Implementation of IFRS - P2

Paragon Group Of Companies PLC 21 February 2006 Page 55 ILLUSTRATIVE RESTATEMENT OF 1 OCTOBER 2005 BALANCE SHEET UNDER IFRS Introduction This section presents the balance sheet of the Group as at 1 October 2005, restated on the basis which the Group expects to use in compiling its financial statements for the year ending 30 September 2006. Basis of preparation The Group is required to prepare its consolidated financial statements for the year ending 30 September 2006 in accordance with the International Financial Reporting Standards which are expected to be effective and endorsed by the European Union at 30 September 2006. This section should be read in conjunction with the information presented in the earlier sections. The treatment shown represents the Group's present understanding of the effect which the full application of IFRS will have on the Group's accounting in the accounts for the year ending 30 September 2006. It is therefore possible that these treatments may change, in the light of any changes to IFRS or its interpretation or in emerging market practice before those accounts are produced. IFRS 1 Exemptions IFRS 1 sets out procedures which the Group must follow when it adopts IFRS for the first time as the basis of preparation of its consolidated financial statements. The Group is required to determine appropriate accounting policies in compliance with IFRS and, in general, to apply them retrospectively in determining the opening IFRS balance sheet at its date of transition, 1 October 2004. The particular exemptions being applied by the Group are discussed in the earlier sections of this document. IFRS 1 allows that IAS 32 - 'Financial Instruments: Disclosure and Presentation' and IAS 39 - 'Financial Instruments: Recognition and Measurement' be applied with effect from 1 October 2005, without retrospective restatement of figures reported for earlier periods. The Group has taken advantage of this exemption and this section shows how the adoption of these standards affects the consolidated balance sheet at that date. Under IAS 39 hedge accounting is permitted, but the standard requires that hedges are designated and fully documented at their inception. IFRS 1 extends this to allow hedge accounting for any existing hedges at 1 October 2005, so long as the appropriate documentation is in place at that date, and the Group has taken advantage of this exemption. IFRS 1 restricts the hedge accounting adjustments at 1 October 2005 to the lower of the hedge adjustment arising on the hedged item and that arising on the hedging instrument. Accounting policies The Group's accounting policies have been revised to comply with IFRS. Those changes required to adopt the Proforma basis are described in the previous section on pages 38 to 46. The additional changes to policies to adopt IFRS in full (the 'On-going basis'), and their impact on the Group's balance sheet at 1 October 2005, are described below and shown in the table on page 57. Fair Values and hedging Under IAS 39 certain financial instruments are carried at fair value, including all derivatives. Movement in these fair values is shown in the income statement for the period, but this effect is mitigated where the derivative is used for hedging purposes and can be shown to be 'highly effective', subject to the hedge accounting criteria of IAS 39 being met. ________________________________________________________________________________ Page 56 ILLUSTRATIVE RESTATEMENT OF 1 OCTOBER 2005 BALANCE SHEET UNDER IFRS Where a derivative is designated as a fair value hedge, the carrying value of hedged items is adjusted for those changes in fair value relating to the hedged risk and this adjustment is offset against the movement in the fair value of the derivative in the income statement. Where a derivative is designated as a cash flow hedge, only that part of the movement in fair value relating to inefficiency in the hedging arrangement affects profit, the remainder being taken to equity. Any gains or losses taken to equity will be recognised in the income statement at the same time as the effect of the hedged item. Compared to the Group's balance sheet at 30 September 2005 prepared under the Proforma basis (which excludes fair value and hedging impacts), application of the full requirements of IAS 32 and IAS 39 reduces the Group's net assets and total equity by £4.1m. ________________________________________________________________________________ Page 57 ILLUSTRATIVE RESTATEMENT OF 1 OCTOBER 2005 BALANCE SHEET UNDER IFRS ------------------------------------------------------------------------------------------------------------------------ Analysis of adjustments to the Balance Sheet 1 October 2005 ======================================================================================================================== UK GAAP Statutory Statutory Proforma Proforma