Transition to IFRS. Investor Day. (International Financial Reporting Standards) February 1, 2005

Transcription

1 Transition to IFRS (International Financial Reporting Standards) Investor Day February 1,

2 Important The purpose of this presentation is solely to provide a provisional and non-exhaustive estimate of the main accounting impacts of the application of the IFRS standards on the historical consolidated financial statements of the Lagardère Group as prepared under French generally accepted accounting principles (GAAP). The financial estimates and information contained in this presentation, which reflect the impacts mentioned above, have not been audited by Lagardère SCA s auditors and are based on the latest known valuations as at the date of this presentation. They should be read as non-definitive estimates released as at this date, and they are therefore subject to change in the future. The fact that such financial estimates and information are disclosed in this presentation shall in no event have the effect of (or be construed as) imposing on the Lagardère Group any obligation to revise or update them, whether as a result of new information, future events or circumstances, or otherwise. The Lagardère Group will issue in the course of May 2005 the disclosures required on this subject by the Autorité des Marchés Financiers (AMF). This presentation is not intended to substitute for these disclosures. 2

3 Table of contents Key objectives and regulatory framework p. 4 to financial reporting calendar p. 6 Note relating to EADS p. 7 IFRS the basics p. 8 to 12 Impact on P&L statement p. 13 to 23 Impact on balance sheet p. 24 to 28 IFRS cash flow statement p. 29 to 30 Conclusion p. 31 3

4 Key objectives Describe the main impacts identified to date relating to the implementation of IFRS Address questions raised by the introduction of IFRS Set out the Group s financial reporting calendar 4

5 Regulatory framework A European Union regulation requires all companies listed on a European stock exchange to prepare their consolidated financial statements under IFRS with effect from January 1, 2005 Consequences: Publication of Q sales under IFRS Publication of Lagardère Group consolidated financial statements under IFRS, starting with interim statements as of June 30, 2005 Restatement of 2004 comparatives (excluding IAS 39 on financial instruments, effective from January 1, 2005). first-time application of IFRS = opening balance sheet as of January 1,

6 Lagardère Group 2005 Financial Reporting Calendar February 1, 2005 : Investor Day March 10, 2005 (evening) : French GAAP financial statements for year ending December 31, 2004 Mid-May 2005: Q1 sales (IFRS) May 16, 2005 : IFRS financial statements for year ending December 31, 2004 End of July 2005 : Half-year sales (IFRS) September 14, 2005 : Half-year financial statements (IFRS) 6

7 Note relating to the consolidation of EADS IFRS, in their current form, require no change to the existing method (proportional consolidation under French GAAP ) used by the Lagardère Group to account for its investment in EADS. This presentation relates to the entire Lagardère Group except for issues relating to the consolidation of EADS. However, it should be noted that the EADS Group already prepares its consolidated financial statements in accordance with IFRS. 7

8 IFRS the basics The IFRS framework includes the following standards: International Accounting Standards (IAS) 1 to 41 International Financial Reporting Standards (IFRS) 1 to 5 Transition from French GAAP to IFRS will impact Lagardère at three levels: First Time Application: opening balance sheet (January 1, 2004) Valuation: net income will be impacted by the new standards Presentation: the format of the financial statements will change The following slides will present each of these modifications separately; firstly for the P&L statement, and secondly for the balance sheet Limitations: As of the date of this presentation, we are still evaluating the impact of the restatement relating to Associates on the stockholders equity and net income 8

9 Options available under IFRS The main options available under IFRS and adopted by Lagardère are: Non-application of the fair value option Business combinations prior to January 1, 2004 not restated No revaluation of property, plant and equipment at market value (maintained at historical cost) IAS 39 & 32 (financial instruments) applied from January 1, 2005, and not from the optional early application date of January 1,

10 Significant IFRS for Lagardère: P&L statement Standards with a valuation impact IFRS 2 : Share-Based Payment IFRS 3 : Business Combinations Standard with a presentation impact IAS 18 : Revenue Recognition Standard still under evaluation IAS 39 : Financial Instruments effective date January 1,

11 Significant IFRS for Lagardère: balance sheet Standards with valuation impact IAS 12 : Deferred Taxes IAS 19 : Employee Benefits Standards with presentation impact TSDI (perpetual subordinated notes) Classification of balance sheet items between current and non current Standard still under evaluation IAS 39 : Financial Instruments effective date January 1,

12 Segment reporting (IAS 14) No impact on Lagardère Reportable business segments will remain unchanged Book Publishing Press Publishing Distribution Services Lagardere Active Other activities 12

