15th Feb 2006 07:01
Lonmin PLC15 February 2006 News Release Adoption of International Financial Reporting Standards: Unaudited Restatement of Accounts 15 February 2006 1. Background Lonmin will report its results for the six months interim period to 31 March2006 and subsequent periods in accordance with International Financial ReportingStandards (IFRS). The purpose of this announcement is to present the Group's unaudited IFRSbalance sheets at 30 September 2005 and 31 March 2005 together with the Group'sIFRS earnings and cash flows for the periods then ended. The balance sheet as atthe IFRS transition date of 1 October 2004 is also presented for reference inappendix 1 which can be found on our website at www.lonmin.com. The announcement also gives details and explanations for differences between theIFRS figures now presented and those figures previously reported under the UKGenerally Accepted Accounting Principles (UK GAAP). The adoption of IFRS has no impact on the business strategy or the cash flowsgenerated by the Group. 2. Financial Highlights +-------------------------------+--------------------------+-------------------+| | Year to 30| Six Months to|| | September 2005| 31 March 2005|+-------------------------------+-------------+------------+----------+--------+| | UK GAAP| IFRS| UK GAAP| IFRS|+-------------------------------+-------------+------------+----------+--------+|Operating profit (1) | $347m | $350m | $148m | $134m |+-------------------------------+-------------+------------+----------+--------+|Profit for the | | | | ||period | $205m | $201m | $85m | $88m |+-------------------------------+-------------+------------+----------+--------+|Basic earnings (2) | $163m | $158m | $69m | $73m |+-------------------------------+-------------+------------+----------+--------+|Basic EPS | 115.0c| 111.5c| 48.7c| 51.5c|+-------------------------------+-------------+------------+----------+--------+|Underlying earnings (3) | $165m | $168m | $69m | $60m |+-------------------------------+-------------+------------+----------+--------+|Underlying EPS | 116.4c| 118.5c| 48.7c| 42.4c|+-------------------------------+-------------+------------+----------+--------+|Net debt (4) | $588m | $585m | $473m | $468m |+-------------------------------+-------------+------------+----------+--------+|Shareholders' Equity | $812m | $838m | $771m | $781m |+-------------------------------+-------------+------------+----------+--------+ Key features: • Operating profit figures for the year and half year under IFRS were mainly impacted by the retrospective application of the change in the basis of in-process inventory valuation. • IFRS profits have been impacted by fair value adjustments on financial instruments, in particular relating to embedded derivatives within the Group's convertible bonds. As the fair value movements on financial instruments do not relate to the operations of the Group they are excluded from the calculation of underlying earnings. • IFRS profit for the year is $4 million lower than under UK GAAP principally driven by adverse fair value adjustments relating to embedded derivatives which were partially offset by the change on inventory valuation. IFRS underlying net earnings versus UK GAAP for the year are $3 million higher due to the inventory adjustment. • The half year IFRS profit was $3 million higher, with favourable fair value adjustments to the embedded derivatives off-set by the inventory adjustment. The half year underlying earnings were $9 million lower, mainly due to the inventory adjustment. • Under IFRS year end net debt at $585 million was $3 million lower than under UK GAAP and at 31 March 2005 net debt was $5 million lower. These decreases reflect adjustments to the convertible bonds. • Shareholders' equity at 30 September 2005 under IFRS is $838 million compared with UK GAAP shareholders' equity of $812 million with the adjustment to the year end proposed dividend and the recognition of the retirement benefit asset partly offset by adverse effects of financial instruments. • Subsequent to the year end the Group has experienced a significant increase in share price. This change has had a material impact on the fair value of the embedded derivative in the convertible bond. It is anticipated a finance cost in excess of $100 million will be charged to the income statement for the current six month period if the share price remains at the current level until 31 March 2006. This cost will not be reflected in the calculation of underlying earnings. 3. Financial Statements a. Group Income Statement for the Year to 30 September 2005 Year to Year to 30 Sept 30 Sept 2005 IFRS 2005 UK GAAP Adjustments IFRS Note $m $m $m-------------------------------------------------------------------------------------------------------------Revenue 1,128 - 1,128 | +------------------------------+ - continuing operations | 1,122 - 1,122 | - acquisitions | 6 - 6 | +------------------------------+------------------------------------------------------------------------------------------------------------EBITDA (5) 416 1 417 +------------------------------+ - continuing operations | 424 1 425 | - acquisitions | (8) - (8)| +------------------------------+Depreciation and amortisation (69) 2 (67)------------------------------------------------------------------------------------------------------------Operating profit (1) 5a 347 3 350 +------------------------------+ - continuing operations | 357 3 360 | - acquisitions | (10) - (10)| +------------------------------+Finance income 2 9 11Finance expenses (29) (16) (45)Share of profit of associate 3 - 3------------------------------------------------------------------------------------------------------------Profit before taxation 323 (4) 319Income tax expense (118) - (118)------------------------------------------------------------------------------------------------------------Profit for the period 5a 205 (4) 201------------------------------------------------------------------------------------------------------------- attributable to minority interest 42 1 43- attributable to equity shareholders of Lonmin Plc 163 (5) 158------------------------------------------------------------------------------------------------------------Basic earnings per share 115.0c (3.5)c 111.5c------------------------------------------------------------------------------------------------------------Diluted earnings per share (6) 113.4c (1.9)c 111.5c------------------------------------------------------------------------------------------------------------Financial ratios------------------------------------------------------------------------------------------------------------Tax rate (7) 39% 39%------------------------------------------------------------------------------------------------------------Net debt to EBITDA 1.4 times 1.4 times b. Group Income Statement for the Six Months to 31 March 2005 Six Months to Six Months to 31 March 2005 IFRS 31 March 2005 UK GAAP(8) Adjustments IFRS Note $m $m $m--------------------------------------------------------------------------------------------------------------Revenue 421 - 