IFRS Reconcilliation
Greggs PLC
05 August 2005
5 August 2005
Greggs plc
Restatement of financial information
under International Financial Reporting Standards
Introduction
Greggs plc (the Group) historically prepared its consolidated financial
statements under UK Generally Accepted Accounting Practice (UK GAAP). Following
the adoption of Regulation No. 1606/2002 by the European Parliament on 19 July
2002 the Group has been preparing for the adoption of International Financial
Reporting Standards1 as its primary accounting base.
IFRS will apply for the first time in the Group's financial statements for the
52 weeks ending 31 December 2005. Accordingly the financial results for the 24
weeks ended 18 June 2005 have been prepared and reported under IFRS. As the
Group publishes comparative information in its Annual Report and Interim
Statement the date of transition to IFRS is 28 December 2003.
To explain how the Group's reported performance and financial position are
affected by this change, information previously published under UK GAAP is
restated under IFRS in the attached appendices as follows:
• Appendix 1 - Significant accounting policies revised under IFRS
• Appendix 2 - Financial information on an IFRS basis for the 24 weeks ended
12 June 2004, the 53 weeks ended 1 January 2005 and the transition balance
sheet at 28 December 2003
• Appendix 3 - Reconciliations of income statement and balance sheet for the
53 weeks ended 1 January 2005 with comments on the adjustments made
• Appendix 4 - Reconciliations of income statement and balance sheet for the
24 weeks ended 12 June 2004
• Appendix 5 - Reconciliation of transition balance sheet at 28 December
2003
• Appendix 6 - Special Purpose Audit Report of KPMG Audit Plc to Greggs plc
As noted below, this financial information has been prepared on the basis of
IFRSs expected to be applicable at 31 December 2005. These are subject to
ongoing review and endorsement by the EU or possible amendment by interpretive
guidance from the IASB and are therefore still subject to change. We will
update our restated information for any such changes when they are made.
Basis of preparation
The financial information has been prepared in accordance with IFRS. The
accounting policies applied are set out in Appendix 1 and these assume that all
existing standards in issue from the IASB will be fully endorsed by the EU.
Both the transition balance sheet as at 28 December 2003 and the financial
information for the 53 weeks ended 1 January 2005, as prepared on the above
basis, have been audited by KPMG Audit Plc. Their special purpose audit report
to Greggs plc is set out on pages 21 to 22. The information for the 24 weeks
ended 12 June 2004 is unaudited. Subject to EU endorsement of outstanding
standards and no further changes from the IASB this information is expected to
form the basis for comparatives when reporting financial results for 2005, and
for subsequent reporting periods.
1References to IFRS throughout this document refer to the application of
International Financial Reporting Standards as expected to adopted by the EU ("
IFRS"), including International Accounting Standards ("IAS") and interpretations
issued by the International Accounting Standards Board ("IASB") and its
committees, and as interpreted by any regulatory bodies applicable to the Group.
Overview of impact
For the 53 weeks ended 1 January 2005 the net increase in total recognised
income and expense attributable to shareholders2 as a result of the conversion
to IFRS was £58,000. This was largely made up of a reduction in the charge made
in respect of the defined benefit pension scheme offset by the charge incurred
relating to share based payments. The increase in profit after tax was
£690,000. The details of these adjustments are given in Appendix 3.
24 weeks ended 12 June 2004 53 weeks ended 1 January 2005
IFRS UK GAAP IFRS UK GAAP
£'000 £'000 £'000 £'000
Operating profit 13,071 13,090 45,763 44,714
Profit after tax 9,108 9,142 32,277 31,587
Total recognised income and expense 8,822 9,142 31,645 31,587
attributable to shareholders
Basic EPS 76.8p 77.1p 270.5p 264.7p
Net assets 137,078 141,912 157,156 157,158
The most significant elements contributing to the changes in the financial
information are:
• The inclusion of an estimated fair value charge in respect of
outstanding employee share options.
• Recognition, on the balance sheet, of actuarially assessed employee
benefit (pension) liabilities together with associated pension fund
assets.
• Recognition of dividends directly in reserves as they are declared,
not when proposed.
IFRS 1 exemptions
IFRS 1 First Time Adoption of International Financial Reporting Standards,
permits those companies adopting IFRS for the first time to take certain
exemptions from the full requirements of IFRS in the transition period. The
Group has taken the following key exemptions:
(a) Employee benefits: All cumulative actuarial gains and losses have
been recognised in equity at the transition date. This is to maintain
consistency with prospective Group policy, whereby all actuarial gains and
losses will be recognised directly via the statement of recognised income and
expense.
(b) Share based payments: The Group has elected to apply IFRS 2 Share
based payments only to relevant share based payment transactions granted after 7
November 2002 as permitted under IFRS 1.
(c) Business combinations: The Group has chosen not to restate business
combinations prior to the transition date on an IFRS basis, as no significant
acquisitions have taken place for the past 10 years.
(d) Fair value as deemed cost: The Group has adopted the exemption which
allows the restatement of certain items of property, plant and equipment to fair
value at the transition date.
(e) Financial instruments: The Group has taken the exemption from
applying IAS 32 Financial Instruments: Disclosure and Presentation and IAS 39
Financial Instruments: Recognition and Measurement to the comparative
information to be presented in its first IFRS financial statements and will
adopt IAS 32 and IAS 39 with effect from 2 January 2005.
