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Lewis Group Limited - Accounting For Share Based Payments Under IFRS 2
Lewis Group Limited
Registration number: 2004/009817/06
Share code: LEW
ISIN: ZAE000058236
ACCOUNTING FOR SHARE BASED PAYMENTS UNDER IFRS 2
Background
Prior to the listing of Lewis Group Limited (`Lewis`) on the JSE Limited, GUS
Holdings BV (`GUS`) its then holding company agreed to make available to the
Lewis Employee Share Incentive Trust, 4% of its share holding in Lewis, for no
consideration.
At the time of the listing, share awards and options were granted to qualifying
employees and executives to reward them for their contribution in taking Lewis
to the listing, to align the interests of employees with the interests of Lewis
and its shareholders and to provide them with an incentive to further advance
the interests of Lewis in the future.
On 26 May 2005, GUS sold its remaining 50% interest in Lewis. This sale
resulted in a change in control and in terms of the scheme rules the awards and
options vested immediately.
Accounting treatment in terms of IFRS 2
In terms of IFRS 2, notwithstanding that the awards and options were granted at
no cost to Lewis, share based payments are required to be expensed over the
vesting period. Any accelerated vesting of the options and awards requires
immediate recognition of the unrecognised portion.
David Nurek, Non-executive Chairman of the Board commented:
`Whilst we recognise the need to comply with IFRS standards, these rule based
statements leave little room for any exception to the rules. It is
incomprehensible to consider that a substantial charge will be taken against
income which arises exclusively from the generosity of the former holding
company and the efforts of executives in procuring the listing. This charge
will have no bearing on current operating performance and it is our intention to
correct this misleading presentation in our financial statements so as to
reflect normalised earnings.`
Lewis wishes to bring to the attention of shareholders that the IFRS 2
presentation will have the following effect:-
1. Impact on Earnings
The recognition of the share based payments as an expense will decrease headline
earnings and headline earnings per share for the financial results for the year
ending 31 March 2006 and the comparative year ended March 2005 as follows:
31 March 31 March
2006 2005
Reduction in headline earnings R58.4 million R10.8 million
Reduction in headline earnings per share 59.2 cents 10.8 cents
2. No Impact on sustainable earnings
The accounting treatment of the above share based payment is not pertinent to
ongoing operations. Furthermore it is a non-recurring expense and will have no
effect on future years earnings.
In addition, there is also no economic cost or dilutionary effect to existing
shareholders as the cost of the awards and options were funded by GUS and the
shares were already in issue. Consequently, the charge should not be taken into
account in determining the sustainability of earnings of Lewis.
3. No Impact of Dividends
The dividends for the year ended 31 March 2006 will be calculated on the
earnings after adding back the charge for the share based payments.
4. No Impact on Cash and Gearing
The share based payment has no impact on the cash position and gearing ratios of
Lewis as GUS bore the cost of the awards and options.
5. No Impact on Asset Value or Shareholders Funds
The above accounting treatment has no impact on the total equity and liabilities
nor the total assets of Lewis as GUS bore the cost of the awards and options.
Cape Town
14 September 2005
Sponsor: UBS
Date: 14/09/2005 04:00:09 PM
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