Transition Statement

Sutton Harbour Holdings PLC 29 November 2007 Sutton Harbour Holdings plc ('Sutton Harbour' or the 'Company') Transition Statement to Adopted International Financial Reporting Standards Introduction The Group's interim financial statements for the period ended 30 September 2007 have been prepared in accordance with Adopted International Financial Reporting Standards ('Adopted IFRSs') for the first time. This statement explains the Group's approach to Adopted IFRS, the new accounting policies in accordance with Adopted IFRS and the impact that the adoption of Adopted IFRS has had on the Group's financial statements. In accordance with the AIM rules, all AIM listed companies must prepare and present their consolidated financial statements for financial periods commencing on or after 1 January 2007 in accordance with IFRSs as adopted by the European Union. The first set of financial statements that the Group will need to prepare under Adopted IFRS will be for the year commenced 1 April 2007. The interim statements for the period ended 30 September 2007 are also required to be prepared under Adopted IFRS. Comparative numbers will also be needed and an opening balance sheet prepared as at 1 April 2006, the Group's date of transition to Adopted IFRS. The Adopted IFRS accounting policies set out below have been applied in preparing the interim financial statements for the period ended 30 September 2007, the comparative information presented in the interim financial statements for both the period ended 30 September 2006 and the year ended 31 March 2007 and in the preparation of the opening balance sheet at 1 April 2006. In preparing its opening Adopted IFRS balance sheet, the Group has adjusted amounts reported previously in financial statements prepared in accordance with its old basis of accounting (UK GAAP). An explanation of how the transition from UK GAAP to Adopted IFRSs has affected the Group's financial position, financial performance and cash flows is set out in the tables and notes that follow. Accounting policies under Adopted IFRS Sutton Harbour Holdings plc (the 'Company') is a company incorporated in the UK. The Group financial statements consolidate those of the Company and its subsidiaries (together referred to as the 'Group') and equity account the Group's interest in associates. The Group financial statements have been prepared and approved by the directors in accordance with International Financial Reporting Standards as adopted by the EU ('Adopted IFRSs'). The Company has elected to prepare its parent company financial statements in accordance with UK GAAP. The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in the Group interim financial statements for the period ended 30 September 2007 and in preparing an opening Adopted IFRS balance sheet at 1 April 2006 for the purposes of the transition to Adopted IFRSs. Judgements made by the directors, in the application of these accounting policies that have significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are discussed in note 1 of the interim financial statements. Estimates and judgements have not been changed since the signing of the previous UK GAAP financial statements. Transition to Adopted IFRSs The Group is preparing its financial statements in accordance with Adopted IFRS for the first time and consequently has applied IFRS 1 'First-time Adoption of International Financial Reporting Standards'. An explanation of how the transition to Adopted IFRSs has affected the reported financial position, financial performance and cash flows of the Group is provided below. IFRS 1 grants certain exemptions from the full requirements of Adopted IFRSs in the transition period. The following exemption has been taken in the financial statements: - Share-based payments - IFRS 2 'Share-based Payment' is being applied only to equity instruments that were granted after 7 November 2002 that had not vested by 1 April 2006. Measurement convention The financial statements are prepared on the historical cost basis except that the following assets and liabilities are stated at their fair value: derivative financial instruments, financial instruments classified as fair value through the profit or loss and investment property. Non-current assets held for sale are stated at the lower of previous carrying amount and fair value less costs to sell. Basis of consolidation The consolidated accounts include the accounts of Sutton Harbour Holdings plc and entities controlled by the Company (its subsidiaries) at each reporting date. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that are currently exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Associates Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. The consolidated financial statements include the Group's share of the total recognised income and expense of associates on an equity accounted basis, from the date that significant influence commences until the date that significant influence ceases. When the Group's share of losses exceeds its interest in an associate, the Group's carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of an associate. The Group has a 62% holding in LIFT Investments Limited which, in turn, has a 60% holding in ReSound (Health) Limited, ReSound (Mount Gould) Limited and ReSound (Cattedown) Limited. Although the Group has a 62% holding in LIFT Investments Limited, it only has 50% of the voting rights of the company. The investment in LIFT Investments Limited has therefore been treated as an associate in accordance with IAS 28 'Investments