New rules to hit top firms' profits

Published on Monday 26 July 2004 11:47

THE top 25 companies in Britain’s FTSE-100 index can expect to see their profits cut by an average of five per cent under forthcoming accountancy rule changes, according to a new report.

Each company faces an average cost of 68 million each under the change, due in January, that will require them to treat the award of stock options as expenses, the survey by Halliwell Consulting said.

From the start of next year, publicly-owned companies have to use international accounting standards, including IFRS 2, that results in a deduction from profits when a company awards staff any stock options.

The spate of corporate scandals in the United States has blunted business opposition to the classification of options as expenses, although concern lingers about the impact on profits.

Halliwell’s findings are based on latest available annual reports, for 2003 and 2004, and estimates what the impact of IFRS 2 would have been in these years. By way of example, its report says drinks firm Diageo’s profits would be cut by 43 per cent, satellite broadcaster BSkyB would be down 14 per cent, and telecoms firm BT seven per cent.

Jon Dymond, principal consultant at Halliwell Consulting, said today: "IFRS 2, which comes into effect for financial years after January 1, 2005, will have a significant effect on UK-listed companies."

Mr Dymond said that not only would IFRS 2 affect profits and performance measurement, but it would also hit recruitment, retention and relations with shareholders.

Halliwell also highlighted the potential negative impact of IFRS 2 on companies that provide all employees with save-as-you-earn options schemes.

It estimates such schemes could cost the top 25 FTSE-100 companies about 10m each, and unions have predicted some schemes will be closed because of IFRS 2.