IFRS Implementation Experience CFO Reflections W Peter Day

Transcription

IFRS
Implementation Experience
CFO Reflections
W Peter Day
Beijing October 2008
Amcor: 250+ plants, 30+ countries, $5b acquisitions
Divestments
Acquisitions
1996
John Sands Greeting Cards Group
Leigh-Mardon Printing Business
Corrugated packaging business Europe
Rentsch Folding Cartons – Switzerland
European Flexibles Business (UCB)
Paper Mill in USA
Leigh Mardon Flexibles Australia
Australian Rigid Plastics
Valpak
Sawmilling Business
ClosedPulp Mill
Leaderpak
Envelope Business Australia
European Box Business
Injepet USA
Stevens Flexible Packaging USA
Albertazzi Films
Smutfitt Tobacco Europe
Paper Group Demerger
Brazilian PET Acquisition
Expansion of Sunclipse in USA
Expansion of Amcor Rentsch, Poly Laupen
Expansion of Amcor Asia – China Flexibles
PET USA Expansion – CNC Containers, PET Pack Containers
Three way Flexibles Merger with Danisco Akerlund & Rausing
Bericap North America JV
Sunclipse Expansion – Sirod, Vanguard Packaging, Apollo Paper
PET and Closures Businesses of Schmalbach-Lubeca
Amcor Flexibles Expansion – Rexam Food Flexibles, Tobepal/Tobefil Spain
Amcor Sunclipse Expansion – Malow Corp, Brick Container
5% of Kimberley Clark Australia
Remaining 45% of Kimberley Clark Australia
Expansion Amcor PET – Alcoa, Latin America; Arca, Mexico
Expansion Amcor Flexibles – Rexam Healthcare Flexibles
2007
Expansion of China tobacco packaging via share in Vision Grande Group
Holdings.
Consider what is happening around you
Dec 03
Jun 04
Dec 04
June 05
Dec 05
June 06
Corporate and Business CFO’s
Transition to IFRS
Reporting systems and processes
Revised accounting policies
Australian regulatory change
Financial
impact
analysis
Common
language
Parallel
reporting
Actual
reporting
Corporate, Business MD’s and CFO’s
Compliance
Corporate law changes
ASX governance principles
Risk management framework
S-Ox Act (USA)
Corporate, Business MD’s and CFO’s
Refinements
S.302 certification
S.404 internal controls
Pilot
groups
Roll outs
to
groups
Testing & Auditor
attestation
IFRS has potential to impact other “real” activities
Even though IFRS may be in the future ….. start now!
AASB Half year financial
reports – IFRS needed for
comparatives
FRC announces
Australia will
apply IFRS from
1 January 2005
Jul 02
AASB Financial
Reports – IFRS
needed for
comparatives
Date of
transition to
IFRS
Time
Time elapsed
elapsed
31 Dec 02
30 Jun 03
IFRS Half year financial
report -including
comparatives
IFRS Financial
Report - including
comparatives
Parallel
Parallel IFRS/AGAAP
IFRS/AGAAP Systems
Systems
31 Dec 03
1 Jul 04
31 Dec 04
30 Jun 05
31 Dec 05
30 Jun 06
A strong project team structure is a critical start
Amcor Ltd Board & Executive
IFRS PROJECT OFFICE
Project Leader
IFRS Steering Committee
Project Manager
Corporate Sponsor – Global CFO
Business Sponsors – Business
CFO’s
ADVISORS/SUPPORT
Amcor
Business
Units
Benchmarking,
option/decision analysis,
systems/process design
input
AUDITORS
IFRS Accounts and
comparatives subject to
audit
•
Reporting
&
Analysis
Investor
Relations
Treasury
HR
Tax
Systems
Critical that each of Amcor’s Business Units has high involvement in the IFRS project to enable buy in and
acceptance of the outcomes
IFRS is not just about “external” reporting
IFRS at high level? Or push down to each entity?
Amcor Ltd
(1)
Amcor PET
Packaging
Asia Pvt. Ltd.
(39)
Anfor
Investments
Pty Ltd
(1)
¬¬¬
Amcor
Insurances
Pte Ltd
(Singapore)
(8)
Amcor Packaging
Asia Pty Ltd (1)
