Statement re Transition to IFRS

Thursday 13 October 2005 STOCK EXCHANGE ANNOUNCEMENT LIONTRUST ASSET MANAGEMENT PLC Financial Information on the transition to International Financial Reporting Standards INTRODUCTION In July 2002 the European Union (`EU') approved a regulation requiring all EU listed companies to prepare consolidated financial information in accordance with International Financial Reporting Standards (`IFRS'). The regulation applies to accounting periods beginning on or after 1 January 2005. Liontrust Asset Management PLC (the `Company') will publish its 2005 Interim Report in accordance with the basis of preparation (as defined in this document) and its 2006 Annual Report and Accounts in accordance with IFRS. This announcement has been prepared in order to provide financial information on the impact of the Company's transition from preparing financial information under 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 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 UK GAAP to IFRS we feel it is prudent to allow some extra time to prepare our interim results. We therefore expect to announce our interim results by mid-November 2005. For further information please contact: Liontrust Asset Management PLC: Vinay Abrol Tel: 020-7412 1700 JP Morgan Cazenove Limited: Richard Locke Tel: 020-7155 4706 PRINCIPAL ACCOUNTING POLICIES In order to comply with IFRS and to prepare for the transition, the Company has undertaken an exercise to summarise the differences between the previous UK GAAP prepared financial statements and the same information in an IFRS format. In doing this the Company has considered the effects of each IFRS standard in relation to the Company's operations and has ensured that all affected areas have been analysed to ensure appropriate compliance with the relevant IFRS standard. This process has led to the updating of the Company's accounting policies as detailed below. a. Basis of preparation The financial information has been prepared under the historical cost convention (except for the measurement of financial assets at fair value through profit or loss which are held at their fair value) and in accordance with applicable accounting standards. IFRS 1 'First-time Adoption of International Financial Reporting Standards' sets out how a company should apply IFRS at transition. The standard requires a company to use accounting policies that comply with each IFRS effective at the reporting date for its first IFRS financial statements and apply those policies retrospectively to all periods presented in those statements. The standard does, however, allow a number of exemptions to this general principle to assist the transition and the Company has taken advantage of these exemptions where appropriate. The preparation of financial information in conformity with generally accepted accounting principles requires the Directors of the Company to make judgements and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingencies at the date of the financial information and the reported income and expense during the reporting periods. Although these judgements and assumptions are based on the Directors' best knowledge of the amount, events or actions, actual results may differ from these estimates. The accounting policies set out below have been used to prepare the financial information. The financial information has been prepared based on the IFRS standards effective as at 13 October 2005. The effect of the changes resulting from the Company's transition to reporting under IFRS may be subject to change. This is because there is the possibility that further standards and interpretations may be issued which apply to the Company's first financial statements under IFRS. In addition, different accounting practice might develop between now and the Company'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 Reporting Standards' there are a number of exemptions from other IFRS which may be utilised at the point of initial adoption. The Company has taken advantage of two of these exemptions as follows: The Company has elected, for share based payments made prior to 7 November 2002, not to calculate a charge to the income statement. IFRS 1 includes specific transitional provisions for IAS 32 and 39. The Company has decided to take advantage of these provisions and therefore has not applied these standards to the comparative figures, under which, financial instruments are included using the measurement bases and the disclosure requirements of UK GAAP relating to financial instruments. c. Basis of consolidation The consolidated financial information incorporates the results of the Company and all its subsidiaries. d. Fixed assets and depreciation Leasehold improvements and furniture are included at cost and are depreciated over the lower of the estimated useful life and the lease term which is ten years. Office equipment is included at cost and is depreciated over the estimated useful life of the asset, which is between three and ten years. Computer equipment is included at cost and is depreciated over the estimated useful life of the asset which is three years. At each reporting date management reviews its fixed assets and assesses whether any assets may be impaired. e. Short term investments The Company holds short term investments, which are unit trust units held in the `manager's box' to ease the calculation of daily creations and cancellations of units. These box positions are not held to create speculative proprietary positions but are managed in accordance with specified criteria and authorisation 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 net realisable value. Accounting policy applicable from 1 April 2005 These units are held at fair value through profit or loss and are valued on a bid price basis. f. Cash and cash equivalents Cash comprises cash on hand and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value. Under IFRS cash and cash equivalents are included in the cash flow statement. g. Own shares Own shares held by the Liontrust Asset Management Employee Trust are valued at cost and are shown as a deduction from the Group's shareholders' equity. No gains or losses are recognised in the income statement. h. Operating leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to 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 become receivable