in Associates'. The loan to the associate company is considered to be part of the investment. Property, plant and equipment Plant and machinery, fixtures and fittings and aircraft at the date of transition to Adopted IFRS are stated at cost less accumulated depreciation and impairment losses. Land and buildings were revalued under UK GAAP and the Group has elected to keep revaluing these assets to fair value under Adopted IFRS. At the date of transition, these assets have been brought onto the balance sheet at fair value. Property, plant and equipment can be divided into the following classes: - Freehold land and buildings - Long leasehold land and buildings - Freehold investment property in the course of construction - Plant and machinery - Fixtures and fittings - Aircraft Freehold and long leasehold land and buildings Freehold and long leasehold land and buildings fall into three categories: i) Freehold properties that are mainly owner occupied, or that are an integral part of the Group's harbour operations ii) Specialised freehold properties that are an integral part of the Group's harbour operations (fish market, harbour lock and quays) iii) Leasehold properties that are mainly owner occupied and are an integral part of the Group's airport operations. The properties are initially recorded at cost and are subsequently revalued and stated at their fair value less accumulated depreciation and impairment losses. Fair value is based on regular valuations by either an external independent valuer or an internal valuer and is determined from market-based evidence by appraisal. Specialised properties have no market-based value because of their specialised nature. A depreciated replacement cost valuation is used instead. Valuations are performed with sufficient regularity to ensure that the fair value of a revalued asset does not differ materially from its carrying amount. The latest revaluation was incorporated in the accounts for the year ended 31 March 2006. This valuation was an internal valuation. The valuation was undertaken in accordance with the Valuation and Appraisal Manual of the Royal Institution of Chartered Surveyors. A full external independent valuation performed by Stratton Creber Commercial was incorporated in the accounts for the year ended 31 March 2004. Both valuations were carried out by RICS qualified surveyors. Any revaluation surplus is credited to the revaluation reserve except to the extent that it reverses a decrease in the carrying value of the same asset previously recognised in the income statement, in which case the increase is recognised in the income statement. Any revaluation deficits are recognised in the income statement, except to the extent of any existing surplus in respect of that asset in the revaluation reserve. Freehold investment property in the course of construction Property that is being constructed for future use as investment property is accounted for as property, plant and equipment until it is ready for use, at which time it is remeasured to fair value and reclassified as investment property. Any gain or loss arising on remeasurement is recognised in the income statement. Plant and machinery, fixtures and fittings and aircraft Plant and machinery, fixtures and fittings and aircraft are all stated at cost less accumulated depreciation and impairment losses. Leased assets Leases in which the Group assumes substantially all the risks and rewards of ownership of the leased asset are classified as finance leases. Where buildings are held under finance leases the accounting treatment of leases of any associated land is considered separately from that of the buildings. Leased assets acquired by way of finance lease are stated initially at an amount equal to the lower of their fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation and impairment losses. Leased properties are subsequently revalued to their fair value. The treatment of assets held under operating leases where the lessor maintains the risks and rewards of ownership is described in the operating lease payments accounting policy below. Depreciation Depreciation is charged to the income statement over the estimated useful lives of each part of an item of property, plant and equipment. Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. Land is not depreciated. The Group have a policy of depreciating freehold buildings but the charge is not material so is not included in the financial statements. The estimated useful lives and depreciation basis of assets are as follows: leasehold buildings (straight line) remaining period of lease plant and machinery (reducing balance)10% to 25% fixtures and fittings (straight line) 10 - 25 years rotable aircraft components (straight line) 10 years dash 8 aircraft (straight line) 6 years dash 8 maintenance (straight line) over period until next overhaul The cost of major maintenance overhauls on owned aircraft is capitalised to the balance sheet and amortised over the period until the next overhaul. For aircraft held under operating leases, provision is made for major maintenance overhauls based on estimated costs. Intangible assets Intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and impairment losses. Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of the assets. The estimated useful lives are as follows: Landing rights 20 years Licences 20 years Investment property Investment properties are properties which are held either to earn rental income and/or for capital appreciation. Investment properties are initially measured at cost and subsequently revalued to fair value which reflects market conditions at the balance sheet date. Any gains or losses arising from changes in fair value are recognised in the income statement in the period in which they arise. Fair value is the estimated amount for which a property could be exchanged on the date of valuation between a willing buyer and a willing seller, in an arm's length transaction, after proper marketing, in which both parties had acted knowledgeably, prudently and without compulsion. Some properties are held both to earn rental income and for the supply of goods and services and administration purposes. Where the different portions of the property cannot be sold separately, the property is accounted for as an investment property only if an insignificant portion is held for the production and supply of goods and services and administration purposes. The portfolio is valued on an annual basis by either an internal valuer or an external independent valuer, both of whom are RICS qualified. The valuer will also have recent experience in the location and category of property being valued. The valuations, which are supported by market evidence, are prepared by considering the aggregate of the net annual rents receivable from the properties and where relevant, associated costs. A yield which reflects the specific risks inherent in the net cash flows is then applied to the net annual rentals to arrive at the property valuation. Rental income from investment property is accounted for as described in the revenue accounting policy. Investment property that is redeveloped for continued future use as an investment property remains classified as an investment property while the redevelopment is being carried out. While redevelopment is taking place, the property will continue to be valued on the same basis as an investment property. All tenant leases have been examined to determine if there has been any transfer of the risks and rewards of ownership from the Group to the tenant in accordance with IAS 17 'Leases'. All tenant leases were determined to be operating leases. Accordingly, all the Group's leased properties are classified as investment properties and included in the balance sheet at fair value. In accordance with IAS 40 'Investment Property', no depreciation is provided in respect of investment properties. Inventories Inventories are stated at the lower of cost and net realisable value. Cost is based on the first-in first-out principle and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. Inventories - land and properties held for resale Land identified for development and sale, and properties under construction or development and held for resale, are included in current assets at the lower of cost and net realisable value. Cost includes all expenditure related directly to specific projects and an allocation of fixed and variable overheads incurred in the Group's contract activities based on normal operating capacity. Construction contract debtors Construction contract debtors are stated at cost plus profit recognised to date (see the revenue accounting policy) less a provision for foreseeable losses and less progress billings. Cash and cash equivalents Cash in the balance sheet comprises cash at bank and in hand. Bank overdrafts that are repayable on demand and form an integral part of the Group's cash management are included as a component of cash and cash equivalents for the purpose only of the statement of cash flows. Offset arrangements across group businesses are applied to arrive at the net overdraft figure. Non-current assets held for sale A non-current asset or a group of assets containing a non-current asset is classified as held for sale if its carrying amount will be recovered principally through sale rather than through continuing use, it is available for immediate sale and sale is highly probable within one year. Immediately before classification as held for sale the asset is remeasured and thereafter measured at the lower of carrying amount and fair value less costs to sell with any adjustments taken to the income statement. Impairment The carrying amounts of the Group's assets other than investment property and inventories are considered at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated. Where the carrying amount of an asset exceeds its recoverable amount it is impaired and is written down to its recoverable amount. Impairment losses are recognised in the income statement. The recoverable amount of the Group's financial assets is calculated as the present value of estimated future cash flows, discounted at the original effective interest rate (i.e., the effective interest rate computed at initial recognition of these financial assets). The recoverable amount of non-financial assets is the higher of their fair value less costs to sell and their value in use. Value in use is the present value of the future cash flows expected to be derived from the asset. No indication of impairment existed at the date of transition, 1 April 2006, and no assets have been impaired since that date. Derivative financial instruments and hedging Derivative financial instruments, comprising foreign exchange derivatives and fuel hedging derivatives are recognised at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. The fair value of forward exchange and fuel hedging contracts is their quoted market price at the balance sheet date. The gain or loss on remeasurement to fair value is recognised immediately in profit or loss. However, where derivatives qualify for hedge accounting, recognition