LR 13.5 Financial information in Class 1 Circulars

Financial information, as set out in this section, must be included by a listed company in a class 1 circular if:

1. (1)

   the listed company is seeking to acquire an interest in a target which will result in a consolidation of the target's assets and liabilities with those of the listed company; or

2. (2)

   the listed company is seeking to dispose of an interest in a target which will result in the assets and liabilities which are the subject of the disposal2 no longer being consolidated; or

3. (3)

   the target ("A") has itself acquired a target ("B") and:

   1. (a)

      A acquired B within the three year reporting period set out in LR 13.5.13R (1) or after the date of the last published accounts; and

   2. (b)

      the acquisition of B, at the date of its acquisition by A, would have been classified as a class 1 acquisition in relation to the listed company at the date of acquisition of A by the listed company.

2When a listed company is acquiring an interest in a target that will be accounted for as an investment, or disposing of an interest in a target that has been accounted for as an investment, and the target's securities that are the subject of the transaction are admitted to an investment exchange that enables intra-day price formation, the class 1 circular should include:

1. (1)

   the amounts of the dividends or other distributions paid in the last three years; and

2. (2)

   the price per security and the imputed value of the entire holding being acquired or disposed of at the close of business at the following times:

   1. (a)

      on the last business day of each of the six months prior to the issue of the class 1 circular;

   2. (b)

      on the day prior to the announcement of the transaction; and

   3. (c)

      at the latest practicable date prior to the submission for approval of the class 1 circular.

2When a listed company is acquiring or disposing of an interest in a target that was or will be accounted for using the equity method in the listed company's annual consolidated accounts, the class 1 circular should include:

1. (1)

   for an acquisition,

   1. (a)

      a narrative explanation of the proposed accounting treatment of the target in the issuer's next audited consolidated accounts;

   2. (b)

      a financial information table for the target;

   3. (c)

      a statement that the target financial information has been audited and reported on without modification or a statement addressing LR 13.4.2 R and LR 13.5.25 R with regard to any modifications; and

   4. (d)

      a reconciliation of the financial information and opinion thereon in accordance with LR 13.5.27R (2)(a) or, where applicable, a statement from the directors in accordance with LR 13.5.27R (2)(b);

2. (2)

   for a disposal, the line entries relating to the target from its last audited consolidated balance sheet and those from its audited consolidated income statement for the last three years together with the equivalent line entries from its interim consolidated balance sheet and interim consolidated income statement, where the issuer has published subsequent interim financial information.

2A listed company that is entering into a class 1 transaction which falls within LR 13.5.1 R, LR 13.5.3A R or LR 13.5.3B R but cannot comply with LR 13.5.12 R (inclusion of financial information table) or, for an investment, LR 13.5.3AR (2) (inclusion of price per security and the imputed value of the entire holding), must include an appropriate independent valuation of the target in the class 1 circular.

1. (1)

   A listed company must present all financial information that is disclosed in a class 1 circular in a form that is consistent with the accounting policies adopted in its own latest annual consolidated accounts.

2. (2)

   The requirement set out in (1) does not apply when financial information is presented in accordance with:2

   2
   1. (a)

      DTR 4.2.6 R, in relation only to financial information for the listed company presented for periods after the end of its last published annual accounts; or2

   2. (b)

      LR 13.3.3 R (in relation to pro forma financial information); or2

   3. (c)

      LR 13.5.27 R or LR 13.5.30 R (in relation to financial information presented for entities that are admitted to trading on a regulated market or admitted to an appropriate multilateral trading facility or overseas investment exchange); or2

   4. (d)

      LR 13.5.30B R (in relation to financial information on disposal entities extracted from financial records from previous years); or2

   5. (e)

      LR 13.5.3A R or LR 13.5.3B R (in relation to targets that are or will be treated as investments or accounted for using the equity method in the listed company's consolidated accounts); or2

   6. (f)

      the accounting policies to be used in the issuer's next financial statements, provided the issuer's last published annual consolidated accounts have been presented on a restated basis consistent with those to be used in its next accounts on or before the date of the class 1 circular.2

A listed company must cite the source of all financial information that it discloses in a class 1 circular.

If financial information has not been extracted directly from audited accounts, the class 1 circular must:

1. (1)

   set out the basis and assumptions on which the financial information has been prepared; and

2. (2)

   include a statement that the financial information is unaudited or not reported on by an accountant.

A listed company must provide investors with all necessary information to understand the context and relevance of non-statutory figures, including a reconciliation to statutory equivalents.

