Implementation of IFRS - P1
Paragon Group Of Companies PLC
21 February 2006
IMPLEMENTATION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS
-------------------------------------------------------------
INTRODUCTION
The Paragon Group of Companies PLC ('the Group'), along with other European
listed entities, is required by regulators of the European Union ('EU') to
prepare consolidated financial statements for the year ending 30 September 2006
and subsequent years in accordance with International Financial Reporting
Standards ('IFRS'), as endorsed by the EU. Consequently, the Group is preparing
to use IFRS as its accounting basis. Previously, the Group has prepared its
Financial Statements in accordance with UK Generally Accepted Accounting
Principles ('UK GAAP'). The Group's results for the six months ending 31 March
2006 will be the first to be published on an IFRS basis.
This document explains how the Group's previously reported UK GAAP financial
performance and position for the year ended 30 September 2005 are reported under
IFRS. The Group's main financial statements have been restated including:
• Income Statements for the periods ended 31 March and 30 September 2005;
• Balance Sheets as at 1 October 2004, 31 March 2005, 30 September 2005
and 1 October 2005;
• Statements of Recognised Income and Expense for the periods ended
31 March and 30 September 2005; and
• Reconciliations of Movements in Equity for the periods ended 31 March
and 30 September 2005.
In addition, a reconciliation of the differences between UK GAAP and IFRS for
each of the Income and Balance Sheet Statements is also included. The restated
Financial Information included in this document is for the consolidated Group
and will form the basis for the comparative information in any future results
announcement. This document should be read in conjunction with the Group's
interim and full year results for the year ended 30 September 2005 published on
25 May and 23 November 2005 respectively.
Most of the changes required by IFRS are to be applied retrospectively from 1
October 2004 and fully reflected in the restated Financial Statements for the
accounting period ended 30 September 2005. However, the standards that apply to
financial instruments, IAS 32 'Financial Instruments: Disclosure and
Presentation' and IAS 39 'Financial Instruments: Recognition and Measurement',
are being implemented from 1 October 2005, and existing UK GAAP accounting
policies are used to account for such items before this date. Therefore, the
2005 Financial Statements restated for IFRS to be included in the 2006 results
will not be directly comparable with the accounting information for the year
ending 30 September 2006.
In order to assist readers to assess 2006 performance, illustrative financial
information showing the effects of IAS 32 and IAS 39 on the way that the Group's
loans to customers are accounted for, as if they had been applicable to the year
ended 30 September 2005, has been included within this announcement. These
provisions relate to the adoption of the Amortised Cost basis and the use of
Impairment in accounting for these assets.
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Page 2
INTRODUCTION
Whilst any 2005 equivalent impacts of the fair value provisions of IAS 39 have
been omitted from the 2005 results, a schedule setting out their impact on the
Balance Sheet as at 1 October 2005 has also been provided. These changes relate
to the accounting for derivative financial instruments such as interest rate
swaps, which the Group enters into for hedging purposes only. The fair value
adjustments are not anticipated to have any material impact on the Group's
earnings.
The remainder of this document comprises the following sections:
SECTION A: Highlights and summary adjustments to the Financial Information.
SECTION B: Restatement of 2005 Financial Information under IFRS applicable to
the year ended 30 September 2005 ('Statutory Basis'). The IFRS Statutory basis
financial information for the 12 months ended 30 September 2005 and for the 6
months ended 31 March 2005 have been audited and reviewed respectively by
Deloitte & Touche LLP, the Group's external auditors. Copies of the Auditors'
opinions on these restatements are included on pages 21 to 24.
SECTION C: Illustrative restatement of 2005 Financial Information under IFRS
applicable to the year ending 30 September 2006, but including only those
elements of IAS 32 and 39 relating to the use of the Amortised Cost basis and
Impairment in valuing loan assets. ('Proforma Basis').
SECTION D: Illustrative restatement of the Balance Sheet as at 1 October 2005
under IFRS as it will be applied in the Group Accounts for the year ending
30 September 2006. ('On-going IFRS Basis')
APPENDIX: Presentational changes to the published 2005 UK GAAP results to
transfer them to IFRS format.
The On-going Basis will be used in due course by the Group in reporting its 2006
interim and annual results.
The information in this document has been prepared on the basis of the Group's
expectation of the IFRS that will be applicable as at 30 September 2006.
Financial Information prepared by the Group in future periods may differ from
the information set out in this document due to the ongoing development and
implementation of IFRS. These differences may occur due to the ongoing
completion of the relevant legislation surrounding the implementation of IFRS,
in particular IAS 32 and IAS 39 and to the emergence of best practice within the
sector.
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Page 3
CONTENTS
A Illustrative 2005 results under IFRS 4
B 2005 Financial Information - IFRS Statutory basis 10
C 2005 Financial Information - IFRS Proforma basis 38
D 1 October 2005 balance sheet under IFRS 55
Presentational changes to 2005 UK GAAP results 58
The information in this announcement does not comprise statutory accounts for
the year ended 30 September 2005 within the meaning of Section 240 of the
Companies Act 1985. Those accounts have been reported on by the Group's
auditors. The report of the auditors was unqualified and did not contain a
statement under section 237 (2) or (3) of the Companies Act 1985.
This document may contain forward-looking statements with respect to certain of
the plans and current goals and expectations relating to the future financial
conditions, business performance and results of the Group. By their nature, all
forward-looking statements involve risk and uncertainty because they relate to
future events and circumstances that are beyond the control of the Group
including, amongst other things, UK domestic and global economic and business
conditions, market related risk such as fluctuation in interest rates and
exchange rates, inflation, deflation, the impact of competition, changes in
customer preferences, risks concerning borrower credit quality, delays in
implementing proposals, the timing, impact and other uncertainties of future
acquisitions or other combinations within relevant industries, the policies and
actions of regulatory authorities, the impact of tax or other legislation and
other regulations in the jurisdictions in which the Group and its affiliates
operate. As a result, the Group's actual future financial condition, business
performance and results may differ materially from the plans, goals and
expectations expressed or implied in these forward looking statements.
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Page 4
ILLUSTRATIVE 2005 RESULTS UNDER IFRS
HIGHLIGHTS
Accounting under IFRS does not affect the fundamentals of the Group's business,
but reflects a different basis of measurement and presentation of its
performance in any one accounting period. The business, its cash flows and
hedging policies are unaffected by what is principally an issue of the timing of
the recognition of income, costs, assets and liabilities.
Under UK GAAP, excluding the credit to the profit and loss account for goodwill,
operating profit for the year to 30 September 2005 was £72.7m. Profit before tax
was reported at £76.8m. In the Group's first IFRS accounts, the comparative
figure for the operating profit for the year to 30 September 2005 will be
restated as £71.8 million.
Earnings per share for the year ended 30 September 2005 under IFRS is 48.9p,
4.4p less than under UK GAAP, largely as a result of the exclusion of the credit
arising from amortisation of negative goodwill from IFRS earnings.
The effects on profit before tax and earnings per share are set out below:
--------------------------------------------------------------------------------
Impact of IFRS on profit and EPS
Year to 30 September 2005
================================================================================
Profit Profit Earnings
before tax before tax per share
excluding
goodwill
£m £m p
As reported under UK GAAP 72.7 76.8 53.3
Negative goodwill - IFRS 3 - (4.1) (3.6)
Defined benefit pension scheme - IAS 19 (0.3) (0.3) (0.2)
Share based payments - IFRS 2 (0.2) (0.2) (0.2)
Leasing - IAS 17 (0.4) (0.4) (0.4)
-------------------------------------
Statutory comparative to be reported 71.8 71.8 48.9
in 2006
Effective interest rate - IAS 39 6.6 6.6 3.9
Impairment - IAS 39 (6.7) (6.7) (4.0)
-------------------------------------
Comparable basis 71.7 71.7 48.8
=====================================
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The adjustments to profit arising from the use of IAS 39 in evaluating income
generated by the Group's loan assets and impairment of these assets comprised
increases to profit of £2.0m and £4.6m arising from the Group's buy-to-let
mortgage and consumer finance businesses respectively, with a reduction of £6.7m
relating to closed portfolios where the Group is not seeking new business.
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ILLUSTRATIVE 2005 RESULTS UNDER IFRS
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Analysis of adjustments to the Income Statement
Year to 30 September 2005
========================================================================================================
UK GAAP Statutory Statutory Proforma Proforma
basis basis basis basis
adjustments adjustments
(1) (2) (3)
£m £m £m £m £m
Interest receivable 484.4 1.4 485.8 1.0 486.8
Interest payable (387.5) (3.3) (390.8) 34.9 (355.9)
-------------------------------------------------------------------
Net interest income 96.9 (1.9) 95.0 35.9 130.9
Other operating income 35.9 2.0 37.9 (8.5) 29.4
-------------------------------------------------------------------
Total operating income 132.8 0.1 132.9 27.4 160.3
Operating expenses (44.2) (1.0) (45.2) - (45.2)
Impairment losses (15.9) - (15.9) (27.5) (43.4)
-------------------------------------------------------------------
72.7 (0.9) 71.8 (0.1) 71.7
Amortisation of negative goodwill 4.1 (4.1) - - -
-------------------------------------------------------------------
Operating profit before taxation 76.8 (5.0) 71.8 (0.1) 71.7
Taxation (16.1) 0.1 (16.0) - (16.0)
-------------------------------------------------------------------
Operating profit after taxation 60.7 (4.9) 55.8 (0.1) 55.7
===================================================================
Earnings per share
- basic 53.3p (4.4)p 48.9p (0.1)p 48.8p
- diluted 51.1p (4.2)p 46.9p (0.1)p 46.8p
===================================================================
--------------------------------------------------------------------------------------------------------
(1) UK GAAP presented in IFRS format. Analysis of the differences between these
amounts and the published results are shown on pages 58 to 62.
(2) Detailed analysis of the statutory basis adjustments is given on pages 10 to 37.
(3) Detailed analysis of the proforma basis adjustments is given on pages 38 to 54.
________________________________________________________________________________________________________________________
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ILLUSTRATIVE 2005 RESULTS UNDER IFRS
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Analysis of adjustments to the Balance Sheet
30 September 2005
========================================================================================================
UK GAAP Statutory Statutory Proforma Proforma
basis basis basis basis
adjustments adjustments
(1) (2) (3)
£m £m £m £m £m
Non-current assets
Intangible assets (9.9) 10.2 0.3 - 0.3
Property, plant and equipment 8.7 11.0 19.7 - 19.7
Financial assets 5,538.7 990.0 6,528.7 (97.6) 6,431.1
Deferred tax asset - 5.7 5.7 29.2 34.9
-----------------------------------------------------------------------
5,537.5 1,016.9 6,554.4 (68.4) 6,486.0
-----------------------------------------------------------------------
Current assets
Other receivables 7.8 (1.2) 6.6 - 6.6
Cash and cash equivalents 445.2 85.2 530.4 - 530.4
----------------------------------------------------------------------
453.0 84.0 537.0 - 537.0
----------------------------------------------------------------------
Total assets 5,990.5 1,100.9 7,091.4 (68.4) 7,023.0
======================================================================
Equity shareholders' funds
Share capital 12.1 - 12.1 - 12.1
Share premium 70.2 - 70.2 - 70.2
Merger reserve (70.2) - (70.2) - (70.2)
Profit and loss account 318.7 4.8 323.5 (68.4) 255.1
----------------------------------------------------------------------
Share capital and reserves 330.8 4.8 335.6 (68.4) 267.2
Own shares (22.8) - (22.8) - (22.8)
----------------------------------------------------------------------
308.0 4.8 312.8 (68.4) 244.4
----------------------------------------------------------------------
Current liabilities
Financial liabilities - 0.9 0.9 - 0.9
Current tax liabilities - 12.9 12.9 - 12.9
Other liabilities 81.7 (21.8) 59.9 - 59.9
----------------------------------------------------------------------
81.7 (8.0) 73.7 - 73.7
----------------------------------------------------------------------
Non-current liabilities
Financial liabilities - 6,684.8 6,684.8 - 6,684.8
Deferred tax liability - 0.7 0.7 - 0.7
Retirement benefit obligations - 14.6 14.6 - 14.6
Provisions 2.8 (0.7) 2.1 - 2.1
Other liabilities 5,598.0 (5,595.3) 2.7 - 2.7
----------------------------------------------------------------------
5,600.8 1,104.1 6,704.9 - 6,704.9
----------------------------------------------------------------------
Total liabilities 5,682.5 1,096.1 6,778.6 - 6,778.6
----------------------------------------------------------------------
5,990.5 1,100.9 7,091.4 (68.4) 7,023.0
======================================================================
--------------------------------------------------------------------------------------------------------
(1) UK GAAP presented in IFRS format. Analysis of the differences between these
amounts and the published results are shown on pages 58 to 62.
(2) Detailed analysis of the statutory basis adjustments is given on pages 10 to 37.
(3) Detailed analysis of the proforma basis adjustments is given on pages 38 to 54.
