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Under a new UK accounting
standard FRS 19 – Accounting for deferred tax, we are required to provide for
deferred tax on a full liability basis from 1 April 2001, in place of the
existing requirement to provide only for that deferred tax which we consider we
shall be paying in the foreseeable future. The impact of this new standard will
reduce our distributable reserves by approximately £2 billion. The adverse
impact of the standard on our annual profit after tax is estimated at around
£60 million and 0.9 pence reduction in our earnings per share. If this new
standard had been adopted on 31 March 2001, our gearing would be standing at
220% in place of the 192% under current accounting policies. This new
accounting standard has no effect on the actual corporation tax we shall pay or
on our cash flows. The standard allows companies to discount their deferred tax
liabilities. We do not intend to adopt this discounting approach since it is
not in line with US GAAP and it might introduce unnecessary volatility into the
profit and loss account.
Under a new UK accounting
standard FRS 17 – Accounting for retirement benefits, the method of accounting
for defined benefit pensions will be substantially changed. We are required to
adopt fully this new standard by our 2004 financial year. We expect this
standard will have the effect of increasing the pension costs to be included in
operating costs, thus reducing our operating profit, but this will be offset in
part by our stated financing costs being reduced. Pension fund actuarial gains
and losses, including investment returns varying from the assumed returns, will
be recorded in full in our statement of recognised gains and losses annually.
Pension fund deficits, calculated in accordance with prescribed rules in the
standard, will be shown in our balance sheet as will any surpluses to the
extent we expect to obtain value from them in the foreseeable future. |
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