Restatement for IFRS
Cookson Group PLC
22 July 2005
22 July 2005
COOKSON RELEASES 2004 FINANCIAL STATEMENT INFORMATION RESTATED UNDER IFRS
Cookson Group plc, a leading materials science company, today provides an
unaudited summary of the restatement of its 2004 financial statements under
International Financial Reporting Standards ('IFRS'). This summary is being
provided in advance of the announcement on 26 July of Cookson's interim results
for the six months ended 30 June 2005.
As set out in the 18 January 2005 strategy presentation, the main changes from
UK GAAP to IFRS that affect Group profit before tax are:
- discontinuation of the amortisation of goodwill;
- accounting for the costs of employee share options;
- reversal of deferred income on the close-out of interest rate swaps
in prior periods;
- accounting for profits from joint ventures on the net equity basis.
The only significant Group balance sheet impacts, apart from re-classifications,
are the accounting for defined benefit pension and other post-retirement schemes
and for amortisation of goodwill and the consequent impact on shareholders'
equity.
Cookson Group plc will continue to produce its company-only accounts under UK
GAAP and therefore none of the IFRS adjustments in this announcement impact on
its distributable reserves at 31 December 2004, which were £97.1m.
There are no IFRS adjustments to Group cash flows, only re-classifications of
items within the cash flow statement.
As noted in the trading update announced on 6 May 2005, Cookson considered the
early-adoption of IAS 39 and IAS 32, which relate to the accounting and
disclosure of financial instruments, but subsequently elected not to do so.
These standards are therefore, adopted as from their effective date of 1 January
2005.
The Group's results for the first half of 2004 and for the full year on an IFRS
and a comparative UK GAAP basis are summarised in the table below.
Reconciliations for each item in the table are provided in the notes attached.
Detailed reconciliations are provided in the appendix attached.
Year - 2004 First Half - 2004
Notes IFRS UK GAAP IFRS UK GAAP
Revenue (£m) 1. 1,652.5 1,698.2 816.7 841.5
Trading profit (£m) 2. 114.9 119.6 51.9 55.1
Profit before tax (£m)
- Headline 3. 85.0 93.1 37.2 42.0
- Reported 4. 12.6 (18.7) 24.1 8.0
Earnings per share (pence)
- Headline 5. 30.1 33.4 12.4 14.3
- Reported 6. (11.2) (26.6) 4.4 (3.7)
Free cash flow (£m) - 51.6 51.6 (21.2) (21.2)
Net debt (£m) 7. 321.8 306.9 402.0 385.8
Employee Benefits 8. 189.9 29.8 188.8 37.6
Liability (£m)
Shareholders' Equity (£m) 9. 431.4 559.4 458.4 591.6
Trading profit is defined in note 1 of the attached appendix
Under IFRS, companies are required to reflect the profits of each reporting
segment before Group corporate costs. The table below sets out the relevant
information in respect of trading profit, as defined, and takes into account the
above IFRS adjustments.
Year - 2004 First Half - 2004
IFRS UK GAAP IFRS UK GAAP
Trading profit (£m)
- Ceramics 60.0 56.8 27.7 26.0
- Electronics 52.8 49.5 24.5 23.2
Assembly Materials 24.2 22.2 11.0 10.5
Chemistry 27.8 27.2 12.8 12.1
Laminates 0.8 0.1 0.7 0.6
- Precious Metals 11.0 9.3 3.8 3.3
- Joint Ventures - 4.0 - 2.6
- Group corporate costs (8.9) n/a (4.1) n/a
Group 114.9 119.6 51.9 55.1
Shareholder / analyst enquiries: Cookson Group plc
Dennis Millard, Group Finance Director Tel: 020 7061 6500
Isabel Vilela, Investor Relations Manager
About Cookson Group
Cookson Group is a leading materials science company which provides materials,
processes and services to customers worldwide. The Group's operations are formed
into three divisions - Ceramics, Electronics and Precious Metals. The Ceramics
division is the world leader in the supply of advanced flow control and
refractory products and systems to the iron and steel industry and is also a
leading supplier of refractory lining materials for iron and steelmaking and
other industrial processes. The Electronics division is a leading manufacturer
and supplier of materials and services to the electronics industry, primarily
serving fabricators and assemblers of printed circuit boards, assemblers of
semiconductor packaging and the electrical and industrial markets. The Precious
Metals division is a leading supplier to the jewellery industry of fabricated
precious metals products.
Headquartered in London, Cookson employs some 16,000 people in more than 35
countries and sells its products in over 100 countries.
