IFRS Announcement

Schroders PLC 15 June 2005 Schroders plc 15 June 2005 Transition to International Financial Reporting Standards Schroders plc has been preparing for the adoption of International Financial Reporting Standards (IFRS) as the basis for the preparation of its consolidated financial statements for the year ended 31 December 2005. This announcement explains how the changes in accounting treatment under IFRS impact on the Group's previously reported UK Generally Accepted Accounting Principles (UK GAAP) financial performance in relation to: â€¢ The Group's consolidated income statement for the year ended 31 December 2004 â€¢ The Group's consolidated balance sheet at 1 January 2004, being the Group's date of transition to IFRS â€¢ The Group's consolidated balance sheet at 31 December 2004 â€¢ The Group's consolidated cash flow statement for the year ended 31 December 2004 â€¢ The Group's consolidated statement of recognised income and expense for the year ended 31 December 2004 Reconciliations to assist in the understanding of the nature and quantum of differences between UK GAAP and IFRS for the financial information above are contained in Appendix 1 to this announcement. All references to specific financial statements in the remainder of this announcement refer to the Group's consolidated results and balances. A copy of the Group's accounting policies under IFRS is included for reference in Appendix 2. This announcement also includes an indication of the main adjustments required to the Group's balance sheet at 1 January 2005 to comply with International Accounting Standard 32 'Financial Instruments: Disclosure and Presentation' (IAS 32) and IAS 39 'Financial Instruments: Recognition and Measurement'. The information in this announcement has been prepared on the basis of the IFRS effective as at the date of this announcement and the Group's current understanding of how these standards should be applied. The standards in issue are subject to ongoing review and endorsement by the European Union (EU), whilst application of the standards continues to be subject to review by the International Financial Reporting Interpretations Committee (IFRIC). Basis of preparation Starting from the year ending 31 December 2005, the Group will be required to prepare its financial statements in accordance with IFRS as adopted by the EU. The Group's first IFRS results, the Q1 2005 trading update, were published on 17 May 2005. The Group's first Annual Financial Statements under IFRS will be for the year ending 31 December 2005. The date of transition to IFRS is 1 January 2004, being the start of the earliest period of comparative information. The financial information contained in Appendix 1 to this announcement has been presented in accordance with policies consistent with IFRS. This format and presentation may require modification in the event that further guidance is issued and as practice develops. These statements have been prepared in accordance with standards and interpretations approved by the International Accounting Standards Board and its predecessors, all of which have been approved by the European Commission, with the exception of the amendments to IAS 19 'Employee Benefits: Actuarial Gains and Losses, Group Plans and Disclosures', where it is assumed that the standard will be endorsed without amendment. The Group will adopt the requirements of IAS 32 and IAS 39 with effect from 1 January 2005. The Group's income statement for the year to 31 December 2004, balance sheet at 1 January 2004, balance sheet at 31 December 2004, statement of recognised income and expense for the year to 31 December 2004 and cash flow statement for the year to 31 December 2004, have been audited by PricewaterhouseCoopers LLP and their special purpose audit report is set out in Appendix 3 to this announcement. Summary of main changes affecting the Group A summary of the impact on the Group of the transition to IFRS is provided in the table below: IFRS UK GAAP Â£mn Â£mn -------------------------------------------------------------------------------- Profit before tax - 31 December 2004 211.6 191.0 -------------------------- Total equity - 1 January 2004 1,029.0 1,029.2 -------------------------- Total equity - 31 December 2004 1,147.4 1,114.1 -------------------------------------------------------------------------------- Basic earnings per share - 31 December 2004 53.5p 46.0p Estimated total equity - 1 January 2005 (unaudited) 1,193 As highlighted in our previous announcement of 14 December 2004 ('Preparation for IFRS'), the most significant changes are: â€¢ The inclusion of a fair value charge in respect of outstanding employee share options granted after 7 November 2002 (IFRS 2). â€¢ The replacement of existing charges for awards under the employee Equity Compensation Plan (the details of which are provided on page 13 of our Annual Report & Accounts for 2004), with fair value charges spread over revised time periods (IFRS 2). â€¢ The cessation of goodwill amortisation (IFRS 3). â€¢ The amortisation of leasehold incentives received by the Group over the full term of the leases rather than over shorter periods (IAS 17). â€¢ The inclusion in the balance sheet of all employee benefit liabilities (largely the net pensions deficit) (IAS 19). â€¢ The capitalisation of certain software expenditure as intangible assets where the expenditure meets the criteria for capitalisation (IAS 38). There are no material differences between the impact of the above changes on the Group's opening balance sheet equity as at 1 January 2004 and the figures disclosed in the announcement of 14 December 2004. Since 14 December 2004, the following additional changes have been identified as a result of further clarification of accounting treatments: â€¢ Seed capital investments in investment funds, where the fund is controlled by the Group, but is being actively marketed to allow seed capital redemption within one year, are treated as 'Held for Sale' (IFRS 5). â€¢ Some investment management fees, previously recognised on initiation of the contract, are now recognised over the life of the contract (IAS 18). The significant change to the cash flow statement at 31 December 2004 is: â€¢ Change in the definition of cash to comprise cash and cash equivalents (IAS 7). The significant change to the balance sheet at 1 January 2005 is: â€¢ The inclusion of Private Equity investments at fair value (IAS 39) and the classification of most investments as 'Available-for-Sale', with unrealised gains and losses taken to equity and only recognised through the income statement on sale or impairment of the relevant asset (IAS 39). Transitional arrangements IFRS 1 'First-time Adoption of International Financial Reporting Standards' sets out how a company should apply IFRS at transition. The standard requires a company to use accounting policies that comply with each IFRS effective at the reporting date for its first IFRS financial statements and apply those policies retrospectively to all periods presented in those statements. The standard does, however, allow a number of exemptions to this general principle to assist the transition and the Group has taken advantage of these exemptions where appropriate. Impact analysis The analysis below sets out the most significant adjustments arising from the transition to IFRS: IFRS 2 Share-based Payment The Group recognises a charge to the income statement for the fair value of outstanding share options granted to employees after 7 November 2002. The charge is calculated using a stochastic option valuation model and is charged over the relevant option vesting periods, adjusted to reflect actual and expected levels of vesting. The levels of vesting are dependent on forfeit rates and performance conditions. Under UK GAAP there was no charge to the income statement in relation to share options granted to employees. In addition, the Group adjusts the charge made in the income statement for awards made under the Equity Compensation Plan and its equivalents to recognise the fair value of the awards granted to employees. The fair value of an award is calculated as the value of the shares on the date of grant, including any applicable uplifts, discounted for the dividends forgone over the average holding period of the award. The fair value charges, adjusted to reflect actual and expected levels of vesting, are spread over the performance year and vesting period of the awards. Under UK GAAP the undiscounted value of an award at the date of grant was charged in the performance year to which it related, with the undiscounted value of any uplift in the award spread over the vesting period; awards that lapsed were credited to the income statement in the year in which they lapsed. The overall impact of these changes is to increase opening balance sheet equity as at 1 January 2004 by Â£14.8 million. The effect for the year ended 31 December 2004 is to reduce the post tax charge in the income statement by Â£7.5 million and to increase balance sheet equity by Â£23.9 million. Net income of Â£16.4 million has been recognised directly in equity. IFRS 3 Business Combinations In accordance with the transitional provisions of IFRS 1, the Group has chosen to apply IFRS 3 prospectively from the date of transition. This results in the value of goodwill arising from previous acquisitions being frozen at the value held on the Group balance sheet as at 1 January 2004 and the reversal of any amortisation charged in the year ended 31 December 2004. From 1 January 2004 goodwill is subject to an annual impairment review in accordance with the standard and will be impaired where there are indications that the carrying value may not be recoverable. The change results in the reversal of Â£9.9 million previously charged to the income statement under UK GAAP for the year ended 31 December 2004. Closing balance sheet equity as at 31 December 2004 is therefore also increased by Â£9.9 million. IAS 10 Events After the Balance Sheet Date The Group recognises dividends declared after the balance sheet date in the reporting period in which they are declared, as they represent non-adjusting events after the balance sheet date under IFRS. The change results in an increase in opening balance sheet equity as at 1 January 2004 of Â£37.6 million. The effect for the year ended 31 December 2004 is to decrease the dividend recorded in the year by Â£1.4 million and to increase closing balance sheet equity by Â£1.4 million as at 31 December 2004. IAS 17 Leases The Group amortises leasehold inducements received on entering into leases for office space over the term of the lease. Under UK GAAP the inducement was amortised over the period to the first rental review. The change reduces opening balance sheet equity as at 1 January 2004 by Â£13.2 million. The effect for the year ended 31 December 2004 is to reduce the post tax charge for operating leases in the income statement by Â£0.6 million and to increase balance sheet equity by Â£0.6 