29th Sep 2005 07:01
Stagecoach Group PLC29 September 2005 STAGECOACH GROUP PLC Re-statement of financial information for the year ended 30 April 2005 from UK GAAP TO IFRS SUMMARY Year ended 30 April 2005 • Basic earnings per share 9% higher at 7.4p (UK GAAP: 6.8p) - primarily due to reversal of goodwill amortisation and lower pension costs• Adjusted* earnings per share 4% higher at 9.4p (UK GAAP: 9.0p) - primarily due to lower pension costs• Net assets £121.4m (UK GAAP: £219.0m) - primarily due to recognition of pension scheme deficits• IAS 32 and IAS 39 applied from 1 May 2005 1 May 2005 • IAS 32 and IAS 39 applied: - Net assets £114.2m (before IAS 32/39: £121.4m) - Net debt £235.0m (before IAS 32/39: £214.6m) Six months ended 31 October 2004 • Basic earnings per share 3.4p (UK GAAP: 3.2p)• Adjusted* earnings per share 4.2p (UK GAAP: 4.0p)• Net assets £134.2m (UK GAAP: £208.5m) * Excluding the amortisation of intangible assets and exceptional items A PDF copy of this announcement is available on Stagecoach Group's website athttp://www.stagecoach.com/scg/ir/finanalysis/reports/2005/ A copy of the related slide presentation is available on Stagecoach Group'swebsite at http://www.stagecoach.com/scg/ir/finanalysis/presentations/2005/ For further information: Martin Griffiths, Finance Director, Stagecoach GroupTel: 01738 442 111 Steve Stewart, Head of Media and Public Affairs, Stagecoach GroupTel: 01738 442 111 Introduction Stagecoach Group plc ("the Group") previously prepared its primary consolidatedfinancial statements in accordance with UK Generally Accepted AccountingPractice ("UK GAAP") for periods up to and including 30 April 2005. From 1 May2005 onwards, the Group is required to prepare its consolidated financialstatements in accordance with International Accounting Standards ("IAS") andInternational Financial Reporting Standards ("IFRS") as adopted by the EuropeanUnion ("EU"). This change applies to all financial reporting for accountingperiods beginning on or after 1 January 2005 and, consequently, Stagecoach'sfirst published IFRS results will be its interim results for the six monthsending 31 October 2005. The Group's first Annual Report under IFRS will be forthe year ending 30 April 2006. As the Group publishes comparative information inits Annual Report, the date for transition to IFRS is 1 May 2004, this being thestart of the earliest period of comparative information. To explain how the Group's reported performance and financial position areaffected by this change, information previously published under UK GAAP isrestated under IFRS on pages 5 to 15 as follows: • Page 5 to 7 - Restated Consolidated Income Statement, Balance Sheet and Statement of Recognised Income and Expense for the year ended 30 April 2005• Page 8 - Reconciliation of Profit for the year ended 30 April 2005• Page 9 - Reconciliation of Operating Profit by division for the year ended 30 April 2005• Page 10 - Reconciliation of Profit for the six months ended 31 October 2004• Page 11 - Reconciliation of Operating Profit by division for the six months ended 31 October 2004• Page 12 - Reconciliation of Equity as at 30 April 2005• Page 13 - Reconciliation of Equity as at 31 October 2004• Page 14 - Reconciliation of Equity as at the transition date of 1 May 2004• Page 15 - Reconciliation of Equity on transition to IAS 32 and IAS 39, being 1 May 2005 The remainder of this announcement goes on to explain in detail each of theadjustments made and the relevant differences between UK GAAP and IFRS thatnecessitates each of these adjustments. Basis of preparation The financial information has been prepared in accordance with IFRS. Aspermitted by IAS 32 'Financial Instruments: Disclosure and Presentation' and IAS39 'Financial Instruments: Recognition and Measurement', the Group has chosennot to restate its comparative information for the year ended 30 April 2005 forfinancial instruments. The Group has applied IAS 32 and IAS 39 with effect from1 May 2005. Cautionary Statement IFRS are being applied in the EU for the first time. These financial statementshave been prepared on the basis of IFRSs expected to be available at 30 April2006. New standards and interpretations may be issued by the IASB and / orendorsed by the EU prior to the completion of our first full reporting periodunder IFRS on 30 April 2006. There are a number of new and revised standardsincluded within the body of Standards that comprise IFRS. There is not yet anysignificant established practice upon which to draw in forming opinionsregarding their interpretation and application. Accordingly practice iscontinuing to evolve. At this stage, therefore, the full financial effect ofreporting under IFRS, as it will be applied and reported on in the Group's firstIFRS financial statements, cannot be determined with certainty and may besubject to change. The financial information which follows represents ourcurrent view and may be impacted by changes in the business or to IFRS or theinterpretation thereof. This statement should therefore be treated withappropriate caution. This announcement and the results included within it areunaudited. Overview of impact 30 April 2005 31 October 2004 1 May 2004 UK GAAP IFRS UK GAAP IFRS UK GAAP IFRSOperating profit £132.8m £140.6m £69.9m £74.1m - -Profit before tax £108.3m £112.9m £57.2m £59.3m - -Profit after tax £78.8m £85.9m £40.3m £43.3m - -Earnings per share (basic) 6.8p 7.4p 3.2p 3.4p - -Earnings per share 9.0p before exceptional items and amortisationof intangibleassets) 9.4p 4.0p 4.2p - -Net assets £219.0m £121.4m £208.5m £134.2m £390.0m £328.2m The most significant elements contributing to the change in financialinformation for the six months ended 31 October 2004 and for the year ended 30April 2005 are: • the recognition, on the balance sheet, of employee benefit (pensions) liabilities.• the inclusion of a fair value charge in respect of outstanding employee share options.• the cessation of goodwill amortisation.• the non recognition of proposed dividends.