24th Jun 2005 07:00
Dixons Group PLC24 June 2005 PR 43A/2005 For release after 7.00 hours 24 June 2005 DIXONS GROUP plc IMPACT OF ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS ERRATUM In the announcement on International Financial Reporting Standards released at 11.00 am on 22 June 2005, a heading for basic earnings per share was incorrectly described as adjusted diluted earnings per share. The corrected announcement is reproduced in its entirety below with adjusted diluted earnings per share included for clarity. ENDS ---------------------------------------------------------------------------- DIXONS GROUP plc IMPACT OF ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS INTRODUCTION Dixons Group plc currently prepares its financial statements in accordance with UK Generally Accepted Accounting Practices (UK GAAP). Following a European Union Regulation issued on 19 July 2002, Dixons Group plc will be required to report its results in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Commission (EC) from 1 May 2005. This document explains how the Group's reported performance and financial position will be affected by these changes. The adoption of IFRS is an accounting change only and does not affect the Group's strategy, underlying business performance or its cash flows. The following table summarises the headline figures for 2004/05: UK GAAP IFRS Change Change £ million £ million £ million % ---------------------- --------- --------- --------- --------- Revenue (turnover) 6,982.7 6,982.7 - N/a Underlying operating profit (1) 312.8 304.9 (7.9) (3%) Underlying profit before tax (1) 343.1 334.0 (9.1) (3%) Profit on ordinary activities after taxation 248.7 246.8 (1.9) (1%) Basic earnings per Share 12.6p 12.5p (0.1)p (1%) Adjusted diluted earnings per share (1) 12.6p 12.2p (0.4)p (3%) Net assets at 30 April 2005 1,475.2 1,452.5 (22.7) (2%) ---------------------- --------- --------- --------- --------- (1) Underlying earnings are stated before goodwill / acquired intangible amortisation and exceptional items. The financial effect of these items is shown in the preliminary audited results announcement released earlier today in separate columns in the profit and loss account and the notes thereto, which provide a reconciliation between underlying and statutory amounts. Adjusted diluted earnings per share are based on underlying profits and can be reconciled to the statutory equivalent in the notes also shown in the preliminary audited results announcement. FINANCIAL REPORTING The Group's first Annual Report and Accounts under IFRS will be for the 52 week period ending 29 April 2006. Comparative figures for the 52 week period ended 30 April 2005 will be restated and primary statements are presented within this document. The transition date to IFRS for the Group is 2 May 2004 (the Transition Date), being the start of the period of comparative information. BASIS OF PREPARATION The key differences between UK GAAP and IFRS affecting the Group's accounting policies are set out below. This has been prepared on the basis that all existing IFRS, Standing Interpretations Committee (SIC) interpretations and International Financial Reporting Interpretations Committee (IFRIC) interpretations issued by the International Accounting Standards Board (IASB) effective for the 52 weeks ending 29 April 2006, will be fully endorsed by the EC. The failure of the EC to endorse all of these standards in time for the 2005/06 financial reporting period could result in the need to change the basis of accounting or presentation of certain financial information from that reported herein. The IASB continues to amend certain of these standards and interpretations as well as issue new standards and interpretations. Such new guidance may be applicable to financial years commencing 1 May 2005 or may be applicable to later periods but may be adopted early. It is important to note that the IFRS position as stated is the Group's current view based on the financial reporting standards currently in issue and changes may arise as new accounting pronouncements are developed and issued. As a result of this, the Group's first IFRS financial statements may be prepared on a different basis to that presented here. The Group's accounting policy for financial instruments assumes that the full version of IAS 39 "Financial Instruments" will be endorsed by the EC, and adopted from 1 May 2005. While this is not a comprehensive summary of all differences between UK GAAP and IFRS, other differences would have no effect or no material effect on the consolidated net profit or shareholders' funds of the Group. IFRS 1 EXEMPTIONS AND ELECTIONS IFRS 1, "First time adoption of International Financial Reporting Standards", permits those companies adopting IFRS for the first time to take some exemptions from the full requirements of IFRS and also certain elections in the transition period. The Group has taken the following exemptions and elections: •Share based payments: IFRS 2 "Share based payment" has been applied to all equity settled transactions, such as share options, granted but not fully vested as at the Transition Date. Although, IFRS 2 only requires that share based payments granted since 7 November 2002 be included, the Group considers that retrospective