million. IAS 19 Employee Benefits The Group recognises the net liability on defined benefit schemes in the balance sheet and takes all actuarial gains and losses to the statement of recognised income and expense, in accordance with the permitted methods of recognition on early adoption of the amendment to IAS 19, issued in December 2004. Under UK GAAP the Group accounted for defined benefit schemes in accordance with SSAP 24 'Accounting for pension costs'. These changes reduce opening balance sheet equity as at 1 January 2004 by Â£38.3 million. The effect for the year ended 31 December 2004 is to reduce the post tax charge in the income statement by Â£7.5 million and to increase balance sheet equity by Â£1.5 million. A net charge of Â£6.0 million has been recognised directly in equity. IAS 38 Intangible Assets The Group capitalises certain software expenditure as intangible assets where the expenditure meet the criteria for capitalisation set out in the standard. Under UK GAAP the Group wrote off software expenditure as incurred. The change increases opening balance sheet equity as at 1 January 2004 by Â£10.5 million. The effect for the year ended 31 December 2004 is to increase the post tax charge to the income statement by Â£2.4 million and to decrease balance sheet equity by Â£2.4 million. IFRS 5 Non-current Assets Held for Sale and Discontinued Operations The Group classifies certain 'seed capital' in funds where the investment is controlled by the Group as non-current assets 'Held for Sale'. In accordance with IFRS 5, this classification is only made where each fund is actively marketed and the investment is expected to be redeemed within one year or, where the period is greater than one year, the investment meets the criteria in the standard to extend the period required to make a sale. Where such investments do not satisfy these criteria they are consolidated. The standard is applicable for annual periods beginning on or after 1 January 2005, and the Group has elected to adopt IFRS 5 from the date of transition. This results in investments being held at the lower of carrying value and fair value less costs to sell, where carrying value is either fair value on the date of transition or the cost of the investment, if the investment is made after the date of transition. Such investments were previously held at fair value under UK GAAP and classified as current asset investments. These changes have no impact on the opening balance sheet equity as at 1 January 2004. The effect for the year ended 31 December 2004 is to reduce the gain on investments in the income statement by Â£3.6 million and to reduce closing balance sheet equity as at 31 December 2004 by Â£3.6 million. IAS 18 Revenue Under IAS 18, when the outcome of a transaction involving the rendering of services can be estimated reliably, revenue associated with the transaction should be recognised by reference to the stage of completion of the transaction at the balance sheet date. The guidance issued in the appendix to IAS 18 on the application of this principle states that revenues earned on investment management contracts, and related incremental costs associated with securing such contracts, should be recognised over the life of the contract. In line with standard industry practice, the Group has previously recognised some revenue streams and associated costs on the initiation of the contract. This is no longer allowable under the guidance issued in the appendix to IAS 18. Such revenues and associated costs have therefore been spread over the fixed period of the contract where applicable, or in the case of open ended contracts over the estimated average life of the contract. These changes reduce opening balance sheet equity as at 1 January 2004 by Â£11.3 million. The effect on the year ended 31 December 2004 is to increase the post tax profit in the income statement by Â£2.2 million and to increase balance sheet equity by Â£2.2 million. IAS 39 Financial Instruments The Group has opted not to apply the requirements of IAS 39 in respect of comparative information. The Group will therefore follow the requirements of IFRS 1 and disclose the nature of the main adjustments required for the comparative information to comply with IAS 39 in the Group's first interim accounts under IFRS. The main impact of the adjustments required by the Group under IAS 39 relates to the Private Equity portfolio of investments where the portfolio will be included in the balance sheet at fair value. This will have the effect of increasing opening balance sheet equity as at 1 January 2005 by approximately Â£46 million, largely due to the fair value ascribed to carried interests held in the underlying funds, previously not recognised in the balance sheet under UK GAAP. The Group will adopt a policy of designating material Private Equity investments as 'Available-for-Sale' (AFS), where any profit or loss on such investments will be recognised on realisation, whilst any unrealised gain or loss will be taken to equity. The most significant impact of this approach is that gains and losses on investments previously classified as current assets under UK GAAP, but classified in 2005 as AFS under IFRS, will no longer be marked to market through the income statement. The impact if this approach had been applied to the year ended 31 December 2004 would have been to reduce the gain on investments by approximately Â£5 million. IAS 7 Cash Flow Statements The Group has prepared its cash flow statement in accordance with IAS 7. Under IAS 7, the cash flow statement shows the movement in cash and cash equivalents, being defined as cash on hand, demand deposits and short term highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Under UK GAAP, the Group's cash flow statement showed the movement in cash repayable on demand only and in particular excluded short term highly liquid investments. This change reduces the cash inflow by Â£101.3 million resulting in a net outflow of Â£3.0 million for the year ended 31 December 2004. All other adjustments made by the Group to the cash flow statement represent reclassifications between line items and have not impacted actual cash flows. Further Communication The Group's first quarter trading update was published on 17 May 2005. The changes in accounting policies applied to that update are consistent with those set out in this announcement. The Group will publish its interim results in August 2005. The Interim Report will include a description of the nature and effect of all accounting policy changes on transition, reconciliations of the Group's financial information included in this announcement from UK GAAP to IFRS for the 6 months ended 30 June 2004, together with notes sufficient to give an understanding of the 6 month period to 30 June 2005. Further copies of this announcement are available from the Company Secretary at 31 Gresham Street, London, EC2V 7QA (email: company.secretary@schroders.com telephone: 020 7658 3646) and will be available on the Group's website at www.schroders.com together with further information about the Group's transition to IFRS. Contacts: Schroders Jonathan Asquith Chief Financial Officer +44 (0) 20 7658 6565 Chris Coombe Group Financial Controller +44 (0) 20 7658 6600 Don Cathcart Head of Group Reporting +44 (0) 20 7658 2835 Richard King Corporate Communications +44 (0) 20 7658 6522 The Maitland Consultancy Fiona Piper +44 (0) 20 7379 5151 The information in this announcement does not comprise statutory accounts within the meaning of section 240 of the Companies Act 1985 (the 'Act'). Statutory accounts for the year ended 31 December 2004 have been delivered to the Registrar of Companies in accordance with Section 242 of the Act. Forward-looking statements This announcement contains certain forward-looking statements and forecasts with respect to the financial condition, results of operations and businesses of Schroders plc and its subsidiaries. These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that will occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts. Nothing in this announcement should be construed as a profit forecast. Appendix 1 1 IFRS Primary Statements 1a Income Statement for the year ended 31 December 2004 1b Balance Sheet as at 31 December 2004 and 1 January 2004 1c Cash Flow Statement for the year ended 31 December 2004 1d Statement of Recognised Income and Expense for the year ended 31 December 2004 2 Reconciliations to Primary Statements 2a Income Statement for the year ended 31 December 2004 - Effect of IAS 1 'Presentation of Financial Statements' on UK GAAP balances 2b Income Statement for the year ended 31 December 2004 - Effect of other standards 2c Balance Sheet as at 1 January 2004 (Opening Balance Sheet) - Effect of IAS 1 'Presentation of Financial Statements' on UK GAAP balances 2d Balance Sheet as at 1 January 2004 (Opening Balance Sheet) - Effect of other standards 2e Balance Sheet as at 31 December 2004 - Effect of IAS 1 'Presentation of Financial Statements' on UK GAAP balances 2f Balance Sheet as at 31 December 2004 - Effect of other standards 2g Cash Flow Statement for the year ended 31 December 2004 - Effect of IFRS on UK GAAP Cash Flow 2h Statement of Recognised Income and Expense for the year ended 31 December 2004 - Effect of IFRS on UK GAAP balances 1a INCOME STATEMENT for the year ended 31 December 2004 IFRS 2004 --------------------------------------------------- Â£mn Revenue 625.5 Profit on disposal of non-current 47.8 asset investments ------------ Total revenue 673.3 Cost of sales (86.7) ------------ Gross profit 586.6 Administrative expenses (396.2) Depreciation (12.4) ------------ Operating profit 178.0 Share of operating profit of 6.0 associates Interest receivable and similar 28.3 income Interest payable and similar charges (0.7) ------------ Profit before tax 211.6 Tax (40.3) ------------ Profit after tax 171.3 ------------ Profit attributable to minority 15.6 interests Profit attributable to equity 155.7 shareholders ------------ 171.3 ------------ Memo - dividends (56.4) 1b BALANCE SHEET as at 31 December 2004 IFRS IFRS 31 Dec 1 Jan 2004 2004 ----------------------------------------------------------------------- Â£mn Â£mn Non-current assets Intangible assets 35.8 39.2 Property, plant & equipment 7.5 10.7 Associates 54.9 49.9 Other investments 64.9 66.7 Deferred tax 54.1 60.0 Current tax 0.8 - Trade and other receivables 211.3 243.8 -------- -------- 429.3 470.3 Current assets Trade and other receivables 489.1 487.7 Current tax 2.0 3.0 Investments 1,346.6 1,263.7 Cash and cash equivalents 432.1 438.5 -------- -------- 2,269.8 2,192.9 Non-current assets held for sale 31.2 5.7 -------- -------- Total assets 2,730.3 2,668.9 -------- -------- Equity Called up share capital 297.0 296.3 Share premium account 26.7 22.0 Shares to be issued - 4.9 Capital reserves 160.5 130.8 Own shares held (30.1) (35.1) Retained profits 681.9 610.1 -------- -------- Equity attributable to equity holders of 1,136.0 1,029.0 the parent