Interim Results
Jersey Electricity Company Limited
18 May 2006
The Jersey Electricity Company
Preliminary Announcement of Interim Results
for the six months ended 31 March 2006
At a meeting of the Board of Directors held on 17 May 2006, the Board approved
the Interim Accounts for the Group for the six months ended 31 March 2006 and
declared an interim dividend of 55p gross (44p net of tax) compared to 50p gross
(40p net) in 2005 on the Ordinary and 'A' Ordinary shares. The dividend will be
paid on 25 August 2006 to those shareholders registered in the books of the
Company on 11 August 2006.
The Interim Accounts are attached and will be sent to all shareholders in due
course, following which, copies will be made available to the public at the
Company's registered office, Queens Road, St Helier, Jersey, JE4 8NY.
The Interim Accounts for 2006 have not been audited nor have the results for the
equivalent period in 2005. The results for the year ended 30 September 2005 have
been extracted from the statutory accounts for that period which had an
unqualified audit opinion.
P.J. Routier
Company Secretary
Direct telephone number : 01534 505253
Direct fax number : 01534 505515
Email : proutier@jec.co.uk
18 May 2006
The Powerhouse,
PO Box 45,
Queens Road,
St Helier,
Jersey JE4 8NY
Jersey Electricity Company Limited
Unaudited interim results
for the six months to 31 March 2006
Financial Summary 6 months 6 months
2006 2005 % rise
Electricity Sales -kWh (000) 355,949 338,465 5%
Turnover £35.8m £30.6m 17%
Profit before tax £5.1m £6.0m (15)%
Profit in Energy business £3.9m £5.2m (25)%
Earnings per share £2.55 £3.05 (16)%
Net dividend proposed per ordinary share 44p 40p 10%
Jersey Electricity is required to adopt International Financial Reporting
Standards (IFRS) from 2006 and these interim results are the first to be
reported in accordance with them. The adoption of IFRS represents a change in
accounting policy only and does not change the Group's underlying cash flows or
business strategy. Group profit before tax in the first half of 2006 was 15%
lower than in the same period of the previous year, despite a 17% increase in
turnover. This was principally due to a 25% fall in profits in our core
electricity supply business, arising from our decision to absorb during 2006 and
2007 a substantial share of the 55% increase in costs of electricity in the
European wholesale power market, from which we import virtually all of our
needs. When announcing our decision last October to increase our tariffs by only
9.7% in 2006, we forecast a significant fall in profits for the year and our
expectations remain unchanged, despite exceptionally strong growth in
electricity sales in the first half of the year. Our earnings per share fell 16%
to £2.55 in line with the profits decrease.
Our aim remains to restore by the end of 2007, the profitability upon which
planned investment in the continuing reliability of our electricity network
depends. However, our hopes to achieve this without increasing our tariffs by
more than 10% next year have been undermined by significant further increases in
the cost of European wholesale power for delivery in 2007.
Power importation remained at the same level as seen in recent years at 96% of
our requirements during the half-year. Our indigenous power generating plant
provided the balance of the electricity which we supplied and in addition to its
principal role as emergency standby capacity, it enabled us to make modest gains
from selling back power to our French supplier during their peak periods.
Our Electrical Retailing business had a very strong first six months with
year-on-year turnover rising 53% and profits moving up from £0.1m in 2005 to
£0.3m in 2006. This was aided by the opening of a new outlet in St. Helier in
November 2005. Profits from our Property portfolio fell from £0.6m to £0.4m due
to the sale of an investment property which had an annual rental income of
£0.6m. The Building Services business produced a £0.1m profit in the six month
period being at a similar level to last year. Losses at our data centre joint
venture, Foreshore Limited, remained at £0.2m.
Cash at bank, including short-term investments, rose £2.3m to £13.1m during the
last six months, with operating cash produced from trading activity offset by
£2.6m of capital investment expenditure and the £1.0m final 2005 dividend.
In addition, in October 2005, proceeds of £6.8m were received from the sale of a
property in St Helier which the Jersey Electricity Company Limited occupied
prior to relocation of its retail outlet some years ago. This was paid to
ordinary shareholders by way of a special dividend of £4.44 per share, net of
tax, in March 2006.
Your Board proposes to pay an interim net dividend of 44p (2005: 40p) on the
Ordinary and 'A' Ordinary Shares payable on 25 August 2006.
