Venture feels IAS39 bite

Oil and gas group Venture Production became one of the first victims of IAS39
last week, after it reported a pre-tax loss of £5.9m for the half-year to the
end of June 2005 – despite increasing revenues by 59% to £56.1m.

The FTSE250 group was hit by unrealised losses on its dollar denominated debt
and gas price hedges, which had to be put through the income statement because
of the requirements of IAS39.

Together the new accounting rules wiped £22m off Venture’s reported profits.
But despite assurances from Venture Production chief executive Mike Wagstaff
that the impacts were ‘non-cash adjustments’ and were expected to ‘unwind in the
second half of the year’, the group’s share price fell by as much as 6.7% before
closing 17.5p down at 491.5p on last week’s announcement.

Richard Slape, an oil and gas analyst at Seymour Pierce, said the market
reaction to Venture’s figures was surprising.

‘The long and short of it is that the market was taken aback that Venture
reported a loss,’ Slape said. ‘The company’s management worked hard to explain
the impact, but the market had not anticipated the figures and reacted

Slape, however, was confident that by the end of the year the accounting
changes would no longer have the same degree of impact on Venture’s accounts.

The group has refinanced its dollar-denominated debt with a £325m debt
facility provided by the Royal Bank of Scotland, which will reduce its exposure
to unrealised losses on foreign exchange debt.

The group’s future hedging policy, meanwhile, is expected to qualify for
hedge accounting, which will take the impacts of hedging out of the income

‘For a hedge to qualify for hedge accounting, there needs to be a correct
paper trail in place,’ Slape said. ‘Companies setting up hedges two years ago
did not have this paper trail as they were not anticipating IFRS, but in the
future this will not be the case and hedges will qualify for hedge accounting.’

Commentators have expressed concern that IAS39 is obscuring underlying
profitability by requiring companies to put items that have no immediate cash
impact, and are difficult to value through their income statements.


Cairn Energy refinances its debt and Tesco tweaks its reporting period for
international businesses

Scottish oil group Cairn Energy is considering
refinancing its debt facilities. The group has net funds of £85.1m, together
with revolving credit facilities of $240m (£135.3m), but after its significant
oil discovery in Rajasthan, the group is looking to refinance its debt.

Supermarket giant Tesco, which reported an 18.7% increase in
pre-tax profits to £908m for the 24 weeks ended 13 August 2005, is in the final
stages of changing the reporting period for its international businesses. Due to
the increasing contribution of its global operations, Tesco is aligning its
international accounting period to the UK’s February year-end. This will see
Tesco’s international arm report a 35-week second half this year, compared with
the normal six months. The UK business’s accounting period will understandably
remain unchanged.

Utility company Pennon Group is expecting its corporation tax
to be in the range of 13% and 15% when it releases interim results in December.
The group said its effective corporation tax rate was affected by the loss of
capital-related allowances from April 2005. Pennon also announced that it had
made a £44m pension contribution pre-payment for the period to 2010.

The maker of Skinny Cow dairy products, Richmond Foods, is
expecting its gearing and debt burden to ease as it reaches the end of a
five-year investment period worth £50m. The group expects profit before tax for
the period to increase by 8% to approximately £14.4m when it reports final
results for the 53 weeks ending October 2005.

TXO Oil has secured a $3m (£1.6m) bond issue with investment
bank Dresdner Kleinwort Wasserstein. The group will use the proceeds from the
bond to finance its ongoing exploration and development. TXO has made two major
acquisitions of oil
wells, taking the number of wells to 286 and reserves to 10.4 million barrels of

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