14th Sep 2005 07:02
Independent News & Media PLC14 September 2005 Independent News & Media PLC Restatement of Financial Information under International Financial Reporting Standards (IFRS) 14 September 2005 Independent News & Media PLC Independent House, 2023 Bianconi Avenue, Citywest Business Campus, Naas Road, Dublin 24 CONTENTS 1. General information 3 2. High level overview of impact of IFRS on Income Statement and 4 Balance Sheet3. Basis of preparation of financial information under IFRS 7 4. Optional exemptions availed of on transition to IFRS 8 5. Impact of transition to IFRS 9 6. Detailed reconciliations from Irish GAAP to IFRS: 13 - Summary balance sheets as at 1 January 2005, 31 December 2004, 14 30 June 2004 and 1 January 2004 - Detailed balance sheet as at 1 January 2004 15 - Detailed balance sheet as at 30 June 2004 16 - Detailed balance sheet as at 31 December 2004 17 - Detailed balance sheet as at 1 January 2005 (adoption of IAS 32 18 & 39) - Statement of changes in shareholders' equity for six months 19 ended 30 June 2004 - Statement of changes in shareholders' equity for year ended 31 20 December 2004 and as at 1 January 2005 - Summary income statement for six months ended 30 June 2004 21 - Detailed income statement for six months ended 30 June 2004 22 - Summary income statement for year ended 31 December 2004 23 - Detailed income statement for year ended 31 December 2004 24 - Cash flow statement for six months ended 30 June 2004 25 - Cash flow statement for year ended 31 December 2004 267. Provisional IFRS Accounting Policies 27 1. GENERAL INFORMATION The European Union (EU) requires all EU listed companies to prepare consolidatedfinancial statements in accordance with International Financial ReportingStandards ("IFRS") for accounting periods commencing on or after 1 January 2005.Independent News & Media PLC ("INM") has adopted IFRS with effect from 1 January2005. The Group's transition date is 1 January 2004 as this is the start date ofthe earliest period for which full comparative information under IFRS will bepresented in INM's 2005 Annual Report and Accounts. The following financial information is based on IFRS expected to be effective asat 31 December 2005 and presents the consolidated income statement, consolidatedstatement of changes in shareholders' equity and consolidated cash flowstatement for the year ended 31 December 2004 and consolidated balance sheets asat 1 January 2004, 31 December 2004 and 1 January 2005 on this basis. Theconsolidated financial statements for these periods were previously preparedunder Irish Generally Accepted Accounting Principles ("Irish GAAP"). Alsoincluded are the unaudited consolidated income statement, consolidated statementof changes in shareholders' equity, consolidated balance sheet and consolidatedcash flow statement for the six months ended 30 June 2004 on this basis. 2. HIGH LEVEL OVERVIEW OF IMPACT OF IFRS ON INCOME STATEMENT AND BALANCE SHEET The following is a high level overview of the impact of IFRS on the IncomeStatements for the year ended 31 December 2004, the six months ended 30 June2005 and the extrapolated impact on the Income Statement for the year ended 31December 2005. Also included is the impact on the Balance Sheets as at 31December 2004 and as at 30 June 2005. IFRS adjustments identified in this report have no impact on the Group'sOperations, Cash Flows or capacity to pay dividends. Impact on Income Statement for Year Ended 31 December 2004 Notes Adjustment Total Per Share •m •m cent Profit after tax and minority interests under Irish 80.6 10.90cGAAP IFRS Adjustments - SummaryEmployee Benefits 1 (1.0)Goodwill Amortisation 2 9.8Business Combinations/Intangibles 3 (3.9)Share Options 4 (0.7)Other Adjustments (0.5) Total IFRS Adjustments - Full Year 2004 3.7 3.7 Basic EPS Impact - Full Year 2004 0.50c Profit after tax and minority interests under IFRS 84.3 11.40c Adjusted EPS* under Irish GAAP 14.15c Goodwill amortisation excluded from (9.8)Adjustments above Total IFRS adjustments - Full Year 2004 (excluding (6.1)amortisation) Adjusted EPS* Impact - Full Year 2004 (0.82c) Adjusted EPS* under IFRS - Full Year 2004 13.33c * Fully diluted earnings per share excluding exceptional items Notes: 1. Reflects increase in defined benefit pension scheme charges. 2. Reflects cessation of amortisation of goodwill. 3. Reflects the expensing of once-off costs previously capitalised. 4. Reflects the charge for share options to be booked in the income statement. Impact on Income Statement for Six Months Ended 30 June 2005 Adjustment Total Per Share Notes •m •m cent Profit after tax and minority interests under Irish 91.2 12.23cGAAP IFRS Adjustments - SummaryEmployee Benefits - Pensions 1 (0.9)Employee Benefits - Holiday Pay 2 (2.9)Goodwill Amortisation 3 3.8Share Options 4 (0.8)Other Adjustments (0.2) Total IFRS Adjustments - Half Year 2005 (1.0) (1.0) Basic EPS Impact - Half Year 2005 (0.14c) Profit after tax and minority interests under IFRS 90.2 12.09c Adjusted EPS* under Irish GAAP 7.35c Goodwill amortisation excluded from (3.8)Adjustments above Total IFRS adjustments - Half Year 2005 (excluding (4.8)amortisation) Adjusted EPS* Impact - Half Year 2005 (0.64c) Adjusted EPS* under IFRS - Half Year 2005 6.71c* Fully diluted earnings per share excluding exceptional items Extrapolated Impact of IFRS on Adjusted EPS* for Full Year 2005 Notes Adjustment Impact Per •m Share centTotal IFRS Adjustments - Half Year 2005 (excluding amortisation) (4.8) Exclude Holiday Pay Adjustment (see above) 2 2.9 Impact of IFRS Adjustments (excluding Holiday Pay) - Half Year (1.9)2005 Extrapolated Impact of IFRS Adjustments for Full Year 5 (3.8)2005 Extrapolated Impact on Adjusted EPS* for Full Year 5 (0.50c)2005(compared to Irish GAAP) Notes: 1. Reflects increase in defined benefit pension scheme charges. 2. Accrual for holiday pay at half year. This charge will reverse completely in the second half of the year and will have no impact on the full year 2005 result. 3. Reflects cessation of amortisation of goodwill. 4. Reflects the charge for share options to be booked in the income statement. 5. The 2005 Full Year expected impact of IFRS (0.50c) is less than the 2004 Full Year impact (0.82c) due to a number of once-off costs in 2004, partly offset by higher charges for pensions, options and leases in 2005. The 2005 Full Year expected impact is based on current estimates. However, as explained more fully in section three below, such estimates are subject to change before the finalisation of the 2005 full year results. Impact on Balance Sheet as at 31 December 2004 Adjustment Total Notes •m •m Total equity under Irish GAAP 1,017.4 IFRS Adjustments - SummaryEmployee Benefits - Pensions 1 (74.2)Deferred Taxation 2 (260.0)Dividends 5 44.7Business Combinations/Intangibles 3 20.2Other Adjustments (5.8)Total IFRS Adjustments - at 31 December 2004 (275.1) Total equity under IFRS 742.3 Impact on Balance Sheet as at 30 June 2005 Adjustment Total Notes •m •m Total equity under Irish GAAP 1,068.6 IFRS Adjustments - SummaryEmployee Benefits - Pensions 1 (75.2)Employee Benefits - Holiday Pay 4 (2.9)Deferred Taxation 2 (279.8)Dividends 5 28.1Business Combinations/Intangibles 3 24.0Other Adjustments (6.0)Total IFRS Adjustments - at 30 June (311.8)2005 Total equity under IFRS 756.8 Notes: 1. Recording of actuarial pension fund deficits (net of related deferred tax assets) arising on the Group's defined benefit pension schemes. 