Adoption of IFRS
Treatt PLC
11 May 2006
TREATT PLC
UPDATE ON ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS
(A pdf copy of this announcement can be found at www.treatt.com)
Treatt Plc is preparing for the adoption of International Financial Reporting
Standards ('IFRS') as its primary accounting basis for the year ending 30
September 2006. As part of this transition, Treatt Plc is today presenting
unaudited financial information prepared in accordance with IFRS for the year
ended 30 September 2005.
This announcement explains how the Group's previously reported UK GAAP financial
performance and position are reported under IFRS. It provides reconciliations
from UK GAAP to IFRS for the following:
• the Group's unaudited consolidated income statement for the year ended 30
September 2005;
• the Group's unaudited consolidated statement of recognised income and expense
for the year ended 30 September 2005;
• the Group's unaudited consolidated balance sheet as at 30 September 2005;
• the Group's unaudited consolidated cash flow statement for the year ended 30
September 2005;
• the Group's unaudited consolidated balance sheet as at 1 October 2004.
The principal changes to Treatt Plc's reported financial information under UK
GAAP arising from the adoption of IFRS are as a result of the:
1. requirement to recognise defined benefit pension scheme liabilities and
change the way gains and losses on the R.C. Treatt & Co. Limited pension
scheme are recognised;
2. requirement to recognise Treatt Plc dividend liabilities only after they
have been formally approved or paid;
3. requirement to account for the cost of share-based payments relating to
employee share option schemes;
4. requirement to recognise foreign exchange (FX) differences on foreign
currency net investments in a separate foreign exchange reserve;
5. requirement to treat computer software previously included in tangible
fixed assets as an intangible fixed asset.
Richard Hope, Group Finance Director of Treatt Plc, commented:
'The unaudited financial information provided today shows how IFRS impacts
Treatt Plc's recent results in advance of its adoption in the 2005/6 financial
year. As can be seen, there has been no material effect on the Group's profit
for the period, whilst the most significant change is that Treatt Plc now
recognises a pension liability net of deferred tax at 30 September 2005 of
£2,267,000 (2004: £2,061,000) which has been offset by a reduction in dividends
payable of £949,000 (2004: £893,000)'
Enquiries
Richard Hope
Group Finance Director
Tel: 01284 702500
INTRODUCTION
Treatt Plc is preparing for the adoption of International Financial Reporting
Standards ('IFRS') as its primary accounting basis following adoption of
Regulation No. 1606/2002 by the European Parliament on 19 July 2002.
The financial information contained on pages 5 to 9 has been prepared in
accordance with applicable International Financial Reporting Standards
('IFRS'), including International Accounting Standards ('IAS') and
interpretations issued by the Standing Interpretations Committee ('SIC') of the
International Accounting Standards Board ('IASB') and its committees. These
standards are subject to ongoing amendment by the IASB and subsequent
endorsement by the European Commission and are therefore subject to possible
change. As a result, information contained within these statements may require
updating at a future date. Therefore it is possible that the comparative
information included in the first complete set of IFRS financial statements as
at 30 September 2006 may not be consistent with the disclosure below.
The financial information has been prepared by management using their best
knowledge and judgement of the expected standards and interpretations of the
IASB, facts and circumstances, and accounting policies that will be applied when
the Company prepares its first complete set of IFRS financial statements as at
30 September 2006. The first financial report prepared under IFRS will be for
the six months ending 31 March 2006.
This announcement explains how the Group's previously reported UK GAAP financial
performance and position are reported under IFRS. It provides, on an IFRS
basis, reconciliations from UK GAAP to IFRS for the following:
• the Group's unaudited consolidated income statement for the year ended 30
September 2005 (previously the profit and loss account);
• the Group's unaudited consolidated statement of recognised income and expense
for the year ended 30 September 2005 (previously the statement of recognised
gains and losses);
• the Group's unaudited consolidated balance sheet as at 30 September 2005;
• the Group's unaudited consolidated cash flow statement for the year ended 30
September 2005;
• the Group's unaudited consolidated balance sheet as at 1 October 2004.
