8th May 2008 07:00
Carluccio's PLC08 May 2008 8 May 2008 Carluccio's PLC Transition to International Financial Reporting Standards Carluccio's PLC (the Company) announces the completion of preparations to adoptInternational Financial Reporting Standards (IFRS). The date of transition toIFRS is 25 September 2006 and all financial statements subsequent to this datehave been restated from the previously used United Kingdom Generally AcceptedAccounting Principles (UK GAAP) to IFRS. As part of the transition, the Companyhas restated its comparative income statements for the 26 weeks ended 25 March2007 and 52 weeks ended 23 September 2007, together with restated balance sheetsas at 24 September 2006, 25 March 2007 and 23 September 2007. The cash flowstatements have not been restated as the adoption of IFRS has had no impact onthe underlying cash flows of the business. This statement explains, by way of reconciliations between UK GAAP and IFRS, theimpact of adopting IFRS on the Company's previously reported financialstatements. The principal changes are: 1. Lease premiums have been reclassified from fixed assets to non-current and current assets. They are now termed pre-paid operating lease costs. There is no impact on the income statement of this change. 2. The value of lease incentives such as rent-free periods continues to be deferred but is now amortised over the length of the lease term. Under UK GAAP, lease incentives were amortised until the first rent review (normally 5 years). The impact of this adjustment has resulted in a decrease in profit before tax of £325,000 for the 52 weeks ended 23 September 2007. 3. Deferred tax has been provided using the balance sheet liability method. This has resulted in an increase to the tax charge of £12,000 for the 52 weeks ended 23 September 2007 and an increase in the deferred tax asset of £955,000. The overall impact of adopting IFRS for the 52 weeks ending 23 September 2007 isto reduce previously reported profit before tax by £325,000. Profit after tax isreduced by £337,000. Net assets as at 23 September 2007 have decreased by£29,000. Frank Bandura, Finance Director, said of the transition to IFRS: "Whilst the transition to IFRS has had an impact on reported profit before tax,there is neither impact on the underlying cash flows of the Company nor on thesuccess of its business model." Basis of preparation Carluccio's PLC has completed preparations to adopt International FinancialReporting Standards (IFRS) as adopted by the European Union. This releaseprovides a description of the transition to IFRS and the reconciliationsrequired by IFRS 1 (First-Time Adoption of IFRS) and shows the effect of thetransition on the Company's previously reported shareholders' equity and profit.The Company's date of transition to IFRS has been determined as 25 September2006, the start of its 2007 financial year. It will prepare its first full setof financial statements under IFRS for the period ended 28 September 2008 andits interim report under IFRS will be released on 13 May 2008. The purpose of this release is to provide users with an understanding of themajor effects of the adoption of IFRS on the Company's financial informationpreviously reported under United Kingdom Generally Accepted AccountingPrinciples (UK GAAP). The release therefore contains reconciliations from UKGAAP to IFRS for the balance sheet at each date of 24 September 2006, 25 March2007 and 23 September 2007 and for the income statement for the periods ended 25March 2007 and 23 September 2007. The Company has applied IFRS 1 in thetransition to IFRS which requires that the same accounting policies are used inthe opening IFRS balance sheet and throughout all periods presented in the firstIFRS financial statement. These accounting policies must comply with each IFRSeffective at the reporting date for the first IFRS financial statements. Thefinancial information below is based on International Accounting Standards (IAS)/ IFRS standards in force on the date of preparing this release. The cash flow statements are not restated as none of the adjustments impact onthe cash flows of the Company nor the economic performance of the underlyingbusiness. IFRS 1 First-time Adoption of International Financial Reporting Standards IFRS 1 contains both