IFRS Transition Statement
LONDON & ASSOCIATED PROPERTIES PLC
20 October 2005
London & Associated Properties PLC announces that the effect of International
Reporting Standards on the financial reporting are as follows:
Introduction
On 7 June 2002, the European Parliament approved a Regulation requiring all
listed companies in the European Union to prepare consolidated financial
statements under International Financial Reporting Standards ('IFRS') for
financial periods beginning on or after 1 January 2005. London and Associated
Properties plc ('LAP') will report its results under IFRS for the year ending
31 December 2005; its first results to be reported under the new standards will
be for the six months ending 30 June 2005.
In order to comply with IFRS, LAP will need to provide comparative numbers. The
purpose of this paper is to show how balance sheets and income statements
previously prepared under UK generally accepted accounting practice ('UK GAAP')
will change under IFRS, and to explain the adjustments to reconcile the figures
from one basis of accounting to the other. The main reconciling items and their
effects on the balance sheet and income statement are set out as follows:
Appendix 1 - Balance Sheet at 31 December 2004
Appendix 2 - Income Statement for the year ended 31 December 2004
Appendix 3 - Balance Sheet at 30 June 2004
Appendix 4 - Income Statement for the six months ended 30 June 2004
Basis of Preparation
The figures have been restated on the basis of our interpretation of all IFRS
currently applicable, and are unaudited. It is possible that conventions which
differ from our current interpretation will evolve within the property sector,
and IFRS are subject to ongoing amendment; accordingly, the amounts disclosed
in this paper may be subject to revision.
Key Changes
The main differences between UK GAAP and IFRS for the financial statements
under
review are:
* Property revaluations - surpluses or deficits on investment property
revaluations are shown on the face of the income statement rather than as a
movement in reserves; only a valuation movement above the cost of a
development property is still taken direct to the revaluation reserve; and
* Head leases - leasehold investment property and long-term liabilities are
increased by an estimation of future ground rents payable, and the majority
of ground rents payable in the year are disclosed as interest payable;
* Events after the balance sheet date - a proposed dividend is no longer
considered to be an adjusting post-balance sheet event, but is instead a
deduction from reserves in the year in which it is paid;
* Financial instruments - the fair value of derivatives are recorded in the
balance sheet and the movement in their value is taken to reserves or to
the income statement;
* Deferred tax - contingent capital gains tax implicit within a property
valuation is accrued as a deferred tax liability.
Transitional arrangements
IFRS 1 'First-time Adoption of International Financial Reporting Standards'
sets out the procedures that the Group must follow when it adopts IFRS for the
first time as the basis for preparing its consolidated financial statements. In
general, the Group is required to determine its IFRS accounting policies and
apply these retrospectively to determine its opening balance sheet as at 1
January 2004 (' the transition date') under IFRS. The standard allows a number
of exceptions to this general principle to assist groups in the transition to
reporting under IFRS. Where LAP has taken advantage of these exemptions they
are noted below.
* Business Combinations that occurred before the opening IFRS balance sheet
date (IFRS 3 'Business Combinations').
LAP has elected not to apply IFRS 3 retrospectively to business combinations
that took place before the date of 1 January 2004. As a result, all prior
business combination accounting has been frozen at the transition date.
* Exchange differences arising on consolidation (IAS 21 'Foreign Currencies')
LAP has elected to deem the cumulative amount of exchange differences arising
on consolidation of the net investments in associates at 1 January 2004 to be
zero.
* Financial Instruments: Recognition and Measurement (IAS 39)
The comparative periods have not been restated for IAS39, particularly in
respect of derivative financial instruments. The fair value of these
instruments at the start of 2005 was passed through reserves, and the
subsequent movement in the first half of 2005 is reported in the group income
statement. The group has not applied the hedge accounting treatment that would
allow such movements to be deferred in equity.
Presentation of Financial Statements
Under IFRS, the profit and loss account is renamed the income statement, but
there is no set format or layout of financial statements prepared under IFRS
akin to those of Schedule 4 Companies Act 1985; these will develop over time
through industry practice. Accordingly, the presentations set out in Appendices
1 to 4 do not necessarily represent how the income statements and balance
sheets will look, but have been designed to demonstrate as clearly as possible
the specific differences between UK GAAP and IFRS.
Performance Reporting
The effect of adopting IFRS as at 31 December 2004, and for the year then
ended, on our key performance measures are set out below:
UK GAAP Change IFRS
Net assets* (£'000) 91,214 (10,614) 80,600
Net assets per share (pence) 111.83p (13.01p) 98.82p
Diluted net assets per share (pence) 111.02p (12.88p) 98.14p
Earnings per share (pence) 2.82p 17.52p 20.34p
Diluted earnings per share (pence) 2.80p 17.43p 20.23p
* Including current asset investments at market value
Cash Flow
The introduction of IFRS will not affect the cash flows of the business. The
presentation of the cash flow statement for LAP will not differ significantly
from that under UK GAAP and, therefore, an analysis of the cash flow statement
does not fall within the scope of this paper.
