7th Jun 2005 07:00
Croda International PLC07 June 2005 7 June 2005 CRODA INTERNATIONAL Plc STATEMENT ON THE TRANSITION TO INTERNATIONAL ACCOUNTING STANDARDS AND INTERNATIONAL FINANCIAL REPORTING STANDARDS Introduction Croda International Plc ("Croda") will be reporting its financial results inaccordance with International Accounting Standards (IAS) and InternationalFinancial Reporting Standards (IFRS) with effect from 1 January 2005. Thisunaudited statement presents the results for the six months ended 30 June 2004and the year ended 31 December 2004 restated to an IFRS basis. 2004 Full Year Highlights • Continuing operations' operating profit* of £47.1m compared to £47.3m under UK GAAP • Profit before tax from continuing operations* of £45.2m, the same as under UK GAAP • Pre-exceptional EPS under IFRS up to 22.8 pence from 22.2 pence under UK GAAP • Basic EPS up to 23.3 pence under IFRS compared to 20.1 pence under UK GAAP • UK GAAP net assets of £170.9m reduced to £89.6m under IFRS, principally due to the inclusion of the IAS 19 accounting deficit on the pension fund, resulting in gearing increasing to 17.0% from 8.7% • No change to Group cashflows. *Under IFRS the Group's share of the profits of associates is stated after tax,thereby including an element of tax in what are apparently pre-tax numbers.There is a corresponding reduction in the taxation figure in the incomestatement. Commenting on the statement, Barbara Richmond, Group Finance Director of Croda,said: "The main impact of the transition to IFRS is on the Group's balance sheet andits gearing. Primarily as a result of the change in pension fund accounting,Group net assets under IFRS are lower than their UK GAAP equivalent,consequently gearing rises to 17.0%. The impact of IFRS on the Group's incomestatement is very small, with underlying profits under IFRS almost unchangedfrom those reported under UK GAAP. The Group's underlying strong cash inflowclearly remains unchanged." For further information, please contact: Barbara Richmond, Group Finance Director Tel: 01405 860 551 Andrew Dowler, Financial Dynamics Tel: 0207 831 3113Charles Watenphul, Financial Dynamics Restatement of financial information for International Accounting Standards and International Financial Reporting Standards Introduction Croda historically prepared its primary financial statements for the years to 31December 2004 under UK Generally Accepted Accounting Practice (UK GAAP). For theyear to 31 December 2005 the Group is required to prepare its consolidatedfinancial statements in accordance with International Accounting Standards (IAS)and International Financial Reporting Standards (IFRS)* and Interpretations asadopted by the European Union (EU). The first results prepared under IFRS willbe the Group's interim results for the six months ending 30 June 2005. TheGroup's first Annual Report under IFRS will be for 2005. Basis of preparation The restated financial information has been prepared in accordance with IFRSunder the assumption that all existing standards in issue from the InternationalAccounting Standards Board (IASB) will be fully endorsed by the EU. The failureof the EU to endorse all of these standards for financial reporting in 2005, theissue of any new or revised standards, or the publishing of furtherinterpretation guidance, could result in changes to the financial informationpresented in this document. The financial information for the six months ended30 June 2004 and for the full year ended 31 December 2004, as prepared on theabove basis, is unaudited. IFRS 1 exemptions IFRS 1 'First Time Adoption of International Financial Reporting Standards',determines that the transition date for Croda will be 1 January 2004. It permitsthose companies adopting IFRS for the first time to take certain exemptions fromthe full requirements of IFRS during the transition period. Croda has taken the following key exemptions: • Business combinations - the Group has not restated business combinations prior to the transition date to an IFRS basis. • Financial Instruments - the Group has taken the exemption not to restate comparatives for IAS 32 and IAS 39. As a result, the information in this restatement and the comparative information in the 2005 financial statements will be presented on the existing UK GAAP basis. • Cumulative translation differences - under IAS 21, on disposal of a business, the cumulative amount of exchange differences previously 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. * References to IFRS throughout this document refer to the application ofInternational Accounting Standards and International Financial ReportingStandards. Accounting policy changes (a) IFRS 2 Share Based Payments In accordance with IFRS 2, Croda is required to recognise a charge to operatingprofit representing the fair value of (i) equity-settled share options grantedto employees after 7 November 2002 that had not vested by 1 January 2005 and(ii) cash-settled share options vesting after the transition date. The fairvalue has been calculated using recognised valuation models and is charged tothe income statement over the relevant vesting period. The charge is adjusted toreflect actual and expected levels of vesting, and for the expected achievementof any non-market performance conditions attached to each option. The impact in2004 is a charge of £0.3 million for the six months ended 30 June 2004 and £0.6million for the year ended 31 December 2004 at the operating profit level, witha corresponding small tax credit. (b) IAS 19 Employee Benefits Croda has historically accounted for retirement benefits in accordance with SSAP24 and has made disclosure only of the impact of FRS 17 'Retirement