D.R. MALTWOOD - Chairman M.J.LISTON - Chief Executive 18 May 2006
INVESTOR TIMETABLE FOR 2006
18 May Announcement of interim results
30 June Payment date for preference share dividends
11 August Record date for interim ordinary dividend
25 August Interim ordinary dividend for year ending 30 September 2006
15 December Preliminary announcement of full year results
Group Income Statement (Unaudited)
Six months ended Year ended
31 March 30 September
2006 2005 2005
Note £000 £000 £000
Revenue 2 35,759 30,589 56,096
Cost of sales (22,812) (16,606) (32,025)
Gross profit 12,947 13,983 24,071
Revaluation of investment properties - - 2,370
Operating expenses (8,095) (7,899) (15,897)
GROUP OPERATING PROFIT BEFORE JOINT
VENTURE 4,852 6,084 10,544
Share of loss of joint venture (169) (173) (355)
GROUP OPERATING PROFIT 2 4,683 5,911 10,189
Interest receivable 452 122 354
Finance costs (4) (4) (9)
PROFIT FROM OPERATIONS BEFORE TAXATION 5,131 6,029 10,534
Income tax 3 (1,219) (1,351) (1,911)
PROFIT FROM OPERATIONS AFTER TAXATION 3,912 4,678 8,623
Minority interest (5) (4) (33)
PROFIT FOR THE PERIOD ATTRIBUTABLE TO THE
EQUITY HOLDERS OF THE PARENT COMPANY 3,907 4,674 8,590
£ £ £
EARNINGS PER SHARE
- basic and diluted 2.55 3.05 5.61
DIVIDENDS PER SHARE
- paid final/interim 4 0.62 0.56 0.96
- paid special 4 4.44 - -
- proposed 4 0.44 0.40 0.62
Group Balance Sheet (Unaudited)
As at 31 March As at 30
September
2006 2005 2005
Note £000 £000 £000
Non-current assets
Intangible assets 92 165 130
Property, plant and equipment 108,521 110,516 109,791
Investment property 9,753 13,986 9,753
Other investments 935 690 754
Total non-current assets 119,301 125,357 120,428
Current assets
Inventories 3,505 2,749 3,927
Trade and other receivables 11,747 10,289 14,578
Derivative financial instruments 18 - -
Short-term investments - cash deposits 1,500 - -
Cash and cash equivalents 11,641 7,342 12,240
Total current assets 28,411 20,380 30,745
TOTAL ASSETS 147,712 145,737 151,173
Liabilities
Trade and other payables 7,792 7,071 8,696
Derivative financial instruments - - 528
Current tax payable 1,195 792 1,195
Total current liabilities 8,987 7,863 10,419
Non-current liabilities
Provisions 13,680 12,248 12,241
Tax liabilities 1,219 1,208 1,154
Financial liabilities - preference shares 235 235 235
Retirement benefit obligations 299 3,331 725
Deferred tax liabilities 10,705 9,625 10,506
Total non-current liabilities 26,138 26,647 24,861
TOTAL LIABILITIES 35,125 34,510 35,280
NET ASSETS 112,587 111,227 115,893
Equity
Share capital 1,532 1,532 1,532
Other reserves 18 - (528)
Retained earnings 111,003 109,659 114,848
Shareholders' funds 112,553 111,191 115,852
Equity minority interest 34 36 41
TOTAL EQUITY 5 112,587 111,227 115,893
Group Cash Flow Statement (Unaudited)
Six months ended Year ended
31 March 30 September
Note 2006 2005 2005
£000 £000 £000
Cash flows from operating activities
Operating profit 4,852 6,084 10,544
Depreciation and amortisation charges 3,505 3,798 7,313
Revaluation of investment property - - (2,370)
Pension operating charge less contributions paid (324) (390) (779)
Loss on sale of fixed assets - - 258
Operating cash flows before movement in working capital 8,033 9,492 14,966
Decrease/(increase) in inventories 423 (171) (1,343)
Decrease/(increase) in trade and other receivables (3,618) (308) 2,195
Increase/(decrease) in trade and other payables 1,973 (1,001) 246
Interest received 423 122 319
Preference dividends paid (4) (4) (9)
Income taxes paid - - (779)
Net cash flows from operating activities 7,230 8,130 15,595
Cash flows from investing activities
Purchase of property, plant and equipment (2,277) (2,357) (5,395)
Investment in intangible assets - (13) (13)
Proceeds from disposal of investment property 6,802 - -
Investment in joint venture (350) (438) (700)
Short-term investments (1,500) - -
Net cash flows from/(used in) investing activities 2,675 (2,808) (6,108)
Cash flows from financing activities
Equity dividends paid 4 (7,764) (870) (1,507)
Repayment of overdraft (1,370) - -
Net cash flows (used in)/from financing activities (9,134) (870) (1,507)
Net increase in cash and cash equivalents 771 4,452 7,980
Cash and cash equivalents at beginning of period 10,870 2,890 2,890
Cash and cash equivalents at end of period 11,641 7,342 10,870
Cash and cash equivalents Six months ended Year ended
31 March 30 September
2006 2005 2005
£000 £000 £000
Cash in hand and balances with banks 11,641 7,342 12,240
Bank overdraft - - (1,370)
Cash and cash equivalents at end of period 11,641 7,342 10,870
Group Statement of Recognised Income and Expense (Unaudited)
Six months ended Year ended
31 March 30 September
2006 2005 2005
£000 £000 £000
Profit for the financial period 3,907 4,674 8,590
Actuarial gain on defined benefit scheme (net of tax) - - 1,660
Fair value gain/(loss) on cash flow hedges 546 - (528)
Total recognised income and expense for the period 4,453 4,674 9,722
attributable to the equity holders of the parent
Notes to the Interim Accounts
1. Accounting policies
Basis of preparation
For all periods up to and including the year ended 30 September 2005, the Group
prepared its annual report and accounts in accordance with UK Generally Accepted
Accounting Practice (GAAP). For the year ending 30 September 2006, the Group is
required to prepare its annual report and accounts in accordance with
International Financial Reporting Standards (IFRS). Accordingly, these interim
accounts have been prepared on the basis of the IFRS accounting policies that
management expects to apply in the 30 September 2006 annual report and accounts.
