IFRS Restatement
Capita Group PLC
28 July 2005
The Capita Group Plc - Adoption of International Financial Reporting Standards
The Capita Group Plc is required under EU Regulations to adopt International
Financial Reporting Standards ('IFRS') as its primary basis of accounting for
the year ending 31 December 2005. IFRS replaces UK Generally Accepted Accounting
Principles ('UK GAAP'), under which the Group previously prepared its financial
statements.
The principal impacts on the Group's previously reported financial information
are as follows:
•cessation of goodwill amortisation
•recognition of all employee benefits, principally pension obligations
•inclusion of a charge for employee share options based on fair value
•recognition of certain deferred taxation liabilities
•de-recognition of dividends not declared at period end
A full description of the impacts of the change and adjustments required to
bring the financial information in line with IFRS for the 12 months ended 31
December 2004 and six months ended 30 June 2004, and on the balance sheet as at
the date of transition of 1 January 2004, is presented in the following
sections.
Contact details:
The Capita Group Plc Tel: 020 7799 1525
Rod Aldridge, Executive Chairman
Paul Pindar, Chief Executive
Shona Nichols, Corporate Communications Director
Capita Press Office Tel: 0870 2400 488
Restatement of Financial Information under International Financial Reporting
Standards ('IFRS')
Contents
1. Introduction
2. First time adoption of International Financial Reporting Standards
3. Summary of major impacts of adoption of International Financial Reporting
Standards
4. Summary of significant accounting policies under IFRS
5. Reconciliation of equity at 1 January 2004 (date of transition to IFRS)
6. Reconciliation of equity at 31 December 2004 (end of last period presented
under previous GAAP)
7. Reconciliation of profit for the year ended 31 December 2004
8. Notes to the reconciliations
9. Group statement of recognised income and expense
10.Group statement of changes in equity
11.Independent Auditors' Special Purpose Report to The Capita Group Plc on the
preliminary IFRS Financial Information for the year ended 31 December 2004
12.Appendix 1 - Reconciliation of profit for the six months ended 30 June 2004
1. Introduction
The Capita Group Plc (the Company) is a public limited company, incorporated in
England and Wales under the Companies Act 1985, whose shares are publicly
traded. In these financial statements, 'Group' means the Company and all its
subsidiaries. Hitherto, The Capita Group Plc has prepared its primary financial
statements in accordance with UK Generally Accepted Accounting Principles (UK
GAAP). From 2005 the Group is required to prepare its consolidated financial
statements in accordance with International Accounting Standards (IAS) and
International Financial Reporting Standards (IFRS) as adopted by the European
Union (EU). References to IFRS throughout this document refer to the application
of International Accounting Standards and International Financial Reporting
Standards.
The first Annual Report under IFRS will be for 2005 and the first interim
results reported under IFRS will be for the six months ended 30 June 2005. This
document explains the differences that will arise when the Group's financial
statements are prepared under IFRS rather than UK GAAP. Specifically, this
document sets out reconciliations of the Group's balance sheets, as prepared
under UK GAAP, to those prepared in accordance with IFRS as at 1 January 2004
(the opening balance sheet as at the date of transition to IFRS), 30 June 2004
and 31 December 2004. In addition, this document includes reconciliations of the
Group's profit and loss accounts prepared under UK GAAP to those prepared in
accordance with IFRS for the six months to 30 June 2004 and for the year to 31
December 2004.
This restatement document has been prepared on the basis that all IFRSs,
International Financial Reporting Interpretation Committee ('IFRIC')
interpretations and current IASB exposure drafts will be issued as final
standards and endorsed by the EU. It should be noted that, should the EU fail to
endorse all of these standards in time for financial reporting in 2005 or if
IFRIC issues further interpretations prior to the reporting date, this may
result in the need to change the basis of accounting and or the presentation of
certain items from those presented in this document.
The UK GAAP information contained in this document does not constitute statutory
accounts as defined in section 240 of the Companies Act 1985. The auditors,
Ernst & Young LLP, have issued unqualified opinions on the Group's UK GAAP
financial statements for the years ended 31 December 2003 and 31 December 2004.
2. First time adoption of International Financial Reporting Standards
The Group has applied IFRS 1 'First Time Adoption of International Financial
Reporting Standards' as a starting point for reporting under IFRS. The Group's
date of transition to IFRS is 1 January 2004 and comparative information in the
financial statements is restated to reflect the Group's adoption of IFRS except
where otherwise required or permitted by IFRS 1.
IFRS 1 requires an entity to comply with each IFRS effective at the reporting
date for its first financial statements prepared under IFRS. As a general rule,
IFRS 1 requires such standards to be applied retrospectively. However, the
standard allows several optional exemptions from full retrospective application.
The Group has elected to take advantage of the following exemptions:
• The Group will adopt IFRS 3 'Business Combinations' to the extent that
it applies to acquisitions post 1 January 2004. Acquisitions before that
date will be recorded as under previous accounting rules as the Group
intends to take advantage of the exemption allowed in IFRS 1 regarding
business combinations recognised before the date of transition to IFRS. All
goodwill and intangibles will be tested for impairment, as required by IAS
36 'Impairment of Assets'; goodwill on an annual basis and intangibles when
there is an indicator of impairment. In addition, the Group will take
advantage of the exemption allowed in IFRS 1 not to apply IAS 21 'The
Effects of Changes in Foreign Exchange Rates' retrospectively to fair value
adjustments and goodwill arising in business combinations that occurred
before the date of transition to IFRSs.