of any resultant gain or loss depends on the nature of the item being hedged. For those derivatives designated as hedges and for which hedge accounting is desired, the hedging relationship is documented at its inception. This documentation identifies the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how effectiveness will be measured throughout its duration. Such hedges are expected at inception to be highly effective. - Cash flow hedges Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a recognised asset or liability, or a highly probable forecast transaction, the effective part of any gain or loss on the derivative financial instrument is recognised directly in the hedging reserve. Any ineffective portion of the hedge is recognised immediately in the income statement. The Group does not have any hedges that qualify for cash flow hedge accounting. - Fair value hedges It is not the Group's policy to use fair value hedges. Interest-bearing borrowings Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the income statement over the period of the borrowings on an effective interest basis. Own shares Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity. Revenue Revenue comprises the fair value of the consideration received or receivable, net of value-added-tax, rebates and discounts. Revenue is recognised once the value of the transaction can be reliably measured and the significant risks and rewards of ownership have been transferred. The following criteria must also be met before revenue is recognised: Rent and marina and berthing fees Rent and marina and berthing fees are typically invoiced in advance and are accounted for as deferred income and recorded to revenue during the period to which they relate. Lease incentives and costs associated with entering into tenant leases are amortised over the lease term. Other marine related revenue Fuel sales, landing dues and other ancillary incomes, are recorded to revenue at the point of sale. Airline Advance flight bookings, net of passenger taxes, are treated as deferred income in the balance sheet until the service has been provided, at which point the income is recognised as revenue in the income statement. Ancillary income including credit card fees, excess baggage charges, sporting equipment fees, change fees, in-flight sales of food and beverages, commissions received from products and services sold such as hotel and car hire and travel insurance less chargebacks, are recognised in revenue on the date that the right to receive the consideration occurs. For commission received on hotel bookings and car hire, the date that the right to receive the consideration occurs is the date that the hotel or car booking becomes non-refundable. As the airline is acting as an agent, the only revenue recognised on these bookings is the commission earned. Airport The majority of airport income is received from aircraft landing fees and fuel sales. Fuel sales are recognised at the point of sale. Aircraft landing fees are levied as the aircraft lands and are recognised as income immediately. Construction contracts and project management services Where the outcome of a construction contract can be estimated reliably, revenue and costs are recognised by reference to the stage of completion of the contract at the balance sheet date. The stage of completion of a contract is determined by an internal survey of the work performed. Where the contract outcome cannot be measured reliably, revenue is recognised only to the extent of the expenses recognised that are recoverable. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. This policy also covers the treatment of profit arising from the provision of project management services. The stage of completion is determined by reference to achievement of milestone events. Fees for management services may be recognised to the extent that they are non-refundable and the milestone events which triggered them becoming receivable have passed. Property sales Revenue from property sales is recognised when the significant risks and rewards of ownership and effective control of the asset have passed to the buyer. This will be at the point of legal completion. Government grants Government grants are recognised when there is reasonable assurance that the grant will be received and that the Group will comply with all conditions associated with the grant. Government grants in respect of capital expenditure are credited to a deferred income account and released to the income statement over the estimated useful economic lives of the assets to which they relate. Grants of a revenue nature are credited to income so as to match them with the expenditure to which they relate. Operating lease payments Payments made under operating leases are recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives received are recognised in the income statement as an integral part of the total lease expense over the term of the lease. Net financing costs Net financing costs comprise interest payable and interest receivable on funds invested. Interest income and interest payable is recognised in profit or loss as it accrues, using the effective interest method. The fair value movement of derivative financial instruments and the ineffective portion of cash flow hedges are also included within net financing costs. Borrowing costs Borrowing costs are capitalised on qualifying assets. A qualifying asset is one that takes more than twelve months to complete. The borrowing rate applied is that specifically applied to fund the development. In the case