12th Dec 2005 07:00
Telecom Plus PLC09 December 2005 Telecom plus PLC Adoption of International Financial Reporting Standards The purpose of this document is to provide guidance on the impact ofInternational Financial Reporting Standards as adopted for use in the EU (IFRS)on the financial results of Telecom plus PLC when they are adopted for the yearending 31 March 2006. This document is for guidance only and the effects detailed may be amended as aresult of further interpretive guidance from the International AccountingStandards Board (IASB) or to reflect industry practice. The financial information presented in this document is unaudited. The principal changes to Telecom plus PLC's reported financial information underUK GAAP arising from the adoption of IFRS are summarised below. The financialimpact of these changes are detailed in the Appendices. Background The Group currently prepares its financial statements under UK GenerallyAccepted Accounting practice ('UK GAAP'). For the year ending 31 March 2006, theGroup will be required to prepare its interim and annual reports, includingcomparatives, for previous periods under IFRS. This document details the principal differences arising from this transition onthe opening balance sheet as at 1 April 2004 ('date of transition') and on theincome statement (previously the profit and loss account under UK GAAP), balancesheet and cash flow statements for the six months ended 30 September 2004 andthe year ended 31 March 2005. The revised accounting policies are also detailed in this document. IFRS 1 exemptions IFRS 1, First-time Adoption of International Financial Reporting Standards,establishes exemptions from the full requirements of IFRS for companiescomplying with them for the first time. Telecom plus PLC intends to elect to usethe following exemptions and the financial information in this document has beenprepared on this basis. (a) Business combinations: those prior to the transition date have not beenrestated onto an IFRS basis. (b) Share based payments: the Group is not applying the IFRS requirements toequity instruments such as share options granted on or before 7 November 2002. (c) Financial instruments: the Group has not restated its comparatives toreflect the requirements of IAS39 - Financial Instruments: Recognition andMeasurement. Financial Summary UK GAAP IFRS adjustment FRS £'000 £'000 £'000 6 months to 30 September 2004 Profit before tax 6,443 116 6,559 Profit after tax 4,598 144 4,742 Shareholders' equity 14,905 2,939 17,844 Basic earnings per share 7.4p 0.3p 7.7p Diluted earnings per share 7.3p 0.2p 7.5p Year ended 31 March 2005 Profit before tax 10,052 405 10,457 Profit after tax 7,264 384 7,648 Shareholders' equity 13,629 4,150 17,779 Basic earnings per share 11.7p 0.7p 12.4p Diluted earnings per share 11.5p 0.6p 12.1p IFRS Adjustments The main differences for the Group between reporting on the basis of IFRScompared with current UK GAAP are as follows: (a) Goodwill amortisation Under UK GAAP, goodwill is amortised over its expected useful economic life,whereas under IFRS goodwill is considered to have an indefinite life and is notamortised, but is tested for impairment annually. No impairment provisions were required since the date of transition. Thisadjustment reverses the goodwill amortisation charged under UK GAAP since thedate of transition. (b) Share options Under UK GAAP there was no charge to the profit and loss account for shareoptions granted at the market price since they have no intrinsic value. IFRSrequires that the fair value of such options at the date of grant is charged tothe income statement. The fair value has been determined using the binomialmodel and is being charged to profit evenly over the vesting period of 3 years.A deferred tax asset has been recognised in respect of share options to reflectthe difference between the market value and the exercise price at the BalanceSheet dates. (c) Dividend accrual Dividends relating to an accounting period were dealt with in that period underUK GAAP. IFRS does not recognise a dividend until it is declared, usually afterthe accounting period to which it relates. This adjustment writes back theaccrual for the interim and final dividend as appropriate. (d) Associated Companies Under IFRS it is considered that the Group has the power to exercise significantinfluence over its investment in Oxford Power