5th Aug 2005 07:00
Greggs PLC05 August 2005 5 August 2005 Greggs plc Restatement of financial information under International Financial Reporting Standards Introduction Greggs plc (the Group) historically prepared its consolidated financialstatements under UK Generally Accepted Accounting Practice (UK GAAP). Followingthe adoption of Regulation No. 1606/2002 by the European Parliament on 19 July2002 the Group has been preparing for the adoption of International FinancialReporting Standards1 as its primary accounting base. IFRS will apply for the first time in the Group's financial statements for the52 weeks ending 31 December 2005. Accordingly the financial results for the 24weeks ended 18 June 2005 have been prepared and reported under IFRS. As theGroup publishes comparative information in its Annual Report and InterimStatement the date of transition to IFRS is 28 December 2003. To explain how the Group's reported performance and financial position areaffected by this change, information previously published under UK GAAP isrestated under IFRS in the attached appendices as follows: • Appendix 1 - Significant accounting policies revised under IFRS • Appendix 2 - Financial information on an IFRS basis for the 24 weeks ended 12 June 2004, the 53 weeks ended 1 January 2005 and the transition balance sheet at 28 December 2003 • Appendix 3 - Reconciliations of income statement and balance sheet for the 53 weeks ended 1 January 2005 with comments on the adjustments made • Appendix 4 - Reconciliations of income statement and balance sheet for the 24 weeks ended 12 June 2004 • Appendix 5 - Reconciliation of transition balance sheet at 28 December 2003 • Appendix 6 - Special Purpose Audit Report of KPMG Audit Plc to Greggs plc As noted below, this financial information has been prepared on the basis ofIFRSs expected to be applicable at 31 December 2005. These are subject toongoing review and endorsement by the EU or possible amendment by interpretiveguidance from the IASB and are therefore still subject to change. We willupdate our restated information for any such changes when they are made. Basis of preparation The financial information has been prepared in accordance with IFRS. Theaccounting policies applied are set out in Appendix 1 and these assume that allexisting standards in issue from the IASB will be fully endorsed by the EU. Both the transition balance sheet as at 28 December 2003 and the financialinformation for the 53 weeks ended 1 January 2005, as prepared on the abovebasis, have been audited by KPMG Audit Plc. Their special purpose audit reportto Greggs plc is set out on pages 21 to 22. The information for the 24 weeksended 12 June 2004 is unaudited. Subject to EU endorsement of outstandingstandards and no further changes from the IASB this information is expected toform the basis for comparatives when reporting financial results for 2005, andfor subsequent reporting periods. 1References to IFRS throughout this document refer to the application ofInternational Financial Reporting Standards as expected to adopted by the EU ("IFRS"), including International Accounting Standards ("IAS") and interpretationsissued by the International Accounting Standards Board ("IASB") and itscommittees, and as interpreted by any regulatory bodies applicable to the Group. Overview of impact For the 53 weeks ended 1 January 2005 the net increase in total recognisedincome and expense attributable to shareholders2 as a result of the conversionto IFRS was £58,000. This was largely made up of a reduction in the charge madein respect of the defined benefit pension scheme offset by the charge incurredrelating to share based payments. The increase in profit after tax was£690,000. The details of these adjustments are given in Appendix 3. 24 weeks ended 12 June 2004 53 weeks ended 1 January 2005 IFRS UK GAAP IFRS UK GAAP £'000 £'000 £'000 £'000 Operating profit 13,071 13,090 45,763 44,714Profit after tax 9,108 9,142 32,277 31,587Total recognised income and expense 8,822 9,142 31,645 31,587attributable to shareholdersBasic EPS 76.8p 77.1p 270.5p 264.7pNet assets 137,078 141,912 157,156 157,158 The most significant elements contributing to the changes in the financialinformation are: • The inclusion of an estimated fair value charge in respect of outstanding employee share options.• Recognition, on the balance sheet, of actuarially assessed employee benefit (pension) liabilities together with associated pension fund assets.