15th Jul 2005 07:00
Great Portland Estates PLC15 July 2005 15 July 2005 The effect of IFRS on the financial reporting of Great Portland EstatesIntroduction On 7 June 2002, the European Parliament approved a Regulation requiring alllisted companies in the European Union to prepare consolidated financialstatements under International Financial Reporting Standards ("IFRS") forfinancial periods beginning on or after 1 January 2005. Great Portland Estatesplc ("GPE") will report its results under IFRS for the year ending 31 March2006; its first results to be reported under the new standards will be for thesix months ending 30 September 2005. In order to comply with IFRS in 2006, GPE will need to provide comparativenumbers. The purpose of this paper is to show how balance sheets and incomestatements previously prepared under UK generally accepted accounting practice("UK GAAP") will change under IFRS, and to explain the adjustments to reconcilethe figures from one basis of accounting to the other. The main reconcilingitems are explained in Appendix 1, and their effects on the balance sheet andincome statement are set out as follows: Appendix 2 - Balance Sheet at 31 March 2005Appendix 3 - Income Statement for the year ended 31 March 2005Appendix 4 - Balance Sheet at 30 September 2004Appendix 5 - Income Statement for the six months ended 30 September 2004 To view these appendices please copy and paste the following link into abrowser: http://www.rns-pdf.londonstockexchange.com/rns/9049o_-2005-7-14.pdf Basis of Preparation The figures have been restated on the basis of our interpretation of all IFRScurrently applicable, and are unaudited. It is possible that conventions whichdiffer from our current interpretation will evolve within the property sector,and IFRS are subject to ongoing amendment; accordingly, the amounts disclosed inthis paper may be subject to revision. IFRS 1 First-time Adoption of International Financial Reporting Standards allowschoices for first time adoption of IFRS and a number of specific exceptions fromthe full retrospective adoption of certain IFRS. Two of those choices arematerial to GPE: we have chosen to apply IAS 39 Financial Instruments:Recognition and Measurement fully and have restated the comparative informationaccordingly; and we have opted to bring onto the group balance sheet the fullnet liabilities of the Group's pension fund at each balance sheet date and toaccount for any movement in full in those net liabilities either in the incomestatement or in reserves, as appropriate, in the year which they occur. Key Changes The main differences between UK GAAP and IFRS for the financial statements underreview are: • Head leases - leasehold investment property and long-term liabilities are increased by an estimation of future ground rents payable, and the majority of ground rents payable in the year are disclosed as interest payable; • Lease incentives - amortised over the term of the lease, or to the first break option date, in each case typically longer than under UK GAAP; • Events after the balance sheet date - a proposed dividend is no longer considered to be an adjusting post-balance sheet event, but is instead a deduction from reserves in the year in which it is paid; • Convertible bond - the convertible bond is split between debt and equity; • Pension fund - the net assets of the Group's pension fund are included within the group balance sheet, and any changes thereto are taken to the income statement or to reserves; • Hedge accounting - the fair value of derivatives are recorded in the balance sheet and the movement in their value is taken to reserves or to the income statement; • Property revaluations - surpluses or deficits on investment property revaluations are shown on the face of the income statement rather than as a movement in reserves; only a valuation movement above the cost of a development property is still taken direct to the revaluation reserve; and • Deferred tax - contingent capital gains tax implicit within a property valuation is accrued as a deferred tax liability. Presentation of Financial Statements Under IFRS, the profit and loss account is renamed the income statement, butthere is no set format or layout of financial statements prepared under IFRSakin to those of Schedule 4 Companies Act 1985; these will develop over timethrough industry practice. Accordingly, the presentations set out in Appendices2 to 5 do not necessarily represent how the income statements and balance sheetswill look, but have been designed to demonstrate as clearly as possible thespecific differences between UK GAAP and IFRS. There are, however, some presentational changes arising out of IFRS: • investment property will be split between completed properties and those under development; • property acquired for development will not be classified as investment property until completed, but will nevertheless be revalued throughout the term of the development as at present; and • service charge and other income will be shown separately on the face of the income statement. Performance Reporting The effect of adopting IFRS as at 31 March 2005, and for the year then ended, onour key performance measures are set out below: UK GAAP Change IFRSNet assets £543.3m £(28.3)m £515.0mDiluted adjusted net assets* £604.0m £(30.4)m £573.6mAdjusted net gearing* 49% 2% 51% Diluted adjusted net assets per share* 333p (16)p 317pDiluted adjusted triple net assets per share* 303p 4p 307pEarnings per share 14.3p 21.4p 35.7pAdjusted earnings per share** 11.3p (0.5)p 10.8p * Excluding deferred tax on accelerated capital allowances under both UK GAAPand IFRS.** Excluding exceptional items, profits or losses on sales of investmentproperty and deferred tax on capital allowances (under UK GAAP), and,additionally, excluding surpluses or deficits on revaluation of investmentproperty, and the associated contingent CGT (under IFRS). Occupational Finance Leases GPE has 248 tenants under 324 occupational leases with a weighted average leaselength of 6.4 years. IAS 17 Leases has required a review of each lease toestablish whether it should be accounted for as an operating lease in the sameway as under UK GAAP, or as a finance lease. Based on that review, GPE will notbe required to account for any of its occupational leases as finance leases. Cash Flow The introduction of IFRS will not affect the cash flows of the business. Thepresentation of the cash flow statement for GPE will not differ significantlyfrom that under UK GAAP and, therefore, an analysis of the cash flow statementdoes not fall within the scope of this paper. Dividend Policy and Distributable Reserves At 31 March 2005 GPE had distributable reserves of £176.6 million, afterdeclaring a full year dividend of £17.3 million in aggregate. As the individualcompany financial statements of GPE and each of its subsidiary undertakings willcontinue to be prepared under UK GAAP, the introduction of IFRS will not affectGPE's distributable reserves. Accordingly, the dividend policy of the Group isnot affected by the introduction of IFRS. Taxation As the financial statements of GPE and each of its subsidiary undertakings willcontinue to be prepared under UK GAAP, the introduction of IFRS will have noimpact on the taxation status or tax payments of the Group. Contact: Great Portland Estates plcJohn Whiteley Finance Director 020 7612 1434 FinsburyEdward Orlebar 020 7251 3801Gordon Simpson 020 7251 3801 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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