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This is the first year the group has presented its financial statements under IFRS. The following disclosures are required in the year of transition. The last financial statements under UK GAAP were for the year ended 31 December 2004 and the date of transition to IFRS was therefore 1 January 2004.
| Reconciliation of equity at 1 January 2004 | Note | UK GAAP £m |
Transition adjustments (restated) £m |
IFRS £m |
|---|---|---|---|---|
| Non-current assets | ||||
| Goodwill | 226.4 | - | 226.4 | Other intangible assets | 0.6 | - | 0.6 |
| Property, plant and equipment | 92.4 | - | 92.4 | Financial assets | 0.6 | - | 0.6 |
| Deferred tax asset | (a) | 12.5 | 20.2 | 32.7 |
| 332.5 | 20.2 | 352.7 | ||
| Current assets | Inventories | (b) | 83.8 | (0.2) | 83.6 |
| Taxation recoverable | 9.2 | - | 9.2 | Trade and other receivables | (b) | 132.6 | 0.2 | 132.8 |
| Cash and cash equivalents | 31.7 | - | 31.7 | |
| 257.3 | - | 257.3 | ||
| Total assets | 589.8 | 20.2 | 610.0 | |
| Current liabilities | Short-term borrowing | (0.8) | - | (0.8) |
| Trade and other payables | (b), (c), (d) | (131.2) | 8.0 | (123.2) | Current tax liabilities | (29.1) | - | (29.1) |
| Provisions | (11.4) | - | (11.4) | |
| (172.5) | 8.0 | (164.5) | ||
| Net current assets | 84.8 | 8.0 | 92.8 | |
| Non-current liabilities | Medium and long-term borrowings | (194.3) | - | (194.3) |
| Other payables | (1.9) | - | (1.9) | Retirement benefit obligations | (a) | (12.0) | (5.7) | (17.7) |
| Provisions | (a) | (19.7) | 17.6 | (2.1) |
| (227.9) | 11.9 | (216.0) | ||
| Total liabilities | (400.4) | 19.9 | (380.5) | |
| Net assets | 189.4 | 40.1 | 229.5 | |
| Equity | Issued capital | 6.2 | - | 6.2 |
| Share premium account | 227.1 | - | 227.1 | Retained earnings and other reserves | (43.9) | 40.1 | (3.8) |
| Equity shareholders' funds | 189.4 | 40.1 | 229.5 | |
| Total equity and liabilities | 589.8 | 20.2 | 610.0 | |
| Reconciliation of equity at 31 December 2004 | Note | UK GAAP £m |
Transition adjustments £m |
IFRS £m |
|---|---|---|---|---|
| Non-current assets | ||||
| Goodwill | (a), (e) | 223.5 | (4.5) | 219.0 | Other intangible assets | (e) | 0.6 | 4.6 | 5.2 |
| Property, plant and equipment | 93.7 | - | 93.7 | Deferred tax asset | (a) | 21.4 | 18.8 | 40.2 |
| 339.2 | 18.9 | 358.1 | ||
| Current assets | Inventories | (b) | 94.3 | (0.3) | 94.0 |
| Taxation recoverable | (a) | 16.5 | (14.6) | 1.9 | Trade and other receivables | (b) | 145.7 | 0.1 | 145.8 |
| Cash and cash equivalents | 34.4 | - | 34.4 | |
| 290.9 | (14.8) | 276.1 | ||
| Total assets | 630.1 | 4.1 | 634.2 | |
| Current liabilities | Short-term borrowing | (0.3) | - | (0.3) |
| Trade and other payables | (b), (c), (d), (h) | (148.0) | 13.5 | (134.5) | Current tax liabilities | (a) | (48.7) | 14.6 | (34.1) |
| Provisions | (g) | (9.5) | 2.5 | (7.0) |
| (206.5) | 30.6 | (175.9) | ||
| Net current assets | 84.4 | 15.8 | 100.2 | |
| Non-current liabilities | Medium and long-term borrowings | (193.0) | - | (193.0) |
| Other payables | (h) | (1.1) | (4.3) | (5.4) | Retirement benefit obligations | (a) | (14.0) | (6.7) | (20.7) |
| Provisions | (a), (g) | (19.5) | 15.1 | (4.4) |
| (227.6) | 4.1 | (223.5) | ||
| Total liabilities | (434.1) | 34.7 | (399.4) | |
| Net assets | 196.0 | 38.8 | 234.8 | |
| Equity | Issued capital | 6.2 | - | 6.2 |
| Share premium account | 227.8 | - | 227.8 | Retained earnings and other reserves | (38.0) | 38.8 | 0.8 |
| Equity shareholders’ funds | 196.0 | 38.8 | 234.8 | |
| Total equity and liabilities | 630.1 | 4.1 | 634.2 | |
| Reconciliation of profit for 2004 | Note | UK GAAP £m |
Transition adjustments £m |
IFRS £m |
|---|---|---|---|---|
| Revenue | (b) | 614.2 | (0.1) | 614.1 |
| Cost of sales | (b) | (262.4) | (0.1) | (262.5) | Gross profit | 351.8 | (0.2) | 351.6 |
