Explanation of Transition to International Financial Reporting Standards ('IFRS')

Basis of Preparation
The Group’s consolidated financial statements have been prepared in accordance with the Companies Act 1985 and United Kingdom Accounting Standards (‘UK GAAP’). UK GAAP differs in certain respects from IFRS. The Group anticipates adopting IFRS for its year ending 31 July 2008 with an opening IFRS balance sheet for its transitional year at 1 August 2006. Illustrated below are the material areas where it is expected that IFRS would impact on the Group results had it been adopted for the year ended 31 July 2006. This financial information has been prepared in accordance with IFRS endorsed as at 31 July 2006, in terms of content but not layout. As IFRS is subject to ongoing review and endorsement by the European Commission or possible amendment by the International Accounting Standards Board, possible future changes could result in an adjustment to the financial information and disclosure included in this document prior to the issue of financial statements under IFRS. A transitional statement will be issued in due course.

An explanation of how the transition from UK GAAP to IFRS would affect the Group’s financial position and financial performance is set out in the following tables and Notes that accompany the tables:

Group profit and loss account under IFRS for the year ended 31 July 2006 (unaudited)

 

 

UK GAAP 31 July 2006
£m

Effect of IFRS
£m

UK GAAP adjusted for IFRS 31 July 2006
£m

Turnover

Continuing operations

 

887.5

(780.9)

106.6

Acquisitions

 

2.6

(2.6)

-

Discontinued

 

1,173.4

(976.7)

196.7

 

Turnover

 

2,063.5

(1,760.2)

303.3

Cost of sales

 

(1,760.2)

1,760.2

-

Gross profit

 

303.3

-

303.3

 

Share option charge

 

(6.4)

(0.2)

(6.6)

Goodwill amortisation

 

(22.1)

22.1

-

Other administration expenses

 

(200.3)

-

(200.3)

Net operating expenses (including exceptional items and share option charge)

 

(228.8)

21.9

(206.9)

Operating profit before share option charge and goodwill amortisation

 

103.0

 

103.0

Share option charge

 

(6.4)

(0.2)

(6.6)

Goodwill amortisation

 

(22.1)

22.1

-

 

Operating profit/(loss)

Continuing operations

 

(5.8)

5.3

(0.5)

Acquisitions

 

(0.4)

-

(0.4)

Discontinued

 

80.7

16.6

97.3

Operating profit

 

74.5

21.9

96.4

Share of operating profit in associated undertaking

 

-

-

-

Profit on ordinary activities before interest

 

74.5

21.9

  96.4

Interest payable and similar charges

 

(3.0)

-

(3.0)

Profit on ordinary activities before taxation

 

71.5

21.9

93.4

Taxation

 

(2.0)

-

(2.0)

Profit on ordinary activities after taxation

 

69.5

21.9

91.4

Minority interest

 

0.2

-

0.2

Profit for financial year

 

69.7

21.9

91.6
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Group balance sheet under IFRS as at 31 July 2006 (unaudited)

 

Notes

UK GAAP 31 July 2006
£m

Effect of IFRS
£m

UK GAAP adjusted for IFRS 31 July 2006
£m

Fixed assets

Intangible fixed – goodwill

3

351.6

21.6

373.2

Intangible fixed – software

4

-

8.8

8.8

Tangible assets

 

16.4

(8.8)

7.6

Investments

3

8.0

0.5

8.5

 

 

376.0

22.1

398.1

Current assets

Debtors – amounts falling due within one year

 

21.9

-

21.9

Cash at bank and in hand

 

97.2

-

97.2

 

 

119.1

-

119.1

Creditors – amounts falling due within one year

 

(96.3)

-

(96.3)

Net current assets

 

22.8

-

22.8

Total assets less current liabilities

 

398.8

22.1

420.9

Provisions

 

(20.5)

-

(20.5)

Net assets

 

378.3

22.1

400.4

Capital and reserves

Called up share capital

 

0.4

-

0.4

Shares to be issued

 

24.0

-

24.0

Share premium

 

38.0

-

38.0

Share option reserve

 

6.4

0.2

6.6

Other reserves

 

0.3

-

0.3

Profit and loss account

 

309.4

21.9

331.3

Shareholders’ funds

 

378.5

22.1

400.6

Minority interests

 

(0.2)

-

(0.2)

 

 

378.3

22.1

400.4

Notes under IFRS

  • IAS 32 ‘Financial Instruments: Disclosure and Presentation’ and IAS 39 ‘Financial Instruments: Recognition and Measurement’.

    The application of IAS 39 for betting transactions has concluded that such transactions should be treated as financial instruments. Consequently, under IFRS the gains and losses arising on betting activities should be reported as revenue measured at the fair value of the consideration received or receivable from customers, net of certain customer bonuses.

    Revenue will represent gains and losses, being the amounts staked less total payouts, from betting activity in the period. Open betting positions should be carried at fair market value and gains and losses arising on these positions should be recognised in revenue. Under UK GAAP, the Group reports the total amounts staked by customers on betting activities as revenue, net of certain customer bonuses, and makes no adjustment for the open bet position which is included as a client liability until the sporting event has taken place. The Group will account for the fair market value of open bets when IFRS are adopted. The Group does not anticipate that this will have a material impact.

  • The Group has applied the requirements of IFRS 2 Share-based payments.

    The Group issues equity-settled and cash-settled share-based payments to certain employees. Under IFRS 2, equity-settled share-based payments are measured at fair value at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest.

    Fair value is measured by use of a suitable option pricing model. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations.

  • The Group has chosen to elect for the first time adoption exemption for IFRS 3 and account for business combinations under IFRS 3 only for those acquisitions which occur after the date of transition (which is anticipated to be 1 August 2006). Goodwill will be recognised at fair value at the date of transition. Under IFRS 3 goodwill acquired in a business combination is not amortised. Instead goodwill is tested annually for impairment. The illustration has been produced on the basis that under IFRS no goodwill amortisation would be charged for the year.

  • Under IAS 38 the Group must separately identify software as an intangible fixed asset as opposed to a tangible asset under UK GAAP.
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