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International Financial Reporting Standards

International Financial Reporting Standards. 29 Sep 2005. Cautionary statement.

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International Financial Reporting Standards

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  1. International Financial Reporting Standards 29 Sep 2005

  2. Cautionary statement International Financial Reporting standards (‘IFRS’) are being applied in the European Union for the first time. This presentation has been prepared on the basis of IFRSs expected to be available at 30 April 2006. New standards and interpretations may be issued by the IASB and / or endorsed by the EU prior to the completion of our first full reporting period under IFRS on 30 April 2006. There are a number of new and revised standards included within the body of Standards that comprise IFRS. There is not yet any significant established practice upon which to draw in forming opinions regarding their interpretation and application. Accordingly practice is continuing to evolve. At this stage, therefore, 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 financial information which follows represents our current view and may be impacted by changes in the business or to IFRS or the interpretation thereof. This presentation should be treated with appropriate caution.

  3. Introduction All EU listed companies are required to prepare IFRS financial statements for accounting periods beginning on or after 1 January 2005 • IFRS full financial statements required for Stagecoach financial year ending 30 April 2006 • Comparative amounts required for year ended 30 April 2005 • Opening Balance Sheet at 1 May 2004 • First published results Oct 2005 interim (restated Oct 2004 interim)

  4. Introduction (2) • Prepared on basis of IFRSs expected to be endorsed at 30 April 2006 • Ongoing monitoring of latest interpretations and/or industry practice • All numbers quoted are preliminary and unaudited • Although IFRS changes financial reporting – it does not impact underlying value drivers of our business- Business strategy unaffected- Cash generation unaffected

  5. Overview of financial impact

  6. Key areas of financial impact • IAS 19 – Pensions • IFRS 3 & IAS 38 – Goodwill, intangible assets & business combinations • IFRS 2 – Share based payments • IAS 10 – Dividends • IAS 32/39 – Financial instruments

  7. IFRS 1 First time adoption and transitional arrangements Key exemptions • IFRS 3 not applied retrospectively to business combinations prior to 1 May 2004 • All actuarial gains and losses recognised at date of transition (IAS 19) • IFRS 2 only applied to awards from 7 November 2002 • No restatement of comparative information with respect to IAS 32 and 39 • Accumulated translation differences at the date of transition set to zero • Fair value of certain fixed assets treated as deemed cost at 1 May 2004

  8. IAS 19 – Employee benefitsFinancial Impact Profit Statement of recognised income and expense Equity 30 April 2005 £m 31 October 2004 £m 30 April 2005 £m 30 April 2005 £m 31 October 2004 £m 1 May 2004 £m Operating profit Tax Profit for the period Recognised gains and losses Net assets 5.1 (1.8) 3.3 - - 2.3 (0.8) 1.5 - - - - - (42.0) - - - - - (182.7) - - - - (142.5) - - - - (144.0)

  9. IAS 19 – Employee benefits (cont) • Full recognition of actuarial gains and losses (SORIE) • Defined benefit schemes full deficit/surplus recognised on balance sheet • No change to defined contribution schemes • Special treatment for rail pension schemes

  10. IAS 19 – Rail pension scheme • Only recognise deficit that expect to fund over remainder of franchise term • On transition/commencement of a franchise – intangible asset recognised that matches pension deficit that obliged to fund • Represents economic benefit derived from the franchise agreement that is attributable to share of pension deficit • Amortised on a straight line basis until end of the franchise

  11. IFRS 3 – Business combinationsIAS 38 – Intangible assetsFinancial Impact Profit Statement of recognised income and expense Equity 30 April 2005 £m 31 October 2004 £m 30 April 2005 £m 31 October 2004 £m 30 April 2005 £m 31 October 2004 £m 1 May 2004 £m Operating profit Loss on disposal of operations Tax Profit for the period Recognised gains and losses Net assets 7.2 (0.4) (0.9) 5.9 - - 3.7 (0.2) (0.5) 3.0 - - - - - - (0.2) - - - - - (0.2) - - - - - - 6.5 - - - - - 3.6 - - - - - 0.8