Fair value On-going basis basis basis basis adjustments IFRS adjustments adjustments basis £m £m £m £m £m £m £m Non-current assets Intangible assets (9.9) 10.2 0.3 - 0.3 - 0.3 Property, plant and equipment 8.7 11.0 19.7 - 19.7 - 19.7 Financial assets 5,538.7 990.0 6,528.7 (97.6) 6,431.1 23.9 6,455.0 Deferred tax asset - 5.7 5.7 29.2 34.9 1.7 36.6 --------------------------------------------------------------------------------- 5,537.5 1,016.9 6,554.4 (68.4) 6,486.0 25.6 6,511.6 --------------------------------------------------------------------------------- Current assets Other receivables 7.8 (1.2) 6.6 - 6.6 (2.3) 4.3 Cash and cash equivalents 445.2 85.2 530.4 - 530.4 - 530.4 --------------------------------------------------------------------------------- 453.0 84.0 537.0 - 537.0 (2.3) 534.7 --------------------------------------------------------------------------------- Total assets 5,990.5 1,100.9 7,091.4 (68.4) 7,023.0 23.3 7,046.3 ================================================================================= Equity shareholders' funds Share 12.1 - 12.1 - 12.1 - 12.1 capital Share 70.2 - 70.2 - 70.2 - 70.2 premium Merger (70.2) - (70.2) - (70.2) - (70.2) reserve Cash flow hedge reserve - - - - - (2.6) (2.6) Profit and loss account 318.7 4.8 323.5 (68.4) 255.1 (1.5) 253.6 --------------------------------------------------------------------------------- Share capital and reserves 330.8 4.8 335.6 (68.4) 267.2 (4.1) 263.1 Own shares (22.8) - (22.8) - (22.8) - (22.8) --------------------------------------------------------------------------------- 308.0 4.8 312.8 (68.4) 244.4 (4.1) 240.3 --------------------------------------------------------------------------------- Current liabilities Financial liabilities - 0.9 0.9 - 0.9 - 0.9 Current tax liabilities - 12.9 12.9 - 12.9 - 12.9 Other liabilities 81.7 (21.8) 59.9 - 59.9 (1.6) 58.3 --------------------------------------------------------------------------------- 81.7 (8.0) 73.7 - 73.7 (1.6) 72.1 --------------------------------------------------------------------------------- Non-current liabilities Financial liabilities - 6,684.8 6,684.8 - 6,684.8 29.0 6,713.8 Deferred tax liability - 0.7 0.7 - 0.7 - 0.7 Retirement benefit obligations - 14.6 14.6 - 14.6 - 14.6 Provisions 2.8 (0.7) 2.1 - 2.1 - 2.1 Other liabilities 5,598.0 (5,595.3) 2.7 - 2.7 - 2.7 --------------------------------------------------------------------------------- 5,600.8 1,104.1 6,704.9 - 6,704.9 29.0 6,733.9 --------------------------------------------------------------------------------- 5,990.5 1,100.9 7,091.4 (68.4) 7,023.0 23.3 7,046.3 ================================================================================= ---------------------------------------------------------------------------------------------- ______________________________________________________________________________________________ Page 58 PRESENTATIONAL CHANGES TO 2005 UK GAAP RESULTS The presentation of financial information under IFRS is governed by IAS 1. In some cases this will require the presentation of an item in a different position, or the use of a different description in the IFRS income statement or balance sheet to that adopted in the UK GAAP profit and loss account or balance sheet. To aid understanding, in the preceding sections UK GAAP financial information is presented in accordance with IFRS formats. This section demonstrates how that information is derived from that published in the Annual Report and Accounts for the year ended 30 September 2005 and the Interim Report for the six months ended 31 March 2005. This section includes adjustments to reclassify balances held within the Group's contract hire business, because this better reflects the nature of the assets and liabilities. There is no impact on the profit and loss account from this change. All other changes arise from relocation of items. Any changes which relate to the adoption of a different accounting policy, or the inclusion on the face of the primary financial statements of items previously shown in notes to the accounts are dealt with in the preceding sections. -------------------------------------------------------------------------------- Conversion of UK GAAP Profit and Loss Account to IFRS format Year to 30 September 2005 ================================================================================ Profit and Loss £m £m £m £m UK GAAP information in Account presented IFRS Income Statement under UK GAAP format Interest receivable 484.4 - 484.4 Interest receivable Interest payable and similar charges (387.5) - (387.5) Interest payable ------------------------- Net interest income 96.9 - 96.9 Net interest income Other operating income 35.9 - 35.9 Other operating income ------------------------- Total operating income 132.8 - 132.8 Total operating income Operating expense Other operating expenses (44.2) Amortisation of negative goodwill 4.1 --------- Total