IFRS Restatement
Whitbread PLC
03 August 2005
3 August 2005
Whitbread releases IFRS accounts for 2004/5 and 2003/4
Whitbread PLC ('the Group') today releases restated consolidated financial
information for the year ended 3 March 2005, applying International Financial
Reporting Standards (IFRS).
The key headlines from the restated accounts are:
o No impact on group cash flow or on ability to pay dividends
o Net Assets reduced by £385m to £1.8bn
o 2004/5 profit after tax reduces by 5%
Principle areas affected by IFRS
£m Profit earned Net Assets
for ordinary
shareholders
Share-based payments+ (1.9) 2.6
Pension accounting+* (13.4) (311.8)
Income tax (inc. deferred tax) (1.7) (137.4)
Depreciation/goodwill amortisation+ 8.3 7.4
Dividends+ 54.6
Net impact (8.7) (384.6)
+ Net of associated tax impact
* Includes joint ventures and associates
The first set of results reported by Whitbread under IFRS will be the group's
interim results, due for release on 25 October 2005.
There will be a conference call for analysts and investors at 10.30am (UK time).
To participate please dial +44 (0)20 7365 1855.
There will be a recording of the conference call available for one month, this
will be active approximately 1 hour after the conference call has finished. To
access please dial +44 (0)20 7784 1024 and enter the passcode 3042926#.
From 7:30am the full text of this announcement and accompanying slides are
available at www.whitbread.co.uk/investors
Contact:
Dan Waugh, Investor Relations 01582 396 833
Contents:
1. Background
2. Independent Auditors' Report
3. Restated IFRS consolidated financial statements
Consolidated Income Statement for the year ended 3 March 2005
Reconciliations of earnings for the year ended 3 March 2005
Consolidated Balance Sheets as at 5 March 2004 (date of transition
to IFRS) and as at 3 March 2005
Reconciliations of the balance sheet as at 5 March 2004 and 3 March 2005
Reconciliations of Reserves as at 5 March 2004 and 3 March 2005
4. Changes in accounting policy
5. Accounting policies under IFRS
1. Background
With effect from 4 March 2005 the Group will be required to prepare its
consolidated financial statements in accordance with International Financial
Reporting Standards (IFRS) as adopted by the European Union. The Group's first
Annual Report under IFRS will be for the year ended 2 March 2006, with the first
published IFRS results being the Interim Report and Accounts for the six month
period ended 1 September 2005. The Group is required to publish one year of
comparative information, which results in a date of transition to IFRS of 5
March 2004.
Historically, the Group'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 Group for the financial year 2004/5 as well as for
the IFRS opening balance sheet at 5 March 2004.
The accounting policies of the Group were changed on 5 March 2004 to comply with
IFRS, the major changes are explained below.
The transition to IFRS has been accounted for in accordance with IFRS 1 '
First-time adoption of International Financial Reporting Standards' as outlined
below. In addition, where the Group has taken advantage of provisions allowing
the early adoption of amendments made to IFRS that are effective for accounting
periods beginning on or after 1 January 2006 this is also explained 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 in 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 Group's UK GAAP financial
statements for the years ended 4 March 2004 and 3 March 2005. The UK GAAP
financial statements for the year ended 4 March 2004 have been delivered to the
Registrar of Companies. The UK GAAP financial statements for the year ended 3
March 2005 will be delivered to the Registrar of Companies in due course.
First time adoption of IFRS - transitional arrangements
In accordance with IFRS 1 'First-time adoption of International Financial
Reporting Standards' the Group has taken advantage of the following exemptions:
Financial Instruments
Whitbread will apply IAS 32 and IAS 39 'Financial Instruments' prospectively,
that is with effect from 4 March 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 be required in the 2004/5 profit and loss account or the 2005 balance
sheet, as these will continue to be accounted for under UK GAAP.
Business Combinations
The Group has taken advantage of the provisions within IFRS 1 and has elected
not to apply IFRS 3 'Business Combinations' retrospectively to business
combinations that took place before the transition to IFRS.
Property, Plant and Equipment
The Group 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.
Share based payments
In accordance with IFRS 1, the Group has applied IFRS 2 'Share Based Payments'
to equity settled awards that were granted after 7 November 2002 but not vested
at 1 January 2005.
