IFRS Restatement

Wetherspoon (JD) PLC 20 January 2006 STRICTLY PRIVATE AND CONFIDENTIAL JD WETHERSPOON PLC PRESS RELEASE 20 January 2006 Restatement of financial information to International Financial Reporting Standards (IFRS) JD Wetherspoon plc today releases restated consolidated financial information for the year ended 24 July 2005, applying International Financial Reporting Standards (IFRS). The key headlines from the restated accounts are: â€¢ No impact on cash flow or on ability to pay dividends â€¢ Net Assets reduced by Â£13m (5%) to Â£247m â€¢ 2004/05 profit before tax (excluding exceptional items) increases by 2.4% Contents 1. Background 2. First time adoption 3. Restated IFRS financial statements 4. Differences between IFRS and UK GAAP 5. Accounting policies under IFRS Enquiries: Jim Clarke Finance Director 01923 477777 Visit our web site at www.jdwetherspoon.co.uk The first set of results reported by JD Wetherspoon PLC ('the Company') under IFRS will be the company's interim results, due for release in March 2006. 1 Background With effect from 25 July 2005 the company will prepare its financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. The Company's first Annual Report under IFRS will be for the year ending 30 July 2006, with the first published IFRS results being the Interim Report and Accounts for the six month period ended 22 January 2006. The Company is required to publish one year of comparative information, which results in a date of transition to IFRS of 26 July 2004. Historically, the Company's financial statements have been prepared in accordance with generally accepted accounting principles in the UK (UK GAAP). The following explanatory notes and reconciliations describe the main differences between UK GAAP and IFRS that affect the Company for the financial year 2004/5 as well as for the opening balance sheet as restated under IFRS, at 26 July 2004. Basis of preparation: The accounting policies of the Company were changed to comply with the requirements of IFRS, the major changes are explained below. The transition to IFRS has been accounted for in accordance with IFRS1 ' First-time adoption of International Financial Reporting Standards' as outlined below. This restatement document has been prepared on the basis that all IFRSs, International Financial Reporting Interpretation Committee ('IFRIC') interpretations, and current IASB exposure drafts will be issued as final standards and adopted by the European Commission. The failure of the European Commission to adopt all these standards in time for financial reporting by July 2006, or the issue of further interpretations by IFRIC in advance of the reporting date, could result in the need to change the basis of accounting or presentation of certain financial information from that presented in this document. The UK GAAP financial information contained in this document does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The auditors have issued unqualified opinions on the Company's UK GAAP financial statements for the years ended 25 July 2004 and 24 July 2005. The UK GAAP financial statements for the year ended 25 July 2004 and 24 July 2005 have been delivered to the Registrar of Companies. The information that follows is the indicative impact on the Company's results as a result of this conversion. To date there is not a significant body of established practice and interpretation of the standards and certain standards are subject to ongoing amendment by the IASB. Therefore we do not expect to fully determine the impact of the change until the production of the first full set of audited financial statements for the year ending 30 July 2006. As a result, whilst we maintain an ongoing dialogue with our auditors about IFRS and accounting issues, these IFRS numbers are unaudited. 2 First time adoption of IFRS - transitional arrangements IFRS 1 provides certain optional exemptions from full retrospective application of all accounting standards effective at the Company's reporting date. In accordance with IFRS 1 'First-time adoption of International Financial Reporting Standards' the Company has taken advantage of the following exemptions: 2.1 IAS 32 and IAS 39 The Company will apply IAS 32 and IAS 39 'Financial Instruments' prospectively, that is with effect from 25 July 2005. Under the transitional rules of IFRS 1, hedging designation and certain other requirements of IAS 32 and IAS 39 may not be applied in the comparative period and the remainder of those standards need not be applied to comparative balances. No adjustments for financial instruments will therefore be required in the 2004/5 income statement or the 2005 balance sheet. 