Interim Results
NWF Group PLC
05 February 2008
Embargoed until: 07.00, 5 February 2008
NWF GROUP PLC INTERIM RESULTS
FOR THE SIX MONTHS ENDED 30 NOVEMBER 2007
NWF Group plc ('NWF'), the diversified sales and distribution business, today
announces interim results for the six months ended 30 November 2007.
Commenting on the results, Mark Hudson, Chairman said: 'Trading conditions in
the first six months have been difficult for NWF. Whilst turnover increased
throughout all four divisions in the period, significant pressure on margins and
high interest costs associated with recent major capital expansion projects led
to a significant reduction in profit before taxation at the Group level compared
to the previous half year.
'Despite challenging and in some cases unusual market conditions all four
businesses have profitable track records and experienced management teams. We
have continued to invest significantly during the period under review which has,
we believe, positioned the Group for future growth.'
Financial highlights: (these results are presented under International Financial
Reporting Standards (IFRS) as adopted by the EU, including the restatement of
prior period comparatives figures, for the first time in line with previous
announcements):
•Turnover increased by 10.9% to £172.7 million (2006: £155.7 million)
•Operating profit down 38.2% to £2.1 million (2006: £3.4 million)
•Profit before taxation of £0.8 million (2006: £2.5 million)
•Basic earnings per share 1.2 pence (2006: 3.7 pence*)
•Interim dividend maintained at 1.0 pence (2006: 1.0 pence*)
•Net assets rose by 8.4% to £29.8 million (2006: £27.5 million)
•Net cash outflow before financing £13.3 million (2006: outflow £11.1
million)
* Restated to take into account the effect of a four-for-one bonus issue of
shares in October 2007.
Divisional highlights:
•Distribution: turnover up 8.3% to £15.7 million (2006: £14.5 million)
with operating profit of £574,000 (2006: £958,000) and significant new
capacity now on stream.
•Feeds: turnover rose by 9.6% to £41.2 million (2006: £37.6 million) with
operating profit of £1,232,000 (2006: £1,087,000) at a time of unprecedented
increases and volatility in key input commodities.
•Fuels: turnover increased 12.8% to £105.7 million (2006: £93.7 million)
with operating profits of £561,000 (2006: £1,026,000) as increases in oil
prices have placed pressure on margins.
•Garden Centres: turnover increased 2.0% to £10.1 million (2006: £9.9
million) with an operating loss of £231,000 (2006: profit £360,000)
resulting from poor summer weather, a slow start to Christmas trading and
the build up of sales at the new Ashton Park centre.
On the outlook for the coming months Mark Hudson added: 'After a testing first
six months the Board remains confident of a significant increase in performance
in the second half of the financial year. We are steadily bringing in new
Distribution customers, however additional transition costs and some customers
commencing later than expected will result in significantly lower than planned
operating profit in Distribution in the current financial year. Feeds and Fuels
are currently performing well and we expect this trend to continue. The outlook
for Garden Centres remains cautious given the retail and general economic
outlook. I look forward to updating shareholders further at the full year
stage.'
For further information please visit www.nwf.co.uk or contact:
Richard Whiting, Chief Executive Mark Taylor John West
Paul Grundy, Finance Director Freddie Crossley Clemmie Carr
NWF Group plc Charles Stanley Securities Tavistock
(Nominated Advisor) Communications
Tel: 01829 260260 Tel: 020 7149 6000 Tel: 020 7920 3150
Chairman's Statement
Trading conditions in the first six months have been difficult for NWF. Whilst
turnover increased throughout all four divisions in the period, significant
pressure on margins and high interest costs associated with recent major capital
expansion projects led to a significant reduction in profit before taxation at
the Group level compared to the previous half year.
Despite challenging and in some cases unusual market conditions all four
businesses have profitable track records and experienced management teams. We
have continued to invest significantly during the period under review which has,
we believe, positioned the Group for future growth.
Results
Group revenue for the six months to 30 November 2007 increased by 10.9% from
£155.7 million to £172.7 million. Operating profit fell to £2.1 million (2006:
£3.4 million). Pre-tax profit was £0.8 million (2006: £2.5 million).
Basic earnings per share was 1.2 pence (2006: 3.7 pence) and diluted earnings
per share reduced from 3.6 pence to 1.2 pence.
Net assets rose by 8.4% to £29.8 million (2006: £27.5 million). The significant
capital expenditure during the period of £4.8 million (2006: £8.4 million)
related principally to the investment in Distribution warehousing at Wardle.
This, together with an £8.5 million (2006: £3.0 million) absorption of working
capital that arose mainly from significant raw material price increases,
contributed to an overall cash outflow before financing of £13.3 million (2006:
£11.1 million). As a result gearing at the period end increased to 182% (2006:
131%).
As we have previously announced these results are presented under International
Financial Reporting Standards (IFRS), as adopted by the European Union, for the
first time and include a description of the Group's revised accounting policies
and an explanation of the effects of adopting IFRS on equity, profits and cash
flow. In addition, the prior period comparative figures for earnings per share
and dividends per share have been restated to take into account the effect of a
four-for-one bonus issue of shares in October 2007.
Dividend
The Board has approved an unchanged interim dividend per share of 1.0 pence
(2006: 1.0 pence). This will be paid on 1 May 2008 to shareholders on the
register on 28 March 2008. The shares will trade ex-dividend on 26 March 2008.
Operations
Distribution
Turnover during the period increased by 8.3% to £15.7 million as some of the new
capacity created at Wardle was utilised, however operating profit reduced by
40.1% from £958,000 to £574,000.
