8th Jun 2005 07:00
Regus Group PLC08 June 2005 Press Release 8 June 2005 International Financial Reporting Standards (IFRS) Regus Group Plc (Regus), the global office outsourcing company, announcesindicative un-audited financial information prepared on an IFRS basis. Theseresults will be subject to audit over the coming months and may change as aresult. We expect the results for the year ended 31 December 2004 on an IFRS basis to beas follows: 31 December 2004 Audited Un-audited UK GAAP IFRS £m £mLoss from operations (3.2) (0.6)Loss after tax (5.8) (4.0)Loss per share (p) (0.6) (0.4) Net assets 109.0 93.3 The most significant adjustments on the transition to IFRS from UK GAAP relateto accounting for leases over properties and the accounting for goodwill andintangible assets arising on the acquisition of HQ. Regus Group plc will announce its interim results for the six months ended 30June 2005 in the week commencing 12 September 2005. - Ends - About Regus Further information on Regus can be found on www.regus.com For further information, please contact: Regus Group Plc Tel: +44 1932 895135John Matthews, ChairmanRudy Lobo, Group Finance Director Financial Dynamics Tel: +44 20 7269 7291David Yates/Richard Mountain Regus Group plc Restatement of financial information for 2004 under IFRS 1. Introduction From 2005 Regus Group plc ("Group") will prepare its consolidated accounts inaccordance with IFRS. This press release illustrates the differences that weexpect to arise when the financial statements are prepared under IFRS ratherthan UK GAAP. The Group's first IFRS results will be its interim results for the six monthsending 30 June 2005 and the first Annual Report under IFRS will be for the yearending 31 December 2005. As the Group publishes comparative information inrespect of these periods, the date for transition to IFRS is 1 January 2004being the start of the period for comparative information. This press release explains how Regus' reported performance and financialposition are affected by the transition to IFRS. The information containedwithin is un-audited, however it is expected to form the basis of comparativeinformation in the Group's interim and full year financial information. The Appendix sets out in full the Group's revised accounting policies underIFRS. 2. Analysis of impact The tables below illustrate the impact of IFRS restatement on previouslyreported results under UK GAAP. Explanatory notes describing the adjustmentsare set out in section 3. a. Income statement (un-audited) Note Year ended 31 Six months ended Dec 2004 30 June 2004 £m £mGroup operating loss reported under UK GAAP* (3.2) (3.1)Lease accounting 3.1 1.1 1.1Share options 3.2 (0.2) -Amortisation of goodwill 3.3a 2.0 -Amortisation of intangible assets 3.3b (0.3) - Loss from operations on an IFRS basis (0.6) (2.0)Share of result of joint ventures** - (0.7) (0.6)Share of result of associate** 3.4 (3.1) (3.3)Net finance costs - (2.2) (1.2)Tax 3.5 2.6 0.9 Loss for the period on an IFRS basis (4.0) (6.2) * includes profit from sale of subsidiaries** includes associated finance costs and tax b. Net assets (un-audited) Note 31 Dec 2004 30 June 2004 31 Dec 2003 £m £m £m Net assets/(liabilities) reported under UK GAAP 109.0 (4.1) 1.9Lease accounting 3.1 (6.3) (6.3) (7.4)Goodwill and intangibles 3.3 1.7 - -Share of net assets of associate 3.4 (10.2) (9.8) (9.4)Deferred revenue - franchise fee 3.6 (0.8) (0.8) (0.8)Holiday pay 3.7 (0.1) (0.1) (0.1) Net assets/(liabilities)/ on an IFRS basis 93.3 (21.1) (15.8) 3. Notes on restatement 3.1. Lease accounting The following differences were identified between UK GAAP and IFRS: a). During the Group's Chapter 11 process a number of lease contracts wererenegotiated to a more favourable cost to the Group. Under UK GAAP, rentaccruals were released to the profit and loss account when negotiations werecompleted. In contrast, IFRS requires rent accruals to be spread over theremaining lease term and consequently an adjustment has been made to reinstatethese accruals in the transition balance sheet and recognise them over the leaseterm with a favourable impact to centre profitability. b). Under UK GAAP, minimum lease payments (net of lease incentives) are spreadon a straight-line basis over the shorter of the period to the first contractualbreak point or the first market rent review date. IFRS requires that, minimumlease payments be assessed over the period to the first contractual break pointonly. As a result of this change, certain operating lease incentives are spreadover a longer period and additional rental periods are brought into theassessment of minimum lease payments. Consequently an adjustment has been madeto increase the rent accrual in the transition balance sheet. c). Under UK GAAP the group made an accrual for rental costs which are dependenton centre performance (eg turnover of profitability) based on the best estimateof the outturn liability by spreading the expected cost over the lease term.Under IFRS accruals are only made for contingent rents in the period in whichthey arise. Consequently, an adjustment has been made to release accruals inthe transition balance sheet relating to rentals that were anticipated but werenot contractually due at that date. The total impact of the adjustments described above is to instate an accrual of£7.4m in the transition balance sheet and to reduce the charge for rent costs in2004 by £1.1m. 3.2. Share options In accordance with IFRS 2 and the transitional exemption permitted by IFRS 1,the Group has recognised a charge reflecting the fair value of outstanding shareoptions granted to employees since 7 November 2002. The fair value has beencalculated using a Black - Scholes valuation model and is charged to profit andloss over the vesting period of the options. The impact of this change has been a charge of £0.2m to operating profit for theyear to 31 December 2004. The total charge over the three year vesting periodis calculated to be a charge of £1.5m to operating profit. 3.3. Goodwill and intangible assets There are two adjustments arising in relation to the acquisition of HQ GlobalWorkplaces Inc ("HQ"), which effect the carrying value and amortisation ofgoodwill and intangible assets. a). IFRS 3 prohibits the amortisation of goodwill but requires an impairmenttest to be carried out on an annual basis. Consequently the UK GAAPamortisation charge of £2.0m has been reversed. b). IFRS requires certain intangible assets to be recognised separately when itis capable of being separated from the business or arises from contractual orother legal rights. Accordingly, an intangible asset of £1.9m representing thevalue of the customer list acquired with HQ has been separately recognised.This is being amortised over a period of two years resulting in a 2004 charge of£0.3m. 3.4. UK associate The Group will continue to apply the equity method of accounting for its UKassociate. Changes to Group accounting policies, in particular lease accounting, whenapplied to the UK associate result have the effect of increasing the reportedloss of the UK associate and reducing net assets. The impact on the group is toincrease the share of the net loss in 2004 by £0.8m and to reduce the carryingvalue of the UK associate in the transition balance sheet by £9.4m. 3.5. Tax Tax on an IFRS basis is restated to exclude tax attributable to the UKassociate. The respective tax is now included within 'Share of result ofassociate'. On an IFRS basis the tax credit for the year ended 31 December 2004was £2.6m compared with £2.9m on a UK GAAP basis. Due to the uncertainty of recovering tax losses the Group has not recognised therelated deferred tax assets on either a UK GAAP or IFRS basis. None of the IFRSconversion adjustments result in a change in the position with regard to therecoverability of these losses and consequently there is no adjustment to thetax credit for the year. 3.6. Deferred revenue - franchise fees Under UK GAAP, franchise fees are recognised as income in the period received.IFRS requires franchise fees charged for the use of continuing rights granted bythe agreement, or for other services provided during the period of the agreementto be recognised as revenue as the services are provided or the rights used. The income recognised prior to 1 January 2004, which under IFRS is spread overthe period of the franchise contract, amounted to £0.8m and is unchanged at 31December 2004. 3.7. Holiday pay UK GAAP does not require the recognition of a holiday accrual for unpaid holidaycarried over a period end. An accrual is only recognised where a liability topay employees for holiday earned exists at the balance sheet date. Under IFRS, full provision is made for paid leave accrued by employees andtherefore an accrual of £0.1m has been established in the opening balance sheet.There has been no movement in this accrual subsequent to the transitionbalance sheet. - ENDS - Appendix - Accounting policies to be adopted in 2005 reported financialinformation Basis of preparation The Group has adopted IFRS from 1 January 2004 ("the date of transition") basedon the standards expected to be in issue at 31 December 2005. First time application In accordance with IFRS 1 the Group is entitled to a number of voluntary andmandatory exemptions from full restatement, which have been adopted as follows: • The basis of accounting for pre-transition combinations under UK GAAPhas not been revisited. • The reserve for cumulative foreign currency translation differenceshas been set to zero at the transition date. • IFRS 2 has been applied to all grants of equity instruments after 7November 2002 that had not been vested at 1 January 2005. Basis of