The financial information presented is unaudited.
Attention is drawn to the fact that under IFRS, only a complete set of financial
statements comprising a balance sheet, income statement, statement of changes
in equity, cash flow statement, together with comparative information and
explanatory notes, can provide a fair presentation of the Company's financial
position, results of operations and cash flows.
Basis of preparation
The financial information presented has been prepared based on the adoption of
IFRS, including IAS and interpretations issued by the IASB and its committees
as interpreted by any regulatory bodies relevant to the Group. These are subject
to ongoing amendment by the IASB and subsequent endorsement by the European
Commission and are therefore subject to change. As a result, information
contained herein may need to be updated for any subsequent amendment to IFRS
required for first time adoption, or any new standards that the Group may elect
to adopt early.
IFRS 1 exemptions
IFRS 1, 'First-time Adoption of International Financial Reporting Standards'
sets out the procedures that the Group must follow when it adopts IFRS for the
first time as the basis for preparing its consolidated financial statements. The
Group is required to establish its IFRS accounting policies as at 30 September
2005 and, in general, apply these retrospectively to determine the IFRS opening
balance sheet at its date of transition, 1 October 2004.
However, IFRS 1 provides a number of optional exceptions to this general
principle. The most significant of these are set out below, together with a
description in each case of the exception adopted by the Group.
(1) IFRS 2 - 'Share-based payments' - IFRS 2 has been applied to all grants of
equity instruments after 7 November 2002 that had not vested at 1 January
2005 and not to any grants prior to this date.
(2) 'Business Combinations' - in accordance with IFRS 1, the Group has chosen
not to restate business combinations that took place before the date of
transition (1 October 2004).
(3) Translation of foreign subsidiaries - the Group has chosen not to reduce
all translation reserves arising prior to transition into IFRS to a nil
balance. Consequently, the newly created 'Foreign Exchange Reserve'
includes all foreign exchange differences which arose prior to the
introduction of IFRS.
Presentation of financial information
The primary statements within the financial information contained in this
document have been presented in accordance with IAS 1, 'Presentation of
Financial Statements'. However, this format and presentation may require
modification in the event that further guidance is issued and as practice
develops.
KEY IMPACT ANALYSIS
The analysis below sets out the most significant adjustments arising from the
transition to IFRS.
Presentation of Financial Statements
The primary statements within the financial information contained in this
document have been presented in accordance with IAS 1, 'Presentation of
Financial Statements'.
Defined Benefit Pension Scheme
In accordance with IAS 19, 'Employee Benefits', the deficit (net of deferred
tax) in the defined benefit pension scheme for certain UK employees is
recognised as a liability of the Group under non-current liabilities. This was
previously disclosed as a note to the financial statements under the
transitional arrangements under FRS17 in accordance with UK GAAP.
In addition, the service cost and expected return on assets net of interest on
scheme liabilities is reflected in the income statement for the period, in
place of the actual cash contribution made. All experience gains or losses on
the assets and liabilities of the scheme, together with the effect of changes in
assumptions is reflected as a gain or loss in the Statement of Recognised Income
and Expense.
Share-based Payments
IFRS 2, 'Share-based Payments' requires that an expense for equity instruments
granted be recognised in the financial statements based on their fair value at
the date of grant. This expense, which is in relation to employee share option
schemes for staff in the UK and US, is recognised over the vesting period of the
scheme.
IFRS 2 has been applied to all options granted after 7 November 2002 and not
fully vested by 1 January 2005. The Group has adopted the Black Scholes model
for the purposes of computing fair value of options under IFRS.
