13th Oct 2005 13:05
Thursday 13 October 2005 STOCK EXCHANGE ANNOUNCEMENT LIONTRUST ASSET MANAGEMENT PLC Financial Information on the transition to International Financial Reporting Standards INTRODUCTIONIn July 2002 the European Union (`EU') approved a regulation requiring all EUlisted companies to prepare consolidated financial information in accordancewith International Financial Reporting Standards (`IFRS'). The regulationapplies to accounting periods beginning on or after 1 January 2005. LiontrustAsset Management PLC (the `Company') will publish its 2005 Interim Report inaccordance with the basis of preparation (as defined in this document) and its2006 Annual Report and Accounts in accordance with IFRS.This announcement has been prepared in order to provide financial informationon the impact of the Company's transition from preparing financial informationunder a UK Generally Accepted Accounting Principles (`UK GAAP') basis to anIFRS basis, in advance of the publication of its first financial reportingunder IFRS.The financial information is set out as follows: i. Principal accounting policies. ii. Financial information for the year ended 31 March 2005 showing the consolidated balance sheet at 1 April 2004 (the transition date to IFRS for the Company), the consolidated income statement, the consolidated balance sheet at 31 March 2005, the consolidated cash flow statement, the consolidated statement of changes in equity. iii. Explanatory notes on the impact of IFRS adjustments on the consolidated income statement, consolidated balance sheet as at 1 April 2004 and consolidated balance sheet as at 31 March 2005. Having completed the exercise to determine the impact of the transition from UKGAAP to IFRS we feel it is prudent to allow some extra time to prepare ourinterim results. We therefore expect to announce our interim results bymid-November 2005.For further information please contact:Liontrust Asset Management PLC:Vinay Abrol Tel: 020-7412 1700JP Morgan Cazenove Limited:Richard Locke Tel: 020-7155 4706PRINCIPAL ACCOUNTING POLICIESIn order to comply with IFRS and to prepare for the transition, the Company hasundertaken an exercise to summarise the differences between the previous UKGAAP prepared financial statements and the same information in an IFRS format.In doing this the Company has considered the effects of each IFRS standard inrelation to the Company's operations and has ensured that all affected areashave been analysed to ensure appropriate compliance with the relevant IFRSstandard. This process has led to the updating of the Company's accountingpolicies as detailed below. a. Basis of preparation The financial information has been prepared under the historical costconvention (except for the measurement of financial assets at fair valuethrough profit or loss which are held at their fair value) and in accordancewith applicable accounting standards. IFRS 1 'First-time Adoption ofInternational Financial Reporting Standards' sets out how a company shouldapply IFRS at transition. The standard requires a company to use accountingpolicies that comply with each IFRS effective at the reporting date for itsfirst IFRS financial statements and apply those policies retrospectively to allperiods presented in those statements. The standard does, however, allow anumber of exemptions to this general principle to assist the transition and theCompany has taken advantage of these exemptions where appropriate.The preparation of financial information in conformity with generally acceptedaccounting principles requires the Directors of the Company to make judgementsand assumptions that affect the reported amounts of assets and liabilities anddisclosure of contingencies at the date of the financial information and thereported income and expense during the reporting periods. Although thesejudgements and assumptions are based on the Directors' best knowledge of theamount, events or actions, actual results may differ from these estimates. Theaccounting policies set out below have been used to prepare the financialinformation.The financial information has been prepared based on the IFRS standardseffective as at 13 October 2005. The effect of the changes resulting from theCompany's transition to reporting under IFRS may be subject to change. This isbecause there is the possibility that further