• The Group will also elect to take advantage of the exemption which
allows cumulative actuarial gains or losses on defined benefit pension
schemes at the date of transition to IFRS to be recognised immediately.
• The Group will elect to take advantage of the exemption allowed in IFRS
1 regarding cumulative translation differences. Accordingly, the cumulative
translation differences for all foreign operations are deemed to be nil at
the date of transition to IFRS.
• The Group will elect to apply the exemptions in IAS 32 'Financial
Instruments: Disclosure and Presentation' and IAS 39 'Financial Instruments:
Recognition and Measurement' to apply these standards from 1 January 2005 only.
• The Group will elect to take advantage of the exemptions allowed in IFRS
1 regarding IFRS 2 'Share based payments'. The Group will apply the
exemptions for share based payments granted on or before 7 November 2002.
This means that only equity instruments granted after 7 November 2002 that
vest after the effective date of IFRS 2 on 1 January 2005 need to be valued.
The Group will meet all the disclosure requirements of IFRS 2.
3. Summary of major impacts of adoption of International Financial Reporting
Standards
IFRS 3 - Business Combinations. The standard deals with accounting for business
combinations including goodwill and intangible assets. The Group's current
policy under UK GAAP, to amortise goodwill and to test for impairment when there
is an indication that the carrying value of an asset might not be recoverable,
will be replaced by an annual impairment test and cessation of goodwill
amortisation.
IAS19 - Employee Benefits. The standard covers all forms of employee benefits
but the major impact for the Group will be in the accounting policies for post
retirement benefits in particular for defined benefit pension schemes. The Group
currently accounts for these schemes using SSAP24 and also complies with the
transitional rules of FRS17. The impact on the financial statements will be to
introduce a liability on the balance sheet in respect of defined benefit pension
schemes and to reduce shareholders' equity by a corresponding amount.
IFRS 2 - Share Based Payments The standard deals with the valuation of share
awards and their treatment in the financial statements. At present no expense is
recognised under UK GAAP. Under IFRS 2 share awards must be measured at fair
value at grant date and should be recognised as an expense over the vesting
period.
Since 31 December 2003 the Group has undertaken a review of methods for valuing
share option awards as all options granted since 7 November 2002, a date
specified in IFRS 2, that vest after the effective date of IFRS 2 on 1 January
2005 require valuation. Options issued under the Capita Sharesave Scheme and The
Capita Group Plc Executive Share Option Scheme (The 1997 Scheme) have been
valued using an enhanced Black-Scholes model. The more complex Long Term Indexed
Share Appreciation Scheme (LTISAS) has been valued using an appropriate
valuation model. In cases where valuation expertise was required the Group has
sought advice from external valuation specialists.
The impact of this standard on the financial statements of the Group will be a
charge to the profit and loss account for the year ended 31 December 2004 and an
equivalent increase in shareholders' funds. Additionally there is a cumulative
charge for adoption to the date of transition to IFRS to retained earnings.
IAS 12 - Income Taxes. This standard requires entities to provide for deferred
taxation based on temporary differences between the carrying amount of assets/
liabilities and their tax base. Consequently, the Group has made additional
provision for deferred tax on tax deductible purchased goodwill, separately
identified intangibles arising on business combinations together with deferred
tax adjustments in respect of share based payments and pension costs.
IAS 10 - Events after the balance sheet date. The standard does not permit
dividends declared after the balance sheet date to be recognised as a liability.
Consequently, under IFRS, the Group will no longer make provision for unapproved
dividends at the period end.
4. Summary of significant accounting policies under IFRS
The significant accounting policies adopted in the preparation of the Group's
IFRS financial information are set out below:
Basis of preparation
The consolidated financial statements have been prepared on the historical cost
basis, except for certain financial instruments, separately identifiable
intangibles acquired on business combinations and the pension assets and
liabilities which have been measured at fair value. The carrying value of
recognised assets and liabilities that are hedged are adjusted to record changes
in the fair values attributable to the risks that are being hedged. The
consolidated financial statements are presented in pounds sterling and all
values are rounded to the nearest tenth of a million (£Million) except when
otherwise indicated.
Basis of consolidation
The consolidated financial statements comprise the financial statements of The
Capita Group Plc and its subsidiaries as at 31 December each year. The financial
statements of the subsidiaries are prepared for the same reporting year as the
parent company, using consistent accounting policies, but in accordance with UK
Generally Accepted Accounting Principles (UK GAAP). Adjustments are made to
bring into line any dissimilar accounting policies that may exist.
All intercompany balances and transactions, including unrealised profits arising
from intra-group transactions, have been eliminated in full.
Subsidiaries are consolidated from the date on which control is transferred to
the Group and cease to be consolidated from the date on which control is
transferred out of the Group. Where there is a loss of control of a subsidiary,
the consolidated financial statements include the results for the part of the
reporting year during which The Capita Group Plc has control.
Inventories
Inventories are stated at the lower of cost and net realisable value.
Costs are those incurred in bringing inventories to their present location and
condition. Costs include any direct materials, where applicable, and labour
together with a proportion of operating overheads based on normal operating
capacity but excluding borrowing costs. Net realisable value is the estimated
selling price in the ordinary course of business, less estimated costs of
completion and the estimated costs necessary to make the sale.
For long-term contracts see accounting policy below.
