RNS Number:7889E
Handmade PLC
28 September 2007
For immediate release 28 September 2007
HandMade plc
("HandMade" or "the Company")
ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS
HandMade Plc (HMF.L), the rights ownership, film production, merchandising and
licensing company, announces today that it has completed preparations to adopt
International Financial Reporting Standards ('IFRS'). For accounting periods
commencing from 1 January 2007, HandMade will prepare accounts in line with
IFRS. As part of the transition to IFRS, HandMade today presents its income
statement comparative information for the year ended 31 December 2006 and for
the six months ended 30 June 2006 under IFRS, together with restated balance
sheets as at 1 January 2006, 30 June 2006 and 31 December 2006. Results for year
ended 31 December 2006 under UK GAAP are available from the company's website,
www.handmadeplc.com.
This announcement provides explanations and reconciliations of the differences
between UK GAAP to IFRS for income statements for the year ended 31 December
2006 and for the six months ended 30 June 2006 and on the balance sheets as at 1
January 2006, 30 June 2006 and 31 December 2006. The principal changes to
HandMade's previously reported financial information, are as follows:
* Deferred tax has been provided using the balance sheet liability
method, recognising all temporary differences. This has created a deferred tax
liability in respect of intangible assets (which is released to the income
statement as the assets are amortised);
* Additional intangible assets have been recognised, which reduces the
amount of goodwill created, when accounting for business combinations;
* Goodwill recognised on the balance sheet is not amortised, and is now
subject to an annual impairment review.
For the year ended 31 December 2006, the impact on profit from the adoption of
IFRS has been to increase the loss before tax by #37,000 and to reduce the loss
after tax by #388,000. Net assets as at 31 December 2006 have decreased by
#782,000.
For more information please contact:
HandMade plc 020 7518 8230
David Ravden, CEO
Buchanan Communications 020 7466 5000
Tim Anderson, Mary-Jane Johnson
Canaccord Adams 020 7050 6500
Mark Williams
Introduction
HandMade plc ('HandMade') has historically prepared its accounts under UK
Generally Accepted Accounting Practice ('UK GAAP'). For accounting periods
commencing after 1 January 2007, HandMade will prepare its accounts under
International Financial Reporting Standards ('IFRS') as adopted by the European
Union. The first results to be issued under IFRS will be the interim financial
statements for the six months to 30 June 2007, however, the date of transition
for HandMade is the 1 January 2006 and comparative figures have therefore been
restated accordingly. The first full set of financial statements to be issued
under IFRS will be for the year ended 31 December 2007.
This announcement provides the adjusted consolidated balance sheets and income
statements for HandMade for the comparative periods to 30 June 2006 and to 31
December 2006, together with the reconciliation from UK GAAP to IFRS. It also
sets out the significant accounting policy changes from those set out in the UK
GAAP financial statements for year ended 31 December 2006.
Basis of preparation
The figures in this document are based on those IFRS's expected to be applicable
at 31 December 2007. IFRS's are subject to possible amendment by and
interpretive guidance from the International Accounting Standards Board ('IASB')
as well as on-going endorsement and review by the EU and are, therefore, still
subject to further change. Therefore these figures may require amendment before
their inclusion in the IFRS financial
statements for the year ended 31 December 2007.
Attention is also drawn to the fact that, under adopted IFRS, only a complete
set of consolidated financial statements comprising a balance sheet, income
statement, statement of recognised income and expense, cash flow statement,
together with comparative information and explanatory notes, can provide a fair
presentation of the Group's financial position, results of operations and cash
flows.
Relationship to statutory accounts
The financial information presented in this document is unaudited and does not
comprise statutory accounts within the meaning of section 240 of the Companies
Act 1985. The statutory accounts for the year ended 31 December 2006, on which
the auditors have issued an unqualified report, have been delivered to the
Registrar of Companies.
First time adoption
The requirements for the first time adoption of IFRS are set out in IFRS 1 First
Time Adoption of International Financial Reporting Standards. Generally, IFRS 1
requires that accounting policies be adopted that are compliant with IFRS and
that these policies be applied retrospectively to all periods presented.
However, under IFRS 1, a number of exemptions are permitted to be taken in
preparing the balance sheet as at the date of transition to IFRS on 1 January
2006. The exemption relating to HandMade concerns business combinations that
occurred before the opening IFRS balance sheet date (IFRS 3, 'Business
Combinations'). The Group has elected not to apply IFRS 3 retrospectively to
business combinations prior to the transition date.
Presentation of Financial Information
The primary statements within the financial information contained in this
announcement have been presented in accordance with IAS 1, 'Presentation of
Financial Statements'. However, this format and presentation may require
modification as practice develops and in the event that further guidance is
issued.