421--------------------------------------------------------------------------------------------------------------EBITDA (5) 177 (14) 163Depreciation and amortisation (29) - (29)--------------------------------------------------------------------------------------------------------------Operating profit (1) 5a 148 (14) 134Finance income 1 5 6Finance expenses (10) 8 (2)Share of profit of associate 3 - 3--------------------------------------------------------------------------------------------------------------Profit before taxation 142 (1) 141Income tax expense (57) 4 (53)--------------------------------------------------------------------------------------------------------------Profit for the period 5a 85 3 88--------------------------------------------------------------------------------------------------------------- attributable to minority interest 16 (1) 15- attributable to equity shareholders of Lonmin Plc 69 4 73-------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------Basic earnings per share 48.7c 2.8c 51.5c--------------------------------------------------------------------------------------------------------------Diluted earnings per share (6) 48.5c (5.2)c 44.3c--------------------------------------------------------------------------------------------------------------Financial ratios--------------------------------------------------------------------------------------------------------------Tax rate (7) 40% 38%-------------------------------------------------------------------------------------------------------------- c. Group Statement of Recognised Income and Expenses under IFRS - for the Year to 30 September 2005 Attributable to Year to shareholders of Minority 30 September Lonmin Plc interest 2005 $m $m $m------------------------------------------------------------------------------------------Profit for the period 158 43 201Actuarial gains on post retirement benefit plan 7 - 7------------------------------------------------------------------------------------------Total recognised income for the period 165 43 208------------------------------------------------------------------------------------------ d. Group Statement of Recognised Income and Expenses under IFRS - for the Six Months to 31 March 2005 Attributable to Six Months to shareholders of Minority 31 March Lonmin Plc interest 2005 $m $m $m------------------------------------------------------------------------------------------Profit for the period 73 15 88Actuarial gains on post retirement benefit plan 2 - 2------------------------------------------------------------------------------------------Total recognised income for the period 75 15 90------------------------------------------------------------------------------------------ e. Group balance sheet as at 30 September 2005 As at As at 30 September 30 September 2005 IFRS 2005 UK GAAP(8) Adjustments IFRS Note $m $m $m---------------------------------------------------------------------------------------Non-current assetsGoodwill 38 2 40Intangible assets 15 297 312Property, plant and equipment 1,719 (313) 1,406Investment in associate 91 - 91Assets held for sale - 16 16Other financial assets 15 - 15Other receivables 33 (11) 22Retirement benefit asset - 12 12--------------------------------------------------------------------------------------- 1,911 3 1,914---------------------------------------------------------------------------------------Current assetsInventories 110 - 110Trade and otherreceivables 148 (1) 147Tax recoverable 4 - 4Cash and cash equivalents 11 - 11--------------------------------------------------------------------------------------- 273 (1) 272---------------------------------------------------------------------------------------Current liabilitiesBank overdrafts repayableon demand (86) - (86)Trade and other payables (194) 60 (134)Tax payable (28) - (28)--------------------------------------------------------------------------------------- (308) 60 (248)---------------------------------------------------------------------------------------Net current (liabilities) / assets (35) 59 24--------------------------------------------------------------------------------------- Non-current liabilitiesTrade and other payables (1) - (1)Financial liabilities- Borrowings (509) 3 (506)- Derivative financial instruments - (41) (41)Deferred tax liabilities (346) 2 (344)Provisions (42) - (42)--------------------------------------------------------------------------------------- (898) (36) (934)---------------------------------------------------------------------------------------Net assets 978 26 1,004---------------------------------------------------------------------------------------Capital and reserves Issued share capital 142 - 142Share premium 12 - 12Other reserves 104 - 104Retained earnings 554 26 580---------------------------------------------------------------------------------------Equity attributable toLonmin shareholders 5c 812 26 838Attributable to minority interest 166 - 166---------------------------------------------------------------------------------------Total equity 978 26 1,004--------------------------------------------------------------------------------------- f. Group balance sheet as at 31 March 2005 As at As at 31 March 2005 IFRS 31 March 2005 Note UK GAAP(8) Adjustments IFRS $m $m $m--------------------------------------------------------------------------------Non-current assetsIntangible assets - 309 309Property, plant and equipment 1,430 (309) 1,121Investment in associate 91 - 91Other financial assets 13 - 13Other receivables 33 (11) 22Retirement benefit asset - 7 7-------------------------------------------------------------------------------- 1,567 (4) 1,563--------------------------------------------------------------------------------Current assetsInventories 177 (17) 160Trade and other receivables 124 (1) 123Tax recoverable 4 - 4Cash and cash equivalents 10 - 10-------------------------------------------------------------------------------- 315 (18) 297--------------------------------------------------------------------------------Current liabilitiesBank overdrafts repayable ondemand (209) - (209)Trade and other payables (115) 42 (73)Tax payable - 5 5-------------------------------------------------------------------------------- (324) 47 (277)--------------------------------------------------------------------------------Net current (liabilities) / assets (9) 29 20-------------------------------------------------------------------------------- Non-current liabilitiesTrade and other payables (1) - (1)Financial liabilities - Borrowings (271) 5 (266) - Derivative financial instruments - (22) (22)Deferred tax liabilities (336) - (336)Provisions (33) - (33)-------------------------------------------------------------------------------- (641) (17) (658)--------------------------------------------------------------------------------Net assets 917 8 925-------------------------------------------------------------------------------- Capital and ReservesIssued share capital 142 - 142Share premium 6 - 6Other reserves 104 - 104Retained earnings 519 10 