Interim Results
Morgan Sindall PLC
08 August 2005
Morgan Sindall plc
('Morgan Sindall' or 'the Group')
Interim Results for the six months to 30 June 2005
reported on an IFRS basis
Morgan Sindall plc, the construction group, today announces interim results for
the six months to 30 June 2005.
2005 2004
(restated)
£m £m % increase
Group revenue 615 604 +2%
Operating profit 17.4 13.0 +34%
Profit before tax 18.2 13.1 +39%
Earnings per share 29.72p 21.89p +36%
Interim dividend per share 7.00p 5.25p +33%
Key points
• Excellent results driven by Fit Out and Affordable Housing
• Cash balances of £35 million reflect investment across the business
but particularly in Affordable Housing
• Total order book increased to £2.9 billion
Divisional highlights
Fit Out
• Strong growth with profit up by 41% to £7.9 million and margins up to
5.2%
• Benefited from recovering market and reduced competition
• Order book increased to £117 million
Construction
• Profit doubled to £1.3 million and margins increased to 0.8%
• Two thirds of the workload now from chosen market sectors of health,
education, light industrial and property services
• Next wave of LIFT schemes offers exciting opportunities for the
future
• Order book more than doubled to £482 million
Infrastructure Services
• Profit of £2.8 million as Terminal 5 and Channel Tunnel Rail Link
draw to a close
• Success in utilities sector with up to £770 million of work secured
with United Utilities and National Grid
Affordable Housing
• Record £7.7 million profit with a full percentage point increase in
margins to 4.3%
• New opportunities secured including Sheffield and Cheltenham
refurbishment programmes
• Order book increased to £1.4 billion
John Morgan, Chairman, said:
'Morgan Sindall continues to perform. I am pleased with the achievements of all
of our divisions and excited by the challenges and opportunities that present
themselves for the foreseeable future.'
8 August 2005
Enquiries:
Morgan Sindall plc Tel: 020 7307 9200
John Morgan, Chairman
Paul Smith, Chief Executive
David Mulligan, Finance Director
College Hill Tel: 020 7457 2020
Matthew Smallwood
MORGAN SINDALL PLC
Interim Results for the six months to 30 June 2005
Chairman and Chief Executive's Statement
The Group has had an excellent first half and we are pleased to announce record
results for the six month period to 30 June 2005. Profit before tax rose by 39%
to £18.2m (2004: £13.1m) from an increased revenue of £615m (2004: £604m).
Earnings per share for the period grew by 36% to 29.72p (2004: 21.89p). In
light of the positive start to the year the Board has declared an increased
interim dividend, up by 33%, of 7.00p (2004: 5.25p).
The increase in profitability was driven primarily by the performance of the Fit
Out and Affordable Housing divisions. Fit Out continued to consolidate its
market leadership in a recovering commercial property market, while Lovell again
delivered a strong performance in the fast growing affordable housing sector.
In addition, Construction's margins improved further as a result of its more
tightly focused strategy and Infrastructure Services performed in line with
expectations by holding its margins on lower volumes.
Cash at 30 June 2005 was £35m (2004: £39m) with the movement since the start of
the year reflecting investment in work in progress at Affordable Housing and
lower levels of cash generated by Infrastructure Services as its volumes have
reduced.
Divisional reviews
Fit Out
Fit Out saw strong growth during the first half of 2005 with profit increasing
by 41% to £7.9m (2004: £5.6m) on revenue increasing by 26% to £152m (2004:
£121m). The opening of the Northern office, the establishment of a team focused
on larger projects, the withdrawal of a number of competitors in 2004 and
improving conditions in the London market all contributed to the growth of the
business. The margin increased to 5.2% compared with more typical historic
levels of 4.5%, although it remains to be seen whether these higher margins can
be sustained in the longer term. With further market improvement anticipated
and a healthy forward order book of £117m, the division looks well set for the
future.
