RNS Number:8511T
Luminar PLC
09 November 2005
Luminar plc
The Effect of the Adoption of International Financial Reporting Standards on
Comparative Information
Luminar plc, (the Group), previously reported under UK Generally Accepted
Accounting Principles (UK GAAP).
As part of its preparation for the adoption of International Financial Reporting
Standards, (IFRS), the Group is today making available financial information for
the year ended 27 February 2005 prepared in accordance with IFRS.
This document explains how the Group's reported performance and position will be
affected by these changes.
The key headlines from the restated 2005 financial statements compared to the
previous UK GAAP are as follows:
* The adoption of IFRS is an accounting change only, and has no impact
on the underlying operations or cash flows of the Group;
* Operating profit before exceptional items including discontinued
operations under IFRS is #65.7m from #54.1m under UK GAAP (up 21%), primarily
due to the cessation of goodwill amortisation;
* Loss before tax after exceptional items including discontinued
operations decreased from a loss of #13.7m to a loss of #1m, primarily due to
the cessation of goodwill amortisation;
* Earnings per share before exceptional items including discontinued
operations has increased from 47.7p to 64.0p, (up 34%), with earnings per
share after exceptional items increasing from (21.1)p to 2.2p;
* The impact of discontinued operations changes the presentation of the
consolidated income statement. Group turnover has reduced by #62.4m and
operating profit before exceptional items by #8.4m - operating profit before
exceptional items from continuing operations under IFRS is #57.3m. This is
purely a classification change as net income from discontinued operations is
now shown separately below profit after tax on the face of the consolidated
income statement;
* Net assets at 27 February 2005 reduced by #53.8m primarily as a result
of incremental deferred tax liabilities on all temporary differences
recognised under IAS 12, (#41.9m), and additional impairments of goodwill
and property, plant and equipment, (#26.6m), offset by the cessation of
goodwill amortisation, (#12.9m).
The Group will host a conference call covering the content of this announcement
on 9 November 2005 at 3.00 pm, on 020 7365 1855.
Summary of Main Changes
The results for the year to 27 February 2005 under UK GAAP and IFRS are stated
below:
UK IFRS Less IFRS
GAAP Adjustments Sub Adjustment IFRS
Total Total Total Discontinued Continuing
#m #m #m #m #m
Turnover 375.1 - 375.1 62.4 312.7
Cost of sales (69.9) - (69.9) (15.7) (54.2)
Gross profit 305.2 - 305.2 46.7 258.5
Administrative expenses before
exceptional items
- ordinary (238.2) (1.3) (239.5) (38.3) (201.2)
- goodwill amortisation (12.9) 12.9 - - -
Total administrative expenses (251.1) 11.6 (239.5) (38.3) (201.2)
before exceptional items
Operating profit 54.1 11.6 65.7 8.4 57.3
Exceptional items (55.0) 1.5 (53.5) (26.4) (27.1)
Operating profit / (loss) (0.9) 13.1 12.2 (18.0) 30.2
Net interest (12.8) (0.4) (13.2) - (13.2)
Profit / (loss) before (13.7) 12.7 (1.0) (18.0) 17.0
taxation
Taxation (1.7) 4.3 2.6 7.4 (4.8)
Profit / (loss) for the period (15.4) 17.0 1.6 (10.6) 12.2
Basic eps (21.1)p 23.3p 2.2p (14.5)p 16.7p
Basic eps before exceptional 47.7p 16.3p 64.0p 17.1p 46.9p
items
The principal differences impacting net assets as at 27 February 2005 under IFRS
compared to UK GAAP are as follows:
#m
Net assets under UK GAAP 440.8
Deferred taxation (41.9)
Impairment of property, plant and equipment (17.0)
Impairment of goodwill (9.6)
Goodwill amortisation 12.9
Dividends proposed 7.1
Leases, residual values and other (5.3)
adjustments
Net assets under IFRS 387.0
The most significant elements contributing to the change between UK GAAP and
IFRS are:
* Deferred tax - where deferred tax has been provided on all temporary
differences (IAS 12);
* Tangible fixed assets - where an additional impairment charge has been
recognised following impairment triggers not existing under UK GAAP, (IAS
36), and additional depreciation has been charged following the review of
residual values at each reporting date, (IAS 16);
* Goodwill - where goodwill is no longer amortised but instead is subject to
annual impairment reviews, (IFRS 3);
* Property leases - where certain of the leases of buildings have been
recognised as finance leases, payments made on entering into leases for
certain leasehold land and buildings have been reclassified from property,
plant and equipment to other non-current assets, and lease incentives spread
over the length of the lease, (IAS 17);
* Share based payment - where a fair value charge has been established for
awards made under share schemes (IFRS 2);
* Discontinued operations - where the results and any gain / (loss) on the
disposal of discontinued operations are presented as one line in the income
statement (IFRS 5);
* Dividends - where changes to the timing of recognition remove proposed
dividends (IAS 10).
The accounting policies under which the financial information presented within
this document has been prepared can be found within the investors section of the
Group's website at www.luminar.co.uk.
The Group's first results under IFRS will be for the six months to 1 September
2005 which will be presented on 15 November 2005. For comparability and
understanding of those results, a reconciliation of the results and net assets
as at 29 August 2004 restated under IFRS has been provided in the appendices to
this announcement.
