RNS Number : 9280U
Western & Oriental plc
21 May 2008
Western & Oriental plc
Transition to International Financial Reporting Standards
21 May 2008
Western & Oriental plc, the specialist luxury travel group, will present consolidated financial statements prepared in accordance with
International Financial Reporting Standards, as adopted by the European Union (Adopted IFRS) for periods commencing on or after 1 January
2007.
As part of the transition to IFRS, Western & Oriental plc today presents its comparative balance sheets at the transition date (1
October 2006), income statements and balance sheets for the six months ended 31 March 2007, the full year ended 30 September 2007 and key
accounting policies.
The transition to IFRS is an accounting change only and does not reflect a change in the operations or the underlying economic position
of the Group. It has not had a significant impact on the underlying operating profit of the Group before accounting for goodwill
amortisation and impairment and the amortisation of intangible assets.
As a result of the transition to IFRS:
* Revenues and gross profits are unaffected;
* The net impact of the cessation of goodwill amortisation, the amortisation of intangible assets, the recognition in the movement
in the fair values of derivative instruments and the derecognition of assets relating to prepaid brochure costs has increased Group
operating loss by £278,000 for the six months ended 31 March 2007 and by £612,000 for the year ended 30 September 2007;
* Movements in deferred tax balances have resulted in tax credits in the income statement of £84,000 in the six months ended 31
March 2007 and £271,000 in the year to 30 September 2007;
* The basic and fully diluted loss per share has increased from 0.89p to 1.27p for the six months to 31 March 2007 and from 1.96p to
2.31p for the year ended 30 September 2007;
* Capital and reserves at the date of transition (1 October 2006) have been reduced by £132,000. Capital and reserves have been
reduced by £326,000 at 31 March 2007 and by £474,000 at 30 September 2007;
* Cash balances and net cash flow are unaffected.
Enquiries:
Western & Oriental plc
Steven Hall 020 7821 4076
Collins Stewart
Adrian Hadden/Oliver Quarmby 020 7523 8350
Temple Bar
Tom Allison/Caroline Merrell 020 7002 1080
1. Introduction
Western & Oriental plc ("the Company") is a company domiciled in the United Kingdom. The consolidated financial information of the
Company comprises the Company and its subsidiaries (together referred to as "the Group").
The consolidated financial statements of the group as at and for the year ended 30 September 2007 are available on request from the
Company's registered office at Welby House, 96 Wilton Road, London SW1V 1DW or at www.westernorientalplc.com.
Following a change in the rules of the Alternative Investment Market (AIM), the Company is required to present its consolidated
financial statements in accordance with EU-adopted International Financial Reporting Standards (Adopted IFRS) for periods commencing on or
after 1 January 2007.
The Group will present results under Adopted IFRS for the first time for the six months ended 31 March 2008 together with restated
comparatives for the half year ended 31 March 2007 and year ended 30 September 2007.
This unaudited announcement presents and explains the Group's restated results for the half year ended 31 March 2007 and the year ended
30 September 2007 as converted from United Kingdom Generally Accepted Accounting Principles (UK GAAP) to Adopted IFRS.
2. Basis of preparation
The restated financial information is presented in pounds sterling, rounded to the nearest thousand. It has been prepared under the
historical cost convention, except for the revaluation of derivative financial instruments.
This financial information has been prepared on the basis of Adopted IFRSs expected to be applicable for early adoption at the Group's
first Adopted IFRS annual reporting date, 30 September 2008. Based on these Adopted IFRSs, the board of directors have made assumptions
about the accounting policies expected to be adopted (accounting policies) when the first Adopted IFRS annual financial statements are
prepared for the year ending 30 September 2008.
The Adopted IFRSs that will be effective or available for voluntary early adoption in the annual financial statements for the period
ending 30 September 2008 are still subject to change and to the issue of additional interpretations and therefore cannot be determined with
certainty. Accordingly, the accounting policies for that annual period that are relevant to this financial information will be determined
only when the first Adopted IFRS financial statements are prepared at 30 September 2008.