standards and interpretations maybe issued which apply to the Company's first financial statements under IFRS.In addition, different accounting practice might develop between now and theCompany's first financial statements under IFRS.PRINCIPAL ACCOUNTING POLICIES (Continued) b. First time adoption of IFRS Under IFRS 1 `First-time adoption of International Financial ReportingStandards' there are a number of exemptions from other IFRS which may beutilised at the point of initial adoption. The Company has taken advantage oftwo of these exemptions as follows:The Company has elected, for share based payments made prior to 7 November2002, not to calculate a charge to the income statement.IFRS 1 includes specific transitional provisions for IAS 32 and 39. The Companyhas decided to take advantage of these provisions and therefore has not appliedthese standards to the comparative figures, under which, financial instrumentsare included using the measurement bases and the disclosure requirements of UKGAAP relating to financial instruments. c. Basis of consolidation The consolidated financial information incorporates the results of the Companyand all its subsidiaries. d. Fixed assets and depreciation Leasehold improvements and furniture are included at cost and are depreciatedover the lower of the estimated useful life and the lease term which is tenyears.Office equipment is included at cost and is depreciated over the estimateduseful life of the asset, which is between three and ten years.Computer equipment is included at cost and is depreciated over the estimateduseful life of the asset which is three years.At each reporting date management reviews its fixed assets and assesses whetherany assets may be impaired. e. Short term investments The Company holds short term investments, which are unit trust units held inthe `manager's box' to ease the calculation of daily creations andcancellations of units. These box positions are not held to create speculativeproprietary positions but are managed in accordance with specified criteria andauthorisation limits.PRINCIPAL ACCOUNTING POLICIES (Continued)Accounting polices applicable up to 31 March 2005.The manager's box is held in the balance sheet at the lower of cost and netrealisable value.Accounting policy applicable from 1 April 2005These units are held at fair value through profit or loss and are valued on abid price basis. f. Cash and cash equivalents Cash comprises cash on hand and demand deposits. Cash equivalents areshort-term, highly liquid investments that are readily convertible to knownamounts of cash and which are subject to an insignificant risk of change invalue. Under IFRS cash and cash equivalents are included in the cash flowstatement. g. Own shares Own shares held by the Liontrust Asset Management Employee Trust are valued atcost and are shown as a deduction from the Group's shareholders' equity. Nogains or losses are recognised in the income statement. h. Operating leases Leases in which a significant portion of the risks and rewards of ownership areretained by the lessor are classified as operating leases. Payments made underoperating leases (net of any incentives received from the lessor) are chargedto the income statement on a straight-line basis over the period of the lease. i. Income and expenses Income and expenses are accounted for on an accruals basis when they becomereceivable or payable.Front end fees received and commissions paid on the sales of units in unitisedfunds are amortised over the estimated life of the unit.Performance fees are recognised in the period in which they become due andcollectable. Any portion of performance fees that are not due and collectable,and whose future entitlement is not certain, is not recognised but noted as acontingent asset.PRINCIPAL ACCOUNTING POLICIES (Continued) j. Deferred taxation Deferred taxation is accounted for on an undiscounted basis at expected taxrates on all differences arising from the inclusion of items of income andexpenditure in tax computations in periods different from those in which theyare included in the financial information. A deferred tax asset is onlyrecognised when it is more likely than not that an asset will be recoverable inthe foreseeable future out of suitable taxable profits from which theunderlying timing differences can be deducted. k. Pensions The