been reversed. Goodwill arising in theassociate's underlying financial statements has been similarly treated, whichhas increased the Group's share of the associate's profits. (ii) Financial expenses Under UKGAAP, the Group recognises a share of the associate's operating resultsand a share of any non-operating exceptional items, interest and tax under eachof these headings. Under IAS 31 Associates, the Group's share of its associate'sinterest charge is included in Share of profit of associates on the face of theconsolidated income statement. The Group's share of the associate's interestcharge has been reclassified. The combined effect of these adjustments on the consolidated balance sheet at 31December 2004 is to increase Revenue reserves and Investments in associates by£37,000 (June 2004: £20,000). The impact on the consolidated income statementfor the year ended 31 December 2004 is to reduce Administrative expenses (byreclassification) by £3,000 (half year: £2,000) and reduce Financial expense -on bank borrowings and finance leases and increase Share of profit of associatesby £17,000 (half year: £9,000). Explanation of material adjustments to cash flow statement There are no material differences between the cash flow statement presentedunder IFRS and the cash flow statement presented under UKGAAP for the 6 monthsended 30 June 2004 or for the year ended 31 December 2004. Appendix 4 Explanation of transition to IFRS Reconciliation of equity as at 1 January 2005 Financial instruments As permitted by IFRS 1 First-time Adoption of International Financial ReportingStandards, the Group has elected to adopt IAS 32 Financial Instruments:Disclosure and Presentation and IAS 39 Financial Instruments: Recognition andMeasurement on a prospective basis from 1 January 2005. The accounting treatmentunder UKGAAP has been retained for comparative purposes. There is therefore noimpact on the results and financial position for the six months ended 30 June2004 or for the year ended 31 December 2004. The principal areas of future impact are in respect of interest rate swaps, andhedge accounting. Under UKGAAP, only accrued interest under interest rate swapsis recognised on the balance sheet. Under IAS 39, the fair value of interestrate swaps is recognised. Interest rate swaps will be revalued at each reportingdate. Changes in fair value will depend on market factors that by their naturecannot be forecast. Treatment of the effective portion of the resulting gain or loss depends onwhether the interest rate swap qualifies for hedge accounting as a cash flowhedge. Gains and losses on interest rate swaps that qualify as effective hedgesare recognised in the consolidated statement of recognised income and expense,with any ineffective portion recognised in the consolidated income statement,which may result in earnings volatility. Interest rate swaps Under UKGAAP, only accrued interest under interest rate swaps was recognised onthe balance sheet. Under IAS 39, the fair value of interest rate swaps isrecognised. The effect is to increase Derivative financial instruments by£165,000 and reduce Revenue reserves by the same amount at 1 January 2005. Interest bearing loans and borrowings Under UKGAAP, interest accrued on borrowings was included in Trade and otherpayables. Under IAS 39, interest accrued on borrowings is included within Otherinterest-bearing loans and borrowings. The effect is to reduce Trade and otherpayables by £76,000 and increase Other interest-bearing loans and borrowings by£76,000 at 1 January 2005. Appendix 5 Special Purpose Audit Report of KPMG Audit Plc to Havelock Europa PLC ("theCompany") on its Preliminary International Financial Reporting Standards("IFRS") Financial Statements for the year ended 31 December 2004 and on itspreliminary opening IFRS balance sheet as at 1 January 2004 In accordance with the terms of our engagement letter dated 15 December 2004, wehave audited the consolidated preliminary IFRS balance sheet of Havelock EuropaPLC ("the Company") as at 31 December 2004, and the related consolidatedstatements of income, changes in equity and cash flows for the year then ended,the related accounting policy notes and the opening IFRS balance sheet as at 1January 2004 ("the preliminary IFRS financial statements") which are included onpages 2 to 10. Respective responsibilities of directors and KPMG Audit Plc The directors of the Company have accepted responsibility for the preparation ofthe preliminary IFRS financial statements which have been prepared as part ofthe Company's conversion to IFRS. Our responsibilities, as independentauditors, are established in the United Kingdom by the Auditing Practices Board,our profession's ethical guidance and the terms