22nd Jul 2005 07:00
Cookson Group PLC22 July 2005 22 July 2005 COOKSON RELEASES 2004 FINANCIAL STATEMENT INFORMATION RESTATED UNDER IFRS Cookson Group plc, a leading materials science company, today provides anunaudited summary of the restatement of its 2004 financial statements underInternational Financial Reporting Standards ("IFRS"). This summary is beingprovided in advance of the announcement on 26 July of Cookson's interim resultsfor the six months ended 30 June 2005. As set out in the 18 January 2005 strategy presentation, the main changes fromUK GAAP to IFRS that affect Group profit before tax are: - discontinuation of the amortisation of goodwill;- accounting for the costs of employee share options;- reversal of deferred income on the close-out of interest rate swaps in prior periods;- accounting for profits from joint ventures on the net equity basis. The only significant Group balance sheet impacts, apart from re-classifications,are the accounting for defined benefit pension and other post-retirement schemesand for amortisation of goodwill and the consequent impact on shareholders'equity. Cookson Group plc will continue to produce its company-only accounts under UKGAAP and therefore none of the IFRS adjustments in this announcement impact onits distributable reserves at 31 December 2004, which were £97.1m. There are no IFRS adjustments to Group cash flows, only re-classifications ofitems within the cash flow statement. As noted in the trading update announced on 6 May 2005, Cookson considered theearly-adoption of IAS 39 and IAS 32, which relate to the accounting anddisclosure of financial instruments, but subsequently elected not to do so.These standards are therefore, adopted as from their effective date of 1 January2005. The Group's results for the first half of 2004 and for the full year on an IFRSand a comparative UK GAAP basis are summarised in the table below.Reconciliations for each item in the table are provided in the notes attached.Detailed reconciliations are provided in the appendix attached. Year - 2004 First Half - 2004 Notes IFRS UK GAAP IFRS UK GAAPRevenue (£m) 1. 1,652.5 1,698.2 816.7 841.5Trading profit (£m) 2. 114.9 119.6 51.9 55.1 Profit before tax (£m)- Headline 3. 85.0 93.1 37.2 42.0- Reported 4. 12.6 (18.7) 24.1 8.0Earnings per share (pence)- Headline 5. 30.1 33.4 12.4 14.3- Reported 6. (11.2) (26.6) 4.4 (3.7) Free cash flow (£m) - 51.6 51.6 (21.2) (21.2) Net debt (£m) 7. 321.8 306.9 402.0 385.8Employee Benefits 8. 189.9 29.8 188.8 37.6Liability (£m)Shareholders' Equity (£m) 9. 431.4 559.4 458.4 591.6 Trading profit is defined in note 1 of the attached appendix Under IFRS, companies are required to reflect the profits of each reportingsegment before Group corporate costs. The table below sets out the relevantinformation in respect of trading profit, as defined, and takes into account theabove IFRS adjustments. Year - 2004 First Half - 2004 IFRS UK GAAP IFRS UK GAAPTrading profit (£m) - Ceramics 60.0 56.8 27.7 26.0- Electronics 52.8 49.5 24.5 23.2 Assembly Materials 24.2 22.2 11.0 10.5 Chemistry 27.8 27.2 12.8 12.1 Laminates 0.8 0.1 0.7 0.6 - Precious Metals 11.0 9.3 3.8 3.3- Joint Ventures - 4.0 - 2.6- Group corporate costs (8.9) n/a (4.1) n/a Group 114.9 119.6 51.9 55.1 Shareholder / analyst enquiries: Cookson Group plcDennis Millard, Group Finance Director Tel: 020 7061 6500Isabel Vilela, Investor Relations Manager About Cookson GroupCookson Group is a leading materials science company which provides materials,processes and services to customers worldwide. The Group's operations are formedinto three divisions - Ceramics, Electronics and Precious Metals. The Ceramicsdivision is the world leader in the supply of advanced flow control andrefractory products and systems to the iron and steel industry and is also aleading supplier of refractory lining materials for iron and steelmaking andother industrial processes. The Electronics division is a leading manufacturerand supplier of materials and services to the electronics industry, primarilyserving fabricators and assemblers of printed circuit boards, assemblers ofsemiconductor packaging and the electrical and industrial markets. The PreciousMetals division is a leading supplier to the jewellery industry of fabricatedprecious metals products. Headquartered in London, Cookson employs some 16,000 people in more than 35countries and sells its products in over 100 countries. Cookson Group plc, 265 Strand, London WC2R 1DBTel: 020 7061 6500 Fax: 020 7061 6600www.cooksongroup.co.uk Notes to IFRS Restatement Announcement 2004 2004 Year First-half £m £m(1) RevenueTurnover as reported under UK GAAP 1,698.2 841.5- Revenue of Joint Ventures (45.2) (24.4)- Adjustment of sales to prior period (0.5) (0.4)Revenue, under IFRS 1,652.5 816.7 (2) Trading ProfitOperating profit before goodwill amortisation 119.6 55.1and exceptional items as reported under UK GAAP- Profit of JVs before interest and tax (4.0) (2.6)- Pension costs, holiday pay accruals, share option costs, other (0.7) (0.6)Trading Profit, under IFRS 114.9 51.9 (3) Profit before tax - HeadlineProfit before tax before goodwill