Pochin's PLC 24 February 2006 Pochin's PLC Transition to IFRS In July 2002 the EU approved a regulation (IAS Regulation EC 1606/2002) requiring all EU listed companies to prepare consolidated financial statements in accordance with International Financial Reporting Standards (IFRS), adopted for use in the EU (adopted IFRSs). The regulation applies to accounting periods beginning on or after 1 January 2005. Pochin's, in line with all publicly listed companies in the European Union (EU), will be reporting its financial results in accordance with International Financial Reporting Standards (IFRS) with effect from 1 June 2005. The group's first report under the new standards will be the announcement of its half-year results for the period ended 30 November 2005. This report has been prepared to provide financial information showing the impact of Pochin PLC's transition from a UK Generally Accepted Accounting Principles (UK GAAP) basis to an IFRS basis, in advance of the publication of its first financial reporting under IFRS. The adoption of IFRS will have no impact upon the underlying cash flows or trading activities of the group. This report contains the restatement of the group's results for the year to 31 May 2005 and the half-year to 30 November 2004. The significant impact on the group accounts and all presentational changes are set out in full in this report. Financial impact Having reviewed the impact of IFRS on the group the main items that have a significant financial effect on the group's results are as follows: •Investment property valuation movements are reflected in the income statement. •Deferred tax arising on revaluation movements is reflected in the financial statements. •The deficit on the defined benefit pension scheme is provided for in the financial statements. •Property sales are recognised based on completion of contract and not exchange of unconditional contract. •Proposed final dividends are only recognised in the financial statements when they become a legal obligation. •Interest rate hedges are recognised in the balance sheet and changes in value are reported in the income statement. POCHINS PLC Contents Section Content Page 1 Overview of impact 3 2 Consolidated income statement reconciliations - UK GAAP to IFRS As at 31 May 2005 4 As at 30 November 2004 5 Changes in accounting policies - income statement 6 3 Consolidated statement of recognised income and expense reconciliations - UK GAAP to IFRS As at 31 May 2005 9 As at 30 November 2004 10 4 Consolidated balance sheet reconciliations - UK GAAP to IFRS As at 31 May 2005 11 As at 30 November 2004 12 As at 1 June 2004 13 Changes in accounting policies - balance sheet 14 5 Consolidated cash flow statement for the year ended 31 May 2005 17 6 Statement of Pochin's PLC accounting policies under IFRS 18 Section 1 Overview of impact Year to 31 May 2005 6 months to 30 November 2004 UK GAAP IFRS UK GAAP IFRS Revenue (£'000) 96,126 93,886 45,174 45,709 Profit from operations (£'000) 6,505 7,334 1,246 983 Profit before tax (£'000) 5,804 6,108 870 538 Profit for the period (£'000) 3,355 4,047 526 434 Basic earnings per share (p) 16.6 20.0 2.6 2.1 Diluted earnings per share (p) 16.5 19.9 2.6 2.1 Net assets (excl net pension 49,973 47,483 45,734 44,315 liability) (£'000) Net assets (£'000) 49,973 44,409 45,734 40,863 Effective tax rate (%) 41.7 33.3 38.0 16.9 Net assets per share (£) 2.40 2.14 2.20 1.96 Financial impact of IFRS for the year to 31 May 2005 Income Balance statement sheet Standard Details £'000 £'000 UK GAAP profit for the year/net assets (before 3,382 49,973 minority interests) IAS16 All revaluation surpluses on investment properties 2,459 - are recognised in the income statement. IAS18 Profit reduced by £1,077,000 (net) due to (1,077) (1,351) recognition of property sales on completion of contract rather than exchange of unconditional contract. However, £1,352,000 (net) of profit recognised in the year under UK GAAP is to be deferred until year ending 31 May 2006 under IFRS. IAS12 Deferred tax of £360,000 has been charged to the (360) (2,086) income statement on all revaluation surpluses. IAS19 Movement in pension scheme liability (net) (199) (3,074) IAS32/39 Provision of £262,000 (net) has been made for the (262) (262) change in fair value on an interest rate swap. IFRS3 Intangible assets arising on acquisitions are 148 148 attributed to specific assets such as customer lists etc and are to be written off over the period in which the group is expected to derive a