IFRS Restatement
Petards Group PLC
28 September 2007
Petards Group plc
Restatement of financial information under International Financial Reporting
Standards
Introduction
Petards Group plc (the 'Group') has historically prepared its consolidated
financial statements under UK Generally Accepted Accounting Practice ('UK GAAP
'). The AIM rules require the adoption of Adopted IFRS as adopted by the EU
('Adopted IFRS') (1).
IFRS will apply for the first time in the Group's financial statements for the
year ending 31 December 2007. Accordingly the financial results for the 6
months ended 30 June 2007 have been prepared and reported under IFRS. As the
Group publishes comparative information in its Annual Report and Interim
Statement the date of transition to IFRS is 1 January 2006.
To explain how the Group's reported performance and financial position are
affected by this change, information previously published under UK GAAP is
restated under IFRS in the attached appendices as follows:
• Appendix 1 - IFRS accounting policies;
• Appendix 2 - Financial information on an IFRS basis for the 6 months
ended 30 June 2006 and the year ended 31 December 2006 and the transition
balance sheet at 1 January 2006;
• Appendix 3 - Reconciliations of consolidated income statement and
consolidated balance sheet for the year ended 31 December 2006 with
explanations of the adjustments made;
• Appendix 4 - Reconciliations of consolidated income statement and
consolidated balance sheet for the 6 months ended 30 June 2006, with
explanations of the adjustments made;
• Appendix 5 - Reconciliation of transition consolidated balance sheet
at 1 January 2006 with explanations of the adjustments made.
This unaudited financial information has been prepared on the basis of IFRSs
expected to be applicable at 31 December 2007. These are subject to ongoing
review and endorsement by the EU or possible amendment by interpretive guidance
from the IASB and are therefore still subject to change. We will update our
restated information for any such changes when they occur.
The adoption of IFRS has an impact on the presentation of the Group's accounts
but does not change the underlying business performance. There are no changes
to the business model, strategy, risk management processes or cash flows.
Basis of preparation
The unaudited financial information has been prepared in accordance with adopted
IFRS. The accounting policies expected to be applied in the adopted IFRSs
financial statements for the year ending 31 December 2007 are set out in
Appendix 1.
The auditors have issued unqualified opinions on the Group's UK GAAP financial
statements for the years ended 31 December 2005 and 31 December 2006. Both the
transition balance sheet as at 1 January 2006 and the financial information for
the year ended 31 December 2006, as prepared on the above basis, will be audited
as part of the audit of the financial statements for the year ending 31 December
2007. Subject to that audit, EU endorsement of outstanding standards and no
further changes from the IASB, this information is expected to form the basis
for comparatives when reporting financial results for 2007, and for subsequent
reporting periods.
Overview of impact
For the year ended 31 December 2006 the net decrease in total recognised income
and expense attributable to equity holders of the company as a result of the
conversion to IFRS was £131,000. The details of these adjustments are given in
Appendix 3.
Based on the accounting policies detailed in Appendix 1, the effect on key
reported results is as follows:
6 months ended Year ended
30 June 2006 31 December 2006
IFRS UK GAAP IFRS UK GAAP
Operating (loss) / profit (£000) (778) (598) (46) 94
Loss after tax (£000) (926) (736) (436) (305)
Net liabilities (£000) (2,428) (2,347) (1,916) (1,894)
Basic EPS (pence) (0.15p) (0.12p) (0.07p) (0.05p)
The main areas where IFRS has impacted on the results are as follows:
• Goodwill arising from acquisitions is no longer amortised, increasing
reported profits and net assets.
• Research and development activities which meet certain criteria are
capitalised and amortised over the period of their estimated economic benefit,
decreasing reported profits and increasing net assets.
• The fair value of the order book at the date of acquisition of
European Innovation Manufacturing Centre Limited ('EIMC') is capitalised and
amortised over the period in which it is delivered, reducing reported profits.
• Foreign currency forward and swap contracts are included in the
financial statements at fair value with changes being recognised in the profit
and loss account.
Full details of the adjustments required are given in Appendix 3.
Cashflow
The Group prepares the cash flow statement for both UK GAAP and IFRS using the
indirect method. Consequently, adjustments made to working capital items in the
balance sheet on conversion to IFRS lead to an adjustment in the IFRS cash flow
statement. There are no significant changes between cash flows from operating
activities, investing activities, and financing activities. No adjustments have
been made to cash and cash equivalents, and no other adjustments have been made
to the cash flow statement on conversion.