2. Recognition of deferred taxation liabilities on certain of the Group's assets (mainly acquired mastheads) where the book value of these assets exceeds their tax bases. While this adjustment is required under IFRS, the Group believes it is an illogical adjustment as it does not take into account the Board's future intention, which is to retain these assets, and the Group considers that the recognition of these liabilities under IFRS is not in line with the type of liability, if any, that might crystallise if a disposal of these assets were to occur. Also, the Group does not currently have a constructive or legal obligation for any such tax liability associated with these assets and therefore the required deferred tax liability in this case is inconsistent with the required treatment for other provisions. 3. Reflects cessation of amortisation of goodwill from 1 January 2004, write back of negative goodwill to retained earnings and the reversal of a previous revaluation deficit. 4. Accrual for holiday pay at half year date. This charge will reverse completely in the second half of the year and will have no impact on the full year 2005 result. 5. Dividends proposed are no longer recognised as a liability until they have been approved. 3. BASIS OF PREPARATION OF FINANCIAL INFORMATION UNDER IFRS Previously, the Group prepared its audited annual financial statements inaccordance with Irish Generally Accepted Accounting Principles ("Irish GAAP").In accordance with EU Regulations, the Group is required to present its annualconsolidated financial statements for the year ended 31 December 2005 inaccordance with IFRS issued by the International Accounting Standards Board("IASB") and adopted for use by the EU. The Group's transition date from Irish GAAP to IFRS is 1 January 2004 and thecomparative financial information for the year ended 31 December 2004 has beenrestated on a consistent basis with those accounting policies expected to beapplied by the Group in preparing its first full financial statements inaccordance with IFRS as at 31 December 2005, except where otherwise required orpermitted by IFRS 1 "First time adoption of International Accounting Standards"(IFRS 1). This financial information is based on the expected standards andinterpretations, facts and circumstances, and accounting policies that will beapplied when the Group prepares its first set of financial statements inaccordance with IFRS issued by the IASB and adopted for use by the EU as of 31December 2005. However, IFRS standards and interpretation of those standards bythe International Financial Reporting Interpretations Committee are subject toongoing review and possible amendment or interpretative guidance and thereforeall financial information prepared under IFRS is subject to change. The transition to IFRS is accounted for in accordance with IFRS 1. This standardsets out how to adopt IFRS for the first time and mandates that most standardsare to be fully applied retrospectively. There are certain limited exemptionsfrom this requirement. The significant decisions taken in respect of availing,or otherwise, of the exemptions available are outlined below in section four. The Group has availed of the exemption contained in IFRS 1 to only applyInternational Accounting Standard (IAS) 32 "Financial Instruments: Disclosureand Presentation" and IAS 39 "Financial Instruments: Recognition andMeasurement" from 1 January 2005. The comparative financial information inrelation to financial instruments for 2004 is presented in accordance with IrishGAAP. Details of how the transition from Irish GAAP to IFRS has impacted the Group'sconsolidated financial position, results and cash flows are set out in sectionsix and discussed in section five below. This financial information has been prepared on the historical cost basis,except for certain fixed assets where the fair value was regarded as deemed coston transition to IFRS and the measurement at fair value of certain financialinstruments on adoption of IAS 32 and IAS 39 on 1 January 2005. 4. OPTIONAL EXEMPTIONS AVAILED OF ON TRANSITION TO IFRS In accordance with IFRS 1, which establishes the framework for transition toIFRS by a first-time adopter such as INM, the Group has elected, in common withthe majority of listed companies, to avail of a number of specified exemptionsfrom the general principle of retrospective restatement as follows: a. Business CombinationsThe Group has not applied IFRS 3 "Business Combinations" retrospectively tobusiness combinations prior to the transition date of 1 January 2004;accordingly, goodwill as at the transition date is carried forward at itscarrying amount and, together with goodwill arising on business combinationssubsequent to the transition date, is subject to annual impairment testing inaccordance with IAS 36 "Impairment of Assets". As required under IFRS 1,goodwill was assessed for impairment as at the transition date and no impairmentresulted from this exercise. b. Fair Value as Deemed CostThe fixed asset revaluation performed as at 30 November 1981 and referred to innote 11 to the financial statements in the 2004 Annual Report has been regardedas deemed cost and therefore remains unadjusted on transition to IFRS. c. Employee BenefitsThe cumulative actuarial gains and losses applicable to the Group's definedbenefit pension schemes as at the transition date have been recognised in fullin equity on the transition date. d. Cumulative Translation DifferencesINM has elected to set the previously accumulated foreign currency translationreserve to zero as at the transition date. This has no net impact on equityattributable to the Company's equity holders as reflected in the Group's balancesheet. e. Restatement of Comparatives for IAS 32 and IAS 39IFRS 1 includes specific transitional provisions for IAS 32 and IAS 39 wherebythese standards do not need to be applied to the comparative period and thecomparative information may be presented on the basis of Irish GAAP previouslyapplied. The Group has elected to apply this exemption. Thus, for the 2004comparatives, financial instruments are recognised using the measurement basesand disclosure requirements of Irish GAAP rules relating to such financialinstruments, including derivatives, financial assets and financial liabilitiesand to hedging relationships. The adjustments relating to IAS 32 and IAS 39 were made to equity as at 1January 2005, which is the IAS 32/39 transition date for designation offinancial assets and financial liabilities for the first time in accordance withIAS 32 and IAS 39. IAS 32 requires an entity to split a compound financial instrument at inceptioninto separate liability and equity components. If the liability component is nolonger outstanding, retrospective application of IAS 32 requires separating twoportions of equity. The first portion is in retained earnings and representsthe cumulative interest accreted on the liability component. The other portionrepresents the original equity component. However, under IFRS 1, INM haselected not to separate these two portions where the liability component is nolonger outstanding at the date of transition to IFRS. f. Share-Based Payment TransactionsIn line with the transitional provisions applicable to a first-time adopter ofIFRS, as contained in IFRS 2 "Share-based Payment", the Group has elected toimplement the measurement requirements of this accounting standard in respect ofonly those equity-settled share options that were granted after 7 November 2002and that had not vested as at 1 January 2005. 