Gusbourne Regulatory News (GUS)

14 Jun 2005 08:00

GUS PLC14 June 2005 14 June 2005 GUS plc Adoption of International Financial Reporting Standards GUS plc, the retail and business services group, today releases its unauditedfinancial results for the year to 31 March 2005 as prepared under InternationalFinancial Reporting Standards. The move to IFRS will not change how GUS is managed and will have no impact oncash flow. The main changes compared to the financial results prepared under UK GAAP are asbelow: •Benchmark PBT1 of £906m, £4m lower than the UK GAAP equivalent of £910m •Reported PBT of £843m, £150m higher than the UK GAAP equivalent of £693m, mainly reflecting the elimination of goodwill amortisation •Effective tax rate2 of 26.5%, up 2.2% compared to the UK GAAP equivalent of 24.3%. Tax payable in cash is unlikely to change materially as a result of IFRS •Benchmark basic EPS3 of 61.5p, 4% lower than the UK GAAP equivalent of 63.8p, reflecting the higher tax rate •Reported basic EPS of 59.9p, 17.6p higher than the UK GAAP equivalent of 42.3p •Capital employed at 31 March 2005 of £3,384m, compared to the UK GAAP equivalent of £3,070m 1 Benchmark PBT is defined as profit before amortisation of acquisitionintangibles, exceptional items (i.e. gains or losses on disposal or closure ofbusinesses and goodwill impairment charges), financing fair value remeasurementsand taxation. It includes the Group's share of associates' pre-tax profit andthe profits or losses of discontinued operations up to the date of disposal orclosure. 2 Effective tax rate is based on Benchmark PBT. 3 Benchmark basic EPS takes Benchmark PBT less taxation (attributable toBenchmark PBT) and minority interests, divided by the weighted average number ofshares in issue (excluding own shares held in Treasury and in the ESOP trust). Enquiries GUSDavid Tyler Group Finance Director 020 7495 0070Fay Dodds Director of Investor Relations FinsburyRupert Younger 020 7251 3801Rollo Head GUS announcements are available on its website, www.gusplc.com. There will be aconference call to discuss this announcement at 10am today. The slides whichwill be referred to during this call and additional information on the formalIFRS financial statements presentation, accounting policies and the fair valueof share-based payments are also available on the website. Certain statements made in this announcement are forward-looking statements.Such statements are based on current expectations and are subject to a number ofrisks and uncertainties that could cause actual results to differ materiallyfrom any expected future results in forward-looking statements. Introduction For accounting periods commencing on or after 1 January 2005, it is mandatoryfor the consolidated financial statements of all European listed companies to bereported in accordance with International Financial Reporting Standards (IFRS).For GUS, the first year of full IFRS reporting is the 12 months ending 31 March2006. The Transition Date is 1 April 2004. The move to IFRS will not change how GUS is managed and will have no impact oncash flow. As with most companies, it will, however, lead to increasedvolatility in the income statement and balance sheet, with the presentation ofthe financial statements also affected. Against this background, GUS has identified measures of Benchmark PBT andBenchmark EPS that it believes will assist understanding of the performance ofthe business. This approach is comparable with that previously used. Managementwill focus on these measures while complying with the reporting requirements ofIFRS. Free cash flow is not affected by the transition to IFRS and remains a keyperformance indicator both internally and for shareholders. This announcement summarises: - the major changes to the income statement resulting from the move from UK Generally Accepted Accounting Principles (UK GAAP) to IFRS; - the definition of Benchmark PBT and Benchmark EPS; and - the material transitional adjustments to the balance sheet at 1 April 2004 and the restated balance sheet at 31 March 2005. Additional disclosure is given in the Appendix, including divisional analysesand restated interim results. The financial information in this announcement is unaudited. It is also subjectto possible