RNS Number:4244R
Chemetall PLC
19 September 2005
Chemetall PLC
Interim Financial Report
30June 2005
---------------------------
Chemetall PLC
Interim financial report 2005
Contents
Commentary 1
Consolidated income statement 3
Consolidated statement of recognised income and expense 4
Consolidated balance sheet 5
Consolidated cash flow statement 7
Notes to the interim financial report 8
Appendix 1 - Adoption of IFRS 15
Appendix 2 - Accounting Policies 23
Chemetall PLC
Commentary
Chemetall PLC sales to third parties grew by more than 9% (on a comparative
basis) over the prior year during the first 6 months of 2005. Key growth in
proprietary surface treatment chemical sales was achieved within the aerospace
sector especially, airframe sealant and chemicals for aero engine manufacture
being the most significant contributors. Sales of specialist industrial
pipecoating chemicals have enjoyed a double digit increase over prior year.
Automotive and automotive component sectors have remained static, whilst sales
to the British Cold Forming (Wire and Tube) markets continue to erode in line
with the Industry trend. The Middle East markets for which Chemetall PLC is
responsible continue to grow steadily.
Results and dividends
During the first six months, the Group generated a profit on ordinary activities
before taxation of #0.9 million (six months ended 30 June 2004: #0.9 million)
with a turnover of #8.7 million (six months ended 30 June 2004: #7.1 million).
The sales for the six month period to 30 June 2005 includes the aircraft sealant
business purchased in November 2004
The Group's loan assets, including any exchange movements and interest accrued
thereon, totalled #39.1 million at 30 June 2005 (30 June 2004: #79.2 million).
Preference dividends continue to be paid on the normal due dates.
Cash flow and financing
The net cash inflow from operating activities at 30 June 2005 was #41.6 million
(30 June 2004: #0.4 million). During the period, the #39.7 million loan was
repaid by Chemetall GmbH and this money has been invested in a third party bank.
At the period end the Group had net cash balances of #42.8 million, #0.54
million of which was necessary to pay the preference dividend in July.
Board
During the half year, Alec Daley resigned as Chairman and was replaced by Kurt
Wenzel (Chemetall GmbH Group Managing Director for the Europe, Middle East and
Africa region - EMEA). Bill Jessup resigned as non-executive Finance and Company
Secretary. Rob Rydings is appointed as Company Secretary and Matthias Wilhelm
Stoermer the Chemetall Group CFO, will act as financial director.
Messrs Daly and Jessup have carried our their non-executive duties to the
highest professional level during the past 5 years of their tenure. The Group
thanks them for their strong input.
Employees
Chemetall thanks its employees for continuing to help the Company grow in
turnover and profitability despite the prevailing manufacturing downturn.
Chemetall PLC continues to invest in both internal and external training and
development of all employees. The increasingly positive trading results are
directly related to the high level of competence and commitment of the staff.
Page 1
Chemetall PLC
Commentary
Outlook
The third party sales growth trend is expected to flatten or decline by as much
as 5% during the second half of 2005. A number of key customer closures have
been announced recently and it is unlikely that the continued new business input
will completely offset this downturn. The Company has continued to increase its
finished goods prices in line with high increases in raw material prices. An
exception is the Automotive Original Equipment Manufacturer sector where price
increases are not presently possible. As a consequence of automotive industry
policy, overall margins will shift slightly downwards during the second half of
2005. The Company has already put its risk and contingency planning into place.
65 Denbigh Road
Bletchley
Milton Keynes MK1 1PB
By order of the Board,
MJ Watson - Director
RS Rydings - Company Secretary
15 September 2005
Page 2
Chemetall PLC
Consolidated income statement
Six months ended 30 June 2005
Six months Year ended 31
ended 30 June December 2004(i)
#000
Note 2005 2004
#000 #000
Unaudited Unaudited Unaudited
Revenue 8,718 7,116 13,885
Cost of sales (5,640) (4,416) (7,710)
Gross profit 3,078 2,700 6,175
Other operating
income - - 108
Distribution
costs (2,076) (1,941) (5,397)
Administrative
expenses (1,122) (769) (1,712)
Loss from
operations (120) (10) (826)
Financial income 1,575 1,467 2,958
Finance costs (589) (542) (1,090)
Profit before tax 866 915 1,042
Tax 3 (447) (220) (430)
Profit for the
period 419 695 612
(i)Although not required by IAS 34, the comparative figures for the preceding
year end have been included as this is best practice in the UK
Page 3
Chemetall PLC
Consolidated statement of recognised income and expense
Six months ended 30 June 2005
Six months Year ended 31
ended 30 June December 2004(ii)
#000
2005 2004
#000 #000
Unaudited Unaudited Unaudited
Exchange differences
on translation of
foreign operations (1,775) (2,033) 47
Actuarial losses on
defined benefit
pension schemes (1,174) (364) (2,350)
Tax on items taken
directly to equity 374 120 711
Net loss recognised
directly in equity (2,575) (2,277) (1,592)
Profit for the
period 419 695 612
Total recognised
income and expense
for the period (2,156) (1,582) (980)
The consolidated statement of recognised income and expense reflects the
amendment to IAS 19 "Employee Benefits". The amendment has yet to be endorsed by
the Accounting Regulatory Committee of the European Commission for use in the
European Union. This is expected in the next few months
(ii)Although not required by IAS 34, the comparative figures for the preceding
year end have been included as this is best practice in the UK.
