Interim Results

Cropper(James) PLC 22 November 2005 Issued by Citigate Dewe Rogerson Ltd, Birmingham Date: Tuesday, 22 November 2005 Embargoed: 7.30am James Cropper PLC 'Specialist Paper Makers' Interim Results for the Half year ended 1 October 2005 Half year to Half year to Full year to 1 October 25 September 2 April 2005 2004 2005 as restated as restated Turnover Â£31.5m Â£31.0m Â£64.6m Group profit before tax Prior to net IFRS pension adjustments Â£0.5m Â£1.2m Â£2.4m After net IFRS pension adjustments Â£0.2m Â£0.7m Â£1.6m Earnings per share (IFRS basis) 1.4p 6.0p 12.6p Dividend per share declared 1.9p 1.9p 8.2p Gearing (IFRS basis) 45% 37% 43% Previous year's sales gains consolidated Paper Mill Shop turnover up 30% on first half of last year with 2 new outlets opened TFP US$ sales up 10% on first half of last year Average unit gas costs increased by 36% over the first half of last year 'Speciality Papers experienced a challenging start to the current financial year, against the backdrop of significant cost increases and subdued activity, particularly in European markets. Despite the competitive nature of the market place, the sales gains achieved in the previous year have been consolidated and discussions have begun with customers to find those areas where price increases are achievable in order to mitigate the impact of rising costs. There was a recovery in sales to UK and Export markets in the second quarter'. 'In response to the ongoing challenging trading circumstances, the three manufacturing subsidiaries will continue to focus their efforts on growing profitable sales, while developing and implementing plans to improve profitability through operational efficiencies and business optimisation'. 'The Paper Mill Shop will continue to expand, building on our strategy of related business diversification'. 'While I am confident that the steps to reverse the current decline in the Group's profitability will be effective, the impact of these measures will only be felt significantly in the next financial year. There is therefore a possibility that the difficulties we face in Speciality Papers may cause the Group as a whole to make a loss before taxation in the current financial year after taking the net IFRS pension adjustments into account'. J A Cropper, Chairman FULL STATEMENT ATTACHED Enquiries: Alun Lewis, Chief Executive John Denman, Group Finance Director Katie Dale James Cropper PLC Citigate Dewe Rogerson Today: 020 7638 9571 (8.00am - 11.30am) Today: 020 7638 9571 Thereafter: 01539 722002 Thereafter: 0121 455 8370 www.cropper.com Mobile: 07770 788624 -2- James Cropper PLC Interim Results for the Half year ended 1 October 2005 STATEMENT BY THE CHAIRMAN, J A CROPPER James Cropper PLC has previously reported its results under UK Generally Accepted Accounting Principles ('UK GAAP'). Following adoption of Regulation 1606/2002 by the European Parliament in July 2002 all EU listed companies are required to report their consolidated financial statements under IFRS adopted for use in the EU ('adopted IFRS') for accounting periods beginning on or after 1 January 2005. These Interim Results for the half year ended 1 October 2005, have duly been prepared on this basis. The Group recorded a profit before tax of Â£163,000 for the period (Â£473,000 prior to net IFRS pension adjustments). This compares with a profit before tax of Â£704,000 for the first half of the previous year (Â£1,165,000 prior to net IFRS pension adjustments). Group turnover was Â£31.5 million against Â£31.0 million for the same period last year, an increase of 1%. The Board has declared that the interim dividend will be maintained at 1.9p per share. James Cropper Speciality Papers ('Speciality Papers') Speciality Papers experienced a challenging start to the current financial year, against the backdrop of significant cost increases and subdued activity, particularly in European markets. Despite the competitive nature of the market place, the sales gains achieved in the previous year have been consolidated and discussions have begun with customers to find those areas where price increases are achievable in order to mitigate the impact of rising costs. There was a recovery in sales to UK and Export markets in the second quarter. In my statement at the AGM on 3 August 2005 I drew attention to the adverse impact that the rising cost of energy and pulp would have on profitability in the current financial year. During the course of the previous financial year energy costs increased by 28% to Â£2.7 million. This trend has continued. The average cost of natural gas in the first half was 30 pence per therm, against 22 pence per therm in the same period last year, an increase of 36%. Forward market projections suggest that the cost in the second half will be substantially higher. Northern Bleached Softwood Kraft ('NBSK') pulp, the market benchmark, opened the financial year at US$645 per tonne falling to