Dividend Policy and Distributable Reserves
At 30 December 2004 LAP had distributable reserves of £19.1million, after
declaring a full year dividend of £1.3million in aggregate. As the individual
company financial statements of LAP and each of its subsidiary undertakings
will continue to be prepared under UK GAAP, the introduction of IFRS will not
affect LAP's distributable reserves. Accordingly, the dividend policy of the
Group is not affected by the introduction of IFRS.
Taxation
As the financial statements of LAP and each of its subsidiary undertakings will
continue to be prepared under UK GAAP, the introduction of IFRS will have no
impact on the taxation status or tax payments of the Group.
Contact:
London and Associated Properties plc
Robert Corry Finance Director 020 7415 5000
London & Associated Properties Plc Appendix 1
Adoption of IFRS
Consolidated balance sheet
31 December IFRS Notes 31 December
2004 2004
Adjustments
UK GAAP IFRS
£'000
£'000 £'000
Assets
Non-current assets
Property, plant and 108,851 9,103 3 117,954
equipment
Investments in joint 17,451 (2,891) 2,7 14,560
ventures
Investment in associated 6,036 (742) 2,5 5,294
company
Other investments 3,784 3,784
______ _____ ______
Total non-current assets 136,122 5,470 141,592
Current assets
Trade and other receivables 1,923 1,923
Financial assets - held for 2,681 2,681
trading investments
Cash and cash equivalents 12,253 12,253
16,857 16,857
Liabilities
Current liabilities
Financial liabilities - (907) (907)
borrowings
Trade and other payables (10,284) 1,346 5 (8,938)
Current tax liabilities (422) (422)
(11,613) 1,346 (10,267)
Non-current liabilities
Financial liabilities - (49,830) (49,830)
borrowings
Provisions - (9,103) 3 (9,103)
Deferred tax (1,365) (7,284) 2 (8,649)
Net assets 90,171 (9,571) 80,600
Equity
Share capital 8,232 8,232
Share premium account 5,226 5,226
Capital redemption reserve 47 47
Revaluation reserve 55,404 (55,404) 1 -
Other reserves 429 429
Currency translation reserve - 116 6 116
Retained earnings 21,414 45,717 1,2,4,5,6 67,131
Treasury shares (581) (581)
90,171 (9,571) 80,600
London & Associated Properties Plc Appendix 2
Adoption of IFRS
Income statement for the year ended 31 December 2004
Year ended IFRS Notes Year ended
31 December Adjustments 31 December
2004 2004
UK GAAP IFRS
£'000 £'000 £'000
Gross rental income
Group & share of joint 12,964 12,964
ventures
Less: joint ventures - share ( 5,205) ( 5,205)
of rental income
7,759 7,759
Less: property overheads -
Ground rents (1,677) (1,677)
Direct property expenses (1,135) (1,135)
Attributable overheads (2,162) (2,162)
(4,974) (4,974)
Less: joint ventures - share
of overheads
Property overheads 1,930 1,930
(3,044) (3,044)
Net rental income 4,715 4,715
Listed investments - net 345 345
gain
Operating profit before 5,060 5,060
adjustments
Profit on sale of investment 142 142
properties
Associate and joint venture - -
profit on sale of investment
properties
Operating profit after 5,202 5,202
adjustments
Share of operating profit of 3,279 3,279
joint ventures
Share of operating profit of 820 (237) 6 583
associate
9,301 (237) 9,064
Interest receivable 780 780
Interest payable:
- group (3,855) (3,855)
- joint venture (3,206) - (3,206)
Profit before valuation 3,020 (237) 2,783
gains
Increase in value of - 9,088 1 9,088
investment properties
- group
- joint venture 8,629 1 8,629
Profit before tax 3,020 17,480 20,500
Taxation - group (568) (1,435) 2 (2,003)
- associate and joint (151) (1,730) (1,881)
members
Profit after tax 2,301 14,315 16,616
Dividend (1,346) 1,346 5 -
Retained profit for the year 955 15,661 16,616
London & Associated Properties Plc Appendix 3
Adoption of IFRS
Consolidated balance sheet
30 June 2004 IFRS Notes 30 June 2004
UK GAAP Adjustments IFRS
£'000 £'000 £'000
Assets
Non-current assets
Property, plant and equipment 98,701 8,689 3 107,390
Investments in joint ventures 9,813 (741) 2,7 9,072
Investment in associated 4,893 (637) 2,5 4,256
company
Other investments 3,784 3,784
______ ______ ______
Total non-current assets 117,191 7,311 124,502
Current assets
Trade and other receivables 3,051 3,051
Financial assets - held for 3,039 3,039
trading investments
Cash and cash equivalents 12,384 12,384
______ ______ ______
18,474 18,474
Liabilities
Current liabilities
Financial liabilities - (1,043) (1,043)
borrowings
Trade and other payables (10,866) (10,866)
Current tax liabilities ______ ______ ______
(11,909) (11,909)
Non-current liabilities
Financial liabilities - (49,247) (49,247)
borrowings
Provisions - (8,689) 3 (8,689)
Deferred tax (1,346) ---(6,253) 2 (7,599)
______ ______ ______
Net assets 73,163 (7,631) 65,532
Equity
Share capital 8,171 8,171
Share premium account 4,921 4,921
Capital redemption reserve 47 47
Revaluation reserve 37,730 (37,730) 1 -
Currency translation reserve - 49 6 49
Other reserves 429 429
Retained earnings 21,865 30,050 1,2,4,5,6 51,915
______ ______ ______
73,163 (7,631) 65,532
London & Associated Properties Plc Appendix 4
Adoption of IFRS
Income statement for the six months ended 30 June 2004
Six months IFRS Notes Six months
ended ended
Adjustments
30 June 2004 30 June 2004
UK GAAP IFRS
£'000 £'000 £'000
Gross rental income
Group & share of joint 6,539 6,539
ventures
