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JJB Sports plc, a leading retailer, reported interim financial results for the six months ended 30 June 2005 that caused some disquiet among investors and analysts. The business changed the estimates for the useful life of its property, plant and equipment when calculating depreciation. It explained that this was due to new requirements to adopt International Financial Reporting Standards (IFRSs) when preparing financial statements. The article below, however, suggests that not everyone believed this.
JJB massages results to boost profits High street retailer JJB Sports massaged last week's disappointing interim results by changing its depreciation calculations, in order to boost flagging profits by £4.3m.
Analysts admitted that they were caught on the hop, as the company reported a 35.8% drop in operating profits from £27.4m to £17.6m for six months ended June 2005 on revenues down 6% to £340.4m. Operating profits would have plummeted even further to £14.3m had the company not changed its accounting for depreciation. ‘The company explained the change as coming out of its IFRS conversion review, but it was clearly there for other reasons,' said Teather & Greenwood retail analyst Sanjay Vidyarthi. JJB said that an impairment review ahead of its IFRS transition had forced a rethink on the carrying value of property, plant and equipment. It concluded that these items had useful economic lives that more closely matched the length of the short-term lease of the property, rather than the 10-year economic life, which had formed the basis of the depreciation charge in previous accounting periods. Richard Ratner, head of equity research at Seymour Pierce, said: ‘They said the way they had depreciated assets previously was not correct but I haven't seen any other companies make this kind of change.' JJB's share price fell from 168.2p before the results to 164.7p at the end of last week.