Amcor Nominees
Pty Ltd (1)
Amcor
Packaging
(NZ) Ltd
(2)
94.9%
St Regis
Bates
(Singapore)
Pte Ltd (8)
LeighMardon
(Penang)
Sdn Bhd (4)
Interpac
Containers
(PRC) Ltd
(6)
60%
Qingdao
LeighMardon
Packaging
Co Ltd (3)
Amcor
Beijing
Interpac
Leigh-Mardon Containers
Pacific Pkg (Guangdong)
Co Ltd (3)
Ltd (3)
Amcor
Flexibles
Singapore
Pte Ltd (8)
Amcor
White Cap
Investments,
Inc. (36)
16.6667%
Vision
Grande
Group
Holdings
Ltd (48)
LeighMardon
Pacific Pkg
Pte Ltd (8)
Amcor Fibre
Packaging
Asia Pte Ltd
(8)
83%
59.51%
Amcor White
Cap South
East Asia,
Inc. (36)
Rocma
Holdings
Co Ltd
(5)
PT
Indopack
Pratama
(7)
AMB
Packaging
Pte Ltd
(8)
99.93%
Amcor
Ace
Fibre Pkg
Packaging
(Malaysia)
Sdn Bhd
Sdn Bhd
(4)
(4)
2%
Amcor
Containers
Packaging
(Thailand)
(5)
Amcor
White Cap
Shanghai
Ltd. (3)
PT
Amcor
Indonesia
(7)
39.34%
World
Grande
Holdings Ltd
(6)
AGAL
Holdings
Pty Ltd
(1)
Envirocrates
Pty Ltd
(1)
P P New
Pty Ltd
(1)
Tien Wah
Press (KL)
Sdn Bhd
(4)
Amcor
Investments
(NZ) Ltd
(2)
ACN
002693843
Box Pty Ltd
(1)
Lynyork
Pty Ltd
(1)
Service
Containers
Pty Ltd (1)
Rota Die
International
Pty Ltd (1)
Fibre
Containers
(QLD) Pty
Ltd (1)
ACN
089523919
CCC
Pty Ltd (1)
Rota Die Pty
Ltd Trustee
of Rota Die
Trust (1)
19%
Steel Can
Components
(2)
Lindsay
Australia
Ltd (1)
Pak Pacific
Corporation
Pty Ltd
(1)
AP Chase
Pty Ltd
(1)
AMCOR - Australia / NZ / Asia
Group Structure 30 June 2005
24.4386%
Tien Wah
Press
Holdings
Berhad
(4)
Tien Wah
Packaging
(Malaysia)
Sdn Bhd
(4)
Amcor European
Holdings Pty Ltd (1)
30%
51%
Bankert
(Malaysia)
Sdn Bhd
(4)
Paper Base
Converting
Sdn Bhd
(4)
Angkaganda
Sdn Bhd
(4)
48%
Victory
Honest
Industries
(Shenzhen)
Co. Ltd (3)
Amcor
Amcor White
Flexibles
Cap Asia
(Zhongshan)
Pacific, Inc.
Co Ltd
(36)
(3)
Tien Wah
Press
(Malaysia)
Sdn Bhd
(4)
Amcor
White Cap
Properties,
Inc. (36)
Vision
Grande
Holdings Ltd
(6)
35%
Amcor Packaging
(Australia) Pty Ltd (1)
50%
Amcor
Finance
(NZ) Ltd
(2)
49%
55%
40%
Vision
Grande
Group Ltd
(49)
Amcor
Flexibles
(Beijing)
Co Ltd (3)
Amcor Holdings
(Australia) Pty Ltd (1)
Amcor Investments Pty Ltd
(1)
Nanjing
Sanlong
Packaging
Co., Ltd. (3)
Shadow = Dormant
Overall Key
90%
Kunming
World Grand
Colour
Printing Co.,
Ltd (3)
¬
¬¬
Amcor Holdings (Australia) Pty Ltd holds 1 share.
1. Australia
11. Mexico
21. Italy
31. Austria
41. Bahamas
2. New Zealand
12. Venezuela
22. Russia
32. Czech Republic
42. Puerto Rico
43. Honduras
3. China
13. Peru
23. Ireland
33. Ukraine
4. Malaysia
14. Brazil
24. Germany
34. Hungary
44. Ecuador
5. Thailand
15. Switzerland
25. Netherlands
35. Turkey
45. Uruguay
46. El Salvador
Remaining interest held by Amcor White Cap Deutschland.
6. Hong Kong
16. Spain
26. Poland
36. Philippines
One Share held by Amcor Pet Packaging Deutschland.
7. Indonesia
17. France
27. Denmark
37. Argentina
47. Cyprus
8. Singapore
18. Belgium
28. Sweden
38. Colombia
48. Cayman Islands
9. Canada
19. United Kingdom
29. Norway
39. India
10. USA
20. Portugal
30. Finland
40. Morocco
49. British Virgin
Islands
¬¬¬
¬¬¬¬¬¬ Injepet
Embalagens Ltda holds 1 share
Amcor Holding holds 1.6% of Share Capital
Develop new systems – but watch timing
Now
Hyperion
Local Apps
<24 – 36 mths>
<12 - 18 mths>
HFM #1
HFM #2
Foundation
Embracing
Advancing
&
of
Local
of
Convergence
Technology
HFM #1
Technology
Local Apps
Local Apps
Policies and Practices need to be robustly developed
Source of Materials
Decision Group(s)
IFRS official materials
IASB
IFRS as embodied in national law
Relevant national authority
