17. Transition to IFRS
In the current year, the Group has adopted International Financial and
Reporting Standards for the first time.
The Group has applied IFRS 1 First Time Adoption of International
Financial Reporting and Accounting Standards to provide a starting point for
reporting under International Financial Reporting and Accounting Standards.
The date of transition to International Financial Reporting and Accounting
Standards was selected as 1 January 2004 and all comparative information in
these financial statements has been restated to reflect the Group's adoption
of International Financial Reporting and Accounting Standards.
The reconciliations of equity at 1 January 2004 (date of transition to
IFRS) and at 31 December 2004 (date of last UK GAAP financial statements) and
the reconciliation of profit for 2004, as required by IFRS 1, including the
significant accounting policies and full notes to 31 December 2004, were
published on the company's website, http://www.unitedbusinessmedia.com, on 30 June
2005.
Notes to the reconciliation of equity at 30 June 2004
As reported Effect of Reported
under transition under
Notes UK GAAP to IFRS IFRS
Assets
Non-current assets
Goodwill 1 373.1 58.4 431.5
Intangible assets - - -
Property, plant
and equipment 51.4 - 51.4
Investments accounted for
using the equity method 1,3 9.1 44.3 53.4
Other investments 3,7 169.4 (51.2) 118.2
603.0 51.5 654.5
Current assets
Inventories 4,10 26.7 (12.5) 14.2
Trade and other
receivables 3,10 160.3 116.0 276.3
Cash and cash equivalents 7 572.9 (98.9) 474.0
759.9 4.6 764.5
Total assets 1,362.9 56.1 1,419.0
Current liabilities
Borrowings 202.1 - 202.1
Convertible bond 217.8 - 217.8
Trade and other payables 6,8 602.3 (10.3) 592.0
1,022.2 (10.3) 1,011.9
Non-current liabilities
Borrowings 101.4 - 101.4
Retirement benefit
obligation 5 79.3 (7.3) 72.0
Deferred tax liabilities - - -
Trade and other payables 6.4 - 6.4
Provisions 56.3 - 56.3
243.4 (7.3) 236.1
Total liabilities 1,265.6 (17.6) 1,248.0
Shareholders' equity
Ordinary shares 72.6 - 72.6
Share premium 310.1 - 310.1
Other reserves 9 199.2 (3.1) 196.1
Retained
earnings 1,3,4,5,6,8,9 (486.3) 76.8 (409.5)
Minority interest 1.7 - 1.7
Total equity 97.3 73.7 171.0
Total liabilities and equity 1,362.9 56.1 1,419.0
Reconciliation of profit for the six months ended 30 June 2004
Continuing operations
Revenue 11 380.5 (99.4) 281.1
Operating expenses 1,2,4,11 (380.5) 146.6 (233.9)
Income from investments 3 3.0 (0.5) 2.5
Share of profit from
associates and
joint ventures 3 1.6 (1.3) 0.3
Operating profit 4.6 45.4 50.0
Net interest income 3.2 - 3.2
Financing costs - pension schemes (2.0) (0.4) (2.4)
Profit before tax 5.8 45.0 50.8
Taxation 3,11 (14.2) 2.8 (11.4)
(Loss)/profit for the
period from continuing
operations (8.4) 47.8 39.4
Discontinued operations
Profit for the period
from discontinued
operations 11 - 8.7 8.7
Net profit/(loss) for the period (8.4) 56.5 48.1
Attributable to:
Equity shareholders 1,2,3,4 (9.3) 56.5 47.2
Minority interests 0.9 - 0.9
(8.4) 56.5 48.1
Notes to the IFRS adjustments
1. Goodwill
Under IFRS 3, goodwill on acquisitions is no longer amortised, but is held
at its UK GAAP carrying value at the transition date and is then subject to an
annual impairment review. No impairment was identified as at 1 January 2004
following our review. An adjustment of 59.2 million pounds was made to the
income statement to reflect the reversal of amortisation under UK GAAP for the
six months ended 30 June 2004. Of the 59.2 million pounds adjustment, 58.4
million pounds increased the carrying value of goodwill on the balance sheet,
and the 0.8 million pounds of amortisation relating to goodwill in joint
ventures increased the carrying value of investments accounted for using the
equity method on the balance sheet.
