IFRS_Restatement restatement
Transcript of IFRS_Restatement restatement
Adoption of International Financial Reporting Standards (IFRS)
Presentation - 20 May 2005
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Contents
1. Overview
2. Financial presentation under IFRS
3. Summary of accounting policy differences
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1. Overview
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IFRS – headlines• No material impact on cash resources
• Banking covenants not affected
• Main adjustments are:
- accounting for goodwill on disposals and goodwill amortisation (IFRS 1 and 3)
- capitalisation of development costs (IAS 38)
- foreign currency movements related to debt (IAS 21)
• IFRS 5, IAS 39 – adopted from 1 April 2005
• Financial impact 2004/05
- increase reported earnings by £378m
- increase operating profit by £9m
- increase equity at March 2005 by £34m
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IFRS – summary of financial impactRestatement of profit for 2004/05£ million Operating
profit(1)
Net profit for year
Profit/(loss) for year under UK GAAP 175 (473)
Adjustments:
Reversal of goodwill amortisation (IFRS 3) - 28
Reversal of goodwill charged on sale of subsidiary (IFRS 1) - 331
Capitalisation of development costs- additions 16 16
- depreciation (8) (8)
- net (IAS 38) 8 8
Foreign exchange gain on net debt (IAS 21) - 16
Foreign exchange loss on sale of subsidiaries (IAS 21) - (3)
Taxation (IAS 12) - (1)
Other 1 (1)
Profit/(loss) for year under IFRS 184 (95)
Notes:1. Before exceptional items, goodwill amortisation, goodwill impairment and foreign exchange gains/(losses).
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IFRS – IAS 21 Foreign currency gains/(losses)(1)
Average Movement in
relevant exchange
external rates Impact P&L
Currency of net debt net debt(2) 2004/05 gain/(loss)
£m % £m
US$ (430) 2.7 12
Euro (220) (3.3) (7)
Yen (110) 5.8 7
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Intra-group balances and other currencies
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Total gain 2004/05 16
Notes:1. This analysis has been prepared to illustrate the impact of currency movements and includes a number of approximations.2. Relevant external net debt is debt held in Group companies with a funtional currency different from the debt.
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IFRS - OPBIT by segment 2004/05
Bridge UK GAAP to IFRS
£ million Intangible assets Employee
UK GAAP Capitalisation
Amortisation
Leases benefits IFRS
Process Systems 47 4 (1) 1 51
Eurotherm 17 17
APV 6 (1) 5
Rail Systems 56 12 (7) 61
Controls 89 1 90
Corporate costs (46) (46)
Retained businesses
169 16 (8) 2 (1) 178
Businesses for sale 9 9
Continuing operations
178 16 (8) 2 (1) 187
Discontinued operations
(3) (3)
Total group 175 16 (8) 2 (1) 184
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IFRS – summary of financial impactRestatement of equity as at 31 March 2004 and 2005
£ million 31 Mar 04 31 Mar 05
Equity – deficit under UK GAAP (304) (510)
Adjustments:
Capitalisation of development costs (IAS 38) 48 56Goodwill (IFRS 3) - 25Leases (IAS 17) (10) (10)Employee benefits (IAS 19) (20) (21)Taxation (IAS 12) (15) (16)Equity – deficit under IFRS (301) (476)
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2. Financial presentation under IFRS
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IFRS Income statement – Full year 2004/05
Bridge UK GAAP to IFRS£ million
UK GAAP
Intangible
assetsGoodwill Leases
