29th Apr 2005 07:01
GKN PLC29 April 2005 GKN plc: The Impact of International Financial Reporting Standards ("IFRS") Re-statement of 2004 Financial Information Financial Results 2004 2004 IFRS UK GAAP * (unaudited)Sales - continuing subsidiaries £3,481m £3,484mTrading profit - continuing subsidiaries beforesignificant £215m £162mitems**Operating loss - continuing subsidiaries £(24)m £(87)mProfit / (loss) before tax before significant items -continuing operations** £155m £132mProfit / (loss) before tax - continuing operations £(83)m £(118)mProfit from discontinued operations £887m £720mProfit for the year £772m £580mEarnings per share 105.0p 78.8pNet assets £928m £1,490m * The UK GAAP numbers presented above are as reported in the 2004 Annual Reportreformatted in line with presentational requirements under IFRS.** Significant items are those which because of size or incidence requireseparate disclosure to enable underlying trading performance to be assessed.They comprise restructuring costs, asset impairment charges and profits on saleof businesses which were classified as exceptional in the 2004 UK GAAP accounts. Highlights •No further material differences highlighted from December 2004 IFRS update. •Improvement in reported results arises primarily from treatment of pension obligations. •Presentation of Income Statement reformatted under IFRS to focus on continuing operations. •Business trading fundamentals, cash generation and operational performance, not affected. • Reconciliation of profit before tax, goodwill amortisation and exceptional items: 2004 2004 IFRS Result £m £mPBT (UK GAAP) 221 221Pensions (net) 26 -Share based payments (3) - ------- ------ 244 221Presentation of JV tax (3) (3) ------- ------ 241 218 ------- ------ ------- ------Continuing operations 155 132Discontinued operations 86 86 ------- ------ 241 218 ------- ------ Nigel Stein, Finance Director of GKN plc, commented: "The transition to IFRS has introduced accounting treatment and presentationalchanges. The positive impact on our reported 2004 results is, however, in linewith the guidance we gave last December. "The major change relates to pension accounting where deficits now come on tothe balance sheet as liabilities whereas under UK GAAP they were written offthrough the Income Statement. This change increases reported profits, though theunderlying performance and fundamentals of the Group remain unchanged. "Familiarity with the new concepts and formats introduced by IFRS will developover time, both within GKN and the wider financial community. As always we willendeavour to keep all stakeholders informed on a timely basis of the keyelements of the Group's performance." Further enquiries: GKN Corporate CommunicationsTel: 020 7463 2354 The full text of this release together with an appendix containing extracts fromthe IFRS Financial Statements may be downloaded from www.gkn.com. There will be a webcast presentation by Nigel Stein, Group Finance Director at10.00 BST followed by a question and answer session for analysts and investors. To participate in the question and answer session please dial From the UK: 0845 140 0173From overseas: +44 1452 568 060 1.0 IntroductionThe purpose of this statement is to provide an update on, and more details of,the impact of International Financial Reporting Standards (IFRS) on GKN's 2004Financial Statements. We provided an indication of the major impacts on theIncome Statement with our trading update statement on 13 December last year andcan confirm that no additional factors affecting 2004 profits have emerged sincethen. The appendix to this statement contains reconciliations of the 2004 IncomeStatement, Cash Flow and Balance Sheets from a UK GAAP to an IFRS basis. Thesestatements are unaudited. This statement contains no information in respect of 2005 performance underIFRS. 2.0 Differences between UK GAAP and IFRS For GKN in 2004 the key differences between UK GAAP and IFRS are identifiedbelow and their impact is summarised in the tables above and at the end of thissection. Paragraph 2.8 details presentational differences, the key of which forGKN in 2004 is the treatment of discontinued activities (mainly AgustaWestland). 