5. IMPACT OF TRANSITION TO IFRS The adoption of IFRS will result in the following significant changes to theGroup's accounting policies and the financial impact of each as at the date oftransition to IFRS is summarised below. The overall impact on the Group'sreported figures has been summarised in section two and the detailedreconciliation schedules can be found in section six. a. IAS 19 - Employee BenefitsIn compliance with IAS 19 the net deficits in the Group's defined benefitpension schemes have been fully brought onto the Group's balance sheet ontransition, giving rise to a liability of €81.6m at 1 January 2004. The relateddeferred tax asset (€8.3m) has also been recognised. Actuarial gains and losses arising after the transition date will be recognised,as more fully described in the Group's Accounting Policies, over the remainingaverage service lives of the employees in the plan under the "corridorapproach". The implementation of IAS 19 results in an increased charge of €1.0m to theincome statement for the year ended 31 December 2004. b. IAS 12 - Income Taxes - Deferred taxUnder Irish GAAP, the Group recognised deferred tax only on timing differencesthat arose from the inclusion of gains and losses in tax assessments in periodsdifferent from those in which they were recognised in the financial statements. Under IFRS, deferred tax is recognised in respect of all taxable temporarydifferences arising between the tax base and the accounting base of balancesheet items. This means that deferred tax is recognised on certain temporarydifferences that would not have given rise to deferred tax under Irish GAAP. The additional net deferred tax liability included in the balance sheet underIFRS amounted to €253.6m as at 1 January 2004. In the past, the Group has takenover very valuable mastheads as part of a number of acquisitions that have beenmade. However, often the share capital of the company was acquired rather thaneach of the individual assets which has resulted in a zero or minimal tax baseattaching to many of the mastheads. This results in a large theoretical deferredtax liability being recorded under IFRS. This deferred tax liability iscalculated on the basis of the taxation that would arise on sale of themastheads because they are not amortised. While this adjustment is required under IFRS, the Group believes it is anillogical adjustment as it does not take into account the Board's futureintention which is to retain these assets and the Group considers that therecognition of these liabilities under IFRS is not in line with the type ofliability, if any, that might crystallise if a disposal of these assets were tooccur. Also, the Group does not currently have a constructive or legalobligation for any such tax liability associated with these assets and thereforethe required deferred tax liability in this case is inconsistent with therequired treatment for other provisions. Normally, recognition of this deferred tax liability would lead to acorresponding increase in goodwill. However if an entity avails of the exemptionapplied under IFRS 1 relating to business combinations, as the Group has, thenit is precluded from adjusting the carrying value of goodwill in respect ofacquisitions prior to the transition date. Recognition of this new deferred taxliability under IFRS therefore results in an equivalent reduction in equity asat the transition date. c. IAS 10 - Events After the Balance Sheet DateUnder Irish GAAP, the Company accounted for proposed dividends relating to agiven accounting period in that period, even if the approval of that dividendtook place after the balance sheet date. Under IFRS, proposed dividends do notmeet the definition of a liability until such time as they have been approved.Thus, the Company will no longer recognise a liability in any period forproposed dividends not approved by the balance sheet date. This results in anincrease in retained earnings of €38.0m as at 1 January 2004. d. IFRS 3 - Business Combinations/IAS 38 - Intangible AssetsIFRS 3 has been implemented by the Group with effect from the transition date.The Group has availed of the exemption under IFRS 1 enabling non-restatement ofbusiness combinations undertaken prior to the transition date. The principalimplications of IFRS 3 and IAS 38 for the Group are: • Cessation of goodwill amortisation in respect of subsidiaries, joint ventures and associates as at the transition date. As required under IFRS 1, goodwill was assessed for impairment as at the transition date and no impairment resulted from this impairment review. • Where an excess arises between the fair value of the identifiable assets, liabilities and contingent liabilities in an acquisition and the cost of the business combination (i.e. "negative goodwill" under Irish GAAP), IFRS 3 requires that this excess be credited to the income statement. Thus all negative goodwill existing as at the date of transition has been credited to retained earnings. • Under IFRS, intangible assets are carried at the lower of cost or recoverable amount; impairment below cost must be charged to the income statement. The revaluation deficit in the balance sheet under Irish GAAP which had reflected fair value is reversed with all intangible assets under IFRS being carried at the lower of cost or recoverable amount. As at 1 January 2004, the above items resulted in the elimination of therevaluation deficit of €73.7m, a reduction in retained earnings of €48.9m, areduction in minority interests of €17.6m and an increase in intangible assetsof €7.2m. For the year ended 31 December 2004, implementation of IFRS 3/IAS 38 resulted inan increase in profit for the year of €5.9m principally due to the cessation ofthe amortisation of goodwill. e. IFRS 2 - Share-based PaymentThe Group operates an equity-settled, share-based compensation plan forDirectors and executives. Under Irish GAAP, the charge to the income statement for share options was basedon the difference between the market value of the shares at the date of grantand the exercise price, which resulted in a nil charge for the Group in respectof its share option scheme. Under IFRS 2, the charge to the income statement in respect of share-basedpayments is based on the fair value of the options granted and is spread overthe vesting period. Under IFRS 1, the Group has applied the measurementrequirements of this accounting standard only in respect of those equity-settledshare options that were granted after 7 November 2002 and that had not vested asat 1 January 2005. The implementation of IFRS 2 results in a cumulative charge to retained earningsof €0.1m at 1 January 2004 and a net charge of €0.7m to the income statement forthe year ended 31 December 2004. f. IAS 28 - Investments in Associates and IAS 31 - Interests in Joint VenturesIn line with its treatment of associates and joint