FORTH PORTS PLC ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS

Transcription

1 FORTH PORTS PLC ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS Forth Ports PLC is adopting International Financial Reporting Standards ("IFRS") with effect from 1st January It is today publishing its primary financial statements for 2004 restated in accordance with IFRS. The unaudited restated figures are included in this release together with details of the more significant changes from UK Generally Accepted Accounting Principles ("UK GAAP"). This announcement is intended to assist readers of the Group's accounts to understand the impact of IFRS in advance of the publication of the Group's 2005 Interim Accounts in September The Group will today be holding an IFRS update seminar for analysts. Presentation materials from this seminar and a copy of this announcement will be made available on the Group's website, There is no new information on current trading contained within this release or associated announcements. Key Points: Reported pre-tax profit for the year ended 31st December 2004 up 24% to 62.6m Pre-tax profit for the year ended 31st December 2004 before revaluation surplus reduced by 0.2m to 50.3m Basic earnings per share for the year ended 31st December 2004 up 39% to 100.7p Earnings per share before revaluation surplus for the year ended 31st December 2004 up by 1.1p to 73.7p Net assets as at 31st December 2004 down by 24.0m to 241.8m No impact on cashflow No impact on business economics or dividend policy As previously indicated, the most significant changes for Forth Ports in adopting IFRS relate to pensions and deferred taxation. The underlying businesses are unaffected by the change to IFRS with the underlying pre-tax profit only 0.2m lower at 50.3m for the year ended 31st December Although the net assets position is reduced from 265.8m to 241.8m at 31st December 2004, 28.7m of this reduction related to the adjustment required for the pension schemes' deficits, the substance of which was more fully explained in the pension scheme notes in the Group's 2004 Annual Report and Accounts. Enquiries: Wilson Murray, Group Finance Director Forth Ports PLC Tel: Jon Coles/Kate Miller Brunswick Tel: Notes to editors: Forth Ports PLC owns and operates seven ports in the UK Tilbury on the Thames, Dundee on the Tay Estuary and five in the Firth of Forth - Leith, Grangemouth, Rosyth, Methil and Burntisland. It also owns a 50% equity investment in Multi-Link Terminals Limited, a container terminal operator in Helsinki and Kotka in Finland and St. Petersburg in Russia. Within and around the Forth and Tay Estuaries, Forth Ports manages and operates an area of 280 square miles of navigable waters, including two specialised marine terminals for oil and gas export, provides other marine services, such as towage and conservancies, and is involved in property, letting and development. These activities make Forth Ports PLC the largest port grouping in Scotland and the third in the UK in terms of market capitalisation.

2 SUMMARY Reconciliation of net assets Paragraph 2003 m 2004 m Net assets as previously reported under UK GAAP as at 31st December IFRS 2 - Share-based Payment IAS 10 - Events after the Balance Sheet Date IAS 12 - Income Taxes 8.7 (8.8) (8.7) IAS 19 - Employee Benefits 8.8 (27.2) (29.0) IAS 40 - Investment Property SIC 15 - Operating Leases - Incentives Net assets as restated under IFRS as at 1st January 2004/31st December Change (24.2)m (24.0)m Reconciliation of income statement from UK GAAP to IFRS for the year ended 31st December 2004 Paragraph m Basic EPS pence Profit for the year under UK GAAP as previously reported - continuing operations IFRS 2 - Share-based Payment IFRS 3 - Business Combinations IAS 12 - Income Taxes IAS 19 - Employee Benefits 8.8 (0.4) (0.9) IAS 40 - Investment Property SIC 15 - Operating Leases - Incentives IFRS profit as restated - continuing operations Change 12.8m 28.1p 2

3 CONTENTS Summary 2 1. Introduction 4 2. Basis of preparation and presentation 4 3. Summary of impact on the balance sheet as at transition on 1st January Summary of impact on the income statement for the six months ended 30th June Summary of impact on the balance sheet as at 30th June Summary of impact on the income statement for the year ended 31st December Summary of impact on the balance sheet as at 31st December Background details on UK GAAP to IFRS adjustments 8 Presentation Adjustments 8.1 IAS 1 - Presentation of Financial Statements IAS 20 - Accounting for Government Grants and Disclosure of Government Assistance IAS 38 - Intangible Assets 9 Measurement Differences 8.4 IFRS 2 - Share-based Payment IFRS 3 - Business Combinations IAS 10 - Events after the Balance Sheet Date IAS 12 - Income Taxes IAS 19 - Employee Benefits IAS 40 - Investment Property SIC 15 - Operating Leases - Incentives Other matters 12 Page APPENDICES 1. Significant IFRS Accounting Policies UK GAAP to IFRS consolidated balance sheet as at 1st January UK GAAP to IFRS consolidated income statement for the six months ended 30th June UK GAAP to IFRS consolidated balance sheet as at 30th June IFRS consolidated cash flow statement for the six months ended 30th June UK GAAP to IFRS consolidated income statement for the year ended 31st December UK GAAP to IFRS consolidated balance sheet as at 31st December IFRS consolidated cash flow statement for the year ended 31st December