mandatory and optional exemptions to the principle ofretrospective application. The Company has taken advantage of the exemptionbelow: Share Based Payments (IFRS 2) The Group operates an executive and employee share scheme. For all grants ofshare options and awards the fair value at the date of grant is calculated usingan appropriate valuation model and the corresponding expense is recognised overthe vesting period. The Company has elected to take advantage of thetransitional provisions of IFRS 2 and has applied the fair value model to allgrants of equity instruments after 7 November 2002 that had not vested as at 25September 2006, the date of transition to IFRS. Relationship to statutory accounts The information contained in this document is unaudited and does not constitutestatutory accounts within the meaning of section 240 of the Companies Act 1985.The statutory accounts for the 52 weeks ended 24 September 2006 and for the 52weeks ended 23 September 2007, on which the auditors have issued an unqualifiedaudit report, have been filed at Companies House with the Registrar ofCompanies. The audit reports did not include references to any matters to whichthe auditors drew attention by way of emphasis without qualifying their reportsand did not include a statement under section 237(2) or (3) of the Companies Act1985. Key impacts of adopting International Financial Reporting Standards A. Lease premiums Lease premiums are usually paid as consideration to a landlord or an outgoingtenant of a property before the expiry of the lease term on that property. UnderUK GAAP, such payments were treated as tangible assets, capitalised anddepreciated over the length of the lease term. Under IFRS these payments aretreated as prepaid operating lease costs and classified as such. These costs aresubsequently amortised over the length of the lease term. There is neither animpact on the income statement nor on the cash flows of the Company. B. Computer software Computer software is capitalised and amortised over its useful life of 3 years.Under UK GAAP it was included within tangible assets whilst under IFRS it isreclassified as an intangible asset. C. Lease incentives The Company is able to secure lease incentives such as rent-free periods forexample, on certain of its properties by negotiation with the landlord. Under UKGAAP, these lease incentives were deferred and amortised from the first datethat the Company was responsible for a lease, usually the lease completion date,until the first rent review. Typically in the United Kingdom the first rentreview occurred after 5 years. Under IFRS, such lease incentives are nowamortised on a straight line basis over the whole of the lease term irrespectiveof the timing of the rent reviews. This change has resulted in an additionalcharge to the income statement of £325,000 for the 52 weeks ended 23 September2007 and the recognition of an additional £984,000 of deferred income. Thischange in accounting methodology does not impact on the cash flows of theCompany. D. Taxation effect The requirements of IAS 12, Income Taxes, require the Company to calculatedeferred tax using the balance sheet liability method, giving rise to therecognition of deferred tax assets previously unrecognised. Deferred taxation on share options (IFRS 2) Where, using the balance sheet liability method, the estimated tax deduction onthe gain from the exercise of share options exceeds the tax deduction on thecumulative share option charge, the difference has been shown as part of equity. The Company has therefore recognised in the balance sheet as at 23 September2007, a deferred tax asset of £679,000 arising on the potential deductionagainst taxable profits of the gain on the exercise of share options. As aresult the tax charge in the income statement has been increased by £11,000 withthe difference of £690,000 increasing equity reserves. Corporation tax restriction The gain on share options exercised in a period can be deducted against taxableprofits under UK corporation tax legislation thereby reducing the income taxcharge in the income statement. Under UK GAAP, this was recognised in the periodof exercise as a lower tax charge in the income statement. Under IFRS, however,the gain increases reserves to the extent it exceeds the IFRS 2 