consolidation The consolidated financial statements comprise the financial statements of theparent company (Regus Group plc) and its subsidiary undertakings. The financialstatements of subsidiaries are prepared for the same reporting year as theparent company, using consistent accounting policies. The results of subsidiaries are consolidated, using the purchase method ofaccounting, from the date on which control of net assets and operations of theacquired company are effectively transferred to the Group. Similarly, theresults of subsidiaries divested cease to be consolidated from the date on whichcontrol of the net assets and operations are transferred out of the Group. Goodwill Goodwill represents the excess of the cost of acquisition over the share of thefair value of identifiable net assets (including intangible assets) of asubsidiary, associate or joint venture at the date of acquisition. Goodwill is stated at cost less any provision for impairment in value. Animpairment test is carried out annually. Goodwill is allocated to cashgenerating units for the purpose of impairment testing. Intangible assets Intangible assets acquired separately from the business are capitalised at cost.Intangible assets acquired as part of an acquisition of a business arecapitalised separately from goodwill if fair value can be measured reliably oninitial recognition. Intangible assets are amortised on a straight line basis over the estimateduseful life of the assets as follows: Brands 10-20 yearsComputer software 2 yearsCustomer lists 1-2 years Leases Plant and equipment leases for which the Group assumes substantially all of therisks and rewards of ownership are classified as finance leases. All otherleases, including all of the Group's building leases are categorized asoperating leases. Finance leases Plant and equipment acquired by way of a finance lease is capitalized at thecommencement of the lease at the lower of its fair value and the present valueof the minimum lease payments. Future payments under finance leases areincluded in creditors, net of any future finance charges. Minimum lease payments are apportioned between the finance charge and thereduction of the outstanding liability. Finance charges are recognized in theincome statement over the lease term so as to produce a constant periodic rateof interest on the remaining balance of the liability. Operating leases Minimum lease payments under operating leases are recognized in the incomestatement on a straight-line basis over the lease term. Lease incentives andrent free periods are included in the calculation of minimum lease payments. The commencement of the lease term is the date from which the Group is entitledto use the leased asset. The end of the lease term is the non-cancellableperiod of the lease to the first break point, together with any further periodsfor which the Group has the option to continue to lease the asset and when atthe inception of the lease it is reasonably certain that the Group will exercisethat option. Contingent rentals include rent increases based on future inflation indices ornon-guaranteed rental payments based on centre turnover or profitability and areexcluded from the calculation of minimum lease payments. Contingent rentals arerecognized in the income statement as they are incurred based on the Group'sbest estimate of the likely rent payable. Any subsequent changes in estimatesare immediately recognized in the income statement. Property, plant and equipment Property, plant and equipment is stated at cost or deemed cost less accumulateddepreciation and any impairment in value. Depreciation is calculated on astraight line basis over the estimated useful life of the assets as follows: Fixtures and fittings Over the shorter of the lease term and 10 yearsFurniture 5 yearsOffice equipment and telephones 5 yearsMotor vehicles 4 yearsComputer hardware 3 years Investments in associates and joint ventures Investments in associates and joint ventures are equity accounted and carried inthe balance sheet at cost plus post-acquisition changes in the Group's share ofnet assets of the associate, less any impairment in value. The profit and loss account reflects the Group's share of the results ofoperations of the joint venture or associate. To the extent that losses of anassociate or joint venture exceed the carrying amount of the investment, theinvestment is reported at nil value and additional losses are only provided ifthe Group has an obligation to a third party. Revenue Revenue from the provision of services to customers is measured at the fairvalue of consideration received or receivable (excluding sales taxes). Workstations and meeting rooms Workstation revenue is recognized in the income statement as it falls due underthe customer rental contract or service agreement. Amounts invoiced in advanceare