4 1. INTRODUCTION Forth Ports PLC is required to prepare its financial statements in accordance with IFRS, as adopted by the European Union, for accounting periods commencing 1st January The Group's first published financial statements under IFRS will be the results for the six months ended 30th June 2005 which are due to be published on 12th September The Group's transition date for the adoption of IFRS is 1st January 2004 as there is a requirement to present comparative figures for the Group's consolidated financial results for This document restates the consolidated financial statements of the Group prepared under UK GAAP to an unaudited IFRS basis for the six months ended 30th June 2004 and the year ended 31st December 2004, together with an explanation of the major changes. 2. BASIS OF PREPARATION AND PRESENTATION Applicable Accounting Standards This restatement has been prepared on the assumption that all current IFRS, including the interpretations of both the Standing Interpretations Committee ("SIC") and the International Financial Reporting Interpretations Committee, issued by the International Accounting Standard Board ("IASB") as being effective for the Group's 2005 reporting, will in due course be endorsed by the European Commission. As at the date of this announcement, not all of these standards have been endorsed by the European Commission. In particular, the Group has adopted the option in IAS 19 that allows actuarial gains and losses to be recognised in the Statement of Recognised Income and Expense, although this amendment has not, at present, been endorsed by the European Commission. If there are further developments in the interpretation of these standards or a decision by the European Commission not to endorse all of these standards in time for the publication of the Group's 2005 results, this could result in changes to the accounting for, or presentation of, some financial information reported in this document. There may, therefore, be further changes required to this information before it is published as comparative information for the Group's 2005 results. IFRS 1 - Exemptions Adopted on Transition to IFRS IFRS 1 (First Time Adoption of International Financial Reporting Standards) sets out the rules for first time adoption of IFRS. Generally, a company must determine IFRS compliant accounting policies and then apply those retrospectively to derive its opening or "transition" balance sheet. There are, however, certain exemptions to the general requirement. The Group has adopted the following key exemptions: (a) IFRS 3 (Business Combinations) - The major acquisitions completed by the Group prior to 1st January 2004 were in The goodwill on these acquisitions was written off directly to reserves and the Group has opted not to restate business combinations prior to the transition date on an IFRS 3 basis. (b) IAS 19 (Employee Benefits) - The net pension liability has been recognised in full at the transition date. The Group has adopted the option in IAS 19 that will result in the recognition of all actuarial gains and losses in full as they arise through the Statement of Recognised Income and Expense. (c) IFRS 2 (Share-based Payment) - The cost of options granted prior to 7th November 2002 has not been recalculated under IFRS. Mandatory Exception from Retrospective Application IAS 32 (Financial Instruments: Disclosure and Presentation) and IAS 39 (Financial Instruments: Recognition and Measurement) - The Group has not restated comparatives for IAS 32 and IAS 39. Accordingly, the information in this restatement and the comparative information in the 2005 financial statements will be presented on the existing UK GAAP basis. Basis of Presentation Under UK GAAP, the format of the Group financial statements was as set out in the Companies Act The financial statements included in Appendices 2 to 8 are based on IAS 1 (Presentation of Financial Statements) with additional information shown to assist the understanding of reconciliations and restatements from UK GAAP to IFRS. In some areas, there is no definitive IFRS guidance with regard to presentation and in such cases the Group has retained its UK GAAP approach for the sake of consistency and comparability. It may be necessary to modify the format and presentation of the financial statements set out in Appendices 2 to 8 if further guidance is issued or as best practice develops. 4

5 Segmental Reporting Under both UK GAAP and IFRS, the Group's primary segmental analysis is designated by business type. Segmental analysis will continue to be produced for ports and property segments. 3. SUMMARY OF IMPACT ON THE BALANCE SHEET AS AT TRANSITION ON 1ST JANUARY 2004 The table below sets out a summary reconciling the Group's net assets reported under UK GAAP as at 31st December 2003 and its opening net assets upon the adoption of IFRS on 1st January A full reconciliation detailing the changes is provided in Appendix 2. Reconciliation of net assets Paragraph m Net assets as previously reported under UK GAAP as at 31st December IAS 10 - Events after the Balance Sheet Date - reversal of 2003 proposed final dividend IAS 12 - Income Taxes - additional deferred tax provision for revaluation gains and gains on insurance claims 8.7 (8.8) IAS 19 - Employee Benefits - recognition of pension schemes net deficit less associated deferred tax asset 8.8 (18.7) - reversal of UK GAAP pension scheme prepayments less associated deferred tax liability 8.8 (8.2) - holiday pay accrual net of associated current tax 8.8 (0.3) SIC 15 - Operating Leases - Incentives - increase in retained earnings due to different treatment of lease incentives Net assets as restated under IFRS as at 1st January Change (24.2)m 5