amortisation and exceptional 93.1 42.0items as reported under UK GAAP- Pension costs, holiday pay accruals, share option costs, other (0.7) (0.6)- Share of JVs tax charge (1.7) (1.3)- Reversal of deferred income release from swap closeout (5.4) (2.7)- Interest on reclassified finance leases (0.3) (0.2)Headline profit before tax, under IFRS 85.0 37.2 (4) Profit / (loss) before tax - ReportedProfit / (loss) before tax, as reported (18.7) 8.0- Pension costs, holiday pay accruals, share option costs, other (0.7) (0.6)- Share of JVs tax charge (1.7) (1.3)- Goodwill amortisation reversed 31.7 15.9- Goodwill on business disposals 2.3 2.3- Interest on reclassified finance leases (0.3) (0.2)Profit before tax, under IFRS 12.6 24.1 2004 2004 Year First-half pence pence(5) Earnings per share - HeadlineEarnings per share before amortisation of goodwill and 33.4 14.3intangibles under UK GAAP; restated for 1 for 10 shareconsolidation in May 2005After tax effect of:- Deferred income on swap close-out (2.9) (1.5)- All other items (0.4) (0.4)Headline earnings per share, under IFRS 30.1 12.4 (6) Earnings per share - ReportedEarnings per share under UK GAAP; restated for 1 for 10 share (26.7) (3.7)consolidation in May 2005- Goodwill amortisation written-back 18.0 9.6- All other items (2.5) (1.5)Earnings per share, under IFRS (11.2) 4.4 2004 2004 Year First-half £m £m(7) Net debtPer UK GAAP, as reported 306.9 385.8- Reclassification of asset securitisation financing 10.7 11.7- Additional finance leases recognised 4.2 4.5As restated under IFRS 321.8 402.0 (8) Employee benefits liabilityNet accruals per UK GAAP, as reported 29.8 37.6- Reclassification of pension asset 6.4 6.8- Reversal of UK GAAP net accruals (36.2) (44.4)- Defined benefit pension scheme and other post- retirement 189.9 188.8benefit arrangement deficitsAs restated under IFRS 189.9 188.8 (9) Shareholders' equityPer UK GAAP, as reported 559.4 591.6- Pension and other post-retirement benefits (153.7) (144.4)- Goodwill amortisation 31.7 15.9- Others, including tax on IFRS adjustments (6.0) (4.7)As restated under IFRS 431.4 458.4 Appendix: Summary reconciliation of the Group's UK GAAP 2004 Financial Statements to IFRS 1 Basis of preparation Cookson Group plc ("Cookson" or "the Company") will report its annualconsolidated financial statements for 2005 in accordance with InternationalFinancial Reporting Standards ("IFRS"). This appendix presents and explains,notably in section 2.8, the unaudited conversion of the consolidated results ofCookson from UK Generally Accepted Accounting Practice ("UK GAAP") onto an IFRSbasis for the six months ended 30 June 2004 and the year ended 31 December 2004and similarly the Group's financial position as at that date and also 30 June2004 and at the date of the transition of the Company's consolidated financialstatements to IFRS, being 1 January 2004. The financial information in this appendix has been prepared on the assumptionthat all IFRSs, including interpretations issued by the International FinancialReporting Interpretations Committee and by the International AccountingStandards Board effective for year end 2005 reporting, will be endorsed by theEuropean Commission, notably the amendments made to IAS 19, "Employee Benefits".Endorsement of all such pronouncements has not occurred as at the date of thepublication of this announcement. The failure of the European Commission toendorse all of these standards in time for Cookson's year-end financialreporting in 2005 could result in the need to change the basis of accounting orthe presentation of certain financial information from that presented in thisappendix. It is possible, therefore, that further changes will be required tothis information before it is published as comparative information for the fullyear 2005. The financial information, in the form of the primary statements contained inthis appendix, is presented in accordance with International Accounting Standard("IAS") 1, "Presentation of Financial Statements". Where no definitive guidanceexists in IAS 1, a UK GAAP approach has been adopted in order to maintainconsistency with prior years. This format and presentation may requiremodification in the event that further guidance is issued, but otherwise theCompany believes that the basis on which this financial information has beenprepared will be sufficient to enable it to comply fully with IFRS in its annualfinancial statements for the year ended 31 December 2005 without furthersignificant modification to either the format and presentation or thecomparative financial information contained in the primary financial statementsherein. The comparative figures for the financial year ended 31 December 2004 are notthe Company's statutory accounts for that financial year. Those accounts, whichwere prepared under UK GAAP, have been reported on by the Company's auditor anddelivered to the Registrar of Companies. The report of the auditor wasunqualified and did not contain a statement under section 237(2) or (3) of theCompanies Act 1985. These sections address whether proper accounting recordshave been kept, whether the Company's accounts are