The Group's reconciliation of UK GAAP to IFRS for the year ended 30 September
2005 has been prepared to describe the changes which arose on transition from 1
October 2004. As such, it does not comprise a full set of financial statements
that have been prepared to present fairly the results and financial position of
the Group in accordance with IFRS. The Group's IFRS accounting policies as they
are to be applied for the year ended 30 September 2006 have been adopted on the
basis of all IFRS issued by the International Accounting Standards Board
('IASB') and which have either been endorsed by the European Union ('EU') or
where there is a reasonable expectation of endorsement by the EU by the time the
Group prepares its first annual accounts in accordance with IFRS for the year
ending 30 September 2006.
Due to the continuing work of the IASB, further standards, amendments and
interpretations could be applicable for the Group's accounts for the year ending
30 September 2006 as practice is continuing to evolve. Consequently, the Group's
accounting policies may change prior to the publication of those accounts.
Since transition to IFRS was 1 October 2004, the Group has taken advantage of
the following exemptions to assist groups with the transition process contained
within IFRS 1 'First-time Adoption of International Financial Reporting
Standards':
• Employee benefits: the cumulative actuarial losses relating to pensions
and other post-retirement benefits at the date of transition to IFRS have
been recognised in retained earnings, and prospectively, all actuarial gains
and losses will be recognised immediately in full through the statement of
recognised income and expense (SORIE);
• Financial instruments: the Group has elected not to prepare comparative
information in accordance with IAS 32 and IAS 39. These standards have been
applied with effect from 1 October 2005. Details of the Group's IAS 32 and
IAS 39 opening position are presented in note 6; and
• Fixed assets : a deemed cost for the opening balance sheet carrying value
of the fixed assets (with the exception of investment properties) by
reference to their book value at the date of transition (1 October 2004) is
established.
The principal accounting policies comprise the following:
Basis of consolidation
The Group's consolidated IFRS financial information for the six months ended 31
March 2006 incorporates the financial information of the company and its
subsidiaries to 31 March.
Subsidiaries are those entities over which the Group has the power to govern the
financial and operating policies, accompanying a shareholding that confers more
than half of the voting rights.
The results of subsidiaries acquired or disposed of during the year are included
in the income statement from the effective date of acquisition or up to the
effective date of disposal, as appropriate.
The consolidated IFRS financial information includes the Group's share of the
post-tax results and net assets under IFRS of associates and jointly controlled
entities using the equity method of accounting. Associates are all entities over
which the Group has significant influence, but not control, generally
accompanying a shareholding that confers between 20% and 50% of the voting
rights. Jointly controlled entities are those entities over which the Group has
joint control with one or more other parties and over which there has to be
unanimous consent by all parties to the strategic, financial and operating
decisions.
Foreign currencies
The functional and presentation currency of the Company is pounds sterling.
Transactions in currencies other than pounds sterling are recorded at the rates
of exchange prevailing on the dates of the transactions. At each balance sheet
date, monetary assets and liabilities that are denominated in foreign currencies
are retranslated at the rates prevailing on the balance sheet date. Non-monetary
assets and liabilities carried at fair value that are denominated in foreign
currencies are translated at the rates prevailing at the date when the fair
value was determined. Gains and losses arising on retranslation are included in
net profit or loss for the period.
Use of estimates
The preparation of accounts in accordance with IFRS requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the accounts and the reported amounts of revenues and expenses during the
reporting period. Actual results can differ from those estimates.
Revenue
Revenue is recognised to the extent that it is probable that economic benefits
will flow to the Group and revenue can be reliably measured. Revenue is measured
at the fair value of consideration received or receivable and represents amounts
receivable for goods and services provided in the normal course of business.
The following specific criteria must also be met before revenue is recognised:
Energy supply
Revenue is recognised on the basis of energy supplied during the period. Revenue
for energy supply includes an assessment of energy supplied to customers between
the date of the last meter reading and the balance sheet date, estimated using
historical consumption patterns.
Long-term contract accounting
Profit on long-term contracts is taken as the work is carried out if the outcome
can be assessed with reasonable certainty. The profit included is calculated on
a prudent basis to reflect the proportion of the work carried out at the period
end, by recording revenue and related costs as contract activity progresses.
Revenue is calculated as that proportion of total contract value which costs
incurred to date bear to total expected costs for that contract. Revenue derived
from variations on contracts is recognised only when they have been accepted by
the customer. Full provision is made for losses on all contracts in the year in
which they are first foreseen.
Interest
Interest income is accrued on a time basis, by reference to the principal
outstanding and at the effective interest rate applicable.
Indefeasible rights of use ('IRU') sales
With the connection of the Channel Island Electricity Grid Ltd (CIEG) telecom
network between Jersey, France and Guernsey, the Group has the ability to sell
dark fibre to other telecom network operators seeking to extend their own
networks through IRU (Indefeasible Rights of Use) agreements. Income from IRU's
where an IRU agreement does not transfer substantially all the risks and
benefits ownership to the buyer or is deemed not to extend for substantially all
of the assets' expected useful lives, is recognised on a straight line basis
over the life of the agreement, even when the payments are not received on such
a basis. Where agreements extend for substantially all of the assets' expected
useful lives and transfer substantially all the risks and benefits of ownership
to the buyer the resulting profit/(loss) is recognised in the income statement
as a gain/(loss) on disposal of fixed assets.