6 4. SUMMARY OF IMPACT ON THE INCOME STATEMENT FOR THE SIX MONTHS ENDED 30TH JUNE 2004 The table below sets out a summary reconciling the Group's UK GAAP and IFRS income statement for the six months ended 30th June A full reconciliation detailing the changes is provided in Appendix 3. Paragraph m Profit for the period under UK GAAP as previously reported - continuing operations 8.6 IFRS 2 - Share-based Payment - lower charge for Long-Term Incentive Plan ("LTIP") and increased deferred tax asset IAS 19 - Employee Benefits - increased charge for pension costs 8.8 (0.4) - holiday pay accrual less current tax thereon 8.8 (1.1) IAS 40 - Investment Property - depreciation written back on tenanted buildings as now treated as investment property less notional tax effect SIC 15 - Operating Leases - Incentives - increase in joint venture company's income due to different treatment of lease incentives IFRS profit as restated - continuing operations 7.5 Change (1.1)m 5. SUMMARY OF IMPACT ON THE BALANCE SHEET AS AT 30TH JUNE 2004 The table below sets out a summary reconciling the Group's net assets reported under UK GAAP and IFRS as at 30th June A full reconciliation detailing the changes is provided in Appendix 4. Reconciliation of net assets Paragraph m Net assets as previously reported under UK GAAP as at 30th June IFRS 2 - Share-based Payment - increased deferred tax asset IAS 10 - Events after the Balance Sheet Date - reversal of 2004 proposed interim dividend IAS 12 - Income Taxes - additional deferred tax provision for revaluation gains and gains on insurance claims 8.7 (8.8) IAS 19 - Employee Benefits - recognition of pension schemes net deficit less associated deferred tax asset 8.8 (15.2) - reversal of UK GAAP pension scheme prepayments net of deferred tax 8.8 (8.8) - holiday pay accrual net of associated current tax 8.8 (1.4) IAS 40 - Investment Property - accumulated depreciation written back on tenanted buildings as now treated as investment property less notional tax effect SIC 15 - Operating Leases - Incentives - increase in retained earnings due to different treatment of lease incentives Net assets as restated under IFRS as at 30th June Change (27.0)m 6

7 6. SUMMARY OF IMPACT ON THE INCOME STATEMENT FOR THE YEAR ENDED 31ST DECEMBER 2004 The table below sets out a summary reconciling the Group's UK GAAP and IFRS income statement for the year ended 31st December A full reconciliation detailing the changes is provided in Appendix 6. Paragraph m Profit for the year under UK GAAP as previously reported - continuing operations 33.1 IFRS 2 - Share-based Payment - lower charge for LTIP options and increased deferred tax asset charge for SAYE scheme 8.4 (0.1) IFRS 3 - Business Combinations - reversal of goodwill amortisation on acquisition of joint venture company IAS 12 - Income Taxes - deferred tax movement IAS 19 - Employee Benefits - current tax relief on pension charge increased charge for pension costs 8.8 (0.5) - holiday pay accrual IAS 40 - Investment Property - reallocation of revaluation uplift in joint venture company through income statement depreciation written back on tenanted buildings as now treated as investment property SIC 15 - Operating Leases - Incentives - increase in joint venture company's income due to different treatment of lease incentives IFRS profit as restated - continuing operations 45.9 Change 12.8m 7. SUMMARY OF IMPACT ON THE BALANCE SHEET AS AT 31ST DECEMBER 2004 The table below sets out a summary reconciling the Group's net assets reported under UK GAAP and IFRS as at 31st December A full reconciliation detailing the changes is provided in Appendix 7. Reconciliation of net assets Paragraph m Net assets as previously reported under UK GAAP as at 31st December IFRS 2 - Share-based Payment - increased deferred tax asset IFRS 3 - Business Combinations - reversal of goodwill amortisation on acquisition of joint venture company IAS 10 - Events after the Balance Sheet Date - reversal of 2004 proposed final dividend IAS 12 - Income Taxes - additional deferred tax provision for revaluation gains and gains on insurance claims 8.7 (8.7) IAS 19 - Employee Benefits - recognition of pension schemes net deficit less associated deferred tax asset 8.8 (15.8) - reversal of UK GAAP pension scheme prepayments net of associated current and deferred tax 8.8 (12.9) - holiday pay accrual net of associated current tax 8.8 (0.3) IAS 40 - Investment Property - accumulated depreciation written back on tenanted buildings as now treated as investment property SIC 15 - Operating Leases - Incentives - increase in retained earnings due to different treatment of lease incentives Net assets as restated under IFRS as at 31st December Change (24.0)m 7

