3rd Aug 2005 07:00
Whitbread PLC03 August 2005 3 August 2005 Whitbread releases IFRS accounts for 2004/5 and 2003/4 Whitbread PLC ('the Group') today releases restated consolidated financialinformation for the year ended 3 March 2005, applying International FinancialReporting Standards (IFRS). The key headlines from the restated accounts are: o No impact on group cash flow or on ability to pay dividends o Net Assets reduced by £385m to £1.8bn o 2004/5 profit after tax reduces by 5% Principle areas affected by IFRS £m Profit earned Net Assets for ordinary shareholders Share-based payments+ (1.9) 2.6 Pension accounting+* (13.4) (311.8) Income tax (inc. deferred tax) (1.7) (137.4) Depreciation/goodwill amortisation+ 8.3 7.4 Dividends+ 54.6 Net impact (8.7) (384.6) + Net of associated tax impact* Includes joint ventures and associates The first set of results reported by Whitbread under IFRS will be the group'sinterim results, due for release on 25 October 2005. There will be a conference call for analysts and investors at 10.30am (UK time).To participate please dial +44 (0)20 7365 1855. There will be a recording of the conference call available for one month, thiswill be active approximately 1 hour after the conference call has finished. Toaccess please dial +44 (0)20 7784 1024 and enter the passcode 3042926#. From 7:30am the full text of this announcement and accompanying slides areavailable at www.whitbread.co.uk/investors Contact: Dan Waugh, Investor Relations 01582 396 833 Contents: 1. Background 2. Independent Auditors' Report 3. Restated IFRS consolidated financial statements Consolidated Income Statement for the year ended 3 March 2005 Reconciliations of earnings for the year ended 3 March 2005 Consolidated Balance Sheets as at 5 March 2004 (date of transition to IFRS) and as at 3 March 2005 Reconciliations of the balance sheet as at 5 March 2004 and 3 March 2005 Reconciliations of Reserves as at 5 March 2004 and 3 March 2005 4. Changes in accounting policy 5. Accounting policies under IFRS 1. Background With effect from 4 March 2005 the Group will be required to prepare itsconsolidated financial statements in accordance with International FinancialReporting Standards (IFRS) as adopted by the European Union. The Group's firstAnnual Report under IFRS will be for the year ended 2 March 2006, with the firstpublished IFRS results being the Interim Report and Accounts for the six monthperiod ended 1 September 2005. The Group is required to publish one year ofcomparative information, which results in a date of transition to IFRS of 5March 2004. Historically, the Group's financial statements have been prepared in accordancewith generally accepted accounting principles in the UK (UK GAAP). The followingexplanatory notes and reconciliations describe the main differences between UKGAAP and IFRS that affect the Group for the financial year 2004/5 as well as forthe IFRS opening balance sheet at 5 March 2004. The accounting policies of the Group were changed on 5 March 2004 to comply withIFRS, the major changes are explained below. The transition to IFRS has been accounted for in accordance with IFRS 1 'First-time adoption of International Financial Reporting Standards' as outlinedbelow. In addition, where the Group has taken advantage of provisions allowingthe early adoption of amendments made to IFRS that are effective for accountingperiods beginning on or after 1 January 2006 this is also explained below. This restatement document has been prepared on the basis that all IFRSs,International Financial Reporting Interpretation Committee ("IFRIC")interpretations, and current IASB exposure drafts will be issued as finalstandards and adopted by the European Commission. The failure of the EuropeanCommission to adopt all these standards in time for financial reporting in 2006,or the issue of further interpretations by IFRIC in advance of the reportingdate, could result in the need to change the basis of accounting or presentationof certain financial information from that presented in this document. The UK GAAP financial information contained in this document does not constitutestatutory accounts as defined in section 240 of the Companies Act 1985. Theauditors have issued unqualified opinions on the Group's UK GAAP financialstatements for the years ended 4 March 2004 and 3 March 2005. The UK GAAPfinancial statements for the year ended 4 March 2004 have been delivered to theRegistrar of Companies. The UK GAAP financial statements for the year ended 3March 2005 will be delivered to the Registrar of Companies in due course. First time adoption of IFRS - transitional arrangements In accordance with IFRS 1 'First-time adoption of International FinancialReporting Standards' the Group has taken advantage of the following exemptions: Financial Instruments Whitbread will apply IAS 32 and IAS 39 'Financial Instruments' prospectively,that is with effect from 4 March 2005. Under the transitional rules of IFRS 1,hedging designation and certain other requirements of IAS 32 and IAS 39 may notbe applied in the comparative period and the remainder of those standards neednot be applied to comparative balances. No adjustments for financial instrumentswill be required in the 2004/5 profit and loss account or the 2005 balancesheet, as these will continue to be accounted for under UK GAAP. Business Combinations The Group has taken advantage of the provisions within IFRS 1 and has electednot to apply IFRS 3 'Business Combinations' retrospectively to businesscombinations that took