Page 4
Chemetall PLC
Consolidated balance sheet
30 June 2005
Note 30 June 30 June 31 December
2005 2004(iii) 2004(iv)
#000 #000 #000
Unaudited Unaudited Unaudited
Non-current assets
Goodwill 2,475 2,475 2,475
Other
intangible
assets 459 378 565
Property,
plant and
equipment 1,207 1,364 1,297
Deferred tax
assets 4,309 3,348 3,936
8,450 7,565 8,273
Current assets
Inventories 1,110 992 1,124
Trade and
other
receivables 43,529 82,585 85,112
Income tax
receivable 17 - -
Cash and cash
equivalents 42,826 991 300
87,482 84,568 86,536
Total assets 95,932 92,133 94,809
Current liabilities
Trade and
other payables (5,960) (3,952) (4,063)
Tax
liabilities (347) (100) (152)
(6,307) (4,052) (4,215)
Net current
assets 81,175 80,516 82,321
(iii)Although not required by IAS 34, the comparative amounts for the six months
ended 30 June 2004 have been included to comply with the Listing Rules
requirement 12.52 (d) to include comparative figures for the corresponding
period in the preceding financial year.
(iv)IAS 34 (20(a)) requires the balance sheet to include comparatives as of the
end of the preceding financial year.
Page 5
Chemetall PLC
Consolidated balance sheet (continued)
30 June 2005
Note 30 June 2005 30 June 2004(v) 31 December
# # 2004(vi)
#
Unaudited Unaudited Unaudited
Non-current liabilities
Interest bearing
loans and
borrowings (12,000) (12,000) (12,000)
Retirement
benefit
obligation 5 (10,152) (6,883) (8,904)
Long-term
provisions (1,469) (1,640) (1,529)
(23,621) (20,523) (22,433)
Net assets 66,004 67,558 68,161
Equity
Share capital 6,889 6,889 6,889
Share premium
account 29,757 29,757 29,757
Translation in
reserve (1,775) (2,033) 47
Retained earnings 31,133 32,945 31,468
Total equity 66,004 67,558 68,161
(v)Although not required by IAS 34, the comparative amounts for the six months
ended 30 June 2004 have been included to comply with the Listing Rules
requirement 12.52 (d) to include comparative figures for the corresponding
period in the preceding financial year.
(vi) IAS 34 (20(a)) requires the balance sheet to include comparatives as of the
end of the preceding financial year
Page 6
Chemetall PLC
Consolidated cash flow statement
Six months ended 30 June 2005
Six months Year ended 31
ended 30 June December
Note 2005 2004 2004(vii)
#000 #000 #000
Unaudited Unaudited Unaudited
Net cash from
operating
activities 4 41,588 359 (160)
Investing activities
Purchases of
property,
plant and
equipment (48) (79) (164)
Net cash used
in investing
activities (48) (79) (164)
Financing activities
Interest paid (589) (542) (1,082)
Interest
received 1,575 1,050 1,503
Net cash from
financing
activities 986 508 421
Net increase
in cash and
cash
equivalents 42,526 788 97
Cash and cash
equivalents at
beginning of
period 300 203 203
Cash and cash
equivalents at
end of period 42,826 991 300
(vii)Although not required by IAS 34, the comparative figures for the preceding
year end have been included as this is best practice in the UK
Page 7.
Chemetall PLC
Notes to the interim financial report
Six months ended 30 June 2005
1. Basis of preparation
The attached interim financial statements are the first interim financial
statements following adoption of International Financial Reporting Standards
(IFRS). As the Group has not previously published a full set of financial
statements under IFRS, the content of these statements has been expanded to
include summarised reconciliation of net assets and equity from previously
reported amounts under UK GAAP for year ended 31 December 2003 and 31 December
2004, together with detailed explanations of the main UK GAAP - IFRS differences
- see Appendix 1.
EU law (IAS regulation EC 1606/2002) requires that the next annual consolidated
financial statements of the company, for the year ending 31 December 2005 be
prepared in accordance with International Financial Reporting Standards (IFRSs)
adopted for use in the EU ("adopted IFRSs").