8 8. BACKGROUND DETAILS ON UK GAAP TO IFRS ADJUSTMENTS This section provides background to the UK GAAP to IFRS adjustments relevant to the Group's financial statements. PRESENTATION ADJUSTMENTS 8.1 IAS 1 - Presentation of Financial Statements (a) Share of Results of Joint Ventures and Associated Undertakings Under UK GAAP, the Group's share of operating results, interest and taxation of equity accounted joint ventures and associates was reported separately within the appropriate sub-total of the Group's profit and loss account. IAS 1 requires the Group to report its post-tax share of results from joint ventures and associated undertakings as single line items at the pre-tax profit level. The table below illustrates the changes required in relation to the Group's reporting of its share of results from equity accounted joint ventures and associated undertakings. This table includes measurement adjustments described in paragraphs 8.9 and Six months ended 30th June 2004 Year ended 31st December 2004 UK IFRS UK IFRS GAAP Adjustment Total GAAP Adjustment Total m m m m m m Share of operating profit in joint ventures Share of operating profit in associated undertakings Share of interest in joint ventures (1.7) (1.7) (2.9) (2.9) Share of interest in associated undertakings (0.1) (0.1) (0.4) (0.4) Share of taxation in joint ventures Share of taxation in associated undertakings (0.2) (0.2) (0.6) (0.6) Increase in joint venture rental income due to different treatment of lease incentives Increase in joint venture revaluation taken through income and expense (0.8) 0.1 (0.7) (1.3) Summary Share of (loss)/profit in joint ventures (1.3) 0.1 (1.2) (2.6) Share of profit in associated undertakings Total - post tax effect (0.8) 0.1 (0.7) (1.3) (b) Current Liabilities IAS 1 requires liabilities due to be settled within one year of the balance sheet date to be classified as current liabilities. At the transition date the Group has reclassified 0.4m of amounts reported as provisions for liabilities and charges under UK GAAP into current liabilities under IFRS. This reclassification amounted to 0.5m as at 30th June 2004 and 0.5m as at 31st December

9 (c) Dividends Under UK GAAP, the dividend charge is recognised in the income statement whereas, under IFRS, the dividend charge is recognised directly in reserves. The dividends in the six months to 30th June 2004 and in the year to 31st December 2004 have been removed from the respective income statements. 8.2 IAS 20 - Accounting for Government Grants and Disclosure of Government Assistance The Group s accounting policy under UK GAAP was to set up a deferred income balance in respect of capital grants receivable. Releases from deferred income were credited to the profit and loss account over the estimated useful life of the asset to which the grant related. UK company law prohibited setting off such balances against the asset to which the grant related. IAS 20 allows both methods and UK company law has been changed to allow the latter method. The Group has changed its accounting policy under IFRS and with effect from the date of transition such unamortised grants will be set against the carrying value of the asset to which they relate. The Group s deferred income balance at 1st January 2004 of 15.9m has been set against the carrying value of the associated assets. The appropriate figures offset are 15.6m at 30th June 2004 and 15.4m at 31st December IAS 38 - Intangible Assets Under UK GAAP, the Group accounted for software that is not an integral part of the computer hardware on which it runs as fixed tangible assets. IAS 38 requires that such software is separately identified and is categorised as intangible assets. The net book value to be transferred in respect of such assets is 2.3m at 1st January 2004, 2.8m at 30th June 2004 and 3.5m at 31st December These figures include assets in the course of completion. MEASUREMENT DIFFERENCES 8.4 IFRS 2 - Share-based Payment The Group operates share-based payment schemes under which options or shares are granted to certain employees. Under UK GAAP, the Group recognised an expense in its profit and loss account in relation to shares awarded under its LTIP but no such expense was recognised in respect of the Group Save As You Earn Scheme ("SAYE"). Under IFRS 2 (Share-based Payment), the Group is required to record an expense for all share-based payments granted after 7th November 2002 based on the fair value of those payments as determined at the date of grant. IAS 12 (Income Taxes) has been amended to permit an entity to recognise a deferred tax asset in relation to its share-based payment expense to the extent that it is able to obtain a tax deduction upon exercise of the equity instruments granted. The Group's charge under UK GAAP for LTIP shares up to 1st January 2004 of 0.3m has been reversed, together with the related deferred tax asset of 0.1m. The charge up to 1st January 2004 under IFRS is calculated at less than 0.1m and the deferred tax asset is 0.1m. The Group's IFRS 2 charge for the year ended 31st December 2004 has been calculated at 0.3m. This charge represents 0.2m for LTIP shares (previously 0.3m under UK GAAP) and 0.1m for the Group's SAYE scheme. Similarly, the Group's IFRS 2 charge for the six months ended 30th June 2004 was 0.1m for LTIP shares (previously 0.2m under UK GAAP). The Group has recognised deferred tax assets of 0.2m as at 30th June 2004 and 0.3m at 31st December

