Impact of IFRS
Vp PLC
18 November 2005
Press Release 7 November 2005
Vp plc
('Vp' or 'the Group')
The Impact of International Financial Reporting Standards ('IFRS')
Introduction
The European Union ('EU') has approved the application of International
Financial Reporting Standards for listed companies for periods beginning on or
after 1 January 2005. For Vp the financial statements for the year ended 31
March 2006 will be the first to be prepared in accordance with IFRS adopted for
use in the EU. The adoption of IFRS requires the restatement of the comparative
results for the year ended 31 March 2005 and the associated interim period. This
announcement sets out the effect of this restatement and explains the main
differences between UK GAAP and IFRS as applicable to Vp.
Basis of Preparation
The financial information presented in this statement has been prepared by
applying all IFRS and International Accounting Standards ('IAS') that are
expected to be applicable to the Group's reporting for the year ended 31 March
2006. The standards are still subject to ongoing review and possible amendment.
In addition, some of them are still subject to endorsement by the EU, in
particular the Group has adopted the amendment to IAS19 which allows actuarial
gains and losses to be reflected in the Statement of Recognised Income and
Expense. This amendment has not yet been endorsed by the EU. It is therefore
possible that further standards, amendments, interpretations and/or changes in
practical application of IFRS could affect the year ended 31 March 2006 and the
associated comparative figures. Vp will continue to monitor these changes and if
appropriate amend its accounting policies.
The UK GAAP figures presented in this announcement relating to the 31 March 2004
balance sheet and for the year ended 31 March 2005 are not the company's
statutory accounts. Those accounts, which were prepared under UK GAAP, have
been reported on by the company's auditors and delivered to the Registrar of
Companies. The report of the auditors was unqualified and did not contain
statements under Section 237(2) or (3) of the Companies Act 1985.
Accounting Policies
Vp's accounting policies have been applied consistently to all years presented
and are in line with those applied in the last annual financial statements for
the year ended 31 March 2005, with the exception of the following changes to the
accounting policies which have been adopted in order to comply with IFRS.
Goodwill
Goodwill represents the excess of the fair value of the purchase price over the
fair value of the net assets acquired as part of a business combination.
Goodwill is assumed to have an indefinite useful economic life and under IFRS 3,
'Business Combinations', is not amortised, but is reviewed annually for
impairment and carried in the balance sheet at cost less any accumulated
impairment losses.
The Group has applied the exemption under IFRS 1 that allows goodwill in respect
of acquisitions made prior to 1 April 2004 to remain at deemed cost as stated
under UK GAAP, that is net of amortisation to that date.
Dividends
In accordance with IAS 10, 'Events after the Balance Sheet Date', dividends
declared after the balance sheet date are not accrued at that balance sheet date
because the liability does not represent an obligation as defined by IAS 37, '
Provisions, Contingent Liabilities and Contingent Assets'. Each dividend will
therefore be recognised in the period in which it is approved rather than in the
period to which it relates.
Share Based Payments
IFRS 2, 'Share-based Payments', requires that the fair value of share options be
charged to the Income Statement based upon their fair value at the date of
grant. The charge is recognised evenly over the vesting period of the options.
The fair values are calculated using an appropriate option pricing model. The
Group's Approved, Unapproved and Save as you Earn (SAYE) schemes have been
valued using the Black-Scholes model and the Income Statement charge is adjusted
to reflect the expected number of options that will vest based on expected
levels of performance and the expected number of employees leaving the Group.
The fair values of the Group's Long Term Incentive Plan (LTIP) and Share
Matching options are calculated using a discounted grant price model again
adjusted for expected performance and employees leaving the Group.
The Group has chosen to adopt the exemption whereby IFRS 2 is only applied to
options granted after 7 November 2002.
Financial Instruments
The Group's only financial instrument is an interest rate swap. Under IAS 39, '
Financial Instruments: Recognition and Measurement' this is accounted for in the
balance sheet at fair value and any movement in fair value is taken to the
Income Statement, unless the transaction is designated as part of a hedging
relationship in which case any changes to that fair value are accounted for in
equity and then released to the Income Statement to match the settlement of
interest under the swap.
