FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
20 July 2005
O2 plc
Wellington Street
Slough, Berkshire SL1 1YP, England
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F
Form 20-F..X... Form 40-F.....
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes ..... No ..X...
If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b): 82 ________
Enclosure:
Copy of announcement regarding O2 plc adopts IFRS sent to the
London Stock Exchange on 20 July 2005
O2 PLC ADOPTS INTERNATIONAL FINANCIAL REPORTING STANDARDS
Released: 20 July 2005
O2 plc is required, under EU Regulations, to adopt International Financial
Reporting Standards ("IFRS") as its primary basis of accounting for the year
ending 31 March 2006. IFRS has replaced UK Generally Accepted Accounting
Principles ("UK GAAP"), under which O2 has prepared and presented its financial
statements up to 31 March 2005.
The principal effects on O2's reported financial information arise from the
following differences in accounting under IFRS compared with UK GAAP:
- -recognition of mobile number portability ("MNP") revenue on a net basis;
- -cessation of goodwill amortisation;
- -recognition of all employee benefits, principally pension obligations;
- -inclusion of a charge for employee share schemes based on fair value;
- -recognition of certain financial instruments at fair value;
- -recognition of certain deferred tax liabilities;
- -de-recognition of dividends not declared at period end.
A full description of the differences between UK GAAP and IFRS, and the impact
on O2 plc's primary financial information for the 12 months ended 31 March 2005
and 6 months ended 30 September 2004, and on the transition balance sheet at 1
April 2004, is presented in the following sections.
O2 plc
IFRS financial information
Contents
Page
1 Basis of preparation 3
2 Description of adjustments 7
3 Year ended 31 March 2005
Consolidated income statement 13
Consolidated balance sheet 15
Consolidated cash flow statement and statement of net debt 18
4 Six months ended 30 September 2004
Consolidated income statement 19
Consolidated balance sheet 21
Consolidated cash flow statement and statement of net debt 24
5 IFRS transition balance sheet at 1 April 2004
Consolidated balance sheet 25
Consolidated statement of net debt 28
6 PricewaterhouseCoopers opinions
Special purpose audit report as at 1 April 2004 and for
the year ended 31 March 2005 29
Special purpose review report for the six months ended 30
September 2004 30
1. Basis of preparation
Introduction
The O2 plc group ("the Group") is required, under European Union Regulation No.
1606/2002, to adopt International Financial Reporting Standards ("IFRS") as its
primary basis of accounting for the year ending 31 March 2006 in place of UK
Generally Accepted Accounting Principles ("UK GAAP"). Up to and including 31
March 2005, the Group has prepared and presented its financial statements in
accordance with UK GAAP.
The IFRS financial information is based on all current IFRSs including
International Accounting Standards ("IAS") and interpretations issued by the
International Accounting Standards Board ("IASB") and its committees. The
European Union has endorsed all IFRSs with the exception of the amendment to IAS
19 "Employee Benefits - Actuarial Gains and Losses, Group Plans and
Disclosures". In addition, the EU has adopted an amended version of IAS 39
"Financial Instruments: Recognition and Measurement" which excludes certain
requirements arising on the fair value option for financial liabilities and
certain aspects of hedge accounting. The Group has assumed the EU will endorse
the amended IAS 19 in the preparation of the IFRS financial information. The
sections excluded from the EU endorsed version of IAS 39 are not relevant to the
Group.
The IFRS financial information in this document has been prepared in accordance
with the accounting policies expected to be applied in the Group's first IFRS
financial statements for the year ended 31 March 2006. Those financial
statements will be prepared in accordance with the accounting standards and
interpretations adopted for use in the European Union effective at that date.
IFRS 1 transition exemptions
IFRS 1 "First time adoption of International Financial Reporting Standards"
prescribes how the Group should apply IFRS for the first time in preparing its
consolidated financial statements. In general, the accounting policies expected
to be adopted by the Group at 31 March 2006 should be applied retrospectively in
preparing the transition balance sheet at 1 April 2004 and in all subsequent
periods.
IFRS 1 contains certain exemptions from the requirement to fully adopt IFRS in
the opening balance sheet. The Group has applied the relevant exemptions as
follows:
- --------------------------------------------------------------------------------
IFRS 3 - Business The Group has elected not to apply IFRS 3
combinations retrospectively to business combinations
occurring prior to the transition to IFRS on 1
April 2004. Accordingly the carrying value of
the Group's goodwill under IFRS is GBP3,189
million, being the UK GAAP carrying value at 1
April 2004.
- --------------------------------------------------------------------------------
IAS 16 - Fair value or The Group has elected to continue to recognise
revaluation as deemed all property, plant and equipment ("PPE") at its
cost historic UK GAAP carrying value and not to
measure any item of PPE at fair value at 1 April
2004.
- --------------------------------------------------------------------------------
IAS 19 - Employee The Group has elected to recognise all
benefits cumulative actuarial gains and losses as at 1
April 2004 on the consolidated balance sheet.
- --------------------------------------------------------------------------------
IAS 21 - Cumulative The Group will retain all existing translation
translation differences arising on its foreign operations in
differences reserves rather than utilise the exemption to
set these translation differences to zero on
transition to IFRS.
- --------------------------------------------------------------------------------
IAS 32 and IAS 39 - The Group has applied IAS 39 from transition on
Financial instruments 1 April 2004 and has not taken advantage of the
exemption to apply IAS 39 from 1 April 2005.
- --------------------------------------------------------------------------------
IFRS 2 - Share-based The Group has elected not to apply IFRS 2 to
payment transactions share-based payments granted prior to 7 November
2002. The Group has not accounted for
share-based payments granted prior to that
date.
- --------------------------------------------------------------------------------
1. Basis of preparation (continued)
Transition date
The Group's transition date, being the beginning of the earliest period for
which full comparative information is presented in accordance with IFRS, is 1
April 2004 in accordance with IFRS 1. The Group's first set of externally
reported IFRS results will be contained in the interim statement for the half
year ending 30 September 2005, to be reported in November 2005. This will be
followed by the preliminary announcement and full financial statements for the
year ending 31 March 2006, to be reported in May 2006.
Selected accounting policies
On the adoption of IFRS, the Group's accounting policies have changed from those
applied under UK GAAP in certain areas. The accounting policies of the Group
which are affected significantly by the adoption of IFRS, and are applied in the
preparation of the consolidated IFRS financial information in this document, are
set out below. The IFRS accounting policies have been applied consistently to
all periods presented and in preparing an opening IFRS balance sheet at 1 April
2004 for the purposes of the transition to IFRS.
Basis of preparation
The consolidated IFRS financial information has been prepared under the
historical cost convention, as modified by the revaluation of financial assets
and financial liabilities (including derivative instruments) at fair value
through the income statement.
Goodwill
Goodwill, arising from the purchase of subsidiary undertakings, represents the
excess of the cost of acquisition over the fair value of the Group's share of
the net identifiable assets and liabilities acquired at the date of acquisition.
Goodwill is tested annually for impairment and carried at cost less accumulated
impairment losses. Gains and losses on the disposal of an entity include the
carrying amount of goodwill relating to the entity sold.
Impairment of assets
Assets that have an indefinite useful life are not subject to amortisation and
are tested annually for impairment. Assets that are subject to amortisation are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. An impairment loss is
recognised for the amount by which the asset's carrying amount exceeds its
recoverable amount. The recoverable amount is the higher of an asset's fair
value less costs to sell and value in use. For the purposes of assessing
impairment, assets are grouped at the lowest levels for which there are
separately identifiable cash flows (cash-generating units).
Other intangible assets
Software
Non-current assets which incorporate both tangible and intangible elements are
assessed to determine whether they should be classed as an intangible fixed
asset or as property, plant and equipment. The treatment is determined by an
assessment of which element is more significant.
Employee benefits
Pension obligations
The Group operates both defined benefit and defined contribution plans. A
defined benefit plan is a pension plan that sets the amount of pension benefit
that an employee will receive on retirement, usually dependent on one or more
factors such as age, years of service and compensation. A defined contribution
plan is a pension plan under which the Group pays fixed contributions on behalf
of employees and under which there is no legal or constructive obligation to pay
further contributions for employees' service in the current and prior periods.
The liability recognised in the balance sheet in respect of defined benefit
pension plans is the present value of the defined benefit obligation at the
balance sheet date less the fair value of plan assets. The defined benefit
obligation is calculated annually by independent actuaries using the projected
unit credit method. The present value of the defined benefit obligation is
determined by discounting the estimated future cash outflows using interest
rates of high-quality corporate bonds that are denominated in the currency in
which the benefits will be paid, and that have terms to maturity approximating
to the terms of the related pension liability.
1. Basis of preparation (continued)
Selected accounting policies (continued)
Employee benefits - Pension obligations
In accordance with IAS 19 "Employee benefits", on transition to IFRS the Group
has elected to recognise the full assets and liabilities of its defined benefit
pension schemes on the consolidated balance sheet. Thereafter, the Group has
elected to recognise actuarial gains and losses in full in the statement of
recognised income and expense in the period in which they arise.