operating expenses (40.1) (4.1) (44.2) Operating expenses Provisions for losses (15.9) - (15.9) Impairment losses ---------------- (4.1) 72.7 4.1 4.1 Amortisation of negative ------------------------- goodwill Operating profit being profit on ordinary activities before taxation 76.8 - 76.8 Operating profit before taxation Tax charge on profit on ordinary activities (16.1) - (16.1) Taxation ------------------------- Profit on ordinary activities after taxation for the financial year 60.7 - 60.7 Operating profit after =============== taxation Equity dividend (14.4) ---------- Retained profit 46.3 ========== -------------------------------------------------------------------------------- Under IFRS dividends are shown as a deduction from reserves rather than on the face of the income statement. ________________________________________________________________________________ Page 59 PRESENTATIONAL CHANGES TO 2005 UK GAAP RESULTS -------------------------------------------------------------------------------- Conversion of UK GAAP balance sheet to IFRS format 30 September 2005 ================================================================================ Balance Sheet £m £m £m £m UK GAAP information in presented under IFRS Balance Sheet UK GAAP format Assets Employed Fixed assets Non-current assets Intangible assets Negative goodwill (9.9) - (9.9) Intangible assets Tangible assets 3.6 5.1 8.7 Property, plant and equipment Investments Assets subject to non-recourse finance 1,116.0 Non-recourse finance (1,075.2) ---------- 40.8 Loans to customers 5,497.9 5,538.7 - 5,538.7 Financial assets - Deferred tax asset ---------------------------- 5,532.4 5.1 5,537.5 ------------------ Current assets Current assets Stocks 3.0 (3.0) Debtors falling due within one year 7.7 0.1 7.8 Other receivables Investments 285.7 (285.7) Cash at bank Cash and cash and in hand 159.5 285.7 445.2 equivalents ---------- ------------------ 455.9 (2.9) 453.0 ---------------------------- 5,988.3 2.2 5,990.5 ============================ Financed by Equity Equity shareholders' shareholders' funds funds Called-up share capital 12.1 - 12.1 Share capital Share premium account 70.2 - 70.2 Share premium Merger reserve (70.2) - (70.2) Merger reserve Profit and Profit and loss loss account 318.7 - 318.7 account ---------- 318.7 ---------------------------- Share capital Share capital and and reserves 330.8 - 330.8 reserves Own shares (22.8) - (22.8) Own shares ---------------------------- 308.0 - 308.0 ----------------- Provisions for liabilities and charges 2.8 (2.8) Current liabilities - Financial liabilities Creditors - Current tax liabilities Amounts falling due within one year 80.6 1.1 81.7 Other liabilities ------------------ 1.1 81.7 ------------------ Non-current liabilities - Financial liabilities - Deferred tax liabilities - Retirement benefit obligations 2.8 2.8 Provisions Amounts falling due after more than one year 5,596.9 1.1 5,598.0 Other liabilities ---------- ------------------ 5,677.5 3.9 5,600.8 ---------------------------- 5,988.3 2.2 5,990.5 ============================ -------------------------------------------------------------------------------- ________________________________________________________________________________ Page 60 PRESENTATIONAL CHANGES TO 2005 UK GAAP RESULTS -------------------------------------------------------------------------------- Conversion of UK GAAP Profit and Loss Account to IFRS format Six months to 31 March 2005 ================================================================================ Profit and Loss £m £m £m £m UK GAAP information in Account presented IFRS Income Statement under UK GAAP format Interest receivable 240.9 - 240.9 Interest receivable Interest payable and similar charges (194.9) - (194.9) Interest payable ------------------------ Net interest income 46.0 - 46.0 Net interest income Other operating income 17.0 - 17.0 Other operating income ------------------------ Total operating income 63.0 - 63.0 Total operating income Operating expense Other operating expenses (20.6) Amortisation of negative goodwill 2.2 --------- Total operating expenses (18.4) (2.2) (20.6) Operating expenses Provisions for losses (8.5) - (8.5) Impairment losses ---------------- (2.2) 33.9 2.2 2.2 Amortisation of negative ------------------------ goodwill Operating profit being profit on ordinary activities before taxation 36.1 - 36.1 Operating profit before taxation Tax charge on profit on ordinary activities (7.6) - (7.6) Taxation ------------------------ Profit on ordinary activities after taxation for the financial year 28.5 - 28.5 Operating profit after ============== taxation Equity dividend (6.0) --------- Retained profit 22.5 ========= -------------------------------------------------------------------------------- Under IFRS dividends are shown as a deduction from reserves rather than on the face of the income