This has been a period of major capital investment in Distribution, with three
new warehouses commissioned at Wardle delivering an additional 60,000 pallet
spaces (now bringing total capacity to 130,000). The new warehouses were
commissioned later than originally planned and this has resulted in non-value
added movement of stock around the Wardle site and sub-optimal use of labour and
transport, which is reflected in the fall in operating profit. New customers are
constantly coming on stream, with 25,000 of the additional 60,000 pallet spaces
filled by the end of November. The remainder of the additional capacity will be
utilised during 2008. Some customers are coming in later than anticipated and
the transition costs are higher than forecast. We therefore expect lower than
planned profitability in the Distribution business in the current financial
year.
Feeds
During the six months under review the Feeds division saw ruminant feeding
patterns affected in June and July as a result of wet weather and unprecedented
increases and volatility in raw material costs. The division has focused on
delivering price increases to keep in line with higher raw material costs.
Turnover rose by 9.6% to £41.2 million and operating profit increased 13.3% from
£1,087,000 to £1,232,000. This was despite total tonnage falling by 2%. Blended
volumes continue to grow and further investment has taken place to increase our
capacity in this market.
Fuels
Turnover increased by 12.8% to £105.7 million on a volume increase of 6.8% to
168.5 million litres. Operating profit was £561,000 compared to £1,026,000 in
2006, a reduction of 45.3%.
The Fuels division has been impacted by the significant increases in oil prices
throughout the period, resulting in customers seeking competitive prices to
mitigate the higher costs. The result was a considerable amount of margin
pressure, as we retained customers and increased sales in what remains a
challenging market.
The experienced management team has focused on improving operational performance
across all depots and is continually striving to deliver best practice across
the business.
Garden Centres
The division operated six destination garden centres during the half year,
including Ashton Park which opened in March 2007. Turnover increased 2.0% to
£10.1 million (2006: £9.9 million), of which Ashton Park accounted for £0.9
million, with like for like sales down 7% on prior year. The operating loss of
£231,000 compared to an operating profit of £360,000 in 2006.
The loss resulted from a number of adverse factors. We witnessed very poor,
severely weather affected sales in June and July, coupled with a gradual build
up of sales at the newly opened Ashton Park centre. The start of Christmas
trading was also slower than expected, as retail consumer confidence remained
low. However, it is worth noting that our Garden Centres are expected to make
the majority of their annual profits in the second half of the Group's financial
year.
Board
Richard Whiting succeeded Graham Scott as Chief Executive on 1 November 2007. I
would like to take this opportunity to thank Graham for his significant
contribution to the Group's success over the last 12 years. The transition has
been a smooth one and we look forward to further years of success under
Richard's leadership.
Outlook and future prospects
After a testing first six months the Board remains confident of a significant
increase in performance in the second half of the financial year. We are
steadily bringing in new Distribution customers, however additional transition
costs and some customers commencing later than expected will result in
significantly lower than planned operating profit in Distribution in the current
financial year. Feeds and Fuels are currently performing well and we expect this
trend to continue. The outlook for Garden Centres remains cautious given the
retail and general economic outlook. I look forward to updating shareholders
further at the full year stage.
Mark Hudson
Chairman
5 February 2008
NWF GROUP PLC
CONDENSED GROUP INCOME STATEMENT
HALF YEAR ENDED 30 NOVEMBER 2007
Half year to Half year to Year to
30 Nov 2007 30 Nov 2006 31 May 2007
(restated) (restated)
----------------------------------------------
£m £m £m
Revenue (note 3) 172.7 155.7 320.4
Operating expenses (170.6) (152.3) (312.3)
----------------------------------------------
Operating profit (note 3) 2.1 3.4 8.1
Finance costs (1.3) (0.9) (1.8)
----------------------------------------------
Profit before income tax 0.8 2.5 6.3
Income tax expense (0.2) (0.8) (2.1)
----------------------------------------------
Profit for the period 0.6 1.7 4.2
==============================================
Earnings per share (note 4)
Basic 1.2p 3.7p 9.1p
Diluted 1.2p 3.6p 8.9p
Proposed dividend per share 1.0p 1.0p 3.9p
GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE
HALF YEAR ENDED 30 NOVEMBER 2007
Half year to Half year to Year to
30 Nov 2007 30 Nov 2006 31 May 2007
(restated) (restated)
----------------------------------------------
£m £m £m
Actuarial gain on pension scheme - - 1.0
Movements on deferred tax
relating to
pension liability - - (0.3)
----------------------------------------------
Net income recognised directly in
equity - - 0.7
Profit for the period 0.6 1.7 4.2
----------------------------------------------
Total income recognised for
the period 0.6 1.7 4.9
==============================================
All of the Group's activities are derived from current operations.
The notes that follow these statements form an integral part of these condensed
consolidated half yearly financial statements.
NWF GROUP PLC
GROUP BALANCE SHEET
AS AT 30 NOVEMBER 2007
30 Nov 2007 30 Nov 2006 31 May 2007
(restated) (restated)
-----------------------------------------
£m £m £m
Assets
Non current assets
Property, plant and equipment 57.0 43.1 53.7
Intangible assets 10.2 10.1 10.1
Deferred income tax assets 1.0 1.4 1.1
-----------------------------------------
68.2 54.6 64.9
-----------------------------------------
Current assets
Inventories 9.6 7.7 8.1
Trade and other receivables 47.9 40.9 39.9
Derivative financial instruments 1.7 0.3 0.2
Cash and cash equivalents 0.1 0.1 0.1
-----------------------------------------
59.3 49.0 48.3
-----------------------------------------
Total assets 127.5 103.6 113.2
-----------------------------------------
Liabilities
Current liabilities
Trade and other payables (37.1) (32.6) (36.7)
Current income tax liabilities (0.4) (0.8) (1.0)
Borrowings (24.2) (10.9) (10.0)
Derivative financial instruments (1.3) (0.2) -
-----------------------------------------
(63.0) (44.5) (47.7)
-----------------------------------------
Non current liabilities
Trade and other payables - (0.6) (0.6)
Borrowings (29.9) (25.2) (30.0)
Deferred income tax liabilities (1.4) (1.3) (1.3)
Retirement benefit obligations (3.4) (4.5) (3.5)
-----------------------------------------
(34.7) (31.6) (35.4)
-----------------------------------------
Total liabilities (97.7) (76.1) (83.1)
-----------------------------------------
Net assets 29.8 27.5 30.1
=========================================
Shareholders' equity (note 5)
Ordinary shares 11.7 2.3 2.3
Share premium - 6.2 6.2
Other reserves - 0.3 0.3
Retained earnings 18.1 18.7 21.3
-----------------------------------------
Total shareholders' equity 29.8 27.5 30.1
=========================================
The notes that follow these statements form an integral part of these condensed
consolidated half yearly financial statements.
