Adoption of IFRS
ITE Group PLC
21 March 2006
21 March 2006
ITE GROUP PLC
UPDATE ON ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS
ITE Group plc is preparing its financial statements in accordance with
International Financial Reporting Standards ('IFRS') with effect from the year
ended 30 September 2006.
The following analysis has been prepared substantially on the basis of all
International Accounting Standards ('IAS') and IFRS, and related interpretations
published by the International Accounting Standards Board ('IASB'), and
subsequently approved by the European Commission, and are therefore subject to
possible change. As a result, information contained within these statements may
require updating for any subsequent amendments to IFRS.
This analysis explains how the Group's previously reported UK GAAP financial
performance and position are reported under IFRS. It provides, on an IFRS
basis, reconciliations from UK GAAP to IFRS for the following:
• the Group's unaudited consolidated income statement for the year ended
30 September 2005;
• the Group's unaudited consolidated balance sheet as at 30
September 2005;
• the Group's unaudited consolidated cash flow statement for the
year ended 30 September 2005; and
• the Group's unaudited consolidated balance sheet as at 1 October 2004.
Attention is drawn to the fact that under IFRSs, only a complete set of
financial statements comprising a balance sheet, income statement, statement of
changes in equity, cash flow statement, together with comparative information
and explanatory notes, can provide a fair presentation of the company's
financial position, results of operations and cash flows.
The financial information contained on pages 8 to 11 has been prepared by
management using their best knowledge and judgement of the expected standards
and interpretations of the IASB, facts and circumstances, and accounting
policies that will be applied when the company prepares its first complete set
of IFRS financial statements as at 30 September 2006. The Group's financial
results for the six month period ending 31 March 2006 will be prepared under
IFRS.
Therefore, until such time the possibility cannot be excluded that the
comparative information included in that first complete set of IFRS financial
statements may not be consistent with disclosure below.
The financial information presented is unaudited.
Enquiries:
Russell Taylor, Finance Director Tim Spratt/Charlie Palmer
ITE Group plc Tel: 0207 596 5000 Financial Dynamics Tel: 020 7831 3113
BASIS OF PREPARATION
The financial information presented in this document has been prepared on the
basis of all International Financial Reporting Standards ('IFRS'), including
International Accounting Standards ('IAS') and interpretations published by the
International Accounting Standards Board ('IASB') and it committees, and as
interpreted by any regulatory bodies applicable to the Group. These are subject
to ongoing amendment by the IASB and subsequent endorsement by the European
Commission, and are therefore subject to possible change. As a result,
information contained within these statements may require updating for any
subsequent amendments to IFRS required for first time adoption or those new
standards that the Group may elect to adopt early.
1. IFRS 1 exemptions
IFRS1, '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 as the basis for preparing its consolidated financial statements. The
Group is required to establish its IFRS accounting policies as at 30 September
2005 and, in general, apply these retrospectively to determine the IFRS opening
balance sheet at its date of transition, 1 October 2004.
The standard provides a number of optional exceptions to this general principle.
The most significant of these are set out below, together with a description
in each case of the exception adopted by the Group.
a) Business combinations that occurred before the opening IFRS balance sheet
date (IFRS 3, 'Business combinations').
The Group has elected not to apply IFRS 3 retrospectively to business
combinations that took place before the date of transition, 1 October 2004.
All other business combinations since 1 October 2004 have been accounted for
under IFRS 3.
b) Share-based payments (IFRS 2, 'Share-based payment').
The Group has elected to apply IFRS 2 to all relevant share based payment
transactions granted after 7 November 2002 but not fully vested at 1 January
2005.
c) Financial Instruments (IAS 32, 'Financial Instruments: Disclosure and
Presentation' and IAS 39, 'Financial Instruments: Recognition and Measurement').
The Group has not applied IAS 32 and IAS 39 for the period presented and has
therefore taken advantage of the exemption in IFRS 1 that enables the Group to
apply these standards from 1 October 2005.
d) Foreign currency translation differences (IAS 21, 'The effects of changes
in foreign exchange rates').