Benefits' inaccordance with the transitional requirements of that standard. The applicationof IAS 19, which in many respects is similar to FRS 17, represents a significantshift in Croda's accounting for such benefits and will lead to the figuressimilar to those disclosed in Croda's 2004 Annual Report in respect of FRS 17being brought into the accounts. Accordingly, the current SSAP 24 balance sheet prepayment (£32.5m at 31 December2004 net of amounts provided overseas) will be replaced with the IAS 19 deficitwhich compares the pension fund assets, measured at fair value, and liabilities,measured on an actuarial basis and discounted to present value (£104.1m at 31December 2004). The discount rate applied to the liabilities is prescribed inthe standard and gives rise to higher liabilities than the actuarial valuationswhich, typically, use higher discount rates. In the income statement, the current SSAP 24 charge, £6.1m for the 2004 fullyear, will be replaced with a net IAS 19 charge made up of the current servicecost, interest cost on scheme liabilities and expected return on pension fundassets totalling £5.1m for 2004. Hence, 2004 reported profits under IAS 19 willbe £1m higher than under UK GAAP before tax. Deferred tax will then be chargedat the rate prevailing in the reporting territory (see note (f) below). In addition, there will be a further charge or credit in respect of theunrealised actuarial movement arising from the actuarial revaluation of fundassets and liabilities at each year end. Croda's policy is to recognise anyactuarial gains and losses in full immediately in the statement of recognisedincome and expense. Whilst this is at odds with IAS 19 as originally drafted,which proposed a "corridor" approach with recognition only of actuarial gainsand losses in excess of a de-minimis threshold, there is an option to accountfor actuarial gains and losses in full within the IASB exposure draft "ActuarialGains and Losses, Group Plans and Disclosures". The draft was adopted by theIASB in December 2004 and is effective from 1 January 2006 with earlier adoptionallowed. Croda will apply the revised standard voluntarily from the transitiondate. (c) IFRS 3 Business Combinations IFRS 3 prohibits merger accounting and the amortisation of goodwill. Thestandard requires goodwill to be carried at cost with an annual impairmentreview. Under the transitional arrangements of IFRS 1: • All prior business combination accounting is frozen at the transition date; and • The value of goodwill is frozen at 1 January 2004 (£6.5m) and treated as cost from that date. The impact of removing the amortisation charge is to increase operating profitby £0.4 million in the year ended 31 December 2004 and by £0.2 million for thesix months ended 30 June 2004. IFRS 3 also prohibits an entity from recognising goodwill previously written offto reserves in the profit and loss account when it disposes of the business towhich the goodwill relates. Under UK GAAP, the Group's 2004 profit and lossaccount included a charge of £3.4m to discontinued operations in respect of suchgoodwill. Under IFRS, discontinued operations' profit after tax thus increasesby £3.4m. (d) IAS 32 and IAS 39 Financial Instruments IAS 32 and IAS 39 cover the accounting for, and reporting of, financialinstruments. IAS 32 covers disclosure and presentation whilst IAS 39 coversrecognition and measurement. The general principle of IAS 39 is that financialassets should be recognised at fair value and financial liabilities should berecognised at amortised cost. Accounting for the movements in fair value isdependent on the designation of the relevant financial instrument and whetherhedge accounting is applied. Under the transitional rules of IFRS 1, Croda willadopt IAS 32 and IAS 39 with effect from 1 January 2005. These standards could impact Croda in the following areas: (i) Transactional hedging Croda uses short term forward foreign currency contracts to hedge transactionexposures where appropriate. A documentation process has been put in place from1 January 2005 which should enable Croda to qualify for hedge accounting.However, at 30 June 2004 and 31 December 2004 the fair value of such contractswas immaterial and therefore there would have been no adjustment to the reportedresults in applying IAS 39 for transactional hedging. (ii) Interest rate hedging Croda manages its interest rate portfolio by utilising interest rate swaps whereappropriate. At present Croda has one such instrument to swap a portion of itsfixed rate US Dollar debt to a floating rate of interest. This hedginginstrument is designated as a fair value hedge of the exposure to changes in thefair value of the fixed rate debt as interest rates change. Once classified as ahedge, changes in the fair value of the hedged and hedging item should offseteach other and thus have no net effect on the income statement. IFRS requiresformal documentation of the hedge and regular monitoring to ensure that thehedge is effective for hedge accounting to be available. (iii) Embedded derivatives Embedded derivatives arise in loan instruments, leases or commercial contractsthat incorporate either implicit or explicit terms that behave like aderivative. Where a contract includes an embedded derivative which is notclosely related to the host contract, the derivative element must be accountedfor separately from the host contract. Croda has reviewed material contracts for evidence of such embedded derivativesand there are no instances which would have required restatement of previouslyreported results had IAS 32 and IAS 39 been required to be applied. (e) IAS 38 Intangible Assets Under IAS 38 Croda is required to recognise certain expenditure as