Construction
Construction successfully continued its focus on key sectors and framework
contracts, increasing its margin to 0.8% (2004: 0.5%). Operating profit more
than doubled to £1.3m (2004: £0.6m) on revenue which increased by 27% to £164m
(2004: £130m). This performance benefited from positive contributions from the
three offices and associated contracts acquired at the end of last year. Two
thirds of the division's workload now comes from its chosen sectors of health,
education, light industrial and property services compared to 40% four years
ago. In the health sector, the division achieved financial close on the East
Hampshire Fareham and Gosport LIFT (Local Improvement Finance Trust) during the
period and is at preferred bidder stage with the Doncaster LIFT. In the
meantime the next wave of LIFT schemes has been announced which offers exciting
opportunities for the future. In addition, the division is on track to achieve
its target of 60% of workload sourced from key client and framework contracts by
the end of 2006, having achieved a level of 48% during the first six months of
this year, compared with a 35% base in 2001. The achievement of this target will
be assisted by the recently signed Driving Standards Agency framework to deliver
up to £40m of new motorcycle testing centres across the UK over the next three
years. With the planned move towards longer term framework agreements the
forward order book has increased to £482m from £197m at the start of the year.
Infrastructure Services
Infrastructure Services produced an operating profit in the first half of £2.8m
(2004: £2.9m) on revenue of £118m (2004: £177m). As previously announced the
division's revenue and profit will be lower this year as two large civil
engineering projects, the tunnels at Heathrow Terminal 5 and a section of the
Channel Tunnel Rail Link, draw to a close. Nevertheless, Infrastructure Services
has been successful in the utilities sector, securing a contract with United
Utilities worth up to £450m for the renewal and maintenance of water and
electricity distribution networks over the next five years. As this contract
commenced in July and since work on the contract secured with National Grid,
with a potential value of up to £320m, only began in April, the division's
performance this year will be weighted slightly to the second half. The
division's forward order book stands at a record £911m (December 2004: £626m)
with workload moving toward longer term utilities contracts.
Affordable Housing
Affordable Housing increased its profit by 36% to a record £7.7m (2004: £5.7m)
on revenue at a similar level to last year of £180m (2004: £177m). It achieved a
significantly better margin of 4.3% compared with 3.2% for the corresponding
period last year. The business maintained its position as market leader
securing, among others, key refurbishment opportunities at Sheffield and
Cheltenham during the first half. As previously announced, the phasing of key
projects will result in this year's performance being weighted to the second
half. The forward order book increased again to £1.4bn from £1.3bn at the start
of the year.
Outlook
The Group's forward order book now stands at a record £2.9bn. With Fit Out and
Affordable Housing strongly positioned in their chosen markets, Construction now
realising the benefits of its focused strategy and Infrastructure Services
securing longer term framework contracts, the Group has never been better
placed. As we reported in June we are confident of meeting our expectations for
the current year and are excited by the challenges and opportunities for 2006
and beyond.
John Morgan Paul Smith
Chairman Chief Executive
8 August 2005
Reporting under International Financial Reporting Standards (IFRS)
From 2005 Morgan Sindall plc will produce its consolidated report and accounts
in accordance with IFRS. Previously the Group reported under UK Generally
Accepted Accounting Practice (UK GAAP). This commentary highlights the key
changes that have arisen due to the transition from reporting under UK GAAP to
reporting under IFRS. The Group's date of transition to IFRS is 1 January 2004,
which is the beginning of the comparative period for the 2005 financial year.
Therefore the opening balance sheet for IFRS purposes is that reported at 31
December 2003 as amended for changes due to IFRS.
This interim financial report is the first to be prepared under IFRS, which
results in the comparative figures being prepared on the same basis and are
therefore restated from those previously reported under UK GAAP. To help
understand the impact of the transition, reconciliations have been produced to
show the changes made to statements previously reported under UK GAAP in
arriving at the equivalent statements under IFRS. The following are the five
unaudited reconciliations which are included at the back of this report.
1. Balance sheet at 1 January 2004
2. Income statement for the year to 31 December 2004
3. Balance sheet at 31 December 2004
4. Income statement for the six months to 30 June 2004
5. Balance sheet at 30 June 2004
The income statement for the six months to 30 June 2005 and the balance sheet at
that date are reported under IFRS. As they have not previously been reported
under UK GAAP no reconciliation to IFRS is provided.
Key accounting policy changes are included within this report. A full set of
IFRS accounting policies will be published in the Group's report and accounts
for the year to 31 December 2005.