2. Share-based payments
Under IFRS 2, the fair value of share options and other share-based
payments is recognised as an expense through the profit and loss account over
the expected period through to the expected date of exercise. The standard
requires recognition of the fair value of all share-based payments granted
from November 2002 onwards. In determining the impact on the profit and loss
account for the six months ended 30 June 2004, the cost of 1.7 million pounds
as calculated under IFRS 2 has been partially offset by the reversal of the
1.2 million pounds charge made in respect of the group's incentive plans under
UK GAAP, leaving a net adjustment of 0.5 million pounds.
3. Investments accounted for using equity method
Certain investments, which have been accounted for by the Group as fixed
asset investments under UK GAAP since 2001, will be equity accounted under IAS
28. IAS 28 defines an associate based on the ability to exert significant
influence, in contrast to UK GAAP where the influence has actually to be
exerted.
Due to the change in treatment for certain investments, a reclassification
of 150.1 million pounds was made to 'Other investments' at 30 June 2004 to
reclassify amounts relating to investments that are now equity accounted under
IAS 28. This amount was reclassified to 'Investments accounted for using the
equity method', and 'Trade and other receivables', for 43.5 million pounds and
105.1 million pounds respectively. This adjustment groups long-term loans
with the historical cost of investment in accordance with IAS 28. The UK GAAP
carrying value of these investments becomes deemed cost on transition under
IFRS, and classifies short-term loans separately in receivables. The net
share of losses in these associates of 1.0 million pounds was also recorded as
an adjustment, which decreases the carrying value of the investment on the
balance sheet at 30 June 2004. Dividends received during the period of 0.5
million pounds have been reclassified from 'Income from investments' to reduce
the balance sheet investment value.
For equity accounted investments, IAS 28 requires the share of post tax
profit or loss to be shown in a separate line on the face of the income
statement, compared to UK GAAP, which recognises the share of pre tax profit
or loss and the share of taxation separately. An adjustment of 0.5 million
pounds was made on the income statement, to transfer the share of tax for
investments equity accounted under UK GAAP, from the taxation line to the
share of profit from associates and joint ventures line on the face of the
income statement.
4. Work in progress valuation
Under UK GAAP, it is acceptable for the valuation of work in progress to
include attributable overheads. Under IAS 11, the valuation of work in
progress is restricted to direct costs incurred. An adjustment of 1.3 million
pounds was made on transition to transfer the attributable overheads included
in the work in progress balance as at 1 January 2004 to retained earnings. A
further adjustment of 0.9 million pounds was made at 30 June 2004, to transfer
the attributable overheads at the period end to operating expenses in the
income statement (resulting in a net adjustment to operating expenses of (0.4)
million pounds).
5. Pension liability
There are differences between the methodologies for the valuation of
pension scheme assets under IAS 19 compared to FRS 17; under IAS 19, equity
investments are valued on a bid value basis, whereas FRS 17 uses the mid-point
valuation. An adjustment of 0.9 million pounds was made on transition to
recognise the different valuation methodology under the IAS 19 valuation on
transition compared to the FRS 17 valuation under UK GAAP as at 1 January
2004. A further adjustment to financing costs of 0.4 million pounds was made
at 30 June 2004 to record the additional financing costs under IAS 19. An
actuarial gain of 8.6 million pounds was taken to equity at 30 June 2004 to
reflect the different valuation of the scheme assets under IAS 19.
6. Dividend creditor not accrued under IFRS
Under IAS 37, the liability for dividends is not recognised until a formal
obligation arises. As a result, the interim dividend at 30 June 2004 of 12.1
million pounds that was accrued under UK GAAP has been reversed under IFRS.
7. Cash and cash equivalents
Under IAS 1, cash comprises cash on hand and demand deposits with banks or
other financial institutions. This is the same as UK GAAP.