US$585 by the end of September, whilst the cost of hardwood pulp increased from â‚¬450 per tonne to â‚¬490 over this period. Latest market indications suggest that the cost of NBSK could move progressively upward towards US$630 by the end of the current financial year. In recent years Speciality Papers has been subjected to significant increases in the cost of waste water treatment by our local water services utility company. It is estimated that this will increase by some 19% in the current financial year. Investment is planned for the next few years to minimise our dependence on external waste water treatment. Commissioning has commenced of an automated reel and sheet packaging line. This Â£800,000 investment characterises the innovative technical solutions required by the business to maintain flexibility whilst improving throughput, product presentation and productivity. The Paper Mill Shop Although The Paper Mill Shop has been affected by the current slow down in consumer spending across the retail sector, the chain will continue to increase the number of outlets over the course of the year to take advantage of market opportunities. Turnover in the first half of the financial year was up 30% on the same period last year, with two new outlets opened in Mansfield and Hatfield. Further store openings are anticipated in the second half. continued... -3- Technical Fibre Products ('TFP') TFP's sales in the first six months were broadly in line with the same period last year in Â£sterling terms. US$ sales were 10% higher in the first half of the current financial year compared with the previous period with growth largely attributable to composite materials containing metal-coated carbon fibres. The majority of these fibres are now supplied by Electro Fiber Technologies LLC ('EFT'), the joint venture company in which TFP has a 50% share. EFT incurred a small loss in the period. James Cropper Converting ('Converting') The modest strengthening of the US$ over the period eased margin pressure on mountboard sales to the USA. However the profitability of Converting continued to be affected by competitive pressure on display board prices and increased raw material costs. Turnover was slightly down on the first half of last year. Planned investment and product rationalisation over the coming months will allow the decommissioning of older equipment with significant increases in capability, output and productivity of the remaining machines. Pensions and International Accounting Standard 19 ('IAS 19') IAS 19 requires that actuaries undertake annual valuations of companies' final salary schemes. Deficits revealed by these valuations are included on the sponsoring companies' Balance Sheets, movements being taken either directly against Reserves or via the Income Statement. It should be noted that the assumptions underlying the IAS 19 valuation are based on financial conditions at the Balance Sheet date. As market values of the scheme assets and the discount factors applied to the scheme liabilities will fluctuate, this method of valuation will often lead to large variations in the 'pension balance' from period to period. Pension liabilities are discounted at the current rate of return on an AA rated quality corporate bond of equivalent currency and term. The actual contributions paid by the Group to its two final salary schemes are determined by the actuaries' 'on-going' valuation. The assumptions used by the actuaries for their IAS 19 valuations are more conservative than those that they used with regard to their 'on-going' valuations. An 'on-going' valuation takes account of the projected growth in the pension schemes' assets by asset type over the projected life of the scheme. Actual future service pension contributions paid in the period by the Group to its two final salary schemes in accordance with the actuaries' recommendations, resulting from their latest 'on-going' valuations, were Â£524,000. Under IAS 19 the charge against profit in the six-month period was Â£834,000, which was Â£310,000 in excess of the future service contributions that were actually required. Over the half-year the combined IAS 19 pension deficits, prior to deferred tax, reduced from Â£10.7m to Â£9.1m. The combined 'on-going' deficits as at April 2005 were valued at Â£6.9m prior to deferred tax. Outlook Although Speciality Papers traded profitably in the first half, the uncertainties surrounding forward quoted energy and pulp costs may result in the subsidiary moving into a loss-making situation later in the year. In response to the ongoing challenging trading conditions, the three manufacturing subsidiaries will continue to focus their efforts on growing sales of higher margin products, while developing and implementing plans to improve profitability through operational efficiencies and business optimisation. The Paper Mill Shop will continue to expand, building on our strategy of related business