change as the definition and interpretation of IFRS continues toevolve and be amended by the relevant authorities. Financial statements for 12 months to 31 March 2005 - under UK GAAP On 25 May 2005, GUS issued its preliminary results. The financial statementswere prepared under UK GAAP as summarised below: 12 months to 31 March 2005 Notes Profit £m Argos Retail Group 421.5Experian 318.3Burberry 165.7Central activities (24.1) -------Continuing operations 2-5 881.4 Discontinued operations 55.4 ------- Total 936.8 Net interest 3, 5 (26.4)Profit before amortisation of goodwill, exceptional items andtaxation 910.4Amortisation of goodwill 6 (207.3)Exceptional charge 7 (10.0) -------Profit before taxation 693.1Taxation 9 (221.2)Equity minority interests (49.4) -------Profit for the financial year 422.5Dividends 10 (292.7)Retained profit 129.8-------------------------------------------------------------------------------EPS before amortisation of goodwill and exceptional items 63.8pReported basic EPS 42.3p------------------------------------------------------------------------------- The profit figure shown against each business above is operating profit, definedas profit before interest, taxation, exceptional items and goodwillamortisation.This summary table differs from the statutory UK GAAP profit and loss account. At 31 March 2005 Notes £m------------------------------------------------------------------------------Total equity shareholders' funds 3-6, 10 2,810Equity minority interests 260 ----------Capital employed 3,070 Financial statements for 12 months to 31 March 2005 - under IFRS The results presented in the same format as UK GAAP on the previous page butmeasured under IFRS have been restated and summarised as below: 12 months to 31 March 2005 Notes Profit £m Argos Retail Group 418.0Experian 317.0Burberry 161.3Central activities (21.8) ---------- Continuing operations 2-5 874.5Discontinued operations 55.2 ----------Total 929.7Net interest 3, 5 (23.7) ----------Benchmark PBT 1 906.0Amortisation of acquisition intangibles 6 (4.1)Exceptional charge 7 (3.5)Fair value remeasurements 8 -Profit before taxation 898.4Taxation 9 (250.2)Equity minority interests (49.4) ----------Profit for the financial year 598.8Dividends* 10 (281.5)Retained profit* 317.3------------------------------------------------------------------------------Benchmark EPS 1 61.5pReported basic EPS 59.9p The profit figure shown against each business above is operating profit, definedas profit before interest, taxation, exceptional items, amortisation ofacquisition intangibles and financing fair value remeasurements.This summary table differs from the formal IFRS income statement. Areconciliation between the two is included in Appendix 1.* IFRS records dividends as movements in equity rather than appropriations ofprofit. The term retained profit is used here as a direct comparison to UK GAAP. At 31 March 2005 Notes £m Total equity shareholders' funds 3-6, 10 3,128Equity minority interests 256 ----------Capital employed 3,384 Reconciliation of the summary tables from UK GAAP to IFRS Benchmark PBT of £906m is £4m lower than the UK GAAP equivalent of £910m. Thetable below provides a summary reconciliation of UK GAAP to IFRS for the year to31 March 2005: 12 months to 31 March 2005 Notes £m------------------------------------------------------------------------------Profit before amortisation of goodwill, exceptional items andtaxation under UK GAAP 910.4Share-based payments 2 (6.6)Pension costs 3 2.3Catalogue costs 4 (1.2)Other adjustments 5 1.1 ----------Benchmark PBT under IFRS 1 906.0 ---------- The equivalent of retained profit under IFRS is significantly higher in 2005.The table below provides a summary reconciliation of retained profit under UKGAAP to retained profit under IFRS: 12 months to 31 March 2005 Notes £m Retained profit for the year under UK GAAP 129.8 Share-based payments, pension costs, catalogue costs and other adjustments as above 2-5 (4.4)Amortisation of acquisition intangibles 6 (4.1)Reversal of goodwill amortisation 6 207.3Goodwill impairment 6 -Net change to exceptional charge 7 6.5Fair value remeasurements relating to financial instruments 8 -Deferred taxation 9 (29.0)Dividends 10 11.2 ----------Retained profit