Cookson Group plc, 265 Strand, London WC2R 1DB
Tel: 020 7061 6500 Fax: 020 7061 6600
www.cooksongroup.co.uk
Notes to IFRS Restatement Announcement
2004 2004
Year First-half
£m £m
(1) Revenue
Turnover as reported under UK GAAP 1,698.2 841.5
- Revenue of Joint Ventures (45.2) (24.4)
- Adjustment of sales to prior period (0.5) (0.4)
Revenue, under IFRS 1,652.5 816.7
(2) Trading Profit
Operating profit before goodwill amortisation 119.6 55.1
and exceptional items as reported under UK GAAP
- Profit of JVs before interest and tax (4.0) (2.6)
- Pension costs, holiday pay accruals, share option costs, other (0.7) (0.6)
Trading Profit, under IFRS 114.9 51.9
(3) Profit before tax - Headline
Profit before tax before goodwill amortisation and exceptional 93.1 42.0
items as reported under UK GAAP
- Pension costs, holiday pay accruals, share option costs, other (0.7) (0.6)
- Share of JVs tax charge (1.7) (1.3)
- Reversal of deferred income release from swap closeout (5.4) (2.7)
- Interest on reclassified finance leases (0.3) (0.2)
Headline profit before tax, under IFRS 85.0 37.2
(4) Profit / (loss) before tax - Reported
Profit / (loss) before tax, as reported (18.7) 8.0
- Pension costs, holiday pay accruals, share option costs, other (0.7) (0.6)
- Share of JVs tax charge (1.7) (1.3)
- Goodwill amortisation reversed 31.7 15.9
- Goodwill on business disposals 2.3 2.3
- Interest on reclassified finance leases (0.3) (0.2)
Profit before tax, under IFRS 12.6 24.1
2004 2004
Year First-half
pence pence
(5) Earnings per share - Headline
Earnings per share before amortisation of goodwill and 33.4 14.3
intangibles under UK GAAP; restated for 1 for 10 share
consolidation in May 2005
After tax effect of:
- Deferred income on swap close-out (2.9) (1.5)
- All other items (0.4) (0.4)
Headline earnings per share, under IFRS 30.1 12.4
(6) Earnings per share - Reported
Earnings per share under UK GAAP; restated for 1 for 10 share (26.7) (3.7)
consolidation in May 2005
- Goodwill amortisation written-back 18.0 9.6
- All other items (2.5) (1.5)
Earnings per share, under IFRS (11.2) 4.4
2004 2004
Year First-half
£m £m
(7) Net debt
Per UK GAAP, as reported 306.9 385.8
- Reclassification of asset securitisation financing 10.7 11.7
- Additional finance leases recognised 4.2 4.5
As restated under IFRS 321.8 402.0
(8) Employee benefits liability
Net accruals per UK GAAP, as reported 29.8 37.6
- Reclassification of pension asset 6.4 6.8
- Reversal of UK GAAP net accruals (36.2) (44.4)
- Defined benefit pension scheme and other post- retirement 189.9 188.8
benefit arrangement deficits
As restated under IFRS 189.9 188.8
(9) Shareholders' equity
Per UK GAAP, as reported 559.4 591.6
- Pension and other post-retirement benefits (153.7) (144.4)
- Goodwill amortisation 31.7 15.9
- Others, including tax on IFRS adjustments (6.0) (4.7)
As restated under IFRS 431.4 458.4
Appendix: Summary reconciliation of the Group's UK GAAP 2004 Financial
Statements to IFRS
1 Basis of preparation
Cookson Group plc ('Cookson' or 'the Company') will report its annual
consolidated financial statements for 2005 in accordance with International
Financial Reporting Standards ('IFRS'). This appendix presents and explains,
notably in section 2.8, the unaudited conversion of the consolidated results of
Cookson from UK Generally Accepted Accounting Practice ('UK GAAP') onto an IFRS
basis for the six months ended 30 June 2004 and the year ended 31 December 2004
and similarly the Group's financial position as at that date and also 30 June
2004 and at the date of the transition of the Company's consolidated financial
statements to IFRS, being 1 January 2004.
The financial information in this appendix has been prepared on the assumption
that all IFRSs, including interpretations issued by the International Financial
Reporting Interpretations Committee and by the International Accounting
Standards Board effective for year end 2005 reporting, will be endorsed by the
European Commission, notably the amendments made to IAS 19, 'Employee Benefits'.
Endorsement of all such pronouncements has not occurred as at the date of the
publication of this announcement. The failure of the European Commission to
endorse all of these standards in time for Cookson's year-end financial
reporting in 2005 could result in the need to change the basis of accounting or
the presentation of certain financial information from that presented in this
appendix. It is possible, therefore, that further changes will be required to
this information before it is published as comparative information for the full
year 2005.
The financial information, in the form of the primary statements contained in
this appendix, is presented in accordance with International Accounting Standard
('IAS') 1, 'Presentation of Financial Statements'. Where no definitive guidance
exists in IAS 1, a UK GAAP approach has been adopted in order to maintain
consistency with prior years. This format and presentation may require
modification in the event that further guidance is issued, but otherwise the
Company believes that the basis on which this financial information has been
prepared will be sufficient to enable it to comply fully with IFRS in its annual
financial statements for the year ended 31 December 2005 without further
significant modification to either the format and presentation or the
comparative financial information contained in the primary financial statements
herein.
The comparative figures for the financial year ended 31 December 2004 are not
the Company's statutory accounts for that financial year. Those accounts, which
were prepared under UK GAAP, have been reported on by the Company's auditor and
delivered to the Registrar of Companies. The report of the auditor was
unqualified and did not contain a statement under section 237(2) or (3) of the
Companies Act 1985. These sections address whether proper accounting records
have been kept, whether the Company's accounts are in agreement with these
records and whether the auditor has obtained all the information and
explanations necessary for the purposes of their audit.
At the Company's Annual General Meeting held on 26 May 2005, shareholders
approved a share consolidation. The share consolidation took effect following
the close of business on 26 May 2005, with shareholders receiving one New
Ordinary Share of 10p each for every 10 existing ordinary shares of 1p each held
at the close of business on 26 May 2005. Trading in the New Ordinary Shares of
10p commenced on 27 May 2005. The information in this appendix relating to
earnings per share has been restated to take into account the impact of this
share consolidation.
