Balsan / Carpet tiles

Transcription

1 Balsan / Carpet tiles

2 Financial report I. Definitions 47 II. Financial statements 48 III. Notes to the consolidated financial statements for the year ended 30 November IV. Statutory auditor s report on the consolidated financial statements as of 30 November

3

4 Definitions The following abbreviations have been used throughout this publication: GAAP IAS(s) IASB IFRIC Generally Accepted Accounting Principles International Accounting Standard(s) International Accounting Standards Board International Financial Reporting Interpretations Committee of the IASB, and title of interpretations issued by that committee IFRS(s) SIC International Financial Reporting Standard(s) Standing Interpretations Committee of the IASB s predecessor body, the International Accounting Standards Committee, and title of Interpretations issued by that committee 47 Ι annual report 2005

5 Financial statements The consolidated financial statements have been authorised for issue by the Board of Directors of January 23, II.1. Consolidated income statement (in EUR thousands) Financial year ending on 30th November Notes Revenue 251, ,577 Other operating income Changes in inventories of finished goods and work in progress -5,266 7,227 Raw materials and consumables used -139, ,544 Employee benefits expense III ,147-44,434 Depreciation, amortisation expense and impairment III ,658-9,305 Other operating expenses III ,727-58,696 Operating profit 1,883 13,119 Investment revenues - 1 Interest income III Interest expenses III ,901-3,129 Other financial income III Other financial expenses III ,510-3,344 Profit (loss) before tax -2,979 7,316 Income tax expense III ,006-1,441 Result for the year -1,973 5,875 The accompanying notes are an integral part of this income statement Earnings per share Basic III Diluted III Ι annual report 2005

6 Financial II.2. Consolidated balance sheet (in EUR thousands) Assets at 30th November Notes Non-current assets Intangible assets III ,259 1,292 Property, plant and equipment III ,743 32,998 Deferred tax assets III ,880 1,737 Trade and other receivables III Other non-current assets III ,119 1,276 37,181 37,535 Current assets Inventories III ,684 51,803 Trade receivables III ,719 21,290 Other receivables III ,420 4,581 Cash and cash equivalents III ,059 1,403 Deferred charges III ,451 11,022 85,333 90,099 Total assets 122, ,634 The accompanying notes are an integral part of this balance sheet 49 Ι annual report 2005

7 Consolidated balance sheet (in EUR thousands) Equity and liabilities at 30 November Notes Capital and reserves Share capital III ,688 10,500 Share premium II Treasury shares II.3-3,100-3,100 Hedging reserves II Translation reserves II Retained earnings II.3 38,132 40,849 Total equity 46,073 48,398 Non-current liabilities Bank loans III ,082 Obligations under finance leases III ,956 4,789 Deferred tax liabilities III ,763 Provisions III Employee benefit obligation III ,612 2,920 8,344 11,024 Current liabilities Bank overdrafts and loans III ,989 6,396 Obligations under finance leases III ,605 2,506 Provisions III Employee benefit obligation III ,618 8,096 Trade payables and accruals III ,939 43,880 Other current liabilities III ,946 7,146 68,097 68,212 Total liabilities 76,441 79,236 Total equity and liabilities 122, ,634 The accompanying notes are an integral part of this balance sheet. 50 Ι annual report 2005

8 Financial II.3. Consolidated statement of changes in equity (in EUR thousands) Share capital Share premium Treasury shares Hedging reserves Translation Retained earnings Total Balance at 1 December , , ,941 42,407 Result on cashflow hedges Exchange differences arising on translation of foreign operations Net result recognized directly in equity Result for the year ,875 5,875 Balance at 30 November , , ,849 48,398 Result on cashflow hedges Exchange differences arising on translation of foreign operations Net result recognized directly in equity Transfer to profit or loss on cashflow hedges Result for the year ,973-1,973 Total recognized income and expense for the year ,006-2,006 Capital increase - net of issuance costs Impact share premium on issuance shares Dividends Balance at 30 November , , ,132 46, Ι annual report 2005