Revenue
Revenue is recognised to the extent that it is probable that the economic
benefits will flow to the Group and the revenue can be reliably measured. Other
than in respect of long-term contracts, described below, revenue represents fee
income recognised in respect of services provided during the period (stated net
of value added tax).
Revenue is earned within the United Kingdom, Europe, India and South-east Asia.
Long-term contracts
(i) Brownfield outsourcing contracts - Brownfield contracts are where there is a
transfer of an existing operation to the Group. For brownfield contracts all
costs incurred prior to service commencement are expensed as incurred and
revenue represents fees invoiced in respect of services provided.
(ii) Greenfield outsourcing contracts - A greenfield contract is one in which an
entirely new service is being established for our customer. For these contracts
no profit is recognised until service delivery commences and is being invoiced.
Upon commencement, revenue represents fees invoiced in respect of services
provided. Direct incremental costs incurred on the contract prior to service
commencement and reimbursable during the contract, excluding any overheads, are
included in debtors and amortised over the life of the contract. On some
contracts, non-refundable payments are received, prior to full service
commencement, on the achievement of agreed contract delivery milestones. These
are recognised as revenue when earned.
(iii) Property consultancy contracts - Revenue represents the sales value of
work done in the year, including fees invoiced and estimates in respect of
amounts to be invoiced after the year end. Profits are recognised on long-term
contracts where the final outcome can be assessed with reasonable certainty. In
calculating this the percentage of completion method is used based on the
proportion of costs incurred to the total estimated cost. Cost includes direct
staff costs and outlays. Full provision is made for all known or anticipated
losses on each contract immediately such losses are forecast.
Gross amounts due from customers are stated at the proportion of the anticipated
net sales value earned to date less amounts billed on account. To the extent
that fees paid on account exceed the value of work performed, they are included
in creditors as gross amounts due to customers.
Foreign currency translation
The functional and presentation currency of The Capita Group Plc and its United
Kingdom subsidiaries is the pound sterling (£). Transactions in foreign
currencies are initially recorded in the functional currency rate ruling at the
date of the transaction. Monetary assets and liabilities denominated in foreign
currencies are retranslated at the functional currency rate of exchange ruling
at the balance sheet date. All differences are taken to the consolidated income
statement with the exception of differences on foreign currency borrowings that
provide a hedge against a net investment in a foreign entity. These are taken
directly to equity until the disposal of the net investment, at which time they
are recognised in the consolidated income statement. Tax charges and credits
attributable to exchange differences on those borrowings are also dealt with in
equity. Non-monetary items that are measured in terms of historical cost in a
foreign currency are translated using the exchange rate as at the date of
initial transaction. Non-monetary items measured at fair value in a foreign
currency shall be translated using
the exchange rates at the date when the fair value was determined.
The functional currencies of overseas subsidiaries include the euro, Indian
rupee, Malaysian ringgit, South Korean won and the Philippine peso. As at the
reporting date, the assets and liabilities of the overseas subsidiary are
retranslated into the presentation currency of The Capita Group Plc at the rate
of exchange ruling at the balance sheet date and its income statement is
translated at the weighted average exchange rate for the year. The exchange
differences arising on the retranslation are taken directly to a separate
component of equity. On disposal of a foreign entity, the deferred cumulative
amount recognised in equity relating to that particular foreign operation shall
be recognised in the income statement.
The Group has elected not to record cumulative translation differences arising
prior to the transition date as permitted by IFRS 1. In utilising this
exemption, all cumulative translation differences are deemed to be zero as at 1
January 2004 and all subsequent disposals shall exclude any translation
differences arising prior to the date of transition.
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation
and any impairment in value. Depreciation is calculated on a straight-line basis
over the estimated useful life of the asset as follows:
Freehold buildings and long leasehold property - over 50 years
Leasehold improvements - period of the lease
Plant and equipment - 3-10 years
The carrying values of property, plant and equipment are reviewed for impairment
when events or changes in circumstances indicate the carrying value may not be
recoverable. If any such indication exists and where the carrying values exceed
the estimated recoverable amount, the assets or cash-generating units are
written down to their recoverable amount. The recoverable amount of property,
plant and equipment is the greater of net selling price and value in use. In
assessing value in use, the estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset. For
an asset that does not generate largely independent cash inflows, the
recoverable amount is determined for the cash-generating unit to which the asset
belongs. Impairment losses are recognised in the income statement in the
administrative expenses line item.
An item of property, plant and equipment is derecognised upon disposal or when
no future economic benefits are expected to arise from the continued use of the
asset. Any gain or loss arising on de-recognition of the asset (calculated as
the difference between the net disposal proceeds and the carrying amount of the
item) is included in the income statement in the year in which the item is
derecognised.
Borrowing costs
Borrowing costs are currently recognised as an expense when incurred in
accordance with the benchmark accounting treatment under IAS 23.
Goodwill
Goodwill recognised under UK GAAP prior to the date of transition to IFRS is
stated at net book value as at this date. Goodwill recognised subsequent to 1
January 2004 is, on acquisition, initially measured at cost being the excess of
the cost of the business combination over the acquirer's interest in the net
fair value of the identifiable assets, liabilities and contingent liabilities.
Following initial recognition, goodwill is measured at cost less any accumulated
impairment losses. Goodwill is reviewed for impairment, annually or more
frequently if events or changes in circumstances indicate that the carrying
value may be impaired.
As at the acquisition date, any goodwill acquired is allocated to each of the
cash-generating units expected to benefit from the combination's synergies.
