IFRS re 2004 Results
Grafton Group PLC
06 July 2005
Grafton Group plc
Restatement of 2004 Results under
International Financial Reporting
Standards
6 July 2005
A copy of this document is also available on our website www.graftonplc.com
6 July 2005
RESTATEMENT OF 2004 RESULTS UNDER IFRS
Grafton Group plc today announces the impact of the transition to International
Financial Reporting Standards (IFRS) on its 2004 results previously prepared in
accordance with accounting practice generally accepted in the Republic of
Ireland (Irish GAAP). The Group's interim results for the six months ended 30
June 2005 and the financial statements for the year ended 31 December 2005 will
be prepared under IFRS.
The impact on the audited 2004 key financial data is summarised as follows:
Irish GAAP
IFRS Change Comments on principal IFRS changes
€'000 €'000 %
Turnover 1,872,346 1,872,346 - No impact
Operating profit * 151,310 166,273 +10% Non-amortisation of goodwill, employee
benefits and share based payments
adjustment.
Profit before tax 131,851 145,826 +11% As above
Profit after tax 112,063 125,890 +12% As above
Total equity 535,821 495,538 -8% Pension and deferred tax assets and
liabilities included under IFRS
Net debt ** 338,171 349,229 +3% Inclusion of lease liability under IAS 17 -
Leases
€ cent € cent
Earnings per share (EPS)
Basic EPS*** 52.64 59.14 +12%
Adjusted EPS# 55.64 56.11 +1%
* Operating profit includes goodwill amortisation (Irish GAAP) but
excludes profit on sale of property.
** Net debt comprises current and non-current interest-bearing loans and
borrowings less cash and cash equivalents and liquid investments.
***Basic earnings per share has been calculated on profit after tax
divided by the weighted average number of Grafton Units in issue.
# Adjusted EPS under Irish GAAP is arrived at after excluding goodwill
amortisation, property development profit after taxation and profit after tax on
disposal of land and buildings.
Adjusted EPS under IFRS is arrived at after excluding amortisation on other
intangible assets, property development profit after taxation and profit after
tax on disposal of land and buildings.
Grafton Group plc
Introduction
Grafton Group plc prepared its financial statements up to and including 31
December 2004 in accordance with Irish GAAP. From 2005 onwards it is mandatory
for the financial statements of all entities whose securities are listed on a
regulated exchange in the EU to prepare their Financial Statements in accordance
with International Financial Reporting Standards (IFRS) as adopted by the
European Union (EU). This change applies to all financial reporting for
accounting periods beginning on or after 1 January 2005 and, consequently, the
Group's first IFRS financial statements will be for the year ended 31 December
2005. The interim results for 2005 will be prepared on the basis of the IFRS
accounting policies expected to apply at 31 December 2005. It is a requirement
that the first IFRS financial statements include full comparative information
for 2004. The date of transition to IFRS for all standards is 1 January 2004,
this being the start of the earliest period for which the Group presents full
comparative information under IFRS in its first IFRS Financial Statements other
than the impact of IAS 32 and IAS 39 where the date of transition is 1 January
2005.
This announcement deals with the transition to IFRS under the following
sections:
1. Summary overview of impact of transition to IFRS
2. Basis of preparation of financial statements under IFRS
3. Principal exemptions availed of on transition to IFRS
4. Review of main changes arising on transition to IFRS
The impact of the transition to IFRS on reported performance, financial position
and other key financial information previously reported under Irish GAAP is set
out in the attached appendices as follows:
Appendix 1 - Independent Auditors' Report to the Directors of Grafton Group
plc on the Preliminary IFRS Consolidated Financial Statements for the year ended
31 December 2004.
Appendix 2 - Preliminary Group Income Statement and Group Statement of
Recognised Income and Expense for the year ended 31 December 2004 and Group
Balance Sheet as at that date together with reconciliations of profit and equity
from Irish GAAP to IFRS.
Appendix 3 - Unaudited preliminary Group Income Statement and Group Statement
of Recognised Income and Expense for the six months ended 30 June 2004 and Group
Balance Sheet as of that date together with reconciliations of profit and equity
from Irish GAAP to IFRS.
Appendix 4 - Adjustments required to Irish GAAP Group Balance Sheet as at 1
January 2004, the transition date, for compliance with IFRS.
Appendix 5 - Restatement under IFRS of segmental income statement information
published with the 2004 interim and full year results.
Appendix 6 - Principal Accounting Policies under IFRS.
The restatement of the Group's Preliminary Income Statement, Statement of
Recognised Income and Expense, Balance Sheet and segmental information for the
full year ended 31 December 2004 and the Preliminary Transition Balance Sheet as
at 1 January 2004 have been audited by the Group's auditors KPMG, Chartered
Accountants. The financial information in respect of the preliminary Interim
Results for the six months ended 30 June 2004 is unaudited.
1. Summary Overview of Impact of Transition to IFRS
The impact of the transition to IFRS on the Group's financial statements is
summarised as follows:
Euro thousands Full Year 2004 Interim 2004
(Unaudited)
Irish GAAP* IFRS*** Irish GAAP** IFRS***
€'000 €'000 €'000 €'000
Group Income Statement
Revenue 1,872,346 1,872,346 911,352 911,352
Operating profit 151,310 166,273 70,417 77,460
Profit on disposal of property 792 792 792 792
Profit before net finance costs
and income from financial assets 152,102 167,065 71,209 78,252
Income from financial assets 1,541 1,541 1,541 1,541
Net finance costs 21,792 22,780 10,887 11,381
Profit before tax (PBT) 131,851 145,826 61,863 68,412
Taxation 19,788 19,936 9,280 9,319
Profit after tax 112,063 125,890 52,583 59,093
Tax rate (as a % of PBT) 15% 13.7% 15% 13.6%
Basic EPS (euro cent) 52.64c 59.14c 24.73c 27.79c
Group Balance Sheet
Total assets 1,374,600 1,406,407 1,358,300 1,381,398
Total liabilities 838,779 910,869 869,464 935,413
Total equity 535,821 495,538 488,836 445,985
Net debt 338,171 349,229 362,214 373,487
Net debt to equity 63% 70% 74% 84%
Reconciliation of net debt Year-end 30 June
2004 2004
€'000 €'000
As reported under Irish GAAP 338,171 362,214
Reassessment of leases 11,058 11,273
Restated under IFRS 349,229 373,487
* Extracted from audited consolidated financial statements for the year
ended 31 December 2004
** Extracted from the unaudited consolidated interim results for the
half-year to 30 June 2004
*** Excludes impact of IAS 32 and IAS 39
2. Basis of Preparation of Financial Statements under IFRS
EU law (IAS Regulation EC 1606/2002) requires that the next annual consolidated
financial statements of the Group, for the year ending 31 December 2005, be
prepared in accordance with accounting standards adopted for use in the European
Union (EU) further to the IAS Regulation (EC 1606/2002) ('accounting standards
adopted by the EU').
This preliminary financial information comprising the consolidated preliminary
IFRS balance sheets of the Company and its subsidiaries at 1 January 2004, 30
June 2004 and 31 December 2004, the consolidated preliminary IFRS income
statements for the year ended 31 December 2004 and the six month period ended 30
June 2004 and the related notes, has been prepared on the basis of the
recognition and measurement requirements of IFRS's in issue that either are
adopted by the EU and effective (or available for early adoption) at 31 December
2005 or are expected to be adopted and effective (or available for early
adoption) at 31 December 2005, the Group's first annual reporting date at which
it is required to use accounting standards adopted by the EU. Based on these
recognition and measurement requirements management has made assumptions about
the accounting policies expected to be applied, which are as set out below, when
the first annual financial statements are prepared in accordance with accounting
standards adopted by the EU for the year ending 31 December 2005.
In particular, management has assumed that the following IFRS's issued by the
International Accounting Standards Board and IFRIC Interpretations issued by the
International Financial Reporting Interpretations Committee will be adopted by
the EU such that they will be available for use in the annual IFRS financial
statements for the year ending 31 December 2005:
• Amendment to IAS 19: Actuarial Gains and Losses, Group Plans and
Disclosures
• Amendment to IAS 39: Financial Instruments: Recognition and Measurement -
Fair Value Option
In addition, the accounting standards adopted by the EU that will be effective
(or available for early adoption) in the annual financial statements for the
year ending 31 December 2005 are still subject to change and to additional
interpretations and therefore cannot be determined with certainty. Accordingly,
the accounting policies for 2005 will only be finally determined when the annual
financial statements are prepared for the year ending 31 December 2005.
Details of the exemptions availed of on transition to IFRS are set out in
Section 3 including the exemption from restatement of the 2004 numbers relating
to IAS 32 and IAS 39. No adjustments have been made for any changes in estimates
made at the time of approval of the 2004 consolidated financial statements under
Irish GAAP on which the preliminary IFRS financial information is based.