2.1 IAS 19 - Employee Benefits Under UK GAAP employee defined benefit arrangements were accounted for underSSAP 24 where the cost of providing the benefits was charged against operatingprofit on a systematic and rational basis over the period during which the Groupexpected to derive benefits from the employees' services. The SSAP 24 chargeincludes the service cost of benefits and imputed interest costs on balancesheet prepayments and scheme surpluses and or deficits. The application of SSAP24 resulted in the recognition of a prepayment, this asset is reversed as aresult of IAS 19 adoption. IAS 19 permits an approach very similar to FRS 17 to be used and we have adoptedthis. Therefore the IFRS employee benefits numbers now being reported areconsistent with the note disclosures given in our 2004 Annual Report under UKGAAP. There is a difference in the valuation of equity investments in that FRS17 requires mid-market price to be used whereas IFRS requires the bid price tobe used. This has resulted in an increase of £7m in the post-employmentliability as at 31 December 2004 previously reported under FRS17. In summary, IAS 19 results in the Group's pension deficits, primarily thatrelating to the UK scheme, being recorded as a balance sheet liability. Theimpact of changes in the value of the deficits will be recorded in the Statementof Recognised Income and Expenses rather than the Income Statement. Annualcharges to the Income Statement will continue to comprise a service cost,charged against operating profit, and a finance cost, now to be charged alongwith other interest and similar charges. Adopting IAS 19 results in a positive impact of £26m on profit before tax in2004 compared with SSAP24 although net shareholders' funds at 31 December 2004are reduced by £786m before the recognition of a deferred tax asset. 2.2 IFRS 2 - Share-based payments Under UK GAAP the cost of share awards and share based arrangements was based onthe intrinsic value of the awards, with the exception of SAYE schemes for whichno cost was recognised. IFRS 2 requires the charges in respect of remuneration schemes with share basedcomponents to reflect the fair values. This has meant that options granted since7 November 2002 have been valued at the date of grant and amortised through theIncome Statement over a defined period. The Group granted options in both 2003and 2004. The charge for these awards and other relevant remuneration schemeswas £3m in the 2004 IFRS accounts. 2.3 IAS 38 - Research and Development Under UK GAAP research costs must be written off immediately whereas developmentcosts may either be capitalised or written off as incurred; the latter optionbeing that adopted in our UK GAAP Annual Reports. IAS 38 requires research coststo be written off as incurred while development expenditure is required to becapitalised where certain criteria are met. Under IFRS we will write off research costs immediately while development costswill be capitalised where a new or substantially improved product or processresults and other relevant criteria are met. In our Automotive and OffHighway businesses, most development expenditureresults in incremental improvements to existing products or processes andsignificant capitalisation is considered unlikely except in those businesses,such as Torque Technology, which are in a relatively early stage of development.As a result, in the IFRS balance sheets at 1 January and 31 December 2004 thereare no costs to capitalise which were previously written off under UK GAAP. In our Aerospace businesses, certain development expenditure has beencapitalised under UK GAAP as part of non-recurring costs ("NRCs") which are heldas inventory. Given the nature of these contracts IFRS necessitates thereclassification of NRCs including elements as intangible assets. As a directconsequence, the NRCs under IFRS are subject to a different basis ofestablishing their appropriate carrying value. A restatement of £13m has beenreflected in the IFRS transition balance sheet in respect of this. No impairmentcharges were required to be recognised during 2004 though a lower level ofamortisation has resulted. NRC reclassification resulted in £36m being reclassified from inventory tointangible assets. 2.4 IFRS 3 - Business Combinations Under UK GAAP goodwill on acquisitions made since 1 January 1998 was capitalisedand amortised over its estimated economic useful life up to a maximum of 20years. When an acquired business was sold and goodwill had been previouslydeducted from reserves, the goodwill was taken into account in calculating theprofit or loss on sale. IFRS 3 deals with accounting for businesses acquired and requires intangibleassets (such as intellectual property) to be fair valued at the date ofacquisition and amortised over an appropriate time period. Any residual goodwillis not amortised but is subject to an annual impairment review. Consequently,there is no charge for goodwill amortisation in 2004. On disposals the recyclingof goodwill previously written off to reserves is not required under IFRS.Furthermore, cumulative exchange differences on net investments are deferredwithin equity until realisation of the investment. These exchange differencesare recognised in the Income Statement in the period of realisation.The transitional arrangements contained in IFRS do not require this standard tobe applied to acquisitions made prior to 1 January 2004 and the Group has takenthis option. The IFRS acquisition balance sheet for Tochigi Fuji Sangyo contained capitalisedintellectual property of £5m which is being amortised over 5 years and hastherefore resulted in a £1m charge to profit for the 9 months of 2004 for whichit was a subsidiary. 