in agreement with theserecords and whether the auditor has obtained all the information andexplanations necessary for the purposes of their audit. At the Company's Annual General Meeting held on 26 May 2005, shareholdersapproved a share consolidation. The share consolidation took effect followingthe close of business on 26 May 2005, with shareholders receiving one NewOrdinary Share of 10p each for every 10 existing ordinary shares of 1p each heldat the close of business on 26 May 2005. Trading in the New Ordinary Shares of10p commenced on 27 May 2005. The information in this appendix relating toearnings per share has been restated to take into account the impact of thisshare consolidation. Disclosure of significant itemsIAS 1 provides no definitive guidance as to the format of the income statement,but states key lines which should be disclosed. It also encourages additionalline items to be added and the re-ordering of items presented on the face of theincome statement when appropriate for a proper understanding of the entity'sfinancial performance. In keeping with the spirit of this aspect of IAS 1,Cookson has adopted a policy of disclosing separately on the face of its incomestatement the effect of any components of financial performance considered bymanagement to be significant and/or for which separate disclosure would assistboth in a better understanding of the financial performance achieved and inmaking projections of future results. Materiality and/or the nature and functionof the components of income and expense are considered in deciding upon suchpresentation. Such items may include, inter alia, the financial effect of anyprofit or loss arising on business disposals, major rationalisation and/orrestructuring activity, profits and losses on sale or impairment of fixedassets, amortisation of intangibles and other items, including the taxationimpact of the afore-mentioned items, which have a significant impact on theGroup's results of operations either due to their size or nature. On the face of the income statement, Cookson separately discloses "tradingprofit", being profit from operations before the costs of rationalisation ofoperations, the profit or loss relating to fixed assets and the amortisation andimpairment of intangibles. 2 Restatement of Financial Statement Comparatives from UK GAAP to IFRS 2.1 Income statement, balance sheet and cash flow reclassifications from UK GAAP to IFRS The adoption of IFRS requires certain changes to be made to the format andpresentation of income statement, balance sheet and cash flow informationpreviously disclosed under UK GAAP. In the income statement and balance sheetshown in sections 2.3 and 2.4 and in the statement of cash flows, the followingprincipal changes have been made to the statements previously disclosed under UKGAAP prior to presenting them in section 2.3 and 2.4: i. Under UK GAAP, profits and losses arising on the disposal or write-down of fixed assets were shown separately below operating profit. Under IFRS, such profits and losses are shown as a component of profit from operations. ii. Long-term debtors previously included within current assets under UK GAAP of £37.5m at 31 December 2004 (1 January 2004: £28.3m; 30 June 2004: £27.1m) are included within non-current assets under IFRS. iii. Under IFRS, deferred tax assets and liabilities are required to be shown as separate line items on the balance sheet. This has resulted in a reclassification of deferred tax assets previously included within debtors under UK GAAP of £35.3m at 31 December 2004 (1 January 2004: £53.5m; 30 June 2004: £49.5m); and deferred tax liabilities previously included within provisions under UK GAAP of £8.6m at 31 December 2004 (1 January 2004: £11.5m; 30 June 2004: £11.5m). iv. Under IFRS, income taxes recoverable and payable are required to be shown as separate line items on the balance sheet. This has resulted in a reclassification of income tax recoverable previously included within debtors under UK GAAP of £3.1m at 31 December 2004 (1 January 2004: £3.0m; 30 June 2004: £2.2m); and income tax payable previously included within creditors under UK GAAP of £11.6m at 31 December 2004 (1 January 2004: £15.5m; 30 June 2004: £15.9m). v. IFRS requires amounts received under debtor securitisation arrangements to be shown as liabilities and not as a deduction against the associated debtor balances, as under UK GAAP. This has resulted in a reclassification of these receipts at 31 December 2004 of £10.7m (1 January 2004: £11.2m; 30 June 2004: £11.7m) from debtors to "interest-bearing loans and borrowings". vi. IFRS requires provisions expected to be settled within one year of the balance sheet date to be shown as current liabilities. This has resulted in a reclassification at 31 December 2004 of £15.1m (1 January 2004: £13.4m; 30 June 2004: £17.5m) from non-current liabilities to current liabilities. vii. Certain US assets held in Rabbi trusts to meet pension obligations are not classified by IAS 19 as pension assets. This has resulted in a reclassification of these assets at 31 December 2004 of £6.4m (1 January 2004: £6.9m; 30 