The preparation of the consolidated financial statements in accordance with Adopted IFRSs resulted in changes to the accounting policies
as compared with the annual financial statements for the year ended 30 September 2007, which were prepared under UK GAAP. The accounting
policies set out below have been applied consistently to periods presented in this announcement. They have also been applied in preparing an
opening Adopted IFRS balance sheet at 1 October 2006 for the purposes of the transition as required by IFRS 1. An explanation of how the
transition from UK GAAP to Adopted IFRSs has affected the Group's financial position, financial performance and cash flows is set out in
this document.
IFRS 1 grants certain exemptions from the full requirements of other Adopted IFRSs on transition. The Group has not restated figures in
relation to business combinations that took place prior to 1 October 2006 and has deemed the cumulative translation differences on the
translation of the Group's foreign subsidiary to be zero at 1 October 2006 and reclassified any amounts recognised at that date as retained
earnings. The Group had a policy of revaluing freehold land and building under UK GAAP and no longer does so under Adopted IFRS. The
revaluation reserve has been set to zero at 1 October 2006 in accordance with the provisions of IFRS 1.
IFRS 8 Operating Segments, has been endorsed for use in the EU but has not been applied as part of the transition to IFRS on the grounds
that it is not yet effective. The adoption of this standard in future periods is not expected to have a material impact on the financial
statements of the Group.
3. Basis of consolidation
The consolidated financial statements incorporate those of Western & Oriental plc and all of its subsidiary undertakings for the period.
Subsidiaries acquired during the period are consolidated using the acquisition method. Their results are incorporated from the date that
control passes to the Group. Goodwill is the difference between the consideration paid for the acquisition of subsidiaries and the fair
value of the separable net assets acquired and is capitalised and tested for impairment on an annual basis. Provision is made for any
impairment of goodwill.
4. Significant accounting policies
The financial information has been prepared under the historical cost convention, except for derivative financial instruments which have
been stated at fair value.
GOODWILL
In respect of acquisitions that have occurred since 1 October 2006, goodwill represents the excess of the cost of the acquisition over
the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the business acquired. When
the excess is negative (negative goodwill), it is recognised immediately in the income statement.
As part of its transition to Adopted IFRS, the Group elected to restate only those business combinations that occurred on or after 1
October 2006. In respect of acquisitions prior to 1 October 2006, goodwill represents the amount recognised under the Group's previous
accounting framework, UK GAAP, being the goodwill arising on acquisition less any subsequent amortisation and impairment.
IMPAIRMENT
The carrying value of the Group's assets are reviewed at each balance sheet date to determine whether there is any indication of
impairment. If any such indication exists, the asset's recoverable amount is estimated.
For goodwill, assets that have an indefinite useful life and intangible assets that are not yet available for use, an impairment test is
carried out annually.
An impairment loss is recognised whenever the carrying value of an asset or its cash-generating unit exceeds its recoverable amount.
Impairment losses are recognised in the income statement.
INTANGIBLE FIXED ASSETS
Intangible fixed assets are stated at cost or fair value at the time of acquisition less accumulated amortisation and impairment
losses.
Amortisation is provided on all intangible assets with a finite useful economic life and charged to the income statement over the
expected useful life as follows:-
Computer software Over 3 - 5 years
Order book of acquired businesses Over the period to which travel relates
PROPERTY, PLANT AND EQUIPMENT
Items of property, plant and equipment include properties which have been stated at deemed cost, representing the fair value of the
properties at 1 October 2006 less accumulated depreciation. Other items of property, plant and equipment are stated at cost less accumulated
depreciation.
Depreciation is recognised in the income statement on a straight-line basis over the estimated useful lives of each part of an item of
property, plant and equipment. Freehold land is not depreciated. The estimated useful lives for the current and comparative period are as
follows:
Freehold buildings Over 50 years
Computers and equipment Over 5 years
Furniture, fixtures and fittings Over 4 years or the life of the lease
Other Assets Over 5 years
LEASED ASSETS AND OBLIGATIONS
Where assets are financed by leasing agreements that give rights approximating to ownership ("finance leases"), the assets are treated
as if they had been purchased outright. The amount capitalised is the lower of the fair value of the asset and the present value of the
minimum lease payments payable during the lease term on initial recognition. The corresponding leasing commitments are shown as
liabilities.
Lease payments are treated as consisting of capital and interest elements, and the interest is charged to the income statement in
proportion to the remaining balance outstanding.
