The week in finance

One of the UK’s leading operators of managed pubs, bars and restaurants has been forced to reduce its profit before tax by £11m, and its net assets by £219m due to a combination of accounting amendments and IFRS.

Mitchells & Butlers, which has more than 2,000 outlets across the country, told investors in a preliminary results announcement that UITF38 as well as FRS17, which deals with retirement benefits, had resulted in ‘own shares’ of £11m being deducted from shareholders’ funds.

The amendment to FRS5 on reporting the substance of transactions – revenue recognition, and UITF38 on accounting for ESOP trusts, apply for the first time this year. As a result, the group announced that it had changed its accounting policy on revenue recognition to record turnover net of coupons and staff discounts.

UITF38 requires a company’s own shares held in employee share trusts to be deducted from shareholders’ funds, rather than being shown as an asset.

The company said that prior year comparatives had been ‘restated accordingly’, but that the effect had been to decrease the group’s reported turnover by £12m (2003: £9m), with no impact on reported profits.

The company’s turnover was up 3.7% to £1.56bn, however, and the impact of changes in accounting policy on its 2004 comparatives will be to reduce reported profit before tax by £11m, and net assets by £219m.

Despite its projected reductions due to changes in financial reporting, it said it would continue to account for pensions under SSAP24 on accounting for pension costs, while providing additional disclosures required by FRS17.

FRS17 will become mandatory in 2006 and Mitchells & Butlers said it intended to adopt FRS17 in full for the year ending 1 October 2005. On a positive note, it said that this would assist the transition to IFRS.

The company said it was in the process of identifying and resolving ‘all conversion issues’ to ensure a smooth transition to IFRS. It identified the main areas of difference in respect to IFRS as deferred taxation, share-based payments, derivatives and hedge accounting and pensions.

A statement said: ‘Other areas of difference may become apparent during the conversion process. In particular, the impact of IFRS on fixed assets accounting and leasing is still being reviewed.’

The group intends to provide a more complete update on the impact of IFRS later in 2005.

‘The proposed amendments to IAS19 (pensions) should align accounting for pensions with that required by FRS17, which the group will adopt in full under UK GAAP next year. As a result, if the proposed amendments are adopted, there will not be any material differences on implementation of IFRS,’ the statement added.

Bookmakers and bankers stay on track for adoption, while furniture maker announces pension deficit.

IAS39 has caused uncertainty in the banking sector, with building society Bradford & Bingley telling investors it is ‘not yet able to be precise on the effect’ of the controversial standard. But in a trading review statement aimed at investors it said that it was ‘well on track’ in its preparations for the implementation of IFRS. However, due to the uncertainty surrounding the implementation of some of the standards, particularly IAS39, it could not elaborate any further. ‘We do not believe the total impact on earnings or capital will be material,’ said the statement.

Bookmaker William Hill has announced detailed plans covering its IFRS intentions and preparations.It said that although it did not expect the adoption to have a material impact on the reporting of financial performance compared to UK GAAP, it would adopt IFRS as the ‘primary basis’ for reporting for the year ending 26 December 2006.

It expected to amend its recognition and presentation of revenues as well as costs in share-based payments, holiday pay, deferred tax, pensions, associates and dividends. The company added that it didn’t anticipate any adverse impact to its tax affairs or banking arrangements, but that it would provide supplementary information prepared in accordance with IFRS in 2005. The group said it would ‘take advantage’ of the exemption included in IFRS1 on first-time adoption of IFRS, not to revisit its acquisition accounting in respect of historic transactions completed prior to 30 December 2003.

Furniture chain MFI has estimated that its pension deficit under FRS17 will be £310m by the end of this year, or £217m net of deferred tax. In addition, it detailed £40m in cost cuts with a drop in retail orders for the second half to date. Pension costs to be charged to the profit and loss account next year were estimated at £34m, up from the £16m hit it expected to take under the superseded SSAP 24 standard.

December delight
The Santa effect gives the stock market some seasonal cheer.

The FTSE 100 performs best in December, according to research by ADVFN. The so-called ‘Santa effect’ has meant that 16 of the last 20 Christmas seasons have seen the FTSE up on the month. The index has also shown a 2.2% improvement in December, the biggest average swing up or down of any month over the period of study. December 2003 was particularly high, recording a 3.1% return. In contrast, September is the worst performing month, with the FTSE down 13 times.

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