Contact Details
Luminar plc
Nick Beighton, Finance Director 01582 589400
College Hill
Matthew Smallwood 020 7457 2020
Detailed Discussion of Accounting Changes Arising from the Implementation of
IFRS
Contents
Page
Basis of preparation 4
Exemptions 5
Reconciliations 5
Primary statements for the year ended 27 February 2005 6
Consolidated Balance Sheet 29 February 2004 8
Differences between IFRS and UK GAAP
- Deferred Tax 9
- Tangible Fixed Assets 9
- Goodwill and Other Intangible Assets 10
- Property Leases 11
- Employee Benefits 12
- Discontinued Operations and Assets held-for-sale 12
- Dividends Proposed 13
- Exceptional Items 14
- Net Debt 15
UK GAAP merger reserve adjustment 15
Appendices 16
Basis of Preparation
The financial information presented in this document has been prepared on the
basis of all International Financial Reporting Standards (IFRS) and
International Financial Reporting Interpretation Committee (IFRIC)
interpretations that are expected to be applicable to the Group's 2005/6
financial reporting. These are subject to continued review and endorsement by
the European Commission, or possible amendment by the IASB, and are therefore
subject to possible change. Further standards or interpretations may be issued
that could be applicable for 2005/6. These potential changes could result in the
need to change the basis of accounting or presentation of certain financial
information from that presented in this document.
The Group may also need to review some accounting treatments used for the
purpose of this document as a result of emerging industry consensus on practical
application of IFRS and further technical opinions. This could mean that the
financial information in this document may require modification until the Group
prepares its first complete set of IFRS financial statements for the 2005/6
financial year.
The accounting policies under which the financial information presented within
this document has been prepared can be found within the investors section of the
Group's website at www.luminar.co.uk.
Exemptions
IFRS 1, First Time Adoption of International Financial Reporting Standards, sets
out the procedures that the Group must follow when it adopts IFRS for the first
time. The Group is required to establish its IFRS accounting policies for the
year ending 2 March 2006, and apply these retrospectively to determine the IFRS
opening balance sheet at its date of transition, namely 1 March 2004, and the
restated financial information for the year ended 27 February 2005.
The standard permits a number of optional exemptions to this general principle
of full retrospective restatement. The Group has adopted the following approach
in respect of the following key exemptions:
* Business combinations: the Group has chosen not to restate business
combinations prior to the transition date;
* Share based payments: the Group has adopted the exemption from full
retrospective restatement of all share based payment awards, and in
accordance with the guidance in IFRS 2, Share-based Payment, has only
applied the standard to awards made after 7 November 2002;
* Financial Instruments: the Group has taken the exemption not to restate
comparatives for IAS 32, Financial Instruments: Disclosure and Presentation,
and IAS 39, Financial Instruments: Recognition and Measurement. Comparative
information for 2005 included within the 2006 financial statements will be
presented on the existing UK GAAP basis;
* Property, plant and equipment: the Group has retained the UK GAAP carrying
value of property, plant and equipment and has elected not to use the fair
value as deemed cost of these items.
Reconciliations
Reconciliations to assist in understanding the nature and value of the
differences between UK GAAP and IFRS are given in the appendices to this
announcement. These appendices present the balance sheets at transition date (as
at 1 March 2004) and at the interim reporting date (29 August 2004) and the year
end (27 February 2005) together with the income statement for the period to 29
August 2004 and for the year to 27 February 2005. These adjustments, and the
resulting restated IFRS financial information, are unaudited.
All differences between UK GAAP and IFRS having a material impact on the
consolidated income statement or net assets of the Group have been recognised
and their effect noted below.
Primary Statements for the year ended 27 February 2005
Consolidated Income Statement for the year to 27 February 2005
Less IFRS
adjustment for
IFRS * discontinued IFRS
UK GAAP Adjustments operations #m
#m #m #m
Continuing operations
Revenue 375.1 - 62.4 312.7
Cost of sales (69.9) - (15.7) (54.2)
Gross profit 305.2 - 46.7 258.5
Administrative expenses before
exceptional items
- pre goodwill amortisation (238.2) (1.3) (38.3) (201.2)
- goodwill amortisation (12.9) 12.9 - -
- total (251.1) 11.6 (38.3) (201.2)
Profit from operations before 54.1 11.6 8.4 57.3
exceptional items
Exceptional items (55.0) 1.5 (26.4) (27.1)
(Loss) / Profit from operations (0.9) 13.1 (18.0) 30.2
Investment income 1.1 - - 1.1
Finance costs (13.9) (0.4) - (14.3)
(Loss) / Profit before taxation (13.7) 12.7 (18.0) 17.0
Tax on (loss)/profit (1.7) 4.3 7.4 (4.8)
(Loss) / Profit for the financial period (15.4) 17.0 (10.6) 12.2
from continuing operations
Loss from discontinued operations - - 10.6 (10.6)
Dividends (10.1) 10.1 - -
(Loss) / Profit transferred to reserves (25.5) 27.1 - 1.6
* Detailed analyses of these adjustments are attached as appendix (i).