9 II.4. Consolidated cash flow statement (in EUR thousands) Operating activities Profit (loss) for the year -1,973 5,875 Adjustments for: Interest expense 2,901 3,129 Interest income Income tax expense (income) -1,006 1,441 Depreciation, amortization and impairment expense 7,658 9,305 Book value of property, plant and equipment disposed of Increase/(decrease) in provisions Operating cash flows before movements in working capital 8,029 20,397 Decrease/ (increase) in working capital 1, Cash generated from operations 9,718 19,492 Income taxes expense (income) 1,006-1,441 Interest expense -2,901-3,129 Net cash from operating activities 7,823 14, Ι annual report 2005

10 Financial Investing activities Interest income 7 33 Purchases of property, plant and equipment -7,621-4,593 Purchases of intangible assets Net cash (used in) from investing activities -8,023-4,577 Financing activities Dividends paid Increase (decrease) in bank overdrafts and loans 2,031-9,924 Increase (decrease) in obligations under finance leases ,536 Proceeds on issue of shares - net of issuance costs Net cash (used in) from financing activities ,460 Net increase (decrease) in cash and cash equivalents 611-2,115 Cash and cash equivalents at the beginning of the year 1,403 3,498 Effect of foreign exchange rate changes and other Cash and cash equivalents at the end of the year 2,059 1, Ι annual report 2005

11 Notes to the consolidated financial statements for the year ended 30 November 2005 III.1. Summary of significant accounting policies endorsed by the European Union (commonly referred to as the stable platform ). The Group therefore decided to early adopt the following standards: Improvements to International Accounting Standards III.1.1. Statement of compliance basis of preparation Associated Weavers International NV (the Company ) is a company domiciled in Belgium. The Company s consolidated financial statements include the financial statements of the Company, its subsidiaries, interests in jointly controlled entities consolidated under the proportionate method (together referred to as the Group ) and the Group s interest in associates accounted for under the equity method. The consolidated financial statements have been prepared for the first time in accordance with International Financial Reporting Standards (IFRS) as endorsed by the European Union. As a first-time adopter of IFRS in 2005, the consolidated financial statements have been prepared in accordance with IFRS 1 First-time adoption of IFRS. The disclosures required by IFRS 1 regarding the transition from Belgian GAAP to IFRS are presented in note III.2. (December 2003) IFRS 2 Share-based Payment IAS 32 Financial Instruments: Disclosure and Presentation IAS 39 Financial Instruments: Recognition and Meas - urement IFRS 1 First-time Adoption of International Financial Reporting Standards requires retrospective application of each IFRS effective at the reporting date for the first IFRS financial statements. Limited exemptions are permitted to this principle. AWI has elected to use the following exemptions: Business combinations that occurred before the date of transition to IFRS. IFRS 3 Business Combinations has not been applied retrospectively to acquisitions that occurred before the date of transition to IFRS. Cumulative actuarial gains and losses related to employee benefits. The corridor approach defined under III.1.2. Early adoption of new or revised IFRS For the preparation of its first IFRS financial statements, the Group has decided to anticipate the application of standards and interpretations effective on 1 January 2005 as IAS 19 Employee Benefits is used for actuarial gains and losses which arise after the date of transition to IFRS. All cumulative actuarial gain and losses were recognized at the date of transition. 54 Ι annual report 2005

12 Notes Translation reserves. Exchange differences that occurred before the date of transition from the translation of assets and liabilities of the Group s foreign operations into EUR are included in the retained earnings and not shown as separate caption of the capital and reserves as required by IAS21. currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. III.1.3. General principles Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are Currency of accounts The financial statements are presented in thousand euro (EUR) (unless specified otherwise), which is the currency of the primary economic environment in which the Group operates. The financial statements of foreign operations are translated in accordance with the policies set out below under Foreign Currencies. included in profit or loss for the period. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of nonmonetary items in respect of which gains and losses are recognized directly in equity. For such non-monetary items, any exchange component of that gain or loss is also recognized directly in equity. Historical cost convention The financial statements have been prepared on the historical cost basis unless otherwise disclosed in the accounting policies below. In order to hedge its exposure to certain foreign exchange risks, the Group enters into forward contracts and options (see below for details of the Group s accounting policies in respect of such derivative financial instruments). Foreign currencies Transactions in currencies other than the entity s functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary items denominated in foreign The assets and liabilities of the Group s foreign operations (including comparatives) are expressed in EUR using exchange rates prevailing on the balance sheet date. Income and expense items (including comparatives) are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that 55 Ι annual report 2005

