IFRS_Restatement restatement

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IFRS_Restatement restatement

  1. 1. Adoption of International Financial Reporting Standards (IFRS) Presentation - 20 May 2005
  2. 2. Contents <ul><li>Overview </li></ul><ul><li>Financial presentation under IFRS </li></ul><ul><li>Summary of accounting policy differences </li></ul>
  3. 3. 1. Overview
  4. 4. IFRS – headlines <ul><ul><li>No material impact on cash resources </li></ul></ul><ul><ul><li>Banking covenants not affected </li></ul></ul><ul><ul><li>Main adjustments are: </li></ul></ul><ul><ul><ul><li>accounting for goodwill on disposals and goodwill amortisation (IFRS 1 and 3) </li></ul></ul></ul><ul><ul><ul><li>capitalisation of development costs (IAS 38) </li></ul></ul></ul><ul><ul><ul><li>foreign currency movements related to debt (IAS 21) </li></ul></ul></ul><ul><ul><li>IFRS 5, IAS 39 – adopted from 1 April 2005 </li></ul></ul><ul><ul><li>Financial impact 2004/05 </li></ul></ul><ul><ul><ul><li>increase reported earnings by £378m </li></ul></ul></ul><ul><ul><ul><li>increase operating profit by £9m </li></ul></ul></ul><ul><ul><ul><li>increase equity at March 2005 by £34m </li></ul></ul></ul>
  5. 5. IFRS – summary of financial impact Notes: 1. Before exceptional items, goodwill amortisation, goodwill impairment and foreign exchange gains/(losses). (3) - Foreign exchange loss on sale of subsidiaries (IAS 21) (95) 184 Profit/(loss) for year under IFRS (1) - Taxation (IAS 12) (8) (8) - depreciation 8 8 - net (IAS 38) 16 - Foreign exchange gain on net debt (IAS 21) 28 - Reversal of goodwill amortisation (IFRS 3) 331 - Reversal of goodwill charged on sale of subsidiary (IFRS 1) Restatement of profit for 2004/05 (1) 16 (473) Net profit for year Operating profit (1) £ million 1 16 175 Other Capitalisation of development costs - additions Adjustments: Profit/(loss) for year under UK GAAP
  6. 6. IFRS – IAS 21 Foreign currency gains/(losses) (1) Notes: 1. This analysis has been prepared to illustrate the impact of currency movements and includes a number of approximations. 2. Relevant external net debt is debt held in Group companies with a funtional currency different from the debt. 7 5.8 (110) Yen exchange relevant Impact P&L rates external gain/(loss) 2004/05 net debt (2) Currency of net debt (7) (3.3) (220) Euro 12 4 Intra-group balances and other currencies Movement in Average 2.7 % (430) £m 16 12 £m Total gain 2004/05 US$
  7. 7. IFRS - OPBIT by segment 2004/05 Bridge UK GAAP to IFRS IFRS benefits Leases Amortisation Capitalisation UK GAAP (46) (46) Corporate costs 90 1 89 Controls 178 (1) 2 (8) 16 169 Retained businesses 61 (7) 12 56 Rail Systems 5 (1) 6 APV 17 17 Eurotherm 51 1 (1) 4 47 Process Systems Employee Intangible assets £ million (1) (1) 187 2 (8) 16 178 Continuing operations (3) (3) Discontinued operations 2 184 9 (8) 16 175 Total group 9 Businesses for sale
  8. 8. IFRS – summary of financial impact 25 - Goodwill (IFRS 3) Restatement of equity as at 31 March 2004 and 2005 (476) (16) (21) (10) 56 (510) 31 Mar 05 31 Mar 04 £ million (301) Equity – deficit under IFRS (15) Taxation (IAS 12) (20) (10) 48 (304) Employee benefits (IAS 19) Leases (IAS 17) Capitalisation of development costs (IAS 38) Adjustments: Equity – deficit under UK GAAP
  9. 9. 2. Financial presentation under IFRS
