25 April 2006
Lambert Howarth Group p.l.c.
Preliminary Results for the year ended 31 December 2005
Highlights
* Revenue from continuing operations was �88.2 million compared with �125.5
million last year.
* Profit before taxation was �2.4 million, a decrease of �7.9 million from �
10.3 million in 2004 after including:
*
+ goodwill impairment of �6.1 million.
+ increased settlement discount provided to Marks & Spencer of �2.8
million
+ gains on derivative instruments of �1.8 million.
+ profit on sale of surplus property of �1.4 million
* Successful transfer of sourcing to the Far East following closure of
operations in Portugal and Isle of Man
* Returned �10 million to shareholders: the group is still highly liquid with
net cash of �2.6 million and no gearing.
* Disposal of surplus properties releasing �4.6 million cash.
* Maintained dividends at 11p per share.
* Garry Hogarth steps down as Chief Executive and from the Board on 2 June
2006.
* Pamela Harper to be appointed as Chief Executive on 2 June 2006. Pamela
joins from Burberry Group PLC where she was Executive Vice President for
accessories and shoes worldwide.
Comments of Fred Vinton, Chairman:
"Trading conditions during 2005 were difficult for the group in a weak retail
market. We expect retail markets will remain extremely competitive and we will
continue to respond to the conditions; we are equipped to meet the challenges
and successfully develop the group in the future.
Although we are sorry to lose Garry, we are pleased that someone of Pamela's
experience is joining us".
For further information: 020 7258 9988
Lambert Howarth Group p.l.c.
Fred Vinton, Chairman
Garry Hogarth, Chief Executive
John Gibson, Group Finance Director
Chairman's statement
Results for 2005
Trading conditions during 2005 were difficult for the group with a weak retail
market, especially towards the end of the year which is our most important
period, combined with considerable pressures on costs and margins. Our reported
performance also reflects the impact of adopting International Financial
Reporting Standards (IFRSs).
Revenue from continuing operations at �88.2 million was significantly lower
than last year at �125.5 million, principally the effect of weak demand across
all our business activities.
Profit before taxation was �2.4 million, a decrease of �7.9 million from �10.3
million last year. This was the result of a number of significant items,
including: the recognition of a goodwill impairment of �6.1 million in one of
our subsidiaries, gains on derivative instruments of �1.8 million and profit on
the sale of surplus property in Northamptonshire of �1.4 million.
Operating profit excluding the above items but taking into account additional
discount provided to Marks & Spencer of �2.8 million, fell to �5.1 million from
�12.2 million.
After returning �10 million to shareholders in November last year through a
tender offer, the group continued to be highly liquid with net cash at the year
end of �2.6 million and no gearing.
The Board is proposing a final dividend of 7.5p (7.5p per share in 2004) which
brings the total annual dividend to 11p per share (11p per share in 2004). The
final dividend will be paid on 16 June 2006 to shareholders on the register on
12 May 2006.
Operations
Having anticipated increased margin and cost pressures, we closed our
operations in Portugal and on the Isle of Man during 2005 in favour of sourcing
from the Far East. We are very pleased with the quality and performance of our
new suppliers, who have exceeded our expectations. It is unfortunate that
despite this successful initiative, we will be adversely affected by the
anti-dumping duty imposed by the European Union in respect of shoe supplies
from China and Vietnam in 2006. We are still lobbying with other footwear
importers and retailers for a relaxation in the rates provisionally set ahead
of the final decision expected in early October 2006. However, the pursuit of
value continues and we are constantly looking for new sources of supply, so
that we remain competitive in our markets.
The challenges affecting our homeware business in the UK have been considerable
with a general downturn in demand causing a significant decline in sales,
stalling our growth plans and resulting in losses. Consequently, we have
reviewed carefully the carrying value of goodwill in relation to our UK
operation and have provided for an additional impairment in value of �4.6
million over the �1.5 million impairment recognised at the half-year. We have
reorganised the business to deliver a return to profitability and the
resumption of growth.
On the new business side, we have, during the year, been successful in adding,
to our wide portfolio, a number of new clients including John Lewis, GAP, and
Coast for footwear and accessories and Homebase, Sainsbury and Debenhams for
our homeware accessories.
We have also been successful in disposing of surplus properties, including the
factory on the Isle of Man and the land in Northamptonshire releasing �4.6
million in cash for the group.
Strategy
We have considerable skills in the design and supply of footwear and
accessories and we intend to continue to leverage these skills by focusing
increasingly on our global outsourcing business, while continuing to look for
opportunities to acquire or develop brands.
We also see considerable opportunities to increase the stable of licences we
manage in our Brands business and are currently in active discussions with a
number of potential candidates.
Board
Garry Hogarth, who founded the accessories business over 15 years ago and has
led the group for over six years, has decided to stand down as Chief Executive
and will leave the company at the forthcoming Annual General Meeting. Garry has
worked successfully to create a leading design and sourcing business. I wish to
take this opportunity of thanking him for his commitment to the group; I have
enjoyed working with him, and wish him well in his next venture. He will work
as a consultant to the group until the end of 2006.
In the next phase of the company's development and with a brand emphasis as
central to our strategy I am delighted to announce the appointment of Pamela
Harper, as Chief Executive, effective 2 June 2006. Pamela brings to us over 23
years in international wholesaling, retailing and design and supplier
management. She joins us from Burberry Group PLC where she was Executive Vice
President for Accessories and Shoes Worldwide and most recently spearheaded the
initial task force for Burberry's business and infrastructure transformation
programme. Her rare combination of skills and experience equip her to lead the
group in its next phase of development.
As announced earlier this year, we have made a number of further appointments
to the Board: Stewart Binnie who is Chairman of Mosaic Fashions hf (the holding
company for Oasis, Coast, Karen Millen and Whistles) will take over as the
Senior Non-Executive Director and Chairman of the Audit Committee; Sue Hobden,
the Executive Director responsible for our Marks & Spencer business and Jo
Newton, the Executive Director responsible for the Brands business. These
appointments will strengthen the Board and increase our focus on the group's
key customers and products.
Kate Swann will retire from the Board at the Annual General Meeting in June,
having served her second term of three years; Kate has made an important
contribution and we thank her for her counsel over this time.
Outlook
We see the retail market continuing to be extremely competitive with value
initiatives dominant. We have and will continue to respond to these conditions
on a global basis. We consider the Board, with a clear focus on customers and
products and a defined brand strategy, is equipped to meet the challenges we
face and successfully develop the group in the future.
A M Vinton
Chairman
25 April 2006
Chief Executive's review of operations
2005 has been extremely challenging for the group with difficult trading
conditions and weaker consumer spending. Many changes have been necessary to
the structure of our operations as we re-focused our business.
We are reporting our performance for the year under two distinct divisions of
Footwear and Accessories and Homeware Accessories.
Footwear and Accessories
As a result of the changing business model at Marks & Spencer our business has
suffered for a number of reasons. Marks & Spencer again increased the
settlement discount effective from Spring 2005, increased their margin
requirements, reduced retail selling prices and have generally bought less in
our categories. This has resulted in a sharp decline in our revenues from our
major customer.
To counter this we have further reduced our costs in the UK whilst building up
our infrastructure in Asia, particularly in China. The changes included the
closure of our operations in Portugal and on the Isle of Man in favour of
sourcing from the Far East. We have also looked closely at our entire supply
base and where appropriate have moved to less expensive units.
We have introduced new product lines in accessories, in beach and casual
apparel, and enjoyed success with these initiatives.