Impairment is determined by assessing the recoverable amount of the
cash-generating unit, to which the goodwill relates. Where the recoverable
amount of the cash-generating unit is less than the carrying amount, an
impairment loss is recognised. Where goodwill forms part of a cash-generating
unit and part of the operation within that unit is disposed of, the goodwill
associated with the operation disposed of is included in the carrying amount of
the operation when determining the gain or loss on disposal of the operation.
Goodwill disposed of in these circumstances is measured on the basis of the
relative values of the operation disposed of and the portion of the
cash-generating unit retained.
Intangible assets
Intangible assets acquired separately are capitalised at cost and those
identified in a business acquisition are capitalised at fair value as at the
date of acquisition. Following initial recognition, the carrying amount of an
intangible asset is its cost less any accumulated amortisation and any
accumulated impairment losses. The useful lives of intangible assets are
assessed to be either finite or indefinite. Amortisation is charged on assets
with finite lives, this expense is taken to the income statement through the
administrative expenses line item.
Intangible assets created within the business are not capitalised and
expenditure is charged against profits in the year in which the expenditure is
incurred.
Intangible assets are only tested for impairment, either individually or at the
cash-generating unit level, where there is an indicator of impairment.
Gains or losses arising from de-recognition of an intangible asset are measured
as the difference between the net disposal proceeds and the carrying amount of
the asset and are recognised in the income statement when the asset is
derecognised.
Recoverable amount of non-current assets
At each reporting date, the Group assesses whether there is any indication that
an asset may be impaired. Where an indicator of impairment exists, the Group
makes a formal estimate of the asset's recoverable amount. Where the carrying
amount of an asset exceeds its recoverable amount, the asset is considered
impaired and is written down to its recoverable amount. Recoverable amount is
the higher of an asset's or cash-generating unit's fair value less costs to sell
and its value in use and is determined for an individual asset, unless the asset
does not generate cash inflows that are largely independent of those from other
assets or groups of assets.
Investments
All investments are initially recorded at cost, being the fair value of the
consideration given and including acquisition charges associated with the
investment. Subsequently they are reviewed for impairment if events or changes
in circumstances indicate the carrying value may not be recoverable.
Trade and other receivables
Trade receivables are recognised and carried at original invoice amount less an
allowance for any uncollectible amounts. An estimate for doubtful debts is made
when collection of the full amount is no longer probable. Bad debts are written
off when identified.
Cash and cash equivalents
Cash and short-term deposits in the balance sheet comprise cash at bank and in
hand and short-term deposits with an original maturity of three months or less.
For the purpose of the consolidated cash flow statement, cash and cash
equivalents consist of cash and cash equivalents as defined above, net of
outstanding bank overdrafts.
Interest-bearing loans and borrowings
All loans and borrowings are initially recognised at cost, being the fair value
of the consideration received net of issue costs associated with the borrowing.
After initial recognition loans and borrowings are subsequently measured at
amortised cost using the effective interest method. Amortised cost is calculated
by taking into account any issue costs, and any discount or premium on
settlement.
Gains and losses are recognised in the net profit or loss when the liabilities
are derecognised or impaired, as well as through the amortisation process.
Provisions
Provisions are recognised when the Group has a present obligation (legal or
constructive) as a result of a past event and it is probable that an outflow of
resources embodying economic benefits will be required to settle the obligation
and a reliable estimate can be made of the amount of the obligation. Where the
Group expects some or all of a provision to be reimbursed, for example under an
insurance contract, the reimbursement is recognised as a separate asset but only
when the reimbursement is virtually certain. The expense relating to any
provision is presented in the income
statement net of any reimbursement. If the effect of the time value of money is
material, provisions are determined by discounting the expected future cash
flows at a pre-tax rate that reflects current market assessments of the time
value of money and, where appropriate, the risks specific to the liability.
Where discounting is used, the increase in the provision due to the passage of
time is recognised as a borrowing cost.
Surplus properties
The Group provides on a discounted basis for the future rent expense and related
cost of leasehold property (net of estimated sub-lease income) where the space
is vacant or currently not planned to be used for ongoing operations.
Pre-contract costs
Pre-contract award bidding costs are expensed as incurred.
Pension schemes
The Group maintains a number of contracted-out money purchase schemes and
contributions are charged to the income statement in the year in which they are
due. In addition, the Group operates two defined benefit pension schemes and
participates in five other defined benefit schemes, all of which require
contributions to be made to separately administered funds. The cost of providing
benefits under these schemes are determined separately for each scheme using the
projected unit credit actuarial valuation method. In respect of three of the
schemes in which the Group participates, the period of participation is for an
agreed fixed period only. Due to the short term nature of these contracts, the
costs of providing these benefits have been taken as the present value of
expected contributions requested by the relevant scheme actuary over the term of
the contract which have been determined using the projected unit credit
actuarial valuation method Actuarial gains and losses are fully recognised in
equity through the statement of recognised income and expense such that the
balance sheet reflects the scheme's surplus or liability at the balance sheet
date. The employer's portion of current and past service cost is charged to
operating profit with the interest cost, net of expected return on assets in the
plans, reported as a financing item.
Derivative financial instruments
The Group uses forward foreign currency contracts to reduce exposure to foreign
exchange rates. The Group also makes use of interest rate swaps to adjust
interest rate exposures.