| Operating costs | (a), (e), (f) | (299.6) | (0.8) | (300.4) | Operating profit | 52.2 | (1.0) | 51.2 |
| Loss on sale or termination of business | (1.2) | - | (1.2) | |
| Profit before interest and tax | 51.0 | (1.0) | 50.0 | |
| Financial income | (c) | 0.3 | 3.7 | 4.0 | Finance costs | (c) | (14.4) | (3.7) | (18.1) |
| Profit before taxation | 36.9 | (1.0) | 35.9 | |
| Taxation | (a) | (12.2) | (0.1) | (12.3) |
| Profit after tax attributable to equity shareholders | 24.7 | (1.1) | 23.6 | |
| Basic earnings per share (pence) | 20.4p | (0.9p) | 19.5p | |
| Dilutive earnings per share (pence) | 20.4p | (0.9p) | 19.5p | |
Deferred tax on US goodwill - goodwill from the acquisition of US businesses previously written off to reserves under UK GAAP is deductible for US tax purposes; under IAS 12 this gives rise to a deferred tax asset. Under UK GAAP the current tax deduction obtained each year gave rise to a deferred tax liability.
At 31 December 2004, the deferred tax liability attributable to US goodwill under UK GAAP was £17.6m (1 January 2004: £17.6m). Under IFRS this has been eliminated and replaced with a deferred tax asset of £11.0m (1 January 2004: £13.5m), a combined adjustment of £28.6m (1 January 2004: £31.1m).
The impact on the income statement in the year ended 31 December 2004 was an increase in the taxation charge of £0.2m. The remaining movement of £2.3m between 1 January 2005 and 31 December 2005 represents foreign exchange movements on the asset, and this is recorded in reserves.
Goodwill reduction - when a deferred tax asset is recognised following a business acquisition, IAS 12 requires that goodwill arising on the acquisition be reduced by a corresponding amount, with the reduction in goodwill charged to the income statement. Under UK GAAP, the group recognised a deferred tax asset of £12.2m at 31 December 2004 (1 January 2004: £nil), relating to tax losses brought forward from a prior acquisition that took place in 2000. The corresponding adjustment to goodwill, a reduction in carrying value of £12.2m at 31 December 2004 (1 January 2004: £nil), has been made under IFRS and is included in operating costs in the income statement.
Deferred tax asset on pension scheme deficit - under IFRS, the deferred tax asset arising on the defined benefit pension scheme deficit must not be included within the pension scheme deficit as previously was the case under UK GAAP. Accordingly, a deferred tax asset of £6.7m (1 January 2004: £5.7m) has been reclassified from retirement benefit scheme obligations to deferred tax assets in the balance sheet. There was no impact on the income statement.
Current tax - the 2004 current tax debtor and creditor have been restated to better reflect the 2005 current tax debtor and creditor. The debtors and creditors of companies forming local tax groupings have now been netted off to give a net debtor or creditor for the relevant jurisdiction. The reclassification at 31 December 2004 was a decrease in tax recoverable, and a corresponding increase in current tax payable of £14.6m.
Other tax adjustments - the non-tax IFRS adjustments outlined below have been tax effected as at 31 December 2004. The impact on the balance sheet at 31 December 2004 was an increase in net assets of £1.1m (1 January 2004: £1.0m). The impact on the tax charge in the income statement in the year ended 31 December 2004 was a credit of £0.1m.
IAS 18, Revenue is similar to the UK GAAP treatment for revenue recognition in many respects, although it contains specific additional guidance, such as on accounting for contracts that include installation elements. Following a review of existing policies this gives rise to some subtle differences in the timing of accounting for certain transactions.
