IFRS
Restaurant Group PLC
28 June 2005
The Restaurant Group plc
Impact of the adoption of International Financial Reporting Standards
The Restaurant Group plc ('TRG', or 'the Company' or 'the Group') today
announces that it has completed preparations to adopt International Financial
Reporting Standards ('IFRS'). For accounting periods commencing from 1 January
2005, TRG will prepare consolidated accounts in line with IFRS. As part of the
transition to IFRS, TRG today presents its comparative information for the full
year to 31 December 2004 under IFRS. Results for the full year to 31 December
2004 under UK GAAP are available from the company's website, www.trgplc.com.
This announcement provides explanations and reconciliations from UK GAAP to IFRS
for the year to 31 December 2004. The primary changes to TRG's reported
financial information were highlighted at the time of the preliminary
announcement made on 9 March 2005:
• Consolidation of the results of DPP Restaurants Limited with effect from
31 December 2004
• Recognition of a relatively small number of building leases as finance
leases
• Recognition of the expense of share based payments
For the year ended 31 December 2004, the impact on profit from the adoption of
IFRS would be to reduce profit before tax by £0.9m, or 4% and reduce profit
after tax by £0.8m, or 5%. Net assets would be increased by £5.0m, or 7%. The
main item impacting on profit is a one-off goodwill impairment charge arising as
a result of the requirement to consolidate the balance sheet of DPP. Excluding
this the effect would be to reduce profit before tax by 1.5%.
Stephen Critoph, Finance Director, said of the transitional adjustments;
'The Restaurant Group plc has concluded its transitional arrangements to IFRS.
There is no change to the operating fundamentals and strong cash flow
characteristics of the business. These accounting changes have only a minor
impact on previously reported profit after tax.'
A CONFERENCE CALL FOR ANALYSTS WILL BE HELD AT 3.00 PM ON 28 JUNE 2005. PLEASE
CONTACT JAMIE RAMSAY AT COLLEGE HILL FOR DETAILS.
28 June 2005
Enquiries:
The Restaurant Group plc
Stephen Critoph (Finance Director) 020 7747 7750
Robert Morgan (Group Finance Manager)
College Hill
Matthew Smallwood 020 7457 2020
Introduction
The Restaurant Group plc has historically prepared its accounts under UK
Generally Accepted Accounting Practice ('UK GAAP'). For accounting periods
commencing after 1 January 2005, TRG will prepare consolidated accounts under
International Financial Reporting Standards ('IFRS'). The first results to be
issued under IFRS will be the interim financial statements for the six months to
30 June 2005. The first full set of financial statements to be issued under
IFRS will be for the year to 31 December 2005.
This announcement provides the adjusted consolidated balance sheet and profit
and loss account for TRG for the comparative periods to 31 December 2004,
together with the reconciliation from UK GAAP to IFRS. It also sets out the
material accounting policy changes from those set out in the UK GAAP financial
statements for the year ended 31 December 2004.
The figures in this document are based on those IFRS expected to be applicable
at 31 December 2005 and the interpretation of those standards. IFRS are subject
to possible amendment by and interpretive guidance from the International
Accounting Standards Board ('IASB') as well as on-going endorsement and review
by the EU and are, therefore, still subject to further change. Therefore these
figures may require amendment before their inclusion in the IFRS financial
statements for the six months to 30 June 2005 and year to 31 December 2005.
Relationship to statutory accounts
The financial information presented in this document is unaudited and does not
comprise statutory accounts within the meaning of section 240 of the Companies
Act 1985. The statutory accounts for the year ended 31 December 2004, on which
the auditors have issued an unqualified report, have been delivered to the
Registrar of Companies.
IFRS 1: First time adoption choices
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. The
Group is required to establish its IFRS accounting policies as at 31 December
2005 and, in general, apply these retrospectively to determine the IFRS opening
balance sheet at its date of transition, 1 January 2004.