charge. Theimpact is to increase the income tax charge for the 52 weeks ended 23 September2007 by £79,000 with a corresponding credit to reserves. Deferred taxation on property, plant and equipment (IAS 17) The change in accounting for lease incentives results in a lower profitassessable to UK corporation tax. The financial statements are adjusted in prioryears whilst the deduction will only be made in the 2008 tax computation. Thiscreates a deferred tax asset in earlier years which will be offset against thetax saving in the 2008 tax computation. This has resulted in decreasing the taxcharge for the 52 weeks ended 23 September 2007 by £78,000. The deferred taxasset in the balance sheet as at 23 September 2007 has been increased by£276,000 with a corresponding increase in reserves of £198,000. Reconciliation of movements between UK GAAP and IFRS Balance sheet as at 25 September 2006 Under UK GAAP Lease Premiums Computer Lease Taxation Effect Re-stated under Software Incentives IFRS (A) (B) (C) (D) £'000 £'000 £'000 £'000 £'000 £'000Non-currentassetsIntangibleassets 22 - 51 - - 73Property,plant &equipment 16,010 (1,625) (51) - - 14,334Prepaidoperatingleasecharges - 1,538 - - - 1,538 ------- -------- -------- -------- ------- -------- 16,032 (87) - - - 15,945CurrentassetsInventories 1,223 - - - - 1,223Trade &other 423 - - - - 423receivablesPrepayments& accruedincome 1,220 - - - - 1,220Prepaidoperatinglease - 87 - - - 87chargesCash andcash 2,642 - - - - 2,642equivalents ------- -------- -------- -------- ------- -------- 5,508 87 - - - 5,595 ------- -------- -------- -------- ------- -------- Total assets 21,540 - - - - 21,540 ------- -------- -------- -------- ------- -------- CurrentLiabilitiesTrade andother 3,117 - - - - 3,117payablesOther taxandsocial 1,416 - - - - 1,416securityAccrual forleaseincentives 573 - - (513) - 60Accruals anddeferredincome 3,431 - - - - 3,431Corporationtaxliabilities 178 - - - - 178 ------- -------- -------- -------- ------- -------- 8,715 - - (513) - 8,202 ------- -------- -------- -------- ------- --------Non-currentliabilitiesAccruals anddeferredincome - - - 1,172 - 1,172Deferred taxliabilities 1,290 - - - (661) 629 ------- -------- -------- -------- ------- -------- 1,290 - - 1,172 (661) 1,801 ------- -------- -------- -------- ------- -------- Totalliabilities 10,005 - - 659 (661) 10,003 ------- -------- -------- -------- ------- -------- Net assets 11,535 - - (659) 661 11,537 ------- -------- -------- -------- ------- -------- Shareholders equityShare 2,840 - - - - 2,840capitalSharepremium 1,684 - - - - 1,684accountRetainedearnings 7,011 - - (659) 661 7,013 ------- -------- -------- -------- ------- -------- Shareholdersequity 11,535 - - (659) 661 11,537 ------- -------- -------- -------- ------- -------- Reconciliation of movements between UK GAAP and IFRS Income statement for the 26 weeks ended 25 March 2007 Under UK GAAP Lease Taxation Effect Under IFRS Incentives (C) (D) £'000 £'000 £'000 £'000 Revenue 25,880 - - 25,880 Cost of sales (20,664) (103) - (20,767) ---------- -------- -------- --------- Gross profit 5,216 (103) - 5,113 Administrativeexpenses (2,807) - - (2,807) ---------- -------- -------- --------- Operatingprofit 2,409 (103) - 2,306 Finance income 43 - - 43Finance cost (12) - - (12) ---------- -------- -------- --------- Profit on ordinaryactivitiesbefore taxation 2,440 (103) - 2,337 Tax expense (807) - (48) (855) ---------- -------- -------- --------- Profit on ordinaryactivitiesafter taxation 1,633 (103) (48) 1,482 ---------- -------- -------- --------- Basic earningsper share(pence) 2.9 (0.2) (0.1) 2.6Dilutedearnings pershare (pence) 2.8 (0.2) (0.1) 2.5 Reconciliation of movements between UK GAAP and IFRS Balance sheet as at 25 March 2007 Under UK GAAP Lease Premiums Computer Lease Taxation Effect Re-stated under Software Incentives IFRS (A) (B) (C) (D) £'000 £'000 £'000 £'000 £'000 £'000Non-currentassetsIntangibleassets 21 - 94 - - 115Property,plant &equipment 17,656 (1,581) (94) - - 15,981Prepaidoperatinglease charges - 1,538 - - - 1,538 ------- -------- -------- -------- ------- -------- 17,677 (43) - - - 17,634CurrentassetsInventories 1,268 - - - - 1,268Trade &otherreceivables 295 - - - - 295Prepayments& accruedincome 1,105 - - - - 1,105Prepaidoperatinglease - 43 - - - 