The Group will only apply IAS 32 and IAS 39 from 1 January 2005 as permitted by
the transition arrangements in IFRS 1.
Leasing
Finance leases, which transfer to the Group substantially all the risks and
benefits incidental to ownership of the leased item, are capitalised at the
inception of the lease at the fair value of the leased property or, if lower, at
the present value of the minimum lease payments. Lease payments are apportioned
between the finance charges and reduction of the lease liability so as to
achieve a constant rate of interest on the remaining balance of the liability.
Finance charges are charged directly against income.
Capitalised leased assets are depreciated over the shorter of the estimated life
of the asset or the lease term. Leases where the lessor retains substantially
all the risks and benefits of ownership of the asset are classified as operating
leases. Operating lease payments are recognised as an expense in the income
statement on a straight-line basis over the lease-term.
Income tax
Deferred income tax is provided, using the liability method, on all temporary
differences at the balance sheet date between the tax bases of assets and
liabilities and their carrying amounts for financial reporting purposes.
Deferred income tax liabilities are recognised for all taxable temporary
differences:
• except where the deferred tax liability arises from the initial
recognition of goodwill
• except where the deferred income tax liability arises from the initial
recognition of an asset or liability in a transaction that is not a business
combination and, at the time of the transaction, affects neither the
accounting profit nor taxable profit or loss and
• in respect of taxable temporary differences associated with investments
in subsidiaries, associates and interests in joint ventures, except where
the timing of the reversal of the temporary differences can be controlled
and it is probable that the temporary differences will not reverse in the
foreseeable future.
Deferred income tax assets are recognised for all deductible temporary
differences, carry-forward of unused tax assets and unused tax losses, to the
extent that it is probable that taxable profit will be available against which
the deductible temporary differences, and the carry-forward of unused tax assets
and unused tax losses can be utilised:
• except where the deferred income tax asset relating to the deductible
temporary difference arises from the initial recognition of an asset or
liability in a transaction that is not a business combination and, at the
time of the transaction, affects neither the accounting profit nor taxable
profit or loss.
The carrying amount of deferred income tax assets is reviewed at each balance
sheet date and reduced to the extent that it is no longer probable that
sufficient taxable profit will be available to allow all or part of the deferred
income tax asset to be utilised.
Deferred income tax assets and liabilities are measured at the tax rates that
are expected to apply to the year when the asset is realised or the liability is
settled, based on tax rates (and tax laws) that have been enacted or
substantively enacted at the balance sheet date.
Income tax relating to items recognised directly in equity are recognised in
equity and not in the income statement.
Share based payments
The Group operates a number of executive and employee share schemes. For all
grants of share options and awards, the fair value as at the date of grant is
calculated using an option pricing model and the corresponding expense is
recognised over the vesting period.
The Group has taken advantage of the transitional provisions of IFRS 2 in
respect of equity-settled awards and has applied IFRS 2 only to equity-settled
awards granted after 7 November 2002 that had not vested before 1 January 2005.
Reconciliation of equity at 1 January 2004 (date of transition to IFRS)
Recognise
Previous Proposed pension Deferred
GAAP dividend liability taxation IFRS
Notes £Million £Million £Million £Million £Million
-------------------------------------------------------------------------------------------
Property,
plant and
equipment 111.7 - - - 111.7
Intangible
assets 451.2 - - - 451.2
Available-for-
sale financial
assets 5.2 - - - 5.2
Deferred
taxation 1 1.6 - - 25.4 27.0
-------------------------------------------------------------------------------------------
Total
non-current
assets 569.7 - - 25.4 595.1
-------------------------------------------------------------------------------------------
Trade and
other
receivables 136.1 - - - 136.1
Prepayments 83.3 - - - 83.3
Cash and
short-term
deposits 19.8 - - - 19.8
-------------------------------------------------------------------------------------------
Total current
assets 239.2 - - - 239.2
-------------------------------------------------------------------------------------------
TOTAL ASSETS 808.9 - - 25.4 834.3
===========================================================================================
Trade and
other payables 95.0 - - - 95.0
Interest-beari
ng loans and
borrowings 158.1 - - - 158.1
Employee
benefits 2 10.1 - 67.7 - 77.8
Income tax
payable 26.1 - - - 26.1
Proposed
dividends 3 18.0 (18.0) - - -
Accruals and
deferred
income 154.8 - - - 154.8
Provisions 4.6 - - - 4.6
-------------------------------------------------------------------------------------------
TOTAL
LIABILITIES 466.7 (18.0) 67.7 - 516.4
===========================================================================================
TOTAL ASSETS
LESS TOTAL
LIABILITIES 342.2 18.0 (67.7) 25.4 317.9
===========================================================================================
Issued capital 13.3 - - - 13.3
Share premium 242.7 - - - 242.7
Capital
redemption
reserve 0.1 - - - 0.1
Retained
earnings 86.0 18.0 (67.7) 25.4 61.7
-------------------------------------------------------------------------------------------
EQUITY
SHAREHOLDERS'
FUNDS 342.1 18.0 (67.7) 25.4 317.8
-------------------------------------------------------------------------------------------
Minority
interest 0.1 - - - 0.1
===========================================================================================
TOTAL EQUITY 342.2 18.0 (67.7) 25.4 317.9
===========================================================================================