• Recognition of dividends directly in reserves as they are declared, not when proposed. IFRS 1 exemptions IFRS 1 First Time Adoption of International Financial Reporting Standards,permits those companies adopting IFRS for the first time to take certainexemptions from the full requirements of IFRS in the transition period. TheGroup has taken the following key exemptions: (a) Employee benefits: All cumulative actuarial gains and losses havebeen recognised in equity at the transition date. This is to maintainconsistency with prospective Group policy, whereby all actuarial gains andlosses will be recognised directly via the statement of recognised income andexpense. (b) Share based payments: The Group has elected to apply IFRS 2 Sharebased payments only to relevant share based payment transactions granted after 7November 2002 as permitted under IFRS 1. (c) Business combinations: The Group has chosen not to restate businesscombinations prior to the transition date on an IFRS basis, as no significantacquisitions have taken place for the past 10 years. (d) Fair value as deemed cost: The Group has adopted the exemption whichallows the restatement of certain items of property, plant and equipment to fairvalue at the transition date. (e) Financial instruments: The Group has taken the exemption fromapplying IAS 32 Financial Instruments: Disclosure and Presentation and IAS 39Financial Instruments: Recognition and Measurement to the comparativeinformation to be presented in its first IFRS financial statements and willadopt IAS 32 and IAS 39 with effect from 2 January 2005. 2Under UK GAAP, as there was no recognised gains and losses for the period otherthan the profit for the period, total recognised gains and losses attributableto shareholders equates to profit after tax. Under IFRS total recognised gainsand losses attributable to shareholders equates to total recognised income andexpense for the period as disclosed in the statement of recognised income andexpenditure. Presentation of financial information The primary statements within the financial information contained in thisdocument have been presented in accordance with IAS 1 Presentation of FinancialStatements. However this format and presentation may require modification aspractice develops and in the event that further guidance is issued. Appendix 1 IFRS Accounting Policies This section provides a summary of the Group's new accounting policies underIFRS for the 53 weeks ended 1 January 2005. Where policies have changed underIFRS as compared to UK GAAP this is indicated by *. (a) Basis of preparation The financial information is presented in pounds sterling, rounded to thenearest thousand, and is prepared on the historical cost basis. These accounting policies have been prepared on the basis of the recognition andmeasurement requirements of IFRSs in issue that either are endorsed by the EUand effective (or available for early adoption) at 31 December 2005 or areexpected to be endorsed and effective (or available for early adoption) at 31December 2005, the Group's first annual reporting date at which it is requiredto use adopted IFRSs. Based on these adopted and unadopted IFRSs, the directorshave made assumptions about the accounting policies expected to be applied whichare as set out below when the first annual IFRS financial statements areprepared for the 52 weeks ending 31 December 2005. In particular, the directors have assumed that the following IFRS issued by theInternational Accounting Standards Board and IFRIC Interpretations issued by theInternational Financial Reporting Interpretations Committee will be adopted bythe EU in sufficient time that they will be available for use in the annual IFRSfinancial statements for the 52 weeks ending 31 December 2005: • Amendment to IAS 19, Employee Benefits - Actuarial Gains and Losses, Group Plans and Disclosure In addition, the adopted IFRSs that will be effective (or available for earlyadoption) in the annual financial statements for the 52 weeks ending 31 December2005 are still subject to change and to additional interpretations and thereforecannot be determined with certainty. Accordingly, the accounting policies forthat annual period will be determined finally only when the annual financialstatements are prepared for the 52 weeks ending 31 December 2005. The preparation of this financial information resulted in changes to theaccounting policies as compared with the most recent annual financial statementsprepared under previous GAAP. The accounting policies set out below have beenapplied consistently to all periods presented in this financial information. The preparation of financial information in conformity with IFRSs requiresmanagement to make judgements, estimates and assumptions that effect theapplication of policies and reported amounts of assets and liabilities, incomeand expenses. The estimates and associated assumptions are based on historicalexperience and various other factors that are believed to be reasonable underthe circumstances, the results of which form the basis of making the judgementsabout carrying values of assets and