Employee Benefits
Under IAS 19, 'Employee Benefits' the Group's pension deficits are recorded as
balance sheet liabilities and the actuarial gains and losses associated with
this liability are to be recognised in the Statement of Recognised Income and
Expense as they arise. All actuarial gains and losses at 1 April 2004, the date
of transition to IFRS, were recognised. Actuarial gains and losses occur when
the actual returns on scheme assets differ from those initially expected by the
actuary.
Taxation
The charge for taxation is based on the results for the year and takes into
account full provision for deferred taxation due to temporary timing differences
between the carrying value of an asset or liability and its tax base.
Explanation of IFRS Adjustments
Goodwill
Under UK GAAP goodwill was amortised over its expected useful life of twenty
years. Under IFRS, goodwill is assumed to have an indefinite useful life, but
is reviewed for impairment on an annual basis and any such impairment is charged
to the Income Statement. At the date of transition the Group has applied the
exemption under IFRS1 not to reinstate goodwill to original cost and has carried
forward the book value of goodwill relating to acquisitions prior to 1 April
2004 totalling £7,136k .
The impact on the Income Statement for the year ending 31 March 2005 is that
goodwill amortisation of £429k that was previously charged under UK GAAP has
been reversed such that no charge has been provided and hence net assets at 31
March 2005 have increased by this amount.
In addition the 31 March 2004 balance sheet has also been adjusted to reflect
goodwill of £298k, recorded in the year ended 31 March 2005, which related to
prior year acquisitions for which fair values had previously been provisionally
estimated. This has no impact on net assets as it is purely a balance sheet
reclassification.
As at the 31 March 2005 there was no indication of impairment of any of the
remaining goodwill.
Dividends
Under IFRS dividends are now charged in the period in which they are approved
rather than the period to which they relate, therefore the final dividend for
the year ended 31 March 2004 of £1,452k has been reversed in the opening balance
sheet and reflected in equity in the half year ended 30 September 2004.
Similarly the interim dividend of £761k for 30 September 2004 has been reversed
from the half year balance sheet and reflected in equity in the year ended 31
March 2005 and the final dividend of £1,740k accrued for 31 March 2005 has been
reversed in the IFRS balance sheet and will be reflected in the half year ending
30 September 2005.
Share Based Payments
Under UK GAAP the cost of options was based on the cost of shares held by the
employee trust, whereas under the IFRS the fair values per share are calculated
for options granted since 7 November 2002 on the basis stated above and charged
to the Income Statement over their respective vesting periods.
The additional charge arising from adoption of IFRS 2 on the Group's Income
Statement was £18k for the half year ended 30 September 2004 and £23k in total
for the year ended 31 March 2005.
Financial Instruments
The Group's only derivative instrument is an interest rate swap held for hedging
purposes in order to reduce the risk of exposure to changes in interest rates.
The movements in fair value have been taken to the Income Statement.
As at 31 March 2004 a liability of £49k has been recognised reducing net assets
to reflect the fair value of this instrument at that date. For the year ended 31
March 2005, the fair value improved by £40k due to an increase in interest rates
at that date and this has been credited to the Income Statement for the period.
The Group has not applied the exemption under IAS39 which would have allowed
application of the standard to be deferred until 1 April 2005.
Employee Benefits
Under UK GAAP pension costs were accounted for against the operating profit by
spreading the cost of providing the benefits, including actuarial gains and
losses, over the estimated average remaining service lives of employees within
the pension schemes in accordance with SSAP24. IAS 19, 'Employee Benefits',
requires that the Group's pension deficits be recorded as balance sheet
liabilities and that all actuarial gains and losses are recognised, under the
amendment to IAS 19, in the Statement of Recognised Income and Expense as they
arise.
The deficit on the balance sheet for 31 March 2004, under IAS 19, reduced net
assets by £2,391k with a deferred tax asset of £778k being accounted for within
deferred tax liabilities.