for the year under IFRS 317.3 Capital employed increases at 31 March 2005 by 10% under IFRS. The followingtable provides a summary reconciliation between UK GAAP and IFRS for the balancesheets as at 1 April 2004 and 31 March 2005: Notes At 31 March At 1 April 2004 2005 £m £m Capital employed under UK GAAP 3,070 2,971Pension liabilities 3 (226) (227)Catalogue costs 4 (15) (14)Lease incentives 5 (34) (34)Amortisation of acquisitionintangibles 6 (4) -Reversal of UK GAAP goodwillamortisation charged aftertransition 6 207 -Goodwill impairment on transition 6 (3) (3)Deferred taxation 9 186 210Dividends 10 202 191Other 5 1 (5) ------------------------------------Capital employed under IFRS 3,384 3,089 Notes to tables The following notes explain the definition of Benchmark PBT and the maindifferences between the summary tables under UK GAAP and IFRS. Note 1 - Benchmark PBTGUS has defined Benchmark PBT as profit before: - amortisation of acquisition intangibles; - exceptional items (i.e. gains or losses on disposal or closure of businesses and goodwill impairment charges); - fair value remeasurements relating to financial instruments; and - taxation. Benchmark PBT also includes: - the Group's share of pre-tax profits of associates (IFRS requires disclosure of the post-tax result on the formal income statement); and - any operating profits or losses of discontinued operations up to the date of disposal or closure (which are shown separately under IFRS). The additional disclosures below Benchmark PBT are still shown in the summarytable on page five and in the formal income statement as required. Benchmark basic EPS takes Benchmark PBT less taxation (attributable to BenchmarkPBT) and minority interests, divided by the weighted average number of shares inissue (excluding own shares held in Treasury and in the ESOP trust). Note 2 - share-based paymentsExpensing additional share-based payments reduces profit before tax andexceptional items by £6.6m in the year to 31 March 2005. IFRS requires that thefair value of all share-based payments is charged to the income statement overthe vesting period. GUS has elected to apply the requirements retrospectively toall payments including those granted before the prescribed date of 7 November2002 but not vested at the Transition Date to IFRS of 1 April 2004. There are three principal differences in the accounting methods for share-basedpayments under UK GAAP and IFRS. These relate to: - share options (including SAYE). These give rise to a charge under IFRS, whereas they did not under UK GAAP; - the Performance Share Plan (which gives shares to participants at no cost depending on the total shareholder return of GUS over a three year period). The expense is lower under IFRS than under UK GAAP. Under UK GAAP, it was assumed that the awards vest in full. Under IFRS, it is estimated that 60% will vest; and - the Co-Investment Plan (which gives participants matching shares after three years if they invest their annual cash bonus in GUS shares). Although the total charge over time is the same under UK GAAP and IFRS, the phasing is different. Under UK GAAP, all the expense of a grant was taken at the beginning (i.e. in the year when the bonus on which it is based was earned). Under IFRS, the expense is spread over a four year period, starting in the year when the bonus on which it is based is earned. In the year to 31 March 2006, these changes are estimated to lead to anadditional cost of about £20m compared to UK GAAP (i.e. about £13m higher thanthe corresponding £6.6m impact in 2005). This largely relates to the phasing ofthe Co-Investment Plan charge. Note 3 - pensionsThe change in the way that the cost of pension and other post-retirementbenefits is calculated increases profit before tax and exceptional items by£2.3m in total in the year to 31 March 2005. Under IFRS, the pension chargeprincipally comprises a current service cost, charged to operating profit, and afinancing item, reported within net interest. Under IAS 19, the current servicecost of future pension benefits is calculated using a lower real discount ratethan under SSAP 24, which increases the cost. However, this effect is offset atGUS by other changes, principally related to the manner in which scheme deficitswere