529--------------------------------------------------------------------------------Equity attributable to Lonminshareholders 5c 771 10 781Attributable to minority interest 146 (2) 144--------------------------------------------------------------------------------Total equity 917 8 925-------------------------------------------------------------------------------- g. Group Cash Flow Statement (9) Year to Six Months to 30 September 2005 31 March 2005 IFRS $m IFRS $m--------------------------------------------------------------------------------Profit after taxation 201 88Taxation 118 53--------------------------------------------------------------------------------Profit before taxation 319 141Finance income (11) (6)Finance expense 45 2Share of profit after tax of associate (3) (3)Depreciation 67 29Change in inventories (30) (82)Change in trade and other receivables (22) 3Change in trade and other payables 5 (40)Change in provisions 3 (1)Other non cash charges 4 ---------------------------------------------------------------------------------Cash flow from consolidated operations 377 43Dividend from associate 2 2--------------------------------------------------------------------------------Cash flow from operations 379 45Interest received 2 -Interest paid (23) (8)Tax paid (79) (57)--------------------------------------------------------------------------------Cash flow from operating activities 279 (20)--------------------------------------------------------------------------------Cash flow from investing operationsAcquisition of subsidiary (net of cashacquired) (197) (10)Purchase of intangible asset (27) (6)Purchase of property, plant & equipment (178) (81)Proceeds from available for saleinvestment 3 -Purchase of current asset investment (2) ---------------------------------------------------------------------------------Net cash used in investing activities (401) (97)--------------------------------------------------------------------------------Cash flow from financing activitiesEquity dividends paid to Lonminshareholders (102) (59)Dividends paid to minority (27) (21)Proceeds from long-term borrowings 204 2Proceeds from short-term borrowings 85 -Repayment of long-term borrowings (26) -Repayment of short-term borrowings - (1)Finance costs (6) -Issue of ordinary share capital 6 ---------------------------------------------------------------------------------Cash used in financing activities 134 (79)--------------------------------------------------------------------------------Increase/(decrease) in cash and cashequivalents 12 (196)--------------------------------------------------------------------------------Opening cash and cash equivalents (10) (2) (2)--------------------------------------------------------------------------------Effect of exchange rate changes - (1)--------------------------------------------------------------------------------Closing cash and cash equivalents (10) 10 (199)-------------------------------------------------------------------------------- h. Group Cash Flow Statement - Reconciliation of Cash Flow from ConsolidatedOperations Year to Year to 30 September 30 September 2005 IFRS 2005 UK GAAP Adjustments IFRS $m $m $m--------------------------------------------------------------------------------Profit after taxation 205 (4) 201Taxation 118 - 118--------------------------------------------------------------------------------Profit before taxation 323 (4) 319Finance income (2) (9) (11)Finance expenses 29 16 45Share of profit aftertax of associate (3) - (3)Depreciation 69 (2) 67Change in inventories (26) (4) (30)Change in trade andother receivables (22) - (22)Change in trade andother payables 5 - 5Change in provisions 3 - 3Other non cash charges 1 3 4-------------------------------------------------------------------------------- 377 - 377-------------------------------------------------------------------------------- Six months to Six months to 31 March 2005 IFRS 31 March 2005 UK GAAP Adjustments IFRS $m $m $m--------------------------------------------------------------------------------Profit after taxation 85 3 88 Taxation 57 (4) 53 --------------------------------------------------------------------------------Profit before taxation 142 (1) 141 Finance income (1) (5) (6) Finance expenses 10 (8) 2 Share of profit after tax of associate (3) - (3) Depreciation 29 - 29 Change in inventories (95) 13 (82) Change in trade and other receivables 3 - 3 Change in trade and other payables (40) - (40) Change in provisions (1) - (1) Other non cash charges (1) 1 - -------------------------------------------------------------------------------- 43 - 43 -------------------------------------------------------------------------------- 4. Basis of Preparation EU law (IAS Regulation EC 1606/2002) requires that the next annual consolidatedfinancial statements of the company, for the year ending 30 September 2006, beprepared in accordance with International Financial Reporting Standards (IFRSs)adopted for use in the EU ("adopted IFRSs"). The Group's transition date,therefore, is 1 October 2004. This unaudited restatement of the financial information for the six months to 31March 2005 and the year to 30 September 2005 has been prepared on the basis ofthe recognition and measurement requirements of adopted IFRSs as at 15 February2006 that are effective (or available for early adoption) at 30 September 2006,the Group's first annual reporting date at which it is required to use adoptedIFRSs. Based on these adopted IFRSs, the directors have applied the accountingpolicies, as set out below, which they expect to apply when the first annualIFRS financial statements are prepared for the year ending 30 September 2006. It is intended that this information will be included as comparative informationin the Group's 2006 interim and annual accounts. However, the adopted IFRSs thatwill be effective (or available for early adoption) in the annual financialstatements for the year ending 30 September 2006 are still subject to change andto additional interpretations and therefore cannot be determined with certainty.Accordingly, the accounting policies for that annual period will be determinedfinally only when the annual financial statements are prepared for the yearending 30 September 2006. In general, for the first-time adoption of IFRSs, the standards are appliedretrospectively. However, there are a number of optional exemptions availableunder IFRS 1, First Time Adoption of International Financial ReportingStandards, from full retrospective application. The Group's approach to theseexemptions is detailed below: I. Business combinations which occurred prior to the transition date of 1 October 2004 have not been restated in accordance with IFRS 3, Business Combinations. Goodwill arising on the acquisition of a business acquired before 1 October 1998 has been charged directly to reserves. Goodwill arising on the acquisition of a business acquired after 1 October 1998 and before 1 October 2004 is included in the balance sheet at original cost, less accumulated amortisation and any provisions for impairment as at 30 September 2004. II. Cumulative translation differences for foreign operations are deemed to be zero at the transition date. Any gains or losses on the subsequent disposal of such operations will not include translation differences arising before the transition date. III. The net book value of assets which had been revalued prior to the transition date have been treated as deemed cost on transition. IV. IFRS 2, Share Based Payment, has been applied to all grants of equity instruments after 7 November 2002 that remained unvested as at 1 January 2005. V. The Group has elected to adopt the exemption allowed in IFRS 1 to recognise all cumulative actuarial gains and losses in respect of post retirement benefits in reserves at the transition date. IFRS 1 allows first-time adopters an exemption from providing comparativeinformation on financial instruments. The Group has restated comparatives onfinancial instruments in accordance with IAS 32 Financial Instrument disclosureand presentation and IAS 39 Financial Instruments recognition and measurement inorder to benefit the user of the accounts and has not taken advantage of theexemption. 