Big Yellow Group PLC
Big Yellow
IFRS 2005 Restatement
September 2005
1
Big Yellow and IFRS
• Overview
• Key changes
• IFRS & UK GAAP
• Year ended 31 March 2005 restatement impact
• Performance measures
2
Overview
• First time adoption is for the year ended 31 March 2006
• Interims 2005 under IFRS
• No changes to cash-flow, banking covenants unaffected
• Income statement
– Profit re-defined
– 2005 profit before tax increased by £38.7m
• Balance Sheet
– Big Yellow centres are investment properties and revalued
at fair value
− Full provision for deferred tax
− Net assets up by £100.5m
3
Key Changes
• Property classification
• Leaseholds
• Deferred tax
• Fair valuation of debt
• Share based payments
• Final dividend accounted for on cash basis
• Goodwill – annual impairment review
4
Investment Properties IAS 40
• Summary Definition
– Property held by owner to earn rentals or for capital appreciation or both rather
than for the supply of goods or services or for administration purpose; or for sale
in ordinary course of business
– Ancillary services to occupants of property must be minor in relation to
arrangements as a whole
• Self Storage Centres
– All customers sign rental agreements for their specific unit and can stay for a
minimum period or for as long as they like
– The customer rental agreements qualify as operating leases
– Customers have a lock on their unit and can come and go as they please
– Packing material sales and services such as forklift etc. are 5-6% of turnover
– Centres are held for capital appreciation
– Defined real estate class with accepted valuation methodology
• Conclusion
– Big Yellow self storage centres are investment properties under IAS 40
5
Property Accounting
• Before
–
–
–
–
Open storage centres held at cost and depreciated
Properties in course of development held at cost
Surplus land for sale held in properties in course of development
No capitalisation of interest
• IFRS
– Open storage centres held at fair value and valuation changes through
income statement
– Property assets integral to the self storage centres no longer depreciated
and restated for year ended 31 March 2005 but not previous years
– Properties in course of development held at cost until open
– Surplus land held for sale classified as non-current assets held for sale
– No capitalisation of interest
• 2005 Impact
6
– Profit before tax increased by £38.7m for the year ended 31 March 2005,
reflecting the revaluation uplift in the year and adjustment to
depreciation
Finance & Operating Leases
• Properties held leasehold
–
–
–
–
–
9 centres – average unexpired terms 21 years at 31 March 2005
No intention for property to be sold to tenant (Big Yellow) by landlord
Valuation risk remains with landlords
Market value of properties greater than finance lease receivable
Repair and insurance obligation with Big Yellow
Accounting Treatment
– Under IAS 17 these leases would be operating leases
– However, properties to be treated as investment properties under IAS 40 and
therefore accounted for as finance leases and fair valued
• Customer rental agreements
– Reviewed under IAS 17 and confirmed as operating leases
7
Deferred Tax Liability
• UK GAAP
– Deferred tax on investment properties held at valuation disclosed but not
on balance sheet
• IFRS
– Full provision for deferred tax on balance sheet changes in deferred tax
go through income statement comprising of three elements.
– Deferred tax liability on revaluation of investment properties £40.2m
– Deferred tax liability on capital allowances arising from
depreciation adjustment £0.6m
– Deferred tax asset on IFRS deduction for share options £2.1m
• Financial impact
– Net assets at 31 March 2005 reduced by £38.7m
8
Financial Instruments
• UK GAAP
– Debt in balance sheet at amortised cost
– Interest rate swaps in balance sheet at book value
– Fair value adjustment disclosed
• IFRS
–
–
–
–
–
Debt in balance sheet at amortised cost
Interest rate swaps held at fair value in balance sheet
Changes in values go through income statement
Hedge accounting for interest swaps not adopted
No embedded derivatives requiring valuation
• 2005 Impact
– Profit before tax increased by £0.1m
9
Share Based Payments
• Post November 2002 share options
• Valued using Black-Scholes model
• Volatility
• 2005 impact – profit before tax down by £0.1m
10
Profit Before Tax - 2005
£m
2005
As reported UK GAAP
Share based payments
4.1
(0.1)
Goodwill adjustment
0.1
Fair value movement on interest rate swaps
0.1
Depreciation adjustment on investment properties
3.6
Leasehold property rents
2.2
Finance charge – leasehold investment properties