2.5 Deferred Tax Under UK GAAP deferred tax was provided on timing differences between theaccounting and taxable profit i.e. focused on the Income Statement. Deferred taxassets are only recognised to the extent that they may be regarded asrecoverable. IFRS results in deferred tax being provided on all temporarydifferences between book carrying values and the tax base of assets andliabilities, i.e. a balance sheet focus. Excluding the recognition of post-employment obligations under IAS 19, the neteffect of the adoption of IFRS on the deferred tax position of the Group at 31December 2004 is an increase in the net liability by £15m to £69m (1 January2004 - £28m increase to £72m). This movement is comprised of an increase of £52m(1 January 2004 - £56m) in the liability on fixed assets (due mainly to therequirement under IFRS to recognise deferred tax on non-qualifying assets onbusiness combinations), partially offset by an increase of £33m (1 January 2004- £22m) in the asset in respect of other temporary differences (largely due tothe reversal of liabilities in respect of SSAP24 pension balances not permittedunder IFRS accounting), and a £4m (1 January 2004 - £6m) movement in therecognition of deferred tax assets for tax losses. As at 31 December 2004 a deferred tax asset of £184m (1 January 2004 - £203m)arose from the inclusion of pension and other post-employment benefits underIAS19, £12m of this £19m movement on pensions was an additional charge to theIncome Statement. Including IAS 19 the total net deferred tax balance at 31 December 2004 is anasset of £115m (1 January 2004 - £131m). 2.6 Other Changes IFRS has resulted in a number of other minor changes such as thereclassification of computer software from tangible (PPE) to intangible assets,the definition of cash and cash equivalents and increased disclosure in certainareas. These changes have no material effect on reported profits or net assets. 2.7 AgustaWestland The IFRS financial information for AgustaWestland used in restating the 2004 GKNfinancial statements has been based on data supplied by AgustaWestland which hasyet to be subject to any formal external review. The only impact on the 2004Income Statement of any further adjustment will be to alter the analysis withinprofit from discontinued operations on the face of the Income Statement. 2.8 Presentational Differences There are also a number of presentational differences in the primary financialstatements, the main areas of which are identified below. 2.8.1. Joint Ventures IFRS permits two alternative treatments of joint ventures, both of which differfrom UK GAAP. (i) The post tax results of joint ventures are included in theconsolidated Income Statement before profit before tax. In the consolidatedbalance sheet the investment is carried as a fixed asset at the share of thejoint venture's equity (the equity method). (ii) The share of the joint venture's profit, balance sheet and cashflow is incorporated in the shareholder's financial statements (proportionalconsolidation). Under UK GAAP profits (and sales) are proportionally consolidated while theinvestment is carried at the share of equity but with expanded disclosure.We have decided to follow the first IFRS option which in future will mean aslight reduction in profit before tax and lower headline sales. 2.8.2. Discontinued Businesses Results of continuing and discontinued activities are segregated in the IncomeStatement. Sales of discontinued businesses are not reported and their profitsare shown below those of continuing operations. Separate EPS figures are alsorequired to be shown. The identification of discontinued operations is broadlysimilar under UK GAAP and IFRS. 2.8.3. Exceptional Items IFRS does not use the terminology "exceptional items". Instead, significantitems are separately reported where this is necessary to enable results to beproperly interpreted. We intend to show profits and losses on business divestments separately withinoperating profit together with such other items which need disclosure because oftheir size or incidence. These will include the cost of major restructuringinitiatives. 