FSA Handbook - Full Handbook

When financial information must be included in a class 1 circular

LR 13.5.1 01/07/2005

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

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

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

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

(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.

LR 13.5.2 01/07/2005

A listed company that is entering into a class 1 transaction which does not fall within LR 13.5.1 R must include in a class 1 circular such financial information as the FSA may specify.

LR 13.5.3 01/07/2005

LR 13.5.1 R will not normally apply to a property company making an acquisition or disposal of property.

Form of accounting information

LR 13.5.4 01/07/2005

(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) The requirement set out in paragraph (1) does not apply to financial information presented in accordance with LR 13.5.36 R.

LR 13.5.5 01/07/2005

Accounting policies include accounting standards and accounting disclosures.

Source of information

LR 13.5.6 01/07/2005

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

LR 13.5.7 01/07/2005

In complying with LR 13.5.6 R a listed company should:

(1) state whether the financial information was extracted from accounts, internal financial accounting records, internal management accounting records, an external or other source;

(2) state whether financial information that was extracted from audited accounts was extracted without material adjustment; and

(3) indicate which aspects of the financial information relate to:

(a) historical financial information;

(b) forecast or estimated financial information; or

with reference made to where the basis of presentation can be found.

LR 13.5.8 01/07/2005

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

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

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

LR 13.5.9 01/07/2005

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.

Prominence of information

LR 13.5.10 01/07/2005

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.

Summary of financial information

LR 13.5.11 01/07/2005

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.

Financial information table

LR 13.5.12 01/07/2005

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

Financial information table: reporting period

LR 13.5.13 01/07/2005

A financial information table must cover one of the following reporting periods:

(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;

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

(3) for a class 1 disposal, the period set out in LR 13.5.19 R.

Financial information table: class 1 acquisitions

LR 13.5.14 01/07/2005

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

(1) the target; and

(2) the target's subsidiary undertakings, if any.

LR 13.5.15 01/07/2005

A listed company must include in a separate financial information table, financial information that covers those undertakings which are to become the target's subsidiary undertakings, if applicable.

LR 13.5.16 01/07/2005

(1) This rule applies if a listed company is seeking to acquire an interest in a target ("A") that has itself acquired a target ("B") and:

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

(2) A listed company must include in a financial information table pre-acquisition financial information on B that covers the period from the commencement of the three year reporting period set out in LR 13.5.13 R (1) up to the date of acquisition by A.

LR 13.5.17 01/07/2005

If the target made a series of acquisitions that:

(1) are not caught individually by LR 13.5.16 R; and

(2) were made during or subsequent to the reporting period set out in LR 13.5.13 R (1) or (2);

the FSA may require additional financial information about those acquisitions to be included in the financial information table.

LR 13.5.18 01/07/2005

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

(1) a balance sheet and its explanatory notes;

(2) an income statement and its explanatory notes;

(3) a cash flow statement and its explanatory notes;

(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) the accounting policies; and

(6) any additional explanatory notes.

Financial information table: class 1 disposal

LR 13.5.19 01/07/2005

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

(a) the last audited consolidated balance sheet; and

(b) the audited consolidated income statements for the last three years;

if audited accounts have been prepared for the target.

(2) If audited accounts have not been prepared for the target, the information required by paragraph (1) must be extracted from the consolidation schedules that underlie the listed company's audited consolidated accounts. The income statements must be drawn up to at least the level of profit or loss for the period.

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

LR 13.5.20 01/07/2005

If a dispensation of LR 13.5.19 R has been granted because it is not possible to provide a meaningful allocation of costs, such as interest and tax, the class 1 circular should contain a statement to this effect.

Financial information table: accountant's opinion

LR 13.5.21 01/07/2005

A financial information table must be accompanied by an accountant's opinion unless LR 13.5.27 R, LR 13.5.28 R or LR 13.5.29 G applies.

LR 13.5.22 01/07/2005

An accountant's opinion must set out:

(1) 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; and

(2) whether the financial information table has been prepared in a form that is consistent with the accounting policies adopted in the listed company's latest annual accounts.

LR 13.5.23 01/07/2005

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

LR 13.5.24 01/07/2005

An accountant will be independent if he or she complies with the standards and guidelines on independence issued by its national accountancy and auditing bodies.

LR 13.5.25 01/07/2005

If an accountant's report, which contains the accountant's opinion required by LR 13.5.21 R, is modified details of all material matters must be set out in the class 1 circular, including:

(1) all the reasons for the modification; and

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

LR 13.5.26 01/07/2005

If the accounts of a target that falls within LR 13.5.14 R to LR 13.5.16 R contain a modified auditor's report, details of the material matters giving rise to the modification must be set out in the class 1 circular.

Accountant's opinion: acquisitions of publicly traded companies

LR 13.5.27 01/07/2005

(1) This rule applies if the target is:

(a) admitted to trading; or

(b) a company whose securities are listed on an overseas investment exchange or admitted to trading on an overseas regulated market;

and a material adjustment needs to be made to the target's financial statements to achieve consistency with the listed company's accounting policies.

(2) A listed company must include the following in the class 1 circular:

(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;

(b) an accountant's opinion that sets out:

(i) whether the reconciliation of financial information in the financial information table has been properly compiled on the basis stated; and

(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.

When an accountant's opinion is not required

LR 13.5.28 01/07/2005

An accountant's opinion is not required if the target is:

(1) admitted to trading; or

(2) a company whose securities are listed on an overseas investment exchange or admitted to trading on an overseas regulated market;

and no material adjustment needs to be made to the target's financial statements to achieve consistency with the listed company's accounting policies.

LR 13.5.29 01/07/2005

In the case of a class 1 disposal a listed company is not required to include an accountant's opinion with the financial information table.

Half-yearly and quarterly financial information

LR 13.5.30 01/07/2005

If the target of an acquisition has published half-yearly or quarterly financial information subsequent to the period set out in LR 13.5.13 R (1) or (2), such financial information must be:

(1) reproduced in the class 1 circular; and

(2) reconciled in accordance with LR 13.5.27 R (2), if applicable.

Pro forma financial information2

LR 13.5.31 06/08/2007

2LR 13.3.3 R sets out requirements for pro forma information in a class 1 circular.

Profit forecasts and profit estimates

LR 13.5.32 01/07/2005

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

(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) 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.

LR 13.5.33 01/07/2005

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

(1) relates to the listed company, a significant part of the listed company group, or the target; and

(2) is still outstanding;

the listed company must include that profit forecast or profit estimate in the class 1 circular or include an explanation of why the profit forecast or profit estimate is no longer valid.

LR 13.5.34 01/07/2005

A listed company should consider LR 9.2.18 R regarding information that must be published after a class 1 transaction.

LR 13.5.35 01/07/2005

LR 13.5.32 R and LR 13.5.33 R do not apply to class 1 disposals.

Subsequent publication of unaudited financial information

LR 13.5.36 01/07/2005

(1) A listed company that publishes unaudited financial information in a class 1 circular must:

(a) reproduce that financial information in its next annual report and accounts;

(b) produce and disclose in the annual report and accounts the actual figures for the same period covered by the information reproduced under paragraph (a); and

(c) provide an explanation of the difference, if there is a difference of 10% or more between the figures required by paragraph (b) and those reproduced under paragraph (a).

(2) Paragraph (1) does not apply to:

(a) pro forma financial information prepared in accordance with Annex 1 and Annex 2 of the PD Regulation; or

(b) any preliminary statements of annual results or half-yearly or quarterly reports that are reproduced in the class 1 circular; or

LR 13.5 Financial information in Class 1 Circulars