The net effect of presenting the 2004 full year financial statements under IFRS
rather than UK GAAP is to increase profit before tax reported from £27.9m to
£33.8m and net assets from £93.2m to £98.2m. The changes have no impact on the
cash flows previously reported. The key areas of change are outlined below.
First time adoption
IFRS1 'First Time Adoption of International Financial Reporting Standards' sets
out the approach to be followed when IFRS are applied for the first time. IFRS
accounting policies are, in general, to be applied retrospectively although
IFRS1 provides a number of exceptions to this general principle. The policy
choices made under IFRS1 are mentioned under the relevant headings below.
Goodwill
Under UK GAAP, goodwill was amortised over its useful economic life. Under
IFRS3 'Business Combinations' goodwill is not amortised but is carried at cost
with impairment reviews being undertaken annually or when there is an indication
that the carrying value has been reduced. Under IFRS1 the Group has applied the
change from the date of transition as opposed to full application to all
business combinations prior to that date. The goodwill in the balance sheet at
the date of transition to IFRS was £53.0m. The impact on the 2004 income
statement is a reversal of the amortisation previously charged under UK GAAP of
£3.1m. Subsequent to the transition date, goodwill of £3.7m arose on the
acquisition in December 2004 giving the balance at 30 June 2005 of £56.7m.
Dividends
Under UK GAAP proposed dividends were accrued at the balance sheet date although
there was no obligation to pay until formal approval by shareholders was granted
at the Annual General Meeting. Under International Accounting Standard (IAS)10
'Events after the Balance Sheet Date', a liability should only be recognised
once there is an obligation to pay. As a result the dividend will only be
recognised once shareholders approve it. The impact is that the proposed
dividends have been added back and have resulted in an increase in net assets of
£4.8m at 31 December 2003, £2.2m at 30 June 2004 and £5.6m at 31 December 2004.
Pension
Under UK GAAP, FRS17 'Retirement Benefits' required the pension deficit to be
shown by way of memorandum disclosure in the notes to the accounts rather than
accounted for in the balance sheet. IAS19 'Employee Benefits' requires that the
operating and financing costs of defined benefit pension schemes are shown
separately in the income statement and allows a number of options for the
recognition of actuarial gains and losses. The Group has adopted the approach
of recognising the full pension deficit at the date of transition. The overall
impact of recognising the pension deficit is a reduction in net assets of £0.7m
at 31 December 2003, £0.9m at 30 June 2004, and £2.0m at 31 December 2004.
Actuarial gains and losses have been recognised in full in the consolidated
statement of recognised income and expense (SORIE) on the assumption that the EU
will endorse the revised version of IAS19 during 2005. The impact of the
transition on the income statement is an increase for the six months to 30 June
2004 of nil and £0.2m for the year to 31 December 2004.
Deferred tax
Under UK GAAP deferred tax was provided for timing differences between when an
amount was taxable or allowable for tax purposes as against when it was
recognised in the profit and loss account and was only recognised if realisable
in the short term. Under IAS12 'Income Taxes' deferred tax is provided on
temporary differences based upon the discrepancy between the tax base and the
carrying value of assets and liabilities. The accounting changes made are
principally related to the deferred tax provided on the revaluation of
investment properties in our joint venture, Primary Medical Properties, and the
pension deficit recognised as noted above. The net result is a decrease in net
assets of £1.2m at 31 December 2003 and at 30 June 2004 and £1.8m at 31 December
2004.
Share based payments
Under UK GAAP no charge was made to the profit and loss account for the value of
options granted to employees as options were granted at their intrinsic value.
Under IFRS2 'Share Based Payments' a charge is made reflecting the fair value of
options granted since 7 November 2002, which is applying the exemption permitted
under IFRS1. The impact has been a charge to operating profit for the six months
to 30 June 2004 of £0.01m, £0.03m for the year to 31 December 2004 and £0.07m
for the six months to 30 June 2005. There is no impact on net assets as the
income statement charge is offset by an equivalent amount credited to the equity
reserve.