This standard provides a number of optional exceptions to this general
principle. Set out below is a description of the significant first time adoption
choices made by the Group.
a) Business combinations before the date of transition (IFRS 3, 'Business
Combinations')
The Group has elected not to apply IFRS 3 retrospectively to business
combinations that took place before the date of transition. As a result, in the
opening balance sheet, goodwill arising from past business combinations (£50.4
million) remains written off to reserves as stated at 1 January 2004.
b) Share-based Payments (IFRS 2, 'Share-based Payment')
The Group has elected to apply IFRS 2 only to relevant share based payment
transactions granted after 7 November 2002. As further share options are
granted this will have an impact on the level of charge under IFRS 2.
c) Financial Instruments (IAS 39, 'Financial Instruments: Recognition and
Measurement' and IAS 32, 'Financial Instruments: Disclosure and Presentation')
In accordance with the permitted transition arrangements, TRG will adopt IAS 32
and IAS 39 from 1 January 2005. These standards set out the accounting rules
surrounding the recognition, measurement, disclosure and presentation of
financial instruments. TRG holds two interest rate swaps to assist management
of risk, which are detailed below.
Presentation of Financial Information
The primary statements within the financial information contained in this
announcement have been presented in accordance with IAS 1, 'Presentation of
Financial Statements'. However, this format and presentation may require
modification as practice develops and in the event that further guidance is
issued.
Key impacts
a) Deep Pan Pizza - consolidation as a subsidiary under IFRS
In December 2001 TRG disposed of the Deep Pan Pizza business for a consideration
of £3.3 million of which £1 million was paid on completion with the balance to
be paid on a deferred basis. Since then, a further £1.8 million has been
received, leaving an outstanding balance of £0.5 million. The business was sold
to a new company, DPP Restaurants Limited ('DPP'), which has traded as Deep Pan
Pizza. DPP faced a challenging trading environment during the latter part of
2004 and sought to counter this through a programme of estate rationalisation,
and in so far as its financial resources have permitted, by investing in and
refreshing some restaurants.
On 17 November 2004 TRG announced that it had deferred settlement of the
outstanding consideration due from DPP and had taken a warrant which
incorporates an option (exercisable in certain specified circumstances) to
convert its outstanding £0.5 million deferred consideration balance into new DPP
ordinary shares at par. The option became exercisable on 31 December 2004 but
TRG has currently chosen not to convert the warrant. If TRG were to exercise its
option it would gain full control of DPP.
As the option became exercisable on 31 December 2004, under IFRS the balance
sheet for DPP is required to be consolidated although TRG does not have control
of that company. Under IAS 27, the Group is required to consolidate the results
and balance sheet of DPP, regardless of whether the option has been exercised or
not. Under IFRS, there is a requirement that if a company can exercise
theoretical control over another entity through an option, it should consolidate
the entity concerned. IAS 27 specifically notes that the intentions of
management and the financial ability to exercise control are not considered in
assessing whether potential voting rights constitute control. Following the
consolidation of DPP, goodwill of £0.6m has been written off through the profit
and loss account. This is a one-off charge, recognised at the theoretical time
of acquisition under IFRS.
TRG's 2005 results will be impacted by this requirement of IFRS, with the
results of DPP consolidated as a subsidiary. Under IAS 27, TRG will be required
to consolidate 100% of the result of DPP, despite only holding a 19.9% stake in
that company.
b) Share-based payments
IFRS 2, 'Share-based Payment' requires that an expense for equity instruments
granted is recognised in the financial statements based on their fair value at
the date of grant. This expense, which is primarily in relation to employee
option and performance share schemes, is recognised over the vesting period of
the scheme.
As previously mentioned, IFRS 2 allows the measurement of this expense to be
calculated only on options granted after 7 November 2002. The Group has
principally adopted the Stochastic model for the purposes of computing fair
value under IFRS.