Cash flow statement
There are no material differences between the cash flow statement prepared under
UK GAAP and the cash flow statement prepared under IFRS for any of the periods
concerned, but rather only minor presentational changes. For this reason, no
cash flow statements have been included within this conversion statement.
Key impacts of changes in accounting policy
Appendix A below reconciles the results and net assets of the Group as reported
under UK GAAP to the information restated under IFRS for the year ended 31
December 2006 and the six months period ended 30 June 2006. The principal
differences between UK GAAP and IFRS as shown in the reconciliation are
described below.
a) Deferred taxation - IAS 12
Under UK GAAP deferred tax was recognised in respect of all timing differences,
with a few exceptions that have originated but not reversed at the balance sheet
date. Timing differences arise when the profit or loss is recognised in a
different period in the tax computation from that in the financial statements.
Under IFRS the Group is required to adopt a balance sheet liability method under
which temporary differences are identified for each asset and liability rather
than accounting for the effects of timing and permanent differences between
taxable and accounting profit.
The impact of this has been to recognise a deferred tax liability in respect of
intangible assets and their related amortisation, where the amortisation is a
disallowable expense. The liability is released to the income statement over the
period over which the assets are amortised.
Where the creation of this liability relates to an intangible asset acquired as
part of a business combination (see below), an equal and opposite adjustment is
posted to increase goodwill arising on the business in question. This adjustment
to goodwill is not amortised, but is subject to an annual impairment review.
Where the creation of the liability relates to an intangible asset already in
the balance sheet at the transition date, an equal and opposite adjustment is
posted to retained earnings within capital and reserves.
The impact on the income statement of releasing elements of the liability is to
reduce the loss after tax by #425,000 for the year ended 31 December 2006, and
by #85,000 for the six months ended 30 June 2006.
The deferred tax liability in the balance sheet in respect of intangibles was
#1,170,000 at 1 January 2006, #10,666,000 at 30 June 2006 and #11,065,000 at 31
December 2006.
The goodwill asset in the balance sheet in respect of the creation of the
deferred tax liability was #nil at 1 January 2006, #9,581,000 at 30 June 2006
and was #10,320,000 at 31 December 2006.
b) Business combinations - IFRS 3
Goodwill arising on business combinations
Under UK GAAP, the difference between the consideration paid for an acquisition
and the fair value of the net assets acquired was recognised as goodwill. IFRS 3
requires that the intangible assets of an acquired business are recognised
separately from goodwill and are then amortised over their useful economic
lives.
Sequence Films Limited was acquired by the Group in November 2006 giving rise to
goodwill on acquisition of #4,426,000 under UK GAAP. In applying IFRS 3 the
Group has reclassified #2,395,000 worth of intangible assets arising on
acquisition out of goodwill. This represents the value placed on the sales
agency agreements Sequence had previously entered into with various film
producers.
Amortisation charged on these intangible assets was recognised from the date of
acquisition and increased the loss before tax by #184,000 for the year ended
31December 2006. The value of the sales agency agreements in the balance sheet
at 31 December 2006 was #2,211,000.
Goodwill amortisation
Under UK GAAP, goodwill arising from business combinations was amortised over
its estimated useful economic life.
IFRS 3 'Business combinations' prohibits the amortisation of goodwill, instead
requiring the goodwill to be tested for impairment.
This means that the amortisation charge of #147,000 on the goodwill arising from
the acquisition of Sequence Films Limited under UK GAAP, does not apply under
IFRS for the year ended 31 December 2006.
This fact, combined with the additional amortisation on the sales agency
agreements described above has a net effect of increasing the loss before tax by
#37,000 for the year ended 31 December 2006.
The value of goodwill arising from the acquisition of Sequence Film Limited in
the balance sheet as at 31 December 2006 has reduced from #4,085,000 under UK
GAAP to #1,837,000 under IFRS.