Reconciliation of equity at 31 December 2004 (end of last period presented under
previous GAAP)
Amorti-
Goodwill sation
amorti- of
Recognition sation Intangible Goodwill in- Proposed
Previous of pension added assets de- tangible final Deferred
GAAP liability back recognised recognised assets dividend taxation IFRS
Notes £Million £Million £Million £Million £Million £Million £Million £Million £Million
---------------------------------------------------------------------------------------------------------------------
Property,
plant and
equipment 129.1 - - - - - - - 129.1
Intangible
assets 1 470.2 - 29.3 10.1 (10.1) (1.8) - 2.5 500.2
Available-for-
sale financial
assets 0.2 - - - - - - - 0.2
Deferred
taxation 2 (0.9) - - - - - - 33.5 32.6
---------------------------------------------------------------------------------------------------------------------
Total
non-current
assets 598.6 - 29.3 10.1 (10.1) (1.8) - 36.0 662.1
---------------------------------------------------------------------------------------------------------------------
Trade and
other
receivables 150.4 - - - - - - - 150.4
Prepayments 98.7 - - - - - - - 98.7
---------------------------------------------------------------------------------------------------------------------
Total current
assets 249.1 - - - - - - - 249.1
---------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 847.7 - 29.3 10.1 (10.1) (1.8) - 36.0 911.2
=====================================================================================================================
Trade and
other payables 87.8 - - - - - - - 87.8
Interest-beari
ng loans and
borrowings 152.0 - - - - - - - 152.0
Employee
benefits 3 (43.5) 87.6 - - - - - - 44.1
Income tax
payable 28.4 - - - - - - - 28.4
Proposed
dividends 4 23.8 - - - - - (23.8) - -
Accruals and
deferred
income 196.1 - - - - - - - 196.1
Overdrafts 37.0 - - - - - - - 37.0
Provisions 5.5 - - - - - - - 5.5
---------------------------------------------------------------------------------------------------------------------
TOTAL
LIABILITIES 487.1 87.6 - - - - (23.8) - 550.9
=====================================================================================================================
TOTAL ASSETS
LESS TOTAL
LIABILITIES 360.6 (87.6) 29.3 10.1 (10.1) (1.8) 23.8 36.0 360.3
=====================================================================================================================
Issued capital 13.4 - - - - - - 13.4
Share premium 248.1 - - - - - - 248.1
Treasury
shares (0.2) - - - - - - (0.2)
Capital
redemption
reserve 0.1 - - - - - - 0.1
Foreign
currency
translation 0.1 - - - - - - 0.1
Retained
earnings 98.7 (87.6) 29.3 - - (1.8) 23.8 36.0 98.4
---------------------------------------------------------------------------------------------------------------------
EQUITY
SHAREHOLDERS'
FUNDS 360.2 (87.6) 29.3 - - (1.8) 23.8 36.0 359.9
---------------------------------------------------------------------------------------------------------------------
Minority
interest 0.4 - - - - - - - 0.4
=====================================================================================================================
TOTAL EQUITY 360.6 (87.6) 29.3 - - (1.8) 23.8 36.0 360.3
=====================================================================================================================
Reconciliation of profit for the year ended 31 December 2004
De-
recognition/
Recognition Share Amortisation
of based Goodwill of
Previous pension payment amortisation intangible Deferred
GAAP charge charge added back assets taxation IFRS
Notes £Million £Million £Million £Million £Million £Million £Million
Continuing operations:
Revenue 1,282.2 - - - - - 1,282.2
Cost of sales 955.6 - - - - - 955.6
--------------------------------------------------------------------------------------------------------------------
Gross profit 326.6 - - - - - 326.6
Administrative
expenses 1, 2,3 195.5 (0.1) 4.7 (29.3) 1.8 - 172.6
--------------------------------------------------------------------------------------------------------------------
Operating profit 131.1 0.1 (4.7) 29.3 (1.8) - 154.0
Finance costs (11.9) - - - - - (11.9)
--------------------------------------------------------------------------------------------------------------------
Profit before tax 119.2 0.1 (4.7) 29.3 (1.8) - 142.1
Income tax expense 4 (41.6) - - - - (2.8) (44.4)
--------------------------------------------------------------------------------------------------------------------
Profit for the year
from continuing
operations 77.6 0.1 (4.7) 29.3 (1.8) (2.8) 97.7
Discontinued operations:
Loss on discontinued
operations (2.2) - - - - - (2.2)
--------------------------------------------------------------------------------------------------------------------
Profit for the year 75.4 0.1 (4.7) 29.3 (1.8) (2.8) 95.5
====================================================================================================================
Attributable to :
Equity holders
of the parent 75.6 0.1 (4.7) 29.3 (1.8) (2.8) 95.7
Minority interest (0.2) - - - - - (0.2)
--------------------------------------------------------------------------------------------------------------------
75.4 0.1 (4.7) 29.3 (1.8) (2.8) 95.5
====================================================================================================================
UKGAAP IFRS Adjustments IFRS
Earnings per
share - basic 11.36p 3.02p 14.38p
- diluted 11.21p 3.04p 14.25p
====================================================================================================================
- basic (excluding
discontinued operations) 11.69p 3.02p 14.71p
- diluted (excluding
discontinued operations) 11.54p 3.04p 14.58p
====================================================================================================================
Notes to the reconciliations
Notes to the reconciliation of equity at 1 January 2004:
1. Deferred taxation recognised.
2. As a first-time adopter of IFRSs, the Group has taken advantage
of the exception allowed under IFRS 1 not to apply full retrospective
application of IAS 19 Employee Benefits. Accordingly, the Group has elected to
recognise all cumulative actuarial gains and losses at the date of transition to
IFRSs. Consequently, the full pension liability of £77.8m at 1 January 2004 is
recognised under IFRSs but was not fully recognised under previous GAAP.