The impact of IAS 19 for the year ended 31 March 2005 is to reduce the pension
charge in the Income Statement by £231k. The deficit recognised in the balance
sheet at 31 March 2005 increased by £1,322k to £3,916k. The Statement of
Recognised Income and Expense reflects £1,310k of this adjustment, the balance
being reflected through the Income Statement.
Deferred Tax
Deferred Tax, under UK GAAP, was provided for on the basis of timing differences
between accounting profit and taxable profit. IAS 12, 'Income Taxes' requires
that deferred tax is to be based on temporary differences between the carrying
value of an asset or liability and its tax base.
The effect of IFRS on the deferred tax liability is to reduce the liability at
31 March 2004 by £300k, with a corresponding increase in equity which is split
between retained earnings and the revaluation reserve. The decrease related to
deferred tax assets on pensions and share options of £1,000k less liabilities on
asset revaluations and rolled over capital gains together with the reversal of
the SSAP24 deferred tax asset which in total were £700k.
During the year ended 31 March 2005 the deferred tax liability under IFRS
reduced by £951k of which £317k was credited to the Income Statement and the
balance was credited to equity.
Cash Flow
Since IFRS do not affect the underlying figures, purely the presentation of the
information, this announcement does not contain any restated cash flow
statements.
Presentation
All the UK GAAP figures stated below have been reformatted in accordance with
the presentation under IFRS.
Consolidated Income Statement
For the year ended 31 March 2005
IFRS adjustments
Employee Financial Share Based
Goodwill Benefits Instruments Payments Deferred Tax IFRS
UK GAAP (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
£000 £000 £000 £000 £000 £000 £000
Revenue 90,044 90,044
Cost of sales (61,958) (61,958)
Gross profit 28,086 0 0 0 0 0 28,086
Administration expenses (18,383) 429 231 (23) (17,746)
Operating profit before 9,703 429 231 0 (23) 0 10,340
financing costs
Net finance expenses (348) 40 (308)
Profit before tax 9,355 429 231 40 (23) 0 10,032
Income tax expense (2,831) 7 (2,824)
Profit for the year 6,524 429 231 40 (23) 7 7,208
attributable to equity
holders of the parent
Earnings per share
Basic 15.04p 16.62p
Diluted 14.56p 16.09p
Consolidated Income Statement
For the half year ended 30 September 2004
IFRS adjustments
Employee Financial Share Based
Goodwill Benefits Instruments Payments Deferred Tax IFRS
UK GAAP (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
£000 £000 £000 £000 £000 £000 £000
Revenue 45,601 45,601
Cost of sales (31,486) (31,486)
Gross profit 14,115 0 0 0 0 0 14,115
Administration expenses (9,217) 211 (18) (9,024)
Operating profit before 4,898 211 0 0 (18) 0 5,091
financing costs
Net finance expenses (188) 32 (156)
Profit before tax 4,710 211 0 32 (18) 0 4,935
Income tax expense (1,460) 43 (1,417)
Profit for the period 3,250 211 0 32 (18) 43 3,518
attributable to equity
holders of the parent
Earnings per share
Basic 7.52p 8.14p
Diluted 7.26p 7.86p
Consolidated Statement of Recognised Income and Expense
For the year ended 31 March 2005
IFRS adjustments
Employee Share Based Financial
Goodwill Benefits Payments Instruments Deferred Tax IFRS
UK GAAP (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
£000 £000 £000 £000 £000 £000 £000
Actuarial losses on (1,310) (1,310)
defined benefit
pension schemes
Tax on items taken 393 393
directly to equity
Foreign exchange 4 4
translation
difference
Net income recognised 4 (1,310) 393 (913)
direct to equity
Profit for the year 6,524 429 231 (23) 40 7 7,208
Total recognised 6,528 429 (1,079) (23) 40 400 6,295