13 period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are classified as equity and transferred to the Group s translation reserve. Such translation differences are recognized in profit or loss in the period in which the foreign operation is disposed of. Consolidation principles The consolidated financial statements incorporate the financial statements of the Company and entities (including special purpose entities) controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies Use of estimates The preparation of financial statements in conformity with IFRS requires that management make certain estimates into line with those used by other members of the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation. and assumptions that affect the amounts reported in the financial statements and accompanying notes. Estimates that have been made at the date of transition to IFRS and at each reporting date reflect conditions that existed at those dates (e.g. market prices, interest rates and foreign exchange rates). Although these estimates are based on management s best knowledge of current events and actions that the Group may undertake, actual results may differ from those estimates. 56 Ι annual report 2005

14 Notes III.1.4. Balance sheet it is probable that the asset created will generate future economic benefits; and Intangible assets the development cost of the asset can be measured reliably. Intangible assets are recognized if it is probable that associated future economic benefits will flow to the Group and if their cost can be measured reliably. After initial recognition, all intangible assets are measured at cost less accumulated amortisation and impairment losses. Internally-generated intangible assets are amortised on a straight-line basis over their estimated useful lives. Where no internally-generated intangible asset can be recognized, development expenditure is charged to profit or loss in the period in which it is incurred. Patents & trademarks and licences Patents & trademarks and licences are measured initially at purchase cost and are amortised on a straight-line basis over their estimated useful lives. The estimated useful lives are within the following ranges: Property, plant and equipment Land and buildings held for use in the production or supply of goods or services, or for administrative purposes, are stated in the balance sheet at cost, less any subsequent Brand names and patents: Software licences: 5-10 years 5 years accumulated depreciation and subsequent accumulated impairment losses. Cost includes all direct costs and all Internally-generated intangible assets research and development expenditure Expenditure on research activities is recognized as an expense in the period in which it is incurred. An internally-generated intangible asset arising from the Group s business development is recognized only if all of the following conditions are met: an asset is created that can be identified (such as software and new processes); expenditure incurred to bring the asset to its working condition and location for its intended use. Borrowing costs are not capitalised. Subsequent costs are included in the asset s carrying amount or recognized 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 are charged to the income statement during the financial period in which they are incurred. 57 Ι annual report 2005

15 Properties in the course of construction for production, rental or administrative purposes, or for purposes not yet determined, are carried at cost, less any recognized impairment loss. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use. Fixtures and equipment are stated at cost less accumulated Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease. The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss. depreciation and any accumulated impairment losses. Depreciation is charged so as to write off the cost or valuation of assets, other than land and properties under construction, over their estimated useful lives, using the straight-line method. Depreciation starts when the assets are ready for their intended use. The estimated useful lives of the most significant items of property, plant and equipment are within the following ranges: Offices: 20 years Industrial buildings: 20 years Building improvements and extensions: 6,6 years Machinery: 6,6 years Tooling: 4 years Screens: 3 years Equipment: 4 years Furniture: 6,6 years Hardware: 4 years Vehicles: 5 years Leases Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Assets held under finance leases are recognized as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Rentals payable under operating leases are charged to profit or loss on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term. 58 Ι annual report 2005

16 Notes Impairment of tangible and intangible assets At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (cashgenerating unit) in prior years. A reversal of an impairment loss is recognized immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. amount of the cash-generating unit to which the asset belongs. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. If the recoverable amount of an asset (or cash-genera ting unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is Inventories Inventories are stated at the lower of cost (FIFO) and net realisable value. Cost comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the first in, first out method. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. reduced to its recoverable amount. An impairment loss is Financial instruments Financial assets and financial liabilities are recognized on the Group s balance sheet when the Group becomes a party to the contractual provisions of the instrument. recognized immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased 59 Ι annual report 2005

