Restatement from GAAP to IFRS
Future PLC
06 April 2006
6 April 2006
Future plc
International Financial Reporting Standards
Restatement from UK GAAP to International Financial Reporting Standards for the
year ended 30 September 2005
1 Introduction
In accordance with EU legislation, Future plc ('the Group') will prepare
consolidated financial information under International Financial Reporting
Standards ('IFRS') commencing with the accounting period starting on 1 October
2005. Future's first annual report under IFRS will therefore be for the year
ending 30 September 2006. The Group will also restate the comparative year ended
30 September 2005 (the transition date to IFRS is therefore 1 October 2004). The
first published financial results under IFRS will be the interim results for the
half year to 31 March 2006.
The purpose of this document is to show the effect of adopting IFRS for the
Group, setting out the basis of preparation and significant adjustments.
As previously communicated in the Group's annual report for the year ended 30
September 2005, the most significant adjustments under IFRS relate to the
following:
• accounting for business combinations whereby goodwill is not amortised
but will be subject to annual impairment testing, and
• share-based payments whereby the fair value of each instrument is
recognised in the income statement.
The transition to IFRS has no effect on the cash flows of the business, nor the
ability to pay dividends for the foreseeable future.
Full IFRS accounting policies will be disclosed in the Group's interim IFRS
financial statements for the six months ended 31 March 2006.
2 Summary impact of IFRS for the year ended 30th September 2005 ('FY05')
The unaudited impact for the Group for FY05 is as follows:
--------- --------- ----------
Summary income UK GAAP IFRS adj IFRS restated
statement £'m £'m £'m
--------- --------- ----------
Revenue 212.3 - 212.3
--------- --------- ----------
Operating profit/(loss)
Operating profit before exceptional items
and amortisation/impairment of intangible
assets 20.7 (0.3) 20.4
Exceptional items (7.2) - (7.2)
Amortisation/impairment of intangible
assets (23.5) 21.7 (1.8)
--------- --------- ----------
Operating (loss)/profit (10.0) 21.4 11.4
Profit on disposal of subsidiaries 2.1 - 2.1
Financial income 0.4 - 0.4
Financial costs (1.4) - (1.4)
Taxation (2.1) (0.1) (2.2)
--------- --------- ----------
(Loss)/profit for year (11.0) 21.3 10.3
Dividends (5.8) (0.7) (6.5)
--------- --------- ----------
Retained (loss)/profit for the year (16.8) 20.6 3.8
--------- --------- ----------
--------- --------- ----------
Earnings per share (pence): UK GAAP IFRS adj IFRS restated
--------- --------- ----------
Basic (3.4) 6.6 3.2
Adjusted 5.1 (0.1) 5.0
--------- --------- ----------
--------- --------- ----------
Summary balance sheet UK GAAP IFRS adj IFRS restated
at 30 September 2005 £'m £'m £'m
--------- --------- ----------
--------- --------- ----------
Goodwill 135.8 11.5 147.3
Other intangibles - 12.9 12.9
Tangible assets 3.9 (0.2) 3.7
Deferred tax 1.7 0.2 1.9
Current assets 65.4 - 65.4
--------- --------- ----------
Total assets 206.8 24.4 231.2
--------- --------- ----------
--------- --------- ----------
Equity and reserves 91.7 25.8 117.5
Current liabilities 80.9 (3.7) 77.2
Non-current liabilities 34.2 2.3 36.5
--------- --------- ----------
Total equity and liabilities 206.8 24.4 231.2
--------- --------- ----------
The IFRS adjustments are fully discussed in section 3.
The main adjustments are as follows:
Income statement
• A charge to operating profit (before amortisation and impairment of
intangibles and exceptional items) of £0.3m relating to a charge for share
based payments of £0.4m, a charge for holiday pay of £0.2m, less
amortisation of non-integral software costs of £0.3m reclassified as
intangibles.
• A £21.7m credit to amortisation and impairment of intangibles relating
to the non-amortisation of goodwill of £23.5m, less amortisation of 'new
intangible assets' (such as magazine titles etc) of £1.5m, and £0.3m
amortisation relating to reclassified software costs.