an intangibleasset subject to certain specified criteria being met. The Group's policy underUK GAAP in respect of research and development expenditure was to expense suchcosts. Under IAS 38, research and development expenditure must be dividedbetween separate research and development phases, with research covering costsincurred in gaining new scientific or technical knowledge, such cost beingexpensed, whilst development costs are those incurred in applying thisknowledge, such costs being capitalised. To qualify as development expenditure there are a number of criteria theexpenditure must satisfy, covering the nature of the costs and the likelihood ofspecific future benefits. Having reviewed the Group's R&D expenditure profile,we are satisfied that none of our previous expenditure meets all the criteria,notably those of being able to reliably measure the costs attributable to theintangible asset and demonstrating the likelihood of future economic benefitswith sufficient certainty. Accordingly the Group is likely to continue toexpense all R&D expenditure. (f) IAS 12 Income taxes IAS 12 requires that deferred tax be provided in respect of revaluation gains onnon-monetary assets. Accordingly, a deferred tax provision has been establishedin respect of the Group's revaluation reserve. Upon subsequent disposal of arevalued property, the deferred tax provision relating to the revaluationsurplus on the disposed property is released to the profit and loss account.Accordingly, the Group's discontinued operations' profit after tax is increasedby £0.1m in 2004, being the deferred tax provided under IAS 12 on therevaluation gains of the Group properties disposed of in 2004. In addition, the rules relating to the provision of deferred tax on intercompany profit on stock are different under IAS 12, in that deferred tax shouldbe provided at the receiving company's tax rate not, as is the case under UKGAAP, the supplying company's rate. In total, this change reduces the Group'stax charge by £0.1m in 2004. The Group's deferred tax liability at 31 December 2004 is increased by a net£2.8m as a result of the above and the inclusion of a £1m deferred tax provisionin relation to unremitted earnings of overseas subsidiaries. As a consequence of the changes brought about by the implementation of IAS 19 asdiscussed at (b) above, and the requirement under IAS 12 that deferred taxassets and liabilities be shown separately on the face of the balance sheet, theGroup's balance sheet under IFRS includes a significant deferred tax assetbalance, £34.1m at 31 December 2004. (g) IAS 14 Segmental Reporting In future Croda will no longer use its previous Oleochemicals and Other segmentsbut will instead analyse the business between those of Consumer Care andIndustrial Specialities. In the light of IFRS we reviewed our reporting andconcluded that the new segments should reflect risk and return profiles in thelong term. For a number of years we have analysed the turnover of the Group intomarkets of Personal and Health Care, Home Care and Plastics Additives,Industrial Specialities, and Other. The Consumer Care segment combines thePersonal, Health and Home Care markets. All other markets comprise theIndustrial Specialities segment. (h) IAS 10 Events after the balance sheet date Under IAS 10, if dividends are declared after the balance sheet date, thedividends are not recognised as a liability at the balance sheet date. Inaddition, given that interim dividends are approved only by resolution of theboard, and are thus revocable and discretionary, such interim dividends shouldonly be recognised when paid. In summary, dividends on equity instruments shouldthus be recognised as liabilities as follows: • Final dividends - when authorised in general meeting by shareholders. • Interim dividends - when paid. The Group's net assets at 31 December 2004 are increased by £16.3m as a resultof adding back the 2004 final dividend not authorised until after the year endand the 2004 interim dividend not paid until after the year end. (i) IAS 18 Revenue IAS 18 provides more specific guidance than was previously available under UKGAAP for revenue recognition. One of the standard's five conditions for revenueto be recognised is that the significant risks and rewards of ownership havebeen transferred to the buyer. The main potential impact of this on Croda is inrespect of goods awaiting shipment where the insurance risk remains with theGroup. Although the goods have left Croda premises, there remains with Croda asignificant risk and accordingly the sale cannot be recognised until thesignificant risk is no longer with the Group. The above has no impact onreported results for 2004. (j) IAS 17 Leases IAS 17 provides for a more qualitative assessment than UK GAAP of whether alease arrangement qualifies as a finance lease. The Group has reviewed allsignificant lease agreements and one such agreement has been reclassified as afinance lease under IFRS. This reclassification has no significant impact onreported profits for 2004, but both fixed assets and net debt increase as aconsequence of the restatement (by £0.3m and £0.4m respectively). (k) IAS 33 Earnings per share (EPS) IAS 33 requires disclosure on the face of a published IFRS income statement ofbasic and diluted EPS for the total Group and separately for continuingoperations, the disclosure of continuing operations' EPS was not required underUK GAAP. The summary income statement below includes continuing operations' EPSfor 2004. Other disclosure changes IAS 1 'Presentation of financial statements' defines the presentationalrequirements for published financial statements prepared under IFRS. In mostrespects the requirements are