43chargesCash andcashequivalents 1,997 - - - - 1,997 ------- -------- -------- -------- ------- -------- 4,665 43 - - - 4,708 ------- -------- -------- -------- ------- -------- Total assets 22,342 - - - - 22,342 ------- -------- -------- -------- ------- -------- CurrentLiabilitiesTrade andotherpayables 2,855 - - - - 2,855Other taxand socialsecurity 1,232 - - - - 1,232Accrual forleaseincentives 639 - - (597) - 42Accruals anddeferredincome 3,095 - - - - 3,095Corporationtaxliabilities 554 - - - - 554 ------- -------- -------- -------- ------- -------- 8,375 - - (597) - 7,778 ------- -------- -------- -------- ------- -------- Non-currentliabilitiesAccruals anddeferredincome - - - 1,359 - 1,359Deferred taxliabilities 1,529 - - - (912) 617 ------- -------- -------- -------- ------- -------- 1,529 - - 1,359 (912) 1,976 ------- -------- -------- -------- ------- -------- Totalliabilities 9,904 - - 762 (912) 9,754 ------- -------- -------- -------- ------- -------- Net assets 12,438 - - (762) 912 12,588 ------- -------- -------- -------- ------- -------- ShareholdersequityShare 2,849 - - - - 2,849capitalSharepremium 1,712 - - - - 1,712accountRetainedearnings 7,877 - - (762) 912 8,027 ------- -------- -------- -------- ------- -------- Shareholdersequity 12,438 - - (762) 912 12,588 ------- -------- -------- -------- ------- -------- Statement of changes in equity as at 25 March 2007 Share Capital Share premium Retained Total equity account earnings £'000 £'000 £'000 £'000 Profit forperiod to 25Mar 2007 - - 1,482 1,482Tax on share options takendirectlyto reserves - - 277 277 ---------- --------- --------- ---------Total recognised gains andlossesin period - - 1,759 1,759 Dividends paid - - (852) (852)Issue of shares 9 28 - 37Share basedpaymentcredited toreserves - - 107 107 ---------- --------- --------- --------- 9 28 (745) (708) ---------- --------- --------- --------- At 25September 2006 2,840 1,684 7,013 11,537 ---------- --------- --------- --------- At 25 March2007 2,849 1,712 8,027 12,588 ---------- --------- --------- --------- Reconciliation of movements between UK GAAP and IFRS Income statement for the 52 weeks to 23 September 2007 Under UK GAAP Lease Taxation Effect Under IFRS Incentives (C) (D) £'000 £'000 £'000 £'000 Revenue 53,979 - - 53,979 Cost of sales (42,685) (325) - (43,010) --------- --------- --------- --------- Gross profit 11,294 (325) - 10,969 Administrativeexpenses (6,101) - (6,101) --------- --------- --------- --------- Operatingprofit 5,193 (325) - 4,868Finance income 100 - - 100Finance cost (26) - - (26) --------- --------- --------- --------- Profit on ordinaryactivitiesbefore taxation 5,267 (325) - 4,942 Tax expense (1,420) - (12) (1,432) --------- --------- --------- --------- Profit on ordinaryactivities aftertaxation 3,847 (325) (12) 3,510 --------- --------- --------- --------- Basic earningsper share(pence) 6.8 (0.6) - 6.2Dilutedearnings pershare (pence) 6.5 (0.6) - 5.9 Reconciliation of movements between UK GAAP and IFRS Balance sheet as at 23 September 2007 Under UK GAAP Lease Premiums Computer Lease Taxation Effect Re-stated under Software Incentives IFRS (A) (B) (C) (D) £'000 £'000 £'000Non-currentassetsIntangibleassets 20 - 70 - - 90Property,plant &equipment 20,071 (1,538) (70) - - 18,463Prepaidoperatinglease - 1,451 - - - 1,451charges -------- -------- -------- -------- ------- --------- 20,091 (87) - - - 20,004CurrentassetsInventories 1,381 - - - - 1,381Trade &otherreceivables 448 - - - - 448Prepayments& accruedincome 1,477 - - - - 1,477Prepaidoperatinglease - 87 - - - 87chargesCash andcashequivalents 3,145 - - - - 3,145 -------- -------- -------- -------- ------- --------- 6,451 87 - - - 6,538 -------- -------- -------- -------- ------- --------- Total assets 26,542 - - - - 26,542 -------- -------- -------- -------- ------- --------- CurrentLiabilitiesTrade andotherpayables 3,803 - - - - 3,803Other taxand socialsecurity 1,535 - - - - 1,535Accrual forleaseincentives 812 - - (728) - 84Accruals anddeferred 3,752 - - - - 3,752incomeCorporationtaxliabilities 649 - - - - 649 -------- -------- -------- -------- ------- --------- 10,551 - - (728) - 9,823 -------- -------- -------- -------- ------- ---------Non-currentliabilitiesAccruals anddeferred income - - - 1,712 - 1,712Deferred taxliabilities 