Holdings Limited and as such, theinvestment is now classified as an associate. This investment is accounted forusing the equity method. Accounting policies under IFRS The restated financial information for the six months to 30 September 2004, theyear ended 31 March 2005 and the opening balance sheet at 1 April 2004 (thetransition date for the Group) have been prepared on a basis consistent with theGroup's anticipated International Financial Reporting Standards (IFRS)accounting policies. The accounts are prepared under the historical cost convention, except for therevaluation of certain properties and financial instruments. Basis of consolidation The Group's financial statements consolidate the financial statements of Telecomplus PLC and all its subsidiaries. Subsidiaries are consolidated from the dateon which control transfers to the Group and are included until the date on whichthe Group ceases to control them. Transactions between Group companies areeliminated on consolidation. Business combinations The acquisition of subsidiaries is accounted for using the purchase method. Onacquisition, the assets, liabilities and contingent liabilities of a subsidiaryare measured at their fair value at the date of acquisition. Any excess of thecost of acquisition over the fair value of the identifiable net assets acquiredis recorded as goodwill. Goodwill is reviewed for impairment at least annuallyand any impairment is recognised immediately in the income statement. Anydeficiency of the cost of acquisition below the fair value of the identifiablenet assets acquired is credited to the income statement on acquisition. Goodwillrecorded on business combinations prior to IFRS transition has not been restatedand has either been written off to reserves or capitalised according to the UKGAAP accounting standards then in force. Goodwill Goodwill arising on the acquisition of a business, representing the differencebetween the cost of acquisition and the fair value of the separable net assetsacquired is capitalised and subject to impairment review, both annually and whenthere are indications that the carrying value may not be recoverable. Prior to 1April 2004, goodwill was amortised over its expected useful economic life up toa maximum of 10 years. Other intangible asset The Group's intangible asset relates to the Billing System. It is stated at costless a provision for depreciation, which has been calculated so as to write offthe cost less estimated residual value of the asset in equal instalments overits expected useful life. Depreciation is provided over five years. The carrying value of the intangible asset is reviewed for impairment when thereis an indication that it may be impaired. Investments in associates An associate is an entity over which the Group has significant influence andthat is neither a subsidiary nor an interest in a joint venture. Significantinfluence is the power to participate in the financial and operating policydecisions of the investee but is not control or joint control over thosepolicies. The results and assets and liabilities of associates are incorporated in thesefinancial statements using the equity method of accounting. Under the equitymethod, investments in associates are carried in the consolidated balance sheetat cost as adjusted for post-acquisition changes in the Group's share of the netassets of the associate, less any impairment in the value of individualinvestments. Losses of an associate in excess of the Group's interest in thatassociate are not recognised. Revenue recognition Revenue is the invoiced value of goods and services supplied to externalcustomers excluding value added tax and other sales related taxes. Transactionsare recorded as sales when the delivery of products or performance of servicestakes place in accordance with the contract terms of sale. Leases Payments on operating leases are charged to the income statement on a straightline basis over the lease term. Taxation Income tax on the profit or loss for the year comprises current and deferredtax. Income tax is recognised in the income statement except to the extent thatit relates to items recognised directly in equity, in which case it isrecognised in equity. Current tax is the expected tax payable on the taxable income for the year,using tax rates enacted or substantially enacted at the balance sheet date, andany adjustment to tax payable