Post Balance Sheet Events and Dividends
IAS 10, 'Events after the Balance Sheet Date' requires that final dividends
declared after the balance sheet date should not be recognised as a liability
at that balance sheet date as the liability does not represent a present
obligation as defined by IAS 37, 'Provisions, Contingent Liabilities and
Contingent Assets'. Instead, final dividends for Treatt Plc should only be
recognised as a liability once formally approved at the Annual General Meeting.
Furthermore, interim dividends, in accordance with ICAEW Technical Release
57/05, are no longer recognised as a liability until paid.
The interim and final dividends in relation to the financial years ended 30
September 2004 and 2005 of £893,000 and £949,000 have therefore been reversed
in the respective balance sheets.
Effect of Changes in Foreign Exchange Rates
Under IAS 21, 'The Effects of Changes in Foreign Exchange Rates', cumulative
translation differences which are recognised in the Statement of Recognised
Income and Expense are separately accounted for within reserves and are
transferred from equity to the income statement in the event of the disposal of
a foreign operation. All such foreign exchange differences arising in relation
to the Group's US subsidiary, Treatt USA, since its formation in 1990, have been
transferred from the 'Profit and Loss Reserve' to this newly created 'Foreign
Exchange Reserve'.
Computer Software
In accordance with IAS 38 'Intangible Assets' computer software is now required
to be disclosed as a class of intangible assets rather than be included as part
of tangible fixed assets as was the case under UK GAAP.
FINANCIAL INFORMATION
Income statement
Reconciliation of UK GAAP consolidated profit and loss account to IFRS
consolidated income statement for the year ended 30 September 2005. This
reconciliation is presented in the format required by IFRS 1 and is unaudited.
The impact of deferred and current taxes on each adjustment is shown within the
relevant column.
TREATT PLC
UNAUDITED INCOME STATEMENT
(IFRS FORMAT)
YEAR ENDED 30 SEPTEMBER 2005
IAS 19 IFRS 2
UK GAAP Employee Share IFRS
Based
30/09/ Benefits Payments 30/09/
2005 2005
£'000 £'000 £'000 £'000
Revenue 32,521 32,521
Cost of sales (21,952) (21,952)
--------- -------- --------- ---------
Gross profit 10,569 0 0 10,569
Administrative expenses (7,023) 15 (12) (7,020)
--------- -------- --------- ---------
Group operating profit 3,546 15 (12) 3,549
Finance revenue 176 176
Finance costs (266) (53) (319)
--------- -------- --------- ---------
Profit before tax 3,456 (38) (12) 3,406
Taxation (1,082) 12 (1,070)
--------- -------- --------- ---------
Profit for the year attributable to 2,374 (26) (12) 2,336
equity shareholders ========= ======== ========= =========
UNAUDITED STATEMENT OF RECOGNISED INCOME AND EXPENSE
(IFRS FORMAT)
YEAR ENDED 30 SEPTEMBER 2005
Profit for the financial year 2,374 (26) (12) 2,336
Currency translation on foreign 123 123
currency net investment
Actuarial loss on defined benefit (257) (257)
pension scheme
Deferred tax on actuarial loss 77 77
------- ------- -------- -------
Total recognised net income for 2,497 (206) (12) 2,279
the period ======= ======= ======== =======
Earnings Per Share
Profit after tax 2,374 2,336
No. of shares - basic 10,024,533 10,024,533
No. of shares - diluted 10,050,258 10,050,258
Earnings per share - basic 23.7p 23.3p
Earnings per share - diluted 23.6p 23.2p
Balance sheet
Reconciliation of UK GAAP to IFRS consolidated balance sheet as at 30 September
2005. This reconciliation is presented in IFRS format and is unaudited.
The impact of deferred and current taxes on each adjustment is shown within the
relevant column.
