Financial Statements

Notes to the Group financial statements

for the year ended 31 March 2006

38. Summary of the impact of IFRS on the comparative period

Detailed indicative disclosures in respect of the effect of IFRS on the reported position and results for the year ended 31 March 2005 were issued on 14 June 2005, and are available on the Company website at www.gusplc.com/gus/investors/ifrs. A summary of the impact of IFRS on certain key reported figures is set out below. Since that date, Burberry and Wehkamp have been reclassified as discontinued operations (note 12), and some further adjustments have been made as a result of clearer IFRS interpretation becoming available. The effect of these changes on the IFRS financial statements is shown below.

Adjustments to comparative information issued on 14 June 2005

As set out in note 8, the results for the year ended 31 March 2005 have been adjusted as a result of clearer guidance now available with regard to cash generating units. It has been the policy of Argos Retail Group to use a geographic clustering approach when looking at whether store assets should be impaired, but emerging practice requires impairment reviews to be performed on a store by store basis. As a result of this change, there is an impairment charge at Homebase of £36m, relating to the balance sheet at 31 March 2004 on transition to IFRS. There was no impairment charge in the year ended 31 March 2005. The Homebase store impairment charge has been determined on a store by store basis by comparing the carrying value of property, plant and equipment with the net present value of their future cash flows. The store impairment charge also triggers the creation of an onerous lease provision of £12m at 31 March 2004. Additional onerous lease provisions of £2m were provided for in the year ended 31 March 2005.

The results for the year ended 31 March 2005 have also been adjusted as a result of clearer guidance now available on the accounting treatment of ‘Guaranteed Rental Uplifts’ payable on certain leased premises. Such uplifts are now recognised on a straight line basis over the length of the lease. The effect has been to reduce the retained earnings reserve and net assets by £2m at 31 March 2005 (2004: £1m) and to reduce profit for the year to 31 March 2005 by £1m.

Other adjustments to the 2005 restatement to IFRS published in June 2005 relate to acquisition intangibles and taxation. £8m of acquisition intangibles have been reclassified from goodwill and these intangibles have now been fully amortised with £8m charged to the Group income statement in 2005. The tax adjustments relate to the recognition of taxation liabilities on earlier acquisitions with no material impact on the Group income statement for 2005.

Group income statement

Reported sales are reduced due to the different presentation required under IFRS in respect of discontinued operations. This restatement is set out in the segmental analysis at note 3. IFRS adjustments in respect of other key items within the Group income statement are as follows:

			Year ended 31 March 2005
			Operating	Profit	Profit for
			profit	before	the
				tax	financial
					year
	Notes		£m	£m	£m
As reported under UK GAAP			680	693	423
IFRS reclassifications:
Lewis Group	a		(55)	(79)	–
Other discontinued operations	a		–	27	–
Tax expense of associates			–	(1)	–
Minority interests	b		–	–	49
			(55)	(53)	49
IFRS remeasurements:
Share based payments	c		(7)	(7)	(7)
Catalogue costs	d		(1)	(1)	(1)
Reversal of goodwill amortisation	e		207	207	207
Amortisation of acquisition intangibles	e		(4)	(4)	(4)
Interest earned on pension scheme assets	f		–	2	2
Deferred tax charges	g		–	–	(29)
Other			3	6	8
			198	203	176
As reported under IFRS on 14 June 2005			823	843	648
Further adjustments:
Reclassification of Burberry (note 12)			(164)	(169)	–
Reclassification of Wehkamp (note 12)			(22)	(23)	–
Adjustment for depreciation on store impairment charges			8	8	8
Adjustment for onerous leases			(2)	(2)	(2)
Adjustment for further amortisation of acquisition intangibles			(8)	(8)	(8)
Adjustment for guaranteed rental uplifts			(1)	(1)	(1)
As reported under IFRS, as restated			634	648	645

 

			31 March 2005		1 April 2004
Group balance sheet	Notes		£m		£m
Capital employed as reported under UK GAAP			3,070		2,971
Pension liabilities	f		(226)		(227)
Catalogue costs	d		(15)		(14)
Lease incentives	h		(34)		(34)
Amortisation of acquisition intangibles	e		(4)		–
Reversal of UK GAAP goodwill amortisation charged after transition	e		207		–
Goodwill impairment on transition			(3)		(3)
Deferred taxation	g		186		210
Dividends	i		203		191
Other			–		(5)
			314		118
As reported under IFRS on 14 June 2005			3,384		3,089
Further adjustments:
Adjustment for store impairment charges, net of depreciation			(23)		(31)
Adjustment for amortisation of acquisition intangibles			(8)		–
Adjustment for recognition of taxation liabilities			(26)		(26)
Adjustment for onerous lease			(14)		(12)
Adjustment for guaranteed rental uplifts			(2)		(1)
As reported under IFRS, as restated			3,311		3,019
Notes:

a	Under IFRS, the Group income statement down to profit after tax excludes the results of discontinued operations.
b	The concept of a group differs under IFRS and minority interests are regarded as equity holders of the Group. Thus rather than deducting a minority interest in arriving at profit for the financial year, the profit for the year is instead attributed to the different types of equity holders.
c	IFRS requires that the fair value of all share-based payments is charged to the Group income statement over the vesting period. Depending on the type of scheme concerned, the recognition, or timing, or both, of the charges to profit may differ compared with UK GAAP.
d	Under UK GAAP, catalogue costs were expensed over the period in which the catalogues generated revenue. These costs are expensed as incurred under IFRS.
e	Goodwill amortisation charged under UK GAAP after the transition date, 1 April 2004, is reversed in the IFRS financial statements. Goodwill will be subject to an annual impairment review. IFRS also requires that, on acquisition, specific intangible assets are identified and then amortised over their useful economic lives. These include items such as brand names and customer lists, to which value is first attributed at the time of acquisition.
f	Under IFRS, the pension charge principally comprises a current service cost, charged to operating profit, and a financing item reported within net interest. Under IAS 19, GUS has adopted the option that requires the full actuarial value of the surplus or deficit of pension schemes and other post-retirement benefits to be shown on the balance sheet. Any movements in the pension assets and liabilities arising from actuarial gains and losses are recognised immediately in full through the SORIE.
g	Under UK GAAP, tax relief on goodwill written off to reserves in respect of pre-1998 US acquisitions was credited each year against the tax charge in the Group income statement. Under IFRS, a deferred tax asset is set up for this future relief at the time of the acquisition; as the tax relief is received, it is credited against this deferred tax asset. This asset is the most significant tax related adjusting item on the transition from UK GAAP to IFRS.
h	Under UK GAAP, property lease incentives were recognised over the period to the first rent review. Under IFRS, these are recognised over the full term of the lease.
i	Under IFRS, a dividend that is proposed but not yet authorised is not included as a liability in the financial statements.