Joint ventures
Under UK GAAP the results of joint ventures were included within turnover,
operating profit and taxation in the profit and loss account and the net
investment as a single line in the balance sheet albeit gross assets and
liabilities were disclosed. Under the option allowed in IAS31 'Interests in
Joint Ventures', the approach adopted by the Group is that joint ventures are
accounted for using the equity method and are reported in the income statement
as part of operating profit and the net investment in the balance sheet on a
single line as before. Previously revaluation gains (or losses) on joint
venture properties were recognised in the revaluation reserve. Under IFRS this
treatment no longer exists and revaluation gains will now be recognised in the
income statement. The net impact is to reduce profit before tax for the six
months to 30 June 2004 by £0.1m and to increase profit before tax by £2.8m for
the year to 31 December 2004 as a result of the joint venture tax charge and
revaluation gains now being reflected in arriving at profit before tax.
Treasury instruments
Certain of the Group's joint ventures make use of interest rate swaps in order
to reduce the risk exposure to changes in interest rates. Under IAS39 '
Financial Instruments Recognition and Measurement' these interest rate swaps are
recognised and measured at fair value. These swaps are designated as part of a
hedging relationship and hence any changes in fair value are accounted for in
equity. IAS39 will be applied from 1 January 2005 as permitted under the
transition arrangements in IFRS1. The impact of IAS39 has been to reduce net
assets at 30 June 2005 by £1.8m by the creation of a hedge reserve within
equity.
Currently there are proposals to take a different approach in accounting for
service concessions with regard to the valuation of financial assets. Until a
standard is issued the Group will follow the above approach under IAS39.
The financial statements presented are unaudited and there is a possibility that
adjustments may be required before they are incorporated as part of the first
audited annual report and accounts prepared under IFRS, which will be published
in March 2006.
MORGAN SINDALL PLC
Interim results for the six months to 30 June 2005
Consolidated Income Statement
for the six months to 30 June 2005 (unaudited)
Unaudited Unaudited Audited
Six months to Six months to Year to
30 June 2005 30 June 2004 31 December 2004
(restated) (restated)
£'000s £'000s £'000s
Continuing operations
Revenue (note 2) 615,154 604,445 1,219,297
Cost of sales (546,284) (549,461) (1,095,932)
Gross profit 68,870 54,984 123,365
Administrative expenses (51,668) (42,087) (93,248)
Other operating income 80 17 21
Share of profits of joint ventures 122 54 2,810
Operating profit 17,404 12,968 32,948
Investment income 1,744 1,228 3,235
Finance costs (943) (1,068) (2,413)
Profit before tax 18,205 13,128 33,770
Tax (note 3) (5,795) (4,012) (9,736)
Profit for the period from continuing 12,410 9,116 24,034
operations
Earnings per share
From continuing operations
Basic (note 5) 29.72p 21.89p 57.61p
Diluted (note 5) 28.95p 21.00p 56.54p
MORGAN SINDALL PLC
Interim results for the six months to 30 June 2005
Consolidated Balance Sheet
at 30 June 2005 (unaudited)
Unaudited Unaudited Audited
30 June 2005 30 June 2004 31 December 2004
(restated) (restated)
£'000s £'000s £'000s
Non current assets
Goodwill 56,666 53,002 55,961
Tangible assets 15,710 13,413 14,890
Interest in joint ventures 11,076 5,300 9,145
Investments 103 103 103
Deferred tax assets 1,448 1,243 1,513
85,003 73,061 81,612
Current assets
Inventories 89,573 65,020 60,817
Trade and other receivables 242,953 197,800 203,093
Cash and cash equivalents 34,902 39,044 73,447
367,428 301,864 337,357
Total assets 452,431 374,925 418,969
Current liabilities
Trade and other payables (337,902) (280,651) (309,000)
Tax liabilities (5,601) (4,403) (5,572)
(343,503) (285,054) (314,572)
Net current assets 23,925 16,810 22,785
Non current liabilities
Retirement benefit obligation (2,010) (888) (2,225)
Deferred tax liabilities (2,306) (1,434) (2,306)
Obligations under finance leases (1,814) (1,394) (1,707)
(6,130) (3,716) (6,238)
Total liabilities (349,633) (288,770) (320,810)
Net assets 102,798 86,155 98,159
Equity
Called up share capital 2,111 2,105 2,107
Share premium account 25,828 25,590 25,679
Investment in own shares (1,775) (1,094) (993)
