IFRS Restatement
Wetherspoon (JD) PLC
20 January 2006
STRICTLY PRIVATE AND CONFIDENTIAL
JD WETHERSPOON PLC
PRESS RELEASE
20 January 2006
Restatement of financial information to International Financial Reporting
Standards (IFRS)
JD Wetherspoon plc today releases restated consolidated financial information
for the year ended 24 July 2005, applying International Financial Reporting
Standards (IFRS).
The key headlines from the restated accounts are:
• No impact on cash flow or on ability to pay dividends
• Net Assets reduced by £13m (5%) to £247m
• 2004/05 profit before tax (excluding exceptional items)
increases by 2.4%
Contents
1. Background
2. First time adoption
3. Restated IFRS financial statements
4. Differences between IFRS and UK GAAP
5. Accounting policies under IFRS
Enquiries:
Jim Clarke Finance Director
01923 477777
Visit our web site at www.jdwetherspoon.co.uk
The first set of results reported by JD Wetherspoon PLC ('the Company') under
IFRS will be the company's interim results, due for release in March 2006.
1 Background
With effect from 25 July 2005 the company will prepare its financial statements
in accordance with International Financial Reporting Standards (IFRS) as adopted
by the European Union. The Company's first Annual Report under IFRS will be for
the year ending 30 July 2006, with the first published IFRS results being the
Interim Report and Accounts for the six month period ended 22 January 2006. The
Company is required to publish one year of comparative information, which
results in a date of transition to IFRS of 26 July 2004.
Historically, the Company's financial statements have been prepared in
accordance with generally accepted accounting principles in the UK (UK GAAP).
The following explanatory notes and reconciliations describe the main
differences between UK GAAP and IFRS that affect the Company for the financial
year 2004/5 as well as for the opening balance sheet as restated under IFRS, at
26 July 2004.
Basis of preparation:
The accounting policies of the Company were changed to comply with the
requirements of IFRS, the major changes are explained below.
The transition to IFRS has been accounted for in accordance with IFRS1 '
First-time adoption of International Financial Reporting Standards' as outlined
below.
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 adopted by the European Commission. The failure of the European
Commission to adopt all these standards in time for financial reporting by July
2006, or the issue of further interpretations by IFRIC in advance of the
reporting date, could result in the need to change the basis of accounting or
presentation of certain financial information from that presented in this
document.
The UK GAAP financial information contained in this document does not constitute
statutory accounts as defined in section 240 of the Companies Act 1985. The
auditors have issued unqualified opinions on the Company's UK GAAP financial
statements for the years ended 25 July 2004 and 24 July 2005. The UK GAAP
financial statements for the year ended 25 July 2004 and 24 July 2005 have been
delivered to the Registrar of Companies.
The information that follows is the indicative impact on the Company's results
as a result of this conversion. To date there is not a significant body of
established practice and interpretation of the standards and certain standards
are subject to ongoing amendment by the IASB.
Therefore we do not expect to fully determine the impact of the change until the
production of the first full set of audited financial statements for the year
ending 30 July 2006. As a result, whilst we maintain an ongoing dialogue with
our auditors about IFRS and accounting issues, these IFRS numbers are unaudited.
2 First time adoption of IFRS - transitional arrangements
IFRS 1 provides certain optional exemptions from full retrospective application
of all accounting standards effective at the Company's reporting date.
In accordance with IFRS 1 'First-time adoption of International Financial
Reporting Standards' the Company has taken advantage of the following
exemptions:
2.1 IAS 32 and IAS 39
The Company will apply IAS 32 and IAS 39 'Financial Instruments' prospectively,
that is with effect from 25 July 2005. Under the transitional rules of IFRS 1,
hedging designation and certain other requirements of IAS 32 and IAS 39 may not
be applied in the comparative period and the remainder of those standards need
not be applied to comparative balances. No adjustments for financial instruments
will therefore be required in the 2004/5 income statement or the 2005 balance
sheet.
2.2 Property, Plant and Equipment
The Company has elected to use the UK GAAP revaluations of properties prior to
the date of transition to IFRS as deemed cost, as allowed by IFRS 1.
Under IAS16, residual values are considered and reviewed in conjunction with the
review of useful lives of the assets and is done prospectively.