Cumulative Translation Differences
IAS 21 'The Effects of Changes in Foreign Exchange Rates' requires companies to
record and accumulate translation differences arising on the translation and
consolidation of results of foreign operations and balance sheets denominated in
foreign currencies. Cumulative translation differences are maintained as a
separate element of equity. On disposal of a foreign operation, IAS 21 requires
the transfer of the cumulative translation differences relating to the business
disposed of to the income statement as part of the gain or loss on sale. Under
the provisions of IFRS 1 the Group will apply IAS 21 prospectively from the date
of transition to IFRS.
2. Independent Auditors' Report to Whitbread plc on the preliminary IFRS
Financial Statements for the year ended 3 March 2005
We have audited the accompanying preliminary International Financial Reporting
Standards ('IFRS') financial statements of the Company for the year ended 3
March 2005 which comprise the opening IFRS Balance Sheet as at 5 March 2004, the
Profit and Loss Account for the year ended 3 March 2005 and the Balance Sheet as
at 3 March 2005, together with the related accounting policies.
This report is made solely to the Company in accordance with our engagement
letter dated 18 October 2004. 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
These preliminary IFRS financial statements are the responsibility of the
Company's directors and have been prepared as part of the Company's conversion
to IFRS. They have been prepared in accordance with the basis set out in Notes
1 and 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 2 March 2006.
Our responsibility is to express an independent opinion on the preliminary IFRS
financial statements based on our audit. We read the other information
accompanying the preliminary IFRS financial statements and consider whether it
is consistent with the preliminary IFRS financial statements. This other
information comprises the description of significant changes in accounting
polices. 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 statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the preliminary IFRS financial statements. 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 statements. 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 'background'
explains why there is a possibility that the preliminary IFRS financial
statements 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 statements for the year ended 3
March 2005 have been prepared, in all material respects, in accordance with the
basis set out in 'background', 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 2 March 2006.
Ernst & Young LLP
London
26 May 2005
3. Restated IFRS consolidated financial statements
Consolidated Income Statement for the year ended 3 March 2005
Continuing Discontinued Total
Operations Operations * Operations
£m £m £m
Revenue 1,524.3 388.6 1,912.9
Costs of sales (315.5) (166.7) (482.2)
Gross profit 1,208.8 221.9 1,430.7
Distribution costs (846.2) (131.2) (977.4)
Administrative expenses (139.8) (23.9) (163.7)
Impairment of goodwill - (17.2) (17.2)
Impairment of property, plant and equipment (10.0) (4.3) (14.3)
Reorganisation costs (6.5) - (6.5)
Profit/ (loss) on disposal of property, plant and equipment (0.4) 23.2 22.8
Profit from operating activities 205.9 68.5 274.4
Share of profit from joint ventures 11.5 - 11.5
Share of profits from associates 10.4 0.6 11.0
Profit before financing and tax 227.8 69.1 296.9
Finance cost (76.3) - (76.3)
Finance income 2.0 0.2 2.2
Profit before tax 153.5 69.3 222.8
Income tax expense (44.9) (9.7) (54.6)