For defined contribution plans, the Group pays contributions to publicly or
privately administered pension insurance plans on a mandatory, contractual or
voluntary basis. The Group has no further payment obligations once the
contributions have been paid. The contributions are recognised as employee
benefit expense when they are due. Prepaid contributions are recognised as an
asset to the extent that a cash refund or a reduction in the future payments is
available.
Share-based payments
The Group has accounted for share awards and share options granted since 7
November 2002 using fair values. The fair values have been calculated using an
appropriate option valuation model adjusted for the expected effect of
performance conditions.
The Group recognises an expense for share based payments based on the fair value
of the service rendered by the employee in return for the share awards or share
options. The fair value is calculated at the grant date and excludes the impact
of non-market conditions. Instead, the expense is adjusted for the effect of
non-market conditions at each reporting date through the number of share awards
or share options expected to be exercisable. The effect of market conditions is
included in the fair value at the date of grant and is recognised as an expense
irrespective of whether the market condition is satisfied.
Deferred taxation
Deferred income tax is provided in full, using the liability method, on
temporary differences arising between the tax bases of assets and liabilities
and their carrying amounts in the consolidated financial statements. Deferred
income tax arising from the initial recognition of an asset or liability, which
affects neither accounting nor taxable profit, is not normally recognised.
Deferred income tax is determined using tax rates (and laws) that have been
enacted or substantially enacted by the balance sheet date and are expected to
apply when the related deferred income tax asset is realised or the deferred
income tax liability is settled.
Deferred income tax assets are recognised to the extent that it is probable that
future taxable profit will be available against which the temporary differences
can be utilised.
Deferred income tax is provided on temporary differences arising on investments
in subsidiaries and associates, except where the timing of the reversal of the
temporary difference is controlled by the Group and it is probable that the
temporary difference will not reverse in the foreseeable future.
Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held at call with
banks, other short-term highly liquid investments with original maturities of
three months or less, and bank overdrafts.
Accounting for derivative financial instruments and hedging activities
Derivatives are initially recognised at fair value on the date the derivative
contract is entered into and are subsequently re-measured at their fair value at
each reporting date. The method of recognising the resulting gain or loss
depends on whether the derivative is designated as a hedging instrument, and if
so, the nature of the item being hedged. The Group designates certain
derivatives as either:
(1) hedges of the fair value of recognised assets or liabilities (fair value
hedge);
(2) hedges of highly probable forecast transactions (cash flow hedges); or
(3) hedges of net investments in foreign operations.
The Group documents at the inception of the transaction the relationship between
hedging instruments and hedged items, as well as its risk management objective
and strategy for undertaking various hedge transactions. The Group also
documents its assessment, both at hedge inception and on an ongoing basis, of
whether the derivatives that are used in hedging transactions are highly
effective in offsetting changes in fair values or cash flows of hedged items.
1. Basis of preparation (continued)
Selected accounting policies (continued)
Accounting for derivative financial instruments and hedging activities
Fair value hedges
Changes in the fair value of derivatives that are designated and qualify as fair
value hedges are recorded in the income statement, together with any changes in
the fair value of the hedged asset or liability that are attributable to the
hedged risk.
Cash flow hedges
The effective portion of changes in the fair value of derivatives that are
designated and qualify as cash flow hedges are recognised in equity. The gain or
loss relating to the ineffective portion is recognised immediately in the income
statement.
Amounts accumulated in equity are recycled in the income statement in the
periods when the hedged item will affect profit or loss. When a hedging
instrument expires or is sold, or when a hedge no longer meets the criteria for
hedge accounting, any cumulative gain or loss existing in equity at that time
remains in equity and is recognised when the forecast transaction is ultimately
recognised in the income statement. When a forecast transaction is no longer
expected to occur, the cumulative gain or loss that was reported in equity is
immediately transferred to the income statement.
Hedges of net investments in foreign operations
Any gain or loss on the hedging instrument, which is used to hedge a net
investment in a foreign operation, relating to the effective portion of the
hedge is recognised in equity; the gain or loss relating to the ineffective
portion is recognised immediately in the income statement. The ineffective
portion relates to the forward points (comprising the interest rate differential
between the currencies) excluded from the effectiveness testing which is
completed on a spot to spot basis.
Gains and losses accumulated in equity are included in the income statement when
the foreign operation is disposed of.
Derivatives which are not designated as hedges
Derivative financial instrument which are used as economic hedges of foreign
exchange exposures on recognised monetary assets or liabilities are not
designated as hedges. In these circumstances, hedge accounting is not applied
and gains or losses arising on the hedging instruments are recognised in the
income statement and offset the movement in value of the monetary asset or
liability.
Presentation of financial information
The primary statements within the financial information contained in this
document have been presented in accordance with IAS 1 "Presentation of Financial
Statements".
Items of income or expense which require separate disclosure, owing to their
size or incidence, are disclosed as "exceptional items" on the face of the
income statement, as the Group believes such presentation is relevant to an
understanding of financial performance.
The Group defines "net debt" as its current and non-current borrowings together
with the fair value of related derivatives, cash and cash equivalents and other
financial assets, excluding liabilities relating to accrued interest on
borrowings.
Transactions with equity shareholders, in their capacity as equity shareholders,
are presented in the "statement of changes in equity". A statement of changes in
equity will be published in the Group's first IFRS interim statement.
2. Description of adjustments
Reconciliation of UK GAAP to IFRS retained profit for the year ended 31 March
2005 and for the six months ended 30 September 2004, and equity for the
transition balance sheet at 1 April 2004 and as at 30 September 2004 and 31
March 2005.
- --------------------------------------------------------------------------------
Retained profit Adjustment Year Six
reference ended months
31 March ended 30
2005 September
GBPm 2004
As reported
under UK GAAP 105 236
Revenue
recognition 1 - -
Cessation of
goodwill
amortisation 2 200 100
Pensions 3 (7) -
Share-based
payments 4 (2) (1)
Recognition of
financial
instruments 5 2 1
UMTS licence
creditor 6 (1) -
De-recognition
of dividends 7 196 -
---------------------------
Restated under IFRS 493 336
---------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Equity Adjustment As at As at 30 As at
reference 31 March September 1 April
2005 2004 2004
GBPm GBPm GBPm
As reported
under UK GAAP 10,281 10,403 10,094
Cessation of
goodwill
amortisation 2 200 100 -
Pensions 3 (119) (93) (93)
Recognition of
financial
instruments 5 - (2) (3)
UMTS licence
creditor 6 (3) (2) (2)
De-recognition
of dividends 7 196 - -
Deferred tax
liability 8 (358) (358) (358)
Other employee
benefits 9 (2) (2) (2)
---------------------------------------
Restated under IFRS 10,195 10,046 9,636
---------------------------------------
- --------------------------------------------------------------------------------
The major areas of difference between UK GAAP and IFRS which impact the Group's
financial information comprise the following:
Adjustment 1 - Revenue recognition
O2 UK receives income and incurs a related expense on calls which are "ported"
to another mobile operator. Porting arises when an O2 customer leaves O2 and
joins another operator and takes ("ports") their existing mobile number to the
new network. All calls received by that customer are still routed via the O2
network to the network of the new operator. For all incoming calls to the O2
network, O2 receives a termination fee per minute and is required to pass that
termination fee to the new operator. The receiving operator pays O2 a small
commission for conveying the call.
Under UK GAAP the Group recognised the termination fees on a gross basis and
thus included these amounts in both revenue and cost of sales. The Group has
reconsidered this policy under IAS 18, which states that in an agency
relationship the gross inflows of economic benefits include amounts collected on
behalf of the principal and which do not result in increases in equity for the
entity. The amounts collected on behalf of the principal are therefore not
revenue. Instead, revenue is the amount of commission. Accordingly under IFRS,
the Group will recognise the termination payments on a net basis.
2. Description of adjustments (continued)
Adjustment 1 - Revenue recognition (continued)
The impact of this adjustment on the income statement of the Group and O2 UK is
as follows:
Year Six months
ended ended 30
31 March September
2005 2004
GBPm GBPm
Revenue (108) (58)
Cost of sales 108 58
----------------------------------
Gross profit - -
----------------------------------
This adjustment reduces O2 UK's service revenue and cost of sales and is solely
a reclassification which does not alter profit or cash flows. However, the
reported EBITDA margin will rise and average revenue per user ("ARPU") has been
restated downwards as a consequence of this adjustment.
The commission received by O2 from the receiving operator, described above,
which totals GBP12 million for the year ended 31 March 2005, has been
reclassified from service revenue to other revenue. This adjustment has no
effect on the Group's total revenue.
Adjustment 2 - Goodwill amortisation
IFRS 3 "Business combinations" prohibits the annual amortisation of goodwill and
instead subjects such goodwill to an annual impairment review. The carrying
value of goodwill at the date of transition to IFRS is GBP3,189 million and the
amortisation charge ceases from that date.
Accordingly, the impact on the income statement of the Group is as follows:
Year Six months
ended ended 30
31 March September
2005 2004
GBPm GBPm
Goodwill amortisation 200 100
----------------------------------
Adjustment 3 - Pensions
In accordance with IAS 19 "Employee benefits", on transition to IFRS the Group
has elected to recognise the net deficit of its defined benefit pension schemes
on the consolidated balance sheet. Thereafter, the Group has elected to
recognise actuarial gains and losses in full in the statement of recognised
income and expense, rather than in the income statement, in the period in which
they arise.