Minority interests 11.4 - -------- -------- Total equity 1,147.4 1,029.0 Non-current liabilities Debt securities in issue - 44.6 Trade and other payables 226.9 233.1 Current tax 5.2 5.5 Provisions 6.9 4.5 Deferred tax 4.2 3.4 -------- -------- 243.2 291.1 Current liabilities Debt securities in issue 34.3 4.3 Trade and other payables 1,263.0 1,303.3 Current tax 30.4 19.7 Provisions 12.0 21.5 -------- -------- 1,339.7 1,348.8 -------- -------- Total equity and liabilities 2,730.3 2,668.9 -------- -------- 1c CASH FLOW STATEMENT for the year ended 31 December 2004 IFRS 2004 ------------------------------------------------------ Â£mn Operating activities Operating profit 178.0 Depreciation of property, plant & equipment 12.4 (Increase)/decrease in debtors 35.0 (Decrease)/increase in creditors and (20.3) other provisions Net increase in debt securities in issue (6.4) Profit on disposal of business (2.6) Profit on disposal of non-current asset (47.8) investments Reversal of impairment of non-current asset (1.3) investments Provision for liabilities and charges 2.2 (Gains)/losses on current asset (16.0) investments Share based payments expensed (9.3) Other non-cash movements 14.8 United Kingdom corporation tax (paid)/ (1.5) received Overseas tax paid (17.0) Interest paid (0.7) Net decrease in current asset (113.2) investments ------------ Net cash from operating activities 6.3 Investing activities Proceeds from disposal of subsidiaries /business 2.8 Purchase of intangible assets (3.8) Purchase of property, plant & equipment (3.4) Purchase of non current asset investments (59.4) Proceeds from sale of property, plant & equipment 1.0 Proceeds from sale of non current 57.2 asset investments Net purchase of current asset investments (5.8) Interest received 29.4 Dividends/capital distributions received from 0.2 associates & joint ventures Exceptional items - disposal of 42.2 non-current asset investments ------------ Net cash from investing activities 60.4 Financing activities Proceeds from issue of share capital 0.6 Acquisition of own shares (8.9) Redemption of ordinary share capital (0.6) Distributions made to minority interests (4.4) Dividends paid (56.4) ------------ Net cash used in financing (69.7) ------------ Net decrease in cash and cash (3.0) equivalents ------------ Opening cash and cash equivalents 438.5 Net decrease in cash and cash equivalents (3.0) Effect of exchange rate changes (3.4) ------------ Closing cash and cash equivalents 432.1 ------------ 1d STATEMENT OF RECOGNISED INCOME AND EXPENSE for the year ended 31 December 2004 IFRS 2004 ---------------------------------------------------- Â£mn Exchange differences on translation of (8.0) foreign operations Actuarial losses on defined benefit (8.4) pension schemes Share based payments 14.5 Tax on items taken directly to equity 4.3 ---------- Net income recognised directly in equity 2.4 Profit for the year 171.3 ---------- Total recognised income and expense for 173.7 the year ---------- Attributable to: Minority interests 15.6 Equity shareholders 158.1 ---------- 173.7 ---------- 2a INCOME STATEMENT for the year ended 31 December 2004 (a) Effect of IAS 1 'Presentation of Financial Statements' on UK GAAP balances ------------------------------------------------------------------------------------------------------------------- UK GAAP balances in UK GAAP format IFRS adjustments UK GAAP balances in IFRS format Amortisation of Revenues goodwill -------------------------------------------------------------------------------------------------------------------- Â£mn Â£mn Â£mn Â£mn Net revenues 515.8 (515.8) - 624.0 - 624.0 Revenue 47.8 - 47.8 Profit on disposal of --------- non-current asset investments 671.8 Total revenue (84.7) - (84.7) Cost of sales --------- 587.1 Gross profit Gains on current asset 19.6 (19.6) - investments Administrative expenses (415.2) - (9.9) (425.1) Administrative expenses Depreciation (4.6) - - (4.6) Depreciation Amortisation of goodwill (9.9) - 9.9 ---------- ---------- ---------- --------- Group operating profit 105.7 51.7 - 157.4 Operating profit Share of operating profit 6.0 - - 6.0 Share of operating profit of of associates ---------- ---------- ---------- --------- associates Total operating profit 111.7 51.7 - 163.4 Profit on disposal of 2.6 (2.6) - business Profit on disposal of fixed 47.8 (47.8) - asset investments Interest receivable and 28.3 - - 28.3 Interest receivable and similar similar income income Amounts written back to 1.3 (1.3) - fixed asset investments Interest payable and (0.7) - - (0.7) Interest payable and similar similar charges ---------- ---------- ---------- --------- charges Profit on ordinary 191.0 - - 191.0 Profit before tax activities before tax Tax charge on profit on (41.4) - - (41.4) Tax ordinary activities ---------- ---------- ---------- --------- Profit on ordinary 149.6 - - 149.6 Profit after tax activities after tax ---------- ---------- ---------- --------- Minority interests 15.6 - - 15.6 Profit attributable to minority interests Profit attributable to 134.0 - - 134.0 Profit attributable to equity shareholders ---------- ---------- ---------- --------- shareholders 149.6 - - 149.6 ---------- ---------- ---------- --------- Dividends (57.8) - - (57.8) Memo - dividends 2b INCOME STATEMENT for the year ended 31 December 2004 (a) Effect of other standards ------------------------------------------------------------------------------------------------------------------ UK GAAP balances in IFRS format IFRS adjustments IFRS Intang- Share-based Good- Divid- Leases Employ- ible 'Held Total payment will ends ee assets for IFRS benefits Sale' Revenue adjust- IFRS 2 IFRS 3 IAS 10 IAS 17 IAS 19 IAS 38 IFRS 5 IAS 18 Other ments ------------------------------------------------------------------------------------------------------------------ Â£mn Â£mn Â£mn Â£mn Â£mn Â£mn Â£mn Â£mn Â£mn Â£mn Â£mn Â£mn Revenue 624.0 - - - - - - (3.6) 5.1 - 1.5 625.5 Profit on disposal of 47.8 - - - - - - - - - - 47.8 non-current asset investments ------ ------ ------ ------- ------ ------- ------ ------- ------ ------ ------ ------- Total revenue 671.8 - - - - - - (3.6) 5.1 - 1.5 673.3 Cost of sales (84.7) - - - - - - - (2.0) - (2.0) (86.7) ------ ------ ------ ------- ------ ------- ------ ------- ------ ------ ------ ------- Gross profit 587.1 - - - - - - (3.6) 3.1 - (0.5) 586.6 Administrative (425.1) 9.3 9.9 - 1.2 4.7 3.8 - 0.1 (0.1) 28.9 (396.2) expenses Depreciation (4.6) - - - (0.6) - (7.2) - - - (7.8) (12.4) ------ ------ ------ ------- ------ ------- ------ ------- ------ ------ ------ ------- Operating profit 157.4 9.3 9.9 - 0.6 4.7 (3.4) (3.6) 3.2 (0.1) 20.6 178.0 Share of operating 6.0 - - - - - - - - - - 6.0 profit of associates Interest receivable and 28.3 - - - - - - - - - - 28.3 similar income Interest payable and (0.7) - - - - - - - - - - (0.7) similar charges ------ ------ ------ ------- ------ ------- ------ ------- ------ ------ ------ ------- Profit before tax 191.0 9.3 9.9 - 0.6 4.7 (3.4) (3.6) 3.2 (0.1) 20.6 211.6 Tax (41.4) (1.8) - - - 2.8 1.0 - (1.0) 0.1 1.1 (40.3) ------ ------ ------ ------- ------ ------- ------ ------- ------ ------ ------ ------- Profit after tax 149.6 7.5 9.9 - 0.6 7.5 (2.4) (3.6) 2.2 - 21.7 171.3 ------ ------ ------ ------- ------ ------- ------ ------- ------ ------ ------ ------- Profit attributable to 15.6 - - - - - - - - - - 15.6 minority interests Profit attributable to 134.0 7.5 9.9 - 0.6 7.5 (2.4) (3.6) 2.2 - 21.7 155.7 equity shareholders ------ ------ ------ ------- ------ ------- ------ ------- ------ ------ ------ ------- 149.6 7.5 9.9 - 0.6 7.5 (2.4) (3.6) 2.2 - 21.7 171.3 ------ ------ ------ ------- ------ ------- ------ ------- ------ ------ ------ ------- Memo - dividends (57.8) - - 1.4 - - - - - - 1.4 (56.4) 2c BALANCE SHEET as at 1 January 2004 (Opening Balance Sheet) (a) Effect of IAS 1 'Presentation of Financial Statements' on UK GAAP balances ----------------------------------------------------------------------------------------------------------------------- UK GAAP balances in UK GAAP IFRS adjustments UK GAAP balances in IFRS format format Own Investments Debtors Creditors Provisions Shares ------------------------------------------------------------------------------------------------------------------------ Â£mn Â£mn Â£mn Â£mn Â£mn Â£mn Â£mn Fixed assets Non-current assets Intangible assets - 24.5 - - - - - 24.5 Intangible goodwill assets Tangible assets 10.1 - - - - - 10.1 Property, plant & equipment Associates 49.9 - - - - - 49.9 Associates Other investments 66.7 - - - - - 66.7 Other investments - 53.6 - - - 53.6 Deferred tax - 223.5 - - - 223.5 Trade and other receivables ---------- ------ ------ ------ ------ ------ ------ 151.2 - 277.1 - - - 428.3 ---------- ------ ------ ------ ------ ------ ------ Current assets Current assets Debtors due after 266.2 - (266.2) - - - more than one year Debtors due within 499.9 - (13.9) - - - 486.0 Trade and one year other receivables - 3.0 - - - 3.0 Current tax Investments 1,245.0 18.7 - - - - 1,263.7 Investments Cash and balances 462.9 (24.4) - - - - 438.5 Cash and with banks cash equivalents ---------- ------ ------ ------ ------ ------ ------ 2,474.0 (5.7) (277.1) - - - 2,191.2 ---------- ------ ------ ------ ------ ------ ------ 5.7 - - - - 5.7 Non-current assets held for sale ---------- ------ ------ ------ ------ ------ ------ Total assets 2,625.2 - - - - - 2,625.2 Total assets ---------- ------ ------ ------ ------ ------ ------ Capital and Equity reserves Called up share 296.3 - - - - - 296.3 Called up capital share capital Share premium 22.0 - - - - - 22.0 Share account premium account Shares to be issued 4.9 - - - - - 4.9 Shares to be issued Capital reserves 130.8 - - - - - 130.8 Capital reserves - - - - (35.1) (35.1) Own shares held Profit and loss 575.2 - - - - 35.1 610.3 Retained account profits ---------- ------ ------ ------ ------ ------ ------ Equity shareholders' 1,029.2 - - - - - 1,029.2 Equity funds attributable to equity holders of the parent Minority interests - - - - - - - Minority interests ---------- ------ ------ ------ ------ ------ ------ Total equity 1,029.2 - - - - - 1,029.2 Total shareholders' funds equity ---------- ------ ------ ------ ------ ------ ------ Creditors Non-current liabilities Amounts falling due 213.0 - - (213.0) - - after more than one year - - 44.6 - - 44.6 Debt securities in issue - - 162.9 - - 162.9 Trade and other payables - - 5.5 - - 5.5 Current tax - - - 4.4 - 4.4 Provisions - - - 6.2 - 6.2 Deferred tax ---------- ------ ------ ------ ------ ------ ------ 213.0 - - - 10.6 - 223.6 ---------- ------ ------ ------ ------ ------ ------ Creditors 1,350.6 - - (1,350.6) - - Current liabilities Amounts falling due within one year - - 4.3 - - 4.3 Debt securities in issue - - 1,326.6 - - 1,326.6 Trade and other payables - - 19.7 - - 19.7 Current tax - - - 21.8 - 21.8 Provisions Provisions for 32.4 - - - (32.4) - liabilities and charges ---------- ------ ------ ------ ------ ------ ------ 1,383.0 - - - (10.6) - 