IFRS 1 exemptions
IFRS 1 First Time Adoption of International Financial Reporting Standards,
permits those companies adopting IFRS for the first time to take certain
exemptions from the full requirements of IFRS in the transition period. The
Group has utilised the following key exemptions:
(a) Share based payments: The Group has elected to apply IFRS 2 Share
based payments only to relevant share based payment transactions granted after 7
November 2002.
(b) Business combinations: The Group has chosen not to restate business
combinations prior to the transition date.
(c) Cumulative translation differences: The Group has adopted the
exemption which allows the cumulative translation differences to be zero at the
date of transition.
(d) Decommissioning liabilities included in the cost of property, plant
and equipment: The Group has adopted the exemption which allows non compliance
with these requirements for changes in such liabilities before the date of
transition to IFRS.
(e) Leases reassessed: The Group has adopted the transitional provisions
whereby the Group has reviewed arrangements existing at the date of transition
on the basis of facts and circumstances at this date.
Appendix 1
IFRS Accounting Policies
This section provides a summary of the Group's new accounting policies under
IFRS for the year ended 31 December 2007. Where policies have changed under IFRS
as compared to UK GAAP this is indicated by *.
(a) Basis of preparation
The preliminary IFRS financial information set out on pages 10 to 21 does not
constitute the company's statutory accounts for the year ended 31 December 2006.
Those accounts, which were prepared under UK GAAP, have been reported on by
the company's auditors and delivered to the Registrar of Companies. The report
of the auditors was (i) unqualified, (ii) did not include a reference to any
matters to which the auditors drew attention by way of emphasis without
qualifying their report and (iii) did not contain a statement under section 237
(2) or (3) of the Companies Act 1985.
The financial information is presented in pounds sterling, rounded to the
nearest thousand, and is prepared on the historical cost basis with some
exceptions, as detailed in the accounting policies set out below.
These accounting polices have been prepared on the basis of the recognition and
measurement requirements of IFRSs in issue that either are endorsed by the EU
and effective (or available for early adoption) at 31 December 2007 or are
expected to be endorsed and effective (or available for early adoption) at 31
December 2007, other than the provisions laid down within IFRS 8, the Group's
first annual reporting date at which it is required to use adopted IFRSs. Based
on these adopted and unadopted IFRSs, the directors have made assumptions about
the accounting policies expected to be applied which are as set out below when
the first annual IFRS financial statements are prepared for the year ending 31
December 2007.
However, the adopted IFRSs that will be effective (or available for early
adoption) in the annual financial statements for the year ending 31 December
2007 are still subject to change and to additional interpretations and therefore
cannot be determined with certainty. Accordingly, the accounting policies for
that annual period will be determined finally only when the annual financial
statements are prepared for the year ending 31 December 2007.
The accounting polices set out below have been applied consistently throughout
the Group to all periods presented in this financial information.
The preparation of financial information in conformity with IFRSs requires
management to make judgements, estimates and assumptions that effect the
application of policies and reported amounts of assets and liabilities, income
and expenses. The estimates and associated assumptions are based on historical
experience and various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis of making the judgements
about carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting policies are recognised in the period in which the
estimate is revised if the revision affects only that period, or in the period
of revision and future periods if the revision affects both current and future
periods.
(b) Basis of consolidation
Control exists where the Group has the power, directly or indirectly, to govern
the financial and operating policies of an entity so as to obtain benefits from
its activities. Subsidiaries are entities controlled by the Company. The
financial statements of subsidiaries are included in the consolidated financial
information from the date control commences until the date that control ceases.
Intracompany balances, and any unrealised gains and losses or income and
expenses arising from intragroup transactions, are eliminated when preparing the
consolidated financial information.
(c) Foreign currency
Transactions in foreign currencies are translated at the foreign exchange rate
ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies at the balance sheet date are translated at
the foreign exchange rate ruling at that date. Non-monetary assets and
liabilities that are measured in terms of historical cost in a foreign currency
are translated using the exchange rate at the date of the transaction. Foreign
exchange differences arising on translation are recognised in the income
statement.