3. Principal Exemptions Availed of on Transition to IFRS
IFRS 1, 'First-time adoption of International Financial Reporting Standards',
sets out the procedure that the Group must follow when it adopts IFRS for the
first time as the basis for preparing its Consolidated Financial Statements.
The Group is required to establish its IFRS Accounting Policies for 2005 and, in
general, apply these retrospectively to determine the IFRS opening balance sheet
at the transition date of 1 January 2004. The standard permits a number of
specified exemptions from the general principal of retrospective restatement and
the Group has elected, in common with other listed companies, to avail of a
number of these exemptions as follows:
(i) Business Combinations
The Group has chosen not to restate business combinations that occurred prior to
the transition date of 1 January 2004. As a result, goodwill as at the
transition date is carried forward at its net book value and together with
goodwill arising on business combinations after the transition date is subject
to annual impairment testing in accordance with IAS 36 'Impairment of Assets'.
As required by IFRS 1 goodwill was assessed for impairment as at the transition
date and no impairment resulted from the exercise.
(ii) Share-Based Payments
The Group has availed of the transitional arrangements set out in IFRS 2, '
Share-based Payment', which permits the recognition and measurement principles
of the standard to be applied only to options granted after 7 November 2002.
(iii) Fixed Assets
The revaluation in 1998 of the Group's freehold and long leasehold properties
located in the Republic of Ireland has been regarded as deemed cost and
therefore remains unadjusted on transition to IFRS.
(iv) Employee Benefits
The Group has elected to recognise all cumulative actuarial gains and losses
applicable to defined benefit pension schemes in the transition balance sheet
and to adjust them against retained income. Going forward, the Group expects to
apply the amendment to IAS 19, 'Actuarial Gains and Losses, Group Plans and
Disclosures', (not yet approved by the European Commission) 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 IFRS 17 the effect of which we have previously disclosed in our
Irish GAAP Financial Statements.
(v) Financial Instruments
The Group has availed of the exemption under IFRS1 not to restate the
comparative information under IAS 32 'Financial Instruments: Disclosure and
Presentation' and IAS 39 'Financial Instruments: Recognition and Measurement'.
Comparative information on financial instruments for 2004 in the 2005 financial
statements will be presented on the existing Irish GAAP basis.
(vi) Currency Translation Adjustments
IFRS require that on disposal of a foreign operation, the cumulative amount of
currency translation differences previously recognised directly in reserves for
that operation be transferred to the income statement as part of the profit or
loss on disposal. The Group has deemed the cumulative currency translation
differences applicable to foreign operations to be zero as at the transition
date. The cumulative currency translation differences arising after the
transition date (i.e. during 2004) have been re-classified from retained income
to a separate component of equity (termed the 'foreign currency translation
reserve' in the attached documentation) with no net impact on capital and
reserves attributable to the Group's equity holders.
4. Review of Main Changes Arising on Transition to IFRS
The most significant changes arising from the transition to IFRS from Irish GAAP
are described in the following paragraphs. The impact of these changes on the
Group's 2004 Full Year and Interim Income Statements and Balance Sheets is set
out in Appendices 2 and 3 respectively and is based on the accounting policies
in Appendix 6.
(i) IFRS 2 Share-based Payment
IFRS 2, 'Share-based Payment', requires that an expense for share-based
payments, which in the case of Grafton are share options, be recognised in the
income statement based on their fair value at the date of grant. This expense,
which is primarily in relation to the Grafton Group Share Scheme, is recognised
over the vesting period of the schemes. Fair value calculations have been
applied in respect of share entitlements granted after 7 November 2002 as
permitted under the framework for transition to IFRS. The fair value of the
share entitlements to be expensed is determined by using option pricing models
and the Group has used the binomial model in its evaluation. The charge
recognised in the Income Statement over the vesting period of five years has
been adjusted to reflect the expected and actual levels of vesting. The
following inputs were used in determining the fair value of share entitlements:
• The exercise price which is the market price at the date the share
entitlements were granted.
• Future price volatility was based on historical volatility as a guide and
is assessed over six years being the average period from date of grant to
exercise of the share entitlements.
• The risk free interest rate used in the model is the rate applicable to
Irish Government Bonds with a remaining term equal to the expected term of
the share entitlements being valued.
• Expected share purchase / dividend payments.
An expense of €892,000 has been recognised in the Group Income Statement in
respect of the year ended 31 December 2004 (€340,000 for the six months ended 30
June 2004) and this is based on share entitlements granted in November 2003 and
May 2004.
IFRS 2 will also be applied to the Save As You Earn (SAYE) Scheme for UK
employees with effect from March 2005 following a new grant of options.
(ii) IFRS 3 Business Combinations / IAS 38 Intangible Assets
Under Irish GAAP, goodwill recognised on acquisitions made after 1997 was
amortised over its useful life of 20 years. Under IFRS 3 goodwill is no longer
amortised on a straight line basis but instead is subject to annual impairment
testing. At 1 January 2004, the transition date, the Group held a net goodwill
asset of €210.8 million which is carried forward at its net book value and,
together with goodwill arising on business combinations subsequent to the
transition date, is subject to annual impairment testing in accordance with IAS
36, 'Impairment of Assets'. As a result the 2004 charge of €12.8 million under
Irish GAAP for goodwill amortisation is not charged under IFRS and results in an
increase in pre-tax profit. Under Irish GAAP, the Group previously reversed the
goodwill amortisation charge to determine adjusted earnings per share. This
change, therefore, more appropriately aligns the accounting treatment of
goodwill with the Group's presentation of the underlying earnings performance of
the business.
At 31 December 2004 impairment reviews were performed on goodwill and no
impairments resulted from this review.
Under IAS 38, 'Intangible Assets' there is a requirement to separately identify
other intangibles acquired rather than include these as part of goodwill.
Intangible assets, other than goodwill, are amortised over their useful lives.
These lives will typically not be indefinite and as a result, upon acquisition
of a company, intangible assets such as brands and customer lists are now
separately valued and then amortised over their economic lives. The acquisition
balance sheets for businesses acquired during 2004 have not given rise to the
recognition of intangible assets other than goodwill on the grounds that the
intangible assets arising were not considered material.
The acquisition in January 2005 of Heiton Group plc and further acquisitions
going forward may result in the recognition of intangible assets other than
goodwill and an associated amortisation charge. This charge will be essentially
a re-classification of costs associated with goodwill and will be added back in
arriving at the Group's adjusted earnings per share, consistent with the
previous treatment of goodwill amortisation under Irish GAAP.
The acquisition balance sheets for 2004 have been restated to take account of
the different accounting policy under IFRS concerning the measurement of
inventories. IFRS 3 requires that finished goods should be valued on the basis
of selling price in the acquisition balance sheets adjusted for costs of
disposal, a reasonable profit allowance for selling effort and, in the case of
work in progress, costs of conversion. An expense of €100,000 for the year
ended 31 December 2004 (€45,000 for the six month ended 30 June 2004) has been
recognised in respect of the restatement of inventory to fair value for
acquisitions made in 2004.
(iii) Deferred and Current Taxes
Under Irish GAAP, deferred tax is recognised in respect of all timing
differences that have originated but not reversed by the balance sheet date and
which could give rise to an obligation to pay more or less taxation in the
future.
Deferred tax under IAS 12, 'Income Taxes,' is recognised in respect of all
temporary differences at the balance sheet date between the tax bases of assets
and liabilities and their carrying value for financial reporting purposes. IAS
12 also requires that deferred tax assets and liabilities must be disclosed
separately on the balance sheet. IAS 12 results in an overall increase in the
net deferred tax liability of the Group. The adjustments made to deferred tax
assets and liabilities as at the transition date of 1 January 2004, and
reflected in the transition balance sheet, principally relate to the following
issues:
• The Group revalued its Irish freehold and long leasehold properties in
1998. IAS 12 requires a provision to be made for deferred tax on property
revaluation surpluses and this gave rise to a deferred tax liability of
€5,033,000 which is reflected in the transition balance sheet.
• Under Irish GAAP, deferred tax was not provided on fair value asset
uplifts in business combinations if these uplifts did not give rise to
timing differences between the tax base and the book value of the revalued
assets. The requirement under IAS 12 to provide deferred tax on the
differences arising from such revaluations gave rise to a deferred tax
liability of €12,228,000 as at the transition date. This liability
increased to €12,999,000 as at 30 June 2004 and €12,765,000 as at 31
December 2004.
• IAS 12 requires that a deferred tax provision be made for all rolled-over
capital gains rather than those expected to crystallise. The IFRS
transition balance sheet includes a deferred tax liability of €1,003,000 in
respect of rolled-over capital gains, which did not arise under Irish GAAP.