2Under UK GAAP, as there was no recognised gains and losses for the period other
than the profit for the period, total recognised gains and losses attributable
to shareholders equates to profit after tax. Under IFRS total recognised gains
and losses attributable to shareholders equates to total recognised income and
expense for the period as disclosed in the statement of recognised income and
expenditure.
Presentation of financial information
The primary statements within the financial information contained in this
document have been presented in accordance with IAS 1 Presentation of Financial
Statements. However this format and presentation may require modification as
practice develops and in the event that further guidance is issued.
Appendix 1
IFRS Accounting Policies
This section provides a summary of the Group's new accounting policies under
IFRS for the 53 weeks ended 1 January 2005. Where policies have changed under
IFRS as compared to UK GAAP this is indicated by *.
(a) Basis of preparation
The financial information is presented in pounds sterling, rounded to the
nearest thousand, and is prepared on the historical cost basis.
These accounting policies have been prepared on the basis of the recognition and
measurement requirements of IFRSs in issue that either are endorsed by the EU
and effective (or available for early adoption) at 31 December 2005 or are
expected to be endorsed and effective (or available for early adoption) at 31
December 2005, the Group's first annual reporting date at which it is required
to use adopted IFRSs. Based on these adopted and unadopted IFRSs, the directors
have made assumptions about the accounting policies expected to be applied which
are as set out below when the first annual IFRS financial statements are
prepared for the 52 weeks ending 31 December 2005.
In particular, the directors have assumed that the following IFRS issued by the
International Accounting Standards Board and IFRIC Interpretations issued by the
International Financial Reporting Interpretations Committee will be adopted by
the EU in sufficient time that they will be available for use in the annual IFRS
financial statements for the 52 weeks ending 31 December 2005:
• Amendment to IAS 19, Employee Benefits - Actuarial Gains and Losses, Group
Plans and Disclosure
In addition, the adopted IFRSs that will be effective (or available for early
adoption) in the annual financial statements for the 52 weeks ending 31 December
2005 are still subject to change and to additional interpretations and therefore
cannot be determined with certainty. Accordingly, the accounting policies for
that annual period will be determined finally only when the annual financial
statements are prepared for the 52 weeks ending 31 December 2005.
The preparation of this financial information resulted in changes to the
accounting policies as compared with the most recent annual financial statements
prepared under previous GAAP. The accounting policies set out below have been
applied consistently to all periods presented in this financial information.
The preparation of financial information in conformity with IFRSs requires
management to make judgements, estimates and assumptions that effect the
application of policies and reported amounts of assets and liabilities, income
and expenses. The estimates and associated assumptions are based on historical
experience and various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis of making the judgements
about carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting policies are recognised in the period in which the
estimate is revised if the revision affects only that period, or in the period
of revision and future periods if the revision affects both current and future
periods.
The accounting policies have been applied consistently throughout the Group.
Appendix 1
(b) Basis of consolidation
(i) Subsidiaries
Subsidiaries are entities controlled by the Company. Control exists where the
Company has the power, directly or indirectly, to govern the financial and
operating policies of an entity so as to obtain benefits from its activities.
The financial statements of subsidiaries are included in the consolidated
financial information from the date control commences until the date that
control ceases.
(ii) Transactions eliminated on consolidation
Intragroup balances, and any unrealised gains and losses or income and expenses
arising from intragroup transactions, are eliminated in preparing the
consolidated financial information.
(c) Foreign currency
Transactions in foreign currencies are translated at the foreign exchange rate
ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies at the balance sheet date are translated at
the foreign exchange rate ruling at that date. Non-monetary assets and
liabilities that are measured in terms of historical cost in a foreign currency
are translated using the exchange rate at the date of the transaction. Foreign
exchange differences arising on translation are recognised in the income
statement.
(d) Property, plant and equipment
(i) Owned assets
Items of property, plant and equipment are stated at cost or deemed cost less
accumulated depreciation (see below) and impairment losses (see accounting
policy (h)). The cost of self-constructed assets includes the cost of
materials, direct labour and an appropriate proportion of production overheads.
Certain items of property, plant and equipment that have been revalued to fair
value on or prior to 28 December 2003, the date of transition to IFRSs, are
measured on the basis of deemed cost, being the revalued amount at the date of
that revaluation.
(ii) Subsequent costs
The Group recognises in the carrying amount of an item of property, plant and
equipment the cost of replacing part of such an item when the cost is incurred
if it is probable that the future economic benefits embodied within the item can
be measured reliably. All other costs are recognised in the income statement as
incurred.
Appendix 1
(iii) Depreciation
Depreciation is charged to the income statement on a straightline basis over the
estimated useful economic lives of each part of an item of property, plant and
equipment. Freehold and long leasehold properties are depreciated by equal
instalments over a period of 40 years. Land is not depreciated. The
depreciation rates are as follows:
Short leasehold properties 10%
Plant:
General 10%
Computers 20% - 33 1/3%
Motor vehicles 20% - 25%
Delivery trays 33 1/3%
Shop fixtures and fittings:
General 10%
Electronic equipment 20%
The residual value, if not insignificant, is reassessed annually.