The balance sheet assets and liabilities of foreign subsidiaries are translated
into sterling at the exchange rate at the balance sheet date, and the income
statement is translated at the average rate. Gains and losses are then taken to
reserves.
(d) Intangible assets and goodwill*
In order for a business combination to exist, the purchased group of assets must
constitute a business (an integrated set of activities and assets conducted and
managed to lower costs) and will generally consist of inputs, processes and
outputs. This requires judgement to be applied on a case by case basis as to
whether the acquisition meets the definition of a business combination.
Business combinations are accounted for using the acquisition method of
accounting. The acquired identifiable tangible and intangible assets,
liabilities and contingent liabilities are measured at their fair values at the
date of acquisition. Any excess of the cost of acquisition over the net fair
value of the identifiable assets acquired is recognised as goodwill.
Goodwill may also arise upon investments in jointly controlled entities and
associates, being the surplus of the cost of investment over the Group's share
of the net fair value of the identifiable assets. Such goodwill is recorded
within investments in jointly controlled entities and associates, and any
impairment of the goodwill is included within the income from jointly controlled
entities and associates.
IFRS 1 grants certain exemptions from the full requirements of Adopted IFRSs in
the transition period. The Group elected not to restate business combinations
that took place prior to transition date. In respect of acquisitions prior to 1
January 2005, goodwill is included at transition date on the basis of its deemed
cost, which represents the amount recorded under UK GAAP.
Other intangible assets that are acquired by the Group are stated at cost less
accumulated amortisation and impairment losses.
Amortisation is charged to the income statement on a straight-line basis over
the estimated useful lives of intangible assets unless such lives are
indefinite. Other intangible assets are amortised from the date they are
available for use.
(e) Research and development*
Expenditure on research activities is recognised as an expense in the period in
which it is incurred.
Expenditure on development activities is capitalised if the product or process
is technically and commercially feasible, and the Group has the technical
ability and has sufficient resources to complete development and if the Group
can measure reliably the expenditure attributable to the intangible asset during
its development. The expenditure capitalised includes the cost of materials,
direct labour and an appropriate proportion of overheads. Development
expenditure not meeting the above criteria is recognised in the income statement
as an expense as incurred. Capitalised development expenditure is stated at cost
less accumulated amortisation and impairment losses.
Any internally generated intangible asset arising from development activities is
recognised only if an asset is created that can be identified, it is probable
that the asset created will generate future economic benefit and the development
cost of the asset can be measured reliably. Contract related development costs
are accounted for as part of the cost of the contract and are not capitalised.
Internally generated assets are amortised on a straight-line basis over their
useful lives (3 years). Where no internally-generated intangible asset can be
recognised, development expenditure is recognised as an expense in the period in
which it is incurred.
(f) Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation
and impairment losses. Where parts of an item of property, plant and equipment
have different useful lives, they are accounted for as separate items of
property, plant and equipment.
Depreciation is charged to the income statement on a straight line basis over
the estimated useful economic lives of each part of an item of property, plant
and equipment. The depreciation rates are as follows:
Plant and machinery 25% straight line
Motor vehicles 25% straight line
Computer equipment 25% straight line
Furniture and fittings 25% straight line
Leasehold improvements life of lease straight line
The residual value, and useful economic life, are reassessed annually.
(g) Inventories
Inventories are stated at the lower of cost and net realisable value. Net
realisable value is the estimated selling price in the ordinary course of
business, less the estimated costs of completion and selling expenses. The cost
of inventories is determined on a first in, first out basis.
(h) Cash and cash equivalents*
'Cash and cash equivalents' comprises cash balances and call deposits with an
original maturity of three months or less. Bank overdrafts that are repayable
on demand and form an integral part of the Group's cash management are included
as a component of cash and cash equivalents for the purpose of the statement of
cash flows.
(i) Impairment
The carrying amounts of the Group's assets, other than inventories and deferred
tax assets are reviewed at each balance sheet date to determine whether there is
any indication of impairment.
