Adoption of IFRS
Acal PLC
28 September 2005
FOR RELEASE 7:00 AM 28 SEPTEMBER 2005
ACAL plc
Adoption of International Financial Reporting Standards
Acal, a leading pan-European value-added distributor providing specialist
design-in sales and marketing services for international suppliers, today
provides unaudited summaries of the restatement, in accordance with
International Financial Reporting Standards ('IFRS'), of its 2004/05 Interim
and Full Year Consolidated Income Statements and Balance Sheets. These
summaries are provided in advance of the publication in December 2005 of Acal's
Interim Report for the six months to 30 September 2005, which will be the
Group's first report prepared under IFRS.
Highlights of the restated financial statements are as follows:
year to 31 March 2005 Six months to 30
September 2004
UK IFRS Change UK GAAP IFRS Change
GAAP
Profit before taxation and £11.3m £11.1m -2% £5.5m £5.4m -2%
goodwill amortisation
Goodwill amortisation £3.0m - £1.6m -
Profit before taxation £8.3m £11.1m +34% £3.9m £5.4m +38%
Earnings per share (before 26.9p 26.6p -1% 13.0p 13.0p 0%
goodwill amortisation)
Earnings per share (after 15.3p 26.6p +74% 7.3p 13.0p +78%
goodwill amortisation)
Shareholders' equity £65.3m £71.6m +10% £68.2m £71.2m +4%
Commenting on the Group's adoption of the new accounting rules Jim Virdee,
Finance Director, said:
"The information presented today shows that, apart from the elimination of
goodwill amortisation, there is little overall impact on Acal's reported
financial results from the adoption of IFRS. The Group's underlying business
economics are unchanged, underpinned by a strong balance sheet and good cash
generation"
The main impacts of IFRS on Acal's financial statements are in the following
areas:
•dividends
- now only accrued when the dividend is declared.
•acquisitions
- unamortised goodwill as at March 2004 becomes the opening goodwill
amount, with no further amortisation.
To date, Acal has prepared its accounts in compliance with UK Generally
Accepted Accounting Principles ('UK GAAP'). EU regulations require Acal to
adopt IFRS in its financial statements for accounting periods beginning in or
after 2005. The Group has reviewed those changes necessary to move from UK GAAP
to IFRS. The restatement of the 2004/05 financial statements is unaudited and
has been prepared on the basis of IFRS expected to be adopted by the EU at 1
April 2006. These standards are subject to ongoing review and interpretation
and therefore may be subject to change.
The effect of the adoption of IFRS on Acal's financial statements, including a
reconciliation of the main changes, a summary of Consolidated Income Statements
for the year to 31 March 2005 and six months to 30 September 2004 restated
under IFRS, together with shareholders' equity at those dates and principal
accounting policy changes are given below as part of this announcement.
A copy of this announcement and other information about the Acal Group can be
found on the Acal website, www.acalplc.co.uk.
For further information, please contact:
Acal plc 01483 544 500
Jim Virdee, Finance Director
Beattie Financial. 0207 053 6400
Brian Coleman-Smith/ Jo Clewlow/Nia Thomas
Acal plc
ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS
Acal plc will in future be reporting its consolidated results in accordance
with International Financial Reporting Standards ('IFRS'), beginning with its
Interim Report for the six months to 30 September 2005. This statement presents
and explains the unaudited restatement to an IFRS basis of the Group's results
and shareholders' equity for the six months to 30 September 2004 and the year
to 31 March 2005, which were previously reported under UK Generally Accepted
Accounting Principles ('UK GAAP'). These restated figures will form the
comparative information for the Group's first IFRS financial statements
in 2005/06.
Reconciliation and explanation of changes
A reconciliation of the changes is as follows:
£m year to/as at 31 March Six months to/as at 30
2005 September 2004
Shareholders' Shareholders'
Profit equity Profit equity
before before
taxation taxation
As reported under UK GAAP 8.3 65.3 3.9 68.2
Share-based payments (0.1) - - -
Dividends - 3.8 - 1.9
Holiday pay * - (0.2) - (0.2)
Reversal of goodwill 3.0 3.0 1.6 1.6
amortisation
Deferred tax - (0.3) - (0.3)
Presentation of Associates (0.1) - (0.1) -
As restated under IFRS 11.1 71.6 5.4 71.2
* effect on shareholders' equity stated net of associated deferred tax
Share-based payments
This charge relates to employee share option schemes operated by the Group.