Company’s policies in Annual Report
Management/Board/Audit Committee
Company’s policies for finance staff
Management/Audit Committee
Working papers on key decisions/choices
Management/Review by External Audit
Substantiation to support key policies
Management/Review by External Audit
Detailed transitional mechanics are needed
1. High level IFRS financial model
Spreadsheet
- 2 -3 year history
- 3+ year future
- update regularly
- acts as “tracker”
2. Comparator/history year(s)
Consolidation tool: load as incremental
high level journals to produce detailed
comparatives and reconciliation
between Old GAAP and IFRS
3. Live year
Run IFRS only in local general ledgers
and fully consolidate into consolidation
tool
Do not run on incremental basis
Do not reconcile back to Old GAAP
Did not parallel-run Old GAAP to IFRS in live year
Make sure your plan covers all the elements
•
Company Program Content should include
– Program/Project Charter
– Summaries of key standards (digestible to businesses)
– Implementation plans and timelines at all levels
– Desk top analysis and working model – “know the unknowns”
– Replay back to the business and the board again and again
– Transition program for opening balances
– Parallel processing or shadow accounting, then go live cut over
– Disclosures before transition (Continuous Disclosure under ASX)
– IFRS accounting policy manual
– Internal and external reporting regimes
– Systems development, testing and go-live
– Preparation, Preparation, Preparation at all levels
Accounting & Reporting
Time-critical implementation issues – Asset impairments
During Phase 1 we will identify/confirm time-critical implementation issues that we will need to
action as soon as possible. From our preliminary analysis, two of these are likely to be (I) the
identification of additional information required for asset impairments and (ii) the evaluation of sharebased remuneration programs:
Asset impairments
Issue - Under IAS 36, assets are required to be
considered for impairment when certain indicators
are present.
Assets require consideration at a cash generating
unit (CGU) level, which is defined as the lowest level
of separately identifiable cash flows, eg plant vs
country vs region vs segment. The value-in-use of
assets must be considered on a discounted cash
flow basis, which differs from AGAAP and, to an
extent, USGAAP.
SEC registrants are required to begin collecting data
for comparative reporting from 1 July 2003.
Implications - Assets which have not been impaired
for US or Australian purposes when considered on a
nominal cash flow basis may be impaired under the
IFRS discounted cash flow model.
We will need to consider and address how we gather
the financial data required to make these
determinations
at the CGU level, and may need to implement training
programs in the regions to enable the gathering of this
data.
Proposed actions - A determination as to what
Amcor's CGUs are under IFRS, and an assessment
as to whether any CGU assets are impaired, is
required as soon as possible to ensure that data
required for SEC comparative reporting is gathered from
1 July 2003.
The project work stream on this issue will include
business unit representatives to obtain appropriate input
regarding the level at which CGUs will be determined
and to assist with preparation of discounted cash
flow models.
Investor Relations will be involved to ensure timely
communications with the market regarding any possible
impacts .
Future developments – Analysis with regard to the
