Finance week - Loss of goodwill a credit to Amvescap

Amvescap this week added its name to the growing list of companies preparing shareholders and investors for IFRS, by presenting a detailed briefing of what the new standards mean for its business.

The investment manager, which reported revenues of £1.1bn and a pre-tax loss of £137.1m for 2004, cited changes to the reporting of share-based payments, business combinations, foreign exchange rates, employee benefits and post-balance sheet events as the shifts that would have the most significant effect.

Of these, business combinations (IFRS3) and changes in foreign exchange rates (IAS21) appear to be the standards that will cause the most eye-catching changes to the Amvescap numbers.

Amvescap said it expected a £150m credit to its 2004 profit and loss account as, in line with IFRS3, it would no longer have to amortise goodwill but subject it to an annual impairment charge instead.

While this would make earnings look more impressive, Amvescap said that the annual impairment charge could cause ‘added volatility’ to future earnings.

Amvescap is also bracing itself for a decrease to the tune of approximately £130m in its opening shareholders’ equity for 2004. IAS21 will require Amvescap to redenominate all its goodwill and intangible assets in their underlying currencies.

Previously, all the group’s intangible/goodwill assets were recorded in sterling from their respective acquisition dates. From now on, however, these assets will need to be re-measured at each reporting date to account for changes in foreign exchange rates.

Shareholders’ equity for opening the 2004 accounts will take a further £30m knock, as Amvescap will have to recognise the net liability for defined-benefit post-retirement schemes on the balance sheet as required by IAS19. Further to this, the group will begin taking gains and losses from these schemes to the profit and loss account.

Opening shareholders equity for 2004 will improve, however, when IAS 10 – events after the balance sheet date – is applied. This standard will see Amvescap record dividends declared after the balance sheet date included in the reporting period in which they are actually declared.

As a result, £53m will be added to shareholders’ opening equity for 2004. The dividend recorded for the year ending 31 December 2004 will also climb by £12m because of IAS10.

Amvescap decided not to apply the effects of IAS39 to its 2004 results and, in line with the requirements of the new standards, will only disclose the main adjustments required for compliance with IAS39 at the end of its 2005 financial year.

COMPANY REPORTS

FTSE250
Umbro awaits the outcome of an appeal against a price-fixing fine, while IMI appeals against EC penalty.

Engineering group IMI has been forced to book a £33.1m contingent liability in its 2004 financial statements, because of a fine imposed by the European Commission last September. IMI has appealed against the penalty, which related to a copper tubing business the company sold in 2002. With the result of the appeal still outstanding, the engineering group has had to reflect the full amount in its latest financial statements. IMI reported pre-tax profits of £100.7m for the year-end 2004.

Travis Perkins said that it was too early to reveal the impact of IFRS on its figures. The building supplies group said the main impact would come from the treatment of leases, share options, the timing of recognition of dividends and the valuation of brand names. The group’s turnover was up 9% to £1.8bn and profit before tax was up 17% to £190m.

FTSE ALL-SHARE
Sporting goods company Umbro (pictured) is still hoping that a fine from the Office of Fair Trading will be reduced and boost 2005 profits. Umbro, along with Manchester United, the Football Association and a number of retailers, was found to have entered into price fixing arrangements and slapped with a £6.6m fine, shown on the 2003 accounts. Umbro is awaiting the outcome of an appeal.

FTSE SMALL CAP
Marlborough Stirling, the software specialist, has abandoned its IFRS transition project while it waits to see whether all or part of the company will be sold off. Its results showed adjusted pre-tax profit had fallen from £10.6m in 2003 to just £600,000 in 2004. Turnover also fell from £114.6m to £98.8m. Vertex has offered to acquire all the share capital in Marlborough for 42p per share.

AIM
River Diamonds, the diamond exploration company, has had its shares restored to trading on AIM after they were suspended because the company’s accounts were sent to shareholders after the 28 February deadline. Unaudited results for the year ended 31 August 2004 showed that turnover for the company had increased to £31,927 from £2,054. However, the company made an operating loss of £733,554 for 2004 financial year.