Consolidated Balance Sheet at 27 February 2005
IFRS IFRS
UK GAAP IFRS adjustment UK GAAP
Adjustments * for Merger
Held-for-sale Reserve
operations Adjustment
#m #m #m #m #m
Non-current assets
Goodwill 199.8 3.3 - - 203.1
Other intangible assets 0.1 1.0 - - 1.1
Property Plant & Equipment 435.7 (20.9) (1.3) - 413.5
Other non-current assets - 11.2 (3.6) - 7.6
635.6 (5.4) (4.9) - 625.3
Current assets
Inventories 3.8 - (0.8) - 3.0
Trade and other receivables 6.2 - (1.1) - 5.1
Cash and cash equivalents 23.0 - (0.4) - 22.6
33.0 - (2.3) - 30.7
Assets classified as held-for-sale 41.4 (4.0) 7.2 - 44.6
74.4 (4.0) 4.9 75.3
Current liabilities
Trade and other payables (45.7) 0.5 7.0 - (38.2)
Provisions - (0.8) 0.2 - (0.6)
Current tax liabilities (11.3) (0.5) - - (11.8)
Proposed dividends (7.1) 7.1 - - -
Bank loans and overdraft (0.9) - - - (0.9)
Obligations under finance leases - (0.1) - - (0.1)
(65.0) 6.2 7.2 - (51.6)
Liabilities classified as held-for-sale - - (8.8) - (8.8)
(65.0) 6.2 (1.6) - (60.4)
Net current assets 9.4 2.2 3.3 - 14.9
Total assets less current liabilities 645.0 (3.2) (1.6) - 640.2
Non-current liabilities
Bank loans (179.1) - - - (179.1)
Obligations under finance leases - (7.1) - - (7.1)
Deferred income - (5.2) 0.5 - (4.7)
Provisions (9.4) 3.6 2.6 - (3.2)
Deferred tax liabilities (15.7) (41.9) (1.5) - (59.1)
(204.2) (50.6) 1.6 - (253.2)
Net assets 440.8 (53.8) - - 387.0
Capital and reserves
Called up share capital 18.3 - - - 18.3
Share premium account 60.9 - - - 60.9
Capital reserve 2.3 - - - 2.3
Merger reserve 342.4 (14.5) - (47.7) 280.2
Equity reserve - 0.3 - - 0.3
Profit and loss account 16.9 (39.6) - 47.7 25.0
Equity shareholders' funds 440.8 (53.8) - - 387.0
* Detailed analyses of these adjustments are attached as appendix (ii).
Consolidated Balance Sheet at 29 February 2004 (at transition)
UK GAAP IFRS UK GAAP IFRS
Adjustments * Merger
Reserve
Adjustment
#m #m #m #m
Non-current assets
Goodwill 212.7 (4.7) - 208.0
Other intangible assets 0.1 1.1 - 1.2
Property Plant & Equipment 517.6 (33.1) - 484.5
Other non-current assets - 11.6 - 11.6
730.4 (25.1) - 705.3
Current assets
Inventories 3.9 - - 3.9
Trade and other receivables 8.0 - - 8.0
Cash and cash equivalents 55.2 - - 55.2
67.1 - - 67.1
Current liabilities
Trade and other payables (44.8) 0.1 - (44.7)
Provisions - (0.7) - (0.7)
Current tax liabilities (12.2) - - (12.2)
Proposed dividends (6.5) 6.5 - -
Bank loans and overdraft (38.4) - - (38.4)
(101.9) 5.9 - (96.0)
Net current (liabilities) / assets (34.8) 5.9 - (28.9)
Total assets less current liabilities 695.6 (19.2) - 676.4
Non-current liabilities
Bank loans (204.6) - - (204.6)
Loan notes (0.9) - - (0.9)
Obligations under finance leases - (1.8) - (1.8)
Deferred income - (5.0) - (5.0)
Provisions (3.9) 1.0 - (2.9)
Deferred tax liabilities (19.9) (46.8) - (66.7)
(229.3) (52.6) - (281.9)
Net assets 466.3 (71.8) - 394.5
Capital and reserves
Called up share capital 18.3 - - 18.3
Share premium account 60.9 - - 60.9
Capital reserve 2.3 - - 2.3
Merger reserve 342.4 (11.1) (17.6) 313.7
Equity reserve - 0.1 - 0.1
Profit and loss account 42.4 (60.8) 17.6 (0.8)
Equity shareholders' funds 466.3 (71.8) - 394.5
* Detailed analyses of these adjustments are attached as appendix (iii).
Differences between IFRS and UK GAAP
The following sections outline the significant differences relevant to the Group
on transition from UK GAAP to IFRS.
(a) Deferred Tax
Under UK GAAP, deferred tax is provided only on all timing differences which
have not reversed at the balance sheet date but which may do so at some future
date. IAS 12, Income Taxes, requires deferred tax to be provided on all
temporary differences. The deferred tax liability under IAS 12 is therefore
higher than the liability recognised under UK GAAP as IAS 12 classifies as
temporary differences items treated as permanent differences under UK GAAP.
The Group has therefore now recognised a deferred tax liability on the temporary
differences between the accounting net book amount of property, plant and
equipment, and the tax base of those assets. Under FRS 19, the Group previously
only recognised a deferred tax liability based upon the timing difference
between accelerated capital allowances and depreciation. The different treatment
adopted upon the implementation of IAS 12 leads to an increase of #46.8m to the
level of deferred tax liabilities recognised at 29 February 2004 compared to UK
GAAP.
The deferred tax liability presented within this announcement has been
calculated using estimates based on the current manner of recovery of the
assets' value, i.e., recovery through continued use in the business unless the
asset is held-for-sale. This method assumes no tax relief will be available,
therefore no tax base is available for inclusion within the calculation of the
deferred tax liability, unless the assets' value is recovered through sale
rather than continued use.
The effective tax rate before exceptional items on continuing operations is 22%
for the 2005 financial year. The effective tax rate going forward under IFRS is
expected to be 34%. The lower rate under IFRS during the 2005 financial year
primarily arises as a result of a change in the basis of recovery of the assets'
value, i.e., through the sale of properties classified as held for resale rather
than recovery of these assets' value through continued use in the business, and
prior period settlements with the Inland Revenue.
(b) Tangible Fixed Assets
1. Impairment charge on tangible fixed assets
Under UK GAAP, (FRS 11, Impairment of Tangible Fixed Assets and Goodwill),
impairment tests at an individual unit (income generating unit), level were only
required following specific unit level impairment triggers, i.e, units with
consecutive years operating losses or for closed units. Following the
requirements of IAS 36, Impairment of Assets, an impairment trigger exists if
the carrying value of the net assets of the Group is above its market
capitalisation. At transition date this trigger was met, therefore a full
impairment test at the individual cash generating unit level (referred to as
income generating unit under UK GAAP) has been undertaken.