in line with UK GAAP, with primary statementscovering profit and loss, balance sheet, cashflow and changes in equity.However, there are some items which are mandatory on the face of IFRS primarystatements which have not been previously separately disclosed under UK GAAP.These requirements give rise to the 'reclassify' column on the income statementand balance sheet reconciliations which are, in summary: • Associate's profit - under IFRS the Group's share of associate's profit as disclosed on the face of the income statement must be shown net of tax, under UK GAAP the Group's share of operating profit and tax were shown separately. As a consequence, Group operating profit and tax charge for the year ended December 2004 are both reduced by £0.8m. • Deferred tax - assets and liabilities must be disclosed separately to each other and distinct from provisions. Therefore, before any of the adjustments discussed above, provisions at 31 December 2004 are reduced by the net UK GAAP deferred tax provision of £20.4m, this balance is then disclosed as a liability of £23.3m and a separate asset of £2.9m. • Current liabilities - financial liabilities and current taxation liabilities must be separately disclosed on the face of the IFRS balance sheet. Therefore, at 31 December 2004, current financial liabilities of £15.5m, non-current financial liabilities of £31.7m and current taxation liabilities of £4.8m are separated from other liabilities. • Retirement benefit obligations - all obligations, whether UK or overseas, are disclosed as retirement benefit obligations on the face of the balance sheet. Accordingly, at 31 December 2004, £3.1m previously disclosed under accruals in respect of overseas pension provision is reclassified as a retirement benefit obligation. • Assets classified as held for sale - IFRS 5 specifies that any non-current asset whose carrying value will be recovered through a sale transaction as opposed to continuing use should be reclassified as a current asset 'held for sale' subject to certain criteria covering the availability of the asset for sale and the likelihood of the sale. During the first half of 2004, the Group disposed of a number of redundant properties which would have met the criteria for reclassification as assets held for sale at the previous year end. As a result, £0.7m, being the net book value of the properties at 31 December 2003, has been removed from property, plant and equipment at the date of transition and reclassified as the value of assets held for sale under current assets. Further presentational changes to the income statement are required in respectof discontinued operations. These are explained in detail in Appendix 2. For completeness and to aid familiarisation we have also taken the opportunityto present the cash flow, changes in equity, and recognised income and expensestatements in an IFRS format in Appendix 3. Conclusion The financial information included in this announcement has been prepared inline with the principles outlined above. These principles are in line withcurrent IFRS pronouncements, however, as noted above, the current suite of IFRShas yet to be fully endorsed by the EU. Accordingly, the financial informationshould not be used as an indicator of future adjustments between UK GAAP andIFRS due to the risk and uncertainty surrounding events in the standard settingenvironment in the future. That said, assuming the standards are endorsed, then the information providedrepresents the best possible indication of the impact of IFRS on Croda'sreported results. Whilst the impact on the balance sheet is significant, largelydue to the inclusion of the pension fund deficit, it should be noted that theimpact on the income statement and on the Group's cash position is minimal andthat there is no impact whatsoever on the Group's underlying cashflows. IFRS Financial StatementsSummarised Consolidated Income Statement 2004 2004Unaudited £m First half Full year Continuing operationsTurnover 146.5 291.1 Operating profit 23.5 47.1Net finance costs (1.1) (1.9)Profit before tax 22.4 45.2Taxation (7.5) (15.2)Profit after tax from continuing operations 14.9 30.0 Discontinued operations 0.5 0.7 Minority interest and preference dividends (0.2) (0.2) Profit attributable to ordinary shareholders 15.2 30.5 Earnings per share Pence per share Pence per share BasicUK GAAP 8.7 20.1IFRS - total 11.6 23.3IFRS - continuing operations 11.3 22.8 Basic before exceptionalsUK GAAP 11.0 22.2IFRS - total 11.2 22.8IFRS - continuing operations 11.3 22.8 DilutedUK GAAP 8.7 19.9IFRS - total 11.6 23.1IFRS - continuing operations 11.3 22.7 Diluted before exceptionalsUK GAAP 11.0 22.1IFRS - total 11.2 22.6IFRS - continuing operations 11.3 22.7 Segmental Information £m 2004 First half 2004 Full year TurnoverConsumer Care 93.9 187.3Industrial Specialities 52.6 103.8 146.5 291.1 Operating profitConsumer Care 20.3 40.7Industrial Specialities 3.2 6.4 23.5 47.1 IFRS Financial Statements (continued) Summarised Consolidated Balance Sheet June DecemberUnaudited £m 2004 2004 AssetsNon-current assetsProperty, plant and equipment 130.1 127.4Intangible assets 6.5 6.5Investments 11.2 10.9Deferred tax assets 32.4 34.1 180.2 178.9 Current assetsInventories 52.1 52.0Trade and other receivables 59.0 54.9Cash and cash equivalents 28.2 32.4 139.3 139.3 LiabilitiesCurrent liabilitiesTrade and other payables (51.7) (42.1)Borrowings and other financial liabilities (17.9) (15.9)Current tax liabilities (6.1) (4.8) (75.7) (62.8) Net current assets 63.6 76.5 Non-current liabilitiesBorrowings and other financial liabilities (30.6) (31.7)Other payables (0.9) (0.9)Provisions (14.0) (13.6)Retirement benefit obligations (99.9) (104.1)Deferred