1,372.4 ---------- ------ ------ ------ ------ ------ ------ Total equity and 2,625.2 - - - - - 2,625.2 Total liabilities equity and liabilities ---------- ------ ------ ------ ------ ------ ------ 2d BALANCE SHEET as at 1 January 2004 (Opening Balance Sheet) (b) Effect of other standards ---------------------------------------------------------------------------------------------------------------------- UK GAAP balances in IFRS Adjustments IFRS IFRS format Share- based Employee Intangible payment Dividends Leases benefits assets Revenue Other Total IFRS IFRS 2 IAS 10 IAS 17 IAS 19 IAS 38 IAS 18 Adjustments ---------------------------------------------------------------------------------------------------------------------- Â£mn Â£mn Â£mn Â£mn Â£mn Â£mn Â£mn Â£mn Â£mn Â£mn Non-current assets Intangible 24.5 - - - - 14.7 - - 14.7 39.2 assets Property, 10.1 - - 0.6 - - - - 0.6 10.7 plant & equipment Associates 49.9 - - - - - - - - 49.9 Other 66.7 - - - - - - - - 66.7 investments Deferred tax 53.6 (1.4) - 0.1 5.6 (2.4) 4.7 (0.2) 6.4 60.0 Trade and 223.5 - - 0.3 - - 20.0 - 20.3 243.8 other receivables ------- ---------------------------------------------------------------------------------- ------- 428.3 (1.4) - 1.0 5.6 12.3 24.7 (0.2) 42.0 470.3 ------- ---------------------------------------------------------------------------------- ------- Current assets Trade and 486.0 - - 0.2 (15.6) - 17.1 - 1.7 487.7 other receivables Current tax 3.0 - - - - - - - - 3.0 Investments 1,263.7 - - - - - - - - 1,263.7 Cash and cash 438.5 - - - - - - - - 438.5 equivalents ------- ---------------------------------------------------------------------------------- ------- 2,191.2 - - 0.2 (15.6) - 17.1 - 1.7 2,192.9 ------- ---------------------------------------------------------------------------------- ------- Non-current 5.7 - - - - - - - - 5.7 assets held for sale ------- ---------------------------------------------------------------------------------- ------- Total assets 2,625.2 (1.4) - 1.2 (10.0) 12.3 41.8 (0.2) 43.7 2,668.9 ------- ---------------------------------------------------------------------------------- ------- Equity Called up 296.3 - - - - - - - - 296.3 share capital Share premium 22.0 - - - - - - - - 22.0 account Shares to be 4.9 - - - - - - - - 4.9 issued Capital 130.8 - - - - - - - - 130.8 reserves Own shares (35.1) - - - - - - - - (35.1) held Retained 610.3 14.8 37.6 (13.2) (38.3) 10.5 (11.3) (0.3) (0.2) 610.1 profits ------- ---------------------------------------------------------------------------------- ------- Equity 1,029.2 14.8 37.6 (13.2) (38.3) 10.5 (11.3) (0.3) (0.2) 1,029.0 attributable to equity holders of the parent ------- ---------------------------------------------------------------------------------- ------- Non-current liabilities Debt 44.6 - - - - - - - - 44.6 securities in issue Trade and 162.9 - - 12.9 32.2 - 25.1 - 70.2 233.1 other payables Current tax 5.5 - - - - - - - - 5.5 Provisions 4.4 - - 0.1 - - - - 0.1 4.5 Deferred tax 6.2 0.1 - (0.1) (4.7) 1.8 - 0.1 (2.8) 3.4 ------- ---------------------------------------------------------------------------------- ------- 223.6 0.1 - 12.9 27.5 1.8 25.1 0.1 67.5 291.1 ------- ---------------------------------------------------------------------------------- ------- Current liabilities Debt 4.3 - - - - - - - - 4.3 securities in issue Trade and 1,326.6 (16.3) (37.6) 1.8 0.8 - 28.0 - (23.3) 1,303.3 other payables Current tax 19.7 - - - - - - - - 19.7 Provisions 21.8 - - (0.3) - - - - (0.3) 21.5 ------- ---------------------------------------------------------------------------------- ------- 1,372.4 (16.3) (37.6) 1.5 0.8 - 28.0 - (23.6) 1,348.8 ------- ---------------------------------------------------------------------------------- ------- Total equity 2,625.2 (1.4) - 1.2 (10.0) 12.3 41.8 (0.2) 43.7 2,668.9 and liabilities --------------------- ---------------------------------------------------------------------------------- ------- 2e BALANCE SHEET as at 31 December 2004 (a) Effect of IAS 1 'Presentation of Financial Statements' on UK GAAP balances ---------------------------------------------------------------------------------------------------------------- UK GAAP balances in UK IFRS adjustments UK GAAP balances in GAAP format IFRS format Investments Debtors Creditors Provisions Own shares ----------------------------------------------------------------------------------------------------------------- Â£mn Â£mn Â£mn Â£mn Â£mn Â£mn Â£mn Fixed assets Non-current assets Intangible 14.6 - - - - - 14.6 Intangible assets assets-goodwill Tangible assets 7.5 - - - - - 7.5 Property, plant & equipment Associates 54.9 - - - - - 54.9 Associates Other 64.9 - - - - - 64.9 Other investments investments - 44.3 - - - 44.3 Deferred tax - 0.8 - - - 0.8 Current tax - 196.8 - - - 196.8 Trade and other receivables ------- ------------------------------------------------------- ------- 141.9 - 241.9 - - - 383.8 ------- ------------------------------------------------------- ------- Current assets Current assets Debtors due 226.9 - (226.9) - - - - after more than one year Debtors due 515.3 - (17.0) - - - 498.3 Trade and other receivables within one year - 2.0 - - - 2.0 Current tax Investments 1,369.3 (22.7) - - - - 1,346.6 Investments Cash and 444.2 (12.1) - - - - 432.1 Cash and cash equivalents balances with banks ------- ------------------------------------------------------- ------- 2,555.7 (34.8) (241.9) - - - 2,279.0 ------- ------------------------------------------------------- ------- 34.8 - - - - 34.8 Non-current assets held for sale ------- ------------------------------------------------------- ------- Total assets 2,697.6 - - - - - 2,697.6 Total assets ------- ------------------------------------------------------- ------- Capital and Equity reserves Called up 297.0 - - - - - 297.0 Called up share capital share capital Share premium 26.7 - - - - - 26.7 Share premium account account Capital 160.5 - - - - - 160.5 Capital reserves reserves - - - - (30.1) (30.1) Own shares held Profit and 618.5 - - - - 30.1 648.6 Retained profits loss account ------- ------------------------------------------------------- ------- Equity 1,102.7 - - - - - 1,102.7 Equity attributable shareholders' to equity holders of funds the parent Minority 11.4 - - - - - 11.4 Minority interests interests ------- ------------------------------------------------------- ------- Total equity 1,114.1 - - - - - 1,114.1 Total equity shareholders' funds ------- ------------------------------------------------------- ------- Creditors Non-current liabilities Amounts 170.0 - - (170.0) - - falling due after more than one year - - 164.8 - - 164.8 Trade and other payables - - 5.2 - - 5.2 Current tax - - - 6.0 - 6.0 Provisions - - - 8.9 - 8.9 Deferred tax ------- ------------------------------------------------------- ------- 170.0 - - - 14.9 - 184.9 ------- ------------------------------------------------------- ------- Creditors 1,386.3 - - (1,386.3) - - Current liabilities Amounts falling due within one year - - 34.3 - - 34.3 Debt securities in issue - - 1,321.6 - - 1,321.6 Trade and other payables - - 30.4 - - 30.4 Current tax - - - 12.3 - 12.3 Provisions Provisions 27.2 - - - (27.2) - for liabilities and charges ------- ------------------------------------------------------- ------- 1,413.5 - - - (14.9) - 1,398.6 ------- ------------------------------------------------------- ------- Total equity 2,697.6 - - - - - 2,697.6 Total equity and and liabilities liabilities --------------------- ------------------------------------------------------- ------------------------------ 2f BALANCE SHEET as at 31 December 2004 (b) Effect of other standards ----------------------------------------------------------------------------------------------------------------------- UK GAAP balances in IFRS Adjustments IFRS IFRS format Opening balance Share- Intan- 'Held Total sheet based Employee gible for IFRS adjust- payment Goodwill Dividends Leases benefits assets sale' Revenue Adjust- ments IFRS 2 IFRS 3 IAS 10 IAS 17 IAS 19 IAS 38 IFRS 5 IAS 18 ments ----------------------------------------------------------------------------------------------------------------------- Â£mn Â£mn Â£mn Â£mn Â£mn Â£mn Â£mn Â£mn Â£mn Â£mn Â£mn Â£mn Non-current assets Intangible 14.6 14.7 - 9.9 - - - (3.4) - - 21.2 35.8 assets Property, 7.5 0.6 - - - (0.6) - - - - - 7.5 plant & equipment Associates 54.9 - - - - - - - - - - 54.9 Other 64.9 - - - - - - - - - - 64.9 investments Deferred tax 44.3 6.4 0.2 - - 0.1 3.8 0.4 - (1.1) 9.8 54.1 Current tax 0.8 - - - - - - - - - - 0.8 Trade and 196.8 20.3 - - - - - - - (5.8) 14.5 211.3 other receivables ------- --------------------------------------------------------------------------------------- -------- 383.8 42.0 0.2 9.9 - (0.5) 3.8 (3.0) - (6.9) 45.5 429.3 ------- --------------------------------------------------------------------------------------- -------- Current assets Trade and 498.3 1.7 - - - 0.2 (5.1) - - (6.0) (9.2) 489.1 other receivables Current tax 2.0 - - - - - - - - - - 2.0 Investments 1,346.6 - - - - - - - - - - 1,346.6 Cash and cash 432.1 - - - - - - - - - - 432.1 equivalents ------- --------------------------------------------------------------------------------------- -------- 2,279.0 1.7 - - - 0.2 (5.1) - - (6.0) (9.2) 2,269.8 ------- --------------------------------------------------------------------------------------- -------- Non-current 34.8 - - - - - - - (3.6) - (3.6) 31.2 assets held for sale ------- --------------------------------------------------------------------------------------- -------- Total assets 2,697.6 43.7 0.2 9.9 - (0.3) (1.3) (3.0) (3.6) (12.9) 32.7 2,730.3 ------- --------------------------------------------------------------------------------------- -------- Equity Called up 297.0 - - - - - - - - - - 297.0 share capital Share premium 26.7 - - - - - - - - - - 26.7 account Capital 160.5 - - - - - - - - - - 160.5 reserves Own shares (30.1) - - - - - - - - - - (30.1) held Retained 648.6 (0.2) 23.9 9.9 1.4 0.6 1.5 (2.4) (3.6) 2.2 33.3 681.9 profits ------- --------------------------------------------------------------------------------------- -------- Equity 1,102.7 (0.2) 23.9 9.9 1.4 0.6 1.5 (2.4) (3.6) 2.2 33.3 1,136.0 attributable to equity holders of the parent Minority 11.4 - - - - - - - - - - 11.4 interests Total 1,114.1 (0.2) 23.9 9.9 1.4 0.6 1.5 (2.4) (3.6) 2.2 33.3 1,147.4 equity ------- --------------------------------------------------------------------------------------- -------- Non-current liabilities Trade and 164.8 70.2 - - - (1.7) (1.3) - - (5.1) 62.1 226.9 other payables Current tax 5.2 - - - - - - - - - - 5.2 Provisions 6.0 0.1 - - - 0.8 - - - - 0.9 6.9 Deferred tax 8.9 (2.8) 0.1 - - 0.1 (1.5) (0.6) - - (4.7) 4.2 ------- --------------------------------------------------------------------------------------- -------- 184.9 67.5 0.1 - - (0.8) (2.8) (0.6) - (5.1) 58.3 243.2 ------- --------------------------------------------------------------------------------------- -------- Current