14th Sep 2007 09:00
Cape PLC13 September 2007 Cape PLC IFRS Restatement Report This report covers the restatement of the opening consolidated balance sheet asat 1 January 2006 ("the transition date"), the consolidated financialinformation for the year ended 31 December 2006 and the consolidated financialinformation for the six months ended 30 June 2006 under International AccountingStandards and International Financial Reporting Standards as adopted by theEuropean Union and implemented in the UK (collectively referred to as "IFRS"throughout this document). The restatement of financial information isunaudited. Contents 1. Introduction2. Consolidated income statements3. Consolidated balance sheets4. Consolidated cash flow statements5. Basis of preparation6. Transitional arrangements7. Effect of changes in accounting policies8. Revised accounting policies under IFRS Appendices 1. Reconciliation of consolidated income statement from UK GAAP to IFRS for the year ended 31 December 20062. Reconciliation of consolidated income statement from UK GAAP to IFRS for the period ended 30 June 20063. Reconciliation of consolidated balance sheet from UK GAAP to IFRS at 31 December 20064. Reconciliation of consolidated balance sheet from UK GAAP to IFRS at 1 January 20065. Reconciliation of consolidated balance sheet from UK GAAP to IFRS at 30 June 20066. Reconciliation of consolidated cash flow statement from UK GAAP to IFRS for the year ended 31 December 20067. Reconciliation of consolidated cash flow statement from UK GAAP to IFRS for the period ended 30 June 2006 1. Introduction As a London Stock Exchange AIM listed company, Cape PLC is required to prepareits consolidated financial statements in accordance with IFRS from 1 January2007 and to show comparative figures for prior periods on or after thetransition date. Previously the Group has prepared its accounts using UKGenerally Accepted Accounting Principles "UK GAAP". This report together with its appendices shows the impact of the transition toIFRS on Cape PLC's reported performance and financial position and reconcilesthis to the previously reported financial information with relevantexplanations, as required by IFRS 1 "First-Time Adoption of InternationalFinancial Reporting Standards". Cape PLC will present its interim statement for the six months ended 30 June2007 and its annual report and accounts for the year ended 31 December 2007under IFRS, as set out in the basis of preparation. 2. Consolidated income statements for the year ended 31 December 2006 and six months ended 30 June 2006 Unaudited Unaudited Half-year ended Year ended 30 June 31 December 2006 2006 £m £m Continuing operationsRevenue 128.2 274.0 Operating profit --------------------------------Group operating profit before exceptional items 3.7 13.9Exceptional items relating to scheme of arrangement 0.8 1.0 -------------------------------- Group operating profit 4.5 14.9 Finance costs (0.3) (1.6)Finance income 0.9 2.2Share of post tax profits from joint ventures - 0.1 -------------------------------- Profit before tax 5.1 15.6Taxation (1.2) (2.0) -------------------------------- Profit from continuing operations 3.9 13.6 Discontinued operationsProfit from discontinued operations 0.1 1.1 -------------------------------- Profit attributable to equity shareholders 4.0 14.7 -------------------------------- 3. Consolidated balance sheets as at 1 January 2006, 31 December 2006 and 30 June 2006 Unaudited Unaudited Unaudited 30 31 1 January June2006 December 2006 2006Assets £m £m £mNon current assetsGoodwill 0.6 14.3 0.6Intangible assets - 1.1 -Property, plant and equipment 29.4 32.0 29.4Investments accounted for using equity method 0.1 0.1 0.2Retirement benefit asset 7.6 8.1 7.2Deferred tax asset 4.1 4.8 4.0 ------------------------------------- 41.8 60.4 41.4 ------------------------------------- Current assetsInventories 8.7 8.3 9.9Trade and other receivables 82.7 78.2 71.1Financial assets - derivative financial instruments - 0.3 -Cash - Scheme funds (restricted) 40.1 40.1 -Cash and cash equivalents 10.5 15.3 27.2 ------------------------------------- 142.0 142.2 108.2 -------------------------------------LiabilitiesCurrentliabilitiesFinancial liabilities- Borrowings (25.1) (13.3) (1.8)- Derivative financial instruments (0.1) (0.1) (0.6)Trade and other payables (59.7) (67.5) (58.9)Current tax liabilities (2.4) (3.3) (2.2) ------------------------------------- (87.3) (84.2) (63.5) ------------------------------------- Net current assets 54.7 58.0 44.7 ------------------------------------- Non current liabilitiesFinancial liabilities- Borrowings (14.6) (23.4) (2.0)Retirement benefit liabilities (2.2) (2.2) (2.1)Deferred tax liabilities (2.3) (2.7) (2.1)Provisions (13.3) (14.9) (19.2) ------------------------------------- (32.4) (43.2) (25.4) ------------------------------------- Net assets 64.1 75.2 60.7 ------------------------------------- Shareholders' equityCalled up share capital 25.2 25.2 25.2Share premium account 25.0 25.0 25.0Other reserves - 0.2 (0.5)Retained earnings 13.9 24.8 11.0 -------------------------------------Total shareholders' equity 64.1 75.2 60.7 ------------------------------------- 4. Consolidated cash flow statements for the year ended 31 December 2006 and six months ended 30 June 2006 Unaudited Unaudited Half-year ended Year ended 30 June 2006 31 December 2006 £m £m Cash flows from operating activities Cash generated from operating -----------------------------------activities (7.7) 13.7Scheme funding - transfer to restricted cash (40.0) (40.0) -----------------------------------Net cash absorbed by operating activities (47.7) (26.3) -----------------------------------Interest received 0.3 1.3Interest received on restricted funds - (1.0) -----------------------------------Net interest received 0.3 0.3Interest paid (0.4) (1.7)Issue costs of new bank loans - (0.5)Tax paid (0.9) (1.4) -----------------------------------Net cash outflow from operating activities (48.7) (29.6) ----------------------------------- Cash flows from investingactivitiesAcquisition of subsidiaries (net of cash acquired) - (12.2)Disposal of business - 5.4Proceeds from sale of property, plant and equipment - 3.5 Purchase of property, plant and equipment (2.4) (8.9)Dividends received from joint ventures 0.1 0.2 ---------------------------------- Net cash