  10. 10. IFRS Income statement – Full year 2004/05 Bridge UK GAAP to IFRS - - - Taxation 3 3 3 (120) (120) Discontinued operations - 28 (28) Goodwill amortisation (63) (63) Fixed asset impairment (30) (30) Product recall costs 2,803 - - - - - 2,923 - 120 - Discontinued 2,803 2,803 Sales - Continuing IFRS Foreign exchange Employee benefits Leases Goodwill Intangible assets UK GAAP £ million 27 (1) - 187 - (1) 2 8 175 - (3) - Discontinued (58) (58) Restructuring costs - - Refinancing costs - (9) (28) (17) 187 (1) (1) 2 8 (48) PBIT pre corporate exceptionals (27) Goodwill impairment (17) Transition costs 2 8 178 OPBIT - Continuing
  11. 11. IFRS Income statement – 2004/05 quarterly phasing (68) - - (30) (63) - (8) (18) 51 713 Q2 - - - - Refinancing costs - - - (63) Fixed asset impairment - - - (30) Product recall costs 30 - - (3) (13) 46 682 Q3 - - - Goodwill amortisation (28) - (28) Goodwill impairment (23) 52 (9) PBIT pre corporate exceptionals (4) (2) (17) Transition costs (10) (17) (58) Restructuring costs 19 71 187 OPBIT: Continuing 679 729 2,803 Sales: Continuing Q1 Q4 FY £ million
  12. 12. IFRS Income statement – Full year 2004/05 Bridge UK GAAP to IFRS (132) (26) (1) 13 (1) 1 358 8 (484) Loss - continuing 26 26 - Profit - discontinued (106) - (1) 13 (1) 1 358 8 (484) Loss for the year Attributable to: (95) - (1) 13 (1) 1 358 8 (473) Equity holders (11) (11) Minority interests (106) - (1) 13 (1) 1 358 8 (484) 16 1 (1) 16 Taxation - - - Taxation 16 16 - Foreign exchange gains (15) (15) FRS 17/IAS 19 finance charges (148) (27) 13 (1) 1 358 8 (500) PBT - (167) (3) 170 Profit on sale/closure (9) 3 - (1) 2 27 8 (48) PBIT pre corporate exceptionals IFRS Discontinued operations Foreign exchange Employee benefits Leases Goodwill Intangible assets UK GAAP £ million (27) 137 358 331 (3) (3) Loss on sale of fixed assets (12) (3) (1) 2 8 (349) PBIT (137) - (1) (136) Interest (468) Goodwill write off
  13. 13. IFRS Income statement – 2004/05 quarterly phasing Attributable to: 31 8 - (13) 26 Profit/(loss) - discontinued 1 (14) 1 1 (11) Minority interests (43) (94) 12 30 (95) Equity holders (42) (108) 13 31 (106) Loss for the year (5) (2) 25 (2) 16 Foreign exchange gains/(losses) 5,687m (0.6)p (0.8)p (42) (73) (4) (69) (4) (37) (23) - (23) Q1 (4) (3) (4) (15) FRS 17/IAS 19 finance charges Q2 5,687m 0.1p 0.2p 13 13 (7) 20 (32) 30 - 30 Q3 5,687m 5,687m 5,687m Average number of shares 0.4p 0.4p 0.3p – total Group before exceptional items, goodwill impairment and IAS 21 (1.6)p 0.5p (1.7)p EPS – basic (108) 31 (106) (116) 44 (132) Loss – continuing (8) 35 16 Taxation (108) 9 (148) PBT (33) (35) (137) Interest (69) 50 (12) PBIT (1) (2) (3) Loss on sale of fixed assets (68) 52 (9) PBIT pre corporate exceptionals Q4 FY £ million
  14. 14. IFRS Segmental analysis – 2004/05 Note: 1. Before exceptional items, goodwill impairment and foreign exchange gains/(losses). Operating Profit (1) Sales £ million 16 (3) 19 1 18 (14) 18 15 (8) 3 4 Q1 789 110 679 70 609 - 228 104 82 28 167 Q1 51 46 71 187 713 682 729 2,803 Continuing operations - - - (3) 5 2 3 120 Discontinued operations 51 46 71 184 718 684 732 2,923 Total Group 2 49 (12) 28 14 - 4 15 Q2 63 619 - 227 100 87 31 174 Q3 4 6 17 32 31 122 Eurotherm 10 22 51 178 190 709 Process Systems 7 6 5 92 99 360 APV 19 25 90 236 230 921 Controls 46 65 178 641 655 2,524 Retained businesses - (10) 16 Q3 - (10) 6 16 Q4 72 103 Q2 9 74 279 Businesses for sale (46) - - Corporate costs 61 105 412 Rail Systems FY Q4 FY