13 Significant IFRS for Lagardère Part I: P&L Statement 13

14 IAS 18 Revenue Recognition 1/3 Reclassification The Group carried out a review of all criteria used in the presentation of Lagardère sales. The conclusions are based on the Group s interpretation of IFRS, augmented as necessary by a review of the practices reported by European and American groups operating in the same sectors as Lagardère. The main reclassifications identified by our review, which have no impact on operating income, are: Sales will be reported net of distribution commission (Magazine Publishing and Partworks); under French GAAP, this commission was recorded as an expense. The Distribution Commission will be recognized in sales (instead of as a purchase and a sale) in the case of national distribution activities (Curtis Distribution Services division) and advertising sales activities (Lagardere Active) Exchanges of similar goods and services will be eliminated. 14

15 Sales to June 30, 2004 restated under IFRS 2/3 m Reported French GAAP sales 06/30/2004 Commissions on Distribution Commission Based Sales Exchanges of similar goods & services Other Restatement sub-total IFRS sales 06/30/2004 % change Book Publishing 580 (5) (5) % Press Publishing 1,043 (135) (7) (10) (152) % Distribution Services 2,119 (367) (1) (368) 1, % Lagardere Active 318 (39) (10) (1) (50) % Total Lagardère Media 4,060 (140) (406) (17) (12) (575) 3, % 15

16 IAS 18 cont d. Financial income directly attributable to operations (Reclassification) 3/3 Under French GAAP, interest and similar income arising on surplus cash is recorded as financial income, below the operating income line. Under IFRS, interest and similar income generated by operations must be included in operating income. Consequently, interest and similar income generated by the negative working capital requirements of the Distribution business will be reclassified in Other income from ordinary activities. Estimated impact for 6 months to June 30, 2004: + 5m 16

17 IFRS 2 Share-Based Payment (valuation) 1/2 Stock option plans giving grantees the right to purchase or subscribe for shares at a price agreed at the grant date are not recognized in the French GAAP financial statements. Under IFRS, an expense is recognized representing the benefit to the grantees, calculated as at the grant date. This expense is spread over the vesting period (two years for the Lagardère Group). The corresponding entry for the expense is taken against stockholders equity. During the vesting period, the expense may be adjusted if grantees leave the company or if options are forfeited. The expense is not adjusted to reflect subsequent movements in the share price. 17

18 IFRS 2 Share-Based Payment 2/2 For the Lagardère Group, IFRS 2 takes effect with the December 2003 plan. Earlier plans are outside the scope of first-time application of IFRS 2. The expense to be recognized for the December 2003 plan is around 26m, split between 2004 and This accounting charge has no cash impact. Impact on stockholders equity as of Jan 1, 2004 none Estimated net income impact as of June 30, m Estimated impact on 2004 net income - 13m Any future stock option plans will generate additional accounting charges, which cannot be estimated at this stage. 18

19 IFRS 3 Business combinations (valuation) Under French GAAP, Lagardere amortizes its goodwill over a maximum period of 20 years. Impairment tests are carried out on activities when there is an indication of a loss in value, and writedowns are taken as a non-operating expense if the economic value of an activity is less than its book value. Under IFRS, goodwill is not amortized. Impairment tests are carried out at least once a year, and write-downs recognized in the same way as under French GAAP. In the Lagardère Group financial statements (excluding EADS), goodwill amortization was 79m in 2003 ( 78m in 2002). 19

20 Other reclassifications in P&L statement The following reclassifications will change the presentation of the Lagardère Group s financial statements. These items, which were below the French GAAP Operating Income ( Résultat d exploitation ) line, will now be included in IFRS EBIT ( Résultat avant charges financières et impôts ). Non-operating items Portion of interest income/expense not strictly related to cash/debt Results from Associates 20

21 Definitions of new indicators French Résultat d exploitation (normes françaises) English m to 06/30/04 Operating Income (French GAAP) 190 Stock options Stock options (6) Produits financiers directement imputables à l exploitation Part du résultat financier non relatif au service de la dette Interest income directly related to operations Portion of interest income/expense not strictly related to cash and debt 5 (1) Résultat exceptionnel (normes françaises) Non-Operating items (French GAAP) (6) Plus ou moins values de cession Net capital gains/losses 5 Perte de valeur sur immobilisations incorporelles Write-downs of goodwill & other intangibles (4) Coûts de restructuration Restructuring costs (2) Autres Other (5) Résultat des sociétés mises en équivalence Results from Associates 32 Résultat avant charges financières et impôts (IFRS) EBIT (IFRS)