17 Trade receivables Short term receivables are measured at initial recognition at their nominal value, and are subsequently reduced by appropriate allowances for estimated irrecoverable amounts. These allowances are recognized in profit or loss financial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. when there is objective evidence that the asset is impaired. Bank borrowings Investments Held to maturity investments are initially recognized at their fair value plus transaction costs that are directly attributable to the acquisition of the held to maturity investments. Subsequent to initial recognition, held to maturity investments are recognized at amortized cost using the effective interest method less any impairment losses. Interest-bearing bank loans and overdrafts are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method. Any difference between the proceeds (net of transaction costs) and the settlement or redemption of borrowings is recognized over the term of the borrowings in accordance with the Group s accounting policy for borrowing costs. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of Trade payables Trade payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method. cash and are subject to an insignificant risk of changes in value. Derivative financial instruments and hedge accounting Financial liabilities and equity instruments Financial liabilities and equity instruments issued by the Group are classified according to the substance of the contractual arrangements entered into and the definitions of a The Group s activities expose it primarily to the financial risks of changes in foreign exchange rates and interest rates. The Group uses derivative financial instruments (foreign currency forward contracts and options) to hedge its risks 60 Ι annual report 2005

18 Notes associated with foreign currency fluctuations relating to certain forecasted transactions. The use of financial derivatives is governed by the Group s policies approved by the board of directors, which provide written principles on the use of financial derivatives consistent with the Group s risk management strategy. The Group does not use derivative financial instruments for speculative purposes. Derivative financial instruments are initially measured at fair value on the contract date, and are remeasured to fair value at subsequent reporting dates. Changes in the fair value of derivative financial instruments that are designated and effective as hedges of future cash flows are recognized directly in equity and the ineffective or loss in the same period in which the hedged item affects profit or loss. Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognized in profit or loss as they arise. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. At that time, for forecast transactions, any cumulative gain or loss on the hedging instrument recognized in equity is retained in equity until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognized in equity is transferred to profit or loss for the period. portion is recognized immediately in profit or loss. The Group s policy with respect to hedging the foreign currency risk of a firm commitment or forecasted transaction is to designate it as a cash flow hedge. If the cash flow hedge of a firm commitment or forecasted transaction results in the recognition of a non-financial asset or a liability, then, at the time the non-financial asset or liability is recognized, the associated gains or losses on the derivative that had Derecognition of financial instruments The derecognition of a financial instrument takes place when the Group no longer controls the contractual rights that compromise the financial instrument, which is normally the case when the instrument is sold, or all the cash flows attributable to the instrument are passed through to an independent third party. previously been recognized in equity are included in the initial measurement of the asset or liability. For hedges that do not result in the recognition of a non-financial asset or a liability, amounts deferred in equity are recognized in profit Sample charges Deferred charges at the balance sheet date comprise costs incurred (acquisition costs and own production costs) on 61 Ι annual report 2005

19 samples, net of sales thereof. These charges are depreciated over 24 months from the introduction of the samples in Payments to defined contribution plans are charged as expenses as they fall due. the market. The depreciation term corresponds with the average life of a collection. Defined benefit plans Defined benefit plans are post-employment benefit plans Treasury shares Consideration paid or received in relation to the acquisition or sale of the company s own equity instruments are recognized directly in equity attributable to the company s equity holders. No gain or loss is recognized in profit or loss on the purchase, sale, issue, or cancellation of treasury shares. Any directly attributable incremental costs (net of taxes) are also deducted from equity attributable to the equity holders of the company. other than defined contribution plans. Under defined benefit plans, benefits are typically calculated based on years of service and on the level of remuneration. The amount recognized on the balance sheet is the present value of the defined benefit obligation, adjusted for the unrecognized actuarial gains/(losses) and any past service cost not yet recognized, less the fair value of any plan assets. The present value of the defined benefit obligations and the related current and past service costs are calculated Pensions and similar obligations Retirement benefit schemes In accordance with the laws and practices applicable in each country, the companies of the Group provide retirement and/or death benefits to their employees. using the projected unit credit method. This implies that benefits are normally attributed to periods of service under the plan s benefit formula. The discounted value of benefits attributed to prior periods of service equals the present value of the defined benefit obligation, and the discounted value of benefits attributed to the current period of service Defined contribution plans Under defined contribution plans, the obligation of the company is limited to the amount that it agrees to contri b - ute to a fund. All actuarial and investment risk fall on the employee. equals the service cost. The discount rate is determined based on the market yields at the balance sheet date of high quality corporate bonds. The actuarial gains and losses, resulting mainly from changes in actuarial assumptions, are determined sepa- 62 Ι annual report 2005