Balance sheet
• A net adjustment to goodwill of £11.3m representing the non-amortisation
of goodwill of £23.5m, less newly recognised intangible assets which were
previously subsumed within goodwill.
• An increase in other intangibles of £12.9m representing newly recognised
intangibles and the reclassification of non-integral software costs.
• A reduction in current liabilities of £3.7m representing a £4.2m
adjustment to exclude the final FY05 dividend and the inclusion of a holiday
pay accrual of £0.5m.
• Recognition of a deferred tax liability of £2.3m mainly relating to
cases where items treated as goodwill within the financial statements (and
therefore not amortised) are nonetheless tax deductible within the books of
individual subsidiaries.
Adjusted earnings used to calculate adjusted EPS are based on earnings for the
year, adjusted for exceptional items, amortisation and impairment of intangible
assets, and profit on disposal of subsidiaries. Given that the most significant
adjustments relate to intangibles and goodwill, adjusted EPS under IFRS are not
materially different from adjusted EPS reported under UK GAAP.
3 Basis of preparation and key standards impacting our business
The financial information included within this document has been prepared based
on the adoption of IFRS, including International Accounting Standards ('IAS')
adopted by the EU, and interpretations issued by the Standing Interpretations
Committee ('SIC') of the International Accounting Standards Board ('IASB').
These standards are subject to ongoing amendment by the IASB and therefore the
financial information may require updating for such changes or any new standards
which the Group elects to adopt early. The financial information set out here is
unaudited.
Key areas impacting the IFRS transition are as follows:
First-time Adoption of International Financial Reporting Standards (IFRS 1)
IFRS 1 sets out the procedures to be followed for transition to IFRS. The
general principle is that the Group will adopt appropriate accounting policies
for each standard and apply retrospectively. There are however a number of
optional exemptions and mandatory exceptions to retrospective restatement. The
most significant of those which apply to the Group are as follows:
a) Business combinations
The Group has elected not to apply IFRS 3, 'Business combinations'
retrospectively, to business combinations prior to the transition date.
Consequently, goodwill recorded from past combinations is recognised at the UK
GAAP value on transition. Goodwill is not amortised under IFRS but will be
subject to annual impairment testing.
b) Share-based payments
The Group will apply IFRS 2 to all relevant share-based payment transactions
granted after 7 November 2002 which had not fully vested at 1 January 2005.
c) Financial instruments
The Group has taken advantage of the exemptions in IAS 32 & IAS 39 enabling it
to apply these standards from 1 October 2005.
Share-based payments (IFRS 2)
IFRS 2 requires an expense for equity instruments granted to be recognised in
the financial statements over the appropriate vesting period, measured at their
'fair value' at the date of grant.
The Group has used the Black Scholes model to value instruments with non
market-based performance criteria such as earnings per share ('EPS'). For
options with market-based performance criteria, notably total shareholder return
('TSR'), the Group has applied a Monte Carlo model to determine the fair value.
The financial impact for FY05 is a charge to the income statement of £0.4m.
Business combinations (IFRS 3)
Acquisitions undertaken in FY05 have been restated in accordance with this
standard. The main impact is the requirement to identify separately certain
intangible assets previously included within goodwill under UK GAAP.
Intangible assets have been recognised relating mainly to magazine titles,
customer lists and advertising relationships and these will be amortised over
their estimated economic lives, typically ranging between 1 and 5 years. The
residual amount will be recorded as goodwill. Goodwill is not amortised under
IFRS but is subject to annual impairment tests.
Events after the balance sheet date (IAS 10)
IAS 10 requires that dividends declared after the balance sheet date should not
be recognised as a liability within the financial statements. Accordingly such
dividends are recognised in the following period.
The final dividend of £4.9m for the period ended 30 September 2004 has been
adjusted in the opening transition balance sheet. Similarly the final dividend
of £4.2m for the year ended 30 September 2005 has not been accrued in the 30
September 2005 balance sheet.
Intangible assets (IAS 38)
As noted under IFRS 3 above, the Group will recognise a number of intangibles
such as magazine titles, customer lists and advertising relationships, separate
from goodwill. These will be amortised over their estimated economic lives.