Taxation
The tax expense represents the sum of tax currently payable and deferred tax.
The 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 never taxable or deductible.
Deferred tax is the tax expected to be payable or recoverable on the difference
between the carrying amounts of assets and liabilities in the balance sheet and
the corresponding tax bases used in the computation of taxable profits, and is
accounted for using the balance sheet liability method. Deferred tax liabilities
are recognised for all taxable temporary differences and deferred tax assets are
recognised to the extent that it is probable that taxable profit will be
available against which deductible temporary differences can be utilised.
Deferred tax is calculated at the tax rates that are expected to apply in the
period in which the liability is settled or the asset is realised, on a
non-discounted basis, and is charged in the income statement, except where it
relates to items charged or credited to equity via the statement of recognised
income and expense, in which case the deferred tax is also dealt with in the
statement of recognised income and expense.
Intangible assets
The costs of acquired computer software costs are capitalised on the basis of
the costs incurred to acquire and bring to use the specific software and are
amortised over their operational lives. Costs directly associated with the
development of computer software programmes that will probably generate economic
benefits over a period in excess of one year are capitalised and amortised over
their estimated operational lives. Costs include employee costs relating to
software development and an appropriate proportion of directly attributable
overheads.
Property, plant and equipment
Tangible fixed assets are stated at cost (or 'deemed cost' as determined in
accordance with the transitional provisions contained within IFRS 1) and are
depreciated on the straight-line method to their residual values over their
estimated operational lives. Tangible fixed assets include capitalised employee,
interest and other costs that are directly attributable to construction of fixed
assets.
Depreciation is charged on the following principal bases:
Buildings 50 years
Interconnectors up to 25 years
Plant, mains cables and services up to 33 years
Fixtures and fittings 10 years
Computer equipment up to 4 years
Vehicles 5 years
The gain or loss arising on the disposal or retirement of an asset is determined
as the difference between the sales proceeds and the carrying amount of the
asset and is recognised in the income statement.
Capital grants and customer contributions in respect of additions to fixed
assets are treated as deferred income within non-current liabilities and
released to the income statement over the estimated operational lives of the
related assets.
Impairment of tangible and intangible assets
At each balance sheet date, the Group reviews its tangible and intangible assets
to determine whether there is any indication that those assets may have suffered
an impairment loss. If any such indication exists, the recoverable amount of the
asset is estimated in order to determine the extent of the impairment loss, if
any. Where the asset does not generate cash flows that are independent from
other assets, the Group estimates the recoverable amount of the cash generating
unit to which the asset belongs.
Investment Property
Investment property, which is property held to earn rentals and/or for capital
appreciation, is stated at its fair value at the balance sheet date. Gains or
losses arising from changes in the fair value of investment property are
included in the income statement for the period in which they arise.
Other Investments
The results and assets and liabilities of associates and joint ventures are
incorporated using the equity method. Investments in associates and joint
ventures are carried in the balance sheet at cost as adjusted by changes in the
Group's share of net assets, less any impairment in the value of individual
investments.
Leased assets
Rentals payable under operating leases, where a significant portion of the risks
and rewards of ownership are retained by the lessors, are charged to the income
statement on a straight-line basis over the period of the leases.
The Group operates a sale and leaseback arrangement on the capital value of the
second interconnector to France. This asset has been leased from CIEG which
operates as a joint venture and the asset has been accounted for directly in
Group's books. Benefits arising from the sale and leaseback arrangement, being
up-front interest receipts, are initially capitalised and then amortised as
appropriate over the length of the lease.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost
comprises direct materials and, where applicable, direct labour costs and those
overheads that have been incurred in bringing the inventories to their present
location and condition. Cost is calculated using the average method with the
exception of fuel oil which is calculated using the first in first out method.
Net realisable value represents the estimated selling price less all estimated
costs of completion and costs to be incurred in marketing, selling and
distribution.
Financial Instruments
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand and short-term
deposits with a maturity of three months or less.
Short-term investments
Short term investments comprise cash deposits with a maturity greater than three
months.
Trade and other receivables
Trade receivables do not carry any interest and are stated at their nominal
value as reduced by appropriate allowances for estimated irrecoverable amounts.
Trade payables
Trade payables are not interest bearing and are stated at their nominal value.
Derivative financial instruments and hedge accounting
The Group uses foreign exchange contracts to hedge the risks of changes in
foreign currency exchange rates as its imported power from Europe is priced and
payable in euros. Such contracts are stated at fair value.
Changes in the fair value of derivative financial instruments which are
designated as effective hedges of future cash flows are recognised directly in
equity and the ineffective portion is recognised immediately in the income
statement. If the cash flow hedge of a firm commitment or forecasted transaction
results in the recognition of an asset or a liability, then, at the time the
asset or liability is recognised, the associated gains or losses on the
derivative that had previously been recognised in equity are included in the
initial measurement of the asset or liability. For hedges that do not result in
the recognition of an asset or a liability, amounts deferred in equity are
recognised in the income statement in the same period in which the hedged item
affects net profit or loss.