________________________________________________________________________________________________________
Page 7
ILLUSTRATIVE 2005 RESULTS UNDER IFRS
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Analysis of adjustments to the Income Statement
Six months to 31 March 2005
========================================================================================================
UK GAAP Statutory Statutory Proforma Proforma
basis basis basis basis
adjustments adjustments
(1) (2) (3)
£m £m £m £m £m
Interest receivable 240.9 0.7 241.6 (1.6) 240.0
Interest payable (194.9) (1.6) (196.5) 17.9 (178.6)
----------------------------------------------------------------------
Net interest income 46.0 (0.9) 45.1 16.3 61.4
Other operating income 17.0 1.0 18.0 (3.1) 14.9
----------------------------------------------------------------------
Total operating income 63.0 0.1 63.1 13.2 76.3
Operating expenses (20.6) (0.5) (21.1) - (21.1)
Impairment losses (8.5) - (8.5) (12.2) (20.7)
----------------------------------------------------------------------
33.9 (0.4) 33.5 1.0 34.5
Amortisation of negative goodwill 2.2 (2.2) - - -
----------------------------------------------------------------------
Operating profit before taxation 36.1 (2.6) 33.5 1.0 34.5
Taxation (7.6) - (7.6) (0.3) (7.9)
----------------------------------------------------------------------
Operating profit after taxation 28.5 (2.6) 25.9 0.7 26.6
======================================================================
Earnings per share
- basic 24.9p (2.2)p 22.7p 0.6p 23.3p
- diluted 23.9p (2.1)p 21.8p 0.6p 22.4p
======================================================================
--------------------------------------------------------------------------------------------------------
(1) UK GAAP presented in IFRS format. Analysis of the differences between these
amounts and the published results are shown on pages 58 to 62.
(2) Detailed analysis of the statutory basis adjustments is given on pages 10 to 37.
(3) Detailed analysis of the proforma basis adjustments is given on pages 38 to 54.
________________________________________________________________________________________________________
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ILLUSTRATIVE 2005 RESULTS UNDER IFRS
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Analysis of adjustments to the Balance Sheet
31 March 2005
========================================================================================================
UK GAAP Statutory Statutory Proforma Proforma
basis basis basis basis
adjustments adjustments
(1) (2) (3)
£m £m £m £m £m
Non-current assets
Intangible assets (11.8) 12.1 0.3 - 0.3
Property, plant and equipment 9.1 11.4 20.5 - 20.5
Financial assets 4,885.9 1,201.1 6,087.0 (96.5) 5,990.5
Deferred tax asset - 5.7 5.7 28.9 34.6
----------------------------------------------------------------------
4,883.2 1,230.3 6,113.5 (67.6) 6,045.9
----------------------------------------------------------------------
Current assets
Other receivables 7.6 (1.2) 6.4 - 6.4
Cash and cash equivalents 452.5 96.7 549.2 - 549.2
----------------------------------------------------------------------
460.1 95.5 555.6 - 555.6
----------------------------------------------------------------------
Total assets 5,343.3 1,325.8 6,669.1 (67.6) 6,601.5
======================================================================
Equity shareholders' funds
Share capital 12.0 - 12.0 - 12.0
Share premium 69.5 - 69.5 - 69.5
Merger reserve (70.2) - (70.2) - 70.2)
Profit and loss account 293.8 4.0 297.8 (67.6) 230.2
----------------------------------------------------------------------
Share capital and reserves 305.1 4.0 309.1 (67.6) 241.5
Own shares (13.8) - (13.8) - (13.8)
----------------------------------------------------------------------
291.3 4.0 295.3 (67.6) 227.7
----------------------------------------------------------------------
Current liabilities
Financial liabilities - 1.0 1.0 - 1.0
Current tax liabilities - 13.6 13.6 - 13.6
Other liabilities 78.9 (19.6) 59.3 - 59.3
----------------------------------------------------------------------
78.9 (5.0) 73.9 - 73.9
----------------------------------------------------------------------
Non-current liabilities
Financial liabilities - 6,278.1 6,278.1 - 6,278.1
Deferred tax liability - 2.1 2.1 - 2.1
Retirement benefit obligations - 14.5 14.5 - 14.5
Provisions 4.5 (2.1) 2.4 - 2.4
Other liabilities 4,968.6 (4,965.8) 2.8 - 2.8
----------------------------------------------------------------------
4,973.1 1,326.8 6,299.9 - 6,299.9
----------------------------------------------------------------------
Total liabilities 5,052.0 1,321.8 6,373.8 - 6,373.8
----------------------------------------------------------------------
5,343.3 1,325.8 6,669.1 (67.6) 6,601.5
======================================================================
--------------------------------------------------------------------------------------------------------
(1) UK GAAP presented in IFRS format. Analysis of the differences between these
amounts and the published results are shown on pages 58 to 62.
(2) Detailed analysis of the statutory basis adjustments is given on pages 10 to 37.
(3) Detailed analysis of the proforma basis adjustments is given on pages 38 to 54.
________________________________________________________________________________________________________
Page 9
ILLUSTRATIVE 2005 RESULTS UNDER IFRS
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Analysis of adjustments to the Balance Sheet
1 October 2004
========================================================================================================
UK GAAP Statutory Statutory Proforma Proforma
basis basis basis basis
adjustments adjustments
(1) (2) (3)
£m £m £m £m £m
Non-current assets
Intangible assets (14.0) 14.3 0.3 - 0.3
Property, plant and equipment 9.5 11.9 21.4 - 21.4
Financial assets 4,529.9 1,421.0 5,950.9 (97.5) 5,853.4
Deferred tax asset - 5.7 5.7 29.2 34.9
----------------------------------------------------------------------
4,525.4 1,452.9 5,978.3 (68.3) 5,910.0
----------------------------------------------------------------------
Current assets
Other receivables 8.9 (1.3) 7.6 - 7.6
Cash and cash equivalents 402.5 99.3 501.8 - 501.8
----------------------------------------------------------------------
411.4 98.0 509.4 - 509.4
----------------------------------------------------------------------
Total assets 4,936.8 1,550.9 6,487.7 (68.3) 6,419.4
======================================================================
Equity shareholders' funds
Share capital 12.0 - 12.0 - 12.0
Share premium 68.8 - 68.8 - 68.8
Merger reserve (70.2) - (70.2) - (70.2)
Profit and loss account 270.1 6.6 276.7 (68.3) 208.4
----------------------------------------------------------------------
Share capital and reserves 280.7 6.6 287.3 (68.3) 219.0
Own shares (12.3) - (12.3) - (12.3)
----------------------------------------------------------------------
268.4 6.6 275.0 (68.3) 206.7
----------------------------------------------------------------------
Current liabilities
Financial liabilities - 1.6 1.6 - 1.6
Current tax liabilities - 7.7 7.7 - 7.7
Other liabilities 68.0 (14.2) 53.8 - 53.8
----------------------------------------------------------------------
68.0 (4.9) 63.1 - 63.1
----------------------------------------------------------------------
Non-current liabilities
Financial liabilities - 6,126.5 6,126.5 - 6,126.5
Deferred tax liability - 2.1 2.1 - 2.1
Retirement benefit obligations - 14.3 14.3 - 14.3
Provisions 5.6 (2.1) 3.5 - 3.5
Other liabilities 4,594.8 (4,591.6) 3.2 - 3.2
----------------------------------------------------------------------
4,600.4 1,549.2 6,149.6 - 6,149.6
----------------------------------------------------------------------
Total liabilities 4,668.4 1,544.3 6,212.7 - 6,212.7
----------------------------------------------------------------------
4,936.8 1,550.9 6,487.7 (68.3) 6,419.4
======================================================================
--------------------------------------------------------------------------------------------------------
(1) UK GAAP presented in IFRS format. Analysis of the differences between these
amounts and the published results are shown on pages 58 to 62.
(2) Detailed analysis of the statutory basis adjustments is given on pages 10 to 37.
(3) Detailed analysis of the proforma basis adjustments is given on pages 38 to 54.
________________________________________________________________________________________________________
Page 10
2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS
Introduction
This section presents the Group's results for the year ended 30 September 2005
restated on the basis which will be used to prepare comparative information for
that year for inclusion in its financial statements and interim report for the
year ending 30 September 2006 (the 'Statutory Basis').
It is prepared in accordance with IFRS 1 - 'First Time Adoption of International
Financial Reporting Standards' and other relevant standards expected to apply as
at 30 September 2006. The financial information for the year ended 30 September
2005 and the balance sheet at 1 October 2004 have been audited by the Group's
auditors. The financial information for the six months ended 31 March 2005 has
been reviewed by the Group's auditors. Their audit and review opinions are set
out on pages 21 to 24.
The Board acknowledges its responsibility for the preparation of the preliminary
IFRS information, which has been prepared in accordance with the International
Financial Reporting Standards and Interpretations expected to be effective, and
the policies expected to be adopted, when the Group prepares its first annual
financial statements on an IFRS basis for the year ending 30 September 2006.
Basis of Preparation
The Group is required to prepare its consolidated financial statements for the
year ending 30 September 2006 in accordance with International Financial
Reporting Standards and Interpretations which will be effective and endorsed by
the European Union ('EU') as at 30 September 2006. The Group has therefore
prepared this information on the basis of all such standards in issue at the
date of this document which are intended to be in force on this date. However,
as permitted by IFRS 1, the information in this section has not been prepared in
accordance with IAS 32 and IAS 39, the standards which deal with financial
instruments, as the Group will apply those standards with effect from 1 October
2005. Instead, in this section, financial instruments (including loans to
customers and borrowings) are accounted for under UK GAAP as applied in the
Group accounts for the year ended 30 September 2005.
The preliminary IFRS Financial Information is based on the statutory financial
statements for the year ended 30 September 2005, which were approved by the
Board on 23 November 2005. In accordance with IFRS 1 there have been no
adjustments to the estimates made at the time of the preparation of the
statutory financial statements.
As this preliminary financial information is based upon the Group's present
understanding of the requirements of IFRS, it is possible that amendments may be
required before its inclusion in the financial statements for the year ending 30
September 2006 in the light of any revisions or changes to the Standards or to
guidance and consensus on the application or interpretation of IFRS, or in the
light of emerging best practice.
________________________________________________________________________________
Page 11
2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS
IFRS 1 Exemptions
IFRS 1 sets out procedures which the Group must follow when it adopts IFRS for
the first time as the basis of preparation of its consolidated financial
statements. The Group is required to determine appropriate accounting policies
in compliance with IFRS and, in general, to apply them retrospectively in
determining the opening IFRS balance sheet at its date of transition, 1 October
2004.
IFRS 1 provides a number of optional exemptions to this general principle. Those
being adopted by the Group are described below.
Business Combinations
The Group has elected not to apply IFRS 3 retrospectively to business
combinations that took place before the date of transition. Therefore no
recalculation of the goodwill arising on any of the Group's acquisitions, all of
which occurred before 1 October 2004, has taken place.
Share based payment
The Group has elected to apply IFRS 2 - 'Share-based Payment' only to
share-based payment transactions granted after 7 November 2002 and not vested at
1 January 2005.
Financial Instruments
IFRS 1 allows IAS 32 - 'Financial Instruments: Disclosure and Presentation' and
IAS 39 - 'Financial Instruments: Recognition and Measurement' to be applied with
effect from 1 October 2005, without retrospective restatement of the balances
reported in the financial statements for the year ended 30 September 2005. The
Group has taken advantage of this exemption, and in this section financial
instruments (including loans to customers and borrowings) are accounted for
under UK GAAP, as applied in the Group accounts for the year ended 30 September
2005.
Accounting policies
The Group's accounting policies have been revised to comply with IFRS and are
shown on pages 33 to 37. The key changes to policies, and their impacts on the
Group's financial statements for the year ended 30 September 2005, are described
below and their effects shown in the tables on pages 16 to 20.
Where it is expected that a tax charge or credit will arise from the adjustment,
provision for deferred tax is made at 30%, being the present rate of corporation
tax in the UK. This is shown in the tables in the column showing the adjustment
on which the charge or credit arises.
Goodwill
IFRS does not recognise the concept of negative goodwill. It therefore requires
that any excess of the fair value of assets acquired over the fair value of
consideration in an acquisition is written off immediately. Under UK GAAP the
Group has carried a negative goodwill balance, which arose on the acquisition of
Mortgage Trust in 2003, on its balance sheet which must therefore be released
through opening reserves on transition to IFRS. Negative goodwill of £14.0m at
30 September 2004 will be released and no benefit from amortisation will be
recognised in the income statement, reducing the operating profit for the year
ended 30 September 2005 by £4.1m, and that for the six months ended 31 March
2005 by £2.2m.
________________________________________________________________________________
Page 12
2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS
Pensions
IAS 19 - 'Employee benefits' requires that the deficit on the Group's defined
benefit pension scheme be carried as a liability on the balance sheet. The Group
has elected to adopt the provisions of the standard allowing actuarial gains or
losses on the scheme to be recognised directly in equity and shown in the
Statement of Recognised Income and Expenditure.
Using this option, the accounting required by the international standard is very
similar to that required by FRS 17 under UK GAAP. Disclosures relating to this
calculation have been made in the Group accounts since 2001.