of bank borrowings this is the weighted average cost of debt capital. Capitalisation ceases when substantially all the activities that are necessary to get the property ready for use are complete. Employee benefits: defined contribution plans Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement as incurred. Employee benefits: share-based payment transactions The share option programme allows Group employees to acquire shares of the ultimate parent company; these awards are granted by the ultimate parent. The share-based payments are all equity-settled and are measured at fair value. The fair value of options granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options granted is measured using the Black-Scholes option pricing model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest except where forfeiture is due only to share prices not achieving the threshold for vesting. Foreign currency Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement. Provisions A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. For aircraft held under operating leases, provision is made for major maintenance overhauls that are contractually required based on estimated costs. Taxation Tax on the profit for the year comprises current and deferred tax. Tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable profit for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax is recognised on all temporary differences except: - on the initial recognition of goodwill; or - on the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction, affects neither accounting profit nor taxable profit. Dividends Dividends unpaid at the balance sheet date are only recognised as a liability at that date if they have been declared. Unpaid dividends that have not yet been declared are disclosed in the notes to the financial statements. Earnings per share The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares including share options granted to employees. Segment reporting A segment is a distinguishable component of the Group that is engaged either in providing related products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. The Group's primary format for segment reporting is based on business segments. Restatement of the opening Consolidated Balance Sheet as at 1 April 2006 --------------1 April 2006-------------- UK GAAP Effect of Adopted transition to IFRSs Adopted IFRSs Note Â£000 Â£000 Â£000 Non-current assets Property, plant and equipment a 42,008 42,008 Intangible assets 611 611 Investment property 14,651 14,651 Investment in joint venture Share of gross assets l 7,952 (7,952) - Share of gross liabilities l (8,006) 8,006 - Investment in associate b,l - 717 717 Other financial assets c - 130 130 57,216 901 58,117 Current assets Inventories 3,145 3,145 Trade and other receivables b 4,939 (771) 4,168 Cash and cash equivalents 4 4 Non-current assets held for sale - - 8,088 (771) 7,317 Total assets 65,304 130 65,434 Current liabilities Bank overdraft c,d 6,399 (896) 5,503 Other interest-bearing loans and borrowings d - 1,026 1,026 Trade and other payables e,l 4,033 4,033 Deferred income 3,240 3,240 Deferred government grants 35 35 Tax payable n 348 348 14,055 130 14,185 Non-current liabilities Other interest-bearing loans and borrowings 10,532 10,532 Deferred income 10 10 Deferred government grants 293 293 Deferred tax liabilities m 2,396 3,698 6,094 13,231 3,698 16,929 Total liabilities 27,286 3,828 31,114 Net assets 38,018 (3,698) 34,320 Equity and reserves Share capital 6,086 6,086 Share premium 2,797 2,797 Revaluation reserve m 13,056 (2,134) 10,922 Investment property revaluation reserve h 9,435 (9,435) - Other reserves o,p 274 (23) 251 Retained earnings h,m,p 6,370 7,894 14,264 Total equity 38,018 (3,698) 34,320 Restatement of the comparative Consolidated Balance Sheet as at 30 September 2006 --------30 September 2006--------- UK GAAP Effect of Adopted transition to IFRSs Adopted IFRSs Note Â£000 Â£000 Â£000 Non-current assets Property, plant and equipment a,i 32,684 32,684 Intangible assets 594 594 Investment property i,j 14,736 14,736 Investment in joint venture Share of gross assets l 8,362 (8,362) - Share of gross liabilities l (8,419) 8,419 - Investment in associate b,l - 799 799 Other financial assets c - 130 130 47,957 986 48,943 Current assets Inventories i 15,804 (11,400) 4,404 Trade and other receivables b 4,575 (856) 3,719 Cash and cash equivalents 3 3 Non-current assets held for sale j - 13,600 13,600 20,382 1,344 21,726 Total assets 68,339 2,330 70,669 Current liabilities Bank overdraft c,d 9,294 (1,735) 7,559 Other interest-bearing loans and borrowings d - 1,865 1,865 Trade and other payables e,f,l 2,606 (19) 2,587 Deferred income 2,739 2,739 Deferred government grants g 4 18 22 Tax payable n 618 618 15,261 129 15,390 Non-current liabilities Other interest-bearing loans and borrowings 11,120 11,120 Deferred government grants g 391 (18) 373 Provisions f - 19 19 Deferred tax liabilities m 2,692 4,189 6,881 14,203 4,190 18,393 Total liabilities 29,464 4,319 33,783 Net assets 38,875 (1,989) 36,886 Equity and reserves Share capital 6,086 6,086 Share premium 2,797 2,797 Revaluation reserve m 13,056 (2,093) 10,963 Investment property revaluation reserve h 9,435 (9,435) - Other reserves o,p 314 (63) 251 Retained earnings h,i,m,p 7,187 9,602 16,789 Total equity 38,875 (1,989) 36,886 Restatement of the comparative Consolidated Balance Sheet as at 31 March 2007 -----------31 March 2007---------- UK GAAP Effect of Adopted IFRSs transition to Adopted IFRSs Note Â£000 Â£000 Â£000 Non-current assets