tax liabilities (13.9) (15.5) (159.3) (165.8)Net assets 84.5 89.6 Equity shareholders' funds 83.3 88.8Minority interests 1.2 0.8Total equity 84.5 89.6 Reconciliation of reported profits for the half year ended 30 June 2004 Unaudited £m 2004 Reclassify IAS 19 IFRS 2 IFRS 3 IAS 12 2004 First half Employee Share Business Income First half as reported benefits based combinations taxes restated under UK payments under IFRS GAAP* Continuing operationsTurnover 146.5 - - - - - 146.5 Operating profit 23.7 (0.5) 0.4 (0.3) 0.2 - 23.5Net finance costs (1.2) - 0.1 - - - (1.1)Profit before tax 22.5 (0.5) 0.5 (0.3) 0.2 - 22.4Taxation (7.9) 0.5 (0.2) 0.1 - - (7.5)Profit after tax from continuing 14.6 - 0.3 (0.2) 0.2 - 14.9operations Discontinued operations (3.0) - - - 3.4 0.1 0.5 Minority interest and preference (0.2) - - - - - (0.2)dividends Profit attributable to ordinary 11.4 - 0.3 (0.2) 3.6 0.1 15.2shareholders * the figures 'as reported under UK GAAP' have been reclassified from the UKGAAP headings to give a format consistent with that required under IFRS. Appendix 2 provides an explanation of these classification differences. Reconciliation of reported profits for the year ended 31 December 2004 Unaudited £m 2004 Reclassify IAS 19 IFRS 2 IFRS 3 IAS 12 2004 Full year Employee Share Business Income Full year as reported benefits based combination taxes restated under UK payments under IFRS GAAP* Continuing operationsTurnover 291.1 - - - - - 291.1 Operating profit 47.3 (0.8) 0.8 (0.6) 0.4 - 47.1Net finance costs (2.1) - 0.2 - - - (1.9)Profit before tax 45.2 (0.8) 1.0 (0.6) 0.4 - 45.2Taxation (15.9) 0.8 (0.4) 0.2 - 0.1 (15.2)Profit after tax from continuing 29.3 - 0.6 (0.4) 0.4 0.1 30.0operations Discontinued operations (2.8) - - - 3.4 0.1 0.7 Minority interest and preference (0.2) - - - - - (0.2)dividends Profit attributable to ordinary 26.3 - 0.6 (0.4) 3.8 0.2 30.5shareholders * the figures 'as reported under UK GAAP' have been reclassified from the UKGAAP headings to give a format consistent with that required under IFRS. Appendix 2 provides an explanation of these classification differences. Reconciliation of opening IFRS balance sheet Unaudited £m 2003 Reclassify IAS 19 IFRS 2 IFRS 3 IAS 12 IAS 10 IAS 17 2003 year end year end as Employee Share based Business Income Post Leases as reported benefits payments combinations taxes balance reported under UK sheet under GAAP events IFRSAssetsNon-current assetsProperty, plant and 132.9 (0.7) - - - - - 0.4 132.6equipmentIntangible assets 6.5 - - - - - - - 6.5Investments 10.9 - - - - - - - 10.9Deferred tax assets - 2.8 29.6 0.1 - - - - 32.5 150.3 2.1 29.6 0.1 - - - 0.4 182.5 Current assetsInventories 51.8 - - - - - - - 51.8Trade and other 57.3 - - - - - - - 57.3receivablesCash and cash equivalents 27.8 - - - - - - - 27.8Assets classified as held - 0.7 - - - - - - 0.7for sale 136.9 0.7 - - - - - - 137.6LiabilitiesCurrent liabilitiesTrade and other payables (86.9) 29.0 - (0.2) - - 15.5 - (42.6)Borrowings and other - (20.1) - - - - - (0.5) (20.6)financial liabilitiesCurrent tax liabilities - (5.2) - - - - - - (5.2) (86.9) 3.7 - (0.2) - - 15.5 (0.5) (68.4) Net current assets 50.0 4.4 - (0.2) - - 15.5 (0.5) 69.2 Non-current liabilitiesBorrowings and other - (36.7) - - - - - - (36.7)financial liabilitiesOther payables (37.6) 36.7 - - - - - - (0.9)Provisions (32.2) 18.2 - - - - - - (14.0)Retirement benefit 33.1 (3.7) (130.2) - - - - - (100.8)obligationsDeferred tax liabilities - (21.0) 10.0 - - (3.0) - - (14.0) (36.7) (6.5) (120.2) - - (3.0) - - (166.4)Net assets 163.6 - (90.6) (0.1) - (3.0) 15.5 (0.1) 85.3 Equity shareholders' 162.4 - (90.6) (0.1) - (3.0) 15.5 (0.1) 84.1fundsMinority interests 1.2 - - - - - - - 1.2Total equity 163.6 - (90.6) (0.1) - (3.0) 15.5 (0.1) 85.3 Reconciliation of balance sheet at 30 June 2004 Unaudited £m June Reclassify IAS 19 IFRS 2 IFRS 3 IAS 12 IAS 10 IAS 17 June 2004 as 2004 as reported Employee Share based Business Income Post Leases reported under UK benefits payments combinations taxes balance under GAAP sheet IFRS eventsAssetsNon-current assetsProperty, plant and 129.7 - - - - - - 0.4 130.1equipmentIntangible assets 6.3 - - - 0.2 - - - 6.5Investments 11.2 - - - - - - - 11.2Deferred tax assets - 2.8 29.4 0.2 - - - - 32.4 147.2 2.8 29.4 0.2 0.2 - - 0.4 180.2 Current assetsInventories 52.1 - - - - - - - 52.1Trade and other 59.0 - - - - - - - 59.0receivablesCash and cash equivalents 28.2 - - - - - - - 28.2 139.3 - - - - - - - 139.3 LiabilitiesCurrent liabilitiesTrade and other payables (83.9) 27.2 - (0.4) - - 5.4 - (51.7)Borrowings and other - (17.4) - - - - - (0.5) (17.9)financial liabilitiesCurrent tax liabilities - (6.1) - - - - - - (6.1) (83.9) 3.7 - (0.4) - - 5.4 (0.5) (75.7) Net current assets 55.4 3.7 - (0.4) - - 5.4 (0.5) 63.6 Non-current liabilitiesBorrowings and other - (30.6) - - - - - - (30.6)financial liabilitiesOther payables (31.5) 30.6 - - - - - - (0.9)Provisions (32.2) 18.2 - - - - - - (14.0)Retirement benefit 33.5 (3.7) (129.7) - - - - - (99.9)obligationsDeferred tax liabilities - (21.0) 10.0 - - (2.9) - - (13.9) (30.2) (6.5) (119.7) - - (2.9) - - (159.3)Net assets 172.4 - (90.3) (0.2) 0.2 (2.9) 5.4 (0.1) 84.5 Equity shareholders' 171.2 - (90.3) (0.2) 0.2 (2.9) 5.4 (0.1) 83.3fundsMinority interests 1.2 - - - - - - - 1.2Total equity 172.4 - (90.3) (0.2) 0.2 (2.9) 5.4 (0.1) 84.5 Reconciliation of balance sheet at 31 December 2004 Unaudited £m 2004 year Reclassify IAS 19 IFRS 2 IFRS 3 IAS 12 IAS 10 IAS 17 2004 end as year end reported Employee Share Business Income Post Leases as under UK benefits based combinations taxes balance reported GAAP payments sheet under events IFRSAssetsNon-current assetsProperty, plant and 127.1 - - - - - - 0.3 