This interim financial information has been prepared on the basis of the
recognition and measurement requirements of IFRSs in issue that either are
endorsed by the EU and effective (or available for early adoption) at 31
December 2005 or are expected to be endorsed and effective (or available for
early adoption) at 31 December 2005 the company's first annual reporting date at
which it is required to use adopted IFRSs. Based on these adopted and unadopted
IFRSs, the directors have made assumptions about the accounting policies
expected to be applied, which are as set out in Appendix 2, when the first
annual IFRS financial statements are prepared for the year ending 31 December
2005.
In particular, the directors have assumed that the following IFRS issued by the
International Accounting Standards Board will be adopted by the EU in sufficient
time that they will be available for use in the annual IFRS financial statements
for the year ending 31 December 2005:
* IAS 19 ' Employment Benefits' - amendment to allow actuarial gains and
losses to be recognised directly in the statement of recognised income and
expenses.
In addition, the adopted IFRSs that will be effective (or available for early
adoption) in the annual financial statements for the year ending 31 December
2005 are still subject to change and to additional interpretations and therefore
cannot be determined with certainty. Accordingly, the accounting policies for
that annual period will be determined finally only when the annual financial
statements are prepared for the year ending 31 December 2005.
2. Section 240 Statement
The information for the year ended 31 December 2004 does not constitute
statutory accounts as defined in section 240 of the Companies Act 1985. A copy
of the statutory accounts for that year has been delivered to the Registrar of
Companies. The auditors' report on those accounts was unqualified.
Page 8
Chemetall PLC
Notes to the interim financial report (continued)
Six months ended 30 June 2005
3. Tax
Six months
ended 30 June
2005 2004
# #
UK corporation tax 447 220
447 220
Corporation tax for the interim period is charged at 52% (2004: 24%), due to the
comparatively large amount of interest receivable included in the results,
representing the best estimate of the weighted average annual corporation tax
rate expected for the full financial year.
4. Notes to the cash flow statement
Six months
ended 30 June
2005 2004
# #
Profit before taxation 866 915
Adjustments for:
Depreciation of property, plant and equipment 139 158
Amortisation of intangible assets 106 53
Decrease in provisions (60) (32)
Interest income (1,575) (1,467)
Interest expense 589 542
Operating cash flows before movements in working
capital 65 169
Decrease in inventories 14 90
Decrease in receivables 39,807 -
Increase in payables 1,971 387
Cash generated by operations 41,857 646
Income taxes paid (269) (287)
Net cash from operating activities 41,588 359
Cash and cash equivalents (which are presented as a single class of assets on
the face of the balance sheet) comprise cash at bank.
5. Retirement benefit schemes
Defined benefit schemes
The group operates two defined benefit schemes which provide for liabilities
through trustees operated funds.
During the year, the deficit in the scheme increased by #1,248,000. An IAS 19
charge of #404,000 was made in the income statement for the period.
Page 9
Chemetall PLC
Notes to the interim financial report (continued)
Six months ended 30 June 2005
6. Related party transactions
Transactions between the company and its subsidiaries, which are related
parties, have been eliminated on consolidation and are not disclosed in this
note. Transactions between the group and other related parties are disclosed
below.
Trading transactions
During the year, group companies entered into the following transactions with
related parties who are not members of the group:
Sale of goods Purchase of Amounts owed by Amounts owed to
goods related parties related parties
Six months ended 2005 2004 2005 2004 2005 2004 2005 2004
30 June #000 #000 #000 #000 #000 #000 #000 #000
Fellow
subsidiary
undertakings 396 360 1,413 432 629 376 2,235 1,128
Sales and purchases of goods to related parties were made at the parent group's
usual list prices. The amounts outstanding are unsecured and will be settled in
cash. No guarantees have been given or received. No provisions have been made
for doubtful debts in respect of the amounts owed by related parties.
During the period, other services such as licences, IT services and insurance
were purchased from Chemetall GmbH in the amount of #121,000 (30 June 2004:
#170,000).
Non-trading transactions
The group has lent money to the following fellow subsidiaries undertakings. The
outstanding loan balances and the interest charged on these loan balances are
presented in the table below:
Loans to Interest charged to
Six month ended 2005 2004 2005 2004
#000 #000 #000 #000
Fellow subsidiary underatkings 39,134 79,536 587 677
Page 10
Chemetall PLC
Notes to the interim financial report (continued)
Six months ended 30 June 2005
7. Explanation of transition to IFRSs
The reconciliations of equity at 1 January 2004 (date of transition to IFRS) and
at 31 December 2004 (date of last UK GAAP financial statements) and the
reconciliation of profit for 2004, as required by IFRS 1, including the
significant accounting policies, have been included as appendix 1 to this
interim report. The full restated IFRS accounting policies can be found in
Appendix 2.
The reconciliation of equity at 30 June 2004 and the reconciliation of profit
for the six months ended 30 June 2004 have been included below to enable a
comparison of the 2005 interim figures with those published in the corresponding
period of the previous financial year.