2.8.4. Segmental Reporting Applying the more prescriptive nature of segmental reporting dictated by IFRSour segmental analysis will change going forward in two significant respects.Firstly, the analysis will provide greater segmentation between the constituentbusinesses within GKN including an element of disaggregation of our Automotivebusinesses, separate disclosure of the OffHighway business and identification ofunallocable central stewardship costs. Secondly, additional net asset and otherfinancial information will be provided. Consistent with the overall treatment of joint ventures within the IncomeStatement drawn up under IFRS, segmental reporting of joint ventures will be atthe after tax level. A segmental analysis of 2004 sales and profit is presented within the appendixto this press release. 2.8.5. Dividends IFRS does not permit dividends to be accrued where they have not been approvedat the balance sheet date. Under current practice, therefore, the final dividendwill not be provided for until approved at the annual general meeting whilst theinterim dividend will now not be provided for until it has been approved by theBoard. 2.8.6. Retirement Obligations Retirement obligations are required to be shown separately within long-termliabilities. 3.0 Summary of the Impact on 2004 of moving to IFRS from UKGAAP Before goodwill Goodwill Total amortisation and amortisation and exceptional exceptional items items £m £m £m Profit after tax for the year ended31 December 2004As reported under UK GAAP 159 421 580IAS 19 - post employmentobligations:Trading profit 55 - 55Financing cost (29) - (29)Deferred tax (12) - (12)Share based payments (3) - (3)Lower amortisation of NRCs 1 - 1Amortisation of purchased intangibleassets (1) - (1)Deferred tax 2 - 2Amortisation of goodwill writtenback:Subsidiaries - 23 23Joint ventures - continuing - 1 1Joint ventures - discontinued 5 5Impairment of goodwill - (12) (12)Adjustment to profit on sale ofAgustaWestland:Change in share of equity followingapplication of IFRS - 57 57Deferred tax on properties sold - 9 9Realisation of cumulative currencyadjustment - (4) (4)Non recycling of goodwill writtenoff to reserves on original acquisition - 100 100 ---------- ---------- ------As reported under IFRS 172 600 772 ---------- ---------- ------ Net assets 31 December 1 January------------ 2004 2004 £m £mAs reported under UK GAAP 1,490 942Retirement benefit obligations:Increase in liability under IAS 19 (588) (678)Write off of SSAP 24 prepayment (198) (93)Deferred tax relating to pensionliability 184 203NRC restatement on transition toIFRS (12) (13)Change in equity value of jointventuresAgustaWestland - (55)Fair value adjustments (1) (1)Increase in net deferred taxliability (15) (28)Goodwill amortisation written back 23 -Impairment of goodwill (12) -Fair value adjustments (1) -Provision for final dividend writtenback 58 57 ---------- ------As reported under IFRS 928 334 ---------- ------ 4.0 2005 Financial Statements 4.1 IAS 32 and 39 In addition to the adjustments noted above, 2005 will see the application of IAS32 and 39 - Financial Instruments. These require certain financial instruments to be recognised at fair value atthe balance sheet date with changes in value taken through the Income Statement.This introduces the potential for considerable volatility into the reportedprofit unless hedge accounting is used. The Group policy will be to continue to hedge foreign exchange transactions anda percentage of its overseas net assets. It is expected that translationalhedges of the Group's overseas assets will be reported using hedge accounting.We will continue to review the use of transactional hedge accounting. IAS 32 and 39 comparative figures for 2004 are not required and have not beenprepared. It is not possible to predict the impact of these standards on futureaccounting periods. 4.2 Other Changes The application and interpretation of IFRS continues to evolve and it may bethat further refinements will be required to the 2004 results when the audited2005 financial statements are prepared. However, it is not considered likelythat such changes will be material. 5.0 Conclusion The application of IFRS to GKN's 2004 results has had a beneficial impact onreported profits, largely through the changed treatment of pensions and otherpost-employment benefits. At the same time net assets have been reduced by thefull recognition of related liabilities on the balance sheet. Looking forward, the application of IAS 32 and 39 will introduce more volatilityand unpredictability into the Income Statement and, to the extent hedgeaccounting is not adopted, we will isolate and explain the impact on the Group'sresults. Appendix Contents Page Basis of preparation and changed accounting policies 11-12 Reconciliation of consolidated income statement for the year ended 1331 December 2004 from UK GAAP to IFRS Reconciliation of transition date consolidated