of our engagement. Under theterms of engagement we are required to report to you our opinion as to whetherthe preliminary IFRS financial statements have been properly prepared, in allmaterial respects, in accordance with the accounting policies note to thepreliminary IFRS financial statements. We also report to you if, in ouropinion, we have not received all the information and explanations we requirefor our audit. We read the other information accompanying the preliminary IFRS financialstatements and consider whether it is consistent with the preliminary IFRSfinancial statements. We consider the implications for our report if we becomeaware of any apparent misstatements or material inconsistencies with thepreliminary IFRS financial statement. Our report has been prepared for the Company solely in connection with theCompany's conversion to IFRS. Our report was designed to meet the agreedrequirements of the Company determined by the Company's needs at the time. Ourreport should not therefore be regarded as suitable to be used or relied on byany party wishing to acquire rights against us other than the Company for anypurpose or in any context. Any party other than the Company who chooses to relyon our report (or any part of it) will do so at its own risk. To the fullestextent permitted by law, KPMG Audit Plc will accept no responsibility orliability in respect of our report to any other party. Basis of audit opinion We conducted our audit having regard to Auditing Standards issued by the UKAuditing Practices Board. An audit includes examination, on a test basis, ofevidence relevant to the amounts and disclosures in the preliminary IFRSfinancial statements. It also includes an assessment of the significantestimates and judgements made by the directors in the preparation of thepreliminary IFRS financial statements, and of whether the accounting policiesare appropriate to the Group's circumstances, consistently applied andadequately disclosed. We planned and performed our audit so as to obtain all the information andexplanations which we considered necessary in order to provide us withsufficient evidence to give reasonable assurance that the preliminary IFRSfinancial statements are free from material misstatement, whether caused byfraud or other irregularity or error. In forming our opinion we also evaluatedthe overall adequacy of the presentation of information in the preliminary IFRSfinancial statements.Emphasis of matters Without qualifying our opinion, we draw your attention to the following matters: • As described in the accounting policies included as partof the preliminary IFRS financial statements, as part of its conversion to IFRS,the Company has prepared the preliminary IFRS financial statements for the yearended 31 December 2004 to establish the financial position, results ofoperations and cash flows of the Company necessary to provide the comparativefinancial information expected to be included in the Company's first completeset of IFRS financial statements for the year ending 31 December 2005. Thepreliminary IFRS financial statements do not themselves include comparativefinancial information for the prior period. • As explained in the accounting policies note to thepreliminary IFRS financial statements, in accordance with IFRS 1 First-timeAdoption of International Financial Reporting Standards, no adjustments havebeen made for any changes in estimates made at the time of approval of the UKGenerally Accepted Accounting Practices financial statements on which thepreliminary IFRS financial statements are based. • As permitted by IFRS 1, IAS 32 Financial Instruments:Disclosure and Presentation and IAS 39 Financial Instruments: Recognition andMeasurement have not yet been applied and there has been no related restatementof the 31 December 2004 balance sheet. Any adjustments that arise from theapplication of those standards will be shown as an equity movement on 1 January2005. Opinion In our opinion, the preliminary IFRS financial statements for the year-ended 31December 2004 have been prepared, in all material respects, in accordance withthe basis set out in the accounting policies included as part of the preliminaryIFRS financial statements, which describes how IFRS have been applied under IFRS1, including the assumptions made by the directors of the Company about thestandards and interpretations expected to be effective, and the policiesexpected to be adopted, when they prepare the first complete set of consolidatedIFRS financial statements of the Company for the year ending 31 December 2005. KPMG Audit PlcChartered accountants191 West George StreetGlasgow G2 2LJ27 September 2005 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Havelock Europa