20 Notes rately for each defined benefit plan and not immediately recognized but deferred according the following principle. been communicated to affected parties or started to be implemented before the balance sheet date. The actuarial gains and losses exceeding a corridor of 10% of the higher of the fair value of plan assets and the present value of the defined benefit obligations are recognized in the income statement over the average remaining service lives of the plan participants involved. Past service costs, which arise when a plan is introduced or modified, are recognized as an expense over the average period until the benefits become vested. In the income statement, current and past service costs, actuarial gains /(losses) are charged in employee benefits expense, while interest cost and expected return on plan assets are booked in other financial expenses. Share-based payments The Group issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value (excluding the effect of non market-based vesting conditions) at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group s estimate of the shares that will eventually vest and adjusted for the effect of non market-based vesting conditions. Fair value is measured using the Black-Scholes pricing model. The expected life used in the model has been Provisions Provisions are recognized when the Group has a present obligation as a result of a past event, and it is probable that adjusted, based on management s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. the Group will be required to settle that obligation. Provisions are measured at the directors best estimate of the expenditure required to settle the obligation at the balance sheet date, and are discounted to present value where the effect is material. Provisions for restructuring costs are recognized when the Group has a detailed formal plan for restructuring that has 63 Ι annual report 2005

21 III.1.5. Profit and loss statement shareholders rights to receive payment have been established. Revenue recognition Revenue from the sale of goods shall be recognized when all the following conditions have been satisfied: AWI has transferred to the buyer the significant risks and rewards of ownership of the goods; AWI retains neither continuing managerial involvement to the degree usually associated with ownership nor Received and granted cash discounts which exceed a normal financing cost or finance income measured based on market interest rates for the related financing period (difference between normal payment term applicable in the market and the actual payment term), are recorded in reduction of the operating costs and turnover. The other part is recorded as financial income and expense. effective control over the goods sold; the amount of revenue can be measured reliably; it is probable that the economic benefits associated with the transaction will flow to AWI and; the costs incurred or to be incurred in respect of the transaction can be measured reliably. Government grants Government grants towards staff re-training costs are recognized in profit or loss over the periods necessary to match them with the related costs and are deducted from the related expense. Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts, VAT and other sales-related taxes. Interest income is accrued on a time basis, by reference to Government grants relating to property, plant & equipment are treated by deducting the received grants from the carrying amount of the related assets. These grants are recognized as income over the useful life of the depreciable assets. the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts throughout the expected life of the financial asset to that asset s net carrying amount. Dividend income from investments is recognized when the Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. The current tax expense payable is based on taxable profit 64 Ι annual report 2005

22 Notes for the year. Taxable profit differs from profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deduc t- ible. The Group s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is recognized on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognized if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Factors taken into account include recent past history and the next years budget. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax is charged or credited to profit or loss, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax liabilities are recognized for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary 65 Ι annual report 2005

23 III.2. First time adoption of international financial reporting standards III.2.1. Introduction As of 1 December 2003, AWI uses the international financial reporting standards as adopted by the European Union. In accordance with IFRS 1 First-time Adoption of International Financial Reporting Standards, the opening IFRS balance sheet is dated 1 December 2003 (date of transition to IFRS) and the comparative information for the reporting period 2004 has been restated in compliance with IFRS. III.2.2. Effect of the transition from Belgian GAAP to IFRS III Reconciliation of the shareholders equity as at the date of transition (30 November 2003) published in conformity with the Belgian reporting requirements, with the shareholders equity according to IFRS Based upon the requirement of IFRS 1, the financial statements in Belgian GAAP of the year ending 30 November 2003 have been restated for the preparation of the opening IFRS balance sheet at 1 December Following IFRS 1, the adjustments resulting from the difference in accounting policies between IFRS and previous GAAP have all, barring limited exceptions, been recorded directly in the opening balance of retained earnings on 1 December All restatements relate to changes in accounting policies and do not reflect corrections of errors that would have been made under previous GAAP (Belgian GAAP). Total equity at the end of 2003 (including minority interests) therefore decreased from EUR 45,4 million to EUR 42,4 million. This decrease in equity of EUR 3,0 million is detailed in the reconciliation table and the explanatory notes. Each adjustment is disclosed before the impact of deferred taxes. The total impact of changes in accounting policies on deferred taxes is disclosed separately below in comment (5). 66 Ι annual report 2005

