Interim Results
James Halstead PLC
31 March 2008
31 March 2008
JAMES HALSTEAD PLC
INTERIM RESULTS FOR THE HALF-YEAR ENDED 31 DECEMBER 2007
Key Figures
James Halstead plc, manufacturer and international distributor of commercial
floor coverings reports:
• Turnover increased to a record £78.5 million - an increase of 14.8%
• Operating profit increased to a record £12.6 million - an increase of 18.2%
• Pre-tax profit increased to a record £13.1 million - an increase of 16.2%
• Basic earnings per ordinary 5p share increased to a record 17.4p - an
increase of 15.2%
• Proposed interim dividend increased to a record 6.25p - an increase of 19%
Chairman, Mr Geoffrey Halstead, commenting said:
'These interim figures, once again, show a record performance with our UK and
international sales driving forward to more than offset the increases in raw
material and energy costs. In addition, cash flows from operations continue to
strengthen the balance sheet and we move towards the full year very positively.'
Enquiries:
Mark Halstead, Chief Executive
Gordon Oliver, Finance Director Telephone: 0161 767 2500
Nick Lyon - Hudson Sandler Telephone : 020 7796 4133
CHAIRMAN'S STATEMENT
International Financial Reporting Standards (IFRS)
The interim financial results for the six months ended 31 December 2007 are
presented under International Financial Reporting Standards (IFRS) for the first
time. The comparative results for the year to 30 June 2007 and six months to 31
December 2006 have been re-stated in accordance with IFRS principles. The notes
to the results give details of the material changes.
Trading
The first six months of the year showed a healthy increase in turnover to £78.5
million (2006: £68.3 million) an increase of 14.8%. The growth in turnover of
flooring, which represents the majority of sales, was 14.3% year on year. There
was a slight positive effect on turnover from a lower value of sterling (some
1.3% of the growth). Our Central European sales (Objectflor and Karndean GmbH)
showed the strongest growth with just over 19% increase in sales. Gross margins,
as a percentage, showed a decline but at less than 1% this was not significant
and to an extent inevitable in the climate of significant adverse raw material
price rises. The effects of increased volumes, positive sales mix (towards added
value / higher margin products) and improved exchange rates on export sales
underpinned this creditable performance on margins. Though the majority of
turnover relates to flooring, Phoenix, our motorcycle accessories business,
reported revenue over 20% ahead of last year and the core Arai safety helmet
business performed very well.
In terms of the benefit to the Group of a weaker Sterling, we have seen the
largest effect in the strength of the Euro against Sterling. Europe is our
largest export market and the 14% appreciation in this currency has already had
an offsetting benefit and will continue to do so. In terms of raw materials,
increased demand across Europe and Asia combined with the underlying increase in
oil prices has meant increased cost and, at times, restricted supply. In
addition, the oil prices have increased manufacturing costs not just for us but
for our raw material manufacturers who face not only commodity price increases
but also the effects of being large energy users. The issue is of concern but
our competitors also face these same cost increases and where they are European
based (which for the main part is the case) the appreciation of the Euro that
has benefited us has had the exact opposite effect on them.
Profit before tax of £13.1 million (2006: £11.3 million) was 16.2% ahead of the
comparative six months of the previous year. Operating profit grew by 18.2% and
the difference is a direct result of lower interest received on lower cash
balances following the special dividend paid in February 2007.
Our balance sheet remains robust. Cash has, again, increased with cash inflow
from operations at £14.2 million (2006: £12.9 million) and cash and cash
equivalents now total £25.9 million. Inventory at £24.9 million (2006: £21.6
million) is 15.2% above last year which is in part due to the increased level of
turnover but also includes stock build for new ranges launched in the first
quarter of 2008.
For the second year in succession the Independent Flooring Distributors
Association (IFDA) voted our UK business the manufacturer of the year and we
remain focused on supplying, servicing and supporting all our stockists. This
support is not only at point of sale and in marketing but also with active work
to gain specifications from architects and ongoing training of contractors at
the grass roots of commercial flooring.
As ever, the projects that we have supplied across the globe were varied and
widespread including the British forces' field kitchens in Afghanistan, the Geo
Celtic, the largest purpose-built seismic vessel in the world, the central
police headquarters in Poznan in Poland, the Targu Secuiesc High School in
Romania and Hamleys Toy Shop in Oxford Street, London. Each project illustrates
the breadth of the ongoing distribution of our commercial flooring worldwide.
