28th Jun 2005 07:01
Restaurant Group PLC28 June 2005 The Restaurant Group plc Impact of the adoption of International Financial Reporting Standards The Restaurant Group plc ("TRG", or "the Company" or "the Group") todayannounces that it has completed preparations to adopt International FinancialReporting Standards ("IFRS"). For accounting periods commencing from 1 January2005, TRG will prepare consolidated accounts in line with IFRS. As part of thetransition to IFRS, TRG today presents its comparative information for the fullyear to 31 December 2004 under IFRS. Results for the full year to 31 December2004 under UK GAAP are available from the company's website, www.trgplc.com. This announcement provides explanations and reconciliations from UK GAAP to IFRSfor the year to 31 December 2004. The primary changes to TRG's reportedfinancial information were highlighted at the time of the preliminaryannouncement made on 9 March 2005: • Consolidation of the results of DPP Restaurants Limited with effect from 31 December 2004• Recognition of a relatively small number of building leases as finance leases• Recognition of the expense of share based payments For the year ended 31 December 2004, the impact on profit from the adoption ofIFRS would be to reduce profit before tax by £0.9m, or 4% and reduce profitafter tax by £0.8m, or 5%. Net assets would be increased by £5.0m, or 7%. Themain item impacting on profit is a one-off goodwill impairment charge arising asa result of the requirement to consolidate the balance sheet of DPP. Excludingthis the effect would be to reduce profit before tax by 1.5%. Stephen Critoph, Finance Director, said of the transitional adjustments; "The Restaurant Group plc has concluded its transitional arrangements to IFRS.There is no change to the operating fundamentals and strong cash flowcharacteristics of the business. These accounting changes have only a minorimpact on previously reported profit after tax." A CONFERENCE CALL FOR ANALYSTS WILL BE HELD AT 3.00 PM ON 28 JUNE 2005. PLEASECONTACT JAMIE RAMSAY AT COLLEGE HILL FOR DETAILS. 28 June 2005 Enquiries: The Restaurant Group plcStephen Critoph (Finance Director) 020 7747 7750Robert Morgan (Group Finance Manager) College HillMatthew Smallwood 020 7457 2020 Introduction The Restaurant Group plc has historically prepared its accounts under UKGenerally Accepted Accounting Practice ("UK GAAP"). For accounting periodscommencing after 1 January 2005, TRG will prepare consolidated accounts underInternational Financial Reporting Standards ("IFRS"). The first results to beissued under IFRS will be the interim financial statements for the six months to30 June 2005. The first full set of financial statements to be issued underIFRS will be for the year to 31 December 2005. This announcement provides the adjusted consolidated balance sheet and profitand loss account for TRG for the comparative periods to 31 December 2004,together with the reconciliation from UK GAAP to IFRS. It also sets out thematerial accounting policy changes from those set out in the UK GAAP financialstatements for the year ended 31 December 2004. The figures in this document are based on those IFRS expected to be applicableat 31 December 2005 and the interpretation of those standards. IFRS are subjectto possible amendment by and interpretive guidance from the InternationalAccounting Standards Board ("IASB") as well as on-going endorsement and reviewby the EU and are, therefore, still subject to further change. Therefore thesefigures may require amendment before their inclusion in the IFRS financialstatements for the six months to 30 June 2005 and year to 31 December 2005. Relationship to statutory accounts The financial information presented in this document is unaudited and does notcomprise statutory accounts within the meaning of section 240 of the CompaniesAct 1985. The statutory accounts for the year ended 31 December 2004, on whichthe auditors have issued an unqualified report, have been delivered to theRegistrar of Companies. IFRS 1: First time adoption choices IFRS 1, "First-time Adoption of International Financial Reporting Standards"sets out the procedures that the Group must follow when it adopts IFRS for thefirst time as the basis for preparing its consolidated financial statements. TheGroup is required to establish its IFRS accounting policies as at 31 December2005 and, in general, apply these retrospectively to determine the IFRS openingbalance sheet at its date of transition, 1 January 2004. This standard provides a number of optional exceptions to this generalprinciple. Set out below is a description of the significant first time adoptionchoices made by the Group. a) Business