• the recognition of the fair value of selected fixed assets at deemed cost. Exceptional items Unlike UK GAAP, there is no definition of "exceptional items" in IFRS. Whereapplicable, the Group intends to continue to highlight amounts before theamortisation of intangible assets and exceptional items as well as clearlyreporting the results in accordance with IFRS. This is intended to enable theusers of the accounts to determine more readily the impact of amortisation andexceptional items on the results of the Group. For this purpose, "exceptionalitems" are items which individually or, if of a similar type, in aggregate, needto be disclosed by virtue of their size or incidence if the accounts are topresent fairly the financial performance of the Group. Consolidated Income Statement (IFRS)For the year ended 30 April 2005 Performance pre 2005 amortisation Amortisation of of intangible intangible assets and assets and exceptional exceptional Results for items items the year £m £m £m Revenue 1,479.5 Nil 1,479.5Operating costs (1,503.6) (4.9) (1,508.5)Other operating income (net) 175.6 (0.6) 175.0Operating profit of Group companies 151.5 (5.5) 146.0Share of loss of joint ventures - after interest and taxation 9.7 (14.7) (5.0)Share of loss from interest in associates - after interest andtaxation (0.4) Nil (0.4)Total operating profit: Group and share of joint ventures andassociates 160.8 (20.2) 140.6Profit on sale of properties Nil 1.3 1.3Loss on disposal of operations Nil (7.4) (7.4)Profit on ordinary activities before interest and taxation 160.8 (26.3) 134.5Finance charges - interest expense (35.2) Nil (35.2)- interest income 13.6 Nil 13.6Profit on ordinary activities before taxation 139.2 (26.3) 112.9Taxation on profit on ordinary activities (29.7) 2.7 (27.0)Profit for the year 109.5 (23.6) 85.9Profit attributable to equity shareholders of the parent 109.5 (23.6) 85.9Earnings per share- Basic 7.4p- Adjusted 9.4p Consolidated Balance Sheet (IFRS)As at 30 April 2005 2005 2004 £m £mASSETSNon-current assetsGoodwill 93.6 99.4Other intangible assets 9.2 10.1Property, plant and equipment 694.2 671.1Investment in joint ventures 62.1 103.6Investments in associates 1.0 1.4Other investments 1.8 2.3Deferred tax asset 4.1 NilTrade and other receivables 6.7 17.2 872.7 905.1Current assetsInventories 12.5 11.8Trade and other receivables 169.2 180.4Cash and cash equivalents 140.0 476.5 321.7 668.7Assets held for sale Nil 8.1Total assets 1,194.4 1,581.9 LIABILITIESCurrent liabilitiesTrade and other payables (357.6) (355.5)Current tax liabilities (33.3) (34.0)Borrowings (126.5) (275.6) (517.4) (665.1)Non-current liabilitiesAccruals and deferred income (8.1) (6.0)Borrowings (228.1) (286.2)Provisions (98.5) (120.6)Retirement benefit obligations (220.9) (175.0) (555.6) (587.8)Liabilities associated with assets held Nil (0.8)for saleTotal liabilities (1,073.0) (1,253.7)Net assets 121.4 328.2 EQUITYCapital and reservesEquity share capital 6.8 6.7Redeemable 'B' preference shares 13.9 NilShare premium account 163.4 392.4Retained earnings (288.4) (68.7)Capital redemption reserve 229.1 1.7Own shares (6.8) (3.9)Translation reserve 3.4 NilShareholders' funds 121.4 328.2 Analysis of shareholders' fundsEquity 107.5 328.2Non-equity 13.9 Nil 121.4 328.2 Consolidated Statement of Recognised Income and Expense (IFRS)For the year ended 30 April 2005 2005 £m Exchange differences on translation of foreign operations, net 3.4of hedgingNet actuarial losses on Group defined benefit pension schemes (50.9)Net actuarial losses on joint ventures defined benefit pension (9.1)schemesTax on items taken directly to equity 18.0Net expense not recognised in income statement (38.6)Profit for the year attributable to equity shareholders of the 85.9parentTotal recognised income and expense for the year attributable 47.3to equity shareholders of the parent Reconciliation of ProfitFor the year ended 30 April 2005 Joint ventures & Total Good- assoc- effect Previously Empl- will iates Assets of reported oyee and Share net held First Joint trans- Restated under Bene- intang- Based liabi- for time vent- ition under UK fits ibles Payments lities sale adoption ures to IFRS GAAP (1) (2) (3) (5) (6) (7) (8) IFRS Unaudited £m £m £m £m £m £m £m £m £m £m Revenue 1,479.5 - - - - - - - - 1,479.5 Operating costs (1,517.1) 2.8 6.8 (1.4) - 0.1 0.3 - 8.6 (1,508.5)Other operating income (net) 173.3 1.7 - - - - - - 1.7 175.0Operating profit of Group companies 135.7 4.5 6.8 (1.4) - 0.1 0.3 - 10.3 146.0 Share of operating loss of (2.2) 0.6 0.1 - - - - (3.5) (2.8) (5.0)joint ventures (IFRS - afterinterest and taxation)Share of operating loss from(0.7) - 0.3 - - - - - 0.3 (0.4)interest in associates (IFRS- after interest andtaxation)Total operating profit: 132.8 5.1 7.2 (1.4) - 0.1 0.3 (3.5) 7.8 140.6Group and share of jointventures and associatesProfit on sale of properties 1.3 - - - - - - - - 1.3Loss on disposal of (5.9) - (0.4) - (1.0) (0.1) - - (1.5) (7.4)operationsProfit on ordinary 128.2 5.1 6.8 (1.4) (1.0) - 0.3 (3.5) 6.3 134.5activities before interestand taxationFinance charges (net) (19.9) - - - - - - (1.7) (1.7) (21.6)Profit on ordinary 108.3 5.1 6.8 (1.4) (1.0) - 0.3 (5.2) 4.6 112.9 activities before taxationTaxation on profit on (29.5) (1.8) (0.9) - - - - 5.2 2.5 (27.0)ordinary activities Profit for the year 78.8 3.3 5.9 (1.4) (1.0) - 0.3 - 7.1 85.9Profit attributable to 78.8 3.3 5.9 (1.4) (1.0) - 0.3 - 7.1 85.9equity shareholders of theparentEarnings per share- Basic 6.8p 0.3p 0.5p (0.1)p (0.1) - - - 0.6p 7.4p- Adjusted 9.0p 0.5p - (0.1)p - - - - 0.4p 9.4p Note: all adjustments are explained by reference to number on pages 16 to 25 Reconciliation of Operating Profit by Division For the year ended Previously Employee Goodwill Share Assets First Joint Total Restated30 April 2005 reported Benefits and Based held for time ventures effect of under under UK (1) intangibles Payments sale adoption (8) transition IFRS GAAP (2) (3) (6) (7) to IFRS Unaudited £m £m £m £m £m £m £m £m £m UK Bus - pre-exceptionals 82.5 5.4 - (0.5) - 0.3 - 5.2 87.7- exceptionals (0.8) - - - - - - - (0.8)North America 14.8 0.1 0.7 (0.2) 0.1 - - 0.7 15.5New Zealand 8.7 - - - - - - - 8.7Total bus operations 105.2 5.5 0.7 (0.7) 0.1 0.3 - 5.9 111.1UK Rail 48.6 1.8 - (0.4) - - - 1.4 50.0Total operations 153.8 7.3 0.7 (1.1) 0.1 0.3 - 7.3 161.1Group overheads - (8.8) 0.1 - (0.3) - - - (0.2) (9.0)pre-exceptionals - exceptionals (0.6) - - - - - - - (0.6)Goodwill/Intangible (7.3) (2.9) 6.1 - - - - 3.2 (4.1)amortisationRedundancy/restructuring (1.4) - - - - - - - (1.4)costsTotal operating profit of 135.7 4.5 6.8 (1.4) 0.1 0.3 10.3 146.0Group operationsShare of operating profit of 12.7 0.6 (0.1) - - - (3.5) (3.0) 9.7joint ventures (IFRS - afterinterest and taxation)Goodwill amortised on joint (14.9) - 0.2 - - - - 0.2 (14.7)venturesShare of operating loss of (0.4) - - - - - - - (0.4)associates (IFRS - afterinterest and taxation)Goodwill amortised on (0.3) - 0.3 - - - - 0.3 -associatesTotal operating profit: 132.8 5.1 7.2 (1.4) 0.1 0.3 (3.5) 7.8 140.6Group and share of joint venturesand associates Note: all adjustments are explained by reference to number on pages 16 to 25 Reconciliation of ProfitFor the six months ended 31 October 2004 Joint ventures & Total Good- assoc- effect Previously Empl- will iates Assets of reported oyee and Share net held First Joint trans- Restated under Bene- intang- Based liabi- for time vent- ition under UK fits ibles Payments lities sale adoption ures to IFRS GAAP (1) (2) (3) (5) (6) (7) (8) IFRS Unaudited £m £m £m £m £m £m £m £m £m £m Revenue 735.7 - - - - - - - - 735.7 -Operating costs (750.1) 1.0 3.4 (0.6) - 0.1 0.1 - 4.0 (746.1)Other operating income 83.9 0.8 - - - - - - 0.8 84.7(net)Operating profit of Group 69.5 1.8 3.4 (0.6) - 0.1 0.1 - 4.8 74.3companiesShare of operating profit 0.8 0.5 0.1 - - - - (1.4) (0.8) -of joint ventures (IFRS - after interest and taxation)Share of operating loss (0.4) - 0.2 - - - - - 0.2 (0.2)interest in associates (IFRS- after interest andtaxation)Total operating profit: 69.9 2.3 3.7 (0.6) - 0.1 0.1 (1.4) 4.2 74.1Group and share of jointventures and associatesProfit on sale of properties 1.3 - - - - - - - - 1.3Loss on disposal of (4.7) - (0.2) - (1.0) (0.1) - - (1.3) (6.0)operationsProfit on ordinary 66.5 2.3 3.5 (0.6) (1.0) - 0.1 (1.4) 2.9 69.4activities before interestand taxationFinance charges (net) (9.3) - - - - - - (0.8) (0.8) (10.1)Profit on ordinary 57.2 2.3 3.5 (0.6) (1.0) - 0.1 (2.2) 2.1 59.3activities before taxationTaxation on profit on (16.9) (0.8) (0.5) - - - - 2.2 0.9 (16.0)ordinary activitiesProfit for the period 40.3 1.5 3.0 (0.6) (1.0) - 0.1 - 3.0 43.3Profit attributable to 40.3 1.5 3.0 (0.6) (1.0) - 0.1 - 3.0 43.3equity shareholders of theparentEarnings per share- Basic 3.2p 0.1p 0.2p - (0.1) - - - 0.2p 3.4p- Adjusted 4.0p 0.2p - - - - - - 0.2p 4.2p Note: all adjustments are explained by reference to number on pages 16 to 25 Reconciliation of Operating Profit by Division For the six months Previously Employee Goodwill Share Assets First Joint Total RestatedEnded 31 October 2004 reported Benefits and Based held for time ventures effect of under under UK (1) intangibles Payments sale adoption (8) transition IFRS GAAP (2) (3) (6) (7) to IFRS Unaudited £m £m £m £m £m £m £m £m £m UK Bus 38.2 2.4 - (0.2) - 0.1 - 2.3 40.5North America 14.4 - 0.2 (0.1) 0.1 - - 0.2 14.6New Zealand 3.9 - - - - - - - 3.9Total bus operations 56.5 2.4 0.2 (0.3) 0.1 0.1 - 2.5 59.0UK Rail 21.6 1.0 - (0.1) - - - 0.9 22.5Total operations 78.1 3.4 0.2 (0.4) 0.1 0.1 - 3.4 81.5Group overheads - (4.2) - - (0.2) - - - (0.2) (4.4)pre-exceptionals- exceptionals (0.6) - - - - - - - (0.6)Goodwill/Intangible (3.5) (1.5) 3.1 - - - - 1.6 (1.9)amortisationRedundancy/restructuring (0.3) - - - - - - - (0.3)costsTotal operating profit of 69.5 1.9 3.3 (0.6) 0.1 0.1 - 4.8 74.3Group operationsShare of operating profit of 5.1 0.4 - - - - (1.4) (1.0) 4.1joint ventures (IFRS - afterinterest and taxation)Goodwill amortised on joint (4.3) - 0.2 - - - - 0.2 (4.1)venturesShare of operating loss of (0.2) - - - - - - - (0.2)associates (IFRS - afterinterest and taxation)Goodwill amortised on (0.2) - 0.2 - - - - 0.2 -associatesTotal operating profit: Group69.9 2.3 3.7 (0.6) 0.1 0.1 (1.4) 4.2 74.1and share of joint venturesand associates Note: all adjustments are explained by reference to number on pages 16 to 25 Reconciliation of Equity RestatedAs at 30 Previously Opening Employee Goodwill Proposed Joint Assets First Other Total April 2005 reported balance Benefits and dividends ventures held time effect of under under UK sheet intangibles and for adoption transition IFRS GAAP adjustment associates sale to IFRS Un- * net audited liabilities (1) (2) (4) (5) (6) (7) £m £m £m £m £m £m £m £m £m £m £mASSETSNon-currentassetsGoodwill 89.5 (4.1) - 4.6 - - 3.6 - - 4.1 93.6Other - 10.1 (2.9) 2.0 - - - - - 9.2 9.2intangibleassetsProperty, 640.2 53.1 - (0.2) - - 0.8 0.3 - 54.0 694.2plant andequipmentInvestments 71.2 (2.9) (6.1) (0.1) - - - - - (9.1) 62.1in jointventuresInvestments 0.7 - - 0.3 - - - - - 0.3 1.0in associatesOther 1.7 - - 0.1 - - - - - 0.1 1.8investmentsDeferred tax 4.1 - - - - - - - - - 4.1assetTrade and 44.6 (40.8) 2.9 - - - - - - (37.9) 6.7otherreceivables 852.0 15.4 (6.1) 6.7 - - 4.4 0.3 - 20.7 872.7CurrentassetsInventories 12.5 (1.6) - - - - 1.6 - - - 12.5Trade and 174.1 11.2 (0.6) 0.1 - - 2.1 - (17.7) (4.9) 169.2otherreceivablesCash and cash 140.0 - - - - - - - - - 140.0equivalents 326.6 9.6 (0.6) 0.1 - - 3.7 - (17.7) (4.9) 321.7Assets held - 8.1 - - - - (8.1) - - - -for saleTotal assets 1,178.6 33.1 (6.7) 6.8 - - - 0.3 (17.7) 15.8 1,194.4 LIABILITIESCurrentliabilitiesTrade and 357.6 (0.7) - - - - 0.7 - - - 357.6otherpayablesCurrent tax 33.3 - - - - - - - - - 33.3liabilitiesBorrowings 126.5 17.7 - - - - - - (17.7) - 126.5Dividends 24.4 (26.5) - - 2.1 - - - - (24.4) -payable 541.8 (9.5) - - 2.1 - 0.7 - (17.7) (24.4) 517.4Non-currentliabilitiesAccruals and 8.1 - - - - - - - - - 8.1deferredincomeBorrowings 228.1 - - - - - - - - - 228.1Provisions - - (1.0) - - - 1.0 - - - - -jointventures- others 181.6 (70.4) (13.9) 1.1 - - 0.1 - - (83.1) 98.5Retirement - 175.0 45.9 - - - - - - 220.9 220.9benefitobligations(IAS 19deficit) 417.8 103.6 32.0 1.1 - 1.0 0.1 - - 137.8 555.6Liabilities - 0.8 - - - - (0.8) - - - -associatedwith assetsheld for saleTotal 959.6 94.9 32.0 1.1 2.1 1.0 - - (17.7) 113.4 1,073.0liabilities Net assets 219.0 (61.8) (38.7) 5.7 (2.1) (1.0) - 0.3 - (97.6) 121.4 EQUITYCapital andreservesEquity share 6.8 - - - - - - - - - 6.8capitalRedeemable 13.9 - - - - - - - - - 13.9'B'preferencesharesShare premium 163.4 - - - - - - - - - 163.4accountRetained (187.4) (61.8) (38.7) 5.7 (2.1) (1.0) - 0.3 (3.4) (101.0) (288.4)earningsCapital 229.1 - - - - - - - - - 229.1redemptionreserveOwn shares (6.8) - - - - - - - - - (6.8)Translation - - - - - - - - 3.4 3.4 3.4reserveShareholders' 219.0 (61.8) (38.7) 5.7 (2.1) (1.0) - 0.3 - (97.6) 121.4funds Analysis ofshareholders'fundsEquity 205.1 (61.8) (38.7) 5.7 (2.1) (1.0) - 0.3 - (97.6) 107.5Non-equity 13.9 - - - - - - - - - 13.9 219.0 (61.8) (38.7) 5.7 (2.1) (1.0) - 0.3 - (97.6) 121.4 Note: all adjustments are explained by reference to number on pages 16 to 25* See reconciliation of equity as at 1 May 2004 on page 14 Reconciliation of Equity As at 31 Previously Opening Employee Goodwill Proposed Joint Assets First Other Total RestatedOctober 2004 reported balance Benefits and dividends ventures held time effect of under under UK sheet (1) intangibles (4) and for adoption transition