dealt with under SSAP 24. The net effect of these changes is to increaseoperating profit by £0.2m. Net interest is reduced by £2.1m, reflecting theexcess of the expected return on pension assets over the interest on pensionliabilities. In the year to 31 March 2006, the current service cost is expected to increaseby around £7m mainly because of reductions in discount rates and increasedlongevity. However, this will be offset by a decrease of about £7m in netinterest, due mainly to the effect of the £76m special pension contributionsmade in March 2005. Under IAS 19, GUS has adopted the option that requires the full actuarial valueof the surplus or deficit of pension schemes and other post-retirement benefitsto be shown on the balance sheet. The net liability, after deferred tax, inrespect of pensions and other post-retirement benefits at 31 March 2005 was£78m. It is expected that the value of the surplus or deficit will fluctuatefrom one year to another, reflecting among other things changes in interestrates and the value of relevant stock markets. Any movements in the pension assets and liabilities arising from actuarial gainsand losses (such as changes in the discount rate, longevity assumptions or stockmarket fluctuations) are recognised immediately in full under IFRS through theStatement of Recognised Income and Expense (SORIE). As such, they do not impacteither Benchmark PBT or reported PBT. Note 4 - catalogue costsCatalogue costs are expensed as incurred under IFRS, reducing profit before taxby £1.2m, whereas under UK GAAP, catalogue costs were expensed over the periodin which the catalogues generated revenue. Although the year-on-year effect ofthis adjustment is small, it has a significant impact between the first andsecond halves in 2005. In the six months to 30 September 2004, catalogue costswere £8.1m lower under IFRS. In the six months to 31 March 2005, catalogue costswere £9.3m higher under IFRS. In the year to 31 March 2006, catalogue costs under IFRS compared to UK GAAP areexpected to have a similar net impact, reducing profit before tax by about £1m.However, the phasing is expected to differ significantly with catalogue costsabout £2m lower in the six months to 30 September 2005 and about £3m higher inthe second half of the year. In other words, compared to the previous year, thisresults in an adverse £6m movement in the six months to September 2005, offsetby a favourable £6m movement in the six months to 31 March 2006. Note 5 - other adjustments Other adjustments comprise several other items that are not individuallysignificant. They include property lease incentives, which are recognised overthe full term of the lease under IFRS, reducing profit before tax by £0.4m.Under UK GAAP, these were recognised from the start of the lease to the firstrent review. The divisional split of the adjustments in notes 2 to 5 is given in Appendix 2. Note 6 - goodwill amortisationUnder IFRS, the amortisation of capitalised goodwill on acquisitions is nolonger allowed. Goodwill amortisation charged under UK GAAP after TransitionDate is reversed in the IFRS income statement and balance sheet. Goodwill willbe subject to an annual impairment review, with any charge reported underexceptional items in the summary table. IFRS also requires that, on acquisition, specific intangible assets areidentified and recognised and then amortised over their useful economic lives.These include items such as brand names and customer lists, to which value isfirst attributed at the time of acquisition. In the year to 31 March 2005, thisamortisation amounted to £4.1m, which relates to Experian acquisitionsundertaken during the year. Earlier acquisitions have not been restated. As it did with goodwill amortisation, GUS will exclude amortisation ofacquisition intangibles from its definition of Benchmark PBT. This is becausethe amortisation of acquisition intangibles is based on uncertain judgmentsabout the value and economic life of such items and treated differently tosimilar assets created by expenditures within a business already owned by GUS.The amortisation of intangibles that have always been capitalised, principallydatabases and software, will continue to be charged in arriving at BenchmarkPBT. Note 7 - exceptional