• The deferred tax impact of defined benefit pension scheme surpluses and
deficits accounted for in accordance with IAS 19, 'Employee Benefits', has
resulted in the creation of a deferred tax asset of €5,759,000 in the
transition balance sheet. The deferred tax liability reduces by €789,000 as
a result of a reversal of the SSAP 24 pension prepayment in the Irish GAAP
balance sheet.
A net deferred tax liability of €11,716,000 as set out above has been provided
in the transition balance sheet.
IAS 12 requires deferred tax to be provided in respect of undistributed profits
of overseas subsidiaries unless the parent is able to control the timing of
remittances and it is probable that such remittances will not be made in the
foreseeable future. As the Group is able to control the timing of remittances
from overseas subsidiaries and no such remittances are anticipated in the
foreseeable future, no provision has been made for any tax on undistributed
profits of overseas subsidiaries. Similarly, no deferred tax assets or
liabilities have been recognised in respect of temporary differences associated
with investments in subsidiaries.
In addition to the provisions of IAS 12 described above, IAS 1, 'Presentation of
Financial Statements' requires separate disclosure of deferred tax assets and
liabilities on the face of the balance sheet. The Group's restated Balance
Sheets therefore contain re-classifications of deferred tax assets previously
netted within the overall Group deferred tax liability; these amounts were
€5,959,000, €5,954,000 and €7,368,000 as at the transition date, 30 June 2004
and 31 December 2004 respectively.
(iv) IAS 19 Employee Benefits
The Group currently applies the provisions of SSAP 24 under Irish GAAP and
provides detailed disclosure under FRS 17 in accounting for pensions and other
post employment benefits. IAS 19, 'Employee Benefits', requires the assets and
liabilities of defined benefit pension schemes to be capitalised on the face of
the balance sheet. The Group's transition IFRS Balance Sheet reflects the
assets and liabilities of the Group's defined benefit pension schemes. This
information is consistent with the information previously disclosed under FRS 17
except that scheme assets are valued at the bid value under IAS 19 whereas the
mid market value is used under FRS 17. In accordance with the exemption under
IFRS 1, the Group has recognised all cumulative actuarial gains and losses
attributable to its defined benefit pension schemes as at the transition date.
This has resulted in a pre-tax reduction in net assets of €30.7 million which
represents the sum of the deficit plus the reversal of a SSAP 24 debtor in the
Irish GAAP balance sheet as at 31 December 2003. An associated deferred tax
asset of €6.5 million has been recognised in respect of the pension deficit.
Therefore the total adjustment to net assets is €24.2 million.
The reduction in the 2004 pre-tax charge to the income statement as a result of
the adoption of IAS 19, compared to SSAP 24, is €2.1 million. The related tax
effect is an increase of €0.3 million in the deferred tax charge.
Going forward the Group has elected to apply the amendment to IAS 19 which
allows actuarial gains and losses to be taken directly to reserves through the
Statement of Recognised Income and Expense.
(v) IAS 17 Leases
Under Irish GAAP, determination of property finance leases is made by reference
to the lease as a whole. Under IAS 17, 'Leases', the determination must be made
by reference to the land and buildings elements of the leases separately. A
small number of leases previously recognised as operating leases have been
reclassified as finance leases as required by IAS 17. This has resulted in an
increase of €9,750,000 in the carrying value of property within property, plant
and equipment together with the related finance lease creditor of €11,488,000.
This creditor, because of its inclusion within borrowings, has the effect of
increasing net debt. Cashflows are however unaffected.
The key impact on the Income Statement is that for these specific leases, the
rentals under operating leases charged to operating profit under Irish GAAP are
replaced with a depreciation charge on the property and a finance charge which
is included within interest. The total amounts charged to the income statement
over the life of the finance leases remain the same under both Irish GAAP and
IFRS. However a higher charge is incurred in the early years of a lease owing
to the impact of higher interest charges which results in the retained earnings
being reduced by €1,738,000 at the transition date. The net impact of this
change on the 2004 income statement is not material.
(vi) IAS 39 Financial Instruments: Recognition and Measurement
The Group has availed of the exemption not to restate comparative information
for both IAS 32 and IAS 39 Financial Instruments. The impact of these standards
on 2005 is expected to be as follows:
The Group enters into derivative instruments to limit its exposure to interest
rate and foreign exchange risk. Under Irish GAAP, these instruments are
accounted for as hedges, whereby gains and losses are deferred until the
underlying transaction occurs. Under IFRS, derivative instruments are recognised
on the balance sheet at fair value. In order to achieve hedge accounting under
IFRS, certain criteria must be met regarding documentation, designation and
effectiveness of the hedge. When a derivative is used to hedge the change in
fair value of a recognised asset, liability or firm commitment, the change in
fair value of both the hedging instrument and the hedged risk in the hedged item
are recognised in the income statement when they occur. For a hedge of changes
in the future cash flows relating to a recognised asset, liability or probable
forecast transaction, the change in fair value of the hedging instrument is
recognised in equity to the extent that it is an effective hedge until those
future cash flows occur.
On 1 January 2005 the investment in Heiton Group plc will be reflected at fair
value. Following the acquisition of Heiton Group plc on 7 January 2005 the fair
value of Heiton Group plc will be replaced by the fair value of the net assets
acquired.
The Group will apply IAS 32 and IAS 39 for the first time for the year ending 31
December 2005.
Appendix 1
Page 1 of 2
Independent auditors' report to the Directors of Grafton Group plc on its
consolidated preliminary International Financial Reporting Standards ('IFRS')
financial information
In accordance with the terms of our engagement letter we have audited the
accompanying consolidated preliminary IFRS balance sheets of the Company and its
subsidiaries ('the Group') as at 1 January 2004 and 31 December 2004, the
related consolidated preliminary IFRS income statement for the year ended 31
December 2004 and related basis of preparation, accounting policies and other
notes as set out on pages 13 to 34 ('the preliminary IFRS financial
information').
Included with the preliminary IFRS financial information set out on pages 13 to
34 are the consolidated preliminary balance sheet as at 30 June 2004 and the
related consolidated preliminary income statement for the six-month period then
ended ('the preliminary IFRS interim financial information'). We have not
audited this preliminary IFRS interim financial information and therefore it is
not covered by this opinion.
Respective responsibilities of Directors and KPMG
The directors of the Company have accepted responsibility for the preparation of
the preliminary IFRS financial information which has been prepared as part of
the Group's conversion to IFRS. As explained in the basis of preparation note
on page 5, this preliminary IFRS financial information has been prepared on the
basis of the recognition and measurement criteria of IFRS in issue that either
are adopted by the EU and effective (or available for early adoption) at 31
December 2005 or are expected to be adopted and effective (or available for
early adoption) at 31 December 2005. Our responsibilities, as independent
auditors, are established in Ireland by the Auditing Practices Board, our
profession's ethical guidance and the terms of our engagement.
Under the terms of engagement we are required to report to you our opinion as to
whether the preliminary IFRS financial information has been properly prepared,
in all material respects, in accordance with the respective accounting policy
notes to the preliminary IFRS financial information. We also report to you if,
in our opinion, we have not received all the information and explanations we
require for our audit.
We read the other information accompanying the preliminary IFRS financial
information and consider whether it is consistent with the preliminary IFRS
financial information. We consider the implications for our report if we become
aware of any apparent misstatements or material inconsistencies with the
preliminary IFRS financial information.
Our report has been prepared for the Company solely in connection with the
Company's conversion to IFRS. Our report was designed to meet the agreed
requirements of the Company determined by the Company's needs at the time. Our
report should not therefore be regarded as suitable to be used or relied on by
any party wishing to acquire rights against us other than the Company for any
purpose or in any context. Any party other than the Company who chooses to rely
on our report (or any part of it) will do so at its own risk. To the fullest
extent permitted by law, KPMG will accept no responsibility or liability in
respect of our report to any other party.
Basis of audit opinion
We conducted our audit having regard to Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the preliminary IFRS
financial information. It also includes an assessment of the significant
estimates and judgements made by the directors in the preparation of the
preliminary IFRS financial information, and of whether the accounting policies
are appropriate to the Group's circumstances, consistently applied and
adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the preliminary IFRS
financial information is free from material misstatement, whether caused by
fraud or other irregularity or error. In forming our opinion we also evaluated
the overall adequacy of the presentation of information in the preliminary IFRS
financial information.