10 8.5 IFRS 3 - Business Combinations IFRS 3 prohibits the amortisation of goodwill and requires positive goodwill to be carried at cost on the balance sheet subject to an initial impairment test at the date of transition and annual reviews for impairment thereafter. Under UK GAAP, the Group's policy was to amortise goodwill over a maximum of 20 years, except for goodwill arising prior to 1999 in which case goodwill was written off immediately against reserves and negative goodwill was included as a capital reserve. The Group purchased 50% of the issued share capital of Multi-Link Terminals Limited at the end of Goodwill on this acquisition will not be amortised under IFRS. In the results for the year to 31st December 2004, a charge of 23,000 for goodwill has been reversed. Under UK GAAP, the annualised charge for goodwill on this acquisition would have been 0.4m. 8.6 IAS 10 - Events after the Balance Sheet Date Under IAS 10, accrued dividends are not recognised unless the amount has been formally approved as at the balance sheet date. The Group's accrued dividends of 11.0m as at 1st January 2004, 6.1m as at 30th June 2004 and 12.1m as at 31st December 2004 have been reversed in the restated balance sheets. 8.7 IAS 12 - Income Taxes IAS 12 requires that full provision for deferred tax should be made for all taxable temporary differences where the tax base cost differs from the associated carrying amounts of the assets and liabilities. UK GAAP specified a partial provision approach under which there was no requirement to provide for deferred tax on timing differences which arose on the revaluation of non-monetary assets unless the company had a binding contract to sell the revalued asset and the gain or loss on the disposal had already been recognised. Neither was there a requirement to provide for deferred tax on gains made on the disposal of assets that had subsequently been rolled over into replacement assets. On transition to IFRS as at 1st January 2004 the Group has booked deferred tax on revaluation gains of 7.7m and on gains rolled over into replacement assets arising from insurance claims of 1.1m. The movement in provisions as at 1st January 2004, 30th June 2004 and 31st December 2004 are shown in the table below; Movement in Deferred Tax Provision as at 1st January th June st December 2004 m m m Revalued assets Gains rolled over into replacement assets The Group does not expect the deferred tax provisions made on revalued assets and gains rolled over into replacement assets to crystallise in the near future and expects that cash payable in respect of corporation tax will be similar to that under UK GAAP-derived computations. 8.8 IAS 19 - Employee Benefits Under UK GAAP, the Group accounted for its pension costs in accordance with SSAP 24 (Accounting for Pension Costs). Pension contributions were charged principally at a rate calculated by the Group's actuary to provide, over the expected service lives of current employees, for all retirement benefits related to projected final salaries and wages. The assets and liabilities of the Group's pension schemes were not consolidated in the Group balance sheet. 10

11 In addition, the Group complied with the transitional arrangements for the adoption of FRS 17 (Retirement Benefits). This involved showing the Group s pension schemes' assets and liabilities as a note to the accounts, including details of the schemes actuarial gains and losses to date. The Group would have complied with the progressive requirements for adoption of FRS 17 in the year ending 31st December 2005, which would have included recognising the schemes' deficits in the Group s balance sheet and taking all actuarial gains and losses to reserves. Retrospective adoption of IAS 19 requires that the retirement benefit plan deficits are recognised in the balance sheet of the sponsoring entity at 1st January The deferred tax asset recognised in respect of the net liability on the Group pension schemes is recognised as a noncurrent asset instead of being netted off against the deficit. IAS 19 also requires that full provision for accrued holiday pay is made at each balance sheet date. The adoption of IAS 19 has increased the current service cost for the year ended 31st December 2004 in respect of pension expense from 4.1m under UK GAAP to 4.6m under IFRS. The figure for the half year ended 30th June 2004 has increased from 2.0m under UK GAAP to 2.4m under IFRS. Under UK GAAP, the Group had built up substantial SSAP 24 prepayments. On adoption of IFRS at 1st January 2004 pension prepayments of 11.7m were written back and the deferred tax on the prepayment of 3.5m was also reversed. At 30th June m was written back and at 31st December m was written back both less related deferred tax. By recognising the net liability position on the Group s pension schemes, the Group has reported a net liability of 26.7m together with an associated deferred tax asset of 8.0m at 1st January The figures at 30th June 2004 are a net liability of 21.7m with an associated deferred tax asset of 6.5m and at 31st December 2004 are a net liability of 22.5m and an associated deferred tax asset of 6.7m. The requirement to accrue for holiday pay due at 1st January 2004 has increased current liabilities by 0.4m less the associated tax effect. The accrual at 30th June 2004 is 1.9m less tax and the accrual at 31st December 2004 is 0.4m less tax. 8.9 IAS 40 - Investment Property Under UK GAAP the Group s accounting policy was in line with SSAP 19 (Accounting for Investment Properties). Such properties were carried at open market value and it was not permitted to carry them at depreciated historical cost. Under IAS 40 an entity can choose whether to carry investment property (with certain exceptions) at either depreciated cost or use a fair value model. If an entity adopts the fair value model, changes in an asset s fair value are recognised as gains or losses in the income statement under IFRS whereas SSAP 19 requires that such movements are to be recognised in the Statement of Total Recognised Gains and Losses unless it is a permanent deficit (or the reversal thereof) in which case it is recognised in the profit and loss account. The Group has reclassified tenanted land and buildings held under UK GAAP as investment property under IFRS. Under UK GAAP the Group revalued its tenanted land and buildings on a five year programme (with an interim valuation after three years). The Group carried out an interim revaluation on its tenanted land and buildings and investment property at 31st December Tenanted buildings were depreciated on their revalued amount over the expected remaining useful life of the building. The fair value model has been adopted for all investment property. The Group has reclassified its assets held as tenanted land and buildings under UK GAAP as investment property under IFRS. The assets transferred had a net book value of 108.4m under UK GAAP. Depreciation charged on revalued tenanted buildings of 0.2m for the six months ended 30th June 2004 and 0.4m for the year ended 31st December 2004 has been reversed. The increase in profit for the six months to 30th June 2004 results in an increased notional tax charge of 0.1m. The appropriate entries to move revaluation surplus on the Group's investment property and tenanted land and buildings from revaluation reserve to retained earnings have been made. The Group's share of a temporary revaluation deficit in a joint venture company of 7.3m as at 1st January 2004 was taken to revaluation reserve under UK GAAP. This has been transferred to retained earnings to comply with the IFRS treatment. The Group s share of a joint venture company s revaluation uplift of its investment property as at 31st December 2004 amounting to 12.3m has been reported within the income statement. The Group does not consider that there was a material movement in the valuation of its other investment property between 1st January 2004 and 31st December