diversification. Cash outflow will increase in the second half of the financial year, as a consequence of increased capital expenditure and higher pulp and energy costs. Additional pension contributions will be made in this period with regard to past service deficits arising from the 'on-going' valuations. These additional contributions will not impact on profitability. continued... -4- While I am confident that the steps to reverse the current decline in the Group's profitability will be effective, the impact of these measures will only be felt significantly in the next financial year. There is therefore a possibility that the difficulties we face in Speciality Papers may cause the Group as a whole to make a loss before taxation in the current financial year after taking the net IFRS pension adjustments into account. -5- James Cropper PLC Interim Results Consolidated Income Statement for the Half year to 1 October 2005 Unaudited Half year to Half year to Full year to 1 October 2005 25 September 2004 2 April 2005 Â£'000 as restated as restated Â£'000 Â£'000 -------------------------------------------------------------------------------- Continuing operations Turnover 31,459 31,020 64,568 ---------------------------------------------- Operating profit 491 1,157 2,640 Interest payable and similar charges (318) (428) (823) Interest receivable and similar income 26 34 136 Share of loss of joint venture (36) (59) (114) Amounts written off investments - - (200) ---------------------------------------------- Profit before tax 163 704 1,639 Taxation (49) (204) (584) ---------------------------------------------- Profit for the period attributable to equity holders of the company 114 500 1,055 ============================================== Earnings per share - basic & diluted 1.4p 6.0p 12.6p ---------------------------------------------- Dividend declared in the period - pence per share 1.9p 1.9p 8.2p ---------------------------------------------- -6- James Cropper PLC Interim Results Consolidated Balance Sheet as at 1 October 2005 Unaudited Half year to Half year to Full year to 1 October 2005 25 September 2004 2 April 2005 Â£'000 as restated as restated Â£'000 Â£'000 -------------------------------------------------------------------------------- Assets Non-current assets Intangible assets 1,231 1,284 1,292 Property, plant and equipment 24,257 24,350 24,613 Financial assets - Trade investments 195 395 195 Investments in joint ventures 90 117 83 Deferred tax assets 2,731 4,181 3,212 ---------------------------------------------- 28,504 30,327 29,395 ---------------------------------------------- Current assets Inventories 8,224 7,441 7,663 Trade and other receivables 13,676 12,360 13,205 Financial assets - Derivative financial instruments 2 22 - Current tax assets - 29 - Cash and cash equivalents 311 1,366 88 ---------------------------------------------- 22,213 21,218 20,956 ---------------------------------------------- Liabilities Current liabilities Trade and other payables (7,116) (7,611) (6,785) Financial liabilities - Borrowings (1,981) (2,092) (1,890) - Derivative financial instruments (13) - (7) Current tax liabilities (643) (12) (489) ---------------------------------------------- (9,753) (9,715) (9,171) ---------------------------------------------- Net current assets 12,460 11,503 11,785 ---------------------------------------------- Non-current liabilities Financial liabilities - Borrowings (7,444) (5,822) (6,548) Retirement benefit liabilities (9,103) (13,937) (10,707) Deferred tax liabilities (4,149) (4,331) (4,289) ---------------------------------------------- (20,696) (24,090) (21,544) ---------------------------------------------- Net assets 20,268 17,740 19,636 ============================================== Shareholders' equity Share capital 2,090 2,090 2,090 Share premium 454 454 454 Other reserves 100 138 100 Retained earnings 17,624 15,058 16,992 ---------------------------------------------- Total shareholders' equity 20,268 17,740 19,636 ============================================== -7- James Cropper PLC Interim Results Consolidated Cash Flow Statement for the Half year to 1 October 2005 Unaudited Half year to Full year to Half year to 25 September 2004 2 April 2005 1 October 2005 as restated as restated Â£'000 Â£'000 Â£'000 ------------------------------------------------------------------------------------- Cash flows from operating activities Profit before tax 163 704 1,639 Interest income and expense 292 394 687 Depreciation/amortisation 1,735 1,701 3,498 (Increase)/decrease in working capital (676) 893 (934) Other non-cash movements - Share of loss of joint venture 36 59 114 - Retirement benefit liabilities (128) 251 (847) - Amounts written off investments - - 200 - Profit on disposal of property, plant and equipment - - (5) - Share-based payments 12 13 26 ----------------------------------------------- Cash generated from operations 