1,433 - - - (955) 478 -------- -------- -------- -------- ------- --------- 1,433 - - 1,712 (955) 2,190 -------- -------- -------- -------- ------- --------- Totalliabilities 11,984 - - 984 (955) 12,013 -------- -------- -------- -------- ------- --------- Net assets 14,558 - - (984) 955 14,529 -------- -------- -------- -------- ------- --------- ShareholdersequityShare 2,849 - - - - 2,849capitalSharepremium 1,713 - - - - 1,713accountRetainedearnings 9,996 - - (984) 955 9,967 -------- -------- -------- -------- ------- --------- Shareholdersequity 14,558 - - (984) 955 14,529 -------- -------- -------- -------- ------- --------- Statement of changes in equity as at 23 September 2007 Share Capital Share premium Retained Total equity account earnings £'000 £'000 £'000 £'000 Profit forperiod to 23September 2007 - - 3,510 3,510Tax on share options takendirectly toreserves - - 306 306 ---------- --------- --------- ---------Total recognised gains andlosses inperiod - - 3,816 3,816 Dividends paid - - (1,194) (1,194)Issue of shares 9 29 - 38Share basedpaymentcredited toreserves - - 332 332 ---------- --------- --------- --------- 9 29 (862) (824)At 25September 2006 2,840 1,684 7,013 11,537 ---------- --------- --------- ---------At 23September 2007 2,849 1,713 9,967 14,529 ---------- --------- --------- --------- ACCOUNTING POLICIES Following the transition to IFRS, the significant accounting policies adopted bythe Company are as follows: Intangibles Computer Software Computer software is stated at cost less accumulated depreciation and anyimpairment loss. Externally acquired or developed software and software licencesare capitalised at the cost of bringing the software into use within thebusiness. Computer software is only capitalised when it is separatelyidentifiable and is not bundled with any computer hardware. Software that isbundled with hardware is treated as an integral part of the hardware andclassified within property, plant and equipment. Computer software is consideredto have a finite economic life of 3 years and is amortised over this period on astraight line basis. Property, plant and equipment Property, plant and equipment is stated at cost less accumulated depreciationand any impairment loss. Cost comprises the aggregate amount paid and the fairvalue of any other consideration given to acquire the asset and includes costsdirectly attributable to making the asset capable of operating as intended. Depreciation Depreciation is calculated to write down the costs of assets over theirestimated useful economic lives using the straight line method. The estimateduseful lives are as follows: Leasehold properties - over the lease term Leasehold building improvements - over the lease term Plant, equipment, fixtures and fittings - varying rates from 10% to 33% Computer hardware - 33% Motor Vehicles - 33% Properties under construction are not depreciated. Impairment The Company considers at each balance sheet date whether there is any indicationthat assets have become impaired. If any such indication exists or when annualimpairment testing for an asset is required, the Company makes an estimate ofthe recoverable amount. If the carrying value of the asset is higher than therecoverable amount, a provision against impairment is made. In subsequent years,a previously recognised impairment provision may be reversed in whole or in partif there has been a change in the estimates used to determine the asset'srecoverable amount. Leases Finance Leases Leases classified as finance leases are those where the terms of the leasetransfer substantially all the risks and rewards of ownership to the Company.All other leases are classified as operating leases. After examining itsportfolio of property leases, the Company has determined that none of its leasessatisfy the criteria for classification as a finance lease and accordingly allproperty leases have been classified as operating leases. Operating Leases Leases other than those classified as finance leases are included as operatingleases. The minimum lease payments under the terms of a lease are charged to theincome statement on a straight line basis over the lease term. • Lease premiums Lease premiums are usually paid as consideration to a landlord or an outgoingtenant of a property before