12 8.10 SIC 15 - Operating Leases - Incentives s Under UK GAAP the Group complied with UITF 28 - Operating Lease Incentives which required lease incentives to be spread over the shorter of the lease term and the period to the first rent review. However, SIC 15 requires the same treatment for all incentives for the agreement of a new or renewed operating lease, regardless of their form or cash flow effect. The incentives are recognised as a reduction of the rental income over the entire lease term on a straight-line basis, unless another systematic basis is appropriate, in order to ensure the income statement reflects the true effective rental charge irrespective of the particular cash flow arrangements agreed. There is a small increase of 0.1m to the Group's retained profit as at 1st January The effect on results is to decrease Group profit by 25,000 in the six months to 30th June 2004 (tax effect immaterial) and by 40,000 in the year to 31st December 2004 (tax effect immaterial). There is also an increase in a joint venture company's retained earnings of 0.7m, 0.8m and 1.0m at 1st January, 30th June and 31st December 2004 respectively with the movement of 0.1m and 0.3m for 30th June and 31st December 2004 respectively being included in the income statement under share of results of joint ventures. There is no tax effect resulting from these adjustments as the joint venture company has unutilised tax losses. 9. Other Matters IAS 32 and IAS 39 As mentioned in Section 2, the Group has not restated comparatives for IAS 32 and IAS 39. These standards will be adopted with effect from 1st January The main impact on the Group will be the recording of long-term trade debtors and zero coupon loan stock held in a joint venture undertaking at amortised cost. In respect of long-term trade debtors, the difference between historic cost and amortised cost, being the effective interest on the long-term receivables, will be recognised in finance income over the period up to which the trade debt is settled. For the zero coupon loan stock, the difference between historic cost and amortised cost is the effective interest on the loan stock and will be charged to finance costs within the Group's share of results of joint venture companies over the period up to which the loan stock is repaid. One of the Group's joint venture companies holds an interest rate swap which is used to hedge against interest rate fluctuations. The swap will be recorded on the balance sheet at its fair value as at 1st January 2005 and will be accounted for using cash flow hedge accounting under IAS 39. The effect of measuring at amortised cost at 1st January 2005 is to reduce the value of the long-term debts by 5.0m which will subsequently be recognised as interest income and to reduce the value of the zero coupon loan stock by 11.2m which will be shown as interest expense through the Group's share of joint venture company results and as a corresponding credit through the Group's finance costs line. If the exemption from applying IAS 32 and IAS 39 had not been taken, the long-term debts would have been reduced by 3.9m at 1st January 2004 and by 2.7m at 30th June The effect of measuring the zero coupon loan stock at amortised cost would have been to reduce the value by 11.2m at 1st January 2004 and by 11.0m at 30th June As a result of applying fair value to the joint venture company's interest rate derivative at 1st January 2005, the Group will reduce its investment in joint venture companies by 1.7m and will set up a cash flow hedge reserve for the same amount. The hedge will have no effect on reported earnings in future periods. 12