1,434 4,015 4,378 Interest received 46 44 125 Interest paid (359) (429) (840) Tax received/(paid) 3 (29) 384 ----------------------------------------------- Net cash generated from operating activities 1,124 3,601 4,047 ----------------------------------------------- Cash flows from investing activities Investment in joint venture (43) (58) (85) Purchase of intangible assets (113) (187) (277) Purchase of property, plant and equipment (1,205) (972) (2,951) Proceeds from sale of property, plant and equipment - - 5 ---------------------------------------------- Net cash used in investing activities (1,361) (1,217) (3,308) ---------------------------------------------- Cash flows from financing activities Net proceeds from issue of new bank loan 2,000 - 1,600 Finance lease capital payments (64) (154) (265) Repayment of bank loans (807) (954) (1,948) Dividends paid to shareholders (527) (493) (652) --------------------------------------------- Net cash provided by/(used in) financing activities 602 (1,601) (1,265) --------------------------------------------- Net increase/(decrease) in cash and cash equivalents 365 783 (526) in the period Cash and cash equivalents at the start of the period (54) 472 472 --------------------------------------------- Cash and cash equivalents at the end of the period 311 1,255 (54) --------------------------------------------- Cash and cash equivalents consists of: Cash at bank and in hand 311 1,366 88 Overdrafts included in borrowings - (111) (142) --------------------------------------------- 311 1,255 (54) --------------------------------------------- -8- James Cropper PLC Interim Results Consolidated Statement of Recognised Income and Expense for the Half year to 1 October 2005 Half year to Half year to Full year to 1 October 25 September 2 April 2005 2004 2005 Â£'000 as restated as restated Â£'000 Â£'000 -------------------------------------------------------------------------------- Profit for the period 114 500 1,055 Currency translation differences on foreign currency investment - - (6) Retirement benefit liabilities - actuarial gains 1,476 89 2,221 Deferred tax on actuarial gains on retirement benefit liabilities (443) (27) (666) -------------------------------------------- Total recognised income for the period 1,147 562 2,604 -------------------------------------------- Consolidated Statement of Changes in Equity for the Half year to 1 October 2005 Unaudited Half year to Half year to Full year to 1 October 25 September 2 April 2005 2004 2005 Â£'000 as restated as restated Â£'000 Â£'000 -------------------------------------------------------------------------------- Opening shareholders' funds 19,636 17,658 17,658 Total recognised income and expense for the period 1,147 562 2,604 Share-based payments 12 13 26 Dividends paid (527) (493) (652) -------------------------------------------- Closing shareholders' funds 20,268 17,740 19,636 -------------------------------------------- -9- James Cropper PLC Interim Results Notes to the Unaudited Interim Results 1 Basis of the preparation of IFRS financial information a) Accounting standards and interpretations The IFRS financial information presented in this statement has been prepared on the basis of the policies the directors expect to adopt for the Group's first full IFRS financial statements for the year to 1 April 2006. These policies include all prevailing and applicable IFRS including International Accounting Standards ('IAS') and interpretations issued by the International Accounting Standards Board ('IASB') and its committees up to 30 April 2005. These standards and interpretations are subject to ongoing amendment by the IASB, and subsequent endorsement by the European Commission, and are therefore subject to possible change. Further standards and interpretations may also be issued that will be applicable for financial years beginning on or after 1 January 2005 or that will be applicable to later accounting periods but may be adopted early. The Group's first IFRS financial statements may, therefore, be prepared in accordance with different accounting policies to those used to prepare the financial information presented in this announcement. In addition, as IFRS is a new reporting basis for UK companies, accounting practice and interpretations of accounting standards will develop as companies gain more experience of the new framework. Accordingly there may be changes in the common approaches currently adopted and the final application of IFRS in the financial statements for the year to 1 April 2006 may be subject to change. In preparing the IFRS financial information, the Group has assumed that the European Commission will endorse the amendment to IAS19 'Employee Benefits - Actuarial Gains and Losses, Group Plans and Disclosures'. b) Format of primary financial statements The primary financial statements set out in this announcement are presented in accordance with IAS1 