Employee
benefits
Foreign
exchange
Taxation
Discontinued
operationsIFRS
Sales - Continuing 2,803 2,803
- Discontinued 120 (120) -
2,923 - - - - - - (120) 2,803
OPBIT - Continuing 178 8 2 (1) 187
- Discontinued (3) 3 -
175 8 - 2 (1) - - 3 187
Restructuring costs (58) (58)
Transition costs (17) (17)
Refinancing costs - -
Fixed asset impairment (63) (63)
Product recall costs (30) (30)
Goodwill amortisation (28) 28 -
Goodwill impairment (27) (1) (28)
PBIT pre corporate exceptionals
(48) 8 27 2 (1) - - 3 (9)
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IFRS Income statement – 2004/05 quarterly phasing
£ million FY Q4 Q3 Q2 Q1
Sales: Continuing 2,803 729 682 713 679
OPBIT:Continuing
187 71 46 51 19
Restructuring costs (58) (17) (13) (18) (10)
Transition costs (17) (2) (3) (8) (4)
Refinancing costs - - - - -
Fixed asset impairment (63) - - (63) -
Product recall costs (30) - - (30) -
Goodwill amortisation - - - - -
Goodwill impairment (28) - - - (28)
PBIT pre corporate exceptionals
(9) 52 30 (68) (23)
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IFRS Income statement – Full year 2004/05
Bridge UK GAAP to IFRS£ million
UK GAAP
Intangible
assetsGoodwill Leases
Employee
benefits
Foreign
exchange
Taxation
Discontinued
operations
IFRS
PBIT pre corporate exceptionals
(48) 8 27 2 (1) - - 3 (9)
Profit on sale/closure 170 (3) (167) -
Goodwill write off (468) 331 137 -
Loss on sale of fixed assets (3) (3)
PBIT (349) 8 358 2 (1) (3) - (27) (12)
Foreign exchange gains - 16 16
Interest (136) (1) (137)
FRS 17/IAS 19 finance charges (15) (15)
PBT (500) 8 358 1 (1) 13 - (27) (148)
Taxation 16 (1) 1 16
Loss - continuing (484) 8 358 1 (1) 13 (1) (26) (132)
Profit - discontinued - 26 26
Loss for the year (484) 8 358 1 (1) 13 (1) - (106)
Attributable to:
Equity holders (473) 8 358 1 (1) 13 (1) - (95)
Minority interests (11) (11)
(484) 8 358 1 (1) 13 (1) - (106)
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IFRS Income statement – 2004/05 quarterly phasing£ million FY Q4 Q3 Q2 Q1
PBIT pre corporate exceptionals (9) 52 30 (68) (23)
Loss on sale of fixed assets (3) (2) - (1) -
PBIT (12) 50 30 (69) (23)
Foreign exchange gains/(losses) 16 (2) 25 (2) (5)
Interest (137) (35) (32) (33) (37)
FRS 17/IAS 19 finance charges (15) (4) (3) (4) (4)
PBT (148) 9 20 (108) (69)
Taxation 16 35 (7) (8) (4)
Loss – continuing (132) 44 13 (116) (73)
Profit/(loss) - discontinued 26 (13) - 8 31
Loss for the year (106) 31 13 (108) (42)
Attributable to:
Equity holders (95) 30 12 (94) (43)
Minority interests (11) 1 1 (14) 1
(106) 31 13 (108) (42)
EPS – basic (1.7)p 0.5p 0.2p (1.6)p (0.8)p
– total Group before exceptional items, goodwill impairment and IAS 21 0.3p 0.4p 0.1p 0.4p (0.6)p
Average number of shares 5,687m 5,687m 5,687m 5,687m 5,687m
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IFRS Segmental analysis – 2004/05£ million Sales Operating Profit(1)
FY Q4 Q3 Q2 Q1 FY Q4 Q3 Q2 Q1
Process Systems 709 190 174 178 167 51 22 10 15 4
Eurotherm 122 31 31 32 28 17 6 4 4 3
APV 360 99 87 92 82 5 6 7 - (8)
Rail Systems 412 105 100 103 104 61 16 16 14 15
Controls 921 230 227 236 228 90 25 19 28 18
Corporate costs - - - - - (46) (10) (10) (12) (14)
Retained businesses 2,524
655 619 641 609 178 65 46 49 18
Businesses for sale 279 74 63 72 70 9 6 - 2 1
Continuing operations
2,803
729 682 713 679 187 71 46 51 19
Discontinued operations
120 3 2 5 110 (3) - - - (3)
Total Group 2,923
732 684 718 789 184 71 46 51 16
Note:1. Before exceptional items, goodwill impairment and foreign exchange gains/(losses).