new IFRS requirements for asset impairments should
also form part of the due diligence for any current and
future transactions undertaken by Amcor, as this could
have a material impact on the value of the assets
involved.
Ensure you have robust supporting processes
Market Base Rate (%)
Corporate
Credit Margin (%)
Country
Risk Premium
Country
Discount Rate
Short term
(< 12 months)
Long term
(5 years)
Short term
(< 12 months)
Long term
(5 years)
Argentina
4.63
12
1.50
2.75
9.75%
12.5%
Australia
5.65
5.25
0.40
0.70
0.00%
7.2%
Brazil
19.5
15
1.25
2.00
6.00%
14.4%
China
5.58
4.57
0.56
0.59
1.35%
7.5%
Colombia
7.00
11.35
1.25
2.75
1.95%
9.9%
Ecuador
4
8
5.00
5.00
9.75%
12.7%
Eurozone
2.10
2.90
0.40
0.50
0.00%
6.0%
India
5.25
6.60
0.50
0.73
4.50%
9.0%
Indonesia
7.5
10.80
1.48
2.35
8.25%
12.2%
Malaysia
2.6
3.76
0.30
0.60
1.43%
6.8%
8
8
0.30
0.75
1.80%
8.8%
Peru
5.00
6.00
1.25
2.25
2.18%
8.5%
Philippines
7.2
11.30
1.00
1.50
4.50%
10.6%
Singapore
2.05
2.55
0.43
0.58
0.00%
5.9%
Thailand
2.35
3.60
0.45
0.63
1.80%
6.9%
21
21
2.00
3.00
8.25%
17.0%
USA
3.00
3.96
0.40
0.70
0.00%
6.4%
Venezuela
12.7
15
3.00
5.00
6.75%
14.2%
Mexico
Turkey
Impairment tests on transition could embarrass
AGAAP
30.06.04
30.06.05
USGAAP
30.06.04
30.06.05
IFRS
01.07.04
30.06.05
Accounting & Reporting
Time-critical implementation issues – Share-based payments
Share-based remuneration programs
Issue – Amcor currently discloses the fair value of
options under FAS 123 in its financial statements.
Currently, the IFRS exposure draft proposes that the
value will have to be expensed in the P&L from 2006
while changes in other standards are expected to
require, at a minimum, additional disclosure of
share-based payments in 2004 and 2005 financial
reports.
Increased earnings volatility is also likely to impact
effectiveness of programs with incentive
components.
Other recent changes in this area have included an
ASIC announcement regarding valuation of options
in FY03 annual reports and the ASX Corporate
Governance guidelines.
Implications - Incentive hurdles may need to be
reset to adjust for changes resulting from conversion
to IFRS, and additional changes may be needed to
adjust for higher earnings volatility under the IFRS
regime. If the incentive hurdles are not adjusted in
time, people on these plans may receive a windfall
payment, or suffer a shortfall, in the first year of
conversion as a result of the impacts IFRS has on
reported earnings.
When share-based remuneration is expensed it may
also be perceived differently by stakeholders than it
is now.
Proposed actions - Amcor needs to review the
costs/benefits of its share-based remuneration
programs with regard to the implications on the
reported financials.
A review of the impact that the IFRS changes will have
on incentive hurdles – both at conversion and on an
ongoing basis as a result of increased volatility – should
also be conducted.
Given the length of remuneration contracts, the ASX best
practice guidelines regarding changes to executive
remuneration, and the number of employees who would
be impacted by changes to Amcor’s Employee Share
Purchase Plan, these reviews will be undertaken as soon
as possible.
Future developments – we will monitor any
developments at the IASB in relation to the convergence
between IFRS and USGAAP for share based payments.
This may see a decrease in the accounting ramifications
of accounting for share based payments under IFRS.
Tax tool data flow model – cover sheet to model