Net profit from ordinary activities 108.6 59.6 168.2
Attributable to: £m £m £m
Equity holders of the company 108.3 59.6 167.9
Non-equity holders 0.3 - 0.3
Net profit from ordinary activities 108.6 59.6 168.2
* Discontinued operations relates to the sale of Marriott, which took place on
5 May 2005.
Reconciliations of earnings from UK GAAP to IFRS
Reconciliation of earnings under UK GAAP to IFRS for the year ended 3 March 2005
Turnover Operating Interest Income from Tax Profit Minority Equity
Profit Joint after Interest Holders
Ventures & Tax of the
Associates Parent
£m £m £m £m £m £m £m £m
As reported under UK GAAP 1,912.9 275.9 (64.3) 37.8 (72.5) 176.9 (0.3) 176.6
Depreciation adjustment of held for - 1.0 - - - 1.0 - 1.0
sale assets
Pension accounting adjustments - (6.5) (11.0) - 5.3 (12.2) - (12.2)
IFRS tax adjustments - - - - (1.7) (1.7) - (1.7)
Share-based payments adjustment - (3.3) - - 1.4 (1.9) - (1.9)
Restatement of joint ventures & - - 1.2 (15.3) 12.9 (1.2) - (1.2)
associates
Cessation of goodwill - 7.3 - - - 7.3 - 7.3
Restated reporting under IFRS 1,912.9 274.4 (74.1) 22.5 (54.6) 168.2 (0.3) 167.9
Consolidated Balance Sheets
3 March 2005 5 March 2004
£m £m
ASSETS
Non-current assets
Property, plant and equipment 2,604.0 2,988.6
Long-term deferred income 4.9 4.8
Intangible assets 193.3 147.6
Investments in joint ventures accounted for using the equity 43.1 42.9
method
Investments in associates accounted for using the equity 45.6 44.8
method
Available for sale investments 6.4 3.7
2,897.3 3,232.4
Current assets
Non-current assets classified as held for sale 992.3 0.2
Inventories 23.0 24.4
Trade and other receivables 107.3 75.8
Prepayments 40.6 29.4
Cash and cash equivalents 53.5 68.8
1,216.7 198.6
Total assets 4,114.0 3,431.0
EQUITY AND LIABILITIES
Equity attributable to equity holders of the parent
Share capital 149.6 148.7
Share premium account 23.2 13.5
Other reserves (1,759.8) (1,761.0)
Retained earnings 3,405.0 3,286.6
1,818.0 1,687.8
Minority interests 5.8 6.8
Total equity 1,823.8 1,694.6
Non-current liabilities
Long term borrowings 1,219.0 807.5
Deferred tax 238.7 167.9
Long-term provisions 25.6 21.8
Pension liability 346.0 366.0
Total non-current liabilities 1,829.3 1,363.2
Current liabilities
Trade and other payables 341.9 289.7
Short-term borrowings 21.1 48.1
Current portion of long term borrowings 77.1 5.8
Current tax payable 16.9 24.2
Short term provisions 3.9 5.4
Total current liabilities 460.9 373.2
Total liabilities 2,290.2 1,736.4
Total equity and liabilities 4,114.0 3,431.0
Reconciliations of the balance sheet from UK GAAP to IFRS
Reconciliation of UK GAAP balance sheet to IFRS as at 3 March 2005
Non-Current Current Non-Current Current Net Equity
Assets Assets Liabilities Liabilities Assets
£m £m £m £m £m £m
As reported under UK GAAP at 3 3,915.4 224.4 (1,413.9) (517.5) 2,208.4 (2,208.4)
March 2005
Reclassify assets held for sale (992.2) 992.3 - - 0.1 (0.1)
Pension accounting adjustments (67.7) - (223.7) 5.1 (286.3) 286.3
Share-based payments adjustment - - 1.8 0.8 2.6 (2.6)
Deferred tax adjustments 60.0 - (197.4) - (137.4) 137.4
Joint ventures and associates (25.5) - - - (25.5) 25.5
Remove declared dividends - - - 54.6 54.6 (54.6)
Cessation of goodwill 7.3 - - - 7.3 (7.3)
Reclassifications - - 3.9 (3.9) - -
Restated reporting under IFRS at 3 2,897.3 1,216.7 (1,829.3) (460.9) 1,823.8 (1,823.8)
March 2005
Reconciliation of UK GAAP balance sheet to IFRS as at 5 March 2004
Non Current Non-Current Current Net Equity
Current Assets Liabilities Liabilities Assets
Assets
£m £m £m £m £m £m
As reported under UK GAAP at 5 March 3,307.5 198.4 (987.3) (420.2) 2,098.4 (2,098.4)
2004
Reclassify assets held for sale (1.1) 0.2 - - (0.9) 0.9
Pension accounting adjustments (51.7) - (246.6) 4.6 (293.7) 293.7
Share-based payments adjustment - - 0.4 - 0.4 (0.4)
Deferred tax adjustments - - (135.1) - (135.1) 135.1
Joint ventures and associates (22.3) - - - (22.3) 22.3
Remove declared dividends - - - 47.8 47.8 (47.8)
Reclassifications - - 5.4 (5.4) - -
Restated reporting under IFRS at 5 3,232.4 198.6 (1,363.2) (373.2) 1,694.6 (1,694.6)
March 2004