Capital redemption reserve 623 623 623
Equity reserve 112 20 39
Hedge reserve (1,814) - -
Retained earnings 77,713 58,911 70,704
Total equity 102,798 86,155 98,159
MORGAN SINDALL PLC
Interim results for the six months to 30 June 2005
Consolidated Cash Flow Statement
for the six months to 30 June 2005 (unaudited)
Unaudited Unaudited Audited
Six months to Six months to Year to
30 June 2005 30 June 2004 31 December 2004
(restated) (restated)
£'000s £'000s £'000s
Net cash (used in)/from operating activities (note 6) (28,563) 29,406 70,242
Investing activities
Interest received 1,754 1,246 3,217
Dividends received from joint ventures - 335 335
Proceeds on disposal of property, plant and equipment 75 188 501
Purchases of property, plant and equipment (2,224) (1,831) (4,296)
Payments to acquire investments in joint ventures (3,619) - -
Acquisition of business (120) - (3,409)
Net cash used in investing activities (4,134) (62) (3,652)
Financing activities
Proceeds from issue of share capital 153 203 294
Dividends paid (5,530) (4,889) (7,099)
Repayments of obligations under finance leases (471) (227) (951)
Net cash used in financing activities (5,848) (4,913) (7,756)
Net (decrease)/increase in cash and cash equivalents (38,545) 24,431 58,834
Cash and cash equivalents at beginning of period 73,447 14,613 14,613
Cash and cash equivalents at end of period 34,902 39,044 73,447
MORGAN SINDALL PLC
Interim results for the six months to 30 June 2005
Consolidated Statement of Recognised Income and Expense
for the six months to 30 June 2005 (unaudited)
Unaudited Unaudited Audited
Six months to Six months to Year to
30 June 2005 30 June 2004 31 December 2004
(restated) (restated)
£'000s £'000s £'000s
Losses on cash flow hedges (1,814) - -
Actuarial gains/(losses) on defined benefit pension 215 (152) (1,493)
schemes
Tax on items taken directly to equity (65) 45 448
Net income recognised directly in equity (1,664) (107) (1,045)
Profit for the period from continuing operations 12,410 9,116 24,034
Total recognised income and expense for the period 10,746 9,009 22,989
attributable to equity shareholders
Consolidated Statement of Changes in Equity
for the six months to 30 June 2005 (unaudited)
Unaudited Unaudited Audited
Six months to Six months to Year to
30 June 2005 30 June 2004 31 December 2004
(restated) (restated)
£'000s £'000s £'000s
Balance at start of period 98,159 81,754 81,754
Profit for period 12,410 9,116 24,034
Recognition of share based payments 73 14 33
Interim dividend declared and paid - - (2,188)
Prior year final dividend paid (5,551) (4,824) (4,824)
Actuarial gains/(losses) on defined benefit pension 215 (154) (1,493)
schemes
Income taxes on pension benefits (65) 46 448
Own shares purchased (782) - (48)
Options exercised 153 203 294
LTIP shares vested - - 149
Losses on cash flow hedges (1,814) - -
Balance at end of period 102,798 86,155 98,159
MORGAN SINDALL PLC
Interim results for the six months to 30 June 2005
Notes to the interim report (unaudited)
1. Key changes in accounting policies
The interim report has been prepared using accounting policies consistent with
International Financial Reporting Standards (IFRS). The policies with
significant changes on the transition from UK Generally Accepted Accounting
Practice (UK GAAP) are disclosed below.
Basis of accounting
The financial statements and reconciliations shown in this report have been
prepared on an historic cost basis except for certain financial instruments and
pension assets and liabilities, which are measured at fair value. The
statements are also prepared on the basis of IFRS expected to be in issue at 31
December 2005. In addition, the Group has elected to adopt the amendments to
IAS19 'Employee Benefits' issued in December 2004 in advance of their effective
date of 1 January 2006. The financial statements presented are unaudited.
Acquisitions
The results of acquired businesses are included in the consolidated income
statement from the date of acquisition. Goodwill is the difference between the
fair value of consideration given on acquisition and the aggregate fair value of
its identifiable net assets. In accordance with IFRS3 'Business Combinations',
goodwill is no longer amortised but stated at cost less any provision for
impairment in value. Goodwill is reviewed annually for any impairment in its
value or at such time there is an indication that its value has reduced.