itemsIFRS permits the use of exceptional items, although the treatment andmeasurement of certain items differs to that under UK GAAP. GUS will continue totreat as exceptional items only those costs associated with the disposal orclosure of businesses and goodwill impairment charges. All other restructuringcosts are charged against operating profit in the businesses in which they areincurred. In the year to 31 March 2005, exceptional costs were £10.0m under UKGAAP and £3.5m under IFRS, with the difference reflecting a £3.7m creditrelating to the impact on pension liabilities of the disposal of home shoppingand Reality and other minor remeasurements. Note 8 - financial instrumentsGUS has taken advantage of the option under IFRS 1 to defer the implementationof IAS 32 (Financial Instruments: Disclosure and Presentation) and IAS 39(Financial Instruments: Recognition and Measurement) to the financial year ended31 March 2006. As a result, there will be no impact in the year to 31 March2005. These standards will first be applied for the six months to 30 September2005. The most significant financial instruments for GUS are its forward sales offoreign currencies to hedge the value of investments in group businesses outsidethe UK. The treatment of these will be effectively the same under IFRS as underUK GAAP, with the fair value being recognised in the balance sheet andmark-to-market re-measurements being taken through the SORIE rather than theincome statement. Many, but not all, of the Group's other derivatives will qualify for hedgeaccounting under IFRS. These gains or losses will also be taken through theSORIE, not the income statement. Some of the Group's derivatives will not qualify for hedge accounting. Gains orlosses on these arising from market movements will be charged or credited to theincome statement. As noted above, these financing fair value re-measurements areexcluded from Benchmark PBT and EPS. Note 9 - taxationThe effective tax rate under IFRS increased by 2.2% compared to the UK GAAPequivalent, largely because of the treatment of deferred tax. Under UK GAAP, theeffective tax rate, based on profit before amortisation of goodwill and beforeprofits and losses on sale of businesses, was 24.3%. Under IFRS, the equivalenteffective tax rate is 26.5%. The increase is due to the treatment of tax reliefon goodwill written off to reserves (on pre-1998 US acquisitions). Under UKGAAP, this relief was credited each year against the tax charge in the incomestatement. Under IFRS, a deferred tax asset is set up for this future relief atthe time of the acquisition; as the tax relief is received, it is creditedagainst this deferred tax asset. It is important to note that tax payable in cash is unlikely to changematerially as a result of IFRS. For the year to 31 March 2006, as previously noted, GUS expects its effectivetax rate to increase further by about 2%, mainly affected by GUS' currentunderstanding of recent proposed changes in UK tax legislation. Note 10 - dividends IFRS does not allow a dividend that is proposed but not yet authorised to beaccrued in the financial statements. This means that, under IFRS, accounting fordividends is effectively on a cash paid basis, resulting in a small differencein the full year charge on the income statement. On the balance sheet, there istherefore no longer a dividend accrual. Appendix 1. Reconciliation of IFRS Benchmark PBT to formal income statement 12 months to 31 March 2005 £m-------------------------------------------------------------------------------Benchmark PBT 906.0Amortisation of acquisition intangibles (4.1)Exceptional items (3.5)Exclude operating profit of discontinued operations (55.2)Exclude interest expense of discontinued operations 1.2Exclude exceptional items of discontinued operations (0.2)Include tax expense on share of profits of associates (1.1) ---------IFRS profit before taxation 843.1Tax expense (233.0) ---------Profit after taxation 610.1Discontinued operations (after interest, tax and exceptional items) 38.1 ---------Profit for the financial year 648.2 Profit attributable to:Equity shareholders of the parent company 598.8Minority interests 49.4 ---------Profit for the financial year 648.2-------------------------------------------------------------------------------- 