ventures under Irish GAAP,INM will equity account for its associates and joint ventures under IFRS.However, under Irish GAAP, results of associates and joint ventures werepresented in the profit and loss account reflecting the reporting entity's shareof operating profit, interest, tax and minority interest; in contrast, under IAS28 and IAS 31 the Group's share of profit after interest, tax and minorityinterests of associates and joint ventures is shown as a single line item in theincome statement. The implementation of IAS 28 and IAS 31 only results in thereclassification of items in the income statement, it has no impact on eitherthe Group's profit for the year or on the Group's net assets. g. Reclassifications • As part of the transition exemptions available under IFRS 1, INM has elected to set the previously accumulated foreign currency translation reserve to zero as at the transition date. Thus, the debit balance of €241.9m in this reserve is transferred to retained earnings as at the transition date. • Under Irish GAAP, all capitalised computer software was included within property, plant and equipment. Under IAS 38, only computer software that is integral to a related item of hardware should be included as property, plant and equipment. All other computer software should be recorded as an intangible asset. Thus a reclassification of certain software in the amount of €11.3m has been made from property, plant and equipment to intangible assets as at 1 January 2004. • Under Irish GAAP, spare parts were carried as inventory. Under IAS 16, major spare parts qualify as property, plant and equipment when an entity expects to use them during more than one period. Similarly, if the spare parts can be used only in connection with an item of property, plant and equipment, they are accounted for as property, plant and equipment. Thus a reclassification of spares in the amount of €5.8m has been made from inventory to property, plant and equipment as at 1 January 2004. • Under IAS 17, a lease of land does not qualify as a finance lease unless title to the land is expected to pass to the lessee at the end of the lease term. Under Irish GAAP, the title to the land did not have to pass to the lessee for it to qualify as a finance lease. Thus, finance leases of land to the value of €4.6m under which title to the land does not pass at the end of the lease are reclassified from finance leases to operating leases as at 1 January 2004. This results in a reduction of €4.6m in both finance leases and in property, plant and equipment as at 1 January 2004. • Under IAS 19, an amount of €19.2m previously included within creditors in respect of post-retirement (healthcare) obligations has been reclassified to retirement benefit obligations as at 1 January 2004. • Loans made to associates and joint ventures of €46.4m as at 1 January 2004 which were previously classified as part of the investment in associates and joint ventures are now classified in accordance with IAS 28 and IAS 31 as loans and receivables and shown within trade and other receivables. • Under Irish GAAP, three types of exceptional items were required to be shown after operating profit - (i) profits / losses on sale or termination of an operation, (ii) costs of a fundamental reorganisation and (iii) profits / losses on disposal of fixed assets. Under IFRS, all exceptional items, apart from the results of discontinued operations, are disclosed in the appropriate operating line item before operating profit, with separate disclosure for items which are exceptional by virtue of their size or nature. This results in a reclassification of exceptional items reported by the Group for the year ended 31 December 2004. h. IAS 32 - "Financial Instruments: Disclosure and Presentation" and IAS39 - "Financial Instruments: Recognition and Measurement"The Group has taken the option within IFRS 1 to apply IAS 32 and IAS 39 from 1January 2005, thus, the transition adjustments that arise on the implementationof IAS 32 and IAS 39 arise as at this date. The IAS 32 and IAS 39 transitionadjustments relate to the following: • The Cumulative Exchangeable Preference Shares (€113.8m) previously classified as non-equity minority interest are compound financial instruments and are now classified within non-current liabilities. From 1 January 2005, in the income statement, the dividend arising on the Cumulative Exchangeable Preference Shares will no longer be included within minority interests, but will be included within finance costs. • Amounts totalling €15.0m previously classified as investments are now classified as available-for-sale financial assets as at 1 January 2005. These represent investments in equity securities (listed and unlisted) that present the Group with an opportunity for return through dividend income and capital gains. They have no fixed maturity or coupon rate. The available-for-sale investments are remeasured to fair value resulting in an uplift of €0.6m. While these investments are classified as available-for-sale financial assets in accordance with IFRS, it is not currently the intention of management to sell these investments. • IAS 39 requires all derivatives to be recognised at fair value. All cash flow hedges entered into by the Group are measured at fair value and brought onto the balance sheet. As at 1 January 2005, included within liabilities are amounts totalling €7.0m in respect of derivative financial instruments. i. Cash Flow StatementThe IFRS cash flow statement is presented in a different format from thatrequired by Irish GAAP, with cash flows split into three categories ofactivities - operating activities, investing activities and financingactivities. The reconciling items between the Irish GAAP presentation and theIFRS presentation have no impact on the net cash flows generated. In preparing the cash flow statement under IFRS, cash and cash equivalentsinclude cash at bank and in hand, highly liquid interest bearing securities withoriginal maturities of three months or less, and bank overdrafts. 6. DETAILED RECONCILIATIONS FROM IRISH GAAP TO IFRS - Summary balance sheets as at 1 January 2005, 31 December 2004, 30 June 14 2004 and 1 January 2004 - Detailed balance sheet as at 1 January 2004 15 - Detailed balance sheet as at 30 June 2004 16 - Detailed balance sheet as at 31 December 2004 17 - Detailed balance sheet as at 1 January 2005 (adoption of IAS 32 & 39) 18 - Detailed balance sheet as at 1 January 2005 (adoption of IAS 32 & 39) 19 - Statement of changes in shareholders' equity for six months ended 30 June 20 2004 - Statement of changes in shareholders' equity for year ended 31 December 21 2004 and as at 1 January 2005 - Summary income statement for six months ended 30 June 2004 22 - Summary income statement for year ended 31 December 2004 23 - Detailed income statement for year ended 31 December 2004 24 - Cash flow statement for six months ended 30 June 2004 25 - Cash flow statement for year ended 31 December 2004 26 The detailed reconciliation schedules from Irish GAAP to IFRS are available onthe Group's website at www.inmplc.com or from the Company Secretary atIndependent News & Media PLC, 2023 Bianconi Avenue, Citywest Business Campus,Naas Road, Dublin 24. 