2.3 Share Based Payments
As no share options were granted after 7 November 2002, the Company does not
have to apply IFRS 2 'Share Based Payments' to equity settled awards that were
granted after 7 November 2002 but not vested at 1 January 2005.
We account for our Share Incentive Plan (SIP) in line with IFRS 2 requirements.
Shares are acquired at fair value and a charge is recognised in the income
statement over the vesting period as per the rules of the scheme.
3 Restated IFRS financial statements
Restated IFRS Income Statement
for the year ended 24 July 2005
Before Exceptional After
exceptional items exceptional
items items
Unaudited Unaudited Unaudited
2005 2005 2005
£000 £000 £000
Turnover 809,861 - 809,861
Operating profit before exceptional 71,506 - 71,506
items
Exceptional items - (7,380) (7,380)
Operating profit 71,506 (7,380) 64,126
Net interest payable (24,329) - (24,329)
Profit on ordinary activities before 47,177 (7,380) 39,797
taxation
Tax on profit on ordinary activities (15,364) 1,276 (14,088)
Profit on ordinary activities after 31,813 (6,104) 25,709
taxation
All activities relate to continuing operations.
Reconciliations of earnings from UK GAAP to IFRS
Reconciliation of earnings under UK GAAP to IFRS for the year ended 24 July 2005
Operating Profit after
Turnover Profit Tax Tax
£000 £000 £000 £000
Reported under UK GAAP 809,861 65,473 (14,371) 24,304
Depreciation adjustment re - 901 (270) 631
residual values
Lease incentives over lease term - 221 (66) 155
Deferred tax adjustment re - - 619 619
deferred income
Restated reporting under IFRS 809,861 66,595 (14,088) 25,709
IFRS Restated Balance sheet
at 24 July 2005
Unaudited Unaudited
2005 2004
£000 £000
ASSETS
Non-current assets
Other intangible assets 3,573 3,832
Property, plant and equipment 755,708 774,695
Other non-current assets 6,621 15,761
765,902 794,288
Current assets
Inventories 12,777 12,009
Assets available for sale 1,691 1,933
Trade and other receivables 12,195 13,966
Cash and cash equivalents 18,073 9,660
44,736 37,568
LIABILITIES
Current liabilities
Trade and other payables (80,578) (78,538)
Borrowings (25,000) (25,000)
Current income tax liabilities (7,556) (7,067)
Accruals and other liabilities (32,580) (37,069)
(145,714) (147,674)
Non-current liabilities
Borrowings (327,218) (322,219)
Deferred income tax liabilities (83,965) (82,574)
Provisions and other liabilities (7,048) (5,189)
(418,231) (409,982)
Net assets 246,693 274,200
SHAREHOLDERS EQUITY
Ordinary shares 3,458 3,783
Share premium account 128,607 128,340
Capital redemption reserve 874 545
Retained earnings 113,754 141,532
Total shareholders' equity 246,693 274,200
Reconciliations of equity from UK GAAP to IFRS
Reconciliation of equity under UK GAAP to IFRS as at 24 July 2005
Non-Current Non-Current
Assets Liabilities
Current Current Net Assets
£000 Assets Liabilities £000
£000 Equity
£000 £000 £000
Reported under UK GAAP 762,739 44,736 (150,929) (396,662) 259,884 (259,884)
Depreciation adjustment re 901 - - - 901 (901)
residual values
Lease incentive (Deferred - - 344 (5,099) (4,755) 4,755
Income)
Deferred tax adjustment 2,262 - - (16,470) (14,208) 14,208
Remove declared dividends - - 4,871 - 4,871 (4,871)
Restated reporting under 765,902 44,736 (145,714) (418,231) 246,693 (246,693)
IFRS
Reconciliation of equity under UK GAAP to IFRS as at 25 July 2004 (transition
date)
Non-Current Non-Current
Assets Liabilities
Current Current Net Assets
£000 Assets Liabilities £000
£000 Equity
£000 £000 £000
Reported under UK GAAP 783,574 46,573 (152,437) (388,756) 288,954 (288,954)
Receivables due after more 9,005 (9,005) - - - -
than one year
Lease incentive (Deferred - - (80) (4,896) (4,976) 4,976
Income)
Deferred tax adjustment 1,709 - - (16,330) (14,621) 14,621
Remove declared dividends - - 4,843 - 4,843 (4,843)
Restated reporting under 794,288 37,568 (147,674) (409,982) 274,200 (274,200)
IFRS
Reconciliation of reserves under UK GAAP to IFRS as at 24 July 2005
Capital
Redemption
Revaluation Retained Reserve
Reserve Earnings Total
£000 £000 £000 £000
Reported under UK GAAP 22,554 104,391 874 127,819
Reclassification (22,554) 22,554 - -
Depreciation adjustment re - 901 - 901
residual values