Emphases of matter
Without qualifying our opinion, we draw your attention to the following matters:
n The basis of preparation set out on page 5 explains why there is a
possibility that the preliminary IFRS financial information may require
adjustment before being used as the basis of preparing the final consolidated
IFRS financial statements as at 31 December 2005;
n As part of its conversion to IFRSs, the Group has prepared the
preliminary IFRS financial information for the year ended 31 December 2004 to
establish the financial position and results of operations of the Group
necessary to provide the comparative financial information expected to be
included in the Group's first complete set of IFRS consolidated financial
statements as at 31 December 2005. The preliminary IFRS financial information
does not include comparative financial information for the prior period.
n As explained in the basis of preparation on page 5, no adjustments have
been made for any changes in estimates made at the time of approval of the 2004
consolidated financial statements under Irish generally accepted accounting
principles on which the preliminary IFRS financial information is based.
n IAS 32 Financial Instruments: Disclosure and Presentation and IAS 39
Financial Instruments: Recognition and Measurement have not been applied to the
preliminary IFRS financial information relating to 2004 as permitted by IFRS 1
First-time Adoption of International Financial Reporting Standards.
Opinion
In our opinion, the accompanying preliminary IFRS financial information on pages
13 to 34 has been prepared, in all material respects, in accordance with the
basis of preparation and accounting policy notes which describe how IFRSs have
been applied under IFRS 1, including the assumptions made by the directors of
the Company about the standards and interpretations expected to be effective,
and the policies expected to be adopted, when they prepare the first complete
set of consolidated IFRS financial statements of the Company for the year to 31
December 2005.
KPMG
Chartered Accountants
Dublin
5 July 2005.
Appendix 2
Page 1 of 4
Grafton Group plc
GROUP INCOME STATEMENT
for the year ended 31 December 2004
Audited
Restated under IFRS
Continuing Operations
2004
€'000
Revenue 1,872,346
Cost of sales (1,255,207)
Gross profit 617,139
Operating costs (457,595)
Other operating income - property development profit 6,729
Operating profit 166,273
Profit on disposal of property 792
Profit before net finance costs and income from financial assets 167,065
Income from financial assets 1,541
Finance costs (net) (22,780)
Profit before tax 145,826
Income tax expense (19,936)
Profit after tax for the financial year 125,890
Profit attributable to:
Equity holders of the Company 125,890
Profit after tax for the financial year 125,890
Earning per Ordinary Share - basic 59.14c
GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE
for the year ended 31 December 2004
Audited
2004
€'000
Items of income and expense recognised directly within equity:
Currency translation effects - on foreign currency net investments (2,176)
- on foreign currency borrowings 20
Actuarial loss (11,760)
Deferred tax asset on Group defined benefit pension schemes 1,186
Deferred tax recognised through equity 123
Net expense recognised directly in equity (12,607)
Profit after tax for the financial year 125,890
Total recognised income and expense for the financial year 113,283
Attributable to:
Equity holders of the Company 113,283
Total recognised income and expense for the financial year 113,283
Appendix 2
Page 2 of 4
Grafton Group plc
GROUP INCOME STATEMENT FULL-YEAR 2004 - RECONCILIATION FROM IRISH GAAP TO IFRS
Previous IFRS 2 IAS 19 IFRS 3 IAS 17 Restated
Irish Share-Based Employee Business Leases under
GAAP Payments Benefits Combinations IFRS
€'000 €'000 €'000 €'000 €'000 €'000
Turnover 1,872,346 - - - - 1,872,346
Cost of sales (1,255,107) - - (100) - (1,255,207)
Gross profit 617,239 - - (100) - 617,139
Operating costs (459,838) (892) 2,433 - 702 (457,595)
Other operating income -
property development profit
6,729 - - - - 6,729
Goodwill amortisation (12,820) - - 12,820 - -
Operating profit 151,310 (892) 2,433 12,720 702 166,273
Profit on disposal of property 792 - - - - 792
Profit before net finance
costs and income from
financial assets 152,102 (892) 2,433 12,720 702 167,065
Income from financial assets 1,541 - - - - 1,541
Net finance costs (21,792) - (287) - (701) (22,780)
Profit on ordinary activities
before taxation
131,851 (892) 2,146 12,720 1 145,826
Taxation (19,788) 123 (301) 30 - (19,936)
Profit for the financial year 112,063 (769) 1,845 12,750 1 125,890
Attributable to:
Equity holders of the Company 112,063 (769) 1,845 12,750 1 125,890
112,063 (769) 1,845 12,750 1 125,890
Basic earnings per share 52.64 (0.36) 0.87 5.99 - 59.14
(cent)
Adjusted earnings per share 55.64 (0.36) 0.87 (0.04) - 56.11
(cent)
Appendix 2
Page 3 of 4
Grafton Group plc
GROUP BALANCE SHEET AS AT 31 DECEMBER 2004
Restated
under IFRS
Audited
2004
€'000
ASSETS
Non-current assets
Property, plant and equipment 406,207
Intangible assets 247,155
Financial assets 47,019
Deferred income tax assets 14,313
Total non-current assets 714,694
Current assets
Inventories 237,680
Trade and other receivables 318,165
Cash and cash equivalents 135,868
Total current assets 691,713
Total assets 1,406,407
EQUITY
Capital and reserves attributable to the Company's equity holders
Equity share capital 10,864
Share premium account 103,600
Capital redemption reserve 227
Revaluation reserve 34,988
Other reserve - shares to be issued 971
Foreign currency translation reserve (2,156)
Retained earnings 347,044
Total equity 495,538
LIABILITIES
Non-current liabilities
Interest-bearing loans and borrowings 378,401
Deferred income tax liabilities 59,330
Retirement benefit obligations 35,597
Deferred acquisition consideration 1,552
Total non-current liabilities 474,880
Current liabilities
Interest-bearing loans and borrowings 106,696
Trade and other payables 310,786
Current income tax liabilities 14,074
Deferred acquisition consideration 4,433
Total current liabilities 435,989
Total liabilities 910,869
Total equity and liabilities 1,406,407
Appendix 2
Page 4 of 4
Grafton Group plc
Group Balance Sheet as at 31 December 2004 - Reconciliation from Irish GAAP to
IFRS
Previous IFRS 2 IAS 19 IFRS 3 IAS 12 IAS 17 Reclassifications Restated
Irish Share Employee Business Income Leases €'000 Under
GAAP based benefits Combinations Tax €'000 IFRS
€'000 Payments €'000 €'000 €'000 €'000
€'000
ASSETS
Non-current assets
Property, plant and 396,886 - - - - 9,321 - 406,207
equipment
Intangible assets - 234,309 - - 12,304 542 - - 247,155
goodwill
Intangible assets - - - - - - - - -
other
Financial assets 47,019 - - - - - - 47,019
Deferred tax assets - 212 6,733 - 7,368 - - 14,313
678,214 212 6,733 12,304 7,910 9,321 - 714,694
Current assets
Inventories 237,680 - - - - - - 237,680
Trade and other 322,838 - (4,673) - - - - 318,165
receivables
Cash and cash 135,868 - - - - - - 135,868
equivalents
696,386 - (4,673) - - - - 691,713
Total assets 1,374,600 212 2,060 12,304 7,910 9,321 - 1,406,407
EQUITY
Capital and
reserves attributable
to equity holders
Share capital 10,864 - - - - - - 10,864
Share premium account 103,600 - - - - - - 103,600
Capital redemption 227 - - - - - - 227
reserve
Revaluation reserve 39,987 - - - (4,999) - - 34,988
Other reserve - shares - 971 - - - -
971
to be issued
Foreign currency - - 80 (446) 5 - (1,795) (2,156)
translation reserve
Retained earnings 381,143 (759) (32,917) 12,750 (13,231) (1,737) 1,795 347,044
Total equity 535,821 212 (32,837) 12,304 (18,225) (1,737) - 495,538
LIABILITIES
Non-current
liabilities
Interest bearing loans 367,773 - - - - 10,628 - 378,401
and borrowings
Retirement benefit - - 35,597 - - - - 35,597
obligations
Deferred income tax 33,895 - (700) - 26,135 - - 59,330
liabilities
Deferred acquisition 1,552 - - - - - - 1,552
consideration
403,220 - 34,897 - 26,135 10,628 - 474,880
Current liabilities
Interest bearing loans 106,266 - - - - 430 - 106,696
and borrowings
Trade and other 310,786 - - - - - - 310,786
payables
Current income tax 14,074 - - - - - - 14,074
liabilities
Deferred acquisition 4,433 - - - - - - 4,433
consideration
435,559 - - - - 430 - 435,989
Total liabilities 838,779 - 34,897 - 26,135 11,058 - 910,869
Total equity and 1,374,600 212 2,060 12,304 7,910 9,321 - 1,406,407
liabilities
Net debt 338,171 - - - - 11,058 - 349,229
Appendix 3
Page 1 of 4
Grafton Group plc
GROUP INCOME STATEMENT
for the six months ended 30 June 2004
Unaudited
Restated under IFRS
Continuing Operations
2004
€'000
Revenue 911,352
Cost of sales (614,841)
Gross profit 296,511
Operating costs (225,780)
Other operating income - property development profit 6,729
Operating profit 77,460
Profit on disposal of property 792
Profit before net finance costs and income from financial assets 78,252
Income from financial assets 1,541
Finance costs (net) (11,381)
Profit before tax 68,412
Income tax expense (9,319)
Profit after tax for the financial period 59,093
Profit attributable to:
Equity holders of the Company 59,093
Profit after tax for the financial period 59,093
Earning per Ordinary Share - basic 27.79
GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE
for the six months ended 30 June 2004
Unaudited
