27th Apr 2005 08:22
Egg PLC27 April 2005 PART 2 APPENDICES UK GAAP TO IFRS RECONCILIATIONS Appendix 1 contains the reconciliations from UK GAAP to IFRS of the: • income statement for • the three months ended 31 March 2004, and • the year ended 31 December 2004; • balance sheet as at • 31 March 2004, and • 31 December 2004; and • cash flow statements for • the three months ended 31 March 2004, and • the year ended 31 December 2004. Appendix 2 contains reconciliations of the balance sheet as at 1 January 2005,this being the date of adoption of IAS 32 and IAS 39. Explanations have also been provided for key reconciling items. In presentingthe financial statements and the reconciliations contained in this document, theGroup has applied IAS 1 'Presentation of Financial Statements', and for the cashflow statement, IAS 7 'Cash Flow Statements'. Therefore certainreclassifications have been made to comply with these standards, and whereapplicable, other standards, to ensure compliance with the presentationrequirements of IFRS. 1. EXPLANATION OF KEY IMPACTS OF TRANSITION FROM UK GAAP TO IFRS (a) IFRS 2 Share-based Payment In accordance with IFRS 2, the Group is required to recognise a fair valuecharge for all share-based payments granted after 7 November 2002, includingSave-As-You-Earn schemes. The fair values are to be determined at the date ofgrant using option valuation models and for this purpose, the Group is using theBlack-Scholes model for all Save-As-You-Earn schemes and the Present EconomicValue (binomial) model for the Restricted Share Plans (RSPs) and the Group'sother option schemes. The fair value charge is spread over the relevant vestingperiod and adjusted for lapses, with the number of shares expected to lapseestimated at each balance sheet prior to the vesting date. The only exceptionis where the share-based payment has vesting outcomes attached to market basedperformance conditions such as in the case of some of the RSPs. Under thesecircumstances, additional modelling is required to take into account thesemarket based performance conditions which effectively estimate the number ofshares expected to vest. No subsequent adjustment is then made to the fairvalue charge for shares that do not vest in the event that these performanceconditions are not met. In addition to recognising a charge under IFRS 2, it was also necessary toremove all share-based payment charges under UK GAAP. Under UK GAAP, a chargewas recognised for the intrinsic value of the shares granted over the relevantvesting period. The reconciling items in the reconciliations of the incomestatement contained in this appendix are therefore a combination of both theIFRS 2 charge and the UK GAAP reversing entry for the period. The IFRS 2 chargeon its own for the three months ended 31 March 2004 was £0.4 million. Afterreversing the UK GAAP charge for the period of £1.1 million, this resulted in anet overall gain in the period of £0.7m. For the year ended 31 December 2004,the IFRS 2 charge on its own was £2.3 million. The UK GAAP credit for thisperiod was £1.0 million, and after the reversal of this credit, the net overallcharge for the period increased to £3.3 million. (b) IFRS 3 Business Combinations Under IFRS 3, goodwill is considered to be an intangible asset under IFRS and istherefore not amortised. Instead it is carried at cost and assessed annuallyfor impairment or also when there are indicators of impairment. Under IFRS 1, an exemption is available in the standard which provides an entitywith an option not to retrospectively apply IFRS 3. The Group has elected toadopt this exemption, and accordingly the impact of this will be to deem the UKGAAP balance of goodwill at the date of transition to IFRS (1 January 2004) asbeing the cost of goodwill for IFRS purposes. Restatements prior to this dateare not required. For the purposes of restating 2004 to an IFRS basis, allgoodwill amortisation charges were removed, including those charges recognisedby our associate