The impact on the Group's income statement of the adoption of IAS 19 is as
follows:
Year Six months
ended ended 30
31 March September
2005 2004
GBPm GBPm
Pension costs -
administrative expenses (6) -
Pension costs - net
financing costs (1) -
----------------------------------
(7) -
----------------------------------
Actuarial losses - in
statement of total
recognised income and
expense (19) -
----------------------------------
2. Description of adjustments (continued)
Adjustment 3 - Pensions (continued)
The pension deficit recognised on the consolidated balance sheet is as follows:
At At
31 March 1 April
2005 2004
GBPm GBPm
Retirement benefit obligations (126) (105)
----------------------------------
The operating charge included within administrative expenses under IAS 19
represents the current service cost, and the net financing charge represents the
net of the expected return on scheme assets and the unwinding of the discount on
the scheme liabilities. The actuarial losses arise on experience adjustments
(being the effects of the differences between the previous actuarial assumptions
and what has actually occurred) and the impact of changes in actuarial
assumptions.
Adjustment 4 - Share-based payments
The Group has historically accounted for share scheme costs under UK GAAP using
the intrinsic value. IFRS 2 "Share based payments" requires the value of all
share based payments to be measured, and an expense recognised in the income
statement, based on fair value. Additionally, under UK GAAP, Inland Revenue
approved SAYE schemes are exempt from the requirement to recognise a charge
whereas under IFRS there is no such exemption.
The impact on the Group's income statement of the adoption of IFRS 2 in
accounting for share-based payments is as follows:
Year Six months
ended ended 30
31 March September
2005 2004
GBPm GBPm
Administrative expenses (2) (1)
----------------------------------
Adjustment 5 - Financial instruments
The Group holds financial instruments principally to finance its operations, for
the temporary investment of short term funds and to manage currency and interest
rate risks arising from its operations. IAS 39 "Financial instruments:
Recognition and measurement" addresses the accounting for financial instruments.
Since the transition to IFRS on 1 April 2004, the Group has prepared
documentation and performed effectiveness testing procedures for certain
derivative financial instruments which are designated as hedges. This permits
the application of hedge accounting for these instruments
The impact on the Group's income statement of the adoption of IAS 39 is as
follows:
Year Six months
ended ended 30
31 March September
2005 2004
GBPm GBPm
Net financing costs 2 1
----------------------------------
The impact on the consolidated balance sheet of the adoption of IAS 39 is as
follows:
At At
31 March 1 April
2005 2004
GBPm GBPm
Net assets - (3)
----------------------------------
The Group's cash flow hedges and hedges of net investments in foreign operations
do not give rise to significant adjustments under IAS 39.
2. Description of adjustments (continued)
Adjustment 5 - Financial instruments (continued)
The main components of the IAS 39 adjustments are:
Fair value hedges
The Group holds EUR1,000 million of interest rate swaps which hedge certain
fixed rate borrowings by denominating them as floating rate. Under IAS 39, these
interest rate swaps are a fair value hedge and are accounted for using hedge
accounting. The interest rate swaps at 31 March 2005 result in the recognition
of a non-current asset of GBP21 million (1 April 2004: GBP56 million) with a
corresponding increase in the value of the Group's non-current borrowings. There
is no impact on the Group's net assets.
Derivatives which are not designated as hedges
The Group uses forward foreign exchange contracts to hedge exchange rate
movements on certain monetary assets. The overall effect of recognition of these
derivatives is to increase current liabilities by GBP1 million at 1 April 2004,
with no impact at 31 March 2005.
Other adjustments - accrued interest reclassification
IAS 39 requires all accrued interest on borrowings to be classified within the
"borrowings" balance in the consolidated balance sheet. Accrued interest is also
required to be recorded at its un-hedged rate if it has been hedged by an
interest rate swap. Under UK GAAP, interest is accrued at the hedged rate and
classified as an accrual rather than as part of the borrowings balance. At 31
March 2005, accrued interest totalling GBP13 million was reclassified from
accruals to borrowings (1 April 2004: GBP14 million).
IAS 39 also requires accrued interest on cash and cash equivalents to be
included within the cash balance reported in the consolidated balance sheet,
although the impact is not significant.
Adjustment 6 - UMTS licence creditor
In the year ended 31 March 2003, O2 Ireland purchased a UMTS "B" licence. The
total licence fee was EUR114 million with payments phased over fifteen years.
Under UK GAAP the asset and liability are recognised at their undiscounted value
whereas under IFRS, the asset cost is recorded at the discounted present value
of the payments and a corresponding creditor established.
The effect at 1 April 2004 is to reduce the carrying value of O2 Ireland's UMTS
licence and creditor by GBP13 million and to recognise an interest cost of GBP1
million in the year ended 31 March 2005 representing the unwinding of the
discount on the long-term liability.
The impact on the Group's income statement is as follows:
Year Six months
ended ended 30
31 March September
2005 2004
GBPm GBPm
Net financing costs (1) -
----------------------------------
The impact on the Group's consolidated balance sheet is as follows:
At At
31 March 1 April
2005 2004
GBPm GBPm
Other intangible assets (13) (13)
Non-current liabilities: trade and other
payables 10 11
----------------------------------
Net assets (3) (2)
----------------------------------
2. Description of adjustments (continued)
Adjustment 7 - Dividends
Under IAS 10 "Events after the balance sheet date", if an entity declares a
dividend after the balance sheet date, the entity shall not recognise that
dividend as a liability at the balance sheet date.
The dividend declared by the Group in May 2005 totalling GBP196 million is not
recognised in the year ended 31 March 2005 under IFRS but is recognised under UK
GAAP. The impact on the Group's consolidated balance sheet is as follows:
At At
31 March 1 April
2005 2004
GBPm GBPm
Current liabilities: other payables 196 -
----------------------------------
Adjustment 8 - Taxation
IAS 12 "Income taxes" bases the calculation of the deferred tax assets and
liabilities on the difference between tax carrying values and balance sheet
carrying values, rather than the income statement approach required by FRS 19
"Deferred tax". As a result, the scope of IAS 12 is wider than that of FRS 19.
IAS 12 requires a deferred tax liability in respect of rolled over gains to be
recognised, irrespective of whether there is an expectation that the gain will
crystallise.
The Group is required to recognise a deferred tax liability of GBP358 million on
transition to IFRS relating to a gain arising prior to the Group's demerger from
BT. The gain arose on BT's disposal of a non-mobile UK business which was rolled
over into the goodwill relating to one of O2's operating businesses. This
deferred tax liability is expected to reverse in the short to medium term as
part of an internal reorganisation and, as a result, will be recognised as a
credit in the tax line in the income statement of the Group in the corresponding
period.
The other adjustments between UK GAAP and IFRS have no taxation effect as each
adjustment either gives rise to a deferred tax asset in an entity where it is
currently inappropriate to recognise further deferred tax assets or gives rise
to a deferred tax liability in an entity which is already carrying unrecognised
deferred tax assets such that a portion of that asset would be recognised to the
extent of the any liability.
Adjustment 9 - Other employee benefits
The Group has recognised a liability of GBP2 million under IFRS on transition at
1 April 2004 in respect of holiday pay which under IAS 19 is defined as a
short-term compensated absence.
Adjustment 10 - Software reclassification
Certain software, classified as tangible fixed assets under UK GAAP, has been
assessed in accordance with IAS 38 and is reclassified to intangible assets
under IFRS.
The impact on the Group's income statement is as follows:
Year Six months
ended ended 30
31 March September
2005 2004
GBPm GBPm
Depreciation 171 89
Other amortisation (171) (89)
----------------------------------
- -
----------------------------------
The impact on the Group's consolidated balance sheet is as follows:
At At
31 March 2005 1 April
2004
GBPm GBPm
Property, plant and equipment (606) (530)
Other intangible assets 606 530
----------------------------------
- -
----------------------------------
2. Description of adjustments (continued)
Adjustment 11 - Joint ventures and associates
Under both UK GAAP and IFRS, the profits and losses of joint ventures and
associates are recognised under the equity method of accounting. IFRS requires
the Group's share of the post tax profits or losses to be included in one line
in the income statement whereas under UK GAAP the Group's share of the interest
and tax of associates are included under those headings in the profit and loss
account.
The effect on the Group for the year ended 31 March 2005 is to reclassify a
interest receivable of GBP1 million and a tax charge of GBP1 million to the
"share of result of joint ventures and associates" line.
Adjustment 12 - Cash reclassification
IAS 7 "Cash flow statements" requires cash, which comprises cash on hand, demand
deposits and cash equivalents to be reported in one line on the face of the
balance sheet. Cash equivalents are defined as short term highly liquid
investments that are readily convertible to known amounts of cash, UK GAAP does
not recognise cash equivalents and such items are classified as current asset
investments.