An impairment loss is recognised whenever the carrying amount of an asset
exceeds its recoverable amount. Impairment losses are recognised in the income
statement. Impairment losses recognised in respect of cash generating units are
allocated first to reduce the carrying amount of any goodwill allocated to cash
generating units and then to reduce the carrying amount of other assets within
the unit on a pro-rata basis. A cash generating unit is the smallest
identifiable group of assets that generates cash inflows that are largely
independent of the cash inflows from other assets or groups of assets. An
impairment loss is reversed if there has been a change in the estimates used to
determine the recoverable amount. An impairment loss is reversed only to the
extent that the asset's carrying amount does not exceed the carrying amount that
would have been determined, net of depreciation, if no impairment loss had been
recognised. An impairment loss in respect of goodwill is not reversed in
respect of other assets.
(j) Employee benefits
Defined contribution pension plans
Obligations for contributions to defined contribution pension plans are
recognised as an expense in the income statement as service is provided.
Share-based payment transactions
The share option programme allows Group employees to acquire shares of the
Company. The fair value of share options granted is recognised as an employee
expense with a corresponding increase in equity. The fair value is measured at
grant date, using an appropriate model taking into account the terms and
conditions upon which the share options were granted, and is spread over the
period during which the employees become unconditionally entitled to the
options. The amount recognised as an expense is adjusted to reflect the actual
number of share options that vest except where forfeiture is only due to market
conditions. For options granted before 7 November 2002, IFRS 2 is not applied.
(k) Revenue
Revenue is measured at the fair value of the consideration received or
receivable and represents amounts receivable for goods and services provided in
the normal course of business, net of discounts, VAT and other sales related
taxes. Sales of goods are recognised when goods are delivered and title has
passed.
(l) Long-term contracts
Contract revenue includes the initial amount agreed in the contract plus any
variations in contract work, claims and incentive payments to the extent that it
is probable that they will result in revenue and can be measured reliably. As
soon as the outcome of a contract can be estimated reliably, contract revenue
and expenses are recognised in profit or loss in proportion to the stage of
completion of the contract.
The stage of completion is assessed by reference to the value of work performed.
When the outcome of a contract cannot be estimated reliably, contract revenue
is recognised only to the extent of contract costs incurred that are likely to
be recoverable. An expected loss on a contract is recognised immediately in
profit or loss.
(m) Expenses
(i) Operating lease payments
Payments under operating leases are recognised in the income and expenditure
account on a straight-line basis over the term of the lease. Lease incentives
received are recognised in the income statement as an integral part of the total
lease expense.
(ii) Finance lease payments
Minimum lease payments are apportioned between the finance charge and the
reduction of the outstanding liability. The finance charge is allocated to each
period during the lease term so as to produce a constant periodic rate of
interest on the remaining balance of the liability.
(iii) Finance income
Finance income comprises interest receivable on funds invested and foreign
exchange gains. Interest income is recognised in the income statement as it
accrues using the effective interest method.
(iv) Finance expenses
Finance expenses comprise interest payable on borrowings and foreign exchange
losses.
(n) Income tax*
Income tax on the profit or loss for the period comprises both current and
deferred tax. Income tax is recognised in the income statement except to the
extent that it relates to items recognised directly in equity, in which case it
is recognised in equity.
Current tax is the expected tax payable on the taxable income for the year,
using tax rates enacted or substantially enacted at the balance sheet date, and
any adjustment to tax payable in respect of previous years.
Deferred tax is provided using the balance sheet liability method, providing for
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation purposes. The
amount of deferred tax provided is based on the expected manner of realisation
or settlement of the carrying amounts of assets and liabilities, using tax rates
enacted or substantially enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that
future taxable profits will be available against which the asset can be
utilised.
(o) Derivative financial instruments*
Derivative financial instruments are recognised at fair value. The gain or loss
on remeasurement to fair value is recognised immediately in profit or loss.
The fair value of interest rate swaps is the estimated amount that the Group
would receive or pay to terminate the swap at the balance sheet date, taking
into account current interest rates and the current creditworthiness of the swap
counterparties. The fair value of forward exchange contracts is their quoted
market price at the balance sheet date.
(p) Provisions
A provision is recognised in the balance sheet when the Group has a present
legal or constructive obligation as a result of a past event, and it is probable
that an outflow of economic benefits will be required to settle the obligation.
If the effect is material, provisions are determined by discounting the
expected, risk adjusted, future cash flows at a pre-tax risk-free rate.
(q) Operating leases
The cost of operating leases is charged on the straight-line basis over the
period of the lease.