Changes in the fair value of derivative financial instruments that do not
qualify for hedge accounting are recognised in the income statement as they
arise.
Hedge accounting is discontinued when the hedging instrument expires or is sold,
terminated or exercised, or no longer qualifies for hedge accounting. At that
time, any cumulative gain or loss on the hedging instrument recognised in equity
is kept in equity until the forecasted transaction occurs. If a hedged
transaction is no longer expected to occur, the net cumulative gain or loss
recognised in equity is transferred to the income statement.
Dividends
Dividends are recorded in the Group's accounts in the period in which they are
approved by the Company's shareholders. Interim dividends are recorded in the
period in which they are paid.
Provisions
Provisions are recognised when the Group has a present obligation (legal or
constructive) as a result of a past event, and where it is probable that an
outflow of resources embodying economic benefits will be required to settle the
obligation and a reliable estimate can be made of the amount of the obligation.
Retirement benefit obligations
The Group provides pensions through a defined benefit scheme. The cost of
providing benefits is determined using the projected unit credit method, with
actuarial valuations being carried out at a minimum every three years.
Actuarial gains and losses are recognised in full, directly in retained
earnings, in the period in which they occur and are shown in the statement of
recognised income and expense. The net figure derived from the current service
cost element of the pension charge, the expected return on pension scheme assets
and interest on pension scheme liabilities is deducted in arriving at operating
profit. The retirement benefits obligation recognised in the balance sheet
represents the net deficit in the Group's defined pension schemes together with
the net deficit in the Group's other post-retirement benefit arrangements,
principally healthcare benefits, which are accounted for on a similar basis to
the Group's defined benefit pension schemes.
2. Segmental information
Revenue and profit information are analysed between the businesses as follows:
Turnover Operating
profit/
(loss)
2006 2005 2005 2006 2005 2005
31 March 31 March 30 31 March 31 March 30 September
September
£000 £000 £000 £000 £000 £000
Energy 28,006 24,602 44,231 3,919 5,227 6,711
Building services 1,544 1,174 2,258 139 57 141
Retail appliance sales 4,528 2,953 5,712 328 70 70
Property 789 1,032 2,100 350 558 3,200
Other 892 828 1,795 (53) (1) 67
35,759 30,589 56,096 4,683 5,911 10,189
The segmental operating profit for Property for the year ended 30 September 2005
includes a £2,370,000 uplift in profit as a result of the revaluation of
investment property.
3. Income tax
Six months ended Year ended
31 March 30 September
2006 2005 2005
£000 £000 £000
Current income tax (1,022) (1,091) (1,465)
Deferred income tax (197) (260) (446)
Total income tax (1,219) (1,351) (1,911)
4. Dividends
Six months ended Year ended
31 March 30 September
2006 2005 2005
£000 £000 £000
Distributions to equity holders and by subsidiaries in the period 7,764 870 1,507
The distribution to equity holders in the period consisted of £950,000 (62p net
of tax per share) in respect of the final dividend for 2005 and £6,802,000
(£4.44 net of tax per share) being a special interim dividend linked to the
proceeds received in the period from the sale of an investment property. In
addition £12,000 was paid by subsidiaries to minority interests.
The Directors have declared an interim dividend of 44p per share, net of tax
(2005 - 40p) for the six months ended 31 March 2006 to shareholders on the
register at the close of business on 11 August 2006. This dividend was approved
by the Board on 17 May 2006 and has not been included as a liability at 31 March
2006.
5. Reconciliation of movements in equity
Six months ended Year ended
31 March 30 September
2006 2005 2005
£000 £000 £000
Equity attributable to equity holders
At beginning of period 115,893 107,348 107,348
Total recognised income and expense for the period 4,453 4,674 9,722
Net movement in minority interests and other equity (7) 63 294
Dividends to equity holders (7,752) (858) (1,471)
At end of period 112,587 111,227 115,893
6. Explanation of transition to IFRS
Overview of IFRS reconciliations
Detailed reconciliations of the Group's income statements for the six months
ended 31 March 2005 and for the year ended 30 September 2005 and balance sheets
at 1 October 2004 (the Group's date of transition to IFRS), 31 March 2005 and 30
September 2005 under IFRS to the results and financial position previously
reported under UK GAAP are set out below.
The adoption of IFRS represents a change in accounting policy only and does not
change the Group's underlying cash flows or business strategy.
The effect of moving from UK GAAP to IFRS had the following impact on the Group
for the year ended 30 September 2005 :
• Profit before taxation increased by £3.1m for the year ended 30 September
2005 due mainly to:
o a lower pensions cost than under UK GAAP of £0.8m; and
o the impact of recognising the £2.4m uplift in the revaluation of
investment properties in the income statement previously shown as a
movement in reserves under UK GAAP.
A degree of volatility, that previously did not exist, has been introduced into
the income statement as the annual revaluation of the investment property
portfolio now impacts profit before taxation.
• Earnings per share increased by £1.95 as a result of increased profits.
• Net assets in the balance sheet reduced by £5.3m as at 30 September 2005
mainly due to the remaining pensions prepayment established in 2003, when a
lump sum payment of £7.0m was injected, being transferred to retained
earnings on transition to IFRS on 1 October 2004.