IFRS GAAP adjustment (2) associates sale (7) to IFRS Un- * net (6) audited liabilities (5) £m £m £m £m £m £m £m £m £m £m £mASSETSNon-currentassetsGoodwill 97.6 (4.1) - 1.7 - - 1.7 - - (0.7) 96.9Other - 10.1 (1.5) 1.2 - - - - - 9.8 9.8intangibleassetsProperty, 636.4 53.1 - (0.2) - - 0.5 0.1 - 53.5 689.9plant andequipmentInvestments 85.0 (2.9) 0.2 (0.1) - - - - - (2.8) 82.2in jointventuresInvestments 1.0 - - 0.2 - - - - - 0.2 1.2in associatesOther 2.2 - - - - - - - - - 2.2investmentsTrade and 51.9 (40.8) (1.0) - - - - - - (41.8) 10.1otherreceivables 874.1 15.4 (2.3) 2.8 - - 2.2 0.1 - 18.2 892.3 CurrentassetsInventories 12.3 (1.6) - - - - 1.5 - - (0.1) 12.2Trade and 166.4 11.2 0.8 0.5 - - 1.0 - (17.6) (4.1) 162.3otherreceivablesCash and cash 363.1 - - - - - - - - - 363.1equivalents 541.8 9.6 0.8 0.5 - - 2.5 - (17.6) (4.2) 537.6Assets held - 8.1 - - - - (4.6) - - 3.5 3.5for saleTotal assets 1,415.9 33.1 (1.5) 3.3 - - 0.1 0.1 (17.6) 17.5 1,433.4 LIABILITIESCurrentliabilitiesTrade and 386.6 (0.7) - - - - 0.3 - 0.8 0.4 387.0otherpayablesCurrent tax 35.5 - - - - - - - - - 35.5liabilitiesBorrowings 283.4 17.7 - - - - - - (18.4) (0.7) 282.7Dividends 10.7 (26.5) - - 15.9 - - - - (10.6) 0.1payable 716.2 (9.5) - - 15.9 - 0.3 - (17.6) (10.9) 705.3 Non-currentliabilitiesAccruals and 9.1 - - - - - - - - - 9.1deferredincomeBorrowings 294.1 - - - - - - - - - 294.1Provisions - - (1.0) - - - 1.0 - - - - -jointventures- others 188.0 (70.4) 1.3 0.5 - - (0.1) - - (68.7) 119.3Retirement - 175.0 (4.3) - - - - - 170.7 170.7benefitobligations 491.2 103.6 (3.0) 0.5 - 1.0 (0.1) - - 102.0 593.2Liabilities - 0.8 - - - - (0.1) - - 0.7 0.7associatedwith assetsheld for saleTotal 1,207.4 94.9 (3.0) 0.5 15.9 1.0 0.1 - (17.6) 91.8 1,299.2liabilities Net assets 208.5 (61.8) 1.5 2.8 (15.9) (1.0) - 0.1 - (74.3) 134.2 EQUITYCapital andreservesEquity share 6.7 - - - - - - - - - 6.7capitalRedeemable 21.0 - - - - - - - - - 21.0'B'preferencesharesShare premium 154.1 - - - - - - - - - 154.1accountRetained (191.5) (61.8) 1.5 2.8 (15.9) (1.0) - 0.1 (6.1) (80.4) (271.9)earningsCapital 222.1 - - - - - - - - - 222.1redemptionreserveOwn shares (3.9) - - - - - - - - - (3.9)Translation - - - - - - - - 6.1 6.1 6.1reserveShareholders' 208.5 (61.8) 1.5 2.8 (15.9) (1.0) - 0.1 - (74.3) 134.2funds Analysis ofshareholders'fundsEquity 187.4 (61.8) 1.5 2.8 (15.9) (1.0) - 0.1 - (74.3) 113.1Non-equity 21.1 - - - - - - - - 21.1 208.5 (61.8) 1.5 2.8 (15.9) (1.0) - 0.1 - (74.3) 134.2 Note: all adjustments are explained by reference to number on pages 16 to 25 * See reconciliation of equity as at 1 May 2004 on page 14 Reconciliation of Equity As at 1 May Previously Employee Goodwill Proposed Joint Assets First Other Total Restated2004 reported Benefits and dividends ventures held time effect of under under UK (1) intangibles (4) and for adoption transition IFRS GAAP (2) associates sale (7) to IFRS Unaudited net (6) liabilities (5) £m £m £m £m £m £m £m £m £m £mASSETSNon-currentassetsGoodwill 103.5 - (0.5) - - (3.6) - - (4.1) 99.4Other - 8.1 2.0 - - - - - 10.1 10.1intangibleassetsProperty, plant 618.0 - - - - (0.8) 53.9 - 53.1 671.1and equipmentInvestment in 106.5 (3.9) 1.0 - - - - - (2.9) 103.6joint venturesInvestment in 1.4 - - - - - - - - 1.4associatesOther 2.3 - - - - - - - - 2.3investmentsTrade and other 58.0 (41.6) 0.8 - - - - - (40.8) 17.2receivables 889.7 (37.4) 3.3 - - (4.4) 53.9 - 15.4 905.1 Current assetsInventories 13.4 - - - - (1.6) - - (1.6) 11.8Trade and other 169.2 (1.9) (2.5) - - (2.1) - 17.7 11.2 180.4receivablesCash and cash 476.5 - - - - - - - - 476.5equivalents 659.1 (1.9) (2.5) - - (3.7) - 17.7 9.6 668.7Assets held for - - - - - 8.1 - - 8.1 8.1saleTotal assets 1,548.8 (39.3) 0.8 - - - 53.9 17.7 33.1 1,581.9 LIABILITIESCurrentliabilitiesTrade and other 356.2 - - - - (0.7) - - (0.7) 355.5payablesCurrent tax 34.0 - - - - - - - - 34.0liabilitiesBorrowings 257.9 - - - - - - 17.7 17.7 275.6Dividends 26.5 - - (26.5) - - - - (26.5) -payable 674.6 - - (26.5) - (0.7) - 17.7 (9.5) 665.1Non-currentliabilities Accruals and 6.0 - - - - - - - - 6.0deferred incomeBorrowings 286.2 - - - - - - - - 286.2Provisions - 1.0 - - - (1.0) - - - (1.0) -joint ventures- others 191.0 (70.3) - - - (0.1) - - (70.4) 120.6Retirement - 175.0 - - - - - - 175.0 175.0benefitobligations(IAS 19deficit) 484.2 104.7 - - (1.0) (0.1) - - 103.6 587.8Liabilities - - - - - 0.8 - - 0.8 0.8associated withassets held forsaleTotal 1,158.8 104.7 - (26.5) (1.0) - - 17.7 94.9 1,253.7liabilities Net assets 390.0 (144.0) 0.8 26.5 1.0 - 53.9 - (61.8) 328.2 EQUITYCapital andreservesEquity share 6.7 - - - - - - - - 6.7capitalShare premium 392.4 - - - - - - - - 392.4accountRetained (6.9) (144.0) 0.8 26.5 1.0 - 53.9 - (61.8) (68.7)earningsCapital 1.7 - - - - - - - - 1.7redemptionreserveOwn shares (3.9) - - - - - - - - (3.9)Shareholders' 390.0 (144.0) 0.8 26.5 1.0 - 53.9 - (61.8) 328.2funds Analysis ofshareholders'fundsEquity 390.0 (144.0) 0.8 26.5 1.0 - 53.9 - (61.8) 328.2Non-equity - - - - - - - - - - 390.0 (144.0) 0.8 26.5 1.0 - 53.9 - (61.8) 328.2 Reconciliation of Equity As at 1 May 2005 Restated Fair Redeemable Fair Reclass Reclass Reclass Other Total Restated under value 'B' shares value of of VRG of US$ of US$ effect of under IFRS of (b) FX loan bond bond transition IFRS (pre IAS swaps contracts (d) interest deferred to IFRS (post IAS 32/39) (a) (c) (e) gains 32/39) Unaudited (f) Unaudited £m £m £m £m £m £m £m £m £m £mASSETSNon-current assetsGoodwill 93.6 - - - - - - - - 93.6Other intangible 9.2 - - - - - - - - 9.2assetsProperty, plant and 694.2 - - - - - - - - 694.2equipmentInvestment in joint 62.1 - - - (3.3) - - - (3.3) 58.8venturesInvestment in 1.0 - - - - - - - - 1.0associatesOther investments 1.8 - - - - - - - - 1.8Deferred tax asset 4.1 - - - - - - - - 4.1Trade and other 6.7 - - - - - - (5.4) (5.4) 1.3receivablesFinancial assets - - - - - - - - 4.7 4.7 4.7other 872.7 - - - (3.3) - - (0.7) (4.0) 868.7 Current assetsInventories 12.5 - - - - - - - - 12.5Trade and other 169.2 (3.9) - (1.1) - - (0.1) (4.4) (9.5) 159.7receivablesFinancial assets - - 8.4 - - 3.3 - - 5.1 16.8 16.8otherCash and cash 140.0 - - - - - - - - 140.0equivalents 321.7 4.5 - (1.1) 3.3 - (0.1) 0.7 7.3 329.0Assets held for - - - - - - - - - -saleTotal assets 1,194.4 4.5 - (1.1) - - (0.1) - 3.3 1,197.7 LIABILITIESCurrent liabilitiesTrade and other 357.6 (2.1) - (1.6) - (6.9) (23.6) - (34.2) 323.4payablesCurrent tax 33.3 - - - - - - - - 33.3liabilitiesFinancial 126.5 - - - - - - - - 126.5liabilities -Borrowings- Redeemable 'B' - - 13.9 - - - - - 13.9 