The adjustment shown in the opening balance sheet represents the recognition of
the pension scheme deficit at 30 September 2004 of £14.3m and the associated
deferred tax asset of £4.3m, producing a reduction in reserves of £10.0m.
The effect on the profit and loss account represents the reversal of the charge
under SSAP 24 and its replacement with the charge required by IAS 19. A related
tax credit has also been recognised. No actuarial gain or loss arose in the year
ended 30 September 2005.
Dividend
Under IAS 10 - 'Events After the Balance Sheet Date', proposed dividends are not
reflected in the accounts until approved by the shareholders at the Annual
General Meeting, whereas under UK GAAP such amounts are normally accrued in the
period to which they relate.
The final dividend for the year ended 30 September 2004, which was approved at
the Annual General Meeting on 9 February 2005, has been added back to opening
reserves at 1 October 2004 and accounted for in the year ended 30 September
2005. The interim dividend paid in July 2005 has also been added back to
reserves at 31 March 2005 and accounted for in the second half year. The final
dividend proposed for the year ended 30 September 2005 has been added back to
closing reserves and will be accounted for in the year ending 30 September 2006.
Share based payment
Under IFRS 2 the Group will recognise an expense in respect of share options
granted under the Sharesave scheme in the same way as such expenses are
recognised for the other share-based remuneration arrangements, the UK GAAP
accounting for which is already in accordance with the International Standard.
Leases
The provisions for determining whether a lease should accounted for as a finance
lease under IFRS are different from those under UK GAAP. Consequently the sale
and lease-back transaction on the Group's former freehold property in Solihull
falls to be treated as a finance lease under IFRS.
This requires the building to be re-instated in fixed assets, a finance lease
creditor to be recognised, and the £2.5m profit on sale to be spread over the
lease term. No deferred tax is provided on this adjustment as the potential
deferred tax arose from the initial recognition of the property asset and the
associated lease creditor.
This change reduces profit for the year ended 30 September 2005 by £0.4m and
profit for the six months ended 31 March 2005 by £0.2m. This is a result of the
charging of finance lease interest and depreciation rather than the rent
payable. The annual impact of this change will reduce in future periods.
________________________________________________________________________________
Page 13
2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS
The balance sheet adjustments arising from the change in treatment for this
property are shown in the table below.
--------------------------------------------------------------------------------
IFRS adjustments for building lease
30 September 2005, 31 March 2005 and 1 October 2004
================================================================================
30 September 2005 31 March 2005 1 October 2004
£m £m £m
Property, plant and equipment
Cost 16.6 16.6 16.6
Accumulated depreciation (5.3) (4.9) (4.4)
----------------------------------------
Net book value 11.3 11.7 12.2
========================================
Finance lease liability
Current 0.4 0.3 0.4
Non-current 14.3 14.5 14.6
----------------------------------------
14.7 14.8 15.0
========================================
Unamortised profit on sale 1.7 1.8 1.9
========================================
--------------------------------------------------------------------------------
Presentation
The financial information in this document is presented in accordance with the
requirements of IAS 1 - 'Presentation of Financial Statements'. The
presentational differences between the UK GAAP profit and loss account and
balance sheet and the IFRS income statement and balance sheet are shown in the
appendix to this document.
Significant presentational changes are;
• Intangible assets
IAS 38 - 'Intangible Assets' provides that computer software, unless it is
integral to a related item of hardware, should be included as an intangible
asset. This balance would be included within 'Tangible Fixed Assets' under
UK GAAP. The computer software carried in the balance sheet of the Group
had net book value as shown below;
---------------------------------------------------------------------------
Computer software
Net book values
===========================================================================
30 September 31 March 1 October
2005 2005 2004
£m £m £m
Cost 1.3 1.7 1.6
Accumulated depreciation (1.0) (1.4) (1.3)
--------------------------------------------
Net book value 0.3 0.3 0.3
============================================
---------------------------------------------------------------------------
________________________________________________________________________________
Page 14
2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS
• Linked presentation
Under UK GAAP certain securitisation vehicle companies acquired with
Mortgage Trust were accounted for as quasi-subsidiaries of the Group, with
their loan assets and funding shown using a linked presentation. Under IFRS
these companies are required to be consolidated as if they were true
subsidiaries by SIC-12 'Consolidation - Special Purpose Entities'. This
means that the loan assets of those companies are included with the Group's
Financial Assets, their cash balances are included with those of the Group
and the related funding is included within Financial Liabilities, whereas
under UK GAAP the net of these balances was shown in fixed asset
investments.
The balances reanalysed are shown in the table below;
---------------------------------------------------------------------------
Reanalysis of linked presentation items
===========================================================================
30 September 31 March 1 October
2005 2005 2004
£m £m £m
Loans to customers 1,030.8 1,244.5 1,458.4
Included in financial assets under IFRS
Cash and investment balances 85.2 96.7 99.3
Included in cash and cash equivalents
under IFRS
------------------------------------
Assets subject to non recourse finance 1,116.0 1,341.2 1,557.7
Non-recourse finance (1,075.2) (1,297.8) (1,520.3)
Included in financial liabilities
under IFRS
------------------------------------
Net investment 40.8 43.4 37.4
Included in investments under UK GAAP
====================================
---------------------------------------------------------------------------
• Tax assets and liabilities
IAS 1 requires that deferred and current tax assets and liabilities are
shown on the face of the balance sheet, where under UK GAAP these balances
would generally be shown in the notes to the accounts.
Tax amounts included within other balances under UK GAAP and shown
separately under IFRS are as follows;
---------------------------------------------------------------------------
Reanalysis of tax balances
===========================================================================
30 September 31 March 1 October
2005 2005 2004
£m £m £m
Tax debtors 1.1 1.2 1.2
Included in debtors under UK GAAP
Corporation tax 12.9 13.6 7.7
Included in creditors: amounts falling within
one year under UK GAAP
Deferred tax 0.7 2.1 2.1
Included in provisions under UK GAAP
====================================
---------------------------------------------------------------------------
_______________________________________________________________________________
Page 15
2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS
• Financial Liabilities
IAS 1 requires that financial liabilities are shown on the face of the
balance sheet, where under UK GAAP these balances would generally be shown
in the notes to the accounts. Accordingly the total of the amounts
disclosed in the financial statements under UK GAAP as 'Bank loans and
overdrafts', 'Asset backed loan notes' and 'Corporate bond' is shown on the
face of the balance sheet under IFRS.
The reanalysis of the creditor balances shown in the notes to the UK GAAP
accounts is shown below;
---------------------------------------------------------------------------
Reanalysis of creditor balances
===========================================================================
30 September 31 March 1 October
2005 2005 2004
£m £m £m
Amounts falling due within one year
Bank loans and overdrafts 0.5 0.7 1.2
Shown as financial liabilities under IFRS
--------------------------------
Corporation tax 12.9 13.6 7.7
Shown separately under IFRS
--------------------------------
Proposed dividend 8.8 6.3 6.8
Accruals 58.4 57.2 50.7
--------------------------------
Shown as other payables under IFRS 67.2 63.5 57.5
--------------------------------
UK GAAP creditors falling due
within one year 80.6 77.8 66.4
================================
Amounts falling due after more than one year
Asset backed loan notes 4,486.6 4,149.8 3,690.0
Corporate bond 118.2 - -
Bank loans 990.5 816.0 901.6
--------------------------------
Shown as financial liabilities
under IFRS 5,595.3 4,965.8 4,591.6
Accruals 1.6 1.6 2.0
Shown as other payables under IFRS
--------------------------------
UK GAAP creditors falling due after more
than one year 5,596.9 4,967.4 4,593.6
================================
---------------------------------------------------------------------------
Segmental Reporting
Under IAS 14 the Group will be required to provide segmental information on each
of its principal business areas. Having reviewed the Group's operations in the
light of the requirements of the Standard, the Board has concluded that the
segments which will be reported upon will be Buy-to-Let Mortgage Lending,
Consumer Lending, including the Secured Lending, Car Finance and Retail Finance
businesses, and other lending operations, which will principally comprise the
closed books.
________________________________________________________________________________
Page 16
2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS
------------------------------------------------------------------------------------------------------------------------
Analysis of adjustments to the Income Statement - Statutory basis
Year ended 30 September 2005
========================================================================================================================
UK Goodwill Pensions Dividend Share Leases Presentation Statutory Statutory
GAAP based basis basis
payment adjustments
£m £m £m £m £m £m £m £m £m
Interest receivable 484.4 - 1.4 - - - - 1.4 485.8
Interest payable (387.5) - (1.9) - - (1.4) - (3.3) (390.8)
------------------------------------------------------------------------------------------------
Net interest income 96.9 - (0.5) - - (1.4) - (1.9) 95.0
Other operating income 35.9 - - - - 2.0 - 2.0 37.9
------------------------------------------------------------------------------------------------
Total operating income 132.8 - (0.5) - - 0.6 - 0.1 132.9
Operating expenses (44.2) - 0.2 - (0.2) (1.0) - (1.0) (45.2)
Impairment losses (15.9) - - - - - - - (15.9)
------------------------------------------------------------------------------------------------
72.7 - (0.3) - (0.2) (0.4) - (0.9) 71.8
Amortisation of goodwill 4.1 (4.1) - - - - - (4.1) -
------------------------------------------------------------------------------------------------
Operating profit before 76.8 (4.1) (0.3) - (0.2) (0.4) - (5.0) 71.8
taxation
Taxation (16.1) - 0.1 - - - - 0.1 (16.0)
------------------------------------------------------------------------------------------------
Operating profit after
taxation 60.7 (4.1) (0.2) - (0.2) (0.4) - (4.9) 55.8
================================================================================================
------------------------------------------------------------------------------------------------------------------------
________________________________________________________________________________________________________________________
Page 17
2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS
------------------------------------------------------------------------------------------------------------------------
Analysis of adjustments to the Balance Sheet - Statutory basis
30 September 2005
========================================================================================================================
UK Goodwill Pensions Dividend Share Leases Presentation Statutory Statutory
GAAP based basis basis
payment adjustments
£m £m £m £m £m £m £m £m £m
Non-current assets
Intangible assets (9.9) 9.9 - - - - 0.3 10.2 0.3
Property, plant and
equipment 8.7 - - - - 11.3 (0.3) 11.0 19.7
Financial
assets 5,538.7 - - - - - 990.0 990.0 6,528.7
Deferred tax asset - - 4.4 - 0.1 - 1.2 5.7 5.7
--------------------------------------------------------------------------------------------------
5,537.5 9.9 4.4 - 0.1 11.3 991.2 1,016.9 6,554.4
--------------------------------------------------------------------------------------------------
Current assets
Other receivables 7.8 - - - - - (1.2) (1.2) 6.6
Cash and cash
equivalents 445.2 - - - - - 85.2 85.2 530.4
--------------------------------------------------------------------------------------------------
453.0 - - - - - 84.0 84.0 537.0
--------------------------------------------------------------------------------------------------
Total assets 5,990.5 9.9 4.4 - 0.1 11.3 1,075.2 1,100.9 7,091.4
==================================================================================================
Equity shareholders'
funds
Share capital 12.1 - - - - - - - 12.1
Share premium 70.2 - - - - - - - 70.2
Merger reserve (70.2) - - - - - - - (70.2)
Profit and loss
account 318.7 9.9 (10.2) 8.8 1.4 (5.1) - 4.8 323.5
--------------------------------------------------------------------------------------------------
Share capital
and reserves 330.8 9.9 (10.2) 8.8 1.4 (5.1) - 4.8 335.6
Own shares (22.8) - - - - - - - (22.8)
------------------------------------------------------------------------------------------------
308.0 9.9 (10.2) 8.8 1.4 (5.1) - 4.8 312.8
--------------------------------------------------------------------------------------------------
Current liabilities
Financial liabilities - - - - - 0.4 0.5 0.9 0.9
Current tax liabilities - - - - - - 12.9 12.9 12.9
Other liabilities 81.7 - - (8.8) (1.3) 1.7 (13.4) (21.8) 59.9
--------------------------------------------------------------------------------------------------
81.7 - - (8.8) (1.3) 2.1 - (8.0) 73.7
--------------------------------------------------------------------------------------------------
Non-current liabilities
Financial liabilities - - - - - 14.3 6,670.5 6,684.8 6,684.8
Deferred tax liability - - - - - - 0.7 0.7 0.7
Retirement benefit
obligations - - 14.6 - - - - 14.6 14.6
Provisions 2.8 - - - - - (0.7) (0.7) 2.1
Other liabilities 5,598.0 - - - - - (5,595.3) (5,595.3) 2.7
--------------------------------------------------------------------------------------------------
5,600.8 - 14.6 - - 14.3 1,075.2 1,104.1 6,704.9
--------------------------------------------------------------------------------------------------
5,990.5 9.9 4.4 - 0.1 11.3 1,075.2 1,100.9 7,091.4
==================================================================================================
------------------------------------------------------------------------------------------------------------------------