IFRS Summary of impact
IFRS adjustments
The adjustments that have been made to the amounts previously reported under UK
GAAP are explained below:
IAS 19 Employee Benefits - Defined Benefit Scheme Accounting
The Group prepared its 2005 UK GAAP results in accordance with SSAP 24
(Accounting for Pension Costs), with FRS 17 (Retirement Benefits) transitional
disclosures provided in the notes to the accounts.
Under SSAP 24, any pension surplus or deficit identified at the most recent
actuarial revaluation is recognised gradually through the profit and loss
account over the expected future working lifetime of employees. The net pension
cost under SSAP 24 therefore includes both the cost of providing an additional
year of pension benefits to employees and an element of the surplus/deficit
relating to previous years.
The difference between employer's contributions paid and the SSAP 24 net pension
cost is recognised as a prepayment/accrual, resulting in a balance sheet
position that does not necessarily reflect the actuarial position. Interest is
calculated on this balance sheet entry and is also included within the net
pension cost. In accordance with IAS 19, any legal and constructive obligation
for post employment benefit plans is immediately recognised as an asset or
liability on the balance sheet. Where actual experience differs from the
assumptions made at the start of a financial year, actuarial gains and losses
will be recognised through the statement of recognised income and expense.
The adoption of IAS 19 increases the 2005 profit before taxation by £0.8m
compared with UK GAAP. The derecognition of the UK GAAP SSAP 24 prepayment,
reduced net assets at transition on 1 October 2004 by £6.6m (£5.3m net of
deferred taxation). This prepayment reflected the unamortised lump sum payment
of £7.0m made in July 2003 which was previously recognised under UK GAAP. In
addition net assets were further reduced by the recognition of the IAS 19
pension scheme deficit of £3.7m (£3.0m net of deferred tax) at 1 October 2004
which moved downwards to a £0.6m (net of deferred taxation) deficit as at 30
September 2005.
IAS 40 Investment Property
Under UK GAAP any movement in the unrealised fair value of an investment
property is shown in the statement of total recognised gains and losses. In
effect, changes in the market value of investment properties, based on an annual
independent review by an external expert, was a movement through reserves rather
than an impact on profit before tax. IAS 40 requires all revaluations to be
reflected in the income statement.
The adoption of IAS 40 increases the 2005 profit before taxation by £2.4m
compared with UK GAAP.
IAS 10 Dividends
IAS 10 (Events After the Balance Sheet Date) and SSAP 17 (Accounting for Post
Balance Sheet Events) both distinguish 'adjusting events' from 'non-adjusting
events' with similar definitions and applications. However, under IAS 10
dividends may not be recognised until they have been approved and declared to
shareholders and so are no longer at the discretion of the Directors. Therefore,
if this occurs after the balance sheet date, the dividends are not recognised as
a liability at the balance sheet date. However, they are disclosed in the notes
to the accounts in accordance with IAS 1 (Presentation of Financial Statements).
Furthermore, dividends are no longer recognised within the income statement and
are instead reported in the movement of retained earnings.
Under UK GAAP an accrual would have been made in the financial statements for
the final dividend. The final dividend of £1.0m included in the UK GAAP
financial statements for 2005 is derecognised, thereby increasing the net assets
of the Group by this amount.
IAS 32 Preference Shares
The Group has preference share capital of £0.2m with no redemption date.
Preference share capital under UK GAAP was disclosed as equity in the balance
sheet and dividends payable shown as dividends in the profit and loss account.
Under IAS 32: Financial Instruments: Disclosure and Presentation, the Group's
preference shares are classified as financial liabilities in the balance sheet
and dividends are treated as financing payments in the income statement.
The impact on the balance sheet is to reduce net assets by £0.2m and the income
statement is less materially affected.
IAS 39 Accounting for Derivatives
The Group contracts with a European supplier for the importation of power,
priced and payable in euros. Forward foreign exchange contracts are placed for
future liabilities based on forecast purchases to hedge against volatility to
allow tariff planning to be performed more effectively. The Group put cash flow
hedges in place for future estimated monthly liabilities. The Group is taking
the exemption offered by IFRS 1 to apply IAS 39 with effect from 1 October 2005
rather than 1 October 2004 as is the case for all other IFRS. The comparative
information for the year ended 30 September 2005 and the period ended 31 March
2005 therefore reflects derivatives accounted for under the existing UK GAAP
accounting policy. However the transition adjustment required on 1 October 2005
of £0.5m to recognise the fair value of derivatives and apply hedge accounting
provisions is disclosed below.
For cash flow hedges, as described above, movements in the fair value of
derivatives are recognised in the balance sheet and deferred within reserves
until they can be recycled through the income statement to offset the future
income statement effect of changes in the hedged item.
In order to apply this treatment, it must be demonstrated that the derivative
has been, and will continue to be, an effective hedge of the hedged item within
the range deemed acceptable by IAS 39. Any hedge ineffectiveness is recognised
immediately within the income statement.
IAS 16 Revaluation of plant
The Group has historically revalued certain plant assets and their carrying
value is reviewed annually with reference to external indices regarding the
replacement of such plant. The Group has chosen to adopt under IFRS 1 the
one-off transitional option that the deemed cost for the opening balance sheet
carrying value of plant assets is established by reference to their value at the
date of transition (1 October 2004). The Group has opted to account for these
assets at depreciated cost and will no longer revalue annually by reference to
external indices. A review will be performed regularly to ensure the carrying
value is reasonable.