in respect of previous years. Deferred tax is recognised, based on the balance sheet liability method, ontemporary differences between the carrying amounts of assets and liabilities forfinancial reporting purposes and the amounts used for taxation purposes. Theamount of deferred tax provided is based on the expected manner of realisationor settlement of the carrying amount of assets and liabilities, using tax ratesenacted or substantively enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable thatfuture taxable profits will be available against which the asset can beutilised. Deferred tax assets are reduced to the extent that it is no longerprobable that the related tax benefit will be realised. Property, plant and equipment Property, plant and equipment are stated at cost less a provision fordepreciation. Depreciation is calculated so as to write off the cost lessestimated residual value of the assets in equal instalments over their expecteduseful lives. No depreciation is provided on freehold land. Depreciation isprovided on other assets at the following rates: Freehold buildings twenty five yearsLeasehold improvements three yearsComputer and office equipment three to five yearsMotor vehicles four years The carrying values of property, plant and equipment are reviewed for impairmentwhen there is an indication that they may be impaired. Inventories Inventories are valued at the lower of cost, including related overheads, andnet realisable value. Cost is measured on a first in, first out basis. Netrealisable value represents the estimated selling price less all estimated costsof completion and costs to be incurred in marketing, selling and distribution. Commodity contracts The Group uses forward contracts for key energy commodities to minimise the riskof the effect of fluctuations in their cost. These forward contracts areaccounted for in the accounting period in which they mature, as they are enteredinto and are held for the purpose of the delivery of the commodity in accordancewith the Group's expected purchase requirements. The amount of any commitmentsunder such contracts are disclosed in the Annual Report. Research and development Research costs are written off as incurred. Development costs incurred in thedevelopment of new or substantially improved products and processes arecapitalised as intangible assets if it is probable that the expenditure willgenerate future economic benefits and costs can be measured reliably. Share based payments The fair value at the date of grant of share based remuneration, principallyshare options, is calculated using a binomial pricing model and charged to theincome statement on a straight line basis over the vesting period of the award.The charge to the income statement takes account of the estimated number ofshares that will vest. All share based remuneration is equity settled. Segmental reporting A segment is a distinguishable component of the Group that is engaged either inproviding products or services (business segment), or in providing products orservices within a particular economic environment (geographical segment), whichis subject to risks and rewards that are different from those of other segments.The Group's primary reporting format is business segments. Provisions Provisions are recognised when the Group has a present obligation as a result ofa past event, and it is probable that the Group will be required to settle thatobligation. Provisions are measured at the directors' best estimate of theexpenditure required to settle the obligation at the balance sheet date, and arediscounted to present value where the effect is material. Pensions The Group makes contributions to certain employees' personal pension plans.These are charged to the income statement in the year in which they becomepayable. Receivables Trade and other receivables are stated at cost less impairment losses. Payables Trade and other payables are stated at cost. Cash and cash equivalents Cash includes cash in hand and at banks. Bank overdrafts that are repayable ondemand and form an integral part of the Group's cash management are included asa component of cash and cash equivalents for the purpose of the statement ofcash flows. Cash equivalents comprise fixed term deposits or call deposits withan original term of less than 90 days Interest Net financing costs comprise interest payable on borrowings