BOOTS GROUP PLC
Summary of effects of IFRS
Impact on 2004/05 profit
£m
Pensions (35.1)
Financial Instruments (2.7)
Leases (0.1)
Foreign exchange 0.1
Other (0.8)
---------
Profit before tax (38.6)
Taxation 3.6
---------
Profit after tax (35.0)
---------
Revised profit after tax 324.1
---------
The impact by segment is as follows:
£m
Boots The Chemists (12.2)
Boots Opticians (1.9)
Boots Healthcare International (3.1)
Boots Retail International -
Group and other 0.6
Interest (22.0)
----------
Profit before tax (38.6)
----------
Revised profit before tax 453.6
----------
Impact on opening net assets at 31 March 2004
£m
Pensions (124.3)
Financial Instruments 4.7
Leases (9.5)
Taxation 23.1
Dividends 158.6
Other (9.2)
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Increase in net assets 43.4
---------
Revised net assets 1,851.2
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Impact on cash flows
None of the IFRS adjustments relate to cash and therefore there is no impact on
cash flows. IAS 7 Cash Flow Statements changes the definition of cash used in
the cash flow statement to cash and cash equivalents. Cash and cash equivalents
includes cash on hand and demand deposits that are short-term highly liquid
investments that are readily convertible to known amounts of cash. This results
in a change in presentation in the cash flow statement.
2. Restated IFRS consolidated financial statements
The Group's revised accounting policies together with detailed reconciliations
of the IFRS adjustments referred to in these financial statements and restated
half year statements are available on our website
www.boots-plc.com
or from the
Chief Financial Officer at Boots Group PLC, 1 Thane Road West, Nottingham, NG2
3AA.
Consolidated income statement
For the year ended 31 March 2005
2005 under UK IFRS 2005 restated
GAAP adjustments for IFRS
£m £m £m
Continuing operations:
Revenue 5,441.9 - 5,441.9
Cost of sales (2,947.3) 1.7 (2,945.6)
-------------- ----------- --------------
Gross profit 2,494.6 1.7 2,496.3
Selling, distribution and store costs (1,709.0) (13.8) (1,722.8)
Administrative costs (277.4) (2.2) (279.6)
Other operating income/expenses 3.0 (2.3) 0.7
-------------- ----------- --------------
Group operating profit before
financing costs 511.2 (16.6) 494.6
Financial income 10.1 143.2 153.3
Financial expenses (29.1) (165.2) (194.3)
-------------- ----------- --------------
Profit before taxation 492.2 (38.6) 453.6
Income tax expense (133.1) 3.6 (129.5)
-------------- ----------- --------------
Profit after taxation from 359.1 (35.0) 324.1
continuing operations
Discontinued operations:
Loss from discontinued (64.6) - (64.6)
operations
Tax on loss on sale of 8.4 - 8.4
discontinued operations
-------------- ------------ -------------
Profit for the period 302.9 (35.0) 267.9
-------------- ------------ -------------
Attributable to:
Equity holders of the Company 302.4 (35.0) 267.4
Minority interest 0.5 - 0.5
-------------- ------------ -------------
302.9 (35.0) 267.9
-------------- ------------ -------------
Earnings per share - Total
Basic 40.9p (4.7p) 36.2p
Diluted 40.8p (4.7p) 36.1p
Earnings per share - Continuing
Basic 48.5p (4.7p) 43.8p
Diluted 48.5p (4.7p) 43.8p
Consolidated statement of recognised income and expense
For the year ended 31 March 2005
2005 under UK IFRS 2005 restated
GAAP adjustments for IFRS
£m £m £m
Foreign exchange 1.5 (0.1) 1.4
translation differences
Actuarial gain on defined - 11.4 11.4
benefit pension schemes
Gains on revaluation of - 0.3 0.3
available for sale
investments
------------ ----------- ----------
Net income recognised 1.5 11.6 13.1
directly in equity
Profit for the period 302.4 (35.0) 267.4
------------ ----------- ----------
Total recognised income &
expense for the period 303.9 (23.4) 280.5
------------ ----------- ----------
Attributable to:
Equity holders of the 303.4 (23.4) 280.0
Company
Minority interest 0.5 - 0.5
------------ ----------- ----------
303.9 (23.4) 280.5
------------ ----------- ----------
Actuarial gains on defined benefit pension schemes are net of tax of £4.8m.
