IFRS Statement
Kier Group PLC
15 September 2005
KIER GROUP PLC
TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS
RESTATEMENT OF FINANCIAL INFORMATION FOR THE YEAR ENDED 30 JUNE 2005
Kier Group plc has adopted International Financial Reporting Standards (IFRS)
with effect from 1 July 2005, in accordance with European Union regulations.
Kier Group will therefore publish its results for the six months to 31 December
2005 and its Annual Report and Accounts for the year to 30 June 2006 in
accordance with IFRS.
Kier Group plc has, today, published its preliminary results for the year to 30
June 2005 under UK Generally Accepted Accounting Practice (GAAP) in a separate
statement. This statement sets out an unaudited restatement of those results and
net assets under IFRS. The resulting balance sheets and income statement must be
regarded as preliminary and will only be determined with certainty when the
Group issues its annual financial statements under IFRS for the year to 30 June
2006.
The key points relating to the restatement are:-
• The transition to IFRS has no impact on business operations, cash,
financing or the ability to pay dividends;
• There is no impact on the profit recognition policy for Construction or
Support Services and only minor impact on profit recognition for
Housebuilding and Property;
• The most significant effect of IFRS is in accounting for pensions which
reduces stated net assets;
• No account has been taken of IAS 32 and IAS 39 'Financial Instruments'.
This will apply to Kier from 1 July 2005 with there being no requirement to
restate comparatives.
This statement sets out the following, restated in accordance with IFRS.
• A consolidated income statement for the year to 30 June 2005;
• A consolidated statement of changes in equity for the year to 30 June
2005; and
• Consolidated balance sheets at 30 June 2004 and 2005.
An explanation of the principal differences between UK GAAP and IFRS affecting
Kier Group plc is set out in note 2 and reconciliations of the statements from
UK GAAP to IFRS are set out in note 4 to this statement. Note 3 sets out an
explanation relating to two areas (largely affecting PFI concessions) where
there is no requirement to apply IAS to the balance sheet at 30 June 2005 but
where there is likely to be an impact in the future.
For further information, please contact:
Deena Mattar, Finance Director
Kier Group plc Tel: 01767 640 111
Consolidated income statement - restated in accordance with IFRS
for the year ended 30 June 2005 (unaudited)
2005
£m
Continuing operations
Total revenue 1,623.2
Revenue - joint ventures (50.2)
Group revenue 1,573.0
Cost of sales (1,433.8)
Gross profit 139.2
Administrative expenses (91.1)
Share of post tax profits from joint ventures 0.9
Profit from operations 49.0
Other income (1) 6.7
Finance cost (net) - group (1.2)
Profit before tax 54.5
Taxation (17.9)
Profit for the year 36.6
Earnings per ordinary share
- basic 103.4p
- diluted 102.5p
Adjusted earnings per ordinary share (excluding other
income)
- basic 96.6p
- diluted 95.8p
(1) Other income represents the exceptional profits disclosed under UK GAAP
Consolidated statement of changes in equity - restated in accordance with IFRS
for the year ended 30 June 2005 (unaudited)
Share Share Capital Share Retained Total
capital premium redemption scheme earnings
reserve reserve
£m £m £m £m £m £m
Balance at 1 July 2004 0.4 17.2 2.7 (0.3) 31.2 51.2
Foreign exchange translation 0.1 0.1
differences
Actuarial gains and losses in pension (41.5) (41.5)
scheme
Deferred tax on actuarial gains and 12.5 12.5
losses in pension scheme
Net income recognised directly in (28.9) (28.9)
equity
Profit for the year 36.6 36.6
Total recognised income for the year 7.7 7.7
Dividends (7.1) (7.1)
Issue of shares 0.8 0.8
Share based payments 0.2 0.2
Balance at 30 June 2005 0.4 18.2 2.7 (0.3) 31.8 52.8
Consolidated balance sheet - restated in accordance with IFRS (unaudited)
at 30 June 2005
2005 2004
£m £m
Non current assets
Intangible assets 16.7 18.6
Property, plant and equipment 75.8 68.9
Investment in joint ventures 23.6 31.8
Deferred tax assets 37.6 27.7
Trade & other receivables 14.6 6.2
Non current assets 168.3 153.2
Current assets
Inventories 325.7 321.8
Trade & other receivables 233.3 225.0
Cash & cash equivalents 93.5 41.4
Current assets 652.5 588.2
Total assets 820.8 741.4
Current liabilities
Bank overdrafts and loans (5.3) (3.7)
Trade & other payables (566.5) (516.4)
Tax liabilities (9.5) (5.1)
Current liabilities (581.3) (525.2)
Non current liabilities
Interest-bearing loans and borrowings (30.1) (30.1)
Trade & other payables (17.2) (26.1)
Retirement benefit obligations (121.9) (92.5)
Long-term provisions (17.5) (14.9)
Deferred tax liabilities - (1.4)
Non current liabilities (186.7) (165.0)
Total liabilities (768.0) (690.2)
Net assets 52.8 51.2
Equity
Share capital 0.4 0.4
Share premium 18.2 17.2
Capital redemption reserve 2.7 2.7
Share scheme reserve (0.3) (0.3)
Retained earnings 31.8 31.2
Total equity 52.8 51.2
Selected notes to the IFRS statements
1. Basis of preparation
The restated financial statements have been prepared in accordance with IFRS for
illustrative purposes. The transition to IFRS is governed by the requirements of
IFRS 1 'First-time adoption of IFRS'. The opening balance sheet on 1 July 2004
(the date of transition to IFRS) has been prepared using accounting policies
which the directors expect to be applicable for the year to 30 June 2006 except
for the requirement to apply IAS 32 and IAS 39 'Financial Instruments'. The
Group has taken advantage of the exemption in IFRS 1 that enables the
application of IAS 32 and IAS 39 to be delayed to 1 July 2005 without the
requirement to restate comparative figures.