22 Definition of a new profitability indicator In order to provide an indicator that reflects, according to the Group, the recurring profitability of operations, Lagardère has developed a new indicator based on IFRS EBIT (Résultat avant charges financières et impôts) the last line in the table on the previous page. This indicator which the Group has defined as Recurring EBIT before Associates ( Résultat opérationnel courant des sociétés intégrées ), requires the following adjustments: French English m 06/30/04 Résultat avant charges financières et impôts (IFRS) EBIT (IFRS) 214 Plus ou moins values de cession Net capital gains/losses (5) Pertes de valeur sur immobilisations incorporelles Write-downs of goodwill & other intangibles 6 Coûts de restructuration Restructuring costs 2 Résultat opérationnel courant Recurring EBIT 217 Résultat des sociétés mises en équivalence Results from Associates (32) Résultat opérationnel courant des sociétés intégrées Recurring EBIT before Associates

23 Summary: main impacts on 2004 P&L statement Estimate Reclassifications: 06/30/04 Impact on sales (no impact on net income) - 575m -14% Adjustments: Elimination of goodwill amortization + 39m Expense related to stock option plan (*) - 6m (*2003 stock option plan only) 23

24 Significant IFRS for Lagardère Part II: Balance sheet 24

25 IAS 12 Deferred Taxes (valuation) IAS 12 requires recognition of deferred taxes on all differences between the accounting and tax value of assets and liabilities. Under French GAAP, deferred tax liabilities were not recorded : - on intangibles that were recognized in a business combination and which could not be sold separately from the acquired enterprise, - on the difference between the book value of investments in associates (consolidated under the equity method) and their tax value. IAS 12 also prohibits any discounting of deferred taxes. The Lagardère Group will therefore have to recognize additional deferred tax liabilities calculated on the difference between the accounting value of intangibles and investments in associates and their tax value. The tax value of intangibles is usually zero. These extra charges will be netted against stockholders equity as at January 1,

26 IAS 19 Employee Benefits (valuation) IAS 19 requires the recognition, via provisions, of all obligations arising from benefits granted to employees under a definedbenefit plan when and after they leave the enterprise. The standard also defines the actuarial valuation method to be used, which may differ in some respects from local GAAP methods. Lagardère has identified all defined-benefit plans within Group entities and carried out an actuarial valuation of its obligations in accordance with the principles set out in IAS 19. Additional provisions will be required in the opening balance sheet as at January 1,

27 Perpetual subordinated notes (TSDI) The 1988 TSDIs, included in Total permanent funds in the French GAAP financial statements, have passed the 15-year trigger date (February 2004) after which interest payments are reimbursed in full by a bank, such that the effective interest expense is zero. These TSDIs will be reclassified as borrowings in the January 1, 2004 opening balance sheet, after offsetting the related premium, resulting in a net amount of 2M. The 1992 TSDIs were restructured in 1996 and are held in a dedicated securitization fund. The fund acquired the TSDIs using debt contracted with external investors. Under IFRS, the fund qualifies as a Special Purpose Company and will be consolidated. The 1992 TSDIs, and the related premium, will be eliminated and replaced by the external debt contracted by the fund ( 62M as at January 1, 2004), recorded in borrowings. Net bank debt increases by 64m 27

28 Other Items Identified IAS 17 - Leases Under IFRS, rents payable under operating leases have to be charged to the profit and loss account on a straight line basis. Therefore, rents which are not linear over the duration of the lease, will have to be restated accordingly. 28

29 IFRS Cash Flow statement EBIT (IFRS) Depreciation Impairment losses, provisions & other non-monetary items (Gain)/loss on disposals of assets Dividends received from associates Results from associates Cash flow from operations before interest, taxes and changes in working capital requirements Change in working capital requirements Net cash flow from operations Interest paid / received Income taxes paid Net cash flow from operations after interest and taxes Content changed Previously included in net cash flow from operations 29

30 IFRS Cash Flow statement New features introduced in the IFRS format Net cash flow from operations (content changed) is now presented before interest paid / received and taxes Interest paid and received, and taxes paid, are shown separately Net cash flow from operations after interest and taxes (new line in the IFRS format) is the sum of the items listed above, and is equivalent to Net cash flow from operations as previously shown in the French GAAP Cash Flow statement No change to presentation of: - Net cash flows from investments - Net cash flows from financing activities The net increase/decrease in cash is the same under French GAAP and IFRS 30

31 Conclusion Next steps IAS 39 Results from associates Completion of Audit Committee review and audit process May 16, 2005 presentation Compared to French GAAP Reduction in stockholders equity Increase in net bank debt of 64m Net income impacted by stock options & elimination of GW amortization Recurring EBIT before associates becomes new profitability indicator 31