for which we have equity accounted. These charges were postedin the associate line. (c) IAS 12 Income Taxes The income tax credit relates to the recognition of a deferred tax asset onshare schemes in accordance with IAS 12. The amount of the deferred tax isbased on the amount expected to be tax assessable to the employee (taxdeductible for the company) which is the market price of the share at vestingless any amounts payable by the employee (intrinsic value). As a consequence,there is not necessarily any correlation between the amounts recognised fordeferred tax under IAS 12 and the amounts charged as the fair value charge underIFRS 2. The amount of deferred taxes is also recognised over the relevantvesting period. IAS 12 requires that deferred tax assets and liabilities be recognised ontemporary differences, subject to the assessment of recoverability on a 'probable' basis. In applying the requirements of the standard, the only areawhich gave rise to a deferred tax adjustment for the Group in 2004 was in thearea of share-based payments as described above. (d) IAS 21 The Effects of Changes in Foreign Exchange Rates IAS 21 requires that upon disposal or liquidation of a foreign operation, orpart thereof, the associated foreign currency translation reserve is removedfrom equity and recognised in the income statement. As a consequence of thedisposal of France's banking portfolio, we have recognised £6.7 million as aforeign exchange loss in 2004 within other operating expenses. Additionally, aforeign exchange gain of £1.3 million has been recognised in 2005 within otheroperating income. Both amounts have been included in discontinued operations. (e) IAS 38 Intangible Assets IAS 38 requires that software which is not an integral part of the relatedhardware be classified as an intangible asset rather than as a tangible fixedasset. For this purpose, we have reclassified the net book value of certainsoftware from tangible to intangible assets. IAS 38 also requires that costsdirectly attributable to software development be capitalised and amortised overthe software's useful life, subject to it meeting the future economic benefitscriteria. In applying these specific criteria under IAS 38, the Group did notidentify any such further costs to be capitalised under transition to IFRS.Accordingly, the only adjustment on transition to IFRS was a balance sheetreclassification. 2. UK GAAP TO IFRS RECONCILIATIONS - INCOME STATEMENT 2A. Reconciliation of the Income Statement For the three months ended 31 March 2004 UK GAAP on Reclassifications IFRS 2 IFRS 3 IAS 12 Total Effect Restated an IFRS Share- Business Income of transition under format based Combinations Taxes to IFRS IFRS Payments (unaudited) £m £m £m £m £m £m £mContinuing operations: Interest income 211.8 - - - - - 211.8 Interest expense (137.8) - - - - - (137.8)Net interest income 74.0 - - - - - 74.0Fee and commission income 52.1 - - - - - 52.1Fee and commission expense (9.9) - - - - - (9.9)Net fee and commission income 42.2 - - - - - 42.2Other operating income 2.5 - - - - - 2.5Operating income 118.7 - - - - 118.7Administrative expenses - personnel expenses - (23.1) 0.7 - - (22.4) (22.4) - depreciation and amortisation (5.9) - - - - - (5.9) - other administrative expenses (58.8) 23.1 - - - 23.1 (35.7) (64.7) - 0.7 - - 0.7 (64.0)Impairment losses on loans andadvances to customers (41.0) - - - - - (41.0) Operating profit 13.0 - 0.7 - - 0.7 13.7Share of operating profit of joint ventures 0.3 - - - - - 0.3 Share of associate losses (0.4) - - 0.3 - 0.3 (0.1)Profit on continuing ordinary 12.9 - 0.7 0.3 - 1.0 13.9activities before tax 2A. Reconciliation of the Income Statement For the three months ended 31 March 2004 (continued) UK GAAP on Reclassifications IFRS 2 IFRS 3 IAS 12 Total Effect Restated an IFRS Share- Business Income of transition under format based Combinations Taxes to IFRS IFRS Payments (unaudited) £m £m £m £m £m £m £m Tax charge on profit on continuing ordinary activities (5.8) - - - 0.1 0.1 (5.7) Profit on continuing ordinary activities after tax 7.1 - 0.7 0.3 0.1 1.1 8.2 Discontinued operations: Loss on discontinued ordinary (12.9) - - - - - (12.9)activities after taxRetained loss for the period (5.8) - 0.7 0.3 0.1 1.1 (4.7) 2B. Reconciliation of the Income Statement For the year ended 31 December 2004 UK GAAP Reclass- IFRS 2 IFRS 3 IAS 12 IAS 21 Total Restated on an ifications Share- Business Income The Effects Effect under IFRS based Combin- Taxes of Changes of IFRS format Payments ations in Foreign Trans- (unaudited) Exchange ition Rates to IFRS £m £m £m £m £m £m £m £mContinuing operations: Interest income 902.8 - - - - - - 902.8 Interest expense (615.4) - - - - - - (615.4) Net interest income 287.4 - - - - - - 287.4 Fee and commission 220.7 - - - - - - 220.7income Fee and commission (25.2) - - - - - - (25.2)expense Net fee and commission 195.5 - - - - - - 195.5income Other operating income 14.7 - - - - - - 14.7 Operating income 497.6 - - - - - 497.6 Administrative expenses - personnel expenses - (89.4) (3.3) - - - (92.7) (92.7) - depreciation and (22.2) - - - - - (22.2) amortisation - other (228.7) 89.4 - - - - 89.4 (139.3) administrative expenses (250.9) - (3.3) - - - (3.3) (254.2) Impairment losses onloans and advances tocustomers (182.4) - - - - - - (182.4) Operating profit 64.3 - (3.3) - - - (3.3) 61.0 2B. Reconciliation of the Income Statement For the year ended 31 December 2004 (continued) UK GAAP Reclass- IFRS 2 IFRS 3 IAS 12 IAS 21 Total Restated on an ifications Share- Business Income The Effects Effect under IFRS based Combin- Taxes of Changes of IFRS format Payments ations in Foreign Trans- (unaudited) Exchange ition Rates to IFRS £m £m £m £m £m £m £m £m Share of operatingprofit of jointventures 0.3 - - - - - - 0.3 Share of associate (1.6) - - 1.2 - - 1.2 (0.4)losses Profit on continuingordinary activitiesbefore tax 63.0 - (3.3) 1.2 - - (2.1) 60.9 Tax charge on profit oncontinuing ordinaryactivities (24.8) - - - 0.1 - 0.1 (24.7) Profit on continuingordinary activitiesafter tax 38.2 - (3.3) 1.2 0.1 - (2.0) 36.2 Discontinued operations: Loss on discontinuedordinary activitiesafter tax (131.0) - - 0.5 - (6.7) (6.2) (137.2) Retained loss for the (92.8) - (3.3) 1.7 0.1 (6.7) (8.2) (101.0)year 3. UK GAAP TO IFRS RECONCILIATIONS - SHAREHOLDERS' EQUITY As at 1 January 2004 £mShareholders' equity at 1 January 2004:UK GAAP 433.6 Adjustment for deferred tax on share schemes 0.5 IFRS 434.1 Notes: On transition to IFRS, it was also necessary to recognise a share-based paymentcharge under IFRS 2 and reverse the UK GAAP charge. These adjustments had nonet impact on shareholders' equity as both sides of these two adjustments wereto equity. 4. UK GAAP TO IFRS RECONCILIATIONS - BALANCE SHEET 4A. Reconciliation of the Balance Sheet As at 31 March 2004 UK GAAP on an IFRS adjustments Restated IFRS format under IFRS (unaudited) £m £m £mAssets Cash and balances with central banks 13.2 - 13.2Loans and advances to banks 268.6 - 268.6Investment securities 3,557.6 - 3,557.6Derivative financial instruments 10.3 - 10.3Loans and advances to customers 6,864.0 - 6,864.0Prepayments and accrued income 64.0 - 64.0Investments in joint venture and associates 6.2 0.3 6.5Property, plant and equipment 95.1 (39.0) 56.1Intangible assets 5.9 39.0 44.9Deferred tax 23.3 0.6 23.9Other assets 326.4 - 326.4Total assets 11,234.6 0.9 11,235.5LiabilitiesDeposits by banks 1,613.5 - 1,613.5Securities sold under agreements to repurchase 239.2 - 239.2Customer accounts 6,408.8 - 6,408.8Investment securities in issue 1,581.6 - 1,581.6Derivative financial instruments 11.2 - 11.2Other liabilities 347.6 - 347.6Accruals and deferred income 147.5 - 147.5Subordinated liabilities- Dated loan capital 450.8 - 450.8Total liabilities 10,800.2 - 10,800.2Shareholders' equityCalled up share capital 411.8 - 411.8Share premium account 110.4 - 110.4Capital reserve 359.7 - 359.7Other reserves - 0.2 0.2Accumulated losses (448.6) 0.7 (447.9)Total equity