The Group has taken advantage of the IFRS 1 exemption allowing the cumulative
translation differences on retranslation of subsidiaries' net assets to be
deemed to be zero (for all subsidiaries) at the date of transition to IFRS. Any
gains and losses subsequent to disposals of foreign operations will exclude
translation differences arising prior to the transition date.
2. Presentation of financial information
The primary statements within the financial information combined in this
document have been presented in accordance with IAS 1, 'Presentation of
Financial Statements'. However, this format and presentation may require
modification in the event that further guidance is issued and as practice
develops.
KEY IMPACT ANALYSIS
The analysis below sets out the most significant adjustments arising from the
transition to IFRS.
1. Presentation of Financial Statements
The format of the Group's primary financial statements has been presented in
accordance with IAS 1, 'Presentation of Financial Statements'.
The IFRS cash flow statement explains the change in cash and cash equivalents
rather than just cash as under UK GAAP. Cash and cash equivalents under IFRS
comprise cash and certain short-term liquid investments. The format of the cash
flow statement changes with cash flows being categorised under the headings of '
operating', 'investing' and 'financing'.
2. Intangible assets
a) Goodwill and acquired intangible assets amortisation
IAS 38, 'Intangible assets' states that goodwill is not amortised. Instead
goodwill is subject to an annual impairment review. As the Group has elected
not to apply IFRS 3 retrospectively to business combinations prior to 1 October
2004, the original UK GAAP goodwill balance at 1 October 2004 (£29.3m) has been
included in the opening IFRS consolidated balance sheet and is no longer
amortised, but continues to be subject to impairment reviews.
b) Intangible assets acquired
Business combinations since 1 October 2004 have been accounted for in accordance
with IFRS 3, 'Business combinations', with intangible assets recognised and
amortised over their useful economic lives where they are separable or arise
from a contractual or legal right. Intangible assets relating to customer lists
and databases and brand trademarks, are being amortised over periods of up to 7
years.
c) Computer software
Under UK GAAP, capitalised computer software is included within tangible fixed
assets on the balance sheet as property, plant and equipment. Under IAS 38 only
computer software that is integral to a related item of hardware can be included
as property, plant and equipment. All other computer software is recorded as an
intangible asset. Accordingly a reclassification has been made in the opening
balance sheet of £650,000 from property, plant and equipment to intangible
assets.
3. Deferred and Current taxes
IAS 12, 'Income taxes' requires deferred tax to be provided on all
temporary differences rather than just timing differences under UK GAAP. IAS 12
also requires deferred tax to be provided in respect of the Group's employee
benefits such as share option schemes. The overall tax impact of these and
other IFRS adjustments is quantified in the relevant section of this statement.
4. Share-based payments
IFRS 2, 'Share-based payment' states that an expense for equity
instruments granted should be recognised in the financial statements based on
their 'fair value' at the date of grant. This expense, which is in relation to
employee option and performance share plans, is then recognised over the vesting
period of the relevant scheme.
IFRS 2 has been applied to all options granted after 7 November 2002 and not
fully vested by 1 January 2005. The Group has adopted the Black Scholes model
for the purpose of computing fair value under IFRS.
5. Post Balance Sheet Events & Dividends
IAS 10, 'Events after the Balance Sheet date' requires that dividends declared
after the balance sheet date should not be recognised as a liability at that
balance sheet date as the liability does not represent a present obligation as
defined by IAS 37, 'Provisions, Contingent liabilities and Contingent assets'.
The final dividend declared in February 2005 in relation to the year ended 30
September 2004 has been reversed in the opening balance sheet and charged to
equity in the balance sheet as at 30 September 2005. An adjustment to reverse
the dividend declared in February 2006 has also been made to the balance sheet
as at 30 September 2005.