Earnings Per Share and Interim Dividend
Our basic earnings per share for the six months to 31 December 2007 of 17.4p
(2006: 15.1p) has increased by 15.2% and having regard to the ongoing trading
and our cash position the Board will be paying an interim dividend of 6.25p
(2006: 5.25p) which is an increase of 19%.
Outlook
It has been a good six months' trading. Our ranges have been specified for a
host of new build projects and refurbishments with the latter, as ever, the much
larger part of all our businesses. Increasing manufacturing output and
productivity increases are, as always, a key part of price competitiveness and
new designs and ranges are vital to ongoing progress. In December we presented
our 'Bevel Line' ranges of competitively priced luxury vinyl tiles and these
have had an excellent response in the market. Additional launches of safety
flooring are at an advanced stage and I am fully confident that in the second
half we will see the benefit of these new ranges and that we shall, once again,
report a full year of progress.
Geoffrey Halstead
Chairman
31 March 2008
Consolidated Income Statement
for the half-year ended 31 December 2007
Half-year Half-year Year
ended ended ended
31.12.07 31.12.06 30.06.07
£'000 £'000 £'000
Revenue 78,453 68,317 137,252
Operating profit 12,579 10,644 22,643
Finance income 500 608 856
Profit before income tax 13,079 11,252 23,499
Income tax expense (4,208) (3,549) (7,657)
Profit for the period 8,871 7,703 15,842
Earnings per ordinary share of 5p :
-basic 17.4p 15.1p 31.1p
-diluted 17.2p 15.0p 30.9p
All the above figures relate to continuing operations.
Details of dividends paid and proposed are given in note 3.
Consolidated Balance Sheet
as at 31 December 2007
Half-year Half-year Year
ended ended ended
31.12.07 31.12.06 30.06.07
£'000 £'000 £'000
Assets
Non current assets
Property, plant and equipment 19,905 18,341 18,334
Intangible assets 3,232 3,232 3,232
Deferred tax assets 3,850 4,894 3,497
26,987 26,467 25,063
Current assets
Inventories 24,884 21,592 23,899
Trade and other receivables 24,045 20,202 20,839
Derivative financial instruments 59 144 54
Cash and cash equivalents 25,922 33,202 22,756
74,910 75,140 67,548
Total assets 101,897 101,607 92,611
Liabilities
Current liabilities 50,104 40,654 44,931
Non-current liabilities
Pension scheme deficit 7,158 12,186 6,431
Deferred tax liabilities 1,063 1,063 1,063
Other payables 662 3,316 506
Total liabilities 58,987 57,219 52,931
Net Assets 42,910 44,388 39,680
Equity
Equity share capital 2,556 2,545 2,555
Equity share capital (B shares) 160 160 160
2,716 2,705 2,715
Share premium account 824 364 803
Retained earnings 34,883 38,074 32,289
Other reserves 4,487 3,245 3,873
Total equity attributable to shareholders of the parent 42,910 44,388 39,680
Consolidated Cash Flow Statement
for the half-year ended 31 December 2007
Half-year Half-year Year
ended ended ended
31.12.07 31.12.06 30.06.07
£'000 £'000 £'000
Cash inflow from operations 14,151 12,915 26,309
Interest received 624 750 1,303
Interest paid (120) (91) (215)
Taxation paid (3,428) (3,844) (8,182)
Cash inflow from operating activities 11,227 9,730 19,215
Purchase of property, plant and equipment (2,702) (1,162) (3,489)
Proceeds from disposal of property, plant and equipment 117 81 200
Cash outflow from investing activities (2,585) (1,081) (3,289)
Equity dividends paid (5,751) (4,072) (22,013)
Shares issued 22 45 494
Interest paid (6) (25) (143)
Repayment of debt - (1,363) (1,539)
Cash outflow from financing activities (5,735) (5,415) (23,201)
Net increase / (decrease) in cash and cash equivalents 2,907 3,234 (7,275)
Effect of exchange differences 259 (82) (19)
Cash and cash equivalents at start of period 22,756 30,050 30,050
Cash and cash equivalents at end of period 25,922 33,202 22,756
Consolidated Statement of Recognised Income and Expense
for the half-year ended 31 December 2007
Half-year Half-year Year
ended ended ended
31.12.07 31.12.06 30.06.07
£'000 £'000 £'000
Foreign currency translation differences 827 (24) 284
Actuarial (loss)/gain on the pension scheme (537) (27) 4,160
Fair value movements on hedged items (213) (180) (37)
Net income/(expense) recognised directly in equity 77 (231) 4,407
Profit for the year 8,871 7,703 15,842
Total recognised income for the period 8,948 7,472 20,249
Attributable to :
Equity holders of the company 8,948 7,472 20,249
Notes to the Interim Results
for the half-year ended 31 December 2007
1. Basis of preparation
The interim financial statements are unaudited and do not constitute statutory accounts as defined within the
Companies Act 1985.