place before the transition to IFRS. Property, Plant and Equipment The Group has elected to use the UK GAAP revaluations of properties prior to thedate of transition to IFRS as deemed cost, as allowed by IFRS 1. Share based payments In accordance with IFRS 1, the Group has applied IFRS 2 'Share Based Payments'to equity settled awards that were granted after 7 November 2002 but not vestedat 1 January 2005. Cumulative Translation Differences IAS 21 'The Effects of Changes in Foreign Exchange Rates' requires companies torecord and accumulate translation differences arising on the translation andconsolidation of results of foreign operations and balance sheets denominated inforeign currencies. Cumulative translation differences are maintained as aseparate element of equity. On disposal of a foreign operation, IAS 21 requiresthe transfer of the cumulative translation differences relating to the businessdisposed of to the income statement as part of the gain or loss on sale. Underthe provisions of IFRS 1 the Group will apply IAS 21 prospectively from the dateof transition to IFRS. 2. Independent Auditors' Report to Whitbread plc on the preliminary IFRSFinancial Statements for the year ended 3 March 2005 We have audited the accompanying preliminary International Financial ReportingStandards ("IFRS") financial statements of the Company for the year ended 3March 2005 which comprise the opening IFRS Balance Sheet as at 5 March 2004, theProfit and Loss Account for the year ended 3 March 2005 and the Balance Sheet asat 3 March 2005, together with the related accounting policies. This report is made solely to the Company in accordance with our engagementletter dated 18 October 2004. Our audit work has been undertaken so that wemight state to the Company those matters we are required to state to them in anauditors' report and for no other purpose. To the fullest extent permitted bylaw, we do not accept or assume responsibility or liability to anyone other thanthe Company for our audit work, for this report, or for the opinions we haveformed. Respective responsibilities of directors and auditors These preliminary IFRS financial statements are the responsibility of theCompany's directors and have been prepared as part of the Company's conversionto IFRS. They have been prepared in accordance with the basis set out in Notes1 and 2, which describes how IFRS have been applied under IFRS 1, including theassumptions management has made about the standards and interpretations expectedto be effective, and the policies expected to be adopted, when managementprepares its first complete set of IFRS financial statements as at 2 March 2006. Our responsibility is to express an independent opinion on the preliminary IFRSfinancial statements based on our audit. We read the other informationaccompanying the preliminary IFRS financial statements and consider whether itis consistent with the preliminary IFRS financial statements. This otherinformation comprises the description of significant changes in accountingpolices. We consider the implications for our report if we become aware of anyapparent misstatements or material inconsistencies with the preliminary openingbalance sheet. Our responsibilities do not extend to any other information. Basis of audit opinion We conducted our audit in accordance with United Kingdom Auditing Standardsissued by the Auditing Practices Board. Those Standards require that we planand perform the audit to obtain reasonable assurance about whether thepreliminary IFRS financial statements are free of material misstatement. Anaudit includes examining, on a test basis, evidence supporting the amounts anddisclosures in the preliminary IFRS financial statements. An audit alsoincludes assessing the accounting principles used and significant estimates madeby management, as well as evaluating the overall presentation of the preliminaryIFRS financial statements. We believe that our audit provides a reasonablebasis for our opinion. Emphasis of matter Without qualifying our opinion, we draw attention to the fact that 'background'explains why there is a possibility that the preliminary IFRS financialstatements may require adjustment before constituting the final IFRS financialstatements. Moreover, we draw attention to the fact that, under IFRSs only acomplete set of financial statements with comparative financial information andexplanatory notes can provide a fair presentation of the Company's financialposition, results of operations and cash flows in accordance with IFRSs. Opinion In our opinion, the preliminary IFRS financial statements for the year ended 3March 2005 have been prepared, in all material respects, in accordance with thebasis set out in 'background', which describes how IFRS have been applied underIFRS 1, including the assumptions management has made about the standards andinterpretations expected to be effective, and the policies expected to beadopted, when management prepares its first complete set of IFRS financialstatements as at 2 March 2006. Ernst & Young LLPLondon26 May 2005 3. Restated IFRS consolidated financial statements Consolidated Income Statement for the year ended 3 March 2005 Continuing Discontinued Total Operations Operations * Operations £m £m £m Revenue 1,524.3 388.6 1,912.9Costs of sales (315.5) (166.7) (482.2)Gross profit 1,208.8 221.9 1,430.7 Distribution costs (846.2) (131.2) (977.4)Administrative expenses (139.8) (23.9) (163.7)Impairment of goodwill - (17.2) (17.2)Impairment of property, plant and equipment (10.0) (4.3) (14.3)Reorganisation costs (6.5) - (6.5)Profit/ (loss) on disposal of property, plant and equipment (0.4) 23.2 22.8Profit from operating activities 205.9 68.5 274.4 Share of profit from joint ventures 11.5 - 11.5Share of profits from associates 10.4 0.6 11.0Profit before financing and tax 227.8 69.1 296.9 Finance cost (76.3) - (76.3)Finance income 2.0 0.2 2.2Profit before tax 153.5 69.3 222.8 Income tax expense (44.9) (9.7) (54.6)Net profit from ordinary activities 108.6 59.6 168.2 Attributable to: £m £m £mEquity holders of the company 108.3 59.6 167.9Non-equity holders 0.3 - 0.3Net profit from ordinary activities 108.6 59.6 168.2 * Discontinued operations relates to the sale of Marriott, which took place on5 May 2005. Reconciliations of earnings from UK GAAP to IFRS Reconciliation of earnings under UK GAAP to IFRS for the year ended 3 March 2005 Turnover Operating Interest Income from Tax Profit Minority Equity Profit Joint after Interest Holders Ventures & Tax of the Associates Parent £m £m £m £m £m £m £m £m As reported under UK GAAP 1,912.9 275.9 (64.3) 37.8 (72.5) 176.9 (0.3) 176.6Depreciation adjustment of held for - 1.0 - - - 1.0 - 1.0sale assetsPension accounting adjustments - (6.5) (11.0) - 5.3 (12.2) - (12.2)IFRS tax adjustments - - - - (1.7) (1.7) - (1.7)Share-based payments adjustment - (3.3) - - 1.4 (1.9) - (1.9)Restatement of joint ventures & - - 1.2 (15.3) 12.9 (1.2) - (1.2)associatesCessation of goodwill - 7.3 - - - 7.3 - 7.3Restated reporting under IFRS 1,912.9 274.4 (74.1) 22.5 (54.6) 168.2 (0.3) 167.9 Consolidated Balance Sheets 3 March 2005 5 March 2004 £m £mASSETS Non-current assetsProperty, plant and equipment 2,604.0 2,988.6Long-term deferred income 4.9 4.8Intangible assets 193.3 147.6Investments in joint ventures accounted for using the equity 43.1 42.9methodInvestments in associates accounted for using the equity 45.6 44.8methodAvailable for sale investments 6.4 3.7 2,897.3 3,232.4 Current assetsNon-current assets classified as held for sale 992.3 0.2Inventories 23.0 24.4Trade and other receivables 107.3 75.8Prepayments 40.6 29.4Cash and cash equivalents 53.5 68.8 1,216.7 198.6 Total assets 4,114.0 3,431.0 EQUITY AND LIABILITIES Equity attributable to equity holders of the parentShare capital 149.6 148.7Share premium account 23.2 13.5Other reserves (1,759.8) (1,761.0)Retained earnings 3,405.0 3,286.6 1,818.0 1,687.8Minority interests 5.8 6.8Total equity 1,823.8 1,694.6 Non-current liabilitiesLong term borrowings 1,219.0 807.5Deferred tax 238.7 167.9Long-term provisions 25.6 21.8Pension liability 346.0 366.0Total non-current liabilities 1,829.3 1,363.2 Current liabilitiesTrade and other payables 341.9 289.7Short-term borrowings 21.1 48.1Current portion of long term borrowings 77.1 5.8Current tax payable 16.9 24.2Short term provisions 3.9 5.4Total current liabilities 460.9 373.2 Total liabilities 2,290.2 1,736.4 Total equity and liabilities 4,114.0 3,431.0 Reconciliations of the balance sheet from UK GAAP to IFRS Reconciliation of UK GAAP balance sheet to IFRS as at 3 March 2005 Non-Current Current Non-Current Current Net Equity Assets Assets Liabilities Liabilities Assets £m £m £m £m £m £mAs reported under UK GAAP at 3 3,915.4 224.4 (1,413.9) (517.5) 2,208.4 (2,208.4)March 2005Reclassify assets held for sale (992.2) 992.3 - - 0.1 (0.1)Pension accounting adjustments (67.7) - (223.7) 5.1 (286.3) 286.3Share-based payments adjustment - - 1.8 0.8 2.6 (2.6)Deferred tax adjustments 60.0 - (197.4) - (137.4) 137.4Joint ventures and associates (25.5) - - - (25.5) 25.5Remove declared dividends - - - 54.6 54.6 (54.6)Cessation of goodwill 7.3 - - - 7.3 (7.3)Reclassifications - - 3.9 (3.9) - -Restated reporting under IFRS at 3 2,897.3 1,216.7 (1,829.3) (460.9) 1,823.8 (1,823.8)March 2005 Reconciliation of UK GAAP balance sheet to IFRS as at 5 March 2004 Non Current Non-Current Current Net Equity Current Assets Liabilities Liabilities Assets Assets £m £m £m £m £m £mAs reported under UK GAAP at 5 March 3,307.5 198.4 (987.3) (420.2) 2,098.4 (2,098.4)2004Reclassify assets held for sale (1.1) 0.2 - - (0.9) 0.9Pension accounting adjustments (51.7) - (246.6) 4.6 (293.7) 293.7Share-based payments adjustment - - 0.4 - 0.4 (0.4)Deferred tax adjustments - - (135.1) - (135.1) 135.1Joint ventures and associates (22.3) - - - (22.3) 22.3Remove declared dividends - - - 47.8 47.8 (47.8)Reclassifications - - 5.4 (5.4) - -Restated reporting under IFRS at 5 3,232.4 198.6 (1,363.2) (373.2) 1,694.6 (1,694.6)March 2004 Reconcilations of Reserves from UK GAAP to IFRS Reconciliation of Reserves UK GAAP to IFRS as at 3 March 2005 Other Merger P&L Share JV's & Total Reserves* Reserve Account Scheme Associates Reserve £m £m £m £m £m £mAs reported under UK GAAP at 3 March 123.3 (1,855.0) 3,720.5 (11.6) 52.6 2,029.82005Reclassify assets held for sale 0.1 0.1Pension accounting adjustments (286.3) (286.3)Share-based payments adjustment 2.1 0.5 2.6Deferred tax adjustments (44.1) (93.3) (137.4)Joint ventures and associates (25.5) (25.5)Remove declared dividends 54.6 54.6Cessation of goodwill 7.3 7.3As reported under IFRS at 3 March 79.2 (1,855.0) 3,405.0 (11.1) 27.1 1,645.22005 Reconciliation of Reserves UK GAAP to IFRS as at 5 March 2004 Other Merger P&L Share JV's & Total Reserves* Reserve Account Scheme Associates Reserve £m £m £m £m £m £mAs reported under UK GAAP at 5 March 124.5 (1,855.0) 3,621.1 (9.6) 48.4 1,929.42004Reclassify assets held for sale (0.9) (0.9)Pension accounting adjustments (293.7) (293.7)Share-based payments adjustment 4.0 (3.6) 0.4Deferred tax adjustments (43.4) (91.7) (135.1)Joint ventures and associates (22.3) (22.3)Remove declared dividends 47.8 47.8As reported under IFRS at 5 March 81.1 (1,855.0) 3,286.6 (13.2) 26.1 1,525.62004 *Under UK GAAP this was previously reported within the revaluation reserve. 