Disclosure of significant items
IAS 1 provides no definitive guidance as to the format of the income statement,
but states key lines which should be disclosed. It also encourages additional
line items to be added and the re-ordering of items presented on the face of the
income statement when appropriate for a proper understanding of the entity's
financial performance. In keeping with the spirit of this aspect of IAS 1,
Cookson has adopted a policy of disclosing separately on the face of its income
statement the effect of any components of financial performance considered by
management to be significant and/or for which separate disclosure would assist
both in a better understanding of the financial performance achieved and in
making projections of future results. Materiality and/or the nature and function
of the components of income and expense are considered in deciding upon such
presentation. Such items may include, inter alia, the financial effect of any
profit or loss arising on business disposals, major rationalisation and/or
restructuring activity, profits and losses on sale or impairment of fixed
assets, amortisation of intangibles and other items, including the taxation
impact of the afore-mentioned items, which have a significant impact on the
Group's results of operations either due to their size or nature.
On the face of the income statement, Cookson separately discloses 'trading
profit', being profit from operations before the costs of rationalisation of
operations, the profit or loss relating to fixed assets and the amortisation and
impairment of intangibles.
2 Restatement of Financial Statement Comparatives from UK GAAP to IFRS
2.1 Income statement, balance sheet and cash flow reclassifications from UK
GAAP to IFRS
The adoption of IFRS requires certain changes to be made to the format and
presentation of income statement, balance sheet and cash flow information
previously disclosed under UK GAAP. In the income statement and balance sheet
shown in sections 2.3 and 2.4 and in the statement of cash flows, the following
principal changes have been made to the statements previously disclosed under UK
GAAP prior to presenting them in section 2.3 and 2.4:
i. Under UK GAAP, profits and losses arising on the disposal or
write-down of fixed assets were shown separately below
operating profit. Under IFRS, such profits and losses are
shown as a component of profit from
operations.
ii. Long-term debtors previously included within current assets
under UK GAAP of £37.5m at 31 December 2004 (1 January 2004:
£28.3m; 30 June 2004: £27.1m) are included within non-current
assets under IFRS.
iii. Under IFRS, deferred tax assets and liabilities are required
to be shown as separate line items on the balance sheet. This
has resulted in a reclassification of deferred tax assets
previously included within debtors under UK GAAP of £35.3m at
31 December 2004 (1 January 2004: £53.5m; 30 June 2004:
£49.5m); and deferred tax liabilities previously included
within provisions under UK GAAP of £8.6m at 31 December 2004
(1 January 2004: £11.5m; 30 June 2004: £11.5m).
iv. Under IFRS, income taxes recoverable and payable are required
to be shown as separate line items on the balance sheet. This
has resulted in a reclassification of income tax recoverable
previously included within debtors under UK GAAP of £3.1m at
31 December 2004 (1 January 2004: £3.0m; 30 June 2004:
£2.2m); and income tax payable previously included within
creditors under UK GAAP of £11.6m at 31 December 2004
(1 January 2004: £15.5m; 30 June 2004: £15.9m).
v. IFRS requires amounts received under debtor securitisation
arrangements to be shown as liabilities and not as a deduction
against the associated debtor balances, as under UK GAAP. This
has resulted in a reclassification of these receipts at 31
December 2004 of £10.7m (1 January 2004: £11.2m; 30 June 2004:
£11.7m) from debtors to 'interest-bearing loans and
borrowings'.
vi. IFRS requires provisions expected to be settled within one
year of the balance sheet date to be shown as current
liabilities. This has resulted in a reclassification at 31
December 2004 of £15.1m (1 January 2004: £13.4m; 30
June 2004: £17.5m) from non-current liabilities to current
liabilities.
vii. Certain US assets held in Rabbi trusts to meet pension
obligations are not classified by IAS 19 as pension assets.
This has resulted in a reclassification of these assets at
31 December 2004 of £6.4m (1 January 2004: £6.9m; 30 June 2004
£6.8m) from prepayments to 'other investments'.
viii. IFRS requires certain overdrafts to be included within the
balances disclosed as 'cash and cash equivalents', whereas
overdrafts were included within borrowings under UK GAAP. This
has resulted in a reclassification at 31 December 2004 of
£3.4m (1 January 2004: £4.0m; 30 June 2004: £6.7m) from
current liabilities to current assets.
ix. In addition to the change in presentation brought about by
item viii above, the Group statement of cash flows under IFRS
must comply with the format and headings prescribed in IAS 7.
With the exception of the reclassification described in viii
above, no other IFRS transitional adjustments impacted on the
restated net cash flow from operating, investing or financing
activities.