  15. 15. Free cash flow – Full year 2004/05 Bridge UK GAAP to IFRS - - (16) 8 8 Intangible assets 4 4 - receipts 2 2 Share-based payments (131) (131) Pension contributions (78) (62) Capital expenditure - expenditure (113) (1) (112) Interest paid 51 1 (1) 51 Working capital movement 48 48 FRS 17 pension cost 82 1 73 Depreciation/amortisation 184 (1) 2 175 Operating profit IFRS Employee benefits Leases UK GAAP £ million - - (24) (24) Transition costs (45) (45) Restructuring costs (8) (8) Refinancing costs 47 2 45 Operating cash flow (142) (76) (4) (34) 1 (143) Free cash flow (76) Taxation paid (4) Product recall costs (34) Environmental & litigation settlements
  16. 16. Balance sheet – 31 March 2004 Bridge UK GAAP to IFRS 165 165 Minority interests (466) (15) (20) (10) 48 (469) Share capital and reserves (301) (15) (20) (10) 48 (304) Total equity interests 1,206 - - 9 59 1,138 75 75 - Intangible assets - other 478 478 Intangible assets - goodwill 653 9 (16) 660 Tangible assets IFRS Taxation Employee benefits Leases Intangible assets UK GAAP £ million (15) (15) (15) (606) (606) Net pension liability (21) (6) Deferred taxation 696 997 696 117 (20) (20) (20) 1 48 682 11 986 Net debt 1 48 682 (8) (11) 156 Net trading assets
  17. 17. Balance sheet – 31 March 2005 Bridge UK GAAP to IFRS 25 25 25 25 25 25 Goodwill 133 133 Minority interests (609) (16) (21) (10) 56 (643) Share capital and reserves (476) (16) (21) (10) 56 (510) Total equity interests 827 - - 8 67 727 83 83 - Intangible assets - other 310 285 Intangible assets - goodwill 434 8 (16) 442 Tangible assets IFRS Taxation Employee benefits Leases Intangible assets UK GAAP £ million (16) (16) (16) (574) (574) Net pension liability (11) 5 Deferred taxation 326 802 326 84 (21) (21) (21) - 56 282 10 792 Net debt - 56 282 (8) (11) 124 Net trading assets
  18. 18. Movement in net debt Bridge UK GAAP to IFRS Notes: 1. Including net cash divested £18m. 2. Including pre-disposal working capital movement £(11)m. 6 - 6 Currency movement (7) - (7) Amortisation of facility fees within debt (14) - (14) Dividends paid (181) - (181) - legacy 39 1 38 Free cash flow - operating (997) (11) (986) Opening net debt IFRS Leases UK GAAP £ million 352 - 352 Net divestment proceeds (1)(2) (802) 2 (2) (10) (792) Closing net debt - 2 Transfer of facility fees from prepayments - (2) Acquisition costs
  19. 19. IFRS Debt financing at 31 March 05 comprised… Notes: 1. Excluding scheduled repayments. 2. L+ = margin over LIBOR. 3. Cash subject to “escrow” restrictions on usage. 213 213 Drawn – non-cash £ million (10) High yield discount (27) Debt issuance costs 151 25 L + 3.0% 4.0 Bonding 1,441 Total gross debt (after costs & discount) (193) Other cash 262 L + 4.75% 4.8 2 nd Lien 24 5.500% 0.1 EMTN 1 7.125% 1.8 144A 106 6.500% 4.8 144A 663 9.875% 6.0 High Yield 802 (639) (111) (26) (309) 1,478 34 - 363 Drawn – Cash £ million 348 197 Undrawn £ million Total cash Net debt Cash collateral EMTN deposit Escrow account (3) Total gross debt (before costs & discount) Other debt L + 3.0% 4.0 RCF L + 3.5% 4.5 Term Loan B Effective Rate – Cash (2) Maturity (years) (1)