benefit from such assets. IFRS2 Share based payment liability (net) increased by (17) - £17,000. IAS10 Proposed dividends of £1,061,000 should only be - 1,061 recognised when they are declared. IFRS profit for the year/net assets (before minority 4,074 44,409 interests) Section 2 - Reconciliation - UK GAAP to IFRS Consolidated income statement Year ending 31 May 2005 Adjustments £'000 UK GAAP (1) (2) (3) (4) (5) (6) (7) (8) (9) IFRS 31-May-05 Business Deferred Retirement Share Property Interest Revaluation Investment 31-May-05 £'000 tax benefits options sales Rate gains in joint £'000 combinations swap ventures and associates Revenue 96,126 (2,240) 93,886 Cost of sales (82,121) 701 (81,420) Gross profit 14,005 - - - - - (1,539) - - - 12,466 Distribution costs (1,361) (1,361) Administrative (9,772) 406 (258) (215) (24) (9,863) expenses Other operating 3,633 3,633 income Gains on - 2,459 2,459 revaluation of investment properties Operating profit 6,505 406 (258) - (215) (24) (1,539) - 2,459 - 7,334 Share of operating (177) (1) (178) loss in joint ventures Share of operating 496 (79) 417 profit in associates Net interest (1,020) (375) (1,395) Finance income - 922 922 Finance cost - (992) (992) Profit before tax 5,804 406 (258) - (285) (24) (1,539) (375) 2,459 (80) 6,108 Taxation (2,422) (360) 86 7 462 113 80 (2,034) Profit for the 3,382 406 (258) (360) (199) (17) (1,077) (262) 2,459 - 4,074 year Attributable to: Equity holders of 3,355 406 (258) (360) (199) (17) (1,077) (262) 2,459 - 4,047 the company Minority interests 27 - - - - - - - - - 27 Earnings per share 16.6 20.0 - basic (p) Earnings per share 16.5 19.9 - diluted (p) Consolidated income statement 6 months ending 30 November 2004 Adjustments £'000 UK GAAP (1) (2) (3) (4) (5) (6) (9) IFRS 30-Nov-04 Business Deferred Retirement Share Property Investment 30-Nov-04 £'000 tax benefits options sales in joint £'000 combinations ventures and associates Revenue 45,174 53535 45,709 Cost of sales (40,220) (680) (40,900) Gross profit 4,954 - - - - - (145) - 4,809 Operating expenses (5,483) 161 (95) (174) (10) (5,601) Other operating income 1,775 1,775 Operating profit 1,246 161 (95) - (174) (10) (145) - 983 Share of operating loss (138) (6) (144) in joint ventures Share of operating 167 (28) 139 profit in associates Net interest (405) (405) Finance income - 461 461 Finance cost - (496) (496) Profit before tax 870 161 (95) - (209) (10) (145) (34) 538 Taxation (331) 96 63 3 44 34 (91) Profit/(loss) for the 539 161 (95) 96 (146) (7) (101) - 447 period Attributable to: Equity holders of the 526 161 (95) 96 (146) (7) (101) - 434 company Minority interests 13 - - - - - - - 13 Earnings per share - 2.6 2.1 basic (p) Earnings per share - 2.6 2.1 diluted (p) Changes in accounting policies - income statement Explanatory notes on the impact of IFRS adjustments to the consolidated income statement (1) & (2) IFRS 3 - Business combinations IFRS 3 requires goodwill acquired in a business combination to be recognised by the acquirer as an asset from the date of acquisition and prohibits the amortisation of goodwill but instead requires it to be tested for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. IFRS also requires acquired intangibles to be identified and written off over their estimated useful lives. With regard to goodwill which had been recognised prior to 1 June 2004 this is to be frozen at its carrying amount at 1 June 2004 with there being no requirement to write back previously written off goodwill. Under UK GAAP, goodwill arising on consolidation and purchased goodwill was capitalised on the balance sheet and amortised over the assets' useful economic lives. No business combinations have been restated prior to their transition date, as permitted by IFRS. (3) IAS 12 - Income taxes Under IAS, deferred tax is to be applied in respect of all fixed asset revaluations included in the accounts, taking into account indexation of the base cost. (4) IAS 19 - Employee benefits The increase in the present value of the liabilities of the group's defined benefit pension scheme expected to arise from employee service in the period is charged to the profit from operations. The expected return on the scheme's assets and the increase during the period in the present value of the scheme's liabilities arising from the passage of time are included in finance income or finance costs respectively. Actuarial gains and losses are recognised in the consolidated statement of recognised income and expense. Charge to the