4. Changes in accounting policy The transition to IFRS resulted in the following significant changes inaccounting policies: a) IFRS 3 Business Combinations Under UK GAAP the Group goodwill was amortised on a straight-line basis over itsestimated useful life up to a maximum of 20 years. IFRS 3 prohibits theamortisation of goodwill, requiring goodwill to be measured at cost lessimpairment losses and tested for impairment annually. Hence under IFRS the Group will carry goodwill on balance sheet subsequent toinitial recognition at cost less any accumulated impairment losses. Goodwillwill be tested for impairment annually, or more frequently if circumstancesindicate that impairment may have occurred. In future any negative goodwill willbe written off immediately to the income statement. The effect of the change is an increase in equity and intangible assets at 3March 2005 of £7.3m. The change does not affect equity at 5 March 2004. Profitsbefore tax for the year ended 3 March 2005 are increased by £7.3m. There is noassociated tax impact. b) IFRS 5 Non-current Assets Held for Sale and Discontinued Operations IFRS 5 requires that where the value of an asset will be recovered through asale transaction rather than continuing use that the assets are classified asheld for sale. Assets held for sale are valued at the lower of book value andfair value less costs to sell and are no longer depreciated. Under UK GAAP thereis no held for sale definition and no reclassification is required. At 5 March 2004 a £0.9m provision was recorded, and charged to retainedearnings, to adjust the carrying value of the assets down to their fair valueless costs to sell. Assets held for sale at 3 March 2005 have increased to £992.3m, which is mainlydue to the inclusion of the carrying value of fixed assets disposed of on 5 May2005 as part of the Marriott sale. At 5 March 2004 £0.2m was recognised as heldfor sale, which related to a small number of restaurant properties being sold. c) IAS 19 Employee Benefits Under UK GAAP (SSAP 24 'Accounting for Pension Costs') pension costs are chargedto the profit and loss account over the average expected service life of currentemployees. Actuarial surpluses and deficits are amortised over the expectedremaining service lives of current employees. Any differences between theamount charged to the profit and loss account and payments made to the schemesare treated as assets or liabilities in the balance sheet. IAS 19 requires recognition of the operating and finance costs of definedbenefit plans in the income statement, with the option to recognise actuarialgains and losses in a statement of changes in equity titled 'Statement ofRecognised Income and Expense'. The Group accounting policies under IFRS adoptthis approach. At 5 March 2004 under UK GAAP there was a £51.7m pension scheme prepayment ascalculated in accordance with SSAP 24. This balance is removed under IFRS andreplaced with the £366.0m scheme liability as determined in accordance with IAS19. This change in policy also results in the derecognition of a £9.6m deferredtax liability as calculated under SSAP 24, and the recognition of a £109.8mdeferred tax asset under IAS 19 which is netted off against other deferred taxliabilities on the balance sheet. The effect on the balance sheet as at 3 March 2005 is to remove the £67.7mpension scheme prepayment asset as calculated in accordance with SSAP 24, andreplace it with a scheme liability of £346.0m as determined in accordance withIAS 19. The SSAP 24 deferred tax liability of £18.5m is derecognised andreplaced with a £103.8m deferred tax asset as calculated under IAS 19, whichagain is netted off against other deferred tax liabilities in the balance sheet. The effect of adopting IAS 19 on the income statement is a decrease in profitbefore tax of £17.5m and a reduction to the tax charge of £5.3m for thefinancial year ended 3 March 2005. d) IFRS 2 Share-based Payments Under UK GAAP, the Group writes-off the intrinsic value at the date of the grantover the vesting period. The cost of shares acquired is taken directly toshareholders' funds. The scope of IFRS 2 is wider than UK GAAP as it relates to all share-basedpayment transactions, not just those made to employees, and there is also noexemption for SAYE schemes. IFRS 2 requires that for equity-settled transactions with employees, the fairvalue of the employee services received should be measured by reference to thefair value of the equity instrument at the grant date. The charge is spread over the vesting period, this differs from UK GAAP wherethe charge is spread over the performance period where employees have to satisfyspecific performance conditions. The Group has taken advantage of the transitional provisions of IFRS 2 inrespect of equity-settled awards and has applied IFRS 2 only to equity-settledawards granted after 7 November 2002 that had not vested on or before 1 January2005. The effect on profit before tax is a net charge of £3.3m made up of an IFRS 2charge of £4.1m and a UK GAAP reversal of £0.8m for the financial year ended 3March 2005. There is an associated deferred tax credit of £1.4m bringing theoverall impact on profit after tax to a charge of £1.9m. e) IAS 10 Events After the Balance Sheet Date Under UK