3. Proposed dividends are not recognised under IFRS thus the
provision of £18.0m has been written back.
Notes to the reconciliation of equity at 31 December 2004:
1. Goodwill amortisation under UK GAAP of £29.3m added back. £10.1m
of separately identified intangible assets have been recognised in accordance
with IFRS 3/IAS 38 (de-recognised in goodwill) as has the deferred taxation
liability of £2.5m in relation to this. The deferred taxation liability
recognised results in an equal and opposite entry in goodwill. Amortisation of
these separately identifiable intangible assets of £1.8m has been charged to the
profit and loss account.
2. Deferred taxation recognised.
3. As noted above in the reconciliation of equity at 1 January 2004,
the full pension liability of £44.1m at 31 December 2004 is recognised under
IFRSs but was not fully recognised under previous GAAP.
4. Proposed dividends are not recognised under IFRS thus the
provision of £23.8m has been written back.
Notes to the reconciliation of profit for the year ended 31 December 2004:
1. The change from accounting for the defined benefit pension
schemes under UK GAAP to IFRS has resulted in a reduced charge of £0.1m.
2. Provision for share-based payment of £4.7m is recognised under
IFRS 2 but was not recognised under UK GAAP.
3. Goodwill amortisation under UK GAAP of £29.3m added back.
Provision made for amortisation of £1.8m on separately identified intangibles.
4. Deferred taxation has been recognised.
Notes to the reconciliation of the profit for the six months ended 30 June 2004:
1. Provision for share-based payment of £2.3m is recognised under
IFRS 2 but was not recognised under UK GAAP.
Goodwill amortisation under UK GAAP of £14.5m added back. Provision made for
amortisation of £0.7m on separately identified intangibles.
2. The change from accounting for the defined benefit pension
schemes under UK GAAP to IFRS has resulted in a reduced charge of £0.3m.
3. Provision has been made for holiday pay accrued of £0.9m. This
provision is required under IFRS and will unwind by the year end as the employee
holiday calendar year matches the Group's financial year. This provision was not
required under UK GAAP
4. Deferred taxation has been recognised.
Reconciliation of cash and cash equivalents for relevant periods:
1. No restated IFRS cash flow has been presented as there is no
difference between the net cash flow presented under IFRSs and the net cash flow
presented under the previous GAAP.
Group Statement of Recognised Income and Expense
Year ended 2004
£Million
--------------------------------------------------------------------------------
Attributable profit for the year reported under IFRS 95.7
Actuarial losses on defined benefit plans (19.7)
Exchange differences resulting from translation of foreign
operations 0.1
Tax taken directly to equity 13.3
--------------------------------------------------------------------------------
Total recognised income and expense for the year under IFRS 89.4
================================================================================
Group Statement of Changes in Equity
Foreign
Capital currency
Share Share Treasury redemption Retainted translation Minority
capital premium shares reserve earnings reserve Total interests Total
£Million £Million £Million £Million £Million £Million £Million £Million £Million
--------------------------------------------------------------------------------------------------------------------
1 January 2004
under UK GAAP 13.3 242.7 - 0.1 86.0 - 342.1 0.1 342.2
--------------------------------------------------------------------------------------------------------------------
Equity
dividends
unapproved - - - - 18.0 - 18.0 - 18.0
IAS19 Pension
liability
recognised - - - - (67.7) - (67.7) - (67.7)
Tax on changes
relating to
first time
adoption - - - - 25.4 - 25.4 - 25.4
--------------------------------------------------------------------------------------------------------------------
Net changes
relating to
first time
adoption - - - - (24.3) - (24.3) - (24.3)
--------------------------------------------------------------------------------------------------------------------
1 January 2004
- as restated 13.3 242.7 - 0.1 61.7 - 317.8 0.1 317.9
Exchange
differences
resulting from
translation of
foreign
operations - - - - - 0.1 0.1 - 0.1
Actuarial
losses on
defined
benefit plans - - - - (19.7) - (19.7) - (19.7)
Tax taken
directly to
equity - - - - 13.3 - 13.3 - 13.3
Share based
payment
recognised in
the profit and
loss statement - - - - 4.7 - 4.7 - 4.7
Cost of own
shares
purchased - - (0.2) - (27.7) - (27.9) - (27.9)
Shares issued 0.1 5.4 - - - - 5.5 - 5.5
Preference
share issue - - - - - - - 0.5 0.5
--------------------------------------------------------------------------------------------------------------------
13.4 248.1 (0.2) 0.1 32.3 0.1 293.8 0.6 294.4
Attributable
profit for the
year - - - - 95.7 - 95.7 (0.2) 95.5
Equity
dividends paid - - - - (29.6) - (29.6) - (29.6)
--------------------------------------------------------------------------------------------------------------------
31 December
2004 13.4 248.1 (0.2) 0.1 98.4 0.1 359.9 0.4 360.3
====================================================================================================================
Note: The group statement of changes in equity is not a primary statement but is
included here for clarity. It will be presented, in the abridged format, as a
note in the Group's full 2005 financial statements.