liabilities that are not readily apparentfrom other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis.Revisions to accounting policies are recognised in the period in which theestimate is revised if the revision affects only that period, or in the periodof revision and future periods if the revision affects both current and futureperiods. The accounting policies have been applied consistently throughout the Group. Appendix 1(b) Basis of consolidation (i) Subsidiaries Subsidiaries are entities controlled by the Company. Control exists where theCompany has the power, directly or indirectly, to govern the financial andoperating policies of an entity so as to obtain benefits from its activities.The financial statements of subsidiaries are included in the consolidatedfinancial information from the date control commences until the date thatcontrol ceases. (ii) Transactions eliminated on consolidation Intragroup balances, and any unrealised gains and losses or income and expensesarising from intragroup transactions, are eliminated in preparing theconsolidated financial information. (c) Foreign currency Transactions in foreign currencies are translated at the foreign exchange rateruling at the date of the transaction. Monetary assets and liabilitiesdenominated in foreign currencies at the balance sheet date are translated atthe foreign exchange rate ruling at that date. Non-monetary assets andliabilities that are measured in terms of historical cost in a foreign currencyare translated using the exchange rate at the date of the transaction. Foreignexchange differences arising on translation are recognised in the incomestatement. (d) Property, plant and equipment (i) Owned assets Items of property, plant and equipment are stated at cost or deemed cost lessaccumulated depreciation (see below) and impairment losses (see accountingpolicy (h)). The cost of self-constructed assets includes the cost ofmaterials, direct labour and an appropriate proportion of production overheads. Certain items of property, plant and equipment that have been revalued to fairvalue on or prior to 28 December 2003, the date of transition to IFRSs, aremeasured on the basis of deemed cost, being the revalued amount at the date ofthat revaluation. (ii) Subsequent costs The Group recognises in the carrying amount of an item of property, plant andequipment the cost of replacing part of such an item when the cost is incurredif it is probable that the future economic benefits embodied within the item canbe measured reliably. All other costs are recognised in the income statement asincurred. Appendix 1 (iii) Depreciation Depreciation is charged to the income statement on a straightline basis over theestimated useful economic lives of each part of an item of property, plant andequipment. Freehold and long leasehold properties are depreciated by equalinstalments over a period of 40 years. Land is not depreciated. Thedepreciation rates are as follows: Short leasehold properties 10% Plant: General 10% Computers 20% - 33 1/3% Motor vehicles 20% - 25% Delivery trays 33 1/3% Shop fixtures and fittings: General 10% Electronic equipment 20% The residual value, if not insignificant, is reassessed annually. (e) Goodwill* The Group's policy up to and including 1997 was to eliminate goodwill arisingupon acquisitions against reserves. Under IFRS 1 and IFRS 3, such goodwill willremain eliminated against reserves. (f) Inventories Inventories are stated at the lower of cost and net realisable value. Netrealisable value is the estimated selling price in the ordinary course ofbusiness, less the estimated costs of completion and selling expenses. The costof inventories is based on the weighted average cost formula. (g) Cash and cash equivalents* 'Cash and cash equivalents' comprises cash balances and call deposits with anoriginal maturity of three months or less. Bank overdrafts that are repayableon demand and form an integral part of the Group's cash management are includedas a component of cash and cash equivalents for the purpose of the statement ofcash flows. (h) 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 there isany indication of impairment. If any such indication exists, the asset's valueis estimated. An impairment loss is recognised whenever the carrying amount of an assetexceeds its recoverable amount. Impairment losses are recognised in the incomestatement. An impairment loss is reversed if there has been a change in theestimates used to determine the recoverable amount. An impairment loss isreversed only to the extent that the asset's carrying amount does not exceed thecarrying amount that would have been determined, net of depreciation, if noimpairment loss had been recognised. Appendix 1 (i) Share capital (i) Repurchase of share capital When share