used in investing activities (2.3) (12.0) ---------------------------------- Cash flows from financingactivitiesNet proceeds from issue of new bank loans 15.0 26.5Finance lease principal payments (0.5) (1.5)Increase in short term borrowings 10.8 - ---------------------------------- Net cash received from financing activities 25.3 25.0 ----------------------------------Exchange losses on cash, cash equivalents and bank overdrafts - (0.6) ----------------------------------Net decrease in cash, cash equivalents and bank overdrafts (25.7) (17.2)Opening cash, cash equivalents and bank overdrafts 26.3 26.3 ---------------------------------- Closing cash, cash equivalents and bank overdrafts 0.6 9.1 ---------------------------------- 5. Basis of preparation The restated information has been prepared on the basis of all InternationalFinancial Reporting Standards "IFRS" and International Financial ReportingInterpretations Committee "IFRIC" interpretations that are endorsed by the EUand effective for the Group's first IFRS annual financial statements for theyear ended 31 December 2007. Based on these IFRS standards, the directors havemade assumptions about the accounting policies expected to be applied when thefirst annual IFRS consolidated accounts are prepared for the year ending 31December 2007 (the first annual IFRS consolidated accounts). 6. Transitional arrangements On transition to IFRS, an entity is generally required to apply IFRSretrospectively, except where an exemption is available under IFRS 1 "First-timeadoption of International Financial Reporting Standards". The following is asummary of the key optional exemptions from IFRS 1 that have been taken by theGroup: •The Group has adopted the IFRS 1 exemption in relation to business combinations and will only apply IFRS 3 "Business Combinations" prospectively from 1 January 2006. As a result, the balance of goodwill under UK GAAP as at 31 December 2005 is deemed to be the carrying value of goodwill at 1 January 2006. •Cumulative translation differences - under IAS 21, on disposal of a business, the cumulative amount of exchange differences recognised directly in equity for that business is charged or credited to the income statement as part of the profit or loss on disposal. The Group has adopted the exemption allowing these cumulative translation differences to be reset to zero at the transition date. •The Group has elected that where fixed assets were previously re-valued, this re-valued amount will be treated as deemed cost where it is considered that this is comparable to fair value. 7. Effect of changes in accounting policies The following sets out the effects of adopting new accounting policies underIFRS. These adjustments are referenced to the attached appendices. a) IAS 32 "Financial Instruments: Presentation" The preference share capital has been restated as a financial liability ratherthan equity. At 1 January 2006, the preference share capital has beenreclassified as a long term financial liability. This should have beenreclassified in the accounts under UK GAAP but was not due to not beingconsidered significant. b) IFRS 3 " Business Combinations" Under UK GAAP, goodwill is amortised on a straight line basis over its estimateduseful economic life. Under IFRS goodwill is not amortised but is subject toannual impairment reviews. The goodwill amortisation charged in 2006 under UKGAAP has been reversed. Under UK GAAP, goodwill previously written off to reserves must be recycled tothe profit and loss account when the investment which the goodwill relates to isdisposed of. Under IFRS no adjustment is required for goodwill previouslywritten of to reserves. On transition to IFRS goodwill recycled from reserves inthe year ended 31 December 2006 has been reversed. c) IAS 19 "Employee Benefits" Under UK GAAP the assets of the defined benefit pension scheme were valued atmid market prices. IAS 19 states that assets must be valued at bid prices andthe pension surplus has been adjusted for these differences. Under UK GAAP, the deferred tax liability relating to the retirement benefitsurplus is netted off the surplus whereas under IFRS the deferred tax is shownseparately. IAS 19 requires the recoverability of a pension surplus to be assessed on adifferent basis to UK GAAP. The recoverability of the pension surplus has beenadjusted to reflect guidance in IAS 19 where necessary. The balances relating to Gratuities previously held in other payables have beenreclassified to retirement benefit liabilities. d) IAS 39 "Financial Instruments: Recognition and Measurement" Under UK GAAP there is no requirement to value derivatives on the balance sheet.Under IFRS all derivatives must be valued at fair value on the balance sheet.The movement in fair values goes to the income statement unless it can bedemonstrated that the derivative is being used as an effective hedge. Under UK GAAP the Group used intercompany loans to hedge certain of itsinvestments in overseas companies. Under IFRS the use of inter company loans asa net investment hedge is prohibited. Exchange movements on loans previouslynetted off exchange movements on overseas investments are now taken to theincome statement. e) IAS 38 "Intangible Assets" Purchased intangible assets other than goodwill are recognised on acquisitionand amortised over their useful economic life. On the acquisition of a business,any intangible assets that can be separately identified and that meet therecognition criteria under IFRS should be recognised and amortised over theiruseful economic lives. f) IAS 12 "Income Taxes" For share based payments IFRS requires that where the estimated future taxdeduction exceeds the cumulative charge to the income statement the excess ofthe associated current or deferred tax should be recognised directly in equity. IFRS states that a deferred tax liability should be recognised based on thevalue of intangible assets recognised. An adjustment has been made to the deferred tax asset recognised in error underUK GAAP in relation to losses brought forward in the parent company following areassessment of the accounting for the pension scheme asset and its relateddeferred tax liability. g) IFRS 1 "First-time Adoption of International Financial Reporting Standards" The Group has elected under the transitional arrangements of IFRS 1 that thevaluation of properties at 1 January 2006 should be treated as deemed cost. Therevaluation reserve has been transferred to the profit and loss reserve. 