Reconciliation of equity at 30 June 2004
UK GAAP Effect of IFRSs
transition to
IFRSs
#000 #000 #000
Property, plant and equipment 1,364 - 1,364
Goodwill 2,400 75 2,475
Intangible assets 378 - 378
Deferred tax assets 1,289 2,059 3,348
Total non-current assets 5,431 2,134 7,565
Trade and other receivables 82,585 - 82,585
Inventories 992 - 992
Cash and cash equivalents 991 - 991
Total current assets 84,568 - 84,568
Total assets 89,999 2,134 92,133
Interest-bearing loans - (12,000) (12,000)
Trade and other payables (3,952) - (3,952)
Employee benefits (19) (6,864) (6,883)
Provisions (708) (932) (1,640)
Current tax liability (100) - (100)
Total liabilities (4,779) (19,796) (24,575)
Total assets less total liabilities 85,220 (17,662) 67,558
Issued capital 18,889 (12,000) 6,889
Share premium 29,757 - 29,757
Retained earnings 38,607 (5,662) 32,945
Reserves (2,033) - (2,033)
Total equity 85,220 (17,662) 67,558
Page11
Chemetall PLC
Notes to the interim financial report (continued)
Six months ended 30 June 2005
7. Explanation of transition to IFRSs (continued)
Reconciliation of profit for the six months ended 30 June 2004
UK GAAP Effect of IFRSs
transition to
IFRSs
Revenue 7,116 - 7,116
Cost of sales (4,416) - (4,416)
Gross profit 2,700 - 2,700
Distribution costs (1941) - (1,941)
Administrative expenses (840) 71 (769)
Finance income 1,467 - 1,467
Finance costs - (542) (542)
Profit before tax 1,386 (471) 915
Tax expense (220) - (220)
Net profit 1,166 (471) 695
Dividends (542) 542 -
Retained profit 624 71 695
Notes to the reconciliation of equity and profit for the six months ended 30
June 2004
The following adjustments were made to the previously UK GAAP reported as at 30
June 2005:
Pensions and other post-retirement benefits
UK GAAP: Pension costs were accounted for under SSAP 24 'Accounting for pension
costs' whereby the costs of providing pensions were charged to the profit and
loss account based on a percentage of employees pay, with any variations in
regular costs, interest and changes to actuarial gains and losses amortised over
the expected average remaining service lives of current employees. Any
differences between the amounts charged to the profit and loss account and cash
payments made to the pension schemes were recognised in the balance sheet.
IFRS (as required by IAS 19 revised, but closely in line with the disclosures
already made in the notes to the accounts under FRS 17): Current and past
service costs of the Group's pension schemes, the expected return on the
scheme's assets and any interest costs relating to the present value of the
scheme's liabilities are charged to the income statement, with any actuarial
gains and losses being recognised through the statement of recognised income and
expense (SORIE). Any surplus in the fair value of the pension scheme assets over
the present value of the liabilities is recorded as an asset in the balance
sheet, and any deficit as a liability.
The change in the accounting treatment of the Group's pension arrangements will
have no impact on their funding. The EU has not yet endorsed the revisions to
IAS 19 which allows actuarial gains or losses to be recognised through the
SORIE. However, this is expected to occur before the year end.
Page 12
Chemetall PLC
Notes to the interim financial report (continued)
Six months ended 30 June 2005
Accounting impact at 30 June 2004:
* Income statement: A decrease to reported pre tax profits of #36,000.
* Balance sheet: A decrease to shareholders's funds of #4,805,000 after
deferred tax, being the elimination of the net pension accrual under SSAP 24 and
the creation of a pension liability of #6,864,000 and the recognition of related
deferred tax asset of #2,059,000.
Amortisation of purchased goodwill
UK GAAP: Goodwill was amortised over a period of 20 years and was subject to
testing for impairment when circumstances indicated that the carrying value may
not be recoverable.
IFRS (as required by IFRS 3 and also by concession under IFRS1 ): Goodwill is
not amortised but is tested annually for impairment. This applies to all
goodwill arising on acquisitions after 1 January 2004. IFRS 1 First time
adoption of IFRS, permits goodwill on acquisitions made before this date to be
brought on to the balance sheet at 1 January 2004 at its carrying value under UK
GAAP.
Accounting impact at 30 June 2004:
* Income statement: Profit before tax increased by #75,000 in 2004,
being the amount amortised in the six months period ended 30 June 2004 under UK
GAAP.
* Balance sheet: An increase to shareholders' funds of #75,000 as
purchased goodwill remains at its 1 January 2004 carrying value.
Accounting for vacant leasehold properties
UK GAAP: A provision is maintained in respect of vacant leasehold properties to
take account of the net present value of the residual lease commitments over the
long term planning period of five years or, if earlier, the period until which
the Directors expect the properties to be sub-let. In determining the net
present value, cash flows have been discounted using an appropriate nominal,
risk free, pre-tax rate of return (UK gilt for a 5 year period).