As a result of this impairment test, an incremental impairment charge of #21.9m
has been recognised at transition date - this charge represents both an
incremental impairment to that recognised cumulatively under UK GAAP up to the
date of transition as well as an acceleration of the timing of recognition of
impairment charges previously recognised in the 2005 financial statements under
UK GAAP.
The impairment charge recognised under UK GAAP during 2005 has therefore been
reduced by #9.3m as a result of the earlier recognition of impairments, (i.e.,
at transition date), under IFRS. This earlier recognition of impairment charges
has consequently reduced the depreciation charge recognised on these assets
during the year by #0.9m.
2. Impairment charge on finance lease capitalisation
On capitalisation of the building element of some of the Group's property leases
as finance leases, these assets, if triggered under the Group's policy for
impairment testing as closed or non-trading properties, have been reviewed for
impairment. An incremental impairment charge of #5.3m has therefore been
recognised as an exceptional item during the first half of the 2005 financial
year in respect of closed properties held under finance leases, following the
implementation of IAS 17.
3. Residual Values
Under UK GAAP, residual values are established as of the acquisition date of the
relevant asset and, where material, residual values are only reviewed following
reasonably expected technological changes. Under IAS 16, Property, Plant and
Equipment, residual values are reviewed at least at the end of each financial
year.
As a result of this review, the Group has amended residual values at the date of
transition following revisions to the estimates made at the date of acquisition
- the impact of these amendments is to increase the prospective depreciation
charge by #2.4m in 2005.
(c) Goodwill and Other Intangible Assets
1. Goodwill Amortisation
Under UK GAAP, goodwill arising on business combinations is capitalised on
balance sheet and amortised over its expected useful life. Under IFRS 3,
Business Combinations, the amortisation of goodwill is prohibited, and goodwill
is held at cost with impairment reviews carried out annually or at other times
if there are indications that the carrying value is not recoverable.
The goodwill amortisation charge recognised under UK GAAP in 2005 of #12.9m has
therefore been reversed for IFRS reporting purposes.
2. Goodwill Impairment
The Group has adopted the exemptions within IFRS 1 in respect of business
combinations, and has therefore applied IFRS 3, Business Combinations,
prospectively from transition date.
Under UK GAAP, the Group tested the carrying value of its goodwill for
impairment on an acquisition basis, whereas under IAS 36, Impairment of Assets,
goodwill is tested for impairment at the segmental level. On transition the
group has recognised an impairment charge of #4.7m.
This impairment charge has been recognised against the merger reserve as it
represents the impairment of the initial investment in Northern Leisure units
against which the merger reserve was established.
The annual impairment test carried out in the 2005 financial year has resulted
in an additional impairment charge of #4.9m being recognised within the IFRS
financial statements. This impairment has arisen as a result of the closure of
units during the 2005 financial year that were still trading at transition date.
The respective segments to which units belonged have incurred additional
impairment charges to those previously recognised at transition date.
3. Software
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 the operation of 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, at transition date certain software assets at a net book value of
#1.1m previously shown as a tangible fixed asset have been reclassified as an
intangible asset on transition to IFRS.
(d) Property leases
1. Finance Leases
The Group previously accounted for property leases under the recognition
criteria set out under SSAP 21. In contrast to the treatment required under SSAP
21, IAS 17, Leases, requires the land and building element of a property lease
to be separated, with leasehold land normally being treated as an operating
lease.
On adoption of IAS 17, the building elements of certain property leases,
previously classified as operating leases under UK GAAP, have been reclassified
as finance leases on transition to IFRS. The adjustments recorded are to include
the fair value of these leased buildings less depreciation up to the date of
transition within property, plant and equipment and to record the related
liability, net of future finance charges, within creditors. The operating lease
rental charge recorded under UK GAAP has been replaced by depreciation charged
on the building asset and finance costs on the liability.
At transition date the net assets have reduced by #0.4m and at 27 February 2005
by #0.5m as a result of the adjustment in respect of finance leases, with an
increase in operating profit by #0.4m and increased finance costs of #0.4m in
the year to 27 February 2005.
2. Lease Premiums
Under UK GAAP, lease premiums were capitalised as a tangible fixed asset, and
were depreciated over the life of the lease. Following the requirements of IAS
17, premiums of #11.6m and #11.2m at transition date and at 27 February 2005
respectively, paid on entering into the lease of certain leasehold land and
buildings, have been reclassified from property, plant and equipment to
non-current prepayments, with these prepayments then amortised over the life of
the lease.
As a result of the implementation of IAS 17, the charge previously recognised as
depreciation of property, plant and equipment, has been recognised as rental
expense. EBITDA has consequently decreased by #0.4m in the year to 27 February
2005 as a result of this reclassification, however operating profit is
unaffected.
3. Lease Incentives
Under UK GAAP, (UITF 28, Operating Lease Incentives), incentives received on
entering a lease were previously recognised as deferred income on the balance
sheet and amortised to the income statement over the period to the first rent
review. Under SIC-15, Operating Lease Incentives, these incentives are required
to be amortised over the term of the lease rather than to the first rent review
date.
Consequently, as the term of the lease is generally longer than the period to
the first rent review date, amounts previously amortised to the income statement
have been restated on the balance sheet as deferred income and amortised over
the term of the lease. Total amounts classified as deferred income on the
balance sheet amount to #5.0m at transition date and at 27 February 2005.
4. Onerous Lease Provisions
Under UK GAAP, the Group recognised provisions for the onerous element of
certain property leases. As a result of the capitalisation of the building
element of certain of the Group's leases as finance lease assets and the
recognition of a finance lease creditor under IAS17, the proportion of the
onerous lease provision that relates to these building elements has therefore
been reversed. The exceptional charge recognised under UK GAAP in the 2005
financial statements has been reduced to #3.8m following the capitalisation of
the building element of these leases as finance leases.