7. PROVISIONAL IFRS ACCOUNTING POLICIES Basis of ConsolidationThe consolidated financial statements include the financial statements of theCompany and its subsidiary undertakings. All intra-group transactions, balances,income and expenses are eliminated on consolidation. a. Subsidiary undertakings are included in the financial statements fromthe date on which control over the operating and financial policies is obtainedand cease to be consolidated from the date on which control is transferred outof the Group. Control exists when the Group has the power, directly orindirectly, to govern the financial and operating policies of an entity so as toobtain economic benefits from its activities. b. Minority interests represent the proportion of the profit or loss andnet assets of a subsidiary attributable to equity interests that are not owned,directly or indirectly through subsidiaries, by the parent company. Joint VenturesJoint ventures are entities which the Group jointly controls with one or moreentities/ companies. The Group's share of the results and net assets of jointventures are included based on the equity method of accounting. The results ofjoint ventures are included from the effective date on which the Group obtainsjoint control and are excluded from the effective date on which the Group ceasesto have joint control. AssociatesAssociates are entities, not being subsidiary undertakings or joint ventures,over which the Group has the ability to exercise significant influence over theoperating and financial policies. The Group's share of the results and netassets of associates are included based on the equity method of accounting. Theresults of associates are included from the effective date on which the Group'ssignificant influence arises until the date on which such significant influenceceases. Segment ReportingA geographical segment is engaged in providing products and services within aparticular economic environment that is subject to risks and returns that aredifferent from those of segments operating in other economic environments. Abusiness segment is a group of assets and operations engaged in providingproducts or services that are subject to risks and returns that are differentfrom those of other business segments. The Group's primary format for segmentreporting is geographical segments and the secondary format is businesssegments. The risks and returns of the Group's operations are primarilydetermined by the different geographical locations of the Group's operationsrather than the different business segments the Group operates in. This isreflected by the Group's management and organisational structure and the Group'sinternal financial reporting systems. The Group's subsidiaries operate in fourgeographical areas; Ireland, United Kingdom, South Africa and Australasia. TheGroup has three business segments: Printing, publishing and distribution ofnewspapers and magazines and commercial printing; Radio; and Outdooradvertising. Revenue RecognitionRevenue is measured at the fair value of the consideration received orreceivable and represents amounts receivable for goods and services provided inthe normal course of business, net of discounts and Value Added Tax. Circulation and printing revenue is recognised when control of the goods passesto the buyer. Advertising revenue from publishing is recognised when a newspaperor magazine is published, from radio when the advertisement is broadcast andfrom outdoor over the period that the advertisement is displayed. Distributionrevenue is recognised when the newspaper or magazine has been delivered. Interest income is accrued on a time basis, by reference to the principaloutstanding and at the effective interest rate over the period to expectedmaturity. Dividend income is recognised when the right to receive payment is established. Property, Plant and EquipmentAs set out in section four the revaluation of certain land and buildings in 1981and referred to in note 11 to the financial statements in the 2004 Annual Reporthas been regarded as deemed cost on transition date. All other property, plant and equipment is stated at cost less accumulateddepreciation and any recognised impairment loss. Each part of an item ofproperty, plant and equipment with a cost that is significant in relation to thetotal cost of the item is depreciated separately. Depreciation is charged so asto write off the cost of assets, other than land, over their estimated usefullives, using the straight-line method as follows: Buildings 40-100 yearsPlant, equipment and other 3-25 yearsVehicles 4-6 years The assets' residual values and useful lives are reviewed, and adjusted ifappropriate, at each balance sheet date. Subsequent costs are included in the asset's carrying amount or recognised as aseparate asset, as appropriate, only when it is probable that future economicbenefits associated with the item will flow to the Group and the cost of theitem can be measured reliably. All other repairs and maintenance are charged tothe income statement during the financial period in which they are incurred. Borrowing costs directly attributable to the construction of property, plant andequipment are capitalised as part of the cost of those assets. LeasesLeases of property, plant and equipment where the Group has substantially all ofthe risks and rewards of ownership are classified as finance leases. Financeleases are capitalised at the outset of the lease at the fair value of theleased property, plant and equipment or if lower, at the present value of theminimum lease payments. Each lease payment is allocated between the liabilityand finance charges so as to achieve a constant periodic rate on the balance ofthe liability outstanding. The interest element of the finance cost is chargedto the income statement over the lease period so as to produce a constantperiodic rate of interest on the remaining balance of the liability for eachperiod. Property, plant and equipment acquired under finance leases aredepreciated over a useful economic life consistent with that for depreciableassets that are owned. If there is no reasonable certainty that title to theasset will transfer to the lessee at the end of the lease period the asset shallbe depreciated over the shorter of the lease term and its useful life. Leases in which a significant portion of the risks and rewards of ownership areretained by the lessor are classified as operating leases. Payments made underoperating leases are charged to the income statement on a straight-line basisover the period of the lease. Intangible Assets a. GoodwillGoodwill arising in respect of acquisitions completed prior to 1 January 2004 isincluded at its carrying amount as recorded under Irish GAAP. Goodwillrepresents the excess of the cost of an acquisition over the fair value of theGroup's share of the net identifiable assets of the acquired subsidiary/associate/joint venture at the date of acquisition. Goodwill is recognised as anasset and reviewed for impairment at least annually. Any impairment isrecognised immediately in the income statement and is not subsequently reversed.Goodwill on acquisition of subsidiaries is included in intangible assets.Goodwill on acquisition of associates and joint ventures is included ininvestments in associates and joint ventures. When calculating gains and losseson the disposal