TREATT PLC
UNAUDITED BALANCE SHEET
(IFRS FORMAT)
AS AT 30 SEPTEMBER 2005
UK GAAP IAS 19 IAS 10 IFRS 2 IAS 21 IAS 38 IFRS
30/09/ Employee Events Share-Based of Effect Intangible 30/09/
2005 Changes 2005
Benefits After Payments in Assets
Balance FX Rates
Sheet Date
£'000 £'000 £'000 £'000 £'000 £'000 £'000
ASSETS
Non-current
assets
Intangible 730 730
assets
Property, plant 9,374 (730) 8,644
and equipment
Deferred tax 521 521
--------- -------- --------- -------- --------- -------- ---------
9,374 521 0 0 0 0 9,895
--------- -------- --------- -------- --------- -------- ---------
Current assets
Inventories 11,395 11,395
Trade and other 5,718 5,718
receivables
Cash and cash 297 297
equivalents --------- -------- --------- -------- --------- -------- ---------
17,410 0 0 0 0 0 17,410
--------- -------- --------- -------- --------- -------- ---------
LIABILITIES
Current
liabilities
Bank loans and (144) (144)
overdrafts
Trade and other (4,883) 949 (3,934)
payables
Corporation tax (589) (589)
payable --------- -------- --------- -------- --------- -------- ---------
(5,616) 0 949 0 0 0 (4,667)
--------- -------- --------- -------- --------- -------- ---------
--------- -------- --------- -------- --------- -------- ---------
Net current 11,794 0 949 0 0 0 12,743
assets --------- -------- --------- -------- --------- -------- ---------
Non-current
liabilities
Bank loans (2,179) (2,179)
Post-employment (3,239) (3,239)
benefits
Deferred tax (451) 451 0
liabilities --------- -------- --------- -------- --------- -------- ---------
(2,630) (2,788) 0 0 0 0 (5,418)
--------- -------- --------- -------- --------- -------- ---------
--------- -------- --------- -------- --------- -------- ---------
Net assets 18,538 (2,267) 949 0 0 0 17,220
--------- -------- --------- -------- --------- -------- ---------
SHAREHOLDERS'
EQUITY
Called up share 1,029 1,029
capital
Share premium 2,143 2,143
account
Own shares in (625) (625)
share trust
Employee share 14 14
option
reserve
Foreign (699) (699)
exchange
reserve
Retained 15,991 (2,267) 949 (14) 699 15,358
earnings
--------- -------- --------- -------- --------- -------- ---------
Total 18,538 (2,267) 949 0 0 0 17,220
Shareholders' --------- -------- --------- -------- --------- -------- ---------
Equity
Cash flow statement
Reconciliation of UK GAAP to IFRS consolidated cash flow statement for the year
ended 30 September 2005. This reconciliation is presented in IFRS format and
is unaudited.
TREATT PLC
UNAUDITED CASH FLOW STATEMENT
(IFRS FORMAT)
YEAR ENDED 30 SEPTEMBER 2005
UK GAAP Opening Repayment FX on IFRS
30/09/ Loan on Loan Loans 30/09/
2005 Balance 2005
£'000 £'000 £'000 £'000 £'000
Cash flow from operating
activities
Profit before taxation 3,456 3,456
Adjusted for:
Foreign exchange gain/(loss) 49 55 104
Depreciation of property, 963 963
plant and equipment
Loss on disposal of property, 135 135
plant and equipment --------- --------- --------- -------- ---------
4,603 0 0 55 4,658
Changes in working capital:
Decrease/(increase) in (3,040) (3,040)
inventories
Decrease/(increase) in trade 288 288
and other receivables
Increase/(decrease) in trade 642 642
and other payables --------- --------- --------- -------- ---------
Cash generated from 2,493 0 0 55 2,548
operations
Tax paid (812) (812)
--------- --------- --------- -------- ---------
Net cash from operating 1,681 0 0 55 1,736
activities --------- --------- --------- -------- ---------
Cash flow from investing
activities --------- --------- --------- -------- ---------
Purchase of property, plant (862) (862)
and equipment --------- --------- --------- -------- ---------