6. Income from associates
IAS 1, 'Presentation of Financial Statements' requires the aggregated profit or
loss of an associate to be disclosed as a single line item within the income
statement. Under UK GAAP, the Group separately presented its share of operating
profit, interest, tax and minority interest from associate undertakings.
7. Venue loans and prepayments
IAS 32, 'Financial Instruments: Disclosure and Presentation' and IAS 39, '
Financial Instruments: Recognition and Measurement' require financial assets to
be initially recognised at fair value. Where the Group has advanced funds to
venue owners that can be repaid by either off-setting against future venue hire
or by cash payment, the fair value is recognised based on the discounted value
of future cash receipts. The loan balance is subsequently measured at amortised
cost using the 'effective interest rate method'. As the Group has taken
advantage of the of the exemption in IFRS 1 that enables the Group to apply
these standards from 1 October 2005, an adjustment in the income statement will
be first recognised in the year ended 30 September 2006.
Advances that are prepayments of future venue hire and do not permit the
repayment of the principal in cash are recognised at cost as prepayments within
debtors due within one year.
8. Leases
IAS 17, 'Leases' requires that the expense is recognised on a straight line
basis over the lease term, including any rent-free or reduced rent periods given
at the inception of a lease. The income statement has been adjusted to take
into account the amortisation of lease incentives over a longer period than the
UK GAAP, which recognises incentives over the period to the first rent review
date.
9. Holiday pay accrual
IAS 19, 'Employee benefits' requires a liability to be recognised for the amount
of accrued holiday pay of employees at the balance sheet date in respect of any
holiday amounts which they are still entitled to at that time.
PERFORMANCE MEASUREMENT
Income statement
Headline profit before tax
The Group has for many years presented headline profit before tax as an
additional performance measure. This is defined as profit before taxation,
amortisation and impairment of goodwill and acquired intangible assets and
profits and losses arising on disposal of group undertakings. This measure will
be stated after the charge for share based payments under IFRS 2.
Headline diluted earnings per share
Future references to headline diluted earnings per share, within the notes to
the financial statements, will use profit before amortisation and impairment of
goodwill (including associates) and acquired intangible assets and profits or
losses arising on disposal of group undertakings.
Notes to the Consolidated IFRS statement
Earnings per share
Basic and diluted
UK GAAP IFRS IFRS
Format
(unaudited) (unaudited)
2005 2005
£000 £000
Profit for the financial year attributable 15,563 18,423
to equity holders of the parent
_________ ________
2005
Number of shares ('000)
UK GAAP and IFRS (unaudited)
Weighted average number of shares:
For basic earnings per share 273,134
Exercise of share options 9,197
___________
For diluted earnings per share 282,331
___________
Income statement
Year ended 30
September 2005
IFRS adjustments
UK GAAP IFRS 2 IAS 10 IAS 17 IAS 38 IAS 38 IFRS 3 IAS 12 IAS 28 IAS 19 IFRS