________________________________________________________________________________________________________________________
Page 18
2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS
-----------------------------------------------------------------------------------------------------------------------
Analysis of adjustments to the Income statement - Statutory basis
Six months ended 31 March 2005
========================================================================================================================
UK Goodwill Pensions Dividend Share Leases Presentation Statutory Statutory
GAAP based basis basis
payment adjustments
£m £m £m £m £m £m £m £m £m
Interest
receivable 240.9 - 0.7 - - - - 0.7 241.6
Interest
payable (194.9) - (0.9) - - (0.7) - (1.6) (196.5)
--------------------------------------------------------------------------------------------------
Net interest
income 46.0 - (0.2) - - (0.7) - (0.9) 45.1
Other
operating
income 17.0 - - - - 1.0 - 1.0 18.0
--------------------------------------------------------------------------------------------------
Total
operating
income 63.0 - (0.2) - - 0.3 - 0.1 63.1
Operating
expenses (20.6) - 0.1 - (0.1) (0.5) - (0.5) (21.1)
Impairment
losses (8.5) - - - - - - - (8.5)
--------------------------------------------------------------------------------------------------
33.9 - (0.1) - (0.1) (0.2) - (0.4) 33.5
Amortisation
of goodwill 2.2 (2.2) - - - - - (2.2) -
--------------------------------------------------------------------------------------------------
Operating
profit
before 36.1 (2.2) (0.1) - (0.1) (0.2) - (2.6) 33.5
taxation
Taxation (7.6) - - - - - - - (7.6)
--------------------------------------------------------------------------------------------------
Operating
profit after
taxation 28.5 (2.2) (0.1) - (0.1) (0.2) - (2.6) 25.9
==================================================================================================
------------------------------------------------------------------------------------------------------------------------
________________________________________________________________________________________________________________________
Page 19
2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS
------------------------------------------------------------------------------------------------------------------------
Analysis of adjustments to the Balance Sheet - Statutory basis
31 March 2005
========================================================================================================================
UK GAAP Goodwill Pensions Dividend Share Leases Presentation Statutory Statutory
based basis basis
payment adjustments
£m £m £m £m £m £m £m £m £m
Non-current
assets
Intangible
assets (11.8) 11.8 - - - - 0.3 12.1 0.3
Property,
plant and
equipment 9.1 - - - - 11.7 (0.3) 11.4 20.5
Financial
assets 4,885.9 - - - - - 1,201.1 1,201.1 6,087.0
Deferred tax
asset - - 4.4 - 0.1 - 1.2 5.7 5.7
----------------------------------------------------------------------------------------------------
4,883.2 11.8 4.4 - 0.1 11.7 1,202.3 1,230.3 6,113.5
----------------------------------------------------------------------------------------------------
Current
assets
Other
receivables 7.6 - - - - - (1.2) (1.2) 6.4
Cash and cash
equivalents 452.5 - - - - - 96.7 96.7 549.2
----------------------------------------------------------------------------------------------------
460.1 - - - - - 95.5 95.5 555.6
----------------------------------------------------------------------------------------------------
Total assets 5,343.3 11.8 4.4 - 0.1 11.7 1,297.8 1,325.8 6,669.1
====================================================================================================
Equity
shareholders'
funds
Share 12.0 - - - - - - - 12.0
capital
Share 69.5 - - - - - - - 69.5
premium
Merger (70.2) - - - - - - - (70.2)
reserve
Profit and
loss account 293.8 11.8 (10.1) 6.3 0.9 (4.9) - 4.0 297.8
----------------------------------------------------------------------------------------------------
Share capital
and reserves 305.1 11.8 (10.1) 6.3 0.9 (4.9) - 4.0 309.1
Own shares (13.8) - - - - - - - (13.8)
----------------------------------------------------------------------------------------------------
291.3 11.8 (10.1) 6.3 0.9 (4.9) - 4.0 295.3
----------------------------------------------------------------------------------------------------
Current
liabilities
Financial
liabilities - - - - - 0.3 0.7 1.0 1.0
Current tax
liabilities - - - - - - 13.6 13.6 13.6
Other
liabilities 78.9 - - (6.3) (0.8) 1.8 (14.3) (19.6) 59.3
----------------------------------------------------------------------------------------------------
78.9 - - (6.3) (0.8) 2.1 - (5.0) 73.9
----------------------------------------------------------------------------------------------------
Non-current
liabilities
Financial
liabilities - - - - - 14.5 6,263.6 6,278.1 6,278.1
Deferred tax
liability - - - - - - 2.1 2.1 2.1
Retirement
benefit
obligations - - 14.5 - - - - 14.5 14.5
Provisions 4.5 - - - - - (2.1) (2.1) 2.4
Other
liabilities 4,968.6 - - - - - (4,965.8) (4,965.8) 2.8
----------------------------------------------------------------------------------------------------
4,973.1 - 14.5 - - 14.5 1,297.8 1,326.8 6,299.9
----------------------------------------------------------------------------------------------------
5,343.3 11.8 4.4 - 0.1 11.7 1,297.8 1,325.8 6,669.1
====================================================================================================
------------------------------------------------------------------------------------------------------------------------
________________________________________________________________________________________________________________________
Page 20
2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS
------------------------------------------------------------------------------------------------------------------------
Analysis of adjustments to the Balance Sheet - Statutory basis
1 October 2004
========================================================================================================================
UK GAAP Goodwill Pensions Dividend Share Leases Presentation Statutory Statutory
based basis basis
payment adjustments
£m £m £m £m £m £m £m £m £m
Non-current
assets
Intangible
assets (14.0) 14.0 - - - - 0.3 14.3 0.3
Property,
plant and
equipment 9.5 - - - - 12.2 (0.3) 11.9 21.4
Financial
assets 4,529.9 - - - - - 1,421.0 1,421.0 5,950.9
Deferred tax
asset - - 4.3 - 0.1 - 1.3 5.7 5.7
----------------------------------------------------------------------------------------------------
4,525.4 14.0 4.3 - 0.1 12.2 1,422.3 1,452.9 5,978.3
----------------------------------------------------------------------------------------------------
Current
assets
Other
receivables 8.9 - - - - - (1.3) (1.3) 7.6
Cash and cash
equivalents 402.5 - - - - - 99.3 99.3 501.8
----------------------------------------------------------------------------------------------------
411.4 - - - - - 98.0 98.0 509.4
----------------------------------------------------------------------------------------------------
Total assets 4,936.8 14.0 4.3 - 0.1 12.2 1,520.3 1,550.9 6,487.7
====================================================================================================
Equity
shareholders'
funds
Share 12.0 - - - - - - - 12.0
capital
Share 68.8 - - - - - - - 68.8
premium
Merger (70.2) - - - - - - - (70.2)
reserve
Profit and
loss account 270.1 14.0 (10.0) 6.8 0.5 (4.7) - 6.6 276.7
----------------------------------------------------------------------------------------------------
Share capital
and reserves 280.7 14.0 (10.0) 6.8 0.5 (4.7) - 6.6 287.3
Own shares (12.3) - - - - - - - (12.3)
----------------------------------------------------------------------------------------------------
268.4 14.0 (10.0) 6.8 0.5 (4.7) - 6.6 275.0
====================================================================================================
Current
liabilities
Financial
liabilities - - - - - 0.4 1.2 1.6 1.6
Current tax
liabilities - - - - - - 7.7 7.7 7.7
Other
liabilities 68.0 - - (6.8) (0.4) 1.9 (8.9) (14.2) 53.8
----------------------------------------------------------------------------------------------------
68.0 - - (6.8) (0.4) 2.3 - (4.9) 63.1
----------------------------------------------------------------------------------------------------
Non-current
liabilities
Financial
liabilities - - - - - 14.6 6,111.9 6,126.5 6,126.5
Deferred tax
liability - - - - - - 2.1 2.1 2.1
Retirement
benefit
obligations - - 14.3 - - - - 14.3 14.3
Provisions 5.6 - - - - - (2.1) (2.1) 3.5
Other
liabilities 4,594.8 - - - - - (4,591.6) (4,591.6) 3.2
----------------------------------------------------------------------------------------------------
4,600.4 - 14.3 - - 14.6 1,520.3 1,549.2 6,149.6
----------------------------------------------------------------------------------------------------
4,936.8 14.0 4.3 - 0.1 12.2 1,520.3 1,550.9 6,487.7
====================================================================================================
------------------------------------------------------------------------------------------------------------------------
________________________________________________________________________________________________________________________
Page 21
2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS
--------------------------------------------------------------------------------
Opinions of the Group Auditors - Deloitte & Touche LLP
================================================================================
INDEPENDENT AUDITORS' REPORT TO THE BOARD OF DIRECTORS OF THE PARAGON GROUP OF
COMPANIES PLC ON THE PRELIMINARY OPENING AND COMPARATIVE IFRS BALANCE SHEETS
We have audited the preliminary opening and comparative IFRS balance sheets of
The Paragon Group of Companies PLC at 1 October 2004 and 30 September 2005, the
income statement for the year ended 30 September 2005, the consolidated
statement of recognised income and expense for the year ended 30 September 2005
and the related notes (together the 'Preliminary IFRS Financial Information')
set out on pages 25 to 28 and pages 33 to 37.
This report is made solely to the Board of Directors, in accordance with our
engagement letter dated 25 November 2005 and the addendum dated 30 January 2006
and solely for the purpose of assisting with the transition to IFRS. Our audit
work has been undertaken so that we might state to the company's board of
directors 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 to anyone other than the company for our audit
work, for our report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
The company's directors are responsible for ensuring that the Company and the
Group maintains proper accounting records and for the preparation of the
Preliminary IFRS Financial Information on the basis set out on pages 33 to 37,
which describes how IFRS will be applied under IFRS 1, including the assumptions
the directors have made about the standards and interpretations expected to be
effective, and the policies expected to be adopted, when the company prepares
its first complete set of IFRS financial statements as at 30 September 2006. Our
responsibility is to audit the Preliminary IFRS Financial Information in
accordance with relevant United Kingdom legal and regulatory requirements and
auditing standards and report to you our opinion as to whether the Preliminary
IFRS Financial Information is prepared, in all material respects, on the basis
set out on pages 33 to 37.
Basis of audit opinion
We conducted our audit in accordance with United Kingdom auditing standards
issued by the Auditing Practices Board. An audit includes examination, on a test
basis, of evidence relevant to the amounts and disclosures in the Preliminary
IFRS Financial Information. It also includes an assessment of the significant
estimates and judgements made by the directors in the preparation of the
Preliminary IFRS Financial Information and of whether the accounting policies
are appropriate to the circumstances of the group, consistently applied and
adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the Preliminary IFRS
Financial Information is free from material misstatement, whether caused by
fraud or other irregularity or error. In forming our opinion, we also evaluated
the overall adequacy of the presentation of information in the Preliminary IFRS
Financial Information.
________________________________________________________________________________
Page 22
2005 FINANCIAL INFROMATION - IFRS STATUTORY BASIS
Without qualifying our opinion, we draw attention to the fact that pages 33 to
37 explain why there is a possibility that the accompanying Preliminary IFRS
Financial Information may require adjustment before constituting the final IFRS
Financial Information. Moreover, we draw attention to the fact that, under
IFRSs, only a complete set of financial statements comprising a balance sheet,
income statement, statement of changes in equity, cash flow statement, together
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 is prepared, in all
material respects, on the basis set out on pages 33 to 37 which describes how
IFRS will be applied under IFRS 1, including the assumptions the directors have
made about the standards and interpretations expected to be effective, and the
policies expected to be adopted, when the company prepares its first complete
set of IFRS financial statements as at 30 September 2006.
Deloitte & Touche LLP
Chartered Accountants
Birmingham
21 February 2006
________________________________________________________________________________
Page 23
2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS
INDEPENDENT REVIEW REPORT TO THE BOARD OF DIRECTORS OF THE PARAGON GROUP OF
COMPANIES PLC ON THE PRELIMINARY COMPARATIVE FINANCIAL INFORMATION FOR THE SIX
MONTHS ENDED 31 MARCH 2005
We have reviewed the accompanying preliminary International Financial Reporting
Standards (IFRS) consolidated financial information of The Paragon Group of
Companies PLC ('the Company') and its subsidiaries (together, 'the Group') for
the six months ended 31 March 2005 which comprises the consolidated income
statement, the consolidated balance sheet, the consolidated statement of
recognised income and expense and related notes set out on pages 29 to 37
inclusive (hereinafter referred to as 'preliminary financial information').
This preliminary financial information is the responsibility of the Company's
directors. It has been prepared as part of the Company's conversion to IFRS in
accordance with the basis set out pages 33 to 37 which describe how IFRSs have
been applied under IFRS 1, including the assumptions the directors have made
about the standards and interpretations expected to be effective, and the
policies expected to be adopted, when the company prepares its first complete
set of IFRS financial statements as at 30 September 2006. Our responsibility is
to express an opinion on this preliminary IFRS comparative financial information
based on our review.
Our review report is made solely to the Company in accordance with Bulletin 1999
/4 issued by the Auditing Practices Board. Our work has been undertaken so that
we might state to the Company those matters we are required to state to them in
an independent review report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other than
the Company, for our review work, for this report, or for the conclusions we
have formed.