liabilities Debt 34.3 - - - - - - - - - - 34.3 securities in issue Trade and 1,321.6 (23.3) (23.8) - (1.4) (0.1) - - - (10.0) (58.6) 1,263.0 other payables Current tax 30.4 - - - - - - - - - - 30.4 Provisions 12.3 (0.3) - - - - - - - - (0.3) 12.0 ------- --------------------------------------------------------------------------------------- -------- 1,398.6 (23.6) (23.8) - (1.4) (0.1) - - - (10.0) (58.9) 1,339.7 ------- --------------------------------------------------------------------------------------- -------- Total equity 2,697.6 43.7 0.2 9.9 - (0.3) (1.3) (3.0) (3.6) (12.9) 32.7 2,730.3 and liabilities --------------------- --------------------------------------------------------------------------------------- -------- 2g CASH FLOW STATEMENT for the year ended 31 December 2004 (a) Effect of IFRS on UK GAAP cash flow statement ------------------------------------------------------------------------------------------------------------------- UK GAAP balances in IFRS format IFRS adjustments IFRS Intang- Share-based Good-Leases Employ- ible 'Held cash Total payment will ee assets for equival- IFRS benefits Sale' Revenue ents adjust- IFRS 2 IFRS 3 IAS17 IAS 19 IAS 38 IFRS 5 IAS 18 Other IAS 7 ments ------------------------------------------------------------------------------------------------------------------- Â£mn Â£mn Â£mn Â£mn Â£mn Â£mn Â£mn Â£mn Â£mn Â£mn Â£mn Â£mn Operating activities Operating profit 157.4 9.3 9.9 0.6 4.7 (3.4) (3.6) 3.2 (0.1) - 20.6 178.0 Depreciation of property, 4.6 - - 0.6 - 7.2 - - - - 7.8 12.4 plant and equipment Amortisation and impairment of 9.9 - (9.9) - - - - - - - (9.9) - goodwill (Increase)/decrease in 32.2 - - - - - - 2.8 - - 2.8 35.0 debtors (Decrease)/increase in (8.5) - - (1.2) (4.7) - - (6.0) 0.1 - (11.8) (20.3) creditors and other provisions Net increase in debt (6.4) - - - - - - - - - - (6.4) securities in issue Profit on disposal of (2.6) - - - - - - - - - - (2.6) business Profit on disposal of (47.8) - - - - - - - - - - (47.8) non-current asset investments Reversal of impairment of (1.3) - - - - - - - - - - (1.3) non-current asset investments Provision for liabilities and 2.2 - - - - - - - - - - 2.2 charges (Gains)/losses on current (19.6) - - - - - 3.6 - - - 3.6 (16.0) asset investments Share based payments - (9.3) - - - - - - - - (9.3) (9.3) expensed Other non-cash movements 14.8 - - - - - - - - - - 14.8 United Kingdom corporation tax (1.5) - - - - - - - - - - (1.5) (paid)/received Overseas tax paid (17.0) - - - - - - - - - - (17.0) Interest paid (0.7) - - - - - - - - - - (0.7) Net decrease in current asset - - - - - - - - - (113.2) (113.2) (113.2) investments ------- ----- ----- ----- ------ ------ ------- ------ ----- ------ ------ ------ Net cash from operating 115.7 - - - - 3.8 - - - (113.2) (109.4) 6.3 activities ------- ----- ----- ----- ------ ------ ------- ------ ----- ------ ------ ------ Investing activities Proceeds from disposal of 2.8 - - - - - - - - - - 2.8 business Purchase of intangible - - - - - (3.8) - - - - (3.8) (3.8) assets Purchase of property, plant & (3.4) - - - - - - - - - - (3.4) equipment Purchase of non-current asset (59.4) - - - - - - - - - - (59.4) investments Proceeds from sale of 1.0 - - - - - - - - - - 1.0 property, plant & equipment Proceeds from sale of 57.2 - - - - - - - - - - 57.2 non-current asset investments Net purchase of current asset (17.7) - - - - - - - - 11.9 11.9 (5.8) investments Interest received 29.4 - - - - - - - - - - 29.4 Dividends/capital 0.2 - - - - - - - - - - 0.2 distributions received from associates & joint ventures Exceptional items - disposal 42.2 - - - - - - - - - - 42.2 of non-current asset investments ------- ----- ----- ----- ------ ------ ------- ------ ----- ------ ------ ------ Net cash used in investing 52.3 - - - - (3.8) - - - 11.9 8.1 60.4 activities ------- ----- ----- ----- ------ ------ ------- ------ ----- ------ ------ ------ Financing activities Proceeds from issue of share 0.6 - - - - - - - - - - 0.6 capital Acquisition of own shares (8.9) - - - - - - - - - - (8.9) Redemption of ordinary share (0.6) - - - - - - - - - - (0.6) capital Distributions made to minority (4.4) - - - - - - - - - - (4.4) interests Dividends paid (56.4) - - - - - - - - - - (56.4) ------- ----- ----- ----- ------ ------ ------- ------ ----- ------ ------ ------ Net cash used in financing (69.7) - - - - - - - - - - (69.7) ------- ----- ----- ----- ------ ------ ------- ------ ----- ------ ------ ------ Net increase/(decrease) in 98.3 - - - - - - - - (101.3) (101.3) (3.0) cash and cash equivalents -------------------------------------------------------------------------------------------------------------------- 2h STATEMENT OF RECOGNISED INCOME AND EXPENSE for the year ended 31 December 2004 (a) Effect of IFRS on UK GAAP balances ------------------------------------------------------------------------------------------------------------------- UK GAAP IFRS Adjustments IFRS balances in IFRS format Share- Intan- 'Held Total based Employee gible for IFRS payment Goodwill Dividends Leases benefits assets Sale' Revenue Adjust- IFRS 2 IFRS 3 IAS 10 IAS 17 IAS 19 IAS 38 IFRS 5 IAS 18 Other ments ------------------------------------------------------------------------------------------------------------------- Â£mn Â£mn Â£mn Â£mn Â£mn Â£mn Â£mn Â£mn Â£mn Â£mn Â£mn Â£mn Exchange (8.0) - - - - - - - - - - (8.0) differences on translation of foreign operations Actuarial - - - - - (8.4) - - - - (8.4) (8.4) losses on defined benefit pension schemes Share based - 14.5 - - - - - - - - 14.5 14.5 payments Tax on items - 1.9 - - - 2.4 - - - - 4.3 4.3 taken directly to equity ------ ------------------------------------------------------------------------------------ ------ Net income (8.0) 16.4 - - - (6.0) - - - - 10.4 2.4 recognised directly in equity ------ ------------------------------------------------------------------------------------ ------ Profit for the 149.6 7.5 9.9 - 0.6 7.5 (2.4) (3.6) 2.2 - 21.7 171.3 year ------ ------------------------------------------------------------------------------------ ------ Total 141.6 23.9 9.9 - 0.6 1.5 (2.4) (3.6) 2.2 - 32.1 173.7 recognised income and expense for the year ------ ------------------------------------------------------------------------------------ ------ Attributable to: Minority 15.6 - - - - - - - - - - 15.6 interests Equity 126.0 23.9 9.9 - 0.6 1.5 (2.4) (3.6) 2.2 - 32.1 158.1 shareholders ------ ------------------------------------------------------------------------------------ ------ 141.6 23.9 9.9 - 0.6 1.5 (2.4) (3.6) 2.2 - 32.1 173.7 --------------------- ------------------------------------------------------------------------------------ ------ Appendix 2 Summary of accounting policies (a) Basis of preparation The consolidated financial information contained within this announcement has been prepared for the first time in accordance with policies consistent with International Financial Reporting Standards (IFRS), which comprise standards and interpretations approved by the International Accounting Standards Board and its predecessors, all of which have been approved by the European Commission, with the exception of the amendments to IAS 19 'Employee Benefits: Actuarial Gains and Losses, Group Plans and Disclosures'. The financial information in this announcement has been prepared on the basis of the Group's expectation of the standards that will be applicable as at 31 December 2005. Further standards and interpretations may be issued that could be applicable for financial years beginning on or after 1 January 2005 or that are applicable to later accounting periods but with the option for companies to adopt for earlier periods. The Group's first annual financial statements prepared under IFRS may, therefore, be prepared in accordance with different accounting policies to those used in the preparation of the financial information in this announcement. In addition, IFRS is currently being applied in the European Union and other countries for the first time and contains many new and revised standards. Therefore practice on which to draw in applying the standards may develop. At this preliminary stage, before the Group's first annual financial statements prepared under IFRS are completed, it should be noted that the financial information in this announcement could be subject to change. In accordance with the transitional provisions set out in IFRS 1 'First-time Adoption of International Financial Reporting Standards' and other relevant standards, the Group has applied IFRS expected to be in force as at 31 December 2005 in its financial reporting with effect from 1 January 2004, with the exception of the standards relating to financial instruments which were applied with effect from 1 January 2005, as described below. Therefore the impacts of adopting IAS 32 'Financial Instruments: Disclosure and Presentation' and IAS 39 'Financial Instruments: Recognition and Measurement' are not included in the 2004 comparatives in accordance with IFRS 1. Previously, the Group followed UK accounting standards issued by the UK Accounting Standards Board and the pronouncements of its Urgent Issues Task Force, relevant Statements of Recommended Practice and the Companies Act 1985 (collectively, UK GAAP). Within this announcement, the Group has elected to adopt two Standards before they become effective, being the amended version of IAS 19, and IFRS 5 'Non-current Assets Held for Sale and Discontinued Operations'. Comparative information has been adjusted accordingly. It is assumed that the amended version of IAS 19 will be endorsed without amendment. The consolidated financial information presented within this announcement has been prepared on the historical cost basis, except for the measurement at fair value of derivative financial instruments and financial assets and liabilities that are available-for-sale or held at fair value through profit and loss. The carrying value of recognised assets and liabilities that are hedged is adjusted to record changes in the fair values attributable to the risks that are being hedged. This valuation is in accordance with IAS 32 and 39, which the Group adopted for the year beginning 1 January 2005, and with the Group's treatment of such assets and liabilities under previous GAAP. Certain amounts recorded in the consolidated financial information include estimates and assumptions made by management about investment valuations, interest rates and other factors. Actual results may differ from the estimates made. Where estimates have previously been made under UK GAAP, consistent estimates have been made on transition to IFRS. (b) First time adoption of IFRS Under IFRS 1, an entity (or Group) may elect to use a number of exemptions from other IFRS. Within this announcement, the Group has used the provisions of IFRS 1 in arriving at appropriate opening balances as follows: Goodwill The Group has not applied IFRS 3 'Business Combinations' retrospectively to business combinations prior to the date