All other leases are "operating leases" and the annual rentals are charged to the income statement on a straight line basis over the
lease term.
REVENUE
Revenue represents the invoiced value, net of Value Added Tax and other sales taxes, of goods sold and services provided to customers
outside the group. When the group acts in the capacity of an agent rather than as the principal, the revenue recognised is the net amount
of commission recognised by the Group.
Revenue is recognised at the point at which it is earned as follows:
Travel operator businesses - on the date of departure
Travel agency businesses - on the date of booking confirmation
Conference and incentive businesses - on the date of the event or travel as appropriate
FOREIGN CURRENCIES
Assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the balance sheet date.
Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. All differences are taken to the income
statement.
Assets and liabilities of overseas subsidiaries are translated at the rate ruling at the balance sheet date and their results are
translated at the average rate for the year. Exchange differences arising are dealt with through a foreign currency reserve. When a foreign
operation is disposed of, the relevant amount in the foreign currency reserve is transferred to retained earnings.
NON DERIVATIVE FINANCIAL INSTRUMENTS
Non-derivative financial instruments comprise trade and other receivables, cash and cash equivalents and trade and other payables.
Non derivative financial instruments are recognised initially at fair value. Subsequent to initial measurement, the non-derivative
financial instruments are measured at amortised cost using the effective interest method, less any impairment losses.
DERIVATIVE FINANCIAL INSTRUMENTS
The Group enters into forward foreign currency contracts to hedge certain foreign currency transactions. The Group does not enter into
derivative financial instruments for trading purposes.
The forward foreign currency contracts are stated at fair value at the end of the period and unrealised profits and losses on the
contracts are recognised in the income statement.
SHARE CAPITAL
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are
recognised as a deduction from equity, net of any tax effects.
INVENTORIES
Inventories represent assets held for resale. Inventories are stated at the lower of cost and net realisable value.
BROCHURE COSTS
Brochure costs are charged to the income statement as incurred.
SHARE BASED PAYMENTS
The group operates a number of share option schemes for employees. Under IFRS 2 the fair value of the employee services received in
exchange for participation in the scheme is recognised as an expense. The fair value of the expense is based on the fair value of the equity
instruments granted and the expense is spread over the vesting period and the corresponding entry is within shareholders' equity.
The group also operates a share award scheme for employees. Under IFRS 2, the fair value of the employee service received in exchange
for participation in the scheme is recognised as an expense in the income statement. The fair value of the potential award is measured at
each balance sheet date and any changes in the fair value are recognised in the income statement and the corresponding entry is within
shareholders' equity.
TAXATION
Income tax comprises current and deferred tax and is recognised in the income statement except to the extent that it relates to items
recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the
reporting date, and any adjustment to tax payable in respect of prior years.
Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the
temporary difference arising when the initial recognition of assets or liabilities in a transaction that is not a business combination and
that affects neither accounting nor taxable profit. In addition, deferred tax is not recognised for taxable temporary differences arising on
the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences
when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.
A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the
temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no
longer probable that the related tax benefit will be realised.
CASH AND CASH EQUIVALENTS
Cash, for the purposes of the cash flow statement, comprises cash in hand and deposits repayable on demand, less overdrafts repayable on
demand.
The following pages explain how Western & Oriental plc's previously reported UK GAAP financial performance and position are reported
under Adopted IFRS. They provide reconciliations from UK GAAP to Adopted IFRS for the following unaudited consolidated information:
* Balance sheets at 1 October 2006, 31 March 2007 and 30 September 2007; and
* Income statements for the six month period ended 31 March 2007 and the year ended 30 September 2007.