2.2 Property, Plant and Equipment The Company has elected to use the UK GAAP revaluations of properties prior to the date of transition to IFRS as deemed cost, as allowed by IFRS 1. Under IAS16, residual values are considered and reviewed in conjunction with the review of useful lives of the assets and is done prospectively. 2.3 Share Based Payments As no share options were granted after 7 November 2002, the Company does not have to apply IFRS 2 'Share Based Payments' to equity settled awards that were granted after 7 November 2002 but not vested at 1 January 2005. We account for our Share Incentive Plan (SIP) in line with IFRS 2 requirements. Shares are acquired at fair value and a charge is recognised in the income statement over the vesting period as per the rules of the scheme. 3 Restated IFRS financial statements Restated IFRS Income Statement for the year ended 24 July 2005 Before Exceptional After exceptional items exceptional items items Unaudited Unaudited Unaudited 2005 2005 2005 Â£000 Â£000 Â£000 Turnover 809,861 - 809,861 Operating profit before exceptional 71,506 - 71,506 items Exceptional items - (7,380) (7,380) Operating profit 71,506 (7,380) 64,126 Net interest payable (24,329) - (24,329) Profit on ordinary activities before 47,177 (7,380) 39,797 taxation Tax on profit on ordinary activities (15,364) 1,276 (14,088) Profit on ordinary activities after 31,813 (6,104) 25,709 taxation All activities relate to continuing operations. Reconciliations of earnings from UK GAAP to IFRS Reconciliation of earnings under UK GAAP to IFRS for the year ended 24 July 2005 Operating Profit after Turnover Profit Tax Tax Â£000 Â£000 Â£000 Â£000 Reported under UK GAAP 809,861 65,473 (14,371) 24,304 Depreciation adjustment re - 901 (270) 631 residual values Lease incentives over lease term - 221 (66) 155 Deferred tax adjustment re - - 619 619 deferred income Restated reporting under IFRS 809,861 66,595 (14,088) 25,709 IFRS Restated Balance sheet at 24 July 2005 Unaudited Unaudited 2005 2004 Â£000 Â£000 ASSETS Non-current assets Other intangible assets 3,573 3,832 Property, plant and equipment 755,708 774,695 Other non-current assets 6,621 15,761 765,902 794,288 Current assets Inventories 12,777 12,009 Assets available for sale 1,691 1,933 Trade and other receivables 12,195 13,966 Cash and cash equivalents 18,073 9,660 44,736 37,568 LIABILITIES Current liabilities Trade and other payables (80,578) (78,538) Borrowings (25,000) (25,000) Current income tax liabilities (7,556) (7,067) Accruals and other liabilities (32,580) (37,069) (145,714) (147,674) Non-current liabilities Borrowings (327,218) (322,219) Deferred income tax liabilities (83,965) (82,574) Provisions and other liabilities (7,048) (5,189) (418,231) (409,982) Net assets 246,693 274,200 SHAREHOLDERS EQUITY Ordinary shares 3,458 3,783 Share premium account 128,607 128,340 Capital redemption reserve 874 545 Retained earnings 113,754 141,532 Total shareholders' equity 246,693 274,200 Reconciliations of equity from UK GAAP to IFRS Reconciliation of equity under UK GAAP to IFRS as at 24 July 2005 Non-Current Non-Current Assets Liabilities Current Current Net Assets Â£000 Assets Liabilities Â£000 Â£000 Equity Â£000 Â£000 Â£000 Reported under UK GAAP 762,739 44,736 (150,929) (396,662) 259,884 (259,884) Depreciation adjustment re 901 - - - 901 (901) residual values Lease incentive (Deferred - - 344 (5,099) (4,755) 4,755 Income) Deferred tax adjustment 2,262 - - (16,470) (14,208) 14,208 Remove declared dividends - - 4,871 - 4,871 (4,871) Restated reporting under 765,902 44,736 (145,714) (418,231) 246,693 (246,693) IFRS Reconciliation of equity under UK GAAP to IFRS as at 25 July 2004 (transition date) Non-Current Non-Current Assets Liabilities Current Current Net Assets Â£000 Assets Liabilities Â£000 Â£000 Equity Â£000 Â£000 Â£000 Reported under UK GAAP 783,574 46,573 (152,437) (388,756) 288,954 (288,954) Receivables due after more 9,005 (9,005) - - - - than one year Lease incentive (Deferred - - (80) (4,896) (4,976) 4,976 Income) Deferred tax adjustment 1,709 - - (16,330) (14,621) 14,621 Remove declared dividends - - 4,843 - 4,843 (4,843) Restated reporting under 794,288 37,568 (147,674) (409,982) 274,200 (274,200) IFRS Reconciliation of reserves under UK GAAP to IFRS as at 24 July 2005 Capital Redemption Revaluation Retained Reserve Reserve Earnings Total Â£000 Â£000 Â£000 Â£000 Reported under UK GAAP 22,554 104,391 874 127,819 Reclassification (22,554) 22,554 - - Depreciation adjustment re - 901 - 901 residual values Deferred tax adjustment re - (270) - (270) depreciation adjustment Lease incentive (Deferred Income) - (4,755) - (4,755) Deferred tax adjustment re - 2,262 - 2,262 deferred income Deferred tax adjustment - (16,200) - (16,200) Remove declared dividends - 4,871 - 4,871 Restated reporting under IFRS - 113,754 874 114,628 Reconciliation of reserves under UK GAAP to IFRS as at 25 July 2004 (transition date) Revaluation Retained Capital Reserve Earnings Redemption Reserve Total Â£000 Â£000 Â£000 Â£000 Reported under UK GAAP 23,117 133,169 545 156,831 Reclassification (23,117) 23,117 - - Lease incentive (Deferred Income) - (4,976) - (4,976) Deferred tax adjustment re - 1,709 - 1,709 deferred income Deferred tax adjustment - (16,330) - (16,330) Remove declared dividends - 4,843 - 4,843 Restated reporting under IFRS - 141,532 545 142,077 Restated IFRS Income Statement for the six month period ended 23 January 2005 Before Exceptional After exceptional items exceptional items items Unaudited Unaudited Unaudited Half year Half year Half year 2005 2005 2005 Â£000 Â£000 Â£000 Turnover 403,341 - 403,341 Operating profit before exceptional 34,646 - 34,646 items Exceptional items - (8,047) (8,047) Operating profit 34,646 (8,047) 26,599 Net interest payable (12,021) - (12,021) Profit on ordinary activities before 22,625 (8,047) 14,578 taxation Tax on profit on ordinary activities (7,857) 1,697 (6,160) Profit on ordinary activities after 14,768 (6,350) 8,418 taxation All activities relate to continuing operations. Reconciliations of earnings from UK GAAP to IFRS Reconciliation of earnings under UK GAAP to IFRS for the six month period ended 23 January 2005 Operating Profit after Profit Tax Turnover Tax Â£000 Â£000 Â£000 Â£000 Reported under UK GAAP 403,341 32,136 (6,076) 8,221 Depreciation adjustment re - 450 (135) 315 residual values Lease incentives over lease term - (169) 51 (118) Restated reporting under IFRS 403,341 32,417 (6,160) 8,418 Balance sheet at 23 January 2005 Unaudited 2005 Â£000 ASSETS Non-current assets Other intangible assets 4,054 Property, plant and equipment 764,234 Other non-current assets 6,721 775,009 Current assets Inventories 12,684 Assets available for sale 4,554 Trade and other receivables 11,562 Cash and cash equivalents 17,372 46,172 LIABILITIES Current liabilities Trade and other payables (81,531) Borrowings (25,000) Current income tax liabilities (6,742) Accruals and other liabilities (26,453) (139,726) Non-current liabilities Borrowings (319,718) Deferred income tax liabilities (82,678) Provisions and other liabilities (6,350) (408,746) Net assets 272,709 SHAREHOLDERS EQUITY Ordinary shares 3,748 Share premium account 128,425 Capital redemption reserve 581 Retained earnings 139,955 Total shareholders' equity 272,709 Reconciliations of equity from UK GAAP to IFRS Reconciliation of equity under UK GAAP to IFRS as at 23 January 2005 Non-Current Non-Current Assets Liabilities Current Current Net Assets Â£000 Assets Liabilities Â£000 Equity Â£000 Â£000 Â£000 Â£000 Reported under UK GAAP 772,514 46,172 (142,611) (387,312) 288,763 (288,763) Depreciation adjustment re 450 - - - 450 (450) residual values Lease incentive (Deferred - - 204 (5,038) (4,834) 4,834 Income) Deferred tax adjustment 2,045 - - (16,396) (14,351) 14,351 Remove declared dividends - - 2,681 - 2,681 (2,681) Restated reporting under 775,009 46,172 (139,726) (408,746) 272,709 (272,709) IFRS Reconciliation of reserves under UK GAAP to IFRS as at 23 January 2005 Capital Redemption Revaluation Retained Reserve Reserves Earnings Total Â£000 Â£000 Â£000 Â£000 Reported under UK GAAP 22,755 133,254 581 156,590 Reclassification (22,755) 22,755 - - Depreciation adjustment re - 450 - 450 residual values Deferred tax adjustment re - (135) - (135) depreciation adjustment Lease incentive (Deferred Income) - (4,834) - (4,834) Deferred tax adjustment re - 2,045 - 2,045 deferred income Deferred tax adjustment - (16,261) - (16,261) Remove declared dividends - 2,681 - 2,681 Restated reporting under IFRS - 139,955 581 140,536 4 Differences between IFRS and UK GAAP The following sections outline the significant differences relevant to the Company on transition from UK GAAP to IFRS. 4.1 IAS 12 Income Taxes The Company's IAS 12 amendments affect those deferred tax assets or liabilities which taken together comprise the net deferred tax liability at the balance sheet date. The impact of adopting IFRS is an increase in the deferred tax liability of Â£14.2m and Â£14.2m at 