127.4equipmentIntangible assets 6.1 - - - 0.4 - - - 6.5Investments 10.9 - - - - - - - 10.9Deferred tax assets - 2.9 30.8 0.3 - 0.1 - - 34.1 144.1 2.9 30.8 0.3 0.4 0.1 - 0.3 178.9 Current assetsInventories 52.0 - - - - - - - 52.0Trade and other 54.9 - - - - - - - 54.9receivablesCash and cash equivalents 32.4 - - - - - - - 32.4 139.3 - - - - - - - 139.3 LiabilitiesCurrent liabilitiesTrade and other payables (81.5) 23.4 - (0.3) - - 16.3 - (42.1)Borrowings and other financial - (15.5) - - - - - (0.4) (15.9)liabilitiesCurrent tax liabilities - (4.8) - - - - - - (4.8) (81.5) 3.1 - (0.3) - - 16.3 (0.4) (62.8) Net current assets 57.8 3.1 - (0.3) - - 16.3 (0.4) 76.5 Non-current liabilitiesBorrowings and other - (31.7) - - - - - - (31.7)financial liabilitiesOther payables (32.6) 31.7 - - - - - - (0.9)Provisions (34.0) 20.4 - - - - - - (13.6)Retirement benefit 35.6 (3.1) (136.6) - - - - - (104.1)obligationsDeferred tax liabilities - (23.3) 10.7 - - (2.9) - - (15.5) (31.0) (6.0) (125.9) - - (2.9) - - (165.8)Net assets 170.9 - (95.1) - 0.4 (2.8) 16.3 (0.1) 89.6 Equity shareholders' 170.1 - (95.1) - 0.4 (2.8) 16.3 (0.1) 88.8fundsMinority interests 0.8 - - - - - - - 0.8Total equity 170.9 - (95.1) - 0.4 (2.8) 16.3 (0.1) 89.6 Appendix 1 Croda International Plc IFRS Accounting Policies Appendix 1 provides a summary of Croda's new Group accounting policies underIFRS. Where policies have changed under IFRS, this is indicated by an asterisk. Accounting Policies Basis of accounting As set out in the Basis of Preparation, the restated financial information forthe half year to 30 June 2004, the full year to 31 December 2004 and the openingbalance sheet at 1 January 2004, have been prepared in accordance withInternational Accounting Standards (IAS) and International Financial ReportingStandards (IFRS) issued by the International Accounting Standards Board (IASB). The accounting policies assume that all existing standards in issue from theIASB will be fully endorsed by the EU. Early adoption of standards In 2005, the Group has early adopted the amended version of IAS 19 'EmployeeBenefits' issued by the IASB in December 2004. The early adoption enables theGroup to recognise actuarial gains and losses in respect of its defined benefitpension plans immediately in full in the statement of recognised income andexpense. This approach is in line with UK GAAP under FRS 17 and will be appliedto all published figures commencing with the 2005 Interim Report. Group accounts Subsidiaries Subsidiaries are entities controlled by the Group. Control exists when the Grouphas the power, directly or indirectly, to govern the financial and operatingpolicies of an entity so as to obtain benefits from its activities. In assessingcontrol, potential voting rights that are presently exercisable or convertibleare taken into account. The financial statements of subsidiaries are included inthe consolidated financial statements from the date that control commences untilthe date that control ceases. Associates Associated undertakings are those companies in which the Group has a beneficialinterest of between 20% and 50% in the equity capital and where the Groupexercises significant influence over commercial and financial policy decisions.The consolidated income statement includes the Group's share of post-acquisitionprofits, the consolidated statement of recognised income and expense includesthe Group's share of other recognised gains and losses, and the consolidatedbalance sheet includes the Group's share of the underlying net tangible assetsof associated undertakings. Intangible assets* Goodwill* On the acquisition of a business, fair values are attributed to the net assetsacquired. Goodwill arises where the fair value of the consideration given for abusiness exceeds such net assets. Goodwill arising on acquisitions iscapitalised and subject to impairment review, both annually and when there areindications that the carrying value may not be recoverable. Goodwill isallocated to income generating units for the purpose of this impairment testing.Goodwill arising on acquisitions after 31 December 1997 and prior to 1 January2004 was amortised over its estimated useful life; such amortisation ceased on31 December 2003. Goodwill arising on acquisitions made prior to 31 December1997 was written off directly to reserves in the year of acquisition, as amatter of accounting policy, and under IFRS 1 and IFRS 3 such goodwill willremain eliminated against reserves and will not be written back to the profitand loss account in the event of disposal. Research and development* Research expenditure, undertaken with the prospect of gaining new scientific ortechnical knowledge and understanding, is charged to income in the year in whichit is incurred. Internal development expenditure, whereby research findings areapplied to a plan for the production of new or substantially improved productsor processes, is charged to income in the year in which it is incurred unless itmeets the recognition criteria of IAS 38 'Intangible Assets'. Measurement andother uncertainties generally mean that such criteria are not met. Where,however, the recognition criteria are met, intangible assets are capitalised andamortised over their useful economic lives from product launch. Intangibleassets relating to products in development are subject to impairment testing ateach balance sheet date or earlier upon indication of impairment. Any impairmentlosses are written off immediately to income. Computer software Acquired computer software licences covering a period of greater than one yearare capitalised on the basis of the costs incurred to acquire and bring to usethe specific software. These costs are amortised over