deferred and recognized as revenue upon provision of the service. Customer service income Service income (including the rental of meeting rooms) is recognized on amonthly basis as services are rendered. In circumstances where Regus acts as anagent for the sale and purchase of goods to customers, only the commission feeearned is recognized as revenue. Management fees Management fees are recognized in accordance with the substance of the relevantagreement. Franchise fees Franchise fees received for the provision of initial and subsequent services arerecognised as revenue as the services are rendered. Franchise fees charged forthe use of continuing rights granted by the agreement, or for other servicesprovided during the period of the agreement, are recognised as revenue as theservices are provided or the rights used. Pensions and employee benefits The Group's contributions to defined contribution plans and other paid andunpaid benefits earned by employees are charged to the profit and loss accountin the period to which the contributions relate. Share based payments The Group issues equity settled share based payments to certain employees(including directors). The fair value of these payments is measured at fairvalue at the date of grant by use of the Black Scholes model and charged toprofit and loss on a straight line basis over the vesting period. No cost isrecognised for awards that do not ultimately vest. Deferred Taxation Deferred tax is provided, using the liability method, on all temporarydifferences at the balance sheet date between the tax bases of assets andliabilities and their carrying amounts. Deferred tax assets are recognised for all deductible temporary differences,carry forward of unused tax assets and unused tax losses, to the extent that itis probable that taxable profit will be available against which the deductibletemporary differences, carry forward of unused tax assets and unused tax lossescan be utilised. The carrying amount of deferred tax assets is reviewed at each balance sheetdate and reduced to the extent that it is no longer probable that sufficienttaxable profit will be available to allow all or part of the deferred income taxasset to be utilised. Deferred tax assets and liabilities are measured at the tax rates that areexpected to apply to the period when the asset is realised or the liability issettled, based on tax rates (and tax laws) that have been enacted orsubstantively enacted at the balance sheet date. Deferred tax balances are not discounted. Provisions Provisions are made when an obligation exists for a future liability in respectof a past event and where the amount of the obligation can be reliablyestimated. Restructuring provisions are made for direct expenditures of a businessreorganisation where the plans are sufficiently detailed and well advanced, andwhere the appropriate communication to those affected has been undertaken at thebalance sheet date. Provision is made for onerous contracts to the extent that the unavoidable costsof meeting the obligations under a contract exceed the economic benefitsexpected to be delivered, discounted using the Group's weighted average cost ofcapital. Foreign currencies Transactions in foreign currency are recorded using the rate of exchange rulingat the date of the transaction. Monetary assets and liabilities denominated inforeign currencies are translated using the closing rate of exchange at thebalance sheet date and the gains or losses on translation are taken to theincome statement. The results and cash flows of overseas operations are translated using theaverage rate for the period. Assets and liabilities of overseas operations aretranslated using the closing rate with all exchange differences arising onconsolidation being recognised as a separate component of equity. Financial instruments Financial instruments are recorded initially at fair value and their subsequentmeasurement depends on the designation of the instrument. Cash deposits and trade receivables are classified as loans and receivables andare held at amortised cost. All other financial assets are classified asavailable for sale and changes in fair value are taken to reserves. All debt isheld at amortised cost. Derivatives are remeasured to their fair value. Changes in the fair value of anyderivative instruments that do not qualify for hedge accounting are recognisedimmediately in the income statement. Changes in the fair value of derivatives,which are fair value hedges, are recognised in the income statement. Changes inthe fair value of derivatives in cash flow hedges are recognised in equity. All foreign exchange gains or losses arising on translation of hedges of netinvestments in foreign entities are recognized in equity. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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