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Free cash flow – Full year 2004/05
Bridge UK GAAP to IFRS£ million
UK GAAP Leases
Intangible
assets
Employee
benefitsIFRS
Operating profit 175 2 8 (1) 184
Depreciation/amortisation 73 1 8 82
Share-based payments 2 2
FRS 17 pension cost 48 48
Working capital movement 51 (1) 1 51
Environmental & litigation settlements
(34) (34)
Restructuring costs (45) (45)
Transition costs (24) (24)
Refinancing costs (8) (8)
Product recall costs (4) (4)
Capital expenditure - expenditure
(62) (16) (78)
- receipts 4 4
Pension contributions (131) (131)
Operating cash flow 45 2 - - 47
Interest paid (112) (1) (113)
Taxation paid (76) (76)
Free cash flow (143) 1 - - (142)
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Balance sheet – 31 March 2004
Bridge UK GAAP to IFRS£ million
UK GAAP
Intangible
assetsLeases
Employee
benefitsTaxation IFRS
Tangible assets 660 (16) 9 653
Intangible assets - goodwill
478 478
Intangible assets - other - 75 75
1,138 59 9 - - 1,206
Net trading assets 156 (11) (8) (20) 117
Deferred taxation (6) (15) (21)
Net pension liability (606) (606)
682 48 1 (20) (15) 696
Share capital and reserves
(469) 48 (10) (20) (15) (466)
Minority interests 165 165
Total equity interests (304) 48 (10) (20) (15) (301)
Net debt 986 11 997
682 48 1 (20) (15) 696
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Balance sheet – 31 March 2005
Bridge UK GAAP to IFRS£ million
UK GAAP
Intangible
assetsLeases
Employee
benefitsTaxation Goodwill IFRS
Tangible assets 442 (16) 8 434
Intangible assets - goodwill
285 25 310
Intangible assets - other - 83 83
727 67 8 - - 25 827
Net trading assets 124 (11) (8) (21) 84
Deferred taxation 5 (16) (11)
Net pension liability (574) (574)
282 56 - (21) (16) 25 326
Share capital and reserves
(643) 56 (10) (21) (16) 25 (609)
Minority interests 133 133
Total equity interests (510) 56 (10) (21) (16) 25 (476)
Net debt 792 10 802
282 56 - (21) (16) 25 326
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Movement in net debt
Bridge UK GAAP to IFRS£ million UK GAAP Leases IFRS
Opening net debt (986) (11) (997)
Free cash flow - operating 38 1 39
- legacy (181) - (181)
Dividends paid (14) - (14)
Acquisition costs (2) - (2)
Net divestment proceeds(1)(2) 352 - 352
Transfer of facility fees from prepayments 2 - 2
Amortisation of facility fees within debt (7) - (7)
Currency movement 6 - 6
Closing net debt (792) (10) (802)
Notes:1. Including net cash divested £18m.
2. Including pre-disposal working capital movement £(11)m.
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IFRS Debt financing at 31 March 05 comprised…
Maturity
(years) (1)
Effective
Rate –
Cash(2)
Drawn –
Cash
£ million
Drawn –
non-cash
£ million
Undrawn
£ million
High Yield 6.0 9.875% 663
144A 1.8 7.125% 1
144A 4.8 6.500% 106
EMTN 0.1 5.500% 24
2nd Lien 4.8 L + 4.75% 262
Term Loan B 4.5 L + 3.5% 363
RCF 4.0 L + 3.0% - 197
Bonding 4.0 L + 3.0% 25 213 151
Other debt 34
Total gross debt (before costs & discount)
1,478 213 348
High yield discount (10)
Debt issuance costs (27)
Total gross debt (after costs & discount)
1,441
Escrow account (3) (309)
EMTN deposit (26)
Cash collateral (111)
Other cash (193)
Total cash (639)
Net debt 802Notes:1. Excluding scheduled repayments.2. L+ = margin over LIBOR.3. Cash subject to “escrow” restrictions on usage.
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NO CHANGE
IFRS Movement in “legacy” liabilities…£ million
Taxation
Litigation/Environmen
tal TransitionDiscountin
g Pensions(2)
At 31 March 2003 256 140 100 204 931
At 31 March 2004 134 107 64 - 606
At 30 June 2004 129 104 48 - 582
At 30 Sept 2004 129 75 47 - 600
At 31 Dec 2004 125 71 45 - 596
Cash payments (37) - (5) (37)
Charge/(credit)(1) (29) - - 13
Disposals - - - -
Market movements(3) - - - 3
Exchange (1) - - (1)
At 31 Mar 2005 58 71 40 - 574Notes:1. The pension charge comprises service cost, finance charge and settlement/curtailments for defined benefit schemes only.2. Represents the Group’s defined benefit pension deficit.3. Changes in value of investments and liabilities.
