Restatement of Financial Information under IFRS

20 September 2007

General Capital Group Plc (AIM: GENC), the asset and venture finance specialist, is preparing for the adoption of International Financial Reporting Standards ("IFRS") as its primary accounting basis for the year ended 31 December 2007. IFRS and International Accounting Standards ("IAS"), as adopted by the European Union ("EU"), replace UK Generally Accepted Accounting Practice ("UK GAAP"), under which the Group previously prepared its financial statements.

As part of this transition, General Capital is today presenting unaudited financial information prepared in accordance with IFRS for the year ended 31 December 2006. The financial information has been prepared using the accounting policies that are expected to be applied when the company prepares its first complete set of IFRS financial statements for the year ended 31 December 2007.

The information for the year ended 31 December 2006, which is prepared under IFRS, does not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. A copy of the statutory accounts for that year, as prepared under UK GAAP, has been delivered to the Registrar of Companies. The auditor's report on those accounts was unqualified and did not contain a statement under Sections 237 (2) or (3) of the Companies Act 1985.

The principal changes to General Capital's reported financial information under UK GAAP arising from the adoption of IFRS are as a result of the following:

• Presentational changes to the content and layout of the Financial Statements (IAS 1)
• Cessation of goodwill amortisation (IFRS 3)
• De-recognition of goodwill previously recognised on the reverse acquisition (IFRS 3)
• Inclusion of introductory commission costs payable within the 'Effective Interest Rate' on financial instruments (IAS 17 and IAS 39)
• Revenue recognition (IAS 18)
• Reclassification of intangible assets (IAS 38)
• Valuation of financial instruments (IAS 39)

A full description of these adjustments and the resultant impact on the Group's financial results is presented below.

Contents

1. Introduction
2. First time adoption of IFRS
3. Summary of key impacts of IFRS adoption
4. Consolidated balance sheet as at 1 January 2006
5. Consolidated income statement for the year ended 31 December 2006
6. Consolidated statement of recognised income and expense for the year ended 31 December 2006
7. Consolidated balance sheet as at 31 December 2006
8. Consolidated income statement for the period ended 30 June 2006
9. Consolidated statement of recognised income and expense for the period ended 30 June 2006
10. Consolidated balance sheet as at 30 June 2006
11. Summary of significant accounting policies

General Capital Group Plc

Restatement of Financial Information under IFRS

 

1 Introduction

General Capital is preparing for the adoption of International Financial Reporting Standards ("IFRS") as its primary accounting basis for the year ended 31 December 2007.

The financial information contained in this announcement has been prepared in accordance with applicable International Financial Reporting Standards ("IFRS"), including International Accounting Standards ("IAS"), as adopted by the European Union ("EU") and interpretations issued by the International Financial Reporting Interpretations Committee ("IFRIC").

The financial information has been prepared by management using their best knowledge and judgement of the expected standards and interpretations of the International Accounting Standards Board ("IASB"), facts and circumstances, and accounting policies that will be applied when the Group prepares its first complete set of IFRS financial statements for the year ended 31 December 2007. The first report prepared under IFRS will be the interim financial report for the six month period ended 30 June 2007.

This announcement explains how the Group's previously reported UK GAAP financial performance and position are reported under IFRS. It provides, on an IFRS basis, reconciliations from UK GAAP to IFRS for the following:

• The Group's consolidated income statement for the year ended 31 December 2006 and period ended 30 June 2006 (previously the consolidated profit and loss account);
• The Group's consolidated statement of recognised income and expense for the year ended 31 December 2006 and period ended 30 June 2006 (previously the consolidated statement of total recognised gains and losses)
• The Group's consolidated balance sheet as at 31 December 2006 and as at 30 June 2006
• The Group's consolidated balance sheet as at 1 January 2006 (the date of transition to IFRS).

No restated IFRS cash flow statement has been presented for the year ended 31 December 2006 or for the period ended 30 June 2006 as there is no difference between the net cash flows presented under UK GAAP, although a different presentation will apply.