(e) Goodwill*
The Group's policy up to and including 1997 was to eliminate goodwill arising
upon acquisitions against reserves. Under IFRS 1 and IFRS 3, such goodwill will
remain eliminated against reserves.
(f) Inventories
Inventories are stated at the lower of cost and net realisable value. Net
realisable value is the estimated selling price in the ordinary course of
business, less the estimated costs of completion and selling expenses. The cost
of inventories is based on the weighted average cost formula.
(g) Cash and cash equivalents*
'Cash and cash equivalents' comprises cash balances and call deposits with an
original maturity of three months or less. Bank overdrafts that are repayable
on demand and form an integral part of the Group's cash management are included
as a component of cash and cash equivalents for the purpose of the statement of
cash flows.
(h) Impairment
The carrying amounts of the Group's assets, other than inventories and deferred
tax assets are reviewed at each balance sheet date to determine whether there is
any indication of impairment. If any such indication exists, the asset's value
is estimated.
An impairment loss is recognised whenever the carrying amount of an asset
exceeds its recoverable amount. Impairment losses are recognised in the income
statement. An impairment loss is reversed if there has been a change in the
estimates used to determine the recoverable amount. An impairment loss is
reversed only to the extent that the asset's carrying amount does not exceed the
carrying amount that would have been determined, net of depreciation, if no
impairment loss had been recognised.
Appendix 1
(i) Share capital
(i) Repurchase of share capital
When share capital recognised as equity is repurchased, the amount of the
consideration paid, including directly attributable costs, is recognised as a
change in equity. Repurchased shares that are held in the Employee Share
Ownership Plan are classified as treasury shares and are presented as a
deduction from total equity.
(ii) Dividends*
Dividends are recognised as a liability in the period in which they are
declared.
(j) Employee benefits*
(i) Defined contribution plans
Obligations for contributions to defined contribution pension plans are
recognised as an expense in the income statement as incurred.
(ii) Defined benefit plans
The Group's obligation in respect of defined benefit post-employment plans,
including pension plans, is calculated by estimating the amount of the future
benefit that employees have earned in return for their service in the current
and prior periods. That benefit is discounted to determine its present value,
and the fair value of any plan assets is deducted. The discount rate is the
yield at the balance sheet date on AA credit rated bonds that have maturity
dates approximating to the terms of the Group's obligations. The calculation is
performed by a qualified actuary using the projected unit credit method.
When the benefits of a plan are improved, the portion of the increased benefit
relating to past service by employees is recognised as an expense in the income
statement on a straight-line basis over the average period until the benefits
become vested. To the extent that the benefits vest immediately, the expense is
recognised immediately in the income statement.
All actuarial gains and losses at 28 December 2003, the date of transition to
IFRSs, were recognised. The Group recognises actuarial gains and losses that
arise subsequent to 28 December 2003 in full in the period in which they occur
in the statement of recognised income and expenditure.
(iii) Share-based payment transactions
The share option programme allows Group employees to acquire shares of the
Company. The fair value of share options granted is recognised as an employee
expense with a corresponding increase in equity. The fair value is measured at
grant date, using an appropriate model taking into account the terms and
conditions upon which the share options were granted, and is spread over the
period during which the employees become unconditionally entitled to the
options. The amount recognised as an expense is adjusted to reflect the actual
number of share options that vest except where forfeiture is only due to share
prices not achieving the threshold for vesting.
For options granted before 7 November 2002 the recognition and measurement
principles of IFRS 2 have not been applied in accordance with the transitional
provisions in IFRS 1.
Appendix 1
(k) Revenue
(i) Goods sold
Revenue from the sale of goods is recognised as income on receipt.
(ii) Government grants
Government grants are recognised in the balance sheet initially as deferred
income when there is a reasonable assurance that they will be received and that
the group will comply with the conditions attaching to them. Grants that
compensate the Group for expenses incurred are recognised as revenue in the
income statement on a systematic basis in the same periods in which the expenses
are incurred. Grants that compensate the Group for the cost of an asset are
recognised in the income statement over the useful life of the asset.
(l) Expenses
(i) Operating lease payments*
Payments under operating leases are recognised in the income and expenditure
account on a straight-line basis over the term of the lease. Lease incentives
received are recognised in the income statement as an integral part of the total
lease expense.
(ii) Finance income
Finance income comprises interest receivable on funds invested and foreign
exchange gains. Interest income is recognised in the income statement as it
accrues using the effective interest method.
(iii) Finance expenses
Finance expenses comprise interest payable on borrowings and foreign exchange
losses.
(m) Income tax*
Income tax on the profit or loss for the period comprises current and deferred
tax. Income tax is recognised in the income statement except to the extent that
it relates to items recognised directly in equity, in which case it is
recognised in equity.
Current tax is the expected tax payable on the taxable income for the year,
using tax rates enacted or substantially enacted at the balance sheet date, and
any adjustment to tax payable in respect of previous years.
Deferred tax is provided using the balance sheet liability method, providing for
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation purposes. The
amount of deferred tax provided is based on the expected manner of realisation
or settlement of the carrying amounts of assets and liabilities, using tax rates
enacted or substantially enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that
future taxable profits will be available against which the asset can be
utilised. Deferred tax assets are reduced to the extent that it is probable
that the related deferred tax benefit will be realised.