Deferred tax adjustment re - (270) - (270)
depreciation adjustment
Lease incentive (Deferred Income) - (4,755) - (4,755)
Deferred tax adjustment re - 2,262 - 2,262
deferred income
Deferred tax adjustment - (16,200) - (16,200)
Remove declared dividends - 4,871 - 4,871
Restated reporting under IFRS - 113,754 874 114,628
Reconciliation of reserves under UK GAAP to IFRS as at 25 July 2004 (transition
date)
Revaluation Retained Capital
Reserve Earnings Redemption
Reserve Total
£000 £000 £000 £000
Reported under UK GAAP 23,117 133,169 545 156,831
Reclassification (23,117) 23,117 - -
Lease incentive (Deferred Income) - (4,976) - (4,976)
Deferred tax adjustment re - 1,709 - 1,709
deferred income
Deferred tax adjustment - (16,330) - (16,330)
Remove declared dividends - 4,843 - 4,843
Restated reporting under IFRS - 141,532 545 142,077
Restated IFRS Income Statement
for the six month period ended 23 January 2005
Before Exceptional After
exceptional items exceptional
items items
Unaudited Unaudited Unaudited
Half year Half year Half year
2005 2005 2005
£000 £000 £000
Turnover 403,341 - 403,341
Operating profit before exceptional 34,646 - 34,646
items
Exceptional items - (8,047) (8,047)
Operating profit 34,646 (8,047) 26,599
Net interest payable (12,021) - (12,021)
Profit on ordinary activities before 22,625 (8,047) 14,578
taxation
Tax on profit on ordinary activities (7,857) 1,697 (6,160)
Profit on ordinary activities after 14,768 (6,350) 8,418
taxation
All activities relate to continuing operations.
Reconciliations of earnings from UK GAAP to IFRS
Reconciliation of earnings under UK GAAP to IFRS for the six month period ended
23 January 2005
Operating Profit after
Profit Tax
Turnover Tax
£000 £000 £000 £000
Reported under UK GAAP 403,341 32,136 (6,076) 8,221
Depreciation adjustment re - 450 (135) 315
residual values
Lease incentives over lease term - (169) 51 (118)
Restated reporting under IFRS 403,341 32,417 (6,160) 8,418
Balance sheet
at 23 January 2005
Unaudited
2005
£000
ASSETS
Non-current assets
Other intangible assets 4,054
Property, plant and equipment 764,234
Other non-current assets 6,721
775,009
Current assets
Inventories 12,684
Assets available for sale 4,554
Trade and other receivables 11,562
Cash and cash equivalents 17,372
46,172
LIABILITIES
Current liabilities
Trade and other payables (81,531)
Borrowings (25,000)
Current income tax liabilities (6,742)
Accruals and other liabilities (26,453)
(139,726)
Non-current liabilities
Borrowings (319,718)
Deferred income tax liabilities (82,678)
Provisions and other liabilities (6,350)
(408,746)
Net assets 272,709
SHAREHOLDERS EQUITY
Ordinary shares 3,748
Share premium account 128,425
Capital redemption reserve 581
Retained earnings 139,955
Total shareholders' equity 272,709
Reconciliations of equity from UK GAAP to IFRS
Reconciliation of equity under UK GAAP to IFRS as at 23 January 2005
Non-Current Non-Current
Assets Liabilities
Current Current Net Assets
£000 Assets Liabilities £000 Equity
£000 £000 £000 £000
Reported under UK GAAP 772,514 46,172 (142,611) (387,312) 288,763 (288,763)
Depreciation adjustment re 450 - - - 450 (450)
residual values
Lease incentive (Deferred - - 204 (5,038) (4,834) 4,834
Income)
Deferred tax adjustment 2,045 - - (16,396) (14,351) 14,351
Remove declared dividends - - 2,681 - 2,681 (2,681)
Restated reporting under 775,009 46,172 (139,726) (408,746) 272,709 (272,709)
IFRS
Reconciliation of reserves under UK GAAP to IFRS as at 23 January 2005
Capital
Redemption
Revaluation Retained Reserve
Reserves Earnings Total
£000 £000 £000 £000
Reported under UK GAAP 22,755 133,254 581 156,590
Reclassification (22,755) 22,755 - -
Depreciation adjustment re - 450 - 450
residual values
Deferred tax adjustment re - (135) - (135)
depreciation adjustment
Lease incentive (Deferred Income) - (4,834) - (4,834)
Deferred tax adjustment re - 2,045 - 2,045
deferred income
Deferred tax adjustment - (16,261) - (16,261)
Remove declared dividends - 2,681 - 2,681
Restated reporting under IFRS - 139,955 581 140,536
4 Differences between IFRS and UK GAAP
The following sections outline the significant differences relevant to the
Company on transition from UK GAAP to IFRS.