NWF GROUP PLC
CONDENSED GROUP CASH FLOW STATEMENT
HALF YEAR ENDED 30 NOVEMBER 2007
Half year to Half year to Year to
30 Nov 2007 30 Nov 2006 31 May 2007
(restated) (restated)
-----------------------------------------
£m £m £m
Cash flows from operating activities
Profit before income tax 0.8 2.5 6.3
Depreciation 1.9 1.7 3.4
Finance costs 1.3 0.9 1.8
(Increase)/decrease in working
capital (8.5) (3.0) 1.4
Other (0.1) (0.2) (0.1)
-----------------------------------------
Cash (used in)/generated from
operations (4.6) 1.9 12.8
Interest paid (1.7) (0.9) (2.4)
Income tax paid (0.9) (0.9) (1.9)
-----------------------------------------
Net cash (used in)/generated from
operating activities (7.2) 0.1 8.5
-----------------------------------------
Cash flows from investing activities
Purchase of property, plant and
equipment (4.8) (8.4) (20.1)
Proceeds from sale of property,
plant and equipment 0.1 0.1 0.2
Purchase of intangible assets (0.1) (0.2) (0.2)
Acquisitions, net of cash acquired - (1.5) (1.6)
Deferred acquisition payments (1.3) (1.8) (1.8)
Deferred disposal proceeds - 0.6 0.6
-----------------------------------------
Net cash used in investing activities (6.1) (11.2) (22.9)
-----------------------------------------
Net cash outflow before financing (13.3) (11.1) (14.4)
-----------------------------------------
Cash flows from financing activities
Proceeds from issue of ordinary shares 0.5 - -
Term loan and HP finance movements (0.1) 0.9 (0.2)
Medium term loan received - - 6.0
Dividends paid to Company's
shareholders (1.3) (1.1) (1.7)
-----------------------------------------
Net cash (used in)/generated from
financing activities (0.9) (0.2) 4.1
-----------------------------------------
Net decrease in cash and cash
equivalents (14.2) (11.3) (10.3)
-----------------------------------------
Cash, cash equivalents and bank
overdrafts at beginning of period (9.6) 0.7 0.7
-----------------------------------------
Cash, cash equivalents and bank
overdrafts at end of period (23.8) (10.6) (9.6)
=========================================
The notes that follow these statements form an integral part of these condensed
consolidated half yearly financial statements.
Notes to condensed consolidated half yearly financial statements
1. General information
NWF Group plc ('the Company') is a company incorporated and domiciled in the UK.
The principal activities of NWF Group plc and its subsidiaries (together 'the
Group') are the warehousing and distribution of ambient groceries, the
manufacture and sale of animal feeds, the distribution of fuel oils and the
operation of large retail garden centres.
The address of the Company's registered office is NWF Group plc, Wardle,
Nantwich, Cheshire, CW5 6BP.
The Company has its primary listing on the Alternative Investment Market ('AIM')
on the London Stock Exchange.
These interim financial statements do not constitute statutory accounts within
the meaning of section 240 of the Companies Act 1985. The interim results to 30
November 2007 are neither audited nor reviewed by the Group's auditors.
Statutory accounts for the year ended 31 May 2007 were approved by the Board of
Directors on 14 August 2007 and delivered to the Registrar of Companies. The
report of the auditors on those accounts was unqualified, did not contain an
emphasis of matter paragraph and did not contain any statement under Section 237
of the Companies Act 1985.
2. Basis of preparation of financial statements
For the year ended 31 May 2007 and previous accounting periods, the Group
prepared its audited full year and unaudited interim financial statements under
United Kingdom Generally Accepted Accounting Principles ('UK GAAP').
From 31 May 2008, the Group is required to prepare its published financial
statements in accordance with International Financial Reporting Standards
('IFRS') as adopted by the European Union and implemented in the United Kingdom,
as well as those parts of the Companies Act 1985 that are applicable to
companies reporting under IFRS.
The date of transition to IFRS for the Group was 1 June 2006 and the Group has
prepared its opening IFRS balance sheet as at that date.
This interim report has been prepared in accordance with the principal
accounting policies described in Appendix 1. The IFRS and the International
Financial Reporting Interpretations Committee ('IFRIC') interpretations that
will be applicable as at 31 May 2008, including those that will be applicable on
an optional basis, are not known with certainty at the time of preparing this
report; however, no significant differences are expected between the accounting
policies adopted in preparing this report and those that will be adopted in the
financial statements for the year ended 31 May 2008.
The comparative figures shown in this report have been restated to reflect the
new accounting policies under IFRS. Reconciliations and explanations of the
effects of adopting the new policies on the Group's equity, profits and cash
flows are also provided in Appendix 2.
This interim report has also been prepared on the going concern basis under the
historical cost convention, as modified by the revaluation of land and
buildings, and financial assets and liabilities (including derivative financial
instruments) at fair value through the income statement.
This interim report does not comply with IAS 34 'Interim Financial Reporting',
as is currently permissible under the rules on the Alternative Investment Market
('AIM').