Appendix 2
Consolidated income statement
24 weeks ended 12 53 weeks ended 1
June 2004 January 2005
Unaudited Audited
£'000 £'000
Revenue 216,202 504,186
Cost of sales (83,467) (192,860)
Gross profit 132,735 311,326
Distribution and selling costs (101,334) (228,510)
Administrative expenses (18,330) (37,053)
Operating profit before financing 13,071 45,763
Finance income 667 2,003
Finance expenses (173) (15)
Profit before tax 13,565 47,751
Income tax (4,457) (15,474)
Profit for the period 9,108 32,277
Basic earnings per share 76.8p 270.5p
Diluted earnings per share 75.8p 267.7p
Consolidated statement of recognised income and expense
24 weeks ended 12 53 weeks ended 1
June 2004 January 2005
Unaudited Audited
£'000 £'000
Actuarial losses on defined benefit plans (409) (903)
Tax on items taken directly to equity 123 271
Net expense recognised directly in equity (286) (632)
Profit for the period 9,108 32,277
Total recognised income and expense for the period 8,822 31,645
Appendix 2
Consolidated balance sheet
28 December 2003 12 June 2004 1 January 2005
Audited Unaudited Audited
£'000 £'000 £'000
ASSETS
Non-current assets
Property, plant and equipment 161,451 162,716 163,832
Deferred tax assets 3,429 3,577 3,486
164,880 166,293 167,318
Current assets
Inventory 7,126 6,641 7,283
Trade and other receivables 13,037 14,166 13,949
Cash and cash equivalents 36,358 46,666 62,601
56,521 67,473 83,833
Total assets 221,401 233,766 251,151
LIABILITIES
Current liabilities
Trade and other payables (54,918) (64,711) (59,204)
Current tax liabilities (7,183) (4,343) (7,685)
(62,101) (69,054) (66,889)
Non-current liabilities
Defined benefit pension liability (11,347) (11,707) (11,052)
Other payables (112) (110) (105)
Deferred tax liability (15,485) (15,817) (15,949)
(26,944) (27,634) (27,106)
Total liabilities (89,045) (96,688) (93,995)
Net assets 132,356 137,078 157,156
EQUITY
Capital and reserves attributable to equity
holders
Issued capital 2,422 2,426 2,428
Share premium account 11,537 11,981 12,217
Retained earnings 118,397 122,671 142,511
Total equity attributable to shareholders 132,356 137,078 157,156
Appendix 2
Consolidated statement of cash flows
24 weeks ended 12 53 weeks ended 1
June 2004 January 2005
Unaudited Audited
£'000 £'000
Cash flows from operating activities
Profit for the period 9,108 32,277
Depreciation 9,367 21,003
Loss on sale of property, plant and equipment 183 358
Release of government grants (4) (7)
Share based payment expenses 57 124
Finance income (667) (2,003)
Finance expenses 173 15
Income tax expense 4,457 15,474
Decrease/(increase) in inventory 485 (157)
Increase in debtors (1,129) (912)
Increase in creditors 9,797 4,287
Movement in pension liability (49) (1,198)
Cash from operating activities 31,778 69,261
Interest paid (173) (15)
Income tax paid (6,950) (14,150)
Net cash inflow from operating activities 24,655 55,096
Cash flows from investing activities
Acquisition of property, plant and equipment (11,258) (25,090)
Proceeds from sale of property, plant and equipment 443 1,348
Interest received 667 2,003
Net cash outflow from investing activities (10,148) (21,739)
Cash flows from financing activities
Proceeds from the issue of share capital 448 686
Sale of own shares 2,753 3,200
Purchase of own shares (941) (941)
Dividends paid (6,459) (10,059)
Net cash outflow from financing activities (4,199) (7,114)
Net increase in cash and cash equivalents 10,308 26,243
Cash and cash equivalents at the start of the period 36,358 36,358
Cash and cash equivalents at the end of the period 46,666 62,601
Appendix 2
Consolidated statement of changes in equity
Attributable to equity shareholders
Audited Share capital Share premium Retained earnings Total
£'000 £'000 £'000 £'000
At 28 December 2003 2,422 11,537 118,397 132,356
Shares issued in the period 6 680 - 686
Total recognised income and expense - - 31,645 31,645
Purchase of own shares - - (941) (941)
Sale of own shares - - 3,200 3,200
Share based payments - - 124 124
Equity dividends - - (10,059) (10,059)
Tax on items taken directly to equity - - 145 145
At 1 January 2005 2,428 12,217 142,511 157,156
Attributable to equity shareholders
Unaudited Share capital Share premium Retained earnings Total
£'000 £'000 £'000 £'000
At 28 December 2003 2,422 11,537 118,397 132,356
Shares issued in the period 4 444 - 448
Total recognised income and expense - - 8,822 8,822
Purchase of own shares - - (941) (941)
Sale of own shares - - 2,753 2,753
Share based payments - - 57 57
Equity dividends - - (6,457) (6,457)
Tax on items taken directly to equity - - 40 40
At 12 June 2004 2,426 11,981 122,671 137,078
Appendix 3
Reconciliation of income statement
For the 53 weeks ended 1 January 2005
UK GAAP IFRS adjustments IFRS
Revaluation Employee Share-based Dividends
benefits payments
(a) (b) (c) (d)
£'000 £'000 £'000 £'000 £'000 £'000
Revenue 504,186 504,186
Cost of sales (193,009) 149 (192,860)
Gross profit 311,177 149 311,326
Distribution and selling (228,891) (25) 406 (228,510)
costs
Administrative costs (37,572) 643 (124) (37,053)
Operating profit before 44,714 (25) 1,198 (124) 45,763
financing
Finance income 2,003 2,003
Finance expenses (15) (15)
Profit before tax 46,702 (25) 1,198 (124) 47,751
Income tax (15,115) (359) (15,474)
Profit for the period 31,587 (25) 839 (124) 32,277
attributable to equity
shareholders
Net expense recognised - (632) (632)
directly in equity
Total recognised income 31,587 (25) 207 (124) 31,645
and expense attributable
to equity shareholders
Dividends (11,524) 11,524 -
Explanation of the IFRS adjustments to the Income Statement for the 53 weeks
ended 1 January 2005 and the 24 weeks ended 12 June 2004
(a) Fair value of freehold property as deemed cost
Principal difference
Under the transitional rules of IFRS 1 the fair value items of property, plant
and equipment can be used as the deemed cost at the date of transition. The
items are then depreciated based on the deemed cost over their remaining useful
economic lives. This has been done in respect of one freehold property.