Prior to 1 July 2007, the group was required to prepare its consolidated financial statements under UK GAAP. For
the year ended 30 June 2008, the group is required to prepare its annual consolidated financial statements in
accordance with accounting standards adopted for use by the European Union (International Financial Reporting
Standards - 'IFRS').
The principle accounting policies applied in the preparation of the consolidated interim statements are those
expected to be applicable to the consolidated financial statements for the year ended 30 June 2008. The relevant
policies are set out in the Appendix to these interim statements. The transition date for the group's
application of IFRS is 1 July 2006 and the figures included in these interim statements for the year ended 30
June 2007 and the half-year ended 31 December 2006 have been restated to reflect the application of IFRS.
The financial statements for the year ended 30 June 2007, prepared under UK GAAP, were audited and have been
delivered to the Registrar of Companies. The restatement of these figures to reflect the introduction of IFRS
has not yet been subject to audit and as such the figures included for that period are disclosed as unaudited.
As is permitted by the AIM rules, the directors have not adopted the requirements of IAS34 'Interim Financial
Reporting' in preparing the interim financial statements. Accordingly the interim financial statements are not
in full compliance with IFRS.
2. Income tax has been provided at the rate of 32.2% (2006 : 31.5%).
3. Dividends
Half-year Half-year Year
ended ended ended
31.12.07 31.12.06 30.06.07
£'000 £'000 £'000
Equity dividends paid :
Final dividend for the year ended 30 June 2006 - 4,072 4,072
Special dividend of 30p - - 15,269
Interim dividend for the year ended 30 June 2007 - - 2,672
Final dividend for the year ended 30 June 2007 5,751 - -
5,751 4,072 22,013
Equity dividends proposed at the end of the period
Special dividend - 15,269 -
Interim dividend 3,195 2,672 -
Final dividend - - 5,751
Equity dividends per share, paid and proposed, are as follows :
• 8p final dividend for the year ended 30 June 2006, paid on 1 December 2006
• Special dividend of 30p paid on 2 February 2007
• 5.25p interim dividend for the year ended 30 June 2007, paid on 23 May 2007
• 11.25p final dividend for the year ended 30 June 2007, paid on 7 December 2007
• 6.25p interim dividend for the year ended 30 June 2008, payable on 23 May 2008 to those shareholders on
the register at the close of business on 25 April 2008.
4. Calculation of earnings per ordinary share
Half-year Half-year Year
ended ended ended
31.12.07 31.12.06 30.06.07
£'000 £'000 £'000
Basic earnings 8,871 7,703 15,842
Weighted average number of ordinary shares in issue 51,113,192 50,875,694 50,897,640
Weighted average number of ordinary shares in issue 51,558,120 51,284,522 51,273,344
(diluted for the effect of outstanding share options
Basic earnings per 5p ordinary share 17.4p 15.1p 31.1p
Diluted earnings per 5p ordinary share 17.2p 15.0p 30.9p
5. Copies of the interim results
Copies of the interim results have been sent to shareholders. Further copies can be obtained from the company's
registered office, Beechfield, Hollinhurst Road, Radcliffe, Manchester, M26 1JN.
6. Adoption of International Financial Reporting Standards
(IFRS)
As at As at
31.12.06 As at 1.07.06
£'000 30.06.07 £'000
£'000
Net assets under UK GAAP 45,454 40,616 42,025
Adjustments (before taxation)
Intangible assets 114 228 -
Derivatives and Hedge Accounting (117) (101) (27)
45,451 40,743 41,998
Taxation (1,063) (1,063) (1,063)
Net assets under IFRS 44,388 39,680 40,935
Half-year Year
ended ended
31.12.06 30.06.07
£'000 £'000
Net income under UK GAAP 7,499 15,651
Adjustments
Intangible assets 114 228
Derivatives and Hedge Accounting 90 (37)
Net income under IFRS 7,703 15,842
The adjustments made in converting UK GAAP financial information into IFRS information are summarised as
follows;
Intangible assets
Under UK GAAP goodwill was amortised over its useful economic life, tested for impairment and provided against
if necessary. Under IFRS goodwill is no longer amortised but must be tested for impairment at the date of
transition to IFRS (1 July 2006) and at each balance sheet date thereafter. Goodwill amortisation charged, under
UK GAAP, to the income statement in the year ended 30 June 2007, has been credited back under IFRS.