GAAP, Group dividends declared after the balance sheet date have beenrecognised as a liability. Under IFRS dividends declared after the balance sheet date but before thefinancial statements are authorised for issue are not recognised as a liabilityat the balance sheet date. The effect of the change is an increase in equity of £47.8m at 5 March 2004 and£54.6m at 3 March 2005. The change does not affect profit or loss reported underIFRS for the financial year ended 3 March 2005. There is no associated taximpact. f) IAS 31 Investment in Joint Ventures and IAS 28 Investments in Associates The Group will account for joint ventures and associates in line with IAS 31 'Interests in Joint Ventures' and IAS 28 'Investments in Associates'respectively. The Group's share of investments in joint ventures and associateshas been reduced by £1.8m and £20.5m respectively at 4 March 2004 and £2.3m and£23.2m respectively at 3 March 2005 to reflect the re-statement of joint ventureand associate balance sheets at the date of transition to IFRS. The adjustmentsprimarily relate to the recognition of pension scheme liabilities in accordancewith IAS 19. g) IAS 12 Income Taxes The Group's IAS 12 amendments are netted off and affect those deferred taxassets or liabilities which taken together comprise the net deferred taxliability at the balance sheet date. The impact implementing IFRS has on the deferred tax liability is an increase of£15.3m and £73.3m at 5 March 2004 and at 3 March 2005 respectively. In addition to the adjustments above made to deferred tax, further adjustmentsthat have been made as a result of implementing IAS 12 are outlined below: • The standard requires a deferred tax provision for all capital gains that have been subject to rollover relief claims. Under UK GAAP, deferred tax was only provided on assets subject to such claims to the extent that the liability was expected to crystallise. This has resulted in the creation of a deferred tax liability of £95.1m and £97.1m as at 5 March 2004 and 3 March 2005 respectively. • The creation of a deferred tax liability for revaluation gains was not permitted under UK GAAP, however, it is required under IAS 19. Although the Group has not revalued its properties since the 1999/2000 financial year, and does not intend to revalue properties going forward, the revalued carrying amounts at the date of transition to IFRS will form the deemed costs under IFRS. A transitional deferred tax liability is therefore required at 5 March 2004 amounting to £43.4m and £44.1m at 3 March 2005. • Under IFRS 3 Business Combinations, the acquisition of Premier Travel Inn required fair valuing giving rise to a deferred tax liability of £60.0m and a goodwill adjustment for the same value as at 3 March 2005. • A deferred tax asset of £3.4m has been recognised with respect of discounted provisions relating to below market rent adjustments in existence at the date of transition to IFRS. This has increased to £3.8m as at 3 March 2005. The above changes increase the deferred tax liability as follows: 3 March 5 March 2005 2004 £m £m Recognised under UK GAAP (165.4) (152.6) Derecognition of SSAP 24 pension scheme asset 18.5 9.6Deferred tax provision for rolled over capital gains (97.1) (95.1)Deferred tax provision for previously revalued properties (44.1) (43.4)Deferred tax provision for Premier Travel Inn (60.0) -Increase in deferred tax liability (182.7) (128.9) Recognition of IAS 19 defined benefit pension scheme liability 103.8 109.8Recognition of share-based payments 1.8 0.4Recognition of deferred tax on discounted provisions 3.8 3.4 Recognition of deferred tax asset 109.4 113.6 Net deferred tax liability increase (73.3) (15.3) Recognised under IFRS (238.7) (167.9) 5. Accounting policies under IFRS Basis of accounting The consolidated financial statements of Whitbread PLC and all its subsidiarieshave been prepared in accordance with International Financial ReportingStandards (IFRS) for the first time. The consolidated financial statements have been prepared on a historical costbasis except for derivative financial instruments and available-for-salefinancial assets that have been measured at fair value. The carrying values ofrecognised assets and liabilities that are the subject of a fair value hedge areadjusted to record changes in the fair values attributable to the risks that arebeing hedged. The consolidated financial statements are presented in poundssterling and all values are rounded to the nearest hundred thousand except whenotherwise indicated. The principal accounting policies adopted are set outbelow. Basis of consolidation The consolidated financial statements incorporate the accounts of the companyand all Group undertakings, together with the Group's share of the net assetsand results of joint ventures and associates incorporated in these financialstatements using the equity method of accounting. These are adjusted, whereappropriate, to conform to Group accounting policies. Apart from the acquisition of Whitbread Group PLC by Whitbread PLC in 2000/1,which was accounted for using merger accounting, acquisitions are accounted forunder the acquisition method and any goodwill arising is capitalised as anintangible fixed asset. The results of subsidiaries acquired or disposed ofduring the year are included in the consolidated income statement up to the datethat control passes respectively. All intra-group transactions, balances, incomeand expenses are eliminated on consolidation. Unrealised losses are alsoeliminated unless the