of transition. The carrying amount of goodwill in the UK GAAP balance sheet as at 31 December 2003 has accordingly been brought forward without adjustment. Property, plant and equipment The Group has applied the UK GAAP carrying values of all items of property, plant and equipment on the date of transition. Cumulative translation difference Such differences that existed at the date of transition to IFRS are deemed to be zero. Gains or losses on a subsequent disposal of any foreign operation shall exclude translation differences that arose before the date of transition to IFRS. Employee benefits For defined benefit pension schemes and other post retirement benefits, the Group has recognised all cumulative actuarial gains and losses at the date of transition. Share-based payment transactions The Group has not applied IFRS 2 'Share-based Payment' to equity instruments that were granted on or before 7 November 2002, or to equity instruments that were granted after 7 November 2002 that vested before the date of transition to IFRS. First time application of IFRS relating to financial instruments In addition to the options described above, IFRS 1 also includes specific transitional provisions for IAS 32 and 39. The Group has decided to take advantage of these provisions and therefore has not applied these standards to the 2004 comparatives. The impact of these standards is reflected through adjustments to shareholders' equity as at 1 January 2005. In the 2004 comparatives, financial instruments are included using the measurement bases and the disclosure requirements of UK GAAP relating to financial instruments. (c) Basis of consolidation The consolidated financial information contained within this announcement incorporates financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 December each year. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. Where the Group controls an entity, but does not own all the share capital of that entity, the interest of minority shareholders is stated initially at the minority's proportion of the fair values of the assets and liabilities recognised. The accounts of subsidiary undertakings and associates are coterminous with those of the Company apart from those of certain undertakings which have accounting reference dates other than 31 December for commercial reasons. Management accounts made up to 31 December are used for such undertakings. The accounts of certain subsidiary undertakings incorporated outside the United Kingdom are drawn up initially to conform with local regulations and adjusted subsequently on consolidation to conform with United Kingdom company law and IFRS. The results of subsidiary undertakings and associates acquired or sold are included from or to the date control changes. Employee share ownership trusts have been established for the purposes of satisfying certain equity based awards. These trusts are fully consolidated within the accounts. The Group has 'seed capital' investments in a number of funds where it is in a position to be able to control those funds. These funds are consolidated unless they meet the criteria set out in policy (k) below to be designated as being 'held for sale', in which case they are classified and accounted for in accordance with that policy. All intra-group transactions, balances, income and expenses are eliminated on consolidation. (d) Intangible assets - goodwill Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group's interest in the fair value of the identifiable assets and liabilities of a subsidiary, associate or jointly controlled entity at the date of acquisition. Goodwill is recognised as an asset and reviewed for impairment at least annually. Any impairment is recognised immediately in the income statement and is not subsequently reversed. Goodwill on the acquisitions of associates or jointly controlled entities is included in the amount of the investments. Gains and losses on the disposal of an entity include the carrying amount of the goodwill relating to the entity sold. Goodwill arising on acquisitions before the date of transition to IFRS has been retained at the previous UK GAAP amounts subject to being tested for impairment at that date. Goodwill written off to equity prior to 1998 has not been reinstated and is not included in determining any subsequent profit or loss on disposal. (e) Intangible assets - software The costs of purchasing and implementing software, together with associated relevant expenditure, are capitalised where it is probable that future economic benefits that are attributable to the assets will flow to the Group and the cost of the assets can be measured reliably. Software is recorded initially at cost and then amortised over its useful life on a straight line basis. It is included in the balance sheet as an intangible asset. At each reporting date, an assessment is made as to whether there is any indication that an asset in use may be impaired. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets are written down to their recoverable amount. The recoverable amount is the greater of fair value less costs to sell and value in use. Where intangible software assets are not yet available for use, an assessment of whether the carrying values exceed the estimated recoverable amount is made irrespective of whether there is any indication of impairment. (f) Property, plant and equipment The Group's assets include leasehold improvements, office equipment, computers and cars. Depreciation is provided on the depreciable amount over their useful lives on a straight line basis at rates varying between 20 per cent. and 33 per cent. per annum. The depreciable amount is the gross carrying amount, less the estimated residual value at the end of its economic life. Depreciation rates, methods and the residual values underlying the calculation of depreciation of items of property, plant and equipment are kept under review to take account of any change in circumstances. The carrying values of these assets are reviewed for impairment at each reporting date. An assessment is made as to whether there is any indication that an asset may be impaired; if any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets are written down to their recoverable amount. The recoverable amount is the greater of fair value less costs to sell and value in use. Impairment losses are recognised in the income statement. Reversals of impairment losses are recognised immediately in the income statement. (g) Associates Associates comprise those undertakings, not being subsidiary undertakings, which carry on related activities, and where the Group is in a position to exercise significant influence, but not control or joint control, through participation in the financial and operating policy decisions of the investee. Investments in associates are accounted for using the equity method. The investments are carried in the balance sheet at cost as adjusted by post-acquisition changes in the Group's share of the net assets of the associate. The income statement includes the Group's post-tax share of associates' profits less losses for the year. Where a group company transacts with an associate of the Group, profits and losses are eliminated to the extent of the Group's interest in that associate. Where the Group has investments in funds over which it is able to exert significant influence, the Group has applied the scope exclusion within IAS 28 'Investments in Associates' for mutual funds, unit trusts and similar entities and has accounted for such holdings at fair value through the income statement. (h) Investments Accounting policies applicable up to 31 December 2004 Investments are accounted for according to the purpose for which they are held: Non-current asset investments: Investments held for continuing use in the business are classified as non-current asset investments and recorded in the balance sheet at cost less provision for impairment and, in the case of venture capital and buy-out funds, less capital distributions. Impairments in value are taken to the income statement and recorded within 'Revenue'. Current asset investments: Investments held other than for continuing use in the business are recorded in the balance sheet at fair value. Gains and losses on such investments are recorded in the income statement in the period in which they arise within 'Revenue'. The Directors believe that this accounting treatment, which is a departure from the requirements of the Companies Act 1985, more accurately reflects the purpose for which these assets are held. Seed capital investments: From time to time, Group companies inject capital into funds operated by the Group at their inception. Unless the Group is in a position where it is able to control these funds, such 'seed capital' investments are accounted for in accordance with the Group's policy on current asset investments (see above) and are included within the total of current asset investments shown in the balance sheet. Gains and losses arising on such investments are recorded in the income statement in the period in which they arise within 'Revenue'. If the Group is in a position where it is able to control these funds, such investments are either consolidated or accounted for in accordance with policy (k) below. Limited partnerships: The Group manages, as general partner, a number of limited partnership funds. In some cases, the Group also holds a limited partnership interest in these funds. Where the Group's investments, as the general or limited partner, in the limited partnership funds do not constitute control, the general partner's interests are accounted for in accordance with UK GAAP as non-current, current or seed capital investments, as applicable. Accounting policies applicable from 1 January 2005 From 1 January 2005, the Group's investments are accounted for in accordance with IAS 39: All investments are initially recognised at fair value, being the consideration given, including acquisition charges associated with the investment. After initial recognition, investments which are classified as held at fair value through profit and loss and available-for-sale are measured at fair value. Gains or losses, together with transaction costs, on investments held at fair value through profit and loss are recognised in the income statement. Such investments include the Group's liquid funds, private banking investments and seed capital investments which are not classified as being 'held for sale'. Gains or losses, together with transaction costs, on available-for-sale investments are recognised as a separate component of equity until the investment is sold, collected or otherwise disposed of, or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in the income statement. Such investments principally comprise investments in limited partnership funds. For investments that are actively traded in organised financial markets, fair value is determined by reference to Stock Exchange quoted market bid prices at the close of