'Presentation of Financial Statements'. However, there may be changes in the formats generally adopted as best practice develops and the final presentational application of IFRS in the financial statements for the year to 1 April 2006 may be subject to change. c) IFRS transitional arrangements The transitional arrangements for IFRS are set out in IFRS1 'First-time Adoption of International Financial Reporting Standards'. The Group's transition date to IFRS is 28 March 2004, being the first day of the comparative period to the 2 April 2005 financial statements. In general, IFRS1 requires retrospective adoption of IFRS as if they were applicable prior to 28 March 2004 except in a number of specific cases where an optional exemption is granted by the standard. The Group has taken advantage of the following exemptions: i) Fair value at deemed cost IAS 16 'Property, plant and equipment' requires property, plant and equipment to be included at cost and depreciated to the residual value of the asset over its useful life. The Group has elected to take advantage of the option that revaluations made under previous GAAP are used as the deemed cost. ii) Share-based payment The Group has elected to apply IFRS2 'Share-based Payment' only to share-based payment transactions granted after 7 November 2002 and not vested by 1 January 2005. continued... -10- 2 Interim Statement a) The summarised results for the half year to 1 October 2005, which have not been audited or reviewed, have been prepared in accordance with the accounting policies to be adopted in the accounts for the year to 1 April 2006 subject to the points raised in note 1. b) The financial information set out above does not constitute statutory accounts within the meaning of the Companies Act 1985. The figures for the year to 2 April 2005 are a restated extract of the full accounts for that year which have been filed with the Registrar of Companies and on which the auditors gave an unqualified opinion. c) A copy of the interim statement is being sent to all shareholders and is available from the Company's registered office or from our website ( www.cropper.com). 3 Earnings per share Basic and diluted earnings per share for the half year to 1 October 2005 have been calculated on the profit available for distribution and on 8,359,114 (2004: 8,359,114) Ordinary Shares, being the weighted average number of shares in issue during the period. None of the potential Ordinary Shares are dilutive. 4 Dividend An interim dividend of 1.9p per Ordinary Share (2004: 1.9p per share) is proposed and will be paid on 13 January 2006 to holders on the register at the close of business on 23 December 2005. The dividend relating to the year to 2 April 2005 was made up of an interim payment of Â£159,000 (1.9p per share) and a final dividend of Â£527,000 (6.3p per share). 5 Transition from UK GAAP to IFRS Set out below, in accordance with the provisions of IFRS 1 'First-time Adoption of International Financial Reporting Standards' are the reconciliations of net assets and profit after tax from UK GAAP to IFRS. 25 September 2004 2 April 2005 28 March 2004 Â£'000 Â£'000 Â£'000 -------------------------------------------------------------------------------- Net assets Net assets - UK GAAP 27,484 27,538 27,075 Adjustments to conform to IFRS Post employment benefits - accounting for pensions (9,619) (8,077) (9,592) (net of deferred tax) Employment benefits - provision for holiday pay (253) (243) (233) Post balance sheet events - reversal of dividend 159 527 493 Others 52 (41) (1) Deferred tax (83) (68) (84) ------------------------------------------ Net assets - IFRS 17,740 19,636 17,658 ------------------------------------------ Half year to Full year to 25 September 2004 2 April 2005 Â£'000 Â£'000 -------------------------------------------------------------------------------- Profit after tax Profit after tax - UK GAAP 568 1,155 Adjustments to conform to IFRS Post employment benefits - accounting for pensions (net of deferred tax) (89) (39) Employment benefits - provision for holiday pay (20) (11) Share-based payments (13) (26) Others 53 (39) Deferred tax 1 15 --------------------------- Profit after tax - IFRS 500 1,055 --------------------------- continued... -11- Under IAS 7 'Cash Flow Statements', movements on cash and cash equivalents are reconciled; under UK GAAP the statement reconciles cash only. The change to IAS 7 approach makes no difference to the levels of free cash generated by the group. i) Post employment benefits Under UK GAAP, the Group applied the provisions of SSAP24 to the accounting for its pension schemes. In respect of defined benefit pension schemes this resulted in the cost of pensions being charged over the relevant employees' working lives. IAS19 adopts a balance sheet approach to accounting for pension schemes but provides a number of options for accounting for actuarial gains and losses. The Group has chosen the option to account for such actuarial changes immediately through the Statement of Recognised Income and Expense. The option to account for actuarial changes in this manner is included in an amendment to IAS19 which is effective from 1 January 2006 with early adoption encouraged. This amendment is subject to endorsement by the European Commission. The method of valuing assets and liabilities under IAS19 is similar to FRS17. The impact on the Group's balance sheet at each balance sheet date is reflected in the following table. 