Pensions
The expense of defined benefit pension schemes is determined using the projected
unit method and charged to the income statement based on actuarial assumptions
at the beginning of the financial year. Actuarial gains and losses are
recognised in full in the statement of recognised income and expense in the
period in which they occur. Net pension obligations are included in the balance
sheet at the present value of the scheme liabilities, less the fair value of the
scheme assets.
The expense of the defined contribution pension schemes and other employee
benefits is charged in the income statement as incurred.
Share based payments
The value of share based payments is determined at the date of grant and
recognised as an expense over the vesting period taking account of the
anticipated number of shares that will vest. The fair value is determined by
use of a modified Black Scholes model.
Deferred taxation
Deferred tax is provided in full on temporary differences which result in an
obligation at the balance sheet date to pay more tax, or a right to pay less
tax, at a future date, at rates expected to apply when they crystallise based on
current tax rates and laws. Temporary differences arise from the inclusion of
items of income and expenditure in tax computations in periods different from
those in which they are included in the financial statements. In a change from
the previous policy, deferred tax is provided on temporary differences arising
from the differences between the tax value and the balance sheet value of assets
and liabilities. This accounting change principally relates to the deferred tax
provided on the revaluation of fixed assets in our joint venture, Primary
Medical Properties. Deferred tax assets are recognised to the extent that it is
regarded as more likely than not that they will be recovered. Deferred tax
assets and liabilities are not discounted.
Financial instruments
Derivative financial instruments are used by joint ventures to hedge long term
interest rate risks. Under IAS39 'Financial Instruments', interest rate swaps
are stated in the balance sheet at fair value. Where financial instruments are
designated as a cash flow hedge and are deemed to be effective, gains and losses
on re-measurement are recognised in equity. When the financial instrument is
determined to be no longer effective as a hedge, gains or losses are recognised
in the income statement. IAS39 will be applied from 1 January 2005 as permitted
under the transition arrangements in IFRS1.
2. Analysis of revenue and profit from business segments
Unaudited Unaudited
Six months to Six months to
30 June 2005 30 June 2004
Revenue Profits/ Revenue Profits/
(losses) (losses)
(restated)
£'000s £'000s £'000s £'000s
Fit Out 152,495 7,886 120,923 5,583
Construction 164,098 1,274 129,688 597
Infrastructure Services 118,171 2,753 176,506 2,910
Affordable Housing 180,390 7,723 177,328 5,674
Group activities - (2,354) - (1,850)
Joint ventures - 122 - 54
615,154 17,404 604,445 12,968
Investment income 1,744 1,228
Finance costs (943) (1,068)
Profit before tax 18,205 13,128
Tax (5,795) (4,012)
Profit for the period from continuing 12,410 9,116
operations
3. Tax
Unaudited
Six months to 30 June
2005 2004
£'000s (restated)
£'000s
Current year UK corporation tax (5,795) (4,011)
Current year deferred tax - (1)
(5,795) (4,012)
Corporation tax for the interim period is charged at 32% (2004: 31%), being the
estimated effective corporation tax rate for the full financial year.
4. Dividends
Unaudited
Six months to 30 June
2005 2004
£'000s (restated)
£'000s
Final dividend for the prior year recognised in the period 5,551 4,824
of 13.25p per share (2004: 11.75p)
Proposed interim dividend for the current year of 7.00p per share (2004: 2,920 2,188
5.25p)
The proposed interim dividend was approved by the Board on 8 August 2005 and has
not been included as a liability at 30 June 2005. It will be paid on 16
September 2005 to shareholders on the register at 19 August 2005. The
ex-dividend date will be 17 August 2005.
5. Earnings per share
The calculation of the earnings per ordinary share is based on the
weighted average number of 41,756,000 (30 June 2004: 41,643,000) ordinary shares
in issue during the period and on the profit for the period attributable to
ordinary shareholders of £12,410,000 (30 June 2004: £9,116,000).
In calculating the diluted earnings per share, the weighted average number of
ordinary shares is adjusted for the dilutive effect of share options by 920,000
(30 June 2004: 1,569,000) and a further 190,000 (30 June 2004: 202,000) for
contingent awards under the Long Term Incentive Plan giving an adjusted number
of ordinary shares of 42,866,000 (30 June 2004: 43,414,000).