Appendix 2
Consolidated Income Statement
6 months ended Year ended
30 June 2006 31 December 2006
Unaudited Unaudited
£000 £000
Revenue 10,422 23,235
Cost of sales (6,820) (14,839)
Gross profit 3,602 8,396
Administrative expenses - reorganisation costs (419) (482)
Administrative expenses - other (3,961) (7,960)
Administrative expenses - total (4,380) (8,442)
Operating loss before financing (778) (46)
Finance expenses (148) (378)
Loss before income tax (926) (424)
Income tax - (12)
Loss for the period attributable to equity holders of the (926) (436)
company
Basic loss per share (0.15p) (0.07p)
Diluted loss per share (0.15p) (0.07p)
Consolidated Balance Sheet
1 January 2006 30 June 2006 31 December 2006
Unaudited Unaudited Unaudited
ASSETS £000 £000 £000
Non-current assets
Property, plant and equipment 783 889 836
Intangible assets - goodwill 887 928 965
Intangible assets - other 114 91 70
Other investments, including derivatives - - 4
Deferred tax assets 245 245 233
Total non-current assets 2,029 2,153 2,108
Current assets
Inventories 2,799 2,997 2,345
Trade and other receivables 4,417 4,383 4,501
Cash and cash equivalents 550 26 502
Total current assets 7,766 7,406 7,348
Total assets 9,795 9,559 9,456
LIABILITIES
Non-current liabilities
Interest-bearing loans and borrowings (3,964) (3,651) (3,224)
Derivatives (5) (15) -
Provisions - - (121)
Total non-current liabilities (3,969) (3,666) (3,345)
Current liabilities
Bank overdraft - (146) (674)
Other interest-bearing loans and borrowings (605) (743) (816)
Trade and other payables (6,942) (7,432) (6,537)
Total current liabilities (7,547) (8,321) (8,027)
Total liabilities (11,516) (11,987) (11,372)
Net liabilities (1,721) (2,428) (1,916)
EQUITY
Capital and reserves attributable to equity holders
Issued capital 6,224 6,367 6,367
Share premium 23,198 23,255 23,255
Reserves (including currency translation) (31,143) (32,050) (31,538)
Total deficit attributable to equity holders of the (1,721) (2,428) (1,916)
company
Consolidated Statement of Cash Flows
6 months ended Year ended
31 December
30 June 2006 2006
Unaudited Unaudited
£000 £000
Cash flows from operating activities
Loss for the period (926) (436)
Adjustments for:
Depreciation 197 467
Amortisation of intangibles 179 202
Profit on sale of property, plant and equipment - (4)
Share based payment expenses 19 44
Finance expenses 148 378
Income tax expense - 12
Decrease in inventories 249 168
Decrease in trade and other receivables 214 871
Increase/(decrease) in trade and other payables 265 (708)
Cash inflow from operations 345 994
Interest paid (433) (633)
Income tax received - 70
Net cash (outflow) / inflow from operating activities (88) 431
Cash flows from investing activities
Capitalised internal development expenditure - (2)
Acquisition of property, plant and equipment (144) (364)
Proceeds from sale of property, plant and equipment - 6
Acquisition of subsidiary, net of cash acquired (187) (188)
Net cash outflow from investing activities (331) (548)
Cash flows from financing activities
Repayment of borrowings (222) (546)
Payment of finance lease liabilities (29) (59)
Net cash outflow from financing activities (251) (605)
Net decrease in cash and cash equivalents (670) (722)
Cash and cash equivalents at the start of the period 550 550
Cash and cash equivalents at the end of the period (120) (172)
Cash and cash equivalents comprise:
Cash and cash equivalents 26 502
Bank overdraft (146) (674)
(120) (172)
Consolidated statement of changes in equity
Year ended 31 December 2006
Attributable to equity shareholders
Unaudited Currency
Share premium Retained translation Total
Share capital earnings differences
£000 £000 £000 £000 £000
At 1 January 2006 6,224 23,198 (31,143) - (1,721)
Shares issued in the period 143 57 - - 200
Loss for the period - - (436) - (436)
Share based payments - - 44 - 44
Foreign currency translation - - - (3) (3)
differences
At 31 December 2006 6,367 23,255 (31,535) (3) (1,916)
Six months ended 30 June 2006
Attributable to equity shareholders
Unaudited Currency
Share Share Retained translation
capital premium earnings differences Total
£000 £000 £000 £000 £000
At 1 January 2006 6,224 23,198 (31,143) - (1,721)
Shares issued in the period 143 57 - - 200