2.2 Accounting adjustments made on transition from UK GAAP to IFRS
As required by IFRS 1, Cookson has prepared reconciliation statements which
present the adjustments made in order to transition the Group's UK GAAP primary
statements for 2004 onto an IFRS basis. Reconciliations are provided in respect
of the adjustments made to the Group's financial position at the date of
transition to IFRS, 1 January 2004, and also at 30 June 2004 and 31 December
2004. With regard to the Group's reported financial performance, reconciliations
are provided for the six months ended 30 June 2004 and for the full year ended
31 December 2004. The reconciliations in this appendix are located as follows:
• Income Statement reconciliation from UK GAAP to IFRS Section 2.3
• Balance Sheet reconciliation from UK GAAP to IFRS Section 2.4
• Group statement of Recognised Income and Expense reconciliation from UK GAAP to IFRS Section 2.5
• Group reconciliation of Equity from UK GAAP to IFRS Section 2.6
• Details of adjustments made on transition from UK GAAP to IFRS Section 2.7
• Summary description of significant IFRS adjustments Section 2.8
2.3 Income Statement reconciliation from UK GAAP to IFRS
Half year Full year
2004 2004
Note As Effect of Reported As Effect of Reported
2.7 reported transition in reported transition in
ref under to IFRS compliance under to IFRS compliance
UK GAAP £m with IFRS UK GAAP £m with IFRS
(note £m (note 2.1) £m
2.1) £m
£m
Revenue (a) 817.1 (0.4) 816.7 1,653.0 (0.5) 1,652.5
Manufacturing - raw materials (b) (364.6) 0.3 (364.3) (756.2) 0.4 (755.8)
costs
- other (226.2) - (226.2) (447.1) - (447.1)
Administration, selling and (c) (173.8) (0.5) (174.3) (334.1) (0.6) (334.7)
distribution costs
Trading profit 52.5 (0.6) 51.9 115.6 (0.7) 114.9
Rationalisation of operating (11.0) - (11.0) (22.7) - (22.7)
activities
Amortisation and impairment (d) (16.3) 15.9 (0.4) (32.5) 31.7 (0.8)
of intangibles
Profit / (loss) relating to 1.1 - 1.1 (16.8) - (16.8)
fixed assets
Profit from operations 26.3 15.3 41.6 43.6 31.0 74.6
Finance income
Ongoing activities 2.2 - 2.2 0.9 - 0.9
Income from swap 2.7 - 2.7 5.4 - 5.4
close-out
Finance costs
Ongoing activities (e) (18.0) (0.2) (18.2) (32.8) (0.3) (33.1)
Share of post-tax profit from 1.3 - 1.3 2.3 - 2.3
joint ventures
Loss on disposal of (f) (7.8) 2.3 (5.5) (39.8) 2.3 (37.5)
operations
Profit before tax 6.7 17.4 24.1 (20.4) 33.0 12.6
Income tax:
Ongoing activities (g) (11.3) - (11.3) (24.5) 0.2 (24.3)
Deferred tax charge on (g) - (2.1) (2.1) - (4.1) (4.1)
goodwill
Other net credits / 0.1 - 0.1 (1.2) - (1.2)
(charges)
Profit / (loss) for the (4.5) 15.3 10.8 (46.1) 29.1 (17.0)
period
Profit attributable to (2.5) - (2.5) (4.1) - (4.1)
minority interests
Profit / (loss) attributable (7.0) 15.3 8.3 (50.2) 29.1 (21.1)
to equity holders
Basic earnings per share (3.7)p 8.1p 4.4p (26.7)p 15.5p (11.2)p
Diluted earnings per share (3.6)p 7.9p 4.3p (26.7)p 15.5p (11.2)p
Headline profit before
taxation and earnings per
share:
Trading profit 52.5 (0.6) 51.9 115.6 (0.7) 114.9
Share of post-tax profit from 1.3 - 1.3 2.3 - 2.3
joint ventures
Finance costs for ongoing (15.8) (0.2) (16.0) (31.9) (0.3) (32.2)
activities, net
Headline profit before tax 38.0 (0.8) 37.2 86.0 (1.0) 85.0
Income tax on ongoing (11.3) - (11.3) (24.5) 0.2 (24.3)
activities
Profit attributable to (2.5) - (2.5) (4.1) - (4.1)
minority interests
Headline profit attributable 24.2 (0.8) 23.4 57.4 (0.8) 56.6
to equity holders
Headline basic earnings per 12.8p (0.4)p 12.4p 30.5p (0.4)p 30.1p
share
2.4 Balance Sheet reconciliation from UK GAAP to IFRS
1 January 30 June 31 December
2004 2004 2004
Note As Effect of Reported As Effect of Reported As Effect of Reported
2.7 reported transition in reported transition in reported transition in
ref under to IFRS compliance under to IFRS compliance under to IFRS compliance
UK £m with IFRS UK GAAP £m with IFRS UK GAAP £m with IFRS
GAAP £m (note £m (note
(note 2.1) 2.1) £m
2.1) £m £m £m
Assets
Property, plant (h) 350.7 4.1 354.8 332.0 3.7 335.7 319.6 3.3 322.9
and equipment
Intangible assets (i) 514.0 - 514.0 487.6 15.9 503.5 453.5 31.7 485.2
Investments in 18.8 - 18.8 14.5 - 14.5 14.7 - 14.7
joint ventures
Other Investments 37.2 - 37.2 36.0 - 36.0 16.7 - 16.7
Income tax - - - 2.2 - 2.2 2.2 - 2.2