Property, plant and equipment a 33,342 33,342 Intangible assets 576 576 Investment property 15,923 15,923 Investment in joint venture Share of gross assets l 8,956 (8,956) - Share of gross liabilities l (9,023) 9,023 - Investment in associate b,l - 828 828 Other financial assets c - 130 130 49,774 1,025 50,799 Current assets Inventories 3,898 3,898 Trade and other receivables b 6,377 (895) 5,482 Cash 6 6 Non-current assets held for sale - - Derivatives k - 14 14 10,281 (881) 9,400 Total assets 60,055 144 60,199 Current liabilities Bank overdraft c,d 7,000 (939) 6,061 Other interest-bearing loans and borrowings d - 1,069 1,069 Trade and other payables e,f 3,778 (40) 3,738 Deferred income 3,336 3,336 Deferred government grants g 3 18 21 Tax payable n 306 306 Derivatives k - 7 7 14,423 115 14,538 Non-current liabilities Other interest-bearing loans and borrowings 2,293 2,293 Deferred government grants g 351 (18) 333 Provisions f - 40 40 Deferred tax liabilities m 2,828 3,383 6,211 5,472 3,405 8,877 Total liabilities 19,895 3,520 23,415 Net assets 40,160 (3,376) 36,784 Equity and reserves Share capital 6,112 6,112 Share premium 2,843 2,843 Revaluation reserve m 13,056 (2,019) 11,037 Investment property revaluation reserve h 9,435 (9,435) - Other reserves o,p 348 (97) 251 Retained earnings h,k,m,p 8,366 8,175 16,541 Total equity 40,160 (3,376) 36,784 Notes to the restatement of equity from UK GAAP to Adopted IFRS: Presentation adjustments: a) Under Adopted IFRS, paintings and antiques held by the Group have been reclassified as property, plant and equipment. b) The loan to the associate company of Â£895,000 as at 31 March 2007 (30 September 2006: Â£856,000, 1 April 2006: Â£771,000) has been reclassified from debtors due in more than one year to investment in associate within non-current assets. c) The Group has given guarantees and placed a bond in favour of BEC Aviations to the sum of Â£130,000. Previously, the bond was shown as a deduction from bank overdrafts. The bond has now been shown within non-current financial assets. d) Under Adopted IFRS, loans of Â£1,069,000 as at 31 March 2007 (30 September 2006: Â£1,865,000, 1 April 2006: Â£1,026,000) are disclosed separately from bank overdrafts. Under UK GAAP, they were shown together under the caption 'bank overdraft and loans'. e) Under Adopted IFRS, trade and other payables includes trade creditors, accruals, VAT and social security costs and other creditors. Deferred income and corporation tax payable are shown separately on the face of the balance sheet. f) Provisions for aircraft maintenance overhauls were previously included within accruals. It has been decided it is more appropriate to show them separately as provisions on the face of the balance sheet. g) Deferred government grants have been split between current liabilities and non-current liabilities. Numerical adjustments: h) Under Adopted IFRS, the surplus or deficit arising on the revaluation of investment properties is recorded in the income statement as opposed to the investment property revaluation reserve under UK GAAP. The investment property revaluation reserve under UK GAAP is therefore aggregated with retained earnings under Adopted IFRS. i) Under Adopted IFRS, an investment property in the course of construction should be classified as property, plant and equipment in accordance with IAS 16 'Property, Plant and Equipment' until construction is complete. Accordingly, Â£11,400,000 has been reclassified from inventories to property, plant and equipment in the six months to 30 September 2006. When an investment property is ready for use, it is reclassified from property, plant and equipment to investment property and remeasured to fair value. Any surplus or deficit on remeasurement is recorded in the income statement. A completed investment property of cost Â£11,400,000 was moved from property, plant and equipment to investment property in the six months to 30 September 2006. The property was then remeasured to it's fair value of Â£13,600,000 and the Â£2,200,000 surplus was recorded in the income statement. j) Under Adopted IFRS, certain assets held for sale meet the definition of non-current asset held for sale. Accordingly, in the period to 30 September 2006, Â£13,600,000 has been reclassified from investment property to non-current asset held for sale. k) The fair value of derivatives has been recorded in the financial statements for the year ended 31 March 2007. A financial asset of Â£14,000 and a financial liability of Â£7,000 have been recorded in the balance sheet with the corresponding Â£14,000 gain and Â£7,000 loss being shown in the income statement within financial income and financial expense respectively. Under UK GAAP, the fair values were disclosed but not included in the financial statements as the values were immaterial. Under Adopted IFRS, it has been decided to include the fair values in the financial statements. l) Under UK GAAP, the Group's investment in LIFT Investments Limited was treated as a joint venture. For an investment to be classified as a joint venture, UK GAAP requires that 'decisions on financial and operating policies essential of that venture must require each venturer's consent'. All decisions made by the Board of the LIFT Investments Limited are, as a matter of fact, made on a unanimous basis. Although the Group's economic interest in Lift is 62%, the unanimous voting arrangements that in fact operated at board level meant that under FRS 9 ' Associates and joint ventures' it was appropriate to regard the interest as a joint venture for UK GAAP