2004
€'000
Items of income and expense recognised directly within equity:
Currency translation effects - on foreign currency net investments 10,956
- on foreign currency borrowings (2,377)
Actuarial loss (4,695)
Deferred tax asset on Group defined benefit pension schemes 378
Deferred tax recognised through equity 17
Net expense recognised directly in equity 4,279
Profit after tax for the financial period 59,093
Total recognised income and expense for the financial period 63,372
Attributable to:
Equity holders of the Company 63,372
Total recognised income and expense for the financial period 63,372
Appendix 3
Page 2 of 4
Grafton Group plc
GROUP INCOME STATEMENT FOR THE SIX MONTHS ENDED 30 JUNE 2004 - RECONCILIATION
FROM IRISH GAAP TO IFRS
Previous IFRS 2 IAS 19 IFRS 3 IAS 17 Restated
Irish Share-Based Employee Business Leases under
GAAP Payments Benefits Combinations IFRS
€'000 €'000 €'000 €'000 €'000 €'000
Turnover 911,352 - - - - 911,352
Cost of sales (614,796) - - (45) - (614,841)
Gross profit 296,556 - - (45) - 296,511
Operating costs (226,673) (340) 882 - 351 (225,780)
Other operating income -
property development profit
6,729 - - - 6,729
Goodwill amortisation (6,195) - - 6,195 - -
Operating profit 70,417 (340) 882 6,150 351 77,460
Profit on disposal of property 792 - - - - 792
Profit before net finance
costs and income from
financial assets 71,209 (340) 882 6,150 351 78,252
Income from financial assets 1,541 - - - - 1,541
Net finance costs (10,887) - (144) - (350) (11,381)
Profit on ordinary activities
before taxation
61,863 (340) 738 6,150 1 68,412
Taxation (9,280) 40 (93) 14 - (9,319)
Profit for the financial 52,583 (300) 645 6,164 1 59,093
period
Attributable to:
Equity holders of the Company 52,583 (300) 645 6,164 1 59,093
52,583 (300) 645 6,164 1 59,093
Basic earnings per share 24.73 (0.14) 0.30 2.90 0.00 27.79
(cent)
Adjusted earnings per share 24.63 (0.14) 0.30 (0.01) 0.00 24.78
(cent)
Appendix 3
Page 3 of 4
Grafton Group plc
GROUP BALANCE SHEET AS AT 30 JUNE 2004
Restated
under IFRS
Unaudited
2004
€'000
ASSETS
Non-current assets
Property, plant and equipment 399,934
Intangible assets 234,347
Financial assets 47,047
Deferred income tax assets 12,299
Total non-current assets 693,627
Current assets
Inventories 230,270
Trade and other receivables 331,757
Cash and cash equivalents 125,744
Total current assets 687,771
Total assets 1,381,398
EQUITY
Capital and reserves attributable to the Company's equity holders
Equity share capital 10,846
Share premium account 102,418
Capital redemption reserve 206
Revaluation reserve 35,107
Other reserve - shares to be issued 419
Foreign currency translation reserve 8,579
Retained earnings 288,410
Total equity 445,985
LIABILITIES
Non-current liabilities
Interest-bearing loans and borrowings 381,771
Deferred income tax liabilities 47,335
Retirement benefit obligations 30,459
Deferred acquisition consideration 1,748
Total non-current liabilities 461,313
Current liabilities
Interest-bearing loans and borrowings 117,460
Trade and other payables 333,309
Current income tax liabilities 20,335
Deferred acquisition consideration 2,996
Total current liabilities 474,100
Total liabilities 935,413
Total equity and liabilities 1,381,398
Appendix 3
Page 4 of 4
Grafton Group plc
Group Balance Sheet as at 30 June 2004 - Reconciliation from Irish GAAP to IFRS
Previous IFRS 2 IAS 19 IFRS 3 IAS 12 IAS 17 Reclassifications Restated
Irish Share Employee Business Income Leases €'000 Under
GAAP based benefits Combinations Tax €'000 IFRS
€'000 Payments €'000 €'000 €'000 €'000
€'000
ASSETS
Non-current assets
Property, plant and 390,398 - - - - 9,536 - 399,934
equipment
Intangible assets - 228,055 - - 6,141 151 - - 234,347
goodwill
Intangible assets - - - - - - - - -
other
Financial assets 47,047 - - - - - - 47,047
Deferred tax assets - 40 6,305 - 5,954 - - 12,299
665,500 40 6,305 6,141 6,105 9,536 - 693,627
Current assets
Inventories 230,270 - - - - - 230,270
Trade and other 336,786 - (5,029) - - - - 331,757
receivables
Cash and cash 125,744 - - - - - 125,744
equivalents
692,800 - (5,029) - - - - 687,771
Total assets 1,358,300 40 1,276 6,141 6,105 9,536 - 1,381,398
EQUITY
Capital and
reserves attributable
to equity holders
Share capital 10,846 - - - - - - 10,846
Share premium account 102,418 - - - - - - 102,418
Capital redemption 206 - - - - - - 206
reserve
Revaluation reserve 40,123 - - - (5,016) - - 35,107
Other reserve - shares - 419 - - - - - 419
to be issued
Foreign currency - - (568) (23) (620) - 9,790 8,579
translation reserve
Retained earnings 335,243 (379) (27,860) 6,164 (13,231) (1,737) (9,790) 288,410
Total equity 488,836 40 (28,428) 6,141 (18,867) (1,737) 0 445,985
LIABILITIES
Non-current
liabilities
Interest bearing loans 370,928 - - - - 10,843 - 381,771
and borrowings
Retirement benefit - - 30,459 - - - - 30,459
obligations
Deferred income tax 23,118 - (755) - 24,972 - - 47,335
liabilities
Deferred acquisition 1,748 - - - - - - 1,748
consideration
395,794 - 29,704 24,972 10,843 - 461,313
Current liabilities
Interest bearing loans 117,030 - - - - 430 - 117,460
and borrowings
Trade and other 333,309 - - - - - - 333,309
payables
Current income tax 20,335 - - - - - - 20,335
liabilities
Deferred acquisition 2,996 - - - - - - 2,996
consideration
473,670 - - - - 430 - 474,100
Total liabilities 869,464 - 29,704 - 24,972 11,273 - 935,413
Total equity and 1,358,300 40 1,276 6,141 6,105 9,536 - 1,381,398
liabilities
Net debt (362,214) - - - - (11,273) - (373,487)
Appendix 4
Page 1 of 2
Grafton Group plc
GROUP BALANCE SHEET AS AT 1 JANUARY 2004 ('TRANSITION DATE')
Restated
under IFRS
Audited
€'000
ASSETS
Non-current assets
Property, plant and equipment 356,562
Intangible assets 210,840
Financial assets 33,665
Deferred income tax assets 11,718
Total non-current assets 612,785
Current assets
Inventories 194,436
Trade and other receivables 267,482
Cash and cash equivalents 138,956
Total current assets 600,874
Total assets 1,213,659
EQUITY
Capital and reserves attributable to the Company's equity holders
Equity share capital 10,781
Share premium account 102,352
Capital redemption reserve 57
Revaluation reserve 35,227
Other reserve - shares to be issued 79
Foreign currency translation reserve -
Retained earnings 257,155
Total equity 405,651
LIABILITIES
Non-current liabilities
Interest-bearing loans and borrowings 375,611
Deferred income tax liabilities 46,375
Retirement benefit obligations 25,421
Deferred acquisition consideration 5,373
Total non-current liabilities 452,780
Current liabilities
Interest-bearing loans and borrowings 86,548
Trade and other payables 252,422
Current income tax liabilities 13,313
Deferred acquisition consideration 2,945
Total current liabilities 355,228
Total liabilities 808,008
Total equity and liabilities 1,213,659
Appendix 4
Page 2 of 2
Grafton Group plc
Group Balance Sheet as at 1 January 2004 - Reconciliation from Irish GAAP to
IFRS
Previous IFRS 2 IAS 19 IFRS 3 IAS 12 IAS 17 Reclassifications Restated
Irish Share Employee Business Income Leases €'000 Under
GAAP based benefits Combinations Tax €'000 IFRS
€'000 Payments €'000 €'000 €'000 €'000
€'000
ASSETS
Non-current assets
Property, plant and 346,812 - - - - 9,750 - 356,562
equipment
Intangible assets - 210,840 - - - - - - 210,840
goodwill
Intangible assets - - - - - - - - -
other
Financial assets 33,665 - - - - - - 33,665
Deferred tax assets - - 5,759 - 5,959 - - 11,718
591,317 - 5,759 - 5,959 9,750 - 612,785
Current assets
Inventories 194,436 - - - - - - 194,436
Trade and other 272,797 - (5,315) - - - - 267,482
receivables
Cash and cash 138,956 - - - - - - 138,956
equivalents
606,189 - (5,315) - - - - 600,874
Total assets 1,197,506 - 444 - 5,959 9,750 - 1,213,659
EQUITY
Capital and
reserves attributable
to equity holders
Share capital 10,781 - - - - - - 10,781
Share premium account 102,352 - - - - - - 102,352
Capital redemption 57 - - - - - - 57
reserve
Revaluation reserve 40,260 - - - (5,033) - - 35,227
Other reserve - shares - 79 - - - - - 79
to be issued
Foreign currency - - - - - - - -
translation reserve
Retained earnings 296,391 (79) (24,188) - (13,231) (1,738) - 257,155
Total equity 449,841 - (24,188) - (18,264) (1,738) - 405,651
LIABILITIES
Non-current
liabilities
Interest bearing loans 364,553 - - - - 11,058 - 375,611
and borrowings
Retirement benefit - - 25,421 - - - - 25,421
obligations
Deferred income tax 22,941 - (789) - 24,223 - - 46,375
liabilities
Deferred acquisition 5,373 - - - - - - 5,373
consideration
392,867 - 24,632 - 24,223 11,058 - 452,780
Current liabilities
Interest bearing loans 86,118 - - - - 430 - 86,548
and borrowings
Trade and other 252,422 - - - - - - 252,422
payables
Current income tax 13,313 - - - - - - 13,313
liabilities
Deferred acquisition 2,945 - - - - - - 2,945
consideration
354,798 - - - - 430 - 355,228
Total liabilities 747,665 - 24,632 - 24,223 11,488 - 808,008
Total equity and 1,197,506 - 444 - 5,959 9,750 - 1,213,659
liabilities
Net debt (311,715) - - - - (11,488) - (323,203)
Appendix 5
Page 1 of 2
Grafton Group plc
Restatement under IFRS of segmental income statement information - Full year
2004 (Audited)
The Group's primary reporting format is geographic segments being Ireland and
the UK with its secondary segment format being business segment analysed between
the following divisions: merchanting, DIY and manufacturing.