However, under IFRS the cash balance also includes amounts for 'cash
equivalents'. Cash equivalents are short-term liquid investments, and IFRS
defines that cash equivalents are normally held for the purpose of meeting
short-term commitments rather than investment purposes, and normally have a
maturity date less than 3 months. UK GAAP does not recognise the concept of
'cash equivalents', or the requirement for a maturity date of less than 3
months.
As at 30 June 2004, an adjustment of 98.9 million pounds was made to
reclassify the credit link notes with maturities greater than 3 months at the
balance sheet date from cash and cash equivalents to other investments.
8. Holiday pay accrual
Under IAS 19, all accumulating employee compensated absences that are
unused at the balance sheet date must be recognised as a liability. There is
no similar requirement under UK GAAP. An adjustment of 1.8 million pounds was
made at the transition date to recognise the holiday pay obligation at 1
January 2004, which is the same accrual required as at 30 June 2004.
9. Translation of foreign operations
Under IAS 21, the assets and liabilities of foreign operations are
translated at the closing rate at the balance sheet date, and the income and
expenses for each income statement are translated at the average rate for the
period. The resulting exchange differences must be recognised as a separate
component of equity, until disposal of the foreign operation when the
accumulated exchange differences will be recognised in profit or loss when the
gain or loss on disposal is recognised. This is different from UK GAAP, where
all exchange differences are taken directly to retained earnings.
An adjustment of 3.1 million pounds was made at 30 June 2004, to
reclassify the translation differences for foreign operations from retained
earnings to other reserves.
10. Recognition of revenue on market research contracts
Under IAS 11, the stage of completion method must be adopted for the
recognition of revenue and expenditure on contracts where the outcome of the
contract can be estimated reliably.
An adjustment of 7.5 million pounds and 10.9 million pounds as at 1
January 2004 and 30 June 2004 respectively relate to the revenue and
corresponding expenditure to be recognised in the profit or loss on short-term
market research contracts. This adjustment has nil effect on profit or loss,
and transfers 10.9 million pounds from inventories to accrued revenue (trade
and other receivables).
11. Discontinued operations
Under IFRS 5, the post tax profit or loss of discontinued operations must
be disclosed as a single amount on the face of the income statement (including
comparatives). Therefore, the income and expense items for NOP have been
reclassified from the appropriate lines in the income statement to a single
line for 'Profit for the period from discontinued operations'.
Explanation of material adjustments to the cash flow statement for the six
months ended 30 June 2004
Due to the reclassification of credit linked notes with a maturity date of
greater than 3 months at 30 June 2004, from 'cash and cash equivalents' to
'other investments', the movement in these credit linked notes is now shown in
the cash flow statement under investing activities.
There are no other material differences between the cash flow statement
presented under IFRS and the cash flow statement presented under UK GAAP.
Financial Instruments
The effect of the changes to the Group's accounting policies on the equity
of the Group at 1 January 2005 was as follows:
As restated Effect of
under IFRS adoption of IFRS
Notes 31 December IAS 32 and 1 January
2004 IAS 39 2005
Assets
Non-current assets
Goodwill 583.4 - 583.4
Intangible assets 50.4 - 50.4
Property, plant and equipment 45.0 - 45.0
Investments accounted for
using the equity method 55.1 - 55.1
Other investments 47.9 - 47.9
781.8 - 781.8
Current assets
Inventories 14.9 - 14.9
Trade and other receivables 304.7 - 304.7
Derivative financial assets a - 5.2 5.2
Cash and cash equivalents 336.8 - 336.8
656.4 5.2 661.6
Non-current assets classified
as held for sale 5.1 - 5.1
Total assets 1,443.3 5.2 1,448.5
Current liabilities
Borrowings 142.8 - 142.8
Convertible bond - - -
Trade and other payables 500.3 - 500.3
643.1 - 643.1
Non-current liabilities
Borrowings b 96.1 5.1 101.2
Convertible bond c 208.7 (9.9) 198.8
Retirement benefit obligation 96.0 - 96.0
Trade and other payables 4.6 - 4.6
Provisions 48.6 - 48.6
Derivative financial
liabilities d - 51.0 51.0
Deferred tax liabilities 16.8 - 16.8
470.8 46.2 517.0
Total liabilities 1,113.9 46.2 1,160.1
Shareholders' equity
Share capital 72.6 - 72.6
Share premium 310.8 - 310.8
Other reserves 201.3 - 201.3
Retained earnings e (257.5) (41.0) (298.5)
Total shareholders' equity 327.2 (41.0) 286.2
Minority interests 2.2 - 2.2
Total equity 329.4 (41.0) 288.4
Total equity and liabilities 1,443.3 5.2 1,448.5
The Group adopted IAS 32 Financial Instruments: Disclosure and
Presentation and IAS 39 Financial Instruments: Recognition and Measurement on
1 January 2005 and undertook the exemption not to restate its comparative
information for IAS 32 and IAS 39.