8. Revised accounting policies under IFRS Basis of preparation The financial information has been prepared in accordance with InternationalFinancial Reporting Standards and IFRIC interpretations and with those parts ofthe Companies Act 1985 applicable to companies reporting under IFRS. Thefinancial information has been prepared under the historical cost convention andfair value conventions and on the basis of the accounting policies set outbelow, which the Group expects to apply to its financial statements for 31December 2007 and which are to be prepared in accordance with IFRS. Basis of consolidation (a) A business combination is recognised where separate legal entities orbusinesses have been brought together within the Group. Subsidiaries are all entities over which the Group has the power to govern thefinancial and operating policies generally accompanying a shareholding of morethan 50% of the voting rights. Subsidiaries are fully consolidated from the dateon which control is transferred to the Group. They are de-consolidated from thedate that control ceases. The purchase method of accounting is used to account for business combinationsmade by the Group. The cost of a business combination is measured as the fairvalue of the assets acquired, equity instruments issued and liabilities incurredor assumed at the date of exchange, plus costs directly attributable to thebusiness combination. Contingent consideration is included in the cost of a business at theacquisition date only if the consideration is probable and can be reliablymeasured, and is discounted using an appropriate discount rate. If the futureevents upon which the contingent consideration is based do not occur or theestimate needs to be revised or if contingent consideration, which has not beeninitially included, does become probable and can be reliably measured, the costof the business combination, and any associated goodwill, is adjustedaccordingly. Identifiable assets, liabilities and contingent liabilities acquired in thebusiness combination are measured initially at their fair value at theacquisition date. The excess of the cost of acquisition over the fair value ofthe Group's share of the identifiable net assets acquired is recorded asgoodwill. If the cost of acquisition is less than the fair value of the netassets acquired, the difference is credited to the income statement in theperiod of acquisition. (b) The Group's interest in joint ventures is accounted for under the equitymethod. The consolidated financial statements include the Group's share of theprofits or losses of joint ventures and the consolidated balance sheet includesthe investments in joint ventures at cost, including attributable goodwill, plusthe Group's share of post-acquisition reserves. (c) Minority interests in subsidiaries consolidated by the Group are disclosedseparately from the Group's equity and income. Losses attributable to a minorityin excess of the minority's interest in net assets of the subsidiary areadjusted against the interest of the group unless there is a binding obligationon the part of the minority to contribute additional investment in thesubsidiary. (d) Inter-company income, expenses, balances and unrealised gains and losses ontransactions between group companies are eliminated on consolidation. Foreign currencies (a) Functional and presentational currency Items included in the financial statements of each of the Group's entities aremeasured using the currency of the primary economic environment in which theentity operates ("functional currency"). The consolidated financial statementsare presented in Pounds Sterling, which is the Company's functional andpresentational currency. (b) Transactions and balances Foreign currency transactions are translated into the functional currency usingexchange rates prevailing at the date of the transactions. Foreign exchangegains and losses resulting from the settlement of such transactions and from thetranslation at period end exchange rates of monetary assets and liabilitiesdenominated in foreign currencies are recognised in the income statement, exceptwhen deferred in equity as qualifying cash flow hedges and qualifying netinvestment hedges. Translation differences on non monetary financial assets and liabilities arereported as part of the fair value gain or loss. Translation differences onnon-monetary financial assets and liabilities such as equities held at fairvalue through the profit and loss are recognised as part of the fair value gainor loss. (c) Group Companies The results and financial position of all group entities that have a functionalcurrency different from the presentation currency are translated into thepresentation currency as follows: • Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of the balance sheet; • Income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case the income and expenses are translated at the rate on the dates of the transaction); and • All resulting exchange differences are recognised as a separate component of equity. On consolidation, exchange differences arising from the translation of the netinvestment in foreign operations, and of borrowings and other currencyinstruments designated as hedges of such investments, are taken to shareholders'equity. When a foreign operation is partially disposed of or sold, exchangedifferences that were recognised in equity are recognised in the incomestatement as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreignentity are treated as assets and liabilities of the foreign entity andtranslated at the closing exchange rate. Goodwill Goodwill arising on acquisition represents the excess of the cost of a businesscombination over the fair value of the Group's share of the identifiable netassets acquired. Goodwill is tested annually for impairment and carried at costless accumulated impairment losses. Goodwill is allocated to the appropriatecash generating unit for the purpose of impairment testing. Any impairment isrecognised immediately through the income statement and is not subsequentlyreversed. Intangible assets Intangible assets are recognised if it is probable that there will be futureeconomic benefits attributable to the asset, the