recoverable
Deferred tax (j) 53.5 (0.6) 52.9 49.5 (2.6) 46.9 35.3 (4.1) 31.2
assets
Other assets 8.2 - 8.2 10.1 - 10.1 10.6 - 10.6
Total non-current 982.4 3.5 985.9 931.9 17.0 948.9 852.6 30.9 883.5
assets
Cash and cash 52.8 - 52.8 31.5 - 31.5 44.0 - 44.0
equivalents
Inventories (k) 172.9 (0.3) 172.6 193.8 0.1 193.9 174.0 0.1 174.1
Trade and other (l) 316.9 0.4 317.3 324.9 (0.1) 324.8 303.5 (0.1) 303.4
receivables
Income tax 3.0 - 3.0 - - - 0.9 - 0.9
recoverable
Total current assets 545.6 0.1 545.7 550.2 - 550.2 522.4 - 522.4
Total assets 1,528.0 3.6 1,531.6 1,482.1 17.0 1,499.1 1,375.0 30.9 1,405.9
Equity
Issued capital 375.4 - 375.4 375.4 - 375.4 375.5 - 375.5
Share premium 642.6 - 642.6 643.4 - 643.4 643.4 - 643.4
Retained earnings (m) (608.8) (128.0) (736.8) (633.1) (133.2) (766.3) (665.4) (128.0) (793.4)
Other reserves 205.9 - 205.9 205.9 - 205.9 205.9 - 205.9
Total shareholders' 615.1 (128.0) 487.1 591.6 (133.2) 458.4 559.4 (128.0) 431.4
equity
Minority interests 11.8 - 11.8 11.7 - 11.7 11.7 - 11.7
Total equity 626.9 (128.0) 498.9 603.3 (133.2) 470.1 571.1 (128.0) 443.1
Liabilities
Interest-bearing 320.3 - 320.3 334.0 - 334.0 326.1 - 326.1
loans and
borrowings
Employee benefits (n) 47.1 126.1 173.2 44.4 144.4 188.8 36.2 153.7 189.9
Trade and other 69.3 - 69.3 97.9 - 97.9 58.3 - 58.3
payables
Provisions 20.7 - 20.7 16.8 - 16.8 10.3 - 10.3
Deferred tax 11.5 - 11.5 11.5 - 11.5 8.6 - 8.6
liabilities
Total non-current 468.9 126.1 595.0 504.6 144.4 649.0 439.5 153.7 593.2
liabilities
Interest-bearing (o) 102.2 4.8 107.0 95.0 4.5 99.5 35.5 4.2 39.7
loans and
borrowings
Trade and other (p) 301.1 0.8 301.9 245.8 1.4 247.2 302.2 1.0 303.2
payables
Income tax (q) 15.5 (0.1) 15.4 15.9 (0.1) 15.8 11.6 - 11.6
payable
Provisions 13.4 - 13.4 17.5 - 17.5 15.1 - 15.1
Total current 432.2 5.5 437.7 374.2 5.8 380.0 364.4 5.2 369.6
liabilities
Total liabilities 901.1 131.6 1,032.7 878.8 150.2 1,029.0 803.9 158.9 962.8
Total equity and 1,528.0 3.6 1,531.6 1,482.1 17.0 1,499.1 1,375.0 30.9 1,405.9
liabilities
2.5 Group Statement of Recognised Income and Expense reconciliation from UK
GAAP to IFRS
Half year 2004 Full year 2004
As Effect of Reported As Effect of Reported
reported transition in reported transition in
under to IFRS compliance under to IFRS compliance
UK GAAP £m with IFRS UK GAAP £m with IFRS
£m GAAP £m GAAP
£m £m
Foreign exchange translation (20.1) (3.4) (23.5) (9.8) (2.2) (12.0)
differences
Actuarial loss on employee benefit - (15.9) (15.9) - (26.8) (26.8)
schemes
Income and expenses recognised directly (20.1) (19.3) (39.4) (9.8) (29.0) (38.8)
in equity
Profit/(loss) for the period (4.5) 15.3 10.8 (46.1) 29.1 (17.0)
(24.6) (4.0) (28.6) (55.9) 0.1 (55.8)
Profit attributable to minority (2.5) - (2.5) (4.1) - (4.1)
interests
Foreign exchange translation 0.5 - 0.5 1.1 - 1.1
differences attributable to minority
interests
(2.0) - (2.0) (3.0) - (3.0)
Total recognised income and expenses (26.6) (4.0) (30.6) (58.9) 0.1 (58.8)
attributable to equity holders
2.6 Group reconciliation of Equity from UK GAAP to IFRS
Issued Share Retained Other Total equity Minority Total
capital premium earnings reserves attributable interest equity
£m £m £m £m to equity £m £m
holders
£m
Total equity as at 1 January 2004
As previously stated under UK GAAP 375.4 642.6 (608.8) 205.9 615.1 11.8 626.9
Effect of transition to IFRS (note - - (128.0) - (128.0) - (128.0)
2.7(m))
Total equity as at 1 January 2004 375.4 642.6 (736.8) 205.9 487.1 11.8 498.9
(as restated under IFRS)
Movements for the period as
reported under UK GAAP:
Total net recognised losses - - (26.6) - (26.6) 2.0 (24.6)
relating to the period
New share capital issued - 0.8 - - 0.8 - 0.8
Dividends paid to minority - - - - - (2.1) (2.1)
interest
Goodwill transferred to the income - - 2.3 - 2.3 - 2.3
statement on the sale of
operations
- 0.8 (24.3) - (23.5) (0.1) (23.6)
Movements for the period (effect
of transition to IFRS):
Total effect of IFRS adoption on - - (4.0) - (4.0) - (4.0)
net recognised losses relating to
the period
Share-based payments (note 2.7(c)) - - 1.1 - 1.1 - 1.1
Reversal of goodwill transferred - - (2.3) - (2.3) - (2.3)
to the income statement on the
sale of operations (note 2.7(f))
- - (5.2) - (5.2) - (5.2)
Total equity as at 30 June 2004 375.4 643.4 (766.3) 205.9 458.4 11.7 470.1