In calculating the diluted earnings per share in June 2004, options to buy
47,500 ordinary shares at 495 pence per share were excluded because they were
classified as antidilutive options as the strike price of the options was below
the market price of the share. These options were issued on 14 February 2002
and will be exercisable between 14 February 2007 and 13 February 2009 and
therefore they were not exercised during the six months to 30 June 2004.
6. Notes to the consolidated cash flow statement
Unaudited Unaudited Audited
Six months to Six months to Year to
30 June 2005 30 June 2004 31 December 2004
(restated) (restated)
£'000s £'000s £'000s
Operating profit 17,404 12,968 32,948
Adjusted for:
Share of profits of joint ventures (122) (54) (2,810)
Depreciation of property, plant and equipment 1,982 1,642 3,465
Expense in respect of share options 73 14 33
Income on pensions assets - (2) (4)
Loss/(gain) on disposal of property, plant and equipment 30 (37) 20
Operating cash flows before movements in working capital 19,367 14,531 33,652
(Increase)/decrease in inventories (28,756) 391 4,594
(Increase)/decrease in receivables (39,870) (3,247) (5,784)
Increase/(decrease) in payables 27,360 20,344 46,223
Cash (utilised)/generated by operations (21,899) 32,019 78,685
Income taxes paid (5,766) (1,577) (6,134)
Interest paid (898) (1,036) (2,309)
Net cash (used in)/from operating activities (28,563) 29,406 70,242
Additions to fixtures and equipment during the period amounting to £0.53 million
were financed by new finance leases.
Cash and cash equivalents (which are presented as a single class of assets on
the face of the balance sheet) comprise cash at bank and other short term highly
liquid investments with a maturity of three months or less.
7. Acquisition of business
On 13 December 2004 Bluestone plc acquired part of the trade and certain assets
and contracts from Benson Limited. The cash consideration was £3.4m with
acquisition costs of £0.3m. The net assets acquired were nil following fair
value adjustments of £2.9m made during 2004. The resultant goodwill arising on
acquisition is £3.7m.
The acquisition has been accounted for by the acquisition method of accounting.
The fair values are provisional to allow the directors the opportunity to
consider and finalise them in the coming year. The provisional fair value
adjustments are in relation to accruals for contract liabilities.
8. Retirement benefit schemes
The Group operates a plan on defined contribution principles which includes some
defined benefit liabilities, full details of which were disclosed under UK GAAP
in the Group's annual report and accounts. For the purposes of understanding
these interim financial statements details of the valuation of the scheme are
given below.
Unaudited Unaudited Audited
Six months to Six months to Year to
30 June 2005 30 June 2004 31 December 2004
(restated) (restated)
£'000s £'000s £'000s
Fair value of scheme assets 4,083 3,819 3,918
Present value of scheme liabilities (6,093) (4,707) (6,143)
Scheme shortfall (2,010) (888) (2,225)
Related deferred taxation at 30.0% 604 267 669
Net pension liability (1,406) (621) (1,556)
9. Related party transactions
Transactions between the Company and its subsidiaries, which are related
parties, have been eliminated on consolidation and are not disclosed in this
note. Transactions between the Group and its associates are disclosed below:
Investing transactions in joint ventures
During the period, the Group increased its investment in Morgan Vinci Limited by
£1.4m and in Claymore Roads (Holdings) Limited by £2.2m. These scheduled
investments were both made by way of loan notes. The other joint venture
partners have also invested in the same proportion so that the relative
shareholdings at 50% have remained unchanged.
10. The results for the six months to 30 June 2005 and 2004 and the balance
sheets as at those dates have not been audited and do not constitute statutory
accounts. The figures for the year to 31 December 2004 are an unaudited
restatement of the Group's statutory accounts prepared under UK GAAP, which
received an unqualified audit report and have been filed with the Registrar of
Companies.
The balance sheet reconciliations at 1 January 2004 (date of transition to IFRS)
and at 31 December 2004 (date of last UK GAAP financial statements) and the
reconciliation of profit for 2004, as required by IFRS1 are shown below. The
balance sheet reconciliation at 30 June 2004 and the reconciliation of profit
for the six months to 30 June 2004 have also been included to enable a
comparison of the 2005 interim figures with those published in the corresponding
period of the previous financial year.