transaction provides evidence of an impairment of theasset transferred. Intangible assets Goodwill Goodwill arising on acquisition is capitalised and represents the excess of thecost of acquisition over the Group's interest in the fair value of theidentifiable assets and liabilities of a subsidiary at the date of acquisition.Goodwill is reviewed for impairment annually or more frequently if events orchanges in circumstances indicate that the carrying value may be impaired. Ondisposal of a subsidiary the attributable amount of goodwill is included in thedetermination of the profit or loss on disposal. It was the company's policy to eliminate goodwill arising on acquisitionsdirectly against reserves up to the financial year 1996/7. In accordance withIFRS 3 Business Combinations, such goodwill will remain eliminated againstreserves and is not included in determining any subsequent profit or loss ondisposal. IT software IT software is amortised, on a straight-line basis over five years. The carryingvalues are reviewed for impairment if events or changes in circumstancesindicate that their carrying value may not be recoverable. Property, plant and equipment Prior to the 1999/2000 financial year, properties were regularly revalued on acyclical basis. Since this date the Group policy has been not to revalue itsproperties and, while previous valuations have been retained, they have not beenupdated. As permitted by IFRS 1, the Group has elected to use the UK GAAPrevaluations before the date of transition to IFRS as deemed cost at the date oftransition. Fixed assets are stated at cost or deemed cost at transition to IFRSless accumulated depreciation and any impairment in value. Gross interest costsincurred on the financing of major projects are capitalised until the time thatthey are available for use. Depreciation is calculated on a straight-line basisover the estimated useful life of the asset as follows: • Freehold land is not depreciated. • Freehold buildings are depreciated to their estimated residual values over periods up to 50 years. • Properties held under finance leases are depreciated over the shorter of their estimated useful lives and the remaining lease period. • Administration and logistics furniture, fixtures and equipment are depreciated over 3 to 30 years. • Retail furniture, fixtures and equipment are depreciated over 4 to 25 years. • Vehicles are depreciated over 4 to 10 years. Payments made on entering into or acquiring leaseholds that are accounted for asoperating leases represent prepaid lease payments. These are amortised on astraight-line basis over the lease term. The carrying values of property, plant and equipment are reviewed for impairmentif events or changes in circumstances indicate that their carrying value may notbe recoverable. Any impairment in the value of fixed assets is charged to theincome statement. Profits and losses on disposal of fixed assets reflect the difference betweennet selling price and the carrying amount at the date of disposal and isrecognised in the income statement. Inventories Inventories are stated at the lower of cost and net realisable value. The costof finished goods includes appropriate overheads. Cost is calculated on thebasis of first in, first out and net realisable value is the estimated sellingprice less any costs of disposal. Provisions Provisions for warranties, onerous contracts and restructuring costs arerecognised when the Group has a present legal or constructive obligation as aresult of a past event; it is probable that an outflow of resources will berequired to settle the obligation; and a reliable estimate can be made of theamount of the obligation. Foreign currency translation Assets and liabilities denominated in foreign currencies are translated intosterling at the rates of exchange quoted at the balance sheet date. Tradingresults are translated into sterling at average rates of exchange for the year.Day to day transactions are recorded in sterling at the rates ruling on the dateof those transactions. Currency gains and losses arising from the retranslationof the opening net assets of foreign operations, less those arising from relatedcurrency borrowings to the extent that they are matched, are recorded as amovement on reserves, net of tax. The differences that arise from translatingthe results of overseas businesses at average rates of exchange, and theirassets and liabilities at closing rates, are also dealt with in reserves. Allother currency gains and losses are dealt with in the profit and loss account. Revenue recognition Generally, revenue is the value of goods and services sold to third parties aspart of the Group's trading activities, after deducting discounts andsales-based taxes. The following is a description of the composition of revenuesof the Group. Owned hotel revenue - including the rental of rooms and food and beverage salesfrom a network of hotels. Revenue is recognised when rooms are occupied and foodand beverage is sold. Franchise fees - received in connection with the franchise of the Group's brandnames. Revenue is recognised when earned. Leisure club subscriptions - subscriptions are recognised over the period thatmembership relates. Sale of food and beverages in operations - revenue is recognised when food andbeverages are sold. Interest income is recognised as the interest accrues using the effectiveinterest method. Dividend income is recognised when the shareholders' right to receive thepayment is established. Leases Leases where the lessor retains