The additional pre-tax charge arising from the adoption of IFRS 2 on the Group's
income statement is £0.2m for the year ended 31 December 2004. Following the
grant of further options to employees and directors of the Group there will be a
higher charge in the results of 2005.
c) Leases
IAS 17, 'Leases' requires that the land element of leases on land and buildings
is considered separately for the purposes of determining whether the lease is a
finance or operating lease.
A majority of the Group's buildings are on leases of 25 years or less which may
be classified as operating leases under IFRS. This treatment is consistent with
UK GAAP. There are a small number of leases greater than 25 years and where
there is an element of financing built into the rental payment cycle where the
buildings elements of the leases have been reclassified as finance leases based
on the criteria set out in IAS 17.
As a result, the Group's IFRS balance sheet at 31 December 2004 includes
additional tangible fixed assets of £2.8m and additional finance lease
obligations of £4.4m included within current and non-current borrowings. The
main impact on the income statement is that the operating lease payment charged
to operating profit under UK GAAP is replaced with a depreciation charge of the
asset (in operating profit) and a financing charge (interest expense). Whilst
the total charge for a lease over the life of the lease will be the same under
UK GAAP and IFRS, the profile of the charge is different, with the charge being
more front loaded under IFRS. The net pre-tax impact on the income statement is
a further charge of £0.1m for the year ended 31 December 2004.
d) Dividends - period of recognition
IAS 10, 'Events after the Balance Sheet Date' requires that dividends declared
after the balance sheet date should not be recognised as a liability at that
balance sheet date as the liability does not represent a present obligation as
defined by IAS 37, 'Provisions, Contingent Liabilities and Contingent Assets'.
Accordingly TRG has reversed dividends provided for at each respective balance
sheet date.
The proposed final dividend accrued for the year ended 31 December 2004 of £7.3m
has been reversed in the IFRS balance sheet as at 31 December 2004 and,
following approval by shareholders at the Annual General Meeting held on 25 May
2005, will be charged against reserves in 2005.
e) Financial instruments
IAS 32, 'Financial Instruments: Disclosure and Presentation' and IAS 39
'Financial Instruments: Recognition and Measurement' address the accounting for,
and reporting of, financial instruments. IAS 39 sets out detailed accounting
requirements in relation to financial assets and liabilities. All derivative
financial instruments are accounted for at fair market value whilst other
financial instruments are accounted for either at amortised cost or at fair
value depending on their classification.
As noted above, in the transition to IFRS the implementation of IAS 32 and IAS
39 has been deferred to 1 January 2005.
The Group currently holds two interest rate swaps, both of which were entered
into on 16 January 2003 for a period of three years, terminating on 15 January
2006. One interest rate swap is for a notional amount of £20,000,000, fixed at
4.55% per annum for a period of three years. The second interest rate swap is
for a further notional amount of £20,000,000, fixed at 4.395% per annum for a
period of three years. The second interest rate swap also provides the
counterparty with the right, but not the obligation, to enter into a further
transaction to renew the interest rate swap on £20,000,000 at 4.395% for a
further two years, terminating on 15 January 2008.
The fair value of these swaps is required to be recognised on the balance sheet.
Movements in fair value will be recognised in the profit and loss account. In
accordance with the transitional arrangements under IFRS, the opening balance
sheet will include the market value of the swaps, which results in an asset of
£127,000 as at 1 January 2005, with a resultant increase in reserves.
f) Deferred taxation
Under IFRS, TRG has included a deferred tax liability in respect of capital
gains that have been rolled over into replacement assets. Under UK GAAP it was
not necessary to provide for this.
The Group has also accounted for deferred tax for the share option charge. This
has resulted in the recognition of a deferred tax asset. Where the deferred tax
credit to be recorded in the profit and loss account has exceeded 30% of the
cumulative share option charge under IFRS 2, the remaining deferred tax credit
has been taken directly to equity. The deferred tax asset has been recognised
in full.