capital recognised as equity is repurchased, the amount of theconsideration paid, including directly attributable costs, is recognised as achange in equity. Repurchased shares that are held in the Employee ShareOwnership Plan are classified as treasury shares and are presented as adeduction from total equity. (ii) Dividends* Dividends are recognised as a liability in the period in which they aredeclared. (j) Employee benefits* (i) Defined contribution plans Obligations for contributions to defined contribution pension plans arerecognised as an expense in the income statement as incurred. (ii) Defined benefit plans The Group's obligation in respect of defined benefit post-employment plans,including pension plans, is calculated by estimating the amount of the futurebenefit that employees have earned in return for their service in the currentand prior periods. That benefit is discounted to determine its present value,and the fair value of any plan assets is deducted. The discount rate is theyield at the balance sheet date on AA credit rated bonds that have maturitydates approximating to the terms of the Group's obligations. The calculation isperformed by a qualified actuary using the projected unit credit method. When the benefits of a plan are improved, the portion of the increased benefitrelating to past service by employees is recognised as an expense in the incomestatement on a straight-line basis over the average period until the benefitsbecome vested. To the extent that the benefits vest immediately, the expense isrecognised immediately in the income statement. All actuarial gains and losses at 28 December 2003, the date of transition toIFRSs, were recognised. The Group recognises actuarial gains and losses thatarise subsequent to 28 December 2003 in full in the period in which they occurin the statement of recognised income and expenditure. (iii) Share-based payment transactions The share option programme allows Group employees to acquire shares of theCompany. The fair value of share options granted is recognised as an employeeexpense with a corresponding increase in equity. The fair value is measured atgrant date, using an appropriate model taking into account the terms andconditions upon which the share options were granted, and is spread over theperiod during which the employees become unconditionally entitled to theoptions. The amount recognised as an expense is adjusted to reflect the actualnumber of share options that vest except where forfeiture is only due to shareprices not achieving the threshold for vesting. For options granted before 7 November 2002 the recognition and measurementprinciples of IFRS 2 have not been applied in accordance with the transitionalprovisions in IFRS 1. Appendix 1 (k) Revenue (i) Goods sold Revenue from the sale of goods is recognised as income on receipt. (ii) Government grants Government grants are recognised in the balance sheet initially as deferredincome when there is a reasonable assurance that they will be received and thatthe group will comply with the conditions attaching to them. Grants thatcompensate the Group for expenses incurred are recognised as revenue in theincome statement on a systematic basis in the same periods in which the expensesare incurred. Grants that compensate the Group for the cost of an asset arerecognised in the income statement over the useful life of the asset. (l) Expenses (i) Operating lease payments* Payments under operating leases are recognised in the income and expenditureaccount on a straight-line basis over the term of the lease. Lease incentivesreceived are recognised in the income statement as an integral part of the totallease expense. (ii) Finance income Finance income comprises interest receivable on funds invested and foreignexchange gains. Interest income is recognised in the income statement as itaccrues using the effective interest method. (iii) Finance expenses Finance expenses comprise interest payable on borrowings and foreign exchangelosses. (m) Income tax* Income tax on the profit or loss for the period 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 provided using the balance sheet liability method, providing fortemporary 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 amounts of assets and liabilities, using tax ratesenacted or substantially 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 probablethat the related deferred tax benefit will be realised. Appendix 2 Consolidated income statement 24 weeks ended 12 53 weeks ended 1 June 2004 January 2005 Unaudited Audited £'000 £'000 Revenue 216,202 504,186Cost of sales (83,467) (192,860) Gross profit 132,735 311,326 Distribution and selling costs (101,334) (228,510)Administrative expenses (18,330) (37,053) Operating profit before financing 13,071 45,763 Finance