Company operates defined contribution schemes for its employees. The assetsare invested with insurance companies and are held separately from the Company.The costs of the pension scheme are recognised in the consolidated incomestatement in the period in which they are incurred. l. Employee share options The Company operates a number of share options schemes for employees. Theservices received from the employees are measured by reference to the fairvalue of the share options. The fair value of the options issued is calculatedat grant date and is recognised in the consolidated income statement over thevesting period. IFRS 2 has been applied, in accordance with IFRS 1, to shareoptions granted after 7 November 2002 (note b). m. Dividends Equity dividends to the shareholders of the Company are recognised as aliability in the period during which they are declared. n. Holiday pay accrual Under IAS 19, all accumulating employee compensated absences that are unused atthe balance sheet date are recognised as a liability.LIONTRUST ASSET MANAGEMENT PLCConsolidated balance sheet Note As at IFRS As at 1 April Adjustments 1 April 2004 2004 ‚£'000 ‚£'000 ‚£'000 Under Under UK GAAP* IFRS Non current assets Property, plant and 299 299equipment 299 299 Current assets Debtors (b) 23,615 339 23,954 Deferred tax assets (e) - 233 233 Short term investments 197 197 Cash and cash equivalents 15,813 15,813 39,625 40,197 Liabilities Current liabilities Creditors (a),(c) (30,529) 2,214 (28,315) Accruals (b),(d) - (1,122) (1,122) (30,529) (29,437) Net current assets/ 9,096 10,760(liabilities) Net assets 9,395 11,059 Shareholders' equity Ordinary shares 350 350 Share premium 8,630 8,630 Retained earnings (a),(b), 7,082 1,664 8,746 (c),(d) Own shares held (6,667) (6,667) Total equity 9,395 11,059* UK GAAP balances under IFRS formatLIONTRUST ASSET MANAGEMENT PLCConsolidated income statement Note to 31 March IFRS to 31 March 2005 Adjustments 2005 ‚£'000 ‚£'000 ‚£'000 Under Under UK GAAP* IFRS Continuing operations Revenue (b) 676,773 193 676,966 Cost of sales (b) (649,274) (52) (649,236) Gross profit 27,499 27,640 Administrative expenses (a), (17,444) (393) (17,837) (d) Operating profit 10,055 9,803 Interest receivable 896 896 Profit before tax 10,951 10,699 Taxation (e) (3,168) (24) (3,192) Profit for the year 7,783 7,507 Dividends (c) (3,554) 658 (2,896) * UK GAAP balances under IFRS formatLIONTRUST ASSET MANAGEMENT PLCConsolidated balance sheet Note As at IFRS As at 31 March Adjustments 31 March 2005 2005 ‚£'000 ‚£'000 ‚£'000 Under Under UK GAAP* IFRS Non current assets Property, plant and 227 227equipment 227 227 Current assets Debtors (b) 30,847 287 31,134 Deferred tax assets (e) - 209 209 Short term investments 315 315 Cash and cash equivalents 26,140 26,140 57,302 57,798 Liabilities Current liabilities Creditors (a),(c) (44,235) 2,854 (41,381) Accruals (b),(d) - (932) (932) (44,235) (42,313) Net current assets/ 13,067 15,485(liabilities) Net assets 13,294 15,712 Shareholders' equity Ordinary shares 352 352 Share premium 8,878 8,878 Retained earnings (a),(b), 11,311 2,418 13,729 (c),(d) Own shares held (7,247) (7,247) Total equity 13,294 15,712* UK GAAP balances under IFRS formatLIONTRUST ASSET MANAGEMENT PLCConsolidated cash flow statement Note Year ended IFRS Year ended 31 March Adjustments 31 March 2005 2005 ‚£'000 ‚£'000 ‚£'000 Under Under UK GAAP* IFRS Cash flows from operating activities Cash inflow from operations 690,328 Cash outflow from operations (675,332) Net cash generated from 14,996 14,996operations Interest received 896 896 Tax paid (2,306) (2,306) Net cash from operating 13,586 13,586activities Cash flows from investing activities Purchase of property and (613) (613)equipment Net cash from investing (613) (613)activities Cash flows from financing activities Net proceeds from issue of 250 250new shares Dividends paid to (2,896) (2,896)shareholders Net cash used in financing (2,646) (2,646)activities Net increase in cash and cash 10,327 10,327equivalents Cash and cash equivalents at 15,813 15,8131 April 2004 Cash and cash equivalents at 26,140 26,140 31 March 2005 * UK GAAP balances under IFRS formatLIONTRUST ASSET MANAGEMENT PLCConsolidated statement of changes in equity Share Share Retained Own Total shares capital premium earnings held equity ‚£ '000 ‚£ '000 ‚£ '000 ‚£ '000 ‚£ '000 Balance