business on the balance sheet date. For investments where there is no quoted market price, fair value is determined with reference to British Venture Capital Association guidelines adjusted, where appropriate, in order to comply with IFRS or by independent professional valuers. For carried interests, fair value is the carry accruing to the carried interest holder at the close of business on the balance sheet date, based upon the fair value of the underlying assets within the relevant limited partnership fund. All regular way purchases and sales of financial assets are recognised on the trade date i.e. the date that the Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place. (i) Derivative financial instruments Accounting policies applicable up to 31 December 2004 Derivative contracts held for customer facilitation are included at fair value at the balance sheet date and movements in fair value are taken to the income statement and are included within 'Revenue'. Fair values represent the amount at which a derivative could be exchanged in a transaction at the balance sheet date between willing parties. Derivative contracts held for internal hedging purposes are valued on a basis consistent with the underlying transaction. Accounting policies applicable from 1 January 2005 Derivative contracts that are not designated as hedges are included at fair value at the balance sheet date. Fair values represent the amount at which a derivative could be exchanged in a transaction at the balance sheet date between willing parties. Where derivatives are held for risk management purposes, the Group formally documents the relationship between the derivative and any hedged item, its risk management objectives, its strategy for undertaking the various hedging transactions and its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values of hedged items. In relation to fair value hedges such as forward foreign currency contracts which meet the conditions for hedge accounting, any gain or loss from re-measuring the hedging instrument at fair value is recognised immediately in the income statement. Any gain or loss on the hedged item attributable to the hedged risk is adjusted against the carrying amount of the hedged item and recognised in the income statement. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. In relation to hedges of a net investment in a foreign operation, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in equity and the ineffective portion is recognised in the income statement. On disposal of the foreign operation, the gain or loss on the hedging instrument recognised directly in equity is transferred to the income statement. (j) Deferred tax Deferred tax is provided in full, using the liability method, on all taxable and deductible temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. However, if the deferred tax arises from the initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither the accounting nor taxable profit or loss, it is not accounted for. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences can be utilised. Deferred tax is provided on temporary differences arising on investments in subsidiaries, branches and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. (k) Non-current assets held for sale Non-current assets (and disposal groups) are classified as held for sale and measured at the lower of their carrying amount and fair value less costs to sell. Non-current assets (and disposal groups) are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale which should be expected to qualify for recognition as a completed sale within one year from the date of classification. At date of sale, post-tax gains or losses on such assets are taken to the income statement. (l) Trade and other receivables Accounting policies applicable up to 31 December 2004 Trade receivables are recognised and carried at original invoice amount less an allowance for any uncollectable amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off when identified. Loans and advances to banks and customers are carried at cost. Specific provisions for bad and doubtful debts are made against loans and advances and reflect an estimate of the amount necessary to reduce the carrying value of the advance to its expected ultimate net realisable value. Where a provision is considered appropriate, the provision is deducted from the relevant asset. Where there is no realistic prospect for recovery, irrecoverable amounts are written off. Accounting policies applicable from 1 January 2005 Trade receivables are recorded initially at fair value and subsequently at amortised cost. Loans and advances to banks and customers are accounted for at amortised cost using the effective interest method. (m) Cash and cash equivalents Cash and cash equivalents comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less. Where the Group considers that such items are not to be used for settling its liabilities, for example, securities with short maturity dates that will be rolled over as part of an investment portfolio, they are classified as investments rather than cash and cash equivalents. For the purposes of the cash flow statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts where such facilities form an integral part of the Group's cash management. (n) Debt securities in issue All loans and borrowings are initially recognised at cost, being the fair value of the consideration received net of issue costs associated with the borrowing. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method. Amortised cost is calculated by taking into account any issue costs, and any discount or premium on settlement. Gains and losses are recognised in the income statement when the liabilities are derecognised or impaired. (o) Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. For provisions for surplus property, where the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as an interest expense. Specific provisions for bad and doubtful debts are made against loans and advances made by private banking subsidiaries and leasing receivables to reflect an assessment of irrecoverability and are deducted from the relevant assets. Such provisions are recorded within 'Administrative expenses' in the income statement. (p) Treasury shares Employee trusts have been established for the purposes of satisfying certain equity-based awards. The holdings of these trusts include shares ('Treasury shares') that have not vested unconditionally in employees of the Group. Treasury shares are held for the short-term to meet future award requirements and are recorded, at cost, as a deduction from equity. (q) Revenue Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised: Interest - non-banking - accounting policies applicable up to 31 December 2004 Interest on non-banking activities comprises amounts due on the Group's surplus capital and temporary surpluses or deficits in the Group's cash accounts held with banks. Interest receivable and payable is recognised on an accruals basis. Interest - non-banking - accounting policies applicable from 1 January 2005 Interest on non-banking activities comprises amounts due on the Group's surplus capital and temporary surpluses or deficits in the Group's cash accounts held with banks. Interest receivable and payable is recognised using the effective interest method. Interest - banking - accounting policies applicable up to 31 December 2004 Interest receivable on banking activities comprises interest receivable on debt securities and other fixed income securities, loans, advances and deposits placed, guarantee and commitment commissions, and is accounted for on an accruals basis. Interest payable on banking activities comprises interest payable on deposits taken and debt securities in issue, and is accounted for on an accruals basis. Interest - banking - accounting policies applicable from 1 January 2005 Interest receivable on banking activities comprises interest receivable on debt securities and other fixed income securities, loans, advances and deposits placed, guarantee and commitment commissions, and is recognised using the effective interest method. Interest payable on banking activities comprises interest payable on deposits taken and debt securities in issue, and is recognised using the effective interest method. Fees and commissions Asset management fees, investment advisory fees, ad hoc advisory fees, custody fees, stock lending commission, commitment fees, arrangement fees, guarantor fees, and Directors' fees are accrued over the period for which the service is provided. Private banking transaction and loan related fees, together with fees from structured client facilitation transactions are credited over the period for which the service is provided. Asset management fees received in advance are taken to the balance sheet and amortised over the period of the provision of the asset management service. The period of provision of asset management service is estimated based on experience of average holding periods for investments in the separate geographical locations where such fees are earned. Redemptions are reviewed on an annual basis and the amortisation rate adjusted where there has been a significant and lasting change in redemption levels. Asset management fees received in advance in respect of structured product funds and the reimbursement of any marketing and distribution fees paid to the distributor as agent of the fund are spread over the life of the fund. Upfront deferred fees are released to the income statement on redemption. Performance fees are recognised when the right to receive payment is established. Dividends receivable Revenue is recognised when the shareholders' right to receive the payment is established. Returns from Private Equity investments - accounting policies applicable up to 31 December 2004 Capital distributions, including carried interests, from venture capital and buy-out funds are credited against the cost of the relevant investment when received and any excess over cost is included in the income statement. Returns from Private Equity investments - accounting policies applicable from 1 January 2005 After initial recognition, investments which are classified as held at fair value through profit and loss and available-for-sale are measured at fair value. Carried interests and capital gains are recognised in the income statement. Other gains or losses, together with transaction costs, on investments held at fair value through profit and loss are recognised in the income statement. Gains or losses, together with transaction costs, on available-for-sale investments are recognised as a separate component of equity until the investment is sold, collected or otherwise disposed of, or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in the income statement. (r) Cost of sales Commissions and distribution fees payable to third parties are recognised over the period for which the service is provided. Asset management fees paid in