in IFRS Share Dividends Leases Intangible Computer Amortisation Deferred Associates Holiday adjusted
format based assets software tax pay results
payments
Revenue 78,547 78,547
Cost of sales (42,552) (42,552)
Gross profit 35,995 0 0 0 0 0 0 0 0 0 35,995
Net (12,232) (531) 53 10 (12,701)
administrative
expenses
before
amortisation
Other 0
operating
income
Amortisation (3,142) 2,764 (378)
Total (15,374) (531) 0 53 0 0 2,764 0 0 10 (13,079)
administrative
expenses
Operating 20,621 (531) 0 53 0 0 2,764 0 0 10 22,916
profit
Share of 612 (236) 376
associates'
profit before
goodwill
amortisation
Amortisation (153) 153 0
Share of 459 0 0 0 0 0 153 0 (236) 0 376
associates'
profit
Profit/ 221 221
(provision or
loss) on
disposal of
group
undertakings
Income from 2,085 2,085
investments
Finance costs (427) (427)
Profit on 22,959 (531) 0 53 0 0 2,917 0 (236) 10 25,171
ordinary
activities
before
taxation
Tax on profit (7,429) 412 236 (6,781)
on ordinary
activities
Profit for the 15,530 (531) 0 53 0 0 2,917 412 0 10 18,390
period from
continuing
operations
Attributable
to:
Equity holders 15,563 (531) 0 53 0 0 2,917 412 0 10 18,423
of the parent
Minority (33) (33)
interests
15,530 (531) 0 53 0 0 2,917 412 0 10 18,390
Earnings per
share (pence)
Basic 5.7 (0.2) 0.0 0.0 0.0 0.0 1.1 0.2 0.0 0.0 6.7
Diluted 5.5 (0.2) 0.0 0.0 0.0 0.0 1.0 0.1 0.0 0.0 6.5
Balance Sheet
Balance sheet position - as at 30
September 2005
IFRS adjustments
UK GAAP IFRS 2 IAS 10 IAS 17 IAS 38 IAS 38 IFRS 3 IAS 12 IAS 28 IAS 19 IFRS
in IFRS Share Dividends Leases Intangible Computer Amortisation Deferred Associates Holiday adjusted
format based assets software tax pay results
payments
Non-current
assets
Goodwill 33,698 (5,641) 3,139 1,575 32,771
Other 109 5,641 615 (375) 5,989
intangible
assets
Property, 1,741 (615) 1,126
plant and
equipment
Investments 1,257 153 1,410
in
associates
Venue loans 2,216 2,216
and other
loans
Deferred tax 88 1,307 1,395
assets
39,109 0 0 0 0 0 2,917 2,882 0 0 44,907
Current
assets
Debtors due 22,722 22,722
within one
year
Cash and 13,019 13,019
cash
equivalents
35,741 0 0 0 0 0 0 0 0 0 35,741
Total assets 74,850 0 0 0 0 0 2,917 2,882 0 0 80,649
Current
liabilities
Trade and (48,335) 4,603 (112) (43,844)
other
payables
Bank loans (0) (0)
and
overdrafts
Provisions 0
(48,335) 0 4,603 0 0 0 0 0 0 (112) (43,845)
Non-current
liabilities
Other (722) (722)
creditors
Provisions (2,316) (2,316)
for
liabilities
and charges
Deferred tax (0) (1,671) (1,671)
liabilities
Bank loans - 0
due after
one year
(2,316) 0 0 (722) 0 0 0 (1,671) 0 0 (4,709)
Total (50,651) 0 4,603 (722) 0 0 0 (1,671) 0 (112) (48,554)
liabilities
Net assets 24,199 0 4,603 (722) 0 0 2,917 1,211 0 (112) 32,095
Capital and
reserves
Called up 2,599 2,599
share
capital
Share 38 38
premium
account
Merger 2,746 2,746
reserve
ESOT reserve (3,562) (3,562)
Deferred tax 449 449
reserve
Profit and 21,432 0 4,603 (722) 0 0 2,917 762 0 (112) 28,879
loss account
Hedge and 751 751
translation
reserve
Equity 24,005 0 4,603 (722) 0 0 2,917 1,211 0 (112) 31,900
attributable
to equity
holders of
the parent
Minority 194 194
interests
Total equity 24,199 0 4,603 (722) 0 0 2,917 1,211 0 (112) 32,095
Cash flow
statement
Year ended 30
September 2005
IFRS adjustments
UK GAAP IFRS 2 IAS 10 IAS 17 IAS 38 IAS 38 IFRS 3 IAS 12 IAS 28 IAS 19 IFRS
in IFRS Share Dividends Leases Intangible Computer Amortisation Deferred Associates Holiday adjusted