3. Segmental information
Half year to Half year to Year to
30 Nov 30 Nov 2006 31 May 2007
2007 (restated) (restated)
-----------------------------------------
£m £m £m
Turnover
Distribution 15.7 14.5 27.0
Feeds 41.2 37.6 81.5
Fuels 105.7 93.7 190.4
Garden Centres 10.1 9.9 21.5
-----------------------------------------
172.7 155.7 320.4
=========================================
Operating profit
Distribution 0.6 0.9 1.4
Feeds 1.2 1.1 2.1
Fuels 0.5 1.0 3.3
Garden Centres (0.2) 0.4 1.3
-----------------------------------------
2.1 3.4 8.1
=========================================
Net assets
Distribution 23.5 10.8 23.9
Feeds 9.9 8.9 9.0
Fuels 8.7 7.0 8.1
Garden Centres 21.8 20.7 21.5
Unallocated (2.1) 0.2 0.2
-----------------------------------------
61.8 47.6 62.7
=========================================
4. Earnings per share
The calculation of basic earnings per share for the half year to 30 November
2007 is based on profit after taxation of £0.6m (2006: £1.7m) and on 46.9
million (2006: 45.7 million) ordinary shares, representing the weighted average
number of shares in issue during the period.
The calculation of diluted earnings per share for the half year is based on the
figures shown above amended for the weighted average dilutive effect (nil
shares) of share options outstanding through the period (2006: 1.0 million
shares).
The numbers of shares and share options stated above have been adjusted in all
periods to take into account the effect of the bonus issue of shares referred to
in Note 5 below.
5. Shareholders' funds and statement of changes in equity
Ordinary
share Share Other Retained
capital premium reserves earnings Total
-----------------------------------------------------
£m £m £m £m £m
At 1 June 2006 2.3 6.2 0.3 18.1 26.9
Profit for the period - - - 1.7 1.7
Dividend paid to
shareholders - - - (1.1) (1.1)
-----------------------------------------------------
At 30 November 2006 2.3 6.2 0.3 18.7 27.5
Profit for the period - - - 2.5 2.5
Dividend paid to
shareholders - - - (0.6) (0.6)
Actuarial gain on pension
scheme - - - 1.0 1.0
Deferred income tax charge
on actuarial movement - - - (0.3) (0.3)
-----------------------------------------------------
At 31 May 2007 2.3 6.2 0.3 21.3 30.1
Profit for the period - - - 0.6 0.6
Dividend paid to
shareholders - - - (1.3) (1.3)
Ordinary shares issued - 0.4 - - 0.4
Bonus issue of shares (see
below) 9.4 (6.6) (0.3) (2.5) -
-----------------------------------------------------
At 30 November 2007 11.7 - - 18.1 29.8
=====================================================
On 4 October 2007 the Company's shareholders approved a bonus issue of four new
ordinary shares of 25 pence each ('New Ordinary Shares') for each existing
ordinary share held by a shareholder on the share register at the close of
business on 4 October 2007. This resulted in the issue of 37.5 million New
Ordinary Shares with a total nominal value of £9.4m. In order to effect the
bonus issue, £9.4m was capitalised from reserves, comprising £6.6m from Share
Premium, £0.3m from Other Reserves and £2.5m from Retained Earnings.
6. Critical accounting estimates and judgements
The Group makes a number of estimates and assumptions concerning the future. The
resulting accounting estimates will, by definition, seldom equal the related
actual outcome. The estimates and assumptions that have a significant risk of
causing a material adjustment to the carrying value of assets and liabilities
within the current and next financial years are referred to below.
Carrying value of goodwill
The Group tests annually whether or not goodwill has suffered any impairment, in
accordance with the accounting policy described in section 1.8 of Appendix 1.
The recoverable amounts of the relevant cash-generating units have been
determined based on value on use calculations, which in turn require the use of
estimates.
Pension scheme valuation assumptions
The balance sheet carrying values of the defined benefit pension scheme surplus
or deficit are calculated using independently commissioned actuarial valuations.
These valuations are based on a number of assumptions, including the most
appropriate mortality rates to apply to the profile of scheme members and the
financial assumptions regarding discount rates and inflation. All of these are
estimates of future events and are therefore uncertain.
7. Interim report
Copies of the Interim Report are due to be sent to shareholders on 8 February
2007. Further copies may be obtained from the Company Secretary at NWF Group
plc, Wardle, Nantwich, Cheshire, CW5 6BP, or from the Company's website at
www.nwf.co.uk.
8. 2008 financial calendar
Interim dividend paid 1 May 2008
Financial year end 31 May 2008
Preliminary announcement of full year results Mid August 2008
Publication of Annual Report and Accounts Early September 2008
Annual General Meeting 2 October 2008
Final dividend paid 3 November 2008
Appendix 1
Summary of significant accounting policies
The principal accounting policies applied in the preparation of these
consolidated financial statements are set out below. These policies have been
consistently applied to all periods presented.
1.1 IFRS exemptions
The Group has taken advantage of the following exemptions on transition to IFRS,
as permitted by paragraph 13 of IFRS 1, 'First Time Adoption of IFRS':-
(a) The requirements of IFRS 3, 'Business Combinations' have not been
applied to business combinations that occurred before the date of
transition to IFRS (1 June 2006)
(b) The carrying values of some of the Group's freehold land and buildings
are based on previously adopted valuations under UK GAAP and these have
now been taken as deemed cost on transition to IFRS.
1.2 Basis of consolidation
The consolidated Group financial statements incorporate the financial statements
of NWF Group plc and entities controlled by NWF Group plc (its 'subsidiaries').
Control is achieved where NWF Group plc has the power to govern the financial
and operating policies of an investee entity so as to obtain benefits from its
activities.
Subsidiaries are fully consolidated from the date on which control is
transferred to the Group. They are de-consolidated from the date that control
ceases.
