Annual Report & Accounts 2009
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- Financial Statements
- Notes to the Consolidated Financial Statements
- 15 Preference shares
Cumulative, convertible, redeemable preference shares of £1 each
| 2009 Number |
2008 Number |
|
|---|---|---|
| Authorised | 32,000,000 | 32,000,000 |
| Allotted, called up and fully paid | 3,949,419 | 5,773,721 |
Under IAS 39, the Company’s cumulative, convertible, redeemable preference shares are required to be split into debt and equity components with the preference dividend being classified as a finance cost. The fair value of the debt element is established on issue of the shares, based on the discounted cash flows of the instrument to the date of maturity and is then increased each year on a straight line basis through the income statement in order to arrive at the redemption amount payable on maturity of the shares.
The movement in the debt and equity elements during the year is as follows:
| Equity element £m |
Debt element £m |
|
|---|---|---|
| At 4 February 2008 | 15.2 | 85.9 |
| Premium on redemption | – | 0.9 |
| Purchase of preference shares | (4.8) | (27.4) |
| At 1 February 2009 | 10.4 | 59.4 |
During the year the Company purchased and cancelled 1,824,302 of its preference shares at a total cash cost of £23.6 million. Based on the book value and fair value of the instrument at the date of purchase, the financial liability element of the preference shares was reduced by £27.4 million and the equity element by £4.8 million. A gain of £3.7 million was recognised in the income statement being the difference between the book value and fair value of the financial liability element at the date of purchase. The gain arising from the difference between the book value and fair value of the equity element of £4.8 million was recognised as a movement in retained earnings. A deferred tax credit of £0.8 million arose which is also recognised as a movement in retained earnings. A transfer from retained earnings of £1.8 million to non-distributable reserves was made in order to maintain the legal nominal value of share capital.
In the prior year, the Company purchased and cancelled 1,236,500 of its preference shares at a total cost of £17.7 million, resulting in a gain of £0.9 million being recognised in the income statement. A deferred tax credit of £0.6 million was recognised as a movement in retained earnings.
At 1 February 2009, the preference shares comprised 143,369 (2008: 148,368) US$1.35 cumulative, convertible, redeemable preference shares of £1 each (the ‘US preference shares’) and 3,806,050 (2008: 5,625,353) 89.2p cumulative, convertible, redeemable preference shares of £1 each (the ‘sterling preference shares’ and, together with the US preference shares, the ‘preference shares’). The rights and restrictions attaching to the preference shares are as follows:
1) Currency
Holders of preference shares are entitled to receive a preferential dividend, a distribution on a winding up and a payment on redemption. Holders of US preference shares receive such payments in US dollars. Holders of sterling preference shares receive such payments in sterling.
2) Changeover
A holder of US preference shares may serve notice on the Company requiring that some or all of their US preference shares be changed to sterling preference shares.
3) Income
a) Each holder has a right to receive a fixed cumulative preferential dividend at the rate of US$1.35 per annum for every £1 of nominal value for the US preference shares and at the rate of 89.2p per annum for every £1 of nominal value for the sterling preference shares. Dividends on the preference shares are payable half-yearly in arrears in equal amounts, on 26 January and 26 July.
b) The fixed cumulative preferential dividends payable in respect of the preference shares are paid in priority to any dividend payable to the holders of ordinary shares and in priority to or pari passu with the holders of any other class of preference shares in the capital of the Company.
c)If a holder of US preference shares has elected to changeover his US preference shares to sterling preference shares then the fixed cumulative preferential dividend and any arrears payable after the changeover date will be paid at the sterling rate set out above.
4) Conversion
a) Each holder of preference shares is entitled to convert all or any of his fully paid preference shares into fully paid ordinary shares at the rate of 10.3432p in nominal amount of ordinary share capital for every £1 in nominal amount of preference share capital so converted (the ‘conversion rate’).
b)The preference shares may be converted on any date at the option of the holder on and from the date of issue up to and including 22 April 2016.
c)If at any time 75% or more of all the preference shares have been converted into ordinary shares (but assuming, for this purpose only, that any preference shares which have been converted into ordinary shares pursuant to the special conversion right made available in 2002 had never been issued or converted), the Company may give written notice to the remaining holders of preference shares to convert the remaining preference shares into ordinary shares.
d)The conversion rate may be subject to adjustment if, inter alia, the Company makes an issue of ordinary shares by way of capitalisation of profits or reserves, a rights issue or another offer to ordinary shareholders or if there is a change of control in the Company following a take-over offer or if a capital distribution is made.
5) Redemption
The Company shall (subject to any statutory restrictions) on 29 April 2016 redeem all the US preference shares in issue at US$25 for every £1 of nominal value and all the sterling preference shares in issue at £16.518 for every £1 of nominal value.
6) Voting
Each preference share entitles the holder to receive notice of but not to attend or vote at general meetings of the Company save in limited circumstances. Subject to being entitled to vote on any resolution, each holder of preference shares has one vote on a show of hands and on a poll every such holder has one vote for every ordinary share to which he would be entitled on conversion of his preference shares.
7) Winding up
Subject to the rights attached to any shares issued on any special terms and conditions, on a return of capital on a winding-up of the Company the assets available for distribution will be applied, first, in paying to each holder of a preference share any arrears and accruals of the preferential dividend; second, in repaying US$25 for every £1 of nominal value for the US preference shares and £16.518 for every £1 of nominal value for the sterling preference shares; third, in repaying the capital paid up on each ordinary share; and fourth, in distributing the remainder rateably among the members of the Company according to the amounts paid up on their respective holdings of shares in the Company, each preference share being treated for this purpose as if converted at the conversion rate applicable into fully paid ordinary shares immediately prior to the commencement of the winding-up.