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• Impacts on the 2004 statement of income: - Operating income up by €111 million (+4.2%) Increase in operating margin from 8.2% to 8.5% - Net income up by €156 million (+14.4%) Net income excluding capital gains and losses up by €167 million (+14.9%) • Impacts on the balance sheet at December 31, 2004: - Shareholders’ equity down 7.6% to €10,910 million from €11,806 million, - Net debt up 11.7% to €6,218 million from €5,566 million.. - Gearing ratio: 57.0% compared with 46.5%* under French GAAP • Minimal impact on cash flows from operations: up by €27 million (+1.0%) to €2,639 million versus €2,612 million under French GAAP. TARGET FOR 2005 UNCHANGED • The target set by the Group in January, of 6% growth in operating income** at constant exchange rates (based on average 2004 exchange rates) remains valid under IFRS * calculated on the basis of equity including non-voting participating securities. ** based on 2004 operating income restated in accordance with IFRS. At its meeting of Thursday March 24, 2005, the Board of Directors of Saint-Gobain reviewed the impact of the switch to IFRS on the Group’s opening balance sheet and financial statements for 2004. The impact of IFRS is described in note 35 to the consolidated financial statements, as audited by the Group’s Statutory Auditors, and may be consulted on the Group’s website. ACCOUNTING PRINCIPLES AND OPTIONS ADOPTED BY THE GROUP The accounting principles adopted by the Saint-Gobain Group for the switch to International Financial Reporting Standards (IFRS) and those used to prepare its 2004 consolidated financial statements under IFRS are in compliance with all standards published by the International Accounting Standards Board (IASB) at December 31, 2004. Pursuant to European Regulation EC 1606/2002 of July 19, 2002, these standards are applicable as from January 1, 2005 within the European Union The International Financial Reporting Standards have been applied with retroactive effect in the opening balance sheet at the date of transition to IFRS (January 1, 2004). However, IFRS 1 provides for a series of first-time application options allowing entities to limit the scope of the restatements required under IFRS. Saint-Gobain has chosen to adopt several such options (see below). . Any publication in 2005 of new or revised standards, European regulations or official interpretations carrying retrospective application requirements may lead to changes in the financial information presented below. The main options adopted by the Group are as follows At January 1 (options available under IFRS 1) - Full recognition of unamortized actuarial gains and losses at January 1, 2004. All actuarial gains and losses have been recognized in pensions and other post-retirement benefits, with a corresponding reduction in shareholders’ equity. Consequently, all pension obligations are now accrued for in the balance sheet. - Reclassification of cumulative translation differences at January 1, 2004 in consolidated retained earnings. This has no impact on total reserves and consolidated shareholders’ equity. - No retrospective adjustment of goodwill arising on business combinations that occurred prior to January 1, 2004. - No remeasurement of property, plant and equipment at fair value. However, the Group has retrospectively applied at January 1, 2004 the depreciated cost model set out in IAS 16. This leads to longer average useful lives for items of property, plant and equipment and an increase in the net carrying amount of property, plant and equipment at January 1, 2004, reflecting the write-back of a portion of past depreciation charges. Other options - In accordance with IAS 19, the Group has decided to include the interest cost relating to pensions and the estimated return on plan assets within net financial income/(loss). This item was previously recorded under operating items. - Retail brands (IAS 38) are accounted for as indefinite-lived intangible assets due to their public renown. They are not amortized but are tested annually for impairment. - Lastly, in order to enhance comparability with future periods, the Group has opted for early application (at January 1, 2004) of IAS 32 and IAS 39 on financial instruments, and IFRS 2 relating to share-based payments. Main standards resulting in a material impact on the Group’s 2004 financial statements (excluding IFRS 1): Besides IFRS 1, First-time Adoption of International Financial Reporting Standards, the standards resulting in a material impact on the Group’s 2004 financial statements are as follows: : - IAS 19 – Employee Benefits - IAS 16 – Property, Plant and Equipment - IFRS 3 – Business Combinations - IAS 36 – Impairment of Assets - IFRS 2 – Share-based Payment - IAS 38 – Intangible Assets - IAS 17 – Leases - IAS 12 – Income Taxes - IAS 32 & 39 – Financial Instruments The impact of the other standards on the Group’s 2004 financial statements is either minimal or nil. In particular, the application of those standards dealing with consolidation (IAS 27, 28, and 31) does not have a material impact on the Group’s 2004 financial statements. MAIN IMPACTS OF THE SWITCH TO IFRS ON THE GROUP'S 2004 FINANCIAL STATEMENTS: The impacts of the switch to IFRS on the Group’s 2004 financial statements primarily concern the opening balance sheet, and notably lead to an increase in the gearing ratio. The impacts on the statement of income are limited (but generally positive), and mainly result from various reclassifications and the elimination of goodwill amortization (IFRS 3). Impacts of the switch to IFRS on the main opening balance sheet headings: The impact of applying IFRS - in particular the standards listed above - on shareholders’ equity and net debt at January 1, 2004 is set out below. Impact on consolidated shareholders’ equity at January 1, 2004: Opening shareholders’ equity under IFRS is €1,096 million lower (-9.7%) than under French GAAP, at €10,214 million compared with €11,310 million previously. The main impacts of IFRS on opening shareholders’ equity are as follows: Employee benefits (IAS 19): decrease of €1,642 million, mainly reflecting the full recognition of cumulative actuarial gains and losses at January 1, 2004 (decrease of €1,513 million);. Goodwill (IFRS 3): decrease of €111 million, reflecting: - remeasurement of goodwill arising on foreign operations in the functional currency of that operation in accordance with IAS 21 (decrease of €163 million); - cancellation of negative goodwill (increase of €52 million); Property, plant and equipment (IAS 16): increase of €289 million, particularly due to the retrospective increase in the average useful lives of property, plant and equipment and the resulting write-back of depreciation: increase of €316 million; Financial instruments (IAS 39): increase of €63 million, resulting primarily from the