combinations before the date of transition (IFRS 3, "BusinessCombinations") The Group has elected not to apply IFRS 3 retrospectively to businesscombinations that took place before the date of transition. As a result, in theopening balance sheet, goodwill arising from past business combinations (£50.4million) remains written off to reserves as stated at 1 January 2004. b) Share-based Payments (IFRS 2, "Share-based Payment") The Group has elected to apply IFRS 2 only to relevant share based paymenttransactions granted after 7 November 2002. As further share options aregranted this will have an impact on the level of charge under IFRS 2. c) Financial Instruments (IAS 39, "Financial Instruments: Recognition andMeasurement" and IAS 32, "Financial Instruments: Disclosure and Presentation") In accordance with the permitted transition arrangements, TRG will adopt IAS 32and IAS 39 from 1 January 2005. These standards set out the accounting rulessurrounding the recognition, measurement, disclosure and presentation offinancial instruments. TRG holds two interest rate swaps to assist managementof risk, which are detailed below. Presentation of Financial Information The primary statements within the financial information contained in thisannouncement have been presented in accordance with IAS 1, "Presentation ofFinancial Statements". However, this format and presentation may requiremodification as practice develops and in the event that further guidance isissued. Key impacts a) Deep Pan Pizza - consolidation as a subsidiary under IFRS In December 2001 TRG disposed of the Deep Pan Pizza business for a considerationof £3.3 million of which £1 million was paid on completion with the balance tobe paid on a deferred basis. Since then, a further £1.8 million has beenreceived, leaving an outstanding balance of £0.5 million. The business was soldto a new company, DPP Restaurants Limited ("DPP"), which has traded as Deep PanPizza. DPP faced a challenging trading environment during the latter part of2004 and sought to counter this through a programme of estate rationalisation,and in so far as its financial resources have permitted, by investing in andrefreshing some restaurants. On 17 November 2004 TRG announced that it had deferred settlement of theoutstanding consideration due from DPP and had taken a warrant whichincorporates an option (exercisable in certain specified circumstances) toconvert its outstanding £0.5 million deferred consideration balance into new DPPordinary shares at par. The option became exercisable on 31 December 2004 butTRG has currently chosen not to convert the warrant. If TRG were to exercise itsoption it would gain full control of DPP. As the option became exercisable on 31 December 2004, under IFRS the balancesheet for DPP is required to be consolidated although TRG does not have controlof that company. Under IAS 27, the Group is required to consolidate the resultsand balance sheet of DPP, regardless of whether the option has been exercised ornot. Under IFRS, there is a requirement that if a company can exercisetheoretical control over another entity through an option, it should consolidatethe entity concerned. IAS 27 specifically notes that the intentions ofmanagement and the financial ability to exercise control are not considered inassessing whether potential voting rights constitute control. Following theconsolidation of DPP, goodwill of £0.6m has been written off through the profitand loss account. This is a one-off charge, recognised at the theoretical timeof acquisition under IFRS. TRG's 2005 results will be impacted by this requirement of IFRS, with theresults of DPP consolidated as a subsidiary. Under IAS 27, TRG will be requiredto consolidate 100% of the result of DPP, despite only holding a 19.9% stake inthat company. b) Share-based payments IFRS 2, "Share-based Payment" requires that an expense for equity instrumentsgranted is recognised in the financial statements based on their fair value atthe date of grant. This expense, which is primarily in relation to employeeoption and performance share schemes, is recognised over the vesting period ofthe scheme. As previously mentioned, IFRS 2 allows the measurement of this expense to becalculated only on options granted after 7 November 2002. The Group hasprincipally adopted the Stochastic model for the purposes of computing fairvalue under IFRS. The additional pre-tax charge arising from the adoption of IFRS 2 on the Group'sincome statement is £0.2m for the year ended 31 December 2004. Following thegrant of further options to employees and directors of the Group there will be ahigher charge in the results of 2005. c) Leases IAS 17, "Leases" requires that