attributable to the equity holdersof the parent 433.3 0.9 434.2Minority interests (equity) 1.1 - 1.1Total equity 434.4 0.9 435.3Total equity and liabilities 11,234.6 0.9 11,235.5 4B. Reconciliation of the Balance Sheet As at 31 December 2004 UK GAAP on an IFRS adjustments Restated under IFRS IFRS format (unaudited) £m £m £mAssets Cash and balances with central banks 14.0 - 14.0Loans and advances to banks 615.9 - 615.9Securities purchased under agreement to resell 319.4 - 319.4Investment securities 3,119.7 - 3,119.7Derivative financial instruments 16.0 - 16.0Loans and advances to customers 7,642.0 - 7,642.0Prepayments and accrued income 58.3 - 58.3Investments in joint venture and associates 5.0 1.3 6.3Property, plant and equipment 96.5 (48.5) 48.0Intangible assets - 49.0 49.0Deferred tax 28.2 0.7 28.9Other assets 130.6 - 130.6Total assets 12,045.6 2.5 12,048.1LiabilitiesDeposits by banks 2,352.0 - 2,352.0Securities sold under agreements to repurchase 130.5 - 130.5Customer accounts 6,607.4 - 6,607.4Investment securities in issue 1,806.5 - 1,806.5Derivative financial instruments 17.5 - 17.5Other liabilities 110.5 - 110.5Accruals and deferred income 215.0 - 215.0Provisions for liabilities and charges 16.8 - 16.8Subordinated liabilities- Dated loan capital 450.8 - 450.8Total liabilities 11,707.0 - 11,707.0Shareholders' equityCalled up share capital 412.2 - 412.2Share premium account 111.0 - 111.0Capital reserve 359.7 - 359.7Other reserves - (0.5) (0.5)Accumulated losses (544.2) 3.0 (541.2)Total equity attributable to the equity holders ofthe parent 338.7 2.5 341.2Minority interests (equity) (0.1) - (0.1)Total equity 338.6 2.5 341.1Total equity and liabilities 12,045.6 2.5 12,048.1 5. UK GAAP TO IFRS RECONCILIATIONS - CASH FLOW STATEMENT The most significant adjustment to the cash flow statement under IFRS is anadjustment to reclassify certain amounts from loans and advances to cash andcash equivalents. Presentation of a cash flow statement on an IFRS basis doesnot affect the underlying cash flows of the business. 5A. Reconciliation of the Cash Flow Statement For the 3 months ended 31 March 2004 UK GAAP on an IFRS Restated under IFRS format adjustments IFRS (unaudited) £m £m £mCash flows from operating activitiesContinuing operations: Operating profit before taxation 13.0 0.7 13.7 Adjusted for:Depreciation, impairment and amortisation 9.2 (0.7) 8.5Impairment losses on loans and advances to 16.6 - 16.6customersGain on sale of investment securities (1.5) - (1.5)Net (increase)/decrease in operating assets:Loans and advances to banks 80.8 (128.5) (47.7)Loans and advances to customers (110.2) - (110.2)Securities purchased under agreement to resell - - -Accrued income and prepayments 10.8 - 10.8Other assets (35.6) - (35.6)Net increase/(decrease) in operatingliabilities: (45.7) - (45.7)Deposits by banksSecurities sold under agreements to repurchase (590.0) - (590.0)Customer accounts (34.5) - (34.5)Investment securities in issue 158.7 - 158.7Accruals and deferred income (5.3) - (5.3)Other liabilities 28.9 - 28.9Taxation paid (1.8) - (1.8)Net cash outflow from continuing operatingactivities (506.6) (128.5) (635.1)Discontinued operations:Net cash (outflow)/inflow from discontinuedoperating activities (7.6) 19.7 12.1Total net cash outflow from operating (514.2) (108.8) (623.0)activities 5A. Reconciliation of the Cash Flow Statement For the 3 months ended 31 March 2004 (continued) UK GAAP on an IFRS Restated under IFRS format adjustments IFRS (unaudited) £m £m £mCash flows from investing activities Continuing operations: Purchase of property, plant and equipment (6.2) - (6.2)Disposal of property, plant and equipment (1.2) - (1.2)Purchase of software intangibles (0.6) - (0.6)Purchase of investment securities (1,377.6) - (1,377.6)Disposal of investment securities 1,941.1 - 1,941.1Net cash inflow from continuing investingactivities 555.5 - 555.5Discontinued operations: Net cash inflow from discontinued investingactivities 1.1 - 1.1 Total net cash inflow