Under IFRS plant assets are stated at deemed cost less depreciation whereas
under UK GAAP plant was carried at valuation, by reference to industry indices,
less depreciation.
The impact on the 2005 balance sheet is to reduce net assets by £0.1m.
Other : IFRS reclassifications
All other material differences between IFRS and UK GAAP are included with the
other column. The main adjustments are:
• software costs move from tangible to intangible fixed assets in accordance
with IAS 38;
• investment property is separately disclosed on the face of the balance
sheet;
• tax balances are separately disclosed on the face of the balance sheet; and
• the elimination of the revaluation reserve previously attributable to
investment property.
Under UK GAAP, goodwill is required to be amortised over its estimated useful
economic life. On transition to IFRS under IFRS 3 (Business Combinations), the
balance of goodwill recognised under UK GAAP at that date is 'frozen' and no
future amortisation is charged. However, the goodwill is subject to a mandatory
impairment test on at least an annual basis and otherwise if there is any
indication of impairment. The JEC had a small balance of goodwill of £0.1m in
its balance sheet at 1 October 2004 and due to immateriality this was written
off in the year to 30 September 2005 and has not been reversed in the income
statement under IFRS.
Analysis of IFRS adjustments to the Income Statement
Year ended 30 September 2005
Investment Preference
Pensions Property Dividends
UK GAAP* IAS19 IAS 40 IAS 32 IFRS
£000 £000 £000 £000 £000
Revenue 56,096 - - - 56,096
Cost of sales (32,078) 53 - - (32,025)
Gross profit 24,018 53 - - 24,071
Revaluation of investment properties - - 2,370 - 2,370
Operating expenses (16,623) 726 - - (5,897)
Group operating profit before joint venture 7,395 779 2,370 - 10,544
Share of loss of joint venture (355) - - - (355)
Group operating profit 7,040 779 2,370 - 10,189
Interest receivable 354 - - - 354
Finance costs - - - (9) (9)
Profit from operations before taxation 7,394 779 2,370 (9) 10,534
Taxation (1,755) (156) - - (1,911)
Profit from operations after taxation 5,639 623 2,370 (9) 8,623
Minority interest (33) - - - (33)
Profit for the year attributable to the equity 5,606 623 2,370 (9) 8,590
holders of the parent company
Earnings per ordinary share (basic and £3.66 £5.61
diluted)
*This column represents the previously published results under UK GAAP in IFRS
format
Analysis of IFRS Balance Sheet adjustments
at 30 September 2005
Preference Cashflow Plant Other:
Pensions Dividends Shares Hedges Revaluation IFRS reclass-
UK GAAP* IAS19 IAS 10 IAS 32 IAS 39 IAS 16 ifications IFRS
£000 £000 £000 £000 £000 £000 £000 £000
Assets
Intangible assets - - - - - - 130 130
Property, plant and 119,756 - - - - (82) (9,883) 109,791
equipment
Investment property - - - - - - 9,753 9,753
Other investments - 754 - - - - - - 754
shares
Total non-current assets 120,510 - - - - (82) - 120,428
Inventories 3,927 - - - - - - 3,927
Trade and other 21,089 (6,511) - - - - - 14,578
receivables
Cash and cash equivalents 12,240 - - - - - - 12,240
Total current assets 37,256 (6,511) - - - - - 30,745
Total assets 157,766 (6,511) - - - (82) - 151,173
Liabilities
Trade and other payables 10,841 - (950) - - - (1,195) 8,696
Derivative financial - - - - 528 - - 528
instruments
Current tax payable - - - - - - 1,195 1,195
Current liabilities 10,841 - (950) - 528 - - 10,419
Non-current liabilities
Long term provisions 13,395 - - - - - (1,154) 12,241
Tax liabilities - - - - - - 1,154 1,154
Financial liabilities - - - 235 - - - 235
Retirement benefit
obligations 495 230 - - - - - 725
Deferred taxation 11,792 (1,447) - - - 161 - 10,506
Non-current liabilities 25,682 (1,217) - 235 - 161 - 24,861
Total liabilities 36,523 (1,217) (950) 235 528 161 - 35,280
Net assets 121,243 (5,294) 950 (235) (528) (243) - 115,893
Equity
Share capital - ordinary 1,532 - - - - - - 1,532
- preference 235 - - (235) - - - -
Revaluation reserve 5,278 - - - - - (5,278) -
Other reserves - - - - (528) - - (528)
Retained earnings 114,157 (5,294) 950 - - (243) 5,278 114,848
Shareholders' funds 121,202 (5,294) 950 (235) (528) (243) - 115,852
Equity minority interest
41 - - - - - - 41
Total equity 121,243 (5,294) 950 (235) (528) (243) - 115,893
*This column represents the previously published results under UK GAAP in IFRS
format
Analysis of IFRS adjustments to the Income Statement
six months ended 31 March 2005
Investment Preference
Pensions Property Dividends
UK GAAP* IAS19 IAS 40 IAS 32 IFRS
