The week in finance

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An accounting rule change affecting book-publishing activities at Chrysalis has resulted in the group taking a £2m hit to profit before tax.

The change is a result of a decision by the radio, music and book publishing group to take the more ‘prudent’ approach of immediately writing off of all pre-publication costs, regardless of the expected useful economic lives of the books to which they relate.

The move also resulted in a reduction to shareholders’ funds brought forward by £4.5m.

The group’s books division, which successfully published Richard and Judy’s Winning Stories, saw disappointing results, generating a loss of £2.1m before tax, interest and amortisation. Revenues fell to £27.4m. The company said revenues were affected by an ongoing weakness in the US dollar as well as a poor trading performance in the UK owing to a lack of ‘stand-out’ titles.

In the group’s preliminary annual results, chairman Chris Wright said in a statement that he expected to see improved growth in the division in 2005. ‘A large number of our books are being featured in Christmas promotions for major retailers and there is an extremely strong showing from a number of titles, such as The Story of Film, Jack Vettriano and the official Phantom of the Opera companion.’

A further change in accounting policy, affecting the group’s employee share scheme, reduced shareholders’ funds by over £1.4m.

The adjustment was due to the adoption of a revised accounting rule, consistent with international financial reporting standards, stating a company that reacquires its own equity instruments should present them as a deduction in arriving at shareholders’ funds rather than as assets.

On an overall basis, Chrysalis, which runs the Galaxy, Heart and LBC radio brands, this week reported an operating profit of £8.3m on turnover of £164m, equating to a fourfold increase in operating profits on a like-for-like basis.

But despite these positive figures, Chrysalis, the first of the radio companies to report this week, said that the first quarter had seen ‘marked volatility’, despite some initially encouraging signs for the radio advertising industry. As a result, the group predicted flat revenue growth for the radio industry as a whole for the quarter.

The two major operating divisions, radio and music, performed well with radio posting significant growth of 48.2% to £14m and music growing by 20% to £4.6m.

The news saw Chrysalis shares fall more than 6% to 163p in early trading on Monday 15 November.

Company reports

Associated British Foods has said that its FRS17 pension funding position is sound. ‘It is the board’s intention to maintain a strong position for the group’s schemes,’ it told the stock exchange last week. ‘It can be expected that some increase in cash contributions will be required to the main UK scheme after the triennial valuation in April 2005.’ The switch to FRS17 reduced the group’s adjusted operating profit in 2003 by £23m and adjusted profit before tax by £5m. On IFRS, the group said accounting for retirement benefits, financial instruments and intangible assets would have most impact on reported results.

BSkyB will give further information regarding its transition to IFRS following its interim results presentation in February 2005. The satellite broadcaster will fully adopt the standards in its consolidated financial statements from 1 July 2005.

Marks & Spencer has updated its FRS17 valuation of its pension fund. This update has highlighted an increase in the deficit to £772.8m – or £565.2m after deferred tax. The last formal valuation of the group’s post-retirement schemes was carried out as at 3 April 2004.

BT has said its project to manage the transition from UK GAAP to IFRS is ‘well advanced’. The major areas of impact will be due to the different treatment of financial instruments, pensions, property leases, share-based payments and dividends. The group will prepare financial statements in accordance with IFRS for the first time for the year ending 31 March 2006.

The London Stock Exchange has also described itself as ‘well advanced’ in its preparations for IFRS reporting, which takes effect from the 2005/06 financial year. ‘The first full reporting under IFRS will be the interim results for the six months ending 30 September 2005, together with restated information for the six months ending 30 September 2004,’ said the exchange, which is again subject to merger speculation.

The Big Food Group adopted FRS17 in the six months to September, forcing it to incur a £1.8m hit in its interim statement.

Punch Taverns incurred an overall tax charge of £30.8m for the year to August, representing 23% of pre-tax profit, or 22% on a pre-exceptionals basis. The group said it was benefiting from prior-year losses. ‘However, as these losses are used up, our tax charge is increasing (14% in 2003), slowing our growth in reported earnings,’ said Punch.

Marconi believes it is making ‘good progress’ on its IFRS project. ‘We are benefiting in the transition to IFRS from our experience of US GAAP filing,’ the company said. ‘In FY06 we will produce fully IFRS-compliant accounts, reconciled to UK GAAP. To help understanding of the key issues, we will be holding a seminar for analysts during Q4 FY05. We are also intending to issue IFRS-restated FY05 accounts approximately one month after our FY05 full-year results announcement.’

Dairy Crest’s actuary has completed a valuation of the Dairy Crest Group pension fund as at 31 March 2004. This indicated that the scheme had a surplus on an SSAP24 basis of £30m, and a gross deficit on an FRS17 basis of approximately £92m. The group will contribute at a rate of 7.9% of pensionable pay from 1 April 2004 in line with previous estimates.

FTSE Smallcap
Diploma’s effective tax charge for the year to September represented 27.5% of the profit before tax, goodwill amortisation and exceptional items, down from 30.2% in 2003. The manufacturer’s underlying tax rate, excluding the impact of tax credits arising from the utilisation of earlier years’ start-up losses in Germany, was 29%. This rate compares favourably with a corporate tax rate of 30% in the UK and 35% in the US, the countries in which the group earns most of its profits.

Vectura Group has carried out an initial high-level assessment of the impact that IFRS will have on its financial results and comparatives for the year ending 31 March 2005. ‘Our initial assessment indicates that the principal effects on our financial statements will be the elimination of goodwill amortisation and the introduction of a charge for share options,’ the drug development company said, adding that it would prepare its first full financial statements in accordance with IFRS for the year ending 31 March 2006.

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