Geographic segments
Continuing operations - full year 2004
Ireland UK Total
€'000 €'000 €'000
Revenue
Sales to external customers 451,742 1,420,604 1,872,346
Inter-segment revenue is not material and thus not subject to separate disclosure above.
Operating profit before property development 51,360 108,184 159,544
profit
Property development profit 6,729 - 6,729
Operating profit 58,089 108,184 166,273
Profit on disposal of property - 792 792
Profit before net finance costs and
income from financial assets 58,089 108,976 167,065
Income from financial assets 1,541
Financing costs (net) (22,780)
Profit before tax 145,826
Income tax expense (19,936)
Profit for the financial year 125,890
Business segments
Irish UK
Merchanting Merchanting DIY Manufacturing Total
€'000 €'000 €'000 €'000 €'000
Revenue
Sales to external customers 286,126 1,359,923 129,783 96,514 1,872,346
Appendix 5
Page 2 of 2
Grafton Group plc
Restatement under IFRS of segmental income statement information - Six months
ended 30 June 2004 (Unaudited)
The Group's primary reporting format is geographic segments being Ireland and
the UK with its secondary segment format being business segment analysed between
the following divisions: merchanting, DIY and manufacturing.
Geographic segments
Continuing operations - for the six months ended 30 June 2004
Ireland UK Total
€'000 €'000 €'000
Revenue
Sales to external customers 221,328 690,024 911,352
Inter-segment revenue is not material and thus not subject to separate disclosure above.
Operating profit before property development 20,554 50,177 70,731
profit
Property development profit 6,729 - 6,729
Operating profit 27,283 50,177 77,460
Profit on disposal of property - 792 792
Profit before net finance costs and
income from financial assets 27,283 50,969 78,252
Income from financial assets 1,541
Financing costs (net) (11,381)
Profit before tax 68,412
Income tax expense (9,319)
Profit for the financial period 59,093
Business segments
Irish UK
Merchanting
Merchanting DIY Manufacturing Total
€'000 €'000 €'000 €'000 €'000
Revenue
Sales to external customers 138,831 659,771 64,775 47,975 911,352
Appendix 6
Grafton Group plc
Principal Accounting Policies under IFRS in the Restated 2004 Financial
Statements
Statement of Compliance
The restated financial information has been prepared in accordance with the
recognition and measurement principles of all International Financial Reporting
Standards, including Interpretations issued by the International Accounting
Standards Board ('IASB') and its committees and endorsed by the European
Commission with the exception that IAS 32 and IAS 39 have not been applied as
permitted under the transition rules of IFRS 1.
Sections 2 and 3 of this document include details of the qualifications to be
taken into account and the principal exemptions availed of on transition to
IFRS.
Basis of Preparation
Restated financial information is prepared on a historical cost basis except for
the revaluation of certain properties and measurement at fair value of share
options. The consolidated financial statements are prepared in euro and all
values are rounded to the nearest thousand (euro '000) except when otherwise
indicated.
Basis of Consolidation
The restated consolidated financial statements comprise the financial statements
of Grafton Group plc and its subsidiaries. Subsidiaries are consolidated from
the date on which control is transferred to the Group and cease to be
consolidated from the date on which control is transferred out of the Group.
Control exists when the company has the power, directly or indirectly, to govern
the financial and operating policies of an entity so as to obtain economic
benefits from its activities. Financial statements of subsidiaries are prepared
for the same reporting year as the parent company and where necessary,
adjustments are made to the results of subsidiaries to bring their accounting
policies into line with those used by the Group.
All inter-company balances and transactions, including unrealised profits
arising from inter-group transactions, have been eliminated in full. Unrealised
losses are eliminated in the same manner as unrealised gains.
Turnover and Revenue Recognition
Revenue is recognised to the extent that it is probable that the economic
benefits will flow to the Group, that it can be reliably measured and that the
significant risks and rewards of ownership of the goods have passed to the
buyer. Revenue comprises the invoiced value of goods and services supplied by
the Group and excludes inter-company sales, trade discounts and value added tax.
Interest income is accrued on a time basis, by reference to the principal
outstanding and at the effective interest rate applicable.
Dividend income from investments is recognised when shareholders' rights to
receive payment have been established.
Foreign Currency Translation
The presentation currency of the Group and the functional currency of its Irish
subsidiaries is the euro (€). Transactions in foreign currencies are recorded
at the rate of exchange ruling at the date of the transaction. Monetary assets
and liabilities denominated in foreign currencies are retranslated into the
functional currency at the rate of exchange at the balance sheet date. All
translation differences are taken to the consolidated income statement with the
exception of differences on foreign currency borrowings that provide a hedge
against a net investment in a foreign entity. These are taken directly to
equity together with the exchange difference on the net investment in the
foreign entity until the disposal of the net investment, at which time they are
recognised in the consolidated income statement.
Results and cash flows of non-euro subsidiary undertakings are translated into
euro at average exchange rates for the year, and the related balance sheets have
been translated at the rates of exchange ruling at the balance sheet date.
Adjustments arising on translation of the results of non-euro subsidiary
undertakings at average rates, and on the restatement of the opening net assets
at closing rates, are dealt with in a separate translation reserve within
equity, net of differences on related currency borrowings. All other translation
differences are taken to the income statement.
On disposal of a foreign operation, accumulated currency translation differences
are recognised in the income statement as part of the overall gain or loss on
disposal; the cumulative currency translation differences arising prior to the
transition date have been set to zero for the purposes of ascertaining the gain
or loss on disposal of a foreign operation subsequent to 1 January 2004.
Goodwill and fair value adjustments arising on acquisition of a foreign
operation are regarded as assets and liabilities of the foreign operation, are
expressed in the functional currency of the foreign operation and are recorded
at the exchange rate at the date of the transaction and subsequently
retranslated at the applicable closing rates.
Property, Plant and Equipment
Property, plant and equipment are stated at cost or deemed cost less accumulated
depreciation and impairment losses. The Group's Irish properties were revalued
to fair value in 1998 and are measured on the basis of deemed cost being the
revalued amount at the date of that revaluation less accumulated depreciation.