The information for the year ended 31 December 2006, which is prepared under IFRS, does not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. A copy of the statutory accounts for that year, as prepared under UK GAAP, has been delivered to the Registrar of Companies. The auditor's report on those accounts was unqualified and did not contain a statement under Sections 237 (2) or (3) of the Companies Act 1985. The financial information presented in this announcement is unaudited.

Attention is drawn to the fact that under IFRS, only a complete set of financial statements comprising a balance sheet, income statement, statement of changes in equity, 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.

The financial information contained in this announcement was authorised for issue by the Board of Directors on 17 September 2007.

 

2 First time adoption of IFRS

IFRS 1 "First-time Adoption of International Financial Reporting Standards" sets out the procedures that the Group must follow when it adopts IFRS for the first time as the basis for preparing its consolidated financial statements. The Group is required to establish its IFRS accounting policies as at 31 December 2007 and, in general, apply these retrospectively to determine the IFRS opening balance sheet at its date of transition, 1 January 2006.

However, IFRS 1 provides a number of exceptions to this general principle. The Group has elected to take advantage of the following optional exemption:

• "Business Combinations - in accordance with IFRS 1, the Group has chosen not to restate business combinations recognised before the date of transition to IFRS (1 January 2006).

 

3 Summary of key impacts of IFRS adoption

i) IAS 1 - Presentation of financial statements

The primary statements within the financial information contained in this document have been presented in accordance with IAS 1 "Presentation of Financial Statements".

ii) IFRS 3 - Business combinations

a) Business combinations prior to the date of transition to IFRS

In accordance with IFRS 1, the Group has chosen not to restate business combinations recognised before the date of transition to IFRS (1 January 2006). Accordingly, the Group has adopted a prospective rather than retrospective application of IFRS 3 to business combinations, post 1 January 2006.

Business combinations prior to 1 January 2006 will continue to be recorded in accordance with UK GAAP. The value of goodwill arising from business combinations prior to this date has been frozen at the amortised value as at the date of transition. The historic cost and accumulated goodwill as at 1 January 2006 are £3,248,762 and £375,555 respectively.

The impact upon the Group's consolidated balance sheet and income statement is as follows:

	1 Jan 06	30 Jun 06	31 Dec 06
Consolidated balance sheet:	£'000	£'000	£'000
Increase in goodwill	N/A	80	178
(Increase) to profit and loss account	N/A	(80)	(178)
Consolidated income statement:
(Decrease) in administrative expenses	N/A	(80)	(178)

 

b) Business combinations post the date of transition to IFRS

In accordance with UK GAAP the difference between the deemed consideration, for the reverse acquisition of General Capital Group Plc (formerly Clan Homes Plc) on 14 September 2006, and the net assets acquired was recognised as goodwill on the consolidated balance sheet and amortised over a period of 20 years. The goodwill arising was £943,800.  Under IFRS the business combination is deemed to be outside the scope of IFRS 3 and accordingly the difference between the consideration paid and the net assets acquired is charged directly to equity.

The impact upon the Group's consolidated balance sheet is as follows:

	1 Jan 06	30 Jun 06	31 Dec 06
Consolidated balance sheet:	£'000	£'000	£'000
(Decrease) in goodwill	N/A	N/A	(944)
Increase to reverse acquisition reserve	N/A	N/A	944

 

iii) IAS 17 - Leases

As permitted by UK GAAP, the Group has historically adopted a prudent approach with regard to the treatment of commissions payable to finance brokers and other professional intermediaries. Upon the inception of finance leases (and other forms of finance such as hire purchase agreements and loans) the Group has recognised the cost in the profit and loss account in the month of invoice. In accordance with IAS 17 the Group is now required to recognise the cost of commissions over the term of the respective financial instrument in direct proportion to the net investment outstanding (using the 'Effective Interest Rate' method).