  12. IFRS 3 – Business combinationsIAS 38 – Intangible assets (cont) • Goodwill carried at cost (no amortisation), subject to annual impairment reviews • Wider definition of intangibles resulting in reclassifications from goodwill - £2.0m reclassed to intangibles at 1 May 2004 and a further £2.0m reclassified in the year to 30 April 2005 • VRG – continuation of amortisation due to finite life of franchises • Reversal of VRG’s negative goodwill

  13. IFRS 2 – Share based paymentsFinancial Impact Profit Equity 30 April 2005 £m 31 October 2004 £m 30 April 2005 £m 31 October 2004 £m 1 May 2004 £m Operating profit Profit for the period Net assets (1.4) (1.4) - (0.6) (0.6) - - - Nil - - Nil - - Nil

  14. IFRS 2 – Share based payments (cont) • Applies to options granted after 7 November 2002, not yet vested by 1 May 2004. • Requires expense (based on fair value) to be recognised in income statement for all share based payments (no exemption for SAYE) • Valuation model used to calculate fair value – Black Scholes • Expense spread over vesting period – typically 3 years

  15. IAS 10 - Events after the balance sheet dateFinancial Impact Equity 30 April 2005 £m 31 October 2004 £m 1 May 2004 £m Net assets 24.4 10.6 26.5

  16. IAS 10 - Events after the balance sheet date (cont) • Dividends declared after balance sheet date not recognised as a liability at balance sheet date • Group’s dividend policy will remain unchanged

  17. Other impacts IAS 28 – Investments in associates • If losses of an associate/joint venture exceed interest in the associate/joint venture – discontinue recognising share of losses (increase in net assets of £1.0m at 1 May 2004) • On subsequent disposal, loss on disposal of operations increased by £1.0m and net assets decreased by £1.0m IFRS 5 – Non current assets held for sale and discontinued operations • Assets or disposal groups held for sale separately disclosed • No depreciation • 1 May 2004 reclassify net £7.3m of assets to ‘held for sale’, and reclass of £0.1m from depreciation charge to loss on disposal during the year ended 30 April 2005

  18. Other impacts (2) IFRS 1- First time adoption of international financial reporting standards • As a result of including fair value of certain fixed assets as deemed cost – reduction in depreciation. • Increase in profit and net assets of £0.3m IAS 31 – Interests in joint ventures • No requirement to split share of results between turnover, operating profit, interest and taxation • Reclass of £5.2m of tax charges and £1.7m of finance income into a single line item in income statement

  19. IAS 32/39 – Financial instrumentsFinancial Impact Equity 1 May 2005 £m 31 October 2004 £m 1 May 2004 £m Net assets (7.2) - - • Recognition of fair value of fuel swaps resulting in net £6.6m increase to net assets • Reclassification of redeemable ‘B’ preference shares to debt reduces net assets by £13.9m • Other immaterial adjustments increase net assets by £0.1m

  20. IAS 32/39 – Financial instruments (cont) • Applied from 1 May 2005 • No restatement of April 2005 comparatives • Derivatives recorded on balance sheet, use of fair value • Measurement depends on classification • Potential for some volatility, as gains and losses are recognised through income statement, except where qualify for hedge accounting

  21. Net debt as at 1 May 2005 Previously reported as net debt under UK GAAP £m Previously reported in accruals under UK GAAP £m Previously reported in equity under UK GAAP £m Adjustment to bond value on transition to IFRS £m IFRS £m Cash Cash collateral Hire purchase and lease obligations Bank loans and loan stock Bonds - principal - accrued interest - FX contract Redeemable ‘B’ shares Net debt Unamortised gain on early settlement of interest rate swaps Net borrowings shown on IFRS balance sheet 104.2 34.3 (66.1) (112.1) (174.9) - - - (214.6) - (214.6) - - - - - (6.9) - - (6.9) (23.5) (30.4) - - - - - - - (13.9) (13.9) - (13.9) - - - - - - 0.4 - 0.4 - 0.4 104.2 34.3 (66.1) (112.1) (174.9) (6.9) 0.4 (13.9) (235.0) (23.5) (258.5)

  22. Summary – year ended 30 April 2005 • Adjusted EPS 4% higher at 9.4p • Net assets decreased by £97.6m to £121.4m • No impact on overall cashflow • No impact on dividend policy going forward

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