GSK takes £394 million profit hit from IFRS
Pharmaceutical giant GlaxoSmithKline announced yesterday that switching reporting standards to IFRS cost its shareholders £394 million in 2004.
At the company's annual results, CEO JP Garnier described how the new standards had lowered GSK's profits attributable to shareholders from £4.302 billion to £3.908 billion, a fall of almost 10%, and turnover from £20.359 billion to £19.986 billion.
The biggest culprit for GSK was the reclassification of marketing and promotional expenditure. Under IFRS this customer spending is deducted directly from turnover, subtracting £373 million from GSK's revenue in 2004.
New charges for employee share options were also expensive, costing £309 million across sales, administration and R&D, while a change in methodology under IFRS for calculating deferred tax on intercompany items cost £110 million.
There were some positive changes from IFRS, but not enough to outweigh the negatives. Amortisation of goodwill and intangible assets (which was responsible for bouncing Vodafone into profit this month) added £43 million to R&D turnover, £11 million to profit on disposal of interest in associates and £14 million to shares of profits in joint ventures.