from investingactivities 556.6 - 556.6 Cash flows from financing activitiesContinuing operations:Proceeds from issue of share capital 4.4 - 4.4Total net cash inflow from financingactivities 4.4 - 4.4Increase/(decrease) in cash and cash 46.8 (108.8) (62.0)equivalents in the periodCash and cash equivalents at the beginningof the period 159.9 163.0 322.9 Exchange adjustments 1.8 - 1.8Cash and cash equivalents at the end of the 208.5 54.2 262.7period 5B. Reconciliation of the Cash Flow Statement For the year ended 31 December 2004 UK GAAP on an IFRS Restated under IFRS format adjustments IFRS (unaudited) £m £m £mCash flows from operating activitiesContinuing operations: Operating profit before taxation 64.3 (3.3) 61.0Adjusted for:Depreciation, impairment and amortisation 25.1 3.3 28.4Impairment losses on loans and advances to 70.1 - 70.1customersGain on sale of investment securities (7.5) - (7.5) Net (increase)/decrease in operating assets: Loans and advances to banks 110.0 (55.2) 54.8Loans and advances to customers (1,115.6) - (1,115.6)Securities purchased under agreement to (319.4) - (319.4)resellAccrued income and prepayments 16.9 - 16.9Other assets 99.4 - 99.4Net increase/(decrease) in operating 772.3 - 772.3liabilities: Deposits by banksSecurities sold under agreements to (698.7) - (698.7)repurchaseCustomer accounts (53.0) - (53.0)Investment securities in issue 383.6 - 383.6Accruals and deferred income 29.6 - 29.6Other liabilities (133.6) - (133.6)Group relief 14.1 - 14.1Net cash outflow from continuing operatingactivities (742.4) (55.2) (797.6) Discontinued operations: Net cash (outflow)/inflow from discontinuedoperating activities (85.4) 161.6 76.2 Total net cash (outflow)/inflow fromoperating activities (827.8) 106.4 (721.4) 5B. Reconciliation of the Cash Flow Statement For the year ended 31 December 2004 (continued) UK GAAP on an IFRS Restated under IFRS format adjustments IFRS (unaudited) £m £m £mCash flows from investing activitiesContinuing operations:Purchase of property, plant and equipment (13.1) - (13.1)Purchase of software intangibles (37.7) - (37.7)Purchase of investment securities (6,447.5) - (6,447.5)Disposal of investment securities 7,435.3 - 7,435.3Net cash inflow from continuing investingactivities 937.0 - 937.0 Discontinued operations: Net cash inflow from discontinued investingactivities 90.6 - 90.6 Total net cash inflow from investingactivities 1,027.6 - 1,027.6 Cash flows from financing activitiesContinuing operations:Proceeds from issue of share capital 5.4 - 5.4Total net cash inflow from financingactivities 5.4 - 5.4 Increase in cash and cash equivalents in theyear 205.2 106.4 311.6 Cash and cash equivalents at the beginningof the year 159.9 163.0 322.9 Exchange adjustments (6.8) - (6.8)Cash and cash equivalents at the end of theyear 358.3 269.4 627.7 1. RECONCILIATION OF BALANCE SHEET UPON ADOPTION OF IAS 32 AND IAS 39 As at 1 January 2005 IAS 32 covers the disclosure and presentation of financial instruments whereasIAS 39 covers their recognition and measurement. IAS 39 requires that allfinancial assets and financial liabilities, including derivatives, be recognisedon balance sheet, with the instruments being accounted for at either fair valueor amortised cost, depending on the classification of the instrument. The Group has adopted the exemption provided in IFRS 1 to not presentcomparative information in accordance with IAS 32 and IAS 39. Comparativeinformation for financial instruments in 2004 will therefore be prepared on thebasis of the UK GAAP accounting policies as disclosed in the last annual reportwith IAS 32 and IAS 39 being applied from 1 January 2005. Adjustments toreflect the adoption of IAS 32 and IAS 39 at 1 January 2005 have been recognisedthrough equity and are reflected in the reconciliations contained in thisappendix. The following is an explanation of the key impacts of adoption of IAS32 and IAS 39 as at 1 January 2005. (a) Reclassifications In accordance with IAS 32 and IAS 39, certain