5. Impact of Adjustments a. Impact on Consolidated Income Statement +------------------+------------+-------------+-----------------+--------------+| | | Operating| Profit for the| Underlying||Year to | Explanation| Profit| Period| Earnings||30 September 2005 | Note| $m| $m| $m|+------------------+------------+-------------+-----------------+--------------+|UK GAAP(8) | | 347 | 205 | 165 |+------------------+------------+-------------+-----------------+--------------+|Post employment | | | | ||benefits | 7a| (1) | - | - |+------------------+------------+-------------+-----------------+--------------+|Share based | | | | ||payment | 7b| (2) | (1) | (1) |+------------------+------------+-------------+-----------------+--------------+|Goodwill and | | | | ||intangible | | | | ||assets | 7c| 2 | 2 | 2 |+------------------+------------+-------------+-----------------+--------------+|Financial | | | | ||instruments | 7e| - | (8) | - |+------------------+------------+-------------+-----------------+--------------+|Inventory | | | | ||valuation basis | 7g| 4 | 3 | 2 |+------------------+------------+-------------+-----------------+--------------+|IFRS | | 350 | 201 | 168 |+------------------+------------+-------------+-----------------+--------------+ +----------------+------------+-------------+------------------+---------------+| | | Operating| Profit for the| Underlying||Six Months to | Explanation| Profit| Period| Earnings||31 March 2005 | Note| $m| $m| $m|+----------------+------------+-------------+------------------+---------------+|UK GAAP(8) | | 148 | 85 | 69 |+----------------+------------+-------------+------------------+---------------+|Share based | | | | ||payment | 7b| (1) | (1) | (1) |+----------------+------------+-------------+------------------+---------------+|Financial | | | | ||instruments | 7e| - | 13 | - |+----------------+------------+-------------+------------------+---------------+|Inventory | | | | ||valuation basis | 7g| (13) | (9) | (8) |+----------------+------------+-------------+------------------+---------------+|IFRS | | 134 | 88 | 60 |+----------------+------------+-------------+------------------+---------------+ b. Impact on Net Debt +--------------------------------+-------------+------------------+------------+| | | As at| As at|| | | 30 September| 31 March|| | Explanation| 2005| 2005|| | Note| $m| $m|+--------------------------------+-------------+------------------+------------+|UK GAAP | | 588 | 473 |+--------------------------------+-------------+------------------+------------+|Convertible bond adjustments | 7e| (3) | (5) |+--------------------------------+-------------+------------------+------------+|IFRS | | 585 | 468 |+--------------------------------+-------------+------------------+------------+ c. Impact on Shareholders' Equity +---------------------------------+-------------+-----------------+------------+| | | As at| As at|| | | 30 September| 31 March|| | Explanation| 2005| 2005|| | Note| $m| $m|+---------------------------------+-------------+-----------------+------------+|UK GAAP(8) | | 812 | 771 |+---------------------------------+-------------+-----------------+------------+|Post employment benefits | 7a| 12 | 7 |+---------------------------------+-------------+-----------------+------------+|Share based payment | 7b| 2 | - |+---------------------------------+-------------+-----------------+------------+|Goodwill and intangible assets | 7c| 2 | - |+---------------------------------+-------------+-----------------+------------+|Financial instruments | 7e| (50) | (29) |+---------------------------------+-------------+-----------------+------------+|Dividends | 7f| 60 | 42 |+---------------------------------+-------------+-----------------+------------+|Inventory valuation basis | 7g| - | (10) |+---------------------------------+-------------+-----------------+------------+|IFRS | | 838 | 781 |+---------------------------------+-------------+-----------------+------------+ 6. Underlying Earnings On an IFRS basis underlying earnings per share are based on the profit for theperiod adjusted to exclude the effect of a change in the South African tax rateon the opening deferred tax balance, exchange on tax balances, movements in thefair values of financial instruments (including the convertible bond andassociated embedded derivative) and, for the year only, reorganisation costs(including tax effects) which occurred in the second half. The comparison versus the calculation of underlying earnings as presented underUK GAAP is shown below: +----------------------+--------------+--------------+---------------+-------------+| | | | IFRS | ||Year to | Explanation | UK GAAP | Adjustments | IFRS ||30 September 2005 | Note | $m | $m | $m ||----------------------+--------------+--------------+---------------+-------------+|Basic earnings | | 163 | (5) | 158 ||Reorganisation costs | | 12 | - | 12 ||Taxation on | | | | ||re-organisation costs | | (2) | - | (2) ||Tax rate change - | | | | ||effect on | | | | ||opening deferred tax | | | | ||balance | | (11) | - | (11) ||Exchange on tax | | | | ||balances | | 2 | - | 2 ||Convertible bond - | | | | ||debt | 7e | - | 1 | 1 ||Embedded derivative | 7e | - | 8 | 8 ||Other financial | | | | ||instruments | 7e | - | (1) | (1) ||Minority interest | | 1 | - | 1 |+----------------------+--------------+--------------+---------------+-------------+|Underlying earnings | | 165 | 3 | 168 |+----------------------+--------------+--------------+---------------+-------------+|Number of shares | |141,727,124 | 141,727,124 |141,727,124 ||Basic EPS | | 115.0c | (3.5)c | 111.5c ||Underlying EPS | | 116.4c | 2.1c | 118.5c |+----------------------+--------------+--------------+---------------+-------------+ +----------------------+-------------+--------------+---------------+--------------+| | | | IFRS | ||Six Months to | Explanation | UK GAAP | Adjustments | IFRS ||31 March 2005 | Note | $m | $m | $m ||----------------------+-------------+--------------+---------------+--------------+|Basic earnings | | 69 | 4 | 73 ||Tax rate change - | | | | ||effect on | | | | ||opening deferred tax | | | | ||balance | | (11) | - | (11) ||Exchange on tax | | | | ||balances | | 11 | - | 11 ||Convertible bond - | | | | ||debt | 7e | - | (1) | (1) ||Embedded derivative | 7e | - | (11) | (11) ||Other financial | | | | ||instruments | 7e | - | (1) | (1) |+----------------------+-------------+--------------+---------------+--------------+|Underlying earnings | | 69 | (9) | 60 |+----------------------+-------------+--------------+---------------+--------------+|Number of shares | |141,625,478 | 141,625,478 | 141,625,478 ||Basic EPS | | 48.7c | 2.8c | 51.5c ||Underlying EPS | | 48.7c | (6.3)c | 42.4c ||----------------------+-------------+--------------+---------------+--------------+ 7. Explanation of Adjustments a. Post-employment benefits The Group operates a defined benefit retirement scheme in the United Kingdom.Under UK GAAP, independent qualified actuaries valued this on a regular basisevery three years. Under SSAP 24 surpluses and deficits arising from thevaluations were spread over the average remaining service lives of employees,with any difference between the profit and loss account charge and thecontributions paid included as an asset or liability in the balance sheet whereapplicable. Under IFRS, the defined benefit retirement scheme is valued using the 'projectedunit credit method'. Following the amendment to IAS 19, Employee Benefits, theGroup has elected to recognise actuarial gains and losses in full in the periodin which they occur in the Statement of Recognised Income and Expense.Therefore, upon transition the actuarial surplus as previously disclosed underFRS 17, Retirement Benefits, are required to be fully recognised under IFRS.Past service cost is recognised immediately to the extent that the benefits havealready vested, and is otherwise amortised on a straight-line basis over theaverage period until the benefits become realised. b. Share based payment IFRS 2, Share Based Payment, requires that share based employee benefits areexpensed to the income statement based on their fair value, instead of theintrinsic value required under UK GAAP. As outlined in section 8, fair valuesfor the Group schemes, which are all equity settled, were estimated using eitherthe Black-Scholes European option pricing model or a Monte Carlo simulationmodel. The fair values are calculated on the date of grant of the awards and thetotal fair value is charged to income over the relevant vesting periods,adjusted to reflect expected levels of lapses and expected achievement ofvesting conditions. For IFRS purposes share based payment costs are recognisedin the income statement for the year ended 30 September 2005 of $2 million (andfor the six months ended 31 March 2005 of $1 million). c. Goodwill and intangible assets i Goodwill For UK GAAP purposes, goodwill arising on the fair value of the assets andliabilities of Eastern Platinum Limited and Western Platinum Limited purchasedon 30 September 2004 was being amortised on a straight-line basis over 20 years. In accordance with IFRS 3, Business Combinations, as from 1 October 2004 thecarrying value of goodwill is treated as deemed cost at the transition date.Thereafter this balance is not amortised, but is instead annually tested forimpairment, or more frequently if events or changes in circumstances indicatethat the goodwill might be impaired. Consequently, for IFRS purposes, all goodwill amortisation recognised under UKGAAP in the six months ended 31 March 2005 ($nil), and year ended 30 September2005 ($2m) is reversed. No impairment was considered necessary. ii Mining rights For UK GAAP purposes, mining rights have been disclosed within tangible fixedassets. For IFRS purposes mining rights have been disclosed within otherintangible fixed assets totalling as at 1 October 2004 $311 million; 31 March 2005 $304 million; and 30 September 2005 $286 million. iii Software During the year ended 30 September 2005 software was purchased and developed.Under UK GAAP these costs were capitalised and classified within property, plantand equipment. In accordance with IAS 38, Intangible Assets, since the software is not anintegral part of the related hardware this is classified as an intangible asset.This amounted to $11 million as at 30 September 2005 and $5 million as at 31March 2005. Amortisation will commence once the asset is in use. d. Properties We currently accommodate 52% of our employees in hostels and married quarterswith the remainder living in their homes. We are selling houses to employees toencourage home-ownership. Under the UK GAAP the houses to be sold in the year ended 30 September 2006remained classified within property, plant and equipment and measured at netbook value. In accordance with IRFS 5, Non-Current Assets Held For Sale and DiscontinuedOperations, the houses to be sold within twelve months are classified asnon-current assets held for sale and measured at the lower of the carryingamount and the fair value less costs to sell. This amounted to $16 million as at30 September 2005. e. Financial instruments i Convertible bond and embedded derivative Under UK GAAP convertible bonds were valued at historical cost after deductingissue expenses. Under IFRS the convertible bonds are classified into two components. The debtelement is included within non-current liabilities. The underlying liabilitiesare measured at net present value at the date of issue and recorded on anamortised cost basis. The equity conversion feature is regarded as a derivative.This is included at fair value within non-current liabilities, rather thanequity, as there is a cash settlement option. Any changes in the fair value aretaken through the income statement. At the date of transition the interest rate swap associated with the convertiblebond was recognised on the balance sheet at fair value and a correspondingadjustment made to the carrying value of the convertible bond to the extent itwas hedged. The adjustment to the value of the bond is amortised over the lifeof the bond. The swap expired at 30 September 2005 and the swap was no longerrecognised. ii Loans to Historically Disadvantaged South Africans (HDSAs) Under UK GAAP the loans to HDSAs were valued at historical cost less repayments.Under IFRS these are measured at fair value with the movement being recognisedas finance income in the income statement. The adjustment to bring the loansdown to fair value amounted to $13 million as at 1 October 2004 and $12 millionas at both 31 March 2005 and 30 September 2005. f. Dividends For UK GAAP purposes, the Group recognised proposed ordinary dividends payablein the period to which they related. In accordance with IAS 10, Events After theBalance Sheet Date, such dividends are only recognised when authorised by theshareholders or in the case of interim dividends, when they are paid. Proposedordinary dividends payable as at 30 September 2005 of $60 million under UK GAAPare not recognised as a liability under IFRS. Therefore, trade and otherpayables and retained earnings have been restated accordingly. As at 31 March2005 the corresponding adjustment was $42 million. g. Inventory