Loss for the period - - (926) - (926)
Share based payments - - 19 - 19
At 30 June 2006 6,367 23,255 (32,050) - (2,428)
Appendix 3
Reconciliation of Consolidated Income Statement - unaudited
For the year ended 31 December 2006
UK GAAP IFRS adjustments IFRS
Goodwill R&D Amortisation of Currency
amortisation capitalised intangibles contracts
(a) (b) (d) (e)
£000 £000 £000 £000 £000 £000
Revenue 23,235 - - - - 23,235
Cost of sales (14,839) - - - - (14,839)
Gross profit 8,396 - - - - 8,396
Administrative expenses
- reorganisation costs (482) - - - - (482)
Administrative expenses
- other (7,820) 60 (44) (156) - (7,960)
Administrative expenses
- total (8,302) 60 (44) (156) - (8,442)
Operating profit/(loss) 94 60 (44) (156) - (46)
Finance expenses (387) - - - 9 (378)
Loss before income tax (293) 60 (44) (156) 9 (424)
Income tax (12) - - - - (12)
Loss for the period
attributable to equity
holders of the company (305) 60 (44) (156) 9 (436)
Explanation of the IFRS adjustments to the Consolidated Income Statement for the
year ended 31 December 2006 and 6 months ended 30 June 2006
(a) IFRS 3 - Business combinations
Under UK GAAP, the Group amortised the cost of goodwill arising on the
acquisition of subsidiaries acquired prior to the transition date to IFRS over
its useful life. Under IFRS 3, goodwill on acquisition is no longer amortised,
but is held at its carrying value at the transition date, or acquisition date,
as appropriate, and is then subject to impairment review at each reporting date.
The Group has restated the value of goodwill in its balance sheet to that at the
transition date (1 January 2006) and has carried out an impairment review as at
1 January 2006, 30 June 2006 and 31 December 2006. The impact has been to
increase reported profit by £28,000 in the six months ended 30 June 2006 and by
£60,000 in the year ended 31 December 2006, which relates to the reversal of
goodwill amortisation.
(b) IAS 38 - Research and development
Under UK GAAP, the Group expensed research and development costs as they were
incurred. Under IAS 38 'Intangible Assets' research and development activities
which meet certain criteria must be capitalised and amortised over the period of
their economic benefit. The Group has determined that it has certain activities
which meet the IAS 38 criteria and therefore should be capitalised. The impact
is as follows
Balance sheet
1 Jan 2006 30 June 2006 31 Dec 2006
£000 £000 £000
Increase in other intangibles - cost 137 137 139
Increase in other intangibles - amortisation (23) (46) (69)
Net increase in other intangibles 114 91 70
Income statement
6 months
ended Year ended
30 June 2006 31 Dec 2006
£000 £000
Amortisation charge (23) (46)
Capitalised development costs - 2
Net change in administrative expenses (23) (44)
(c) and (d) IFRS 3 - Business combinations
Acquisition of European Innovation Manufacturing Centre Limited ('EIMC')
On 8 March 2006 the Group acquired the entire issued share capital of EIMC.
Under UK GAAP the fair value of the consideration was £271,000 and the fair
value of the net liabilities acquired was £21,000, which gave rise to £292,000
goodwill on acquisition.
The Group has accounted for this acquisition in accordance with IFRS 3 'Business
Combinations'. Under IFRS 3, intangible assets purchased as part of a business
combination may meet the criteria set out in IFRS 3 for categorisation as an
intangible asset other than goodwill and are then amortised over their useful
economic life.
The Group has recognised an intangible asset under IFRS3 for the customer orders
acquired. This has been fair valued at £156,000 at the date of acquisition by
the Group. This has been amortised to £nil in the period over which the orders
were satisfied, which was in the period ended 30 June 2006.
A reconciliation of goodwill recognised on the acquisition under UK GAAP
compared to IFRS is set out below:
£000
Goodwill recognised under UK GAAP 292
Recognition of intangible asset for contracted open order book (156)
Goodwill recognised under IFRS 136
The impact on the income statement has been to decrease reported results by
£156,000 in both the six months ended 30 June 2006 and the year ended 31
December 2006, as a result of the amortisation of this intangible fixed asset.