The purchase method of accounting is used to account for the acquisition of
subsidiaries by Group companies. The cost of an acquisition is measured as the
fair value of assets given, equity instruments issued and liabilities incurred
or assumed at the date of acquisition, plus costs directly attributable to the
acquisition. Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are measured initially at their
fair values at the acquisition date. The excess of the cost of acquisition over
the fair value of the Group's share of the identifiable net assets acquired is
recorded as goodwill. If the cost of acquisition is less than the fair value of
net assets acquired, the difference is recognised directly in the income
statement.
All inter-company transactions, balances and unrealised gains on transactions
between Group companies are eliminated.
Accounting policies of subsidiary companies have been amended where necessary to
ensure consistency of policies adopted within the Group.
1.3 Segment reporting
A business segment is a group of assets and operations engaged in providing
products or services that are subject to risks and returns that are different
from those of other business segments. The primary segments operated by the
Group are as follows:-
Distribution •warehousing and distribution of clients'
ambient grocery and other products to
supermarket and other retail distribution
centres
Feeds •manufacture and sale of animal feeds and
other agricultural products
Fuels •sale of domestic heating, industrial and road
fuels
Garden Centres •operation of large retail garden centres
Segmental information is included in note 3 to the consolidated half yearly
results.
In relation to segmental net assets, the assets of the segments include
property, plant and equipment, intangible assets, assets under finance leases,
inventories, trade and other receivables, other current assets and cash and cash
equivalents. Segment liabilities include retirement benefit obligations, trade
creditors, accruals and other liabilities relating to the provision of goods and
services, but exclude borrowings, finance lease liabilities, other liabilities
of a financing nature and taxation liabilities.
In the Directors' opinion, all of the Group's operations are carried out in the
same geographical segment, namely the United Kingdom.
1.4 Revenue recognition
Revenue comprises the fair value of the consideration received or receivable for
the sale of goods and services in the ordinary course of the Group's activities.
Revenue is shown net of value added tax, estimated returns, rebates and
discounts and after eliminating sales within the Group. Specific types of
revenue are recognised as follows:-
Distribution
Revenue from storage, distribution, handling and re-packaging of clients'
products is recognised when the relevant service has been performed.
Feeds, Fuels and Garden Centres
Revenue from the sale of goods in each of these segments is recognised when they
are delivered to the customer.
Interest income
Interest income on short term deposits is recognised as it accrues.
1.5 Deferred income tax
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 carrying amounts in the consolidated financial statements. However,
deferred income tax is not accounted for if it arises from initial recognition
of an asset or liability in a transaction other than a business combination that
at the time of the transaction affects neither accounting nor taxable profit or
loss.
Deferred income tax is determined using tax rates (and laws) that have been
enacted or substantially enacted by the balance sheet date and are expected to
apply when the related deferred income tax asset is realised or the deferred
income tax liability is settled.
Deferred income tax assets are recognised to the extent that it is probable that
future taxable profits will be available against which the temporary differences
can be utilised.
1.6 Dividend distribution
The distribution of a dividend to the Company's shareholders is recognised as a
liability in the Group's financial statements in the period in which it is
approved by the Company's shareholders.
1.7 Property, plant and equipment
Certain freehold land and buildings are stated at deemed cost in accordance with
the exemption on transition to IFRS permitted by IFRS 1. All other property,
plant and equipment is stated at historical cost less accumulated depreciation.
Cost comprises the purchase price and any directly attributable costs.
Subsequent costs are included in the asset's carrying value, or recognised as a
separate asset, only when it is probable that future economic benefits
associated with the asset will flow to the Group and the cost of the asset can
be measured reliably.
Property, plant and equipment is subsequently stated at cost less accumulated
depreciation and any provision for impairment in value. Depreciation is provided
on a straight line basis to write down assets to their residual value evenly
over the estimated useful lives of the assets from the date of acquisition by
the Group.
Land is not depreciated. Depreciation on other assets is calculated, using the
straight line method, to allocate their cost to their residual values over their
useful economic lives within the following ranges:
•Freehold and long leasehold buildings 13 - 50 years
•Plant, machinery and equipment 3 - 10 years
•Commercial vehicles 6 - 10 years
•Motor vehicles 4 years
The assets' residual values and useful lives are reviewed, and adjusted if
appropriate, at each balance sheet date.
An asset's carrying amount is written down immediately to its estimated
recoverable amount if the asset's carrying amount is greater than its estimated
recoverable amount.
Gains and losses on disposal are determined by comparing the proceeds of
disposal with the carrying value and are recognised in the income statement.
1.8 Intangible assets
(a) Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value
of the Group's share of the net identifiable assets of the acquired subsidiary
at the date of acquisition. Goodwill on acquisition of subsidiaries is included
in 'intangible assets'.
Separately recognised goodwill is tested annually for impairment and carried at
cost less accumulated impairment losses. Impairment losses on goodwill are not
reversed. Gains and losses on the disposal of an entity include the carrying
amount of goodwill relating to the entity sold.
Goodwill is allocated to cash-generating units for the purpose of impairment
testing. The allocation is made to those cash-generating units or groups of
cash-generating units that are expected to benefit from the business combination
in which the goodwill arose.
(b) Trademarks and licences
Acquired trademarks and licences are stated at historical cost, less accumulated
amortisation. Historical cost comprises the purchase price and any directly
attributable costs.
Trademarks and licences have a finite useful life and are carried at cost less
accumulated amortisation. Amortisation is calculated, using the straight line
method, to allocate the cost of trademarks and licences over their estimate
useful lives (10 years).
(c) Computer software
Acquired computer software licences are capitalised on the basis of costs
incurred to acquire and bring to use the specific software. These costs are
amortised over their estimated useful lives (3 - 5 years).
1.9 Impairment of non-financial assets
Assets that have an indefinite life, for example goodwill, are not subject to
amortisation and are tested annually for impairment. Assets that are subject to
amortisation are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. An
impairment loss is recognised as the amount by which the asset's carrying amount
exceeds the recoverable amount. The recoverable amount is the higher of the
asset's fair value (less costs to sell) and its value in use.