Consolidated balance sheet
At 31 March 2004
2004 under UK IFRS 2004 2005
GAAP adjustments restated restated
for IFRS for IFRS
£m £m £m £m
Non-current assets
Goodwill and intangible 281.5 92.4 373.9 442.2
assets
Property, plant and 1,499.4 (67.8) 1,431.6 1,481.8
equipment
Other receivables 163.9 (137.0) 26.9 30.7
Deferred tax assets 3.0 31.2 34.2 39.0
---------- ---------- ---------- ---------
1,947.8 (81.2) 1,866.6 1,993.7
Current assets
Inventories 690.8 - 690.8 713.6
Trade and other 501.5 18.4 519.9 570.7
receivables
Current tax asset 13.5 - 13.5 11.5
Listed investments 0.1 0.1 0.2 0.2
Cash and cash 349.5 - 349.5 128.7
equivalents
---------- ---------- ---------- ---------
1,555.4 18.5 1,573.9 1,424.7
Non-current assets - 1.2 1.2 0.7
held for resale
---------- ---------- ---------- ---------
Total assets 3,503.2 (61.5) 3,441.7 3,419.1
---------- ---------- ---------- ---------
Current liabilities
Short term borrowings (156.5) (11.2) (167.7) (184.6)
and overdrafts
Current tax liability (103.2) - (103.2) (95.1)
Trade and other payables (875.6) 153.9 (721.7) (657.7)
Provisions (10.9) - (10.9) (12.2)
---------- ---------- ---------- ---------
(1,146.2) 142.7 (1,003.5) (949.6)
Non-current liabilities
Borrowings (341.6) (16.1) (357.7) (587.3)
Other payables (41.3) (8.0) (49.3) (49.4)
Deferred tax liabilities (150.9) 48.3 (102.6) (110.3)
Non-current tax liability - - - (0.6)
Retirement benefit - (62.0) (62.0) (87.6)
obligations
Provisions (15.4) - (15.4) (12.3)
---------- ---------- ---------- ---------
(549.2) (37.8) (587.0) (847.5)
---------- ---------- ---------- ---------
Total liabilities (1,695.4) 104.9 (1,590.5) (1,797.1)
---------- ---------- ---------- ---------
Net assets 1,807.8 43.4 1,851.2 1,622.0
---------- ---------- ---------- ---------
Called up share capital 193.9 - 193.9 182.6
Share premium account 0.3 - 0.3 2.3
Capital redemption reserve 15.2 - 15.2 26.5
Hedging reserve - (0.3) (0.3) (0.3)
Fair value reserve - 0.1 0.1 0.1
Translation reserve - - - 1.4
Merger reserve 310.8 - 310.8 310.8
Retained profit 1,286.4 43.6 1,330.0 1,097.5
---------- ---------- ---------- ---------
Equity shareholders' 1,806.6 43.4 1,850.0 1,620.9
funds
Equity minority interest 1.2 - 1.2 1.1
---------- ---------- ---------- ---------
Total equity 1,807.8 43.4 1,851.2 1,622.0
---------- ---------- ---------- ---------
3. Areas of impact
The most significant areas of impact for Boots for the 2004/05 year-end and for
the opening balance sheet (31 March 2004) are discussed below.
3.1. Pensions and other post-employment benefits (IAS 19 Revised)
The impact of applying IAS 19 Employee Benefits to the Group's principal defined
benefit pension scheme (Boots Pension Scheme) has been to reduce profit before
tax by £35.1m, comprising reduction of £18.1m to operating profit and an
increase in financing costs of £17.0m.
The operating and financing costs of the defined benefit schemes are now
recognised in the income statement. Service costs are higher given that previous
surpluses arising under SSAP 24 are no longer being amortised and a charge is
now made for the expected return on scheme assets and interest on scheme
liabilities. These values are all disclosed in the 2005 Report & Accounts.
The impact on the balance sheet is to reduce net assets by £124.3m. The net
defined benefit pension liability of £62.0m (£43.4m net of deferred tax) has
been recognised on the balance sheet. This deficit includes the assets now
valued at bid price. The current SSAP 24 debtor of £122.0m (£85.4m net of
deferred tax) has been removed. Other pension provisions of £6.5m (£4.5m net of
deferred tax) have also been removed.
