Cadbury-Schweppes swallows £711m charge
Brand intangibles hit net assets under IFRS
Brand intangibles hit net assets under IFRS
Dr Pepper and Creme Egg maker Cadbury-Schweppes, has seen its 2004 net assets reduced by £788m under international accounting standards.
Under UK GAAP, the confectionery and drinks manufacturer reported net assets of £3bn at the end of the 2004 financial year. But with a £420m pension deficit and a £711m deferred tax expense coming onto the balance sheet for the first time, net assets have been reduced to £2.3bn.
The £711m deferred tax charge arose because of the numerous brand intangibles Cadbury-Schweppes holds on its balance sheet. Under IFRS, a deferred tax balance must be recognised for any difference between the fair value of an acquired asset and its equivalent tax basis.
Cadbury-Schweppes added that this new deferred tax charge related particularly to the acquisitions of the Dr Pepper and Seven Up drinks brands. ‘Over the last 10 years Cadbury-Schweppes has acquired a number of brand businesses and consequently recognised brand intangibles of over £3bn,’ the company said.
‘A number of these acquisitions were structured as purchase of shares and therefore the brand intangible that was recognised for accounting purposes has no equivalent tax basis.’
The company, however, played down the effect of this tax charge on the business, saying it would not impact the group’s distributable reserves or ability to pay dividends. Free cashflow generation would also be unaffected, it said.
Normally, a company would recognise such a deferred tax liability by increasing the amount of goodwill that has to be amortised. IFRS1, however, rules out changing the amount of goodwill from a business combination before the transition to IFRS.
As a result, Cadbury-Schweppes has had to put the deferred tax liability in its accounts and reduce its reserves accordingly. The company, however, is not anticipating the ‘crystallisation’ of this liability, as it will only come into effect on the disposal, impairment or amortisation of its brands.
Cadbury-Schweppes is also anticipating a change to the accounting for tangible fixed assets to change the figures it reports on its balance sheet.
Under IAS38 intangible assets, all IT systems developed by the group can no longer be accounted for as a tangible asset. The group will now have to reclassify £176m worth of IT infrastructure.
BT waits for clarity on IFRS, while Vitec sees pre-tax profits rise £1.8m under the new standards
BT Group has still not provided any guidance on its transition to IFRS, despite having to prepare its accounts using the new rules from last month. BT (pictured), which saw its 2004 profit before taxation, amortisation and exceptionals increase by 4% to £2bn, said there was not ‘a significant body of established practice’ on the new standards. BT said: ‘At this preliminary stage, the full financial effect of reporting under IFRS as it will be applied and reported on in the group’s first IFRS financial statements cannot be determined with certainty and may be subject to change.’
The Vitec Group, which supplies products and services to the entertainment and media industries, saw pre-tax profits for 2004 increase from £12.3m under UK GAAP to £14.1m under IFRS. Vitec’s finance director, Alastair Hewgill, however, warned that the group’s deferred tax charge would increase under the new standards. ‘While our current taxes payable remain low and the current tax charge remains unchanged, the impact of IFRS adjustments on pensions, goodwill and the calculation of deferred tax balances would have increased our deferred tax charge, and therefore our overall tax charge,’ Hewgill said.
IWP International, the maker of labels, household products and cosmetics, is planning to reorganise its debt and capital structure because of difficult trading conditions. The company said it was likely that it would breach certain covenants of its current debt facilities and had entered into discussions with its lenders to resolve the problem. If the company breaches its covenants, it may have to cough up an additional £10.9m because of an early loan note prepayment premium and the closeout of certain financial instruments.
Chris Errington, the financial director of Gresham Computing, earned £64,454 during his first year with the company. Errington, who has worked at BDO Stoy Hayward and Ernst & Young, earned a £64,053 salary and £401 in benefits.
After reviewing the carrying value of its stock, which was valued at £28.1m at the end of October 2004, Partridge Fine Arts has decided to make a provision of £10.7m in order to reduce its stock value.
The company, which has been involved in ongoing bid talks, said it had being experiencing tough market conditions.
Support services company Martin Shelton Group is still in negotiations to secure additional working capital facilities. The supplier of diaries and business gifts has been in talks to secure additional facilities since April, and admitted it was seeking alternative forms of finance.