reclassifications have been madeto reflect the appropriate categorisations required by these standards. Thesehave included adjustments to transfer: • accrued interest on loans and receivables previously recognised within prepayments and accrued income under UK GAAP, to the amortised cost carrying amount within loans and advances; • within Other assets on the balance sheet was certain accrued interest amounts on derivatives previously off balance sheet. These amounts have been reclassified to the derivative financial instruments category on the balance sheet; and • other reclassifications for investment securities and other wholesale assets. (b) Effective interest rate Credit card receivables Under UK GAAP, the carrying amount of credit card receivables with low or zerorate interest on balance transfers or purchases are carried at cost, withinterest being accrued at 0% during the incentive period and then at thestandard rate thereafter. Under IAS 39, credit card receivables are categorised as non-derivativefinancial assets with fixed or determinable payments that are not quoted in anactive market. These receivables are measured on an amortised cost basis,whereby the principal balance includes the accrued interest and unamortised feesand discounts and interest income is recognised on an effective yield basisinclusive of all integral fees and discounts. In calculating the effective interest on the credit card receivables, the Grouphas recognised as an upfront loss in the income statement the cost of thediscount given to customers as compared to the market rate. Thereafter,interest income will then be recognised at the market rate from day one on theincentive balances until they are paid off and interest income will berecognised on non-incentive balances at the standard rate on the credit cards asthe interest is earned. Where credit cards fees are deemed integral to theproduct they will be included in the effective interest calculation and spreadover the life of the product. The impact upon transition to IFRS is to create a liability for the un-amortiseddiscount on the balance sheet based on year end 2004 incentive balances which iscredited to the income statement during 2005. The overall net impact on 2005profit before tax is not expected to be material. Other products Egg offers promotional rates on customer deposits through the bonus account andon mortgages through the discount product. Under IFRS all interest, integralfees and costs will now be recognised on a level yield basis to the expectedmaturity date. (c) Impairment losses on loans and advances to customers Under UK GAAP specific and formulated provisions are raised againstnon-performing loans and a general provision against the balance. Under IAS 39, an impairment loss on loans and advances to customers is onlyrecognised where there is objective evidence that a debt is impaired. Therecoverable amount of an impaired asset is the present value of expected futurecash flows discounted at the original effective interest rate, and thedifference between this and the asset balance is the impaired amount. Interestincome is recognised only on the loans and receivables balances net ofimpairment. There is little impact in the overall level of impairment losses to berecognised under IAS 39 due to the similarities to the Group's formerprovisioning methodology under UK GAAP. On transition to IFRS, there was asmall release of the UK GAAP bad debts provision, and prospectively, the Groupexpects a similar charge to the income statement for impairment losses on loansand advances to customers under IFRS as for the bad and doubtful debts chargethat would have occurred under UK GAAP. (d) Wholesale financial instruments Under UK GAAP all wholesale instruments were previously accounted for on anaccruals cost basis. Under IAS 39, certain wholesale financial instruments arerequired to be measured at fair value, and depending on whether they have beenclassified as fair value through profit