International Financial
Reporting Standards
29 Sep 2005
Cautionary statement
International Financial Reporting standards (‘IFRS’) are being applied in
the European Union for the first time. This presentation has been
prepared on the basis of IFRSs expected to be available at 30 April 2006.
New standards and interpretations may be issued by the IASB and / or
endorsed by the EU prior to the completion of our first full reporting period
under IFRS on 30 April 2006. There are a number of new and revised
standards included within the body of Standards that comprise IFRS.
There is not yet any significant established practice upon which to draw in
forming opinions regarding their interpretation and application. Accordingly
practice is continuing to evolve. At this 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, cannot be determined with
certainty and may be subject to change. The financial information which
follows represents our current view and may be impacted by changes in
the business or to IFRS or the interpretation thereof. This presentation
should be treated with appropriate caution.
2
Introduction
All EU listed companies are required to prepare IFRS financial statements
for accounting periods beginning on or after 1 January 2005
• IFRS full financial statements required for
Stagecoach financial year ending 30 April 2006
• Comparative amounts required for year ended 30
April 2005
• Opening Balance Sheet at 1 May 2004
• First published results Oct 2005 interim (restated Oct
2004 interim)
3
Introduction (2)
• Prepared on basis of IFRSs expected to be endorsed at
30 April 2006
• Ongoing monitoring of latest interpretations and/or
industry practice
• All numbers quoted are preliminary and unaudited
• Although IFRS changes financial reporting – it does not
impact underlying value drivers of our business
- Business strategy unaffected
- Cash generation unaffected
4
Overview of financial impact
30 April 2005
31 October 2004
1 May 2004
UK
GAAP
IFRS
UK
GAAP
IFRS
UK
GAAP
IFRS
Operating profit
£132.8m
£140.6m
£69.9m
£74.1m
-
-
Profit before tax
£108.3m
£112.9m
£57.2m
£59.3m
-
-
Profit after tax
£78.8m
£85.9m
£40.3m
£43.3m
-
-
Earnings per share
(basic)
6.8p
7.4p
3.2p
3.4p
-
-
Earnings per share
(before exceptionals
and amortisation of
intangible assets)
9.0p
9.4p
4.0p
4.2p
-
-
Net assets
£219.0m
£121.4m
£208.5m
£134.2m
£390.0m
£328.2m
5
Key areas of financial impact
• IAS 19 – Pensions
• IFRS 3 & IAS 38 – Goodwill, intangible assets &
business combinations
• IFRS 2 – Share based payments
• IAS 10 – Dividends
• IAS 32/39 – Financial instruments
6
IFRS 1 First time adoption and transitional
arrangements
Key exemptions
• IFRS 3 not applied retrospectively to business combinations
prior to 1 May 2004
• All actuarial gains and losses recognised at date of transition
(IAS 19)
• IFRS 2 only applied to awards from 7 November 2002
• No restatement of comparative information with respect to IAS
32 and 39
• Accumulated translation differences at the date of transition set
to zero
• Fair value of certain fixed assets treated as deemed cost at 1
May 2004
7
IAS 19 – Employee benefits
Financial Impact
Statement of
recognised
income and
expense
Profit
30 April
2005
£m
Operating profit
31
October
2004
£m
30 April
2005
£m
Equity
30 April
2005
£m
31
October
2004
£m
1 May
2004
£m
5.1
2.3
-
-
-
-
(1.8)
(0.8)
-
-
-
-
Profit for the period
3.3
1.5
-
-
-
-
Recognised gains and losses
-
-
(42.0)
-
-
-
Net assets
-
-
-
(182.7)
(142.5)
(144.0)
Tax
8
IAS 19 – Employee benefits (cont)
• Full recognition of actuarial gains and losses (SORIE)
• Defined benefit schemes full deficit/surplus
recognised on balance sheet
• No change to defined contribution schemes
• Special treatment for rail pension schemes
9
IAS 19 – Rail pension scheme
• Only recognise deficit that expect to fund over remainder
of franchise term
• On transition/commencement of a franchise – intangible
asset recognised that matches pension deficit that
obliged to fund
– Represents economic benefit derived from the
franchise agreement that is attributable to share of
pension deficit
– Amortised on a straight line basis until end of the
franchise
10
IFRS 3 – Business combinations
IAS 38 – Intangible assets
Financial Impact
Statement of
recognised income
and expense
Profit
30 April
2005
£m
31
October
2004
£m
7.2
3.7
-
-
Loss on disposal of operations
(0.4)
(0.2)
-
Tax
(0.9)
(0.5)
Profit for the period
5.9
3.0
Recognised gains and losses
-
-
Net assets
-
-
Operating profit
31
October
2004
£m
1 May
2004
£m
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
6.5
3.6
0.8
30 April
2005
£m
(0.2)
11
31
October
2004
£m
Equity
(0.2)
-
30 April
2005
£m
IFRS 3 – Business combinations
IAS 38 – Intangible assets (cont)
• Goodwill carried at cost (no amortisation), subject to
annual impairment reviews
• Wider definition of intangibles resulting in
reclassifications from goodwill - £2.0m reclassed to
intangibles at 1 May 2004 and a further £2.0m
reclassified in the year to 30 April 2005
• VRG – continuation of amortisation due to finite life of
franchises
• Reversal of VRG’s negative goodwill
12
IFRS 2 – Share based payments
Financial Impact
Profit
Equity
30 April
2005
£m
31
October
2004
£m
Operating profit
(1.4)
(0.6)
Profit for the period
(1.4)
(0.6)
Net assets
-
13
-
31
October
2004
£m
1 May
2004
£m
-
-
-
-
-
-
Nil
Nil
Nil
30 April
2005
£m
IFRS 2 – Share based payments (cont)
• Applies to options granted after 7 November 2002,
not yet vested by 1 May 2004.