The impact upon the Group's consolidated balance sheet and income statement is as follows:

	1 Jan 06	30 Jun 06	31 Dec 06
Consolidated balance sheet:	£'000	£'000	£'000
Increase in non-current trade receivables	74	74	117
Increase in current trade receivables	206	197	240
(Increase) to current tax payable	(84)	(80)	(107)
(Increase) to profit and loss account	(196)	(191)	(250)
Consolidated income statement:
Decrease in direct costs	N/A	11	76
(Increase) in corporation tax charge	N/A	(3)	(23)

 

iv) IAS 18 - Revenue

Under UK GAAP the Group has historically recognised fee income either in the month of invoice or over the relevant term in which the services are provided. IAS 18 provides specific guidance on how this fee income should be recognised in the Group's consolidated income statement, depending upon the nature of the fee and any relevant connected financial instruments.

The impact upon the Group's consolidated balance sheet and income statement is

as follows:

	1 Jan 06	30 Jun 06	31 Dec 06
Consolidated balance sheet:	£'000	£'000	£'000
(Increase) in trade and other payables	(18)	(281)	(505)
Decrease to current tax payable	6	84	151
Decrease to profit and loss account	12	197	354
Consolidated income statement
Decrease in revenue	N/A	262	486
(Decrease) in corporation tax charge	N/A	(79)	(146)

 

v) IAS 38 - Intangible assets

In accordance with IAS 38 computer software is now required to be disclosed as a

class of intangible assets rather than as a class of tangible fixed assets, as

was the case under UK GAAP.

The impact upon the Group's consolidated balance sheet and income statement is

as follows:

	1 Jan 06	30 Jun 06	31 Dec 06
Consolidated balance sheet:	£'000	£'000	£'000
Increase in intangible assets	102	193	173
(Decrease) in tangible assets	(102)	(193)	(173)

 

 

vi)  IAS 39 - Financial Instruments

In accordance with IAS 39 investments, where there is an active market, are required to be valued at the current bid price. Under UK GAAP the Group previously valued quoted investments at the mid market price.

The impact upon the Group's consolidated balance sheet, income statement and statement of recognised income and expense is as follows:

	1 Jan 06	30 Jun 06	31 Dec 06
Consolidated balance sheet:	£'000	£'000	£'000
(Decrease) in investments	(175)	(29)	(160)
Increase in deferred tax asset / decrease in deferred tax liability	53	9	47
Decrease in corporation tax liability	-	-	1
Decrease in capital reserve	122	20	110
Decrease in profit and loss account	-	-	2
Consolidated income statement
Increase in administrative expenses	N/A	-	3
(Decrease) in corporation tax charge	N/A	-	(1)
Consolidated statement of recognised income and expense
Increase in revaluation gains	N/A	146	18
(Increase) in deferred tax charge	N/A	(44)	(6)

 

 

4 Consolidated balance sheet as at 1 January 2006 (date of transition to IFRS)

Reconciliation of UK GAAP to IFRS consolidated balance sheet as at 1 January 2006. This reconciliation is presented in IFRS format and is unaudited. The impact of deferred and current taxes on each adjustment is shown within the relevant column.

 

 

	UK GAAP						IFRS
	1 Jan 06	IFRS 3	IAS 17	IAS 18	IAS 38	IAS 39	1 Jan 06
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Assets
Non-current assets
Property, plant and equipment	478				(102)		376
Goodwill	2,873						2,873
Other intangible assets	-				102		102
Deferred tax	204						204
Available-for-sale investments	1,707					(175)	1,532
Trade receivables	11,620		74				11,694
	16,882						16,781
Current assets
Trade and other receivables	12,296		206				12,502
Cash and cash equivalents	246						246
	12,542						12,748
Total assets	29,424						29,529
Liabilities
Current liabilities
Trade and other payables	1,179			18			1,197
Borrowings	22,907						22,907
Current tax payable	403		84	(6)			481
	24,489						24,585
Non-current liabilities
Trade and other payables	136						136
Borrowings	2,930						2,930
Deferred tax	69					(53)	16
	3,135						3,082
Total liabilities	27,624						27,667
Equity							22
Called up share capital	22
Share premium account	121						121
Capital reserve	753					(122)	631
Profit and loss account	904		196	(12)			1,088
Reverse acquisition reserve	-						-
Total equity	1,800						1,862
Total equity and liabilities	29,424						29,529