the expiry of the lease term on that property. Thesepayments are treated as prepaid operating lease costs and classified as such.These costs are subsequently amortised over the length of the lease term. • Lease incentives The Company is able to secure lease incentives, such as rent-free periods forexample, on certain of its properties by negotiation with the landlord. Leaseincentives are deferred and amortised over the full lease term. Inventories Inventories are stated at the lower of cost and net realisable value. Cost isdetermined on a first in first out basis. Net realisable value is based onestimated selling price less any further costs expected to be incurred todispose of the inventory. Trade and other receivables Trade receivables are stated at the original invoiced amount less any provisionmade for amounts where recovery is deemed unlikely. Cash and cash equivalents Cash and cash equivalents comprise cash at bank and in hand and short-termdeposits. Short-term deposits are classified as such where the original maturityof the deposit is 3 months or less. Income taxes In accordance with IAS 12, Income Taxes, current taxes and liabilities aremeasured at the amount expected to be recovered or paid to the taxationauthorities, based on tax rates and legislation that is enacted or substantivelyenacted at the balance sheet date. Deferred income tax recognises the estimated impact of using different bases todetermine the assets and liabilities of an entity for tax and accountingpurposes, on the amount of tax paid by the Company in the future. The balancesheet liability method is used to calculate the deferred tax, on an undiscountedbasis, at the tax rates that are expected to apply in the period when theliability is settled or the asset is realised based on tax rates and legislationthat is enacted or substantively enacted at the balance sheet date. Deferred tax assets are recognised only to the extent that it is probable thatthere will be sufficient taxable profit available to offset against thedeductible temporary differences, carried forward tax credits or losses.Deferred tax is charged or credited directly to the income statement unless itrelates to items charged or credited to equity in which case it is also dealtwith in equity. Revenue recognition Revenue consists of sales to customers and franchise income excluding sales tax.Franchise income comprises initial fees and on-going turnover based fees.Franchise income is recognised when it is probable that economic benefits haveaccrued to the Company and can be reliably measured. Share Based Payments The Company operates equity-settled share-based payment schemes under whichshare options are granted to employees and directors. The share option grantsare measured at fair value as at the date of grant using a binomial model. Invaluing share options granted, no account is taken of vesting conditions otherthan market related conditions. No expense is recognised for awards that do not ultimately vest, except forawards where vesting is conditional upon a market condition being satisfied,which are treated as vesting whether that market condition is satisfied or not,provided that all other performance conditions are satisfied. At each balance sheet date, the cumulative expense is calculated; representingthe extent to which the vesting period has expired and an estimate of the numberof equity instruments that will ultimately vest upon the achievement ofnon-market and service conditions. In the case of an instrument subject to amarket condition it will be treated as vested as described above. The movementin the cumulative expense since the previous balance sheet date is recognised inthe income statement, with the corresponding increase in equity. As noted above, the Company has taken advantage of the transitional provisionsof IFRS 2 and applied the requirements of that standard to equity settled awardsgranted after 7 November 2002 that had not vested before 25 September 2006, thedate of transition to IFRS. Pre-opening expenses The Company incurs expenditure on the creation and marketing of new caffe andfood shops prior to opening it to the public and generating revenue. All suchcosts are expensed in the period incurred. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Carluccios