Reconcilations of Reserves from UK GAAP to IFRS
Reconciliation of Reserves UK GAAP to IFRS as at 3 March 2005
Other Merger P&L Share JV's & Total
Reserves* Reserve Account Scheme Associates
Reserve
£m £m £m £m £m £m
As reported under UK GAAP at 3 March 123.3 (1,855.0) 3,720.5 (11.6) 52.6 2,029.8
2005
Reclassify assets held for sale 0.1 0.1
Pension accounting adjustments (286.3) (286.3)
Share-based payments adjustment 2.1 0.5 2.6
Deferred tax adjustments (44.1) (93.3) (137.4)
Joint ventures and associates (25.5) (25.5)
Remove declared dividends 54.6 54.6
Cessation of goodwill 7.3 7.3
As reported under IFRS at 3 March 79.2 (1,855.0) 3,405.0 (11.1) 27.1 1,645.2
2005
Reconciliation of Reserves UK GAAP to IFRS as at 5 March 2004
Other Merger P&L Share JV's & Total
Reserves* Reserve Account Scheme Associates
Reserve
£m £m £m £m £m £m
As reported under UK GAAP at 5 March 124.5 (1,855.0) 3,621.1 (9.6) 48.4 1,929.4
2004
Reclassify assets held for sale (0.9) (0.9)
Pension accounting adjustments (293.7) (293.7)
Share-based payments adjustment 4.0 (3.6) 0.4
Deferred tax adjustments (43.4) (91.7) (135.1)
Joint ventures and associates (22.3) (22.3)
Remove declared dividends 47.8 47.8
As reported under IFRS at 5 March 81.1 (1,855.0) 3,286.6 (13.2) 26.1 1,525.6
2004
*Under UK GAAP this was previously reported within the revaluation reserve.
4. Changes in accounting policy
The transition to IFRS resulted in the following significant changes in
accounting policies:
a) IFRS 3 Business Combinations
Under UK GAAP the Group goodwill was amortised on a straight-line basis over its
estimated useful life up to a maximum of 20 years. IFRS 3 prohibits the
amortisation of goodwill, requiring goodwill to be measured at cost less
impairment losses and tested for impairment annually.
Hence under IFRS the Group will carry goodwill on balance sheet subsequent to
initial recognition at cost less any accumulated impairment losses. Goodwill
will be tested for impairment annually, or more frequently if circumstances
indicate that impairment may have occurred. In future any negative goodwill will
be written off immediately to the income statement.
The effect of the change is an increase in equity and intangible assets at 3
March 2005 of £7.3m. The change does not affect equity at 5 March 2004. Profits
before tax for the year ended 3 March 2005 are increased by £7.3m. There is no
associated tax impact.
b) IFRS 5 Non-current Assets Held for Sale and Discontinued Operations
IFRS 5 requires that where the value of an asset will be recovered through a
sale transaction rather than continuing use that the assets are classified as
held for sale. Assets held for sale are valued at the lower of book value and
fair value less costs to sell and are no longer depreciated. Under UK GAAP there
is no held for sale definition and no reclassification is required.
At 5 March 2004 a £0.9m provision was recorded, and charged to retained
earnings, to adjust the carrying value of the assets down to their fair value
less costs to sell.
Assets held for sale at 3 March 2005 have increased to £992.3m, which is mainly
due to the inclusion of the carrying value of fixed assets disposed of on 5 May
2005 as part of the Marriott sale. At 5 March 2004 £0.2m was recognised as held
for sale, which related to a small number of restaurant properties being sold.
c) IAS 19 Employee Benefits
Under UK GAAP (SSAP 24 'Accounting for Pension Costs') pension costs are charged
to the profit and loss account over the average expected service life of current
employees. Actuarial surpluses and deficits are amortised over the expected
remaining service lives of current employees. Any differences between the
amount charged to the profit and loss account and payments made to the schemes
are treated as assets or liabilities in the balance sheet.
IAS 19 requires recognition of the operating and finance costs of defined
benefit plans in the income statement, with the option to recognise actuarial
gains and losses in a statement of changes in equity titled 'Statement of
Recognised Income and Expense'. The Group accounting policies under IFRS adopt
this approach.