Derivatives and Hedge Accounting
Under IFRS all derivative financial instruments are accounted for at fair value whilst other financial
instruments are accounted for at amortised cost or fair value according to their classification. Subject to
strict criteria, under IFRS, movements in fair value of derivative financial instruments and financial assets
and liabilities which form part of a hedging relationship may be recorded in a separate reserve within equity.
Movements in fair value of such items which do not form part of a hedging relationship are taken direct to the
income statement. Under UK GAAP, derivative financial instruments were not recorded in the balance sheet, and
assets and liabilities which were hedged by such instruments were allowed to be recorded at the hedged rate. The
group has, therefore, under IFRS recorded its derivative financial instruments at fair value in the balance
sheet and restated the value of certain financial assets and liabilities previously recorded at a hedged rate
under UK GAAP.
Valuation of Properties and Deferred Tax
Freehold land and buildings were included at valuation under UK GAAP. On the introduction of FRS 15, as
permitted, the book values of freehold properties, as modified by subsequent additions and disposals, which had
been the subject of past revaluations were retained. Deferred tax was not provided as it was believed that such
a liability would not crystallise. Under IFRS, the group will adopt the deemed cost basis for freehold property.
As such the revaluation reserve, previously shown under UK GAAP, is transferred to retained earnings under IFRS.
Under IFRS, deferred tax must be provided on the potential gain on the sale of the freehold property at its
revalued level, hence the reduction to net assets shown above.
Foreign exchange translation differences
Under UK GAAP translation differences on the consolidation of foreign currency net investments were taken to the
profit and loss account reserve. Under IFRS these differences must now be recorded in a separate reserve. The
group has taken the transitional exemption allowed under IFRS 1 to apply this treatment from the date of
transition only (1 July 2006). Since there is no effect on either net income or net assets this change does not
affect the above reconciliations.
Revenue
Under UK GAAP settlement and volume discounts were included in selling and distribution costs. Under IFRS these
are now classified within the consolidated income statement as a reduction in revenue. Since there is no effect
on retained profit this reclassification does not affect the above reconciliations.
Other
Under IFRS the pension scheme deficit, previously recorded, under UK GAAP, in the balance sheet net of the
associated deferred tax asset, must be recorded gross. The associated deferred tax asset, together with other
deferred tax assets previously recorded in debtors under UK GAAP, must be shown in the balance sheet under
non-current assets.
The group has reviewed the impact of various other differences between UK GAAP and IFRS and where the impact of
these differences is immaterial to the group's figures, no adjustment has been made to those previously
reported.
Appendix
Summary of accounting policies
The accounting policies set out below and used in the preparation of the interim
financial statements represent the principal policies expected to apply in the
preparation of the group financial statements for the year ended 30 June 2008.
Basis of preparation of accounts
The group financial statements are prepared in accordance with EU endorsed
International Financial Reporting Standards ('IFRS') as adopted by the European
Union and the applicable provisions of the Companies Act 1985. They are prepared
under the historical cost convention as modified by the statement of certain
assets at deemed cost under the transition rules and the measurement of
derivative financial instruments, certain financial assets and liabilities and
share-based payments at fair value.
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates and associated assumptions
that affect the application of policies, the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Although these estimates are
based on management's best assessments of amounts, events or actions, actual
results may ultimately differ from those estimates. The estimates and underlying
assumptions are reviewed on a regular and ongoing basis.
Basis of consolidation
The group financial statements consolidate the accounts of the parent company
and all its subsidiaries. Subsidiaries are entities controlled by 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 benefit from
its activities. This is normally achieved by a majority shareholding. At 31
December 2007, the company, directly or through an intermediate subsidiary owned
100% of the share capital of all of its subsidiaries. The results of
subsidiaries acquired are consolidated from the date on which control passes to
the group. The results of disposed subsidiaries are consolidated up to the date
on which control passes from the group.