Review work performed
We conducted our review in accordance with Bulletin 1999/4 issued by the
Auditing Practices Board. A review consists principally of making enquiries of
management and applying analytical procedures to the preliminary financial
information and underlying financial data and, assessing whether the accounting
policies and presentation have been consistently applied unless otherwise
disclosed. A review excludes audit procedures such as tests of control and
verification of assets, liabilities and transactions. It is substantially less
in scope than an audit performed in accordance with United Kingdom auditing
standards and therefore provides a lower level of assurance than an audit.
Accordingly, we do not express an opinion on the preliminary financial
information.
Emphasis of matter
Without modifying our review conclusion, we draw attention to the fact that
pages 33 to 37 explain why there is a possibility that the accompanying
preliminary financial information may require adjustment before constituting the
final IFRS comparative information for the six months ended 31 March 2005.
Moreover, we draw attention to the fact that, under IFRSs, only a complete set
of financial statements comprising an income statement, balance sheet, statement
of changes in equity, cash flow statement, together with comparative financial
information and explanatory notes, can provide a fair presentation of the
Group's financial position, results of operations and cash flows in accordance
with IFRSs.
________________________________________________________________________________
Page 24
2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the preliminary financial information for the six months ended
31 March 2005 which has been prepared in accordance with the basis set out on
pages 33 to 37.
Deloitte & Touche LLP
Chartered Accountants
Birmingham
21 February 2006
________________________________________________________________________________
Page 25
2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS
--------------------------------------------------------------------------------
Consolidated Income Statement - Statutory basis
Year ended 30 September 2005
================================================================================
IFRS Statutory basis UK GAAP
Year ended Year ended
30 September 2005 30 September 2005
£m £m
Interest receivable 485.8 484.4
Interest payable
and similar charges (390.8) (387.5)
--------------------------------------
Net interest income 95.0 96.9
Other operating income 37.9 35.9
--------------------------------------
Total operating income 132.9 132.8
Operating expenses (45.2) (44.2)
Provisions for losses (15.9) (15.9)
--------------------------------------
71.8 72.7
Amortisation of goodwill - 4.1
--------------------------------------
Operating profit being profit on
ordinary activities before taxation 71.8 76.8
Tax charge on profit on ordinary
activities (16.0) (16.1)
--------------------------------------
Profit on ordinary activities after
taxation for the financial year 55.8 60.7
======================================
Earnings per share
- basic 48.9p 53.3p
- diluted 46.9p 51.1p
======================================
The results for the year relate entirely to continuing operations.
--------------------------------------------------------------------------------
UK GAAP profit and loss accounts are presented in accordance with IFRS format.
________________________________________________________________________________
Page 26
2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS
--------------------------------------------------------------------------------
Consolidated Balance Sheets - Statutory basis
30 September 2005 and 1 October 2004
===============================================================================
IFRS Statutory basis UK GAAP
30 1 30 1
September October September October
2005 2004 2005 2004
£m £m £m £m
Assets employed
Non-current assets
Intangible assets 0.3 0.3 (9.9) (14.0)
Property, plant
and equipment 19.7 21.4 8.7 9.5
Financial assets 6,528.7 5,950.9 5,538.7 4,529.9
Deferred tax assets 5.7 5.7 - -
----------------------------------------------
6,554.4 5,978.3 5,537.5 4,525.4
----------------------------------------------
Current assets
Other receivables 6.6 7.6 7.8 8.9
Cash and cash
equivalents 530.4 501.8 445.2 402.5
----------------------------------------------
537.0 509.4 453.0 411.4
----------------------------------------------
7,091.4 6,487.7 5,990.5 4,936.8
==============================================
Financed by
Equity shareholders'
funds
Called-up share capital 12.1 12.0 12.1 12.0
Share premium account 70.2 68.8 70.2 68.8
Merger reserve (70.2) (70.2) (70.2) (70.2)
Profit and
loss account 323.5 276.7 318.7 270.1
----------------------------------------------
Share capital
and reserves 335.6 287.3 330.8 280.7
Own shares (22.8) (12.3) (22.8) (12.3)
----------------------------------------------
312.8 275.0 308.0 268.4
----------------------------------------------
Current liabilities
Financial liabilities 0.9 1.6 - -
Current tax liabilities 12.9 7.7 - -
Other liabilities 59.9 53.8 81.7 68.0
----------------------------------------------
73.7 63.1 81.7 68.0
----------------------------------------------
Non-current liabilities
Financial liabilities 6,684.8 6,126.5 - -
Deferred tax liability 0.7 2.1 - -
Retirement benefit
obligations 14.6 14.3 - -
Provisions 2.1 3.5 2.8 5.6
Other liabilities 2.7 3.2 5,598.0 4,594.8
----------------------------------------------
6,704.9 6,149.6 5,600.8 4,600.4
----------------------------------------------
7,091.4 6,487.7 5,990.5 4,936.8
==============================================
--------------------------------------------------------------------------------
UK GAAP balance sheets are presented in accordance with IFRS format.
________________________________________________________________________________
Page 27
2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS
--------------------------------------------------------------------------------
Consolidated Statement of Recognised Income and Expense - Statutory basis
Year ended 30 September 2005
================================================================================
IFRS Statutory basis UK GAAP
Year ended Year ended
30 September 30 September
2005 2005
£m £m
Profit for the period 55.8 60.7
Actuarial gain / (loss) on pension - -
deficit
Tax on items taken directly to equity - -
-------------------------------
Total recognised income and expense
for the period 55.8 60.7
===============================
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Consolidated Reconciliation of Movements in Equity - Statutory basis
Year ended 30 September 2005
================================================================================
IFRS Statutory basis UK GAAP
Year ended Year ended
30 September 2005 30 September 2005
£m £m
Total recognised
income and expense
for the period 55.8 60.7
Dividends (12.4) (14.4)
Net movement in own shares (10.5) (10.5)
Surplus on transactions
in own shares 2.3 2.3
Charge for share
based payments 2.6 1.5
----------------------------------------
Total movements in
equity in the period 37.8 39.6
Opening equity 275.0 268.4
----------------------------------------
Closing equity 312.8 308.0
========================================
--------------------------------------------------------------------------------
________________________________________________________________________________
Page 28
2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS
Earnings per share
The basic earnings per share figures have been calculated by dividing the profit
attributable to shareholders by the weighted average number of shares
outstanding during the period. For the year ended 30 September 2005 the weighted
average number of shares outstanding was 114.1 million.
The diluted earnings per share figures have been calculated by adjusting the
weighted average number of shares outstanding for the effects of all dilutive
potential ordinary shares. For the year ended 30 September 2005 the adjusted
weighted average number of shares outstanding was 119.0 million.
Neither of the above numbers of shares is affected by the transition to IFRS.
________________________________________________________________________________
Page 29
2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS
--------------------------------------------------------------------------------
Consolidated Income Statement - Statutory basis
Six months ended 31 March 2005
================================================================================
IFRS Statutory basis UK GAAP
Six months ended 31 March Six months ended 31 March
2005 2005
£m £m
Interest receivable 241.6 240.9
Interest payable
and similar charges (196.5) (194.9)
--------------------------------------
Net interest income 45.1 46.0
Other operating income 18.0 17.0
--------------------------------------
Total operating income 63.1 63.0
Operating expenses (21.1) (20.6)
Provisions for losses (8.5) (8.5)
--------------------------------------
33.5 33.9
Amortisation of goodwill - 2.2
--------------------------------------
Operating profit being profit on
ordinary activities before taxation 33.5 36.1
Tax charge on profit on
ordinary activities (7.6) (7.6)
--------------------------------------
Profit on ordinary activities
after taxation for the financial year 25.9 28.5
======================================
Earnings per share
- basic 22.7p 24.9p
- diluted 21.8p 23.9p
======================================
The results for the year relate entirely to continuing operations.
--------------------------------------------------------------------------------
UK GAAP profit and loss accounts are presented in accordance with IFRS format.
________________________________________________________________________________
Page 30
2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS
--------------------------------------------------------------------------------
Consolidated Balance Sheets - Statutory basis
31 March 2005
================================================================================
IFRS Statutory basis UK GAAP
31 March 31 March
2005 2005
£m £m
Assets employed
Non-current assets
Intangible assets 0.3 (11.8)
Property, plant and equipment 20.5 9.1
Financial assets 6,087.0 4,885.9
Deferred tax assets 5.7 -
-----------------------------
6,113.5 4,883.2
-----------------------------
Current assets
Other receivables 6.4 7.6
Cash and cash equivalents 549.2 452.5
-----------------------------
555.6 460.1
-----------------------------
6,669.1 5,343.3
=============================
Financed by
Equity shareholders' funds
Called-up share capital 12.0 12.0
Share premium account 69.5 69.5
Merger reserve (70.2) (70.2)
Profit and loss account 297.8 293.8
-----------------------------
Share capital and reserves 309.1 305.1
Own shares (13.8) (13.8)
-----------------------------
295.3 291.3
-----------------------------
Current liabilities
Financial liabilities 1.0 -
Current tax liabilities 13.6 -
Other liabilities 59.3 78.9
-----------------------------
73.9 78.9
-----------------------------
Non-current liabilities
Financial liabilities 6,278.1 -
Deferred tax liability 2.1 -
Retirement benefit obligations 14.5 -
Provisions 2.4 4.5
Other liabilities 2.8 4,968.6
-----------------------------
6,299.9 4,973.1
-----------------------------
6,669.1 5,343.3
=============================
--------------------------------------------------------------------------------
UK GAAP balance sheets are presented in accordance with IFRS format.
________________________________________________________________________________
Page 31
2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS
--------------------------------------------------------------------------------
Consolidated Statement of Recognised Income and Expense - Statutory basis
Six months ended 31 March 2005
================================================================================
IFRS Statutory basis UK GAAP
Six months ended Six months ended
31 March 31 March
2005 2005
£m £m
Profit for the period 25.9 28.5
Actuarial gain / (loss) on pension - -
deficit
Tax on items taken directly to equity - -
------------------------------
Total recognised income and
expense for the period 25.9 28.5
==============================
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Consolidated Reconciliation of Movements in Equity - Statutory basis
Six months ended 31 March 2005
================================================================================
IFRS Statutory basis UK GAAP
Six months ended 31 March Six months ended 31 March
2005 2005
£m £m
Total recognised income and
expense for the period 25.9 28.5
Dividends (6.5) (6.0)
Net movement in own shares (1.5) (1.5)
Surplus on transactions
in own shares 1.3 1.3
Charge for share
based payments 1.1 0.6
-------------------------------------
Total movements in equity
in the period 20.3 22.9
Opening equity 275.0 268.4
-------------------------------------
Closing equity 295.3 291.3
=====================================
--------------------------------------------------------------------------------
________________________________________________________________________________
Page 32
2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS
Earnings per share
The basic earnings per share figures have been calculated by dividing the profit
attributable to shareholders by the weighted average number of shares
outstanding during the period. For the six months ended 31 March 2005 this
number was 114.2 million.
The diluted earnings per share figures have been calculated by adjusting the
weighted average number of shares outstanding for the effects of all dilutive
potential ordinary shares. For the six months ended 31 March 2005 this number
was 119.0 million.
Neither of the above numbers of shares is affected by the transition to IFRS.
________________________________________________________________________________
Page 33
2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS
--------------------------------------------------------------------------------
Accounting policies
Statutory basis
===============================================================================
The financial information has been prepared in accordance with International
Financial Reporting Standards expected to be applicable in the preparation of
the Group Financial Statements for the year ending 30 September 2006, except
that, as permitted for the compilation of comparative information by IFRS 1 -
'First Time Adoption of International Financial Reporting Standards' the
requirements of IAS 32 - 'Financial Instruments: Disclosure and Presentation'
and IAS 39 - 'Financial Instruments: Recognition and Measurement' have not been
applied in preparing the financial information relating to the year ended 30
September 2005. Financial instruments are accounted for using the policies and
practices previously adopted under UK GAAP.
The particular policies adopted are described below.
(a) Accounting convention
The financial information is prepared under the historical cost
convention.
(b) Basis of consolidation
The consolidated accounts deal with the accounts of the Company and its
subsidiaries made up to 30 September 2005. Subsidiaries comprise all
those entities over which the Group has control. The results of
businesses acquired are dealt with in the consolidated accounts from
the date of acquisition.
In accordance with SIC 12 - 'Consolidation: Special Purpose Entities'
companies owned by charitable trusts into which loans originated by
Mortgage Trust Limited were sold as part of its securitisation
programme where the Group enjoys the benefits of ownership are treated
as subsidiaries.
Similarly trusts set up to hold shares in conjunction with the Group's
employee share ownership arrangements are also treated as subsidiaries.
(c) Goodwill
Goodwill arising from the purchase of subsidiary undertakings,
representing the excess of the fair values of acquired assets over the
fair value of the purchase consideration, is held on the balance sheet
and annually reviewed to determine whether any impairment has occurred.
Negative goodwill is written off as it arises.
As permitted by IFRS 1, the Group has elected not to apply IFRS 3 -
'Business Combinations' to combinations taking place before its
transition date to IFRS (1 October 2004). Therefore any goodwill which
was written off to reserves under UK GAAP will not be charged or
credited to the profit and loss account on any future disposal of the
business to which it relates.