25 September 2 April 2005 28 March 2004 2004 Â£'000 Â£'000 Â£'000 -------------------------------------------------------------------------------- Adjustments to conform to IFRS Reversal of UK GAAP accounting SSAP 24 prepayments (140) (847) (263) SSAP 24 accruals 336 16 336 IAS 19 accounting adjustments IAS 19 deficit (13,937) (10,707) (13,775) -------------------------------------------- (13,741) (11,538) (13,702) Deferred tax 4,122 3,461 4,110 -------------------------------------------- Adjustment to net assets (9,619) (8,077) (9,592) -------------------------------------------- The impact on the Group's profit after tax for the half year ended 25 September 2004 and the year ended 2 April 2005 is reflected in the following table. Half year to Full year to 25 September 2004 2 April 2005 Â£'000 Â£'000 -------------------------------------------------------------------------------- Profit after tax - UK GAAP 568 1,155 Reversal of UK GAAP accounting SSAP 24 accrual movements 336 672 SSAP 24 prepayment movements (2) 24 Future service contributions 553 1,128 IAS 19 accounting adjustments Current service cost (828) (1,551) Finance costs (186) (330) ----------------------------- After IAS 19 pension accounting 441 1,098 ----------------------------- Impact of change in pension accounting before deferred tax adjustment (127) (57) Deferred tax adjustment 38 18 ----------------------------- Impact of change in pension accounting after deferred tax adjustment (89) (39) ----------------------------- continued... -12- ii) Share-based payments IFRS2 requires an expense for share-based payment awards to be recognised in the financial statements based upon their fair value at the date of grant. This expense is recognised over the vesting period of the relevant awards. The additional charge arising from the adoption of IFRS2 on the Group's Income Statement is Â£13,000 for the half year to 25 September 2004 and Â£26,000 for the year to 2 April 2005. iii) Post balance sheet events IAS10 'Events after the Balance Sheet Date' requires that dividends are not accrued at the balance sheet date unless they represent a present obligation as defined by IAS37 'Provisions, Contingent Liabilities and Contingent Assets'. The final and interim dividends have been added back to reserves at each balance sheet date as they did not meet the relevant criteria. iv) Other adjustments and reclassifications There are a number of other adjustments such as reclassifications of operating leases as finance leases in accordance with IAS17 'Leases', additional adjustments in respect of holiday pay arising from the application of IAS19 and further adjustments in connection with the application of other IFRS. Financial derivatives for forward currency contracts and interest rate caps have now been incorporated in both the balance sheet and the income statement but this is not material in either context. v) Deferred tax IAS12 'Income taxes' has a wider scope for recognising deferred tax than existing UK GAAP and requires full provision for all taxable temporary differences between the carrying amount of the Group's assets and liabilities and their tax bases. The approach to providing deferred tax under IAS12 compared to UK GAAP results in more deferred tax assets and liabilities being recognised on the Balance Sheet. The application of IAS12 results in a number of other differences between the deferred tax balances and charges under IFRS compared to UK GAAP including differences in the treatment of deferred tax on intra-group transactions. These differences result in an increase of Â£68,000 in the deferred tax liability at 2 April 2005 (25 September 2004 an increase of Â£83,000 and 28 March 2004 an increase of Â£84,000). It also results in a reduction in the tax charge for the year to 2 April 2005 of Â£15,000 (half year to 25 September 2004 Â£1,000). vi) Research and development Under UK GAAP, the Group adopted a policy whereby all research and development costs were written off in the year incurred. On transition to IFRS, the Group has adopted IAS38 'Intangible Assets' and now requires development costs to be capitalised as an asset when specific recognition criteria relevant to the proposed product are met and when the amount recognised is expected to be recovered through future economic benefits. Any amounts capitalised are amortised over the expected life of the related product. IAS38 