balance sheet (1January 2004) 14from UK GAAP to IFRS Reconciliation of consolidated balance sheet at 31 December 2004 15from UK GAAP to IFRS Statement of recognised income and expense for the year ended 31December 2004 16 Reconciliation of cash flow statement for the year ended 31 December2004 17from UK GAAP to IFRS Reconciliation of cash generated from operations for the year ended 1831 December 2004 Notes to financial statement reconciliations - analysis of adjustments 19-20 Segmental analysis of sales and profit under IFRS for the year ended 2131 December 2004 Income statement for the year ended 31 December 2004: UK GAAP in IFRSformat 22 Balance sheet at 31 December 2004: UK GAAP in IFRS format 23 Basis of preparation and changed accounting policies These unaudited extracts from the financial statements have been prepared toshow the impact on GKN's 2004 results of moving from UK GAAP to InternationalFinancial Reporting Standards ("IFRS"). They exclude the impact of IAS32 andIAS39 which are not applicable until 1 January 2005. UK GAAP information hasbeen extracted from the Group's audited accounts for the year ended 31 December2004 which contain an unqualified audit opinion. They consolidate the accounts for the year to 31 December 2004 of the companyand its subsidiaries unless those subsidiaries are subject to severe long-termrestrictions on the ability of the Group to control them. There have been nochanges to the companies consolidated or their status from UK GAAP. Transitional Arrangements Rules regarding transitional arrangements are set out in IFRS 1 which generallyrequires full retrospective adoption of all accounting standards effective atthe reporting date. There are, however, certain permitted exceptions in relationto business combinations and fixed assets carried at cost or earlier valuationsand the Group has taken advantage of these. Accounting Policies The implementation of IFRS has resulted in a number of changes in accountingpolicies. The main amended policies are summarised below. Research and Development Costs Research expenditure is written off as incurred. Where development expenditure results in new or substantially improved productsor processes and it is probable that recovery will take place, it is capitalisedand amortised over the product's life up to a maximum of 7 years in Automotiveand 15 years in Aerospace starting from the date on which serial productioncommences. Costs are capitalised as intangible unless physical assets, such astooling, exist when they are classified as tangible fixed assets. Computer Software Costs Where computer software costs are capitalised they are categorised as intangibleassets. The amortisation period is from 3-5 years, as under UK GAAP. Taxation Full provision is made for deferred tax on all temporary timing differencesresulting from the difference between the carrying value of an asset orliability and its tax base. Deferred tax assets are recognised to the extent that it is probable that thedeferred tax asset will be recovered in future. In particular, at 31 December2004 an asset of £184m (2003- £203m) has been recognised in respect ofpost-employment benefit obligations. No deferred tax is recognised on the unremitted profits of overseas branches,subsidiaries and joint ventures except to the extent that the parent is unableto control the timing of any future profit remittances by the overseas entityand it is probable that a future remittance will take place. Pensions and Other Post-Employment Benefits The Group's pension arrangements comprise various defined benefit and definedcontribution schemes throughout the world. In the UK and in certain overseascompanies pension arrangements are made through externally funded definedbenefit schemes, the contributions to which are based on the advice ofindependent actuaries or in accordance with the rules of the schemes. In otheroverseas companies funds are retained within the business to provide forretirement obligations. The Group also operates a number of defined contribution pension schemes andretirement plans which provide certain employees with defined post-employmenthealthcare benefits. The Group accounts for all post-employment defined benefits schemes through fullrecognition of the schemes' surpluses or deficits on balance sheet at the end ofeach year. Actuarial gains and losses are included in the statement ofrecognised income and expense. Current service costs are recognised withinoperating profit. Returns on scheme assets and interest on obligations arerecognised as a component of finance costs. Share Based Payments Share options granted to employees since 7 November 2002 are valued at the dateof grant using an appropriate option pricing model and