of an entity, the carrying value of goodwill relating to thatentity is included in the carrying amount of the entity sold. Goodwill acquiredin a business combination is allocated, from the acquisition date, to therespective cash generating units. b. Mastheads, Radio Licences, Transit and Electronic Systems and BrandsMastheads, radio licences, transit and electronic systems and brands areinitially recorded at cost. Where these assets have been acquired through abusiness combination, cost will be the fair value allocated in acquisitionaccounting. An intangible asset shall be regarded by the entity as having an indefiniteuseful life when, based on an analysis of all of the relevant factors, there isno foreseeable limit to the period over which the asset is expected to generatenet cash inflows for the entity. Based on an analysis of relevant factors, (suchas the stability of the industry, actions of competitors and typical productlife cycles), most of the Group's mastheads, radio licences, transit andelectronic systems and brands are regarded as having an indefinite useful life.This is supported by a range of factors, including, their proven value over longperiods, their sustainable position in the market and, durability because theyare expected to maintain market share and profitability over a long period. Thisis also supported by the barriers to entry that exist, the nature of competitionin these industries, the intellectual property rights and the quality ofbranding associated with these mastheads, radio licences, transit and electronicsystems and brands. These mastheads, radio licences, transit and electronic systems and brands aresubject to an annual impairment review to identify any diminution in recoverableamount. A small number of the Group's mastheads, radio licences, transit and electronicsystems and brands are considered to have a finite economic life and these areamortised on a straight-line basis over their estimated useful economic lives. Internally generated mastheads, radio licences, transit and electronic systemsand brands are not capitalised and any expenditure on such assets is charged tothe income statement in the year in which the expenditure is incurred. c. Computer SoftwareAcquired computer software licences are capitalised as intangible assets on thebasis of the costs incurred to acquire and bring to use the specific software. Costs that are directly attributable to the production of identifiable andunique software products controlled by the Group, and that will probablygenerate economic benefits exceeding costs beyond one year, are recognised asintangible assets. Directly attributable costs include the software developmentemployee costs and an appropriate portion of relevant overheads. Computer software costs are amortised over their estimated useful lives (rangingin most cases from three to five years). Other costs in respect of computer software are recognised as an expense asincurred. Impairment of AssetsAssets that have an indefinite useful life are not subject to amortisation andare tested for impairment annually and whenever there is an indication that theasset may be impaired. Assets that are subject to amortisation are reviewed forimpairment whenever events or changes in circumstances indicate that thecarrying amount may not be recoverable. The impairment loss recognised is the amount by which the asset's carryingamount exceeds its recoverable amount. The recoverable amount is the higher ofan asset's fair value less costs to sell and value in use. Where an asset does not generate cash flows that are independent from otherassets, the Group estimates the recoverable amount of the cash generating unitto which the asset belongs. If an impairment loss is recognised for a cash generating unit, it is allocatedto reduce the carrying amount of the assets of the unit in the following order: a) first, to reduce the carrying amount of any goodwill allocated to thecash generating unit; andb) then, to the other assets of the unit pro-rata on the basis of thecarrying amount of each asset in the unit. Business CombinationsThe Group applies the purchase method of accounting for all businesscombinations. The Group has availed of the IFRS 1 exemption in relation to businesscombinations and has not re-stated business combinations prior to the date oftransition. IFRS 3 will be applied prospectively by the Group from transitiondate and goodwill amortisation ceased from transition date. The cost of a business combination is the aggregate of the fair values at thedate of exchange of assets given, liabilities incurred or assumed, equityinstruments issued by the acquirer and any directly attributable costs.Adjustments to the business combination's cost that are contingent on futureevents are included in the combination's cost at the acquisition date if theadjustment is probable and has been reliably measured. At the date of acquisition, acquiree's identifiable net assets and contingentliabilities are measured at their fair values. Adjustments to the initial accounting for a business combination are recognisedwithin twelve months of the acquisition date and are effected prospectively fromthat date. The interest of minority shareholders is calculated based on fair values ofassets and liabilities at the acquisition date. Employee Benefits (a) Pension ObligationsThe company operates a number of defined benefit and defined contribution plans,the assets of which are held in separate trustee administered funds. Defined Contribution PlansContributions to defined contribution plans are recognised as an expense in theincome statement as incurred. Defined Benefit PlansThe Group has taken the option to recognise in full in equity at the transitiondate the cumulative actuarial gains and losses applicable to the Group's definedbenefit pension schemes. From 1 January 2004, the Group will apply the "corridorapproach" in relation to the recognition of actuarial gains and lossesapplicable to the Group's defined benefit pension schemes. Actuarial gains and losses comprise the effects of differences between theprevious actuarial assumptions and what has actually occurred and the effects ofchanges in actuarial assumptions. The "corridor approach" refers to a thresholdbeing the higher of 10% of the fair value of the plan assets or 10% of thepresent value of the defined benefit obligations at the end of the previousreporting period. Actuarial gains and losses at the end of the previousreporting period in excess of this threshold are recognised as income or expenseover the average remaining service lives of employees participating in the plan.Other than these and the actuarial deficit recognised on transition to IFRS, theactuarial gain or loss is not recognised. The amount recognised in the balance sheet in respect of defined benefit pensionplans is the present value of the defined benefit obligation at the balancesheet date less the fair value of the plan assets together with adjustments forunrecognised actuarial gains and losses. The amounts charged to the income statement in respect of defined benefit plansconsist of current service cost, interest cost, the expected return on any planassets, actuarial gains and losses (under the "corridor approach"), the effectof any curtailments or settlements