The team have worked extremely hard to rebuild our business, under difficult
circumstances, by ensuring service and cost effectiveness of supply.
In other areas of private label supplied to the high street we have achieved
growth and responded by strengthening the team to capitalise on these
opportunities.
Our Brands business achieved further growth despite market conditions and
changes at French Connection in its brand emphasis.
We see opportunities to further develop the brands operation and we are
currently talking to a number of companies with regards to taking on additional
licences to add to our current portfolio of brands. We are also continuing our
search for branded acquisitions.
Homeware Accessories
The market conditions in homeware have been challenging in 2005, with much
reduced demand levels for our products. Turnover has consequently declined
significantly with losses sustained in this division.
We appointed a new managing director in October, Jack Yardley, with many years
experience in running his own business unit within our own group to strengthen
the team and implement the recovery plan. We have recruited new talent to our
sales team with the aim of rebuilding turnover with particular focus on leading
retailers. Unprofitable areas of the business have been discontinued.
2006 will be a vital year for the division and I am encouraged that the
initiatives we are taking will bring the operation back into profit.
Natural Selection, based in Barcelona, increased sales against a background of
difficult market conditions in Spain. The strategy of supplying the wholesale
market in Spain and the supply to retailers in France has delivered this
growth.
We see further growth from our Spanish homeware business as we expand in these
new markets with improved profitability being delivered.
People
After over six years with Lambert Howarth I have decided to step down from my
role as Chief Executive with effect from the forthcoming Annual General
Meeting. Previously, I had spent 11 years building my accessories business,
which was sold to Lambert Howarth at the end of 1999.
The business environment is changing rapidly and the group needs to face these
new challenges. The Board and I feel that it is time for new leadership to take
the group forward.
I have enjoyed my time here and would like to thank everyone who has worked
with me over the past few years in delivering the successes we have achieved. I
would particularly like to mention Fred Vinton, who has been highly supportive
of the management team.
I wish everyone connected with Lambert Howarth much success in the future and
offer my congratulations to Sue Hobden and Jo Newton on their appointment to
the group Board. Under the leadership of the new Chief Executive, Pamela
Harper, I am sure the group will have a successful future.
G T Hogarth
Chief Executive
25 April 2006
Lambert Howarth Group p.l.c.
Consolidated income statement
for the year ended 31 December 2005
2005 2004
Notes �'000 �'000
Continuing operations
Revenue 4 88,193 125,515
Cost of sales before goodwill impairment (61,821) (89,722)
Goodwill impairment (6,115) (1,264)
Gross profit 20,257 34,529
Selling and distribution expenses (14,463) (14,600)
Administration expenses (6,854) (8,945)
Other income/(expenses) 5 3,267 (512)
Operating profit 2,207 10,472
Interest payable (151) (340)
Interest receivable 327 137
Profit before taxation 2,383 10,269
Taxation (2,208) (3,404)
Profit for the year from continuing operations 175 6,865
Discontinued operations
Profit/(loss) for the year from discontinued 164 (19)
operations
Profit for the year 339 6,846
Earnings per share 7
- Basic 1.4p 27.8p
- Diluted 1.4p 27.6p
Earnings per share from continuing operations 7
- Basic 0.7p 27.9p
- Diluted 0.7p 27.6p
Lambert Howarth Group p.l.c.
Consolidated statement of recognised income and expense
for the year ended 31 December 2005
2005 2004
Note �'000 �'000
Profit for the financial year 339 6,846
Net exchange adjustments offset in reserves net of 11 (93) 50
tax
Pension scheme
- actuarial (loss)/gain recognised in pension (1,920) 1,604
scheme
- deferred tax on actuarial (loss)/gain 576 (481)
Net (losses)/gains not recognised in income (1,437) 1,173
statement
Total recognised income for the year (1,098) 8,019
Adoption of IAS 32/39 (1,043) -
Lambert Howarth Group p.l.c.
Consolidated balance sheet
at 31 December 2005
2005 2004
Notes �'000 �'000
ASSETS
Non-current assets
Goodwill 8 14,824 20,939
Property, plant and equipment 5,574 8,608
Investments accounted for using equity method - -
Deferred income tax assets 2,515 3,036
22,913 32,583
Current assets
Inventories 14,877 21,276
Trade and other receivables 9,633 11,390
Financial assets
- Derivative financial instruments 740 -
Cash and cash equivalents 2,808 10,086
28,058 42,752
Assets classified as held for sale and included 9 1,433 -
in disposal groups
29,491 42,752
LIABILITIES
Current liabilities
Financial liabilities
- Borrowings 244 208
- Derivative financial instruments - -
Trade and other payables 7,682 14,601
Current tax liabilities - 1,740
7,926 16,549
Net current assets 21,565 26,203
Non-current liabilities
Retirement benefit obligations 9,691 9,306
Other non-current liabilities - 22
9,691 9,328
Net assets 34,787 49,458
SHAREHOLDERS' EQUITY
Capital and reserves
Share capital 10, 11 2,029 2,474
Share premium account 11 1,175 665
Merger and other reserves 11 23,430 23,115
Retained earnings 11 8,153 23,204
Total shareholders' equity 34,787 49,458
Lambert Howarth Group p.l.c.
Consolidated cash flow statement
for the year ended 31 December 2005
2005 2004
Notes �'000 �'000
Cash flows from operating activities
Cash flows from operations 3,640 8,803
Interest received 327 136
Interest paid (151) (467)
Tax paid (3,089) (3,949)
Net cash from operating activities 727 4,523
Cash flows from investing activities
Proceeds from sale of property, plant and 4,576 4
equipment
Purchase of property, plant and equipment (184) (629)
(Repayment)/receipt of grants (229) 66
Net cash from/(used in) investing activities 4,163 (559)
Cash flows from financing activities
Net proceeds from issue of ordinary share capital 10 551 177
Purchase of ordinary share capital including costs 10 (10,191) -
Dividends paid to shareholders 6 (2,752) (2,588)
Net cash used on financing activities (12,392) (2,411)
Net (decrease)/increase in cash and cash (7,502) 1,553
equivalents
Cash and cash equivalents at 1 January 9,878 8,459
Effects of exchange rate changes 188 (134)
Cash and cash equivalents at 31 December 2,564 9,878
Cash 2,808 10,086
Overdraft (244) (208)
Net cash at 31 December 2,564 9,878
Lambert Howarth Group p.l.c.
Cash flow from operating activities
2005 2004
Reconciliation of net profit to cash flow from operating �'000 �'000
activities
Continuing operations
Net profit 175 6,865
Tax 2,208 3,417
Depreciation 409 431
(Profit)/loss on disposal of property, plant and equipment (1,442) 18
Impairment of goodwill 6,115 1,264
Impairment of investments - 512
Share compensation expense (82) 93
Non cash movement on fair value hedges (2,230) -
Interest income (327) (137)
Interest expense 151 340
Effect of exchange rate changes (188) 134
Changes in working capital (excluding effects of
acquisitions and disposal of subsidiaries):
Decrease/(increase) in Inventories 4,786 (4,435)
Decrease in Trade and other receivables 2,098 677
Decrease in Trade and other payables (6,173) (382)
(Decrease)/increase in Pension obligations (997) 255
Cash flows from continuing operations 4,503 9,052
Discontinued operations
Net profit/(loss) 164 (19)
Tax 14 153
Depreciation 49 281
(Profit)/loss on disposal of property, plant and equipment (1,859) -
Impairment of assets 31 -
Deferred income - grants 48 (71)
Changes in working capital
Decrease/(increase) in Inventories 1,612 (396)
Decrease/(increase) in Trade and other receivables 170 (387)
(Decrease)/increase in Trade and other payables (639) 252
Decrease in Pension obligations (453) (62)
Cash flows from discontinued operations (863) (249)
Cash flows from operating activities 3,640 8,803
Lambert Howarth Group p.l.c.