All intra-group transactions and balances and any unrealised profit arising
therefrom are eliminated on consolidation.
Foreign currencies
Functional and presentation currency - the group's consolidated financial
statements are presented in pounds sterling, the functional currency of the
group, being the currency of the primary economic environment in which the group
operates.
Transactions and balances - transactions in foreign currencies are recorded at
the rate ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are reported at the rates of exchange
prevailing at the balance sheet date. Exchange differences on retranslating
monetary assets and liabilities are recognised in the income statement except
where they relate to qualifying cash flow hedges, in which case the exchange
differences are deferred in equity.
Foreign subsidiaries - the results of foreign subsidiaries that have a
functional currency different from the group's presentation currency, are
translated at the average rates of exchange for the year.
Assets and liabilities of foreign subsidiaries, that have a functional currency
different from the group's presentation currency, are translated at the exchange
rates prevailing at the balance sheet date. Exchange differences arising from
the translation of the results of foreign subsidiaries and their opening net
assets are recognised as a separate component of equity.
When a foreign subsidiary is sold the cumulative exchange differences relating
to the retranslation of the net investment in that foreign subsidiary are
recognised in the income statement as part of the gain or loss on disposal. This
applies only to exchange differences recorded in equity after 1 July 2006.
Exchange differences arising prior to 1 July 2006 remain in equity on disposal
as permitted by IFRS 1.
Intangible assets
Goodwill - goodwill arising on the acquisition of a subsidiary undertaking is
the difference between the fair value of the consideration paid and the fair
value of the assets and liabilities acquired, and is recognised as an asset and
reviewed for impairment at least annually. Any impairment is recognised
immediately in the income statement and is not subsequently reversed. On
disposal of a subsidiary, the attributable amount of goodwill is included in the
calculation of the profit or loss on disposal. Goodwill arising on acquisitions
before the date of transition to IFRS has been retained at the UK GAAP value as
at that date having been reviewed for impairment at that date and subsequently
at least annually.
Other intangible assets - other intangible assets that are acquired by the group
are stated at cost less accumulated amortisation. Amortisation is charged to the
income statement on a straight line basis in order to allocate the cost over the
estimated useful life. The residual values and useful lives of the assets are
reviewed at each group balance sheet date for continued appropriateness and
impairment and adjusted if necessary.
Taxation
Income tax on the profit for the year comprises current and deferred tax. Income
tax is recognised in the income statement except to the extent that it relates
to items recognised directly in equity.
Current tax assets and liabilities are measured at the amount expected to be
recovered from or paid to taxation authorities based on tax rates and laws that
are enacted or substantively enacted at the balance sheet date. Deferred income
tax is provided in full, using the liability method, on temporary differences
arising between the tax bases of assets and liabilities and their corresponding
book values as recorded in the group's financial statements with the following
exceptions :
• where the temporary difference arises from the initial recognition of
goodwill or of an asset or liability in a transaction that is not a business
combination that at the time of the transaction affects neither accounting nor
taxable profit or loss;
• deferred income tax assets are recognised only to the extent that it
is probable that taxable profit will be available against which the deductible
temporary differences can be utilised;
• Deferred income tax is not provided on unremitted earnings of foreign
subsidiaries where there is no commitment to remit the earnings.
Deferred income tax assets and liabilities are based on tax rates and laws that
are enacted or substantively enacted at the balance sheet date.
Share based payments
The group grants share options to certain of its employees. An expense in
relation to such options, based on their fair value at the date of grant, is
recognised over the vesting period. The group uses the Black Scholes model for
the purpose of computing fair value.
Inventories
Inventories are measured at the lower of cost and net realisable value. Cost
includes expenditure incurred in acquiring the inventories and bringing them to
their existing location and condition. In the case of finished and partly
finished goods, cost represents the cost of raw materials, direct labour, other
direct costs and related production overheads on bases consistently applied from
year to year. In all cases provision is made for obsolete, slow-moving or
defective items where appropriate and for unrealised profits on items of
intra-group manufacture.
Cash and cash equivalents
Cash and cash equivalents include cash in hand, deposits held at call with banks
and bank overdrafts. Bank overdrafts are disclosed as current liabilities except
where the group participates in offset arrangements with certain banks whereby
cash and overdraft amounts are offset against each other.
Pension scheme arrangements
The Group operates several defined contribution pension schemes and a defined
benefit pension scheme for certain of its United Kingdom domiciled employees.