June 2004 £6.8m) from prepayments to "other investments". viii. IFRS requires certain overdrafts to be included within the balances disclosed as "cash and cash equivalents", whereas overdrafts were included within borrowings under UK GAAP. This has resulted in a reclassification at 31 December 2004 of £3.4m (1 January 2004: £4.0m; 30 June 2004: £6.7m) from current liabilities to current assets. ix. In addition to the change in presentation brought about by item viii above, the Group statement of cash flows under IFRS must comply with the format and headings prescribed in IAS 7. With the exception of the reclassification described in viii above, no other IFRS transitional adjustments impacted on the restated net cash flow from operating, investing or financing activities. 2.2 Accounting adjustments made on transition from UK GAAP to IFRS As required by IFRS 1, Cookson has prepared reconciliation statements whichpresent the adjustments made in order to transition the Group's UK GAAP primarystatements for 2004 onto an IFRS basis. Reconciliations are provided in respectof the adjustments made to the Group's financial position at the date oftransition to IFRS, 1 January 2004, and also at 30 June 2004 and 31 December2004. With regard to the Group's reported financial performance, reconciliationsare provided for the six months ended 30 June 2004 and for the full year ended31 December 2004. The reconciliations in this appendix are located as follows: • Income Statement reconciliation from UK GAAP to IFRS Section 2.3 • Balance Sheet reconciliation from UK GAAP to IFRS Section 2.4 • Group statement of Recognised Income and Expense reconciliation from UK GAAP to IFRS Section 2.5 • Group reconciliation of Equity from UK GAAP to IFRS Section 2.6 • Details of adjustments made on transition from UK GAAP to IFRS Section 2.7 • Summary description of significant IFRS adjustments Section 2.8 2.3 Income Statement reconciliation from UK GAAP to IFRS Half year Full year 2004 2004 Note As Effect of Reported As Effect of Reported 2.7 reported transition in reported transition in ref under to IFRS compliance under to IFRS compliance UK GAAP £m with IFRS UK GAAP £m with IFRS (note £m (note 2.1) £m 2.1) £m £mRevenue (a) 817.1 (0.4) 816.7 1,653.0 (0.5) 1,652.5Manufacturing - raw materials (b) (364.6) 0.3 (364.3) (756.2) 0.4 (755.8) costs - other (226.2) - (226.2) (447.1) - (447.1)Administration, selling and (c) (173.8) (0.5) (174.3) (334.1) (0.6) (334.7)distribution costs Trading profit 52.5 (0.6) 51.9 115.6 (0.7) 114.9 Rationalisation of operating (11.0) - (11.0) (22.7) - (22.7)activitiesAmortisation and impairment (d) (16.3) 15.9 (0.4) (32.5) 31.7 (0.8)of intangiblesProfit / (loss) relating to 1.1 - 1.1 (16.8) - (16.8)fixed assets Profit from operations 26.3 15.3 41.6 43.6 31.0 74.6 Finance income Ongoing activities 2.2 - 2.2 0.9 - 0.9 Income from swap 2.7 - 2.7 5.4 - 5.4 close-out Finance costs Ongoing activities (e) (18.0) (0.2) (18.2) (32.8) (0.3) (33.1)Share of post-tax profit from 1.3 - 1.3 2.3 - 2.3joint venturesLoss on disposal of (f) (7.8) 2.3 (5.5) (39.8) 2.3 (37.5)operations Profit before tax 6.7 17.4 24.1 (20.4) 33.0 12.6 Income tax: Ongoing activities (g) (11.3) - (11.3) (24.5) 0.2 (24.3) Deferred tax charge on (g) - (2.1) (2.1) - (4.1) (4.1) goodwill Other net credits / 0.1 - 0.1 (1.2) - (1.2) (charges) Profit / (loss) for the (4.5) 15.3 10.8 (46.1) 29.1 (17.0)period Profit attributable to (2.5) - (2.5) (4.1) - (4.1)minority interests Profit / (loss) attributable (7.0) 15.3 8.3 (50.2) 29.1 (21.1)to equity holders Basic earnings per share (3.7)p 8.1p 4.4p (26.7)p 15.5p (11.2)p Diluted earnings per share (3.6)p 7.9p 4.3p (26.7)p 15.5p (11.2)p Headline profit beforetaxation and earnings pershare: Trading profit 52.5 (0.6) 51.9 115.6 (0.7) 114.9Share of post-tax profit from 1.3 - 1.3 2.3 - 2.3joint venturesFinance costs for ongoing (15.8) (0.2) (16.0) (31.9) (0.3) (32.2)activities, net Headline profit before tax 38.0 (0.8) 37.2 86.0 (1.0) 85.0 Income tax on ongoing (11.3) - (11.3) (24.5) 0.2 (24.3)activitiesProfit attributable to (2.5) - (2.5) (4.1) - (4.1)minority interests Headline profit attributable 24.2 (0.8) 23.4 57.4 (0.8) 56.6to equity holders Headline basic earnings per 12.8p (0.4)p 12.4p 30.5p (0.4)p 30.1pshare 2.4 Balance Sheet reconciliation from UK GAAP to IFRS 1 January 30 June 31 December 2004 2004 2004 Note As Effect of Reported As Effect of Reported As Effect of Reported 2.7 reported transition in reported transition in reported transition in ref under to IFRS compliance under to IFRS compliance under to IFRS compliance UK £m with IFRS UK GAAP £m with IFRS UK GAAP £m with IFRS GAAP £m (note £m (note (note 2.1) 2.1) £m 2.1) £m £m £m Assets Property, plant (h) 350.7 4.1 354.8 332.0 3.7 335.7 319.6 3.3 322.9 and equipment Intangible assets (i) 514.0 - 514.0 487.6 15.9 503.5 453.5 31.7 485.2 Investments in 18.8 - 18.8 14.5 - 14.5 14.7 - 14.7 joint ventures Other Investments 37.2 - 37.2 36.0 - 36.0 16.7 - 16.7 Income tax - - - 2.2 - 2.2 2.2 - 2.2 recoverable Deferred tax (j) 53.5 (0.6) 52.9 49.5 (2.6) 46.9 35.3 (4.1) 31.2 assets Other assets 8.2 - 8.2 10.1 - 10.1 10.6 - 10.6 Total non-current 982.4 3.5 985.9 931.9 17.0 948.9 852.6 30.9 883.5assets Cash and cash 52.8 - 52.8 31.5 - 31.5 44.0 - 44.0 equivalents Inventories (k) 172.9 (0.3) 172.6 193.8 0.1 193.9 174.0 0.1 174.1 Trade and other (l) 316.9 0.4 317.3 324.9 (0.1) 324.8 303.5 (0.1) 303.4 receivables Income tax 3.0 - 3.0 - - - 0.9 - 0.9 recoverable Total current assets 545.6 0.1 545.7 550.2 - 550.2 522.4 - 522.4 Total assets 1,528.0 3.6 1,531.6 1,482.1 17.0 1,499.1 1,375.0 30.9 1,405.9 Equity Issued capital 375.4 - 375.4 375.4 - 375.4 375.5 - 375.5 Share premium 642.6 - 642.6 643.4 - 643.4 643.4 - 643.4 Retained earnings (m) (608.8) (128.0) (736.8) (633.1) (133.2) (766.3) (665.4) (128.0) (793.4) Other reserves 205.9 - 205.9 205.9 - 205.9 205.9 - 205.9 Total shareholders' 615.1 (128.0) 487.1 591.6 (133.2) 458.4 559.4 (128.0) 431.4equity Minority interests 11.8 - 11.8 11.7 - 11.7 11.7 - 11.7 Total equity 626.9 (128.0) 498.9 603.3 (133.2) 470.1 571.1 (128.0) 443.1 Liabilities Interest-bearing 320.3 - 320.3 334.0 - 334.0 326.1 - 326.1 loans and borrowings Employee benefits (n) 47.1 126.1 173.2 44.4 144.4 188.8 36.2 153.7 189.9 Trade and other 69.3 - 69.3 97.9 - 97.9 58.3 - 58.3 payables Provisions 20.7 - 20.7 16.8 - 16.8 10.3 - 10.3 Deferred tax 11.5 - 11.5 11.5 - 11.5 8.6 - 8.6 liabilities Total non-current 468.9 126.1 595.0 504.6 144.4 649.0 439.5 153.7 593.2liabilities Interest-bearing (o) 102.2 4.8 107.0 95.0 4.5 99.5 35.5 4.2 39.7 loans and borrowings Trade and other (p) 301.1 0.8 301.9 245.8 1.4 247.2 302.2 1.0 303.2 payables Income tax (q) 15.5 (0.1) 15.4 15.9 (0.1) 15.8 11.6 - 11.6 payable Provisions 13.4 - 13.4 17.5 - 17.5 15.1 - 15.1 Total current 432.2 5.5 437.7 374.2 5.8 380.0 364.4 5.2 369.6liabilities Total liabilities 901.1 131.6 1,032.7 878.8 150.2 1,029.0 803.9 158.9 962.8 Total equity and 1,528.0 3.6 1,531.6 1,482.1 17.0 1,499.1 1,375.0 30.9 1,405.9liabilities 2.5 Group Statement of Recognised Income and Expense reconciliation from UK GAAP to IFRS Half year 2004 Full year 2004 As Effect of Reported As Effect of Reported reported transition in reported transition in under to IFRS compliance under to IFRS compliance UK GAAP £m with IFRS UK GAAP £m with IFRS £m GAAP £m GAAP £m £m Foreign exchange translation (20.1) (3.4) (23.5) (9.8) (2.2) (12.0)differencesActuarial loss on employee benefit - (15.9) (15.9) - (26.8) (26.8)schemes Income and expenses recognised directly (20.1) (19.3) (39.4) (9.8) (29.0) (38.8)in equity Profit/(loss) for the period (4.5) 15.3 10.8 (46.1) 29.1 (17.0) (24.6) (4.0) (28.6) (55.9) 0.1 (55.8) Profit attributable to minority (2.5) - (2.5) (4.1) - (4.1)interestsForeign exchange translation 0.5 - 0.5 1.1 - 1.1differences attributable to minorityinterests (2.0) - (2.0) (3.0) - (3.0) Total recognised income and expenses (26.6) (4.0) (30.6) (58.9) 0.1 (58.8)attributable to equity holders 2.6 Group reconciliation of Equity from UK GAAP to IFRS Issued Share Retained Other Total equity Minority Total capital premium earnings reserves attributable interest equity £m £m £m £m to equity £m £m holders £m Total equity as at 1 January 2004 As previously stated under UK GAAP 375.4 642.6 (608.8) 205.9 615.1 11.8 626.9 Effect of transition to IFRS (note - - (128.0) - (128.0) - (128.0) 2.7(m)) Total equity as at 1 January 2004 375.4 642.6 (736.8) 205.9 487.1 11.8 498.9(as restated under IFRS) Movements for the period as reported under UK GAAP: Total net recognised losses - - (26.6) - (26.6) 2.0 (24.6) relating to the period New share capital issued - 0.8 - - 0.8 - 0.8 Dividends paid to minority - - - - - (2.1) (2.1) interest Goodwill transferred to the income - - 2.3 - 2.3 - 2.3 statement on the sale of operations - 0.8 (24.3) - (23.5) (0.1) (23.6) Movements for the period (effect of transition to IFRS): Total effect of IFRS adoption on - - (4.0) - (4.0) - (4.0) net recognised losses relating to the period Share-based payments (note 2.7(c)) - - 1.1 - 1.1 - 1.1 Reversal of goodwill transferred - - (2.3) - (2.3) - (2.3) to the income statement on the sale of operations (note 2.7(f)) - - (5.2) - (5.2) - (5.2) Total equity as at 30 June 2004 375.4 643.4 (766.3) 205.9 458.4 11.7 470.1 Total equity as at 1 January 2004 375.4 642.6 (736.8) 205.9 487.1 11.8 498.9(as restated under IFRS) Movements for the period as reported under UK GAAP: Total net recognised losses - - (58.9) - (58.9) 3.0 (55.9) relating to the period New share capital issued 0.1 0.8 - - 0.9 - 0.9 Dividends paid to minority - - - - - (3.1) (3.1) interest Goodwill transferred to the income - - 2.3 - 2.3 - 2.3 statement on the sale of operations 0.1 0.8 (56.6) - (55.7) (0.1) (55.8) Movements for the period (effect of transition to IFRS): Total effect of IFRS adoption on - - 0.1 - 0.1 - 0.1 net recognised losses relating to the period Share-based payments (note 2.7(c)) - - 2.2 - 2.2 - 2.2 Reversal of goodwill transferred - - (2.3) - (2.3) - (2.3) to the income statement on the sale of operations (note 2.7(f)) - - - - - - - Total equity as at 31 December 2004 375.5 643.4 (793.4) 205.9 431.4 11.7 443.1 2.7 Details of adjustments made on transition from UK GAAP to IFRS Half year