The Restaurant Group plc
International Financial Reporting Standards
Consolidated income statement reconciliation at 31 December 2004 (unaudited)
UK GAAP UK GAAP UK GAAP IFRS
Before Exceptional Total (IFRS Total Results
exceptional items format) adjustments
items
£000 £000 £000 £000 £000
Revenue 255,446 - 255,446 - 255,446
Cost of sales
Excluding pre-opening costs (212,357) - (212,357) 356 (212,001)
Pre-opening costs (948) - (948) - (948)
(213,305) - (213,305) 356 (212,949)
Gross profit 42,141 - 42,141 356 42,497
Administration costs
Excluding one-off items (16,237) - (16,237) (190) (16,427)
Recovered aborted bid costs - 457 457 - 457
(16,237) 457 (15,780) (190) (15,970)
Trading profit 25,904 457 26,361 166 26,527
Loss on sale of business - (500) (500) - (500)
Impairment of goodwill - - (588) (588)
Loss and provision for loss on disposal of tangible - (2,554) (2,554) - (2,554)
fixed assets
Operating profit 25,904 (2,597) 23,307 (422) 22,885
Net finance charges (1,179) - (1,179) (488) (1,667)
Profit before tax 24,725 (2,597) 22,128 (910) 21,218
Tax on profit on ordinary activities (7,747) 708 (7,039) 97 (6,942)
Profit for the financial period 16,978 (1,889) 15,089 (813) 14,276
Attributable to:
Equity shareholders 16,978 (1,889) 15,089 (813) 14,276
Minority interests - - - - -
16,978 (1,889) 15,089 (813) 14,276
The Restaurant Group plc
International Financial Reporting Standards
Consolidated balance sheet reconciliation at 31 December 2004 (unaudited)
UK GAAP IFRS
Total adjustments balance sheet
£000 £000 £000
Non-current assets
Intangible assets - - -
Property, plant and equipment 149,683 5,167 154,850
Investment property - - -
Investment in associates - - -
Trade and other receivables - - -
149,683 5,167 154,850
Current assets
Stocks 2,437 184 2,621
Trade and other receivables 4,459 (728) 3,731
Prepayments 10,065 547 10,612
Income tax - - -
Financial assets - derivative financial - - -
instruments
Cash and cash equivalents 482 - 482
17,443 3 17,446
Total assets 167,126 5,170 172,296
Current liabilities
Short-term borrowings (4,776) (358) (5,134)
Income tax liabilities (5,531) - (5,531)
Trade and other payables (62,247) 4,535 (57,712)
Provisions
(72,554) 4,177 (68,377)
Net current liabilities (55,111) 4,180 (50,931)
Non-current liabilities
Long-term borrowings (7,000) (4,431) (11,431)
Other payables - - -
Deferred tax liabilities (16,092) 367 (15,725)
Post employment benefits - - -
Provisions (625) - (625)
(23,717) (4,064) (27,781)
Net assets 70,855 5,283 76,138
Equity
Share capital 54,087 - 54,087
Share premium 19,422 - 19,422
Foreign currency reserve 245 - 245
Other reserves - 256 256
Retained earnings (2,899) 5,027 2,128
Total equity shareholders' interests 70,855 5,283 76,138
Minority interests - - -
Total equity 70,855 5,283 76,138
The Restaurant Group plc
International Financial Reporting Standards
Consolidated income statement reconciliation at 31 December 2004 (unaudited)
UK GAAP UK GAAP UK GAAP IAS 27 IFRS 2 IAS 17 IAS 10 IAS 12 IFRS
Reclassify (IFRS DPP Share Leases Dividend Deferred Deferred Total Total
detail format) adjustment based tax - tax - adjustments
payments rolled share
over options
gains
£000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000
Revenue 255,446 255,446 - 255,446
Cost of sales
Excluding (212,357) (212,357) 356 356 (212,001)