at 350 8,630 7,082 (6,667) 9,395 1 April 2004 brought forward IFRS - - 1,664 - 1,664 adjustments Restated as 350 8,630 8,746 (6,667) 11,059 at 1 April 2004 Purchase of - - - (580) (580) shares by EBT Profit for - - 7,507 - 7,507 the period Total - - 7,507 - 7,507 recognised income for the year Dividends - - (2,896) - (2,896) Issue of 2 248 - - 250 share capital Equity - - 372 - 372 share options issued Balance at 352 8,878 13,729 (7,247) 15,712 31 March 2005 LIONTRUST ASSET MANAGEMENT PLCNotes regarding the IFRS adjustmentsThe notes below detail the changes to the financial information following theintroduction of IFRS. a. IFRS 2 Share based payments IFRS 2 sets out the accounting treatment in respect of the recognition andmeasurement of share based payments. It requires entities to recognise suchpayments within their financial information. Under the provisions of IFRS 2 theCompany is required to expense the fair value of the options granted to itsemployees to the income statement (known as profit and loss account under UKGAAP). The standard covers all options granted on or after 7 November 2002.Since 7 November 2002 the Company has granted 8 tranches of options toemployees via a number of schemes. Under the terms of the standard each of thetranches has been valued to calculate the charge to the income statement.In accordance with UK GAAP no charge was taken to the profit and loss account(known as the income statement under IFRS). Therefore, these charges have theeffect of reducing profits.Fair values have been calculated using a recognised option pricing model. Themodel and the fair value (charge) calculations have been prepared byindependent consultants.National insurance liability on the share based payments has been includedwithin creditorsThe charge to the income statement relating to options payments is as follows:Year ended 31 March 2004: ‚£186,544; Year ended 31 March 2005: ‚£372,427. b. IAS 18 Revenue IAS 18 sets out the accounting treatment in respect how and when to recogniserevenue. The interpretation of the standard has implications for thosecompanies involved in management of investments and unit trusts.Under IFRS (IAS 18) the interpretation is that initial fees received andcommissions paid on sales of units in unit trusts should be spread over thelife of the unit. This is because the cost and fee received relates to servicesprovided to a unitholder over the life of a unit.LIONTRUST ASSET MANAGEMENT PLCNotes regarding the IFRS adjustments (continued)The Company has calculated an estimated life of a unit and has applied this toits accounting adjustments. The resulting accounting adjustments are asfollows:The Company has recognised ‚£1,086,000 as a pre-receipt (Accrual) on the balancesheet as at 1 April 2004 relating to gross initial fees and has recogniseddeferred costs of ‚£339,000 relating to commissions paidFor the year ended 31 March 2005 the Company has recognised ‚£1,353,000 as netincome and it has also created a pre-receipt (Accrual) on the balance sheet asat 31 March 2005 of ‚£893,000 relating to gross initial fees and has recogniseddeferred costs of ‚£287,000 relating to commissions paid c. Dividends Under IAS 10 dividends to shareholders are not recognised as a liability untilthey are declared, at which point they become an obligation. The dividendcreditor of ‚£2,234,000 as at 31 March 2004 has been reversed and recognised inthe Statement of Changes in Equity when declared. The outstanding dividendcreditor of ‚£2,892,000 as at 31 March 2005 has also been reversed. d. Holiday pay accrual Under IAS 19, all accumulating employee compensated absences that are unused atthe balance sheet date must be recognised as a liability. This amount has beenderived by calculating an employee's pro-rated outstanding holiday due as at 31March and then applying this to their `daily payment rate'. The daily paymentrate has been calculated as each employee's basic salary divided by 260 workingdays of the year. The calculated liabilities were ‚£36,000 for 2004 and ‚£39,000for 2005 which have been recognised as accruals in the financial information. e. Deferred taxation Deferred taxation has been accounted for on all adjustments where a deferredasset or liability has occurred due to temporary differences. ENDLIONTRUST ASSET MANAGEMENT PLCRelated Shares:
Liontrust Asset Management