Valuation In May 2005 the company changed the measurement basis of its in-processinventory from tonnage to metal content. This reduced in-process inventory by$22 million. Under UK GAAP this was a change of accounting estimate so noadjustment was made to the opening position. Under IAS 8, Accounting Policies, a change in measurement basis is treated as achange in accounting policy and an adjustment has been made retrospectively. Theeffect of this is to reduce in-process inventory at 1 October 2004 and 31 March2005 by $4 million and $17 million respectively. h. Taxation IAS 12, Income taxes, requires full provision for all taxable temporarydifferences. A temporary difference arises where there is a difference betweenthe carrying amount of an asset or liability and its tax base. A temporarydifference is taxable if it will result in taxable amounts in the future, whenthe carrying amount of the asset is recovered or the liability is settled. The main effect of IAS 12 is the recognition of the deferred taxation impacts ofthe other adjusting items arising on transition to IFRS. Income taxes paid during 2005 are classified as operating cash flows under IFRSbut were included in a separate category of cash flows under UK GAAP. i. Other impacts The following additional impacts result in changes in presentation anddisclosures within the Financial Statements: i. Investments Under UK GAAP the Group disclosed $48 million of other investments as at 30September 2005 and $46 million as at 31 March 2005 (of which $41 million wasconsidered to be fixed asset investments at both balance sheet dates). UnderIFRS these have been reclassified. Loans of $33 million to HDSAs which werevalued at historical cost are recorded at fair value with any changes to thefair value being taken through the income statement and are disclosed asnon-current other receivables. At 30 September 2005, $15 million (March 2005 -$13 million) has been classified as other financial assets, representingPetrozim (private) Ltd., Furuya Metals Co Ltd. and the rehabilitation trustfund. ii. Share of profit of associate The Group's share of operating profit, interest costs and tax were disclosedseparately as part of operating profit, net interest payable and taxation underUK GAAP. For IFRS purposes the Group's post tax share of profit from theassociate is disclosed separately above profit before tax. 8. Key Accounting Policies The accounting policies set out below have been adopted to prepare the 2005restated results. These will be the principal accounting policies applied inpreparing future financial statements under IFRS. Basis of preparation The consolidated financial statements have been prepared on an historical costbasis, except for the revaluation of certain financial instruments as detailedbelow. The Group's approach to exemptions available under IFRS 1, First TimeAdoption of International Financial Reporting Standards, is detailed in section4. Basis of consolidation The consolidated financial statements include the financial statements of theCompany and entities controlled by the Company (its subsidiaries) andincorporate the results of its share of associates using the equity method ofaccounting and jointly controlled assets and operations using proportionalconsolidation. Control is achieved where the Company has the power to govern the financial andoperating policies of an entity in order to obtain benefits from its activities. The results of subsidiaries acquired or disposed of during the year areconsolidated from the effective date of acquisition or up to the effective dateof disposal, as appropriate. Where necessary, adjustments are made to thefinancial statements of subsidiaries and associates to bring the accountingpolicies used into line with those used by the Group. An associate is an entity in which the Group has an equity interest and overwhich it has the ability to exercise significant influence. Investments inassociates are carried at cost plus post-acquisition changes in the Group'sshare of the net assets of the associate, less any impairment in value. Theincome statement reflects the Group's share of the results of operations aftertax of the associate (the equity method). A jointly controlled operation is an operation in which the Group has certaincontractual arrangements with other participants to engage in joint activitiesthat do not create an entity carrying on a trade or business of its own. Ajointly controlled asset is a joint venture in which the venturers have jointcontrol over the assets contributed or acquired for the purpose of the jointventure. The Group includes its share of the assets, liabilities and cash flowsin such joint arrangements, measured in accordance with the terms of eacharrangement. Foreign currencies Items included in the financial statements of each of the Group's entities aremeasured using the currency of the primary economic environment in which theentity operates ("the functional currency"). The consolidated financialstatements are presented in US dollars, which is the Company's functional andpresentation currency. Transactions denominated in foreign currencies are translated into US dollarsusing the exchange rates prevailing at the dates of transactions. Monetaryassets and liabilities denominated in foreign currencies are translated into USdollars at the rates of exchange ruling at the closing exchange rate.Differences arising on translation are charged or credited to the incomestatement. Revenue Revenue represents sales of goods and services outside the Group net ofdiscounts and allowances and value added tax and includes commissions earned.Revenue is recognised in the income statement when the risks and rewards ofownership have passed to the purchaser. Expenditure Expenditure is recognised in respect of goods and services received whensupplied in accordance with contractual terms. Provision is made when anobligation exists for a future liability in respect of a past event and wherethe amount of the obligation can be reliably estimated. Research and development Research expenditure is charged to the income statement in the period in whichit is incurred. Development expenditure which meets the recognition criteria foran intangible asset is capitalised and then amortised over the useful economiclife of the developed asset, otherwise it is charged to the income statement asincurred. Share-based payment The Group has a number of employee share schemes under which it makesequity-settled share-based payments to certain employees. Equity-settledshare-based payments are measured at fair value at the date of grant. The fairvalue determined at the grant date is expensed on a straight line basis over thevesting period, based on the Group's estimate of the number of instruments thatwill satisfy non-market vesting conditions. Fair value is measured using methods appropriate to each of the differentschemes as follows: Savings Related Share Option Schemes and Lonmin plc Share plans - Black ScholesEuropean Option pricing model; Executive Share Option Scheme, Deferred Annual Bonus Plan, Long-term IncentivePlan and Co-investment Plan - Monte Carlo Simulation