purposes. However, Adopted IFRS focuses more on the precise terms of relevant agreements to establish whether control, joint control or significant influence exists. Accordingly it is necessary to examine the terms of the LIFT shareholder agreement to determine the appropriate accounting treatment. As the terms of the shareholder agreement provide for majority voting on key decisions affecting the business, and the Group has 50% of the voting rights, it has neither control nor joint control under Adopted IFRS. It has significant influence and hence has been treated as an associated company. As at 1 April 2006, 30 September 2006, 31 March 2007 and 30 September 2007, the associate was in a net liability position. The Group's share of the associate's net liabilities has been shown as a deduction from the loan to the associate, which is considered as part of the investment in the associate. The Group's share of the associate's losses have been shown as one line in the income statement under Adopted IFRS. m) Under Adopted IFRS, deferred tax liabilities are provided on the gain that would crystallise if an investment property or other asset was sold. UK GAAP required that this potential liability was disclosed but not provided in the balance sheet. The deferred taxation on investment property is recorded in the income statement and the deferred taxation on property, plant and equipment is charged to the revaluation reserve. The revaluation reserve has been preserved for owner-occupied property carried at revalued amount. The amount of this reserve on transition was the difference between the fair value and the Adopted IFRS cost. n) Current tax is still calculated based on the UK GAAP profit. There is therefore no adjustment made to the current tax charge in the income statement or the corporation tax liability in the balance sheet in translating the accounts to Adopted IFRS. o) Under UK GAAP, a merger reserve and a capital reserve were created on the acquisition of a subsidiary. Under Adopted IFRS, the two merger reserves have been combined. No adjustment has been made to them, as they arose on business combinations that were not required to be restated on transition. p) Under UK GAAP, the share-based payment reserve was shown within other reserves. Under Adopted IFRS, the share-based payment reserve has been aggregated with retained earnings. Reconciliation of shareholders equity from UK GAAP to Adopted IFRS Note As at 1 As at 30 As at 31 April September March 2006 2006 2007 Â£'000 Â£'000 Â£'000 Shareholders equity under UK GAAP 38,018 38,875 40,160 Fair value adjustments of investment property a - 2,200 - Fair value movement on financial instruments b - - 7 Deferred taxation on properties that was not provided for under UK GAAP c (3,698) (4,189) (3,383) Shareholders equity under Adopted IFRS 34,320 36,886 36,784 Notes to the reconciliation of shareholders equity from UK GAAP to Adopted IFRS: a) See note i above in the notes to the restatement of equity from UK GAAP to Adopted IFRS. b) See note k above in the notes to the restatement of equity from UK GAAP to Adopted IFRS. c) See note m above in the notes to the restatement of equity from UK GAAP to Adopted IFRS. Restatement of the Consolidated Income Statement for the six months to 30 September 2006 UK GAAP Effect of Adopted IFRSs transition to Note Adopted IFRSs Â£000 Â£000 Â£000 Revenue a 16,774 (146) 16,628 Less share of joint ventures revenue a (146) 146 - Group revenue 16,628 - 16,628 Cost of sales e,f (13,707) (7) (13,714) Gross profit 2,921 (7) 2,914 Other operating income f - 11 11 Administrative expenses (503) (503) Other operating expenses e - (4) (4) Fair value adjustments of investment property b - 2,200 2,200 Share of operating loss in joint ventures a (4) 4 - Operating profit before net financing costs 2,414 2,204 4,618 Financial income 60 60 Financial expense (472) (472) Share of financial expense of joint venture a - - - Net financing costs (412) - (412) Share of loss of associate using the equity accounting method a - (4) (4) Profit before tax 2,002 2,200 4,202 Taxation c (600) (533) (1,133) Profit for the period attributable to the equity shareholders 1,402 1,667 3,069 Restatement of the Consolidated Income Statement for the year to 31 March 2007 UK GAAP Effect of Adopted IFRSs transition to Note Adopted IFRSs Â£000 Â£000 Â£000 Revenue a 30,688 (499) 30,189 Less share of joint ventures revenue a (499) 499 - Group revenue 30,189 - 30,189 Cost of sales f (26,297) (22) (26,319) Gross profit 3,892 (22) 3,870 Other operating income f - 22 22 Administrative expenses (954) (954) Other operating expenses g - (59) (59) Fair value adjustments of investment property g - 2,200 2,200 Share of operating profit in joint ventures a 288 (288) - Profit on sale of fixed assets g 2,141 (2,141) - Operating profit before net financing costs 5,367 (288) 5,079 Financial income d 105 14 119 Financial expense d (958) (7) (965) Share of financial expense of joint venture a (302) 302 - Net financing costs (1,155) 309 (846) Share of loss of associate using the equity accounting method a - (14) (14) Profit before tax 4,212 7 4,219 Taxation c (1,266) 200 (1,066) Profit for the period attributable to the equity shareholders 2,946 207 3,153 Notes to the restatement of profit from UK GAAP to Adopted IFRS: a) See note l above in the notes to the restatement of equity from UK GAAP to Adopted IFRS. b) See note i above in the notes to the restatement of equity from UK GAAP to Adopted IFRS. c) See note m above in the notes to the restatement of equity from UK GAAP to Adopted