income and expense
for the year
Statement of Changes in Equity
For the year ended 31 March 2005
IFRS adjustments
Employee Share Based Financial
Dividends Goodwill Benefits Payments Instruments Deferred Tax IFRS
UK GAAP (unaudited) (unaudited) (unaudited (unaudited) (unaudited) (unaudited) (unaudited)
£000 £000 £000 £000 £000 £000 £000 £000
Total recognised 6,528 429 (1,079) (23) 40 400 6,295
income and expense
for the year
Tax movements to 241 241
equity
Share option 253 23 276
charge in the year
and gains/losses
on share options
and disposal of
shares
Net movement in 153 153
shares held by Vp
Employee Trust at
cost
Dividends to (2,502) 288 (2,214)
shareholders
4,432 288 429 (1,079) 40 641 4,751
As at 1 April 2004 51,803 1,452 (2,391) (49) 300 51,115
As at 31 March 56,235 1,740 429 (3,470) (9) 941 55,866
2005
Consolidated Statement of Recognised Income and Expense
For the half year ended 30 September 2004
IFRS adjustments
Employee Share Based Financial
Goodwill Benefits Payments Instruments Deferred Tax IFRS
UK GAAP (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
£000 £000 £000 £000 £000 £000 £000
Foreign exchange 5 5
translation difference
Net income recognised 5 5
direct to equity
Profit for the period 3,250 211 (18) 32 43 3,518
Total recognised income 3,255 211 (18) 32 43 3,523
and expense for the
period
Statement of Changes in Equity
For the half year ended 30 September 2004
IFRS adjustments
Employee Share Based Financial Deferred
Dividends Goodwill Benefits Payments Instruments Tax IFRS
UK GAAP (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
£000 £000 £000 £000 £000 £000 £000 £000
Total recognised 3,255 211 (18) 32 43 3,523
income and expense
for the period
Tax movement to 171 171
equity
Share option charge 139 18 157
in the year and gains
/losses on share
options and disposal
of shares
Net movement in (53) (53)
shares held by Vp
Employee Trust at
cost
Dividends to (761) (691) (1,452)
shareholders
2,580 (691) 211 0 32 214 2,346
As at 1 April 2004 51,803 1,452 (2,391) (49) 300 51,115
As at 30 September 54,383 761 211 (2,391) (17) 514 53,461
2004
Consolidated Balance Sheet
As at 31 March 2004
IFRS adjustments
Employee Financial
Goodwill Benefits Deferred Tax Dividends Instruments IFRS
UK GAAP (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
£000 £000 £000 £000 £000 £000 £000
Non-current assets
Property, plant and 49,911 (354) 49,557
equipment
Intangible assets 7,136 298 7,434
57,047 (56) 56,991
Current assets
Inventories 2,018 2,018
Trade and other 21,694 78 21,772
receivables
Cash and cash 1,087 1,087
equivalents
24,799 78 24,877
Current liabilities
Interest bearing (469) (469)
loans and borrowings
Income tax payable (1,641) (1,641)
Trade and other (15,274) (22) 1,452 (49) (13,893)
payables
Net current assets 7,415 56 1,452 (49) 8,874
Total assets less 64,462 0 1,452 (49) 65,865
current liabilities
Non-current
liabilities
Interest bearing (8,110) (8,110)
loans and borrowings
Employee benefits (203) (2,391) (2,594)
Deferred tax (4,319) 300 (4,019)
liability
Net assets 51,830 0 (2,391) 300 1,452 (49) 51,142
Equity
Issued capital 2,309 2,309
Share premium 16,192 16,192
Revaluation reserve 599 (180) 419
Retained earnings 32,703 (2,391) 480 1,452 (49) 32,195
Total equity 51,803 (2,391) 300 1,452 (49) 51,115
attributable to
equity holders of
the parent
Minority interest 27 27
Total equity 51,830 (2,391) 300 1,452 (49) 51,142
Consolidated Balance Sheet
As at 30 September 2004
IFRS adjustments
Employee Financial
Goodwill Benfits Deferred Tax Dividends Instruments IFRS
UK GAAP (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
£000 £000 £000 £000 £000 £000 £000
Non-current assets