Impact
Under UK GAAP the depreciation charge in respect of the asset was £9,000 (24
weeks ended 12 June 2004: £4,000) and under IFRS the charge is £34,000 (24 weeks
ended 12 June 2004: £15,000) resulting in an increased charge to operating
profit of £25,000 (24 weeks ended 12 June 2004: £11,000).
Appendix 3
(b) Employee benefits
Principal difference
Under UK GAAP, the Group measures pension commitments and other related benefits
in accordance with SAAP 24 Accounting for Pension Costs. Additional disclosures
were given in accordance with the transitional requirements of FRS 17 Retirement
Benefits. Under IFRS, the Group measures pension commitments in accordance with
the amended IAS 19 Employee Benefits. IAS 19 is similar to FRS 17 in that it
adopts a balance sheet approach, bringing the surplus/deficit of the pension
scheme onto the balance sheet. However, FRS 17 dictates that all actuarial
gains and losses are to be recognised directly in reserves, whereas IAS 19 also
includes an alternative option allowing actuarial gains and losses to be held on
the balance sheet and released to the income statement over a period of time.
Greggs has elected not to adopt this alternative option.
Impact
Under SAAP 24, a pension charge of £3,290,000 (24 weeks ended 12 June 2004:
£996,000) was recognised in operating profit in 2004. Under IFRS a charge of
£2,092,000 (24 weeks ended 12 June 2004: £947,000) is recognised. Therefore
there is a net credit to operating costs of £1,198,000 (24 weeks ended 12 June
2004: £49,000). The actuarial loss of £903,000 (24 weeks ended 12 June 2004:
£409,000) is recognised in the statement of recognised income and expenses.
Due to the deferred tax impact the income statement tax adjustment is a charge
of £359,000 (24 weeks ended 12 June 2004: charge of £15,000), resulting in an
overall credit of £839,000 (24 weeks ended 12 June 2004: £34,000) to profit for
the period. The deferred tax credit that relates to the actuarial loss of
£271,000 (24 weeks ended 12 June 2004: £123,000) is recognised in the statement
of recognised income and expenses resulting in an overall charge of £632,000 (24
weeks ended 12 June 2004: £286,000).
(c) Share-based payments
Principal difference
The Group operates a number of share-based incentive schemes that are impacted
by IFRS 2 Share-based payments. Under UK GAAP no expense has been recognised
for awards under the Executive Share Option Scheme as the intrinsic value (the
difference between the exercise price and the market value at the date of
exercise) was nil and for awards under the SAYE scheme as this was exempt under
UITF17. Under IFRS, an expense is recognised in the income statement for all
share based payments. This expense has been calculated based on the fair value
at the date of the awards using pricing models appropriate to the schemes.
Impact
This has resulted in a charge for the full year of £124,000 (24 weeks ended 12
June 2004: £57,000), recognised within operating costs. As the estimated future
tax deduction in respect of share based payments exceeds the expense charged in
the income statement the deferred tax credit has been recognised directly in
equity.
(d) Dividends
Principal difference
Under UK GAAP, the dividend charge is recognised in the profit and loss account.
Under IFRS, the dividend is not recognised in the income statement but is
recognised directly in reserves.
Impact
Both the interim and the final dividend for 2004 have been reversed from the
income statement with an impact of £11,524,000 (24 weeks ended 12 June 2004:
£3,640,000).