calculated using theeffective interest rate method and interest receivable on funds invested.Interest income is recognised in the income statement as it accrues, using theeffective interest method. Impairment The carrying amounts of the Group's assets, other than inventories and deferredtax assets, are reviewed at each balance sheet date to determine whether thereis any indication of impairment. If any such indication exists, the asset'srecoverable amount is estimated. The recoverable amount of assets is the greaterof their net selling price and value in use. An impairment loss is recognised whenever the carrying amount of an asset or itscash-generating unit exceeds its recoverable amount. Impairment losses arerecognised in the income statement. An impairment loss is reversed if there has been a change in the estimates usedto determine the recoverable amount. An impairment loss is reversed only to theextent that the asset's carrying amount does not exceed the carrying amount thatwould have been determined, net of depreciation, if no impairment loss had beenrecognised. Appendices 1. Unaudited Consolidated Income Statement 6 months to 30 September 2004 Intangible Share based Investments Assets payments in Associates UK GAAP IFRS3 IFRS2 IAS28 IFRS £'000 £'000 £'000 £'000 £'000 Revenue 42,778 42,778 Cost of sales (29,423) (29,423) -------- --------- --------- -------- -------Gross profit 13,355 - - - 13,355 Other income - Distribution costs (2,854) (48) (2,902) Administrative expenses (4,326) 228 (78) (4,176) Other expenses - -------- --------- --------- -------- -------Operating profit 6,175 228 (126) - 6,277 Share of profit in associates 20 20 Finance income less costs 268 268 -------- --------- --------- -------- -------Profit before tax 6,443 228 (126) 20 6,565 Income taxes (1,845) 22 (1,823) Share of deferred tax of associates - -------- --------- --------- -------- -------Profit for the period 4,598 228 (104) 20 4,742 ======== ========= ========= ======== ======= Basic earnings per share 7.4p 7.7pDiluted earnings per share 7.3p 7.5p 2. Unaudited Consolidated Income Statement Year to 31 March 2005 Intangible Share based Investments Assets payments in Associates UK GAAP IFRS3 IFRS2 IAS28 IFRS £'000 £'000 £'000 £'000 £'000 Revenue 102,467 102,467 Cost of sales (77,747) (77,747) -------- --------- --------- -------- -------Gross profit 24,720 - - - 24,720 Other income - Distribution costs (5,966) (191) (6,157) Administrative expenses (9,221) 456 (111) (8,876) Other expenses - -------- --------- --------- -------- -------Operating profit 9,533 456 (302) - 9,687 Share of profit in associates - 66 66 Finance income less costs 519 519 -------- --------- --------- -------- -------Profit before tax 10,052 456 (302) 66 10,272 Income taxes (2,788) 164 (2,624) Share of deferred tax of associates - -------- --------- --------- -------- -------Profit for the period 7,264 456 (138) 66 7,648 ======== ========= ========= ======== ======= Basic earnings per share 11.7p 12.4p Diluted earnings per share 11.5p 12.1p 3. Unaudited Balance Sheet As at 1 April 2004 Share based Investments Intangible payments in Associates Dividends UK GAAP Assets IAS38 IFRS2 IAS28 IAS10 IFRS £'000 £'000 £'000 £'000 £'000 £'000 AssetsNon-current assetsProperty, plant and equipment 1,903 (384) 1,519Goodwill 3,742 3,742Other intangible assets - 384 384Investments in associates 1,038 (692) 346Deferred tax - 435 435Other receivables 2,666 2,666 ------- -------- -------- -------- ------- ------- 9,349 - 435 (692) - 9,092 Current assetsInventories 1,146 1,146Trade receivables 1,586 1,586Prepayments and accrued income 7,578 7,578Cash and cash equivalents 9,857 9,857 ------- -------- -------- -------- ------- ------- 20,167 - - - - 20,167 ------- -------- -------- -------- ------- -------Total assets 29,516 - 435 (692) - 29,259 ------- -------- -------- -------- ------- ------- Equity and liabilities Current liabilitiesTrade and other payables (4,240) (4,240) Current portion of long term borrowings (98) (98)Current tax payable (1,794) - (1,794)Other taxation and social security - -Accrued expenses and deferred income (10,370) 3,394 (6,976) ------- -------- -------- -------- ------- ------- ------- -------- -------- -------- ------- -------Total liabilities (16,502) - - - 3,394 (13,108) ------- -------- -------- -------- ------- ------- ------- -------- -------- -------- ------- -------Total