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1 PRESENTATION ON THE IMPACT OF RESTATING ACCOUNTS FROM UK GAAP TO INTERNATIONAL FINANCIAL REPORTING STANDARDS 25 MAY 2005.

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Presentation on theme: "1 PRESENTATION ON THE IMPACT OF RESTATING ACCOUNTS FROM UK GAAP TO INTERNATIONAL FINANCIAL REPORTING STANDARDS 25 MAY 2005."— Presentation transcript:

1 1 PRESENTATION ON THE IMPACT OF RESTATING ACCOUNTS FROM UK GAAP TO INTERNATIONAL FINANCIAL REPORTING STANDARDS 25 MAY 2005

2 2 IFRS - Current Position Restatement of opening balance sheet at 31 March 2004 completed Restatement of profit and loss account for 2004/05 and balance sheet at 31 March 2005 completed Numbers are unaudited estimates based on current understanding of IFRS Numbers will not be audited until May 2006 Further changes may be required if additional standards issued or interpretation amended or further guidance issued by IFRIC

3 3 IFRS Overview IFRS does not alter cash flows of the Group No impact on operations – solely an accounting matter Major changes are in accounting for pensions, share based payments, goodwill and dividends. Other minor changes Adjustments are in line with expectations Net assets at 31 March 2004 reduced by £56.7m and normalised PBT for 2004/05 by £8.9m. Change to pensions represents £70.3m and £7.6m of these adjustments respectively and change to dividends increases net assets by £16.5m Net assets at 31 March 2005 reduced by £50.7m. Pensions represent £76.8m of this adjustment offset by change to dividends, £17.7m and reversal of goodwill amortisation, £10.6m (after tax)

4 4 Significant standards for Dairy Crest IFRS1-First-time adoption of IFRS IAS19-Employee benefits IFRS2-Share based payment IAS23-Borrowing costs IFRS3-Business combinations IAS10-Events after the balance sheet date IAS12-Income taxes IAS17-Leases IAS32/39-Financial instruments IAS14- Segmental reporting

5 5 IFRS1 – First-time adoption of IFRS Relevant transitional arrangements Business combinations Elected not to restate transactions before 31 March 2004 with the result that goodwill at that date will be frozen, not amortised and subject to annual impairment reviews Pensions Elected to recognise in full in equity all pension related losses at 31 March 2004

6 6 Cumulative translation differences Elected to set cumulative translation differences relating to investment in Wexford to zero at 31 March 2004 Financial instruments Elected not to restate 04/05 profit and loss account and balance sheets at 31 March 2004 and 2005 for IAS32 and 39 (derivative financial instruments) Share based payments Elected to apply IFRS2 to all outstanding share based payments Property plant and equipment Elected not to restate PPE to fair value at 31 March 2004 IFRS1 – First-time adoption of IFRS (Cont)

7 7 IAS19 – Employee benefits Requirement Net deficit in Dairy Crest Pension Fund has to be shown in the balance sheet Profit and loss charge is based on market conditions at the beginning of the year SSAP24 computed cost based on discounting liabilities using the expected return on investments whereas IAS19 discounts using AA corporate bond yield Impact Similar to FRS17 numbers 04/05 pension charge increased by £7.6m, £8.4m charged against operating profit and £0.8m credited to interest Net deficit of £66.6m recognised at 31 March 04 leading to reduction of £70.3m in net assets (including reversal of the SSAP24 prepayment net of deferred tax, £3.7m) which increases to £76.8m at 31 March 2005

8 8 IFRS2 – Share based payment Requirements Charge required for share based payments based on fair value of option at the date of grant Fair value charge on `market condition’ options (TSR element of LTISP) which is not subsequently adjusted to actual payout Charge also required for sharesave options which are issued at a discount Impact UK GAAP: No charge required in 04/05 for outstanding LTISP options as none are expected to payout No charge required for Sharesave or ESOS which are outside scope for charge IFRS: Share based payment charge of £1.7m (£2.1m after deferred tax charge of £0.4m) in 04/05 for 2 Sharesave schemes and TSR element of LTISP No charge for EPS element of LTISP as not expected to payout For 05/06, sharesave charge will be reduced by c.£0.6m as one scheme matured in Mar 05 IFRS2 has no impact on cash cost or number of shares which will be issued on maturity of schemes