(e) IAS 32 and 39 - Financial Instruments
Under UK GAAP, foreign exchange contracts and other derivative financial
instruments were not required to be recorded in the financial statements. Under
IFRS, IAS 39 requires foreign exchange contracts to be recorded in the balance
sheet at their fair value and movements in the fair value between balance sheet
dates are included in the income statement.
The value of the Group's foreign exchange contracts at balance sheet dates and
the impact on the consolidated income statement are set out below:
£000
Value at 1 January 2006 (liability) (5)
Movement in value in 6 months to 30 June 2006 (10)
Value at 30 June 2006 (15)
Movement in value in 6 months to 31 December 2006 19
Value at 31 December 2006 (asset) 4
(f) IAS 19 - Employee benefits
IFRS has introduced more detailed guidance on recognising employee benefits in
accounts when the benefit is earned as opposed to when it is paid. The Group
has made provision for the accrued holiday pay. This is only a factor at June
because all holiday must be taken by the end of December. The impact has been
to decrease reported profit by £29,000 in the six months ended 30 June 2006.
Reconciliation of Consolidated Balance Sheet - unaudited
As at 31 December 2006
UK GAAP IFRS adjustments IFRS
Goodwill R&D Asset Amortisa- Currency
amortisa- capitalised reclassific- tion of contracts
tion ation intangibles
(a) (b) (c) (d) (e)
ASSETS £000 £000 £000 £000 £000 £000 £000
Non-current assets
Property, plant and 836 - - - - - 836
equipment
Intangible assets - 1,061 60 - (156) - - 965
goodwill
Intangible assets - - - 70 156 (156) - 70
other
Other investments, - - - - - 4 4
including derivatives
Deferred tax assets 233 - - - - - 233
Total non-current 2,130 60 70 - (156) 4 2,108
assets
Current assets
Inventories 2,345 - - - - - 2,345
Trade and other 4,501 - - - - - 4,501
receivables
Cash and cash 502 - - - - - 502
equivalents
Total current assets 7,348 - - - - - 7,348
Total assets 9,478 60 70 - (156) 4 9,456
LIABILITIES
Non-current
liabilities
Interest-bearing loans (3,224) - - - - - (3,224)
and borrowings
Provisions (121) - - - - - (121)
Total non-current (3,345) - - - - - (3,345)
liabilities
Current liabilities
Bank overdraft (674) - - - - - (674)
Interest-bearing loans
and borrowings (816) - - - - - (816)
Trade and other (6,537) - - - - - (6,537)
payables
Total current (8,027) - - - - - (8,027)
liabilities
Total liabilities (11,372) - - - - - (11,372)
Net liabilities (1,894) 60 70 - (156) 4 (1,916)
EQUITY
Capital and reserves
attributable to equity
holders
Issued capital 6,367 - - - - - 6,367
Share premium 23,255 - - - - - 23,255
Reserves (including
currency translation) (31,516) 60 70 - (156) 4 (31,538)
Total deficit
attributable to equity
holders of the company (1,894) 60 70 - (156) 4 (1,916)
Group cashflow statement
For the year ended 31 December 2006
The Group prepares the cash flow statement for both UK GAAP and IFRS using the
indirect method. Consequently, adjustments made to working capital items in the
balance sheet on conversion to IFRS lead to an adjustment in the IFRS cash flow
statement. There are no significant changes between cash flows from operating
activities, investing activities, and financing activities. No adjustments have
been made to cash and cash equivalents, and no other adjustments have been made
to the cash flow statement on conversion.