Independent Auditors' Special Purpose Report to The Capita Group Plc on the
preliminary IFRS Financial Statements for the year ended 31 December 2004
We have audited the accompanying preliminary International Financial Reporting
Standards ('IFRS') financial information of The Capita Group Plc ('the Company')
for the year ended 31 December 2004 which comprises a Reconciliation of Equity
as at 1 January 2004, the Reconciliation of Profit and the Statement of Changes
in Equity for the year ended 31 December 2004 and a Reconciliation of Equity as
at 31 December 2004, together with the related accounting policies note set out
on pages 2 to 6. We have not audited nor reviewed and we will not provide any
opinion in respect of the Reconciliation of profit for the six months ended 30
June 2004 which has been included on page 13.
This report is made solely to the Company in accordance with our engagement
letters dated 29 November 2004 and 25 July 2005. Our audit work has been
undertaken so that we might state to the Company those matters we are required
to state to them in an auditors' report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility or liability
to anyone other than the Company for our audit work, for this report, or for the
opinions we have formed.
Respective responsibilities of directors and auditors
This preliminary IFRS financial information is the responsibility of the
Company's directors and has been prepared as part of the Company's conversion to
IFRS. It has been prepared in accordance with the basis set out in Note 4 and
Note 2 which describes how IFRS have been applied under IFRS 1, including the
assumptions management has made about the standards and interpretations expected
to be effective, and the policies expected to be adopted, when management
prepares its first complete set of IFRS financial statements as at 31 December
2005.
Our responsibility is to express an independent opinion on the preliminary IFRS
financial information based on our audit. We read the other information
accompanying the preliminary IFRS financial information and consider whether it
is consistent with the preliminary IFRS financial information. This other
information comprises the description of significant changes in accounting
polices on page 1. We consider the implications for our report if we become
aware of any apparent misstatements or material inconsistencies with the
preliminary opening balance sheet. Our responsibilities do not extend to any
other information.
Basis of audit opinion
We conducted our audit in accordance with United Kingdom Auditing Standards
issued by the Auditing Practices Board. Those Standards require that we plan and
perform the audit to obtain reasonable assurance about whether the preliminary
IFRS financial information is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the preliminary IFRS financial information. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the preliminary IFRS financial
information. We believe that our audit provides a reasonable basis for our
opinion.
Emphasis of matter
Without qualifying our opinion, we draw attention to the fact that Note 1
explains why there is a possibility that the preliminary IFRS financial
information may require adjustment before constituting the final IFRS financial
statements. Moreover, we draw attention to the fact that, under IFRSs only a
complete set of financial statements with comparative financial information and
explanatory notes can provide a fair presentation of the Company's financial
position, results of operations and cash flows in accordance with IFRSs.
Opinion
In our opinion, the preliminary IFRS financial information for the year ended 31
December 2004 has been prepared, in all material respects, in accordance with
the basis set out in Note 4 and Note 2, which describes how IFRS have been
applied under IFRS 1, including the assumptions management has made about the
standards and interpretations expected to be effective, and the policies
expected to be adopted, when management prepares its first complete set of IFRS
financial statements as at 31 December 2005.
Ernst & Young LLP
London
27 July 2005
Appendix 1
Reconciliation of profit for the six months ended 30 June 2004
De-recognition Share Goodwill
/Recognition based amortisation Amortisation
Previous of pension payment added of intangible Holiday Deferred
GAAP charge charge back assets pay taxation IFRS
Notes £Million £Million £Million £Million £Million £Million £Million £Million
Continuing
operations:
Revenue 617.3 - - - - - - 617.3
Cost of sales 411.9 - - - - - - 411.9
-----------------------------------------------------------------------------------------------------------------------
Gross profit 205.4 - - - - - - 205.4
Administrative
expenses 1, 2, 3 150.5 (0.3) 2.3 (14.5) 0.7 0.9 - 139.6
-----------------------------------------------------------------------------------------------------------------------
Operating
profit 54.9 0.3 (2.3) 14.5 (0.7) (0.9) - 65.8
Finance costs (5.5) - - - - - - (5.5)
-----------------------------------------------------------------------------------------------------------------------
Profit before
tax 49.4 0.3 (2.3) 14.5 (0.7) (0.9) - 60.3
Income tax
expense 4 (17.9) - - - - - 1.0 (16.9)
-----------------------------------------------------------------------------------------------------------------------
Profit for the
period from
continuing
operations: 31.5 0.3 (2.3) 14.5 (0.7) (0.9) 1.0 43.4
Discontinued
operations:
Loss on
discontinued
operation (1.0) - - - - - - (1.0)
-----------------------------------------------------------------------------------------------------------------------
Profit for the
period 30.5 0.3 (2.3) 14.5 (0.7) (0.9) 1.0 42.4
=======================================================================================================================
Attributable to :
Equity holders
of the parent 30.5 0.3 (2.3) 14.5 (0.7) (0.9) 1.0 42.4
Minority interest - - - - - - - -
-----------------------------------------------------------------------------------------------------------------------
30.5 0.3 (2.3) 14.5 (0.7) (0.9) 1.0 42.4
=======================================================================================================================
UKGAAP IFRS Adjustments IFRS
Earnings per
share - basic 4.57p 1.78p 6.35p
- diluted 4.54p 1.77p 6.31p
=======================================================================================================================
- basic (excluding discontinued
operations) 4.72p 1.78p 6.50p
- diluted (excluding discontinued
operations) 4.69p 1.77p 6.46p
=======================================================================================================================
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Tuesday, 4th June 2024
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