application provides a better indication of how past and future results are affected by IFRS 2, particularly when compared with the level of grants year on year. Fair values for pre 7 November 2002 share based payments were set out in an announcement dated 11 May 2005 and are reproduced in Appendix V together with fair values from the period between 7 November 2002 up to the Transition Date; •Employee benefits: Under IAS 19 "Employee Benefits" all cumulative pension actuarial gains and losses have been recognised in reserves at the Transition Date. The amended version of IAS 19 issued in December 2004, which is subject to EU approval, allows companies to recognise actuarial gains and losses immediately in the statement of recognised income and expense (reserves) or alternatively to be held in the balance sheet and released to the income statement over a period of time. Commencing on the Transition Date, the Group has elected to early adopt the amended version of IAS 19 and will recognise actuarial gains and losses in full in the period in which they occur in the statement of recognised income and expense; •Business combinations: The Group has elected to apply IFRS 3 "Business Combinations" prospectively from the Transition Date. The effect of this is that goodwill arising from business combinations prior to the Transition Date remains at the net book value as stated under UK GAAP as at the Transition Date; •Financial instruments: The Group has elected to defer the implementation of IAS 32 "Financial instruments: Disclosure and Presentation" and IAS 39: "Financial instruments: Recognition and Measurement". IAS 32 and IAS 39 will be adopted from 1 May 2005. Commencing on this date, it is the intention to apply hedge accounting where the requirements of IAS 39 are met. Accordingly, the comparative period to the 2005/06 Annual Report (i.e. 52 week period to 30 April 2005) will reflect accounting under the existing UK GAAP basis. DIFFERENCES BETWEEN UK GAAP AND IFRS The following represent the differences relevant to the Group of moving from UK GAAP to IFRS. a) Share based payments Under UK GAAP, no cost is incurred for share options or Save As You Earn (SAYE) schemes. In accordance with IFRS 2, the Group will recognise a charge to the profit and loss account which represents the fair value of outstanding share based payments granted to employees. Share based payments comprise share options, SAYE schemes, the Deferred Equity Participation Plan (DEPP) and the Group's Long Term Incentive Plan (LTIP). The fair value is determined by using option pricing models and the Group has predominantly used the binomial model in such valuations. The charge is recognised in the profit and loss account over the vesting period, adjusted to reflect the expected and actual levels of vesting. The basis of calculation for deferred taxation is the difference between the market price at the balance sheet date and the exercise price of the share based payment. Accordingly, the tax effect does not correlate to the charge. b) Employment benefits Under UK GAAP, a prepayment or accrual is shown in the balance sheet representing timing differences between the pension charge to the profit and loss account and the cash payments made to the pension scheme. Under IAS 19 "Employee benefits", the income statement charge is split between an operating charge and finance income and charges. The regular service cost of providing retirement benefits to employees during the period, together with the cost of any benefits relating to past service is charged to operating profit in the period. The net finance income or charge relates to the expected return on the assets of the scheme, based on market conditions prevailing at the start of the financial period, offset by the unwinding of the discount applied to the liabilities of the scheme. The difference between the market value of the assets and the present value of the accrued pension liabilities is recognised as an asset or liability in the balance sheet together with the related deferred tax effect. Differences between the actual and expected returns on assets during the period are recognised in reserves in the statement of recognised income and expense, together with differences arising from changes in assumptions. This accounting treatment is consistent with that already disclosed under FRS 17. c) Leases Under UK GAAP, determination of property finance leases is made by reference to the lease as a whole. Under IAS 17 "Leases", the determination must be made by reference to the land and buildings elements of the leases separately. As a result of this the buildings element of a small number of leases previously recognised as operating leases have been reclassified as finance leases. The key reasons for such reclassifications are where the Group has built and developed such properties and then subsequently sold and leased back. The circumstances and terms of the sale and lease back have determined the accounting as a finance lease. The main impact on the balance sheet is the inclusion of the above mentioned properties within fixed assets together with the related finance lease creditor. This creditor, because of its inclusion within borrowings, has the effect of reducing net funds. Cash flows are, however