Total equity as at 1 January 2004 375.4 642.6 (736.8) 205.9 487.1 11.8 498.9
(as restated under IFRS)
Movements for the period as
reported under UK GAAP:
Total net recognised losses - - (58.9) - (58.9) 3.0 (55.9)
relating to the period
New share capital issued 0.1 0.8 - - 0.9 - 0.9
Dividends paid to minority - - - - - (3.1) (3.1)
interest
Goodwill transferred to the income - - 2.3 - 2.3 - 2.3
statement on the sale of
operations
0.1 0.8 (56.6) - (55.7) (0.1) (55.8)
Movements for the period (effect
of transition to IFRS):
Total effect of IFRS adoption on - - 0.1 - 0.1 - 0.1
net recognised losses relating to
the period
Share-based payments (note 2.7(c)) - - 2.2 - 2.2 - 2.2
Reversal of goodwill transferred - - (2.3) - (2.3) - (2.3)
to the income statement on the
sale of operations (note 2.7(f))
- - - - - - -
Total equity as at 31 December 2004 375.5 643.4 (793.4) 205.9 431.4 11.7 443.1
2.7 Details of adjustments made on transition from UK GAAP to IFRS
Half year Full year
2004 2004
£m £m
(a) Revenue
Adjustment of sales to prior period (0.4) (0.5)
(b) Manufacturing costs - raw materials
Adjustment of sales to prior period 0.3 0.4
(c) Administration, selling and distribution costs
Long-term employee benefits (note 2.8(a)) 1.1 1.6
Holiday pay accruals(note 2.8(b)) (0.6) (0.1)
Share-based payments (note 2.8(c)) (1.1) (2.2)
Reclassify operating leases to finance leases (note 2.8(g)) 0.2 0.3
Depreciation charge on mothballed assets (0.1) (0.2)
(0.5) (0.6)
(d) Amortisation of intangibles
Reversal of goodwill amortisation charged under UK GAAP (note 2.8 (f)) 15.9 31.7
(e) Finance costs
Reclassify operating leases to finance leases (note 2.8(g)) (0.2) (0.3)
(f) Profit/(loss) on disposal of operations
Reversal of goodwill amortisation charged under UK GAAP (note 2.8 (f)) 2.3 2.3
(g) Income tax
Deferred tax on IFRS - holiday pay accruals, long-term - 0.2
adjustments for: employee benefits and share- based
payments
- goodwill (note 2.8(h)) (2.1) (4.1)
(2.1) (3.9)
1 January 30 June 31
2004 2004 December
£m £m 2004
£m
(h) Property, plant and equipment
Reclassify operating leases to finance leases (note 2.8 (g)) 4.5 4.2 3.9
Accumulated depreciation charge on mothballed assets (0.4) (0.5) (0.6)
4.1 3.7 3.3
(i) Intangible assets
Reversal of goodwill amortisation charged under UK GAAP - 15.9 31.7
(note 2.8(f))
2.7 Details of adjustments made on transition from UK GAAP to IFRS, continued
1 January 30 June 31
2004 2004 December
£m £m 2004
£m
(j) Deferred tax assets
Deferred tax on IFRS - holiday pay accruals, 1.6 1.6 1.9
adjustments for: long-term employee benefits
and share-based payments
- goodwill (note 2.8(h)) (2.2) (4.2) (6.0)
(0.6) (2.6) (4.1)
(k) Inventories
Adjustment of sales to prior period (0.3) 0.1 0.1
(l) Trade and other receivables
Adjustment of sales to prior period 0.4 (0.1) (0.1)
(m) Retained earnings
Holiday pay accruals (note 2.8(b)) (0.8) (1.4) (1.0)
Reclassify operating leases to finance leases (note 2.8 (g)) (0.3) (0.3) (0.3)
Recognition of actuarial gains and losses on defined (126.1) (144.4) (153.7)
benefit pension and other post-retirement obligations
(note 2.8(a))
Adjustment of sales to prior periods 0.1 - -
Reversal of goodwill amortisation charged under UK GAAP - 15.9 31.7
(note 2.8(f))
Accumulated depreciation charge on mothballed assets (0.4) (0.5) (0.6)
(127.5) (130.7) (123.9)
Tax effect of all IFRS restatement adjustments (0.5) (2.5) (4.1)
(128.0) (133.2) (128.0)
(n) Employee benefits
Recognition of actuarial gains and losses on defined 126.1 144.4 153.7
benefit pension schemes and other post-retirement
benefits (note 2.8(a))
(o) Interest-bearing loans and borrowings
Reclassify operating leases to finance leases (note 2.8 (g)) 4.8 4.5 4.2
(p) Current trade and other payables
Holiday pay accruals (note 2.8(b)) 0.8 1.4 1.0
(q) Income tax payable
Income taxes on long-term employee benefit deficit (0.1) (0.1) -
2.8 Summary description of significant IFRS adjustments
A summary of the principal adjustments made in order to transition the Group's
UK GAAP financial statements to IFRS are noted below.
(a) Long-term employee benefits
Under UK GAAP, the Group accounted for pension and other post-retirement benefit
obligations in accordance with SSAP 24, 'Accounting for Pension Costs'.