are charged to operatingprofit over the performance or vesting period of the scheme. The annual chargeis modified to take account of shares forfeited by employees who leave duringthe performance or vesting period and, in the case of non-market relatedperformance conditions, where it becomes unlikely the option will vest. Companies Acquired The opening fair value of businesses acquired since 1 January 2004 includes anassessment of the value of certain intangible assets. Such assets are amortisedover their useful lives. Any residual goodwill is not amortised but is subjectto an annual impairment review. Cash and Cash Equivalents Cash and cash equivalents comprise cash and bank deposits and overdraftstogether with short-term, highly liquid investments. Reconciliation of consolidated income statement for the year ended 31 December 2004 Under IFRS (unaudited) --------------------------- Before Under Adjustments significant Significant Notes UK GAAP (unaudited) Total items items* £m £m £m £m £mSalesContinuingsubsidiaries 1 3,484 (3) 3,481 3,481 - ------- -------- ------ ------- -------- Operating profit / (loss)Trading profit 2 162 53 215 215 -Goodwill amortisation 3 (23) 23 - - -Amortisation of purchasedintangibles 4 - (1) (1) (1) -Goodwill impairment andrestructuringcosts 5 (250) (12) (262) - (262)Profit on saleof businesses 6 24 - 24 - 24 ------- -------- ------ ------- -------- (87) 63 (24) 214 (238) ------- -------- ------ ------- -------- Financing costsInterest payable and similarcharges (69) - (69) (69) -Finance cost of net pensionliability 7 - (29) (29) (29) -Interest receivable 23 - 23 23 - ------- -------- ------ ------- --------Total financing costs (46) (29) (75) (75) - ------- -------- ------ ------- -------- Share of post tax earningsof continuing joint venturesand associated company 3 15 1 16 16 - ------- -------- ------ ------- --------Loss before tax fromcontinuing operations (118) 35 (83) 155 (238) Taxation 8 (22) (10) (32) (45) 13 ------- -------- ------ ------- --------Loss from continuingoperations (140) 25 (115) 110 (225) ------- -------- ------ ------- -------- Discontinued operationsShare of post tax earningsof joint ventures 3 57 5 62 62 -Profit on disposal ofjoint ventures, after tax 9 663 162 825 - 825 ------- -------- ------ ------- --------Profit from discontinuedoperations 720 167 887 62 825 ------- -------- ------ ------- -------- ------- -------- ------ ------- --------Profit for the year 580 192 772 172 600 ------- -------- ------ ------- -------- Profit attributable to minorityinterests 3 - 3 3 -Profit attributable to equityshareholders 577 192 769 169 600 ------- -------- ------ ------- -------- 580 192 772 172 600 ------- -------- ------ ------- -------- Earnings per share - pTotalBasic 78.8 26.2 105.0Diluted 78.4 26.1 104.5Continuing operationsBasic (19.5) 3.4 (16.1)Diluted (19.4) 3.4 (16.0) *Significant items are those which, because of size or incidence, require separatedisclosure to enable underlying trading performance to be assessed. They compriserestructuring costs and profits on sale of businesses which were classified asexceptional items in the 2004 UK GAAP accounts. Reconciliation of transition date consolidated balance sheet (1 January 2004) Notes Under Adjustments Under IFRS UK GAAP (unaudited) (unaudited)Assets £m £m £mNon-current assetsGoodwill 10 340 - 340Intangible assets 11 - 34 34Property, plant and equipment 12 1,329 17 1,346Investments in joint ventures andassociatedcompany accounted forunder the equity method 13 286 (56) 230Other investments 6 - 6Deferred tax assets 14 6 221 227Other receivables 15 114 (93) 21 -------- --------- -------- 2,081 123 2,204 -------- --------- --------Current assetsInventories 16 487 (64) 423Trade and other receivables 510 - 510Cash and cash equivalents 131 - 131 -------- --------- -------- 1,128 (64) 1,064 -------- --------- -------- Total assets 3,209 59 3,268 -------- --------- -------- LiabilitiesCurrent liabilitiesBorrowings (37) - (37)Trade and other payables andprovisions 17 (759) (8) (767)Current tax liabilities (166) - (166)Dividend payable 18 (57) 57 - -------- --------- -------- (1,019) 49 (970) -------- --------- --------Non-current liabilitiesBorrowings (887) - (887)Deferred tax liabilities 19 (50) (46) (96)Post-employment benefit obligations 20 (233) (678) (911)Provisions for other liabilitiesand charges 21 (78) 8 (70) -------- --------- -------- (1,248) (716) (1,964) -------- --------- -------- Total liabilities (2,267) (667) (2,934) -------- --------- -------- Net assets 942 (608) 334 -------- --------- -------- EquityOrdinary shares 367 - 367Share premium 14 - 14Other reserves 22 (56) (20) (76)Retained earnings 601 (588) 13 -------- --------- --------Total shareholders' equity 