unaffected. The impact on net assets is relatively small. The key impact on the profit and loss account is that for these specific leases, the rentals under operating leases charged to operating profit under UK GAAP are replaced with a depreciation charge on the fixed asset and a finance charge is included within interest. The total amounts charged to the profit and loss account over the life of the finance lease remain the same under both UK GAAP and IFRS, however, a higher charge is incurred in the early years of a lease owing to the impact of higher interest charges. The net impact of this charge on the profit and loss account is small. d) Lease incentives Under UK GAAP, the Group's policy on recognition of lease incentives is to spread the incentive over the period to the first market rent review. Under IFRS, SIC 15 "Operating leases - incentives" the requirement is for such incentives to be spread over the life of the lease. As a result, the Group's IFRS balance sheet at the Transition Date includes additional deferred income, and operating profit for 2004/05 is reduced marginally as such income is spread further forwards. e) Dividends Under UK GAAP, dividends are provided for in the period in respect of which they are declared or proposed. IAS 10 "Events after the balance sheet date" requires that dividends are given effect only in the period in which they are approved. The effect of this change for the Group is that the final dividend in relation to each of the financial years 2003/04 and 2004/05 which were accrued at the balance sheet dates are reversed and instead, accounted for in 2004/05 and 2005/06, respectively. f) Business combinations and intangible assets Under UK GAAP, goodwill on acquisitions made by the Group since 2 May 1999, has been capitalised on the balance sheet and amortised over its estimated life where such a life has been determined to be finite. Prior to 2 May 1999, goodwill arising on acquisitions was eliminated against reserves in the consolidated balance sheet in the year in which the acquisition was made. IFRS 3 prohibits the amortisation of goodwill. This standard requires goodwill to be carried at cost with impairment reviews carried out annually and at other times if there are indications that the carrying amount may not be supportable. The Group has adopted the transitional provisions set out in IFRS 1, to apply IFRS 3 prospectively from the Transition Date whereby goodwill arising on acquisitions made prior to this is frozen as at the Transition Date and any goodwill amortisation occurring in the financial year 2004/05 is therefore reversed for IFRS reporting purposes. Only a small proportion of the Group's goodwill was determined to have a finite life under UK GAAP and, accordingly, the effect of ceasing to amortise is relatively small. IAS 38 "Intangible assets" requires other intangible assets to be separately identified and amortised over their useful economic lives. These lives will typically not be indefinite and as a result, upon acquisition of a company, intangible assets such as brands and customer lists are now separately valued and then amortised over their useful economic lives. Additionally, UK GAAP requires that on subsequent disposal or closure of a previously acquired subsidiary, any goodwill previously taken directly to shareholders' funds is then charged to the profit and loss account as part of profit or loss on disposal or closure. Under IFRS the appropriate balance to be written off on the disposal of the business is the remaining unamortised balance for goodwill. This change has no effect on the Group's opening balance sheet, 2004/05 income statement or 2004/05 balance sheet. g) Taxation Under UK GAAP, deferred tax is provided for in full on all timing differences which have not reversed at the balance sheet date. Deferred tax assets are only recognised to the extent that they are regarded as more likely than not to be recoverable. Although some differences exist between IFRS and UK GAAP, IAS 12 "Income taxes" is similar to UK GAAP and has no effect on the Group's UK GAAP figures. IAS 12 has, however, been applied to the IFRS adjustments discussed above. h) Presentation of financial statements The format of the primary financial statements will be presented in accordance with IAS 1 "Presentation of Financial Statements". Although similar, such a presentation differs from its UK GAAP equivalent. Under IAS 1, there is no definition of 'exceptional items', however, the standard provides examples of circumstances where, when such items of income and expense are material, the nature and amount should be disclosed separately. Included in these examples are many one off items which the Group has previously described as 'exceptional'. Accordingly, the Group will continue to separately identify such items. i) Reclassification changes The following changes reflect presentational changes to the balance sheet at the Transition Date and have no effect on either net assets or profits going forwards: •Under UK GAAP, capitalised computer software is included within tangible fixed assets on the balance sheet. Under IFRS, only computer software that is integral to a related item of hardware is included as property, plant and equipment. All other computer software is