13 APPENDIX 1 SIGNIFICANT IFRS ACCOUNTING POLICIES Associates An associated undertaking (associate) is one in which the Group has a long-term interest, usually from 20% to 50%, and over which it exercises significant influence. Investments in associates are accounted for by the equity method of accounting. Under this method the Group s share of the post-acquisition profits or losses of associates is recognised in the income statement and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the cost of the investment. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group s interest in the associates; unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. The Group s investment in associates includes goodwill (net of accumulated amortisation) on acquisition. When the Group s share of losses in an associate equals or exceeds its interest in the associate, the Group does not recognise further losses, unless the Group has incurred obligations or made payments on behalf of the associates. Joint Ventures Joint ventures are arrangements in which the Group has a long-term interest and shares control under a written contractual agreement. The Group s interests in joint ventures are accounted for by the equity method of accounting. The investment in the joint venture is initially recorded at cost and is adjusted thereafter for the post-acquisition change in the Group s share of net assets of the jointly controlled entity. The Group income statement includes the Group s share of the profit or loss of the joint venture. The Group recognises the portion of gains or losses on the sale of assets by the Group to the joint venture that is attributable to the other venturers. The Group does not recognise its share of profits or losses from the joint venture that result from the purchase of assets by the Group from the joint venture until it resells the assets to an independent party. However, if a loss on the transaction provides evidence of a reduction in the net realisable value of current assets or an impairment loss, the loss is recognised immediately. When the Group's share of losses of a joint venture equals or exceeds its interest in the company, the Group does not recognise further losses unless the Group has incurred obligations or made payments on behalf of the joint venture. Goodwill Goodwill is the excess of the cost of acquisition over the net fair value of the identifiable assets, liabilities and recognised contingent liabilities of the business acquired. Goodwill on businesses acquired after 1st January 1999 is shown as an intangible asset with an indefinite useful life and is subject to an annual impairment test and is also subject to a test whenever there is an indication of impairment. Goodwill arising on acquisitions prior to 1st January 1999 was written off immediately against reserves. Where there is an excess of the Group s interest in the net fair value of the acquiree s identifiable assets over the purchase price ("negative goodwill"), this amount is taken to the income statement in the year of acquisition. Foreign Currencies The consolidated financial statements are presented in UK pounds Sterling which is the measurement currency of the parent. Income statements and cashflows of foreign entities are translated into the Group s reporting currency at average exchange rates for the year and their balance sheets are translated at the exchange rates ruling on 31st December. Exchange differences arising from the translation of the net investment in foreign entities and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders equity. When a foreign entity is sold, such exchange differences are recognised in the income statement as part of the gain or loss on sale. 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. 13

14 Property, Plant and Equipment Operational land and buildings and plant and equipment are stated at historical cost less depreciation. Land and capital works in progress are not depreciated. Cost includes transfers from equity of any gains/losses on qualifying cash flow hedges of foreign currency purchase costs where appropriate. All fixed assets in the course of construction are recorded as capital work in progress until such time as they are brought into use by the Group. Capital work in progress includes all direct expenditure and may include capitalised interest in accordance with the accounting policy on that subject. On completion, such assets are transferred to the appropriate category of tangible fixed asset. Depreciation is charged to write off the cost or revalued amount less any residual value of the asset over the estimated useful lives as follows; Buildings and dock structures Plant and equipment years 3-25 years Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. Gains and losses on disposals of assets are included in operating profit. Repairs and maintenance are charged to the income statement during the financial period in which they are incurred. The cost of major renovations is included in the carrying amount of the assets when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the Group. Major renovations are depreciated over the remaining life of the related asset. Investment Property Investment property, principally comprising tenanted land and buildings within the port estates and office buildings, is held for long-term rental yields and is not occupied by the Group. Investment property is treated as a long-term investment and is carried at fair value, representing open market value determined annually. Changes in fair values are recorded in the income statement in accordance with IAS 40 and are included in other operating income. Intangible Assets Computer Software Costs associated with developing or maintaining computer software programmes are recognised as an expense as incurred. Costs that are directly associated with identifiable and unique software products controlled by the Group and which will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Direct costs include staff costs of those involved in the software development. Expenditure which enhances or extends the performance of identifiable computer software products beyond their original specifications is recognised as a capital improvement and added to the original cost of the software. Computer software development costs recognised as assets are amortised using the straight-line method over their useful lives, not exceeding a period of 10 years. Lease Incentives Any lease incentive for the agreement of a new or operating lease is allocated over the term of the lease regardless of their form or cash flow effect. Such incentives are recognised over the entire lease term, unless another systematic basis is appropriate, in order to ensure the income statement reflects the true effective rental charge irrespective of the particular cash flow arrangements agreed. 14

15 Pension Obligations Pension contributions are charged principally at a rate calculated by the actuary to provide, over the expected remaining service lives of current employees, for all retirement benefits related to projected final salaries and wages. The liability in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date minus the fair value of plan assets, together with adjustments for past service cost. The defined benefit obligation is calculated by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by the estimated future cash outflows using market yields on high quality corporate bonds. Actuarial gains and losses are recognised in full as they arise in the Statement of Recognised Income and Expense. Grants relating to the Purchase of Property, Plant and Equipment Capital grants are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all conditions pertaining to the grant. Grants receivable are credited against the historic cost of the assets to which the grant relates. The amount amortised in each period is set against the depreciation charge of the asset to which it relates. Dividends Dividends are recorded in the Group s financial statements in the period in which they are approved by the Group s shareholders. Interim dividends are recognised when paid. Trade Receivables and Accrued Property Income Trade receivables and accrued property income are carried at original invoice amount less provision made for impairment of these receivables. A provision for impairment of trade receivables and accrued property income 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 receivables. The amount of the provision is the difference between the carrying amount and the recoverable amount, being the present value of expected cash flows, discounted at the market rate of interest for similar borrowers. Share Based Payment The Group awards shares in Forth Ports PLC to all eligible Executive Directors and Senior Managers under the LTIP which was approved at the Annual General Meeting of the Company in May The shares are granted to the employee at nil cost. In addition, all eligible employees were offered the opportunity to take part in an approved SAYE scheme which started in 2004 as approved at the Annual General Meeting of the Company in May The option price was granted to employees at a discount to the market price of the shares at the date of issue. In both cases, the Group makes a charge to the income statement over the option period that recognises the fair value of the share options at the date of their grant, having regard to such factors as the weighted average share price, exercise price (where applicable), expected dividends, the risk-free interest rate and the expected rates of early exercise. 15