1.10 Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is
determined using the first in, first out ('FIFO') method. The cost of raw
materials, consumables, finished goods and goods for resale comprises purchase
cost and, in the case of finished goods, the cost of transporting the goods to
their stock location.
Net realisable value comprises the estimated selling price in the ordinary
course of business less applicable variable selling expenses.
Provision is made for obsolete, slow moving or defective items where
appropriate.
1.11 Trade receivables
Trade receivables are recognised initially at fair value less provision for
impairment. Subsequent to initial recognition, receivables are measured at
amortised cost, using the effective interest method.
A provision for impairment is established when there is objective evidence that
the Group will not be able to collect all amounts due according to the original
terms of the receivables. The amount of the provision is recognised through the
income statement within administrative expenses.
1.12 Derivative financial instruments
A derivative is initially recognised at fair value on the date that the
associated contract is entered into and then is remeasured at fair value at each
subsequent balance sheet date. The method of recognising the resulting gain or
loss depends on whether or not the derivative is designated as a hedging
instrument and, if so, the nature of the item being hedged.
The Group has not designated any derivatives as hedging instruments during the
period under review. As a result, changes in the fair value of derivative
instruments are recognised immediately in the income statement.
1.13 Cash and cash equivalents
Cash and cash equivalents include cash in hand, deposits held at call with banks
and bank overdrafts. Bank overdrafts are shown within borrowings in current
liabilities on the balance sheet.
1.14 Trade payables
Trade payables are recognised initially at fair value and subsequently measured
at amortised cost using the effective interest method.
1.15 Borrowings
Borrowings are recognised initially at fair value, net of transaction costs
incurred, and subsequently measured at amortised cost. Any difference between
the proceeds (net of transaction costs) and the redemption value is recognised
in the income statement over the period of the borrowings, using the effective
interest method.
Borrowings are classified as current liabilities unless the Group has an
unconditional right to defer settlement of the liability for at least one year
after the balance sheet date.
1.16 Employee benefits - pension obligations
Group companies operate various pension schemes, including defined contribution
and defined benefit schemes. The schemes are generally funded through payments
to insurance companies or trustee-administered funds, determined by periodic
actuarial calculations. A defined contribution scheme is a pension scheme under
which the Group pays fixed contributions into a separate entity and where the
Group has no legal or constructive obligations to pay further contributions if
the scheme does not hold sufficient assets to pay all employees the benefits
relating to employee service in the current and prior periods. A defined benefit
scheme is a pension scheme that is not a defined contribution scheme; typically,
defined benefit schemes define an amount of pension benefit that an employee
will receive on retirement, usually dependant on one or more factors such as
age, length of service or remuneration.
The liability recognised in the balance sheet in respect of defined benefit
schemes is the present value of the defined benefit obligation at the balance
sheet date less the fair value of scheme assets, together with adjustments for
unrecognised actuarial gains or losses and past service costs. The defined
benefit obligation is calculated annually by independent actuaries using the
projected unit credit method. The present value of the defined benefit
obligation is determined by discounting the estimated future cash outflows using
interest rates of high quality corporate bonds that are denominated in the
currency in which the benefits will be paid and that have terms to maturity
approximating to the terms of the related pension liability.
The interest cost and expected return on the assets are shown within finance
costs and finance income respectively within the income statement. Actuarial
gains and losses are recognised immediately in the Group
statement of recognised income and expense. Net defined benefit pension scheme
deficits before tax relief are presented separately on the balance sheet within
non current liabilities. The attributable deferred income tax asset is included
within deferred income tax asset and is subject to the recognition criteria as
set out in the accounting policy on deferred income tax.
For defined contribution schemes, the Group pays contributions to publicly or
privately administered pension insurance schemes on a mandatory, contractual or
voluntary basis. The contributions are recognised as employee benefit expense
when they are due.
1.17 Provisions
Provisions are recognised when the group has a present legal or constructive
obligation as a result of past events, it is probable that an outflow of
resources will be required to settle the obligation and the amount has been
reliably estimated. Provisions are not recognised for future operating losses.
1.18 Leases
Leases in which a significant proportion of the risks and rewards of ownership
are retained by the lessor are classified as operating leases. Payments made
under operating leases (net of any incentives received from the lessor) are
charged to the income statement on a straight line basis over the period of the
lease.
Other leases are classified as finance leases. Assets and liabilities under
finance leases are recognised in the balance sheet at the inception of the lease
at amounts equal to their fair value or, if lower, the net present value of the
minimum lease payments. Depreciation on leased assets is provided at rates
consistent with that for similar assets that are owned by the Group.
Subsequent to initial recognition, payments made are apportioned between the
finance charge element and the reduction in the capital value of the outstanding
liability. The finance charge is allocated to each period so as to produce a
constant periodic rate of interest on the remaining balance of the liability.
1.19 Share capital
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares are shown in
equity as a deduction, net of tax, from the proceeds of issue.
Appendix 2
Explanation of transition to IFRS
The tables below show the impact of IFRS on:-
(a) the consolidated income statements for the year ended 31 May 2007 (date
of last UK GAAP statements) and the six months ended 30 November 2006
(half year end comparative period) and
(b) the consolidated balance sheets as at 1 June 2006 (date of transition to
IFRS), 31 May 2007 (date of last UK GAAP statements) and 30 November 2006
(half year end comparative period).
The main areas of these financial statements impacted by the transition to IFRS
are detailed below.