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NO CHANGE£ million
(Deficit) at 31 March 2004 (606)
Return on assets less interest cost on liabilities (64)
Contributions and unfunded benefit payments less service cost 54
Experience gains, settlements and disposals 20
Exchange (4)
(Deficit) at 30 September 2004 (600)
Return on assets less interest cost on liabilities 81
Contributions and unfunded benefit payments less service cost 28
Experience gains, settlements and disposals 1
Change in discount rate (91)
Exchange 7
(Deficit) at 31 March 2005 (574)
FRS 17/IAS 19
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3. Summary of accounting policy differences
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Significant accounting differences
• Intangibles – IAS 38
• Business combinations and goodwill – IFRS 3
• Foreign exchange – IAS 21
• Financial instruments – IAS 39
• Share-based payment – IFRS 2
• Leases – IAS 17
• Taxation – IAS 12
• Employee benefits – IAS 19
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Intangible assets – IAS 38
Principal differences
• Requirement to capitalise qualifying development costs as intangible assets
Income statement impact
• Increase in operating profit of £8m in 2004/05
Balance sheet impact
• Capitalisation of hardware and software development costs at Rail Systems & Process Systems. No basis for capitalisation of costs at other business groups
• Capitalisation of separable development spend from point of technical & commercial feasibility of product. No capitalisation of stand-alone software development costs
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Business combinations and goodwill – IFRS 3Principal differences
• Amended calculation of profit/loss on disposal of businesses as goodwill previously written-off to reserves is no longer recycled through profit and loss account
• No amortisation of goodwill under IFRS, but annual impairment testing
Income statement impact
• Loss on disposal of businesses changes by £331m
• Reversal of £28m amortisation charge
IFRS 1 Exemption
• Business combinations before 1 April 2004 are not restated
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Foreign exchange – IAS 21
FX gains/losses on non qualifying net investment hedges
Principal difference• FX gains/losses on foreign currency denominated borrowings
are charged through the income statement rather than reserves to the extent that the borrowings exceed hedged assets held in equivalent foreign currency
• Under IFRS goodwill written off to reserves is not recognised as an asset and can not be included in the hedge determination
Income statement impact - £16m FX gain
Cumulative FX differences on disposal of foreign operations
Principal difference• On disposal of foreign operations the cumulative FX
differences deferred in a separate component of equity are recognised in the income statement (£3m loss)
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Financial instruments – IAS 32/39
IFRS 1 exemption taken to implement IAS 32 and 39 from 1 April 2005 without restatement of comparative data; no impact on 2004/05 accounts and transition balance sheet
Hedge accounting
• Cashflow hedges (future cashflows) will be fair valued on balance sheet and gains and losses transferred to equity and recycled through the income statement at the same time as the underlying hedged item is accounted for through the income statement
• Unhedged derivatives will be fair valued and gains and losses reflected in the income statement
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Share-based payment – IFRS 2
Principal differences
• Currently recognise expense for share options (except SAYE schemes), based on intrinsic value under UITF 17
• Under IFRS, expense recognised for awards of options based on fair value using option pricing modules
Impact
• No effect on Group operating profit as share option schemes are not extensively used and impact of SAYE schemes is minimal
• Balance sheet impact minimal
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Other standards
Leases – IAS 17
• More specific guidance on finance lease criteria has resulted in reclassification of two property operating leases as finance leases and a few equipment leases
• Balance sheet impact – decrease in net assets of £10m from reclassification from operating to finance leases
• Income statement impact – minimal
Taxation – IAS 12
• Reflects mainly impact of tax on undistributed overseas retained earnings and tax impact of IAS 38 adjustments
• Balance sheet impact – increase in liabilities of £15m at March 2004
• Income statement impact – minimal
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Other standards
Employee benefits – IAS 19
• No impact on accounting for pensions as Invensys applied FRS 17 at March 2004
• Change reflects increased accruals for accumulating compensated absences
• Balance sheet impact – £20m at March 2004
• Income statement impact – minimal
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IAS 39/IFRS 5 implementation
• Effective 1 April 2005 IFRS 5 ‘Non-current Assets Held for Sale and Discontinued Operations’ and IAS 39 ‘Financial Instruments Recognition and Measurement’ will be implemented prospectively
• IFRS 5 - Lambda, a business held for sale, will be reclassified to Held for Sale/Discontinued and its assets and liabilities will be segregated from the remainder of the Group
• IAS 39 – impact on opening equity at 1 April 2005 is minimal