Under UK GAAP, no charge was made against profit in relation to the Group's
share option schemes. Under IFRS the fair value of options is assessed and
charged against profit over the period from granting to vesting, resulting in
an extra £0.1 million charge against profit for the year to 31 March 2005. This
charge is only applied to options awarded on or after 7 November 2002 that had
not vested at 31 March 2005.
Dividends
Under IFRS, dividends are considered a liability in the period they are
declared. Accordingly the accruals for the interim dividend of £1.9 million at
30 September 2004 and the final dividend of £3.8 million at 31 March 2005 are
released under IFRS and charged against profit in the following reporting
period.
Employee benefits
IAS 19 requires the Group to recognise in full liabilities in relation to
employee benefits. As at 1 April 2004, the Group has recognised an additional
£0.2 million of liabilities for holiday pay. The corresponding provision as at
31 March 2005 is £0.2 million so that there is no adjustment to profit for the
year to 31 March 2005.
Reversal of goodwill amortisation
The £3.0 million of goodwill amortisation charged in the year to 31 March 2005
under UK GAAP is reversed, as IFRS has replaced the amortisation charge with an
annual impairment test.
Taxation
Under IAS 12 Income Taxes, it is necessary to recognise a deferred tax
liability on all assets that are carried at a revaluation. Under UK GAAP no
liability was recognised unless there was a binding agreement to sell the
asset. The impact is to reduce Group net assets by £0.3m. There is no impact on
the Income Statement.
Associates
The adoption of IFRS leads to a change in the presentation of the Group's share
of the results of Associates. Under UK GAAP, the Group's operating profit
includes the share of Associate operating profits before interest and tax and
the Group's share of the Associate's interest and tax is included in the
respective Group lines on the Profit and Loss account. Under IFRS, Associate
profit is shown as a net figure after interest and tax. This will have the
effect of reducing profit before tax, but will reduce the tax and interest
costs. Overall, there is no impact on the Group profit after tax as this is
purely a presentational change.
Income Statements
Summary Consolidated Income Statement for the year to 31 March 2005 £m
Under UK IFRS Under
GAAP adjustments IFRS
(see below)
Group operating profit (excluding associates) 12.7 (0.1) 12.6
Group share of profit of associates 0.6 (0.2) 0.4
Profit from operations before goodwill 13.3 (0.3) 13.0
amortisation
Goodwill amortisation (3.0) 3.0 -
Profit from operations 10.3 2.7 13.0
Net finance income/(expense) (2.0) 0.1 (1.9)
Profit before tax 8.3 2.8 11.1
Tax (3.8) 0.1 (3.7)
Profit on ordinary activities after taxation 4.5 2.9 7.4
Minority interest (0.4) - (0.4)
Profit attributable to ordinary shareholders 4.1 2.9 7.0
Earnings per share 15.3p 26.6p
Profit before tax (before goodwill 11.3 11.1
amortisation)
Earnings per share (before goodwill 26.9p 26.6p
amortisation)
Summary Consolidated Income Statement for the six months to 30 £m
September 2004
Under UK IFRS Under
GAAP adjustments IFRS
(see below)
Group operating profit (excluding associates) 6.1 - 6.1
Group share of operating profit of associates 0.3 (0.1) 0.2
Profit from operations before goodwill 6.4 (0.1) 6.3
amortisation
Goodwill amortisation (1.6) 1.6 -
Profit from operations 4.8 1.5 6.3
Net finance income/(expense) (0.9) - (0.9)
Profit before tax 3.9 1.5 5.4
Tax (1.8) 0.1 (1.7)
Profit on ordinary activities after taxation 2.1 1.6 3.7
Minority interest (0.2) - (0.2)
Profit attributable to ordinary shareholders 1.9 1.6 3.5
Earnings per share 7.3p 13.0p
Profit before tax (before goodwill 5.5 5.4
amortisation)
Earnings per share (before goodwill 13.0p 13.0p
amortisation)
Summary of IFRS adjustments to Consolidated Income Statement £m
year to six months
Notes 31 March 2005 to
30 Sep
2004
Profit from operations 2 (0.1) -
Share-based payments
Group operating profit (excluding (0.1) -
associates)
Reclassification of interest and tax of (0.2) (0.1)
associates
Reversal of goodwill amortisation charge 6a 3.0 1.6
Profit from operations 2.7 1.5
Net finance income/(expense) 0.1 -
Reclassification of interest of associates
Profit before tax 2.8 1.5
Tax 0.1 0.1
Reclassification of tax of associates tax
Total tax 0.1 0.1
Profit on ordinary activities after taxation 2.9 1.6
Balance Sheet
Detailed reconciliations of the balance sheets prepared under UK GAAP and IFRS
at 1 April 2004, 30 September 2004 and 31 March 2005 are set out in Appendices
I to III respectively to this announcement. Set out below is a summary of the
reconciliation of shareholders' equity as at 30 September 2004 and 31 March
2005.