13.9preference shares- Other - - 0.6 - - - 0.3 0.9 0.9 517.4 (2.1) 13.9 (1.0) - (6.9) (23.6) 0.3 (19.4) 498.0 Non-currentliabilitiesAccruals and 8.1 - - - - - - - - 8.1deferred incomeBorrowings 228.1 - - (0.4) - 6.9 23.5 - 30.0 258.1Provisions 98.5 - - - - - - (0.1) (0.1) 98.4Retirement benefit 220.9 - - - - - - - - 220.9obligations (IAS 19deficit) 555.6 - - (0.4) - 6.9 23.5 (0.1) 29.9 585.5 Liabilities - - - - - - - - - -associated withassets held forsaleTotal liabilities 1,073.0 (2.1) 13.9 (1.4) - - (0.1) 0.2 10.5 1,083.5 Net assets 121.4 6.6 (13.9) 0.3 - - - (0.2) (7.2) 114.2 EQUITYCapital andreservesEquity share 6.8 - - - - - - - - 6.8capitalRedeemable 'B' 13.9 - (13.9) - - - - - (13.9) -preference sharesShare premium 163.4 - - - - - - - - 163.4accountRetained earnings (288.4) (1.8) - 0.6 - - - (0.2) (1.4) (289.8)Capital redemption 229.1 - - - - - - - - 229.1reserveOwn shares (6.8) - - - - - - - - (6.8)Translation reserve 3.4 - - - - - - - - 3.4Hedging reserve - 8.4 - (0.3) - - - 8.1 8.1Shareholders' funds 121.4 6.6 (13.9) 0.3 - - - (0.2) (7.2) 114.2 Analysis ofshareholders' fundsEquity 107.5 6.6 - 0.3 - - - (0.2) 6.7 114.2Non-equity 13.9 - (13.9) - - - - - (13.9) - 121.4 6.6 (13.9) 0.3 - - - (0.2) (7.2) 114.2 All adjustments are explained by reference on pages 23 to 24. Reconciliation adjustments from UK GAAP to IFRS Each of the adjustments required on pages 8 to 15 to restate the Group's UK GAAPresults to 31 October 2004 and 30 April 2005 under IFRS together with anyassociated transitional arrangements, are explained below: 1 IAS 19, "Employee Benefits" A summary of the impact of IAS 19 is detailed below: Statement of recognised income and Profit expense Equity 30 April 30 April 31 2005 30 April 31 October 1 May 2005 October 2005 2004 2004 2004 £m £m £m £m £m £m Operating 5.1 2.3 - - - -profitTax (1.8) (0.8) - - - -Profit for 3.3 1.5 - - - -the periodRecognised - - (42.0) - - -gains andlossesNet assets - - - (182.7) (142.5) (144.0) IAS 19 requires the separate disclosure of the operating and financing elementsof defined benefits pensions (and similarly funded employee benefits) butpermits a number of alternatives for how these elements are classified in theincome statement. The Group's policy is to classify the full impact of pensionson the income statement within operating costs. The standard also permits a number of alternatives for the recognition ofactuarial gains and losses. The Group's policy is to recognise any actuarialgains and losses in full immediately in the statement of recognised income andexpense, as would have been required under FRS 17 in the UK. The option toaccount for actuarial gains and losses in this way is part of an IASB amendmentto IAS 19. The amendment will be effective from 1 January 2006 with earlieradoption allowed. Stagecoach's policy will be to apply the revised standardvoluntarily from the transition date of 1 May 2004. The cash funding of the plans, which may from time to time involve specialpayments, is designed, in consultation with independent qualified actuaries, toensure that present and future contributions should be sufficient to meet futureliabilities. As a result of adopting IAS 19, for the year ended 30 April 2005, there is anincrease in operating profit of £5.1m and a related tax charge of £1.8m.Accordingly, profit for the period increased by £3.3m. For the six months ended 31 October 2004, operating profit increases by £2.3m.This is offset by a related tax charge of £0.8m thereby increasing profit forthe period by £1.5m. 1 IAS 19, "Employee Benefits" (continued) The balance sheet impact of the implementation of this standard in the Group'sconsolidated IFRS balance sheet was to reduce net assets by £144.0m at 1 May2004, by a cumulative £142.5m at 31 October 2004 and by a cumulative £182.7m at30 April 2005. The rail franchise deficits reflected in the restated 31 October 2004 and 30April 2005 results reflect only that part of the deficits that we expect to fundover the life of the franchises. A 'franchise adjustment' has been made to thedeficits to adjust them to reflect only the deficits that the Group is expectedto be obliged to fund until the end of the relevant franchises. Both on transition and on commencement of a rail franchise, an intangible assetis recognised which exactly offsets the initial recognition of that part of therail deficit that the Group is expected to be obliged to fund until the end ofthe relevant franchise. In accordance with IAS 38 "Intangible Assets", thisintangible asset is subsequently amortised on a straight line basis over theexpected duration of the franchise. Total amortisation of £3.9m for the yearended 30 April 2005 (six months ended 31 October 2004: £2.0m) has beenrecognised in relation to the amortisation of these intangible assets. Of this,£2.9m for the year ended 30 April 2005 (six months ended 31 October 2004: £1.5m)has been recognised in relation to subsidiaries and is therefore included withinthe intangible amortisation line in the income statement and £1.0m for the yearended 30 April 2005 (six months ended 31 October 2004: £0.5m) is in relation tojoint ventures and is therefore recognised within the share of loss of jointventures line in the income statement. 2 IFRS 3, " Business Combinations"; IAS 38, "Intangible Assets" A summary of the impact of IFRS 3 and IAS 38 is detailed below: Profit Statement of Equity recognised income and expense 30 April 31 30 April 31 30 April 31 1 May 2005 October 2005 October 2005 October 2004 2004 2004 2004 £m £m £m £m £m £m £m Operating 7.2 3.7 - - - - -profitLoss on (0.4) (0.2) - - - - -disposalofoperationsTax (0.9) (0.5) - - - - -Profit for 5.9 3.0 - - - - -the periodRecognised - - (0.2) (0.2) - - -gains andlossesNet assets - - - - 6.5 3.6 0.8 2 IFRS 3, " Business Combinations"; IAS 38, "Intangible Assets"(continued) IFRS 3 prohibits merger accounting and the amortisation of goodwill. Thestandard requires goodwill to be carried at cost with impairment reviews bothannually and also where there are indications that the carrying value may not berecoverable. Under the transitional arrangements of IFRS 1, a company has the option ofapplying IFRS 3 prospectively from the transition date to IFRS. The Group haschosen this option rather than restate previous business combinations. Theimpact of IFRS 3 and associated transitional arrangements on the Group are asfollows: all prior business combination accounting is frozen at the transition date of 1May 2004;except where goodwill relates to businesses that