Full year 2004 2004 £m £m (a) Revenue Adjustment of sales to prior period (0.4) (0.5) (b) Manufacturing costs - raw materials Adjustment of sales to prior period 0.3 0.4 (c) Administration, selling and distribution costs Long-term employee benefits (note 2.8(a)) 1.1 1.6Holiday pay accruals(note 2.8(b)) (0.6) (0.1)Share-based payments (note 2.8(c)) (1.1) (2.2)Reclassify operating leases to finance leases (note 2.8(g)) 0.2 0.3Depreciation charge on mothballed assets (0.1) (0.2) (0.5) (0.6) (d) Amortisation of intangibles Reversal of goodwill amortisation charged under UK GAAP (note 2.8 (f)) 15.9 31.7 (e) Finance costs Reclassify operating leases to finance leases (note 2.8(g)) (0.2) (0.3) (f) Profit/(loss) on disposal of operations Reversal of goodwill amortisation charged under UK GAAP (note 2.8 (f)) 2.3 2.3 (g) Income tax Deferred tax on IFRS - holiday pay accruals, long-term - 0.2adjustments for: employee benefits and share- based payments - goodwill (note 2.8(h)) (2.1) (4.1) (2.1) (3.9) 1 January 30 June 31 2004 2004 December £m £m 2004 £m (h) Property, plant and equipment Reclassify operating leases to finance leases (note 2.8 (g)) 4.5 4.2 3.9Accumulated depreciation charge on mothballed assets (0.4) (0.5) (0.6) 4.1 3.7 3.3 (i) Intangible assets Reversal of goodwill amortisation charged under UK GAAP - 15.9 31.7(note 2.8(f)) 2.7 Details of adjustments made on transition from UK GAAP to IFRS, continued 1 January 30 June 31 2004 2004 December £m £m 2004 £m (j) Deferred tax assets Deferred tax on IFRS - holiday pay accruals, 1.6 1.6 1.9adjustments for: long-term employee benefits and share-based payments - goodwill (note 2.8(h)) (2.2) (4.2) (6.0) (0.6) (2.6) (4.1) (k) Inventories Adjustment of sales to prior period (0.3) 0.1 0.1 (l) Trade and other receivables Adjustment of sales to prior period 0.4 (0.1) (0.1) (m) Retained earnings Holiday pay accruals (note 2.8(b)) (0.8) (1.4) (1.0)Reclassify operating leases to finance leases (note 2.8 (g)) (0.3) (0.3) (0.3)Recognition of actuarial gains and losses on defined (126.1) (144.4) (153.7)benefit pension and other post-retirement obligations(note 2.8(a))Adjustment of sales to prior periods 0.1 - -Reversal of goodwill amortisation charged under UK GAAP - 15.9 31.7(note 2.8(f))Accumulated depreciation charge on mothballed assets (0.4) (0.5) (0.6) (127.5) (130.7) (123.9)Tax effect of all IFRS restatement adjustments (0.5) (2.5) (4.1) (128.0) (133.2) (128.0) (n) Employee benefits Recognition of actuarial gains and losses on defined 126.1 144.4 153.7benefit pension schemes and other post-retirementbenefits (note 2.8(a)) (o) Interest-bearing loans and borrowings Reclassify operating leases to finance leases (note 2.8 (g)) 4.8 4.5 4.2 (p) Current trade and other payables Holiday pay accruals (note 2.8(b)) 0.8 1.4 1.0 (q) Income tax payable Income taxes on long-term employee benefit deficit (0.1) (0.1) - 2.8 Summary description of significant IFRS adjustments A summary of the principal adjustments made in order to transition the Group'sUK GAAP financial statements to IFRS are noted below. (a) Long-term employee benefitsUnder UK GAAP, the Group accounted for pension and other post-retirement benefitobligations in accordance with SSAP 24, "Accounting for Pension Costs".Additional disclosures were given in compliance with FRS 17, "RetirementBenefits". Under IFRS, the Group accounts for pension and other post-retirementbenefit obligations in accordance with IAS 19, "Employee Benefits"(as amended),which is similar to FRS 17 in many respects, particularly in that it requiresthe net deficit of the Group's defined benefit pension and other post-retirementbenefit arrangements to be brought onto the Group balance sheet. As permitted byIFRS 1, all cumulative actuarial gains and losses relating to the Group'spension and other post-retirement benefit obligations have been recognised inequity at the transition date. When valuing pension and other post-retirement benefit obligations under IAS 19,two methods of recognising actuarial gains and losses through Group reserves areacceptable: one whereby all gains and losses are recognised in reserves as theyarise, through the Statement of Recognised Income and Expense (the "SORIE"approach); the other providing a "smoothing" methodology which would recogniseperiodic changes in gains and losses only to the extent that they fall outside a"corridor" represented by 10% of scheme assets or liabilities. Cookson hasadopted the SORIE approach, which is intended to provide greater stability inthe pension charge made in the income statement from one period to the next. Under IAS 19, the fair value of pension scheme assets is determined using thebid price, as opposed to mid-market price used under UK GAAP. With regard toother post-retirement obligations, adoption of IAS 19 leads to the recognitionof certain long-term benefit obligations, including leaving and terminationobligations, which were not previously recognised under UK GAAP. Under UK GAAP, the Group recognised net accruals for pension and otherpost-retirement obligations at 31 December 2004 of £29.8m (1 January 2004:£40.2m; 30 June 2004: £37.6m). Under IFRS, these balances are reversed toreserves and replaced in total with an actuarially-determined value of the netdeficit arising on the Group's defined benefit pension schemes and otherpost-retirement benefit arrangements. The actuarial valuation of the Group's combined defined benefit pension schemesand other post-retirement benefit arrangements at 31 December 2004 produced acombined net deficit of £189.9m (1 January 2004: £173.2m; 30 June 2004:£188.8m), these sums being recognised in the Group balance sheet as "Employeebenefits". The comparative combined net deficit valuation of the Group'semployee benefit obligations under FRS 17 at 31 December 2004 was £175.3m. Under UK GAAP, the regular charge to the profit and loss account in respect ofdefined benefit pension and other post-retirement obligations was £17.1m in2004. The equivalent charge to the income statement under IAS 19 for 2004 was£13.7m. As a result of the transition from UK GAAP to IFRS, the net impact on Groupreserves in respect of the Group's employee benefit arrangements was a reductionof £153.7m at 31 December 2004 (1 January 2004: £126.1m; 30 June 2004: £144.4m). (b) Short-term employee benefits (holiday pay accruals)Under IAS 19, "Employee benefits", Cookson accrues for the cost of allshort-term accumulating compensated absences, such as holiday entitlement earnedbut not taken at the balance sheet date. Under UK GAAP, Cookson companiesaccrued for holiday pay only where this was required under local accountingrequirements. The impact of IAS 19 on Cookson's transition to IFRS is to increase the holidaypay accrual by £1.0m as at 31 December 2004 (1 January 2004: £0.8m; 30 June2004: £1.4m). The incremental charge to the income statement was £0.6m for thehalf-year to June 2004 and £0.1m for the full year. Due to the timing ofemployees' holidays, the accruals for holiday pay earned but not taken made inthe first half of the year are expected substantially to reverse in the secondhalf as holidays are taken. (c) Share-based paymentsCookson has a number of share-based incentive option arrangements. Under IFRS 2,"Share-based Payments", Cookson has to fair value the cost of all share optionsat the date of the options being granted and that cost has to be recognised overthe relevant vesting periods. Historically, the Cookson shares used to satisfy the exercise of those optionsgranted under the Group's share-based incentive arrangements which areequity-settled have been newly-issued shares, or shares held through the Group'sEmployee Share Ownership Plan. Accordingly, no profit and loss account chargehas needed to be recognised in prior periods under UK GAAP. Cookson has adopted the exemption given by IFRS 1 to apply IFRS 2 only to awardsmade after 7 November 2002. As a result of the adoption of IFRS 2, an incomestatement charge of £2.2m was made for the full year 2004 (half year 2004:£1.1m). (d) Joint venturesUnder UK GAAP, Cookson included its share of the results of joint ventures inits consolidated financial statements under the net equity method, whichresulted in the inclusion of the Group's proportionate share of turnover,operating profit, interest and tax charges of the joint venture entity in theappropriate Group income statement line item. Under IAS 31, "Interests in Joint Ventures", the results of joint ventures caneither be shown using the net equity method or by using proportionateconsolidation. Cookson has chosen to retain the net equity method ofrecognition, but under IFRS this now requires disclosure of the Group's share ofthe after-tax profit of its joint venture investments on one line within theGroup income statement. (e) Discontinued operationsUnder IFRS 5, "Non-current Assets Held for Sale and Discontinued Operations",the trading results of discontinued operations are presented separate fromcontinuing operations. "Discontinued operations" comprise all or substantiallyall of a separate major line of business or geographical area of operation thatcan be distinguished operationally and for financial reporting purposes. None ofthe business disposals made in 2004 qualified as "discontinued operations" inthis financial information. (f) Business combinations and GoodwillUnder IFRS 3, "Business combinations", the purchase cost of all businessacquisitions is required to be applied against the fair value of all identifiedtangible, separable intangible assets and liabilities of the acquired businessin the determination of any goodwill arising on acquisition. IFRS 3 furtherrequires that any such separable intangible fixed assets are amortised overtheir useful lives and that goodwill must then be carried at cost with annualimpairment reviews. Cookson has taken advantage of the exemption under IFRS 1not to restate all business combinations prior to 1 January 2004 in line withthe requirements of IFRS 3. As a result of the adoption of IFRS 3, goodwill amounting to £317.8m as at 1January 2004 which had arisen on acquisitions made before 1998 and which hadpreviously been written-off to Group reserves remains so written-off and will nolonger be recycled through the income statement