Summary of IFRS adjustments to Shareholders' Equity £m
At 31 March At 30 Sep
Notes 2005 2004
Shareholders' equity as reported under UK GAAP 65.3 68.2
Dividends 3 3.8 1.9
Holiday pay * 4 (0.2) (0.2)
Goodwill 6a 3.0 1.6
Deferred tax on asset revaluations 7 (0.3) (0.3)
Shareholders' equity as restated under IFRS 71.6 71.2
* net of associated deferred tax
Cash flow reconciliation
Cash flow is unchanged from that previously reported under UK GAAP.
Principal accounting policy changes
1. Basis of accounting
Acal plc and its subsidiaries (the 'Group') have previously prepared
consolidated financial statements under UK Generally Accepted Accounting
Principles ('UK GAAP'). From 1 April 2005 the Group is required to prepare
consolidated financial statements in accordance with International Financial
Reporting Standards ('IFRS') and International Accounting Standards (IAS)
adopted by the European Union (EU). References to IFRS throughout this document
refer to the application of IFRS and IAS as adopted by the EU.
The Group's first published figures under IFRS will be in the Interim Report
for the six months to 30 September 2005 and the first Annual Report under IFRS
will be the Annual Report and Accounts for the year to 31 March 2006. The
transition date for IFRS purposes is 1 April 2004, being the start of the
earliest period of comparative information.
To explain the effect of this transition on the Group's reported performance
and financial position, information for the six months to 30 September 2004 and
year to 31 March 2005, which was previously published under UK GAAP, has been
restated in summary form in this document. This information is unaudited.
Standards currently in issue and adopted by the EU are subject to
interpretation issued from the International Financial Reporting
Interpretations Committee ('IFRIC'). Further standards may be issued by the
International Accounting Standards Board that will be adopted for financial
years beginning on or after 1 January 2005. IFRS is currently being applied in
the United Kingdom and in a large number of other countries simultaneously for
the first time. Due to the number of new and revised standards included within
the body of standards that comprise IFRS, there is not yet significant
established practice on which to draw in forming decisions regarding their
interpretation and application. Accordingly, practice is continuing to evolve.
At this preliminary stage, therefore, the full financial effect of reporting
under IFRS as it will be applied and reported on in the Group's first IFRS
financial statements for the year ended 31 March 2006 may be subject to change.
Generally, transition to IFRS requires full retrospective application. However
IFRS 1 'First-Time Adoption of IFRS' allows a certain number of mandatory and
optional exemptions from this general rule. Where the Group intends to take
advantage of these exemptions they are noted below.
2. Share-based payments
Under UK GAAP no charge was made in the Consolidated Profit and Loss Account in
relation to the Group's share option schemes.
In accordance with IFRS 2 'Share-Based Payments' the fair value of employee
share-based rewards have been calculated and charged to the Consolidated Income
Statement on a straight line basis over the expected vesting period. This
charge is adjusted to reflect the expected and actual levels of vesting and any
changes to the vesting period that arise from non-market based performance
conditions.