The Group has reclassified non-integral computer software costs from property,
plant and equipment to intangible assets. These assets will continue to be
amortised over their estimated economic lives.
Impairment (IAS 36)
Goodwill has been tested for impairment at both the transition date and 30
September 2005 and no impairment was required.
Income taxes (IAS 12)
The Group has provided for deferred income tax, using the liability method, on
temporary differences arising between the tax bases of assets and liabilities
and their carrying amounts in the consolidated financial statements. Deferred
income tax is determined using tax rates which are expected to apply when the
related deferred tax asset is realised or the deferred tax liability settled.
The Group has recognised deferred tax assets only to the extent that it is
probable that future taxable profits will be available against which the
temporary differences can be utilised.
The main areas of deferred tax impact relate to business combinations and
share-based payment charges.
Restated Group income statement
for the year ended 30 September 2005 (unaudited) Appendix i
-------------- ------- -------- -------- -------- ---------- ------ -------- ------
Events Re-
after classif-
the ication
UK GAAP Business Share- balance of Total
(IFRS combin- based sheet software adjust-
format) ations payments date costs Other ments IFRS
-------------- ------- -------- -------- -------- ---------- ------ -------- ------
£m £m £m £m £m £m £m £m
-------------- ------- -------- -------- -------- ---------- ------ -------- ------
Revenue 212.3 - - - - - - 212.3
-------------- ------- -------- -------- -------- ---------- ------ -------- ------
Operating
profit before
exceptional
items and
amortisation
and impairment o
f intangible
assets 20.7 - (0.4) - 0.3 (0.2) (0.3) 20.4
Exceptional
items (7.2) - - - - - - (7.2)
Amortisation
and impairment
of intangible
assets (23.5) 22.0 - - (0.3) - 21.7 (1.8)
-------------- ------- -------- -------- -------- ---------- ------ -------- ------
Operating
(loss)/profit (10.0) 22.0 (0.4) - - (0.2) 21.4 11.4
Profit on
disposal of
subsidiaries 2.1 - - - - - - 2.1
-------------- ------- -------- -------- -------- ---------- ------ -------- ------
(Loss)/profit
on
ordinary
activities
before
financing (7.9) 22.0 (0.4) - - (0.2) 21.4 13.5
Financial
income 0.4 - - - - - - 0.4
Financial costs (1.4) - - - - - - (1.4)
-------------- ------- -------- -------- -------- ---------- ------ -------- ------
(Loss)/profit
on ordinary
activities
before tax (8.9) 22.0 (0.4) - - (0.2) 21.4 12.5
Tax on (loss)/
profit on
ordinary
activities (2.1) (0.1) - - - - (0.1) (2.2)
-------------- ------- -------- -------- -------- ---------- ------ -------- ------
(Loss)/profit
for the period (11.0) 21.9 (0.4) - - (0.2) 21.3 10.3
Dividends (5.8) - - (0.7) - - (0.7) (6.5)
-------------- ------- -------- -------- -------- ---------- ------ -------- ------
Retained
(loss)/profit (16.8) 21.9 (0.4) (0.7) - (0.2) 20.6 3.8
-------------- ------- -------- -------- -------- ---------- ------ -------- ------
Restated Group balance sheet
At 30 September 2005 (unaudited) Appendix ii
-------------- ------- -------- -------- -------- ---------- ------ -------- ------
Events Re-
after classif-
the ication
UK GAAP Business Share- balance of Total
(IFRS combin- based sheet software adjust-
format) ations payments date costs Other ments IFRS
-------------- ------- -------- -------- -------- ---------- ------ -------- ------
£m £m £m £m £m £m £m £m
-------------- ------- -------- -------- -------- ---------- ------ -------- ------
Assets
Property, plant
and equipment 3.9 - - - (0.2) - (0.2) 3.7
Intangible
assets - goodwill 135.8 11.5 - - - - 11.5 147.3
Intangible