The net deferral of revenue and associated costs in the balance sheet at 31 December 2004 was £2.3m (1 January 2004: £2.1m). Of this deferral, £0.3m (1 January 2004: £0.2m) reduces inventory, £0.1m (1 January 2004: £0.2m) increases trade and other receivables, and £2.1m (1 January 2004: £2.1m) is included within other payables. In the income statement at 31 December 2004, this movement was recognised as a reduction in turnover of £0.1m and an increase in costs of £0.1m.
Pensions - Spectris adopted the UK GAAP standard FRS 17, Retirement Benefits in 2001, and therefore the adoption of IAS 19, Pensions and Other Post-Retirement Benefits does not result in significant adjustments for the accounting for pensions. The group will continue to recognise immediately any variations in the scheme deficit or surplus in full in a statement of recognised income and expense, outside of the income statement, as permitted by IAS 19.
IAS 1, Presentation of Financial Statements requires that items of income and expense are not presented on a net basis in the income statement where no legal right of set-off exists. As a result of this, the finance costs associated with the retirement benefit scheme have been restated on a gross basis on the face of the income statement. This has the effect of increasing financial income at 31 December 2004 by £3.7m, and increasing financial costs by £3.7m. There is no overall impact on the result for the year to 31 December 2004.
Holiday pay - IAS 19 requires short-term accumulating benefits such as holiday pay entitlement and sick pay to be accrued over the period in which the entitlement is earned. The additional liability in the balance sheet at 31 December 2004 is £1.1m (1 January 2004: £1.1m). There was no impact on the income statement for the year to 31 December 2004.
IAS 10, Events After the Balance Sheet Date requires that dividends declared after the balance sheet date should not be recognised as a liability at that balance sheet date as the liability does not represent a present obligation as defined by IAS 37, Provisions, Contingent Liabilities and Contingent Assets. Under IFRS, dividends are shown as a deduction from reserves; therefore the income statement no longer shows the deduction of dividends. The balance sheet adjustment at 31 December 2004 was a reduction in liabilities of £12.4m (1 January 2004: £11.2m).
IAS 38, Intangible Assets requires that goodwill is not amortised. Instead it is subject to an annual impairment review. As the group has elected not to apply IFRS 3, Business Combinations retrospectively to acquisitions prior to 1 January 2004, the UK GAAP goodwill balance at 31 December 2003 (£226.4m) has been included in the transitional IFRS balance sheet and is no longer amortised. The goodwill amortisation in the year to 31 December 2004 of £13.0m under UK GAAP has been reversed, resulting in a reduction in operating costs of £13.0m. The related exchange adjustment associated with the reversal of amortisation increased goodwill by a further £0.5m (1 January 2004: £nil).
The group made four bolt-on acquisitions of businesses during 2004. These acquisitions included the purchase of finite-lived intangible assets not previously recognised under UK GAAP. Under IFRS, these intangible assets are reclassified out of goodwill, and amortised over their useful economic lives. The reclassified intangible assets are being amortised over various periods not exceeding five years, depending on their nature; the corresponding amortisation charge for the year to 31 December 2004 was £1.2m, included within operating costs. The balance sheet reclassification of goodwill to intangibles arising from 2004 acquisitions as at 31 December 2004 was £5.8m.
IFRS 2, Share-based Payments requires that an expense for share options granted be recognised in the financial statements based on their fair value at the date of grant. This expense is recognised over the vesting period of the options. The charge to the income statement for the year to 31 December 2004 was £0.4m, included within operating costs. As this transaction is settled in equity, there is a net nil effect on the balance sheet.
Under IAS 1, Presentation of Financial Statements the group is required to present balance sheet amounts according to whether the item is current or non-current. Under UK GAAP, provisions were not split between amounts due in less than one year and amounts due in more than one year. Accordingly, the £9.5m of provisions under UK GAAP at 31 December 2004 have been reclassified so that £7.0m is classified as a current liability and £2.5m is classified as a non-current liability.
A reclassification of £4.3m from current liabilities to non-current liabilities has been made at 31 December 2004 to better reflect the nature of certain amounts. There is no impact on the income statement.
There is no overall impact on the movement in cash and cash equivalents at 31 December 2004. Within the cash flow statement, there are reclassifications between captions for the Employee Benefit Trust and corporation tax. Movements of £0.2m in the Employee Benefit Trust were previously categorised within capital expenditure, under IFRS they are now included within financing. Corporation tax paid of £7.7m is reclassified from its own sub-heading under UK GAAP to within 'Cash flows from operating activities' under IFRS.