9 9 IAS23 – Borrowing costs Requirement Under IFRS capitalisation of borrowing costs is allowed in line with UK GAAP provided they are directly attributable to the construction of a qualifying fixed asset Borrowing costs should be capitalised on all qualifying fixed assets otherwise borrowing costs are written off as incurred Impact Existing UK GAAP policy is to capitalise borrowing costs on qualifying fixed assets above £1m Under IFRS, not allowed to selectively capitalise borrowing costs Under IFRS, Dairy Crest policy will be to write off borrowing costs as incurred Net assets at 31 March 2004 reduced by £6.1m gross (£4.3m net of deferred tax), to write off borrowing costs previously capitalised. Reduction in net assets is £5.7m gross (£4.0m net of deferred tax) at 31 March 2005 Benefit to operating profit of c.£0.5m in 04/05 from lower depreciation offset by £0.1m increase in interest expense

10 10 IFRS3 – Business combinations Requirement Goodwill will cease to be amortised from 1 April 2004 and instead will be subject to an annual impairment review, the effect of which will be charged to profit and loss Identifiable intangible assets must be recognised for acquisitions post 1 April 2004 as part of the fair values on acquisition. These intangible assets should be amortised over their estimated useful life. The residual balance of the consideration paid over the net assets acquired is goodwill which is subject to annual impairment review Impact Under IFRS there is no amortisation of goodwill which under UK GAAP amounted to £13.1m in 04/05 Goodwill of £99.8m at 31 March 2004 will be retained subject to annual impairment review Previously a tax deduction was obtained for the amortisation of goodwill at 10% pa on trade and asset acquisitions post 1 April 2002 This will cease and therefore we have elected for a statutory tax deduction at 4% pa. £1.8m of tax benefit previously obtained will have to be repaid to Inland Revenue in 05/06

11 11 IAS10 – Events after the balance sheet date Requirement Final dividends declared after balance sheet date will be recognised as a liability in the year they are declared Impact Increase in net assets and retained profits of £16.5m at 31 March 2004 Increase in net assets and retained profits of £17.7m at 31 March 2005

12 12 IAS12 - Income taxes Requirement No difference in accounting for current taxation between IAS12 and UK GAAP. However difference in recognising deferred tax Deferred tax must be recognised on all fair value adjustments made as a result of acquisitions Separate disclosure is required of deferred tax assets and deferred tax liabilities which previously were netted off against each other Impact Additional deferred tax asset recognised at 31 March 2004 and 31 March 2005 Separate disclosure of deferred tax asset will be required

13 13 IAS17 - Leases Requirement Under IFRS lease incentives have to be written off over period of lease not the period until first rent review Impact Lease incentive of £0.7m will be deferred at 31 March 2004 and released to P&L at £0.1m pa

14 14 IAS32 and 39 – Financial Instruments Requirement Derivative financial instruments must be recognised on the balance sheet and measured at fair value Impact Dairy Crest’s financial instruments include interest rate swaps, currency borrowings and forward foreign exchange contracts All qualify for hedge accounting Thus no change to profit and loss account Balance sheet from 30 September 2005 will include fair value of the financial instruments which will be recorded in a separate component of equity

15 15 IFRS14 – Segmental reporting Requirement Externally reportable segments must be aligned to a company’s organisational and internal financial reporting structure Revenues, operating profit, assets, liabilities, capital expenditures depreciation and amortisation and exceptional items must be disclosed for each reportable segment Impact Group now organised into two discrete divisions, Foods and Dairies following reorganisation in half two 2004/05 Foods and Dairies will be the reportable segments under IFRS Previously we reported two segments, Consumer Foods and Food Services Foods is similar to historical Consumer Foods except that milk to major retailers will now be included within Dairies

16 16 Restatement of 31 March 2004 net assets (Unaudited) £m Net assets per UK GAAP247.5 Recognition of IAS19 on pensions*(70.3) Reversal of interest capitalised*(4.3) Reversal of final dividend16.5 Deferred tax and other items1.4 Net assets per IFRS190.8 * Adjustments net of deferred tax

17 17 Restatement of 31 March 2005 net assets (Unaudited) £m Net assets per UK GAAP272.7 Recognition of IAS19 on pensions*(76.8) Reversal of interest capitalised*(4.0) Reversal of goodwill amortisation*10.6 Reversal of final dividend17.7 Deferred tax and other items1.8 Net assets per IFRS222.0 * Adjustments net of deferred tax

18 18 Restatement 04/05 profit and loss account (unaudited) UK GAAP Goodwill Amortisation PensionsShare based payments OtherIFRS £m Operating Profit100.6-(8.4)(1.7) Interest Expense(16.4)-0.8-(0.1)(15.7) Adj PBT84.2-(7.6)(1.7) Exceptional Items (4.4)---- Goodwill Amortisation (13.1) Profit before tax (7.6)(1.7) Tax(19.0)(2.5)2.2(0.4)(0.1)(19.8) Profit after tax (5.4)(2.1)

19 19 Restated segmental analysis: UK GAAP / IFRS (Unaudited) * operating profit before exceptional items and goodwill amortisation


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