In accordance with the exemption permitted under IFRS 1, IFRS 2 has only been
applied to options awarded on or after 7 November 2002 that had not vested at
31 March 2005.
3. Dividends
Under UK GAAP, proposed dividends were recognised as a liability in the period
to which they related. Under IFRS, dividends are recognised as a liability in
the period in which they are declared. Accordingly the accruals for dividends
not declared at 31 March 2005 and 30 September 2004 have been released.
4. Short-term employee benefits
Under IAS 19, the cost of all holiday entitlement earned but not taken at the
balance sheet date is accrued on the Consolidated Balance Sheet.
5. Acquired intangible assets
IFRS requires intangible assets which are acquired with a subsidiary
undertaking to be recognised separately from goodwill and amortised over their
estimated economic life, if they are separable from the acquired business or
derive from contractual or legal rights. No such assets have been reclassified
from goodwill.
6. Goodwill
a. Amortisation
Under UK GAAP, goodwill which arose on acquisitions after 31 March 1998 was
capitalised as an intangible asset in the Consolidated Balance Sheet and
amortised over its estimated economic life of 20 years. Under IFRS, capitalised
goodwill is no longer amortised but is tested annually for impairment.
Accordingly, the amortisation charged against the Consolidated Income Statement
for the year to 31 March 2005 has been reversed and added back to goodwill.
b. Goodwill in reserves
Under UK GAAP, goodwill on acquisitions prior to 31 March 1998 was taken
directly to reserves, but would have been included in the determination of
profit or loss on sale or closure of the business to which it relates. As
required by IFRS 1, goodwill in reserves will no longer be included in the
determination of profit or loss on sale or closure of the business to which it
relates.
c. Carrying value
As permitted by IFRS 1, the Group has elected to deem the UK GAAP net book
value of goodwill at 1 April 2004 as the IFRS cost of goodwill at transition
date.
Under UK GAAP, goodwill was considered a Sterling asset. IFRS considers
goodwill to be an asset denominated in the currency of the acquired business.
Goodwill relating to overseas businesses will therefore be retranslated each
period end using the relevant closing exchange rates and any difference will be
taken to reserves.
7. Deferred taxation
Under UK GAAP, deferred taxation was provided on timing differences between the
accounting and taxable profit. Under IAS 12 'Income Taxes' deferred tax is
provided using the balance sheet liability method, providing for temporary
differences between carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for taxation purposes.
Deferred tax liabilities are recognised for all taxable temporary differences
and deferred tax assets are recognised to the extent that it is probable that
future taxable profit will be available against which the temporary differences
can be utilised.
8. Financial instruments
The Group has chosen to adopt the one-year exemption delaying the
implementation of the Financial Instruments standards. Therefore, for 2004/05
IFRS financial information, financial instruments continue to be accounted for
and presented in accordance with UK GAAP. For 2005/06 financial reporting,
adjustments will be made as at 31 March 2005 to reflect the differences between
UK GAAP and IAS32/IAS 39.
9. Actuarial gains and losses on defined benefit pension schemes
The Group has chosen to recognise all cumulative actuarial gains and losses at
the date of transition to IFRS. Going forward, we will apply the rules of the
amendment to IAS 19 (issued in December 2004) which allows actuarial gains and
losses to be recognised immediately in the Statement of Recognised Income and
Expense. This approach is consistent with the treatment required by the UK
standard FRS 17, the effect of which we have previously disclosed in our UK
GAAP accounts.
10. Intangible assets
Under UK GAAP, software licences and capitalised software development costs are
included within tangible fixed assets on the balance sheet. Under IAS 38,
'Intangible Assets' such items are disclosed separately on the face of the
balance sheet. As a result, there is a reclassification of £5.9 million in the
balance sheet at 31 March 2005 between property, plant and equipment and
intangible assets.
11. Other balance sheet presentational differences
Taxation
IFRS requires the separate disclosure of current and deferred tax assets,
including the deferred tax asset relating to the Group's pension scheme. These
were netted off the respective liabilities under UK GAAP.
Cumulative translation differences
According to IAS 21, cumulative foreign exchange movements on translation of
foreign entities on consolidation should be disclosed separately within equity
shareholders' funds. The Group has elected to apply the exemption given in IFRS
1 to set the cumulative foreign currency translation reserve to zero at 1 April
2004.