cost of the asset can bemeasured reliably, the asset is separately identifiable and there is controlover the use of the asset. The assets are amortised over the period over whichthe group expects to benefit from these assets. Property, Plant and Equipment Property, plant and equipment is stated at cost net of accumulated depreciationand any provision for impairment. Cost comprises purchase cost together with anyincidental costs of acquisition. Certain land and buildings are held at previousrevalued amounts less accumulated depreciation as these amount have been takenas their deemed cost as at the date of transition to IFRS in accordance with theexemption under IFRS 1 "First-time Adoption of IFRS". Depreciation is providedto write off the cost less the estimated residual value of tangible fixed assetsby equal instalments over their estimated useful economic lives with theexception that no depreciation is provided on freehold land. The asset'sresidual values and useful economic lives are reviewed, and adjusted asappropriate, at each balance sheet date. The following rates are applied: - Freehold buildings - 2% per annum - Leasehold land and buildings - the period of the lease - Plant, machinery, fixtures and fittings - 62/3% to 331/3% per annum - Scaffolding equipment - 62/3% to 331/3% per annum The carrying value of tangible fixed assets are reviewed for impairment ifevents or change in circumstances indicate that the carrying value may not berecoverable. Any impairment in the value of fixed assets is dealt with in the incomestatement in the period in which it arises. Impairment of assets (excluding goodwill) At each balance sheet date the Group reviews the carrying amounts of itstangible and intangible fixed assets to assess whether there is an indicationthat those assets may be impaired. If any such indication exists, the Groupmakes an estimate of the assets recoverable amount. An assets recoverable amountis the higher of an assets fair value less costs to sell and its value in use.In assessing value in use, the estimated future cash flows attributable to theasset are discounted to their present value using a pre tax discount rate thatreflects current market assessments of the time value of money and the risksspecific to the asset. Where the recoverable amount is estimated to be less than its carrying amount,the carrying amount is reduced to its recoverable amount. An impairment loss isrecognised immediately in the income statement. Trade and other receivables Trade receivables are recognised and carried at original invoice amounts less anallowance for any amount estimated to be uncollectible. Leases Finance leases Where assets are financed by leasing agreements that give rights approximatingto ownership, the amount representing the outright purchase price is capitalisedand the corresponding leasing commitments are shown as obligations to thelessor. The relevant assets are depreciated in accordance with the Group'sdepreciation policy or over the lease term if shorter. Net finance charges,calculated on the reducing balance method, are included in finance costs. Operating leases Payments made under operating leases, net of any incentives received from thelessor, are charged to the income statement on a straight line basis over theperiod of the lease. Use of estimates and assumptions The preparation of these financial statements requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities at the date of the financial statements and the reported amounts ofrevenue during the reporting period. Actual results could differ from theseestimates. Information about such judgements and estimation is contained inindividual accounting policies. Key sources of estimation uncertainty that could cause an adjustment to berequired to the carrying amount of asset or liabilities within the nextaccounting period are: • Review of residual lives, residual values, carrying values and impairment charges for intangible assets and property, plant and equipment; • Estimation of liabilities for pension and other post retirement costs; • Revenue recognition and assessment of construction contract performance; • Liabilities in relation to industrial disease claims; and • Recoverability of deferred tax assets. Compensation for industrial disease Provision is made for compensation for industrial disease where it is possibleto estimate the liability with sufficient reliability. This is generally onlycurrently possible in respect of claims lodged and outstanding at the periodend. Where this is not possible, a contingent liability is noted. Benefit isrecognised for insurance recoveries for claims provided when they areanticipated with virtual certainty. Provisions Provisions for liabilities, except for those for industrial disease, are madewhere the timing or amount of settlement is uncertain. A provision is recognisedwhen: the Group has a present legal or constructive obligation as a result ofpast events; it is probable that an outflow of resources will be required tosettle the obligation and the amount has been reliably estimated. Provisions are measured at the present value of the expenditures expected to berequired to settle the obligation using a pre tax rate that reflects currentmarket assessments of the time value of money and risks specific to theobligation. Inventories Inventories which include raw materials and work in progress are stated at thelower of cost and net realisable value. Raw materials are valued based on firstin first out method. Net realisable value is the estimated selling price in the ordinary course ofbusiness less selling expenses. Allowance is made for obsolete and slow movingitems based on annual usage. Revenue recognition Revenue comprises the fair value of the consideration received or receivable forthe sale of goods and services in the ordinary course of the Group's activities.Revenue is shown net of the value added tax, returns, rebates and discounts andafter eliminating sales within the Group. Revenue recognition in relation toconstruction contracts is described in the accounting policy for constructioncontracts. Construction contracts Contracts are undertaken for customers either on a short or long-term basis. Forshort-term contracts, work done is substantially billed as performed and forlong-term contracts, work is carried out on a substantially