At 5 March 2004 under UK GAAP there was a £51.7m pension scheme prepayment as
calculated in accordance with SSAP 24. This balance is removed under IFRS and
replaced with the £366.0m scheme liability as determined in accordance with IAS
19. This change in policy also results in the derecognition of a £9.6m deferred
tax liability as calculated under SSAP 24, and the recognition of a £109.8m
deferred tax asset under IAS 19 which is netted off against other deferred tax
liabilities on the balance sheet.
The effect on the balance sheet as at 3 March 2005 is to remove the £67.7m
pension scheme prepayment asset as calculated in accordance with SSAP 24, and
replace it with a scheme liability of £346.0m as determined in accordance with
IAS 19. The SSAP 24 deferred tax liability of £18.5m is derecognised and
replaced with a £103.8m deferred tax asset as calculated under IAS 19, which
again is netted off against other deferred tax liabilities in the balance sheet.
The effect of adopting IAS 19 on the income statement is a decrease in profit
before tax of £17.5m and a reduction to the tax charge of £5.3m for the
financial year ended 3 March 2005.
d) IFRS 2 Share-based Payments
Under UK GAAP, the Group writes-off the intrinsic value at the date of the grant
over the vesting period. The cost of shares acquired is taken directly to
shareholders' funds.
The scope of IFRS 2 is wider than UK GAAP as it relates to all share-based
payment transactions, not just those made to employees, and there is also no
exemption for SAYE schemes.
IFRS 2 requires that for equity-settled transactions with employees, the fair
value of the employee services received should be measured by reference to the
fair value of the equity instrument at the grant date.
The charge is spread over the vesting period, this differs from UK GAAP where
the charge is spread over the performance period where employees have to satisfy
specific performance conditions.
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 on or before 1 January
2005.
The effect on profit before tax is a net charge of £3.3m made up of an IFRS 2
charge of £4.1m and a UK GAAP reversal of £0.8m for the financial year ended 3
March 2005. There is an associated deferred tax credit of £1.4m bringing the
overall impact on profit after tax to a charge of £1.9m.
e) IAS 10 Events After the Balance Sheet Date
Under UK GAAP, Group dividends declared after the balance sheet date have been
recognised as a liability.
Under IFRS dividends declared after the balance sheet date but before the
financial statements are authorised for issue are not recognised as a liability
at the balance sheet date.
The effect of the change is an increase in equity of £47.8m at 5 March 2004 and
£54.6m at 3 March 2005. The change does not affect profit or loss reported under
IFRS for the financial year ended 3 March 2005. There is no associated tax
impact.
f) IAS 31 Investment in Joint Ventures and IAS 28 Investments in Associates
The Group will account for joint ventures and associates in line with IAS 31 '
Interests in Joint Ventures' and IAS 28 'Investments in Associates'
respectively. The Group's share of investments in joint ventures and associates
has been reduced by £1.8m and £20.5m respectively at 4 March 2004 and £2.3m and
£23.2m respectively at 3 March 2005 to reflect the re-statement of joint venture
and associate balance sheets at the date of transition to IFRS. The adjustments
primarily relate to the recognition of pension scheme liabilities in accordance
with IAS 19.
g) IAS 12 Income Taxes
The Group's IAS 12 amendments are netted off and affect those deferred tax
assets or liabilities which taken together comprise the net deferred tax
liability at the balance sheet date.
The impact implementing IFRS has on the deferred tax liability is an increase of
£15.3m and £73.3m at 5 March 2004 and at 3 March 2005 respectively.
In addition to the adjustments above made to deferred tax, further adjustments
that have been 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 has resulted in the creation of
a deferred tax liability of £95.1m and £97.1m as at 5 March 2004 and
3 March 2005 respectively.
• The creation of a deferred tax liability for revaluation gains was not
permitted under UK GAAP, however, it is required under IAS 19. Although
the Group has not revalued its properties since the 1999/2000 financial
year, and does not intend to revalue properties going forward, 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 at 5 March 2004 amounting to £43.4m and £44.1m at 3 March 2005.