The impact on the Group's consolidated balance sheet is as follows:
At At
31 March 1 April
2005 2004
GBPm GBPm
Other financial assets (968) (645)
Cash and cash equivalents 968 645
----------------------------------
- -
----------------------------------
Consolidated income statement - IFRS format
Year ended 31 March 2005
UK IFRS
GAAP adjustments IFRS
(audited) (unaudited)(unaudited)
GBPm GBPm GBPm
- --------------------------------------------------------------------------------
Revenue 6,683 (108) 6,575
Cost of sales (3,799) 108 (3,691)
- --------------------------------------------------------------------------------
Gross profit 2,884 - 2,884
Administrative expenses (2,543) 192 (2,351)
EBITDA1 1,768 (8) 1,760
Depreciation before exceptional items (931) 171 (760)
Goodwill amortisation (200) 200 -
UMTS licences amortisation (169) - (169)
Other amortisation (82) (171) (253)
- --------------------------------------------------------------------------------
Operating profit before exceptional items 386 192 578
Exceptional items (45) - (45)
- --------------------------------------------------------------------------------
Operating profit 341 192 533
Share of result of joint ventures and
associated undertakings (3) - (3)
Costs of capital reorganisation (20) - (20)
Net financing costs (9) (1) (10)
- --------------------------------------------------------------------------------
Profit before taxation 309 191 500
Taxation (8) 1 (7)
- --------------------------------------------------------------------------------
Profit for the year attributable to
equity shareholders 301 192 493
Dividends (196) 196 -
- --------------------------------------------------------------------------------
Retained profit for the year 105 388 493
- --------------------------------------------------------------------------------
Basic earnings per share (pence) 3.5 2.2 5.7
- --------------------------------------------------------------------------------
Diluted earnings per share (pence) 3.4 2.2 5.6
- --------------------------------------------------------------------------------
Consolidated statement of recognised income and expense - IFRS format
Year ended 31 March 2005
UK IFRS
GAAP adjustments IFRS
(audited) (unaudited) (unaudited)
GBPm GBPm GBPm
- --------------------------------------------------------------------------------
Exchange differences on translation of
foreign operations 68 54 122
Net investment hedges - (54) (54)
Actuarial gains/(losses) on defined
benefit plans - (19) (19)
- --------------------------------------------------------------------------------
Net income recognised directly in
reserves 68 (19) 49
Profit for the financial year 301 192 493
- --------------------------------------------------------------------------------
Total recognised gains relating to the year 369 173 542
- --------------------------------------------------------------------------------
1EBITDA is our earnings before interest, tax, depreciation, amortisation and
exceptional items, excluding our share of operating profits and losses of our
joint ventures and associates. EBITDA is not a measure of financial performance
under IFRS and may not be comparable to similarly titled measures of other
companies, because EBITDA is not uniformly defined. EBITDA should not be
considered by investors as an alternative to Group operating profit or profit
before taxation as an indication of operating performance, or as an alternative
to cash flow from operating activities as an indication of cash flows. EBITDA is
one of the key financial measures used by the Group for evaluating financial
performance.
UK GAAP to IFRS restatement - detailed adjustments in IFRS format
Consolidated profit and loss account
Year ended 31 March 2005
---------------------------------------------------------------------------------
1 2 3 4 5 6 7 10 11
Good- Finan- UMTS Soft- JV's
As Revenue will Share- cial licence ware and
previously recog- amort- based instru- cred- Divid- re- asso-
reported nition isation Pensions payments ments itor ends class ciates IFRS
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
- ------------------------------------------------------------------------------------------------------------------------
Revenue 6,683 (108) 6,575
Cost of sales (3,799) 108 (3,691)
- ------------------------------------------------------------------------------------------------------------------------
Gross profit 2,884 - - - - - - - - - 2,884
Administrative
expenses (2,543) 200 (6) (2) (2,351)
EBITDA1 1,768 - - (6) (2) - - - - - 1,760
Depreciation before
exceptional items (931) 171 (760)
Goodwill
amortisation (200) 200 -
UMTS licences
amortisation (169) (169)
Other amortisation (82) (171) (253)
- ------------------------------------------------------------------------------------------------------------------------
Operating profit
before exceptional
items 386 - 200 (6) (2) - - - - - 578
Exceptional items (45) (45)
- ------------------------------------------------------------------------------------------------------------------------
Operating profit 341 - 200 (6) (2) - - - - - 533
Share of joint
ventures and
associated
undertakings (3) - (3)
Costs of capital
reorganisation (20) (20)
Net financing costs (9) (1) 2 (1) (1) (10)
- ------------------------------------------------------------------------------------------------------------------------
Profit before
taxation 309 - 200 (7) (2) 2 (1) - - (1) 500
Taxation (8) 1 (7)
- ------------------------------------------------------------------------------------------------------------------------
Profit for the year
attributable to
equity shareholders 301 - 200 (7) (2) 2 (1) - - - 493
Dividends (196) - 196 -
- ------------------------------------------------------------------------------------------------------------------------
Profit for the year 105 - 200 (7) (2) 2 (1) 196 - - 493
- ------------------------------------------------------------------------------------------------------------------------
Consolidated balance sheet - IFRS format
As at 31 March 2005
UK IFRS
GAAP adjustments IFRS
(audited) (unaudited) (unaudited)
GBPm GBPm GBPm
- --------------------------------------------------------------------------------
Assets
Non-current assets
Property, plant and equipment 4,449 (606) 3,843
Goodwill 3,011 200 3,211
Other intangible assets 4,034 593 4,627
Derivative financial instruments - 21 21
Investments in joint ventures and
associated undertakings 2 - 2
- --------------------------------------------------------------------------------
11,496 208 11,704
- --------------------------------------------------------------------------------
Current assets
Inventory 87 - 87
Trade and other receivables 1,035 (6) 1,029
Derivative financial instruments 25 3 28
Other financial assets 1,285 (968) 317
Cash and cash equivalents 41 968 1,009
- --------------------------------------------------------------------------------
2,473 (3) 2,470
- --------------------------------------------------------------------------------
Current liabilities
Borrowings (56) (15) (71)
Trade and other payables (1,968) 202 (1,766)
Current tax liabilities (7) - (7)
Provisions (9) - (9)
- --------------------------------------------------------------------------------
(2,040) 187 (1,853)
- --------------------------------------------------------------------------------
Net current assets 433 184 617
- --------------------------------------------------------------------------------
Total assets less current liabilities 11,929 392 12,321
- --------------------------------------------------------------------------------
Non-current liabilities
Borrowings (1,348) (22) (1,370)
Retirement benefit obligations (18) (108) (126)
Trade and other payables (55) 10 (45)
Deferred tax liabilities (131) (358) (489)
Provisions (96) - (96)
- --------------------------------------------------------------------------------
(1,648) (478) (2,126)
- --------------------------------------------------------------------------------
Net assets 10,281 (86) 10,195
- --------------------------------------------------------------------------------
Equity
Ordinary share capital 9 - 9
Share premium 375 - 375
Other reserves 2,913 (1) 2,912
Retained earnings 6,984 (85) 6,899
- --------------------------------------------------------------------------------
Total equity 10,281 (86) 10,195
- --------------------------------------------------------------------------------
UK GAAP to IFRS restatement - detailed adjustments in IFRS format
Consolidated balance sheet
--------------------------------------------------------------------------
Adjustments
--------------------------------------------------------------------------
2 3 5 6 7 8 9 10 12
De-
Goodwill UMTS ferred Other
UK amorti- Financial licence Divi- taxa- employee Software Cash
GAAP sation Pension instruments creditor dends tion benefits reclass reclass IFRS
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
- -----------------------------------------------------------------------------------------------------------------
Assets
Non-current
assets
Property,
plant and
equipment 4,449 (606) 3,843
Goodwill 3,011 200 3,211
Other intangible
assets 4,034 (13) 606 4,627
Derivative
financial
instruments - 21 21
Investments in
joint ventures
and associated
undertakings 2 2
- -----------------------------------------------------------------------------------------------------------------
11,496 200 - 21 (13) - - - - - 11,704
- -----------------------------------------------------------------------------------------------------------------
Current assets
Inventory 87 87
Trade and other
receivables 1,035 (6) 1,029
Derivative
financial
instruments 25 3 28
Other financial
assets 1,285 (968) 317
Cash and cash
equivalents 41 968 1,009
- -----------------------------------------------------------------------------------------------------------------
2,473 - (6) 3 - - - - - - 2,470
- -----------------------------------------------------------------------------------------------------------------
Current
liabilities
Borrowings (56) (15) (71)
Trade and
other payables (1,968) (5) 13 196 (2) (1,766)
Current tax
liabilities (7) (7)
Provisions (9) (9)
- -----------------------------------------------------------------------------------------------------------------
(2,040) - (5) (2) - 196 - (2) - - (1,853)
- -----------------------------------------------------------------------------------------------------------------
Net current
assets 433 - (11) 1 - 196 - (2) - 617
- -----------------------------------------------------------------------------------------------------------------
Total assets