(d) Intangible assets
Intangible assets comprise purchased computer software, which is
capitalised where it has a sufficiently enduring nature. This is stated
at cost less accumulated amortisation. Amortisation is provided in
equal instalments at a rate of 25% per annum.
________________________________________________________________________________
Page 34
2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS
(e) Leases
Leases are accounted for as operating or finance leases in accordance
with IAS 17 - 'Leases'. A finance lease is deemed to be one which
transfers substantially all of the risks and rewards of the ownership
of the asset concerned. Any other lease is an operating lease.
Rental income and costs under operating leases are credited or charged
to the profit and loss account over the period of the leases.
(f) Contract hire
Motor vehicles acquired in connection with contract hire arrangements
are sold to finance houses, who lease them to customers for a pre-
determined period. The Group has undertaken to repurchase these
vehicles at the end of the lease term.
In accordance with the requirements of IAS 17, the assets are not
derecognised on the sale to the finance house and remain as the Group's
assets and the consideration received is spread over the customer's
lease term.
(g) Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated
depreciation. Cost for property held under a sale and leaseback
transaction represents the sale value.
Depreciation is provided on cost in equal annual instalments over the
lives of the assets. The rates of depreciation are as follows:
Short leasehold premises over the term of the lease
Computer hardware 25% per annum
Furniture, fixtures and office equipment 15% per annum
Company motor vehicles 25% per annum
Motor vehicles subject to contract hire over the term of the lease
arrangements
(h) Loans to customers
Loans are stated at cost, inclusive of brokers' commissions payable on
origination, less provision for diminution in value.
The amount provided is an estimate of the amount needed to reduce the
carrying value of the asset to its expected recoverable amount and is
based on the application of formulae which take into account the nature
of each portfolio, borrower payment profile and expected losses.
Interest arising on loans is recognised in the profit and loss account
as it is charged to borrowers, to the extent that is expected to be
recoverable. Other fee income arising from borrower accounts is
recognised in 'other income' as it is charged.
This is the policy adopted under UK GAAP and will thus not be
applicable in accounting for these assets from 1 October 2005.
(i) Finance lease receivables
Finance lease receivables are included within 'Loans to Customers' at
the total amount receivable less interest not yet accrued, unamortised
commissions and provision for doubtful debts.
Income from finance lease contracts is accounted for on the actuarial
basis.
________________________________________________________________________________
Page 35
2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS
(j) Brokers' commissions
Brokers' commissions payable on mortgage loans are amortised over an
appropriate period. Unamortised commission balances are included within
'Loans to Customers'.
Brokers' commissions payable on other loans are amortised on a straight
-line basis over the period of the loans to which they relate. The
balances being amortised are included within 'Loans to Customers'.
Amortisation of brokers' commissions is recognised within interest
payable.
This is the policy adopted under UK GAAP and will thus not be
applicable in accounting for these assets from 1 October 2005.
(k) Cash and cash equivalents
Balances shown as cash and cash equivalents in the balance sheet
comprise demand deposits and short-term deposits with banks with
maturities of not more than 90 days.
(l) Own shares
Shares in The Paragon Group of Companies PLC held in treasury or by the
trustee of the Group's employee share ownership plans are shown on the
balance sheet as a deduction in arriving at total equity. Own shares
are stated at cost.
(m) Taxation
The charge for taxation is based on the profit for the period and takes
into account taxation deferred because of temporary differences.
Temporary differences arise from the inclusion of items of income and
expenditure in taxation computations in periods different from those in
which they are included in financial statements.
Tax relating to items taken directly to equity is also taken directly
to equity.
(n) Borrowings
Borrowings are stated at their outstanding value less unamortised issue
costs and discounts on issue. Discounts on issue of borrowings and
initial costs incurred in arranging funding facilities are amortised
over the period of the facility.
(o) Finance lease payables
Balances due on the lease arising from the sale and leaseback of a
Group property are recognised in creditors at the total amount payable
less interest not yet accrued. Interest is accrued for on the actuarial
basis.
The profit which arose on the sale and leaseback transaction is held in
accruals and deferred income and is being credited to profit over the
lease term on a straight line basis.
(p) Financial instruments
Derivative instruments utilised by the Group comprise currency swap,
interest rate swap, interest rate option and forward interest rate
agreements. All such instruments are used for hedging purposes to alter
the risk profile of the existing underlying exposure of the Group in
line with the Group's risk management policies. Amounts payable or
receivable in respect of interest rate swaps are recognised as
adjustments to interest expense over the period of the contracts. The
Group does not enter into speculative derivative contracts.
This is the policy adopted under UK GAAP and will thus not be
applicable in accounting for these assets from 1 October 2005.
________________________________________________________________________________
Page 36
2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS
(q) Deferred taxation
Deferred taxation is provided in full on temporary differences that
result in an obligation at the balance sheet date to pay more tax, or a
right to pay less tax, at a future date, at rates expected to apply
when they crystallise based on current tax rates and law. Deferred tax
assets are recognised to the extent that it is regarded as probable
that they will be recovered. As required by IAS 12 - 'Income Taxes',
deferred tax assets and liabilities are not discounted to take account
of the expected timing of realisation.
It is assumed that all taxable IFRS transition adjustments give rise to
tax adjustments to reserves at the current UK tax rate of 30%, although
this has yet to be confirmed by HM Revenue and Customs.
(r) Retirement benefit obligations
The expected cost of providing pensions within the funded defined
benefit scheme, determined on the basis of annual valuations by
professionally qualified actuaries using the projected unit method, is
charged to the profit and loss account. Actuarial gains and losses are
recognised in full in the period in which they occur and do not form
part of the result for the period, being recognised in the Statement of
Recognised Income and Expenditure.
The retirement benefit obligation recognised in the Balance Sheet
represents the present value of the defined benefit obligation, as
adjusted for unrecognised past service cost, and as reduced by the
fair value of scheme assets at the balance sheet date.
Both the return on investment expected in the period and the expected
financing cost of the liability, as estimated at the beginning of the
period are recognised in the result for the period. Any variances
against these estimates in the year form part of the actuarial gain or
loss.
The assets of the scheme are held separately from those of the Group in
an independently administered fund.
The charge to the profit and loss account for providing pensions under
defined contribution pension schemes is equal to the contributions
payable to such schemes for the year.
(s) Provisions
Provisions are recognised where there is a present obligation as a
result of a past event, it is probable that this obligation will result
in an outflow of resources and this outflow can be reliably quantified.
Provisions are discounted where this effect is material.
(t) Fee and commission income
Other income includes administration fees charged to borrowers, which
are credited when the related service is performed and commissions
receivable on the sale of insurances, which are taken to profit at the
point at which the Group becomes unconditionally entitled to the
income.
(u) Share based payment
In accordance with IFRS 2 - 'Share based payment', the fair value at
the date of grant of awards to be made in respect of options and shares
granted under the terms of the Group's various share based employee
incentive arrangements is charged to the profit and loss account over
the period between the date of grant and the vesting date.
As permitted by IFRS 1, only those options and awards granted after 7
November 2002 and not vested at 1 January 2005 have been restated on
transition to IFRS.
________________________________________________________________________________
Page 37
2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS
(v) Dividends
In accordance with IAS 10 - 'Events after the balance sheet date',
dividends payable on ordinary shares are recognised in equity once they
are appropriately authorised and are no longer at the discretion of the
Company. Dividends declared after the balance sheet date, but before
the authorisation of the financial statements remain within
Shareholders' Funds.
________________________________________________________________________________
Page 38
2005 FINANCIAL INFORMATION - IFRS PROFORMA BASIS
Introduction
As already noted under 'IFRS 1 Exemptions', the Group will not apply IAS 32 and
39 in the comparative figures to be published within the 2006 Financial
Statements. These standards will therefore be adopted with effect from 1 October
2005. In order to provide information comparable to the 2006 Financial
Statements, this section sets out illustrative financial information for the
year ended 30 September 2005 analysing most of the changes arising from the
implementation of these two standards. This includes primarily the effects of
these standards on the Group's accounting for its loan balances with customers.
This section does not address the impact of the fair value provisions of IAS 39,
which will primarily affect the accounting for those derivative contracts
entered into by the Group for hedging purposes.
Basis of preparation
The Group is required to prepare its consolidated financial statements for the
year ending 30 September 2006 in accordance with International Financial
Reporting Standards and Interpretations which will be effective and endorsed by
the European Union ('EU') as at 30 September 2006. In preparing this additional
illustrative information the Group has applied the requirements of IAS 32 and
IAS 39 in as far as they relate to the accounting for its loans to customers and
borrowings balances, but not those requirements related to the fair valuing of
derivative financial instruments.
Such instruments are held by the Group for hedging purposes only, and no trading
in such items takes place. IAS 39 provides specific rules under which the effect
on the result of the fair value provisions of IAS 39 is mitigated in the case of
instruments held for hedging purposes; however such treatment is only permitted
when the required hedging documentation is in place. IAS 39 was not issued in
its final form until December 2004 and the Group was unable to put the relevant
documentation in place to allow the appropriate treatment throughout the year
ended 30 September 2005, rendering any results produced on a strict IFRS basis
for that year potentially misleading. Hence these provisions are ignored for the
purposes of this illustration.
The treatment shown represents the Group's present understanding of the effect
which the EIR and Impairment provisions of IAS 32 and IAS 39 will have on the
Group's accounting for its loan assets in the accounts for the year ending 30
September 2006. It is therefore possible that these treatments may change, in
the light of any changes to IFRS or its interpretation or emerging market
practice before those accounts are produced.
IFRS 1 exemptions
The exemptions applied in the preparation of this illustrative financial
information are the same as those described in the previous section, with the
exception that certain provisions of IAS 32 and IAS 39 have been adopted.
Accounting policies
The Group's accounting policies have been revised to comply with IFRS. Those
changes required to adopt the 'statutory' basis are described in the previous
section on pages 11 to 20. The additional changes to policies, and their impacts
on the Group's financial statements for the year ended 30 September 2005 to
adopt the 'proforma' basis, are described below and their effects shown in the
tables on pages 42 to 46.
Where it is expected that a tax charge or credit will arise from the adjustment,
provision for deferred tax is made at 30%, being the present rate of corporation
tax in the UK. This is shown in the tables in the column showing the adjustment
on which the charge or credit arises.
_______________________________________________________________________________
Page 39
2005 FINANCIAL INFORMATION - IFRS PROFORMA BASIS
Effective interest rate - 'EIR'
Under IAS 39, the Group's loan assets are required to be accounted for on the
'amortised cost' basis. This requires that, for all loan assets other than those
arising from hire purchase agreements, revenue be recognised on a constant basis
over the estimated actual (not contractual) life of the loan, taking into
account all costs and fees attributable to the loan, in the same way that all
these factors would be taken into account in determining an investment return
for a product. The rate at which income is recognised is referred to as the
'Effective Interest Rate' ('EIR'). The revenue stream includes estimated early
redemption penalties.
For the Group this means that costs such as commissions and other external (but
not internal) fees paid would be spread across the expected life of the loan,
income such as up front fees would be spread on a similar basis and the effect
of discounts offered would be spread over the expected life of the loan rather
than the discount period. Similarly where fees or penalties are payable at the
point of settlement, these also are required to be estimated and included in the
EIR calculation. For items such as commissions, which are already spread under
the Group's UK GAAP accounting policies, the new basis involves a change in the
period over which they are spread, but for completion fees and similar items the
income would be deferred rather than being taken at the advance date.
The impact of these changes, analysed by business segment, is shown in the table
on page 40.
The adjustments in respect of the buy-to-let assets arise principally from
spreading commissions paid over a longer period and the carry forward of fee
income within loans to customers, while those on consumer finance assets relate
principally to changes in the periods over which commissions are spread and the
inclusion of terminal charges in the EIR calculations. The adjustments on other
assets, which affect primarily owner-occupied mortgages written by Mortgage
Trust before its acquisition by the Group, relate to changes in the periods over
which commissions are spread and the spreading of initial fees and terminal
fees.
Impairment
IAS 39 replaces the concept of provision for losses on customer loans with 'loan
impairment'. An impairment is only recognised when there is evidence to suggest,
at the balance sheet date that the value of the loan is impaired.
Under IFRS the amount of impairment provision required on any loan is that
amount which would reduce the carrying value of the asset to the value of the
future cash flows related to the loan, discounted at the original EIR. Where
security exists, the security value can be used to offset any shortfall arising
from the discounting approach. In the Group's UK GAAP provisioning methodology
discounting is not used and therefore additional provisions are required by IFRS
where balances are to be collected over a long period, as is the case with many
of the assets held within the Group's closed loan books.
The change in definitions and the compulsory discounting methodology have
resulted in changes to the Group's provisioning methodologies, with differing
results on different asset portfolios. These are summarised in the table on page
40.
The largest part of the adjustment arises from the Group's closed portfolios, on
loans arising from those business areas in which the Group is no longer active.
The effect on the active businesses is not great, due in the greater part to
their exemplary credit quality.