24 July 2005 and 25 July 2004 respectively. Adjustments made as a result of implementing IAS 12 are outlined below: â€¢ The Standard requires a deferred tax provision for all capital gains that have been subject to rollover relief claims. Under UK GAAP, deferred tax was only provided on assets subject to such claims to the extent that the liability was expected to crystallise. This resulted in an increase in deferred tax liability of Â£9.4m and Â£9.4m as at 24 July 2005 and 25 July 2004 respectively. â€¢ UK GAAP did not permit the creation of a deferred tax liability for revaluation gains, this is however required under IAS 19. Although the Company has not revalued its properties since the 1999/2000 financial year, the revalued carrying amounts at the date of transition to IFRS will form the deemed costs under IFRS. A transitional deferred tax liability is therefore required of Â£6.8m and Â£6.9m at 24 July 2005 and 25 July 2004 respectively. â€¢ A deferred tax asset of Â£1.7m has been recognised at 25 July 2004 in respect of lease incentives relating to below market rent adjustments in existence at the date of transition to IFRS. This has increased to Â£2.3m at 24 July 2005.The deferred tax asset is disclosed separately under non-current assets in the balance sheet. â€¢ A deferred tax liability of Â£0.3m at 24 July 2005 was created due to a change in the residual values of freehold properties. 4.2 IAS 10 Events after the Balance Sheet date Under UK GAAP, Company dividends declared after the balance sheet date have been recognised as a liability. Under IFRS final dividends declared after the balance sheet date are not recognised until approved by the shareholders at the annual general meeting. Interim dividends are only recognised when paid. The effect of the change is an increase in equity of Â£4.9m at 24 July 2005 and Â£4.8m at 25 July 2004 (and Â£2.6m at 23 January 2005). 4.3 Leases Under UK GAAP, lease incentives on leases where the lessor retains substantially all the risks and benefits of ownership of the asset, are recognised as a reduction in rent paid over the period up to the first rent review. Under IFRS, lease incentives on leases where the lessor retains substantially all the risks and benefits of ownership of the asset, are recognised as a reduction in rent paid over the lease term. The effect of the change is an increase in income before tax of Â£0.2m for the year ended 24 July 2005. 4.4 Property, plant and equipment Under IAS 16, residual values are based on prices current at the balance sheet date, whereas under previous UK GAAP residual values were based on prices at the date of acquisition or later revaluation. Changes to residual values are accounted for prospectively but first-time adopters should adjust residual values of their assets at the date of transition to IFRS and then use the amended depreciation that this implies from the date of transition. This adjustment lead to a reduction in depreciation of Â£0.9m for the year ended 24 July 2005. 5 Accounting policies under IFRS Following the transition to IFRS the principal accounting policies adopted are as follows: Property, plant and equipment Properties were regularly revalued, prior to the 1999/2000 financial year. Since this date the Company policy has been not to revalue its properties and while previous valuations have been retained, they have not been updated. As permitted by IFRS 1 the Company has elected to use the UK GAAP revaluations before the date of transition to IFRS as deemed cost at the date of transition. Fixed assets are stated at cost or deemed cost at transition to IFRS less accumulated depreciation and any impairment in value. Depreciation is calculated on a straight-line basis over the estimated useful life of the asset as follows: â€¢ Freehold land is not depreciated â€¢ Freehold buildings are depreciated to their estimated residual values over periods up to 50 years. â€¢ Properties held under finance leases are depreciated over the remaining lease period â€¢ Renovations of property already trading, fixtures and fittings, computer equipment are depreciated over 3 to 10 years The carrying value of property, plant and equipment are reviewed for impairment if events or changes in circumstances indicate that their carrying value may not be recoverable. Any impairment in the value of fixed assets is charged to the income statement. The residual values of freehold buildings are considered and reviewed in conjunction with the review of useful lives on an annual basis. If the estimated residual value differs