or loss or as available-for-sale, thechanges in fair value are recognised in the income statement or in equityrespectively. The measurement techniques for fair valuing financial instrumentshave been described in the significant accounting policies in note 1. On transition to IFRS, the impact of valuing derivative financial instruments atfair value through profit or loss resulted in a reduction in equity of £7.1million. For those instruments classified as available-for-sale, this resultedin a reduction in other reserves of £1.6 million. The adjustments for wholesale financial instruments at fair value also includethe impact of designating some of the Group's derivatives as cash flow hedges.Previously accounted for on an off balance sheet basis, on transition the cashflow hedges resulted in a fair value gain of £0.3 million, all of which wasdeemed to be an effective hedge and recognised in other reserves. (e) Equity saving products At the date of transition to IFRS, the Group was party to certain equity savingsproducts which contained embedded derivatives. The host contracts have beenaccounted for at amortised cost and resulted in a reduction in liabilities and anet gain to equity reserves of £7.4 million. The embedded derivates wereaccounted for at fair value in accordance with IAS 39. The impact of this wasto bring onto the balance sheet at fair value a purchased option (gain of £12.5million), a written option (loss of £12.4 million) and a Libor swap (loss of£9.3 million), giving a net loss at transition to equity reserves of £9.2million. (f) Derecognition of financial liabilities The Group's policy is to derecognise financial liabilities only when theobligation specified in the contract is discharged, cancelled or has expired.Accordingly, on transition the Group has written back certain financialliabilities previously written off. (g) IAS 12 Income Taxes The IAS 39 adjustments are temporary differences, and accordingly a deferred taxasset has been recognised on the total of these adjustments at 30% as it isexpected that they will be taxable or relievable at a future point in time. TheGroup has also assessed the recoverability of the deferred tax asset and hasdetermined that the asset will be fully recoverable. 2. RECONCILIATION OF THE BALANCE SHEET UPON ADOPTION OF IAS 32 AND IAS 39 - Asat 1 January 2005 IAS 32 and 39 adjustments 1 January Reclass- Effective Impairment Wholesale Equity Derecog IAS 12 Total Restated ifications nition 2005 interest financial savings of Income Adjustments (unaudited) (excluding rate instruments products liabi- Taxes IAS 39) lities (a) (b) (c) (d) (e) (f) (g) £m £m £m £m £m £m £m £m £m £mAssets Cash and balanceswith centralbanks 14.0 - - - - - - - - 14.0 Loans and 615.9 0.3 - - - - - - 0.3 616.2advances to banks Securitiespurchased underagreement to resell 319.4 0.7 - - - - - - 0.7 320.1 Investment 3,119.7 19.7 - - (2.5) - - - 17.2 3,136.9securities Derivative 16.0 - - - 4.3 12.5 - - 16.8 32.8financialinstruments Loans andadvances tocustomers 7,642.0 29.0 (7.5) 3.3 - - - - 24.8 7,666.8 Prepayments andaccrued income 58.3 (49.7) - - - - - - (49.7) 8.6 Investments injoint venture andassociate 6.3 - - - - - - - - 6.3 Property, plant 48.0 - - - - - - - - 48.0and equipment Intangible assets 49.0 - - - - - - - - 49.0 Deferred tax 28.9 - - - - - - 6.5 6.5 35.4 Other assets 130.6 - - - (2.2) - - - (2.2) 128.4 Total assets 12,048.1 - (7.5) 3.3 (0.4) 12.5 - 6.5 14.4 12,062.5 2. RECONCILIATION OF THE BALANCE SHEET UPON ADOPTION OF IAS 32 AND IAS 39 - Asat 1 January 2005 (continued) IAS 32 and 39 adjustments 1 January Reclass- Effective Impairment Wholesale Equity Derecog IAS 12 Total Restated ifications nition 2005 interest financial savings of Income Adjustments (unaudited) (excluding rate instruments products liabi- Taxes IAS 39) lities (a) (b) (c) (d) (e) (f) (g) £m £m £m £m £m £m £m £m £m £m LiabilitiesDeposits by banks 2,352.0 13.5 - - 0.1 - - - 13.6 2,365.6 Securities soldunder agreementsto repurchase 