Appendix 3
Reconciliation of balance sheet
As at 1 January 2005
UK GAAP IFRS adjustments IFRS
Rolled Revaluation Employee Share-based Dividends Reclassification
over benefits payments
gains
(a) (b) (c) (d) (e)
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
ASSETS
Non-current assets
Property, plant and 163,110 722 163,832
equipment
Deferred tax assets 3,316 170 3,486
163,110 722 3,316 170 167,318
Current assets
Inventory 7,283 7,283
Trade and other 13,949 13,949
receivables
Cash and cash 62,601 62,601
equivalents
83,833 83,833
Total assets 246,943 722 3,316 170 251,151
LIABILITIES
Current liabilities
Trade and other payables (74,811) 7,922 7,685 (59,204)
Current tax liability (7,685) (7,685)
(74,811) 7,922 - (66,889)
Non-current liabilities
Defined benefit pension (11,052) (11,052)
liability
Other payables (105) (105)
Deferred tax liability (14,869) (856) (224) (15,949)
(14,974) (856) (224) (11,052) - (27,106)
Total liabilities (89,785) (856) (224) (11,052) 7,922 - (93,995)
Net assets 157,158 (856) 498 (7,736) 170 7,922 - 157,156
EQUITY
Capital and reserves
attributable to equity
holders
Issued capital 2,428 2,428
Share premium account 12,217 12,217
Retained earnings 142,513 (856) 498 (7,736) 170 7,922 142,511
Total equity 157,158 (856) 498 (7,736) 170 7,922 - 157,156
attributable to
shareholders
Appendix 3
Explanation of IFRS adjustments to the transition balance sheet at 28 December
2003, interim balance sheet at 12 June 2004 and closing balance sheet at 1
January 2005
(a) Deferred tax on rolled over gains
Principal difference
Under IAS 12 a deferred tax provision must be made in respect of all taxable
temporary differences including rolled over capital gains. Under UK GAAP
deferred tax was not provided in respect of these rolled over gains.
Transition impact
A deferred tax liability has been included in the transition balance sheet of
£856,000.
Closing balance sheet impact
There is no movement on the deferred tax liability during the 53 weeks ended 1
January 2005 and therefore no further impact on the closing balance sheet (12
June 2004: £nil).
(b) Fair value of freehold property as deemed cost
Principal difference
Under the transitional rules of IFRS 1 the fair value of items of property,
plant and equipment can be used as the deemed cost at the date of transition.
This has been done in respect of one freehold property.
Transition impact
The freehold property has been included in the transition balance sheet at its
deemed cost of £1,020,000. This has resulted in an increase to non-current
assets and to retained earnings of £747,000. In accordance with IAS 12 a
provision for deferred tax is required in respect of the increased deemed cost
which increases the deferred tax liability by £224,000. The net impact on
retained earnings is therefore an increase of £523,000, which is not
distributable.
Closing balance sheet impact
The freehold property has been depreciated throughout the year. At the end of
the year the balance sheet reflects the closing net book value of the asset of
£986,000 (12 June 2004: £1,009,000). This has resulted in an increase in
non-current assets and to retained earnings of £722,000 (12 June 2004: £736
000). The property was sold in the first half of 2005. There is no movement in
the deferred tax liability during the year in respect of this asset.
(c) Employee benefits
Principal difference
Under UK GAAP, any (liability)/asset on the balance sheet represented the timing
difference between the SAAP 24 charge and the payments made to the pension
scheme. Under IFRS, the (liability)/asset on the balance sheet represents the
(deficit)/surplus on the defined benefit pension scheme.
Transition impact
A pension scheme liability of £11,347,000 has been recognised at the transition
date. There is a corresponding positive deferred tax adjustment of £3,404,000
resulting from this recognition. The net effect is a reduction of shareholders'
funds of £7,943,000 on transition.
Closing balance sheet impact
Throughout the year all movements in the deficit on the pension scheme are
recognised against the liability. At the end of the period, the liability on
the balance sheet reflects the closing deficit of the pension scheme.
Appendix 3
This has been adjusted to reflect the actuarial loss for the year of £903,000
(24 weeks ended 12 June 2004: £409,000) that has been recognised directly in
reserves. The movement in the deferred tax asset arising from this liability
was £88,000 decrease (12 June 2004: increase of £108,000).
(d) Share-based payments
Principal difference
Under UK GAAP no liability was recognised in respect of share awards as for the
executive share options the intrinsic value was nil and the SAYE scheme was
exempt under UITF 17. Under IFRS 2, as all of the share awards are equity
settled, the balance sheet entry, based on the fair value of the awards is a
credit direct to equity reserves.
Transition impact
A deferred tax asset of £25,000 has been recognised on transition at 28 December
2003.
Closing balance sheet impact
The deferred tax asset has been increased by £145,000 as at 1 January 2005 (12
June 2004: £65,000) with the deferred tax credit being recognised directly in
equity.
(e) Dividends
Principal difference
Under UK GAAP, the practice is to recognise dividends in the period to which
they relate, whereas under IFRS the dividend is recognised in the period in
which it is declared. As a result, the dividend creditor is not recognised
until the dividend is declared and therefore at each year end needs to be
adjusted accordingly.
Transition impact
As the 2003 interim dividend had been paid and the 2003 final dividend had not
been declared at the 28 December 2003, there is no dividend creditor in the
transition balance sheet. The opening creditor of £6,457,000 has been reversed.
Closing balance sheet impact
At the year end the 2004 interim dividend had been paid and the final dividend
had not been declared. The closing dividend creditor of £7,922,000 (12 June
2004: £3,640,000) under UK GAAP has been reversed.