from previous estimates, changes are accounted for prospectively. Profit and losses on disposal of fixed assets reflect the difference between the net selling price and the carrying amount at the date of disposal and is recognised in the income statement. Other Intangible assets - IT Software IT software is amortised, on a straight-line basis over a three year period. The carrying values are reviewed for impairment if events or changes in circumstances indicate that their carrying value may not be recoverable. Other non-current assets Payments made on entering into or acquiring leaseholds that are accounted for as operating leases represent lease premiums. These are classified as other non-current assets and are amortised on a straight-line basis over the lease term. Inventories Inventories are stated at the lower of cost and net realisable value. Cost is calculated on the first in, first out basis and net realisable value is the estimated selling price less any costs of disposal. Revenue Recognition Revenue is the value of food and beverages sold to third parties as part of the Company's trading activities, after deducting discounts and sales-based taxes. Revenue is recognised when food and beverages are sold. Leases Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Rental payments in respect of operating leases are charged against operating profit on a straight-line basis over the lease term. Lease incentives are recognised as a reduction in rent paid over the lease term. Pensions and other post-employment benefits Payments to the defined contribution pension scheme are charged as an expense when they fall due. Tax The income tax charge represents both the income tax payable, based on profits for the year, and deferred income tax. Deferred income tax is recognised in full, using the liability method, in respect of temporary timing differences between the tax base of the Company's assets and liabilities, and their carrying amounts, that have originated but not been reversed by the balance sheet date. Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses to the extent that it is probable that taxable profit will be available against which the deductible temporary timing differences, carry-forward of unused tax assets and unused tax losses can be utilised. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Income tax relating to items recognised directly in equity is recognised in equity and not in the income statement. Exceptional items Exceptional items comprise items of income and expense that are material in amount and unlikely to recur and which merit separate disclosure in order to provide a better understanding of the Company's financial performance. Examples of events giving rise to the disclosure of material items of income and expense as exceptional items include, but are not limited to, impairment events, disposals of individual assets and litigation claims by or against the Company. Derivative financial instruments (with effect from 25 July 2005) The main financial risks faced by the Company relate to the availability of funds to meet the business needs and fluctuations in interest rates. The Company finances its operations by a combination of internally generated cash flow and bank borrowings. The Company's policy is to fix a proportion of projected net interest costs over the life of the borrowing. The policy reduces the Company's exposure to the consequences of interest fluctuations. For the purposes of hedge accounting, hedges are classified as either fair value hedges when they hedge the exposure to changes in fair value of a recognised asset or liability or cash flow hedges where they hedge exposure to variability in cash flows that is attributable to a particular risk associated with a liability. The portion of any gains or losses of cash flow hedges, which meet the conditions for hedge accounting and are determined to be effective hedges, are recognised directly in equity. Hedge accounting is discontinued when the hedging instrument expires, terminated or no longer qualifies for hedge accounting. At that point in time, any cumulative gain or loss on the hedging instrument recognised in equity remains in equity until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to the income statement. Segmental reporting The Company trades in one business segment, that of Pub Restaurants and one geographical segment being the United Kingdom. This information is provided by RNS The company news service from the London Stock Exchange

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