income 667 2,003Finance expenses (173) (15) Profit before tax 13,565 47,751 Income tax (4,457) (15,474) Profit for the period 9,108 32,277 Basic earnings per share 76.8p 270.5pDiluted earnings per share 75.8p 267.7p Consolidated statement of recognised income and expense 24 weeks ended 12 53 weeks ended 1 June 2004 January 2005 Unaudited Audited £'000 £'000 Actuarial losses on defined benefit plans (409) (903)Tax on items taken directly to equity 123 271 Net expense recognised directly in equity (286) (632) Profit for the period 9,108 32,277 Total recognised income and expense for the period 8,822 31,645 Appendix 2 Consolidated balance sheet 28 December 2003 12 June 2004 1 January 2005 Audited Unaudited Audited £'000 £'000 £'000ASSETSNon-current assetsProperty, plant and equipment 161,451 162,716 163,832Deferred tax assets 3,429 3,577 3,486 164,880 166,293 167,318Current assetsInventory 7,126 6,641 7,283Trade and other receivables 13,037 14,166 13,949Cash and cash equivalents 36,358 46,666 62,601 56,521 67,473 83,833 Total assets 221,401 233,766 251,151 LIABILITIESCurrent liabilitiesTrade and other payables (54,918) (64,711) (59,204)Current tax liabilities (7,183) (4,343) (7,685) (62,101) (69,054) (66,889)Non-current liabilitiesDefined benefit pension liability (11,347) (11,707) (11,052)Other payables (112) (110) (105)Deferred tax liability (15,485) (15,817) (15,949) (26,944) (27,634) (27,106) Total liabilities (89,045) (96,688) (93,995) Net assets 132,356 137,078 157,156 EQUITYCapital and reserves attributable to equityholdersIssued capital 2,422 2,426 2,428Share premium account 11,537 11,981 12,217Retained earnings 118,397 122,671 142,511 Total equity attributable to shareholders 132,356 137,078 157,156 Appendix 2 Consolidated statement of cash flows 24 weeks ended 12 53 weeks ended 1 June 2004 January 2005 Unaudited Audited £'000 £'000 Cash flows from operating activitiesProfit for the period 9,108 32,277Depreciation 9,367 21,003Loss on sale of property, plant and equipment 183 358Release of government grants (4) (7)Share based payment expenses 57 124Finance income (667) (2,003)Finance expenses 173 15Income tax expense 4,457 15,474Decrease/(increase) in inventory 485 (157)Increase in debtors (1,129) (912)Increase in creditors 9,797 4,287Movement in pension liability (49) (1,198) Cash from operating activities 31,778 69,261Interest paid (173) (15)Income tax paid (6,950) (14,150) Net cash inflow from operating activities 24,655 55,096 Cash flows from investing activitiesAcquisition of property, plant and equipment (11,258) (25,090)Proceeds from sale of property, plant and equipment 443 1,348Interest received 667 2,003 Net cash outflow from investing activities (10,148) (21,739) Cash flows from financing activitiesProceeds from the issue of share capital 448 686Sale of own shares 2,753 3,200Purchase of own shares (941) (941)Dividends paid (6,459) (10,059) Net cash outflow from financing activities (4,199) (7,114) Net increase in cash and cash equivalents 10,308 26,243 Cash and cash equivalents at the start of the period 36,358 36,358 Cash and cash equivalents at the end of the period 46,666 62,601 Appendix 2 Consolidated statement of changes in equity Attributable to equity shareholdersAudited Share capital Share premium Retained earnings Total £'000 £'000 £'000 £'000 At 28 December 2003 2,422 11,537 118,397 132,356Shares issued in the period 6 680 - 686Total recognised income and expense - - 31,645 31,645Purchase of own shares - - (941) (941)Sale of own shares - - 3,200 3,200Share based payments - - 124 124Equity dividends - - (10,059) (10,059)Tax on items taken directly to equity - - 145 145 At 1 January 2005 2,428 12,217 142,511 157,156 Attributable to equity shareholdersUnaudited Share capital Share premium Retained earnings Total £'000 £'000 £'000 £'000 At 28 December 2003 2,422 11,537 118,397 132,356Shares issued in the period 4 444 - 448Total recognised income and expense - - 8,822 8,822Purchase of own shares - - (941) (941)Sale of own shares - - 2,753 2,753Share based payments - - 57 57Equity dividends - - (6,457) (6,457)Tax on items taken directly to equity - - 40 40 At 12 June 2004 2,426 11,981 122,671 137,078 Appendix 3 Reconciliation of income statement For the 53 weeks ended 1 January 2005 UK GAAP IFRS adjustments IFRS Revaluation Employee Share-based Dividends benefits payments (a) (b) (c) (d) £'000 £'000 £'000 £'000 £'000 £'000 Revenue 504,186 504,186Cost of sales (193,009) 149 (192,860)Gross profit 311,177 149 311,326 Distribution and selling (228,891) (25) 406 (228,510)costsAdministrative costs (37,572) 643 (124) (37,053)Operating profit before 44,714 (25) 1,198 (124) 45,763financing Finance income 2,003 2,003Finance expenses (15) (15)Profit before tax 46,702 (25) 1,198 (124) 47,751 Income tax (15,115) (359) (15,474)Profit for the period 31,587 (25) 839 (124) 32,277attributable to equityshareholdersNet expense recognised - (632) (632)directly in equityTotal recognised income 31,587 (25) 207 (124) 31,645and expense attributableto equity shareholdersDividends (11,524) 11,524 - Explanation of the IFRS adjustments to the Income Statement for the 53 weeksended 1 January 2005 and the 24 weeks ended 12 June 2004 (a) Fair value of freehold property as deemed cost Principal difference Under the transitional rules of IFRS 1 the fair value items of property, plantand equipment can be used as the deemed cost at the date of transition. Theitems are then depreciated based on the deemed cost over their remaining usefuleconomic lives. This has been done in respect of one freehold property. Impact Under UK GAAP the depreciation charge in respect of the asset was £9,000 (24weeks ended 12 June 2004: £4,000) and under IFRS the charge is £34,000 (24 weeksended 12 June 2004: £15,000) resulting in an increased charge to operatingprofit of £25,000 (24 weeks ended 12 June 2004: £11,000). Appendix 3 (b) Employee benefits Principal difference Under UK GAAP, the Group measures pension commitments and other related benefitsin accordance with SAAP 24 Accounting for Pension Costs. Additional disclosureswere given in accordance with the transitional requirements of FRS 17 RetirementBenefits. Under IFRS, the Group measures pension commitments in accordance withthe amended IAS 19 Employee Benefits. IAS 19 is similar to FRS 17 in that itadopts a balance sheet approach, bringing the surplus/deficit of the pensionscheme onto the balance sheet. However, FRS 17 dictates that all actuarialgains and losses are to be recognised directly in reserves, whereas IAS 19 alsoincludes an alternative option allowing actuarial gains and losses to be held onthe balance sheet and released to the income statement over a period of time.Greggs has elected not to adopt this alternative option. Impact Under SAAP 24, a pension charge of £3,290,000 (24 weeks ended 12 June 2004:£996,000) was recognised in operating profit in 2004. Under IFRS a charge of£2,092,000 (24 weeks ended 12 June 2004: £947,000) is recognised. Thereforethere is a net credit to operating costs of £1,198,000 (24 weeks ended 12 June2004: £49,000). The actuarial loss of £903,000 (24 weeks ended 12 June 2004:£409,000) is recognised in the statement of recognised income and expenses. Due to the deferred tax impact the income statement tax adjustment is a chargeof £359,000 (24 weeks ended 12 June 2004: charge of £15,000), resulting in anoverall credit of £839,000 (24 weeks ended 12 June 2004: £34,000) to profit forthe period. The deferred tax credit that relates to the actuarial loss of£271,000 (24 weeks ended 12 June 2004: £123,000) is recognised in the statementof recognised income and expenses resulting in an overall charge of £632,000 (24weeks ended 12 June 2004: £286,000). (c) Share-based payments Principal difference The Group operates a number of share-based incentive schemes that are impactedby IFRS 2 Share-based payments. Under UK GAAP no expense has been recognisedfor awards under the Executive Share Option Scheme as the intrinsic value (thedifference between the exercise price and the market value at the date ofexercise) was nil and for awards under the SAYE scheme as this was exempt underUITF17. Under IFRS, an expense is recognised in the income statement for allshare based payments. This expense has been calculated based on the fair valueat the date of the awards using pricing models appropriate to the schemes. Impact This has resulted in a charge for the full year of £124,000 (24 weeks ended 12June 2004: £57,000), recognised within operating costs. As the estimated futuretax deduction in respect of share based payments exceeds the expense charged inthe income statement the deferred tax credit has been recognised directly inequity. (d) Dividends Principal difference Under UK GAAP, the dividend charge is recognised in the profit and loss account.Under IFRS, the dividend is not recognised in the income statement but isrecognised directly in reserves. Impact Both the interim and the final dividend for 2004 have been reversed from theincome statement with an impact of £11,524,000 (24 weeks ended 12 June 2004:£3,640,000). Appendix 3 Reconciliation of balance sheet As at 1 January 2005 UK GAAP IFRS adjustments IFRS Rolled Revaluation Employee Share-based Dividends Reclassification over benefits payments gains (a) (b) (c) (d) (e) £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000ASSETSNon-current assetsProperty, plant and 163,110 722 163,832equipmentDeferred tax assets 3,316 170 3,486 163,110 722 3,316 170 167,318Current assetsInventory 7,283 7,283Trade and other 13,949 13,949receivablesCash