130.5 0.5 - - - - - - 0.5 131.0 Customer accounts 6,607.4 83.9 (2.2) - - (7.4) 9.6 - 83.9 6,691.3 Investment 1,806.5 8.6 - - - - - - 8.6 1,815.1securities inissue Derivative 17.5 0.4 - - 10.5 21.7 - - 32.6 50.1financialinstruments Other liabilities 110.5 (0.3) - - (2.4) - - - (2.7) 107.8 Accruals and 215.0 (107.9) - - - - - - (107.9) 107.1deferred income Provisions for 16.8 - - - - - - - - 16.8liabilities andcharges Subordinatedliabilities - Dated loan 450.8 1.3 - - (0.2) - - - 1.1 451.9 capital Total liabilities 11,707.0 - (2.2) - 8.0 14.3 9.6 - 29.7 11,736.7Shareholders'equity Called up share 412.2 - - - - - - - - 412.2capital Share premium 111.0 - - - D - - - - - 111.0account Capital reserve 359.7 - - - - - - - - 359.7 Other Reserves (0.5) - - - (1.3) - - 0.4 (0.9) (1.4) Accumulated (541.2) - (5.3) 3.3 (7.1) (1.8) (9.6) 6.1 (14.4) (555.6)losses Total equityattributable tothe equity 341.2 - (5.3) 3.3 (8.4) (1.8) (9.6) 6.5 (15.3) 325.9holders of theparent Minority (0.1) - - - - - - - - (0.1)interests(equity) Total equity 341.1 - (5.3) 3.3 (8.4) (1.8) (9.6) 6.5 (15.3) 325.8 Total equity and 12,048.1 - (7.5) 3.3 (0.4) 12.5 - 6.5 14.4 12,062.5liabilities Average Balance Sheet (UK Business Only) (£m, except percentages) 31 March 31 March 31 December 2005 2004 2004 Avg. Avg. Avg. Avg. Avg. Avg. Balance Rate % Balance Rate % Balance Rate %Assets Wholesale assets 4,161 4.62 4,354 4.13 4,212 4.51Mortgages 1,770 5.27 2,111 4.70 1,835 5.09Personal loans 2,416 7.16 1,547 7.73 2,228 7.25Credit cards 3,354 9.56 2,808 9.55 3,175 9.61Total average interest-earning 11,450 6.55assets 11,701 6.66 10,820 6.18Fixed and other assets 289 337 339Total assets 11,990 11,157 11,789LiabilitiesCustomer accounts 6,366 4.16 6,754 3.28 6,280 3.90Wholesale liabilities and 4,540 4.67subordinated debt 4,661 4.66 3,471 4.13Total average interest-bearing 10,820 4.22liabilities 11,027 4.37 10,225 3.57Other liabilities 444 440 450Total liabilities 11,471 10,665 11,270Total equity 519 492 519Total equity and liabilities 11,990 11,157 11,789 Note: The above analysis represents interest earned or borne on on-balance sheetassets and liabilities only. In each case the average balances and yields havebeen calculated on a 12-month rolling basis. The figures for Q1 2005 are compiled on full IFRS basis including the effect ofIAS 32 and IAS39 and as such are no longer strictly comparable to the priorperiod and prior year figures. Average Yields (UK Business Only) 31 March 31 March 31 December 2005 2004 2004 Average rate % Average rate % Average rate % Interest income as a percentage of average 6.66 6.18 6.55interest-earning assets Interest expense as a percentage of average 4.37 3.57 4.22interest-bearing liabilities Interest spread 2.29 2.61 2.33 Net interest margin (includes interest on off-balance 2.43 2.54 2.51sheet items) Note: This press release contains certain forward-looking statements with respect tothe financial condition, results of operations, and businesses of the Egg Group.These statements and forecasts involve risk and uncertainty because theyrelate to events that depend upon circumstances that will occur in the future.There are a number of factors that could cause actual results or developments todiffer materially from those expressed or implied by these forward-lookingstatements and forecasts. The statements have been made with reference toforecast price changes, economic conditions and the current regulatoryenvironment. Nothing in this press release should be construed as a profitforecast. Ends For further information: Media: Egg Press Office (main number): 020 7526 2600 Emma Byrne: 020 7526 2565 / mobile: 07775 657 241 Analysts / Investors: Kieran Coleman: 020 7526 2648 / mobile: 07711 717 358 -------------------------- (1) The adjustment relates to deferred tax on share-based payments. (2) The movement in cash flow includes FX movements. This information is provided by RNS The company news service from the London Stock ExchangeENDRelated Shares:
Prudential