IFRS. d) See note k above in the notes to the restatement of equity from UK GAAP to Adopted IFRS. e) Loss on sale of fixed assets of Â£4,000 has been shown separately from cost of sales for the six month period to 30 September 2006. f) The release of government grants to the income statement has been shown separately from cost of sales. g) Profit on sale of fixed assets totalling Â£2,141,000 as at 31 March 2007 has been split between fair value adjustments of investment property of Â£2,200,000 and a loss on sale of fixed assets of Â£59,000 shown within other operating expenses. The fair value adjustment to investment property of Â£2,200,000 is discussed in note i above in the notes to the restatement of equity from UK GAAP to Adopted IFRS. Explanation of material adjustments to the cash flow statement comparatives for 31 March 2007 The transition from UK GAAP to Adopted IFRS has no effect upon the reported cash flows generated by the Group. The Adopted IFRS cash flow statement is presented in a different format from that required under UK GAAP with cash flows split into three categories of activities - operating activities, investing activities and financing activities. In preparing the cash flow statement under Adopted IFRS, cash and cash equivalents include cash at bank and bank overdrafts. The Group has given guarantees and placed a bond in favour of BEC Aviations to the sum of Â£130,000. Under UK GAAP, the bond was classified as part of bank overdrafts. Under Adopted IFRS, the bond does not meet the definition of cash and cash equivalents and therefore has not been included within cash and cash equivalents in the cash flow statement. Key differences for Sutton Harbour Holdings plc between UK GAAP and Adopted IFRS This section sets out the main impacts of Adopted IFRS. This information has not been audited and is provided for information purposes only. Investment property revaluations Under UK GAAP, any surplus or deficit arising from the revaluation of investment properties was recorded in the investment property revaluation reserve on the balance sheet. Under Adopted IFRS, any surplus or deficit arising from the revaluation of investment properties is recorded directly in the income statement. The investment property portfolio was last revalued as at 31 March 2006 increasing the investment property revaluation reserve to Â£9,435,000. This reserve has been aggregated with retained earnings under Adopted IFRS and has increased the retained earnings reserve by Â£9,435,000. All future revaluations of the investment property portfolio will be recorded directly in the income statement. This may lead to future profits being more volatile. Treatment of the sale of the office building occupied by the Department for Work and Pensions Under UK GAAP, the building was held at cost during construction. When it was ready for use it was reclassified as an investment property. The property was held as an investment property for a short period of time during which the investment property portfolio was not revalued. The decision was then made to sell the building and in the second six months of the year the building was sold for a profit of Â£2,200,000. The profit was shown in the profit and loss account in the second half of the year as 'profit on sale of fixed assets'. Under Adopted IFRS, the building is held at cost in accordance with IAS 16 ' Property, Plant and Equipment' while being constructed. Once the property is ready for use it is transferred to investment property and, in accordance with IAS 40 'Investment Property', is remeasured to it's fair value of Â£13,600,000. The fair value uplift of Â£2,200,000 is recorded in the income statement in the first six months of the year as 'fair value adjustments of investment property'. The transition from UK GAAP to Adopted IFRS has had the effect of bringing the profit from the sale of the building of Â£2,200,000 forward from the second half of the year ended 31 March 2007 to the first six months of the year. The profit has also been reclassified from 'profit on the sale of fixed assets' to 'fair value adjustments of investment property'. Deferred taxation Under Adopted IFRS, deferred tax liabilities are provided on the gain that would crystallise if an investment property or other asset was sold. UK GAAP required that this potential liability was disclosed but not provided in the balance sheet. The deferred taxation on investment properties is recorded in the income statement and the deferred taxation on property, plant and equipment is charged to the revaluation reserve. This has had the effect of increasing the deferred tax liability in the balance sheet from Â£2,828,000 under UK GAAP to Â£6,211,000 under Adopted IFRS as at 31 March 2007. Treatment of the Group's investment in LIFT Investments Limited Under UK GAAP, the investment in LIFT Investments Limited was treated as a joint venture. The Group's share of the joint ventures gross assets and gross liabilities was disclosed on the face of the balance sheet and the Group's share of the joint ventures operating profit and interest payable was shown on the face of the profit and loss account. Under Adopted IFRS, for the reasons explained above, the investment is treated as an associate. The Group's share of the associates losses is shown on the face of the income statement. This loss reduces the Group's interest in the associate on the face of the balance sheet. This information is provided by RNS The company news service from the London Stock Exchange

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