Appendix 4
Reconciliation of Consolidated Income Statement - unaudited
For the 6 months ended 30 June 2006
UK GAAP IFRS adjustments IFRS
Goodwill Amortisation Holiday
amortisation of intangibles
R&D Currency pay
capitalised contracts accrual
(a) (b) (d) (e) (f)
£000 £000 £000 £000 £000 £000 £000
Revenue 10,422 - - - - - 10,422
Cost of sales (6,820) - - - - - (6,820)
Gross profit 3,602 - - - - - 3,602
Administrative expenses -
reorganisation costs (419) - - - - - (419)
Administrative - other (3,781) 28 (23) (156) - (29) (3,961)
Administrative costs -
total (4,200) 28 (23) (156) - (29) (4,380)
Operating loss (598) 28 (23) (156) - (29) (778)
Finance expenses (138) - - - (10) - (148)
Loss before income tax (736) 28 (23) (156) (10) (29) (926)
Income tax - - - - - - -
Loss for the period
attributable to equity
holders of the company (736) 28 (23) (156) (10) (29) (926)
(a), (b), (d), (e), (f) - see Appendix 3
Reconciliation of Consolidated Balance Sheet - unaudited
As at 30 June 2006
UK GAAP IFRS adjustments IFRS
Asset
reclassification
Goodwill R&D Amortisation Currency Holiday
amortisation capitalised of contracts pay
intangibles accrual
(a) (b) (c) (d) (e) (f)
ASSETS £000 £000 £000 £000 £000 £000 £000 £000
Non-current assets
Property, plant and 889 - - - - - - 889
equipment
Intangible assets - 1,056 28 - (156) - - - 928
goodwill
Intangible assets - - - 91 156 (156) - - 91
other
Deferred tax assets 245 - - - - - - 245
Total non-current 2,190 28 91 - (156) - - 2,153
assets
Current assets
Inventories 2,997 - - - - - - 2,997
Trade and other 4,383 - - - - - - 4,383
receivables
Cash and cash 26 - - - - - - 26
equivalents
Total current assets 7,406 - - - - - - 7,406
Total assets 9,596 28 91 - (156) - - 9,559
LIABILITIES
Non-current
liabilities
Interest-bearing (3,651) - - - - - - (3,651)
loans and borrowings
Derivatives - - - - - (15) - (15)
Total non-current (3,651) - - - - (15) - (3,666)
liabilities
Current liabilities
Bank overdraft (146) - - - - - - (146)
Other (743) - - - - - - (743)
interest-bearing
loans and borrowings
Trade and other (7,403) - - - - - (29) (7,432)
payables
Total current (8,292) - - - - - (29) (8,321)
liabilities
Total liabilities (11,943) - - - - (15) (29) (11,987)
Net liabilities (2,347) 28 91 - (156) (15) (29) (2,428)
EQUITY
Capital and reserves
attributable to
equity holders
Issued capital 6,367 6,367
Share premium account 23,255 23,255
Reserves (including
currency translation) (31,969) 28 91 - (156) (15) (29) (32,050)
Total deficit
attributable to (2,347) 28 91 - (156) (15) (29) (2,428)
equity holders of the
company
(a), (b), (c), (d), (e) (f) - see Appendix 3
Reconciliation of Consolidated Balance Sheet - unaudited
As at 1 January 2006
UK GAAP IFRS adjustments IFRS
R&D Currency
capitalised contracts
(b) (e)
£000 £000 £000 £000
ASSETS
Non-current assets
Intangible assets - goodwill 887 - - 887
Property, plant and equipment 783 - - 783
Intangible assets - other - 114 - 114
Deferred tax assets 245 - - 245
Total non-current assets 1,915 114 - 2,029
Current assets
Inventories 2,799 - - 2,799
Trade and other receivables 4,417 - - 4,417
Cash and cash equivalents 550 - - 550
Total current assets 7,766 - - 7,766
Total assets 9,681 114 - 9,795
LIABILITIES
Non-current liabilities
Interest bearing loans and borrowings (3,964) - - (3,964)
Derivatives - - (5) (5)
Total non-current liabilities (3,964) - (5) (3,969)
Current liabilities
Interest-bearing loans and borrowings (605) - - (605)
Trade and other payables (6,942) - - (6,942)
Total current liabilities (7,547) - - (7,547)
Total liabilities (11,511) - (5) (11,516)
Net liabilities (1,830) 114 (5) (1,721)
EQUITY
Capital and reserves attributable
to equity holders
Issued capital 6,224 - - 6,224
Share premium account 23,198 - - 23,198
Reserves (including currency translation) (31,252) 114 (5) (31,143)
Total deficit attributable to equity holders (1,830) 114 (5) (1,721)
of the company
(b), (e) - see Appendix 3
--------------------------
(1) References to IFRS throughout this document refer to the application of
International Financial Reporting Standards as adopted by the EU ('Adopted IFRS
'), including International Accounting Standards ('IAS') and interpretations
issued by the International Accounting Standard Board ('IASB') and its
committees, and as interpreted by any regulatory bodies applicable to the Group.
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