less current
liabilities 11,929 200 (11) 22 (13) 196 - (2) - - 12,321
- -----------------------------------------------------------------------------------------------------------------
Non-current
liabilities
Borrowings (1,348) (22) (1,370)
Retirement
benefit
obligations (18) (108) (126)
Trade and
other payables (55) 10 (45)
Deferred tax
liabilities (131) (358) (489)
Provisions (96) (96)
- -----------------------------------------------------------------------------------------------------------------
(1,648) - (108) (22) 10 - (358) - - - (2,126)
- -----------------------------------------------------------------------------------------------------------------
Net assets 10,281 200 (119) - (3) 196 (358) (2) - - 10,195
- -----------------------------------------------------------------------------------------------------------------
Equity
Ordinary share
capital 9 9
Share premium 375 375
Other reserves 2,913 (1) 2,912
Retained
earnings 6,984 200 (119) 1 (3) 196 (358) (2) 6,899
- -----------------------------------------------------------------------------------------------------------------
Total equity 10,281 200 (119) - (3) 196 (358) (2) - - 10,195
- -----------------------------------------------------------------------------------------------------------------
UK GAAP to IFRS format reconciliation
Consolidated balance sheet
As at 31 March 2005
-------------------------------------------------------------
Reclassifications
-------------------------------------------------------------
As Goodwill Financial Provisions Current Non-current UK GAAP
previously instruments analysis liabilities liabilities balances
reported in IFRS
format
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
- ------------------------------------------------------------------------------------------------------------------------
Fixed assets Non-current
assets
3,011 3,011 Goodwill
Intangible
assets 7,045 (3,011) 4,034 Other
intangible
assets
Tangible
assets 4,449 4,449 Property,
plant and
equipment
Investments 2 2 Investments
in JV's and
associates
- ------------------------------------------------------------------------------------------------------------------------
11,496 - - - - - 11,496
- ------------------------------------------------------------------------------------------------------------------------
Current assets Current
assets
Stocks 87 87 Inventory
Debtors 1,060 (25) 1,035 Trade and
other
receivables
- 25 25 Derivative
financial
instruments
Investments 1,285 1,285 Other
financial
assets
Cash and cash
equivalents 41 41 Cash and cash
equivalents
- ------------------------------------------------------------------------------------------------------------------------
2,473 - - - - - 2,473
Current
liabilities
Creditors:
amounts
falling due
within one
year (2,031) 1,975 (56) Borrowings
(1,968) (1,968) Trade and
other
payables
(7) (7) Current tax
liabilities
(9) (9) Provisions
- ------------------------------------------------------------------------------------------------------------------------
(2,031) - - (9) - - (2,040)
- ------------------------------------------------------------------------------------------------------------------------
Net current
assets 442 - - (9) - - 433
- ------------------------------------------------------------------------------------------------------------------------
Total assets
less current
liabilities 11,938 - - (9) - - 11,929
- ------------------------------------------------------------------------------------------------------------------------
Non-current
liabilities
Creditors:
amounts
falling due
after more
than one year (1,403) 55 (1,348) Borrowings
(18) (18) Retirement
benefit
obligations
(55) (55) Trade and
other
payables
(131) (131) Deferred tax
liability
Provisions for
liabilities
and charges (254) 158 (96) Provisions
- ------------------------------------------------------------------------------------------------------------------------
Net assets 10,281 - - - - - 10,281 Net assets
- ------------------------------------------------------------------------------------------------------------------------
Capital and
reserves
Called up
share capital 9 9 Ordinary
share
capital
Share premium 375 375 Share
premium
Other reserves 2,913 2,913 Other
reserves
Profit and
loss account 6,984 6,984 Retained
earnings
- ------------------------------------------------------------------------------------------------------------------------
Shareholders'
funds 10,281 - - - - - 10,281 Total
equity
- ------------------------------------------------------------------------------------------------------------------------
Consolidated cash flow statement - IFRS format
Year ended 31 March 2005
UK IFRS
GAAP adjustments IFRS
(audited) (unaudited) (unaudited)
GBPm GBPm GBPm
- --------------------------------------------------------------------------------
Cash flows from operating activities
Cash generated from operations 1,755 - 1,755
Tax paid (15) - (15)
- --------------------------------------------------------------------------------
Net cash from operating activities 1,740 - 1,740
- --------------------------------------------------------------------------------
Cash flows from investing activities
Purchase of property, plant and
equipment (1,287) 144 (1,143)
Purchase of intangible assets (60) (144) (204)
Investment in joint venture (2) - (2)
Management of other financial assets (302) 316 14
Dividends received from associated
undertakings 7 - 7
Interest received 28 2 30
- --------------------------------------------------------------------------------
Net cash used in investing activities (1,616) 318 (1,298)
- --------------------------------------------------------------------------------
Cash flows from financing activities
Net proceeds from issue of ordinary
share capital 24 - 24
Interest paid (68) - (68)
Purchase of own shares (1) - (1)
Settlement of cross-currency swaps 22 - 22
Settlement of forward foreign exchange
contracts (32) - (32)
Premium paid to shareholders in
capital reorganisation (15) - (15)
Costs of capital reorganisation (15) - (15)
Repayment of borrowings including
finance leases (21) - (21)
- --------------------------------------------------------------------------------
Net cash used in financing activities (106) - (106)
- --------------------------------------------------------------------------------
Net increase/(decrease) in cash and
cash equivalents 18 318 336
- --------------------------------------------------------------------------------
Cash and cash equivalents at start of
year 23 645 668
Exchange gains/(losses) on cash and
cash equivalents - 5 5
- --------------------------------------------------------------------------------
Cash and cash equivalents at end of
year 41 968 1,009
- --------------------------------------------------------------------------------
Consolidated net debt
As at 31 March 2005
UK IFRS
GAAP adjustments IFRS
(audited) (unaudited) (unaudited)
GBPm GBPm GBPm
- --------------------------------------------------------------------------------
Cash and cash equivalents 41 968 1,009
Other financial assets 1,285 (968) 317
- --------------------------------------------------------------------------------
1,326 - 1,326
Euro medium-term notes (net of issue
costs) (1,056) (22) (1,078)
Non-current derivative financial
instruments - 21 21
Loan notes (7) - (7)
Obligations under finance leases and
hire purchase contracts (308) - (308)
Other loans and borrowings (33) - (33)
- --------------------------------------------------------------------------------
Net debt (78) (1) (79)
- --------------------------------------------------------------------------------
4. Six months ended 30 September 2004
Consolidated income statement - IFRS format
Six months ended 30 September 2004
UK IFRS
GAAP adjustments IFRS
(audited) (unaudited) (unaudited)
GBPm GBPm GBPm
- --------------------------------------------------------------------------------
Revenue 3,285 (58) 3,227
Cost of sales (1,844) 58 (1,786)
- --------------------------------------------------------------------------------
Gross profit 1,441 - 1,441
Administrative expenses (1,190) 99 (1,091)
EBITDA1 851 (1) 850
Depreciation before exceptional items (413) 89 (324)
Goodwill amortisation (100) 100 -
UMTS licences amortisation (50) - (50)
Other amortisation (37) (89) (126)
- --------------------------------------------------------------------------------
Operating profit 251 99 350
Share of result of joint ventures and
associated undertakings (4) - (4)
Net financing costs (8) 1 (7)
- --------------------------------------------------------------------------------
Profit before taxation 239 100 339
Taxation (3) - (3)
- --------------------------------------------------------------------------------
Profit for the period attributable to
equity shareholders 236 100 336
- --------------------------------------------------------------------------------
Basic earnings per share (pence) 2.7 1.2 3.9
- --------------------------------------------------------------------------------
Diluted earnings per share (pence) 2.7 1.1 3.8
- --------------------------------------------------------------------------------
Consolidated statement of recognised income and expense - IFRS format
Six months ended 30 September 2004
UK IFRS
GAAP adjustments IFRS
(audited) (unaudited) (unaudited)
GBPm GBPm GBPm
- --------------------------------------------------------------------------------
Exchange differences on translation of
foreign operations 71 54 125
Net investment hedges - (54) (54)
- --------------------------------------------------------------------------------
Net income recognised directly in
reserves 71 - 71
Profit for the financial year 236 100 336
- --------------------------------------------------------------------------------
Total recognised gains relating to the
year 307 100 407
- --------------------------------------------------------------------------------
1EBITDA is our earnings before interest, tax, depreciation, amortisation and
exceptional items, excluding our share of operating profits and losses of our
joint ventures and associates. EBITDA is not a measure of financial performance
under IFRS and may not be comparable to similarly titled measures of other
companies, because EBITDA is not uniformly defined. EBITDA should not be
considered by investors as an alternative to Group operating profit or profit
before taxation as an indication of operating performance, or as an alternative
to cash flow from operating activities as an indication of cash flows. EBITDA is
one of the key financial measures used by the Group for evaluating financial
performance.