• Requires expense (based on fair value) to be
recognised in income statement for all share based
payments (no exemption for SAYE)
• Valuation model used to calculate fair value – Black
Scholes
• Expense spread over vesting period – typically 3
years
14
IAS 10 - Events after the balance sheet
date
Financial Impact
Equity
30 April
2005
£m
Net assets
24.4
15
31
October
2004
£m
1 May
2004
£m
10.6
26.5
IAS 10 - Events after the balance sheet
date (cont)
• Dividends declared after balance sheet date not
recognised as a liability at balance sheet date
• Group’s dividend policy will remain unchanged
16
Other impacts
IAS 28 – Investments in associates
• If losses of an associate/joint venture exceed interest in the
associate/joint venture – discontinue recognising share of losses
(increase in net assets of £1.0m at 1 May 2004)
• On subsequent disposal, loss on disposal of operations
increased by £1.0m and net assets decreased by £1.0m
IFRS 5 – Non current assets held for sale and discontinued
operations
• Assets or disposal groups held for sale separately disclosed
• No depreciation
• 1 May 2004 reclassify net £7.3m of assets to ‘held for sale’, and
reclass of £0.1m from depreciation charge to loss on disposal
during the year ended 30 April 2005
17
Other impacts (2)
IFRS 1- First time adoption of international financial
reporting standards
• As a result of including fair value of certain fixed assets as
deemed cost – reduction in depreciation.
• Increase in profit and net assets of £0.3m
IAS 31 – Interests in joint ventures
• No requirement to split share of results between turnover,
operating profit, interest and taxation
• Reclass of £5.2m of tax charges and £1.7m of finance
income into a single line item in income statement
18
IAS 32/39 – Financial instruments
Financial Impact
Equity
1 May
2005
£m
Net assets
(7.2)
31
October
2004
£m
1 May
2004
£m
-
-
• Recognition of fair value of fuel swaps resulting in net £6.6m increase to
net assets
• Reclassification of redeemable ‘B’ preference shares to debt reduces net
assets by £13.9m
• Other immaterial adjustments increase net assets by £0.1m
19
IAS 32/39 – Financial instruments (cont)
• Applied from 1 May 2005
• No restatement of April 2005 comparatives
• Derivatives recorded on balance sheet, use of fair
value
• Measurement depends on classification
• Potential for some volatility, as gains and losses are
recognised through income statement, except where
qualify for hedge accounting
20
Net debt as at 1 May 2005
Previously
reported as
net debt
under UK
GAAP
£m
Previously
reported in
accruals
under UK
GAAP
£m
Previously
reported in
equity
under UK
GAAP
£m
Adjustment
to bond
value on
transition to
IFRS
£m
104.2
-
-
-
104.2
34.3
-
-
-
34.3
(66.1)
-
-
-
(66.1)
Bank loans and loan stock
(112.1)
-
-
-
(112.1)
Bonds - principal
(174.9)
-
-
-
(174.9)
-
-
(6.9)
0.4
Cash
Cash collateral
Hire purchase and lease obligations
- accrued interest
-
- FX contract
-
-
-
-
-
(13.9)
-
(13.9)
Redeemable ‘B’ shares
Net debt
Unamortised gain on early settlement of interest rate swaps
Net borrowings shown on IFRS balance sheet
(6.9)
IFRS
£m
0.4
(214.6)
(6.9)
(13.9)
0.4
(235.0)
-
(23.5)
-
-
(23.5)
(214.6)
(30.4)
(13.9)
0.4
(258.5)
21
Summary – year ended 30 April 2005
• Adjusted EPS 4% higher at 9.4p
• Net assets decreased by £97.6m to £121.4m
• No impact on overall cashflow
• No impact on dividend policy going forward
22