and cash 62,601 62,601equivalents 83,833 83,833Total assets 246,943 722 3,316 170 251,151LIABILITIESCurrent liabilitiesTrade and other payables (74,811) 7,922 7,685 (59,204)Current tax liability (7,685) (7,685) (74,811) 7,922 - (66,889)Non-current liabilitiesDefined benefit pension (11,052) (11,052)liabilityOther payables (105) (105)Deferred tax liability (14,869) (856) (224) (15,949) (14,974) (856) (224) (11,052) - (27,106)Total liabilities (89,785) (856) (224) (11,052) 7,922 - (93,995)Net assets 157,158 (856) 498 (7,736) 170 7,922 - 157,156 EQUITYCapital and reservesattributable to equityholdersIssued capital 2,428 2,428Share premium account 12,217 12,217Retained earnings 142,513 (856) 498 (7,736) 170 7,922 142,511Total equity 157,158 (856) 498 (7,736) 170 7,922 - 157,156attributable toshareholders Appendix 3 Explanation of IFRS adjustments to the transition balance sheet at 28 December2003, interim balance sheet at 12 June 2004 and closing balance sheet at 1January 2005 (a) Deferred tax on rolled over gains Principal difference Under IAS 12 a deferred tax provision must be made in respect of all taxabletemporary differences including rolled over capital gains. Under UK GAAPdeferred tax was not provided in respect of these rolled over gains. Transition impact A deferred tax liability has been included in the transition balance sheet of£856,000. Closing balance sheet impact There is no movement on the deferred tax liability during the 53 weeks ended 1January 2005 and therefore no further impact on the closing balance sheet (12June 2004: £nil). (b) Fair value of freehold property as deemed cost Principal difference Under the transitional rules of IFRS 1 the fair value of items of property,plant and equipment can be used as the deemed cost at the date of transition.This has been done in respect of one freehold property. Transition impact The freehold property has been included in the transition balance sheet at itsdeemed cost of £1,020,000. This has resulted in an increase to non-currentassets and to retained earnings of £747,000. In accordance with IAS 12 aprovision for deferred tax is required in respect of the increased deemed costwhich increases the deferred tax liability by £224,000. The net impact onretained earnings is therefore an increase of £523,000, which is notdistributable. Closing balance sheet impact The freehold property has been depreciated throughout the year. At the end ofthe year the balance sheet reflects the closing net book value of the asset of£986,000 (12 June 2004: £1,009,000). This has resulted in an increase innon-current assets and to retained earnings of £722,000 (12 June 2004: £736000). The property was sold in the first half of 2005. There is no movement inthe deferred tax liability during the year in respect of this asset. (c) Employee benefits Principal difference Under UK GAAP, any (liability)/asset on the balance sheet represented the timingdifference between the SAAP 24 charge and the payments made to the pensionscheme. Under IFRS, the (liability)/asset on the balance sheet represents the(deficit)/surplus on the defined benefit pension scheme. Transition impact A pension scheme liability of £11,347,000 has been recognised at the transitiondate. There is a corresponding positive deferred tax adjustment of £3,404,000resulting from this recognition. The net effect is a reduction of shareholders'funds of £7,943,000 on transition. Closing balance sheet impact Throughout the year all movements in the deficit on the pension scheme arerecognised against the liability. At the end of the period, the liability onthe balance sheet reflects the closing deficit of the pension scheme. Appendix 3 This has been adjusted to reflect the actuarial loss for the year of £903,000(24 weeks ended 12 June 2004: £409,000) that has been recognised directly inreserves. The movement in the deferred tax asset arising from this liabilitywas £88,000 decrease (12 June 2004: increase of £108,000). (d) Share-based payments Principal difference Under UK GAAP no liability was recognised in respect of share awards as for theexecutive share options the intrinsic value was nil and the SAYE scheme wasexempt under UITF 17. Under IFRS 2, as all of the share awards are equitysettled, the balance sheet entry, based on the fair value of the awards is acredit direct to equity reserves. Transition impact A deferred tax asset of £25,000 has been recognised on transition at 28 December2003. Closing balance sheet impact The deferred tax asset has been increased by £145,000 as at 1 January 2005 (12June 2004: £65,000) with the deferred tax credit being recognised directly inequity. (e) Dividends Principal difference Under UK GAAP, the practice is to recognise dividends in the period to whichthey relate, whereas under IFRS the