4.1 IAS 12 Income Taxes
The Company's IAS 12 amendments affect those deferred tax assets or liabilities
which taken together comprise the net deferred tax liability at the balance
sheet date.
The impact of adopting IFRS is an increase in the deferred tax liability of
£14.2m and £14.2m at 24 July 2005 and 25 July 2004 respectively.
Adjustments made as a result of implementing IAS 12 are outlined below:
• The Standard requires a deferred tax provision for all capital gains that
have been subject to rollover relief claims. Under UK GAAP, deferred tax was
only provided on assets subject to such claims to the extent that the
liability was expected to crystallise. This resulted in an increase in
deferred tax liability of £9.4m and £9.4m as at 24 July 2005 and 25 July
2004 respectively.
• UK GAAP did not permit the creation of a deferred tax liability for
revaluation gains, this is however required under IAS 19. Although the
Company has not revalued its properties since the 1999/2000 financial year,
the revalued carrying amounts at the date of transition to IFRS will form
the deemed costs under IFRS. A transitional deferred tax liability is
therefore required of £6.8m and £6.9m at 24 July 2005 and 25 July 2004
respectively.
• A deferred tax asset of £1.7m has been recognised at 25 July 2004 in
respect of lease incentives relating to below market rent adjustments in
existence at the date of transition to IFRS. This has increased to £2.3m at
24 July 2005.The deferred tax asset is disclosed separately under
non-current assets in the balance sheet.
• A deferred tax liability of £0.3m at 24 July 2005 was created due to a
change in the residual values of freehold properties.
4.2 IAS 10 Events after the Balance Sheet date
Under UK GAAP, Company dividends declared after the balance sheet date have been
recognised as a liability.
Under IFRS final dividends declared after the balance sheet date are not
recognised until approved by the shareholders at the annual general meeting.
Interim dividends are only recognised when paid.
The effect of the change is an increase in equity of £4.9m at 24 July 2005 and
£4.8m at 25 July 2004 (and £2.6m at 23 January 2005).
4.3 Leases
Under UK GAAP, lease incentives on leases where the lessor retains substantially
all the risks and benefits of ownership of the asset, are recognised as a
reduction in rent paid over the period up to the first rent review.
Under IFRS, lease incentives on leases where the lessor retains substantially
all the risks and benefits of ownership of the asset, are recognised as a
reduction in rent paid over the lease term.
The effect of the change is an increase in income before tax of £0.2m for the
year ended 24 July 2005.
4.4 Property, plant and equipment
Under IAS 16, residual values are based on prices current at the balance sheet
date, whereas under previous UK GAAP residual values were based on prices at the
date of acquisition or later revaluation.
Changes to residual values are accounted for prospectively but first-time
adopters should adjust residual values of their assets at the date of transition
to IFRS and then use the amended depreciation that this implies from the date of
transition. This adjustment lead to a reduction in depreciation of £0.9m for the
year ended 24 July 2005.