UK GAAP to IFRS restatement - detailed adjustments in IFRS format
Consolidated profit and loss account
Six months ended 30 September 2004
--------------------------------------------------------------
Adjustments
--------------------------------------------------------------
1 2 4 5 10
As Share-
previously Revenue Goodwill based Financial Software
reported recognition amortisation payments instruments reclass IFRS
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
- ------------------------------------------------------------------------------------------------------------
Revenue 3,285 (58) 3,227
Cost of sales (1,844) 58 (1,786)
- ------------------------------------------------------------------------------------------------------------
Gross profit 1,441 - - - - - 1,441
Administrative
expenses (1,190) 100 (1) (1,091)
EBITDA 851 - - (1) - - 850
Depreciation (413) 89 (324)
Goodwill
amortisation (100) 100 -
UMTS licences
amortisation (50) (50)
Other
amortisation (37) (89) (126)
- ------------------------------------------------------------------------------------------------------------
Operating
profit 251 - 100 (1) - - 350
Share of
result of
joint ventures
and associated
undertakings (4) (4)
Net financing
costs (8) 1 (7)
- ------------------------------------------------------------------------------------------------------------
Profit before
taxation 239 - 100 (1) 1 - 339
Taxation (3) (3)
- ------------------------------------------------------------------------------------------------------------
Profit for the
period
attributable
to equity
shareholders 236 - 100 (1) 1 - 336
- ------------------------------------------------------------------------------------------------------------
Consolidated balance sheet - IFRS format
As at 30 September 2004
UK IFRS
GAAP adjustments IFRS
GBPm GBPm GBPm
- --------------------------------------------------------------------------------
Assets
Non-current assets
Property, plant and equipment 4,218 (573) 3,645
Goodwill 3,112 100 3,212
Other intangible assets 4,197 560 4,757
Derivative financial instruments - 23 23
Investments in joint ventures and
associated undertakings 4 - 4
- --------------------------------------------------------------------------------
11,531 110 11,641
- --------------------------------------------------------------------------------
Current assets
Inventory 108 - 108
Trade and other receivables 1,123 (4) 1,119
Derivative financial instruments - 25 25
Other financial assets 1,163 (813) 350
Cash and cash equivalents 30 813 843
- --------------------------------------------------------------------------------
2,424 21 2,445
- --------------------------------------------------------------------------------
Current liabilities
Borrowings (54) (51) (105)
Derivative financial instruments (24) - (24)
Trade and other payables (1,822) 23 (1,799)
Current tax liabilities (12) - (12)
Provisions (17) - (17)
- --------------------------------------------------------------------------------
(1,929) (28) (1,957)
- --------------------------------------------------------------------------------
Net current assets 495 (7) 488
- --------------------------------------------------------------------------------
Total assets less current liabilities 12,026 103 12,129
- --------------------------------------------------------------------------------
Non-current liabilities
Borrowings (1,375) (24) (1,399)
Retirement benefit obligations (16) (89) (105)
Trade and other payables (48) 11 (37)
Deferred tax liabilities (134) (358) (492)
Provisions (50) - (50)
- --------------------------------------------------------------------------------
(1,623) (460) (2,083)
- --------------------------------------------------------------------------------
Net assets 10,403 (357) 10,046
- --------------------------------------------------------------------------------
Equity
Ordinary share capital 9 - 9
Share premium 4 - 4
Other reserves 10,513 (2) 10,511
Retained earnings (123) (355) (478)
- --------------------------------------------------------------------------------
Total equity 10,403 (357) 10,046
- --------------------------------------------------------------------------------
UK GAAP to IFRS restatement - detailed adjustments in IFRS format
Consolidated balance sheet
As at 30 September 2004
---------------------------------------------------------------------
Adjustments
---------------------------------------------------------------------
2 3 5 6 8 9 10 12
De-
Goodwill UMTS ferred Other
UK amorti- Financial licence taxa- employee Software Cash
GAAP sation Pension instruments creditor tion benefits reclass reclass IFRS
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
- -------------------------------------------------------------------------------------------------------------
Assets
Non-current
assets
Property,
plant and
equipment 4,218 (573) 3,645
Goodwill 3,112 100 3,212
Other
intangible
assets 4,197 (13) 573 4,757
Derivative
financial
instruments - 23 23
Investments in
joint ventures
and associated
undertakings 4 4
- -------------------------------------------------------------------------------------------------------------
11,531 100 - 23 (13) - - - - 11,641
- -------------------------------------------------------------------------------------------------------------
Current assets
Inventory 108 108
Trade and
other
receivables 1,123 (4) 1,119
Derivative
financial
instruments - 25 25
Other
financial
assets 1,163 (813) 350
Cash and cash
equivalents 30 813 843
- -------------------------------------------------------------------------------------------------------------
2,424 - (4) 25 - - - - - 2,445
- -------------------------------------------------------------------------------------------------------------
Current
liabilities
Borrowings (54) (51) (105)
Derivative
financial
instruments (24) (24)
Trade and
other payables (1,822) 25 (2) (1,799)
Current tax
liabilities (12) (12)
Provisions (17) (17)
- -------------------------------------------------------------------------------------------------------------
(1,929) - - (26) - - (2) - - (1,957)
- -------------------------------------------------------------------------------------------------------------
Net current
assets 495 - (4) (1) - - (2) - 488
- -------------------------------------------------------------------------------------------------------------
Total assets
less current
liabilities 12,026 100 (4) 22 (13) - (2) - - 12,129
- -------------------------------------------------------------------------------------------------------------
Non-current
liabilities
Borrowings (1,375) (24) (1,399)
Retirement
benefit
obligations (16) (89) (105)
Trade and
other payables (48) 11 (37)
Deferred tax
liabilities (134) (358) (492)
Provisions (50) (50)
- --------------------------------------------------------------------------------------------------------------
(1,623) - (89) (24) 11 (358) - - - (2,083)
- --------------------------------------------------------------------------------------------------------------
Net assets 10,403 100 (93) (2) (2) (358) (2) - - 10,046
- --------------------------------------------------------------------------------------------------------------
Equity
Ordinary share
capital 9 9
Share premium 4 4
Other reserves 10,513 (2) 10,511
Retained
earnings (123) 100 (93) - (2) (358) (2) (478)
- --------------------------------------------------------------------------------------------------------------
Total equity 10,403 100 (93) (2) (2) (358) (2) - - 10,046
- --------------------------------------------------------------------------------------------------------------
UK GAAP to IFRS format reconciliation
Consolidated balance sheet
As at 30 September 2004
--------------------------------------------------------------
Reclassifications
--------------------------------------------------------------
As Goodwill Financial Provisions Current Non-current UK GAAP
previously instruments analysis liabilities liabilities balances
reported in
IFRS
format
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
- ----------------------------------------------------------------------------------------------------------------------
Fixed assets Non current
assets
3,112 3,112 Goodwill
Intangible
assets 7,309 (3,112) 4,197 Other
intangible
assets
Tangible
assets 4,218 4,218 Property,
plant and
equipment
Investments 4 4 Investments
in JV's and
associates
- ----------------------------------------------------------------------------------------------------------------------
11,531 - - - - - 11,531
- ----------------------------------------------------------------------------------------------------------------------
Current assets Current
assets
Stocks 108 108 Inventory
Debtors 1,131 (8) 1,123 Trade and
other
receivables
Investments 1,163 1,163 Other
financial
assets
Cash at bank
and in hand 30 30 Cash and cash
equivalents
- ----------------------------------------------------------------------------------------------------------------------
2,432 - (8) - - - 2,424
Current
liabilities
Creditors:
amounts
falling due
within one
year (1,920) 32 1,834 (54) Borrowings
(24) (24) Derivative
financial
instruments
(1,822) (1,822) Trade and
other
payables
(12) (12) Current tax
liabilities
(17) (17) Provisions
- ----------------------------------------------------------------------------------------------------------------------
(1,920) - 8 (17) - - (1,929)
- ----------------------------------------------------------------------------------------------------------------------
Net current
assets 512 - - (17) - - 495
- ----------------------------------------------------------------------------------------------------------------------
Total assets
less current
liabilities 12,043 - - (17) - - 12,026
- ----------------------------------------------------------------------------------------------------------------------
Non- current
liabilities
Creditors:
amounts
falling due
after more
than one year (1,423) 48 (1,375) Borrowings
(16) (16) Retirement
benefit
obligation
(48) (48) Trade and
other
payables
(134) (134) Deferred tax
liability
Provisions for
liabilities
and charges (217) 167 (50) Provisions
- ----------------------------------------------------------------------------------------------------------------------
Net assets 10,403 - - - - - 10,403 Net assets
- ----------------------------------------------------------------------------------------------------------------------
Capital and
reserves
Called up
share capital 9 9 Ordinary
share
capital
Share premium 4 4 Share
premium
Other reserves 10,513 10,513 Other
reserves
Profit and
loss account (123) (123) Retained
earnings
- ----------------------------------------------------------------------------------------------------------------------
Shareholders'
funds 10,403 - - - - - 10,403 Total
equity
- ----------------------------------------------------------------------------------------------------------------------
Consolidated cash flow statement - IFRS format
Six months ended 30 September 2004
UK IFRS
GAAP adjustments IFRS
GBPm GBPm GBPm
- --------------------------------------------------------------------------------
Cash flows from operating activities
Cash generated from operations 787 - 787
Tax paid (4) - (4)
- --------------------------------------------------------------------------------
Net cash from operating activities 783 - 783
- --------------------------------------------------------------------------------
Cash flows from investing activities
Purchase of property, plant and equipment (579) 45 (534)
Purchase of intangible assets (57) (45) (102)
Management of other financial assets (147) 160 13
Dividends received from associated
undertakings 7 - 7
Interest received 12 1 13
- --------------------------------------------------------------------------------
Net cash used in investing activities (764) 161 (603)
- --------------------------------------------------------------------------------
Cash flows from financing activities
Net proceeds from issue of ordinary share
capital 1 - 1