dividend is recognised in the period inwhich it is declared. As a result, the dividend creditor is not recogniseduntil the dividend is declared and therefore at each year end needs to beadjusted accordingly. Transition impact As the 2003 interim dividend had been paid and the 2003 final dividend had notbeen declared at the 28 December 2003, there is no dividend creditor in thetransition balance sheet. The opening creditor of £6,457,000 has been reversed. Closing balance sheet impact At the year end the 2004 interim dividend had been paid and the final dividendhad not been declared. The closing dividend creditor of £7,922,000 (12 June2004: £3,640,000) under UK GAAP has been reversed. Group cashflow statementFor the 53 weeks ended 1 January 2005 The move from UK GAAP to IFRS does not change the cashflow statement of theGroup. The IFRS cashflow statement is similar to UK GAAP but presents variouscashflows in different categories and in a different order from the UK GAAPcashflow statement. Appendix 4 Reconciliation of income statementFor the 24 weeks ended 12 June 2004 UK GAAP IFRS adjustments IFRS Revaluation Employee Share-based Dividends benefits payments (a) (b) (c) (d) £'000 £'000 £'000 £'000 £'000 £'000 Revenue 216,202 216,202Cost of sales (83,471) 4 (83,467)Gross profit 132,731 4 132,735 Distribution and (101,341) (11) 18 (101,334)selling costsAdministrative costs (18,300) 27 (57) (18,330)Operating profit before 13,090 (11) 49 (57) 13,071financing Finance income 667 667Finance expenses (173) (173)Profit before tax 13,584 (11) 49 (57) 13,565 Income tax (4,442) (15) (4,457)Profit for the period 9,142 (11) 34 (57) 9,108attributable to equityshareholdersNet expense recognised - (286) (286)directly in equityTotal recognised income 9,142 (11) (252) (57) 8,822and expenseattributable to equityshareholdersDividends (3,640) 3,640 - (a), (b), (c), (d) - see Appendix 3 Appendix 4 Reconciliation of balance sheet As at 12 June 2004 UK GAAP IFRS adjustments IFRS Rolled Revaluation Employee Share-based Dividends Reclassification over gains benefits payments (a) (b) (c) (d) (e) £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000ASSETSNon-current assetsProperty, plant and 161,980 736 162,716equipmentDeferred tax assets 3,512 65 3,577 161,980 736 3,512 65 166,293Current assetsInventory 6,641 6,641Trade and other 14,166 14,166receivablesCash and cash 46,666 46,666equivalents 67,473 67,473Total assets 229,453 736 3,512 65 233,766LIABILITIESCurrent liabilitiesTrade and other (72,694) 3,640 4,343 (64,711)payablesCurrent tax liability (4,343) (4,343) (72,694) 3,640 - (69,054)Non-currentliabilitiesDefined benefit (11,707) (11,707)pension liabilityOther payables (110) (110)Deferred tax liability (14,737) (856) (224) (15,817) (14,847) (856) (224) (11,707) (27,634)Total liabilities (87,541) (856) (224) (11,707) 3,640 - (96,688)Net assets 141,912 (856) 512 (8,195) 65 3,640 - 137,078EQUITYCapital and reservesattributable to equityholdersIssued capital 2,426 2,426Share premium account 11,981 11,981Retained earnings 127,505 (856) 512 (8,195) 65 3,640 122,671Total equity 141,912 (856) 512 (8,195) 65 3,640 - 137,078attributable toshareholders (a), (b), (c), (d), (e) - see Appendix 3 Appendix 5 Reconciliation of balance sheet As at 28 December 2003 UK GAAP IFRS adjustments IFRS Rolled Revaluation Employee Share-based Dividends Reclassification over benefits payments gains (a) (b) (c) (d) (e) £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000ASSETSNon-current assetsProperty, plant and 160,704 747 161,451equipmentDeferred tax assets 3,404 25 3,429 160,704 747 3,404 25 164,880Current assetsInventory 7,126 7,126Trade and other 13,037 13,037receivablesCash and cash 36,358 36,358equivalents 56,521 56,521Total assets 217,225 747 3,404 25 221,401LIABILITIESCurrent liabilitiesTrade and other (68,558) 6,457 7,183 (54,918)payablesCurrent tax liability (7,183) (7,183) (68,558) 6,457 - (62,101)Non-current liabilitiesDefined benefit pension (11,347) (11,347)liabilityOther payables (112) (112)Deferred tax liability (14,405) (856) (224) (15,485) (14,517) (856) (224) (11,347) (26,944)Total liabilities (83,075) (856) (224) (11,347) 6,457 - (89,045)Net assets 134,150 (856) 523 (7,943) 25 6,457 - 132,356EQUITYCapital and reservesattributable to equityholdersIssued capital 2,422 2,422Share premium account 11,537 11,537Retained earnings 120,191 (856) 523 (7,943) 25 6,457 118,397Total equity 134,150 (856) 523 (7,943) 25 6,457 - 132,356attributable toshareholders (a), (b), (c), (d), (e) - see Appendix 3 Appendix 6 Special Purpose Audit Report of KPMG Audit Plc to Greggs plc ('the Company') onits preliminary International Financial Reporting Standards ("IFRS") FinancialInformation for the 53 weeks ending 1 January 2005 and on its preliminaryRelated Shares:
Greggs