Property, plant and equipment are depreciated over their useful economic life on
a straight line basis at the following rates:
Freehold buildings 50-100 years
Leasehold land and buildings Lease term or up to 100 years
Plant and machinery 5-20 years
Motor vehicles 5 years
Plant hire equipment 4-8 years
The residual value and useful lives of property, plant and equipment are
reviewed and adjusted if appropriate at each balance sheet date.
On disposal of property, plant and equipment the cost and related accumulated
depreciation and impairments are removed from the financial statements and the
net amount, less any proceeds, is taken to the income statement.
The carrying amounts of the Group's property, plant and equipment are reviewed
at each balance sheet date to determine whether there is any indication of
impairment. An impairment loss is recognised whenever the carrying amount of an
asset or its cash generation unit exceeds its recoverable amount. Impairment
losses are recognised in the income statement unless the asset is recorded at a
revalued amount in which case it is firstly dealt with through the revaluation
reserve with any residual amount being transferred to the income statement.
Subsequent costs are included in an asset's carrying amount or recognised as a
separate asset, as appropriate, only when it is probable that future economic
benefits associated with the item will flow to the Group and the cost of the
replaced item can be measured reliably. All other repair and maintenance costs
are charged to the income statement during the financial period in which they
are incurred.
Business Combinations
The purchase method of accounting is employed in accounting for the acquisition
of subsidiaries by the Group. The Group has availed of the exemption under IFRS
1, 'First-time Adoption of International Financial Reporting Standards', whereby
business combinations prior to the transition date of 1 January 2004 are not
restated. IFRS 3, 'Business Combinations', has been applied with effect from
the transition date of 1 January 2004 and goodwill amortisation ceased from that
date.
The cost of a business combination is measured as the aggregate of the fair
value at the date of exchange of assets given, liabilities incurred or assumed
and equity instruments issued in exchange for control together with any directly
attributable expenses. Deferred expenditure arising on business combinations is
determined through discounting the amounts payable to their present value at the
date of exchange. The discount element is reflected as an interest charge in
the income statement over the life of the deferred payment. In the case of a
business combination the assets and liabilities are measured at their
provisional fair values at the date of acquisition. Adjustments to provisional
values allocated to assets and liabilities are made within 12 months of the
acquisition date and reflected as a restatement of the acquisition balance
sheet.
Goodwill
Goodwill arising on acquisitions prior to the date of transition to
International Financial Reporting Standards has been retained at the previous
Irish GAAP amount being its deemed cost subject to being tested for impairment.
Goodwill written off to reserves under Irish GAAP prior to 1998 has not been
reinstated and is not included in determining any subsequent profit or loss on
disposal.
Goodwill on acquisitions is initially measured at cost being the excess of the
cost of the business combination over the acquirer's interest in the net fair
value of the identifiable asset, liabilities and contingent liabilities.
Following initial recognition, goodwill is measured at cost less any accumulated
impairment losses. Goodwill relating to acquisitions from 1 January 2004 and
goodwill carried in the balance sheet at 1 January 2004 is not amortised.
Goodwill is reviewed for impairment annually or more frequently if events or
changes in circumstances indicate that the carrying value may be impaired.
As at the acquisition date, any goodwill acquired is allocated to each of the
cash-generating units expected to benefit from the combination's synergies.
Impairment is determined by assessing the recoverable amount of the
cash-generating unit, to which the goodwill relates.
Where goodwill forms part of a cash-generating unit and part of the operation
within that unit are disposed of, the goodwill associated with the operation
disposed of is included in the carrying amount of the operation when determining
the gain or loss on disposal of the operation. Goodwill disposed of in this
circumstance is measured on the basis of the relative values of the operation
disposed of and the proportion of the cash-generating unit retained.
Intangible Assets other than Goodwill
Intangible assets acquired separately are capitalised at cost and intangible
assets acquired in the course of a business combination are capitalised at fair
value being their deemed cost as at the date of acquisition. Subsequent to
initial recognition, intangible assets which have a finite life are carried at
cost less any applicable accumulated amortisation and any accumulated impairment
losses. Where amortisation is charged on assets with finite lives this expense
is taken to the income statement.
Intangible assets which do not have a finite life are carried at cost less any
accumulated impairment loss. These intangible assets are assessed for impairment
annually either individually or at the cash-generating unit level.
The amortisation of intangible assets is calculated to write-off the book value
of intangible assets over their useful lives on a straight-line basis on the
assumption of zero residual value.
Leases
Where the Group has entered into lease arrangements on land and buildings the
lease payments are allocated between land and buildings and each is assessed
separately to determine whether it is a finance or operating lease.
Finance leases, which transfer to the Group substantially all the risks and
benefits to ownership of the leased asset, are capitalised at the inception of
the lease at the fair value of the leased asset or if lower the present value of
the minimum lease payments. The corresponding liability to the lessor is
included in the balance sheet as a finance lease obligation. Lease payments are
apportioned between the finance charges and reduction of the lease obligation so
as to achieve a constant rate of interest on the remaining balance of the
liability. Finance charges are charged to the income statement as part of
finance costs.
Capitalised leased assets are depreciated over the shorter of the estimated
useful life of the asset or the lease term.
Leases where the lessor retains substantially all the risks and benefits of
ownership of the assets are classified as operating leases. Operating lease
payments are recognised as an expense in the income statement on a straight line
basis over the lease term.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is
based on the first-in first-out principal and includes all expenditure incurred
in acquiring the inventories and bringing them to their present location and
condition.
In the case of finished goods and work in progress, cost includes direct
materials, direct labour and a proportion of manufacturing overhead based on
normal operating capacity but excluding borrowing costs. Net realisable value
is the estimated selling price in the ordinary course of business, less
estimated cost of completion and the estimated costs necessary to make the sale.
Trade and other Receivables
Trade receivables, which generally have 30 to 90 day terms, are recognised and
carried at original invoice amount less an allowance for any incurred losses.
An estimate of incurred losses is made when collection of the full amount is no
longer probable. Bad debts are written off when identified.
Cash and Cash Equivalents
Cash and short term deposits in the balance sheet comprise cash at bank and in
hand and short term deposits with an original maturity of three months or less.
Bank overdrafts that are repayable on demand and form part of the Group's cash
management are included as a component of cash and cash equivalents for the
purpose of the statement of cashflows.
Interest - Bearing Loans and Borrowings
All loans and borrowings are initially recognised at cost being the fair value
of the consideration received net of issue costs associated with the borrowing.
After initial recognition, interest-bearing loans and borrowings are
subsequently measured at amortised cost using the effective interest method.
Amortised cost is calculated by taking into account any issue costs, and any
discount or premium on settlement. Gains and losses are recognised in the
income statement when the liabilities are derecognised or impaired, as well as
through the amortisation process.
Provisions
A provision is recognised in the balance sheet when the Group has a present
legal or constructive obligation as a result of a past event, and it is probable
that an outflow of economic benefits would be required to settle the obligation.
If the effect of the time value of money is material, provisions are
determined by discounting the expected future cash flows at a pre-tax rate that
reflects the time value of money and, where appropriate, the risks specific to
the liability.
Where discounting is used, the increase in the provision due to the passage of
time is recognised as a borrowing cost.
A provision for restructuring is recognised when the Group has approved a
detailed and formal restructuring plan and announced its main provisions.
Pensions and Other Post-employment Benefits
Obligations to the defined contribution pension plans are recognised as an
expense in the income statement as incurred.
The Group operates a number of defined benefit pension schemes which require
contributions to be made to separately administered funds. The Group's net
obligation in respect of defined benefit pension schemes is calculated
separately for each plan by estimating the amount of future benefits that
employees have earned in return for their service in the current and prior
periods. That benefit is discounted to determine its present value, and the fair
value of any plan asset is deducted. The discount rate employed in determining
the present value of the schemes' liabilities is determined by reference to
market yields at the balance sheet date on high quality corporate bonds for a
term consistent with the currency and term of the associated post-employment
benefit obligations.
The net surplus or deficit arising in the Group's defined benefit pension
schemes are shown within either non-current assets or liabilities on the face of
the Group Balance Sheet. The deferred tax impact of pension scheme surpluses and
deficits is disclosed separately within deferred tax assets or liabilities as
appropriate. The Group has elected to avail of the Amendment to IAS 19 'Employee
Benefits', to recognise post transition date actuarial gains and losses
immediately in the statement of recognised income and expense even though this
has not yet been endorsed by the EU.
Any increase in the present value of plans' liabilities expected to arise from
employee service during the period is charged to operating profit. The expected
return on the plans' assets and the expected increase during the period in the
present value of the plans' liabilities arising are included in finance costs
(net).
When the benefits of a defined benefit plan are improved, the portion of the
increased benefit relating to past service by employees is recognised as an
expense in the income statement over the remaining average working lives of the
employees concerned. To the extent that the benefits vest immediately, the
expense is recognised immediately in the income statement.