Cash flow from financing
activities
Repayment of bank loans (144) (144)
Dividends paid (895) (895)
Net acquisition of own shares (347) (347)
by Share Trust --------- --------- --------- -------- ---------
(1,242) 0 (144) 0 (1,386)
--------- --------- --------- -------- ---------
Net decrease in cash and cash (423) 0 (144) 55 (512)
equivalents
Cash and cash equivalents at (1,603) 2,412 809
beginning of period
--------- --------- --------- -------- ---------
Cash and cash equivalents at (2,026) 2,412 (144) 55 297
end of period ========= ========= ========= ======== =========
The effect of transition on the cash flow noted above relates to changes 30/09/
in the composition of cash and cash 2005
equivalents as detailed £'000
below:
Reconciliation of cash flow for period to 30
September 2005
Net debt under UK GAAP (2,026)
Long term loans excluded from cash and 2,323
cash equivalents
---------
Cash and cash equivalents 297
under IFRS =========
Cash and cash equivalents
consist of:
Cash at bank 297
=========
Opening balance sheet
Reconciliation of UK GAAP to IFRS consolidated balance sheet as at 1 October
2004. This reconciliation is presented in IFRS format and is unaudited. The
impact of deferred and current taxes on each adjustment is shown within the
relevant column.
TREATT PLC
UNAUDITED BALANCE SHEET
(IFRS FORMAT)
AS AT 1 OCTOBER 2004
UK GAAP IAS 19 IAS 10 IFRS 2 IAS 21 IAS 38 IFRS
30/09/ Employee Events Share-Based Effect Intangible 30/09/
2004 Benefits After Payments of Changes Assets 2004
Balance in FX
Sheet Rates
Date
£'000 £'000 £'000 £'000 £'000 £'000 £'000
ASSETS
Non-current
assets
Intangible 936 936
assets
Property, plant 9,536 (936) 8,600
and equipment
Deferred tax 364 364
--------- -------- --------- -------- --------- -------- ---------
9,536 364 0 0 0 0 9,900
--------- -------- --------- -------- --------- -------- ---------
Current
assets
Inventories 8,355 8,355
Trade and other 6,007 6,007
receivables
Cash and cash 809 809
equivalents --------- -------- --------- -------- --------- -------- ---------
15,171 0 0 0 0 0 15,171
--------- -------- --------- -------- --------- -------- ---------
LIABILITIES
Current
liabilities
Bank loans and (141) (141)
overdrafts
Trade and other (4,200) 893 (3,307)
payables
Corporation tax (251) (251)
payable --------- -------- --------- -------- --------- -------- ---------
(4,592) 0 893 0 0 0 (3,699)
--------- -------- --------- -------- --------- -------- ---------
--------- -------- --------- -------- --------- -------- ---------
Net current 10,579 0 893 0 0 0 11,472
assets --------- -------- --------- -------- --------- -------- ---------
Non-current
liabilities
Bank loans (2,271) (2,271)
Post-employment (2,944) (2,944)
benefits
Deferred tax (519) 519 0
liabilities --------- -------- --------- -------- --------- -------- ---------
(2,790) (2,425) 0 0 0 0 (5,215)
--------- -------- --------- -------- --------- -------- ---------
--------- -------- --------- -------- --------- -------- ---------
Net assets 17,325 (2,061) 893 0 0 0 16,157
--------- -------- --------- -------- --------- -------- ---------
SHAREHOLDERS'
EQUITY
Called up share 1,029 1,029
capital
Share premium 2,143 2,143
account
Own shares in (278) (278)
share trust
Employee share 2 2
option
reserve
Foreign (822) (822)
exchange
reserve
Retained 14,431 (2,061) 893 (2) 822 14,083
earnings
--------- -------- --------- -------- --------- -------- ---------
Total 17,325 (2,061) 893 0 0 0 16,157
Shareholders' --------- -------- --------- -------- --------- -------- ---------
Equity
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