included as an intangible asset. As a result, certain software previously shown as fixed assets has been reclassified as intangible assets; •Under UK GAAP, specific definitions exist for cash at bank and in hand and short term investments. Under IFRS, a new category described as 'cash and cash equivalents' replaces the UK GAAP equivalent of cash at bank and in hand. The definition of cash and cash equivalents results in a reclassification of certain amounts from short term investments into cash and cash equivalents; •Under UK GAAP, provisions for liabilities and charges are not required to be formally split between current and non current. IFRS requires this distinction to be made; •Under UK GAAP, deferred tax assets are split between amounts falling due within one year and amounts falling due after more than one year. IFRS requires all deferred tax asset balances to be shown as non current. The following tables show the effects of IFRS on : •The consolidated income statement for the 52 weeks ended 30 April 2005; •The consolidated balance sheet as at 30 April 2005; •The consolidated balance sheet at the Transition Date, 2 May 2004. CONSOLIDATED INCOME STATEMENT FOR THE 52 WEEKS ENDED 30 APRIL 2005 - UNAUDITED UK GAAP (IFRS style Total IFRS Restated under presentation) adjustments IFRS £million £million £million -------------------------- ----------- ---------- ----------- Revenue 6,982.7 - 6,982.7 -------------------------- ----------- ---------- ----------- Group operating profit 289.3 (1.9) 287.4 Share of profit of associates 0.9 - 0.9 -------------------------- ----------- ---------- ----------- Total operating profit 290.2 (1.9) 288.3 -------------------------- ----------- ---------- ----------- Analysed as: ------------------------ ----------- ---------- ----------- Underlying operating profit 312.8 (7.9) 304.9 Goodwill amortisation (7.2) 7.2 - Amortisation of acquired intangibles - (1.2) (1.2) Restructuring charge (15.4) - (15.4) ------------------------ ----------- ---------- ----------- Profit on sale of investments 12.5 - 12.5 Profit on sale of subsidiary 3.8 - 3.8 -------------------------- ----------- ---------- ----------- Profit on ordinary activities before interest 306.5 (1.9) 304.6 Net interest 30.3 (1.2) 29.1 -------------------------- ----------- ---------- ----------- Profit on ordinary activities before taxation 336.8 (3.1) 333.7 -------------------------- ----------- ---------- ----------- Analysed as: ------------------------ ----------- ---------- ----------- Underlying profit before taxation 343.1 (9.1) 334.0 Goodwill amortisation (7.2) 7.2 - Amortisation of acquired intangibles - (1.2) (1.2) Restructuring charge (15.4) - (15.4) Profit on sale of investments 12.5 - 12.5 Profit on sale of subsidiary 3.8 - 3.8 ------------------------ ----------- ---------- ----------- Taxation on profit on ordinary activities (88.1) 1.2 (86.9) -------------------------- ----------- ---------- ----------- Profit on ordinary activities after taxation 248.7 (1.9) 246.8 Equity minority interests (5.6) - (5.6) -------------------------- ----------- ---------- ----------- Profit for the period 243.1 (1.9) 241.2 -------------------------- ----------- ---------- ----------- Adjusted diluted earnings per share* 12.6p 12.2p Basic earnings per share 12.6p 12.5p Diluted earnings per share 12.5p 12.4p * Adjusted diluted earnings per share are calculated using underlying earnings and are shown in order to disclose the impact of goodwill / acquired intangible amortisation and exceptional items. A detailed analysis of the IFRS adjustments noted above is shown in Appendix I. CONSOLIDATED BALANCE SHEET AT 30 APRIL 2005 - UNAUDITED UK GAAP (IFRS style Total IFRS IFRS Reclass- Restated under presentation) adjustments ifications IFRS £million £million £million £million------------------ ----------- ---------- ----------- ----------- Non current assets Goodwill 1,010.4 (6.2) - 1,004.2Intangible assets - 18.0 89.8 107.8Property plantand equipment 638.0 52.2 (89.8) 600.4Investments 3.2 - - 3.2Trade and otherreceivables 29.6 - - 29.6Deferred tax assets 58.0 61.0 41.7 160.7------------------ ----------- ---------- ----------- ----------- 1,739.2 125.0 41.7 1,905.9------------------ ----------- ---------- ----------- ----------- Current assets Inventories 811.3 - - 811.3Trade and otherreceivables 369.6 - - 369.6Deferred tax assets 41.7 - (41.7) -Tax recoverable 7.7 - - 7.7Short term investments 867.0 - (560.5) 306.5Cash and cashequivalents 144.0 - 560.5 704.5------------------ ----------- ---------- ----------- ----------- 2,241.3 - (41.7) 2,199.6------------------ ----------- ---------- ----------- ----------- Current liabilities Bank overdrafts andborrowings (141.8) - - (141.8)Obligations underfinance leases - (0.4) - (0.4)Trade and otherpayables (1,484.1) 113.5 - (1,370.6)Tax liabilities (110.7) - - (110.7)Provisions - - (7.0) (7.0)------------------ ----------- ---------- ----------- ----------- (1,736.6) 113.1 (7.0) (1,630.5)------------------ ----------- ---------- ----------- -----------Net current assets 504.7 113.1 (48.7) 569.1------------------ ----------- ---------- ----------- ----------- Non current liabilities Borrowings (317.9) - - (317.9)Obligations underfinance leases - (55.1) - (55.1)Retirement benefitobligations - (186.5) - (186.5)Other payables (436.1) (19.2) - (455.3)Provisions (14.7) - 7.0 (7.7)------------------ ----------- ---------- ----------- ----------- (768.7) (260.8) 7.0 (1,022.5)------------------ ----------- ---------- ----------- -----------Net assets 1,475.2 (22.7) - 1,452.5------------------ ----------- ---------- ----------- ----------- A detailed analysis of the IFRS adjustments noted above is shown in Appendix II. CONSOLIDATED BALANCE SHEET AT 2 MAY 2004 (Transition balance sheet) - UNAUDITED UK GAAP (IFRS style Total IFRS IFRS Reclass- Restated under presentation) adjustments ifications IFRS £million £million £million £million------------------ ----------- ---------- ----------- -----------Non current assets Goodwill 937.1 - - 937.1Intangible assets - - 68.4 68.4Property plantand equipment 583.9 32.7 (68.4) 548.2Investments 48.9 - - 48.9Trade and otherreceivables 35.6 (5.3) - 30.3Deferred tax assets 43.7 46.1 32.4 122.2------------------ ----------- ---------- ----------- ----------- 1,649.2 73.5 32.4 1,755.1------------------ ----------- ---------- ----------- ----------- Current assets Inventories 793.0 - - 793.0Trade and otherreceivables 378.8 - - 378.8Deferred tax assets 32.4 - (32.4) -Tax recoverable 16.0 - - 16.0Short term investments 765.1 - (379.4) 385.7Cash and cashequivalents 239.3 - 379.4 618.7------------------ ----------- ---------- ----------- ----------- 2,224.6 - (32.4) 2,192.2------------------ ----------- ---------- ----------- ----------- Current liabilities Bank overdrafts andborrowings (61.5) - - (61.5)Obligations under finance leases - (0.4) - (0.4)Trade and other payables (1,394.8) 108.3 - (1,286.5)Tax liabilities (109.5) - - (109.5)Provisions - - (21.9) (21.9)------------------ ----------- ---------- ----------- ----------- (1,565.8) 107.9 (21.9) (1,479.8)------------------ ----------- ---------- ----------- -----------Net current assets 658.8 107.9 (54.3) 712.4------------------ ----------- ---------- ----------- ----------- Non current liabilities Borrowings (298.1) - - (298.1)Obligations underfinance leases - (34.1) - (34.1)Retirement benefitobligations - (125.7) - (125.7)Other payables (505.6) (17.9) - (523.5)Provisions (36.6) - 21.9 (14.7)------------------ ----------- ---------- ----------- ----------- (840.3) (177.7) 21.9 (996.1)------------------ ----------- ---------- ----------- -----------Net assets 1,467.7 3.7 - 1,471.4------------------ ----------- ---------- ----------- ----------- A detailed analysis of the IFRS adjustments noted above is shown in Appendix III. Set out in the appendices are: I. Detailed analysis of the effect on the consolidated income statement for the 52 weeks ended 30 April 2005II. Detailed analysis of the effect on the consolidated balance sheet as at 30 April 2005III.Detailed analysis of the effect on the consolidated balance sheet position as at the Transition Date, 2 May 2004IV. Key accounting policies under IFRS for 2004/05 V. Fair values of share based payments granted between 7 November 2002 and the Transition Date This announcement seeks to help our shareholders and investors prepare for the change ahead of the full adoption in 2005/06. Maylands Avenue Kevin O'ByrneHemel Hempstead Group Finance DirectorHertfordshire HP2 7TG 22 June 2005------------------ ------------------- For further information: Kevin O'Byrne Group Finance Director 0870 8503333David Lloyd-Seed Director of Investor Relations 01727 205065Hamish Thompson Head of Media Relations 01727 203195------------------ ------------------- ------------------- Information on Dixons Group plc is available at http://www.dixons-group-plc.co.uk ------------------ ------------------- ------------------- Appendix I - Detailed reconciliation of IFRS adjustments to the consolidated income statement for the 52 weeks ended 30 April 2005 - unaudited IFRS adjustments Amortisation Share to of based Employee Lease underlying acquired Goodwill Total IFRS payment benefits Leases incentives results intangibles amortisation adjustments £million £million £million £million £million £million £million £million----------------- -------- -------- -------- ---------- ---------- ----------- ----------- ---------- Revenue - - - - - - - ------------------ -------- -------- -------- ---------- ---------- ----------- ----------- ---------- Group operatingprofit (8.7) 0.3 1.5 (1.0) (7.9) (1.2) 7.2 (1.9)Share of profit of associate - - - - - - - - ----------------- -------- -------- -------- ---------- ---------- ----------- ----------- ---------- Total operatingprofit (8.7) 0.3 1.5 (1.0) (7.9) (1.2) 7.2 (1.9)Profit on sale of investment - - - - - - - -Profit on sale of subsidiary - - - - - - - ------------------ -------- -------- -------- ---------- ---------- ----------- ----------- ---------- Profit on ordinaryactivities beforeinterest (8.7) 0.3 1.5 (1.0) (7.9) (1.2) 7.2 (1.9)Net interest - 2.1 (3.3) - (1.2) - - (1.2)----------------- -------- -------- -------- ---------- ---------- ----------- ----------- ----------Profit on ordinaryactivities beforetaxation (8.7) 2.4 (1.8) (1.0) (9.1) (1.2) 7.2 (3.1) Taxation on profiton ordinaryactivities 0.7 (0.7) 0.5 0.3 0.8 0.4 - 1.2----------------- -------- -------- -------- ---------- ---------- ----------- ----------- ----------Profit on ordinaryactivities aftertaxation (8.0) 1.7 (1.3) (0.7) (8.3) (0.8) 7.2 (1.9)Equity minority interests - - - - - - - - ----------------- -------- -------- -------- ---------- ---------- ----------- ----------- ----------Profit for the period (8.0) 1.7 (1.3) (0.7) (8.3) (0.8) 7.2 (1.9)----------------- -------- -------- -------- ---------- ---------- ----------- ----------- ---------- Appendix II - Detailed reconciliation of IFRS adjustments to the consolidated balance sheet as at 30 April 2005 - unaudited Share IFRS based Employee Lease Goodwill Total IFRS Reclass- payment benefits Leases incentives Intangibles Dividend amortisation adjustments ifications £million £million £million £million £million £million £million £million £million-------------- ------- ------- ------- --------- ---------- ------- ----------- ---------- ---------Non current assets Goodwill - - - - (13.4) - 7.2 (6.2) -Intangible assets - - - - 18.0 - - 18.0 89.8Property plantand equipment - - 51.9 0.3 - - - 52.2 (89.8)Investments - - - - - - - - -Trade and otherreceivables - - - - - - - - -Deferred taxassets 3.0 56.0 1.1 6.3 (5.4) - - 61.0 41.7-------------- ------- ------- -------- -------- ----------- ------ ---------- ----------- --------- 3.0 56.0 53.0 6.6 (0.8) - 7.2 125.0 41.7-------------- ------- ------- -------- -------- ----------- ------ ---------- ----------- ---------Current assets Inventories - - - - - - - - -Trade and otherreceivables - - - - - - - - -Deferred tax assets - - - - - - - - (41.7)Tax recoverable - - - - - - - - -Short terminvestments - - - - - - - - (560.5)Cash and cashequivalents - - - - - - - - 560.5-------------- ------- ------- -------- -------- ---------- ------- ---------- ---------- ---------- - - - - - - - - (41.7)-------------- ------- ------- -------- -------- ---------- ------- ---------- ---------- ----------Current liabilities Bank overdrafts - - - - - - - - -and borrowingsObligations under finance leases - - (0.4) - - - - (0.4) -Trade andother payables - 0.3 - (2.0) - 115.2 - 113.5 -Tax liabilities - - - - - - - - -Provisions - - - - - - - - (7.0)-------------- ------- ------- -------- -------- ---------- ------- ---------- ---------- ---------- - 0.3 (0.4) (2.0) - 115.2 - 113.1 (7.0)-------------- ------- ------- -------- -------- ---------- ------- ---------- ---------- ----------Net current assets - 0.3 (0.4) (2.0) - 115.2 - 113.1 (48.7)-------------- ------- ------- -------- -------- ---------- ------- ---------- ---------- ---------- Non current liabilities Borrowings - - - - - - - - -Obligations underfinance leases - - (55.1) - - - - (55.1) -Retirementbenefitobligations - (186.5) - - - - - (186.5) -Other payables - - - (19.2) - - - (19.2) -Provisions - - - - - - - - 7.0-------------- ------- ------- -------- -------- ---------- ------- ---------- ----------- --------- - (186.5) (55.1) (19.2) - - - (260.8) 7.0-------------- ------- ------- -------- -------- ---------- ------- ---------- ----------- ---------Net assets 3.0 (130.2) (2.5) (14.6) (0.8) 115.2 7.2 (22.7) --------------- ------- ------- -------- -------- ---------- ------- ---------- ----------- --------- Appendix III - Detailed reconciliation of IFRS adjustments to the consolidated balance sheet as at 1 May 2004 (transition balance sheet) - unaudited Share IFRS based Employee Lease Total IFRS Reclass- payment benefits Leases incentives Dividend adjustments ifications £million £million £million £million £million £million £million----------------------- ------- -------- ------- --------- -------- ---------- ---------Non current assets Goodwill - - - - - - -Intangible assets - - - - - - 68.4Property plantand equipment - - 32.7 - - 32.7 (68.4)Investments - - - - - - -Trade and other receivables - (5.3) - - - (5.3) -Deferred tax assets 1.9 37.7 0.5 6.0 - 46.1 32.4------------------------ ------- -------- ------- --------- -------- ---------- --------- 1.9 32.4 33.2 6.0 - 73.5 32.4------------------------ ------- -------- ------- --------- -------- ---------- ---------Current assets Inventories - - - - - - -Trade and other receivables - - - - - - -Deferred tax assets - - - - - - (32.4)Tax recoverable - - - - - - -Short term investments - - - - - - (379.4)Cash and cash equivalents - - - - - - 379.4------------------------ ------- -------- ------- --------- -------- ---------- --------- - - - - - - (32.4)------------------------ ------- -------- ------- --------- -------- ---------- ---------Current liabilities Bank overdrafts and borrowings - - - - - - -Obligations under financeleases - - (0.4) - - (0.4) -Trade and other payables - - - (2.0) 110.3 108.3 -Tax liabilities - - - - - - -Provisions - - - - - - (21.9)------------------------ ------- -------- -------- --------- -------- ---------- --------- - - (0.4) (2.0) 110.3 107.9 (21.9)------------------------ ------- -------- -------- --------- -------- ---------- ---------Net current assets - - (0.4) (2.0) 110.3 107.9 (54.3)------------------------ ------- -------- -------- --------- -------- ---------- --------- Non current liabilities Borrowings - - - - - - -Obligations under financeleases - - (34.1) - - (34.1) -Retirement benefitobligations - (125.7) - - - (125.7) -Other payables - - - (17.9) - (17.9) -Provisions - - - - - - 21.9----------------------- ------- ------- ------- --------- -------- --------- --------- - (125.7) (34.1) (17.9) - (177.7) 21.9----------------------- ------- ------- ------- --------- -------- --------- ---------Net assets 1.9 (93.3) (1.3) (13.9) 110.3 3.7 ------------------------ ------- ------- ------- --------- -------- --------- --------- Appendix IV - Summary of accounting policies under IFRS for 2004/05 1.1 Basis of accounting As set out in the Basis of Preparation, the consolidated financial statements have been prepared in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board. 