In accordance with the exemption granted under IFRS 1, IAS 19 has not been
applied retrospectively in preparing the Group's transition balance sheet to
IFRS. All cumulative actuarial gains and losses as at the transition date (1
January 2004) have therefore been recognised in retained income at that date.
Share Based Payment Transactions.
Group share schemes allow employees to acquire shares in the company. The fair
value of share entitlements granted is recognised as an employee expense in the
income statement with a corresponding increase in equity. The fair value is
determined by an external valuer using a binomial model. Share entitlements
granted by the company are subject to certain market-based vesting conditions.
Non-market vesting conditions are not taken into account when estimating the
fair value of entitlements as at the grant date. The expense for the share
entitlements shown in the income statement is based on the fair value of the
total number of entitlements expected to vest and is allocated to accounting
periods on a straight line basis over the vesting period. The cumulative charge
to the income statement is only reversed where entitlements do not vest because
all performance conditions have not been met or where an employee in receipt of
share entitlements leaves the Group before the end of the vesting period.
The proceeds received by the company on the vesting of share entitlements are
credited to share capital and share premium when the share entitlements are
exercised. In line with the transitional arrangements set out in IFRS 2, 'Share
Based Payment', the recognition and measurement principles of this standard have
been applied only in respect of share entitlements granted after 7 November
2002.
The Group does not operate any cash-settled share-based payment schemes or
share-based payment transactions with cash alternatives as defined in IFRS 2.
Segment Reporting
A segment is a distinguishable component of the Group that is engaged either in
providing products or services (business segment), or in providing products or
services within a particular economic environment (geographical segment), which
is subject to risks and rewards that are different from those other segments.
Net Financing Costs
Net financing costs comprise interest payable on borrowings calculated using the
effective interest rate method, interest receivable on funds invested, foreign
exchange gains and losses, and gains and losses on hedging instruments that are
recognised in the income statement.
Interest income is recognised in the income statement as it accrues, using the
effective interest method. The interest expense component of finance lease
payments is recognised in the income statement using the effective interest rate
method.
Tax
The tax expense in the income statement represents the sum of the tax currently
payable and deferred tax.
Tax currently payable is based on taxable profit for the year. Taxable profit
differs from net profit as reported in the income statement because it excludes
items of income or expense that are taxable or deductible in other years and it
further excludes items that are not taxable or deductible. The Group's liability
for current tax is calculated using rates that have been enacted or
substantially enacted at the balance sheet date.
Tax is recognised in the income statement except to the extent that it relates
to items recognised directly in equity or items for which there is no
corresponding income statement charge, in which case it is recognised in equity.
Deferred income tax is provided, using the liability method, on all temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for taxation purposes. Deferred income
tax assets and liabilities are not subject to discounting and are measured at
the tax rates that are expected to apply in the year when the asset is realised
or the liability is settled.
The carrying amount of deferred tax assets is reviewed at each balance sheet
date and reduced to the extent that it is no longer probable that sufficient
taxable profit will be available to allow all or part of the deferred income tax
asset to be utilised.
Deferred income tax liabilities are not recognised for the following temporary
differences;
• Goodwill not deductible for tax purposes or the initial recognition of an
asset or liability in a transaction that is not a business combination and,
at the time of the transaction, affects neither the accounting profit nor
the taxable profit or loss; and
• Differences relating to investments in subsidiaries to the extent that the
timing of the reversal is controlled by the company and they will probably
not reverse in the foreseeable future.
Deferred income tax assets are recognised for all deductible temporary
differences, carry forward of unused tax credits and unused tax losses, to the
extent that it is probable that taxable profit will be available against which
the deductible temporary differences, and the carry forward of unused tax
credits and unused tax losses can be utilised except:
• Where the deferred income tax asset relating to the deductible temporary
difference arises from the initial recognition of an asset or liability in a
transaction that is not a business combination and, at the time of the
transaction, affects neither the accounting profit or taxable profit or
loss; and
• In respect of deductible temporary differences associated with investments
in subsidiaries in which case deferred tax assets are only recognised to the
extent that it is probable the the temporary differences will reverse in the
foreseeable future and taxable profit will be available against which the
temporary difference can be utilised.
The carrying amount of deferred income tax assets is reviewed at each balance
sheet date and reduced to the extent that it is no longer probable that
sufficient taxable profit would be available to allow all or part of the
deferred income tax asset to be utilised.
Share Capital
Repurchase of share capital
When share capital recognised as equity is repurchased, the amount of the
consideration paid, including directly attributable costs, is recognised as a
change in equity.
Dividends
Dividends on ordinary shares are recognised as a liability in the Group's
financial statements in the period in which they are declared by the Company.
Financial Instruments, Derivatives and Hedging
Financial assets are carried at cost less provision for any permanent diminution
in value.
Hedging instruments, principally forward exchange contracts and interest rate
swaps, are matched with the underlying hedged transaction. Gains and losses on
forward foreign exchange contracts, which relate primarily to purchases of stock
for re-sale or for use in manufacturing processes, are included in the carrying
amount of stock when purchased and are recognised in the income statement when
the sales transactions occur.
Interest rate swap agreements are used where appropriate to manage interest rate
exposures. Amounts payable or receivable in respect of these derivatives are
recognised as adjustments to interest payable over the period of the contracts.
Additional Accounting Policies to be Applied in 2005
Derivative Financial Instruments
The Group uses derivative financial instruments (principally interest rate and
currency swaps and forward foreign exchange contracts) to hedge its exposure to
foreign exchange and interest rate risks arising from operational, financing and
investment activities.
Derivative financial instruments are recognised initially at cost and thereafter
are stated at fair value. The gain or loss on remeasurement to fair value is
recognised immediately in the income statement. However, where derivatives
qualify for hedge accounting, recognition of any resultant gain or loss depends
on the nature of the item being hedged (see hedging accounting policy).
The fair value of interest rate and currency swaps is the estimated amount that
the Group would receive or pay to terminate the swap at the balance sheet date,
taking into the account current interest and currency exchange rates and the
current creditworthiness of the swap counterparties. The fair value of forward
exchange contracts is calculated by reference to current forward exchange rates
for contracts with similar maturity profiles and equates to the quoted market
price at the balance sheet date, being the present value of the quoted forward
price.
Hedging
For the purposes of hedge accounting, hedges are classified either as fair value
hedges (which entail hedging the exposure to movements in the fair value of a
recognised asset or liability) or cash flow hedges (which hedge exposure to
fluctuations in future cash flows derived from a particular risk associated with
a recognised asset or liability, a firm commitment or a highly probable forecast
transaction).
In the case of fair value hedges which satisfy the conditions for special hedge
accounting, any gain or loss stemming from the re-measurement of the hedging
instrument to fair value is reported in the income statement. In addition, any
gain or loss on the hedged item which is attributable to the hedged risk is
adjusted against the carrying amount of the hedged item and reflected in the
income statement. Where the adjustment is to the carrying amount of a hedged
interest-bearing financial instrument, the adjustment is amortised to the income
statement with the objective of achieving full amortisation by maturity.
Where a derivative financial instrument is designated as a hedge of the
variability in cash flows of a recognised liability, a firm commitment or a
highly probable forecasted transaction, the effective part of any gain or loss
on the derivative financial instrument is recognised as a separate component of
equity with the ineffective portion being reported in the income statement. When
a firm commitment or forecast transaction results in the recognition of an asset
or a liability, the cumulative gain or loss is removed from equity and included
in the initial measurement of the asset or liability. Otherwise, the associated
gains or losses that had previously been recognised in equity are transferred to
the income statement contemporaneously with the materialisation of the hedged
transaction. Any gain or loss arising in respect of changes in the time value of
the derivative financial instrument is excluded from the measurement of hedge
effectiveness and is recognised immediately in the income statement.
Hedge accounting is discontinued when the hedging instrument expires or is sold,
terminated or exercised, or no longer qualifies for special hedge accounting. At
that point in time, any cumulative gain or loss on the hedging instrument
recognised as a separate component of equity is kept in equity until the
forecast transaction occurs. If a hedged transaction is no longer anticipated to
occur, the net cumulative gain or loss recognised in equity is transferred to
the income statement in the period.
Where a derivative financial instrument is used to economically hedge the
foreign exchange exposure of a recognised monetary asset or liability, hedge
accounting is not applied and any gain or loss accruing on the hedging
instrument is recognised in the income statement.
Where foreign currency borrowings provide a hedge against a net investment in a
foreign operation, foreign exchange differences are taken directly to a foreign
currency translation reserve (being a separate component of equity). Cumulative
gains and losses remain in equity until disposal of the net investment in the
foreign operation at which point the related difference are transferred to the
income statement as part of the overall gain or loss on sale.
This information is provided by RNS
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