Notes to the financial statements
for the year ended 31 December 2005
* Accounting convention and basis of preparation
These financial statements have been prepared in accordance with International
Financial Reporting Standards and IFRIC interpretations endorsed by the
European Union (EU) and with those parts of the Companies Act 1985 applicable
to companies reporting under IFRS. The financial statements have been prepared
under the historical cost convention, as modified by the revaluation of
derivative instruments at fair value through the income statement and in
accordance with applicable International Accounting Standards. A summary of the
more important group accounting policies is set out below, together with an
explanation of where changes have been made to previous policies on the
adoption of new accounting standards during the year. These accounting policies
apply throughout the group.
These accounts constitute consolidated financial statements.
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Although these estimates are based on management's best
knowledge of the amount, event or actions, actual results may differ from those
estimates. The areas involving a higher degree of judgement or complexity, or
areas where assumptions and estimates are significant to the consolidated
financial statements, are disclosed in Note 3.
Reconciliations and descriptions of the effect of the transition from UK GAAP
to IFRS on the group's equity and its net income and cash flows are provided in
Note 12 (b).
* Summary of significant accounting policies
*
a. Introduction
The principle accounting policies adopted in the preparation of these
financial statements are set out below.
The policies set out below have been consistently applied to all the years
presented except for those relating to the classification and measurement
of financial instruments. The group has made use of the exemption available
under IFRS1 to only apply IAS 32 and IAS 39 from 1 January 2005, this and
other exemptions are detailed in Note 12 (a). The policies applied to
financial instruments for 2004 and 2005 are disclosed separately below.
b. Consolidation
Subsidiaries
Subsidiaries are all entities over which the group has the power to govern
the financial and operating policies generally accompanying a shareholding
of more than one half of the voting rights. Subsidiaries are fully
consolidated from the date of which control is transferred to the group.
The purchase method of accounting is used to account for the acquisition of
subsidiaries by the group. The cost of an acquisition is measured as the
fair value of the assets given, equity instruments issued and liabilities
incurred or assumed at the date of exchange, plus costs directly
attributable to the acquisition. Identifiable assets acquired and
liabilities and contingent liabilities assumed in a business combination
are measured initially at their fair values at the acquisition date,
irrespective of the extent of any minority interest. The excess of the cost
of acquisition over the fair value of the group's share of identifiable net
assets acquired is recorded as goodwill.
Inter-company transactions, balances and unrealised gains on transactions
between group companies are eliminated. Unrealised losses are also
eliminated unless the transaction provides evidence of an impairment of the
asset transferred.
Associates
The group's interests in entities over which the group has significant
influences are accounted for by the equity method of accounting. The
carrying value of investments in associates is reviewed if events or
changes in circumstances indicate a potential impairment. Any impairment is
charged to the income statement.
c. Foreign currency translation
Functional and presentation currency
Items included in the financial statements of each of the group's entities
are measured using the currency of the primary economic environment in
which the entity operates (the `functional currency'). The consolidated
financial statements are presented in Pounds Sterling, which is the
company's functional and presentation currency.
Transactions and balances
Foreign currency transactions are translated into the functional currency
using the exchange rates prevailing at the dates of the transactions.
Foreign exchange gains and losses resulting from the settlement of such
transactions and from the translation at year end exchange rates of
monetary assets and liabilities denominated in foreign currencies are
recognised in the income statement.
Group companies
The results and financial position of all group entities (none of which has
the currency of a hyperinflationary economy) that have a functional
currency different from the presentation currency are translated into the
presentation currency as follows:
assets and liabilities for each balance sheet presented are translated at
the closing rate at the date of that balance sheet;
income and expenses for each income statement are translated at average
exchange rates; and
all resulting exchange differences are recognised as the separate component
of equity called the translation reserve.
Goodwill and fair value adjustments arising on the acquisition of a foreign
entity are treated as assets and liabilities of the foreign entity and
translated at the closing rate.
d. Property, plant and equipment
Land and buildings comprise mainly warehouses and offices. All property,
plant and equipment is shown at cost less subsequent depreciation and
impairment, except for land, which is shown at cost less impairment. Cost
includes expenditure that is directly attributable to the acquisition of
the items.
Subsequent costs are included in the asset's carrying amount or recognised
as a separate asset, as appropriate, only when it is probable that future
economic benefits associated with the item will flow to the group and the
cost of the item can be measured reliably. All other repairs and
maintenance costs are charged to the income statement during the financial
period in which they are incurred.
Depreciation on assets is calculated using straight-line method to allocate
the cost of each asset to its residual value over its estimated useful
life, as follows:
+ freehold buildings 25 to 40 years
+ leasehold buildings over the period of the lease
+ machinery and equipment 5 to 10 years
+ computer equipment 3 years
+ motor vehicles 4 years
+ moulds 2 to 3 years
The assets' residual values and useful lives are reviewed, and adjusted if
appropriate, at each balance sheet date.
An asset's carrying amount is written down immediately to its recoverable
amount if the asset's carrying amount is greater than its estimated
recoverable amount (see Note 2 (f)).
Gains and losses on disposals are determined by comparing proceeds with the
carrying amount. These are included in the income statement.
a. Intangible assets
Goodwill
Goodwill represent the excess of the cost of an acquisition over the fair
value of the group's share of the net identifiable assets of the acquired
subsidiary at the date of the acquisition. Goodwill on acquisitions of
subsidiaries is included in intangible assets. Goodwill is tested annually
for impairment and carried at cost less accumulated impairment losses. The
carrying value of capitalised goodwill is reviewed if events or changes in
circumstances indicate a potential impairment. Any impairment is charged to
the income statement. Gains and losses on the disposal of an entity include
the carrying amount of goodwill relating to the entity sold. Goodwill is
allocated to cash-generating units for the purpose of impairment testing.
Computer software
Acquired computer software licences are capitalised on the basis of the
costs incurred to acquire and bring to use the specific software. These
costs are amortised over their estimated useful lives (three to five
years).
Costs associated with maintaining computer software programmes are
recognised as an expense as incurred.
b. Impairment of assets
Assets that have an indefinite useful life are not subject to amortisation
and are tested annually for impairment and whenever events or changes in
circumstance indicate the carrying amount may not be recoverable. Assets
that are subject to amortisation are tested for impairment whenever events
or changes in circumstances indicate that the carrying amount may not be
recoverable. An impairment loss is recognised for the amount by which the
asset's carrying amount exceeds its recoverable amount. The recoverable
amount is the higher of an asset's fair value less costs to sell the value
in use. For the purposes of assessing impairment, assets are grouped at the
lowest levels for which there are separately identifiable cash flows
(cash-generating units).
c. Inventories
Inventories are stated at the lower of cost and net realisable value. Cost
is determined using the first-in, first-out (FIFO) method. The cost of
finished goods and work in progress comprises raw materials, direct labour,
other direct costs and related production overheads (based on normal
operating capacity). Net realisable value is the estimated selling price in
the ordinary course of business, less applicable variable selling expenses.