IFRS: Under IFRS the directors have taken a more prudent approach and provided
for the net present value of the residual lease commitments over the remaining
term of the lease contract, a period usually longer than 5 years.
Accounting impact at 30 June 2004:
* Income statement: An increase in the reported profit before tax of
#32,000.
* Balance sheet: Net assets and equity decrease of #932,000.
Preference shares
UK GAAP: Preference shares were treated as capital and associated servicing
charges were treated as dividends.
IFRS (as required by IAS 32): Preference shares with an obligation to transfer
economic benefit are treated as financial liabilities (debt) and not as capital.
The costs of servicing preference shares are disclosed as interest.
Accounting impact at 30 June 2004:
* Income statement: A decrease to reported profit before tax of
#542,000. At a retained profit level, there is no change.
* Balance sheet: Net assets and equity decrease by #12,000,000 and net
debt increases by the same amount.
Page 13
Chemetall PLC
Notes to the interim financial report (continued)
Six months ended 30 June 2005
Deferred tax
UK GAAP: Deferred tax was provided on timing differences between accounting and
tax profits. No provision for the tax effect on the potential disposal of
revalued properties was accounted for.
IFRS (as required by IAS 12): Deferred tax is provided on all temporary
differences between accounting and tax book values, including the requirement to
account for the tax effect of any future property disposals. In addition there
have been deferred tax adjustments to account for the tax effect of other IFRS
changes, including product development, pensions and share-based payments.
Accounting impact at 30 June 2004:
* Income statement: No impact.
* Balance sheet: Net assets and equity increase by #2,059,000 which is
mainly attributable to the creation of a deferred tax asset on the IAS 19
pension liability.
Other adjustments
Smaller adjustments have also been made to reflect IFRS reclassifications.
These include reclassification of income tax payable and deferred tax from
creditors and debtors, respectively in order to be separately shown on the face
of balance sheet.
Explanation of material adjustments to the cash flow statement for the six
months ended 30 June 2004
There are no material adjustments to the cash flow statement for the six months
period ended 30 June 2004. All adjustments made are for presentation only.
Page 14
Appendix 1
Chemetall PLC
Adoption of IFRS
A summarised analysis of the main aspects of IFRS that impact on the financial
statements of Chemetall PLC is set out on pages 15 to 19. In addition a set of
restated 2004 financial statements, excluding detailed notes, are set out on
pages 20 to 23 of this appendix. Restatement of the Group's accounting policies
can be found in Appendix 2 set out on pages 23 to 26.
The restatement of the group's 2004 results are unaudited.
Key points
*Shareholders' funds at 31 December 2004 decreased to #68,161,000 from
#87,095,000 as previously reported. This has arisen substantially from the
new requirements for accounting for pensions under IAS 19 'Employee
benefits' and the reclassification of preference shares from equity to
liabilities.
*Volatility in the level of distributable profit increases, mainly from
the changes in accounting for pensions.
*No effect of the Group's trading cash flows.
*No effect on the Group's management of its business.
Principal areas that affect the financial statements of the Group
1. Pensions and other post-retirement benefits
UK GAAP: Pension costs were accounted for under SSAP 24 'Accounting for pension
costs', whereby the costs of providing pensions were charged to the profit and
loss account based on a percentage of employees pay, with any variations in
regular costs, interest and changes to actuarial gains and losses amortised over
the expected average remaining service lives of current employees. Any
differences between the amounts charged to the profit and loss account and cash
payments made to the pension schemes were recognised in the balance sheet.
IFRS (as required by IAS 19 revised, but closely in line with the disclosures
already made in the notes to the accounts under FRS 17): Current and past
service costs of the Group's pension schemes, the expected return on the
scheme's assets and any interest costs relating to the present value of the
scheme's liabilities are charged to the income statement, with any actuarial
gains and losses being recognised through the statement of recognised income and
expense (SORIE). Any surplus in the fair value of the pension scheme assets over
the present value of the liabilities is recorded as an asset in the balance
sheet, and any deficit as a liability.
The change in the accounting treatment of the Group's pension arrangements will
have no impact on their funding. The EU has not yet endorsed the revisions to
IAS 19 which allows actuarial gains or losses to be recognised through the
SORIE. However, this is expected to occur before the year end.
Page 15
Appendix 1
Accounting impact in 2004:
* Income statement: A decrease to reported pre tax profits of #21,000.
* Balance sheet: A decrease to shareholders's funds of #6,184,000 after
deferred tax, being the elimination of the net pension accrual under SSAP 24 of
#69,000 and the creation of a net pension liability, after deferred tax, of
#6,253,000.
2. Amortisation of purchased goodwill
UK GAAP: Goodwill was amortised over a period of 20 years and was subject to
testing for impairment when circumstances indicated that the carrying value may
not be recoverable.