24 Notes Total shareholders equity according to the Belgian reporting requirements as of 30 November 2003 (1) Formation expenses (2) Tangible fixed assets 45, (a) Component approach -275 (b) Leasing -40 (3) Investments and own shares -643 (4) Pensions and similar obligations -2,286 (5) Deferred tax assets and liabilities 360 Total shareholders equity according to IFRS as of 30 November ,407 (1) Formation expenses The Belgian reporting requirements permit formation expenses to be capitalized and amortized over a 5-year period whereas, under IAS 38 Intangible Fixed Assets, they should be recognized immediately in the profit and loss statement for the period concerned. (2) Tangible fixed assets (a) Component approach According to the component approach of IAS 16 -Property, Plant & Equipment, each component part of an item of property, plant and equipment of which the cost is significant in relation to the total cost of the asset, should be depreciated separately insofar as the lifetime of that component is different from the lifetime of the total asset. (b) Leasing Certain leasing contracts which, under Belgian reporting requirements, are classified as operating leasing should, under IFRS (IAS 17), be treated as finance leases. (3) Investments and own shares AWI holds 173,652 own shares in portfolio. Under Belgian reporting requirements, these shares are included under the 67 Ι annual report 2005

25 heading Investments at purchase price or at fair value if the latter is the lower of the two. Pursuant to IAS 32 Financial Instruments: Disclosure and Presentation, these own shares should be deducted from the shareholders equity. (4) Pensions and similar obligations AWI has certain pension commitments in the United Kingdom and France (the I.D.R. obligation, in particular) of the type defined benefit schemes. In regard to the pension commitments in the United Kingdom, the company has concluded a contract with an external pension fund. Under Belgian accounting rules, the amounts paid to the pension fund concerned are taken as an annual cost in the income statement. Under IAS 19 Employee Benefits, an entry shall reflect a defined benefit liability which is equal to the net total of the present value of the defined benefit obligation at the balance sheet date, plus any actuarial gain, less actuarial losses not recognized minus any past service cost not yet recognized, minus the fair value at the balance sheet date of plan assets out of which the obligations are to be settled directly. (5) Deferred tax assets and liabilities Under Belgian accounting principles, deferred and latent taxes are accounted for on: the differences that result from applying the accounting rules of AWI compared to the statutory accounting rules of the individual group companies; the timing differences between accounting and tax results; the unamortized balance of investment grants recorded in shareholders equity. Pursuant to IAS 12 Income Taxes and with certain limited exceptions, deferred taxes must be recognized if it is probable that the recovery or settlement of the carrying amount of an asset or liability will make future tax payments larger (smaller) than they would be if such recovery or settlement were to have no tax consequences. The impact on shareholders equity under IAS 12 comprises, if applicable, the deferred tax consequences on the differences between the Belgian and IFRS accounting rules as well as a reversal of a specific deferred tax asset on a foreign entity which is unrecognizable under IFRS rules. 68 Ι annual report 2005