Additional disclosures were given in compliance with FRS 17, 'Retirement
Benefits'. Under IFRS, the Group accounts for pension and other post-retirement
benefit obligations in accordance with IAS 19, 'Employee Benefits'(as amended),
which is similar to FRS 17 in many respects, particularly in that it requires
the net deficit of the Group's defined benefit pension and other post-retirement
benefit arrangements to be brought onto the Group balance sheet. As permitted by
IFRS 1, all cumulative actuarial gains and losses relating to the Group's
pension and other post-retirement benefit obligations have been recognised in
equity at the transition date.
When valuing pension and other post-retirement benefit obligations under IAS 19,
two methods of recognising actuarial gains and losses through Group reserves are
acceptable: one whereby all gains and losses are recognised in reserves as they
arise, through the Statement of Recognised Income and Expense (the 'SORIE'
approach); the other providing a 'smoothing' methodology which would recognise
periodic changes in gains and losses only to the extent that they fall outside a
'corridor' represented by 10% of scheme assets or liabilities. Cookson has
adopted the SORIE approach, which is intended to provide greater stability in
the pension charge made in the income statement from one period to the next.
Under IAS 19, the fair value of pension scheme assets is determined using the
bid price, as opposed to mid-market price used under UK GAAP. With regard to
other post-retirement obligations, adoption of IAS 19 leads to the recognition
of certain long-term benefit obligations, including leaving and termination
obligations, which were not previously recognised under UK GAAP.
Under UK GAAP, the Group recognised net accruals for pension and other
post-retirement obligations at 31 December 2004 of £29.8m (1 January 2004:
£40.2m; 30 June 2004: £37.6m). Under IFRS, these balances are reversed to
reserves and replaced in total with an actuarially-determined value of the net
deficit arising on the Group's defined benefit pension schemes and other
post-retirement benefit arrangements.
The actuarial valuation of the Group's combined defined benefit pension schemes
and other post-retirement benefit arrangements at 31 December 2004 produced a
combined net deficit of £189.9m (1 January 2004: £173.2m; 30 June 2004:
£188.8m), these sums being recognised in the Group balance sheet as 'Employee
benefits'. The comparative combined net deficit valuation of the Group's
employee benefit obligations under FRS 17 at 31 December 2004 was £175.3m.
Under UK GAAP, the regular charge to the profit and loss account in respect of
defined benefit pension and other post-retirement obligations was £17.1m in
2004. The equivalent charge to the income statement under IAS 19 for 2004 was
£13.7m.
As a result of the transition from UK GAAP to IFRS, the net impact on Group
reserves in respect of the Group's employee benefit arrangements was a reduction
of £153.7m at 31 December 2004 (1 January 2004: £126.1m; 30 June 2004: £144.4m).
(b) Short-term employee benefits (holiday pay accruals)
Under IAS 19, 'Employee benefits', Cookson accrues for the cost of all
short-term accumulating compensated absences, such as holiday entitlement earned
but not taken at the balance sheet date. Under UK GAAP, Cookson companies
accrued for holiday pay only where this was required under local accounting
requirements.
The impact of IAS 19 on Cookson's transition to IFRS is to increase the holiday
pay accrual by £1.0m as at 31 December 2004 (1 January 2004: £0.8m; 30 June
2004: £1.4m). The incremental charge to the income statement was £0.6m for the
half-year to June 2004 and £0.1m for the full year. Due to the timing of
employees' holidays, the accruals for holiday pay earned but not taken made in
the first half of the year are expected substantially to reverse in the second
half as holidays are taken.
(c) Share-based payments
Cookson has a number of share-based incentive option arrangements. Under IFRS 2,
'Share-based Payments', Cookson has to fair value the cost of all share options
at the date of the options being granted and that cost has to be recognised over
the relevant vesting periods.
Historically, the Cookson shares used to satisfy the exercise of those options
granted under the Group's share-based incentive arrangements which are
equity-settled have been newly-issued shares, or shares held through the Group's
Employee Share Ownership Plan. Accordingly, no profit and loss account charge
has needed to be recognised in prior periods under UK GAAP.
Cookson has adopted the exemption given by IFRS 1 to apply IFRS 2 only to awards
made after 7 November 2002. As a result of the adoption of IFRS 2, an income
statement charge of £2.2m was made for the full year 2004 (half year 2004:
£1.1m).
(d) Joint ventures
Under UK GAAP, Cookson included its share of the results of joint ventures in
its consolidated financial statements under the net equity method, which
resulted in the inclusion of the Group's proportionate share of turnover,
operating profit, interest and tax charges of the joint venture entity in the
appropriate Group income statement line item.
Under IAS 31, 'Interests in Joint Ventures', the results of joint ventures can
either be shown using the net equity method or by using proportionate
consolidation. Cookson has chosen to retain the net equity method of
recognition, but under IFRS this now requires disclosure of the Group's share of
the after-tax profit of its joint venture investments on one line within the
Group income statement.
(e) Discontinued operations
Under IFRS 5, 'Non-current Assets Held for Sale and Discontinued Operations',
the trading results of discontinued operations are presented separate from
continuing operations. 'Discontinued operations' comprise all or substantially
all of a separate major line of business or geographical area of operation that
can be distinguished operationally and for financial reporting purposes. None of
the business disposals made in 2004 qualified as 'discontinued operations' in
this financial information.