From 1 January 2004 to 31 December 2004
The cost of the inventory includes the net expense/income on maturity of
forward currency contracts used to hedge the purchase of the inventory.
From 1 January 2005
Inventory costs include the transfer from equity of any gains/losses on
qualifying cash flow hedges relating to inventory purchases.
d. Trade receivables
Trade receivables are recognised initially at fair value, less provision
for impairment, returns (estimated based upon the group's historical rate
of returns) and discounts. A provision for impairment of trade receivables
is established when there is objective evidence that the group will not be
able to collect all amounts due according to the original terms of the
receivables. Any change in the amount of the provision is recognised in the
income statement.
e. Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held at call with
banks, other short-term highly liquid investments with original maturities
of three months or less, and bank overdrafts. Bank overdrafts are shown
within borrowings in current liabilities on the balance sheet.
f. Share capital
Incremental costs directly attributable to the issue of new shares or
options are shown in equity as a deduction from the proceeds, net of tax.
g. Deferred tax
Deferred tax is provided in full, using the liability method, on temporary
differences arising between the tax bases of assets and liabilities and
their carrying amounts in the consolidated financial statements. The
deferred tax is not accounted for on the initial recognition of an asset or
liability in a transaction, other than a business combination, that at the
time of the transaction affects neither accounting nor taxable profit or
loss. Deferred tax is determined using tax rates (and laws) that have been
enacted or substantially enacted by the balance sheet date and are expected
to apply when the related deferred tax asset is realised or the deferred
tax liability is settled.
Deferred tax assets are recognised to the extent that is probable that
future taxable profit will be available against which the temporary
differences can be utilised.
Deferred tax is provided on temporary differences arising on investments in
subsidiaries, and associates, except where the timing of the reversal of
the temporary difference is controlled by the group and it is probable that
the temporary difference will not reverse in the foreseeable future.
Deferred tax balances are not discounted.
h. Employee benefits
Pension obligations
Group companies operate various pension schemes. The schemes are funded
through payments to insurance companies or trustee-administered funds,
determined by periodic actuarial calculations.
The group has both defined benefit and defined contribution schemes.
The group has a legal or constructive obligation to pay further
contributions if the fund does not hold sufficient assets to pay all
employees the benefits relating to employee service in the current and
prior periods.
The liabilities recognised in the balance sheet in respect of defined
benefit pension schemes are the present value of the defined benefit
obligation at the balance sheet date less the fair value of scheme assets,
together with adjustments for unrecognised actuarial gains or losses and
past service costs. The defined benefit obligation is calculated annually
by independent actuaries using the projected unit method. The present value
of the defined benefit obligation is determined by discounting the
estimated future cash outflows using interest rates of high-quality
corporate bonds that are denominated in the currency in which the benefits
will be paid, and that have terms to maturity approximating to the terms of
the related pension liability.
The group has chosen to adopt early the full provisions of IAS 19 and as
such the cumulative actuarial gains and losses arising from experience
adjustments and changes in actuarial assumptions are recognised immediately
in the Consolidated statement of recognised income and expense.
Past-service costs are recognised immediately in the income statement,
unless the changes to the pension scheme are conditional on the employees
remaining in service for a specified period of time (the vesting period).
In this case, the past-service costs are amortised on a straight-line basis
over the vesting period.
For defined contribution schemes, the group pays contributions to publicly
or privately administered pension insurance schemes on a mandatory,
contractual or voluntary basis. The group has no further payment
obligations once the contributions have been paid. The contributions are
recognised as an employee benefit expense when they are due.
Termination benefits
Termination benefits are payable when employment is terminated before the
normal retirement date, or when an employee accepts voluntary redundancy in
exchange for these benefits. The group recognises termination benefits when
it is demonstrably committed to either: terminating the employment of
current employees according to a detailed formal plan without possibility
of withdrawal; or providing termination benefits as a result of an offer
made to encourage voluntary redundancy.
Share-based plans
The group's management awards high performance employees bonuses in the
form of share options, from time to time, on a discretionary basis. The
options are subject to a three year performance vesting condition, and
their fair value is recognised as an employee benefits expense with a
corresponding increase in other equity reserves over the vesting period.
The proceeds received net of any directly attributable transaction costs
are credited to share capital (nominal value) and share premium when the
options are exercised.
i. Revenue recognition
Revenue comprises the fair value of the sale of goods and services, net of
value-added tax, returns and discounts supplied to customers in the normal
course of business and after eliminating sales within the group. Revenue is
recognised as follows:
Sales of goods
Sales of goods are recognised when a group entity has delivered goods to
the customer; the customer has accepted the goods; and collectability of
the related receivables is reasonably assured.
Interest income
Interest income is recognised on a time proportionate basis using the
effective interest method.
j. Leases
Leases of property, plant and equipment where the group has substantially
all the risks and rewards of ownership are classified as finance leases.
The group considers it has no such leases.
Leases where the lessor retains substantially all the risks and rewards of
ownership are classified as operating leases. Payments made under operating
leases (net of any incentives received from the lessor) are charged to the
income statement on a straight-line basis over the period of the lease.
k. Dividend distribution
Dividend distribution to the company's shareholders is recognised as a
liability in the group's financial statements in the period in which the
interim dividend is approved by the Board and, in respect of the final
dividend, in the period in which the final dividend is approved by the
company's shareholders.
l. Segment reporting
A business segment is a group of assets and operations engaged in providing
products or services that are subject to risks and returns that are
different from those of other business segments. A geographical segment is
engaged in providing products or services within a particular economic
environment that is subject to risks and returns that are different from
those segments operating in other economic environments.
All direct costs of a segment are included in that segment's result. Costs
that are incurred centrally for the benefit of the group as a whole are not
allocated to business segments giving rise to an Unallocated segment.
m. New accounting standards and IFRIC interpretations
Certain new accounting standards and IFRIC interpretations have been
published that are mandatory for accounting periods beginning on or after 1
January 2006. The group has assessed the impact of IFRS 6, Exploration for
and Evaluation of Mineral Resources and IFRIC 3, Emission Rights and
considers that they will not affect the group's financial statements.
n. Accounting for derivative financial instruments and hedging activities
The group enters into forward contracts in order to hedge against the cash
flow risk of foreign currency purchases. Derivatives are initially
recognised at fair value on the date the contract is entered into and
subsequently re-measured in future periods at their fair value. The method
of recognising the resulting change in fair value is dependant on whether
the derivative is designated as a hedging instrument. Where hedge
accounting is not applied, changes in the fair value of derivatives are
recognised in the income statement.
The fair value of forward foreign exchange contracts is determined using
forward exchange market rates at the balance sheet date.
+ Critical accounting estimates and judgements
Estimates and judgements are continually evaluated and are based on
historical experience and other factors, including expectations of future
events that are believed to be reasonable under the circumstances.
Critical accounting estimates and assumptions
The group makes estimates and assumptions concerning the future. The
resulting accounting estimates will, by definition, seldom equal the
related actual results. The estimates and assumptions that have a
significant risk of causing a material adjustment to the carrying amounts
of assets and liabilities within the next financial year are discussed
below.
Estimated impairment of goodwill
The group tests annually whether goodwill has suffered any impairment, in
accordance with the accounting policy stated in Note 2 (f). The recoverable
amounts of cash-generating units have been determined based on value-in-use
calculations. These calculations require the use of estimates (see Note 8).
If the actual gross margin has been higher or the pre-tax discount rate
lower than management's estimates, the group would not be able to reverse
any impairment losses that arose on goodwill.