their estimated usefullives (three to five years). Revenue recognition* Sales of goods Turnover comprises the fair value for the sale of goods, excludes inter-companysales and value-added taxes and represents net invoice value less estimatedrebates, returns and settlement discounts. Group sales are recognised asturnover in the period in which the significant risks and rewards of ownershiphave been transferred to a third party. Interest and dividend income Interest income is recognised on a time-proportion basis using the effectiveinterest method. Dividend income is recognised when the right to receive payment is established. Employee Benefits* Pension obligations The Group accounts for pensions and similar benefits under IAS 19 'EmployeeBenefits'. In respect of defined benefit plans (pension plans that define anamount of pension benefit that an employee will receive on retirement, usuallydependent on one or more factors such as age, years of service andcompensation), obligations are measured at discounted present value whilst planassets are recorded at fair value. The liability recognised in the balance sheetin respect of defined benefit pension plans is the net of the plan obligationsand assets. No allowance is made in the past service liability in respect ofeither the future expenses of running the schemes or for non-service relateddeath in service benefits which may arise in the future. The operating andfinancing costs of such plans are recognised separately in the income statement;service costs are spread systematically over the lives of employees andfinancing costs are recognised in the periods in which they arise. Actuarialgains and losses are recognised immediately in the statement of recognisedincome and expense. Payments to defined contribution schemes (pension plansunder which the Group pays fixed contributions into a separate entity) arecharged as an expense as they fall due. Other post-retirement benefits Some Group companies provide post-retirement healthcare benefits to theirretirees. The entitlement to these benefits is usually conditional on theemployee remaining in service up to retirement age and the completion of aminimum service period. The expected costs of these benefits are accrued overthe period of employment using an accounting methodology similar to that fordefined benefit pension plans. Actuarial gains and losses are recognisedimmediately in the statement of recognised income and expense. These obligationsare valued annually by independent qualified actuaries. Share based payments* The fair value of employee share option plans is calculated using theBlack-Scholes or binomial model as appropriate. In accordance with IFRS 2'Share-based Payments' the resulting cost is charged to the income statementover the vesting period of the options. The value of the charge is adjusted toreflect expected and actual levels of options vesting as the Group does not usemarket-based performance criteria. Currency translations Functional and presentation currency Items included in the financial statements of each of the Group's entities aremeasured using the currency of the primary economic environment in which theentity operates ('the functional currency'). The consolidated financialstatements are presented in sterling, which is the Company's functional andpresentation currency. Transactions and balances Assets and liabilities are translated at the exchange rates ruling at the end ofthe financial period. Exchange profits or losses on trading transactions areincluded in the Group income statement except when deferred in equity asqualifying cash flow hedges and qualifying net investment hedges, which, alongwith other exchange differences arising from non-trading items are dealt withthrough reserves. Currency translations (continued) Group companies The results and financial position of all the Group entities that have afunctional currency different from the presentation currency are translated intothe presentation currency as follows: (i) assets and liabilities for each balance sheet presented are translated atthe closing rate at the date of that balance sheet;(ii) income and expenses for each income statement are translated at averageexchange rates(unless this average is not a reasonable approximation of the cumulative effectof the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and(iii) all resulting exchange differences are recognised as a separate componentof equity. On consolidation, exchange differences arising from the translation of the netinvestment in foreign entities, and of borrowings and other currency instrumentsdesignated as hedges of such investments, are taken to shareholders' equity.When a foreign operation is sold, such exchange differences are recognised inthe income statement as part of the gain or loss on sale. Taxation* The charge for taxation is based on the profits for the year and takes intoaccount taxation deferred because of temporary differences between the treatmentof certain items for taxation and for accounting purposes. Temporary differencesarise from the inclusion of profits and losses in the accounts in differentperiods from which they are recognised in tax assessments and primarily arise asa result of the difference between tax allowances on tangible fixed assets andthe corresponding depreciation charge, and upon the pension fund deficit. Fullprovision is made for the tax effects of these differences. No provision is madefor unremitted earnings of foreign subsidiaries where there is no commitment toremit such earnings. Similarly, no provision is made for temporary differencesrelating to investments in subsidiaries since realisation of such differencescan be controlled