1st Mar 2005 07:02
Issued: 01 March 2005Released: 01 March 2005Contact: See below Serco Group plc Update on Transition to IFRS Serco Group plc ("Serco" or "the Group") today releases the following update onits transition to International Financial Reporting Standards ("IFRS"). Thisfollows Serco's presentation on its transition to IFRS on 9 December 2004.Separately today, the Group has announced its preliminary results for the yearended 31 December 2004. The preliminary results released today were preparedunder UK Generally Accepted Accounting Principles ("UK GAAP").The date of transition to IFRS for the Group is 1 January 2004. The Group'sfirst reported results under IFRS will be for the six months to 30 June 2005and the first full year reported under IFRS will be the year ending 31 December2005.The key points arising from the adoption of IFRS are: * The Group's underlying performance, cash flow and ability to pay dividends will be unaffected; * The impact on year on year earnings growth after transition is likely to be minimal; * The fair value concept may introduce volatility into the balance sheet, largely due to the inclusion of financial instruments and actuarial gains and losses on defined benefit pension schemes; * On transition, the Group's profit before tax will be principally affected by non-amortisation of goodwill, partially offset by a charge for share based payment; and * On transition, net assets will be reduced principally through recognition of actuarial losses on defined benefit pension schemes. The Group's analysis of the effect of IFRS is ongoing. In addition, theinterpretation of standards is evolving so further changes may arise, notablyin accounting for pension schemes and private finance initiatives.However, to assist stakeholders with understanding how existing standards arelikely to affect the Group's reported profit before tax and net assets,estimates of the main changes to the Group's profit before tax for 2004 and netassets at 31 December 2004 are set out below. These estimates are indicativeonly and may change. The estimates have not been audited.Summary of estimated changes to profit before tax for the year to 31 December2004 and net assets at 31 December 2004 under IFRS UK Amortisation Share Pensions Deferred Dividends Other Indicative GAAP of based tax intangible payment "SPLAS" (Note 5)(Note 6) IFRS assets (Note 4) (Note 1) (Note 2) (Note 3) (Unaudited) ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m Profit 74 - (4) - - - - 70before tax and intangible amortisation Amortisation (17) 11 - - - - - (6)of intangibles Profit 57 11 (4) - - - - 64before tax Net assets 304 11 - (157) 53 8 (25) 194Notes: 1. Under IFRS 3 Business Combinations, goodwill is no longer amortised but is subject to annual impairment tests. Other intangible assets continue to be amortised over their useful lives. 2. IFRS 2 Share Based Payment results in an incremental charge for share based payments over and above the existing UK GAAP amortisation charge in respect of the ESOP reserve. Due to changes already implemented in the structure of remuneration packages within the Group, this charge is expected to decline from 2007. 3. Under IAS 19 Employee Benefits, actuarial gains and losses on defined benefit pension schemes may be recognised partially or in full. The estimate above assumes that actuarial gains or losses will be recognised in full on the balance sheet, with movements reported in the Statement of Recognised Income and Expense. Therefore the full IAS 19 deficit on the Serco Pension and Life Assurance Scheme ("SPLAS") is included in the balance sheet. This adjustment includes the reversal of the SSAP 24 prepayment of ‚£35 million, which accounts for the difference between payments made by the business, the actuarial charge and amortisation of the deficit. In addition to SPLAS, the Group and its joint ventures have a number of otherpension obligations that form part of long-term contractual arrangements. UnderIFRS, these obligations are likely to be treated as defined benefit schemes.The accounting treatment under IFRS for such obligations is the subject ofdebate that concerns whether recognition of the IAS 19 deficit on these schemesshould be accompanied by a reduction in reserves or by the inclusion in thebalance sheet of an equivalent intangible asset, which will be amortised overthe remaining contract life. The deficit on these schemes is estimated to beapproximately ‚£60 million, net of deferred tax. 4. IAS 12 Income Taxes requires deferred tax to be recognised in full. The adjustment consists principally of deferred tax on pension liabilities and therefore partially offsets the adjustment discussed in note 3. 5. Under IAS 10 Events After the Balance Sheet Date, dividends are recognised in the period in which they are declared rather than the period to which they relate. 6. Other adjustments principally relate to the requirements of IAS 19 Employee Benefits, under which benefits such as accrued holiday entitlement are accounted for as they are earned by employees. The above estimates do not include the impact of IAS 39 Financial Instruments:Recognition and Measurement. IAS 39 is applicable for years commencing on orafter 1 January 2005 and the Group will adopt it from this date.The estimates have been prepared on the assumption that there is no change tothe accounting treatment of private finance initiatives (PFIs). The accountingtreatment of service concessions, including PFIs, is currently the subject ofdebate by the International Financial Reporting Interpretations Committee(IFRIC). IFRIC is expected to issue an interpretation on accounting for serviceconcessions.Under IAS 31 Interests in Joint Ventures, the benchmark treatment for jointventures is to proportionately consolidate. This has been assumed in the aboveestimates. Proportionate consolidation will change the appearance of thefinancial statements, although there will be no effect on reported net assetsor profit. - Ends - For further information please contact Serco Group plc on +44 (0) 1256 745 900:Andrew Jenner, Finance DirectorDominic Cheetham, Corporate Communications DirectorRichard Hollins, Head of Investor RelationsNotes to EditorsSerco is one of the world's leading service companies operating on aninternational basis in a diverse range of sectors, including transport andtraffic management, justice, defence, aerospace, science, heath, education andlocal government.www.serco.comSerco Group, Inc.20 E Clementon Road, Suite 102 SouthGibbsboro, New Jersey 08026United StatesT +1 856 346 8800F +1 856 346 8463Serco Group Pty LimitedLevel 10, 90 Arthur StreetNorth Sydney, NSW 2060AustraliaT +61 (0)2 9964 9733F +61 (0)2 9964 9924Serco Group plcSerco House, 16 Bartley Wood Business ParkBartley Way, Hook, HampshireRG27 9UY, United KingdomT +44 (0)1256 745900F +44 (0)1256 744111ENDRelated Shares:
Serco