  20. 20. IFRS Movement in “legacy” liabilities… NO CHANGE Notes: 1. The pension charge comprises service cost, finance charge and settlement/curtailments for defined benefit schemes only. 2. Represents the Group’s defined benefit pension deficit. 3. Changes in value of investments and liabilities. 596 - 45 71 125 At 31 Dec 2004 600 - 47 75 129 At 30 Sept 2004 3 - - - Market movements (3) 582 - 48 104 129 At 30 June 2004 (1) - - (1) Exchange 606 - 64 107 134 At 31 March 2004 (37) (5) - (37) Cash payments 13 - - (29) Charge/(credit) (1) - - - - Disposals 71 140 Litigation/ Environmental 58 256 Taxation 40 100 Transition 574 - At 31 Mar 2005 931 204 At 31 March 2003 Pensions (2) Discounting £ million
  21. 21. FRS 17/IAS 19 NO CHANGE (91) Change in discount rate (64) Return on assets less interest cost on liabilities 54 Contributions and unfunded benefit payments less service cost 20 Experience gains, settlements and disposals 81 Return on assets less interest cost on liabilities 7 Exchange (600) (Deficit) at 30 September 2004 1 Experience gains, settlements and disposals (4) Exchange 28 Contributions and unfunded benefit payments less service cost £ million (574) (Deficit) at 31 March 2005 (606) (Deficit) at 31 March 2004
  22. 22. 3. Summary of accounting policy differences
  23. 23. Significant accounting differences <ul><ul><li>Intangibles – IAS 38 </li></ul></ul><ul><ul><li>Business combinations and goodwill – IFRS 3 </li></ul></ul><ul><ul><li>Foreign exchange – IAS 21 </li></ul></ul><ul><ul><li>Financial instruments – IAS 39 </li></ul></ul><ul><ul><li>Share-based payment – IFRS 2 </li></ul></ul><ul><ul><li>Leases – IAS 17 </li></ul></ul><ul><ul><li>Taxation – IAS 12 </li></ul></ul><ul><ul><li>Employee benefits – IAS 19 </li></ul></ul>
  24. 24. Intangible assets – IAS 38 <ul><li>Principal differences </li></ul><ul><ul><li>Requirement to capitalise qualifying development costs as intangible assets </li></ul></ul><ul><li>Income statement impact </li></ul><ul><ul><li>Increase in operating profit of £8m in 2004/05 </li></ul></ul><ul><li>Balance sheet impact </li></ul><ul><ul><li>Capitalisation of hardware and software development costs at Rail Systems & Process Systems. No basis for capitalisation of costs at other business groups </li></ul></ul><ul><ul><li>Capitalisation of separable development spend from point of technical & commercial feasibility of product. No capitalisation of stand-alone software development costs </li></ul></ul>
  25. 25. Business combinations and goodwill – IFRS 3 <ul><li>Principal differences </li></ul><ul><ul><li>Amended calculation of profit/loss on disposal of businesses as goodwill previously written-off to reserves is no longer recycled through profit and loss account </li></ul></ul><ul><ul><li>No amortisation of goodwill under IFRS, but annual impairment testing </li></ul></ul><ul><li>Income statement impact </li></ul><ul><ul><li>Loss on disposal of businesses changes by £331m </li></ul></ul><ul><ul><li>Reversal of £28m amortisation charge </li></ul></ul><ul><li>IFRS 1 Exemption </li></ul><ul><ul><li>Business combinations before 1 April 2004 are not restated </li></ul></ul>
  26. 26. Foreign exchange – IAS 21 <ul><li>FX gains/losses on non qualifying net investment hedges </li></ul><ul><li>Principal difference </li></ul><ul><ul><li>FX gains/losses on foreign currency denominated borrowings are charged through the income statement rather than reserves to the extent that the borrowings exceed hedged assets held in equivalent foreign currency </li></ul></ul><ul><ul><li>Under IFRS goodwill written off to reserves is not recognised as an asset and can not be included in the hedge determination </li></ul></ul><ul><li>Income statement impact - £16m FX gain </li></ul><ul><li>Cumulative FX differences on disposal of foreign operations </li></ul><ul><li>Principal difference </li></ul><ul><ul><li>On disposal of foreign operations the cumulative FX differences deferred in a separate component of equity are recognised in the income statement (£3m loss) </li></ul></ul>