and is not probable in the foreseeable future. Tangible fixed assets The Group's policy is to write off the difference between the cost of alltangible fixed assets, except freehold land, and their residual value on astraight line basis over their estimated useful lives. Reviews are made annuallyof the estimated remaining lives and residual values of individual productiveassets, taking account of commercial and technological obsolescence as well asnormal wear and tear, and adjustments are made where appropriate. Under thispolicy it becomes impractical to calculate average assets lives exactly.However, the total lives range from approximately 15 to 40 years for buildings,and 3 to 15 years for plant and equipment. All tangible fixed assets arereviewed for impairment when there are indications that the carrying value maynot be recoverable. Leases Assets acquired under finance leases are included in the balance sheet undertangible fixed assets at an amount reflecting the fair value of the asset andare depreciated over the shorter of the lease terms and their estimated usefullives as above. The capital element of future lease rentals is included increditors. Finance charges are allocated to the profit and loss account eachyear in proportion to the capital element outstanding. The cost of operatingleases is charged to the profit and loss account as incurred. Derivative financial instruments* The Group uses derivative financial instruments to hedge its exposure tointerest rates and short-term currency rate fluctuations. Financial instrumentsare recorded initially at cost. Subsequent measurement depends on thedesignation of the instrument as either: (i) a hedge of the fair value ofrecognised assets or liabilities or a firm commitment (fair value hedge); or(ii) a hedge of highly probable forecast transactions (cash flow hedge); (i) Fair value hedge Changes in the fair value of derivatives, for example interest rate swaps andforeign exchange contracts, that are designated and qualify as fair value hedgesare recorded in the income statement, together with any changes in the fairvalue of the hedged asset or liability that are attributable to the hedged risk. (ii) Cash flow hedge The effective portion of changes in the fair value of derivatives that aredesignated and qualify as cash flow hedges are recognised in equity. The gain orloss relating to the ineffective portion is recognised immediately in the incomestatement. Amounts accumulated in equity are recycled in the income statement inthe periods when the hedged item will affect profit or loss (for instance whenthe forecast sale that is hedged takes place). However, when the forecasttransaction that is hedged results in the recognition of a non-financial asset(for example, inventory) or a liability, the gains and losses previouslydeferred in equity are transferred from equity and included in the initialmeasurement of the cost of the asset or liability. When a hedging instrumentexpires or is sold, or when a hedge no longer meets the criteria for hedgeaccounting, any cumulative gain or loss existing in equity at that time remainsin equity and is recognised when the forecast transaction is ultimatelyrecognised in the income statement. When a forecast transaction is no longerexpected to occur, the cumulative gain or loss that was reported in equity isimmediately transferred to the income statement. Certain derivative instruments do not qualify for hedge accounting. Changes inthe fair value of any derivative instruments that do not qualify for hedgeaccounting are recognised immediately in the income statement. Inventories Stocks are stated at the lower of cost and net realisable amount on a first infirst out basis. Cost comprises all expenditure, including related productionoverheads, incurred in the normal course of business in bringing the stock toits location and condition at the balance sheet date. Net realisable amount isthe estimated selling price in the ordinary course of business less anyapplicable variable selling costs. Provision is made for obsolete, slow movingand defective stock where appropriate. Profits arising on intra Group sales areeliminated in so far as the product remains in Group stock at the year end. Environmental provisions The Group is exposed to environmental liabilities relating to its operations.Provisions are made immediately where a constructive or legal obligation isidentified, can be quantified and it is regarded as more likely than not that anoutflow of resources will be required to settle the obligation. Investment in own shares Employee Share Ownership Trusts Shares acquired by the Trustees, funded by the Company and held for thecontinuing benefit of the Company are shown as a reduction in shareholders'funds. Movements in the year arising from additional purchases by the Trusteesof shares or the receipt of funds due to the exercise of options by employees are accounted for within reserves and shown as a movement in shareholders' funds in the year. Administration expenses of the trusts are charged to the Company's profit and loss account as incurred. Treasury shares Where any Group company purchases the Company's equity share capital as Treasuryshares, the consideration paid, including any directly attributable incrementalcosts (net of income taxes) is deducted from equity attributable to theCompany's equity holders until the shares are cancelled, reissued or disposedof. Where such shares are subsequently sold or reissued, any considerationreceived, net of any directly attributable incremental transaction costs and therelated income tax effects, is included in equity attributable to the Company'sequity holders.Related Shares:
Croda International