This worksheet should be used to navigate around each of the other worksheets
AASB 112 Transitional Data Tool
- Cover Sheet
Entity Name:
Balance Sheet Date:
Year:
Reporting Currency:
Hyperion Entity #:
Prepared by:
Reviewed by:
Name of Entity
1-Jul-2004
2005
LC
123456
Fred
Jane
Please complete the following information:
Select
Select the
the
blue
blue
hyperlink
hyperlink
items
items to
to
toggle
toggle
between
between
worksheets
worksheets
Tax Rates
2005 statutory tax rate
30.0%
2006 statutory tax rate
31.0%
Expected 2007 and onward tax rate
(normally 2006 statutory tax rate unless tax rate changing)
Please select one of the following worksheets:
1. Balance Sheet (1 July 2004)
2. Tax Only Items
3. Tax Losses
4. Tax Credits
5. Additional Information
Fill
Fill in
in details
details in
in
yellow
yellow cells
cells
Enter
Enter tax
tax rates
rates
for
for years
years 2005,
2005,
2006
2006 &
& 2007
2007
32.0%
Completed
Yes / No
Yes / No
Yes / No
Yes / No
Yes / No
After
After the
the
completion
completion of
of each
each
worksheet,
worksheet, ensure
ensure
that
that you
you fill
fill in
in ‘Yes’
‘Yes’
or
‘No’
or ‘No’
Contents
PricewaterhouseCoopers
1.
Our understanding of your needs
2.
Our proposed services
3.
The compelling case for PwC
4.
Working as one
5.
Proposed fees
6.
The PwC approach to Amcor
satisfaction
7.
Deep AIFRS & US GAAP know-how:
Core Team
8.
Advisors
9.
Support Team
Amcor Directors’ Workshop
2 April 2004
Do you know the GAAP:IFRS differences
Minor differences
Significant differences
IAS 1
IAS 2
IAS 10
IAS 17
IAS 16
IAS 7
IAS 11
IAS 20
IAS 35
IAS 15
IAS 14
IAS 18
IAS 27
IAS 37
IAS 23
IAS 8
IAS 21
IAS 28
IAS 29
IAS 31
IAS 24
IAS 34
IAS 30
IAS 33
IAS 41
Major differences
Uncertain?
IAS 22
AASB 1022
AASB 1023
IAS 12
IAS 32
IAS 39
IAS 19
AASB 1038
IAS 36
IAS 40
IAS 38
Analysis needs to be more deep-down
Good advice early on in the process
•
Boards and audit committees need to take a high-level
overview role in the final crucial phase in the process of
transition
•
The biggest impacts of the transition to IFRS can often be in
areas other than accounting – such as systems requirements,
training, resources, market impacts and ‘flow-on’ effects, e.g.
banking covenants, legal agreements, and so on
•
Restatement of comparative information means that
transactions need to be accounted for under two ‘GAAPs’
during the transition, local GAAP pronouncements and IFRS
•
The transition to IFRS allows the entity to have a ‘free choice’ in
go-forward accounting policies – the treatment in the future
does not have to the same as in the past
•
There are key exceptions on transition, some mandatory and
some optional, that can have material impacts on the reported
financial performance and position of the entity on transition
and into the future
Expert Assistance where it matters
DRAFT
High level
impacts
IAS 32 / 39 high level impacts on Amcor
Page #
Key accounting issues:
Classification of PACRS
11
Translation hedging of net investments
13
Translation hedging of cross border financing
14
Translational FX hedging
16
Hedging of interest rate exposure
17
Treatment of T-Lock hedging losses
19
Hedging of commodity exposures
20
ABS securitisation programme
22
Hedging of employee share scheme
21
Criteria
Criteria
High impact
Assessment
pending
Moderate/low
Amcor IAS 39 business impact project
23
Complexity
Financial Impact
DRAFT
Classification of PACRS ( Series # 1 & #2)
Current accounting
IAS 32 / US GAAP Requirements