In relation to cash flow reporting, under UK GAAP the Group has previously
reported its cash flows in accordance with FRS 1 (Revised 1996) 'Cash Flow
Statements'. The objectives and principles of this standard are similar to those
set out in the equivalent IFRS standard, IAS 7 'Cash Flow Statements'. Other
than differences in respect of classification of cash flow items, reporting
under IAS 7 has had no significant effect on the reported net cash flows for the
year ended 31 May 2007 (date of last UK GAAP statements) and the six months
ended 30 November 2006 (half year end comparative period).
Group income statement
Year ended 31 May 2007
UK (1) (2) (3) (4) IFRS
GAAP
-----------------------------------------------
£m £m £m £m £m £m
Revenue 320.4 320.4
Operating expenses (313.3) 0.4 0.5 0.1 (312.3)
-----------------------------------------------
Operating profit 7.1 0.4 0.5 0.1 8.1
Finance costs (1.2) (0.7) 0.1 (1.8)
-----------------------------------------------
Profit before income tax 5.9 (0.3) 0.5 0.2 6.3
Income tax expense (2.1) 0.1 (0.1) (2.1)
------------------------------------------------
Profit for the year 3.8 (0.2) 0.4 0.2 4.2
================================================
Adjustments
(1) Income statement effects of accounting for certain property leases,
previously classified as operating leases, as finance leases in accordance with
IAS 17 'Leases'. The net present value of attributable lease payments has been
capitalised and depreciated over the period of the lease, with finance charges
allocated to accounting periods so as to produce a constant periodic interest
rate.
(2) Reversal of amortisation of goodwill previously charged under FRS 10
'Goodwill and Intangible Assets'; in accordance with IFRS 3 'Business
Combinations' goodwill is no longer amortised but tested annually for
impairment.
(3) Not applicable.
(4) Movement in fair values of certain derivative financial instruments, in
accordance with IAS 39 'Financial Instruments: Recognition and Measurement'.
Group income statement
Half year ended 30 November
2006
UK (1) (2) (3) (4) IFRS
GAAP
-----------------------------------------------
£m £m £m £m £m £m
Revenue 155.7 155.7
Operating expenses (152.8) 0.2 0.3 (152.3)
-----------------------------------------------
Operating profit 2.9 0.2 0.3 3.4
Finance costs (0.6) (0.3) (0.9)
-----------------------------------------------
Profit before income tax 2.3 (0.1) 0.3 2.5
Income tax expense (0.8) (0.8)
------------------------------------------------
Profit for the period 1.5 (0.1) 0.3 1.7
================================================
Adjustments
(1) Income statement effects of accounting for certain property leases,
previously classified as operating leases, as finance leases in accordance with
IAS 17 'Leases'. The net present value of attributable lease payments has been
capitalised and depreciated over the period of the lease, with finance charges
allocated to accounting periods so as to produce a constant periodic interest
rate.
(2) Reversal of amortisation of goodwill previously charged under FRS 10
'Goodwill and Intangible Assets'; in accordance with IFRS 3 'Business
Combinations' goodwill is no longer amortised but tested annually for
impairment.
(3) Not applicable.
(4) Not applicable.
Group balance sheet UK (1) (2) (3) (4) IFRS
As at 1 June 2006 GAAP
----------------------------------------------
£m £m £m £m £m £m
Assets
Non current assets
Property, plant and equipment 25.0 10.1 (0.2) 34.9
Intangible assets 9.3 0.2 9.5
Deferred income tax assets - 1.4 1.4
----------------------------------------------
34.3 10.1 1.4 - 45.8
----------------------------------------------
Current assets
Inventories 7.1 7.1
Trade and other receivables 39.5 0.1) 39.4
Derivative financial
instruments - -
Cash and cash equivalents 0.9 0.9
----------------------------------------------
47.5 (0.1) 47.4
----------------------------------------------
Total assets 81.8 10.0 1.4 93.2
----------------------------------------------
Liabilities
Current liabilities
Trade and other payables (33.4) (0.1) (33.5)
Current income tax
liabilities (0.8) (0.8)
Borrowings (0.4) (0.4)
Derivative financial
instruments - -
----------------------------------------------
(34.6) (0.1) (34.7)
----------------------------------------------
Non current liabilities
Trade and other payables (1.9) (1.9)
Borrowings (13.4) (10.5) (23.9)
Deferred income tax
liabilities (1.1) 0.2 (0.3) (1.2)
Retirement benefit
obligations (3.2) (1.4) (4.6)
----------------------------------------------
(19.6) (10.3) (1.7) (31.6)
----------------------------------------------
Total liabilities (54.2) (10.3) (1.7) (0.1) (66.3)
----------------------------------------------
Net assets 27.6 (0.3) (0.3) (0.1) 26.9
==============================================
Total shareholders' equity 27.6 (0.3) (0.3) (0.1) 26.9
==============================================
Adjustments
(1) The buildings elements of certain property leases, previously classified as
operating leases, are now treated as finance leases in accordance with IAS 17
'Leases'. The net present value of attributable lease payments has been
capitalised and depreciated over the period of the lease, with finance charges
allocated to accounting periods so as to produce a constant periodic interest
rate.
(2) Not applicable.
(3) Deferred tax adjustments comprising:-
(a) Reclassification of deferred tax asset arising on defined pension
scheme deficit as non current asset, in accordance with IAS 19 'Employee
Benefits' (offset against deficit value under FRS 17 'Retirement Benefits')
(b) In accordance with IAS 12 'Income Taxes', additional deferred tax
liability arising on certain property, plant and equipment included as a
result of the acquisition of shares in subsidiary companies in previous
periods.
(4) Miscellaneous other adjustments, principally comprising reclassification of
computer software from property, plant and equipment to intangible assets.