assets less total liabilities 13,014 - 435 (692) 3,394 16,151 ------- -------- -------- -------- ------- ------- Share capital 3,076 3,076Share premium 6,625 6,625Share option reserve - 160 160Retained earnings 3,313 275 (692) 3,394 6,290 ------- -------- -------- -------- ------- -------Total equity 13,014 - 435 (692) 3,394 16,151 ------- -------- -------- -------- ------- ------- 4. Unaudited Balance Sheet As at 30 September 2004 Share based Investments Intangible payments in Associates Dividends UK GAAP Assets IAS38 IFRS2 IAS28 IAS10 IFRS £'000 £'000 £'000 £'000 £'000 £'000 AssetsNon-current assetsProperty, plant and equipment 2,203 (349) 1,854Goodwill 3,514 228 3,742Other intangible assets - 349 349Investments in associates 1,038 (678) 360Deferred tax - 287 287Other receivables 2,799 2,799 ------- -------- -------- -------- ------- ------- 9,554 228 287 (678) - 9,391 Current assetsInventories 1,092 1,092Trade receivables 2,761 2,761Prepayments and accrued income 5,906 5,906Cash and cash equivalents 13,393 13,393 ------- -------- -------- -------- ------- ------- 23,152 - - - - 23,152 ------- -------- -------- -------- ------- -------Total assets 32,706 228 287 (678) - 32,543 ------- -------- -------- -------- ------- ------- Equity and liabilities Current liabilitiesTrade and other payables (4,109) (4,109) Current portion of long term borrowings - -Current tax payable (2,356) (2,356)Other taxation and social security - -Accrued expenses and deferred income (11,336) 3,102 (8,234) ------- -------- -------- -------- ------- ------- ------- -------- -------- -------- ------- -------Total liabilities (17,801) - - - 3,102 (14,699) ------- -------- -------- -------- ------- ------- ------- -------- -------- -------- ------- -------Total assets less total liabilities 14,905 228 287 (678) 3,102 17,844 ------- -------- -------- -------- ------- ------- Share capital 3,100 3,100Share premium 6,996 6,996Share option reserve - 286 286Retained earnings 4,809 228 1 (678) 3,102 7,462 ------- -------- -------- -------- ------- -------Total equity 14,905 228 287 (678) 3,102 17,844 ------- -------- -------- -------- ------- ------- 5. Unaudited Balance Sheet As at 31 March 2005 Share based Investments Intangible payments in Associates Dividends UK GAAP Assets IAS38 IFRS2 IAS28 IAS10 IFRS £'000 £'000 £'000 £'000 £'000 £'000 AssetsNon-current assetsProperty, plant and equipment 2,006 (283) 1,723Goodwill 3,286 456 3,742Other intangible assets - 283 283Investments in associates 1,038 (441) 597Deferred tax 200 36 236Other receivables 2,912 2,912 ------- -------- -------- -------- ------- ------- 9,442 456 36 (441) - 9,493 Current assetsInventories 1,134 1,134Trade receivables 2,939 2,939Prepayments and accrued income 12,866 12,866Cash and cash equivalents 6,275 6,275 ------- -------- -------- -------- ------- ------- 23,214 - - - - 23,214 ------- -------- -------- -------- ------- -------Total assets 32,656 456 36 (441) - 32,707 ------- -------- -------- -------- ------- ------- Equity and liabilities - - Current liabilitiesTrade and other payables (5,832) (5,832) Current portion of long term borrowings - -Current tax payable (1,592) (1,592)Other taxation and social security - -Accrued expenses and deferred income (11,603) 4,099 (7,504) ------- -------- -------- -------- ------- ------- ------- -------- -------- -------- ------- -------Total liabilities (19,027) - - - 4,099 (14,928) ------- -------- -------- -------- ------- ------- ------- -------- -------- -------- ------- -------Total assets less total liabilities 13,629 456 36 (441) 4,099 17,779 ------- -------- -------- -------- ------- ------- Share capital 3,108 3,108Share premium 7,145 7,145Share option reserve - 464 464Retained earnings 3,376 456 (428) (441) 4,099 7,062 ------- -------- -------- -------- ------- -------Total equity 13,629 456 36 (441) 4,099 17,779 ------- -------- -------- -------- ------- ------- 6. Effect of IFRS adoption on the Cash Flow Statement IFRS require Cash Flow Statements to present changes in cash and cashequivalents. Under UK GAAP, Cash Flow Statements presented changes in cash only.The Group did not have any cash equivalents at any Balance Sheet date presentedand accordingly its cash flows are unchanged. 9 December 2005 END This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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