 

 

5 Consolidated income statement for the year ended 31 December 2006

Reconciliation of UK GAAP consolidated profit and loss account to IFRS consolidated income statement for the year ended 31 December 2006. This reconciliation is presented in the format required by IAS 1 and is unaudited. The impact of deferred and current taxes on each adjustment is shown within the relevant column.

 

	UK GAAP						IFRS
	31 Dec 06	IFRS 3	IAS 17	IAS 18	IAS 38	IAS 39	31 Dec 06
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Revenue
Interest income	5,632						5,632
Fees and other income	1,831			(486)			1,345
Gains on investments	624						624
	8,087						7,601
Interest payable and related funding costs	(1,819)						(1,819)
Provisions for impairment of assets	(1,307)					(3)	(1,310)
Other direct costs	(731)		76				(655)
Administrative expenses	(2,573)						(2,573)
Depreciation and amortisation	(359)	178					(181)
Other interest costs	(258)						(258)
Profit before taxation	1,040						805
Taxation expense	(517)		(23)	146		1	(393)
Profit for the period attributable to equity shareholders of the parent	523						412
Basic and diluted earnings per share	3.56						2.81

 

 

6 Consolidated statement of recognised income and expense for the year

Reconciliation of UK GAAP consolidated statement of total recognised gains and losses to IFRS consolidated statement of recognised income and expense for the year ended 31 December 2006. This reconciliation is presented in IFRS format and is unaudited. The impact of deferred and current taxes on each adjustment is shown within the relevant column.

 

 

	UK GAAP						IFRS
	31 Dec 06	IFRS 3	IAS 17	IAS 18	IAS 38	IAS 39	31 Dec 06
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Available-for-sale investments:
Valuation gains / (losses) taken to equity	1,730					18	1,748
Tax on items taken directly to or transferred from equity	(519)			(486)		(6)	(525)
Net income recognised directly in equity	1,211						1,223
Profit for the period	523	178	53	(340)		(2)	412
Total recognised income and expense for the period attributable to equity shareholders	1,734						1,635

 

 

7 Consolidated balance sheet as at 31 December 2006

Reconciliation of UK GAAP to IFRS consolidated balance sheet as at 31 December 2006. This reconciliation is presented in IFRS format and is unaudited. The impact of deferred and current taxes on each adjustment is shown within the relevant column.

 

	UK GAAP						IFRS
	31 Dec 06	IFRS 3	IAS 17	IAS 18	IAS 38	IAS 39	31 Dec 06
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Assets
Non-current assets
Property, plant and equipment	454				(173)		281
Goodwill	3,639	(766)					2,873
Other intangible assets	-				173		173
Deferred tax	164						164
Available-for-sale investments	5,868					(160)	5,708
Trade receivables	14,602		117				14,719
	24,727						23,918
Current assets
Trade and other receivables	19,122		240				19,362
Cash and cash equivalents	219						219
	19,341						19,581
Total assets	44,068						43,499
Liabilities
Current liabilities
Trade and other payables	1,731			505			2,236
Borrowings	30,363						30,363
Current tax payable	456		107	(151)		(1)	411
	32,550						33,010
Non-current liabilities
Trade and other payables	135						135
Borrowings	3,314						3,314
Deferred tax	574					(47)	527
	4,023						3,976
Total liabilities	36,573						36,986
Equity
Called up share capital	14,966						14,966
Share premium account	186						186
Capital reserve	1,964					(110)	1,854
Profit and loss account	1,428	178	250	(354)		(2)	1,500
Reverse acquisition reserve	(11,049)	(944)					(11,993)
Total equity	7,495						6,513
Total equity and liabilities	44,068						43,499

 

 

8 Consolidated income statement for the period ended 30 June 2006

Reconciliation of UK GAAP consolidated profit and loss account to IFRS consolidated income statement for the period ended 30 June 2006. This reconciliation is presented in the format required by IAS 1 and is unaudited. The impact of deferred and current taxes on each adjustment is shown within the relevant column.