£000 £000 £000 £000 £000
Revenue 30,589 - - - 30,589
Cost of sales (16,632) 26 - - (16,606)
Gross profit 13,957 26 - - 13,983
Revaluation of investment properties - - - - -
Operating expenses (8,263) 364 - - (7, 899)
Group operating profit before joint venture 5,694 390 - - 6,084
Share of loss of joint venture (173) - - - (173)
Group operating profit 5,521 390 - - 5,911
Interest receivable 122 - - - 122
Finance costs - - - (4) (4)
Profit from operations before taxation 5,643 390 - (4) 6,029
Taxation (1,273) (78) - - (1,351)
Profit from operations after taxation 4,370 312 - (4) 4,678
Minority interest (4) - - - (4)
Profit for the year attributable to the equity 4,366 312 - (4) 4,674
holders of the parent company
Earnings per ordinary share (basic and diluted) £2.85 £3.05
*This column represents the previously published results under UK GAAP in IFRS
format
Analysis of IFRS Balance Sheet adjustments
at 31 March 2005
Preference Plant Other:
Pensions Dividends Shares Revaluation IFRS reclass-
UK GAAP* IAS19 IAS 10 IAS 32 IAS 16 ifications IFRS
£000 £000 £000 £000 £000 £000 £000
Assets
Intangible assets - - - - - 165 165
Property, plant and
equipment 124,667 - - - - (14,151) 110,516
Investment property - - - - - 13,986 13,986
Other investments -
shares 690 - - - - - 690
Total non-current assets 125,357 - - - - - 125,357
Inventories 2,749 - - - - - 2,749
Trade and other
receivables 16,813 (6,500) - - - - 10,313
Cash and cash equivalents 7,318 - - - - - 7,318
Total current assets 26,880 (6,500) - - - - 20,380
Total assets 152,237 (6,500) - - - 145,737
Liabilities
Trade and other payables 8,472 - (613) 4 - (792) 7,071
Current tax payable - - - - - 792 792
Current liabilities 8,472 - (613) 4 - - 7,863
Non-current liabilities
Provisions 13,456 - - - - (1,208) 12,248
Tax liabilities - - - - - 1,208 1,208
Financial liabilities - - - 235 - - 235
Retirement benefit
obligations 462 2,869 - - - - 3,331
Deferred taxation 11,346 (1,966) - - 245 - 9,625
Non-current liabilities 25,264 903 - 235 245 - 26,647
Total liabilities 33,736 903 (613) 239 245 - 34,510
Net assets 118,501 (7,403) 613 (239) (245) - 111,227
Equity
Share capital - ordinary 1,532 - - - - - 1,532
- preference 235 - - (235) - - -
Revaluation reserve 9,503 - - - - (9,503) -
Retained earnings 107,195 (7,403) 613 (4) (245) 9,503 109,659
Shareholders' funds 118,465 (7,403) 613 (239) (245) - 111,191
Equity minority interest 36 - - - - - 36
Total equity 118,501 (7,403) 613 (239) (245) - 111,227
*This column represents the previously published results under UK GAAP in IFRS
format
Analysis of IFRS Balance Sheet adjustments
at 1 October 2004
Preference Plant Other:
Pensions Dividends Shares Revaluation IFRS reclass-
UK GAAP* IAS19 IAS 10 IAS 32 IAS 16 ifications IFRS
£000 £000 £000 £000 £000 £000 £000
Assets
Intangible assets 100 - - - - 201 301
Property, plant and
equipment 126,183 - - - - (13,924) 112,259
Investment property - - - - - 13,723 13,723
Other investments -
shares 427 - - - - - 427
Total non-current assets 126,710 - - - - - 126,710
Inventories 2,584 - - - - - 2,584
Trade and other
receivables 16,474 (6,625) - - - - 9,849
Cash and cash equivalents 2,890 - - - - - 2,890
Total current assets 21,948 (6,625) - - - - 15,323
Total assets 148,658 (6,625) - - - - 142,033
Liabilities
Trade and other payables 10,678 - (858) - - (792) 9,028
Current tax payable - - - - - 792 792
Current liabilities 10,678 - (858) - - - 9,820
Non-current liabilities
Provisions 11,387 - - - - (1026) 10,361
Tax liabilities - - - - - 1,026 1,026
Financial liabilities - - - 235 - - 235
Retirement benefit
obligations 487 3,234 - - - - 3,721
Deferred taxation 11,346 (2,069) - - 245 - 9,522
Non-current liabilities 23,220 1,165 - 235 245 - 24,865
Total liabilities 33,898 1,165 (858) 235 245 - 34,685
Net assets 114,760 (7,790) 858 (235) (245) - 107,348
Equity
Share capital - ordinary 1,532 - - - - - 1,532
- preference 235 - - (235) - - -
Revaluation reserve 9,503 - - - - (9,503) -
Retained earnings 103,446 (7,790) 858 - (245) 9,503 105,772
Shareholders' funds 114,716 (7,790) 858 (235) (245) - 107,304
Equity minority interest 44 - - - - - 44
Total equity 114,760 (7,790) (235) (245) - 107,348
*This column represents the previously published results under UK GAAP in IFRS
format
This information is provided by RNS
The company news service from the London Stock Exchange
Latest directors dealings
- 3 hours ago Urban Logistics Reit
- 3 hours ago Ocado Group
- 3 hours ago AJ Bell
- 3 hours ago Foresight Enterprise VCT
- 3 hours ago Mitie Group