GFKL Financial Services AG - Letter to the Shareholders
Essen, 2. July 2004
IAS 32 and 39 – Conversion of GFKL’s accounts
Changes to IAS/IFRS accounting standards, which will become compulsory as of January 1, 2005, will in future lead to not inconsiderable changes to items disclosed in GFKL’s annual accounts. The revision of standards IAS 32 and IAS 39, which relate to the disclosure, presentation, recognition and measurement of financial instruments, will have two important effects:
- The interest income previously realized on the sale of leasing receivables into the ABCP programs (gain on sale) may in future only be received as interest income spread over the term of the receivables.
- Income from the purchase of third-party receivables portfolios under the cash value and the subsequent sale of these into an ABCP program will no longer have an immediate effect on earnings. In future, this income will also be realized during the term of the receivable.
This means that the presentation of income from GFKL’s leasing business will in future become much closer to the booking procedure at banks. Viewed over the total period, the presentation of GFKL’s earnings will remain unchanged, i. e. the economic and risk-related overall assessment of the sale of receivables without recourse will remain unaffected.
In principle, we believe that GFKL’s accounting has been economically correct up to now; nevertheless, we also welcome the new regulations, as they will stabilize the presentation of GFKL’s earnings. In addition, the temporal deferral of the realization of income will lead to the accumulation of undisclosed reserves.
Due to the positive effects described and - more particularly – to ensure that the annual accounts will continue to be comparable, GFKL has decided to begin applying the new regulations voluntarily as of January 1, 2004. These standards will be applied retroactively, i.e. the resulting changes in the accounts will be presented as if they had come about in the period during which they actually happened, and will be measured in accordance with the revised versions of IAS 32 and IAS 39. The resulting changes to earnings in the previous years will be disclosed as a one-off item in the shareholders’ equity recorded in the balance sheet as of January 1, 2004. This way of proceeding will avoid influencing the current earnings for 2004 and ensure that the current accounts will continue to be comparable with those of previous years. According to our estimates to date, this will cause a change in shareholders’ equity amounting to approx. 16 million Euro. Here we expressly state that the reduction in shareholders’ equity is based solely on the accounts-related grounds described. GFKL’s economic situation will remain unaffected.
However, the voluntary, retroactive application as of January 1, 2004 of the revised versions of IAS 32 and IAS 39, which will only become compulsory as of January 1, 2005, and the necessary revision of the comparative periods / previous years as described mean that the deferral of our customary dates of publication is unavoidable. This means that we are as yet unable to present the quarterly report as of March 31, 2003. However, in order to keep you as up to date as possible, we have decided to draw up the half-year report for 2004 first, and to present it by the end of next month. The quarterly report as of March 31, 2004 will then be submitted as early as possible. We hope you will understand our reasons for the path we have chosen. Dr. Till Ergenzinger (tel. +49 201 102 1170) will be glad to answer your questions at any time.
Yours sincerely,
Dr.Till Ergenzinger
GFKL Financial Services AG
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