Appendix A
Reconciliation of movements between UK GAAP and IFRS
Consolidated income statement for year ended 31 December 2006
UK GAAP in IAS 12 IFRS 3 Restated
IFRS format a) b) under IFRS
#'000 #'000 #'000 #'000
Revenue 1,872 1,872
Cost of sales (1,453) (1,453)
Gross profit 419 - - 419
Administrative expenses (3,567) - (37) (3,604)
Loss from operations (3,148) - (37) (3,185)
Finance costs (215) (215)
Finance income 12 12
Loss on ordinary activities before taxation (3,351) - (37) (3,388)
Taxation 97 425 522
Loss for the year attributable to equity holders
of the Company
(3,254) 425 (37) (2,866)
Loss per share - basic and diluted (4.2)p (3.7)p
Consolidated balance sheet as at 31 December 2006
UK GAAP in IAS 12 IFRS 3 Restated
IFRS format a) b) under IFRS
#'000 #'000 #'000 #'000
ASSETS
Non-current assets
Goodwill 4,085 10,320 (2,248) 12,157
Other intangible assets 34,771 2,211 36,982
Property, plant & equipment 80 80
38,936 10,320 (37) 49,219
Current assets
Trade and other receivables 2,754 2,754
Cash and cash equivalents 2,937 2,937
5,691 - - 5,691
TOTAL ASSETS 44,627 10,320 (37) 54,910
LIABILITIES
Current liabilities
Financial liabilities (2,023) (2,023)
Trade and other payables (7,773) (7,773)
Corporation tax - -
(9,796) - - (9,796)
Non-current liabilities
Financial liabilities (1,417) (1,417)
Trade and other payables (8,417) (8,417)
Deferred tax - (11,065) (11,065)
(9,834) (11,065) - (20,899)
TOTAL LIABILITIES (19,630) (11,065) - (30,695)
NET ASSETS 24,997 (745) (37) 24,215
CAPITAL & RESERVES ATTRIBUTABLE TO EQUITY
HOLDERS OF THE COMPANY
Share capital 5,793 5,793
Share premium account 8,786 8,786
Merger reserve 21,832 21,832
Shares to be issued 300 300
Retained loss (11,714) (745) (37) (12,496)
TOTAL EQUITY 24,997 (745) (37) 24,215
Consolidated balance sheet as at 1 January 2006
UK GAAP in IAS 12 IFRS 3 Restated
IFRS format a) b) under IFRS
#'000 #'000 #'000 #'000
ASSETS
Non-current assets
Goodwill - -
Other intangible assets 3,901 3,901
Property, plant & equipment - -
3,901 - - 3,901
Current assets
Trade and other receivables 653 653
Cash and cash equivalents 2,950 2,950
3,603 - - 3,603
TOTAL ASSETS 7,504 - - 7,504
LIABILITIES
Current liabilities
Financial liabilities (1,508) (1,508)
Trade and other payables (1,025) (1,025)
Corporation tax (150) (150)
(2,683) - - (2,683)
Non-current liabilities
Financial liabilities - -
Trade and other payables (2,923) (2,923)
Deferred tax - (1,170) (1,170)
(2,923) (1,170) - (4,093)
TOTAL LIABILITIES (5,606) (1,170) - (6,776)
NET ASSETS 1,898 (1,170) - 728
CAPITAL & RESERVES ATTRIBUTABLE TO EQUITY
HOLDERS OF THE COMPANY
Share capital 1,589 1,589
Share premium account 1,184 1,184
Merger reserve 7,959 7,959
Shares to be issued - -
Retained loss (8,834) (1,170) (10,004)
TOTAL EQUITY 1,898 (1,170) - 728
Consolidated income statement for six months ended 30 June 2006
UK GAAP in IAS 12 IFRS 3 Restated
IFRS format a) b) under IFRS
#'000 #'000 #'000 #'000
Revenue 117 117
Cost of sales - -
Gross profit 117 - - 117
Administrative expenses (534) - - (534)
Loss from operations (417) - - (417)
Finance costs (19) (19)
Finance income - -
Loss on ordinary activities before taxation (436) - - (436)
Taxation - 85 - 85
Loss for the year attributable to equity holders
of the Company
(436) 85 - (351)
Loss per share - basic and diluted (1.2)p (0.9)p
Consolidated balance sheet as at 30 June 2006
UK GAAP in IAS 12 IFRS 3 Restated
IFRS format a) b) under IFRS
#'000 #'000 #'000 #'000
ASSETS
Non-current assets
Goodwill - 9,581 9,581
Other intangible assets 38,163 38,163
Property, plant & equipment - -
38,163 9,581 - 47,744
Current assets
Trade and other receivables 628 628
Cash and cash equivalents 4,539 4,539
5,167 - - 5,167
TOTAL ASSETS 43,330 9,581 - 52,911
LIABILITIES
Current liabilities
Financial liabilities (887) (887)
Trade and other payables (2,157) (2,157)
Corporation tax (150) (150)
(3,194) - - (3,194)
Non-current liabilities
Financial liabilities (2,000) (2,000)
Trade and other payables (10,673) (10,673)
Deferred tax - (10,666) (10,666)
(12,673) (10,666) - (23,339)
TOTAL LIABILITIES (15,867) (10,666) - (26,533)
NET ASSETS 27,463 (1,085) - 26,378
CAPITAL & RESERVES ATTRIBUTABLE TO EQUITY
HOLDERS OF THE COMPANY
Share capital 5,652 5,652
Share premium account 9,622 9,622
Merger reserve 21,459 21,459
Shares to be issued - -
Retained loss (9,270) (1,085) (10,355)
TOTAL EQUITY 27,463 (1,085) - 26,378
Appendix B
Significant accounting policy changes
Deferred taxation
Deferred tax assets and liabilities are recognised where the carrying amount of
an asset or liability in the balance sheet differs to its tax base, except for
differences arising on:
* the initial recognition of goodwill;
* goodwill for which amortisation is not tax deductible;
* the initial recognition of an asset or liability in a transaction which is
not a business combination and at the time of the transaction affects
neither accounting or taxable profit;
* investments in subsidiaries and jointly controlled entities where the
group is able to control the timing of the reversal of the difference and it
is probable that the difference will not reverse in the foreseeable future.