operate UK rail franchises withfinite durations, the value of goodwill is frozen at 1 May 2004 and amortisationpreviously reported under UK GAAP for the year ended 30 April 2005 is removedfor IFRS restatements; andany negative goodwill at 1 May 2004 is reversed. The impact on the operating profit for the year ended 30 April 2005 is anincrease of £7.2m due principally to the non-amortisation of subsidiary andassociates goodwill. The loss on disposal of operations increases by £0.4m as aresult of the non-amortisation of goodwill in relation to disposed operations.The associated tax impact of these adjustments is to recognise an additionalcharge of £0.9m in the period. The impact on profit for the period is thereforean increase of £5.9m. There is a £0.2m charge to the statement of recognisedincome and expense due to the affect the non-amortisation of goodwill has on theretranslation of goodwill denominated in foreign currencies. Operating profit for the six months ended 31 October 2004 increases by £3.7m,the loss on disposal of operations increases by £0.2m and there is an offsettingtax charge of £0.5m thereby increasing profit for the period by £3.0m.There remains an annual charge for goodwill in relation to our investment inVirgin Rail Group of £14.7m in our restated IFRS results for the year ended 30April 2005. This annual charge equals the goodwill amortisation recognised forVirgin Rail Group under our previously reported UK GAAP results. In our IFRSresults we will continue to recognise an annual charge for goodwill in relationto Virgin Rail Group, which will equate to the amount we would have amortisedunder UK GAAP. Goodwill recognised in relation to the acquisition/winning of anew franchise has a finite life due to the fact that a franchise ends on aparticular date. We therefore have to reduce the goodwill in relation to VirginRail Group with an annual charge to reflect the fact that we should have nogoodwill left at the end of Virgin Rail Group's rail franchises. Under IFRS, onwinning any new franchises, any consideration paid in excess of the relevantfair value of assets and liabilities acquired will represent a separateintangible asset, which would be amortised over the life of the franchise. Net assets increases by £0.8m on transition at 1 May 2004 primarily due to thewrite back of negative goodwill within the share of net assets in Virgin RailGroup. IFRS 1, "First-time Adoption of International Financial Reporting Standards"requires that an impairment review of goodwill be conducted in accordance withIAS 36, "Impairment of Assets" at the date of transition irrespective of whetheran indication exists that goodwill may be impaired. A review of all of theGroup's goodwill was undertaken in accordance with this standard and no furtherimpairment losses arose as at 1 May 2004. 2 IFRS 3, " Business Combinations"; IAS 38, "Intangible Assets"(continued) Under IAS 38, intangible assets are capitalised where they qualify forrecognition by meeting the criteria specified within that standard. Ontransition to IFRS, some of the Group's already capitalised assets met thedefinition of an intangible asset contained within the standard and compliedwith the criteria for separate recognition as such. The result was that £2.0m ofintangibles were reclassified and recognised separately as intangible assets at1 May 2004. A further £2.0m of intangible assets (31 October 2004: £1.2m),meeting the recognition criteria contained in the standard, were reclassifiedfrom goodwill to intangibles in the year to 30 April 2005. A charge of £0.5m(six months ended 31 October 2004: £0.2m) to operating profit reflecting theamortisation of the total capitalised intangibles has been reclassified fromgoodwill amortisation to intangible amortisation in the year to 30 April 2005. Afurther £0.7m (six months ended 31 October 2004: £0.2m) has been reclassifiedfrom other operating costs to intangible amortisation reflecting theamortisation of intangibles that meet the recognition criteria as an intangibleunder IFRS but were previously held in prepayments under UK GAAP. The total intangible amortisation recognised for the year ended 30 April 2005was £4.1m (six months ended 31 October 2004: £1.9m). As mentioned in section 1,intangible amortisation of £2.9m (six months ended 31 October 2004: £1.5m) hasbeen recognised in the intangible amortisation line of the income statementrepresenting the amortisation of the intangible asset recognised on transitionthat offsets the rail pension deficit. 3 IFRS 2, "Share-based Payment" A summary of the impact of IFRS 2 is detailed below: Profit Equity 30 April 31 October 30 April 31 October 1 May 2005 2004 2005 2004 2004 £m £m £m £m £m Operating profit (1.4) (0.6) - - -Profit for the (1.4) (0.6) - - -periodNet assets - - Nil Nil Nil In accordance with IFRS 2, the Group has recognised a charge to income based onthe fair value of outstanding employee share options granted to employees. Thefair value has been calculated using the Black-Scholes options valuation modeland is charged to profit over the expected vesting period of relevant options,adjusted to reflect actual and expected levels of vesting. The Group has applied the optional exemption within IFRS 1, which allows it toapply IFRS 2 only to share options granted after 7 November 2002 that have notvested before the date of transition, being 1 May 2004. The operating profit impact of adopting IFRS 2 for the year ended 30 April 2005is a charge of £1.4m (six months ended 31 October 2004: £0.6m). There is no netimpact on net assets. 