is applicable retrospectively. The Group has conducted a review of research and development projects undertaken in recent years but no projects were identified that meet the criteria for capitalisation, and therefore there is no impact on the 2004 results or financial position as a result of the application of IAS38. continued... -13- 6 Pensions IAS 19 regards a sponsoring company and its pension schemes as a single accounting entity rather than two or more separate legal entities. The actuarial valuation is the starting point for the creation of the IAS 19 accounting entity. The valuation determines the net position of a pension scheme, i.e. the difference between its assets and liabilities. On the introduction of IAS 19 the net position, surplus or deficit, is brought onto the sponsoring company's Balance Sheet such that Reserves are immediately adjusted by the net position reduced by deferred tax. This obviously results in either an increase or decrease in the net asset value of the sponsoring company. Upon valuation at subsequent year-ends the movement in value from the previous valuation is expressed in the following component parts: Income Statement Operating costs Current service charge, being the cost of benefits earned in the current period shown net of employees' contributions. Past service costs, being the costs of benefit improvements. Curtailment and settlement costs. Finance costs, being the net of Expected return on pension scheme assets Interest cost on the accrued pension scheme liabilities Statement of Recognised Income and Expense Actuarial gains and losses arising from variances against previous actuarial assumptions. The above items are offset by actual contributions paid by the employer in the period. IAS19 deficits are shown below at the corresponding Balance Sheet dates. Half year to Half year to Full year to 1 October 2005 25 September 2004 2 April 2005 Â£'000 Â£'000 Â£'000 -------------------------------------------------------------------------------- IAS19 DEFICIT -------------------- Current Service Charge (766) (828) (1,551) Finance costs (68) (186) (330) Future service contributions paid 524 553 1,128 Past service deficit contributions paid 438 210 1,600 Actuarial gains or losses 1,476 89 2,221 Opening deficit (10,707) (13,775) (13,775) ----------------------------------------------- Closing deficit (9,103) (13,937) (10,707) Deferred Taxation @ 30% 2,731 4,181 3,212 ----------------------------------------------- Net - Deficit (6,372) (9,756) (7,495) ----------------------------------------------- It should be noted that the assumptions underlying the IAS 19 valuation are based on financial conditions at the Balance Sheet date. As market values of the scheme assets and the discount factors applied to the scheme liabilities will fluctuate, this method of valuation will often lead to large variations in the 'pension balance' from period to period. Pension liabilities are discounted at the current rate of return on an AA rated quality corporate bond of equivalent currency and term. The actual contributions paid by the Group to its two final salary schemes are determined by the actuaries' 'on-going' valuation. The assumptions used by the actuaries for their IAS 19 valuations are more conservative than those that they used with regard to their 'on-going' valuations. An 'on-going' valuation takes account of the projected growth in the pension schemes' assets by asset type over the projected life of the scheme. continued... -14- Actual future service pension contributions paid in the period by the Group to its two final salary schemes in accordance with the actuaries' recommendations, resulting from their latest 'on-going' valuations, were Â£524,000. Under IAS 19 the charge against profit in the six-month period was Â£834,000, a difference of Â£310,000 in excess of the future service contributions that were actually required. This is shown in the table below. Half year to Half year to Full year to 1 October 2005 25 September 2004 2 April 2005 Â£'000 Â£'000 Â£'000 -------------------------------------------------------------------------------- PROFIT BEFORE TAX ---------------------- As reported 163 704 1,639 IAS 19 adjustments Current Service Charge (766) (828) (1,551) Finance costs (68) (186) (330) ----------------------------------------------- (834) (1,014) (1,881) Future service contributions paid 524 553 1,128 ----------------------------------------------- Net pension adjustment (310) (461) (753) ----------------------------------------------- Profit after contributions paid but before 473 1,165 2,392 IAS 19 adjustments ----------------------------------------------- Over the half year the combined IAS 19 pension deficits, prior to deferred tax, reduced from Â£10.7m to Â£9.1m. The combined 'on-going' deficits as at April 2005 were valued at Â£6.9m prior to deferred tax. 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