IFRS (as required by IFRS 3 and also by concession under IFRS1 ):Goodwill is not
amortised but is tested annually for impairment. This applies to all goodwill
arising on acquisitions after 1 January 2004. IFRS 1 'First time adoption' of
IFRS, permits goodwill on acquisitions made before this date to be brought on to
the balance sheet at 1 January 2004 at its carrying value under UK GAAP.
Accounting impact in 2004:
* Income statement: Profit before tax increased by #150,000 in 2004,
being the amount amortised in 2004 under UK GAAP.
* Balance sheet: An increase to shareholders' funds of #150,000 as
purchased goodwill remains at its 1 January 2004 carrying value.
3. Accounting for vacant leasehold properties
UK GAAP: A provision is maintained in respect of vacant leasehold properties to
take account of the net present value of the residual lease commitments over the
long term planning period of five years or, if earlier, the period until which
the Directors expect the properties to be sub-let. In determining the net
present value, cash flows have been discounted using an appropriate nominal,
risk free, pre-tax rate of return (UK gilt for a 5 year period).
IFRS: Under IFRS the directors have taken a more prudent approach and provided
for the net present value of the residual lease commitments over the remaining
term of the lease contract, a period usually longer than 5 years.
Accounting impact in 2004:
* Income statement: An increase in the reported profit before tax of
#64,000.
* Balance sheet: Net assets and equity decrease by #900,000.
Page 16
Appendix 1
4. Preference shares
UK GAAP: Preference shares were treated as capital and associated servicing
charges were treated as dividends.
IFRS (as required by IAS 32): Preference shares with an obligation to transfer
economic benefit are treated as financial liabilities (debt) and not as capital.
The costs of servicing preference shares are disclosed as interest.
Accounting impact in 2004:
* Income statement: A decrease to reported profit before tax of
#1,080,000. At a retained profit level, there is no change.
* Balance sheet: Net assets and equity decrease by #12,000,000 and net
debt increases by the same amount.
5. Deferred tax
UK GAAP: Deferred tax was provided on timing differences between accounting and
tax profits. No provision for the tax effect on the potential disposal of
revalued properties was accounted for.
IFRS (as required by IAS 12): Deferred tax is provided on all temporary
differences between accounting and tax book values, including the requirement to
account for the tax effect of any future property disposals. In addition there
have been deferred tax adjustments to account for the tax effect of other IFRS
changes, including product development, pensions and share-based payments.
Accounting impact in 2004:
* Income statement: No impact.
* Balance sheet: Net assets and equity increase by #2,651,000 which is
mainly attributable to the creation of a deferred tax asset on the IAS 19
pension liability.
6. Other adjustments
Smaller adjustments have also been made to reflect IFRS reclassifications.
Page 17
Appendix 1
Summarised reconciliations from UK GAAP to IFRS
1. 2004 income statement
#000
Retained profit under UK GAAP 419
Pensions (21)
Vacant property provision 64
Goodwill - amortisation 150
--------------
Profit after tax under IFRS 612
==============
2. 2004 net assets
#000
Net assets under UK GAAP 87,095
Pensions and post-retirement benefits (net of deferred tax) (6,184)
Goodwill - amortisation 150
Vacant property provisions (900)
Preference shares (12,000)
--------------
Net assets under IFRS 68,161
==============
Page 18
Appendix 1
3. 2003 net assets (at 1 January 2004)
#000
Net assets under UK GAAP 86,629
Pensions and post-retirement benefits (net of deferred tax) (4,525)
Vacant property provisions (964)
Preference shares (12,000)
--------------
Net assets under IFRS 69,140
==============
Basis of preparation
The financial information has been prepared in accordance with the IFRS
standards expected to be adopted by the EU at 31 December 2005. These standards
are still subject to change. The accounting policies applied are set out in
Appendix 2.
Transitional arrangements
The rules for first time adoption of IFRS are set out in IFRS 1. In general a
company is required to determine its IFRS accounting policies and apply these
retrospectively to determine its opening balance sheet under IFRS. IFRS 1 allows
a number of exceptions to this general requirement. The accounting for goodwill,
share-based payments and property at market value has already been noted above.
In addition, the Group has adopted the exemption that IAS 32 and IAS 39, both
relating to financial instruments, need not be applied to the comparative
periods. Under IAS 21 The effects of changes in foreign exchange rates,
cumulative translation differences arising on consolidation of subsidiaries
should be held in a separate reserve, rather than included in the profit and
loss reserve; the Group has applied the exemption not to adopt this
retrospectively and the reserve has been deemed to be #nil on 1 January 2004.