26 Notes III Reconciliation of the shareholders equity as of 30 November 2004, published in conformity with the Belgian reporting requirements, with the shareholders equity according to IFRS Total shareholders equity according to the Belgian reporting requirements as of 30/11/04 (1) Formation expenses (2) Tangible fixed assets 51,880 - (a) Component approach -385 (b) Leasing 15 (3) Investments and own shares -1,717 (4) Pensions and similar obligations -2,263 (5) Deferred tax assets and liabilities 209 (6) Forward exchange contracts -33 (7) Dividends 711 (8) Other -19 Total shareholders equity according to IFRS as of 30/11/04 48,398 The adjustments to the shareholders equity as of 30 November 2004 are mainly due to the elements set forth in the previous section. In order to ensure consistency and enhance the legibility, the same numbering has been used and only the additional main points are explained below. (6) Forward exchange contract Under Belgian reporting requirements, the portfolio of hedging instruments is valued at fair value and the resulting profit or loss is shown in the income statement as financial result. As these hedging instruments partly relate to transactions which are already accounted for on the balance sheet and in the income statement and partly to uncontracted transactions which, however, will most probably be effected at some time in the future, the requirements of IAS-39 Financial Instruments: Recognition and Measurement, with respect to cash flow hedging have been met. 69 Ι annual report 2005

27 The main principles of cash flow hedging are: hedging instruments are always shown in the balance sheet at fair value; the resulting profit or loss arising from valuing at market value of hedging instruments that serve to hedge transactions which are already accounted for on the balance sheet and in the income statement, is recorded in the profit (loss) for that period; actual fluctuations in the fair value of hedging instruments that serve to hedge uncontracted transactions which, however, will most probably be effected at some time in the future, are recorded under shareholders equity to the extend that the hedge is effective; ineffectiveness is reflected in the income statement. (7) Dividends Pursuant to IAS 10 Events after the balance sheet date, dividends declared after balance sheet date shall not be recognized as a liability at the balance sheet date, this contrary to the provisions contained in the Belgian reporting requirements which stipulate that dividends should be included as current liabilities on the balance sheet date. Adopting IFRS requires, therefore, that the dividends declared after balance sheet date are re-included in shareholders equity. 70 Ι annual report 2005

28 Notes III Reconciliation of the net result for the reporting period ending on 30 November 2004, published in conformity with the Belgian reporting requirements, with the net result according to IFRS 2004 Net result under Belgian accounting principles 7,275 (1) Formation expenses 84 (2) Tangible fixed assets (a) Component approach -110 (b) Leasing 55 (3) Investments and own shares -1,074 (4) Pensions and similar obligations 5 (5) Deferred tax assets and liabilities -150 (6) Forward exchange contracts -193 (7) Dividends - (8) Other -17 Net result under IFRS 5,875 The adjustments to the net result are mainly due to the elements set forth in the previous sections. In order to ensure consistency and enhance the legibility, the same numbering has been used and only the main points are explained below. (1) Formation expenses The favourable effect on the net result is due to the reversal of depreciations on formation expenses as under IFRS rules they should be included in the result at the moment they are incurred. (2) Tangible fixed assets (a) Component approach This relates to the higher depreciations because under IFRS rules each component part of an item of property, plant and equipment of which the cost is significant in relation to the total cost of the asset, should be depreciated separately over 71 Ι annual report 2005

29 the lifetime of that component. As a consequence certain machine parts, upon adopting IFRS, are depreciated faster than under the Belgian reporting requirements. (b) Leasing The improvement in the result relates to certain leasing contracts which, under Belgian reporting requirements, are treated as operating leasing, are under IFRS treated as financial leasing contracts. (3) Investments and own shares In the course of 2004, a reversal of less value on own shares was accounted for (EUR 1.074) in order to value these shares at market value as of the reporting date. Since, on adopting IFRS, these own shares are deducted from the shareholders equity, a change in their market value will not affect the result. Consequently, the deterioration in the net result is related to the elimination of the reversal of less value, accounted for in (5) Deferred tax assets and liabilities The systematic analysis of timing differences resulted in a negative effect of EUR 150 for the entire financial year (6) Forward exchange contracts The result in respect of forward exchange contracts is due to the application of the principles of hedge accounting. 72 Ι annual report 2005