The principal differences between UK GAAP and IFRS for the Group are set out in
note 2. Note 3 sets out the potential effect of IAS 32 and 39 'Financial
instruments' on Kier Group as at 1 July 2005 and includes details on the draft
standard on accounting for service concessions. The disclosures required by IFRS
1 concerning the transition from UK GAAP to IFRS are given in the reconciliation
schedules in note 4.
2. Principal differences between UK GAAP and IFRS
There are eight principal differences which give rise to changes in the Group's
reported profit for the year to 30 June 2005 and net assets at 30 June 2005.
These are categorised as follows:-
i ) Retirement benefit costs
ii) Sales and marketing costs
iii) Deferred land payments
iv) Property transactions
v) Other including:-
- proposed dividends
- deferred tax
- share-based payments
- goodwill
In addition there is a change to the way in which joint ventures are disclosed
having no impact on net assets or net profits.
i) Retirement benefit costs
Under UK GAAP the Group accounted for its defined benefit schemes in accordance
with SSAP 24 'Accounting for Pension Costs'. The cost of providing the defined
benefit pensions was charged against 'operating profit' with surpluses and
deficits arising in the funds amortised to 'operating profit' over the remaining
service lives of participating employees. Under IAS 19 'Employee Benefits' the
cost of providing pension benefits (current service cost) for defined benefit
pensions schemes is recognised in the income statement, together with the
interest cost arising on the projected obligations and returns on scheme assets.
The defined benefit obligation is determined annually by independent actuaries
and recognised on the balance sheet. Actuarial gains and losses are recognised
in full in the statement of recognised income and expense in the period in which
they occur.
The financial impacts arising from these changes are:
- a reduction of £93.7m will be reported on the restated 30 June 2005 balance
sheet to reflect the additional pension liability; and
- the charge to the income statement will reduce by £0.1m before tax.
This impact is similar to that arising under the UK GAAP standard FRS 17 '
Retirement Benefits', details of which will be disclosed in the notes to the
Group's 2005 Financial Statements.
ii) Sales and marketing costs
Under current Group accounting policies adopted in accordance with UK GAAP sales
and marketing costs for the Residential and Property divisions are capitalised
in site work in progress and written off through cost of sales as the site
progresses. Under IAS 2 'Inventories' costs relating to sales and marketing
activities are required to be written off as incurred.
The financial impact of this on the restated 30 June 2005 results and balance
sheet are:
- a reduction in net assets of £3.9m (after tax); and
- a £1.8m increase in the charge to the income statement (£1.3m after tax).
iii) Deferred land payments
Under UK GAAP deferred land payments (land creditors) are included in '
creditors' at their gross value. Under IAS 2 'Inventories' imputed interest is
recognised on deferred land payments with the result that the land creditors are
carried in the balance sheet at net present value and the value of land held on
the balance sheet in inventories is reduced. The unwinding of the imputed
interest (or discount) on land creditors is charged to finance cost and the
reduction in land values in inventories will result in an eventual reduction in
cost of sales as the land is traded out. The effect of this is to increase the
charge to the 2005 income statement by £1.6m (£1.1m after tax) with a
consequential effect on net assets at 30 June 2005. The increased charge
represents the 'interest cost' of the deferred payments of £2.1m less the
increase in operating profit brought about by a reduction in the land value
written off through cost of sales amounting to £0.5m.
iv) Property transactions
Under current Group accounting policies where Group property developments are
sold with construction being undertaken directly by the Group, turnover and
profit are recognised over the life of the contract in accordance with SSAP 9 '
Stocks and Long-Term Contracts.'