and past service costs. The pension obligations are measured at the present value of the estimatedfuture cash outflows using interest rates of high quality corporate bonds, whichhave terms to maturity approximating the terms of the related liability. Planassets are measured at bid values. The recognition of actuarial gains and lossesis determined separately for each defined benefit plan. Past service costs are recognised as an expense over the average period untilthe benefits become vested, unless they are already vested, in which case thepast service costs are recognised as an expense immediately. (b) Share-Based CompensationThe Group operates an equity-settled, share-based compensation plan forDirectors and executives. In accordance with IFRS 1, the Group has elected to implement the measurementrequirements of IFRS 2 in respect of only those equity-settled share optionsthat were granted after 7 November 2002 and that had not vested as at 1 January2005. The fair value of the employee services received in exchange for the grant ofthe options is recognised as an expense over the period in which the performanceconditions are fulfilled, ending on the date on which the relevant employeesbecome fully entitled to the award. The total amount to be expensed over thevesting period is determined by reference to the fair value of the optionsgranted at the grant date. At each balance sheet date, the Group revises itsestimate of the number of options that are expected to vest. It recognises theimpact of the revision of original estimates, if any, in the income statement,and a corresponding adjustment to equity over the remaining vesting period. The proceeds received net of any directly attributable transaction costs arecredited to share capital (nominal value) and share premium when the options areexercised. The fair value of share options has been assessed using the Binomial Model. (c) Termination BenefitsTermination benefits are payable when employment is terminated before normalretirement date, or whenever an employee accepts voluntary redundancy inexchange for these benefits. The Group recognises these benefits when it isdemonstrably committed to terminating the employment of current employees in line with a formal plan, or providing termination benefits as a result of an acceptance of an offer for voluntary redundancy. InventoriesInventories are stated at the lower of cost and net realisable value. Cost isdetermined using the first-in, first-out (FIFO) method. Cost comprises cost ofpurchase, i.e. supplier's invoice price with the addition of charges such asfreight or duty where appropriate. Net realisable value comprises the actual or estimated selling price (net ofdiscounts), less all costs to be incurred in marketing, selling anddistribution. DividendsDividends are recognised as a liability in the Group's financial statements inthe period in which the dividends are approved. Dividends proposed or declaredafter the balance sheet date are not recognised as a liability at that balancesheet date, but are disclosed in a note to the financial statements. TaxationThe tax expense represents the sum of current and deferred tax. Current tax is based on taxable profit for the year and is calculated using taxrates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is provided, using the liability method, on all temporarydifferences that exist at the balance sheet date. A temporary difference is adifference arising between the tax bases of all assets (except goodwill) andliabilities and their carrying amounts in the consolidated financial statements.However, if the deferred tax arises from initial recognition of an asset orliability in a transaction other than a business combination that at the time ofthe transaction affects neither accounting nor taxable profit or loss, it is notaccounted for. Deferred tax is determined using tax rates (and laws) that havebeen enacted or substantially enacted by the balance sheet date and are expectedto apply when the related deferred tax asset is realised or the deferred taxliability is settled. Deferred tax assets are recognised to the extent that itis probable that future taxable profit will be available against which thetemporary differences can be utilised. Deferred tax is provided on temporary differences arising on investments insubsidiaries, joint ventures and associates, except where the timing of thereversal of the temporary difference is controlled by the Group and it isprobable that the temporary difference will not reverse in the foreseeablefuture. Deferred tax income or expense is reported in the income statement if it relatesto items that are reported in the income statement. For items that arerecognised in equity the related deferred tax is also recognised in equity. ProvisionsProvisions are recognised when the Group has a present legal or constructiveobligation as a result of past events; it is more likely than not that anoutflow of resources will be required to settle the obligation; and the amountcan be reliably estimated. Where there are a number of similar obligations, thelikelihood that an outflow will be required in settlement is determined byconsidering the class of obligations as a whole. The Group also has post-retirement (healthcare) obligations in respect ofcertain former employees. The expected costs of these benefits are accrued overthe period of employment, using an accounting methodology similar to that fordefined benefit pension plans and determined by independent qualified actuaries. Financial Assets 1. From 1 January 2004 to 31 December 2004Financial fixed assets include investments in companies other than subsidiaries,associates and joint ventures. Such financial fixed assets are recorded at costless provision for impairment. 2. From 1 January 2005The Group classifies its investments in the following categories: loans andreceivables and available-for-sale financial assets. The classification dependson the purpose for which the investments were acquired. Management determinesthe classification of its investments at the transition date (i.e. 1 January2005 in the case of financial instruments) and subsequently at initialrecognition. a. Loans and ReceivablesLoans and receivables are non-derivative financial assets with fixed ordeterminable payments that are not quoted in an active market. They arise whenthe Group provides money, goods or services directly to a debtor with nointention of trading the receivable. They are included in current assets, exceptfor maturities greater than 12 months after the balance sheet date. Those loansand receivables with a maturity greater than 12 months are classified asnon-current assets. Loans and receivables are included in trade and otherreceivables in the balance sheet. b. Available-for-Sale Financial AssetsAvailable-for-sale financial assets are non-derivative assets. They mainlyinclude investments in equity securities in which the Group does not havesignificant influence or control. They are included in non-current assets unlessmanagement intends to dispose of the investment within 12 months of the balancesheet date. Purchases and sales of investments are recognised on trade-date; the date onwhich the Group commits to purchase or sell the asset. Investments are initiallyrecognised at fair