assets - other - 12.7 - - 0.2 - 12.9 12.9
Deferred tax 1.7 - 0.2 - - - 0.2 1.9
---------------- -------- -------- -------- -------- --------- ------ ------- ------
Total
non-current
assets 141.4 24.2 0.2 - - - 24.4 165.8
---------------- -------- -------- -------- -------- --------- ------ ------- ------
Inventories 6.2 - - - - - - 6.2
Corporation tax
recoverable 2.3 - - - - - - 2.3
Trade and other
receivables 46.2 - - - - - - 46.2
Cash and cash
equivalents 10.7 - - - - - - 10.7
---------------- -------- -------- -------- -------- --------- ------ ------- ------
Total current
assets 65.4 - - - - - - 65.4
---------------- -------- -------- -------- -------- --------- ------ ------- ------
Total assets 206.8 24.2 0.2 - - - 24.4 231.2
---------------- -------- -------- -------- -------- --------- ------ ------- ------
Equity
Issued share
capital 3.3 - - - - - - 3.3
Share premium
account 24.4 - - - - - - 24.4
Merger reserve 109.0 - - - - - - 109.0
Retained earnings (45.0) 22.1 0.2 4.2 - (0.7) 25.8 (19.2)
---------------- -------- -------- -------- -------- --------- ------ ------- ------
Total equity 91.7 22.1 0.2 4.2 - (0.7) 25.8 117.5
---------------- -------- -------- -------- -------- --------- ------ ------- ------
Liabilities
Interest-bearing
loans and
borrowings 20.4 - - - - - - 20.4
Trade and other
payables 60.2 - - (4.2) - 0.5 (3.7) 56.5
Corporation tax
payable 0.3 - - - - - - 0.3
---------------- -------- -------- -------- -------- --------- ------ ------- ------
Total current
liabilities 80.9 - - (4.2) - 0.5 (3.7) 77.2
---------------- -------- -------- -------- -------- --------- ------ ------- ------
Interest-bearing
loans 29.8 - - - - - - 29.8
and borrowings
Deferred tax - 2.1 - - - 0.2 2.3 2.3
Provisions 2.2 - - - - - - 2.2
Other 2.2 - - - - - - 2.2
---------------- -------- -------- -------- -------- --------- ------ ------- ------
Total
non-current
liabilities 34.2 2.1 - - - 0.2 2.3 36.5
---------------- -------- -------- -------- -------- --------- ------ ------- ------
Total
liabilities 115.1 2.1 - (4.2) - 0.7 (1.4) 113.7
---------------- -------- -------- -------- -------- --------- ------ ------- ------
Total equity and
liabilities 206.8 24.2 0.2 - - - 24.4 231.2
---------------- -------- -------- -------- -------- --------- ------ ------- ------
Restated Group balance sheet
At the transition date 30 September 2004 (unaudited) Appendix iii
-------------- ------- -------- -------- -------- ---------- ------ -------- ------
Events Re-
after classif-
the ication
UK GAAP Business Share- balance of Total
(IFRS combin- based sheet software adjust-
format) ations payments date costs Other ments IFRS
-------------- ------- -------- -------- -------- ---------- ------ -------- ------
£m £m £m £m £m £m £m £m
-------------- ------- -------- -------- -------- ---------- ------ -------- ------
-------------- ------- -------- -------- -------- --------- ------ -------- ------
Assets
Property, plant
and equipment 3.5 - - - (0.3) - (0.3) 3.2
Intangible
assets -
goodwill 108.4 - - - - - - 108.4
Intangible
assets - other - - - - 0.3 - 0.3 0.3
Deferred tax 1.8 - 0.2 - - - 0.2 2.0
---------------- -------- -------- -------- -------- --------- ------ ------- ------
Total
non-current
assets 113.7 - 0.2 - - - 0.2 113.9
---------------- -------- -------- -------- -------- --------- ------ ------- ------
Inventories 5.0 - - - - - - 5.0
Corporation tax
recoverable 2.0 - - - - - - 2.0
Trade and other
receivables 35.7 - - - - - - 35.7
Cash and cash
equivalents 14.5 - - - - - - 14.5
---------------- -------- -------- -------- -------- --------- ------ ------- ------
Total current
assets 57.2 - - - - - - 57.2
---------------- -------- -------- -------- -------- --------- ------ ------- ------
Total assets 170.9 - 0.2 - - - 0.2 171.1