Less: joint ventures - share ( 2,652) ( 2,652)
of rental income
3,887 3,887
Less: property overheads -
Ground rents (835) (835)
Direct property expenses (670) (670)
Attributable overheads (1,074) (1,074)
(2,579) (2,579)
Less: joint ventures - share 990 990
of overheads
(1,589) (1,589)
Net rental income 2,298 2,298
Listed investments - net gain 180 180
Operating profit before 2,478 2,478
adjustments
Profit on sale of investment 62 62
properties
Associate and joint venture - -
profit on sale of investment
properties
Operating profit after 2,540 2,540
adjustments
Share of operating profit of 1,665 1,665
joint ventures
Share of operating profit of 406 (87) 6 319
associate
4,611 (87) 4,524
Interest receivable 357 357
Interest payable
- group (1,829) (1,829)
- joint venture (1,541) (1,541)
Profit before tax 1,598 (87) 1,511
Tax - group (348) (348)
- associate and joint (138) 375 2 237
ventures
Profit after tax 1,112 288 1,400
London & Associated Properties Plc
Adoption of IFRS
Notes
* Revaluation surplus reported in the group income statement
IAS40, Investment Property, requires that the surplus or deficit on the
revaluation of investment properties is reported in the group income statement.
This includes the revaluation of the group's investment properties, and, for
2004, the group's share of the revaluation surplus on a property held in an
associate.
The group balance sheet on appendices 1 and 3 shows the consequent
reclassification of the UK GAAP revaluation reserve to the retained profit
reserve. This change in accounting will not affect distributable reserves.
Previously, revaluation surpluses or deficits, to the extent that any deficit
was not permanent, were reported as a movement in the revaluation reserve.
* Deferred tax on the revaluation surplus reported as part of the tax charge
IAS12, Income Taxes, requires a provision for the tax that would be payable if
the investment portfolios and listed investments were sold. This is included
within deferred tax and is a reduction in net assets. The movement in this
provision in any reporting period is reported as part of the tax charge in the
group income statement.
Previously under UK GAAP, FRS19, Deferred Tax, specifically prohibited this
provision being made in respect of investment properties.
* Grossing up of headlease liabilities
IAS17, Leases, requires that the liability to make future lease payments on a
leasehold investment property is provided for in full, based on the present
value of the minimum lease payments. This liability is included within net debt
and the investment property is reported gross of the liability.
The rent paid on such leases is re-categorised, split between interest payable
and repayment of the lease liability. As the unexpired term of these leasehold
properties decreases, the balance between interest payable and lease liability
repayment will begin to reverse. The rent currently payable that exceeds the
minimum payable when the liability was first calculated as a result of, for
example, review increases, is referred to as contingent rent and is included
within property outgoings in the income statement.
Previously, leasehold investment properties were reported net of the leasehold
liability and the lease payments were reported as ground rents payable within
property outgoings.
* Fair value of derivative financial instruments
IAS39, Financial Instruments: Recognition and Measurement, requires the
interest rate hedging instruments, which the group uses to manage interest rate
risk, to be carried at fair value. Movements in fair value are reported in the
group income statement. The hedge accounting treatment that would allow such
movements to be deferred in equity has not been applied.
Previously, the fair value of these financial instruments was only disclosed in
the notes to the financial statements.
Listed investments which were previously held at cost have been revalued under
the requirements of IAS 39 to fair value at the balance sheet date.
The group has taken advantage of the provisions of IAS 39 which permit
prospective application of this standard from 1 January 2005.
* Dividends not declared by the period end
IAS10, Events after the Balance Sheet Date, requires that dividends not
declared by the end of the accounting period are excluded from the results.
Previously, dividends declared after the end of the accounting period were
included as a deduction from profit for the period.
* Foreign currency translation
IAS 21, The effects of changes in foreign exchange rates, requires net exchange
differences arising on the translation of foreign entities to be separately
tracked within equity and the cumulative amounts disclosed. The group has taken
advantage of the exemption allowed by IFRS 1 to deem the cumulative exchange
adjustment at 1 January 2004 to be zero.
* Joint ventures single line equity accounting
This is a presentational change only. The interest in, and share of results of,
joint ventures is shown as a single line on the group balance sheet, including
the group's share of the revaluation surplus.
Latest directors dealings
- 9 hours ago SSP Group
- 10 hours ago Real Estate Investors
- 10 hours ago WPP
- 10 hours ago Spectris
- 10 hours ago Clarkson