Under IAS 18 'Revenue', where such developments are sold in advance of the
construction contract being signed then the sale can be considered to be a
construction contract. As such, revenue and profit should be recognised in
accordance with IAS 11 'Construction Contracts' over the term of the
construction contract (as for SSAP 9). However, if the sale is agreed after the
construction contract is signed, revenue and profits can only be recognised when
construction has been completed.
The impact of this is to defer revenue of £1.8m and profit before tax of £0.5m
(£0.3m after tax) taken in the year to June 2004 under UK GAAP until the year to
June 2005.
v) Other adjustments
Other changes to accounting policies that will have an impact on restated net
assets and the profit for the year to June 2005 under IFRS are as follows:
Profit after tax for Net Assets
the year to June 2005 June 2005
£m £m
a) Proposed dividends - 5.4
b) Deferred taxation 0.2 (2.0)
c) Share-based payments - 0.1
d) Goodwill 0.6 0.6
Net impact 0.8 4.1
a) Proposed dividends
Under UK GAAP, proposed dividends are recognised as a liability in the period to
which they relate. Under IAS 10 'Events after the Balance Sheet Date' dividends
are not recognised as a liability until they are declared. As a result the
provision for the final dividend is eliminated, increasing net assets at June
2005 by £5.4m.
b) Deferred taxation
IAS 12 'Income Taxes' requires deferred tax to be recognised on all temporary
differences and not just timing differences as previously under UK GAAP.
Deferred tax liabilities are recognised in full but deferred tax assets are only
recognised if future taxable profits are available to cover the assets.
As a result the provision for deferred tax liabilities will increase at June
2005 by £2.0m which reduces restated net assets.
c) Share-based payments
IFRS 2 'Share-based Payments' requires that share-based payments granted after 7
November 2002, but not vested, should be valued at the fair value of the shares
at the date of grant. This affects the Sharesave and Long-Term Incentive Plan
schemes. The fair value of these shares at date of award has been calculated
using the Black Scholes model. The impact on profits and net assets is not
significant.
d) Goodwill and intangible assets
Under UK GAAP, goodwill is amortised on a straight line basis over its useful
economic life (in the case of Kier for up to ten years) tested for impairment
and provided for as necessary. Under IFRS 3 'Business Combinations' goodwill is
no longer amortised but is carried at cost and subject to annual review for
impairment at 30 June. It is effectively frozen at June 2004 with amounts
amortised subsequently under UK GAAP being reinstated.
At June 2004 the Group balance sheet contained £18.6m of goodwill. £13.4m of
this relates to the business and assets of the Construction and Building
Services operation of Sheffield City Council. This has been reclassified from
goodwill to intangible assets in respect of contract rights under IFRS and will
continue to be amortised on a straight line basis over the remaining life of the
contract. The balance of £5.2m relates to the acquisition of Partnerships First
in 2002. This balance has been maintained at the 30 June 2004 carrying value. As
a result goodwill amortisation of £0.6m under UK GAAP for the year ended 30 June
2005 has been added back increasing profits and net assets by £0.6m at June
2005.
vi) Joint ventures (disclosure item)
Under IFRS the results of joint ventures may either be accounted for under the
net equity method or proportional consolidation. The Group currently reports its
joint ventures under UK GAAP using the net equity method and has opted to
continue to follow this method. Under the net equity method trading results from
joint ventures are shown net of tax within profit before tax. This has no impact
on net assets or on profit after tax.
3. Other differences between UK GAAP and IAS largely relating to PFI concessions
i) Financial instruments
The accounting for, and presentation of, financial instruments is dealt with
under IAS 39 'Financial instruments: Recognition and measurement' and IAS 32 '
Financial instruments: Disclosure and presentation'. Under UK GAAP there is no
comprehensive standard which addresses the accounting for financial instruments.
FRS 13 'Derivatives and other financial instruments' in the UK requires
disclosures to be made in respect of financial instruments but these are less
comprehensive than IAS 32.
As permitted by IFRS 1, the Group has elected not to restate comparative
information in accordance with IAS 39 and IAS 32. The significant changes in
accounting polices that will arise when IAS 39 and IAS 32 are applied from 1
July 2005 are in relation to the accounting treatment of derivative financial
instruments.