(f) Business combinations and Goodwill
Under IFRS 3, 'Business combinations', the purchase cost of all business
acquisitions is required to be applied against the fair value of all identified
tangible, separable intangible assets and liabilities of the acquired business
in the determination of any goodwill arising on acquisition. IFRS 3 further
requires that any such separable intangible fixed assets are amortised over
their useful lives and that goodwill must then be carried at cost with annual
impairment reviews. Cookson has taken advantage of the exemption under IFRS 1
not to restate all business combinations prior to 1 January 2004 in line with
the requirements of IFRS 3.
As a result of the adoption of IFRS 3, goodwill amounting to £317.8m as at 1
January 2004 which had arisen on acquisitions made before 1998 and which had
previously been written-off to Group reserves remains so written-off and will no
longer be recycled through the income statement on any subsequent disposal of
the businesses to which it originally related. In addition, goodwill of £505.6m
recognised on the Group balance sheet under UK GAAP as at 1 January 2004 is
carried unamortised, but is now subject to annual review for impairment.
The goodwill amortisation charge for the full year 2004 of £31.7m (half-year
2004: £15.9m) under UK GAAP has been reversed and the loss arising on business
disposals has been restated to take account of the impact of IFRS 3 on the
goodwill previously associated with these disposals.
(g) Leases
Under IAS 17, 'Leases', the distinction between finance leases and operating
leases is similar to, but not exactly the same as, that under UK GAAP. Following
a review of the operating lease arrangements throughout the Group, certain of
these leases have been determined to qualify as finance leases under IFRS.
Accordingly, the impact of the adoption of IAS 17 is to increase property, plant
and equipment by £3.9m as at 31 December 2004 (1 January 2004: £4.5m; 30 June
2004: £4.2m). Interest-bearing loans and borrowings (short- and long-term) are
accordingly increased by £4.2m at 31 December 2004 (1 January 2004: £4.8m; 30
June 2004: £4.5m).
The impact on the income statement is to increase trading profit by £0.3m for
the full year 2004 (half-year 2004: £0.2m) and to increase finance expenses by
£0.3m for the full year 2004 (half-year 2004: £0.2m).
(h) Deferred tax
Under IFRS, deferred tax is recognised on all temporary differences that have
originated but not reversed at the balance sheet date, with certain exceptions.
The principal exceptions relate to temporary differences arising from Group
investments where Cookson is able to control the reversal of those temporary
differences and those differences are not expected to reverse in the foreseeable
future. In addition, deferred tax assets are recognised only to the extent it is
more likely than not that they will be realised within the foreseeable future.
On transition to IFRS, the main areas in which changes to deferred tax assets
and liabilities have been identified are in respect of rolled-over taxable
gains, pensions, holiday pay accruals, share-based payments and on tax
deductible goodwill. In the case of the latter, since goodwill arising on
consolidation is now frozen in value under IFRS, subject to any impairment
charges required, but goodwill amortisation is still allowed as a deduction for
tax purposes in many jurisdictions, this has the effect of generating a deferred
tax liability which will continue to grow in future periods until such time as
the goodwill amortisation deductions cease or the goodwill asset is written-off
on disposal of the underlying businesses or as a result of impairment charges.
The net tax impact of the adjustments made on adoption of IFRS by Cookson
resulted in a reduction of deferred tax assets of £4.1m at 31 December 2004 (1
January 2004: £0.6m; 30 June 2004: £2.6m), including a liability of £6.0m at 31
December 2004 (1 January 2004: £2.2m; 30 June 2004: £4.2m) associated with the
Group's goodwill balance.
(i) Financial instruments
Cookson has elected to adopt IAS 32, 'Financial Instruments: Disclosure and
Presentation', and IAS 39, 'Financial Instruments: Recognition and Measurement'
with effect from 1 January 2005 and has taken the exemption in IFRS 1 not to
restate comparatives for IAS 32 and IAS 39.
As a consequence of not early adopting IAS 32 and IAS 39, the income statement
for 2004 includes finance income which will, under IFRS, not recur in 2005,
being £5.4m (half-year: £2.7m) in respect of deferred income relating to
interest rate swaps closed-out in prior years. The total profit arising on the
close-out of these swaps was, under UK GAAP, being brought into income over the
term of the underlying loan arrangements to which the swaps had related. The
total deferred income as yet unrecognised through income as at 31 December 2004
was £22.3m. On adoption of IAS 32 and IAS 39 with effect from 1 January 2005,
such credit balance will be taken directly to Group reserves, net of a related
tax charge.
(j) Cumulative currency translation differences
Under UK GAAP, translation differences arising on the consolidation of the
results of and investment in foreign operations do not have to be separately
identified and accounted for in subsequent disposals of those foreign
operations. Under IAS 21, 'The Effects of Changes in Foreign Exchange Rates',
such translation differences must be separately reported in equity, net of the
result on any related hedging instruments; and on disposal of a foreign
operation, any associated cumulative translation differences are transferred to
the income statement as part of the gain or loss on disposal.
Cookson has adopted the exemption allowed under IFRS 1 not to separately
recognise cumulative translation differences arising prior to the transition
date. As a result, all cumulative translation differences at 1 January 2004 are
deemed to be zero and all subsequent disposals will exclude any translation
differences arising prior to the date of transition.
This information is provided by RNS
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