Lambert Howarth Group p.l.c.
Notes to the financial statements
for the year ended 31 December 2005
+ Segmental reporting
Primary reporting format - business segments
Footwear Homeware Unallocated 2005 Footwear Homeware Unallocated 2004
and Accessories Group and Accessories
Accessories Accessories Group
�'000 �'000 �'000 �'000 �'000 �'000 �'000 �'000
Continuing
operations
Revenue 65,455 22,738 - 88,193 94,131 31,384 - 125,515
Segment 10,259 (8,105) 53 2,207 13,086 1,256 (3,870) 10,472
result
Interest - - (151) (151) - - (340) (340)
expense
Interest - - 327 327 - - 137 137
income
Profit before 10,259 (8,105) 229 2,383 13,086 1,256 (4,073) 10,269
tax
Income Taxes (2,984) 928 (152) (2,208) (3,283) 9 (130) (3,404)
Profit for 7,275 (7,177) 77 175 9,803 1,265 (4,203) 6,865
the year from
continuing
operations
Discontinued
operations
Revenue 3,529 130 - 3,659 9,067 1,469 - 10,536
Segment 538 (360) - 178 514 (380) - 134
result
Profit before 538 (360) - 178 514 (380) - 134
tax
Income taxes (126) 112 - (14) (271) 118 - (153)
Profit for 412 (248) - 164 243 (262) - (19)
the year from
discontinued
operations
Net profit 7,687 (7,425) 77 339 10,046 1,003 (4,203) 6,846
attributable
to equity
shareholders
Segment asset 32,004 17,180 143 49,327 40,467 26,720 5,112 72,299
Unallocated
assets
- Income tax - - 3,077 3,077 - - 3,036 3,036
Total assets 32,004 17,180 3,220 52,404 40,467 26,720 8,148 75,335
Segment (8,302) (2,420) (6,895) (17,617) (18,280) (3,679) (2,156) (24,115)
liabilities
Unallocated
liabilities
- Income tax - - - - - - (1,762) (1,762)
Total (8,302) (2,420) (6,895) (17,617) (18,280) (3,679) (3,918) (25,877)
liabilities
Other segment
items
Capital 98 86 - 184 359 270 - 629
expenditure
Depreciation 296 162 - 458 521 191 - 712
Impairment of - (6,115) - (6,115) - (1,264) - (1,264)
goodwill
(note 8)
Impairment of 56 (74) - (18) 6 (992) - (986)
trade
receivables
Overdrafts of �4,886,000 (2004: �8,629,000) under a right of set off have
been included in segment assets.
Discontinued operations
Closure of manufacturing operations.
The directors decided during the year to close the group's manufacturing
operations on the Isle of Man, carried out by Ronaldsway Shoe Co. Limited.
The company continued to trade throughout the year and ceased trading in
December 2005.
Closure of Portuguese warehouse operations
The directors have taken the decision to change the sourcing of product
from Europe to China and the Group's subsidiary Lambert Howarth Portugal
Productos Em Pele, Ceramicas, Vidro E Texteis Lda has been liquidated.
Closure of retail operations
The directors have taken the decision during the period to close the retail
operations of Orient Sourcing Services Limited.
Sales between segments
There are immaterial sales between the business segments. Unallocated costs
represent corporate experiences.
Segment assets include property, plant and equipment, goodwill, stocks,
debtors and operating cash.
Segment liabilities comprise operating liabilities and taxation.
Capital expenditure, comprises additions to property, plant and equipment.
Secondary reporting format - geographical segments
The operations are based in two main geographical areas. The UK is the home
country of the parent. The main operations are in the UK and Isle of Man,
and Continental Europe.
Revenue Segment assets Capital
expenditure
2005 2004 2005 2004 2005 2004
�'000 �'000 �'000 �'000 �'000 �'000
Continuing operations
UK 79,713 118,403 46,125 59,354 104 549
Continental Europe 7,281 5,776 3,953 1,791 61 61
Rest of World 1,199 1,336 - - - -
88,193 125,515 50,078 61,145 165 610
Discontinued
operations
UK 3,548 10,293 2,309 13,840 19 19
Continental Europe 111 243 17 350 - -
3,659 10,536 2,326 14,190 19 19
91,852 136,051 52,404 75,335 184 629
The sales analysis is based on the location of the customer which is not
materially different from the location where the order is received and
where the assets are located.
Lambert Howarth Group p.l.c.
Notes to the financial statements
for the year ended 31 December 2005
+ Other income/(expense) comprises the following
2005 2004
�'000 �'000
Profit on sale of surplus land (see below) 1,437 -
Net income arising from the cash flow hedging of foreign 1,090 -
currency purchases during the period (see below)
Recognition of financial assets: derivative financial 740 -
instruments
Amounts written off investments (see below) - (512)
3,267 (512)
On 10 January 2005, the group sold its vacant land in Northamptonshire for
the sum of �2,000,000 the carrying value of which at 31 December 2004 was �
542,000, incidental costs of disposal amounted to �21,000.
Net income arises from the cash flow hedging of foreign currency purchases
during the year as a result of net gains subsequent to the adoption of IAS
32 and IAS 39 on 1 January 2005, on which date the group recognised a loss
of �1,490,000 less deferred income tax of �447,000.
In the year to 31 December 2004 the value of associate investments was
written down by �512,000 to a carrying value of �nil. The group has made
this provision against this carrying value whilst it assesses the on-going
relationship with its associate partners arising from changes to product
supply.
6 Dividends
2005 2004
�'000 �'000
Final paid: 7.5p (2004: 7.0p) per 10p share 1,871 1,721
Interim paid: 3.5p (2004: 3.5p) per 10p share 881 867
2,752 2,588
In addition, the directors are proposing a final dividend in respect of the
financial year ended 31 December 2005 of 7.5p per share which will absorb
an estimated �1,522,000 of shareholders' funds. It will be paid on 16 June
2006 to shareholders who are on the register of members on 12 May 2006. The
financial statements do not reflect this dividend payable.
Lambert Howarth Group p.l.c.
Notes to the financial statements
for the year ended 31 December 2005
+ Earnings per share
Basic earnings per share is calculated by dividing the earnings
attributable to ordinary shareholders by the weighted average number of
ordinary shares in issue during the year 24,526,000 shares (2004:
24,668,000 shares).
For diluted earnings per share, the weighted average number of ordinary
shares in issue is adjusted to assume conversion of all dilutive potential
ordinary shares. The group has two classes of dilutive potential ordinary
shares: those share options granted to employees where the exercise price
is less than the average market price of the company's ordinary shares
during the year and options contingently exercisable under the group's
long-term incentive plan. At 31 December 2005, the performance criteria for
the vesting of certain awards under the incentive scheme had not been met
and consequently the shares in question are excluded from the diluted EPS
calculation.
Lambert Howarth Group p.l.c.
Notes to the financial statements
for the year ended 31 December 2005
+ Goodwill
2005 2004
�'000 �'000
Cost at 1 January and 31 December 34,282 34,282
Aggregate impairment
At 1 January 13,343 12,079
Impairment for the year 6,115 1,264
At 31 December 19,458 13,343
Net book amount at 31 December 14,824 20,939
The carrying amount of goodwill has been reduced to its recoverable amount
through the recognition of impairment losses against goodwill. These losses
have been included in cost of sales in the income statement.
The goodwill impairment arose from the difficult trading conditions which
have faced the Homeware Accessories marketplace.