5 Accounting policies under IFRS
Following the transition to IFRS the principal accounting policies adopted are
as follows:
Property, plant and equipment
Properties were regularly revalued, prior to the 1999/2000 financial year. Since
this date the Company policy has been not to revalue its properties and while
previous valuations have been retained, they have not been updated. As permitted
by IFRS 1 the Company has elected to use the UK GAAP revaluations before the
date of transition to IFRS as deemed cost at the date of transition. Fixed
assets are stated at cost or deemed cost at transition to IFRS 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 land is not depreciated
• Freehold buildings are depreciated to their estimated residual values over
periods up to 50 years.
• Properties held under finance leases are depreciated over the remaining
lease period
• Renovations of property already trading, fixtures and fittings, computer
equipment are depreciated over 3 to 10 years
The carrying value of property, plant and equipment are reviewed for impairment
if events or changes in circumstances indicate that their carrying value may not
be recoverable. Any impairment in the value of fixed assets is charged to the
income statement.
The residual values of freehold buildings are considered and reviewed in
conjunction with the review of useful lives on an annual basis. If the estimated
residual value differs from previous estimates, changes are accounted for
prospectively.
Profit and losses on disposal of fixed assets reflect the difference between the
net selling price and the carrying amount at the date of disposal and is
recognised in the income statement.
Other Intangible assets - IT Software
IT software is amortised, on a straight-line basis over a three year period. The
carrying values are reviewed for impairment if events or changes in
circumstances indicate that their carrying value may not be recoverable.
Other non-current assets
Payments made on entering into or acquiring leaseholds that are accounted for as
operating leases represent lease premiums. These are classified as other
non-current assets and are amortised on a straight-line basis over the lease
term.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is
calculated on the first in, first out basis and net realisable value is the
estimated selling price less any costs of disposal.
Revenue Recognition
Revenue is the value of food and beverages sold to third parties as part of the
Company's trading activities, after deducting discounts and sales-based taxes.
Revenue is recognised when food and beverages are sold.
Leases
Leases where the lessor retains substantially all the risks and benefits of
ownership of the asset are classified as operating leases. Rental payments in
respect of operating leases are charged against operating profit on a
straight-line basis over the lease term. Lease incentives are recognised as a
reduction in rent paid over the lease term.
Pensions and other post-employment benefits
Payments to the defined contribution pension scheme are charged as an expense
when they fall due.
Tax
The income tax charge represents both the income tax payable, based on profits
for the year, and deferred income tax. Deferred income tax is recognised in
full, using the liability method, in respect of temporary timing differences
between the tax base of the Company's assets and liabilities, and their carrying
amounts, that have originated but not been reversed by the balance sheet date.
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 timing differences, carry-forward of unused tax assets
and unused tax losses can be utilised. The carrying amount of deferred 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.
Income tax relating to items recognised directly in equity is recognised in
equity and not in the income statement.
Exceptional items
Exceptional items comprise items of income and expense that are material in
amount and unlikely to recur and which merit separate disclosure in order to
provide a better understanding of the Company's financial performance. Examples
of events giving rise to the disclosure of material items of income and expense
as exceptional items include, but are not limited to, impairment events,
disposals of individual assets and litigation claims by or against the Company.
Derivative financial instruments (with effect from 25 July 2005)
The main financial risks faced by the Company relate to the availability of
funds to meet the business needs and fluctuations in interest rates.
The Company finances its operations by a combination of internally generated
cash flow and bank borrowings. The Company's policy is to fix a proportion of
projected net interest costs over the life of the borrowing. The policy reduces
the Company's exposure to the consequences of interest fluctuations.
For the purposes of hedge accounting, hedges are classified as either fair value
hedges when they hedge the exposure to changes in fair value of a recognised
asset or liability or cash flow hedges where they hedge exposure to variability
in cash flows that is attributable to a particular risk associated with a
liability.
The portion of any gains or losses of cash flow hedges, which meet the
conditions for hedge accounting and are determined to be effective hedges, are
recognised directly in equity.
Hedge accounting is discontinued when the hedging instrument expires, terminated
or no longer qualifies for hedge accounting. At that point in time, any
cumulative gain or loss on the hedging instrument recognised in equity remains
in equity until the forecasted transaction occurs. If a hedged transaction is no
longer expected to occur, the net cumulative gain or loss recognised in equity
is transferred to the income statement.
Segmental reporting
The Company trades in one business segment, that of Pub Restaurants and one
geographical segment being the United Kingdom.
This information is provided by RNS
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