________________________________________________________________________________
Page 40
2005 FINANCIAL INFORMATION - IFRS PROFORMA BASIS
--------------------------------------------------------------------------------
Changes arising from the use of EIR and IFRS Impairment model
Illustrative financial information
================================================================================
30 31 1
September March October
2005 2005 2004
£m £m £m
BALANCE SHEET
Increase / (decrease) in loans to customers
Buy-to-let - EIR 1.2 1.2 (0.8)
Buy-to-let - Impairment (0.1) 0.2 -
-------------------------
1.1 1.4 (0.8)
-------------------------
Consumer finance - EIR (0.1) (5.1) (6.6)
Consumer finance - Impairment (3.8) (1.8) (1.8)
-------------------------
(3.9) (6.9) (8.4)
-------------------------
Other assets - EIR 2.1 2.8 4.0
Other assets - Impairment (96.9) (93.8) (92.3)
-------------------------
(94.8) (91.0) (88.3)
-------------------------
Total EIR 3.2 (1.1) (3.4)
Total Impairment (100.8) (95.4) (94.1)
-------------------------
(97.6) (96.5) (97.5)
=========================
INCOME STATEMENT
Increase / (decrease) in profit for the year /
six months then ended
Buy-to-let - EIR 2.1 2.1
Buy-to-let - Impairment (0.1) 0.2
---------------
2.0 2.3
---------------
Consumer finance - EIR 6.5 1.4
Consumer finance - Impairment (1.9) -
---------------
4.6 1.4
---------------
Other assets - EIR (2.0) (1.2)
Other assets - Impairment (4.7) (1.5)
---------------
(6.7) (2.7)
---------------
Total EIR 6.6 2.3
Total Impairment (6.7) (1.3)
---------------
(0.1) 1.0
===============
--------------------------------------------------------------------------------
________________________________________________________________________________
Page 41
2005 FINANCIAL INFORMATION - IFRS PROFORMA BASIS
Income recognition
The application of the EIR methodology to the loan book and the provisioning
calculation changes the method by which it is assessed, under IAS 18, where an
amount charged to a borrower is irrecoverable at the time at which the charge is
made and therefore may not be recognised as revenue. The application of this new
methodology results in the recognition in income of interest on delinquent
accounts which had previously not been recognised on the grounds that it was
expected to be irrecoverable. This has a corresponding effect on the charge for
impairment.
The financial effect of this change is an increase in interest income of £10.9m
being recognised in the income statement for the six months ended 31 March 2005,
and an increase in interest income of £20.8m in the income statement for the
year ended 30 September 2005, with, in each case, an equal increase in the
amount charged for impairment.
Presentation
Under UK GAAP the Group has accounted for the cost of commissions paid to
business introducers within interest payable and mortgage fee income as other
income. Under IFRS both of these amounts form part of interest income and hence
must be transferred to this line in the profit and loss account. In the year
ended 30 September 2005 the amount included in interest payable for commissions
was £34.9m and in the six months to 31 March 2005, £17.9m. Other operating
income of £8.5m credited in the year ended 30 September 2005 and £3.1m credited
in the six months ended 31 March 2005 has been included in the EIR calculation
under IFRS.
________________________________________________________________________________________________________________________
Page 42
2005 FINANCIAL INFORMATION - IFRS PROFORMA BASIS
------------------------------------------------------------------------------------------------------------------------
Analysis of adjustments to the Income Statement - Proforma basis
Year ended 30 September 2005
========================================================================================================================
UK Statutory EIR Impairment Income Presentation Proforma Proforma
GAAP basis recognition basis basis
adjustments adjustments
£m £m £m £m £m £m £m £m
Interest
receivable 484.4 1.4 6.6 - 20.8 (26.4) 1.0 486.8
Interest
payable (387.5) (3.3) - - - 34.9 34.9 (355.9)
-----------------------------------------------------------------------------------------------
Net interest
income 96.9 (1.9) 6.6 - 20.8 8.5 35.9 130.9
Other
operating
income 35.9 2.0 - - - (8.5) (8.5) 29.4
-----------------------------------------------------------------------------------------------
Total
operating
income 132.8 0.1 6.6 - 20.8 - 27.4 160.3
Operating
expenses (44.2) (1.0) - - - - - (45.2)
Impairment
losses (15.9) - - (6.7) (20.8) - (27.5) (43.4)
-----------------------------------------------------------------------------------------------
72.7 (0.9) 6.6 (6.7) - - (0.1) 71.7
Amortisation
of goodwill 4.1 (4.1) - - - - - -
-----------------------------------------------------------------------------------------------
Operating
profit
before 76.8 (5.0) 6.6 (6.7) - - (0.1) 71.7
taxation
Taxation (16.1) 0.1 (2.1) 2.1 - - - (16.0)
-----------------------------------------------------------------------------------------------
Operating
profit after
taxation 60.7 (4.9) 4.5 (4.6) - - (0.1) 55.7
===============================================================================================
------------------------------------------------------------------------------------------------------------------------
________________________________________________________________________________________________________________________
Page 43
2005 FINANCIAL INFORMATION - IFRS PROFORMA BASIS
------------------------------------------------------------------------------------------------------------------------
Analysis of adjustments to the Balance Sheet - Proforma basis
30 September 2005
========================================================================================================================
UK GAAP Statutory EIR Impairment Income Presentation Proforma Proforma
basis recognition basis basis
adjustments adjustments
£m £m £m £m £m £m £m £m
Non-current
assets
Intangible
assets (9.9) 10.2 - - - - - 0.3
Property,
plant and
equipment 8.7 11.0 - - - - - 19.7
Financial
assets 5,538.7 990.0 3.2 (100.8) - - (97.6) 6,431.1
Deferred tax
asset - 5.7 (1.0) 30.2 - - 29.2 34.9
------------------------------------------------------------------------------------------------
5,537.5 1,016.9 2.2 (70.6) - - (68.4) 6,486.0
------------------------------------------------------------------------------------------------
Current
assets
Other
receivables 7.8 (1.2) - - - - - 6.6
Cash and cash
equivalents 445.2 85.2 - - - - - 530.4
------------------------------------------------------------------------------------------------
453.0 84.0 - - - - - 537.0
------------------------------------------------------------------------------------------------
Total assets 5,990.5 1,100.9 2.2 (70.6) - - (68.4) 7,023.0
================================================================================================
Equity
shareholders'
funds
Share 12.1 - - - - - - 12.1
capital
Share 70.2 - - - - - - 70.2
premium
Merger (70.2) - - - - - - (70.2)
reserve
Profit and
loss account 318.7 4.8 2.2 (70.6) - - (68.4) 255.1
------------------------------------------------------------------------------------------------
Share capital
and reserves 330.8 4.8 2.2 (70.6) - - (68.4) 267.2
Own shares (22.8) - - - - - - (22.8)
------------------------------------------------------------------------------------------------
308.0 4.8 2.2 (70.6) - - (68.4) 244.4
------------------------------------------------------------------------------------------------
Current
liabilities
Financial
liabilities - 0.9 - - - - - 0.9
Current tax
liabilities - 12.9 - - - - - 12.9
Other
liabilities 81.7 (21.8) - - - - - 59.9
------------------------------------------------------------------------------------------------
81.7 (8.0) - - - - - 73.7
------------------------------------------------------------------------------------------------
Non-current
liabilities
Financial
liabilities - 6,684.8 - - - - - 6,684.8
Deferred tax
liability - 0.7 - - - - - 0.7
Retirement
benefit
obligations - 14.6 - - - - - 14.6
Provisions 2.8 (0.7) - - - - - 2.1
Other
liabilities 5,598.0 (5,595.3) - - - - - 2.7
------------------------------------------------------------------------------------------------
5,600.8 1,104.1 - - - - - 6,704.9
------------------------------------------------------------------------------------------------
5,990.5 1,100.9 2.2 (70.6) - - (68.4) 7,023.0
================================================================================================
------------------------------------------------------------------------------------------------------------------------
________________________________________________________________________________________________________________________
Page 44
2005 FINANCIAL INFORMATION - IFRS PROFORMA BASIS
------------------------------------------------------------------------------------------------------------------------
Analysis of adjustments to the Income Statement - Proforma basis
Six months ended 31 March 2005
========================================================================================================================
UK Statutory EIR Impairment Income Presentation Proforma Proforma
GAAP basis recognition basis basis
adjustments adjustments
£m £m £m £m £m £m £m £m
Interest
receivable 240.9 0.7 2.3 - 10.9 (14.8) (1.6) 240.0
Interest
payable (194.9) (1.6) - - - 17.9 17.9 (178.6)
-----------------------------------------------------------------------------------------------
Net interest
income 46.0 (0.9) 2.3 - 10.9 3.1 16.3 61.4
Other
operating
income 17.0 1.0 - - - (3.1) (3.1) 14.9
-----------------------------------------------------------------------------------------------
Total
operating
income 63.0 0.1 2.3 - 10.9 - 13.2 76.3
Operating
expenses (20.6) (0.5) - - - - - (21.1)
Impairment
losses (8.5) - - (1.3) (10.9) - (12.2) (20.7)
-----------------------------------------------------------------------------------------------
33.9 (0.4) 2.3 (1.3) - - 1.0 34.5
Amortisation
of goodwill 2.2 (2.2) - - - - - -
-----------------------------------------------------------------------------------------------
Operating
profit
before 36.1 (2.6) 2.3 (1.3) - - 1.0 34.5
taxation
Taxation (7.6) - (0.7) 0.4 - - (0.3) (7.9)
-----------------------------------------------------------------------------------------------
Operating
profit after
taxation 28.5 (2.6) 1.6 (0.9) - - 0.7 26.6
===============================================================================================
------------------------------------------------------------------------------------------------------------------------
________________________________________________________________________________________________________________________
Page 45
2005 FINANCIAL INFORMATION - IFRS PROFORMA BASIS
------------------------------------------------------------------------------------------------------------------------
Analysis of adjustments to the Balance Sheet - Proforma basis
31 March 2005
========================================================================================================================
UK GAAP Statutory EIR Impairment Income Presentation Proforma Proforma
basis recognition basis basis
adjustments adjustments
£m £m £m £m £m £m £m £m
Non-current
assets
Intangible
assets (11.8) 12.1 - - - - - 0.3
Property,
plant and
equipment 9.1 11.4 - - - - - 20.5
Financial
assets 4,885.9 1,201.1 (1.1) (95.4) - - (96.5) 5,990.5
Deferred tax
asset - 5.7 0.3 28.6 - - 28.9 34.6
------------------------------------------------------------------------------------------------
4,883.2 1,230.3 (0.8) (66.8) - - (67.6) 6,045.9
------------------------------------------------------------------------------------------------
Current
assets
Other
receivables 7.6 (1.2) - - - - - 6.4
Cash and cash
equivalents 452.5 96.7 - - - - - 549.2
------------------------------------------------------------------------------------------------
460.1 95.5 - - - - - 555.6
------------------------------------------------------------------------------------------------
Total assets 5,343.3 1,325.8 (0.8) (66.8) - - (67.6) 6,601.5
================================================================================================
Equity
shareholders'
funds
Share 12.0 - - - - - - 12.0
capital
Share 69.5 - - - - - - 69.5
premium
Merger (70.2) - - - - - - (70.2)
reserve
Profit and
loss account 293.8 4.0 (0.8) (66.8) - - (67.6) 230.2
------------------------------------------------------------------------------------------------
Share capital
and reserves 305.1 4.0 (0.8) (66.8) - - (67.6) 241.5
Own shares (13.8) - - - - - - (13.8)
------------------------------------------------------------------------------------------------
291.3 4.0 (0.8) (66.8) - - (67.6) 227.7
------------------------------------------------------------------------------------------------
Current
liabilities
Financial
liabilities - 1.0 - - - - - 1.0
Current tax
liabilities - 13.6 - - - - - 13.6
Other
liabilities 78.9 (19.6) - - - - - 59.3
------------------------------------------------------------------------------------------------
78.9 (5.0) - - - - - 73.9
------------------------------------------------------------------------------------------------
Non-current
liabilities
Financial
liabilities - 6,278.1 - - - - - 6,278.1
Deferred tax
liability - 2.1 - - - - - 2.1
Retirement
benefit
obligations - 14.5 - - - - - 14.5
Provisions 4.5 (2.1) - - - - - 2.4
Other
liabilities 4,968.6 (4,965.8) - - - - - 2.8
-------------------------------------------------------------------------------------------------
4,973.1 1,326.8 - - - - - 6,299.9
-------------------------------------------------------------------------------------------------
5,343.3 1,325.8 (0.8) (66.8) - - (67.6) 6,601.5
=================================================================================================
------------------------------------------------------------------------------------------------------------------------
________________________________________________________________________________________________________________________
Page 46
2005 FINANCIAL INFORMATION - IFRS PROFORMA BASIS
------------------------------------------------------------------------------------------------------------------------
Analysis of adjustments to the Balance Sheet - Proforma basis
1 October 2004
========================================================================================================================
UK GAAP Statutory EIR Impairment Income Presentation Proforma Proforma
basis recognition basis basis
adjustments adjustments
£m £m £m £m £m £m £m £m
Non-current
assets
Intangible
assets (14.0) 14.3 - - - - - 0.3
Property,
plant and
equipment 9.5 11.9 - - - - - 21.4
Financial
assets 4,529.9 1,421.0 (3.4) (94.1) - - (97.5) 5,853.4
Deferred tax
asset - 5.7 1.0 28.2 - - 29.2 34.9
------------------------------------------------------------------------------------------------
4,525.4 1,452.9 (2.4) (65.9) - - (68.3) 5,910.0
------------------------------------------------------------------------------------------------
Current
assets
Other
receivables 8.9 (1.3) - - - - - 7.6
Cash and cash
equivalents 402.5 99.3 - - - - - 501.8
------------------------------------------------------------------------------------------------
411.4 98.0 - - - - - 509.4
------------------------------------------------------------------------------------------------
Total assets 4,936.8 1,550.9 (2.4) (65.9) - - (68.3) 6,419.4
================================================================================================
Equity
shareholders'
funds
Share 12.0 - - - - - - 12.0
capital
Share 68.8 - - - - - - 68.8
premium
Merger (70.2) - - - - - - (70.2)
reserve
Profit and
loss account 270.1 6.6 (2.4) (65.9) - - (68.3) 208.4
------------------------------------------------------------------------------------------------
Share capital
and reserves 280.7 6.6 (2.4) (65.9) - - (68.3) 219.0
Own shares (12.3) - - - - - - (12.3)
------------------------------------------------------------------------------------------------
268.4 6.6 (2.4) (65.9) - - (68.3) 206.7
------------------------------------------------------------------------------------------------
Current
liabilities
Financial
liabilities - 1.6 - - - - - 1.6
Current tax
liabilities - 7.7 - - - - - 7.7
Other
liabilities 68.0 (14.2) - - - - - 53.8
------------------------------------------------------------------------------------------------
68.0 (4.9) - - - - - 63.1
------------------------------------------------------------------------------------------------
Non-current
liabilities
Financial
liabilities - 6,126.5 - - - - - 6,126.5
Deferred tax
liability - 2.1 - - - - - 2.1
Retirement
benefit
obligations - 14.3 - - - - - 14.3
Provisions 5.6 (2.1) - - - - - 3.5
Other
liabilities 4,594.8 (4,591.6) - - - - - 3.2
------------------------------------------------------------------------------------------------
4,600.4 1,549.2 - - - - - 6,149.6
------------------------------------------------------------------------------------------------
4,936.8 1,550.9 (2.4) (65.9) - - (68.3) 6,419.4
================================================================================================
------------------------------------------------------------------------------------------------------------------------
________________________________________________________________________________________________________________________
Page 47
2005 FINANCIAL INFORMATION - IFRS PROFORMA BASIS
--------------------------------------------------------------------------------
Consolidated Income Statement - Proforma basis
Year ended 30 September 2005
=================================================================================
IFRS Proforma basis UK GAAP
Year ended Year ended
30 September 2005 30 September 2005
£m £m
Interest receivable 486.8 484.4
Interest payable
and similar charges (355.9) (387.5)
-------------------------------------
Net interest income 130.9 96.9
Other operating income 29.4 35.9
-------------------------------------
Total operating income 160.3 132.8
Operating expenses (45.2) (44.2)
Provisions for losses (43.4) (15.9)
-------------------------------------
71.7 72.7
Amortisation of goodwill - 4.1
-------------------------------------
Operating profit being profit on
ordinary activities before taxation 71.7 76.8
Tax charge on profit
on ordinary activities (16.0) (16.1)
-------------------------------------
Profit on ordinary activities after
taxation for the financial year 55.7 60.7
=====================================
Earnings per share
- basic 48.8p 53.3p
- diluted 46.8p 51.1p
=====================================
The results for the year relate entirely to continuing operations.