substantially all the risks and benefits ofownership of the asset are classified as operating leases. Rental payments inrespect of operating leases are charged against operating profit on astraight-line basis over the period of the lease. Lease incentives arerecognised as a reduction of rental income over the lease term. Borrowing costs Borrowing costs are recognised as an expense in the period in which they areincurred. Pensions and other post-employment benefits In respect of defined benefit pension schemes, the obligation recognised in thebalance sheet represents the present value of the defined benefit obligation asadjusted for any unrecognised past service cost, reduced by the fair value ofthe scheme assets. The cost of providing benefits is determined using theprojected unit credit actuarial valuation method. Actuarial gains and losses arerecognised in full in the period in which they occur in the statement ofrecognised income and expense. Payments to defined contribution pension schemes are charged as an expense asthey fall due. Share-based payment transactions Certain employees and directors of the Group receive equity-settled remunerationin the form of share-based payment transactions, whereby employees renderservices in exchange for shares or rights over shares. The costs ofequity-settled transactions with employees are measured by reference to the fairvalue, determined using a stochastic model, at the date at which they aregranted. The cost of equity-settled transactions are recognised, together with acorresponding increase in equity, over the period in which the performanceconditions are fulfilled, ending on the relevant vesting date. The cumulativeexpense recognised for equity-settled transactions at each reporting date untilthe vesting date reflects the extent to which the vesting period has expired,and is adjusted to reflect the directors best available estimate of the numberof equity instruments that will ultimately vest. The income statement charge orcredit for a period represents the movement in cumulative expense recognised asat the beginning and end of that period. The Group has taken advantage of the transitional provisions of IFRS 2 inrespect of equity-settled awards and has applied IFRS 2 only to equity-settledawards granted after 7 November 2002 that had not vested on or before 1 January2005. Tax The income tax charge represents both the income tax payable, based on profitsfor the year, and deferred income tax. Deferred income tax is recognised infull, using the liability method, in respect of temporary timing differencesbetween the tax base of the Groups assets and liabilities, and their carryingamounts, that have originated but not been reversed by the balance sheet date.No deferred tax is recognised if the temporary timing difference arises fromgoodwill or the initial recognition of an asset or liability in a transactionthat is not a business combination and, at the time of the transaction, affectsneither the accounting profit nor taxable profit or loss. Deferred income tax isrecognised in respect of taxable temporary differences associated withinvestments in subsidiaries, associates and interests in joint ventures, exceptwhere the timing of the reversal of the temporary differences can be controlledand it is probable that the temporary differences will not reverse in theforeseeable future. Deferred income tax assets are recognised for all deductible temporarydifferences, carry-forward of unused tax assets and unused tax losses to theextent that it is probable that taxable profit will be available against whichthe deductible temporary timing differences, carry-forward of unused tax assetsand unused tax losses can be utilised. The carrying amount of deferred incometax assets is reviewed at each balance sheet date and reduced to the extent thatit is no longer probable that sufficient taxable profit will be available toallow all or part of the deferred income tax asset to be utilised. Deferred income tax assets and liabilities are measured at the tax rates thatare expected to apply in the year when the asset is realised or the liability issettled, based on tax rates that have been enacted or substantively enacted atthe balance sheet date. Income tax relating to items recognised directly in equity is recognised inequity and not in the income statement. Financial Instruments Investments Interests in subsidiaries, associates and joint ventures are initiallyrecognised at cost, being the fair value of the consideration given andincluding acquisition charges associated with the investment. After initial recognition, investments, which are classified as held for tradingand available-for-sale and are measured at fair value. Gains or losses oninvestments held for trading are recognised in the income statement for theperiod. For available-for-sale investments, gains and losses arising fromchanges in fair value are recognised directly in equity, until the investment isdisposed of at which time the cumulative gain or loss previously reported inequity is included in the income statement for the period. For investments that are actively traded in organised financial markets, fairvalue is determined by reference to Stock Exchange quoted market bid prices atthe close of business on the balance sheet date. For investments where there isno quoted market price, fair value is determined by reference to the currentmarket value of another instrument which is substantially the same or iscalculated based on the expected cash flows of the underlying