926 (608) 318Minority interests in equity 16 - 16 -------- --------- --------Total equity 942 (608) 334 -------- --------- -------- Reconciliation of consolidated balance sheet at 31 December 2004 Notes Under Adjustments Under IFRS UK GAAP (unaudited) (unaudited) £m £m £mAssetsNon-current assetsGoodwill 10 197 11 208Intangible assets 11 - 44 44Property, plant and equipment 12 1,278 9 1,287Investments in joint venturesaccounted for 13 95 (1) 94under the equity methodOther investments 7 - 7Deferred tax assets 14 6 193 199Other receivables 15 208 (198) 10 -------- --------- --------- 1,791 58 1,849 -------- --------- ---------Current assetsInventories 16 507 (64) 443Trade and other receivables 577 - 577Cash and cash equivalents 860 - 860 -------- --------- --------- 1,944 (64) 1,880 -------- --------- --------- Total assets 3,735 (6) 3,729 -------- --------- --------- LiabilitiesCurrent liabilitiesBorrowings (54) - (54)Trade and other payables andprovisions 17 (834) (9) (843)Current income tax liabilities (128) - (128)Dividend payable 18 (58) 58 - -------- --------- --------- (1,074) 49 (1,025) -------- --------- ---------Non-current liabilitiesBorrowings (741) - (741)Deferred tax liabilities 19 (60) (24) (84)Post employment benefit obligations 20 (266) (588) (854)Provisions for other liabilitiesand charges 21 (104) 7 (97) -------- --------- --------- (1,171) (605) (1,776) -------- --------- --------- Total liabilities (2,245) (556) (2,801) -------- --------- --------- Net assets 1,490 (562) 928 -------- --------- --------- EquityOrdinary shares 368 - 368Share premium 15 - 15Other reserves 22 (44) (17) (61)Own shares (30) - (30)Retained earnings 1,151 (545) 606 -------- --------- ---------Total shareholders' equity 1,460 (562) 898Minority interests in equity 30 - 30 -------- --------- ---------Total equity 1,490 (562) 928 -------- --------- --------- Statement of recognised income and expense for the year ended 31 December2004 Under Adjustments Under IFRS UK GAAP (unaudited) (unaudited) £m £m £m Currency variations (31) 3 (28)Unrealised gain arising on change instatus of associate 2 - 2Actuarial losses arising on retirementbenefit obligations, net of deferred tax - subsidiaries - (50) (50) - joint ventures - (7) (7)Share based payments - 3 3 -------- --------- --------Net losses not recognised in incomestatement (29) (51) (80)Profit attributable to equityshareholders 577 192 769 -------- --------- --------Total recognised income for the year 548 141 689Dividends (86) 1 (85)Issue of ordinary shares net of costs 2 - 2Purchase of own shares into treasury (30) - (30)Goodwill previously written off toreserves 100 (100) -Cumulative currency difference realisedon disposal of AgustaWestland - 4 4 -------- --------- -------- 534 46 580Shareholders' equity at 1 January 2004 926 (608) 318 -------- --------- --------Shareholders' equity at 31 December 2004 1,460 (562) 898 -------- --------- -------- Reconciliation of cash flow statement for the year ended 31 December 2004 Under Adjustments UnderIFRS UKGAAP (unaudited) (unaudited) £m £m £mCash flow from operating activitiesCash generated from operations 179 14 193Interest received 21 - 21Interest paid (67) - (67)Tax paid (47) - (47)Dividends received from joint ventures 10 - 10 -------- --------- --------Net cash from operating activities 96 14 110 -------- --------- -------- Cash flow from investing activitiesAcquisitions of subsidiaries (15) - (15)Acquisitions of joint ventures (8) - (8)Proceeds from sale of property, plant andequipment 8 (1) 7Purchase of property, plant, equipmentand intangible assets (184) (13) (197)Proceeds from sale of subsidiaries 29 - 29Proceeds from sale of joint ventures 1,039 - 1,039Investment loans and capitalcontributions (1) - (1) -------- --------- --------Net cash used in investing activities 868 (14) 854 -------- --------- -------- Cash flow from financing activitiesNet proceeds from issue of share capital 2 - 2Purchase of own shares into treasury (30) - (30)Finance lease payments (1) - (1)Repayment of borrowings (127) - (127)Dividends paid to shareholders (86) - (86)Dividends paid to minority interests (1) - (1) -------- --------- --------Net cash used in financing activities (243) - (243) -------- --------- -------- Effect of exchange rate changes (3) - (3) -------- --------- -------- Net increase in cash and cash equivalents 718 - 718Cash and cash equivalents at 1 January2004 109 - 109 -------- --------- --------Cash and cash equivalents at 31 December2004 827 - 827 -------- --------- -------- Reconciliation of cash generated from operations for the year ended 31 December2004 Under Adjustments UnderIFRS UKGAAP (unaudited) (unaudited)Continuing operations £m £m £mCash generated from