Goodwill boosts Tomkins' profit by £29m

There would have been quiet sighs of relief in the Tomkins boardroom last week, after the engineering group released information on the beneficial impact international financial reporting standards would have on its results.

Tomkins revealed that its profit for the year ended 1 January 2005 would have been £29.2m higher under IFRS, up from the £180.9m reported under UK GAAP.

The changes came mainly as a result of the elimination of goodwill amortisation and a reduction in the ongoing charge for post-employment benefits. Revenue, meanwhile, remained static at £2.9bn.

‘The move to IFRS does not change the economics of our business,’ said Tomkins CFO Ken Lever. ‘The cashflows are the same and our focus on the creation of economic value remains.’

Tomkins enjoyed confident sentiment ahead of its IFRS restatement, unlike its larger engineering compatriot Rolls Royce, which announced its restatements in the face of an apprehensive market. Shares in Tomkins remained price neutral after the release of the IFRS figures.

‘The Tomkins IFRS announcement did not change anything about trading, and it is trading that matters,’ said one analyst. ‘IFRS brings the reported figures closer to our adjusted figures, which makes it easier for us, but there are no fundamental differences.’

The company did not, however, disclose the full impacts of IAS32 and IAS39, opting for the exemption that allows the company to apply the standards prospectively from 2005 onwards, although it did reveal some of the impacts that the standards for financial instruments would cause.

Lever said IAS32 would require the company to classify certain preference shares as debt on the balance sheet, which would result in a £273m reduction in net assets and an increase in net debt from £244.5m to £516.5m.

Tomkins issued the dollar-denominated preference shares in 1996, and under UK GAAP classed the shares as non-equity shareholder’s funds. The introduction of IFRS, however, will require these shares to be accounted for as liabilities and retranslated into sterling at each balance sheet date.

The dividends payable on these shares amounted to £15.6m at the end of the financial year. In the future, such dividend payments will have to be treated as interest costs.

COMPANY REPORTS

Regal Petroleum hits gold in Romania but turnover not so rosy at Scottish oil company Cairn Energy

FTSE100
Shell saw group net income for 2004 climb $358m (£187m) from $18.2bn under US GAAP to $18.5bn under IFRS. The main individual items contributing to the increase were a result of the IFRS treatment for major inspection costs, lower charges for currency translation differences and reversals of impairments.

Duncan Tatton-Brown, the Kingfisher FD, earned £489,000 in his first year at the company. Tatton-Brown took over from Helen Weir in February 2004. Total board pay at the DIY group fell by 10%. However, Tatton-Brown’s package was significantly below the average for a FTSE100 FD, which was £691,000 in 2004.

FTSE250
Cairn Energy, the Scottish oil company that lost its place in the FTSE100 during the first quarter of the year, has said IFRS6 will mean the company has to expense pre-licence exploration costs instead of capitalising them on the balance sheet. Cairn, which reported a reduced turnover of £110.2m, also said it would be impacted by IFRS2, which requires changes for all employee share incentives, and IAS21, which affects the treatment of exchange differences on consolidation of group subsidiaries. A full statement on IFRS is expected before publication of Cairn’s 2005 interims.

British Energy has extended the period between its year end and preliminary results announcement to accommodate the transition to IFRS. The company said it would use the extra time to complete financial restructuring work after British Energy Group plc acquired British Energy Ltd in January. The company said its results would be in line with forecasts.

Tomkins’ financial director Ken Lever has seen his pay increase by £185,000. Lever’s total package for the year to 1 January 2005 was £918,000 compared to £733,000 the previous year. Lever’s pay boost topped that of his chief executive James Nicol, whose pay rose by £151,000 to £2.6m.

FTSE ALL-SHARE
Electronic equipment provider XP Power is expecting to benefit from IAS38, which will require the company to capitalise qualifying development expenditure and then amortise it over its useful life. XP said it would be able to capitalise a significant amount of its 2005 development expenditure, which would be beneficial to its accounts.

FTSE FLEDGLING
Recruitment company Harvey Nash saw its tax charge for the year ended 31 January 2005 increase from £0.3m to £0.8m. The company said this was a result of current year taxes in the UK and Europe as well as prior year taxes. Harvey Nash reported a £1.2m profit for 2005, up from a £4.5m loss the previous year.

AIM
Energy company Regal Petroleum is to enjoy tax benefits from a recent gas discovery in Romania. The company, which has discovered a recoverable gas resource in the Suceava licence area of about 684 million barrels of oil equivalent, is expecting to benefit from the Romanian tax system. ‘This is a major dry-gas discovery in a European country with a favourable tax regime,’ Regal’s executive chairman Frank Timis said.