--------------------------------------------------------------------------------
UK GAAP profit and loss accounts are presented in accordance with IFRS format.
________________________________________________________________________________
Page 48
2005 FINANCIAL INFORMATION - IFRS PROFORMA BASIS
--------------------------------------------------------------------------------
Consolidated Balance Sheets - Proforma basis
30 September 2005 and 1 October 2004
================================================================================
IFRS Proforma basis UK GAAP
30 September 1 October 30 September 1 October
2005 2004 2005 2004
£m £m £m £m
Assets employed
Non-current assets
Intangible assets 0.3 0.3 (9.9) (14.0)
Property, plant
and equipment 19.7 21.4 8.7 9.5
Financial assets 6,431.1 5,853.4 5,538.7 4,529.9
Deferred tax assets 34.9 34.9 - -
--------------------------------------------------
6,486.0 5,910.0 5,537.5 4,525.4
--------------------------------------------------
Current assets
Other receivables 6.6 7.6 7.8 8.9
Cash and cash
equivalents 530.4 501.8 445.2 402.5
--------------------------------------------------
537.0 509.4 453.0 411.4
--------------------------------------------------
7,023.0 6,419.4 5,990.5 4,936.8
==================================================
Financed by
Equity shareholders' funds
Called-up share capital 12.1 12.0 12.1 12.0
Share premium account 70.2 68.8 70.2 68.8
Merger reserve (70.2) (70.2) (70.2) (70.2)
Profit and
loss account 255.1 208.4 318.7 270.1
--------------------------------------------------
Share capital
and reserves 267.2 219.0 330.8 280.7
Own shares (22.8) (12.3) (22.8) (12.3)
--------------------------------------------------
244.4 206.7 308.0 268.4
--------------------------------------------------
Current liabilities
Financial liabilities 0.9 1.6 - -
Current tax liabilities 12.9 7.7 - -
Other liabilities 59.9 53.8 81.7 68.0
--------------------------------------------------
73.7 63.1 81.7 68.0
--------------------------------------------------
Non-current liabilities
Financial liabilities 6,684.8 6,126.5 - -
Deferred tax liability 0.7 2.1 - -
Retirement benefit
obligations 14.6 14.3 - -
Provisions 2.1 3.5 2.8 5.6
Other liabilities 2.7 3.2 5,598.0 4,594.8
--------------------------------------------------
6,704.9 6,149.6 5,600.8 4,600.4
--------------------------------------------------
7,023.0 6,419.4 5,990.5 4,936.8
==================================================
--------------------------------------------------------------------------------
UK GAAP balance sheets are presented in accordance with IFRS format.
________________________________________________________________________________
Page 49
2005 FINANCIAL INFORMATION - IFRS PROFORMA BASIS
--------------------------------------------------------------------------------
Consolidated Statement of Recognised Income and Expense - Proforma basis
Year ended 30 September 2005
================================================================================
IFRS Proforma basis UK GAAP
Year ended Year ended
30 September 30 September
2005 2005
£m £m
Profit for the period 55.7 60.7
Actuarial gain / (loss) on pension - -
deficit
Tax on items taken directly to equity - -
-----------------------------
Total recognised income and expense
for the period 55.7 60.7
=============================
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Consolidated Reconciliation of Movements in Equity - Proforma basis
Year ended 30 September 2005
================================================================================
IFRS Proforma basis UK GAAP
Year ended Year ended
30 September 2005 30 September 2005
£m £m
Total recognised
income and expense
for the period 55.7 60.7
Dividends (12.4) (14.4)
Net movement in own shares (10.5) (10.5)
Surplus on transactions
in own shares 2.3 2.3
Charge for share
based payments 2.6 1.5
--------------------------------------
Total movements in equity
in the period 37.7 39.6
Opening equity 206.7 268.4
--------------------------------------
Closing equity 244.4 308.0
======================================
--------------------------------------------------------------------------------
________________________________________________________________________________
Page 50
2005 FINANCIAL INFORMATION - IFRS PROFORMA BASIS
Earnings per share
The basic earnings per share figures have been calculated by dividing the profit
attributable to shareholders by the weighted average number of shares
outstanding during the period. For the year ended 30 September 2005 the weighted
average number of shares outstanding was 114.1 million.
The diluted earnings per share figures have been calculated by adjusting the
weighted average number of shares outstanding for the effects of all dilutive
potential ordinary shares. For the year ended 30 September 2005 the adjusted
weighted average number of shares outstanding was 119.0 million.
Neither of the above numbers of shares is affected by the transition to IFRS.
________________________________________________________________________________
Page 51
2005 FINANCIAL INFORMATION - IFRS PROFORMA BASIS
--------------------------------------------------------------------------------
Consolidated Income Statement - Proforma basis
Six months ended 31 March 2005
================================================================================
IFRS Proforma basis UK GAAP
Six months ended 31 March Six months ended 31 March
2005 2005
£m £m
Interest receivable 240.0 240.9
Interest payable
and similar charges (178.6) (194.9)
-------------------------------------
Net interest income 61.4 46.0
Other operating income 14.9 17.0
-------------------------------------
Total operating income 76.3 63.0
Operating expenses (21.1) (20.6)
Provisions for losses (20.7) (8.5)
-------------------------------------
34.5 33.9
Amortisation of goodwill - 2.2
-------------------------------------
Operating profit being profit on
ordinary activities before taxation 34.5 36.1
Tax charge on profit on
ordinary activities (7.9) (7.6)
------------------------------------
Profit on ordinary activities after
taxation for the financial year 26.6 28.5
====================================
Earnings per share
- basic 23.3p 24.9p
- diluted 22.4p 23.9p
====================================
The results for the year relate entirely to continuing operations.
--------------------------------------------------------------------------------
UK GAAP profit and loss accounts are presented in accordance with IFRS format.
________________________________________________________________________________
Page 52
2005 FINANCIAL INFORMATION - IFRS PROFORMA BASIS
--------------------------------------------------------------------------------
Consolidated Balance Sheet - Proforma basis
31 March 2005
================================================================================
IFRS Proforma basis UK GAAP
31 March 31 March
2005 2005
£m £m
Assets employed
Non-current assets
Intangible assets 0.3 (11.8)
Property, plant and equipment 20.5 9.1
Financial assets 5,990.5 4,885.9
Deferred tax assets 34.6 -
----------------------------
6,045.9 4,883.2
----------------------------
Current assets
Other receivables 6.4 7.6
Cash and cash equivalents 549.2 452.5
----------------------------
555.6 460.1
----------------------------
6,601.5 5,343.3
============================
Financed by
Equity shareholders' funds
Called-up share capital 12.0 12.0
Share premium account 69.5 69.5
Merger reserve (70.2) (70.2)
Profit and loss account 230.2 293.8
----------------------------
Share capital and reserves 241.5 305.1
Own shares (13.8) (13.8)
----------------------------
227.7 291.3
----------------------------
Current liabilities
Financial liabilities 1.0 -
Current tax liabilities 13.6 -
Other liabilities 59.3 78.9
----------------------------
73.9 78.9
----------------------------
Non-current liabilities
Financial liabilities 6,278.1 -
Deferred tax liability 2.1 -
Retirement benefit obligations 14.5 -
Provisions 2.4 4.5
Other liabilities 2.8 4,968.6
----------------------------
6,299.9 4,973.1
----------------------------
6,601.5 5,343.3
============================
--------------------------------------------------------------------------------
UK GAAP balance sheets are presented in accordance with IFRS format.
________________________________________________________________________________
Page 53
2005 FINANCIAL INFORMATION - IFRS PROFORMA BASIS
--------------------------------------------------------------------------------
Consolidated Statement of Recognised Income and Expense - Proforma basis
Six months ended 31 March 2005
================================================================================
IFRS Proforma basis UK GAAP
Six months ended Six months ended
31 March 31 March
2005 2005
£m £m
Profit for the period 26.6 28.5
Actuarial gain / (loss) on pension - -
deficit
Tax on items taken directly to equity - -
--------------------------------
Total recognised income and
expense for the period 26.6 28.5
================================
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Consolidated Reconciliation of Movements in Equity - Proforma basis
Six months ended 31 March 2005
================================================================================
IFRS Proforma basis UK GAAP
Six months ended Six months ended
31 March 31 March
2005 2005
£m £m
Total recognised income and
expense for the period 26.6 28.5
Dividends (6.5) (6.0)
Net movement in own shares (1.5) (1.5)
Surplus on transactions
in own shares 1.3 1.3
Charge for share
based payments 1.1 0.6
----------------------------------------
Total movements in equity
in the period 21.0 22.9
Opening equity 206.7 268.4
----------------------------------------
Closing equity 227.7 291.3
========================================
--------------------------------------------------------------------------------
________________________________________________________________________________
Page 54
2005 FINANCIAL INFORMATION - IFRS PROFORMA BASIS
Earnings per share
The basic earnings per share figures have been calculated by dividing the profit
attributable to shareholders by the weighted average number of shares
outstanding during the period. For the six months ended 31 March 2005 this
number was 114.2 million.
The diluted earnings per share figures have been calculated by adjusting the
weighted average number of shares outstanding for the effects of all dilutive
potential ordinary shares. For the six months ended 31 March 2005 this number
was 119.0 million.
Neither of the above numbers of shares is affected by the transition to IFRS.
________________________________________________________________________________
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