fixed orlimited-price basis. For short-term contracts, turnover and profit arerecognised according to work executed. Amounts taken to turnover in respect ofwork done not billed are included within amounts recoverable on contracts. Costsincurred, including an appropriate allocation of overheads, in respect oflong-term contracts are included in work in progress net of progress paymentsreceived and provisions for foreseeable losses. Provision is made in full forany losses as soon as they can be foreseen. Any payments on account orprovisions for foreseeable losses in excess of contract balances are included increditors. Turnover and attributable profit on long-term contracts is recognisedaccording to the percentage of estimated total contract value completed or theachievement of contractual milestones provided that the outcome of the contractcan be assessed with reasonable certainty. Deferred income taxation Deferred income tax is recognised, using the full liability method, on temporarydifferences arising between the tax bases of assets and liabilities and theircarrying amount in the consolidated financial statements. Deferred income tax isdetermined using tax rates (and laws) that have been enacted, or substantiallyenacted, by the balance sheet date and are expected to apply when the relateddeferred tax asset is realised or deferred tax liability is settled. Deferred tax assets are recognised only to the extent that it is probable thatfuture taxable profits will be available against which the temporary differencescan be utilised. Deferred income tax is provided on temporary differences arising on investmentsin subsidiaries and associates, except where the timing of the reversal of thetemporary difference is controlled by the Group and it is probable that thetemporary difference will not be reverse in the foreseeable future. Exceptional items Exceptional items represent income and expenses relating to non-recurringtransactions that are significant, by virtue of their size or nature, andtherefore relevant to understanding the Group's financial performance and areshown separately to provide a better indication of the underlying results of thebusiness. Employee benefits The Group operates both defined benefit and defined contribution schemes. A defined contribution scheme is a pension scheme under which the Group paysfixed contributions into a separate entity. The Group has no legal orconstructive obligation to pay further contributions if the fund does not holdsufficient assets to pay all employees the benefits relating to employment inthe current or prior periods. The pension expense for defined contributionschemes represents contributions payable in the year. A defined benefit scheme is a pension scheme that is not a defined contributionscheme. The asset recognised in the balance sheet in respect of the definedbenefit scheme is the present value of the defined benefit obligation at thebalance sheet date less the fair value of the plan assets. The defined benefitobligation is calculated tri-annually by independent actuaries using theprojected unit method and this valuation is updated at each balance sheet date.The present value of the defined benefit obligation is determined by discountingthe estimated future cash outflows using interest rates of high qualitycorporate bonds that are denominated in the currency in which the benefits willbe paid and that have terms to maturity approximating to the terms of therelated pension liability. Current and past service costs are charged to operating profit and finance costsand expected returns on assets to financing costs or income. Actuarial gains andlosses arising from new valuations and from updating the latest actuarialvaluation to reflect conditions at the balance sheet date are recognised in fullin the statement of recognised income and expense. The pension schemes' deficits or surpluses, (to the extent that any surplusesare considered recoverable), are recognised in full and presented on the face ofthe balance sheet. The Group operates gratuity schemes in certain overseas countries. These areaccounted for in accordance with IAS 19 and accounting follows the sameprinciples as for a defined benefit scheme. Accounting for derivatives financial instruments and hedging activities The Group uses derivative financial instruments such as forward currencycontracts and interest rate caps to hedge its risks associated with foreigncurrency and interest rate fluctuations. Derivatives are initially recognised atfair value on the date the contract is entered into and are subsequentlyre-measured at their fair value. The fair value of forward currency contracts is calculated by reference tocurrent forward exchange rates for contracts with similar maturity profiles. Thefair value of interest rate caps is determined by reference to market values ofsimilar instruments. For the purpose of hedge accounting, hedges are classified as: • Fair value hedges when hedging the exposure to changes in the fair value of a recognised asset or liability; and • Cash flow hedges when hedging exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction. The Group formally designates and documents the relationship between the hedginginstrument and the hedged item at the inception of the transaction, as well asits risk management objectives and strategy for undertaking various hedgetransactions. The documentation also includes identification of the hedginginstrument, the hedged item or transaction, the nature of the risk being hedgedand how the Group will assess the effectiveness of the hedging instruments inoffsetting the exposure to changes in the fair value of the hedge or the cashflows attributable to the hedged risk. The Group also documents its assessment,both at inception and on an ongoing basis, of whether the derivatives that areused in the hedging transactions are highly effective in offsetting changes infair values or cash flows of the hedged items. Any gains or losses arising from changes in the fair value of derivatives thatdo not qualify for hedge accounting are taken to the income statement. Thetreatment of gains and losses arising from revaluing derivatives designated ashedging instruments depends on the nature of the hedging relationship, asfollows: Fair value hedges For fair value hedges, the carrying amount of the hedged