income statement 31-May-05 30-Nov-04 £'000 £'000 Current service cost 557 279 Past service cost 132 132 Total operating charge 689 411 Interest on pension scheme liabilities 992 496 Expected return on pension scheme assets (922) (461) Net finance charge 70 35 Total charge to income statement 759 446 (5) IFRS 2 - Share based payments The group has long-term incentive plans for several directors and key employees under which share options have been issued and, subject to certain performance conditions, will vest to the relevant option holders over a period of three years. In accordance with IFRS 2, the group is required to recognise an expense for options granted on or after 7 November 2002 that have not vested by 1 January 2005. The options have been valued at the date of grant and an expense recognised over the period that the service benefit is to be provided by the employees under the terms of the scheme. (6) IAS 18 - Revenue recognition Property sales have been recognised based on the completion of contract as oppose to the exchange of unconditional contract. (7) IAS 32 & IAS 39 - Interest rate swaps Derivative financial instruments such as interest rate swaps create rights and obligations that have the effect of transferring between the parties to the instrument one or more of the financial risks inherent in an underlying primary financial instrument. On inception, derivative financial instruments give one party a contractual obligation to exchange financial assets or liabilities with another party that are potentially favourable or unfavourable. Under IAS 39, derivatives are classified as held-for-trading instruments and are remeasured to fair value with movements being taken to the income statement. At 31 May 2005 a liability of £375,000 before tax had been quantified. Under UK GAAP, this liability had merely been disclosed by way of note to the financial statements. (8) IAS 40 - Surpluses/deficits on revaluation of investment properties Under IFRS, changes in the fair value of investment properties are to be recognised separately in the income statement. Under UK GAAP, such revaluation surpluses/deficits are recognised as a net movement within equity. There is no material change in the value of investment properties for the 6 months ended 30 November 2005 therefore no gains have been recognised. (9) IAS 28 - Investments in associates and IAS 31 - Interests in joint ventures Under UK GAAP, the group share of operating profits of associates and joint ventures was presented on the face of the income statement after group operating profit. The group share of interest and tax of associates was included within the relevant group totals. Under IFRS, the group share of profit after tax of associates and joint ventures is presented on the face of the income statement after group operating profit. The group has followed the alternative treatment of equity accounting as permitted by IAS 31. Section 3 Consolidated statement of recognised income and expense Year ending 31 May 2005 Adjustments £'000 UK Business Deferred Retirement Share Interest Property Revaluation IFRS GAAP £'000 tax benefits options rate sales gains £'000 combinations swap Gains on revaluation of 2,459 (2,459) - investment properties Actuarial losses on - (439) (439) defined benefit pension scheme (net) Net income recognised 2,459 - - - (439) - - - (2,459) (439) directly in equity Profit/(loss) for the 3,382 406 (258) (360) (199) (17) (262) (1,077) 2,459 4,074 year Total recognised income 5,841 406 (258) (360) (638) (17) (262) (1,077) - 3,635 and expense for the year Attributable to: Equity holders of the 5,814 406 (258) (360) (638) (17) (262) (1,077) - 3,608 company Minority interests 27 27 5,841 406 (258) (360) (638) (17) (262) (1,077) - 3,635 Consolidated statement of recognised income and expense 6 months ending 30 November 2004 Adjustments £'000 UK GAAP Business Deferred Retirement Share Property IFRS £'000 tax benefits options sales £'000 combinations Actuarial losses on defined - (871) (871) benefit pension schemes (net) Net income recognised - - - - (871) - - (871) directly in equity Profit/(loss) for the year 539 161 (95) 96 (146) (7) (101) 447 Total recognised income and 539 161 (95) 96 (1,017) (7) (101) (424) expense for the year Attributable to: Equity holders of the 526 161 (95) 96 (1,017) (7) (101) (437) company Minority interests 13 13 539 161 (95) 96 (1,017) (7) (101) (424) This information is provided by RNS The company news service from the London Stock Exchange