Western & Oriental Plc
Consolidated Balance Sheet
As at 1 October 2006
Previously Acquistions Amortisation Derivative Stocks and Deferred Restated
stated instruments brochures tax under
UK GAAP (a) (b) (c) (d) (e) Adopted IFRS
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Assets
Non-current assets
Property, plant and equipment 582 582
Goodwill 4,373 4,373
Other intangible assets 11 11
4,966 - - - - - 4,966
Current assets
Inventories 117 (21) 96
Trade and other receivables 2,303 (131) 2,172
Derivative financial - 20 20
instruments
Cash and cash equivalents 4,988 4,988
7,408 - - 20 (152) - 7,276
Total assets 12,374 - - 20 (152) - 12,242
Liabilities
Capital and reserves
Issued capital 251 251
Share premium 7,716 7,716
Share based payment reserve 58 58
Retained earnings (1,353) 20 (152) (1,485)
6,672 - - 20 (152) - 6,540
Non-current liabilities
Obligations under finance 1 1
leases
Deferred tax liabilities 11 11
Other liabilities 265 265
277 - - - - - 277
Current liabilities
Trade and other payables 5,312 5,312
Obligations under finance 1 1
leases
Current tax liabilities 112 112
5,425 - - - - - 5,425
Total liabilities 12,374 - - 20 (152) - 12,242
Note: The revaluation reserve has been set to zero at 1 October 2006 in accordance with the provisions of IFRS 1.
Western & Oriental Plc
Consolidated Balance Sheet
As at 31 March 2007
Previously Acquistions Amortisation Derivative Stocks and Deferred Restated
stated instruments brochures tax under
UK GAAP (a) (b) (c) (d) (e) Adopted IFRS
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Assets
Non-current assets
Property, plant and equipment 563 563
Goodwill 5,587 (229) 112 5,470
Other intangible assets - 326 (278) 48
6,150 97 (166) - - - 6,081
Current assets
Inventories 122 (17) 105
Trade and other receivables 3,382 (177) 3,205
Cash and cash equivalents 4,938 4,938
8,442 - - - (194) - 8,248
Total assets 14,592 97 (166) - (194) - 14,329
Liabilities
Capital and reserves
Issued capital 258 258
Share premium 7,927 7,927
Share based payment reserve 152 152
Retained earnings (1,816) (166) (50) (194) 84 (2,142)
6,521 - (166) (50) (194) 84 6,195
Non-current liabilities
Obligations under finance 1 1
leases
Deferred tax liabilities 11 97 (84) 24
Other liabilities 525 525
537 97 - - - (84) 550
Current liabilities
Trade and other payables 7,467 7,467
Derivative financial - 50 50
instruments
Obligations under finance 1 1
leases
Current tax liabilities 66 66
7,534 - - 50 - - 7,584
Total liabilities 14,592 97 (166) - (194) - 14,329
Western & Oriental Plc
Consolidated Income Statement
Six Months Ended 31 March 2007
Previously Acquistions Amortisation Derivative Stocks and Deferred Restated
stated instruments brochures tax under
UK GAAP (a) (b) (c) (d) (e) Adopted IFRS
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Revenue 16,362 16,362
Cost of sales (13,755) (70) (13,825)
Gross profit 2,607 - - (70) - - 2,537
Administrative expenses (3,156) (167) (41) (3,364)
Operating loss (549) - (167) (70) (41) - (827)
Financial income 92 92
Financial expenses - -
Foreign exchange - -
Net finance income 92 - - - - - 92
Loss before tax (457) - (167) (70) (41) - (735)
Income tax - 84 84
Loss for the period (457) - (167) (70) (41) 84 (651)
attributable to equity
shareholders
Earnings per ordinary share (pence)
- Basic and fully diluted (0.89) (1.27)
Western & Oriental Plc
Consolidated Balance Sheet
As at 30 September 2007
Previously Acquistions Amortisation Derivative Stocks and Deferred Computer Restated
stated instruments brochures tax Software under
UK GAAP (a) (b) (c) (d) (e) (f) Adopted IFRS
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Assets
Non-current assets
Property, plant and equipment 918 (98) 820
Goodwill 16,935 (1,591) 343 15,687
Other intangible assets - 2,263 (904) 98 1,457
17,853 672 (561) - - - - 17,964
Current assets
Inventories 113 (19) 94
Trade and other receivables 6,229 (171) 6,058
Derivative financial - 6 6
instruments
Cash and cash equivalents 13,413 13,413
19,755 - - 6 (190) - - 19,571
Total assets 37,608 672 (561) 6 (190) - - 37,535
Liabilities
Capital and reserves
Issued capital 1,100 1,100
Share premium 23,367 23,367
Share based payment reserve 222 222
Retained earnings (3,282) (561) 6 (190) 271 (3,756)
21,407 - (561) 6 (190) 271 - 20,933
Non-current liabilities
Obligations under finance 179 179
leases
Deferred tax liabilities 11 672 (271) 412
Other liabilities 1,350 1,350
1,540 672 - - - (271) - 1,941
Current liabilities
Trade and other payables 14,311 14,311
Obligations under finance 69 69