item is adjusted forgains and losses attributable to the risk being hedged: the derivative isre-measured at fair value and gains and losses from both are taken to the incomestatement. For hedged items carried at amortised cost, the adjustment isamortised through the income statement such that it is fully amortised atmaturity. The Group discontinues fair value hedge accounting if the hedginginstrument expires or is sold, terminated or exercised, or the hedge no longermeets the criteria for hedge accounting. Cash flow hedges For cash flow hedges, the effective portion of the gain or loss on the hedginginstrument is recognised directly in equity, while the ineffective portion isrecognised in the income statement. Amounts taken to equity are transferred tothe income statement when the hedged transaction affects the income statement. If the hedging instrument expires or is sold, terminated or exercised withoutreplacement or rollover, or if its designation as a hedge is revoked, anycumulative gain or loss existing in equity at that time remains in equity and isrecognised when the forecast transaction is ultimately recognised in the incomestatement. When a forecast transaction is no longer expected to occur, thecumulative gain or loss that was reported in equity is immediately transferredto the income statement. Borrowings Borrowings are recognized initially at the amount of the consideration receivedafter deduction of issue costs. Issue costs together with finance costs arecharged to the profit and loss account over the term of the borrowings andrepresent a constant proportion of the balance of capital repaymentsoutstanding. Cumulative preference shares are classified as liabilities. The dividends onthese preference shares are recognized in the income statement as interestexpense. Borrowings are classified as current liabilities unless the Group has anunconditional right to defer settlement of the liability for at least 12 monthsafter the balance sheet date. Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held on call withbanks, other short term highly liquid investments with original maturities ofthree months or less, and bank overdrafts. Bank overdrafts are shown withinborrowings in current liabilities on the balance sheet. Restricted cash relating to the Scheme of Arrangement is excluded from cash andcash equivalents for the purpose of the Group cash flow statement. Share capital Ordinary shares and deferred shares are classified as equity. Cumulativepreference shares are classified as liabilities. Incremental costs directly attributable to the issue of new shares or optionsare shown in equity as a deduction, net of tax, from the proceeds. Share based payments The group issues equity settled share based payments to certain employees whichmust be measured at fair value and recognised as an expense in the incomestatement with a corresponding increase in equity. The fair values of thesepayments are measured at the dates of grant using option pricing models, takinginto account the terms and conditions upon which the awards are granted. Thefair value is recognised over the period during which employees becomeunconditionally entitled to the awards subject to the Group's estimate of thenumber of awards which will lapse, either due to employees leaving the Groupprior to vesting or due to non-market based performance conditions not beingmet. Proceeds received on the exercise of share options are credited to share capitaland share premium. Segmental reporting A business segment is a group of assets and operations engaged in providingproducts or services that are subject to risks and returns that are differentfrom those of other business segments. A geographical segment is engaged inproviding products or services within a particular economic environment that aresubject to risks and returns that are different from those of segments operatingin other economic environments. The Group's primary reporting segment is by business segment. This is splitbetween the provision of industrial services, industrial disease costs andcentral costs. The Group's secondary segment is geographical by country of destination. Appendix 1. Reconciliation of consolidated income statement from UK GAAP to IFRS forthe year ended 31 December 2006 (Unaudited) Adjustments Per b d e f IFRS UK restated GAAP IFRS 3 IAS 39 IAS 38 IAS 12 Total Business Financial Intangible Income combinations instruments assets taxes £'m £'m £'m £'m £'m £'mContinuing operationsRevenue 274.0 274.0 ------------------------------------------------------------- Operating profit 14.3 0.2 0.5 (0.1) 14.9 Finance costs (1.7) 0.1 (1.6) Finance income 2.2 2.2 Share of post tax profits from joint ventures 0.1 0.1 ------------------------------------------------------------ Profit before tax 14.9 0.2 0.6 (0.1) 15.6 Taxation (2.6) 0.6 (2.0) ------------------------------------------------------------ Profit from continuing operations 12.3 0.2 0.6 (0.1) 0.6 13.6 ------------------------------------------------------------ Discontinued operations ------------------------------------------------------------(Loss)/profit from discontinued operations (1.0) 1.9 0.2 1.1 ------------------------------------------------------------ Profit for the year 11.3 2.1 0.8 (0.1) 0.6 14.7 ------------------------------------------------------------ Appendix 2. Reconciliation of consolidated income statement from UK GAAPto IFRS for the period ended 30 June 2006 (Unaudited) Adjustments Per UK GAAP d IFRS restated IAS 39 Total Financial instruments £'m £'m £'mContinuing operationsRevenue 128.2 128.2 ------------------------------------- Operating profit 4.0 0.5 4.5 Finance costs (0.3) (0.3) Finance income 0.8 0.1 0.9 ------------------------------------- Profit before tax 4.5 0.6 5.1 Taxation (1.2) (1.2) ------------------------------------- Profit from continuing operations 3.3 0.6 3.9 ------------------------------------- Discontinued operations -------------------------------------Profit from discontinued operations 0.2 (0.1) 0.1 ------------------------------------- Profit for the period 3.5 0.5 4.0 ------------------------------------- Appendix 3. Reconciliation of consolidated balance sheet from UK GAAP to IFRS at31 December 2006 (Unaudited) Per UK Adjustments IFRS GAAP restated a b c d e f g Total IAS 32 IFRS 3 IAS 19 IAS 39 IAS 38 IAS 