Group cashflow statement
For the 53 weeks ended 1 January 2005
The move from UK GAAP to IFRS does not change the cashflow statement of the
Group. The IFRS cashflow statement is similar to UK GAAP but presents various
cashflows in different categories and in a different order from the UK GAAP
cashflow statement.
Appendix 4
Reconciliation of income statement
For the 24 weeks ended 12 June 2004
UK GAAP IFRS adjustments IFRS
Revaluation Employee Share-based Dividends
benefits payments
(a) (b) (c) (d)
£'000 £'000 £'000 £'000 £'000 £'000
Revenue 216,202 216,202
Cost of sales (83,471) 4 (83,467)
Gross profit 132,731 4 132,735
Distribution and (101,341) (11) 18 (101,334)
selling costs
Administrative costs (18,300) 27 (57) (18,330)
Operating profit before 13,090 (11) 49 (57) 13,071
financing
Finance income 667 667
Finance expenses (173) (173)
Profit before tax 13,584 (11) 49 (57) 13,565
Income tax (4,442) (15) (4,457)
Profit for the period 9,142 (11) 34 (57) 9,108
attributable to equity
shareholders
Net expense recognised - (286) (286)
directly in equity
Total recognised income 9,142 (11) (252) (57) 8,822
and expense
attributable to equity
shareholders
Dividends (3,640) 3,640 -
(a), (b), (c), (d) - see Appendix 3
Appendix 4
Reconciliation of balance sheet
As at 12 June 2004
UK GAAP IFRS adjustments IFRS
Rolled Revaluation Employee Share-based Dividends Reclassification
over gains benefits payments
(a) (b) (c) (d) (e)
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
ASSETS
Non-current assets
Property, plant and 161,980 736 162,716
equipment
Deferred tax assets 3,512 65 3,577
161,980 736 3,512 65 166,293
Current assets
Inventory 6,641 6,641
Trade and other 14,166 14,166
receivables
Cash and cash 46,666 46,666
equivalents
67,473 67,473
Total assets 229,453 736 3,512 65 233,766
LIABILITIES
Current liabilities
Trade and other (72,694) 3,640 4,343 (64,711)
payables
Current tax liability (4,343) (4,343)
(72,694) 3,640 - (69,054)
Non-current
liabilities
Defined benefit (11,707) (11,707)
pension liability
Other payables (110) (110)
Deferred tax liability (14,737) (856) (224) (15,817)
(14,847) (856) (224) (11,707) (27,634)
Total liabilities (87,541) (856) (224) (11,707) 3,640 - (96,688)
Net assets 141,912 (856) 512 (8,195) 65 3,640 - 137,078
EQUITY
Capital and reserves
attributable to equity
holders
Issued capital 2,426 2,426
Share premium account 11,981 11,981
Retained earnings 127,505 (856) 512 (8,195) 65 3,640 122,671
Total equity 141,912 (856) 512 (8,195) 65 3,640 - 137,078
attributable to
shareholders
(a), (b), (c), (d), (e) - see Appendix 3
Appendix 5
Reconciliation of balance sheet
As at 28 December 2003
UK GAAP IFRS adjustments IFRS
Rolled Revaluation Employee Share-based Dividends Reclassification
over benefits payments
gains
(a) (b) (c) (d) (e)
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
ASSETS
Non-current assets
Property, plant and 160,704 747 161,451
equipment
Deferred tax assets 3,404 25 3,429
160,704 747 3,404 25 164,880
Current assets
Inventory 7,126 7,126
Trade and other 13,037 13,037
receivables
Cash and cash 36,358 36,358
equivalents
56,521 56,521
Total assets 217,225 747 3,404 25 221,401
LIABILITIES
Current liabilities
Trade and other (68,558) 6,457 7,183 (54,918)
payables
Current tax liability (7,183) (7,183)
(68,558) 6,457 - (62,101)
Non-current liabilities
Defined benefit pension (11,347) (11,347)
liability
Other payables (112) (112)
Deferred tax liability (14,405) (856) (224) (15,485)
(14,517) (856) (224) (11,347) (26,944)
Total liabilities (83,075) (856) (224) (11,347) 6,457 - (89,045)
Net assets 134,150 (856) 523 (7,943) 25 6,457 - 132,356
EQUITY
Capital and reserves
attributable to equity
holders
Issued capital 2,422 2,422
Share premium account 11,537 11,537
Retained earnings 120,191 (856) 523 (7,943) 25 6,457 118,397
Total equity 134,150 (856) 523 (7,943) 25 6,457 - 132,356
attributable to
shareholders
(a), (b), (c), (d), (e) - see Appendix 3
Appendix 6
Special Purpose Audit Report of KPMG Audit Plc to Greggs plc ('the Company') on
its preliminary International Financial Reporting Standards ("IFRS") Financial
Information for the 53 weeks ending 1 January 2005 and on its preliminary
opening International Financial Reporting Standards ("IFRS") balance sheet as at
28 December 2003
In accordance with the terms of our engagement letter dated 20 June 2005 we have
audited the accompanying consolidated preliminary IFRS balance sheet of Greggs
plc as at 1 January 2005, and the related consolidated statements of income,
recognised income and expense, changes in equity and cash flows for the 53 weeks
then ended and the related accounting policy notes ("the preliminary IFRS
financial information") set out on pages 4 to 12.