4 IAS 10, "Events After the Balance Sheet Date" A summary of the impact of IAS 10 is detailed below: Profit Equity 30 April 31 October 30 April 31 October 1 May 2005 2004 2005 2004 2004 £m £m £m £m £m Profit for the - - - - -periodNet assets - - 24.4 10.6 26.5 IAS 10 requires that dividends declared to equity shareholders after the balancesheet date should not be recognised as a liability at the balance sheet date.This differs from the previously adopted UK GAAP treatment, which requiresdividends declared after the balance sheet date to be treated as adjustingevents and therefore recognised as a liability at the balance sheet date. Theeffect of this is to increase net assets and consolidated retained earnings at 1May 2004 by £26.5m, representing the final dividend payable under UK GAAP forthe year ending 30 April 2004, and to increase net assets for the year ended 30April 2005 by a cumulative £24.4m and for the six months ended 31 October 2004by a cumulative £10.6m. 5 IAS 28, " Investments in Associates" A summary of the impact of IAS 28 is detailed below: Profit Equity 30 April 2005 31 October 30 April 31 October 1 May 2004 2005 2004 2004 £m £m £m £m £m Loss on (1.0) (1.0) - - -disposal ofoperationsProfit for (1.0) (1.0) - - -the periodNet assets - - - - 1.0 Under IAS 28, where a Group's share of losses of an associate exceeds itsinterest in the associate, the Group should discontinue recognising its share ofany further losses. The same principles apply to any share of losses of jointventures. The result for the Group on transition is to increase net assets andconsolidated retained earnings by £1.0m, being the reversal of the netliabilities of the Group's joint ventures previously recognised under UK GAAP. During the six months ended 31 October 2004, the joint ventures mentioned abovewere disposed of and subsequently the loss on operations for both the six monthsended 31 October 2004 and the year ended 30 April 2005 were increased by £1.0m. 6 IFRS 5, "Non-current Assets Held for Sale and Discontinued Operations" A summary of the impact of IFRS 5 is detailed below: Profit Equity 30 April 31 October 30 April 31 October 1 May 2004 2005 2004 2005 2004 £m £m £m £m £m Operating profit 0.1 0.1 - - -Loss on disposal (0.1) (0.1) - - -of operationsProfit for the Nil Nil - - -periodNet assets - Nil Nil Nil IFRS 5 requires that any assets or disposal groups held for sale should beseparately classified on the balance sheet where they meet the held for salecriteria contained within IFRS 5. At 1 May 2004 the Group's North American taxioperations met the criteria to be classified as held for sale as a disposalgroup. These businesses were disposed of by 30 April 2005. The impact on theconsolidated opening balance sheet at 1 May 2004 is to reclassify £8.1m ofassets to this category and £0.8m of liabilities. The movement for the year to30 April 2005 reflects the disposal of these taxi companies contained within thedisposal group at 1 May 2004. Under IFRS 5 any non-current assets classified as being held for sale, whetherindividually or within a disposal group, should not be depreciated from the datethey meet the criteria to be recognised as held for sale. Accordingly the effectof this is to increase operating profit by £0.1m, representing thenon-depreciation of property, plant and equipment within the assets held forsale. In addition, the effect is to increase the reported loss on disposal ofthe taxi companies disposed of within the year to 30 April 2005 and the sixmonths ended 31 October 2004 by £0.1m reflecting the increased asset values as aresult of non-depreciation. 7 IFRS 1, "First time adoption of International Financial Reporting Standards" IAS 16, "Property, plant and equipment", requires initial measurement ofproperty, plant and equipment at cost less accumulated depreciation. Theexemption in IFRS 1 allows entities to use a value that is not depreciated costas deemed cost on transition to IFRS. There are three possible values, any ofwhich may be applied to any individual item of property, plant and equipment,that may be used as the basis of deemed cost at the date of transition. One ofthese is the option to use the fair value of the item at the date of transitionto IFRS, and allocate this as deemed cost. 7 IFRS 1, "First time adoption of International Financial Reporting Standards"(continued) We have decided to adopt this exemption allowing us to adopt the fair value ofcertain fixed assets (being the land and buildings of the UK Bus division) ontransition as deemed cost. A summary of the impact is detailed below. Profit Equity 30 April 31 October 30 April 31 October 1 May 2004 2005 2004 2005 2004 £m £m £m £m £m Operating profit 0.3 0.1 - - -Profit for the 0.3 0.1 - - -periodNet assets - 54.2 54.0 53.9 As a result of adopting the exemption in IFRS 1, for the year ended 30 April2005, there is an increase in operating profit and profit for the period of£0.3m (six months ended 31 October 2004: £0.1m), representing the reduceddepreciation charge on the revalued assets. The impact is a reduction due to thesplit of deemed cost between land and buildings. Land is not depreciated whereasbuildings are. The balance sheet impact of the implementation of this standard in the Group'sconsolidated IFRS balance sheet was to increase net assets by £53.9m at 1 May2004, by a cumulative £54.0m at 31 October 2004 and by a cumulative £54.2m at 30April 2005. 8 IAS 31, "Interests in joint ventures" A summary of the impact of IAS 31 is detailed below: Profit Equity 30 April 31 October 30 April 31 October 1 May 2005 2004 2005 2004 2004 £m £m £m £m £m Operating profit (3.5) (1.4) - - -Interest (1.7) (0.8) - - -Taxation 5.2 2.2 - - -Profit for the Nil Nil - - -periodNet assets - Nil Nil Nil IAS 31, "Interests in joint ventures" requires the use of either proportionateconsolidation or the equity method to consolidate jointly controlled entities.The Group will apply the equity method. Under UK GAAP requirements, only thegross equity method is allowed and there are a number of line items in theincome statement for which the investor's share of its joint ventures resultshave to be included and disclosed: these include turnover, operating profit,interest and taxation. There are no such requirements under IAS 31. As a resultof this, for the year ended 30 April 2005 we have reclassified £5.2m (six monthsended 31 October 2004: £2.2m) of tax charges and £1.7m (six months ended 31October 2004: £0.8m) of finance income relating to our joint venture, VirginRail Group into a single line item in the income statement. The results of thejoint venture are now shown net of interest and taxation charges. This is anincome statement reclassification and therefore has no impact on overall netassets. 