---------------- -------- -------- -------- -------- --------- ------ ------- ------
Equity
Issued share
capital 3.2 - - - - - - 3.2
Share premium
account 23.7 - - - - - - 23.7
Merger reserve 109.0 - - - - - - 109.0
Retained
earnings (28.2) - 0.2 4.9 - (0.5) 4.6 (23.6)
---------------- -------- -------- -------- -------- --------- ------ ------- ------
Total equity 107.7 - 0.2 4.9 - (0.5) 4.6 112.3
---------------- -------- -------- -------- -------- --------- ------ ------- ------
Liabilities
Interest-bearing
loans and
borrowings 4.7 - - - - - - 4.7
Trade and other
payables 55.5 - - (4.9) - 0.3 (4.6) 50.9
Corporation tax
payable 2.1 - - - - - - 2.1
---------------- -------- -------- -------- -------- --------- ------ ------- ------
Total current
liabilities 62.3 - - (4.9) - 0.3 (4.6) 57.7
---------------- -------- -------- -------- -------- --------- ------ ------- ------
Interest-bearing
loans and
borrowings - - - - - - - -
Deferred tax - - - - - 0.2 0.2 0.2
Provisions 0.9 - - - - - - 0.9
Other - - - - - - - -
---------------- -------- -------- -------- -------- --------- ------ ------- ------
Total
non-current
liabilities 0.9 - - - - 0.2 0.2 1.1
---------------- -------- -------- -------- -------- --------- ------ ------- ------
Total
liabilities 63.2 - - (4.9) - 0.5 (4.4) 58.8
---------------- -------- -------- -------- -------- --------- ------ ------- ------
Total equity and
liabilities 170.9 - 0.2 - - - 0.2 171.1
---------------- -------- -------- -------- -------- --------- ------ ------- ------
Restated Group cash flow statement
for the year ended 30 September 2005 (unaudited) Appendix iv
---------------------------------------- ------- ---------- --------
UK GAAP
(IFRS Total
format) adjustments IFRS
---------------------------------------- ------- ---------- --------
£m £m £m
---------------------------------------- ------- ---------- --------
Cash flows from operating activities
Cash generated from operations 9.8 - 9.8
Interest received 0.5 - 0.5
Tax received 1.4 - 1.4
Interest paid (0.8) - (0.8)
Tax paid (5.5) - (5.5)
---------------------------------------- ------- ---------- --------
Net cash generated from operations 5.4 - 5.4
---------------------------------------- ------- ---------- --------
Cash flows from investing activities
Disposal of subsidiary undertakings 2.1 - 2.1
Purchase of tangible fixed assets (1.8) - (1.8)
Purchase of subsidiary undertakings (33.6) - (33.6)
Net cash acquired with subsidiary undertakings 0.8 - 0.8
Purchase of magazine titles (15.3) - (15.3)
Payment of deferred consideration (0.1) - (0.1)
---------------------------------------- ------- ---------- --------
Net cash used in investing activities (47.9) - (47.9)
---------------------------------------- ------- ---------- --------
Cash flows from financing activities
Decrease in short-term deposits with bank 2.5 (2.5) -
Proceeds from issue of Ordinary share capital 0.8 - 0.8
Drawdown of bank loans 53.6 - 53.6
Issue costs of new bank loan (0.4) - (0.4)
Repayment of bank loans (8.7) - (8.7)
Equity dividends paid (6.5) - (6.5)
---------------------------------------- ------- ---------- --------
Net cash generated from financing activities 41.3 (2.5) 38.8
---------------------------------------- ------- ---------- --------
Net decrease in cash and cash equivalents (1.2) (2.5) (3.7)
---------------------------------------- ------- ---------- --------
Cash and cash equivalents at 1 October 2004 12.0 2.5 14.5
Exchange adjustments (0.1) - (0.1)
---------------------------------------- ------- ---------- --------
Cash and cash equivalents at 30 September 2005 10.7 - 10.7
---------------------------------------- ------- ---------- --------
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