Interest paid (22) - (22)
Purchase of own shares (1) - (1)
Settlement of cross-currency swaps 22 - 22
Settlement of forward foreign exchange (1) - (1)
contracts
Repayment of borrowings including finance (11) - (11)
leases
- --------------------------------------------------------------------------------
Net cash used in financing activities (12) - (12)
- --------------------------------------------------------------------------------
Net increase/(decrease) in cash and cash 7 161 168
equivalents
- --------------------------------------------------------------------------------
Cash and cash equivalents at start of 23 645 668
year
Exchange gains/(losses) on cash and cash - 7 7
equivalents
- --------------------------------------------------------------------------------
Cash and cash equivalents at end of year 30 813 843
- --------------------------------------------------------------------------------
Consolidated net debt
As at 30 September 2004
UK IFRS
GAAP adjustments IFRS
GBPm GBPm GBPm
- --------------------------------------------------------------------------------
Cash and cash equivalents 30 813 843
Other financial assets 1,163 (813) 350
- --------------------------------------------------------------------------------
1,193 - 1,193
Euro medium-term notes (net of issue (1,056) (24) (1,080)
costs)
Non-current derivative financial - 23 23
instruments
Loan notes (7) - (7)
Obligations under finance leases and hire
purchase (333) - (333)
contracts
Other loans and borrowings (33) - (33)
- --------------------------------------------------------------------------------
Net debt (236) (1) (237)
- --------------------------------------------------------------------------------
5. IFRS transitional balance sheet at 1 April 2004
Transition consolidated balance sheet - IFRS format
As at 1 April 2004
UK IFRS
GAAP adjustments IFRS
(audited) (unaudited) (unaudited)
GBPm GBPm GBPm
- --------------------------------------------------------------------------------
Assets
Non-current assets
Property, plant and equipment 3,996 (530) 3,466
Goodwill 3,189 - 3,189
Other intangible assets 4,165 517 4,682
Derivative financial instruments - 56 56
Investments in joint ventures and
associated undertakings 5 - 5
- --------------------------------------------------------------------------------
11,355 43 11,398
- --------------------------------------------------------------------------------
Current assets
Inventory 84 - 84
Trade and other receivables 943 (4) 939
Derivative financial instruments - 2 2
Other financial assets 993 (645) 348
Cash and cash equivalents 23 645 668
- --------------------------------------------------------------------------------
2,043 (2) 2,041
- --------------------------------------------------------------------------------
Current liabilities
Borrowings (53) (16) (69)
Derivative financial instruments - (1) (1)
Trade and other payables (1,616) 12 (1,604)
Current tax liabilities (9) - (9)
Provisions (26) - (26)
- --------------------------------------------------------------------------------
(1,704) (5) (1,709)
- --------------------------------------------------------------------------------
Net current assets 339 (7) 332
- --------------------------------------------------------------------------------
Total assets less current liabilities 11,694 36 11,730
- --------------------------------------------------------------------------------
Non-current liabilities
Borrowings (1,328) (58) (1,386)
Retirement benefit obligations (16) (89) (105)
Trade and other payables (47) 11 (36)
Deferred tax liabilities (137) (358) (495)
Provisions (72) - (72)
- --------------------------------------------------------------------------------
(1,600) (494) (2,094)
- --------------------------------------------------------------------------------
Net assets 10,094 (458) 9,636
- --------------------------------------------------------------------------------
Equity
Ordinary share capital 9 - 9
Share premium 3 - 3
Other reserves 11,074 (2) 11,072
Retained earnings (992) (456) (1,448)
- --------------------------------------------------------------------------------
Total equity 10,094 (458) 9,636
- --------------------------------------------------------------------------------
UK GAAP to IFRS restatement - detailed adjustments in IFRS format
Consolidated balance sheet
As at 1 April 2004
-----------------------------------------------------------------------------
Adjustments
-----------------------------------------------------------------------------
3 5 6 8 9 10 12
UK Pension Financial UMTS Deferred Other Software Cash IFRS
GAAP instruments licence taxation employee reclass reclass
creditor benefits
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
- --------------------------------------------------------------------------------------------------------------------
Assets
Non-current assets
Property,
plant and
equipment 3,996 (530) 3,466
Goodwill 3,189 3,189
Other
intangible
assets 4,165 (13) 530 4,682
Derivative
financial
instruments - 56 56
Investments in
joint ventures
and associated
undertakings 5 5
- --------------------------------------------------------------------------------------------------------------------
11,355 - 56 (13) - - - - 11,398
- --------------------------------------------------------------------------------------------------------------------
Current assets
Inventory 84 84
Trade and
other
receivables 943 (4) 939
Derivative
financial
instruments - 2 2
Other
financial
assets 993 (645) 348
Cash and cash
equivalents 23 645 668
- --------------------------------------------------------------------------------------------------------------------
2,043 (4) 2 - - - - - 2,041
- --------------------------------------------------------------------------------------------------------------------
Current liabilities
Borrowings (53) (16) (69)
Derivative
financial
instruments - (1) (1)
Trade and
other payables (1,616) 14 (2) (1,604)
Current tax
liabilities (9) (9)
Provisions (26) (26)
- --------------------------------------------------------------------------------------------------------------------
(1,704) - (3) - - (2) - - (1,709)
- --------------------------------------------------------------------------------------------------------------------
Net current
assets 339 (4) (1) - - (2) - - 332
- --------------------------------------------------------------------------------------------------------------------
Total assets
less current
liabilities 11,694 (4) 55 (13) - (2) - - 11,730
- --------------------------------------------------------------------------------------------------------------------
Non-current
liabilities
Borrowings (1,328) (58) (1,386)
Retirement
benefit
obligations (16) (89) (105)
Trade and
other payables (47) 11 (36)
Deferred tax
liabilities (137) (358) (495)
Provisions (72) (72)
- --------------------------------------------------------------------------------------------------------------------
(1,600) (89) (58) 11 (358) - - - (2,094)
- --------------------------------------------------------------------------------------------------------------------
Net assets 10,094 (93) (3) (2) (358) (2) - - 9,636
- --------------------------------------------------------------------------------------------------------------------
Equity
Ordinary share
capital 9 9
Share premium 3 3
Other reserves 11,074 (2) 11,072
Retained
earnings (992) (93) (1) (2) (358) (2) (1,448)
- --------------------------------------------------------------------------------------------------------------------
Total equity 10,094 (93) (3) (2) (358) (2) - - 9,636
- --------------------------------------------------------------------------------------------------------------------
UK GAAP to IFRS format reconciliation
Consolidated transition balance sheet
As at 1 April 2004
-----------------------------------------------
Reclassifications
-----------------------------------------------
As Goodwill Provisions Current Non-current UK GAAP
previously analysis liabilities liabilities balances
reported in
IFRS
format
GBPm GBPm GBPm GBPm GBPm GBPm
- -----------------------------------------------------------------------------------------------------------------
Fixed assets Non current
assets
3,189 3,189 Goodwill
Intangible
assets 7,354 (3,189) 4,165 Other
intangible
assets
Tangible
assets 3,996 3,996 Property, plant
and equipment
Investments 5 5 Investments in
JV's and
associates
11,355 - - - - 11,355
- -----------------------------------------------------------------------------------------------------------------
Current assets Current
assets
Stocks 84 84 Inventory
Debtors 943 943 Trade and other
receivables
Investments 993 993 Other financial
assets
Cash at bank
and in hand 23 23 Cash and cash
equivalents
- -----------------------------------------------------------------------------------------------------------------
2,043 - - - - 2,043
Current
liabilities
Creditors:
amounts
falling due
within one
year (1,678) 1,625 (53) Borrowings
(1,616) (1,616) Trade and other
payables
(9) (9) Current tax
liabilities
(26) (26) Provisions
- -----------------------------------------------------------------------------------------------------------------
(1,678) - (26) - - (1,704)
- -----------------------------------------------------------------------------------------------------------------
Net current
assets 365 - (26) - - 339
- -----------------------------------------------------------------------------------------------------------------
Total assets
less current
liabilities 11,720 - (26) - - 11,694
- -----------------------------------------------------------------------------------------------------------------
Non- current
liabilities
Creditors:
amounts
falling due
after more
than one year (1,375) 47 (1,328) Borrowings
(16) (16) Retirement
benefit
obligation
(47) (47) Trade and other
payables
(137) (137) Deferred tax
liability
Provisions for
liabilities
and charges (251) 179 (72) Provisions
- -----------------------------------------------------------------------------------------------------------------
Net assets 10,094 - - - - 10,094 Net assets
- -----------------------------------------------------------------------------------------------------------------
Capital and reserves
Called up
share capital 9 9 Ordinary share
capital
Share premium 3 3 Share premium
Other reserves 11,074 11,074 Other
reserves
Profit and
loss account (992) (992) Retained
earnings
Shareholders'
funds 10,094 - - - - 10,094 Total equity
- -----------------------------------------------------------------------------------------------------------------
Consolidated net debt
As at 1 April 2004
UK IFRS
GAAP adjustments IFRS
(audited) (unaudited) (unaudited)
GBPm GBPm GBPm
- --------------------------------------------------------------------------------
Cash and cash equivalents 23 645 668
Other financial assets 993 (645) 348
- --------------------------------------------------------------------------------
1,016 - 1,016
Euro medium-term notes (net of issue
costs) (1,012) (58) (1,070)
Non-current derivative financial
instruments - 56 56
Loan notes (8) - (8)
Obligations under finance leases and
hire purchase contracts (325) - (325)
Other loans and borrowings (37) - (37)
- --------------------------------------------------------------------------------
Net debt (366) (2) (368)
- --------------------------------------------------------------------------------
6. PricewaterhouseCoopers opinions
Special purpose audit report of PricewaterhouseCoopers LLP to O2 plc on its
consolidated IFRS financial information at 1 April 2004 and for the year ended
31 March 2005
We have audited the accompanying consolidated IFRS balance sheet and related
notes of O2 plc ('the Company') as at 1 April 2004 and 31 March 2005, and the
consolidated IFRS income statement, consolidated statement of recognised income
and expense and consolidated cash flow statement for the year ended 31 March
2005 (hereinafter referred to as 'the IFRS financial information") set out on
pages13 to 18 and pages 25 to 28.