  27. 27. Financial instruments – IAS 32/39 <ul><li>IFRS 1 exemption taken to implement IAS 32 and 39 from 1 April 2005 without restatement of comparative data; no impact on 2004/05 accounts and transition balance sheet </li></ul><ul><li>Hedge accounting </li></ul><ul><ul><li>Cashflow hedges (future cashflows) will be fair valued on balance sheet and gains and losses transferred to equity and recycled through the income statement at the same time as the underlying hedged item is accounted for through the income statement </li></ul></ul><ul><ul><li>Unhedged derivatives will be fair valued and gains and losses reflected in the income statement </li></ul></ul>
  28. 28. Share-based payment – IFRS 2 <ul><li>Principal differences </li></ul><ul><ul><li>Currently recognise expense for share options (except SAYE schemes), based on intrinsic value under UITF 17 </li></ul></ul><ul><ul><li>Under IFRS, expense recognised for awards of options based on fair value using option pricing modules </li></ul></ul><ul><li>Impact </li></ul><ul><ul><li>No effect on Group operating profit as share option schemes are not extensively used and impact of SAYE schemes is minimal </li></ul></ul><ul><ul><li>Balance sheet impact minimal </li></ul></ul>
  29. 29. Other standards <ul><li>Leases – IAS 17 </li></ul><ul><ul><li>More specific guidance on finance lease criteria has resulted in reclassification of two property operating leases as finance leases and a few equipment leases </li></ul></ul><ul><ul><li>Balance sheet impact – decrease in net assets of £10m from reclassification from operating to finance leases </li></ul></ul><ul><ul><li>Income statement impact – minimal </li></ul></ul><ul><li>Taxation – IAS 12 </li></ul><ul><ul><li>Reflects mainly impact of tax on undistributed overseas retained earnings and tax impact of IAS 38 adjustments </li></ul></ul><ul><ul><li>Balance sheet impact – increase in liabilities of £15m at March 2004 </li></ul></ul><ul><ul><li>Income statement impact – minimal </li></ul></ul>
  30. 30. Other standards <ul><li>Employee benefits – IAS 19 </li></ul><ul><ul><li>No impact on accounting for pensions as Invensys applied FRS 17 at March 2004 </li></ul></ul><ul><ul><li>Change reflects increased accruals for accumulating compensated absences </li></ul></ul><ul><ul><li>Balance sheet impact – £20m at March 2004 </li></ul></ul><ul><ul><li>Income statement impact – minimal </li></ul></ul>
  31. 31. IAS 39/IFRS 5 implementation <ul><ul><li>Effective 1 April 2005 IFRS 5 ‘Non-current Assets Held for Sale and Discontinued Operations’ and IAS 39 ‘Financial Instruments Recognition and Measurement’ will be implemented prospectively </li></ul></ul><ul><ul><li>IFRS 5 - Lambda, a business held for sale, will be reclassified to Held for Sale/Discontinued and its assets and liabilities will be segregated from the remainder of the Group </li></ul></ul><ul><ul><li>IAS 39 – impact on opening equity at 1 April 2005 is minimal </li></ul></ul>

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