advance in respect of structured product funds and the reimbursement of any marketing and distribution fees paid to the distributor as agent of the fund are spread over the life of the fund. Fees paid to the distributor but not yet charged that relate to upfront deferred fees received are released to the income statement on redemption. (s) Leases Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Assets leased to customers under agreements which transfer substantially all the risks and rewards of ownership, with or without ultimate legal title, are classified as finance leases. As lessor, income from finance leases is recognised as income in the income statement on a straight-line basis over the lease term under the pre-tax net investment method. Income from operating leases is recognised on a straight-line basis over the period of the lease. Incentives given to enter into leases are amortised over the period of the lease. As lessee, costs under operating leases are charged to the income statement in equal amounts over the periods of the leases. Incentives received to enter into leases are amortised over the period of the lease. (t) Pensions and other post-employment benefits The Group operates a number of pension schemes around the world. For defined contribution schemes, pension contributions payable in respect of the accounting period are charged to the income statement. For funded defined benefit schemes, the cost of providing benefits is determined separately for each plan using the projected unit credit actuarial valuation method. The difference between the fair value of the plan assets and the present value of the defined benefit obligation at the balance sheet date, together with adjustments for unvested past service cost, is recognised as a liability in the balance sheet. An asset arising, for example, as a result of past over funding or the performance of the plan investments is recognised to the extent that it does not exceed the present value of future contribution holidays or refunds of contributions. All actuarial gains and losses are recognised in full in the statement of recognised income and expense. (u) Share-based payments to employees On 1 January 2005, the Group applied the requirements of IFRS 2. In accordance with the transition provisions, IFRS 2 has been applied to all grants after 7 November 2002 that were unvested as of 1 January 2005. The Group makes equity-settled share-based payments to executives and senior employees through awards over non-voting ordinary shares and by the grant of market value share options. Awards over non-voting ordinary shares made under the Group's Equity Compensation Plan are charged at fair value in the income statement. The fair value of an award is calculated as the market value of the shares on the date of grant, including any applicable uplifts, discounted for the dividends forgone over the average holding period of the award. The fair value charges, adjusted to reflect actual and expected levels of vesting, are spread over the performance period and the vesting period of the awards. Awards that lapse are credited to the income statement in the year in which they lapse. Options granted over non-voting ordinary shares under the Group's Share Option Plan are measured at fair value at the date of grant. The fair value determined is expensed on a straight line basis over the vesting period, based on the Group's estimate of shares that will eventually vest. Fair value is measured by use of a stochastic option valuation model. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations. (v) Deferred cash awards under the Equity Compensation Plan Certain employees may opt to receive awards made under the Equity Compensation Plan in the form of a notional investment in funds operated by the Group. Such awards do not constitute 'share-based payments', but are accounted for in accordance with IAS 19. The Group hedges such awards by investing in the underlying funds. These awards are measured at cost and are charged to the income statement in the performance year. Awards that lapse wholly or in part before they are vested unconditionally in the employees are credited to the income statement in the year in which they lapse. (w) Foreign currency translation The results of subsidiary undertakings, branches and associates drawn up in currencies other than sterling are translated at average rates of exchange ruling during the year. The assets and liabilities of these entities are translated at the rate of exchange ruling at the balance sheet date. Exchange differences arising on the translation of the results of these entities from the average rate used in the income statement to the closing rate used in the balance sheet are taken through equity. In addition, exchange differences arising on the translation of the equity of these undertakings at the beginning of the year are also taken directly to equity. Foreign currency assets and liabilities are translated at the rates of exchange ruling at the balance sheet date and any exchange differences arising are taken to the income statement within 'Revenue'. Exchange differences are taken through equity where they arise on the translation of assets and liabilities whose changes in value are taken directly through equity. (x) Dividends payable Dividends payable are recognised when the dividend is declared payable to shareholders. Appendix 3 Special Purpose Audit Report of PricewaterhouseCoopers LLP to Schroders plc ('the Company') on its International Financial Reporting Standards (IFRS) Financial Information We have audited the accompanying consolidated IFRS balance sheets of Schroders plc and its subsidiaries ('the Group') as at 1 January 2004 and 31 December 2004, the related consolidated IFRS income statement for the year ended 31 December 2004, the consolidated cash flow statement for the year ended 31 December 2004, the consolidated statement of recognised income and expense for the year ended 31 December 2004 and the associated IFRS 1 reconciliations set out on pages 13 to 20 within Appendix 1 prepared in accordance with the basis of preparation and the provisional accounting policies set out on pages 21 to 29 within Appendix 2 (hereinafter referred to as 'the IFRS financial information'). The IFRS financial information has been prepared by the Group as part of its transition to IFRS and to establish the financial position, and results of operations of the Group to provide the comparative financial information expected to be included in the first complete set of consolidated IFRS financial statements of the Group for the year ended 31 December 2005. Respective responsibilities of Directors and PricewaterhouseCoopers The Directors of the Company are responsible for the preparation of the IFRS financial information which has been prepared as part of the Group's transition 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 IFRS financial information has been prepared, in all material respects, in accordance with the basis of preparation and the provisional accounting policies set out on pages 21 to 29 within Appendix 2. This report, including the opinion, has been prepared for, and only for, the Company for the purposes of assisting with the Group's transition to IFRS and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. We read the other information contained in this announcement and consider its implications for our report if we become aware of any apparent misstatements or material inconsistencies with the above defined IFRS financial information. Basis of audit opinion We conducted our audit in accordance with 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 IFRS financial information. It also includes an assessment of the significant estimates and judgements made by the Directors in the preparation of the IFRS financial information, and of whether the accounting policies are appropriate to the Group's circumstances 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 IFRS financial information is 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 IFRS financial information. Emphasis of matter Without qualifying our opinion, we draw your attention to the fact that the IFRS financial information may require adjustment before its inclusion as comparative information in the Group's first set of statutory financial statements prepared on an IFRS basis for the year ended 31 December 2005. This is because Standards currently in issue and adopted by the EU are subject to interpretation issued from time to time by the International Financial Reporting Interpretations Committee (IFRIC) and further standards may be issued by the International Accounting Standards Board (IASB) that will be adopted for financial years beginning on or after 1 January 2005. Additionally, IFRS is currently being applied in the United Kingdom and in a large number of other countries simultaneously for the first time. Furthermore, due to a number of new and revised Standards included within the body of Standards that comprise IFRS, there is not yet a significant body of established practice on which to draw in forming opinions regarding interpretation and application. Accordingly, practice is continuing to evolve. At this preliminary stage, therefore, the full financial effect of reporting under IFRS as it will be applied and reported on in the Group's first IFRS financial statements for the year ended 31 December 2005 may be subject to change. Moreover, we draw attention to the fact that, under IFRS, only a complete set of 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 provide a fair presentation of the Group's financial position, results of operations and cash flows in accordance with IFRS. Opinion In our opinion, the accompanying IFRS financial information comprising the consolidated IFRS balance sheets as at 1 January 2004 and 31 December 2004, the related consolidated IFRS income statement for the year ended 31 December 2004, the consolidated cash flow statement for the year ended 31 December 2004, the consolidated statement of recognised income and expense for the year ended 31 December 2004 and the associated IFRS 1 reconciliations set out on pages 13 to 20 within Appendix 1 have been prepared, in all material respects, in accordance with the basis of preparation and the provisional IFRS accounting policies set out in pages 21 to 29 within Appendix 2, 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 IFRS financial statements of the Group for the year to 31 December 2005. PricewaterhouseCoopers LLP Chartered Accountants London 15 June 2005 This information is provided by RNS The company news service from the London Stock Exchange

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A notable fall for Schroders’ share price this morning as outflows dominate the headlines even though emerging sectors show signs of growth, Associated British Foods cheered by Primark performance and losses persist at ASOS.

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