(e) Employee Benefits
1. Share Based Payment
Under UK GAAP, the Group follows UITF 17, Employee Share Schemes, in accounting
for share-based incentive schemes. Under UITF 17, the charge to the profit and
loss account is based on the difference between the market value of the shares
at the date of grant and the exercise price, (i.e., on an intrinsic value
basis), spread over the performance period. SAYE schemes are exempt from this
requirement and no charge is recognised. The group has not previously recognised
a charge for share based payments, as for all awards the exercise price is equal
to the market value of the shares at the date of grant.
Under IFRS 2, Share Based Payment, a charge is recognised in the income
statement representing the fair value of outstanding share based payment
arrangements granted to employees. The fair value has been determined using a
binomial model, and is recognised over the vesting period of the option based on
the number of options ultimately expected to vest. A charge of #0.2m has been
recognised within the 2005 financial year.
The basis of calculation for deferred tax is based on the difference between the
market price at the balance sheet date and the exercise price of the share based
payment. Therefore the deferred tax effect does not relate to the level of the
charge recognised under IFRS 2.
2. Other employee benefits
Under UK GAAP the group does not make a provision for holiday pay on holidays
earned but not taken by employees at the balance sheet date.
Under IAS 19, Employee benefits, the expected cost of compensated short term
absences, (i.e., holidays), should be recognised when the employees render
service. As a result, an accrual totalling #0.8m has been made for holidays
earned but not yet taken at the date of the interim financial statements. No
accrual is made at the year end as employees cannot accumulate holiday over the
year end date.
(f) Discontinued Operations and Assets held-for-sale
1. Discontinued Operations
Under UK GAAP, FRS 3 requires disclosure as a discontinuing operation of
businesses either disposed of in the period, and those disposed of by the
earlier of three months after the year end or the date of approval of the
financial statements. IFRS 5, Non-current assets held-for-sale and discontinued
operations, requires disclosure as a discontinued operation if a component of
the entity is either classified as held-for-sale at period end or disposed of
during the period.
Under UK GAAP turnover and operating profit are split on the face of the income
statement between continuing and discontinuing operations, whereas under IFRS 5
the net income after tax of the discontinued operation is shown as one line on
the income statement.
The impact of classifying businesses as discontinued operations under IFRS
therefore reduces turnover, operating profit and profit before and after tax in
comparison to the UK GAAP treatment, although net income is unaffected. Under
IFRS operating profit before exceptional items is reduced by #8.4m in the period
to 27 February 2005 compared to the previous UK GAAP presentation. These
discontinued operations represent the contribution of the sold Enterprise
division and non-core bars held for resale at 27 February 2005.
2. Assets held-for-sale
Under UK GAAP, at 27 February 2005, fixed assets relating to businesses or
single sites held at net realisable value pending sale were classified within
current assets as assets held for resale.
Under IFRS 5, assets and disposal groups are held-for-sale if they meet the
criteria of being available for immediate sale in their present condition, the
sale being highly probable, with active marketing of the asset having been
undertaken. The same disposal groups (the Enterprise division and non-core bars
held-for-sale) and single sites presented as assets held-for-sale under UK GAAP
meet the criteria to be held for sale under IFRS 5.
The assets and liabilities of these disposal groups are classified on the
balance sheet separately from assets and liabilities held for continued use in
the business. At 27 February 2005, the net assets relating to single sites and
disposal groups held for resale totalled #35.8m, representing the lower of the
estimated fair value less costs to sell of these disposal groups, or their
previous IFRS carrying value.
(g) Dividends Proposed
Under previous UK GAAP, dividends are recognised in the income statement in the
period to which they relate. Under IFRS dividends are treated as an
appropriation of reserves and not disclosed on the face of the income statement.
IAS 10, Events after the Balance Sheet Date, requires that dividends declared
after the balance sheet date should not be recognised as a liability, as the
liability does not represent a present obligation at the balance sheet date, as
defined in IAS 37, Provisions, Contingent Liabilities and Contingent Assets.
As a result, the final dividends for 2003/4 and 2004/5 are derecognised in the
balance sheets at February 2004 and February 2005 respectively. These dividends
are instead recognised in the 2004/5 and 2005/6 financial years, with net assets
at transition date and at 27 February 2005 increased by #6.5m and #7.1m
respectively.
(h) Exceptional Items
Under IAS 1, Presentation of Financial Statements, there is no definition of
exceptional items. However, IAS 1 does provide examples of circumstances where
items of income and expense are significantly material that their nature and
amount should be separately disclosed.
Included within these items that merit separate disclosure within IAS 1 are
items that the Group, following the requirements of FRS 3, has previously
disclosed as exceptional items under UK GAAP.
Accordingly, the Group will continue to separately identify and present, within
a columnar format, these items on the face of the income statement under IFRS.
As a result of the changes to accounting policy referred to above, the
exceptional charge before tax under IFRS is #53.5m compared to #55.0m under UK
GAAP for the year to 27 February 2005. The differences between the exceptional
items before tax charged under IFRS and UK GAAP are outlined below:
UK GAAP IFRS Sub Less IFRS IFRS
adjustments Total adjustment Continuing
Discontinued
#m #m #m #m #m
Impairment of property, plant and
equipment
- on units held for sale (36.2) 4.2 (32.0) (24.9) (7.1)
- on trading units (10.3) (0.2) (10.5) - (10.5)
(46.5) 4.0 (42.5) (24.9) (17.6)
Impairment of - (4.9) (4.9) - (4.9)
goodwill
Provisions for onerous lease (6.2) 2.4 (3.8) - (3.8)
commitments
Other costs (1.5) - (1.5) (1.5) -
associated with
disposal
Realised profit / (loss) on (0.8) - (0.8) - (0.8)
disposals
(55.0) 1.5 (53.5) (26.4) (27.1)
The changes to exceptional items as recognised under UK GAAP are as follows:
* A net credit to exceptional items of #4.0m, representing a reversal of
impairment charges of #9.3m as a result of earlier recognition under IFRS at
transition date following a "market capitalisation" impairment trigger,
offset by an additional impairment charge of #5.3m on closed properties held
under finance leases under IFRS;
* Impairment of goodwill of #4.9m following annual impairment test required
under IFRS 3;
* Reduction of the provision for onerous lease commitments by #2.4m for the
building element of leases recognised as finance leases under IAS 17.