• Under IFRS 3 Business Combinations, the acquisition of Premier Travel Inn
required fair valuing giving rise to a deferred tax liability of £60.0m and
a goodwill adjustment for the same value as at 3 March 2005.
• A deferred tax asset of £3.4m has been recognised with respect of discounted
provisions relating to below market rent adjustments in existence at the
date of transition to IFRS. This has increased to £3.8m as at 3 March 2005.
The above changes increase the deferred tax liability as follows: 3 March 5 March
2005 2004
£m £m
Recognised under UK GAAP (165.4) (152.6)
Derecognition of SSAP 24 pension scheme asset 18.5 9.6
Deferred tax provision for rolled over capital gains (97.1) (95.1)
Deferred tax provision for previously revalued properties (44.1) (43.4)
Deferred tax provision for Premier Travel Inn (60.0) -
Increase in deferred tax liability (182.7) (128.9)
Recognition of IAS 19 defined benefit pension scheme liability 103.8 109.8
Recognition of share-based payments 1.8 0.4
Recognition of deferred tax on discounted provisions 3.8 3.4
Recognition of deferred tax asset 109.4 113.6
Net deferred tax liability increase (73.3) (15.3)
Recognised under IFRS (238.7) (167.9)
5. Accounting policies under IFRS
Basis of accounting
The consolidated financial statements of Whitbread PLC and all its subsidiaries
have been prepared in accordance with International Financial Reporting
Standards (IFRS) for the first time.
The consolidated financial statements have been prepared on a historical cost
basis except for derivative financial instruments and available-for-sale
financial assets that have been measured at fair value. The carrying values of
recognised assets and liabilities that are the subject of a fair value hedge 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 hundred thousand except when
otherwise indicated. The principal accounting policies adopted are set out
below.
Basis of consolidation
The consolidated financial statements incorporate the accounts of the company
and all Group undertakings, together with the Group's share of the net assets
and results of joint ventures and associates incorporated in these financial
statements using the equity method of accounting. These are adjusted, where
appropriate, to conform to Group accounting policies.
Apart from the acquisition of Whitbread Group PLC by Whitbread PLC in 2000/1,
which was accounted for using merger accounting, acquisitions are accounted for
under the acquisition method and any goodwill arising is capitalised as an
intangible fixed asset. The results of subsidiaries acquired or disposed of
during the year are included in the consolidated income statement up to the date
that control passes respectively. All intra-group transactions, balances, income
and expenses are eliminated on consolidation. Unrealised losses are also
eliminated unless the transaction provides evidence of an impairment of the
asset transferred.
Intangible assets
Goodwill
Goodwill arising on acquisition is capitalised and represents the excess of the
cost of acquisition over the Group's interest in the fair value of the
identifiable assets and liabilities of a subsidiary at the date of acquisition.
Goodwill is reviewed for impairment annually or more frequently if events or
changes in circumstances indicate that the carrying value may be impaired. On
disposal of a subsidiary the attributable amount of goodwill is included in the
determination of the profit or loss on disposal.
It was the company's policy to eliminate goodwill arising on acquisitions
directly against reserves up to the financial year 1996/7. In accordance with
IFRS 3 Business Combinations, such goodwill will remain eliminated against
reserves and is not included in determining any subsequent profit or loss on
disposal.
IT software
IT software is amortised, on a straight-line basis over five years. The carrying
values are reviewed for impairment if events or changes in circumstances
indicate that their carrying value may not be recoverable.
Property, plant and equipment
Prior to the 1999/2000 financial year, properties were regularly revalued on a
cyclical basis. Since this date the Group 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 Group 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. Gross interest costs
incurred on the financing of major projects are capitalised until the time that
they are available for use. 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 shorter of
their estimated useful lives and the remaining lease period.
• Administration and logistics furniture, fixtures and equipment are
depreciated over 3 to 30 years.
• Retail furniture, fixtures and equipment are depreciated over 4 to 25
years.
• Vehicles are depreciated over 4 to 10 years.
Payments made on entering into or acquiring leaseholds that are accounted for as
operating leases represent prepaid lease payments. These are amortised on a
straight-line basis over the lease term.
The carrying values 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.
Profits and losses on disposal of fixed assets reflect the difference between
net selling price and the carrying amount at the date of disposal and is
recognised in the income statement.