The recoverable amount for the cash-generating unit has been measured based
on a value in use calculation. A pre-tax discount rate of 14% was used in
the value in use calculation.
The carrying amounts of goodwill by segment are as follows:
Footwear Homeware 2005 Footwear Homeware 2004
and Accessories and Accessories
Accessories Group Accessories Group
�'000 �'000 �'000 �'000 �'000 �'000
UK 8,664 5,931 14,595 8,664 12,046 20,710
Spain - 229 229 - 229 229
8,664 6,160 14,824 8,664 12,275 20,939
Footwear and Accessories
The key assumptions in the value in use calculations were:
+ Budgeted profit growth - an average of 2.25% each year for the next
five years.
+ The relative risk adjustment (or `beta') applied discount rates to
reflect the risk inherent in Footwear and Accessories companies. In
determining the risk adjusted discount rate, management have applied an
adjustment for risk of such companies relative to all other sectors on
average determined using an average of the beta's of comparable
Footwear and Accessories companies listed in the UK. The Beta used is
0.7 (which implies a risk adjusted pre-tax discount rate of 14%).
As there has been no impairment in the goodwill relating to the Footwear
and Accessories companies the carrying value of goodwill represents the
value of goodwill calculated at the time of acquisition less amortisation
charged under UK GAAP up to 31 December 2003.
Homeware Accessories
The key assumptions in the value in use calculations were:
+ Budgeted revenue growth - to recover turnover to 2003 levels over the
next five years.
Management believe the assumed improvements are reasonably achievable
through re-establishing market share lost in the past two years.
+ The relative risk adjustment (or `beta') applied discount rates to
reflect the risk inherent in Homeware companies. In determining the
risk adjusted discount rate, management have applied an adjustment for
risk of such companies relative to all other sectors on average
determined using an average of the beta's of comparable Homeware
companies listed in the UK. The Beta used is 0.7 (which implies a risk
adjusted pre-tax discount rate of 14%).
The value in use calculations result in the need for an impairment charge
in the accounts in respect of the Homeware Accessories division. The
carrying value of the cash-generating unit, therefore, equals value in use.
As a result, the group is required to disclose the key assumptions where it
is believed that there may be the possibility of a change that could cause
a further impairment. In the case of budgeted revenue growth any reduction
in the key assumption listed, all other things being equal, would cause a
further impairment charge to be taken. If the beta were to increase, then
all other things being equal, a further impairment charge would arise.
Lambert Howarth Group p.l.c.
Notes to the financial statements
for the year ended 31 December 2005
+ Assets held for resale
The group at the Balance sheet date has reclassified property which is held
for sale the carrying value of which is �1,433,000.
+ Called up share capital
Number of 2005 Number of 2004
shares shares
�'000 �'000
Authorised
Ordinary shares of 10p each 30,000,000 3,000 30,000,000 3,000
Allotted and fully paid
Ordinary shares of 10p each
At 1 January 24,737,670 2,474 24,597,972 2,460
Allotted under share option 405,748 41 139,698 14
schemes
Cancelled during the year (4,854,341) (486) - -
At 31 December 20,289,077 2,029 24,737,670 2,474
Options on 405,748 shares were exercised in 2005. The total cash
consideration received for the shares on the exercise of share options was
�551,000.
On 2 December 2005 the company completed a tender offer for the buy-back of
4,854,341 shares at a price of �2.06 per share. The total cash
consideration paid for the shares was �10,000,000.
Lambert Howarth Group p.l.c.
Notes to the financial statements
for the year ended 31 December 2005
+ Statement of changes in shareholders' equity
Share Share Retained Other Total
capital premium earnings reserves equity
�'000 �'000 �'000 �'000 �'000
At 1 January 2004 2,460 502 17,782 22,972 43,716
Exchange adjustments net of - - - 50 50
tax
Net profit for the year - - 6,846 - 6,846
Share options
- proceeds from shares issued 14 163 - - 177
- value of employee services - - 41 93 134
Pension scheme
- actuarial gain recognised - - 1,604 - 1,604
in pension scheme
- deferred tax on actuarial - - (481) - (481)
gain
Dividends paid - - (2,588) - (2,588)
At 31 December 2004 2,474 665 23,204 23,115 49,458
Adoption of IAS 32 and IAS 39 - - (1,043) - (1,043)
At 1 January 2005 2,474 665 22,161 23,115 48,415
Exchange adjustments net of - - - (93) (93)
tax
Net profit for the year - - 339 - 339
Liquidation of subsidiary - - - 4 4
Share options
- proceeds from shares issued 41 510 - - 551
- value of employee services - - (60) (82) (142)
Pension scheme
- actuarial loss recognised - - (1,920) - (1,920)
in pension scheme
- deferred tax on actuarial - - 576 - 576
loss
Share buy-back
- value of shares cancelled (486) - (10,000) 486 (10,000)
- costs - - (191) - (191)
Dividends paid - - (2,752) - (2,752)
At 31 December 2005 2,029 1,175 8,153 23,430 34,787
Lambert Howarth Group p.l.c.
Notes to the financial statements
for the year ended 31 December 2005
+ Transition to IFRS
a. Basis of transition to IFRS
Application of IFRS 1: First time adoption of International Accounting
Standards
The group's financial statements for the year ended 31 December 2005 are
the first annual financial statements that comply with IFRS. These
financial statements have been prepared as described in Note 2 (a). The
group has applied IFRS 1 in preparing these consolidated financial
statements. Lambert Howarth's transition date is 1 January 2004. The group
prepared its opening IFRS balance sheet at that date. The reporting date of
these consolidated financial statements is 31 December 2005. The group's
IFRS adoption date is 1 January 2005. In preparing these consolidated
financial statements in accordance with IFRS 1, the group has applied the
mandatory exemptions and certain of the optional exemptions from full
retrospective application of IFRS.
Exemptions from full retrospective application elected by the group
Lambert Howarth has elected to apply the following optional exemptions from
full retrospective application.
Business combinations exemption
Lambert Howarth has applied the business combinations exemption in IFRS 1.
It has not restated business combinations that took place prior to the 1
January 2004 transition date.
Employee benefits exemption
Lambert Howarth has elected to recognise all cumulative actuarial gains and
losses as at 1 January 2004. The application of this exemption is detailed
in Note 12 (b).
Exception from restatement of comparatives for IAS 32 and IAS 39.
The group elected to apply this exemption. It applies previous GAAP rules
to derivatives, financial assets and financial liabilities and to hedging
relationships for the 2004 comparative information. The adjustments
required for differences between UK GAAP and IAS 32 and IAS 39 are
determined and recognised at 1 January 2005. The adjustments are detailed
in Note 12 (b) iii.
Share-based payment transaction exemption
The group has elected to apply this exemption. It applied IFRS 2 from 1
January 2004 to those options that were issued after 7 November 2002 but
that have not vested by 1 January 2005. The application of the exemption is
detailed in Note 12 (b).
Exceptions from full retrospective application followed by the group
Lambert Howarth has applied the following mandatory exceptions from
retrospective application.
Derecognition of financial assets and liabilities exception
Financial assets and liabilities derecognised before 1 January 2004 are not
re-recognised under IFRS. The application of the exception from restating
comparatives for IAS 32 and IAS 39 means that the group recognised from 1
January 2005 any financial assets and financial liabilities derecognised
since 1 January 2004 that do not meet the IAS 39 derecognition criteria.
Management did not chose to apply the IAS 39 derecognition criteria to an
earlier date.