 

	UK GAAP						IFRS
	30 Jun 06	IFRS 3	IAS 17	IAS 18	IAS 38	IAS 39	30 Jun 06
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Revenue
Interest income	2,650						2,650
Fees and other income	602			(262)			340
Gains on investments	1						1
	3,253						2,991
Interest payable and related funding costs	(858)						(858)
Provisions for impairment of assets	(247)					(3)	(247)
Other direct costs	(314)		(11)				(325)
Administrative expenses	(1,238)						(1,238)
Depreciation and amortisation	(159)	80					(79)
Other interest costs	(111)						(111)
Profit before taxation	326						133
Taxation expense	(180)		(3)	79		1	(98)
Profit for the period attributable to equity shareholders of the parent	146						35
Basic and diluted earnings per share	1.05						0.26

 

 

9 Consolidated statement of recognised income and expense for the period ended 30 June 2006

Reconciliation of UK GAAP consolidated statement of total recognised gains and losses to IFRS consolidated statement of recognised income and expense for the period ended 30 June 2006. This reconciliation is presented in IFRS format and is unaudited. The impact of deferred and current taxes on each adjustment is shown within the relevant column.

 

 

	UK GAAP						IFRS
	30 Jun 06	IFRS 3	IAS 17	IAS 18	IAS 38	IAS 39	30 Jun 06
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Available-for-sale investments:
Valuation gains / (losses) taken to equity	(554)					146	(408)
Tax on items taken directly to or transferred from equity	166					(44)	122
Net income recognised directly in equity	(388)						(286)
Profit for the period	146	80	(8)	(183)			35
Total recognised income and expense for the period attributable to equity shareholders	242						(251)

 

 

10 Consolidated balance sheet as at 30 June 2006

Reconciliation of UK GAAP to IFRS consolidated balance sheet as at 30 June 2006. This reconciliation is presented in IFRS format and is unaudited. The impact of deferred and current taxes on each adjustment is shown within the relevant column.

 

	UK GAAP						IFRS
	30 Jun 06	IFRS 3	IAS 17	IAS 18	IAS 38	IAS 39	30 Jun 06
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Assets
Non-current assets
Property, plant and equipment	505				(193)		312
Goodwill	2,793	80					2,873
Other intangible assets	-				193		193
Deferred tax	301					9	310
Available-for-sale investments	1,349					(29)	1,320
Trade receivables	12,827		74				12,901
	17,775						17,909
Current assets
Trade and other receivables	12,160		197				12,357
Cash and cash equivalents	99						99
	12,259						12,456
Total assets	30,034						30,365
Liabilities
Current liabilities
Trade and other payables	1,804			282			2,086
Borrowings	24,093						24,093
Current tax payable	427		80	(84)			423
	26,324						26,602
Non-current liabilities
Trade and other payables	135						135
Borrowings	1,617						1,617
	1,752						1,752
Total liabilities	28,076						28,354
Equity
Called up share capital	23						23
Share premium account	520						520
Capital reserve	365					(20)	345
Profit and loss account	1,050	80	191	(197)			1,123
Total equity	1,958						2,011
Total equity and liabilities	30,034						30,365

 

 

 

11 Summary of significant accounting policies

 

Basis of preparation

The consolidated financial information contained in this announcement is rounded to the nearest thousand pounds except where otherwise indicated.

The financial information contained within this announcement has been prepared on the basis of the following significant accounting policies which are expected to apply for the year ended 31 December 2007.

 

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and enterprises controlled by the Company (its subsidiaries). The excess of the cost of the business combination over the fair values of the Group's interest in the identifiable net assets acquired is goodwill. Any deficiency of the cost of the business combination below the fair value of the identifiable net assets acquired is recognised directly in the income statement.