operationsLoss fromcontinuingoperations (140) 25 (115)Adjustments for: Tax 22 10 32 Depreciation and amortisation 160 10 170 Goodwill amortisation 23 (23) - Profit on sale of businesses (24) - (24) Impairment of goodwill 100 12 112 Impairment of property, plant and equipment 104 - 104 Charge for share based payments - 3 3 Interest receivable (23) - (23) Interest payable and similar charges 69 - 69 Share of post tax earnings of joint ventures (15) (1) (16)Decrease inpost-employmentobligations - (120) (120)Changes in working capital: Increase in inventories (20) 2 (18) Decrease in receivables 6 5 11 Additional advance UK pension scheme funding (100) 100 - Increase in payables 17 (9) 8 -------- --------- --------- 179 14 193 -------- --------- --------- There was no cash generated from discontinued activities which were all jointventures accounted for under the equity method. Notes to financial statement reconciliations - analysis of adjustments £m 1 Sales Cash discounts allowed re-classified from cost of sales (3) --------- 2 Trading profit Reduction in pension charge 55 Share based payments (3) Reduction in amortisation of Aerospace non-recurring costs 1 --------- 53 --------- 3 Goodwill amortisation in continuing operations Goodwill amortisation not charged under IFRS: Subsidiaries 23 Share of joint ventures 1 --------- 24 --------- Goodwill amortisation in discontinued operations 5 --------- 4 Amortisation of purchased intangibles Arising on businesses acquired in the year (1) --------- 5 Goodwill impairment and restructuring costs Impairment of goodwill written back per note 3 above (12) --------- 6 Profit on sale of businesses Profit on sale of business within continuing operations shown as 24 exceptional items under UK GAAP --------- 7 Finance cost on net pension liability Expected return on pension scheme assets 106 Interest on pension scheme obligations (135) --------- (29) --------- 8 Taxation Deferred tax on post-employment obligation adjustment (12) Timing differences 2 --------- (10) --------- 9 Profit on disposal of joint ventures after tax Change in equity value of AgustaWestland following adoption of IFRS 57 Goodwill written off directly to reserves on original acquisition, not required to be recycled through profit under IFRS 100 Cumulative currency differences realised on disposal (4) Deferred tax release on properties sold 9 --------- 162 --------- Notes to financial statement reconciliations - analysis of adjustments (continued) As at As at 31December 1January 2004 2004 £m £m10 Goodwill Goodwill written off in 2004 under UK GAAP and reinstated under IFRS 23 - Less: value impaired (12) - --------- --------- 11 - --------- ---------11 Intangible assets Aerospace non-recurring costs transferred from inventories 38 36 Less: restatement (12) (13) --------- --------- 26 23 Computer software transferred from property, plant and equipment 14 11 Intangible assets arising on acquisition in the 4 - year --------- --------- 44 34 --------- ---------12 Property, plant and equipment Non-recurring costs and tooling transferred from inventories 26 28 Computer software transferred to intangible assets (14) (11) Fair value adjustments on acquisitions in the (3) - year --------- --------- 9 1713 Investments in joint ventures and associated company accounted for under the equity method AgustaWestland - (55) Other (1) (1) --------- --------- (1) (56) --------- ---------14 Deferred tax assets Relating to post-employment pension obligation 184 203 Fixed assets (87) 8 Other temporary timing differences 66 6 Losses 30 4 --------- --------- 193 221 --------- ---------15 Other receivables Write-off of SSAP 24 prepayment (198) (93) --------- --------- 16 Inventories Transfers to: Intangible assets (non-recurring costs in (38) (36) Aerospace) Property, plant and equipment (26) (28) --------- --------- (64) (64) --------- ---------17 Trade and other payables and provisions Reclassification of provisions due within one year (9) (8) --------- --------- 18 Dividend payable Provision for final dividend reversed 58 57 --------- --------- 19 Deferred tax liabilities Fixed assets 35 (64) Other temporary timing differences (33) 16 Losses (26) 2 --------- --------- (24) (46) --------- --------- 20 Post-employment obligations Recognition of post-employment obligations on an IAS 19 basis (588) (678) --------- --------- 21 Provisions for other liabilities and charges Reclassification to current liabilities 9 8 Fair value adjustments on acquisition in the year (2) - --------- --------- 7 8 --------- ---------22 Other reserves Deferred tax liability on properties fair valued on acquisition (20) (21) Share based payments 3 1Related Shares:
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