The application of this exception at the opening balance sheet date of 1
January 2005 is detailed in Note 12 (b) iii.
Hedge accounting exception
Management has claimed hedge accounting from 1 January 2005 only if the
hedge relationship meets all the hedge accounting criteria under IAS 39.
The application of this exception at the opening balance sheet date 1
January 2005 is detailed in Note 12 (b) iii.
Estimates exemption
Estimates under IFRS at 1 January 2004 should be consistent with estimates
made for the same date under previous UK GAAP, unless there is evidence
that those estimates were in error.
Assets held for sale and discontinued operations exception
Management applied IFRS 5 prospectively from 1 January 2005. Any assets
held for sale or discontinued operations are recognised in accordance with
IFRS 5 only from 1 January 2005.
b. Reconciliation between IFRS and UK GAAP
The following reconciliations provide a quantification of the effect of the
transition to IFRS.
The first reconciliation provides an overview of the impact on equity of
the transition at 1 January 2004 and 31 December 2004.
The following six reconciliations provide details of the impact of the
transition on:
+ Summary of equity (Note 12 (b) i)
+ Equity at 1 January 2004 (Note 12 (b) ii)
+ Equity at 31 December 2004 and 1 January 2005 (Note 12 (b) iii)
+ Net income 31 December 2004 (Note 12 (b) iv)
i. Summary of equity
Notes 1 January Notes 31
2004 December
12 (b) ii 12 (b) 2004
�'000 iii
�'000
Total equity under UK GAAP 49,119 51,237
Foreign currency translation - G (3)
Reversal of goodwill - A,G 3,428
amortisation previously
recognised under UK GAAP
Impairment of assets: - A,G (1,264)
Impairment of goodwill under
IAS 36
Employee benefit: Share based A 29 B 91
payments
Employee benefits: Pension A,B,C,D,E (7,153) B,D,E,F,G (5,886)
obligations
Proposed dividend B,E 1,721 D,G 1,855
Total equity under IFRS 43,716 49,458
ii. Reconciliation of equity at 1 January 2004
ASSETS UK GAAP Notes Effect of IFRS
transition
�'000 to IFRS �'000
�'000
Non-current assets
Goodwill 22,203 - 22,203
Property, plant and equipment 8,738 - 8,738
Investments accounted for using 510 - 510
equity method
Deferred income tax assets (196) A 3,230 3,034
31,255 3,230 34,485
Current assets
Inventories 16,309 - 16,309
Trade and other receivables 11,611 - 11,611
Cash and cash equivalents 8,630 - 8,630
36,550 - 36,550
LIABILITIES
Current liabilities -
Financial liabilities
Borrowings 171 - 171
Trade and other payables 16,613 B (2,034) 14,579
Current tax liabilities 1,683 - 1,683
18,467 (2,034) 16,433
Net current assets 18,083 2,034 20,117
Non-current liabilities
Overseas tax liabilities 137 - 137
Deferred income tax liabilities 82 - 82
Retirement benefit obligations - C 10,667 10,667
219 10,667 10,886
Net assets 49,119 (5,403) 43,716
SHAREHOLDERS' EQUITY
Capital and reserves
Share capital 2,460 - 2,460
Share premium account 502 - 502
Merger and other reserves 22,731 D 241 22,972
Retained earnings 23,426 E (5,644) 17,782
Total shareholders' equity 49,119 (5,403) 43,716
Explanation of the effect of transition to IFRS
A Deferred income tax assets �'000
Share based payments IFRS 2
Being the deferred income tax asset arising on the recognition 29
of share based payments
Employee benefits: Pension obligations IAS 19
Being the deferred income tax asset arising on the recognition 3,201
of pension obligations
Total effect - increase to deferred income tax assets 3,230
B Trade and other payables �'000
Proposed dividend IAS 10
Being the reversal of accrued proposed dividend no longer (1,721)
recognised under IAS 10
Employee benefits: Pension obligations IAS 19
Being the reversal of the existing provision for the SSAP 24 (313)
pension accrual previously recognised under UK GAAP
Total effect - reduction to trade and other payables (2,034)
C Retirement benefit obligations �'000
Employee benefits: Pension obligations IAS 19
Being the effect of the recognition of pension obligations in 10,667
accordance with IAS 19
Total effect - increase to retirement benefit obligations 10,667
D Merger and other reserves �'000
Share based payments IFRS 2
Being the compensation expense effect of the recognition of 34
share based payments in accordance with IFRS 2
The effects of changes in foreign exchange IAS 21
Being the reclassification of the cumulative translation reserve 207
in respect of foreign subsidiaries from retained earnings
Total effect - increase to merger and other reserves 241
E Retained earnings �'000
Share based payments IFRS 2
Being the compensation expense effect of the recognition of (34)
share based payments in accordance with IFRS 2
Being the deferred income tax asset arising on the recognition
of share based payments
- recognised in the income statement 10
- recognised in equity 19
Proposed dividend IAS 10
Being the reversal of accrued proposed dividend no longer 1,721
recognised under IAS 10
Employee benefits: Pension obligations IAS 19
Being the reversal of the existing provision for the SSAP 24 313
pension accrual previously recognised under UK GAAP
Being the effect of the recognition of pension obligations in (10,667)
accordance with IAS 19
Being the deferred income tax asset arising on the recognition 3,201
of pension obligations
The effects of changes in foreign exchange IAS 21
Being the reclassification of the cumulative translation reserve (207)
in respect of foreign subsidiaries to other reserves
Total effect - reduction to retained earnings (5,644)
iii. Reconciliation of equity at 31 December 2004 and 1 January 2005
iv.
