Restatement sees Rolls-Royce share price soar

Those who have casually dismissed IFRS as a mere accounting issue that will not affect markets would have blushed last week when Rolls-Royce saw its share-price climb after restating its 2004 accounts under international reporting standards.

The market reaction to the Rolls-Royce disclosure shows that new international accounting standards should not be brushed off lightly, as they can have an impact on market sentiment and highlight important issues that may not have emerged under UK GAAP.

Presenting the restated figures, Rolls-Royce finance director Andrew Shilston emphasised that the new standards would have no material effect on the business and the share-price responded by climbing 3.4% to hit 256.75p.

‘Rolls-Royce has followed a consistent and successful strategy for many years. Our business model has proved robust and we are focused on the creation of long-term value for our shareholders, customers and employees’ Shilston said. ‘The adoption of IFRS will have some impact on the presentation of our accounts but will not change our business model, our strategy, our risk management processes or our cash flows.’

The aerospace giant said that pre-tax profits for 2004 increased from £306m to £364m after the restatement – but it was not the improved numbers that were responsible for the upturn in the Rolls-Royce stock.

Instead, it was widespread relief that the new disclosures required under IFRS did not kick up any shocks. ‘Rolls-Royce is a complex business and there was fear among investors that the new disclosures would reveal things that may have been hidden in the previous method of accounting,’ said Andrew Gollan, an analyst at Numis.

Nick Wilson and Mike Costello, research analysts at Dresdner Kleinwort Wasserstein, said the market had become ‘overstressed’ over Rolls-Royce’s IFRS restatement and that the share price had fallen back from its February high of 266p on some of these concerns.

‘Market concern over the IFRS restatement has in our opinion been overplayed,’ Wilson and Costello said in research note. ‘With reassurance provided on IFRS numbers we believe the market will refocus its attention on the things that count, namely market-share gains and cash generation.’

COMPANY REPORTS

Good week for retailer Next, while the makers of Vanish clean up. FTSE firm Tullow makes in-roads into Africa.

FTSE100
Next rewarded group finance director David Keens with a £400,000 special bonus for the 2004/2005 financial year after the group’s turnover grew by 13.6% to £2.8bn. According to the clothing retailer’s annual report, Keens, who took home £599,000 the previous year, saw his total pay climb to £1.05m, including a £258,000 performance-related bonus.

Reckitt Benckiser chief financial officer Colin Day pocketed £1.7m last year, the annual report and accounts for the household-cleaning group have revealed. Day’s remuneration was up from £1.35m earned the previous year, an increase of 30%. But only £350,000 of the total was salary, the CFO having earned £1.1m in performance-related bonuses. The maker of Vanish announced a 17% increase in pre-tax profits in February of this year.

FTSE250
Tullow Oil has reduced its effective tax charge from 35.5% of profits in 2003 to 33% in 2004 because of a production-sharing agreement held by one of its recent acquisitions. Tullow acquired Energy Africa for £311m in May 2004. Energy Africa, instead of paying tax, shared a portion of production with the host government where it was based, and as a result Tullow’s effective tax rate was reduced. Tullow’s turnover for 2004 increased 74% to £225.3m.

FTSE All-share
Gas distributor International Energy Group has revised its policy for mains depreciation to bring it in-line with other companies in the sector. The company will increase the asset life of its mains network from 20 to 40 years to reflect the ‘prevailing’ depreciation rates in the industry. The change reduced the group’s depreciation charge for 2004 by £1.9m.

FTSE Fledgling
SPG Media Group, which is planning to move its listing to AIM in the middle of the year, is making a provision of approximately £2.5m for its vacant premises. The company has 17,000 square feet of premises that are not sublet, which are surplus to requirements.

Under IFRS12 the treatment of vacant premises has changed and the provision has been made accordingly. In a trading statement the company said: ‘These premises will continue to be aggressively marketed with all efforts being made to sublet or terminate leases as soon as possible.’

Investment company Invesco has been handed a zero tax charge for the year ending 31 January 2005, as its allowable expenses are in excess of its taxable income.

The company said it has management expenses and other future taxable revenue that it will be able to offset to the tune of £9,435,093.