Recognition of deferred tax assets is restricted to those instances where it is
probable that taxable profit will be available against which the difference can
be utilised.
The amount of the asset or liability is determined using tax rates that have
been enacted or substantively enacted by the balance sheet date and are expected
to apply when the deferred tax liabilities/(assets) are settled/(recovered).
Goodwill
Goodwill represents the excess of the cost of a business combination over the
interest in the fair value of identifiable assets, liabilities and contingent
liabilities acquired. Cost comprises the fair values of assets given,
liabilities assumed and equity instruments issued, plus any direct costs of
acquisition.
In calculating goodwill, the total consideration, both actual and deferred is
taken into account. Where the deferred consideration is contingent and dependent
upon future trading performance, an estimate of the value of likely
consideration payable is made. The contingent deferred consideration is
re-assessed annually and a corresponding adjustment is made to the goodwill
arising on acquisition.
Goodwill is capitalised as an intangible asset and is subject to an annual
impairment review with any impairment in carrying value being charged to the
consolidated income statement. Where the fair value of identifiable assets,
liabilities and contingent liabilities exceed the fair value of consideration
paid, the excess is credited in full to the consolidated income statement.
Business combinations
The consolidated financial statements incorporate the results of business
combinations using the
purchase method. In the consolidated balance sheet, the acquiree's identifiable
assets, liabilities and contingent liabilities are initially recognised at their
fair values at the acquisition date. The results of acquired operations are
included in the consolidated income statement from the date on which control is
obtained.
Appendix C
Independent Review Report to the Directors of HandMade Group plc
Introduction
In accordance with our engagement letter dated 14 August 2007 we have been
instructed by the Directors to review the financial information included in the
IFRS Transition announcement including the conversion of the group Opening
Balance Sheet as at 1 January 2006 from UK GAAP to IFRS.
Directors' responsibilities
The IFRS Transition announcement including the conversion of the group Opening
Balance Sheet as at 1 January 2006 from UK GAAP to IFRS prepared under IFRS 1 "
First-time adoption of International Financial Reporting Standards", and other
financial information contained therein, is the responsibility of, and has been
approved by the directors and that the policies adopted will be those used in
preparing the full IFRS financial statements at 31 December 2007.
Review work performed
We conducted our review in accordance with the guidance contained in Bulletin
1999/4 as published by the Auditing Practices Board. Our review consisted
principally of applying analytical procedures to financial data, assessing
whether appropriate IFRS accounting policies have been applied, reviewing the
basis of calculation of the IFRS adjustments, and making enquiries of management
responsible for financial and accounting matters. A review is substantially
less in scope than an audit and, therefore, provides a lower level of assurance.
Accordingly we do not express an audit opinion on the IFRS Transition
announcement including the conversion of the group Opening Balance Sheet as at 1
January 2006 and there is no assurance that our review will reveal all matters
of significance related to the Opening Balance Sheet as at 1 January 2006.
Our report has been prepared in accordance with the terms of our engagement to
assist the group in its transition to IFRS and for no other purpose. No person
is entitled to rely on this report unless such a person is a person entitled to
rely upon this report by virtue of and for the purpose of our terms of
engagement or has been expressly authorised to do so by our prior written
consent. Save as above, we do not accept responsibility for this report to any
other person or for any other purpose and we hereby expressly disclaim any and
all such liability.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information included in the IFRS Transition
announcement including the conversion of the group Opening Balance Sheet as at 1
January 2006 from UK GAAP to IFRS.
BDO Stoy Hayward LLP
Chartered Accountants
London
28 September 2007
This information is provided by RNS
The company news service from the London Stock Exchange
END
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