leases
Current tax liabilities 112 112
Provisions 169 169
14,661 - - - - - - 14,661
Total liabilities 37,608 672 (561) 6 (190) - - 37,535
Western & Oriental Plc
Consolidated Income Statement
Year Ended 30 September 2007
Previously Acquistions Amortisation Derivative Stocks and Deferred Restated
stated instruments brochures tax under
UK GAAP (a) (b) (c) (d) (e) Adopted IFRS
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Revenue 35,777 35,777
Cost of sales (29,987) (14) (30,001)
Gross profit 5,790 - - (14) - - 5,776
Administrative expenses (8,065) (561) (37) (8,663)
Operating loss (2,275) - (561) (14) (37) - (2,887)
Financial income 357 357
Financial expenses (11) (11)
Net finance income 346 - - - - - 346
Loss before tax (1,929) - (561) (14) (37) - (2,541)
Income tax - 271 271
Loss for the period (1,929) - (561) (14) (37) 271 (2,270)
attributable to equity
shareholders
Earnings per ordinary share (pence)
- Basic and fully diluted (1.96) (2.31)
Explanation of principle IFRS adjustments
(a) Under UK GAAP, the Group amortised goodwill on a straight line basis
over the useful economic life of the acquired asset. The Group amortised
goodwill over a maximum of 20 years. Goodwill was reviewed for
impairment at the end of the first full financial year following each
acquisition and subsequently when necessary, if circumstances indicated
that its carrying value may not have been recoverable. This was in
accordance with FRS 10 Goodwill and Intangible Assets and FRS 11
Impairment of Fixed Assets and Goodwill.
Under IFRS 3 Business Combinations, in a business combination, a fair
value is assigned to intangibles (such as the order book) and any
associated deferred tax liabilities arising in accordance with IAS 12
Income taxes on differences between the tax carrying amount of the
intangible assets acquired and the fair value recorded in the financial
statements.
This adjustment shows the net impact on goodwill from the recognition of
the intangible assets and the associated deferred tax liability fo
(b) Under IAS 38 Intangible Assets, goodwill is not amortised and so
goodwill previously amortised under UK GAAP is reversed. Intangible
assets are amortised over their useful lives.
The adjustment shows the amortisation of the intangible assets and the
impact on goodwill from the reversal of previously amortised goodwill.
(c) Derivative instruments are brought onto the balance sheet at their fair
value. Unrealised profits and losses on derivative contracts are
recognised in the income statement.
(d) Costs of brochures and stocks of other marketing materials have been
written off to the income statement as they do not meet the definition
of an asset under Adopted IFRS. Previously under UK GAAP these costs
were deferred and recognised in the profit and loss account over the
period to which they related.
(e) As the carrying value of the intangible assets recognised in business
combinations is amortised to the income statement, the change in the
deferred tax liability on these assets is recognised in the profit and
loss account.
(f) Under UK GAAP, the cost of purchased software was recognised as a
tangible fixed asset, whereas under Adopted IFRS, software is treated as
an intangible asset. This adjustment reclassifies the software as an
intangible asset
(g) The Group's underlying cash position is unaffected by the transition to
Adopted IFRS. However, there are a number of presentational differences
arising in the cash flows reported under IAS 7 Cash Flow Statements.
The cash flows themselves are now classified under three headings
(operating, investing and financing).
(h) The format of the income statement (formerly the profit and loss account
under UK GAAP) and the balance sheet differ under Adopted IFRS. The
preliminary statements here are presented in accordance with IAS 1,
Presentation of Financial Statements. IAS 1 does not provide definitive
guidance on the format of the income statement or balance sheet, but
states key lines that should be disclosed. It also requires additional
line items and headings to be presented on the face of the income
statement when such presentation is relevant to an understanding of the
entity's financial performance.
The numbers shown in the 'Previously stated under UK GAAP' column have
all been extracted from the financial statements and interim statements
of the Group, which were published under UK GAAP.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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