(i) Net Debt
The accounting adjustments referred to above which have been recognised on the
implementation of IFRS are all non-cash, although net debt under IFRS is higher
than net debt under UK GAAP as a result of the recognition within borrowings of
finance lease liabilities relating to the leases of buildings which were
previously classified as operating leases under UK GAAP.
Net debt under IFRS is therefore as follows:
29 February 2004 27 February 2005
#m #m
UK GAAP net debt (188.7) (157.9)
Finance lease liabilities (1.8) (7.2)
IFRS net debt (190.5) (165.1)
(j) UK GAAP Merger Reserve Adjustment
A reclassification adjustment to balances within shareholders' funds has been
recorded to transfer certain impairment charges, net of any related tax credits,
from retained earnings to the merger reserve.
These charges represent an impairment of the initial investment in Northern
Leisure units, on the acquisition of which the merger reserve was established,
and therefore these impairment charges have been transferred to the merger
reserve rather than remaining within retained earnings under UK GAAP.
A UK GAAP merger reserve adjustment to charge these amounts against the merger
reserve of #17.6m within the transitional balance sheet, and #47.7m within the
27 February 2005 balance sheet, has therefore been made on transition to IFRS.
Appendices
The appendices attached to this release present the following information:
(i) Consolidated income statement adjustments for the year ended 27 February
2005;
(ii) Consolidated balance sheet adjustments at 27 February 2005;
(iii) Consolidated balance sheet adjustments at 29 February 2004;
(iv) Consolidated income statement for the period ended 29 August 2004;
(v) Consolidated income statement adjustments for the period ended 29
August 2004;
(vi) Consolidated balance sheet at 29 August 2004;
(vii) Consolidated balance sheet adjustments at 29 August 2004.
(i) Consolidated Income Statement adjustments for the year ended 27 February 2005
Leases Onerous Impairment Impairment Dividends Goodwill Residual Share Deferred Total
leases of property, of amortisation values based tax
plant and goodwill payments #m
equipment
Revenue - - - - - - - - - -
Cost of sales - - - - - - - - - -
Gross profit - - - - - - - - - -
Administrative expenses before
exceptional items
- pre goodwill 0.4 - 0.9 - - - (2.4) (0.2) - (1.3)
amortisation
- goodwill - - - - - 12.9 - - - 12.9
amortisation
- total 0.4 - 0.9 - - 12.9 (2.4) (0.2) - 11.6
Profit/(Loss) 0.4 - 0.9 - - 12.9 (2.4) (0.2) - 11.6
from operations
before
exceptional
items
Exceptional - 2.4 4.0 (4.9) - - - - - 1.5
items
(Loss) / Profit 0.4 2.4 4.9 (4.9) - 12.9 (2.4) (0.2) - 13.1
from operations
Investment - - - - - - - - - -
income
Finance costs (0.4) - - - - - - - - (0.4)
(Loss) / Profit - 2.4 4.9 (4.9) - 12.9 (2.4) (0.2) - 12.7
before taxation
Tax on profit/ - - - - - - - 0.1 4.2 4.3
(loss)
(Loss) / Profit - 2.4 4.9 (4.9) - 12.9 (2.4) (0.1) 4.2 17.0
for the financial
period from continuing
operations
Loss from - - - - - - - - - -
discontinued operations
Dividends - - - - 10.1 - - - - 10.1
(Loss) / Profit - 2.4 4.9 (4.9) 10.1 12.9 (2.4) (0.1) 4.2 27.1
transferred to reserves
(ii) Consolidated Balance Sheet adjustments at 27 February 2005
Leases Reversal Reclassify Impairment Goodwill Goodwill Residual Share Deferred Total
of software of impairment amortisa- Values Based tax
proposed licences property, tion Payments #m
dividend plant and
equipment
Non-current assets
Goodwill - - - - (9.6) 12.9 - - - 3.3
Other intangible - - 1.0 - - - - - - 1.0
assets
Property, plant (0.9) - (1.0) (16.6) - - (2.4) - - (20.9)
and equipment
Other 11.2 - - - - - - - - 11.2
non-current
assets
10.3 - - (16.6) (9.6) 12.9 (2.4) - - (5.4)
Current assets
Inventories - - - - - - - - - -
Trade and other - - - - - - - - - -
receivables
Cash and cash - - - - - - - - - -
equivalents
- - - - - - - - - -
Assets
classified as
held-for-sale (3.6) - - (0.4) - - - - - (4.0)
(3.6) - - (0.4) - - - - - (4.0)
Current liabilities
Trade and other 0.2 - - - - - - 0.3 - 0.5
payables
Provisions (0.8) - - - - - - - - (0.8)
Current tax - - - - - - - - (0.5) (0.5)