The purchase method of accounting is used to account for business combinations made by the Group. The cost of the business combination is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the business combination. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are initially measured at fair value at the date of acquisition irrespective of the extent of any minority interest.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of the business combination or up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by other members of the Group. All intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated on consolidation.

 

Goodwill

Goodwill recognised under UK GAAP prior to the date of transition to IFRS is stated at net book value as at the date of transition.

 

Goodwill recognised on a business combination post the date of transition to IFRS is measured at cost less any accumulated impairment losses. Goodwill is reviewed annually for impairment or more frequently if there is objective evidence that events or circumstances indicate that the carrying value may be impaired.

 

Summary of significant accounting policies

 

Interest income

Interest income on financial assets held at amortised cost is measured using the effective interest rate method, which allocates the interest income over the relevant period of the financial instrument. The effective interest rate is the rate that exactly discounts estimated future cash flows through the expected life of the financial instrument.

 

Fee income

Fee income is recognised either on an accruals basis when the service has been provided or upon the execution of a significant act. Fees which are integral to the yield on a financial instrument are recognised over the expected life of the instrument using the effective interest rate method.

 

Available for sale investments

Investments which are classified as 'available for sale', in accordance with IFRS 39 - "Financial Instruments: Recognition and Measurement" are initially recognised at fair value. They are subsequently measured at fair value with gains and losses arising from changes in fair value included as a separate component of equity until the sale or impairment, at which time the cumulative gain or loss previously recognised in equity is recognised in the income statement.

 

Loans and receivables

Loans and receivables are initially recognised at fair value and subsequently valued at amortised cost using the effective interest rate method.

 

Interest payable and related funding costs

Interest payable on financial liabilities and fees integral to the cost of such financial instruments are recognised using the effective interest rate method, which allocates the cost over the relevant period of the financial instrument.

 

Direct costs

Direct costs which are integral to the yield on a financial instrument are recognised using the effective interest rate method. Such costs include commissions payable to professional intermediaries upon the introduction of new business to the Group.

 

Impairment of financial assets

A financial asset is impaired and impairment losses are incurred if, and only if, there is objective evidence of a fall in value of that asset as a result of events that occurred after the initial recognition of the asset and that loss event has an impact on the estimated future cash flows.

 

Summary of significant accounting policies

If there is objective evidence that an impairment loss on loans or receivables carried at amortised cost has occurred, the amount of the loss is measured as the difference between the asset's carrying value and the present value of estimated future cash flows discounted at the financial asset's effective interest rate.

If there is objective evidence of impairment for available for sale investments, the loss is removed from equity and recognised in the income statement.

 

Property, plant and equipment

 

Property, plant and equipment are classified as tangible non-current assets and are stated at cost less any accumulated depreciation or impairment in value. Depreciation is provided at rates calculated to write off the cost, less estimated residual value, of the asset over its estimated useful life as follows:

 

Furniture and equipment	Straight line over 4-5 years
Motor vehicles	25% reducing balance / straight line over 4 years

 

Computer software

 

Computer software is classified as an intangible non-current asset and is stated at cost less any accumulated depreciation or impairment in value. Amortisation is provided at rates calculated to write off the cost, or fair value, of the asset over its estimated useful life as follows:

 

Computer software

Straight line over 4-5 years

 

For Further Information:

General Capital Group Plc
Mark Edworthy, Managing Director	Tel: +44 (0) 1603 610 610
mark.edworthy@generalcapital.co.uk	www.generalcapital.co.uk
Collins Stewart Europe Ltd
Chris Wells / Mark Connelly / Adam Cowen	Tel: +44 (0) 20 7523 8000
mconnelly@collins-stewart.com acowen@collins-stewart.com	www.collins-stewart.com

Media Enquiries:

Abchurch Communications
Heather Salmond / Franziska Boehnke	Tel: +44 (0) 20 7398 7700
franziska.boehnke@abchurch-group.com	www.abchurch-group.com

 

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