The Group does not enter into significant derivative transactions. However a
number of the Group's joint ventures (including PFI joint ventures) enter into
interest rate swap derivatives. IAS 39 requires the fair value of derivative
financial instruments to be included on balance sheet. Under UK GAAP they are
not recognised. IAS 39 requires interest rate swap derivatives to be accounted
for as cash flow hedges and movements in fair value are recognised in equity
provided the hedge is effective. The Group's share of the fair value of these
interest rate swaps together with other minor Group derivatives, at 1 July 2005
results in a liability of £10.4m (excluding the Group's share of the related
deferred tax). The application of IAS 39 at that date will reduce the net
assets of the Group by £7.3m (£10.4m less tax).
ii) Accounting for service concessions
In March 2005, the International Financial Reporting Interpretations Committee
(IFRIC) issued draft guidance on accounting for service concession arrangements
(drafts D12 to D14). IFRIC is currently considering the comments received on
this draft guidance, with final guidance expected to be issued by the end of
2005.
Until the final guidance is issued and endorsed by the EU and in the absence of
specific guidance within IFRS, the Group has recognised the FRS 5 'Reporting the
substance of transactions' finance debtors relating to concession arrangements
held by PFI jointly controlled entities at amortised cost. The effect of
adopting this policy is to maintain the accounting within PFI joint ventures in
line with existing UK GAAP whilst ensuring that the accounting treatment remains
consistent with existing IFRS.
The draft guidance from IFRIC, if it were issued in final form, would
potentially require a number of changes to the accounting treatment of service
concession arrangements. One of the more significant aspects would be the
requirement to recognise the assets associated with concession arrangements at
fair value. This requirement could potentially produce an increase in the
Group's share of the net carrying value of the PFI jointly controlled entities
affected which would offset the effects of IAS 39 set out above.
4. Reconciliation of UK GAAP to IFRS
The effects of the differences between UK GAAP and IFRS, as set out in note 2,
are shown below in the consolidated income statement for the year to 30 June
2005, the consolidated statement of recognised income and expense for the year
to 30 June 2005 and the consolidated balance sheets at 30 June 2004 and 2005.
a) Consolidated income statement for the year ended 30 June 2005 -
reconciliation UK GAAP to IFRS
UK GAAP IFRS Adjustments (Notes) IFRS
Balances (i) (ii) (iii) (iv) (v) (vi)
in IAS Retirement Sales & Deferred Property Other Joint
format benefits marketing land transactions ventures
payments
£m £m £m £m £m £m £m £m
Continuing Operations
Total revenue 1,621.4 1.8 1,623.2
Revenue - joint ventures (48.4) (1.8) (50.2)
Group revenue 1,573.0 - 1,573.0
Cost of sales (1,430.7) (1.7) 0.5 (1.9) (1,433.8)
Gross profit 142.3 (1.7) 0.5 - (1.9) 139.2
Administrative expenses (91.2) 0.1 (91.1)
Goodwill amortisation (2.5) 2.5 -
Operating profit - joint 4.8 (0.1) 0.5 (5.2) -
ventures
Share of post tax profits from 0.9 0.9
joint ventures
Profit from operations 53.4 0.1 (1.8) 0.5 0.5 0.6 (4.3) 49.0
Other income 6.7 6.7
Finance income/cost (net) - 0.9 (2.1) (1.2)
group
Finance cost - joint ventures (3.1) 3.1 -
Profit before tax 57.9 0.1 (1.8) (1.6) 0.5 0.6 (1.2) 54.5
Taxation (20.1) 0.5 0.5 (0.2) 0.2 1.2 (17.9)
Profit for the year 37.8 0.1 (1.3) (1.1) 0.3 0.8 - 36.6
Earnings per ordinary share 106.8p 103.4p
Adjusted earnings per ordinary 105.4p 96.6p
share
(excluding other income and
goodwill amortisation)
b) Consolidated statement of recognised income and expense for the year ended 30
June 2005 - reconciliation UK GAAP to IFRS
