BBA Group Annual Report 2004 - BBA Aviation

24 BBA GROUP FINANCIAL
ANNUAL REPORT
2004 REVIEW
This process was completed in December 2004 and the results
and accompanying notes are shown in the table below.
The areas affected are broadly those described in last
year’s Annual Report but the following points should be noted:
Financial Assets & Liabilities: Due to the continuing debate
around the final contents of IAS 39 and its acceptance by the
EU, it is not mandatory for the Group to include all financial
assets & liabilities on its transition Balance Sheet but
instead to do so at 1 January 2005. It is the Group’s intention
to achieve hedge accounting for those transactions which
are entered into for that purpose. To this end, the necessary
documentation of all hedges has been put in place as at
31 December 2004.
The 2005 Income Statement could be impacted by
potential ineffectiveness of hedges, particularly cash flow
hedges that are entered into based on forecast data. These
forecasts will be reviewed regularly and the effect is not
expected to be material to the Group’s earnings.
IFRS RECONCILIATION (£M)
Compound Financial Instruments: The annual preference
dividend on the Group’s 6.75 per cent cumulative redeemable
preference shares will be shown as part of Finance costs
under IFRS rather than dividends under current UK GAAP.
This will affect the 2005 and possibly 2006 Income Statement.
Business Combinations: IFRS 3 requires the Group to
identify certain intangible assets on the acquisition of a
business which would, under UK GAAP, have been included
within goodwill, and attribute a value to these assets, such
as brands or customer lists. These assets will then be
depreciated over their useful economic lives. The impact on
Group earnings of this standard is currently being evaluated
for acquisitions made during 2004.
The first set of IFRS accounts to be produced by the Group
will be the Interim Financial Statements to 30 June 2005. In
order to have the necessary comparative figures for inclusion
within these accounts, another re-submission process will
take place during the second quarter of 2005, which will
require all Group entities to restate their Income Statements
and Balance Sheets for both June and December 2004.
Note 31 DEC 2003
Shareholders’ Funds – UK GAAP 680.6
Preference Shares (1) (50.9)
Pensions (2) (27.6)
Dividends (3) 34.3
Taxation (4) 4.9
Share Options (5) (0.5)
Shareholders’ Funds – IFRS 640.8
(1) IAS 32 Financial Instruments: Disclosure and Presentation
This standard requires that the Group splits its 6.75 per cent Cumulative Redeemable Convertible Preference Shares into their debt and equity elements. The carrying values of both
components were determined on the basis of the circumstances and conditions existing when the instrument was issued (1988). The debt element of the instrument at any point in time
represents the expected future cash flows discounted at the discount rate appropriate at the date the instrument was issued. This adjustment resulted in an increase in Group net debt,
and thus reduction in net assets, of £50.9m.
(2) IAS 19 Employee Benefits
This standard states that the Group may recognise either the full net liability of its defined benefit schemes in the Balance Sheet or the proportion of this liability which is outside a 10 per
cent corridor in relation to the schemes’ assets or liabilities. The Group has decided to adopt the first approach which is identical to the approach proposed under the UK GAAP standard
FRS 17. This option avoided the need to determine the cumulative actuarial gains and losses from the inception of each pension plan and splitting this between recognised and
unrecognised gains and losses at each subsequent balance sheet date. The adoption of this standard has resulted in a reduction in net assets of £27.6m.
(3) IAS 10 Events After the Balance Sheet Date
Any proposed final dividends are no longer allowed to be recognised on the Balance Sheet until they have been declared which, for the Group, is at the AGM, usually in April or May of the
following year. They therefore represent non-adjusting events after the balance sheet date. This adjustment resulted in an increase in net assets of £34.3m at the transition date.
(4) IAS 12 Income Taxes
A deferred tax asset is required to be booked relating to the temporary difference between tax generated goodwill with no book value and goodwill written off to reserves prior to FRS10
(£10.5m). This is partially offset by the recognition of a deferred tax liability on temporary differences on fixed assets which were non qualifying items under UK GAAP £(5.6)m.
(5) IFRS 2 Share Based Payments
This standard states that the Group must recognise a charge in the Income Statement for the fair value of outstanding share options and share appreciation rights (SARS), including SAYE
schemes granted after 7 November 2002. The charge has been calculated using an appropriate share option valuation model and will be charged over the appropriate periods and
adjusted to reflect actual and expected levels of vesting. Under UK GAAP there is no similar charge in the Profit & Loss Account.