These are purely balance sheet presentational changes and are indicated as such
in the respective appendices to this announcement.
APPENDIX I: RECONCILIATION OF BALANCE SHEET - As at 1 April 2004 (Opening
balance sheet for IFRS)
£m Deferred
Reported Intangible Holiday tax on
under UK Dividends Assets * pay revaluations Pensions Restated
GAAP IAS 10 IAS 38 accruals IAS 12 * Other * under
IAS 19 IAS 19 IFRS
Non-current assets
Property, plant and
equipment 14.1 - (6.1) - - - - 8.0
Goodwill and intangible
assets 46.9 - 6.1 - - - - 53.0
Investments in
associates 4.1 - - - - - - 4.1
Other investments 2.3 - - - - - - 2.3
Deferred tax assets - - - - - 2.1 - 2.1
67.4 - - - - 2.1 - 69.5
Current assets
Inventories 23.6 - - - - - - 23.6
Trade and other
receivables 54.2 - - - - - - 54.2
Current tax assets - - - - - - 1.7 1.7
Cash and cash
equivalents 10.8 - - - - - - 10.8
88.6 - - - - - 1.7 90.3
Current liabilities
Trade and other payables (54.7) 3.7 - (0.2) - - - (51.2)
Short-term borrowings (5.7) - - - - - - (5.7)
Current tax payable (1.6) - - - - - (1.7) (3.3)
(62.0) 3.7 - (0.2) - - (1.7) (60.2)
Net current assets 26.6 3.7 - (0.2) - - - 30.1
Non-current liabilities
Long-term borrowings (20.3) - - - - - - (20.3)
Post-employment benefits (4.8) - - - - (2.1) - (6.9)
Deferred tax liabilities (0.3) - - - (0.3) - - (0.6)
Provisions (1.0) - - - - - - (1.0)
(26.4) - - - (0.3) (2.1) - (28.8)
Net assets 67.6 3.7 - (0.2) (0.3) - - 70.8
Equity
Share capital 1.3 - - - - - - 1.3
Share premium account 37.8 - - - - - - 37.8
Other reserves 1.1 - - - - - - 1.1
Retained earnings 26.5 3.7 - (0.2) (0.3) - - 29.7
Total equity (0.3)
shareholders' funds 66.7 3.7 - (0.2) - - 69.9
Minority interests 0.9 - - - - - - 0.9
Total equity 67.6 3.7 - (0.2) (0.3) - - 70.8
NB - The above UK GAAP numbers have been adjusted into IFRS format (in
accordance with IAS 1)
* reclassifications only
APPENDIX II: RECONCILIATION OF BALANCE SHEET - As at 30 September 2004
Goodwill Deferred
£m Reported amort- Divi- Intangible Share-based Holiday tax on
under UK isation dends Assets* payments pay reval- Pensions* Restated
GAAP IFRS 3 IAS 10 IAS 38 IFRS 2 accruals uations IAS 19 under
IAS 19 IAS 12 Other* IFRS
Non-current assets
Property, plant and 13.8 - - (6.3) - - - - - 7.5
equipment
Goodwill and intangible 47.3 1.6 - 6.3 - - - - - 55.2
assets
Investments in associates 4.2 - - - - - - - - 4.2
Other investments 2.2 - - - - - - - - 2.2
Deferred tax assets - - - - - - - 2.0 0.3 2.3
67.5 1.6 - - - - - 2.0 0.3 71.4
Current assets -
Inventories 26.3 - - - - - - - - 26.3
Trade and other receivables 48.9 - - - - - - - - 48.9
Current tax assets - - - - - - - - 2.1 2.1
Cash and cash equivalents 10.9 - - - - - - - - 10.9
86.1 - - - - - - - 2.1 88.2
Current liabilities
Trade and other payables (46.3) - 1.9 - - (0.2) - - - (44.6)
Short-term borrowings (11.0) - - - - - - - - (11.0)
Current tax payable (1.4) - - - - - - - (2.1) (3.5)
(58.7) - 1.9 - - (0.2) - - (2.1) (59.1)