net asset base ofthe investment. Interest income is recognised in profit or loss as the interestaccrues using the effective interest method. Impairment losses and foreignexchange gains and losses are recognised in profit or loss. Financial liabilities that are not part of a hedge relationship are recognisedat amortised cost. Trade and other receivables Trade receivables are recognised and carried at original invoice amount less anallowance for any uncollectable amounts. An estimate for doubtful debts is madewhen collection of the full amount is no longer probable. Bad debts are writtenoff when identified. Cash and cash equivalents Cash and short-term deposits in the balance sheet comprise cash at bank and inhand and short-term deposits with an original maturity of three months or less.For the purpose of the consolidated cash flow statement, cash and cashequivalents consist of cash and cash equivalents as defined above, net ofoutstanding bank overdrafts. Borrowings Borrowings are initially recognised at fair value of the consideration receivednet of any associated issue costs. Borrowings are subsequently recorded atamortised cost, with any difference between the amount initially recorded andthe redemption value recognised in the income statement using the effectiveinterest method. Derivative financial instruments The main financial risks faced by the Group relate to: the availability of fundsto meet business needs; fluctuations in interest rates; and the risk of defaultby a counter party in a financial transaction. The treasury committee, which ischaired by the Finance Director, reviews and monitors the treasury function. Theundertaking of financial transactions of a speculative nature is not permitted. The Group finances its operations by a combination of internally generated cashflow, bank borrowings and long-term debt market issues. The Group seeks toachieve a spread in the maturity of its debts. Interest rate swaps and interestrate caps are used to achieve the desired mix of fixed and floating rate debt.The Group's policy is to fix or cap a proportion of projected net interest costsover the next five years. This policy reduces the Group's exposure to theconsequences of interest rate fluctuations. The Group uses foreign currencyborrowings to provide a partial hedge against overseas investments. Transactionexposures resulting from purchases in foreign currencies are usually hedged byforward foreign currency options. Derivative financial instruments used by the Group are stated at fair value. Forthe purposes of hedge accounting, hedges are classified as either fair valuehedges when they hedge the exposure to changes in the fair value of a recognisedasset or liability; or cash flow hedges where they hedge exposure to variabilityin cash flows that is either attributable to a particular risk associated with arecognised asset or liability or a forecasted transaction. Gains or losses from re-measuring fair value hedges, which meet the conditionsfor hedge accounting, are recorded in the income statement, together with thecorresponding changes in the fair value of the hedged instruments attributableto the hedged risk. Where the adjustment is to the carrying amount of a hedgedfinancial instrument, the adjustment is amortised to the net profit and losssuch that it is fully amortised by maturity. The portion of any gains or losses of cash flow hedges, which meet theconditions for hedge accounting and are determined to be effective hedges, arerecognised directly in equity. The gains or losses relating to the ineffectiveportion are recognised immediately in the income statement. When an unrecognised firm commitment is designated as a hedged item, thesubsequent cumulative change in the fair value of the firm commitmentattributable to the hedged risk is recognised as an asset or liability with acorresponding gain or loss recognised in profit or loss. The changes in the fairvalue of the hedging instrument are also recognised in profit or loss. For cashflow hedges, the gains or losses that are recognised in equity are transferredto the income statement in the same year in which the hedged firm commitmentaffects the net profit and loss. For derivatives that do not qualify for hedge accounting, any gains or lossesarising from changes in fair value are recognised immediately in the incomestatement. Hedge accounting is discontinued when the hedging instrument expires or is sold,terminated or exercised, or no longer qualifies for hedge accounting. At thatpoint in time, any cumulative gain or loss on the hedging instrument recognisedin equity is kept in equity until the forecasted transaction occurs. If a hedgedtransaction is no longer expected to occur, the net cumulative gain or lossrecognised in equity is transferred to the income statement. Segmental Reporting The Group's primary reporting format is business segments and its secondaryformat is geographical segments. The Group has three main business segments thatare further broken down by business units within each segment. The three main segments are as follows: • Hotels - comprises the activities of the Group's owned and managed hotels. • Restaurants - comprising the activity of pub restaurants and high street restaurants. • Sport, health and fitness - comprising the activity of David Lloyd Leisure. The geographical split of the Group's activities comprises activities within theUnited Kingdom and those across the rest of the world. -ENDS- This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Whitbread