model. Business combinations and goodwill From the transition date, on the acquisition of a subsidiary undertaking orassociate, fair values are attributed to the acquired identifiable assets,liabilities and contingent liabilities. Goodwill, which represents thedifference between the fair value of the purchase consideration and the acquiredinterest in the fair values of those net assets, is capitalised and is subjectto annual impairment testing or more frequently if events or changes incircumstances indicate that goodwill may be impaired. Any negative goodwill iscredited to the income statement in the year of acquisition. If an undertakingis subsequently sold, the amount of goodwill carried on the balance sheet at thedate of disposal, is charged to the income statement in the period of disposalas part of the gain or loss on disposal. Other intangible assets Intangible assets acquired separately or from a business acquisition arecapitalised at cost and fair value respectively. Where amortisation is chargedon these assets, the expense is taken to the income statement through operatingcosts. Amortisation of mineral rights is provided on a units of production basis overthe remaining life of mine to residual value (35 - 40 years). Property, plant and equipment Property, plant and equipment is included in the balance sheet at cost, lessaccumulated depreciation and any provisions for impairment. Depreciation is provided on a straight-line or units of production basis, asappropriate over their expected useful lives or the remaining life of mine, ifshorter, to residual value. The life of mine is based on proven and probablereserves. The expected useful lives of the major categories of property, plantand equipment are as follows: -------------------------------------------------------------------------------- Method Rate--------------------------------------------------------------------------------Shafts and underground Units of 2.5% - 5.0% per (20 - 40 years) production annumMetallurgical Straight line 2.5% - 7.1% per (14 - 40 years) annumInfrastructure Straight line 2.5% - 2.9% per (35 - 40 years) annumOther plant and Straight line 2.5% - 50.0% per (2 - 40 years)equipment annum-------------------------------------------------------------------------------- Residual values and useful lives are re-assessed annually and if necessarychanges are accounted for prospectively. Borrowing costs Property, plant and equipment include directly attributable borrowing costswhich are capitalised during the period of construction. Leases Assets held under finance leases are capitalised and included in property, plantand equipment at the lower of the present value of the minimum lease payments orthe fair value of the leased asset as determined at the inception of the lease.The obligations relating to finance leases, net of finance charges in respect offuture periods, are included within bank loans and other borrowings, with theamount payable within 12 months included in bank overdrafts and loans withinshort term liabilities. The interest element of the rental obligation isallocated to accounting periods during the lease term to reflect the constantrate of interest on the remaining balance of the obligation for each accountingperiod. Rentals under operating leases are charged to the income statement on astraight-line basis. Exploration and evaluation expenditure Exploration and evaluation expenditure incurred on individual projects iscapitalised when the future economic benefit of the project can reasonably beregarded as assured. These costs are amortised from the point at whichproduction commences over their expected useful lives or the life of mine, ifshorter, to residual value. In the case of Greenfields or Brownfieldsexploration, costs are expensed until an indicated resource has been defined andconfirmed by a Competent Person. Exploration costs are expensed if they relate to expenditure necessary todelineate and quantify the reserves and resources required to replace thoseextracted or in the case of expansion and new opportunities, until a probablereserve has been defined and confirmed by a Competent Person. At that point,further costs are capitalised and amortised over their expected useful lives orthe remaining life of mine, if shorter, to residual value. Impairment of assets Intangible assets with finite useful lives and property, plant and equipment aretested for impairments if events or changes in circumstances (assessed at eachreporting date) indicate that the carrying amount may not be recoverable. Whenan impairment test is carried out, the recoverable amount is assessed byreference to the higher of the net present value of expected future cash flowsof the relevant cash generating unit and the fair value less cost to sell. Goodwill at the transition date was reflected at the carrying value under UKGAAP. Goodwill is tested for impairment at least annually. If a cash generating unit is impaired, provision is made to reduce the carryingamount of the related assets to their estimated recoverable amount. Impairmentlosses are allocated firstly against goodwill, and secondly on a pro rata basisagainst other assets. Where an impairment loss is recognised against an asset it may be reversed infuture periods where there has been a change in estimates used to determine therecoverable amount since the last impairment loss was recognised, except inrespect of impairment of goodwill which may not be reversed in anycircumstances. Assets held for sale When an asset's carrying value will be recovered principally through a saletransaction rather than through continuing use it is classified as held for saleand stated at the lower of carrying value and fair value less costs to sell. Nodepreciation is charged in respect of non-current assets classified as held forsale. Inventories Inventories are valued at the lower of cost (which includes the applicableproportion of production overheads) and net realisable value. PGM's stock isvalued by allocating costs to platinum, palladium and rhodium stock based on theannual cost or production, less revenue from by-products, apportioned accordingto the quantities of each of the three main metals produced. Cash and cash equivalents Cash and cash equivalents comprise cash in hand and current balances with banksand similar institutions, which are readily convertible into known amounts ofcash and which are subject to insignificant risk of changes in value and have anoriginal maturity of three months or less. For the purpose of the consolidated cash flow statement, cash and cashequivalents consist of cash and cash equivalents as defined above, net ofoutstanding bank overdrafts as the bank overdraft is repayable on demand andforms an integral part of the Group's cash management. Pensions and other post-retirement benefits The Group operates a number of defined contribution schemes overseas inaccordance with local regulations. The costs of these schemes are charged to theincome statement as incurred. The Group operates a defined benefit retirement scheme in the United Kingdom.The amount recognised in the balance sheet in respect of net assets orliabilities