on any subsequent disposal ofthe businesses to which it originally related. In addition, goodwill of £505.6mrecognised on the Group balance sheet under UK GAAP as at 1 January 2004 iscarried unamortised, but is now subject to annual review for impairment. The goodwill amortisation charge for the full year 2004 of £31.7m (half-year2004: £15.9m) under UK GAAP has been reversed and the loss arising on businessdisposals has been restated to take account of the impact of IFRS 3 on thegoodwill previously associated with these disposals. (g) LeasesUnder IAS 17, "Leases", the distinction between finance leases and operatingleases is similar to, but not exactly the same as, that under UK GAAP. Followinga review of the operating lease arrangements throughout the Group, certain ofthese leases have been determined to qualify as finance leases under IFRS. Accordingly, the impact of the adoption of IAS 17 is to increase property, plantand equipment by £3.9m as at 31 December 2004 (1 January 2004: £4.5m; 30 June2004: £4.2m). Interest-bearing loans and borrowings (short- and long-term) areaccordingly increased by £4.2m at 31 December 2004 (1 January 2004: £4.8m; 30June 2004: £4.5m). The impact on the income statement is to increase trading profit by £0.3m forthe full year 2004 (half-year 2004: £0.2m) and to increase finance expenses by£0.3m for the full year 2004 (half-year 2004: £0.2m). (h) Deferred taxUnder IFRS, deferred tax is recognised on all temporary differences that haveoriginated but not reversed at the balance sheet date, with certain exceptions.The principal exceptions relate to temporary differences arising from Groupinvestments where Cookson is able to control the reversal of those temporarydifferences and those differences are not expected to reverse in the foreseeablefuture. In addition, deferred tax assets are recognised only to the extent it ismore likely than not that they will be realised within the foreseeable future. On transition to IFRS, the main areas in which changes to deferred tax assetsand liabilities have been identified are in respect of rolled-over taxablegains, pensions, holiday pay accruals, share-based payments and on taxdeductible goodwill. In the case of the latter, since goodwill arising onconsolidation is now frozen in value under IFRS, subject to any impairmentcharges required, but goodwill amortisation is still allowed as a deduction fortax purposes in many jurisdictions, this has the effect of generating a deferredtax liability which will continue to grow in future periods until such time asthe goodwill amortisation deductions cease or the goodwill asset is written-offon disposal of the underlying businesses or as a result of impairment charges. The net tax impact of the adjustments made on adoption of IFRS by Cooksonresulted in a reduction of deferred tax assets of £4.1m at 31 December 2004 (1January 2004: £0.6m; 30 June 2004: £2.6m), including a liability of £6.0m at 31December 2004 (1 January 2004: £2.2m; 30 June 2004: £4.2m) associated with theGroup's goodwill balance. (i) Financial instrumentsCookson has elected to adopt IAS 32, "Financial Instruments: Disclosure andPresentation", and IAS 39, "Financial Instruments: Recognition and Measurement"with effect from 1 January 2005 and has taken the exemption in IFRS 1 not torestate comparatives for IAS 32 and IAS 39. As a consequence of not early adopting IAS 32 and IAS 39, the income statementfor 2004 includes finance income which will, under IFRS, not recur in 2005,being £5.4m (half-year: £2.7m) in respect of deferred income relating tointerest rate swaps closed-out in prior years. The total profit arising on theclose-out of these swaps was, under UK GAAP, being brought into income over theterm of the underlying loan arrangements to which the swaps had related. Thetotal deferred income as yet unrecognised through income as at 31 December 2004was £22.3m. On adoption of IAS 32 and IAS 39 with effect from 1 January 2005,such credit balance will be taken directly to Group reserves, net of a relatedtax charge. (j) Cumulative currency translation differencesUnder UK GAAP, translation differences arising on the consolidation of theresults of and investment in foreign operations do not have to be separatelyidentified and accounted for in subsequent disposals of those foreignoperations. Under IAS 21, "The Effects of Changes in Foreign Exchange Rates",such translation differences must be separately reported in equity, net of theresult on any related hedging instruments; and on disposal of a foreignoperation, any associated cumulative translation differences are transferred tothe income statement as part of the gain or loss on disposal. Cookson has adopted the exemption allowed under IFRS 1 not to separatelyrecognise cumulative translation differences arising prior to the transitiondate. As a result, all cumulative translation differences at 1 January 2004 aredeemed to be zero and all subsequent disposals will exclude any translationdifferences arising prior to the date of transition. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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