liabilities
Proposed - 7.1 - - - - - - - 7.1
dividends
Bank loans and - - - - - - - - - -
overdraft
Obligations (0.1) - - - - - - - - (0.1)
under finance
leases
(0.7) 7.1 - - - - - 0.3 (0.5) 6.2
Net current
(liabilities) /
assets (4.3) 7.1 - (0.4) - - - 0.3 (0.5) 2.2
Total assets
less current
liabilities 6.0 7.1 - (17.0) (9.6) 12.9 (2.4) 0.3 (0.5) (3.2)
Non-current liabilities
Bank loans - - - - - - - - - -
Obligations
under finance (7.1) - - - - - - - - (7.1)
leases
Deferred income (5.0) - - - - - - (0.2) - (5.2)
Provisions 3.6 - - - - - - - - 3.6
Deferred tax (0.1) - - - - - - 0.4 (42.2) (41.9)
liabilities
(8.6) - - - - - - 0.2 (42.2) (50.6)
Net assets (2.6) 7.1 - (17.0) (9.6) 12.9 (2.4) 0.5 (42.7) (53.8)
Capital and reserves
Called up share - - - - - - - - - -
capital
Share premium - - - - - - - - - -
account
Capital reserve - - - - - - - - - -
Merger reserve - - - (6.4) (8.1) - - - - (14.5)
Equity reserve - - - - - - - 0.3 - 0.3
Profit and loss (2.6) 7.1 - (10.6) (1.5) 12.9 (2.4) 0.2 (42.7) (39.6)
account
Equity shareholders'
funds (2.6) 7.1 - (17.0) (9.6) 12.9 (2.4) 0.5 (42.7) (53.8)
(iii) Consolidated Balance Sheet adjustments at 29 February 2004
Leases Reversal Reclass Impairment Goodwill Share Based Deferred Total
of software of property, impairment Payments tax
proposed licences plant and #m
dividend equipment
Non-current assets
Goodwill - - - - (4.7) - - (4.7)
Other intangible assets - - 1.1 - - - - 1.1
Property, plant and (10.1) - (1.1) (21.9) - - - (33.1)
equipment
Other non-current assets 11.6 - - - - - - 11.6
1.5 - - (21.9) (4.7) - - (25.1)
Current assets
Inventories - - - - - - - -
Trade and other - - - - - - - -
receivables
Cash and cash - - - - - - - -
equivalents
- - - - - - - -
Current liabilities
Trade and other payables 0.1 - - - - - - 0.1
Provisions (0.7) - - - - - - (0.7)
Current tax liabilities - - - - - - - -
Proposed dividends - 6.5 - - - - - 6.5
Bank loans and overdraft - - - - - - - -
(0.6) 6.5 - - - - - 5.9
Net current assets (0.6) 6.5 - - - - - 5.9
Total assets less
current liabilities 0.9 6.5 - (21.9) (4.7) - - (19.2)
Non-current liabilities
Bank loans - - - - - - - -
Loan notes - - - - - - - -
Provisions 1.0 - - - - - - 1.0
Deferred income (5.0) - - - - - - (5.0)
Deferred tax liabilities (0.1) - - - - 0.1 (46.8) (46.8)
Obligations under
finance leases (1.8) - - - - - - (1.8)
(5.9) - - - - 0.1 (46.8) (52.6)
Net assets (5.0) 6.5 - (21.9) (4.7) 0.1 (46.8) (71.8)
Capital and reserves
Called up share capital - - - - - - - -
Share premium account - - - - - - - -
Capital reserve - - - - - - - -
Merger reserve - - - (6.4) (4.7) - - (11.1)
Equity reserve - - - - - 0.1 - 0.1
Profit and loss account (5.0) 6.5 - (15.5) - - (46.8) (60.8)
Equity shareholders' (5.0) 6.5 - (21.9) (4.7) 0.1 (46.8) (71.8)
funds
(iv) Consolidated income statement for the period ended 29 August 2004
Less IFRS
IFRS adjustment for
Adjustments discontinued
UK GAAP #m operations* IFRS
#m #m #m
Continuing operations
Revenue 188.0 - 29.2 158.8
Cost of sales (36.4) - (7.4) (29.0)
Gross profit 151.6 - 21.8 129.8
Administrative expenses before
exceptional items
- pre goodwill amortisation (119.6) (1.3) (17.2) (103.7)
- goodwill amortisation (6.5) 6.5 - -
- total (126.1) 5.2 (17.2) (103.7)
Profit from operations before 25.5 5.2 4.6 26.1
exceptional items
Exceptional items - (5.3) - (5.3)
Profit/(Loss) from operations 25.5 (0.1) 4.6 20.8
Investment income 0.6 - - 0.6
Finance costs (7.6) (0.2) - (7.8)
Profit / (Loss) before taxation 18.5 (0.3) 4.6 13.6
Tax on (loss)/profit (8.1) 3.4 0.5 (5.2)
Profit for the financial period from 10.4 3.1 5.1 8.4
continuing operations
Profit from discontinued operations - - (5.1) 5.1
Dividends (3.0) 3.0 - -
Profit transferred to reserves 7.4 6.1 - 13.5
* Discontinued operations are presented above despite no disposal groups being
held for sale at 29 August 2004 as these items are discontinued in the period
to 1 September 2005, and would appear as discontinued operations when
presented as comparatives within the 2006 interim financial statements.
Discontinued operations as at 1 September 2005 represent the Enterprise
division and non-core bars held-for-sale.