Net current assets 27.4 - 1.9 - - (0.2) - - - 29.1
Non-current liabilities
Long-term borrowings (20.3) - - - - - - - - (20.3)
Post-employment benefits (4.6) - - - - - - (2.0) - (6.6)
Deferred tax liabilities (0.1) - - - - - (0.3) - (0.3) (0.7)
Provisions (0.7) - - - - - - - - (0.7)
(25.7) - - - - - (0.3) (2.0) (0.3) (28.3)
Net assets 69.2 1.6 1.9 - - (0.2) (0.3) - - 72.2
Equity
Share capital 1.3 - - - - - - - - 1.3
Share premium account 38.0 - - - - - - - - 38.0
Share capital to be issued - - - - 0.1 - - - - 0.1
Other reserves 1.1 - - - - - - - 0.4 1.5
Retained earnings 27.8 1.6 1.9 - (0.1) (0.2) (0.3) - (0.4) 30.3
Total equity shareholders'
funds 68.2 1.6 1.9 - - (0.2) (0.3) - - 71.2
Minority interests 1.0 - - - - - - - - 1.0
Total equity 69.2 1.6 1.9 - - (0.2) (0.3) - - 72.2
NB - The above UK GAAP numbers have been adjusted into IFRS format (in
accordance with IAS 1)
* reclassifications only
APPENDIX III: RECONCILIATION OF BALANCE SHEET - As at 31 March 2005
Deferred
£m Reported Goodwill Intangible Share-based Holiday tax on
under UK amortisation Dividends Assets * payments pay revaluations Pensions Restated
GAAP IFRS 3 IAS 10 IAS 38 IFRS 2 accruals IAS 12 * Other * under
IAS 19 IAS 19 IFRS
Non-current assets
Property, plant and 12.5 - - (5.9) - - - - - 6.6
equipment
Goodwill and 45.7 3.0 - 5.9 - - - - - 54.6
intangible assets
Investments in 3.9 - - - - - - - - 3.9
associates
Other investments 2.2 - - - - - - - - 2.2
Deferred tax assets - - - - - - - 1.9 0.2 2.1
64.3 3.0 - - - - - 1.9 0.2 69.4
Current assets
Inventories 25.5 - - - - - - - - 25.5
Trade and other 55.5 - - - - - - - - 55.5
receivables
Current tax assets - - - - - - - - 1.0 1.0
Cash and cash 15.9 - - - - - - - - 15.9
equivalents
96.9 - - - - - - - 1.0 97.9
Current liabilities
Trade and other (59.4) - 3.8 - - (0.2) - - - (55.8)
payables
Short-term (8.0) - - - - - - - - (8.0)
borrowings
Current tax payable (1.0) - - - - - - - (1.0) (2.0)
(68.4) - 3.8 - - (0.2) - - (1.0) (65.8)
Net current assets 28.5 - 3.8 - - (0.2) - - - 32.1
Non-current
liabilities
Long-term (20.2) - - - - - - - - (20.2)
borrowings
Post-employment (4.5) - - - - - - (1.9) - (6.4)
benefits
Deferred tax (0.7) - - - - - (0.3) - (0.2) (1.2)
liabilities
Provisions (0.9) - - - - - - - - (0.9)
(26.3) - - - - - (0.3) (1.9) (0.2) (28.7)
Net assets 66.5 3.0 3.8 - - (0.2) (0.3) - - 72.8
Equity
Share capital 1.3 - - - - - - - - 1.3
Share premium 38.0 - - - - - - - - 38.0
account
Share capital to be - - - - 0.1 - - - - 0.1
issued
Other reserves 1.1 - - - - - - - 0.3 1.4
Retained earnings 24.9 3.0 3.8 - (0.1) (0.2) (0.3) - (0.3) 30.8
Total equity
shareholders' funds 65.3 3.0 3.8 - - (0.2) (0.3) - - 71.6
Minority interests 1.2 - - - - - - - - 1.2
Total equity 66.5 3.0 3.8 - - (0.2) (0.3) - - 72.8
NB - The above UK GAAP numbers have been adjusted into IFRS format (in
accordance with IAS 1)
* reclassifications only
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