Presentation of financial statements
The Group's financial statements have been presented in accordance with IAS 1
Presentation of financial statements. Except for the reclassification of
preference dividends as interest, there is no impact on reported profit before
tax as a consequence of IAS 1. Where IAS 1 does not provide definitive guidance
on presentation, for example in relation to aspects of the income statement, the
Group has adopted a format consistent with UK GAAP requirements. This assists
with comparing results with prior years. The format of the balance sheet has
been amended to include items required by IAS 1 to be presented on the face of
the balance sheet, including the requirement to analyse all assets and
liabilities, including provisions, between current and non-current, and present
deferred tax assets separately from deferred tax liabilities, rather than as a
single net amount.
Page 19
Appendix 1
Consolidated income statement for the year ended 31 December 2004
2004
#000
Revenue 13,885
Cost of sales (7,710)
------------------
Gross profit 6,175
Distribution expenses (5,397)
Administrative expenses (1,712)
Other operating income 108
--------------------
Operating loss before financing income (826)
Financial expense (1,090)
Financial income 2,958
----------------------
Net financing income 1,868
Profit before tax 1,042
Income tax charge (430)
----------------------
Profit for the period 612
================
Page 20
Appendix 1
Consolidated balance sheet
2004
#000
Non-current assets
Intangible assets 3,040
Property, plant and equipment 1,297
Deferred tax asset 3,936
-----------------
8,273
Current assets
Inventories 1,124
Trade and other receivables 85,112
Cash and cash equivalents 300
------------------
86,536
Current liabilities
Trade and other payables (4,063)
Income tax payable (152)
------------------
(4,215)
Net current assets 82,321
----------------
Non-current liabilities
Interest bearing loans and borrowings (12,000)
Employee benefits (8,904)
Provisions (1,529)
----------------
(22,433)
----------------
Net assets 68,161
================
Equity
Issued capital 6,889
Share premium 29,757
Retained earnings 31,468
Reserves 47
----------------
Shareholders' funds 68,161
================
Page 21
Appendix 1
Consolidated statement of cash flows
2004
#000
Profit before taxation 1,042
Depreciation 426
Provisions (64)
Movement in inventories (42)
Movement in trade and other receivables 579
Movements in trade and other payables 377
Interest income (2,958)
Interest expense 1,090
----------------
450
Income tax paid (610)
Net cash inflow from operating activities (160)
Cash form financing activities
Interest paid (1,082)
Interest received 1,503
----------------
421
Cash from investing activities
Acquisition of property plant and equipments (164)
-----------------
Increase in cash and cash equivalents 97
================
Page 22
Appendix 2
Chemetall PLC
Accounting policies
This appendix provides a summary of Chemetall's accounting policies under IFRS.
All accounting policies not detailed below remain consistent with their
application under UK GAAP.
Basis of accounting
The restated financial information for the transition to IFRS at 1 January 2004,
the six months ended 30 June 2004 and the year ended 31 December 2004 has been
prepared in accordance with International Accounting Standards (IAS) and
International Financial Reporting Standards (IFRS) issued by the International
Accounting Standards Board and expected to be endorsed by the EU and effective
at 31 December 2005.
The preparation of financial statements in conformity with IFRS requires
management to make judgements, estimates and assumptions that affect the
application of policies and reported amounts of assets, liabilities, income and
expenses. The estimates and assumptions are based on historical experience and
other factors considered reasonable at the time, but actual results may differ
from these estimates. Revisions to these estimates are made in the period in
which they are recognised.
Basis of consolidation
The consolidated financial statements include the financial statements of the
company and its subsidiary undertakings. The acquisition method of accounting
has been adopted. Under this method, the results of subsidiary undertakings
acquired or disposed of in the year are included in the consolidated income
statement from the date of acquisition or up to the date of disposal.
A subsidiary is a company in controlled directly or indirectly by the Group.
Control is the power to govern the financial and operating policies of the
company so as to obtain benefits from its activities.
Intra-group balances arising from intra-group transactions, are eliminated in
preparing the consolidated financial statements.
In the company's financial statements, investments in subsidiary undertakings
are stated at cost less provision for impairment.
Business combinations and goodwill
Goodwill represents the excess of the fair value of the purchase consideration
for the interests in subsidiary and joint venture undertakings over the fair
value to the Group of the net assets and any contingent liabilities acquired.
Goodwill arising on acquisitions is capitalised and subject to impairment
review, both annually and when there are indications that the carrying value may
not be recoverable.
Prior to 1 January 1998 goodwill was written off to reserves in the year of
acquisition.
Goodwill arising since 1 January 1998 until 31 December 2003 was amortised over
its estimated useful life. In addition, annual impairment tests were performed.
Page 23
Appendix 2
Under IFRS such amortisation ceased on 31 December 2003. From 1 January 2004, it
will be subject to impairment reviews as above.
Research and development
Research and development and related product development costs are charged to
the income statement in the year in which they are incurred unless they are
specifically chargeable to and recoverable from customers under agreed contract
terms or the expenditure meets the criteria for capitalisation.