2. Adjustments to Benchmark PBT by business 12 months to 31 UK GAAP Share-based Pensions Other IFRSMarch 2005 payments adjustments1£m Argos 309.6 (2.3) - (2.3) 305.0Homebase 91.8 (1.3) - (0.2) 90.3ARG FS 0.2 - - - 0.2Wehkamp 19.9 - 1.8 0.8 22.5 ------------------------------------------------------------Total ARG 421.5 (3.6) 1.8 (1.7) 418.0Experian North America 188.2 0.6 - 0.1 188.9International 130.1 (0.6) (1.9) 0.5 128.1 ------------------------------------------------------------Total Experian 318.3 - (1.9) 0.6 317.0Burberry 165.7 (4.3) (0.2) 0.1 161.3Central (24.1) 2.1 0.5 (0.3) (21.8)activities ------------------------------------------------------------Continuingoperations 881.4 (5.8) 0.2 (1.3) 874.5 Discontinuedoperations 55.4 (0.8) - 0.6 55.2 ------------------------------------------------------------Total 936.8 (6.6) 0.2 (0.7) 929.7Net interest (26.4) - 2.1 0.6 (23.7) Benchmark PBT 910.4 (6.6) 2.3 (0.1) 906.0-------------------------------------------------------------------------------- 1 These include catalogue costs, lease incentives and other adjustments that arenot individually significant. 3. Restated interim results Reconciliation of IFRS interim Benchmark PBT to interim formal income statement Six months to 30 September 2004 £m--------------------------------------------------------------------------------Benchmark PBT 406.9Amortisation of acquisition intangibles (0.1)Exceptional items 21.1Exclude operating profit of discontinued operations (24.8)Exclude interest income of discontinued operations (0.2)Exclude exceptional items of discontinued operations (25.5)Include tax expense on share of profits of associates (0.8) ---------IFRS profit before taxation 376.6Tax expense (104.9) ---------Profit after taxation 271.7Discontinued operations (after interest, tax and exceptional items) 43.8 ---------Profit for the period 315.5 ---------Profit attributable to:Equity shareholders of the parent company 296.9Minority interests 18.6 ---------Profit for the period 315.5 4. Adjustments to Benchmark PBT by business for H1 2004/5 Six months to UK GAAP Share-based Pensions Other IFRS30 Sept 2004 payments adjustments1£m Argos 85.7 (1.0) - 7.0 91.7Homebase 76.3 (0.7) - (0.2) 75.4ARG FS 0.4 - - - 0.4Wehkamp 10.3 - 0.9 1.2 12.4 ----------------------------------------------------------------Total ARG 172.7 (1.7) 0.9 8.0 179.9Experian North America 90.7 (1.4) - - 89.3International 62.0 (1.9) (1.0) 0.4 59.5 ----------------------------------------------------------------Total Experian 152.7 (3.3) (1.0) 0.4 148.8Burberry 78.8 (1.3) (0.1) 0.2 77.6Central (10.8) (2.7) 0.3 (0.3) (13.5)activities ----------------------------------------------------------------Continuingoperations 393.4 (9.0) 0.1 8.3 392.8Discontinuedoperations 24.8 - - - 24.8 ---------------------------------------------------------------Total 418.2 (9.0) 0.1 8.3 417.6Net interest (12.4) - 1.0 0.7 (10.7) Benchmark PBT 405.8 (9.0) 1.1 9.0 406.9 Amortisation ofacquisitionintangibles (0.1)Exceptional charge 21.1Fair value remeasurements - --------Profit beforetaxation 427.9Taxation (112.4)Equity minorityinterests (18.6) --------Profit for theperiod 296.9Dividends2 (191.0) --------Retained profit2 105.9 Benchmark EPS 28.0pReported basic EPS 29.7p1 These include catalogue costs, lease incentives and other adjustments that arenot individually significant.2 IFRS records dividends as movements in equity rather than appropriations ofprofit. The term retained profit is used here as a direct comparison to UK GAAP. 5. Timetable 20 June 2005 2005 Annual Report published, giving summary IFRS reconciliation 20 July 2005 AGM and Q1 Trading Update, published under IFRS (as all subsequent Trading Updates will be) 17 November 2005 2005/6 interim results, published under IFRS 24 May 2006 2006 Preliminary results, published under IFRS 6. Additional information The following additional information is available on the GUS website,www.gusplc.com. - Summary slide presentation, which will be referred to during the conference call at 10am today - Formal IFRS financial statements presentation - Accounting policies - Fair value of share-based payments This information is provided by RNS The company news service from the London Stock Exchange