Respective responsibilities of directors and PricewaterhouseCoopers LLP
The IFRS financial information is the responsibility of, and has been approved
by, the directors. It has been prepared as part of the Company's conversion to
IFRS in accordance with the basis set out in the 'Basis of preparation' section.
Our responsibilities, as independent auditors, are established in the United
Kingdom by the Auditing Practices Board, our profession's ethical guidance and
the terms of our engagement. Under the terms of engagement we are required to
report to you our opinion as to whether the IFRS financial information has been
prepared, in all material respects, in accordance with the basis of preparation
set out in section 1 of the IFRS financial information on pages 3 to 6.
This report, including the opinion, has been prepared for and only for the
Company for the purposes of assisting with the Company's conversion to IFRS and
for no other purpose. We do not, in giving this opinion, accept or assume
responsibility for any other purpose or to any other person to whom this report
is shown or into whose hands it may come save where expressly agreed by our
prior consent in writing. We also read the other information accompanying the
IFRS financial information and consider whether it is consistent with the IFRS
financial information. We consider the implications for our report if we become
aware of any apparent misstatements or material inconsistencies with the IFRS
financial information.
Basis of audit opinion
We conducted our audit in accordance with Auditing Standards issued by the UK
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the IFRS financial
information. It also includes an assessment of the significant estimates and
judgements made by the directors in the preparation of the IFRS financial
information, and of whether the accounting policies are appropriate to the
Company's circumstances and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the IFRS financial
information is free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the IFRS financial information.
Emphasis of matter
Without qualifying our opinion, we draw attention to the basis of preparation
set out in section 1 which explains that the IFRS financial information has been
prepared in accordance with the accounting policies the directors expect to
adopt in the Company's first set of consolidated statutory financial statements
prepared on an IFRS basis for the year ending 31 March 2006. However, there is
the possibility that the IFRS financial information may require adjustment
before its inclusion as comparative information in those financial statements as
IFRS is subject to on-going review and endorsement by the EU, could be amended
by interpretative guidance issued by the International Accounting Standards
Board and practice is continuing to evolve.
Moreover, we draw attention to the fact that, under IFRS, only a complete set of
financial statements comprising an income statement, balance sheet, statement of
recognised income and expense, cash flow statement, together with comparative
financial information and explanatory notes, can provide a fair presentation of
the Company's financial position, results of operations and cash flows in
accordance with IFRS.
Opinion
In our opinion, the accompanying IFRS financial information as at 1 April 2004
and for the year ended 31 March 2005 has been prepared, in all material
respects, in accordance with the basis of preparation set out in section 1 on
pages 3 to 6, which describes how IFRS have been applied under IFRS 1, including
the assumptions made by the directors of the Company about the standards and
interpretations expected to be effective, and the policies expected to be
adopted, when they prepare the first complete set of consolidated financial
statements of the Company on an IFRS basis for the year ending 31 March 2006.
PricewaterhouseCoopers LLP
Chartered Accountants
London
19 July 2005
Special purpose review report of PricewaterhouseCoopers LLP to O2 plc on its
consolidated IFRS financial information for the six months ended 30 September
2004
We have been instructed by O2 plc ("the Company") to review the accompanying
consolidated IFRS balance sheet and related notes of the Company as at 30
September 2004, and the consolidated IFRS income statement, consolidated
statement of recognised income and expense and consolidated cash flow statement
for the six months ended 30 September 2004, (hereinafter referred to as 'the
IFRS interim financial information") set out on pages 19 to 24.
Directors' responsibilities
The IFRS interim financial information is the responsibility of, and has been
approved by, the directors. It has been prepared as part of the Company's
conversion to IFRS in accordance with the basis set out in the 'Basis of
preparation' section.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board for use in the United Kingdom. A review
consists principally of making enquiries of Group management and applying
analytical procedures to the IFRS interim financial information and underlying
financial data and, based thereon, assessing whether the accounting policies and
presentation have been consistently applied unless otherwise disclosed. A review
excludes audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with United Kingdom auditing standards and therefore
provides a lower level of assurance than an audit. Accordingly, we do not
express an opinion on the IFRS interim financial information. This report,
including the conclusion, has been prepared for and only for the Company for the
purpose of the Company's conversion to IFRS and for no other purpose. We do not,
in producing this report, accept or assume responsibility for any other purpose
or to any other person to whom this report is shown or into whose hands it may
come save where expressly agreed by our prior consent in writing.
Emphasis of matter
Without qualifying our opinion, we draw attention to the basis of preparation
set out in section 1 which explains that the IFRS interim financial information
has been prepared in accordance with the accounting policies the directors
expect to adopt in the Company's first interim financial statements prepared in
accordance with the accounting policies expected to be applied in the Group's
first IFRS financial statements for the year ending 31 march 2006.. However,
there is the possibility that the IFRS interim financial information may require
adjustment before its inclusion as comparative information in that financial
statement as IFRS is subject to on-going review and endorsement by the EU, could
be amended by interpretative guidance issued by the International Accounting
Standards Board and practice is continuing to evolve.
Moreover, we draw attention to the fact that, under IFRS, only a complete set of
interim financial statements comprising an income statement, balance sheet,
statement of recognised income and expense, cash flow statement, together with
comparative financial information and explanatory notes, can provide a fair
presentation of the Company's financial position, results of operations and cash
flows in accordance with IFRS.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the IFRS interim financial information for the six months
ended 30 September 2004, which has been prepared in accordance with the basis of
preparation set out in section 1 on pages 3 to 6, which describes how IFRS have
been applied under IFRS 1, including the assumptions made by the directors of
the Company about the standards and interpretations expected to be effective,
and the policies expected to be adopted, when they prepare the first complete
set of consolidated financial statements of the Company on an IFRS basis for the
year ending 31 March 2006.
PricewaterhouseCoopers LLP
Chartered Accountants
London
19 July 2005
Cautionary statement Regarding Forward-Looking Statements
This document contains certain forward-looking statements. We may also make
written or oral forward-looking statements in:
our annual report and accounts and half-yearly reports;
our press releases and other written materials; and
oral statements made by our officers, directors or employees to third parties.
We have based these forward-looking statements on our current plans,
expectations and projections about future events. These forward-looking
statements are subject to risks, uncertainties and assumptions about us.
Forward-looking statements speak only as of the date they are made.
Statements that are not historical facts, including statements about our beliefs
and expectations are forward-looking statements. Words like "believe,"
"anticipate," "expect," "intend," "seek," "will," "plan," "could," "may,"
"might," "project," "goal," "target" and similar expressions often identify
forward-looking statements but are not the only ways we identify these
statements.
These statements may be found in this document generally. Our actual results
could differ materially from those anticipated in these forward-looking
statements as a result of various factors, including all the risks discussed in
the above-mentioned sections.
If any one or more of the foregoing assumptions are ultimately incorrect, our
actual results may differ from our expectations based on these assumptions.
Also, the sector and markets in which we operate may not grow over the next
several years as expected, or at all. The failure of these markets to grow as
expected may have a material adverse effect on our business, operating results
and financial condition and the market price of our ordinary shares.
The information on our web site, any web site mentioned in this document or any
web site directly or indirectly linked to our or any other web site mentioned in
this document is not incorporated by reference into this document and you should
not rely on it.
O2 plc contacts:
Richard Poston David Boyd
Director, Corporate Affairs Head of Investor Relations
O2 plc O2 plc
richard.poston@o2.com david.boyd@o2.com
- ----------------------- -------------------
t: +44 (0)1753 628039 t: +44 (0)1753 628230
David Nicholas John Crosse
Director of Communications Investor Relations Manager
O2 plc O2 plc
david.nicholas@o2.com john.crosse@o2.com
- ----------------------- --------------------
t: +44 (0) 771 575 9176 t: +44 (0)1753 628198
Simon Gordon
Head of Media Relations
O2 plc
simon.gordon@o2.com
t: +44 (0)771 007 0698
O2 press office: 01753 628402
All O2 Group news releases can be accessed at our web site: www.o2.com
(end)
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
O2 plc
Date: 20 July 2005 By:___/s/ Robert Harwood___
ROBERT HARWOOD
Assistant Secretary