PACRS are fully paid perpetual, non-cumulative, subordinated,
convertible, reset, unsecured notes. Non-cumulative interest is paid
semi-annually on the initial PACRS at a coupon rate of 8.5733% and
on the PACRS 2 at a coupon rate of 8.57% per annum which is fixed
until the first reset date (2006 and 2007).

On reset dates holders may convert some or all outstanding PACRS
into ordinary shares calculated with reference to the conversion
discount. The issuer may convert some or all of the outstanding
PACRS at any time in the six months before a reset date. Coupon
rates, conversion terms and the conversion discount are able to be
reset by the issuer on the reset date.

Realised gain on hedging the PACRS’ coupon rate prior to issue is
being amortised to the Statement of Financial Performance.
Impact on Amcor

PACRS are classified as debt under US GAAP with
similar treatment under IAS 32 as:
-
coupons are not discretionary although noncumulative (failure to pay a coupon is deemed
to be conversion event); and
-
-
Equity option conversion features to be identified and
re-classified if material.

An instrument is classified as a liability when it contains an obligation to
transfer resources, e.g. cash or other financial assets, otherwise it is
classified as equity.

Where an obligation to transfer resources is contingent on uncertain
future events outside the control of the holder or the issuer, then this is
sufficient to classify the instrument as a liability unless the possibility
of the transfer of cash or other financial assets is remote.
Instruments that are not shares but are to be settled in equity shares are
classified as debt when the number of equity shares to be issued varies
with the share price at the time of settlement. (as in the case of PACRS)
A compound debt-and-equity instrument is split into separate debt and
equity components (split accounting).
2003 High level impact
Mitigating Actions/Opportunities/Next steps

A$ m
607
A$ m
(607)
PACRS convert to ordinary shares at a
discount to market subject to a max/ min
number of shares
Interest rate swap arrangements related to PACRS to
be designated as fair value hedge under IAS 39
otherwise deemed to be a trading derivative. PACRS
to be revalued for interest rate risk. Fair value
adjustment to be recognized in earnings to offset
revaluation of interest rate swap.
IAS 32 / 39
High level
impacts

Debt
Equity
Note: Issue costs offset
against PACRS proceeds
reinstated.
Dividends reclassified as Interest Expense
24
Ascertain valuation of equity component of PACRS
(and PRIDES) at issue date. It is expected that this
value is negligible since the conversion terms are
largely based on a discount to market with a max /
min conversion ratio. The option value will be
included in Equity.
Designate the related interest rate swap as a fair
value hedge of the PACRS (refer Interest Rate
hedging).
Value of pre-issuance hedging gains to be
ascertained. Treatment will depend on treatment of
interest rate risk.
DRAFT
Classification of ABS securitisation programme
Current accounting

IAS 39 and IAS 27 /SIC 12 Requirements
Schmalback-Lubeca PET Containers business acquired by Amcor
has operated a receivable financing programme.

Although generally IAS 39 takes a financial components approach, i.e.
each component of the transaction is dealt with separately when
assessing the transfer of control, it does have elements of a risk and
rewards approach. In addition, if the transferee is a special purpose entity
(SPE) then the transferred asset may be required to be recognised by the
group on consolidation if the transferor is deemed to have control of the
SPE through having the substantial risks and rewards of ownership of
that entity.

Consolidated financial statements should include all subsidiaries of the
parent The principles are no different for special purpose entities (SPEs).
There is additional guidance on determining whether in substance the
SPE is controlled. For example, control usually would exist if an
enterprise has the right to the majority of benefits of the SPE’s activities,
however these rights are conveyed; similarly, an enterprise is considered
to control an SPE if it retains the risks of the SPE.s assets by, for
instance, the other investors receiving mainly a lender’s return.

The facility limit is set at € 120 million. Amcor PET Packaging
Deutschland GmbH (PET) and Amcor White Cap Deutschland (White
Cap) sell through Amcor Germany GmbH short term receivables
(usually 30/60 days) on a revolving basis to International Preferred
Securitisation (Interprise) B.V. (“Interprise”). Interprise assigns the
rights to proceeds from the receivables to Jupiter. Jupiter raises
funds for the purchase of their loans to Interprise.