2Where a listed company includes details of estimated synergies or other quantified estimated financial benefits expected to arise from a transaction in a class 1 circular, it must also include in the class 1 circular:

1. (1)

   the basis for the belief that those synergies or other quantified estimated financial benefits will arise;

2. (2)

   an analysis and explanation of the constituent elements of the synergies or other quantified estimated financial benefits (including any costs) sufficient to enable the relative importance of those elements to be understood, including an indication of when they will be realised and whether they are expected to be recurring;

3. (3)

   a base figure for any comparison drawn;

4. (4)

   a statement that the synergies or other quantified estimated financial benefits are contingent on the class 1 transaction and could not be achieved independently; and

5. (5)

   a statement that the estimated synergies or other quantified estimated financial benefits reflect both the beneficial elements and relevant costs.

A listed company must give audited historical financial information greater prominence in a class 1 circular than any forecast, estimated, pro forma or non-statutory financial information.

A listed company that provides a summary of financial information in a class 1 circular must include in the circular a statement that investors should read the whole document and not rely solely on the summarised financial information.

A listed company that is required by LR 13.5.1 R or LR 13.5.3BR (1)2 to produce financial information in a class 1 circular must include in the circular a financial information table.

2LR 13.5.13 R to LR 13.5.30 R apply only in relation to a class 1 acquisition.

A financial information table for a class 1 acquisition2 must cover one of the following reporting periods:

1. (1)

   a period of three years up to the end of the latest financial period for which the target or its parent has prepared audited accounts; or2

2. (2)

   a lesser period than the period set out in (1) if the target's business has been in existence for less than three years.2

   2

A listed company must include, in a financial information table, financial information that covers:

1. (1)

   the target; and

2. (2)

   the target's subsidiary undertakings, if any.

2If the target has made an acquisition or a series of acquisitions that were made during, or subsequent to, the reporting periods set out in LR 13.5.13 R the listed company must include additional financial information tables so that the financial information presented by the listed company represents at least 75% of the enlarged target for the period from the commencement of the relevant three year reporting period set out in LR 13.5.13R (1) up to the date of the acquisition by the listed company or the last balance sheet date presented by it under LR LR 13.5.13R (1), whichever of the two is earlier.

A listed company must ensure that a financial information table includes, for each of the periods covered by the table:

1. (1)

   a balance sheet and its explanatory notes;

2. (2)

   an income statement and its explanatory notes;

3. (3)

   a cash flow statement and its explanatory notes;

4. (4)

   a statement showing either all changes in equity or changes in equity other than those arising from capital transactions with owners and distributions to owners;

5. (5)

   the accounting policies; and

6. (6)

   any additional explanatory notes.

Unless LR 13.5.3A R, LR 13.5.3B R or LR 13.5.27 R applies, a financial information table must disclose how the accounting policies used conform with LR 13.5.4 R and be accompanied by an accountant’s opinion as set out in LR 13.5.22 R.2

An accountant's opinion must set out whether, for the purposes of the class 1 circular, the financial information table gives a true and fair view of the financial matters set out in it.2

An accountant's opinion must be given by an independent accountant who is qualified to act as an auditor.

If the accountant's opinion required by LR 13.5.21 R is modified or contains an emphasis-of-matter paragraph,2 details of all material matters must be set out in the class 1 circular, including:

1. (1)

   all the reasons for the modification or emphasis-of-matter paragraph2; and

2. (2)

   a quantification of the effects, if both relevant and practicable.

If the historical financial information2 of a target that falls within LR 13.5.14 R or LR 13.5.17A R is subject to a modified report2, details of the material matters giving rise to the modification or emphasis-of-matter paragraph2 must be set out in the class 1 circular.

1. (1)

   LR 13.5.27R (2) applies where the target is:2

   2
   1. (a)

      admitted to trading on a regulated market; or2

   2. (b)

      a company whose securities are either listed on an investment exchange that is not a regulated market or admitted to a multilateral trading facility, where appropriate standards as regards the production, publication and auditing of financial information are in place;2

      2

   and none of the financial information included in the target's financial information table is subject to a modified report, except where a dispensation has been granted under LR 13.5.27C R.2

   2
2. (2)

   Where LR 13.5.27R (1) or LR 13.5.3BR (1) applies the2 listed company must include in the class 1 circular either2:

   22
   1. (a)

      a reconciliation of financial information on the target for all periods covered by the financial information table on the basis of the listed company's accounting policies, accompanied by an accountant's opinion that sets out:2