Property, plant and 48,073 (172) 47,901
equipment
Intangible assets 7,052 382 7,434
55,125 210 55,335
Current assets
Inventories 2,098 2,098
Trade and other 23,131 23,131
receivables
Cash and cash 4,794 4,794
equivalents
30,023 30,023
Current liabilities
Interest-bearing (238) (238)
loans and borrowings
Income tax payable (1,925) (1,925)
Trade and other (16,328) 1 761 (17) (15,583)
payables
Net current assets 11,532 1 761 (17) 12,277
Total assets less 66,657 211 761 (17) 67,612
current liabilities
Non current
liabilities
Interest-bearing (8,000) (8,000)
loans and borrowings
Employee benefits (203) (2,391) (2,594)
Deferred tax (4,044) 514 (3,530)
liability
Net assets 54,410 211 (2,391) 514 761 (17) 53,488
Equity
Issued capital 2,309 2,309
Share premium 16,192 16,192
Revaluation reserve 599 (180) 419
Retained earnings 35,283 211 (2,391) 694 761 (17) 34,541
Total equity 54,383 211 (2,391) 514 761 (17) 53,461
attributable to
equity holders of
the parent
Minority interest 27 27
Total equity 54,410 211 (2,391) 514 761 (17) 53,488
Consolidated Balance Sheet
As at 31 March 2005
IFRS adjustments
Employee Financial
Goodwill Benefits Deferred Tax Dividends Instruments IFRS
UK GAAP (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
£000 £000 £000 £000 £000 £000 £000
Non current assets
Property, plant and 48,676 48,676
equipment
Intangible assets 7,039 429 7,468
55,715 429 56,144
Current assets
Inventories 2,136 2,136
Trade and other 22,069 22,069
receivables
Cash and cash 5,755 5,755
equivalents
29,960 29,960
Current liabilities
Interest-bearing (159) (159)
loans and borrowings
Income tax payable (1,628) (1,628)
Trade and other (15,138) 1,740 (9) (13,407)
payables
Net current assets 13,035 1,740 (9) 14,766
Total assets less 68,750 429 1,740 (9) 70,910
current liabilities
Non current
liabilities
Interest-bearing (8,033) (8,033)
loans and borrowings
Employee benefits (446) (3,470) (3,916)
Deferred tax (4,009) 941 (3,068)
liability
Net assets 56,262 429 (3,470) 941 1,740 (9) 55,893
Equity
Issued capital 2,309 2,309
Share premium 16,192 16,192
Revaluation reserve 430 (129) 301
Retained earnings 37,304 429 (3,470) 1,070 1,740 (9) 37,064
Total equity 56,235 429 (3,470) 941 1,740 (9) 55,866
attributable to
equity holders of
the parent
Minority interest 27 27
Total equity 56,262 429 (3,470) 941 1,740 (9) 55,893
- Ends -
For further information please contact:
Vp plc
Mike Holt, Group Finance Director Tel: +44 (0) 1423 533 445
mike.holt@vpplc.com www.vpplc.com
Abchurch
Henry Harrison-Topham Tel: +44 (0) 20 7398 7700
henry.ht@abchurch-group.com www.abchurch-group.com
Notes to Editors:
The principal activity of the Group is equipment rental and associated services
almost entirely conducted within the UK. Vp plc listed on the London Stock
Exchange in 1973. For the year ended 31 March 2005, Group turnover was £90.0
million.
The Group is now focused on six businesses:
TPA
TPA is a leading supplier of portable roadway systems, bridging, fencing and
barriers primarily to the UK market, but also in Ireland and mainland Europe.
For further information, please visit www.tpa-ltd.co.uk
Hire Station
Tools and specialist products for industry, construction and home owners.
Torrent Trackside
Infrastructure equipment and services for the railway renewals and maintenance
industry.
Groundforce
Excavation support systems and specialist products for the water, civil
engineering and construction industries.
UK Forks
Rough terrain material handling equipment for industry, residential and general
construction.
Airpac Oilfield Services
Equipment and service providers to the international oil and gas exploration and
development markets.
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