pre-opening
costs
Pre-opening (948) (948) - (948)
costs
(213,305) - (213,305) - - 356 - - - 356 (212,949)
Gross profit 42,141 - 42,141 - - 356 - - - 356 42,497
Administration
costs
Excluding (16,237) (16,237) (190) (190) (16,427)
one-off items
Recovered 457 457 - 457
aborted bid
costs
(15,780) - (15,780) - (190) - - - - (190) (15,970)
Trading
profit 26,361 - 26,361 - (190) 356 - - - 166 26,527
Loss on sale (500) (500) - (500)
of business
Impairment of - (588) (588) (588)
goodwill
Loss and (2,554) (2,554) - (2,554)
provision for
loss on
disposal of
tangible fixed
assets
Operating 23,307 - 23,307 (588) (190) 356 - - - (422) 22,885
profit
Net finance (1,179) (1,179) (488) (488) (1,667)
charges
Profit before 22,128 - 22,128 (588) (190) (132) - - - (910) 21,218
tax
Tax on profit (7,039) (7,039) 40 57 97 (6,942)
on ordinary
activities
Profit for
the 15,089 - 15,089 (588) (190) (92) - - 57 (813) 14,276
financial
period
Attributable
to:
Equity 15,089 - 15,089 (588) (190) (92) - - 57 (813) 14,276
shareholders
Minority
-
interests
15,089 - 15,089 (588) (190) (92) - - 57 (813) 14,276
The Restaurant Group plc
International Financial Reporting Standards
Consolidated balance sheet reconciliation at 31 December 2003 (unaudited)
UK GAAP UK GAAP UK GAAP IAS 27 IFRS 2 IAS 17 IAS 10 IAS 12 IFRS
Reclassify (IFRS DPP Share Leases Dividend Deferred Deferred Total balance
detail format) adjustment based tax - tax - adjustments sheet
payments rolled share
over options
gains
£000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000
Non-current
assets
Intangible - - - -
assets
Property,
plant 146,220 146,220 2,846 2,846 149,066
and equipment
Investment - - - -
property
Investment in - - - -
associates
Trade and other - - - -
receivables
146,220 - 146,220 - - 2,846 - - - 2,846 149,066
Current assets
Stocks 2,508 2,508 - 2,508
Trade and
other 15,999 (10,331) 5,668 - 5,668
receivables
Prepayments - 10,331 10,331 - 10,331
Income tax - - - -
Financial
assets - - - -
- derivative
financial
instruments
Cash and cash 526 526 - - 526
equivalents
19,033 - 19,033 - - - - - - - 19,033
Total assets 165,253 - 165,253 - - 2,846 - - - 2,846 168,099
Current
liabilities
Short-term (3,689) (3,689) - (3,689)
borrowings
Income tax (4,565) (4,565) - (4,565)
liabilities
Trade and
other (62,650) 8,254 (54,396) 6,198 6,198 (48,198)
payables
Provisions - - -
(62,650) - (62,650) - - - 6,198 - - 6,198 (56,452)
Net current (43,617) - (43,617) - - - 6,198 - - 6,198 (37,419)
liabilities
Non-current
liabilities
Long-term (35,000) (35,000) (4,368) (4,368) (39,368)
borrowings
Other payables - - -
Deferred tax (16,772) (16,772) 457 (520) 78 15 (16,757)
liabilities
Post employment - - -
benefits
Provisions (687) (687) - (687)
(52,459) - (52,459) - - (3,911) - (520) 78 (4,353) (56,812)
Net assets 50,144 - 50,144 - - (1,065) 6,198 (520) 78 4,691 54,835
Equity
Share capital 48,576 48,576 - 48,576
Share premium 10,192 10,192 - 10,192
Foreign currency 281 281 - 281
reserve
P&L reserve - - 66 66 66
share based
payments
Retained (8,624) (281) (8,905) (66) (1,065) 6,198 (520) 78 4,625 (4,280)
earnings
Total equity 50,144 - 50,144 - - (1,065) 6,198 (520) 78 4,691 54,835
shareholders'
interests
Minority - - -
interests
Total equity 50,144 - 50,144 - - (1,065) 6,198 (520) 78 4,691 54,835
The Restaurant Group plc