      222
      1. (i)

         whether the reconciliation of financial information in the financial information table has been properly compiled on the basis stated; and2

      2. (ii)

         whether the adjustments are appropriate for the purpose of presenting the financial information (as adjusted) on a basis consistent in all material respects with the listed company's accounting policies; or2

   2. (b)

      a statement by the directors that no material adjustment needs to be made to the target's financial information to achieve consistency with the listed company's accounting policies.2

      2

2Where a listed company proposes to rely on LR 13.5.27R (1)(b), its sponsor must submit to the FSA an assessment of the appropriateness of the standards applicable to an investment exchange or multilateral trading facility against the factors set out in LR 13.5.27AG (1) to (7) and any other matters that it considers should be noted. The assessment must be submitted before or at the time the listed company submits the draft class 1 circular.

2The FSA may grant a dispensation from LR 13.5.27R (1) to allow the application of LR 13.5.27R (2) where a modified report on the target's financial information has been produced. In such circumstances the FSA will have regard to the factors set out in LR 6.1.3A G.

If a class 1 circular includes half-yearly or quarterly or other interim financial information for the target, the financial information should be presented in accordance with LR 13.5.4R (1) and be accompanied by a confirmation from the directors of the consistency of the accounting policies with those of the issuer, except:2

1. (1)

   where LR 13.5.27R (1) applies, the financial information should be presented in accordance with LR 13.5.27R (2) except that no accountant’s opinion is required; or 2

   2
2. (2)

   where LR 13.5.3B R applies, the financial information should be presented in accordance with LR 13.5.3BR (1)(b) and LR 13.5.3BR (1)(d).2

   2

2LR 13.5.30B R to LR 13.5.30D G apply only in relation to a class 1 disposal.

1. (1)

   2In the case of a class 1 disposal, a financial information table must include for the target:

   1. (a)

      the last annual consolidated balance sheet;

   2. (b)

      the consolidated income statements for the last three years drawn up to at least the level of profit or loss for the period; and

   3. (c)

      the consolidated balance sheet and consolidated income statement (drawn up to at least the level of profit or loss for the period) at the issuer's interim balance sheet date if the issuer has published interim financial statements since the publication of its last annual audited consolidated financial statements.

2. (2)

   The information in (1) must be extracted without material adjustment from the consolidation schedules that underlie the listed company's audited consolidated accounts or, in the case of (c), the interim financial information, and must be accompanied by a statement to this effect.

3. (3)

   If the information in (1) is not extracted from the consolidation schedules it must be extracted from the issuer's accounting records and where an allocation is made, the information must be accompanied by:

   1. (a)

      an explanation of the basis for any financial information presented; and

   2. (b)

      a statement by the directors of the listed company that such allocations provide a reasonable basis for the presentation of the financial information for the target to enable shareholders to make a fully informed voting decision.

4. (4)

   If the target has not been owned by the listed company for the entire reporting period set out in (1)(b), the information required by (1) or (3) may be extracted from the target's accounting records.

2Where a change of accounting policies has occurred during the period covered by the financial information table required by LR 13.5.30B R the financial information must be presented on the basis of both the original and amended accounting policies for the year prior to that in which the new accounting policy is adopted unless the change did not require a restatement of the comparative. Therefore the financial information table should have four columns (or more where changes have occurred in more than one year).

If a listed company includes a profit forecast or a profit estimate in a class 1 circular it must:

1. (1)

   comply with the requirements for a profit forecast or profit estimate set out in Annex 1 of the PD Regulation except that a listed company does not need to include a report on the forecast or estimate from an accountant in the class 1 circular; and

2. (2)

   include a statement confirming that the profit forecast or profit estimate has been properly compiled on the basis of assumptions stated and that the basis of accounting is consistent with the accounting policies of the listed company.

If, prior to the class 1 transaction, a profit forecast or profit estimate was published that:

1. (1)

   relates to any of the listed company, a significant part of the listed company group, the target or a significant part of the target; and2

   2
2. (2)

   relates to financial information including the period of the forecast which has yet to be published at the date of the class 1 circular;2

   2

the listed company must either:2

1. (3)

   include that profit forecast or profit estimate in the class 1 circular and comply with LR 13.5.32 R; or

2. (4)

   include the profit forecast or profit estimate in the class 1 circular together with an explanation of why the profit forecast or profit estimate is no longer valid and why reassessment of the profit forecast or profit estimate in the class 1 circular is not necessary for the listed company to comply fully with LR 13.3.1R (3).