restatement of Océane bonds (increase of €59 million); Deferred taxes (IAS 12): increase of €350 million, reflecting: - deferred taxes relating to all adjustments recorded at January 1, particularly as regards pensions and post-retirement benefits (increase of €480 million); - recognition of an additional deferred tax liability on certain acquired retail brands, benefiting from a reduced tax rate (decrease of €130 million). Consolidated shareholders’ equity at December 31, 2004 amounts to €10,910 million under IFRS, compared to €11,806 million under French GAAP. The decrease of €896 million results from the opening adjustments described above and from the impact of the restatement of net income for 2004. Impact on net debt at January 1, 2004: At January 1, 2004, there is an increase of €702 million in consolidated net debt (+12.4%), to €6,359 million. This increase results mainly from: - the recognition of securitized receivables relating to the US program as debt (increase of €368 million); - the recognition as debt of non-voting participating securities previously included under equity (increase of €178 million including accrued interest); - the exclusion of short-term loans made by the Group to non-consolidated companies from the calculation of net debt (increase of €160 million); - the capitalization of certain contracts classified as finance leases (increase of €92 million); - the restatement of Océane bonds (decrease of €67 million); - the reclassification in assets of issuance premiums relating to bonds (decrease of €23 million); - lastly, the measurement of certain financial instruments at market value (decrease of €6 million). These adjustments have a similar impact on the calculation of net debt at December 31, 2004, which increases by €652 million under IFRS to €6,218 million, compared with €5,566 million under French GAAP. Consequently, the gearing ratio calculated in accordance with IFRS comes out at 62.3% at January 1, 2004 and 57.0% at December 31, 2004 (versus 49.3% and 46.5%, respectively, under French GAAP based on equity including non-voting participating securities). Impact on other opening balance sheet items (see appendix 1): The impact of the switch to IFRS on the main balance sheet items at January 1, 2004 and December 31, 2004 is presented in appendix 1. Main impacts on the 2004 statement of income (see appendix 2): The main impacts of IFRS on the 2004 statement of income are as follows: • sales increase by €147 million to €32,172 million, compared with €32,025 million under French GAAP, mainly due to the inclusion of ancillary revenue (increase of €190 million), customer discounts and freight costs (decrease of €40 million, primarily in the Distribution sector); • operating income increases by €111 million (+4.2%) to €2,743 million, versus €2,632 million under French GAAP, primarily due to the reclassification under net financial income/(loss) of a portion of the pension cost (interest cost and estimated return on plan assets), representing €95 million. Furthermore, the adjusted useful lives of property, plant and equipment lead to a decrease of €29 million in the related depreciation charge. Costs relating to stock option plans and the Group Savings Plan total €32 million, and are largely offset (for €23 million) by the adjusted pension cost. Consequently, the Group’s operating margin reflects a slight increase from 8.2% to 8.5%. Excluding Distribution, operating margin comes out at 10.5%, compared with 10.1% under French GAAP. • business income, a new line item in IFRS, amounts to €2,418 million, an increase of €262 million on the equivalent figure recalculated under French GAAP. This increase mainly reflects the €111 million rise in operating income and the elimination of goodwill amortization (increase of €151 million) • net financial income decreases by €94 million, mainly due to the reclassification of a portion of the pension cost (interest cost and estimated return on plan assets), representing an additional financial expense of €95 million previously included under operating items. • net income increases by €156 million (+14.4%), primarily due to the elimination of goodwill amortization (€151 million). This also leads to an increase of €167 million in net income excluding capital gains and losses (+14.9%) Impacts on 2004 results by business sector, division and geographic area (see app. 3): The reclassification under net financial income/(loss) of a portion of the net pension cost previously included under operating items has a marginally positive impact on operating income and operating margin for all business sectors, divisions and major geographic areas in which the Group operates. Business income, a new income statement line item under IFRS, is broken down for each business sector, division and major geographic area (see appendix 3). Impacts on cash flow from operations: Consolidated cash flow from operations under IFRS remains virtually unchanged, increasing €27 million to €2,639 million, compared with €2,612 under French GAAP. This increase mainly results from the restatement of finance leases in an amount of €20 million Confirmation of the target for 2005 under IFRS: the Group is maintaining its target of 6% growth in operating income at constant exchange rates (average 2004 exchange rates), based on 2004 operating income restated in accordance with IFRS. Restatement of interim financial statements (Q1, H1 and first nine months): To enhance comparability between the 2005 interim financial statements, to be prepared exclusively under IFRS, and the equivalent figures for 2004, the Group’s 2004 interim financial statements along with the results by business sector, division and major geographic area, have been restated in accordance with IFRS. The restated figures are set out in appendices 4, 5 and 6 The 2004 consolidated financial statements of the Saint-Gobain Group restated in accordance with IFRS are presented in note 35 to the 2004 consolidated financial statements. This note describes the impact of the switch from French GAAP to IFRS and is available on the Group’s website. A meeting to discuss the switch to IFRS will be held tomorrow morning, March 30, 2005 at 8.30am at the Group’s headquarters (Les Miroirs, 18 avenue d’Alsace, 92096 La Défense cedex). A live webcast of the meeting in French and English will be available on the Group’s internet site. A pre-recorded broadcast will also be available at a later date. Forthcoming results announcements (in accordance with IFRS only): - Sales for the first quarter of 2005: April 26, 2005, after close of trading on the Paris bourse. - First-half 2005 results: July 28, 2005, after close of trading on the Paris bourse. - Sales for the first 9 months of 2005: October 25, 2005, after close of trading on the Paris bourse.  Access to appendix  |
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