Group balance sheet
As at 31 May 2007
UK (1) (2) (3) (4) IFRS
GAAP
------------------------------------------------
£m £m £m £m £m £m
Assets
Non current assets
Property, plant and equipment 44.3 9.8 (0.4) 53.7
Intangible assets 9.3 0.5 0.3 10.1
Deferred income tax assets - 1.1 1.1
------------------------------------------------
53.6 9.8 0.5 1.1 (0.1) 64.9
------------------------------------------------
Current assets
Inventories 8.1 8.1
Trade and other receivables 40.0 (0.1) 39.9
Derivative financial
instruments - 0.2 0.2
Cash and cash equivalents 0.1 0.1
------------------------------------------------
48.2 (0.1) 0.2 48.3
------------------------------------------------
Total assets 101.8 9.7 0.5 1.1 0.1 113.2
------------------------------------------------
Liabilities
Current liabilities
Trade and other payables (36.6) (0.1) (36.7)
Current income tax
liabilities (1.0) (1.0)
Borrowings (10.0) (10.0)
Derivative financial
instruments - -
------------------------------------------------
(47.6) (0.1) (47.7)
------------------------------------------------
Non current liabilities
Trade and other payables (0.6) (0.6)
Borrowings (19.5) (10.5) (30.0)
Deferred income tax
liabilities (1.2) 0.3 (0.1) (0.3) (1.3)
Retirement benefit
obligations (2.5) (1.0) (3.5)
------------------------------------------------
(23.8) (10.2) (0.1) (1.3) (35.4)
------------------------------------------------
Total liabilities (71.4) (10.2) (0.1) (1.3) (0.1) (83.1)
-------------------------------------------------
Net assets 30.4 (0.5) 0.4 (0.2) - 30.1
=================================================
Total shareholders' equity 30.4 (0.5) 0.4 (0.2) - 30.1
=================================================
Adjustments
(1) The buildings elements of certain property leases, previously classified as
operating leases, are now treated as finance leases in accordance with IAS 17
'Leases'. The net present value of attributable lease payments has been
capitalised and depreciated over the period of the lease, with finance charges
allocated to accounting periods so as to produce a constant periodic interest
rate.
(2) Reversal of amortisation of goodwill previously charged under FRS 10
'Goodwill and Intangible Assets'; in accordance with IFRS 3 'Business
Combinations' goodwill is no longer amortised but tested annually for
impairment.
(3) Deferred tax adjustments comprising:-
(a) Reclassification of deferred tax asset arising on defined pension
scheme deficit as non current asset in accordance with IAS 19 'Employee
Benefits' (offset against deficit value under FRS 17 'Retirement
Benefits')
(b) In accordance with IAS 12 'Income Taxes', additional deferred tax
liability arising on certain property, plant and equipment included as a
result of the acquisition of shares in subsidiary companies in previous
periods.
(4) Miscellaneous other adjustments, principally comprising:-
(a) Reclassification of computer software from property, plant and
equipment to intangible assets
(b) Recognition of certain derivative financial instruments at fair value,
in accordance with IAS 39 'Financial Instruments: Recognition and
Measurement'.
Group balance sheet
As at 30 November 2006
UK (1) (2) (3) (4) IFRS
GAAP
------------------------------------------------
£m £m £m £m £m £m
Assets
Non current assets
Property, plant and equipment 33.5 9.9 (0.3) 43.1
Intangible assets 9.5 0.3 0.3 10.1
Deferred income tax assets - 1.4 1.4
------------------------------------------------
43.0 9.9 0.3 1.4 - 54.6
------------------------------------------------
Current assets
Inventories 7.7 7.7
Trade and other receivables 41.0 (0.1) 40.9
Derivative financial
instruments - 0.3 0.3
Cash and cash equivalents 0.1 0.1
------------------------------------------------
48.8 (0.1) 0.3 49.0
------------------------------------------------
Total assets 91.8 9.8 0.3 1.4 0.3 103.6
------------------------------------------------
Liabilities
Current liabilities
Trade and other payables (32.6) (32.6)
Current income tax
liabilities (0.8) (0.8)
Borrowings (10.9) (10.9)
Derivative financial
instruments - (0.2) (0.2)
------------------------------------------------
(44.3) (0.2) (44.5)
------------------------------------------------
Non current liabilities
Trade and other payables (0.6) (0.6)
Borrowings (14.7) (10.5) (25.2)
Deferred income tax
liabilities (1.2) 0.2 (0.3) (1.3)
Retirement benefit
obligations (3.2) (1.3) (4.5)
------------------------------------------------
(19.7) (10.3) (1.6) (31.6)
------------------------------------------------
Total liabilities (64.0) (10.3) (1.6) (0.2) (76.1)
-------------------------------------------------
Net assets 27.8 (0.5) 0.3 (0.2) 0.1 27.5
=================================================
Total shareholders' equity 27.8 (0.5) 0.3 (0.2) 0.1 27.5
=================================================
Adjustments
(1) The buildings elements of certain property leases, previously classified as
operating leases, are now treated as finance leases in accordance with IAS 17
'Leases'. The net present value of attributable lease payments has been
capitalised and depreciated over the period of the lease, with finance charges
allocated to accounting periods so as to produce a constant periodic interest
rate.
(2) Reversal of amortisation of goodwill previously charged under FRS 10
'Goodwill and Intangible Assets'; in accordance with IFRS 3 'Business
Combinations' goodwill is no longer amortised but tested annually for
impairment.
(3) Deferred tax adjustments comprising:-
(a) Reclassification of deferred tax asset arising on defined pension
scheme deficit as non current asset in accordance with IAS 19 'Employee
Benefits' (offset against deficit value under FRS 17 'Retirement
Benefits')
(b) In accordance with IAS 12 'Income Taxes', additional deferred tax
liability arising on certain property, plant and equipment included as a
result of the acquisition of shares in subsidiary companies in previous
periods.
(4) Miscellaneous other adjustments, principally comprising:-
(a) Reclassification of computer software from property, plant and
equipment to intangible assets
(b) Recognition of certain derivative financial instruments at fair value,
in accordance with IAS 39 'Financial Instruments: Recognition and
Measurement'.
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