Receivables acquired by Interprise are deemed to have been sold
under Au GAAP. Amcor does not recognise the receivables or the
financing provided by Interprise / Jupiter in the consolidated balance
sheet although residual interests held by the Group equivalent to 6%
of the receivables sold to Interprise are recognised as an asset
representing a subordinated revolving note issued by the SPV.
Impact on Amcor

Our preliminary assessment is that the Receivables do
not continue to satisfy the definition of an asset of
Amcor under the requirements of IAS 39 (and AASB
1004 and SAC 4 for the purposes of Au GAAP). The
transfer of Receivables from Amcor to Interprise
should be accounted for as a sale. Accordingly, the
assets will be removed from the balance sheet of the
relevant entities, and will be held on the balance sheet
of Interprise. Amcor will be required to account for a
new asset, being the subordinated revolving note
issued by the SPV.
Based on the guidance set out in SIC 12 and UIG 28,
Amcor would need to consolidate the receivables and
liabilities of certain tranches (refer file note for detailed
analysis and basis of conclusions).
IAS 32 / 39
High level
impacts
2003 High level impact

A$ m
Evaluate alternate financing strategies and impact on
financing costs to achieve ‘clean sale’ treatment.
A$ m
193
193
Assets
Debt
Note:
• Excludes 6% held as a
subordinated note
• Discount will need to be
reclassified from other expenses
25
Mitigating Actions/Opportunities/Next steps

Assess impact on gearing ratio and response of
rating agencies.