30 Notes III Reconciliation of the income statements for the reporting period ending on 30 november 2004, prepared in conformity with the Belgian reporting requirements, with the income statements according to IFRS Income statement for the financial year ending 30 November 2004: Belgian GAAP Effect of the transition to IFRS IFRS Turnover 269,234-3, ,577 Operating costs and other operating income -252, ,458 Operating profit 16,681-3,562 13,119 Financial result -7,707 1,904-5,803 Result on ordinary activities before taxes 8,974-1,658 7,316 Extraordinary result Result for the year before taxes 8,567-1,251 7,316 Current and deferred taxes -1, ,441 Result for the year 7,275-1,400 5,875 In addition to adjustments that effect the net result (as explained in the previous section), the following adjustments with no effect on the net result have also been made: when applying cash flow hedging under IAS-39, the appropriate exchange rate results are deducted from the turnover or operating costs (depending on whether it relates to the hedging of future sales or operating costs) whereas under Belgian accounting principles, they are included in the financial result; received and granted cash discounts which are more than a normal financing cost or finance income are recorded in reduction of the operating costs and turnover respectively whereas under Belgian accounting principles, they are included in the financial result; the recording of exceptional costs and revenues is not allowed under IFRS rules. As a consequence hereof, the costs and revenues which, under Belgian accounting principles, were included under exceptional result are under IFRS rules shown under the operational result. 73 Ι annual report 2005

31 III Reconciliation of the balance sheet for the reporting period ending on 30 November 2004 published and prepared in conformity with the Belgian reporting requirements, with the balance sheet according to IFRS Effect of the (in EUR thousands) Belgian GAAP transition to IFRS IFRS Intangible assets 1,292-1,292 Property, plant & equipment 31,858 1,140 (1) 32,998 Deferred tax assets 1, (2) 1,737 Trade & other receivables Other non-current assets 1,276-1,276 Non-current assets 36,153 1,382 37,535 Inventories 51, ,803 Trade receivables 19,326 1,964 (3) 21,290 Other receivables 6,545-1,964 (3) 4,581 Own shares 1,717-1,717 (4) - Cash and cash equivalents 1,403-1,403 Deferred charges & accrued income 11, (5) 11,022 Current assets 92,676-2,577 90,099 Total assets 128,829-1, , Ι annual report 2005

32 Notes Effect of the (in EUR thousands) Belgian GAAP transition to IFRS IFRS Share capital 10,500-10,500 Share premium Treasury shares - -3,100 (4) -3,100 Hedging reserves (6) -33 Translation reserves (7) 116 Negative goodwill 4,266-4,266 (7) - Retained earnings 36,820 4,029 (8) 40,849 Total equity 51,880-3,482 48,398 Long-term financial liabilities 5, (9) 5,871 Deferred tax liabilities 1, (2) 1,763 Provisions (10) 470 Employee benefit obligations 852 2,068 (11) 2,920 Non current liabilities 8,621 2,403 11,024 Short-term financial liabilities 8, (9) 8,902 Provisions (10) 188 Employee benefit obligation 7, (12) 8,096 Trade payables and accruals 43, (2) 43,880 Other current liabilities 7, (13) 7,146 Current liabilities 68, ,212 Total liabilities and equity 128,829-1, , Ι annual report 2005

33 (1) Property, plant and equipment (a) Component approach According to the component approach of IAS 16 -Property, Plant & Equipment, each component part of an item of property, plant and equipment of which the cost is significant in relation to the total cost of the asset, should be depreciated separately insofar as the lifetime of that component is different from the lifetime of the total asset. (b) Leasing Certain leasing contracts which, under Belgian reporting requirements, are classified as operating leasing should, under IFRS (IAS 17), be treated as finance leases. (c) Printing screen Printing screens used for printing carpets are per Belgian GAAP included at their acquisition cost under Deferred changes or accrued income and are depreciated systematically over their estimated life of 3 years, from the date of first utilisation. Under IFRS, those printing screens are treated as Property, plant and equipment. (2) Deferred tax assets and liabilities Under Belgian accounting principles, deferred and latent taxes are accounted for on: the differences that result from applying the accounting rules of the Associated Weavers Group compared to the statutory accounting rules of the individual group companies; the timing differences between accounting and tax results; the unamortized balance of investment grants recorded in shareholders equity. Pursuant to IAS 12 Income Taxes and with certain limited exceptions, deferred taxes must be recognized if it is probable that the recovery or settlement of the carrying amount of an asset or liability will make future tax payments larger (smaller) than they would be if such recovery or settlement were to have no tax consequences. 76 Ι annual report 2005