(1.6)
Depreciation on finance lease asset
(0.6)
7.8
11
Gain on revaluation of investment properties
35.0
IFRS Restated
42.8
Profit After Tax - 2005
£m
UK GAAP
IFRS
4.1
42.8
Current tax
(0.1)
(0.1)
Deferred tax
(1.5)
(12.6)
2.5
30.1
38%
30%
Profit before tax
Profit after tax
Effective tax rate
12
Total Assets – 31 March 2005
£m
UK GAAP
Intangible Assets
1.3
Investment Property
Development Property
IFRS
1.4
300.9
38.9
36.0
139.0
1.4
Non current assets held for sale
179.2
-
339.7
2.9
Non current assets
179.2
342.6
Inventories
0.2
0.2
Trade and other receivables
8.9
8.9
Cash
6.4
6.4
194.7
358.1
Plant, equipment and other
property
Current assets
Total Assets
13
Total Liabilities – 31 March 2005
£m
UK GAAP
IFRS
Trade and other payables
3.6
3.6
Current tax liabilities
0.1
0.1
-
-
Short term provisions
11.5
9.9
Non current liabilities
15.2
13.6
Bank loans
108.4
108.5
Finance lease creditor
-
25.7
Deferred tax liabilities
0.3
39.0
Long term provision
12.1
12.1
136.0
198.9
Current liabilities
Band overdrafts and loans
Total Liabilities
14
Equity – 31 March 2005
£m
Total assets
Total liabilities
Net assets
UK GAAP
IFRS
194.7
358.1
(136.0)
(198.9)
58.7
159.2
Adjustments:
IAS40 Revaluation gain and
depreciation adjustment
137.7
Deferred tax (net)
(38.7)
Share based payments
Goodwill
Fair value of interest rate swaps
2005 final dividend
15
IFRS Restated
0.1
(0.1)
1.5
159.2
Adjusted Earnings Per Share – 31 March 2005
Earnings per share
UK GAAP
IFRS
£’000
£’000
2,522
30,141
Less gain on revaluation of investment properties
(34,976)
Add back deferred tax in respect of investment properties
10,493
Add back fair value movement on interest rate swaps
Earnings used for calculation of adjusted earnings per share
(47)
2,522
5,611
2.52p
5.61p
No of shares
Adjusted earnings per share
16
Adjusted Earnings Per Share – 31 March 2005
Pence
UK GAAP
2.52
Reversal of depreciation
3.68
Leases – rent free periods
0.04
Income taxes
(0.65)
Share based payments
(0.08)
Goodwill
IFRS
17
0.10
5.61p
Adjusted Net Assets per Share – 31 March 2005
Net assets at 31 March 2005
UK GAAP
IFRS
£’000
£’000
58,679
159,168
Fair value movement of interest rate swaps
(154)
Exercise of share options
7,331
Revaluation uplift on properties
134,983
Add back deferred tax on revaluation surplus
40,194
Add back deferred tax on fair value of interest rate swaps
Adjusted net assets at 31 March 2005
No of shares
Adjusted net assets per share
18
7,331
(46)
200,839
206,647
108,120,866
108,120,866
185.8p
191.1p
Adjusted Net Assets per Share – 31 March 2005
Pence
As previously reported
Final dividend
1.4
Deferred tax asset re share options
1.9
Deferred tax liability re depreciation adjustment
Goodwill / Plant held separately
IFRS
19
185.8
(0.5)
2.5
191.1p
Key Performance Measures
20
UK GAAP
IFRS
Earnings per share
2.52p
30.15p
Adjusted earnings per share
2.52p
5.61p
Net assets per share
58.6p
159.0p
Adjusted net assets per share
185.8p
191.1p
Summary
• Year ended 31 March 2006 under IFRS
• Self storage centres revalued on balance sheet
• Enhanced reported earnings, no change in cash-flow
• But more volatile
• Business as usual
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Disclaimer
This presentation contains certain statements that are neither reported financial results nor
other historical information. These statements are forward-looking in nature and are
subject to risks and uncertainties. Actual future results may differ materially from those
expressed in or implied by these statements.
Many of these risks and uncertainties relate to factors that are beyond Big Yellow's ability
to control or estimate precisely, such as future market conditions, currency fluctuations,
the behaviour of other market participants, the actions of governmental regulators and
other risk factors such as the Company's ability to continue to obtain financing to meet its
liquidity needs, changes in the political, social and regulatory framework in which the
Company Operates or in economic technological trends or conditions, including inflation
and consumer confidence, on a global, regional or national basis.
Readers are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date of this document. Big Yellow does not undertake any
obligation to publicly release any revisions to these forward-looking statements to reflect
events or circumstances after the date of these materials. Information contained in this
presentation relating to the Company or its share price, or the yield on its shares, should
not be relied upon as a guide to future performance.
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