12 IFRS 1 Preference Business Retirement Financial Intangible Income First-time shares combinations benefits instruments assets taxes adoption classificationAssets £m £m £m £m £m £m £m £m £mNon currentassetsGoodwill 15.0 0.2 (1.2) 0.3 14.3Intangible 1.1 1.1assetsProperty, plant andequipment 32.0 32.0Investments accounted forusing equitymethod 0.1 0.1Retirement benefit asset 10.9 (2.8) 8.1Deferred tax assets 5.4 (0.6) 4.8 ---------------------------------------------------------------------------------------------- 63.4 0.2 (2.8) (0.1) (0.3) 60.4 ---------------------------------------------------------------------------------------------- CurrentassetsInventories 8.3 8.3Trade and otherreceivables 78.2 78.2Financialassets- Derivative 0.3 0.3financialinstrumentsCash and cash equivalents 15.3 15.3Restricted cash 40.1 40.1 ----------------------------------------------------------------------------------------------- 141.9 0.3 142.2 ----------------------------------------------------------------------------------------------- LiabilitiesCurrentliabilitiesFinancialliabilities- Borrowings (13.3) (13.3)- Derivative (0.1) (0.1)financialinstrumentsTrade and otherpayables (69.7) 2.2 (67.5)Current tax liabilities (3.3) (3.3) ------------------------------------------------------------------------------------------------ (86.3) 2.2 (0.1) (84.2) ------------------------------------------------------------------------------------------------ Net current assets 55.6 2.2 0.2 58.0 ------------------------------------------------------------------------------------------------ Non - currentliabilitiesFinancialliabilities- Borrowings (23.1) (0.3) (23.4)Retirement (2.2) (2.2)benefitliabilitiesDeferred tax (2.4) (0.3) (2.7)liabilitiesProvisions (14.9) (14.9) ------------------------------------------------------------------------------------------------ (38.0) (0.3) (4.6) (0.3) (43.2) ------------------------------------------------------------------------------------------------Net assets 81.0 (0.3) 0.2 (5.2) 0.2 (0.1) (0.6) 75.2 ================================================================================================ ShareholdersequityOrdinary shares 25.5 (0.3) 25.2Share premium 25.0 25.0Other reserves 2.0 0.2 (2.0) 0.2Retained earnings 28.5 0.2 (5.2) (0.1) (0.6) 2.0 24.8 -----------------------------------------------------------------------------------------------Total shareholders'equity 81.0 (0.3) 0.2 (5.2) 0.2 (0.1) (0.6) 75.2 =============================================================================================== Appendix 4. Reconciliation of consolidated balance sheet from UK GAAP to IFRS at 1January 2006 (Unaudited) Per UK Adjustments IFRS GAAP restated a c d f g Total IAS 32 IAS 19 IAS 39 IAS 12 IFRS 1 Preference Retirement Financial Income First shares benefits instruments taxes time classification adoptionAssets £m £m £m £m £m £m £mNon current assetsGoodwill 0.6 0.6Property, plant and equipment 29.4 29.4Investments accounted forusing equitymethod 0.2 0.2Retirement benefit asset 5.3 1.9 7.2Deferred tax assets 5.9 (1.9) 4.0 ---------------------------------------------------------------------- 41.4 1.9 (1.9) 41.4 ---------------------------------------------------------------------- Current assetsInventories 9.9 9.9Trade and other receivables 71.6 (0.5) 71.1Cash and cash equivalents 27.2 27.2 --------------------------------------------------------------------- 108.7 (0.5) 108.2 --------------------------------------------------------------------- LiabilitiesCurrentliabilitiesFinancialliabilities- Borrowings (1.8) (1.8)- Derivative (0.6) (0.6)financialinstrumentsTrade and other payables (61.0) 2.1 (58.9)Current tax liabilities (2.2) (2.2) ----------------------------------------------------------------------- (65.0) 2.1 (0.6) (63.5) ----------------------------------------------------------------------- Net current assets 43.7 2.1 (1.1) 44.7 --------------------------------------------------------------------- Non - currentliabilitiesFinancialliabilities- Borrowings (1.7) (0.3) (2.0)Retirement benefit liabilities (2.1) (2.1)Deferred tax liabilities (2.1) (2.1)Provisions (19.2) (19.2) ---------------------------------------------------------------------- (20.9) (0.3) (4.2) (25.4) ----------------------------------------------------------------------Net assets 64.2 (0.3) (0.2) (1.1) (1.9) 60.7 ======================================================================= ShareholdersequityOrdinary shares 25.5 (0.3) 25.2Share premium 25.0 25.0Other reserves 2.2 (0.5) (2.2) (0.5)Retained earnings 11.5 (0.2) (0.6) (1.9) 2.2 11.0 ----------------------------------------------------------------------Total shareholders'equity 64.2 (0.3) (0.2) (1.1) (1.9) 60.7 ====================================================================== Appendix 5. Reconciliation of consolidated balance sheet from UK GAAP to IFRS at30 June 2006 (Unaudited) Per UK Adjustments IFRS GAAP restated a c d f g Total IAS 32 IAS 19 IAS 39 IAS 12 IFRS 1 Preference Retirement Financial Income First shares benefits instruments taxes time classification adoptionAssets £m £m £m £m £m £m £mNon current assetsGoodwill 0.6 0.6Property, plant and equipment 29.4 29.4Investments accounted for usingequity method 0.1 0.1Retirement benefit asset 9.2 (1.6) 7.6Deferred tax assets 6.0 (1.9) 4.1 -------------------------------------------------------------------- 45.3 (1.6) (1.9) 41.8 -------------------------------------------------------------------- Current assetsInventories 8.7 8.7Trade and other receivables 82.7 82.7Cash and cash equivalents 10.5 10.5Restricted cash 40.1 40.1 --------------------------------------------------------------------- 142.0 142.0 --------------------------------------------------------------------- LiabilitiesCurrent liabilitiesFinancialliabilities- Borrowings (25.1) (25.1)- Derivative (0.1) (0.1)financialinstrumentsTrade and other payables (61.9) 2.2 (59.7)Current tax liabilities (2.4) (2.4) ---------------------------------------------------------------------- (89.4) 2.2 (0.1) (87.3) ---------------------------------------------------------------------- Net current assets 52.6 2.2 (0.1) 54.7 ---------------------------------------------------------------------- Non - currentliabilitiesFinancialliabilities- Borrowings (14.3) (0.3) (14.6)Retirement benefit liabilities (2.2) (2.2)Deferred tax liabilities (2.3) (2.3)Provisions (13.3) (13.3) ---------------------------------------------------------------------- (27.6) (0.3) (4.5) (32.4) ----------------------------------------------------------------------Net assets 70.3 (0.3) (3.9) (0.1) (1.9) 64.1 ====================================================================== Shareholders equityOrdinary shares 25.5 (0.3) 25.2Share premium 25.0 25.0Other reserves 2.2 (2.2)Retained earnings 17.6 (3.9) (0.1) (1.9) 2.2 13.9 ----------------------------------------------------------------------Total shareholders' equity 70.3 (0.3) (3.9) (0.1) (1.9) 64.1 ====================================================================== Appendix 6. Reconciliation of consolidated cash flow statement from UK GAAP toIFRS for the year ended 31 December 2006 (Unaudited) UK IFRS 3 IAS 38 IAS 39 IFRS GAAP Business Intangibles Financial restated combinations instruments £m £m £m £m Cash flows from operatingactivitiesContinuing operationsProfit for the period 14.3 0.2 (0.1) 0.5 14.9Depreciation 6.8 6.8Amortisation 0.2 (0.2) 0.1 0.1Share option charge 0.4 0.4Payment of scheme creditors 0.9 0.9 Changes in working capital(excluding the effects ofacquisitions and disposals)Increase in inventories (2.3) (2.3)Increase in receivable (10.9) (10.9)Increase in payables 8.0 (0.5) 7.5Decrease in provisions (3.1) (3.1) ------------------------------------------------------Cash generated from continuing operations 14.3 14.3 ------------------------------------------------------ Discontinued operationsNet (loss)/profit (0.5) 1.9 0.2 1.6Depreciation 0.1 0.1Profit on sale of property (1.8) (1.8)Loss on disposal of business 1.6 (1.9) (0.3)Difference between pension charge and cashcontributions 0.6 0.6Increase in inventories (0.9) (0.9)Decrease in receivable 6.1 6.1Decrease in payables (4.6) (0.2) (4.8)Decrease in provisions (1.2) (1.2) ------------------------------------------------------Cash outflow from discontinued (0.6) (0.6) ------------------------------------------------------ Cash generated from operating activities 13.7 13.7Scheme funding - transfer to restricted cash (40.0) (40.0) ------------------------------------------------------Net cash absorbed by operating activities (26.3) (26.3) ------------------------------------------------------Interest received 1.3 1.3Interest received on restricted funds (1.0) (1.0) ------------------------------------------------------Net interest received 0.3 0.3Interest paid (1.7) (1.7)Issue costs of new bank loans (0.5) (0.5)Tax paid (1.4) (1.4) ------------------------------------------------------Net cash outflow from operating activities (29.6) (29.6) ------------------------------------------------------ Cash flows from investingactivitiesAcquisition of subsidiaries (net of cashacquired) (12.2) (12.2)Disposal of business 5.4 5.4Proceeds from sale of property, plant andequipment 3.5 3.5Purchase of property, plant and equipment (8.9) (8.9)Dividends received from joint ventures 0.2 0.2 ------------------------------------------------------- Net cash used in investing activities (12.0) (12.0) ------------------------------------------------------- Cash flows from financingactivitiesNet proceeds from issue of new bank loans 26.5 26.5Finance lease principal payments (1.5) (1.5) ------------------------------------------------------- Net cash received from financing activities 25.0 25.0 -------------------------------------------------------Exchange losses on cash, cash equivalents and bankoverdrafts (0.6) (0.6) -------------------------------------------------------Net decrease in cash, cash equivalents and bankoverdrafts (17.2) (17.2)Opening cash, cash equivalents and bankoverdrafts 26.3 26.3 ------------------------------------------------------- Closing cash, cash equivalents and bankoverdrafts 9.1 9.1 ------------------------------------------------------- Appendix 7. Reconciliation of consolidated cash flow statement from UK GAAP toIFRS for the period ended 30 June 2006 (Unaudited) UK GAAP IAS 39 IFRS Financial restated instruments £m £m Cash flows from operating activitiesContinuing operationsProfit for the period 4.0 0.5 4.5Depreciation 3.2 3.2AmortisationDifference between pension charge and cash contributions 0.1 0.1Payment of scheme creditors Changes in working capital (excluding the effects ofacquisitions and disposals)Decrease in inventories 1.5 1.5Increase in receivable (12.9) (12.9)Decrease in payables 4.7 (0.5) 4.2Decrease in provisions (4.4) (4.4) ------------------------------------Cash absorbed by continuing operations (3.8) (3.8) ------------------------------------ Discontinued operationsNet profit 0.2 (0.1) 0.1Depreciation 0.1 0.1Increase in inventories (0.4) (0.4)Decrease in receivable 0.9 0.9Decrease in payables (3.2) 0.1 (3.1)Decrease in provisions (1.5) (1.5) ------------------------------------Cash flow from discontinued (3.9) (3.9) ------------------------------------ Cash absorbed by operating activities (7.7) (7.7)Scheme funding - transfer to restricted cash (40.0) (40.0) ------------------------------------Net cash absorbed by operating activities (47.7) (47.7)Interest received 0.3 0.3Interest paid (0.4) (0.4)Tax paid (0.9) (0.9) ------------------------------------Net cash (outflow) / inflow from operating activities (48.7) (48.7) ------------------------------------ Cash flows from investing activitiesPurchase of property, plant and equipment (2.4) (2.4)Dividends received from joint ventures 0.1 0.1 ------------------------------------ Net cash used in investing activities (2.3) (2.3) ------------------------------------ Cash flows from financing activitiesNet proceeds from issue of new bank loans 15.0 15.0Finance lease principal payments (0.5) (0.5)Increase in short term borrowings 10.8 10.8 ------------------------------------ Net cash received from financing activities 25.3 25.3 ------------------------------------Exchange losses on cash, cash equivalents andbank overdrafts Net decrease in cash, cash equivalents and bank overdrafts (25.7) (25.7)Opening cash, cash equivalents and bank overdrafts 26.3 26.3 ------------------------------------ Closing cash, cash equivalents and bank overdrafts 0.6 0.6 ------------------------------------ This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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