Reclassify interest expense from other expenses
[Check classification]
Survey of 50 Analysts - Australia
A recently commissioned survey of 50 analysts revealed the following key messages in relation to the transition to IFRS:
The Financial analyst community does not have a detailed understanding of the potential
impact of IFRS on a company’s financial reporting. While there is a high level of awareness of IFRS
among financial analysts, an understanding of the important detail is lacking. For example, most of the surveyed analysts
(64%) felt that there will be only minor differences between Australian IFRSs and the international equivalents and 30%
responded that they didn’t know. This is a key indicator that the current detailed understanding of IFRS held by financial
analysts is limited. At least 1/3 of the analysts surveyed did not understand the impact of IFRS on the areas of:
presentation of the income statement, share options, financial instruments, pensions and mergers & acquisitions.
Financial analysts are expecting the companies they track to educate them on the impact
of IFRS on their financial results. Those that fail to do this effectively run the risk of their business performance
being misunderstood and penalised by the market. 62% of survey participants stated they were likely to mark down shares
if they didn’t understand why a company’s financial results look different under IFRS. To date, most IFRS information and
training provided to analysts has come from professional advisors such as accountants, but analysts are clearly calling for
companies to be the main provider of information on the impact of IFRS with 64% of surveyed analysts saying the
responsibility for educating the market rests with the companies they track.
For those that have received a briefing, a large proportion still feel ill-informed about the potential impact of IFRS changes.
While most surveyed analysts (59%) felt fairly confident they will be able to identify changes as a result of IFRS, 41% feel
less so. No analyst felt very confident that they would be able to distinguish between
changes in a company’s financial reports that will be the result of underlying business
performance from those that will be due to accounting changes under IFRS. Overall, most
analysts felt neutral in terms of the quality of information that had been provided to them on the state of company readiness
for IFRS to date.
Finally the potential for initial market turmoil following first reporting under IFRS can’t be underestimated. There is a
real risk of market turmoil when financial results under IFRS are released. 49% of analysts
surveyed expect some market turmoil. 40% believe there are related valuation issues with reporting under IFRS and that
the market had not yet factored this in.
Can changes in accounting or
disclosure affect ratings?
They can if:
• Significant new information is exposed
• Other parties react - creating real affects
• Business behaviour changes
Source: S&P’s Approach to IFRS
What Matters for Credit Ratings?
Sue Harding, European Chief Accountant
May 2005, Melbourne
Standard & Poor’s
27
The McGraw-Hill Companies
Ratings Considerations
Analytical Process
Widespread changes in ratings not expected… but the following in particular will need to be
considered
Perceptions of historical information
• Cash flow generation
– Consolidation – whose cash flows
– Definition of cash and equivalents – what cash flows
– Classification as operating, investing, financing
• Financial obligations
– Debt, leases, pensions, asset retirement obligations, securitisation, hybrid capital, derivatives etc.
• Consider what perceptions of past cash flows and financial obligations tell us about future cash flows
Changed behaviour affecting future cash flows
• Company’s behavioural changes – hedging, pensions, stock options, securitization, etc.
• External requirements – tax, debt covenants, distributable reserves, regulatory capital
Source: S&P’s Approach to IFRS
What Matters for Credit Ratings?
Sue Harding, European Chief Accountant
May 2005, Melbourne
Standard & Poor’s
28
The McGraw-Hill Companies
What has been the impact on reported profit?
ICAEW Study: EU Implementation of IFRS
Point out “up front” your IFRS impacts to the analysts
FY
FY
Jun 05
Jun 06
Profit and Loss
•
Goodwill, pensions, tax, share payments, etc.
x
3
•
Financial Instruments impacts
x
3
Receivables securitisation approach
x
3
Hybrid instruments treated as debt
x
3
Operating leases on balance sheet
x
x
AGAAP and IFRS same (except for line items)
3
3
Financial Instruments reclassifications
x
3
Balance Sheet
Cash Flow
Even cash flow may need explaining
Market Presentation
IFRS Statutory Format
PBITDA
1,249.1
Interest
(239.6)
Tax
(79.1)
Cash significant items
(26.0)
Base capital expenditure
(441.8)
Movement in working capital
123.2
Other
(63.5)
Operating cash flow
522.3
Dividends
(308.8)
Divestments
264.1
Growth Capital/acquisitions
(69.5)
Proceeds from share issue
84.8
Foreign exchange rate changes
Movement in debt
964.1 Net cash from operating
(247.0) Net cash from investing
870.7 Net cash from financing
(153.6) Net cash movement
4.8
497.8
Movement in working capital relates to continuing operations
717.1 Net change in financing
Every one of my slides has an underlying message:
•
Understand your current situation before embarking on IFRS
•
Recognise other business and external pressures/factors
•
Assume prima facie IFRS will have a far reaching effect
•
Make sure you have a robust timetable and project plan and resources
•
Put a good project structure and good people in place
•
Map internal and external reporting changes and timelines
•
Decide on systems requirements and any changes necessary
•
Educate Directors and Analysts
•
Know the IFRS differences and know which ones matter to you
•
Get expert help on tricky areas early
•
Engage with relevant external stakeholders (lenders, agencies, tax)
•
Have your kit bag full of supporting analytics on the impact of changes
•
Learn unreservedly from others’ experiences
•
Be prepared to communicate, communicate, communicate
The CFO’s personal toolkit – be very very involved
•
Plan like YESTERDAY
•
“Steal” SHAMELESSLY (e.g. CEB)
•
Think about what it will be like ON YOUR FEET explaining IFRS
•
ENGAGE your Auditor, Investment Bank and Analyst for feedback
•
Explain volatility – DO NOT AVOID the issues
•
Implement GOVERNANCE & INTERNAL CONTROL CHECKS
•
Have Big 4 or other INDEPENDENT REVIEWS during the process
•
Consider additional HISTORICAL RESTATEMENTS
•
SERVICE the sell side and buy side investor MODELS
•
RECONCILE non GAAP KPIs with IFRS (in your kit bag)
•
Focus on CASH discussion – even run your business that way!!
•
Run down any SURPRISES at lightning speed – OR SUFFER!!
Key benefits of the transition to IFRS
Internal
•
•
•
•
•
•
completely revised all policies and practices
new chart of accounts (external and internal needs met)
took advantage to invest in new consolidation tools/systems
common world-wide accounting language
opportunity for fresh start
benefits far exceed costs by adopting a “one size fits all”
External
•
•
•
•
•
no longer AGAAP (<2% of world GDP)
able to report into US NASDAQ with no reconciliation now
more attractive to lenders/investors – international comparisons
more coverage from sell-side and rating agencies
benefits far exceed costs – funding, access to capital, global common language
CFO Reflections
W Peter Day
Appendices
CFO Reflections
W Peter Day
Agreement re IFRS: preparers/auditors/investors
Easier or harder to understand after IFRS?
What has been the impact on reported profit?
Do fund managers/analysts understand IFRS impacts
Do Boards understand the effect of IFRS on:
IFRS’s impact on quality of financial statements
Has IFRS made things better?
IFRS is more useful to external investors?
Has IFRS changed the way your company runs its
business?
Is it easier or harder to explain your IFRS results?
CFO Reflections
W Peter Day