The following notes explain the adjustments made at 1 January 2005 to the
Group's balance sheet at 31 December 2004 to reflect the adoption of IAS 32
and IAS 39.
Financial instruments
Recognition of fair values of derivative financial assets. These were not
recognised under UK GAAP.
(a) Derivative financial assets - non-current
Recognition of interest rate swaps 5.1
Recognition of derivative financial assets at fair value 0.1
Total adjustment to derivative financial assets 5.2
(b) Borrowings
Recognition of interest rate swaps 5.1
Total adjustment to borrowings 5.1
Separation of the convertible bond into the debt component (fair valued on
transition) and embedded derivative component (measured at fair value through
profit and loss). Under UK GAAP, the bond was recorded as a liability at fair
value.
(c) Convertible bond
Separation of embedded derivative component (9.9)
Total adjustment to convertible bond (9.9)
Recognition of fair values of derivative financial liabilities. These were
not recognised under UK GAAP.
(d) Derivative financial liabilities - non-current
Recognition of swaps at fair value on transition 2.9
Recognition of the derivative component of the
convertible bond at fair value 48.1
Total adjustment to derivative financial liabilities 51.0
(e) The cumulative effect of all of the above adjustments has resulted in
an increase in retained earnings at 1 January 2005 of 41.0 million pounds.
Independent review report to United Business Media plc
Introduction
We have been instructed by the company to review the financial information
for the six months ended 30 June 2005 which comprises the Consolidated Income
Statement, Consolidated Balance Sheet, Consolidated Cash Flow Statement,
Consolidated Statement of Changes in Equity, and the related notes 1 to 17.
We have read the other information contained in the interim report and
considered whether it contains any apparent misstatements or material
inconsistencies with the financial information.
This report is made solely to the company in accordance with guidance
contained in Bulletin 1999/4 'Review of interim financial information' issued
by the Auditing Practices Board. To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone other than the company, for our
work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The interim report, including the financial information contained therein,
is the responsibility of, and has been approved by, the directors. The
directors are responsible for preparing the interim report in accordance with
the Listing Rules of the Financial Services Authority.
As disclosed in note 17, the next annual financial statements of the group
will be prepared in accordance with those IFRSs adopted for use by the
European Union.
The accounting policies are consistent with those that the directors
intend to use in the next financial statements.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin
1999/4 'Review of interim financial information' issued by the Auditing
Practices Board for use in the United Kingdom. A review consists principally
of making enquiries of group management and applying analytical procedures to
the financial information and underlying financial data, and based thereon,
assessing whether the accounting policies have been applied. A review
excludes audit procedures such as tests of controls and verification of
assets, liabilities and transactions. It is substantially less in scope than
an audit performed in accordance with United Kingdom Auditing Standards and
therefore provides a lower level of assurance than an audit. Accordingly we
do not express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications
that should be made to the financial information as presented for the six
months ended 30 June 2005.
Ernst & Young LLP
London
27 July 2005
SOURCE United Business Media plc
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Related links:
http://www.unitedbusinessmedia.com
CONTACT:
Michael Waring of United Business Media,
+44-20-7921-5031; or Colin Browne of The Maitland Consultancy,
+44-20-7379-5151, for United Business Media
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