Impact of International Financial Reporting Standards IFRS

1

• Impact of International Financial Reporting
  Standards (IFRS)

2
Forward-looking Statements

• These presentation slides contain forward-looking
  statements and forecasts with respect to the
  financial condition, results of operations and
  businesses of Schroders plc and its subsidiaries
• These statements and forecasts involve risk and
  uncertainty because they relate to events and
  depend upon circumstances that will occur in the
  future
• There are a number of factors that could cause
  actual results or developments to differ
  materially from those expressed or implied by
  those forward-looking statements and forecasts.
  Nothing in this announcement should be construed
  as a profit forecast

3
Introduction

• Schroders is required to report under IFRS from 1
  January 2005
• First IFRS results were the Q1 trading update
  with first detailed reporting being the interim
  results for 2005, due in August
• No material differences in the impact of items
  identified in December 2004
• Two new areas identified as actual implementation
  has led to clarification of accounting treatment
• Provides an indication of the impact of IAS 32
  and 39 on the opening balance sheet for 2005
• Comes with a health warning as clarification
  process is continuing

4
Highlights

• Profit Before Tax for the year ended 31 December
  2004 up by 20.6mn
• Total Equity as at 1 January 2004 down by 0.2mn
• Total Equity as at 31 December 2004 up by 33.3mn
  
• Basic EPS for the year ended 31 December 2004 up
  by 7.5p
• Total equity as at 1 January 2005 up by
  approximately an additional 46mn due to IAS 39

5

• Areas of Significant Impact

6
IFRS 2 Share-Based Payments
Technical Requirements
Impact on Schroders
Requires all share-based payment transactions to
be reflected in the income statement at the fair
value of the goods or services received Equity
settled measurement based on the fair value of
the instrument at grant date, adjusted annually
to reflect the number of shares expected to
vest Cash settled measurement based on the fair
value of the liability incurred re-valued at each
reporting date Social security liability on all
awards treated as a cash settled
transaction Applies to all cash awards and any
equity awards granted after 7th November 2002
Share options charged to income statement based
on stochastic option pricing model, previously no
charge under UK GAAP Share scheme awards and any
uplifts amortised over the performance year and
vesting period of the awards. Charges reduced by
estimated and actual lapse rates. Under UK GAAP
awards are recognised in full in the performance
year any uplifts to awards are accrued over the
vesting period Total impact on Schroders Equity
as at 1 Jan 2004 14.8mn PBT to 31 Dec
2004 9.3mn Equity movement in the year to 31
Dec 2004 23.9mn
7
IFRS 3 Business Combinations
Technical Requirements
All business combinations treated as an
acquisition of one party by another Goodwill
should no longer be amortised but should be
subject to an impairment review annually or on
indication of impairment Transitional rules under
IFRS 1 allow goodwill to be initially recorded at
the carrying value under UK GAAP at the date of
transition
8
IAS 10 Events after the Balance Sheet Date
Technical Requirements
Dividends recognised in the period in which they
are declared as they do not meet the criteria of
an adjusting event after the balance sheet date
9
IAS 17 Leases
Technical Requirements
Removal of the 90 test for the definition of a
finance lease and replacement with more detailed
guidance Incentives for a new or renewed
operating lease should be recognised by the
lessee as a reduction of the rental expense over
the lease term
10
IAS 19 Employee Benefits
Technical Requirements
Short-term benefits are expensed in the period in
which they occur IAS 19 treatment of defined
benefit schemes similar to that under FRS 17, as
early adoption of amendment to IAS 19 allows
recognition of actuarial gains and losses through
statement of recognised income and expense
(similar to UK GAAP STRGL) No change to
treatment of defined contribution Schemes Other
long-term benefits treated similarly to defined
benefit schemes
11
IAS 38 Intangible Assets
Technical Requirements
Widening of the definition of an intangible asset
Recognition of an asset when it can be sold
separately from the business. Hence all
externally acquired intangible assets are
required to be capitalised Internally generated
intangibles should be capitalised where it is
probable that they will generate future economic
benefits to the Group, it is technically feasible
to make the intangible asset available for use or
sale, the resources and intention exist to do so
and expenditure attributable to its development
can be reliably measured
12
IFRS 5 Non-Current Assets Held for Sale
Technical Requirements
Introducing concept of Held for Sale, for those
non-current assets not required for continuing
use in the business Assets are held at the lower
of carrying value and fair value less costs to
sell Strict criteria for recognition as Held for
Sale. If criteria not met assets are
consolidated Similar to FRS 2 for subsidiaries
acquired and held for resale although IFRS 5 also
applies to assets already held which are to be
sold rather than just those purchased exclusively
for resale
13
IAS 18 Revenue
Technical Requirements
Requires revenue for services to be recognised
over the period in which the service is
rendered Where the service is provided through a
series of actions over time, revenue is
recognised on a straight line basis over the same
time period, unless there is a more accurate
method to represent the stage of completion of
the service Provides detailed guidance on the
recognition of different types of revenue,
including investment management fees Costs of
providing service expensed as revenue is
recognised
14
IAS 39 Financial Instruments
Group has opted not to apply requirements of IAS
39 to comparative information The nature and
quantum of the adjustments on comparative
information to comply with IAS 39 will be
provided within the interim results in August
2005 The main impact will be on the Groups
holding of Private Equity investments, which are
held at fair value, largely due to the fair value
ascribed to carried interests in the underlying
funds, which were previously not recognised under
UK GAAP The Group will treat most Private Equity
investments as Available-for-Sale, where any
gain or loss is recognised through equity until
realisation, when the gain or loss is reversed
out of equity and taken to the income statement.
This would have reduced revenue in 2004 by
approximately 5mn if applied to comparative
information Total estimated impact on
Schroders Equity as at 1 January 2005 46 mn
15
Summary of Impact
Total Equity - 1 January 2004
mn
Note All movements in the table above include
related movements in deferred tax balances
16
Summary of Impact
Profit Before Tax for the year to 31 Dec 2004
mn
17
Summary of Impact
Total Equity Year ended 31 Dec 2004 1 Jan
2005 (unaudited)
mn
Note IFRS 2 equity movements in the table above
include related movements in deferred tax balances
18

• Questions