Finance week – restatement is bitter pill for Glaxo

GlaxoSmithKline, one of the world’s largest pharmaceutical companies, has revealed a £394m dip in earnings under the new IFRS reporting rules.

Announcing year-end results for 2004, the company took the chance to restate the information under international financial reporting standards to prepare the investor and analyst community before GSK begins to report fully under the new rules.

GSK revealed a fall in earnings per share to 75p on sales, down 5% to £20.36bn under UK GAAP. When translated to IFRS, the accounts showed a further reduction in turnover to £19.99bn, reducing earnings per share by 6.9p to 68.1p.

Chief executive JP Garnier was, however, upbeat about the future. ‘These results confirm the success with which GSK has navigated a difficult year, absorbing over £1.5bn of lost sales to generics and still managing to grow the business.’ he said. The continuing success of our key products means we can now look forward to a good performance in 2005.’

The company said the main adjustments under IFRS were for ‘share-based payments (5.5p) and a higher tax charge (1.9p), principally related to inter-company items on which a deferred tax credit is available under UK GAAP’. The deferred tax credit is not available under IFRS. GSK said this particular difference in tax treatment was not expected to recur.

Rival AstraZeneca last October started the ball rolling on IFRS restatement when it became the first company to restate its accounts under the new accounting rules. The company reported a drop by two cents in earnings per share to $1.76 (0.96p).

Operating profit was reduced by $104m (£56.6m) to $4.01bn.

GSK added that changes in the market valuation of certain financial instruments potentially ‘could have a significant impact on the profit and loss statement’.

Companies that make heavy use of financial instruments, such as utilities, banks and insurers, anticipate increased volatility in their accounts because of divisive new standard IAS39, which requires companies to mark-to-market all financial instruments.

Traditionally, companies have used historical costs to measure financial instruments.

GSK, however, made no mention of whether it would be applying the full version of IAS39, as endorsed by the International Accounting Standards Board and the UK standard setter, or the carved-out version.

The European Commission negotiated IAS39-lite last year in response to staunch opposition to the new rules by European companies, particularly from the French banking sector.

It allows companies to opt out of the two most controversial aspects of IAS39 – hedging and fair value – that are expected to have the greatest impact on earnings.


has revealed that its profits before tax for 2004 are £25m higher under IFRS compared to UK GAAP. The announcement came on Friday when the chemical giant revealed its results for last year and disclosed a number of international accounting standards had had a significant effect on the company’s results. The standards making the biggest difference included: IFRS2, share-based payments; IFRS3, business combinations; and IAS21, the effects of changes in foreign exchange rates.

Unilever’s disappointing year-end results were announced along with a major shake-up of the its board structure. The company reported a net profit of EUR1.9bn (£1.3bn), down 31%. Pre-tax profits before taxation were down 36% to EUR2.9bn. But Unilever bases its results on constant rate of exchange, so when the company reconciled its measures to UK GAAP, or current rate of exchange, net profit came in even lower at EUR1.8bn.

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