1.2 Accounting convention and basis of consolidation The consolidated financial statements are prepared under the historical cost convention. The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company. Control is achieved where the Company has the power to control the financial and operating policies of an entity so as to obtain benefits from its activities. The results of subsidiaries acquired are included from the date on which power to control passes. The net assets of subsidiaries acquired are recorded at their fair values. The results of subsidiaries disposed of are included up to the effective date of disposal. Associates are accounted for using the equity method of accounting from the date which the power to exercise significant influence passes. All intra-group transactions, balances, income and expenses are eliminated on consolidation. 1.3 Revenue Revenue comprises sales of goods and services excluding sales taxes. Revenue for sales of goods is recognised at the point of sale or, where later, upon delivery to the customer. Revenue earned from extended warranty and service contracts is recognised as turnover over the life of the agreement by reference to the stage of completion of the transaction at the balance sheet date. 1.4 Non operating income Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable. Dividend income from investments is recognised when the shareholders' rights to receive payment have been established. 1.5 Leasing Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. The determination of the classification of property leases is made by reference to the land and buildings elements separately. All leases not classified as finance leases are operating leases. Finance leases Assets held under finance leases are capitalised at their fair value on acquisition or, if lower, at the present value of the minimum lease payments, each determined at the inception of the lease and depreciated over their estimated useful lives. The corresponding obligation to the lessor is included in the balance sheet as a liability. Lease payments are apportioned between finance charges and reduction of the lease obligation. Finance charges are charged to the income statement over the period of the lease in proportion to the capital element outstanding. Operating leases Rentals payable under operating property leases are charged to the income statement in equal instalments up to each market rent review date or over the term of the lease, whichever is the shorter. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight line basis over the lease term. 1.6 Translation of foreign currencies The results of overseas subsidiary undertakings are translated into sterling at the average rates of exchange during the period. Assets and liabilities denominated in foreign currencies are translated at the rates of exchange ruling at the balance sheet date. Exchange differences resulting from the translation of the results and balance sheets of overseas subsidiary undertakings and related foreign currency borrowings are charged or credited to equity. Other exchange differences arising from foreign currency transactions are included in the income statement. 1.7 Goodwill On acquisition of a subsidiary, the fair value of the consideration is allocated between the identifiable net tangible and intangible assets/ liabilities on a fair value basis, with any excess consideration representing goodwill. Goodwill in respect of subsidiaries is capitalised as goodwill on the balance sheet; goodwill relating to associates is capitalised in fixed asset investments as part of the carrying value of the associate. Goodwill has an indefinite life and is reviewed annually for impairment. Any impairment is recognised immediately in the income statement and is not subsequently reversed. On disposal of a subsidiary or associate the attributable amount of goodwill is included in the determination of the gain or loss on disposal. Goodwill arising on acquisitions before the date of transition to IFRS has been retained at the net book amount recorded under UK GAAP as at the Transition Date. Goodwill arising on acquisitions prior to 2 May 1999 remains eliminated against equity and is not included in determining any subsequent profit or loss on disposal. 1.8 Intangible assets Computer software Acquired computer software is capitalised on the basis of the costs incurred to both acquire and bring into use the specific software. These costs are amortised on a straight line basis over their estimated useful lives (3 to 5 years). Costs associated with developing or maintaining computer software are recognised as an expense as incurred. Internally generated intangible assets are capitalised at cost if the project is technically and commercially feasible and the economic benefits expected to be generated exceed one year. The expenditure capitalised includes the cost of materials, direct labour and an appropriate proportion of overheads. Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. Other intangible assets Other purchased intangible assets, which include brands and customer lists, are capitalised and amortised over their useful economic lives on a straight line basis. 1.9 Property, plant and equipment Property, plant and equipment is stated at cost less accumulated depreciation and, where appropriate, provision for impairment in value or estimated loss on disposal. Depreciation is provided to write off the cost of the assets by equal instalments over their estimated useful lives. The rates used are: Short leasehold property - over the term of the lease Freehold and long leasehold buildings - between 1% and 2 1/2% per annum Fixtures, fittings and equipment - between 10% and 33 1/3% per annum No depreciation is provided on freehold and long leasehold land or on assets in the course of construction. 1.10 Investments Investments held as non current assets are stated at cost, less any provision for impairment in value or estimated loss on disposal. Short term investments are stated at the lower of cost and net realisable value with the exception of assets held to maturity, which are stated at cost net of amortised premium or discount. 1.11 Inventories Inventories are stated at the lower of cost and net realisable value. Cost comprises direct purchase cost and those overheads that have been incurred in bringing the inventories to their present location and condition. Net realisable value represents the estimated selling price less all estimated and directly attributable costs of completion and costs to be incurred in marketing, selling and distribution. The cost of properties held for development includes the net development costs and interest incurred during development on those projects where it is expected, on commencement, that the period will exceed one year. 1.12 Deferred taxation Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax balances are not discounted. No provision is made for tax which would have been payable on the distribution of retained profits of overseas subsidiaries or associated undertakings, unless the distribution of such earnings has been accrued in the balance sheet. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. 1.13 Post retirement benefits Company contributions to defined contribution pension schemes and contributions made to state pension schemes for certain overseas employees are charged to the income statement on an accruals basis as contributions become payable. For defined benefit pension plans, the regular service cost of providing retirement benefits to employees during the period, together with the cost of any benefits relating to past service is charged to operating profit in the period. A credit representing the expected return on assets of the retirement benefit schemes during the year is included within other finance income. This is based on the market value of the assets of the schemes at the start of the financial period. A charge within other finance charges representing the expected increase in the liabilities of the retirement benefit schemes during the year is included in net interest. The difference between the market value of the assets and the present value of the accrued pension liabilities is shown as an asset or liability in the balance sheet together with the corresponding amount of deferred tax. Differences between the actual and expected returns on assets during the period are recognised in the statement of recognised income and expense, together with differences arising from changes in assumptions. 1.14 Derivative financial instruments Amounts payable or receivable in respect of interest rate derivatives are recognised as adjustments to interest over the period of the contract. Foreign currency borrowings, investments and foreign exchange gains or losses on derivatives held to hedge net assets are carried in the balance sheet at the rates at the balance sheet date. Gains or losses in respect of hedging of overseas subsidiaries and investments denominated in foreign currencies are recognised in equity. Gains or losses in respect of hedging of future transactions are deferred and recognised as appropriate when the hedged transaction occurs. 1.15 Share based payments The Group issues equity-settled share-based payments to certain employees which are measured at fair value at the date of grant. This fair value is expensed in the income statement on a straight line basis over the vesting period, based on an estimate of the number of shares that will eventually vest. A liability equal to the portion of services received from employees is recognised at the current fair value determined at each balance sheet date for cash-settled share-based payments. 1.16 Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities. Significant items subject to such assumptions and estimates include the useful lives of assets; the measurement and recognition of provisions; the recognition of deferred tax assets; and liabilities for potential corporation tax. ActualRelated Shares:
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