ASSETS
31 Effect 1
Effect of December of January
UK GAAP transition adoption 2005
Notes to IFRS 2004 Notes of IAS
�'000 32 / 39 IFRS
�'000 IFRS
�'000 �'000
�'000
Non-current
assets
Goodwill 18,775 A 2,164 20,939 - 20,939
Property, 8,608 - 8,608 - 8,608
plant and
equipment
Deferred 144 B 2,892 3,036 H 447 3,483
income tax
assets
27,527 5,056 32,583 447 33,030
Current
assets
Inventories 21,240 C 36 21,276 - 21,276
Trade and 11,390 - 11,390 11,390
other
receivables
Financial -
assets
Derivative - - - I 342 342
financial
instruments
Cash and cash 10,086 - 10,086 - 10,086
equivalents
42,716 36 42,752 342 43,094
LIABILITIES
Current
liabilities
Financial
liabilities
Borrowings 208 - 208 - 208
Derivative - - - J 1,832 1,832
financial
instruments
Trade and 17,036 D (2,435) 14,601 - 14,601
other
payables
Current tax 1,740 - 1,740 - 1,740
liabilities
18,984 (2,435) 16,549 1,832 18,381
Net current 23,732 2,471 26,203 (1,490) 24,713
assets
Non-current
liabilities
Overseas tax 22 - 22 - 22
liabilities
Retirement - E 9,306 9,306 - 9,306
benefit
obligations
22 9,306 9,328 - 9,328
Net assets 51,237 (1,779) 49,458 (1,043) 48,415
SHAREHOLDERS'
EQUITY
Capital and
reserves
Share capital 2,474 - 2,474 - 2,474
Share premium 665 - 665 - 665
account
Merger and 22,731 F 384 23,115 - 23,115
other
reserves
Retained 25,367 G (2,163) 23,204 K (1,043) 22,161
earnings
Total 51,237 (1,779) 49,458 (1,043) 48,415
shareholders'
equity
Explanation of the effect of transition to IFRS
A Goodwill �'000
Impairment of assets IAS 36 / Goodwill amortisation IFRS 3
Being reversal of 2004 goodwill amortisation calculated under UK 3,428
GAAP no longer permitted under
IFRS 3
Being impairment of goodwill as calculated under IAS 36 (1,264)
Total effect - increase to goodwill 2,164
B Deferred income tax assets �'000
Share based payments IFRS 2
Being the deferred income tax asset arising on the recognition of 91
share based payments
Employee benefits: Pension obligations IAS 19
Being the deferred income tax asset arising on the recognition of 2,801
pension obligations
Total effect - increase to deferred income tax assets 2,892
C Inventories �'000
The effects of changes in foreign exchange IAS 21
Being the valuation of inventories in accordance with IAS 21 36
Total effect - increase to inventory 36
D Trade and other payables �'000
Employee benefits: Pension obligations IAS 19
Being the reversal of the existing provision for the SSAP 24 (619)
pension accrual previously recognised under UK GAAP
Proposed dividend IAS 10
Being the reversal of accrued proposed dividend no longer (1,855)
recognised under IAS 10
The effects of changes in foreign exchange IAS 21
Being the valuation of trade payables in accordance with IAS 21 39
Total effect - reduction to trade and other payables (2,435)
E Retirement benefit obligations �'000
Employee benefits: Pension obligations IAS 19
Being the effect of the recognition of pension obligations in 9,306
accordance with IAS 19
Total effect - increase to retirement benefit obligations 9,306
F Merger and other reserves �'000
Share based payments IFRS 2
Being the compensation expense effect of the recognition of share 127
based payments in accordance with IFRS 2
The effects of changes in foreign exchange IAS 21
Being the reclassification of the cumulative translation reserve in 257
respect of foreign subsidiaries from retained earnings
Total effect - increase to merger and other reserves 384
G Retained earnings �'000
Share based payments IFRS 2
Being the compensation expense effect of the recognition of share (127)
based payments in accordance with IFRS 2
Being the deferred income tax asset arising on the recognition of
share based payments
- recognised in the income statement 38
- recognised in equity 53
Proposed dividend IAS 10
Being the reversal of accrued proposed dividend no longer 1,855
recognised under IAS 10
Employee benefits: Pension obligations IAS 19
Being the reversal of the existing provision for the SSAP 24 619
pension accrual previously recognised under UK GAAP
Being the effect of the recognition of pension obligations in (9,306)
accordance with IAS 19
Being the deferred income tax effect of the recognition of pension 2,801
obligations in accordance with IAS 19
The effects of changes in foreign currency exchange IAS 21
Being the valuation of trade payables in accordance with IAS 21 (39)
Being the valuation of inventories in accordance with IAS 21 36
Being the reclassification of the cumulative translation reserve in (257)
respect of foreign subsidiaries to other reserves
Impairment of assets IAS 36 / Goodwill amortisation IFRS 3
Being reversal of 2004 goodwill amortisation calculated under UK 3,428
GAAP no longer permitted under IFRS 3
Being impairment of goodwill as calculated under IAS 36 (1,264)
Total effect - reduction to retained earnings (2,163)
Effect of adoption of IAS 32 / 39
The group took the exemption not to restate its comparative information for
IAS 32 and IAS 39. It therefore adopted IAS 32 and IAS 39 at 1 January
2005.
The following notes explain the adjustments made at 1 January 2005 to the
group's balance sheet at 31 December 2004 to reflect the adoption of IAS 32
and IAS 39.
H Deferred income tax assets �'000
Derivative financial instruments
Being the deferred income tax asset arising on the recognition of 447
derivative financial instruments
Total effect - increase to deferred income tax 447
I Financial assets �'000
Derivative financial instruments
Being recognition of derivative financial assets at fair value 342
Total effect - increase to derivative financial assets 342
J Financial liabilities �'000
Derivative financial instruments
Being recognition of derivative financial liabilities at fair value 1,832
Total effect - increase to derivative financial liabilities 1,832
K Retained earnings �'000
Derivative financial instruments
Being recognition of derivative financial assets at fair value 342
Being recognition of derivative financial liabilities at fair value (1,832)
Being recognition of deferred income tax asset arising on the 447
recognition of derivative financial instruments
Total effect - reduction to retained earnings (1,043)
iv. Reconciliation of net income for the year ended 31 December 2004
UK GAAP Notes Effect of IFRS 5 IFRS
transition
�'000 to IFRS Reclassification �'000
�'000 of discontinuing
activities
(see below note
E)
�'000
Continuing operations
Revenue 136,051 - (10,536) 125,515
Cost of sales (100,030) A 2,161 6,883 (90,986)
Gross profit 36,021 2,161 (3,653) 34,529
Other income 117 - (117) -
Selling and (15,145) - 545 (14,600)
distribution expenses
Administration (11,906) B (30) 2,991 (8,945)
expenses
Other expenses - C (512) - (512)
Operating profit 9,087 1,619 (234) 10,472
Interest payable (340) - - (340)
Amounts written off (512) C 512 - -
investments
Interest receivable 137 - - 137
Profit before taxation 8,372 2,131 (234) 10,269
Taxation (3,659) D 102 153 (3,404)
Profit for the year 4,713 2,233 (81) 6,865
from continuing
operations
Discontinued
operations
Loss for the period - - (19) (19)
from discontinued
operations
Closure of (100) - 100 -
manufacturing
operations
Profit for the 4,613 2,233 - 6,846
financial year
Explanation of the effect of transition to IFRS
A Cost of sales �'000
The effects of changes in foreign exchange IAS 21
Being the valuation of trade payables in accordance with IAS 21 (39)
Being the valuation of inventories in accordance with IAS 21 36
Impairment of assets IAS 36 / Goodwill amortisation IFRS 3
Being reversal of 2004 goodwill amortisation calculated under UK 3,428
GAAP no longer permitted under IFRS 3
Being impairment of goodwill as calculated under IAS 36 (1,264)
Total effect - reduction to cost of sales 2,161
B Administration expenses �'000
Share based payments IFRS 2
Being the compensation expense effect of the recognition of share (93)
based payments in accordance with IFRS 2
Employee benefits: Pension obligations IAS 19
Being the reversal of the existing provision for the SSAP 24 306
pension accrual previously recognised under UK GAAP
Being the increase in pension charge under IAS 19 (243)
Total effect - increase to administration expenses (30)
C Other expenses �'000
Amounts written off against investments are not permitted to be (512)
treated as exceptional cost under IFRS
Total effect - increase to other expenses (512)
D Taxation �'000
Share based payments IFRS 2
Being the deferred income tax effect of the recognition of share
based payments in accordance with IFRS 2
- recognised in the income statement 21
Employee benefits: Pension obligations IAS 19
Being the increase to deferred income tax asset arising from the 81
change in pension charge under IAS 19
Total effect - reduction to tax charge 102
E Profits and losses relating to discontinued activities are reclassified
and shown separately under IFRS 5.
vii) Changes to the cash flow statements
The consolidated statement of cash flows prepared under IFRS presents
substantially the same information as required under UK GAAP.
Under IFRS only three categories of cash flow activity are required to be
reported: operating, investing and financing. Cash flows from returns on
investments and servicing of finance and cash flows under UK GAAP are
included as operating activities and investing activities respectively
under IFRS. There are no other material differences between the cash flow
statement presented under IFRS and the cash flow statement under UK GAAP.
END
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