statement. ________________________________________________________________________________ Page 61 PRESENTATIONAL CHANGES TO 2005 UK GAAP RESULTS -------------------------------------------------------------------------------- Conversion of UK GAAP Balance Sheet to IFRS format 31 March 2005 ================================================================================ Balance Sheet £m £m £m £m UK GAAP information in presented under UK IFRS Balance Sheet GAAP format Assets Employed Fixed assets Non-current assets Intangible assets Negative goodwill (11.8) - (11.8) Intangible assets Tangible assets 3.7 5.4 9.1 Property, plant and equipment Investments Assets subject to non-recourse finance 1,341.2 Non-recourse finance (1,297.8) ---------- 43.4 Loans to customers 4,842.5 ---------- 4,885.9 - 4,885.9 Financial assets - Deferred tax asset -------------------------- 4,877.8 5.4 4,883.2 --------------- Current assets Current assets Stocks 3.2 (3.2) Debtors falling due within one year 7.5 0.1 7.6 Other receivables Cash at bank and Cash and cash investments 452.5 - 452.5 equivalents ---------- --------------- 463.2 (3.1) 460.1 -------------------------- 5,341.0 2.3 5,343.3 ========================== Financed by Equity Equity shareholders' shareholders' funds funds Called-up share capital 12.0 - 12.0 Share capital Share premium account 69.5 - 69.5 Share premium Merger reserve (70.2) - (70.2) Merger reserve Profit and Profit and loss loss account 293.8 - 293.8 account -------------------------- Share capital Share capital and and reserves 305.1 - 305.1 reserves Own shares (13.8) - (13.8) Own shares -------------------------- 291.3 - 291.3 --------------- Provisions for liabilities and charges 4.5 (4.5) Current liabilities - Financial liabilities Creditors - Current tax liabilities Amounts falling due within one year 77.8 1.1 78.9 Other liabilities --------------- 1.1 78.9 --------------- Non-current liabilities - Financial liabilities - Deferred tax liabilities - Retirement benefit obligations 4.5 4.5 Provisions Amounts falling due after more than one year 4,967.4 1.2 4,968.6 Other liabilities --------------- 5.7 4,973.1 -------------------------- 5,341.0 2.3 5,343.3 ========================== -------------------------------------------------------------------------------- ________________________________________________________________________________ Page 62 PRESENTATIONAL CHANGES TO 2005 UK GAAP RESULTS -------------------------------------------------------------------------------- Conversion of UK GAAP Balance Sheet to IFRS format 30 September 2004 ================================================================================ Balance Sheet £m £m £m £m UK GAAP information in presented under IFRS Balance Sheet UK GAAP format Assets Employed Fixed assets Non-current assets Intangible assets Negative goodwill (14.0) - (14.0) Intangible assets Tangible assets 3.4 6.1 9.5 Property, plant and equipment Investments Assets subject to non-recourse finance 1,557.7 Non-recourse finance (1,520.3) ---------- 37.4 Loans to customers 4,492.5 ---------- 4,529.9 - 4,529.9 Financial assets - Deferred tax asset ----------------------------- 4,519.3 6.1 4,525.4 ------------------- Current assets Current assets Stocks 3.4 (3.4) Debtors falling due within one year 8.8 0.1 8.9 Other receivables Investments 230.5 (230.5) Cash at bank Cash and cash and in hand 172.0 230.5 402.5 equivalents ---------- ------------------- 414.7 (3.3) 411.4 ----------------------------- 4,934.0 2.8 4,936.8 ============================= Financed by Equity Equity shareholders' shareholders' funds funds Called-up share capital 12.0 - 12.0 Share capital Share premium account 68.8 - 68.8 Share premium Merger reserve (70.2) - (70.2) Merger reserve Profit and Profit and loss loss account 270.1 - 270.1 account ---------- 268.7 ----------------------------- Share capital Share capital and and reserves 280.7 - 280.7 reserves Own shares (12.3) - (12.3) Own shares ----------------------------- 268.4 - 268.4 ------------------- Provisions for liabilities and charges 5.6 (5.6) Current liabilities - Financial liabilities Creditors - Current tax liabilities Amounts falling due within one year 66.4 1.6 68.0 Other liabilities ------------------- 1.6 68.0 ------------------- Non-current liabilities - Financial liabilities - Deferred tax liabilities - Retirement benefit obligations 5.6 5.6 Provisions Amounts falling due after more than one year 4,593.6 1.2 4,594.8 Other liabilities ---------- ------------------- 4,660.0 6.8 4,600.4 ----------------------------- 4,934.0 2.8 4,936.8 ============================= -------------------------------------------------------------------------------- ________________________________________________________________________________ This information is provided by RNS The company news service from the London Stock Exchange

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