International Financial Reporting Standards
Consolidated balance sheet reconciliation at 31 December 2004 (unaudited)
UK GAAP UK GAAP UK GAAP IAS 27 IFRS 2 IAS 17 IAS 10 IAS 12 IFRS
Reclassify (IFRS DPP Share Leases Dividend Deferred Deferred Total balance
detail format) adjustment based tax - tax - adjustments sheet
payments rolled share
over options
gains
£000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000
Non-current
assets
Intangible assets - - - -
Property,
plant 149,683 149,683 2,390 2,777 5,167 154,850
and equipment
Investment - - - -
property
Investment in - - - -
associates
Trade and other - - - -
receivables
149,683 - 149,683 2,390 - 2,777 - - - 5,167 154,850
Current assets
Stocks 2,437 2,437 184 184 2,621
Trade and other 14,524 (10,065) 4,459 (728) (728) 3,731
receivables
Prepayments - 10,065 10,065 547 547 10,612
Income tax - - - -
Financial assets - - - -
- derivative
financial
instruments
Cash and cash 482 482 - - 482
equivalents
17,443 - 17,443 3 - - - - - 3 17,446
Total assets 167,126 - 167,126 2,393 - 2,777 - - - 5,170 172,296
Current
liabilities
Short-term (4,776) (4,776) (358) (358) (5,134)
borrowings
Income tax (5,531) (5,531) - (5,531)
liabilities
Trade and
other (72,554) 10,307 (62,247) (2,769) 7,304 4,535 (57,712)
payables
Provisions - - -
(72,554) - (72,554) (3,127) - - 7,304 - - 4,177 (68,377)
Net current (55,111) - (55,111) (3,124) - - 7,304 - - 4,180 (50,931)
liabilities
Non-current
liabilities
Long-term (7,000) (7,000) (4,431) (4,431) (11,431)
borrowings
Other payables - - -
Deferred tax (16,092) (16,092) 496 (520) 391 367 (15,725)
liabilities
Post employment - - -
benefits
Provisions (625) (625) - (625)
(23,717) - (23,717) - - (3,935) - (520) 391 (4,064) (27,781)
Net assets 70,855 - 70,855 (734) - (1,158) 7,304 (520) 391 5,283 76,138
Equity
Share capital 54,087 54,087 - 54,087
Share premium 19,422 19,422 - 19,422
Foreign currency 245 245 - 245
reserve
P&L reserve - - 256 256 256
share based
payments
Retained
earnings (2,654) (245) (2,899) (734) (256) (1,158) 7,304 (520) 391 5,027 2,128
Total equity 70,855 - 70,855 (734) - (1,158) 7,304 (520) 391 5,283 76,138
shareholders'
interests
Minority - - -
interests
Total equity 70,855 - 70,855 (734) - (1,158) 7,304 (520) 391 5,283 76,138
The Restaurant Group plc
International Financial Reporting Standards
Consolidated statement of recognised income and expense for the year ended 31
December 2004 (unaudited)
Reserves as at 31/12/2003 (3,933)
Profit for the period 14,276
Final dividend in respect of 2003 (6,198)
Interim dividend in respect of 2004 (1,779)
Foreign exchange translation differences (36)
Share of pre-acquisition losses of DPP taken directly to reserves (146)
Share based payments - credit to equity 190
Deferred tax credit on share based payments taken directly to 255
equity
Reserves as at 31/12/2004 2,629
Reconciliation of net debt
Cash and Short term Long term Net cash & Finance Finance lease Total net
cash liabilities debt bank debt lease payments: due debt
equivalents payments: more than one
due less year
than one
year
Under UK GAAP 482 (4,776) (7,000) (11,294) (11,294)
Inclusion of DPP (358) (358) (358)
Inclusion of finance - - (4,431) (4,431)
leases
Under IFRS 482 (5,134) (7,000) (11,652) - (4,431) (16,083)
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