Actuarial gains and losses will be charged to the Statement of Recognised Income
and Expense (SORIE). In the year 2004/05 this amounted to £16.2m (£11.4m net of
deferred tax). This treatment assumes that the amendment to IAS 19 Employee
Benefits - Actuarial Gains and Losses, Group Plans and Disclosures, will be
endorsed by the EC.
3.2. Financial instruments (IAS 32/39)
The impact of these standards is to increase financial expenses by £2.7m for the
year ended 31 March 2005 and net assets by £4.7m in the opening balance sheet.
This financial impact arises from a small number of interest rate hedging
transactions. One previously closed out swap was being amortised under UK GAAP
but is written off to reserves in the opening balance sheet, causing an
additional financial expense of £1.8m in 2004/05. A second interest rate swap
has been included in the opening IFRS balance sheet at mark to market value
and the movement in this value up to the point it was closed out has generated
an additional financial expense of £0.9m in 2004/05.
The impact of the two interest rate swaps is to increase opening net assets by
£6.8m (£4.7m net of deferred tax).
Hedge accounting documentation is in place for all significant outstanding
derivatives. Boots expects these hedge relationships to be highly effective and
therefore does not anticipate that these standards will result in significant
income statement volatility in 2005/06.
Boots has opted to restate 2004/05 under IAS 32 and IAS 39.
3.3. Leases (IAS 17/IFRIC 4)
IFRS makes a number of changes to the accounting for leases. In particular they:
•Introduce new tests to apply in determining the classification of leases
between operating and finance leases;
•Require recognition of lease arrangements contained within outsourcing
arrangements; and
•Require lease incentives to be spread over the entire lease period.
As a consequence a number of computer equipment and vehicle leases are
reclassified as finance leases. In addition all property lease incentives have
been re-phased.
The impact of these changes is to reduce net assets by £9.5m, increase operating
profit by £2.3m and increase financial expenses by £2.4m.
3.4. Dividends (IAS 10)
Under IAS 10 Events after the Balance Sheet Date, dividends declared after the
balance sheet date are not recognised as a liability.
The final dividend of £158.6m for the year ended 31 March 2004 was declared in
June 2004 and consequently this has been reversed in the opening balance sheet
and charged through the statement of changes in equity in the six months to 30
September 2004.
3.5. Income Taxes
IAS 12
IAS 12 requires deferred tax to be provided on all temporary differences rather
than just timing differences as under UK GAAP. This has the effect of increasing
the tax charge by £7.4m and net assets by £23.1m.
For Boots there are two areas of significance where the difference between tax
written down value and book value gives rise to additional deferred tax
adjustments under IFRS. These are:
•Deferred tax must be provided on revalued properties and this results in a
deferred tax liability of £26.5m.
•Revised deferred tax calculations on purchased brands have resulted in an
increase to net assets of £53.2m and an increase in the tax charge of £7.4m.
The tax effects of the other IFRS restatements have also been considered and
these have the effect of decreasing the tax charge by £11.0m and increasing net
assets by £56.4m. The Inland Revenue is proposing to tax profits on the basis of
IFRS prepared accounts.
Impact of all IFRS changes
As a result of IAS 12 plus the tax effects of the other restatements, the
effective tax rate has increased to 31.1% and this is expected to continue for
2005/06. The tax rate under UK GAAP for 2004/05 was 29.2%, which is lower as a
result of various prior year tax adjustments.
3.6. Other restatements
3.6.1. Foreign exchange (IAS 21)
Some exchange differences arising on an intra-group loan that form part of the
group's net investment in a foreign operation have been reclassified from
reserves. The effect of this is to reduce net financing costs by £0.1m.
3.6.2. Fee income
The timing of recognition has changed slightly for certain types of fee income
received from suppliers in respect of promotional support. The impact is to
decrease net assets by £4.1m (£2.9m net of deferred tax) and increase operating
profit by £1.7m.
3.6.3. Overseas pensions
Pension deficits on overseas schemes already held on the balance sheet have been
brought in line with IAS 19 valuations. The impact is to decrease net assets by
£6.3m and operating profit by £2.5m.
