Finance week – Restatement pays off for publisher

Reed Elsevier CFO Mark Armour should be forgiven for looking pleased over the last week. On top of announcing solid 2004 results, Armour also got the chore of restating the 2004 accounts using international accounting standards out of the way.

While fellow finance executives are biting their nails as the pressure and uncertainty of the change to IFRS mounts, Armour can sit back knowing that the restatement job is done and dusted. What will no doubt please him most is that the restated IFRS figures have given a boost to Reed Elsevier’s profit and loss account.

Under UK GAAP, the company reported operating and pre-tax profits of £697m and £562m for 2004. In the restated IFRS accounts, operating profit came in at £766m and pre-tax profit jumped £69m to £631m thanks to a £151m drop in goodwill and intangible asset amortisation charges.

This reduction, coupled with a cut in deferred tax charges of £87m, saw the company enjoy a 51% jump in attributable profit to £459m.

Reed Elsevier’s parent companies – Reed Elsevier PLC and Reed Elsevier NV – experienced similar benefits from the IFRS restatement with operating profit coming in higher by £37m and EUR51m respectively. Attributable profit for the company’s Dutch arm increased EUR115 from EUR223 while the UK business enjoyed a £83m improvement, with attributable profit climbing from £152m to £235m.

But the transition to IFRS has not been all good news for Reed Elsevier. The value of assets have dipped £137m to £1.9bn, because of a reversal of pension pre-payment, while the value of fixed assets fell £225m because of a reclassification of capitalised software. These factors, coupled with the inclusion of employee benefit obligations saw combined shareholders’ funds reduced by £603m to £ 1.6bn.

Reed will be relieved to have got the restatement out of way, leaving it to concentrate on its core business again – it can now move into 2005 without having to agonise over how IFRS will impact on its business.

Standards top the agenda for bank, port group and breakdown company – as publisher looks to sterling.

Standard Chartered
will present its first set of accounts for 2005 under IFRS when it announces its interim results, but will release its restated IFRS accounts for 2004 at an investor presentation in May. The bank made the announcement after releasing its preliminary results for 2004. Standard Chartered said it did not expect IFRS to change the net cash flows or underlying economics of its business, but conceded that the new accounting standards would require derivatives to be recorded at fair value and could cause ‘some degree of earnings volatility in the future’. The bank added that – excluding the impact of recording derivatives at fair value – the new standards should see an increase in shareholders funds because dividends would not have to be accrued until declared.

Publishing company Quarto Group is considering a change to the currency in which it prepares its financial statements. Quarto currently prepares its accounts in sterling even though over two-thirds of its business is in US dollars.

The group believes that reporting in dollars ‘might provide a clearer view’ of its trading performance. Quarto said that a 12% drop in the value of the US dollar against the pound 2003-04, coupled with its strong performance in the US, dented its reported operating profit of £7.1m by £0.5m.

Associated British Ports Holdings’
incorporation of the accounting standards FRS17 and UITF Abstract38 in its 2004 accounts has helped to cushion a drop in pre-tax profits and turned around what would have been an operating loss in UK ports and transport into a profit. The standards have changed the way retirement benefits ESOP trusts are accounted for. The company reported a drop of 38% in pre-tax profits, which fell from £134.3m in 2003 to £89m. Had the company not restated its 2003 accounts using the standards profits would have fallen a further £11.2m from £145.5m. It would also not have been able to announce a 2004 operating profit for its UK ports and transport activities. After restating its 2003 accounts, operating profit for these activities would have come in at £138.1m. The figure reported initially, though, was £152.3m, which would have seen the 3% increase in 2004 underlying operating profit of £142.2m become a loss of £10.1m.

Breakdown company RAC will restate its 2004 accounts under IFRS in the first half of 2005. It said it was ‘well prepared’ for the changes to IFRS and expected changes to how share-based payments, pensions, leases, legal and good will amortisation were accounted for to have the biggest impact on the accounts.

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