9 IAS 32 & IAS 39, "Financial Instruments: Disclosure and Presentation" and"Financial Instruments: Recognition and Measurement" Equity 1 May 2005 31 October 1 May 2004 2004 £m £m £m Net assets (7.2) - - IAS 32 and IAS 39 address the accounting for, and financial reporting of,financial instruments. IAS 32 covers disclosure and presentation whilst IAS 39covers recognition and measurement. The general principle of IAS 39 is thatfinancial assets should be recognised at fair value and financial liabilitiesshould be recognised at amortised cost although the IASB version has an optionto fair value financial liabilities. Accounting for the movements in fair valueis dependant on the designation of the relevant financial instrument. The Grouphas opted not to apply these standards retrospectively and will apply them from1 May 2005. The impact of IAS 32 and IAS 39 on the balance sheet at 1 May 2005is to decrease net assets by £7.2m. The main adjustments required under IAS 32and IAS 39 are detailed below. (a) Fuel price swaps The Group manages the year on year volatility of its fuel costs by maintainingan ongoing fuel hedging programme using fuel swaps to effectively fix or cap thevariable unit cost of a percentage of current and future diesel volumes. Thesefuel swaps are categorised as cash flow hedges as at 1 May 2005 and result inthe Group recognising a financial asset of £8.4m and a hedging reserve of £8.4m.As a result of recognising the fair value of the fuel swap assets, net UK GAAPbalances of £1.8m are removed from the balance sheet creating an overall netincrease in net assets of £6.6m. (b) Redeemable 'B' Shares Under IAS 32, the Group's redeemable 'B' preference shares meet the definitionof a financial liability and are therefore reclassified from equity to debt.This reduces net assets by £13.9m. (c) Forward currency exchange contracts The Group uses forward currency exchange contracts to partially hedge itsoverseas operations. These contracts meet the criteria for hedge accounting. Theimpact on net assets of recognising the fair value of these contracts is anincrease of £0.3m. (d) Virgin Rail Group loan The Group has a loan to its joint venture, Virgin Rail Group, of £3.3m which isincluded within the cost of investment under UK GAAP. On transition to IAS 32and IAS 39 this loan is reclassified as a financial asset. (e) US$ bond interest On transition to IAS 32 and IAS 39, accrued US$ bond interest of £6.9m isreclassified from interest accruals under UK GAAP to the carrying value of theUS$ bonds within borrowings at 1 May 2005. 9 IAS 32 & IAS 39, "Financial Instruments: Disclosure and Presentation" and"Financial Instruments: Recognition and Measurement" (continued) (f) US$ bond deferred gains During the year ended 30 April 2004, the Group closed out early certain interestrate swaps in relation to its US$ bonds. As a result, a gain was carried inaccruals under UK GAAP which was being released to income over the life of theUS$ bonds. The remaining deferred gain totalled £23.5m at 1 May 2005 and ontransition to IAS 32 and IAS 39 this gain is reclassified to the carrying valueof the US$ bonds within borrowings. Net debt IFRS does not explicitly define net debt. The analysis provided below istherefore a summary of what the Group regards as net debt. It excludes the fairvalue of derivatives, which in aggregate amount to a net asset of £7.6m at 1 May2005. Previously Previously Previously Adjustment IFRS reported as reported in reported in to bond £m net debt accruals equity value on under UK under UK under UK transition GAAP GAAP GAAP to IFRS £m £m £m £mCash 104.2 - - - 104.2Cash collateral 34.3 - - - 34.3Hire purchase and (66.1) - - - (66.1)lease obligationsBank loans and loan (112.1) - - - (112.1)stockBonds - principal (174.9) - - - (174.9)- accrued interest - (6.9) - - (6.9)- FX contract - - - 0.4 0.4Redeemable 'B' - - (13.9) - (13.9)sharesNet debt (214.6) (6.9) (13.9) 0.4 (235.0)Unamortised gain on - (23.5) - - (23.5)early settlement ofinterest rate swapsNet borrowings shown (214.6) (30.4) (13.9) 0.4 (258.5)on IFRS balancesheet The impact on net debt on transition to IAS 32 and IAS 39, being 1 May 2005, isto increase net debt from £214.6m to £235.0m. Accrued interest of £6.9m on ourUS$ bonds is reallocated from interest accruals under UK GAAP to the bond costunder IFRS. A further £0.4m is recognised in relation to the US$ bonds totranslate the portion that were hedged at the spot rate thereby creating anoffsetting financial liability of £0.4m representing the derivative contractused to hedge them. The Group's redeemable 'B' preference shares of £13.9m arereclassified from equity to debt under IAS 32 and IAS 39 at 1 May 2005 andtherefore form part of net debt. As mentioned above, the carrying value of the US$ bonds in the IFRS balancesheet at 1 May 2005 include the unamortised element of deferred gains that aroseon the early termination of interest rate swaps in previous years: this amountsto £23.5m at 1 May 2005. These are reallocated from accruals to the carryingvalue of the US$ bonds in the IFRS balance sheet. Transitional arrangements The rules for first time adoption of IFRS are set out in IFRS 1. In general, acompany is required to determine its IFRS accounting policies and apply theseretrospectively to determine its opening balance sheet under IFRS. The standardallows a number of exceptions to this general principle to assist companies asthey transition to reporting under IFRS. Where the Group has taken advantage ofthese exemptions they are noted below. a Business Combinations that occurred before the opening IFRS balance sheet date (IFRS 3, "Business Combinations") The Group has elected not to apply IFRS 3 retrospectively to business combinations that took place before the date of transition, of 1 May 2004. b Employee Benefits - actuarial gains and losses (IAS 19, "Employee Benefits") The Group has elected to recognise all cumulative actuarial gains and losses in relation to employee benefit schemes at the date of transition. The Group has recognised actuarial gains and losses in full in the period in which they occur in a statement of recognised income and expense in accordance with the amendment to IAS 19, issued on 16 December 2004. c Share-based Payments (IFRS 2, "Share-based Payment") The Group has elected to apply IFRS 2 to all relevant share based payment transactions granted after 7 November 2002 but not fully vested at the transition date, being 1 May 2004. d Financial Instruments (IAS 39, "Financial Instruments: Recognition and Measurement" and IAS 32, "Financial Instruments: Disclosure and Presentation") The Group has chosen not to restate comparative information with respect to IAS 32 and IAS 39. e Cumulative Translation Differences (IAS 21, "The Effects of Changes in Foreign Exchange Rates") The accumulated translation differences at the date of transition have been set to zero for all foreign operations. f Fair value or revaluation as deemed cost (IFRS 1, "First-time adoption of international financial reporting standards") The Group has chosen to revalue certain fixed assets on transition to IFRS to their fair value under the 'fair value as deemed cost' transitional rule. 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