16 APPENDIX 2 UK GAAP TO IFRS CONSOLIDATED BALANCE SHEET AS AT 1ST JANUARY 2004 IAS 10 Events after the Balance Sheet IAS 40 Investment SIC 15 Operating Leases- UK GAAP IAS 1 Current Liabilities IAS 20 Government Grants IAS 38 Intangible Assets Date IAS 12 Income Taxes IAS 19 Employee Benefits Property Incentives IFRS GAAP m m m m m m m m m m ASSETS Non-current assets Property, plant and equipment (15.9) (2.3) (108.4) Investment property Intangible assets Investment in joint ventures Investment in associates Receivables Deferred tax assets (15.9) Current assets Inventories Trade and other receivables (11.7) Cash and cash equivalents (11.7) Total assets (15.9) (3.7) LIABILITIES Non-current liabilities Borrowings (96.6) (96.6) Investment in joint ventures (9.6) (8.9) Deferred tax liabilities (12.8) (8.8) (18.1) Retirement benefit obligations (26.7) - - (26.7) Other provisions (1.1) (0.7) Deferred income (15.9) (136.0) (8.8) (23.2) (151.0) Current liabilities Trade and other payables (50.9) (0.4) - - (40.3) Current tax liabilities (7.4) (7.3) Borrowings (15.1) (15.1) Provisions - (0.4) (0.4) (73.4) (0.4) (0.3) - - (63.1) Total liabilities (209.4) (8.8) (23.5) (214.1) Total assets less total liabilities (8.8) (27.2) SHAREHOLDERS' EQUITY Ordinary shares Share premium Treasury shares (0.0) (0.0) Revaluation reserve (42.4) - - Other reserves Retained earnings (8.8) (27.2) Total shareholders' equity (8.8) (27.2) Minority interest Total equity (8.8) (27.2)

17 APPENDIX 3 UK GAAP TO IFRS CONSOLIDATED INCOME STATEMENT FOR THE SIX MONTHS ENDED 30TH JUNE 2004 UK GAAP IAS 1 Joint Ventures and Associated Undertakings IFRS 2 Sharebased Payment IAS 19 Employee Benefits IAS 40 Investment Property SIC 15 Operating Leases- Incentives IFRS GAAP m m m m m m m Revenue (0.0) 58.7 Cost of sales (34.2) - - (1.5) (35.5) Gross profit (1.5) 0.2 (0.0) 23.2 Administrative expenses (8.7) (0.4) - - (9.0) Operating profit (1.9) 0.2 (0.0) 14.2 Finance costs - net (4.6) (2.8) Share of results of joint ventures 0.2 (1.5) (1.2) Share of results of associates 0.8 (0.3) Profit before tax (1.9) Income tax expense (3.6) (0.1) - (3.2) Profit for the period (1.5) Profit attributable to minority interest (0.0) (0.0) Profit attributable to equity shareholders (1.5)

18 APPENDIX 4 UK GAAP TO IFRS CONSOLIDATED BALANCE SHEET AS AT 30TH JUNE 2004 IFRS 2 Sharebased IAS 10 Events after the Balance Sheet SIC 15 Operating Leases- UK GAAP IAS 1 Current Liabilities IAS 20 Government Grants IAS 38 Intangible Assets Payment Date IAS 12 Income Taxes IAS 19 Employee Benefits IAS 40 Investment Property Incentives IFRS GAAP m m m m m m m m m m m ASSETS Non-current assets Property, plant and equipment (15.6) (2.8) (108.2) Investment property Intangible assets Investment in joint ventures Investment in associates Receivables Deferred tax assets (15.6) Current assets Inventories Trade and other receivables (12.3) Cash and cash equivalents (12.3) Total assets (15.6) (5.8) LIABILITIES Non-current liabilities Borrowings (137.0) (137.0) Investment in joint ventures (10.3) (9.5) Deferred tax liabilities (12.8) (8.8) (18.0) Retirement benefit obligations (21.7) - - (21.7) Other provisions (1.2) (0.7) Deferred income (15.6) (176.9) (8.8) (18.2) (186.9) Current liabilities Trade and other payables (32.8) (1.9) - - (28.6) Current tax liabilities (5.0) (0.1) - (4.6) Borrowings (0.1) (0.1) Provisions - (0.5) (0.5) (37.9) (0.5) (1.4) (0.1) - (33.8) Total liabilities (214.8) (8.8) (19.6) (0.1) 0.8 (220.7) Total assets less total liabilities (8.8) (25.4) SHAREHOLDERS' EQUITY Ordinary shares Share premium Treasury shares (0.0) (0.0) Revaluation reserve (42.2) - - Other reserves Retained earnings (8.8) (25.4) Total shareholders' equity (8.8) (25.4) Minority interest Total equity (8.8) (25.4)