UK GAAP IFRS Adjustments (Notes) IFRS
Balances (i) (ii) (iii) (iv) (v) (vi)
in IAS Retirement Sales & Deferred Property Other Joint
format benefits marketing land transactions ventures
payments
£m £m £m £m £m £m £m
Foreign exchange translation 0.1 0.1
differences
Actuarial gains and losses in (41.5) (41.5)
pension scheme
Deferred tax on actuarial 12.5 12.5
gains and losses in pension
scheme
Net income recognised directly 0.1 (29.0) (28.9)
in equity
Profit for the year 37.8 0.1 (1.3) (1.1) 0.3 0.8 36.6
Dividends (7.9) 0.8 (7.1)
Retained earnings for the year 30.0 (28.9) (1.3) (1.1) 0.3 1.6 0.6
Retained earnings at 30 June 96.6 (64.8) (2.6) (0.3) 2.3 31.2
2004
Retained earnings at 30 June 126.6 (93.7) (3.9) (1.1) - 3.9 31.8
2005
c) Consolidated balance sheet at 30 June 2005 - reconciliation UK GAAP to IFRS
IFRS Adjustments (Notes) IFRS
(i) (ii) (iii) (iv) (v)
UK GAAP Retirement Sales & Deferred Property Other
Balances in benefits marketing land transactions
IFRS format payments
£m £m £m £m £m £m £m
Non current assets
Intangible assets 16.1 0.6 16.7
Property, plant and equipment 75.8 75.8
Investment in joint ventures 23.8 (0.2) 23.6
Deferred tax assets 36.6 1.0 37.6
Trade & other receivables 14.6 14.6
Non current assets 130.3 36.6 (0.2) 1.6 168.3
Current assets
Inventories 334.2 (5.3) (3.2) 325.7
Trade & other receivables 245.3 (12.0) 233.3
Cash & cash equivalents 93.5 93.5
Current assets 673.0 (12.0) (5.3) (3.2) 652.5
Total assets 803.3 24.6 (5.5) (3.2) 1.6 820.8
Current liabilities
Bank overdrafts and loans (5.3) (5.3)
Trade & other payables (572.5) 0.6 5.4 (566.5)
Tax liabilities (9.5) (9.5)
Current liabilities (587.3) 0.6 5.4 (581.3)
Non current liabilities
Interest-bearing loans and (30.1) (30.1)
borrowings
Trade & other payables (18.2) 1.0 (17.2)
Retirement benefit obligations (121.9) (121.9)
Long-term provisions (17.5) (17.5)
Deferred tax liabilities (2.8 ) 3.6 1.6 0.5 (2.9) -
Non Current liabilities (68.6) (118.3) 1.6 1.5 (2.9) (186.7)
Total liabilities (655.9) (118.3) 1.6 2.1 2.5 (768.0)
Net assets 147.4 (93.7) (3.9) (1.1) 4.1 52.8
Equity
Share capital 0.4 0.4
Share premium 17.9 0.3 18.2
Capital redemption reserve 2.7 2.7
Share scheme reserve (0.2) (0.1) (0.3)
Retained earnings 126.6 (93.7) (3.9) (1.1) 3.9 31.8
Total equity 147.4 (93.7) (3.9) (1.1) 4.1 52.8
d) Opening consolidated balance sheet at 30 June 2004 - reconciliation UK GAAP
to IFRS
IFRS Adjustments (Notes) IFRS
(i) (ii) (iii) (iv) (v)
UK GAAP Retirement Sales & Deferred Property Other
Balances in benefits marketing land transactions
IFRS format payments
£m £m £m £m £m £m £m
Non current assets
Intangible assets 18.6 18.6
Property, plant and equipment 68.9 68.9
Investment in joint ventures 32.2 (0.1) (0.3) 31.8
Deferred tax assets 27.7 27.7
Trade & other receivables 6.2 6.2
Non current assets 125.9 27.7 (0.1) 0.0 (0.3) 153.2
Current assets
Inventories 328.6 (3.6) (3.2) 321.8
Trade & other receivables 225.0 225.0
Cash & cash equivalents 41.4 41.4
Current assets 595.0 (3.6) (3.2) 588.2
Total assets 720.9 27.7 (3.7) (3.2) (0.3) 741.4
Current liabilities
Bank overdrafts and loans (3.7) (3.7)
Trade & other payables (521.9) 0.9 4.6 (516.4)
Tax liabilities (5.1) (5.1)
Current liabilities (530.7) 0.9 4.6 (525.2)
Non current liabilities
Interest-bearing loans and (30.1) (30.1)
borrowings
Trade & other payables (28.4) 2.3 (26.1)
Retirement benefit obligations (92.5) (92.5)
Long-term provisions (14.9) (14.9)
Deferred tax liabilities (0.4) 1.1 (2.1) (1.4)
Non Current liabilities (73.8) (92.5) 1.1 2.3 (2.1) (165.0)
Total liabilities (604.5) (92.5) 1.1 3.2 2.5 (690.2)
Net assets 116.4 (64.8) (2.6) - (0.3) 2.5 51.2
Equity
Share capital 0.4 0.4
Share premium 17.1 0.1 17.2
Capital redemption reserve 2.7 2.7
Share scheme reserve (0.4) 0.1 (0.3)
Retained earnings 96.6 (64.8) (2.6) - (0.3) 2.3 31.2
Total equity 116.4 (64.8) (2.6) - (0.3) 2.5 51.2
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