represents the present value of the obligations offset by the fairvalue of the plan assets. The cost of providing for the scheme is charged to theincome statement over the periods relating to the employees' service. Actuarial gains and losses are recognised in full in the period in which theyoccur. They are recognised outside of the income statement in retained earningsand presented in the statement of recognised income and expense. Taxation Current tax is provided at amounts expected to be paid or recovered using thetax rates and laws in force during the periods being reported upon. Deferred tax is recognised in respect of temporary differences identified at thebalance sheet date. Temporary differences are differences between the carryingamount of the Group's assets and liabilities and their tax base. Deferred tax liabilities are offset against deferred tax assets within the sametaxable entity or qualifying local tax group. Any remaining deferred tax assetis recognised only when, on the basis of all available evidence, it can beregarded as probable that there will be suitable taxable profits, within thesame jurisdiction, in the foreseeable future against which the deductibletemporary difference can be utilised.Deferred tax is provided on temporary differences arising on subsidiaries,jointly controlled entities and associates, except where the timing of thereversal of the temporary difference can be controlled and it is probable thatthe temporary difference will not reverse in the foreseeable future. Rehabilitation costs Rehabilitation costs are provided in full based on estimates of the future coststo be incurred, calculated on a discounted basis. As the provision isrecognised, it is either capitalised as part of the cost of the related mine orwritten off to the income statement. Where costs are capitalised the impact ofsuch costs on the income statement is spread over the life of mine through theaccretion of the discount of the provision and the depreciation over a units ofproduction basis of the increased costs of the mining assets. Financial Instruments The Group's principal financial instruments (other than derivatives) comprisebank loans, listed convertible bonds, investments, cash and short-term deposits. Bank loans are recorded at amortised cost, net of transaction costs incurred,and are adjusted to amortise transaction costs over the term of the loan. The convertible bonds are classified as financial liabilities in respect of thedebt element and the conversion feature is regarded as a derivative. The debtelement is measured at amortised cost. The derivative element is fair valuedwith any changes in the fair value being taken through the income statement. Investments are classified into loans and receivables, held-to-maturity andavailable-for-sale. The classification depends on the purpose for which theinvestments were acquired, the nature of the investments and whether theinvestment is quoted or not. The classification of investments is determined atinitial recognition and reassessed at each reporting date. Investments areinitially recognised at fair value, including acquisition costs. After initialrecognition, investments classified as available-for-sale continue to bemeasured at fair value with gains or losses recognised directly in equity. Ondisposal or impairment of the investments, the gains or losses in equity arerecycled into the income statement. Loans and receivables and investmentsclassified as held-to-maturity are carried at amortised cost and gains or lossesare recognised in the income statement when the investments are derecognised orimpaired, as well as through the amortisation process. Other derivative financial instruments are used by the Group to manage exposureto market risks from treasury operations. The principal derivative instrumentsused are foreign currency swaps, interest rate swaps and forward foreignexchange contracts. The Group does not hold or issue derivative financialinstruments for trading or speculative purposes. Derivative financial instruments are initially recognised in the balance sheetat cost and then remeasured at subsequent reporting dates to fair value. Themethod of recognising the resulting gain or loss depends on whether thederivative is designated as a hedging instrument and, if so, the nature of theitem being hedged. Hedging derivatives are classified on inception as fair valuehedges or cash flow hedges. Changes in the fair value of derivatives designated as fair value hedges arerecorded in the income statement, together with any changes in the fair value ofthe hedged asset or liability that are attributable to the hedged risk. The effective portion of changes in the fair value of derivatives designated asfair value hedges is recognised in the income statement. The gain or lossrelating to the ineffective portion is recognised immediately in the incomestatement, to the extent that the change in value of the hedging instrument isgreater than the change in value of the hedged item. Changes in the fair value of any derivative instruments that do not qualify forhedge accounting are recognised immediately in the income statement. Notes (1) Operating profit is defined as revenue and other operating income less costof sales, administrative expenses, exploration costs and other operatingexpenses before share of profit of associate. (2) Basic earnings represent profit for the period attributable to equityshareholders. (3) Underlying earnings under UK GAAP were calculated on profit for the periodexcluding reorganisation costs (including tax effects), the effect of a changein the South African tax rate on the opening deferred tax balance, exchange ontax balances. In addition, under IFRS, fair value adjustments on financialinstruments have been excluded (see section 6). (4) Under UK GAAP net debt comprised cash, overdrafts, the convertible bonds andloans due within one year and after one year. Under IFRS the definition of netdebt has been expanded to include adjustments to debt (see section 5b). (5) EBITDA is Group operating profit before interest, tax, depreciation,amortisation and share of profit of associate. (6) The calculation of diluted EPS includes adjustments for the movement in fairvalue on the convertible bond subject to the limitation that this cannot therebycreate a figure exceeding basic EPS. (7) The tax rate has been calculated excluding exchange and the effect of achange in the South African tax rate on the opening deferred tax balance. (8) UK GAAP as presented in the 2005 financial statements as adjusted for IFRSpresentation purposes. (9) There are no IFRS impacts on cash flows, or material reclassifications.Under IFRS, however, the format of the Group Cash Flow Statement has changed andaccordingly it is presented above. (10) For the purposes of the cash flow statement, cash and cash equivalentsincludes bank overdrafts. Enquiries: John RobinsonChief Finance Officer +44 (0) 20 7201 6032 Alex Shorland-BallVice President, Investor Relations and Communications +44 (0) 20 7201 6060 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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