3.6.4. Provisions for discontinued operations (IAS 37)
Provisions recognised for future operating losses are no longer permitted. This
has resulted in operating loss of £9.4m being recognised in the six months to 31
March 2005 rather than in the six months to 30 September 2004. Net assets at 30
September 2004 increase by £7.1m (net of tax) as a consequence.
All provisions were fully utilised by 31 March 2005 so there is no effect on the
income statement for the year ended 31 March 2005.
3.7. Other reclassifications
In addition, IFRS introduces a number of balance reclassifications that have no
direct impact on profit for the period or net assets.
3.7.1. Joint ventures (IAS 31)
The results of the joint venture are now reported in a single line.
3.7.2. Intangible assets (IAS 38)
Capitalised software costs of £92.4m, that are not an integral part of the
related hardware, have been reclassified as intangible fixed assets.
3.7.3. Assets held for resale (IFRS 5)
Properties held for resale at 31 March 2004 with a NBV of £1.2m have been
reclassified from tangible fixed assets to assets held for resale. No impairment
of these properties was necessary at that point.
4. Basis of preparation
The financial information has been prepared in accordance with IFRS. These are
subject to ongoing amendment by the International Accounting Standards Board
(IASB) and subsequent endorsement by the European Commission (EC).
Interpretation of the standards and best practice is currently evolving and it
is therefore possible that further changes will be required to this information
before it is published as the comparative information in the interim results
announcement in October 2005 and in the 2006 Annual Report and Accounts.
4.1. First time adoption exemptions
The general principle is to establish accounting policies under IFRS then to
apply these retrospectively at the transition date to determine the opening
balance sheet. There are a number of first time adoption exemptions available,
which are stated under IFRS 1 First-time Adoption of International Financial
Reporting Standards. The exemptions that Boots has elected to take are detailed
below:
4.1.1. Business Combinations
Boots has elected not to apply IFRS 3 retrospectively to business combinations
that occurred before 1 April 2004.
However, IFRS 1 requires the following adjustments:
•Goodwill of £22.0m in the opening balance sheet has been reclassified into
'other intangible assets'. This relates to pharmacy licences that meet the
broader definition of intangible assets under IFRS.
•Goodwill previously written off to reserves under UK GAAP is not recognised in
the opening balance sheet. On disposal of a subsidiary this goodwill is no
longer included in the profit or loss on disposal calculation.
Boots has also taken the exemption not to apply IAS 21 The Effects of Changes in
Foreign Exchange Rates retrospectively to fair value adjustments and goodwill
arising on business combinations before 1 April 2004.
The impact of this exemption on Boots is as follows:
•All business combinations before 1 April 2004 will not be restated.
•£22.0m goodwill has been reclassified as other intangible assets and will
continue to be amortised over 20 years.
•The remaining goodwill of £2.0m has been frozen at 1 April 2004 and the
amortisation for 2005 has been reversed.
4.1.2. Fair value or revaluation as deemed cost
Under IAS 16 Property, Plant and Equipment (PPE), an entity must adopt either a
cost or revaluation model for valuing its PPE. The revaluation model requires
the performance of revaluations with sufficient regularity to ensure the
carrying amount does not materially differ from the fair value. Boots has
adopted the cost method and hence all PPE will be valued at cost.
Boots has chosen to take the first time adoption exemption available under IFRS
1 to use a previous revaluation for an item of PPE as its deemed cost at the
transition date.
The deemed cost at 1 April 2004 is £2,433.3m, which includes revaluations (from
1993 and before) of £253.9m.
4.1.3. Cumulative translation differences
IAS 21 The Effects of Changes in Foreign Exchange Rates requires an entity to
classify some translation differences as a separate component of equity and on
disposal of a foreign entity to transfer the cumulative translation differences
for that foreign operation to the income statement as part of the gain or loss
on disposal.
Boots has taken the exemption available in IFRS 1 that deems all cumulative
translation differences for all foreign operations to be zero at 1 April 2004.
All subsequent disposals of foreign entities will exclude the translation
differences that arose before 1 April 2004 and shall include later translation
differences.
4.2. Presentation of financial information
The primary financial statements in this document have been presented in
accordance with IAS 1 Presentation of Financial Statements. However, this format
and presentation may require modification as practice and industry consensus
develops.
- ENDS -