(v) Consolidated income statement adjustments for the period ended 29 August 2004
Leases Vacation Impairment Dividends Goodwill Residual Share Taxation Total
accrual of amortisation Values Based
property, Payments #m
plant and
equipment
Revenue - - - - - - - - -
Cost of sales - - - - - - - - -
Gross profit - - - - - - - - -
Administrative expenses
before exceptional items
- pre goodwill 0.2 (0.8) 0.6 - - (1.2) (0.1) - (1.3)
amortisation
- goodwill amortisation - - - - 6.5 - - - 6.5
- total 0.2 (0.8) 0.6 - 6.5 (1.2) (0.1) - 5.2
Profit from operations 0.2 (0.8) 0.6 - 6.5 (1.2) (0.1) - 5.2
before exceptional
items
Exceptional items - (5.3) - - - - - (5.3)
(Loss) / Profit from 0.2 (0.8) (4.7) - 6.5 (1.2) (0.1) - (0.1)
operations
Investment income - - - - - - - - -
Finance costs (0.2) - - - - - - - (0.2)
(Loss) / Profit before - (0.8) (4.7) - 6.5 (1.2) (0.1) - (0.3)
taxation
Tax on (loss)/profit - - - - - - - 3.4 3.4
(Loss) / profit for the - (0.8) (4.7) - 6.5 (1.2) (0.1) 3.4 3.1
financial period from
continuing operations
Profit from - - - - - - - - -
discontinued operations
Dividends - - - 3.0 - - - - 3.0
(Loss) / profit - (0.8) (4.7) 3.0 6.5 (1.2) (0.1) 3.4 6.1
transferred to reserves
(vi) Consolidated balance sheet at 29 August 2004
UK GAAP
UK IFRS Merger
GAAP Adjustments Reserve IFRS
#m #m Adjustment #m
#m
Non-current assets
Goodwill 206.2 1.8 - 208.0
Other intangible assets 0.1 1.1 - 1.2
Property Plant & Equipment 514.4 (33.7) - 480.7
Other non-current assets - 11.4 - 11.4
720.7 (19.4) - 701.3
Current assets
Inventories 4.0 - - 4.0
Trade and other receivables 9.8 - - 9.8
Cash and cash equivalents 46.4 - - 46.4
60.2 - - 60.2
Assets classified as - - - -
held-for-sale
60.2 - 60.2
Current liabilities
Trade and other payables (48.8) (0.6) - (49.4)
Provisions - (1.0) - (1.0)
Current tax liabilities (11.7) 0.4 - (11.3)
Proposed dividends (3.0) 3.0 - -
Bank loans and overdraft (45.7) - - (45.7)
Obligations under finance leases - (0.1) - (0.1)
(109.2) 1.7 - (107.5)
Liabilities classified as - - - -
held-for-sale
(109.2) 1.7 - (107.5)
Net current assets/(liabilities) (49.0) 1.7 (47.3)
Total assets less current 671.7 (17.7) - 654.0
liabilities
Non-current liabilities
Bank loans (174.0) - - (174.0)
Obligations under finance leases - (7.1) - (7.1)
Deferred income - (5.0) - (5.0)
Provisions (3.3) 1.3 - (2.0)
Deferred tax liabilities (20.7) (43.6) - (64.3)
(198.0) (54.4) - (252.4)
Net assets 473.7 (72.1) - 401.6
Capital and reserves
Called up share capital 18.3 - - 18.3
Share premium account 60.9 - - 60.9
Capital reserve 2.3 - - 2.3
Merger reserve 342.4 (11.1) (17.6) 313.7
Equity reserve - 0.2 - 0.2
Profit and loss account 49.8 (61.2) 17.6 6.2
Equity shareholders' funds 473.7 (72.1) - 401.6
(vii) Consolidated balance sheet adjustments at 29 August 2004
Leases Reversal Reclass Impairment Goodwill Goodwill Residual Share Deferred Vacation Total
of software of impairment amortisa- Values Based tax accrual #m
proposed licences property, tion Payments
dividend plant and
equipment
Non-current
assets
Goodwill - - - - (4.7) 6.5 - - - - 1.8
Other intangible - - 1.1 - - - - - - - 1.1
assets
Property, plant (4.7) - (1.1) (26.7) - - (1.2) - - - (33.7)
and equipment
Other 11.4 - - - - - - - - - 11.4
non-current
assets
6.7 - - (26.7) (4.7) 6.5 (1.2) - - - (19.4)
Current assets
Inventories - - - - - - - - - - -
Trade and other - - - - - - - - - - -
receivables
Cash and cash
equivalents - - - - - - - - - - -
- - - - - - - - - - -
Assets - - - - - - - - - - -
classified as
held-for-sale
- - - - - - - - - - -
Current
liabilities
Trade and other 0.2 - - - - - - - - (0.8) (0.6)
payables
Provisions (1.0) - - - - - - - - - (1.0)
Obligations (0.1) - - - - - - - - - (0.1)
under finance
leases
Current tax - - - - - - - - 0.4 - 0.4
liabilities
Proposed - 3.0 - - - - - - - - 3.0
dividends
Bank loans and - - - - - - - - - - -
overdraft
(0.9) 3.0 - - - - - - 0.4 (0.8) 1.7
Net current
assets /
(liabilities) (0.9) 3.0 - - - - - - 0.4 (0.8) 1.7
Total assets
less current
liabilities 5.8 3.0 - (26.7) (4.7) 6.5 (1.2) - 0.4 (0.8) (17.7)
Non-current
liabilities
Bank loans - - - - - - - - - - -
Obligations (7.1) - - - - - - - - - (7.1)
under finance
leases
Deferred income (5.0) - - - - - - - - - (5.0)
Provisions 1.3 - - - - - - - - - 1.3
Deferred tax (0.1) - - - - - - 0.1 (43.6) - (43.6)
liabilities
(10.9) - - - - - - 0.1 (43.6) - (54.4)
Net assets (5.1) 3.0 - (26.7) (4.7) 6.5 (1.2) 0.1 (43.2) (0.8) (72.1)
Capital and
reserves
Called up share - - - - - - - - - - -
capital
Share premium - - - - - - - - - - -
account
Capital reserve - - - - - - - - - - -
Merger reserve - - - (6.4) (4.7) - - - - - (11.1)
Equity reserve - - - - - - - 0.2 - - 0.2
Profit and loss (5.1) 3.0 - (20.3) - 6.5 (1.2) (0.1) (43.2) (0.8) (61.2)
account
Equity
shareholders'
funds (5.1) 3.0 - (26.7) (4.7) 6.5 (1.2) 0.1 (43.2) (0.8) (72.1)
This information is provided by RNS
The company news service from the London Stock Exchange
END
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