the land element of leases on land and buildingsis considered separately for the purposes of determining whether the lease is afinance or operating lease. A majority of the Group's buildings are on leases of 25 years or less which maybe classified as operating leases under IFRS. This treatment is consistent withUK GAAP. There are a small number of leases greater than 25 years and wherethere is an element of financing built into the rental payment cycle where thebuildings elements of the leases have been reclassified as finance leases basedon the criteria set out in IAS 17. As a result, the Group's IFRS balance sheet at 31 December 2004 includesadditional tangible fixed assets of £2.8m and additional finance leaseobligations of £4.4m included within current and non-current borrowings. Themain impact on the income statement is that the operating lease payment chargedto operating profit under UK GAAP is replaced with a depreciation charge of theasset (in operating profit) and a financing charge (interest expense). Whilstthe total charge for a lease over the life of the lease will be the same underUK GAAP and IFRS, the profile of the charge is different, with the charge beingmore front loaded under IFRS. The net pre-tax impact on the income statement isa further charge of £0.1m for the year ended 31 December 2004. d) Dividends - period of recognition IAS 10, "Events after the Balance Sheet Date" requires that dividends declaredafter the balance sheet date should not be recognised as a liability at thatbalance sheet date as the liability does not represent a present obligation asdefined by IAS 37, "Provisions, Contingent Liabilities and Contingent Assets".Accordingly TRG has reversed dividends provided for at each respective balancesheet date. The proposed final dividend accrued for the year ended 31 December 2004 of £7.3mhas been reversed in the IFRS balance sheet as at 31 December 2004 and,following approval by shareholders at the Annual General Meeting held on 25 May2005, will be charged against reserves in 2005. e) Financial instruments IAS 32, "Financial Instruments: Disclosure and Presentation" and IAS 39"Financial Instruments: Recognition and Measurement" address the accounting for,and reporting of, financial instruments. IAS 39 sets out detailed accountingrequirements in relation to financial assets and liabilities. All derivativefinancial instruments are accounted for at fair market value whilst otherfinancial instruments are accounted for either at amortised cost or at fairvalue depending on their classification. As noted above, in the transition to IFRS the implementation of IAS 32 and IAS39 has been deferred to 1 January 2005. The Group currently holds two interest rate swaps, both of which were enteredinto on 16 January 2003 for a period of three years, terminating on 15 January2006. One interest rate swap is for a notional amount of £20,000,000, fixed at4.55% per annum for a period of three years. The second interest rate swap isfor a further notional amount of £20,000,000, fixed at 4.395% per annum for aperiod of three years. The second interest rate swap also provides thecounterparty with the right, but not the obligation, to enter into a furthertransaction to renew the interest rate swap on £20,000,000 at 4.395% for afurther two years, terminating on 15 January 2008. The fair value of these swaps is required to be recognised on the balance sheet.Movements in fair value will be recognised in the profit and loss account. Inaccordance with the transitional arrangements under IFRS, the opening balancesheet will include the market value of the swaps, which results in an asset of£127,000 as at 1 January 2005, with a resultant increase in reserves. f) Deferred taxation Under IFRS, TRG has included a deferred tax liability in respect of capitalgains that have been rolled over into replacement assets. Under UK GAAP it wasnot necessary to provide for this. The Group has also accounted for deferred tax for the share option charge. Thishas resulted in the recognition of a deferred tax asset. Where the deferred taxcredit to be recorded in the profit and loss account has exceeded 30% of thecumulative share option charge under IFRS 2, the remaining deferred tax credithas been taken directly to equity. The deferred tax asset has been recognisedin full. The Restaurant Group plc International Financial Reporting Standards Consolidated income statement reconciliation at 31 December 2004 (unaudited) UK GAAP UK GAAP UK GAAP IFRS Before Exceptional Total (IFRS Total Results exceptional items format) adjustments items £000 £000 £000 £000 £000 Revenue 255,446 - 255,446 - 255,446 Cost of salesExcluding pre-opening costs (212,357) - (212,357) 356 (212,001)Pre-opening costs (948) - (948) - (948) (213,305) - (213,305) 356 (212,949) Gross profit 42,141 - 42,141 356 42,497 Administration costsExcluding one-off items (16,237) - (16,237) (190) (16,427)Recovered aborted bid costs - 457 457 - 457 (16,237) 457 (15,780) (190) (15,970) Trading profit 25,904 457 26,361 166 26,527 Loss on sale of business - (500) (500) - (500)Impairment of goodwill - - (588) (588)Loss and provision for loss on disposal of tangible - (2,554) (2,554) - (2,554)fixed assets Operating profit 25,904 (2,597) 23,307 (422) 22,885 Net finance charges (1,179) - (1,179) (488) (1,667) Profit before tax 24,725 (2,597) 22,128 (910) 21,218 Tax on profit on ordinary activities (7,747) 708 (7,039) 97 (6,942) Profit for the financial period 16,978 (1,889) 15,089 (813) 14,276 Attributable to:Equity shareholders 16,978 (1,889) 15,089 (813) 14,276Minority interests - - - - - 16,978 (1,889) 15,089 (813) 14,276 The Restaurant Group plc International Financial Reporting Standards Consolidated balance sheet reconciliation at 31 December 2004 (unaudited) UK GAAP IFRS Total adjustments balance sheet £000 £000 £000Non-current assetsIntangible assets - - -Property, plant and equipment 149,683 5,167 154,850Investment property - - -Investment in associates - - -Trade and other receivables - - - 149,683 5,167 154,850Current assetsStocks 2,437 184 2,621Trade and other receivables 4,459 (728) 3,731Prepayments 10,065 547 10,612Income tax - - -Financial assets - derivative financial - - -instrumentsCash and cash equivalents 482 - 482 17,443 3 17,446 Total assets 167,126 5,170 172,296 Current liabilitiesShort-term borrowings (4,776) (358) (5,134)Income tax liabilities (5,531) - (5,531)Trade and other payables (62,247) 4,535 (57,712)Provisions (72,554) 4,177 (68,377) Net current liabilities (55,111) 4,180 (50,931) Non-current liabilitiesLong-term borrowings (7,000) (4,431) (11,431)Other payables - - -Deferred tax liabilities (16,092) 367 (15,725)Post employment benefits - - -Provisions (625) - (625) (23,717) (4,064) (27,781) Net assets 70,855 5,283 76,138EquityShare capital 54,087 - 54,087Share premium 19,422 - 19,422Foreign currency reserve 245 - 245Other reserves - 256 256Retained earnings (2,899) 5,027 2,128Total equity shareholders' interests 70,855 5,283 76,138Minority interests - - -Total equity 70,855 5,283 76,138 The Restaurant Group plc International Financial Reporting Standards Consolidated income statement reconciliation at 31 December 2004 (unaudited) UK GAAP UK GAAP UK GAAP IAS 27 IFRS 2 IAS 17 IAS 10 IAS 12 IFRS Reclassify (IFRS DPP Share Leases Dividend Deferred Deferred Total Total detail format) adjustment based tax - tax - adjustments payments rolled share over options gains £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 Revenue 255,446 255,446 - 255,446 Cost of salesExcluding (212,357) (212,357) 356 356 (212,001)pre-openingcostsPre-opening (948) (948) - (948)costs (213,305) - (213,305) - - 356 - - - 356 (212,949) Gross profit 42,141 - 42,141 - - 356 - - - 356 42,497 AdministrationcostsExcluding (16,237) (16,237) (190) (190) (16,427)one-off itemsRecovered 457 457 - 457aborted bidcosts (15,780) - (15,780) - (190) - - - - (190) (15,970) Trading profit 26,361 - 26,361 - (190) 356 - - - 166 26,527 Loss on sale (500) (500) - (500)of businessImpairment of - (588) (588) (588)goodwillLoss and (2,554) (2,554) - (2,554)provision forloss ondisposal oftangible fixedassets Operating 23,307 - 23,307 (588) (190) 356 - - - (422) 22,885profit Net finance (1,179) (1,179) (488) (488) (1,667)charges Profit before 22,128 - 22,128 (588) (190) (132) - - - (910) 21,218tax Tax on profit (7,039) (7,039) 40 57 97 (6,942)on ordinaryactivities Profit for the 15,089 - 15,089 (588) (190) (92) - - 57 (813) 14,276financialperiod Attributableto:Equity 15,089 - 15,089 (588) (190) (92) - - 57 (813) 14,276shareholdersMinority -interests 15,089 - 15,089 (588) (190) (92) - - 57 (813) 14,276 The Restaurant Group plc International Financial Reporting Standards Consolidated balance sheet reconciliation at 31 December 2003 (unaudited) UK GAAP UK GAAP UK GAAP IAS 27 IFRS 2 IAS 17 IAS 10 IAS 12 IFRS Reclassify (IFRS DPP Share Leases Dividend Deferred Deferred Total balance detail format) adjustment based tax - tax - adjustments sheet payments rolled share over options gains £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000Non-currentassetsIntangible - - - -assetsProperty, plant 146,220 146,220 2,846 2,846 149,066and equipmentInvestment - - - -propertyInvestment in - - - -associatesTrade and other - - - -receivables 146,220 - 146,220 - - 2,846 - - - 2,846 149,066Current assetsStocks 2,508 2,508 - 2,508Trade and other 15,999 (10,331) 5,668 - 5,668receivablesPrepayments - 10,331 10,331 - 10,331Income tax - - - -Financial assets - - - -- derivativefinancialinstrumentsCash and cash 526 526 - - 526equivalents 19,033 - 19,033 - - - - - - - 19,033 Total assets 165,253 - 165,253 - - 2,846 - - - 2,846 168,099 CurrentliabilitiesShort-term (3,689) (3,689) - (3,689)borrowingsIncome tax (4,565) (4,565) - (4,565)liabilitiesTrade and other (62,650) 8,254 (54,396) 6,198 6,198 (48,198)payablesProvisions - - - (62,650) - (62,650) - - - 6,198 - - 6,198 (56,452) Net current (43,617) - (43,617) - - - 6,198 - - 6,198 (37,419)liabilitiesNon-currentliabilitiesLong-term (35,000) (35,000) (4,368) (4,368) (39,368)borrowingsOther payables - - -Deferred tax (16,772) (16,772) 457 (520) 78 15 (16,757)liabilitiesPost employment - - -benefitsProvisions (687) (687) - (687) (52,459) - (52,459) - - (3,911) - (520) 78 (4,353) (56,812) Net assets 50,144 - 50,144 - - (1,065) 6,198 (520) 78 4,691 54,835EquityShare capital 48,576 48,576 - 48,576Share premium 10,192 10,192 - 10,192Foreign currency 281 281 - 281reserveP&L reserve - - 66 66 66share basedpaymentsRetained (8,624) (281) (8,905) (66) (1,065) 6,198 (520) 78 4,625 (4,280)earningsTotal equity 50,144 - 50,144 - - (1,065) 6,198 (520) 78 4,691 54,835shareholders'interestsMinority - - -interestsTotal equity 50,144 - 50,144 - - (1,065) 6,198 (520) 78 4,691 54,835 The Restaurant Group plc International Financial Reporting Standards Consolidated balance sheet reconciliation at 31 December 2004 (unaudited) UK GAAP UK GAAP UK GAAP IAS 27 IFRS 2 IAS 17 IAS 10 IAS 12 IFRS Reclassify (IFRS DPP Share Leases Dividend Deferred Deferred Total balance detail format) adjustment based tax - tax - adjustments sheet payments rolled share over options gains £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000Non-currentassetsIntangible assets - - - -Property, plant 149,683 149,683 2,390 2,777 5,167 154,850and equipmentInvestment - - - -propertyInvestment in - - - -associatesTrade and other - - - -receivables 149,683 - 149,683 2,390 - 2,777 - - - 5,167 154,850Current assetsStocks 2,437 2,437 184 184 2,621Trade and other 14,524 (10,065) 4,459 (728) (728) 3,731receivablesPrepayments - 10,065 10,065 547 547 10,612Income tax - - - -Financial assets - - - -- derivativefinancialinstrumentsCash and cash 482 482 - - 482equivalents 17,443 - 17,443 3 - - - - - 3 17,446 Total assets 167,126 - 167,126 2,393 - 2,777 - - - 5,170 172,296CurrentliabilitiesShort-term (4,776) (4,776) (358) (358) (5,134)borrowingsIncome tax (5,531) (5,531) - (5,531)liabilitiesTrade and other (72,554) 10,307 (62,247) (2,769) 7,304 4,535 (57,712)payablesProvisions - - - (72,554) - (72,554) (3,127) - - 7,304 - - 4,177 (68,377) Net current (55,111) - (55,111) (3,124) - - 7,304 - - 4,180 (50,931)liabilities Non-currentliabilitiesLong-term (7,000) (7,000) (4,431) (4,431) (11,431)borrowingsOther payables - - -Deferred tax (16,092) (16,092) 496 (520) 391 367 (15,725)liabilitiesPost employment - - -benefitsProvisions (625) (625) - (625) (23,717) - (23,717) - - (3,935) - (520) 391 (4,064) (27,781) Net assets 70,855 - 70,855 (734) - (1,158) 7,304 (520) 391 5,283 76,138EquityShare capital 54,087 54,087 - 54,087Share premium 19,422 19,422 - 19,422Foreign currency 245 245 - 245reserveP&L reserve - - 256 256 256share basedpaymentsRetained earnings (2,654) (245) (2,899) (734) (256) (1,158) 7,304 (520) 391 5,027 2,128Total equity 70,855 - 70,855 (734) - (1,158) 7,304 (520) 391 5,283 76,138shareholders'interestsMinority - - -interestsTotal equity 70,855 - 70,855 (734) - (1,158) 7,304 (520) 391 5,283 76,138 The Restaurant Group plc International Financial Reporting Standards Consolidated statement of recognised income and expense for the year ended 31December 2004 (unaudited) Reserves as at 31/12/2003 (3,933)Profit for the period 14,276Final dividend in respect of 2003 (6,198)Interim dividend in respect of 2004 (1,779)Foreign exchange translation differences (36)Share of pre-acquisition losses of DPP taken directly to reserves (146)Share based payments - credit to equity 190Deferred tax credit on share based payments taken directly to 255equity Reserves as at 31/12/2004 2,629 Reconciliation of net debt Cash and Short term Long term Net cash & Finance Finance lease Total net cash liabilities debt bank debt lease payments: due debt equivalents payments: more than one due less year than one year Under UK GAAP 482 (4,776) (7,000) (11,294) (11,294) Inclusion of DPP (358) (358) (358)Inclusion of finance - - (4,431) (4,431)leases Under IFRS 482 (5,134) (7,000) (11,652) - (4,431) (16,083) This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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