Inventories
Inventories are stated at the lower of cost and net realisable value. The cost
of finished goods includes appropriate overheads. Cost is calculated on the
basis of first in, first out and net realisable value is the estimated selling
price less any costs of disposal.
Provisions
Provisions for warranties, onerous contracts and restructuring costs are
recognised when the Group has a present legal or constructive obligation as a
result of a past event; it is probable that an outflow of resources will be
required to settle the obligation; and a reliable estimate can be made of the
amount of the obligation.
Foreign currency translation
Assets and liabilities denominated in foreign currencies are translated into
sterling at the rates of exchange quoted at the balance sheet date. Trading
results are translated into sterling at average rates of exchange for the year.
Day to day transactions are recorded in sterling at the rates ruling on the date
of those transactions. Currency gains and losses arising from the retranslation
of the opening net assets of foreign operations, less those arising from related
currency borrowings to the extent that they are matched, are recorded as a
movement on reserves, net of tax. The differences that arise from translating
the results of overseas businesses at average rates of exchange, and their
assets and liabilities at closing rates, are also dealt with in reserves. All
other currency gains and losses are dealt with in the profit and loss account.
Revenue recognition
Generally, revenue is the value of goods and services sold to third parties as
part of the Group's trading activities, after deducting discounts and
sales-based taxes. The following is a description of the composition of revenues
of the Group.
Owned hotel revenue - including the rental of rooms and food and beverage sales
from a network of hotels. Revenue is recognised when rooms are occupied and food
and beverage is sold.
Franchise fees - received in connection with the franchise of the Group's brand
names. Revenue is recognised when earned.
Leisure club subscriptions - subscriptions are recognised over the period that
membership relates.
Sale of food and beverages in operations - revenue is recognised when food and
beverages are sold.
Interest income is recognised as the interest accrues using the effective
interest method.
Dividend income is recognised when the shareholders' right to receive the
payment is established.
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 period of the lease. Lease incentives are
recognised as a reduction of rental income over the lease term.
Borrowing costs
Borrowing costs are recognised as an expense in the period in which they are
incurred.
Pensions and other post-employment benefits
In respect of defined benefit pension schemes, the obligation recognised in the
balance sheet represents the present value of the defined benefit obligation as
adjusted for any unrecognised past service cost, reduced by the fair value of
the scheme assets. The cost of providing benefits is determined using the
projected unit credit actuarial valuation method. Actuarial gains and losses are
recognised in full in the period in which they occur in the statement of
recognised income and expense.
Payments to defined contribution pension schemes are charged as an expense as
they fall due.
Share-based payment transactions
Certain employees and directors of the Group receive equity-settled remuneration
in the form of share-based payment transactions, whereby employees render
services in exchange for shares or rights over shares. The costs of
equity-settled transactions with employees are measured by reference to the fair
value, determined using a stochastic model, at the date at which they are
granted. The cost of equity-settled transactions are recognised, together with a
corresponding increase in equity, over the period in which the performance
conditions are fulfilled, ending on the relevant vesting date. The cumulative
expense recognised for equity-settled transactions at each reporting date until
the vesting date reflects the extent to which the vesting period has expired,
and is adjusted to reflect the directors best available estimate of the number
of equity instruments that will ultimately vest. The income statement charge or
credit for a period represents the movement in cumulative expense recognised as
at the beginning and end of that 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 on or before 1 January
2005.
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 Groups assets and liabilities, and their carrying
amounts, that have originated but not been reversed by the balance sheet date.
No deferred tax is recognised if the temporary timing difference arises from
goodwill or 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. Deferred income tax is
recognised 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 timing differences, carry-forward of unused tax assets
and unused tax losses can be utilised. 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 in the year when the asset is realised or the liability is
settled, based on tax rates that have been enacted or substantively enacted at
the balance sheet date.
Income tax relating to items recognised directly in equity is recognised in
equity and not in the income statement.
Financial Instruments
Investments
Interests in subsidiaries, associates and joint ventures are initially
recognised at cost, being the fair value of the consideration given and
including acquisition charges associated with the investment.