Where the expenditure meets the criteria for capitalisation set out in IAS 38
'Intangible assets', development costs are capitalised and amortised over their
useful economic lives, to a maximum of five years. Such intangible assets are
assessed for impairment annually and any impairment is charged to the income
statement.
Post-retirement benefits
The Group accounts for pensions and post-retirement benefits under IAS 19
Employee benefits.
For defined benefit plans, obligations are measured at present value, while plan
assets are recorded at fair value. The operating and financing costs of such
plans are recognised in the income statement. Current service costs are spread
systematically over the lives of employees and financing costs are recognised in
the periods in which they arise. Actuarial gains and losses are recognised in
the period in which they arise in the statement of recognised income and
expense.
Foreign currencies
Transactions in foreign currencies are recorded using the rate of exchange
ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are translated using the exchange rate ruling
at the balance sheet date and the gains or losses on translation are included in
the profit and loss account.
The accounts of overseas subsidiaries are translated into sterling in the
consolidated accounts on the following basis:
Income statement items are translated at average rate of exchange for the
financial year. Assets and liabilities are translated at the rate of exchange
ruling on the balance sheet date. Exchange difference arising on retranslation
of the opening net assets together with any difference arising between average
exchange rate and the closing rate in the income statement are taken to reserves
via the statement of recognised income and expenses.
Inventories
Inventory and work in progress is valued at the lower of cost, including
appropriate overheads, and net realisable value. Provisions are made against
excess and obsolete inventories.
Intangible assets - patents and concessions
Patents are amortised in line with the stated life of the patents, between 1 and
20 years.
Page 24
Appendix 2
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation
and any provision for impairments in value.
Depreciation is provided to write off cost less the estimated residual value of
property, plant and equipment by equal instalments over their estimated useful
economic lives as follows:
Short leasehold property - life of the lease
Plant, machinery and equipment - 10-33% per annum
Fixtures and fittings - 20% per annum
The directors regularly consider the carrying value of property, plant and
equipment for impairment. Any reduction in value arising from the impairment of
the property, plant and equipment is charged to the income statement for the
year.
Financial instruments
IAS 39 Financial Instruments: Recognition and Measurement requires the
classification of financial instruments into different types for which the
accounting requirement is different.
Financial instruments are initially measured at fair value. Their subsequent
measurement depends on their classification:
Loans and receivables and other liabilities are held at amortised cost.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits.
Share capital
Preference share capital are classified as a liability as dividend payments are
not discretionary.
Dividends on the preference shares are disclosed as interest charges and are
accounted on an accrual basis.
Other dividends are recognised as a liability only in the period in which they
are declared.
Interest
Interest receivable is recognised in the income statement using the effective
interest method as defined in IAS 39 Financial instruments: recognition and
measurement. Page 25
Appendix 2
Taxation
Provision for taxation is made at the current rate and for deferred taxation at
the tax rate expected to apply on all temporary differences between the
treatment of certain items for taxation and for accounting purposes.
Leases
Assets held under finance leases are capitalised and included in property, plant
and equipment at fair value. Depreciation is provided in accordance with the
Group's depreciation policy. The capital elements of obligations under finance
leases are recorded as liabilities. The interest elements of the rental
obligation are allocated to accounting periods over the lease term to give a
constant periodic rate of interest on the outstanding liability.
Rentals payable under operating leases are charged to the income statement on an
accruals basis.
Provisions
A provision is created and recognised as a liability when the Group has a
present obligation (legal or constructive) as a result of a past event and it is
expected that a transfer of economic benefits will be required to settle that
obligation and a reliable estimate of he amount of the transfer can be made.
Vacant leasehold properties
A provision is maintained in respect of vacant leasehold properties to take
account of the net present value of the residual lease commitments over the
remaining term of the lease. In determining the net present value, cash flows
have been discounted using an appropriate nominal, risk free, pre-tax rate of
return.
Revenue
Revenue comprises the amounts receivable for the supply during the year of
specialty chemicals and ancillary equipment to customers excluding value added
tax and overseas sales tax.
Sales are recognised when the significant risk and rewards of ownership of goods
are transferred to the customer.
IFRS transitional arrangements
When preparing the Group's IFRS balance sheet at 1 January 2004, the date of
transition, the following optional exemptions, provided by IFRS 1 First-time
adoption of International Financial Reporting Standards from full retrospective
application of IFRS accounting policies, have been adopted:
Business combinations - the provisions of IFRS 3 have been applied from
1 January 2004. The net carrying value of goodwill at 31 December 2003 under the
previous accounting policies has been deemed to be the cost at 1 January 2004;
Page 26
Appendix 2
Foreign exchange transactions - IAS 21 requires that cumulative translation
differences arising on consolidation of subsidiaries should be held in a
separate reserve. This reserve has been deemed to be nil at 1 January 2004 and
the IAS 21 requirement has been applied prospectively from 1 January 2004.
Page 27
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