value plus transaction costs. Investments are derecognisedwhen the rights to receive cash flows from the investments have expired or havebeen transferred and the Group has transferred substantially all risks andrewards of ownership. Available-for-sale financial assets are carried at fair value. Unrealised gainsand losses arising from changes in the fair value of non-monetary securitiesclassified as available-for-sale are recognised in equity. When non-monetarysecurities classified as available-for-sale are sold or impaired, theaccumulated fair value adjustments, previously recognised in equity, areincluded in the income statement as gains and losses. The fair values of quotedinvestments are based on current bid prices. The Group assesses at each balance sheet date whether there is objectiveevidence that a financial asset or a group of financial assets is impaired. Inthe case of equity securities classified as available-for-sale, a significant orprolonged decline in the fair value of the security below its cost is consideredin determining whether the securities are impaired. If any such evidence existson available-for-sale financial assets, the cumulative loss - measured as thedifference between the acquisition cost and the current fair value, less anyimpairment loss on that financial asset previously recognised in the incomestatement is removed from equity and recognised in the income statement. Accounting for Derivative Financial Instruments and Hedging ActivitiesDerivative financial instruments are mainly used to manage exposures to foreignexchange and interest rate risks. Hedge accounting is applied to derivativefinancial instruments that are effective in offsetting the changes in fair valueor in cash flows of the hedged items. The effectiveness of such hedges isverified at regular intervals. Derivatives are initially recognised at fair value on the date a derivativecontract is entered into and are subsequently remeasured at their fair value.The Group designates certain derivatives as hedges of the variability in cashflow attributable to a particular risk associated with assets and/or liabilitiesor highly probable forecast transactions (cash flow hedges). The Group documentsat the inception of the hedging transaction the relationship between hedginginstruments and hedged items, as well as its risk management objective andstrategy for undertaking various hedge transactions. The Group also documentsits assessment, both at hedge inception and on an ongoing basis, of theeffectiveness of the hedge in offsetting changes in fair values or cash flows ofhedged items. a. Cash Flow HedgeThe effective portion of changes in the fair value of derivatives that aredesignated and qualify as cash flow hedges are recognised in equity. The gain orloss relating to the ineffective portion is recognised immediately in the incomestatement. Amounts accumulated in equity are recycled to the income statement inthe periods when the hedged item affects profit or loss. When a hedging instrument expires or is sold, or when a hedge no longer meetsthe criteria for hedge accounting, any cumulative gain or loss existing inequity at that time is recognised in the income statement. When a forecasttransaction is no longer expected to occur, the cumulative gain or loss that wasreported in equity is immediately transferred to the income statement. Bank BorrowingsInterest bearing bank loans and overdrafts are recorded at the proceedsreceived, net of issue costs. Borrowings are subsequently stated at amortisedcost; any difference between the proceeds (net of issue costs) and theredemption value is recognised in the income statement over the period of theborrowings using the effective interest method. Convertible Loan Notes and Cumulative Exchangeable Preference Shares 1. From 1 January 2004 to 31 December 2004Convertible loan notes are classified as long term creditors within liabilities.Cumulative exchangeable preference shares are classified as a component ofnon-equity minority interest within capital and reserves. 2. From 1 January 2005Convertible loan notes and cumulative exchangeable preference shares areregarded as compound financial instruments, consisting of a liability componentand an equity component. The fair value of the liability component is estimatedusing the prevailing market interest rate at the date of issue for similarnon-convertible debt and is included in liabilities. The difference between thefair value of the liability and the fair value of the compound financialinstrument as a whole represents equity. Cash and Cash EquivalentsCash and cash equivalents includes cash on hand, deposits held at call withbanks, other short-term highly liquid investments, with maturities of threemonths or less, and bank overdrafts. Trade ReceivablesTrade receivables are recognised initially at fair value and subsequentlymeasured at amortised cost using the effective interest method, less provisionfor impairment. A provision for impairment of trade receivables is establishedwhen there is objective evidence that the Group will not be able to collect allamounts due according to the original terms of receivables. The amount of theprovision is the difference between the asset's carrying amount and the presentvalue of estimated future cash flows. The amount of the provision is recognisedin the income statement. Foreign Currency Translation (a) Functional and Presentation CurrencyItems included in the financial statements of each of the Group's entities aremeasured using the currency that reflects the primary economic environment inwhich the entity operates ('the functional currency'). The consolidatedfinancial statements are presented in Euro, which is the Company's functionaland presentation currency. (b) Transactions and BalancesForeign currency transactions are translated into the functional currency usingthe exchange rates prevailing at the dates of the transactions. Foreign exchangegains and losses resulting from the settlement of such transactions and from thetranslation at year-end exchange rates of monetary assets and liabilitiesdenominated in foreign currencies are recognised in the income statement, exceptwhen deferred in equity as qualifying cash flow hedges or hedges of netinvestments in foreign entities. (c) Group CompaniesThe results and financial position of all of the Group entities that have afunctional currency different from the presentation currency are translated intothe presentation currency as follows: (i) assets and liabilities for each balance sheet presented aretranslated at the closing rate at the date of that balance sheet; (ii) income and expenses for each income statement are translatedat average exchange rates; and (iii) all resulting exchange differences are recognised as a separatecomponent of equity. On consolidation, exchange differences arising from the translation of the netinvestment in foreign entities, and of borrowings and other currency instrumentsdesignated as hedges of such investments, are taken to equity. When a foreignoperation is sold, such exchange differences, previously recognised in equity,are recognised in the income statement as part of the gain or loss on sale. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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