After initial recognition, investments, which are classified as held for trading
and available-for-sale and are measured at fair value. Gains or losses on
investments held for trading are recognised in the income statement for the
period. For available-for-sale investments, gains and losses arising from
changes in fair value are recognised directly in equity, until the investment is
disposed of at which time the cumulative gain or loss previously reported in
equity is included in the income statement for the period.
For investments that are actively traded in organised financial markets, fair
value is determined by reference to Stock Exchange quoted market bid prices at
the close of business on the balance sheet date. For investments where there is
no quoted market price, fair value is determined by reference to the current
market value of another instrument which is substantially the same or is
calculated based on the expected cash flows of the underlying net asset base of
the investment. Interest income is recognised in profit or loss as the interest
accrues using the effective interest method. Impairment losses and foreign
exchange gains and losses are recognised in profit or loss.
Financial liabilities that are not part of a hedge relationship are recognised
at amortised cost.
Trade and other receivables
Trade receivables are recognised and carried at original invoice amount less an
allowance for any uncollectable 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.
Borrowings
Borrowings are initially recognised at fair value of the consideration received
net of any associated issue costs. Borrowings are subsequently recorded at
amortised cost, with any difference between the amount initially recorded and
the redemption value recognised in the income statement using the effective
interest method.
Derivative financial instruments
The main financial risks faced by the Group relate to: the availability of funds
to meet business needs; fluctuations in interest rates; and the risk of default
by a counter party in a financial transaction. The treasury committee, which is
chaired by the Finance Director, reviews and monitors the treasury function. The
undertaking of financial transactions of a speculative nature is not permitted.
The Group finances its operations by a combination of internally generated cash
flow, bank borrowings and long-term debt market issues. The Group seeks to
achieve a spread in the maturity of its debts. Interest rate swaps and interest
rate caps are used to achieve the desired mix of fixed and floating rate debt.
The Group's policy is to fix or cap a proportion of projected net interest costs
over the next five years. This policy reduces the Group's exposure to the
consequences of interest rate fluctuations. The Group uses foreign currency
borrowings to provide a partial hedge against overseas investments. Transaction
exposures resulting from purchases in foreign currencies are usually hedged by
forward foreign currency options.
Derivative financial instruments used by the Group are stated at fair value. For
the purposes of hedge accounting, hedges are classified as either fair value
hedges when they hedge the exposure to changes in the fair value of a recognised
asset or liability; or cash flow hedges where they hedge exposure to variability
in cash flows that is either attributable to a particular risk associated with a
recognised asset or liability or a forecasted transaction.
Gains or losses from re-measuring fair value hedges, which meet the conditions
for hedge accounting, are recorded in the income statement, together with the
corresponding changes in the fair value of the hedged instruments attributable
to the hedged risk. Where the adjustment is to the carrying amount of a hedged
financial instrument, the adjustment is amortised to the net profit and loss
such that it is fully amortised by maturity.
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. The gains or losses relating to the ineffective
portion are recognised immediately in the income statement.
When an unrecognised firm commitment is designated as a hedged item, the
subsequent cumulative change in the fair value of the firm commitment
attributable to the hedged risk is recognised as an asset or liability with a
corresponding gain or loss recognised in profit or loss. The changes in the fair
value of the hedging instrument are also recognised in profit or loss. For cash
flow hedges, the gains or losses that are recognised in equity are transferred
to the income statement in the same year in which the hedged firm commitment
affects the net profit and loss.
For derivatives that do not qualify for hedge accounting, any gains or losses
arising from changes in fair value are recognised immediately in the income
statement.
Hedge accounting is discontinued when the hedging instrument expires or is sold,
terminated or exercised, or no longer qualifies for hedge accounting. At that
point in time, any cumulative gain or loss on the hedging instrument recognised
in equity is kept 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 Group's primary reporting format is business segments and its secondary
format is geographical segments. The Group has three main business segments that
are further broken down by business units within each segment.
The three main segments are as follows:
• Hotels - comprises the activities of the Group's owned and managed hotels.
• Restaurants - comprising the activity of pub restaurants and high street
restaurants.
• Sport, health and fitness - comprising the activity of David Lloyd
Leisure.
The geographical split of the Group's activities comprises activities within the
United Kingdom and those across the rest of the world.
-ENDS-
This information is provided by RNS
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