Also in accordance with the terms of our engagement letter dated 20 June 2005 we
have audited the accompanying preliminary opening consolidated IFRS balance
sheet and related notes of Greggs plc as at 28 December 2003 ('the opening IFRS
balance sheet') as set out on pages 4 to 12
Respective responsibilities of directors and KPMG Audit Plc
The directors of the Company have accepted responsibility for the preparation of
the preliminary IFRS financial information and the opening IFRS balance sheet,
both of which have been prepared as part of the Company's conversion to IFRS.
Our responsibilities, as independent auditors, are established in the United
Kingdom by the Auditing Practices Board, our profession's ethical guidance and
the terms of our engagement.
Under the terms of engagement we are required to report to you our opinion as to
whether the preliminary IFRS financial information and the opening IFRS balance
sheet have been properly prepared, in all material respects, in accordance with
the basis of preparation to the preliminary IFRS financial information and the
opening IFRS balance sheet. We also report to you if, in our opinion, we have
not received all the information and explanations we require for our audit.
We read the other information accompanying both the preliminary IFRS financial
information and the opening IFRS balance sheet and consider whether it is
consistent with the preliminary IFRS financial information and opening IFRS
balance sheet. We consider the implications for our report if we become aware of
any apparent misstatements or material inconsistencies with the preliminary IFRS
financial information and with the opening IFRS balance sheet.
Our report has been prepared for the Company solely in connection with the
Company's conversion to IFRS.
Our report was designed to meet the agreed requirements of the Company
determined by the Company's needs at the time. Our report should not therefore
be regarded as suitable to be used or relied on by any party wishing to acquire
rights against us other than the Company for any purpose or in any context. Any
party other than the Company who chooses to rely on our report (or any part of
it) will do so at its own risk. To the fullest extent permitted by law, KPMG
Audit Plc will accept no responsibility or liability in respect of our report to
any other party.
Basis of audit opinion
We conducted our audit having regard to Auditing Standards issued by the UK
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the preliminary IFRS
financial information and in the opening IFRS balance sheet. It also includes
an assessment of the significant estimates and judgements made by the directors
in the preparation of the preliminary IFRS financial information and opening
IFRS balance sheet, and of whether the accounting policies are appropriate to
the Group's circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the preliminary IFRS
financial information and opening IFRS balance sheet are free from material
misstatement, whether caused by fraud or other irregularity or error. In
forming our opinion we also evaluated the overall adequacy of the presentation
of information in the preliminary IFRS financial information and opening IFRS
balance sheet.
Emphasis of matters
Without qualifying our opinion, we draw your attention to the following matters:
• The basis of preparation to the preliminary IFRS financial information and
opening IFRS balance sheet explains why the accompanying preliminary IFRS
financial information may require adjustment before their inclusion and
before its use as comparative information in the IFRS financial statements
for the 52 weeks ending 31 December 2005 when the Company prepares its first
IFRS financial statements.
• As described in the basis of preparation to the preliminary IFRS financial
information, as part of its conversion to IFRSs, the Company has prepared
the preliminary IFRS financial information for the 53 weeks ended 1 January
2005 to establish the financial position, results of operations and cash
flows of the Company necessary to provide the comparative financial
information expected to be included in the Company's first complete set of
IFRS financial statements for the 52 weeks ending 31 December 2005. The
preliminary IFRS financial information and the opening IFRS balance sheet do
not themselves include comparative financial information for the prior
period.
• In respect of the opening IFRS balance sheet, under IFRS only a complete
set of consolidated financial statements comprising a balance sheet, income
statement, statement of changes in equity and cash flow statement, together
with comparative financial information and explanatory notes, can achieve a
fair presentation of the Company's financial position, results of operations
and cash flows in accordance with IFRS.
• As explained in the basis of preparation, in accordance with IFRS 1
First-time Adoption of International Financial Reporting Standards, no
adjustments have been made for any changes in estimates made at the time of
approval of the UK Generally Accepted Accounting Practices financial
statements on which the preliminary IFRS financial information and the
opening IFRS balance sheet are based.
• As permitted by IFRS 1, IAS 32 Financial Instruments: Disclosure and
Presentation and IAS 39 Financial Instruments: Recognition and Measurement
have not yet been applied and there has been no related restatement of the
opening IFRS balance sheet or the 1 January 2005 balance sheet. Any
adjustments that arise from the application of those standards will be shown
as an equity movement on 2 January 2005.
Opinion
In our opinion, the accompanying preliminary IFRS financial information for the
53 weeks ended 1 January 2005 and the opening IFRS balance sheet as at 28
December 2003 have been prepared, in all material respects, in accordance with
the basis set out in the basis of preparation, which describes how IFRS have
been applied under IFRS 1, including the assumptions made by the directors of
the Company about the standards and interpretations expected to be effective,
and the policies expected to be adopted, when they prepare the first complete
set of consolidated IFRS financial statements of the Company for the 52 weeks
ending 31 December 2005.
KPMG Audit Plc
Chartered accountants
Quayside House
110 Quayside
Quayside
Newcastle-upon-Tyne
5 August 2005
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