or payable. Front end fees received and commissions paid on the sales of units in unitised funds are amortised over the estimated life of the unit. Performance fees are recognised in the period in which they become due and collectable. Any portion of performance fees that are not due and collectable, and whose future entitlement is not certain, is not recognised but noted as a contingent asset. PRINCIPAL ACCOUNTING POLICIES (Continued) j. Deferred taxation Deferred taxation is accounted for on an undiscounted basis at expected tax rates on all differences arising from the inclusion of items of income and expenditure in tax computations in periods different from those in which they are included in the financial information. A deferred tax asset is only recognised when it is more likely than not that an asset will be recoverable in the foreseeable future out of suitable taxable profits from which the underlying timing differences can be deducted. k. Pensions The Company operates defined contribution schemes for its employees. The assets are invested with insurance companies and are held separately from the Company. The costs of the pension scheme are recognised in the consolidated income statement in the period in which they are incurred. l. Employee share options The Company operates a number of share options schemes for employees. The services received from the employees are measured by reference to the fair value of the share options. The fair value of the options issued is calculated at grant date and is recognised in the consolidated income statement over the vesting period. IFRS 2 has been applied, in accordance with IFRS 1, to share options granted after 7 November 2002 (note b). m. Dividends Equity dividends to the shareholders of the Company are recognised as a liability in the period during which they are declared. n. Holiday pay accrual Under IAS 19, all accumulating employee compensated absences that are unused at the balance sheet date are recognised as a liability. LIONTRUST ASSET MANAGEMENT PLC Consolidated 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 299 299 equipment 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 format LIONTRUST ASSET MANAGEMENT PLC Consolidated 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 format LIONTRUST ASSET MANAGEMENT PLC Consolidated 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 227 227 equipment 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 format LIONTRUST ASSET MANAGEMENT PLC Consolidated 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 14,996 operations Interest received 896 896 Tax paid (2,306) (2,306) Net cash from operating 13,586 13,586 activities 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 250 250 new 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 10,327 equivalents Cash and cash equivalents at 15,813 15,813 1 April 2004 Cash and cash equivalents at 26,140 26,140 31 March 2005 * UK GAAP balances under IFRS format LIONTRUST ASSET MANAGEMENT PLC Consolidated 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 PLC Notes regarding the IFRS adjustments The notes below detail the changes to the financial information following the introduction of IFRS. a. IFRS 2 Share based payments IFRS 2 sets out the accounting treatment in respect of the recognition and measurement of share based payments. It requires entities to recognise such payments within their financial information. Under the provisions of IFRS 2 the Company is required to expense the fair value of the options granted to its employees to the income statement (known as profit and loss account under UK GAAP). The standard covers all options granted on or after 7 November 2002. Since 7 November 2002 the Company has granted 8 tranches of options to employees via a number of schemes. Under the terms of the standard each of the tranches 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 the effect of reducing profits. Fair values have been calculated using a recognised option pricing model. The model and the fair value (charge) calculations have been prepared by independent consultants. National insurance liability on the share based payments has been included within creditors The 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 recognise revenue. The interpretation of the standard has implications for those companies involved in management of investments and unit trusts. Under IFRS (IAS 18) the interpretation is that initial fees received and commissions paid on sales of units in unit trusts should be spread over the life of the unit. This is because the cost and fee received relates to services provided to a unitholder over the life of a unit. LIONTRUST ASSET MANAGEMENT PLC Notes regarding the IFRS adjustments (continued) The Company has calculated an estimated life of a unit and has applied this to its accounting adjustments. The resulting accounting adjustments are as follows: The Company has recognised £1,086,000 as a pre-receipt (Accrual) on the balance sheet as at 1 April 2004 relating to gross initial fees and has recognised deferred costs of £339,000 relating to commissions paid For the year ended 31 March 2005 the Company has recognised £1,353,000 as net income and it has also created a pre-receipt (Accrual) on the balance sheet as at 31 March 2005 of £893,000 relating to gross initial fees and has recognised deferred costs of £287,000 relating to commissions paid c. Dividends Under IAS 10 dividends to shareholders are not recognised as a liability until they are declared, at which point they become an obligation. The dividend creditor of £2,234,000 as at 31 March 2004 has been reversed and recognised in the Statement of Changes in Equity when declared. The outstanding dividend creditor 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 at the balance sheet date must be recognised as a liability. This amount has been derived by calculating an employee's pro-rated outstanding holiday due as at 31 March and then applying this to their `daily payment rate'. The daily payment rate has been calculated as each employee's basic salary divided by 260 working days of the year. The calculated liabilities were £36,000 for 2004 and £39,000 for 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 deferred asset or liability has occurred due to temporary differences.

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