A defined contribution scheme is a scheme in which the group pays contributions
into publicly or privately administered schemes on a voluntary, statutory or
contractual basis. The group has no further payment obligations once the
contributions have been made. The amount charged to the income statement is the
contribution payable in the year. Differences between contributions payable in
the year and contributions actually paid are shown as receivables or payables in
the balance sheet.
A defined benefit scheme is a scheme in which the amount of pension benefit that
an employee will receive on retirement is defined. For the defined benefit
scheme, pension costs and the costs of providing other post retirement benefits
are charged to the income statement in accordance with the advice of qualified
independent actuaries. Past service costs are recognised immediately in the
income statement unless the changes are dependent on the employees remaining in
service for a particular period in which case the costs are recognised on a
straight line basis over that period. The retirement benefit obligations
recognised on the balance sheet represent the difference between the fair value
of the schemes' assets and the present value of the schemes' defined benefit
obligations measured at the balance sheet date. The defined benefit obligation
is calculated annually by independent actuaries using the projected unit method.
Ongoing actuarial gains and losses are recognised in the period in which they
arise in the statement of recognised income and expense.
Property, plant and equipment
All items of property, plant and equipment are recorded at cost less subsequent
depreciation and impairment except for land which is shown at cost less any
impairment. Cost includes expenditure that is directly attributable to the
acquisition of the asset. The group has taken advantage of the exemption under
IFRS 1 not to restate property previously revalued under UK GAAP and to treat
these earlier revaluations as deemed cost. Depreciation is calculated on the
depreciable amount (being cost less the estimated residual value) on a straight
line basis on the over the estimated useful lives of the assets as follows:
Freehold buildings 40 to 50 years
Long and short leasehold property over period of lease
Plant and machinery 2 to 20 years
Fixtures and fittings 3 to 10 years
Motor vehicles 2 to 5 years
Residual values and useful lives are reviewed at each group balance sheet date
for continued appropriateness and indications of impairment and adjusted if
appropriate.
Revenue recognition
Revenue comprises the amounts received or receivable in respect of the sale of
goods and services provided in the normal course of business, net of trade
discounts, VAT and other sales related taxes.
Revenue is recognised when the significant risks and rewards of ownership have
been transferred to the buyer.
Research and development
Expenditure on research activities, undertaken with the prospect of gaining new
scientific or technical knowledge and understanding, is recognised in the income
statement as an expense as incurred.
Development expenditure not meeting all the criteria for capitalisation
contained in IAS 38 - Intangible Assets, is recognised in the income statement
as an expense as incurred.
Dividends
Interim dividends are recognised when they are paid. Final dividends are
recognised when they are approved by the shareholders.
Leases
Leases in which a significant portion of the risks and rewards of ownership are
retained by the lessor are accounted for as operating leases. Payments made
under such leases are charged to the income statement on a straight line basis
over the period of the lease.
Derivative financial instruments and hedging
The group uses derivative financial instruments to hedge its exposure to foreign
currency transactional risk. In accordance with its treasury policy the group
does not hold or issue derivative financial instruments for trading purposes.
Derivative financial instruments are recorded at fair value on the date the
derivative contract is entered into and are subsequently remeasured at fair
value at each group balance sheet date.
The method by which any gain or loss arising from remeasurement is recognised
depends on whether the instrument is designated as a hedging instrument and if
so the nature of the item being hedged. The group recognises an instrument as a
hedging instrument by documenting at the inception of the transaction the
relationship between the instrument and the hedged items and the objectives and
strategy for undertaking the hedging transaction. To be designated as a hedging
instrument, an instrument must also be assessed, at inception and on an ongoing
basis, to be highly effective in offsetting changes in cash flows of hedged
items.
For derivatives not used in hedging transactions or those subsequently
re-assessed as ineffective, the gain or loss on remeasurement of fair value is
recognised immediately in the income statement.
Where a derivative financial instrument is designated as a hedge of the
variability in cash flows of a recognised asset or liability, or of a highly
probable forecast future transaction, the gain or loss on remeasurement which
relates to the portion of the hedge which is deemed effective is recognised
directly in equity, with the balance of the gain or loss, relating to the
ineffective portion, being recognised immediately in the income statement.
Amounts accumulated in equity are recycled in the income statement in the
periods when the hedged item affects profit or loss.
The fair value of forward foreign exchange contracts is determined using forward
exchange market rates at the balance sheet date.
This information is provided by RNS
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