format based assets software tax pay results
payments
Cash flow
from
operating
activities
Profit from 20,621 (531) 0 53 0 0 2,764 0 10 22,916
operations
Adjustments
for:
Depreciation 448 448
Foreign 0
exchange
loss
Loss on sale 79 79
or write
down of
assets
Amortisation 3,142 (2,764) 378
Increase/ 974 (53) 922
(decrease)
in
provisions
Share based 531 531
payments
Operating 25,264 0 0 0 0 0 0 0 0 10 25,274
cash flows
before
movements in
working
capital
Decrease in 1,969 1,969
trade
receivables
Increase in 1,365 (10) 1,355
trade
payables
Cash 28,598 0 0 0 0 0 0 0 0 0 28,598
generated
from
operations
Tax paid (8,378) (8,378)
Interest (427) (427)
paid
Net cash 19,793 0 0 0 0 0 0 0 0 0 19,793
from
operating
activities
Cash flow
from
investing
activities
Interest 2,085 2,085
received
Dividends 437 437
received
from
associates
Disposal of 0
subsidiary
Acquisition (5,785) (5,785)
of
subsidiary
Venue (828) (828)
advances
Loan and 1,271 1,271
venue
repayments
Purchase of (430) (430)
property,
plant &
equipment
Purchase of 0
intangibles
Net cash (3,250) 0 0 0 0 0 0 0 0 0 (3,250)
used in
investing
activities
Cash flows
from
financing
activities
Dividends (7,088) (7,088)
paid
Repayment of 0
borrowings
Acquisition (30,185) (30,185)
and
cancellation
of shares
Acquisition (869) (869)
of shares by
ESOT
Proceeds 145 145
from
exercise of
options on
shares held
by ESOT
Proceeds 927 927
from issue
of share
capital
Cash flows (37,070) 0 0 0 0 0 0 0 0 0 (37,070)
from
financing
activities
Net increase (20,527) 0 0 0 0 0 0 0 0 0 (20,527)
/(decrease)
in cash and
cash
equivalents
Cash and 33,546 33,546
cash
equivalents
at beginning
of period
Cash and 13,019 0 0 0 0 0 0 0 0 0 13,019
cash
equivalents
at end of
period
Balance Sheet
Opening balance sheet position - as at 1 October 2004
IFRS adjustments
UK GAAP IFRS 2 IAS 10 IAS 17 IAS 38 IAS 12 IAS 19 IFRS
in IFRS Share Dividends Leases Computer Deferred Holiday adjusted
format based software tax pay results
payments
Non-current
assets
Goodwill 29,348 29,348
Other intangible 75 651 726
assets
Property, plant 1,862 (651) 1,211
and equipment
Investments in 1,377 1,377
associates
Venue loans and 4,060 4,060
other loans
Deferred tax 137 807 944
assets
36,858 0 0 0 0 807 0 37,665
Current assets
Debtors due 23,289 23,289
within one year
Cash and cash 33,546 33,546
equivalents
56,835 0 0 0 0 0 0 56,835
Total assets 93,693 0 0 0 0 807 0 94,500
Current
liabilities
Trade and other (47,774) 4,533 (122) (43,362)
payables
Bank loans and 0 0
overdrafts
Provisions 0
(47,773) 0 4,533 0 0 0 (122) (43,362)
Non-current
liabilities
Other creditors (774) (774)
Provisions for (1,498) (1,498)
liabilities and
charges
Deferred tax (159) (159)
liabilities
Bank loans - due 0
after one year
(1,498) 0 0 (774) 0 (159) 0 (2,431)
Total liabilities (49,271) 0 4,533 (774) 0 (159) (122) (45,793)
Net assets 44,422 0 4,533 (774) 0 648 (122) 48,707
Capital and
reserves
Called up share 2,852 2,852
capital
Share premium 29,036 29,036
account
Merger reserve 2,746 2,746
ESOT reserve (2,792) (2,792)
Deferred tax 298 298
reserve
Profit and loss 12,352 0 4,533 (774) 0 350 (122) 16,339
account
Hedge and 0
translation
reserve
Equity 44,194 0 4,533 (774) 0 648 (122) 48,479
attributable to
equity holders of
the parent
Minority 228 228
interests
Total equity 44,422 0 4,533 (774) 0 648 (122) 48,707
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