1 Unaudited balance sheet reconciliation at 1 January 2004
UK GAAP IAS10 IAS12 IAS19 IAS12 IAS31 IFRS2
Income Employee Income Interests Share
Post Taxes Benefits Taxes in Joint Based
Balance Ventures Payments Reclass IFRS
Sheet -
Dividends
Non current assets £'000s £'000s £'000s £'000s £'000s £'000s £'000s £'000s £'000s
Goodwill 53,002 - - - - - - - 53,002
Tangible assets 13,375 - - - - - - - 13,375
Interests in joint 5,798 - - - - - - - 5,798
ventures
Investments 103 - - - - - - - 103
Deferred tax assets - - - - 221 - - 976 1,197
72,278 - - - 221 - - 976 73,475
Current assets
Inventories 65,411 - - - - - - - 65,411
Trade and other 195,546 - - - - - - (976) 194,570
receivables
Cash and cash 14,613 - - - - - - - 14,613
equivalents
275,570 - - - - - - (976) 274,594
Total assets 347,848 - - - 221 - - - 348,069
Current liabilities
Trade and other (262,511) - - - - - - - (262,511)
payables
Dividends (4,890) 4,824 - - - - - - (66)
(267,401) 4,824 - - - - - - (262,577)
Non current
liabilities
Obligations under (1,569) (1,569)
finance leases
- - - - - - -
Deferred tax - - (1,433) - - - - - (1,433)
Defined benefit - - - (736) - - - - (736)
pensions
(1,569) - (1,433) (736) - - - - (3,738)
Total liabilities (268,970) 4,824 (1,433) (736) - - - - (266,315)
Net assets 78,878 4,824 (1,433) (736) 221 - - - 81,754
Equity
Issued capital 2,100 - - - - - - - 2,100
Share premium account 25,392 - - - - - - - 25,392
Investment in own (1,094) - - - - - - - (1,094)
shares
Capital redemption 623 - - - - - - - 623
reserve
Revaluation reserve 5,507 - - - - (5,507) - - -
Equity reserve - - - - - - 6 - 6
Retained earnings 46,350 4,824 (1,433) (736) 221 5,507 (6) - 54,727
Total equity 78,878 4,824 (1,433) (736) 221 - - - 81,754
2 Unaudited income statement reconciliation for the year to 31
December 2004
IAS19 IAS12 IAS36 IAS31 IFRS2
Employee Income Impairment
UK Benefits Taxes Interests Share
GAAP of Assets in Joint Based
Ventures Payments Reclass IFRS
Continuing operations £'000s £'000s £'000s £'000s £'000s £'000s £'000s £'000s
Revenue 1,219,297 - - - - - - 1,219,297
Cost of sales (1,095,932) - - - - - - (1,095,932)
Gross profit 123,365 - - - - - - 123,365
Administrative expenses (96,536) 220 - 3,101 - (33) - (93,248)
Other operating income 21 - - - - - - 21
Share of profit of joint - - - - 2,542 - 268 2,810
ventures
Operating profit 26,850 220 - 3,101 2,542 (33) 268 32,948
Share of profit of joint 268 - - - - - (268) -
ventures
Investment income 3,235 - - - - - - 3,235
Finance costs (2,413) - - - - - - (2,413)
Profit before tax 27,940 220 - 3,101 2,542 (33) - 33,770
Tax (9,891) - (66) - 221 - - (9,736)
Profit for the period 18,049 24,034
from continuing
operations 220 (66) 3,101 2,763 (33) -
3 Unaudited balance sheet reconciliation at 31 December 2004
UK GAAP Prior year IAS10 IAS10 IAS19 IAS12 IAS31 IAS36 IFRS2 IFRS
adjustment Employee Income Interests Impairment Share
to 31 Post Post Benefits Taxes in Joint of Assets Based
December Balance Balance Ventures Payments
2003 Sheet - Sheet -
Dividends Dividends
£'000s £'000s £'000s £'000s £'000s £'000s £'000s £'000s £'000s £'000s
Non current
assets
Goodwill 52,860 - - - - - - 3,101 - 55,961
Tangible assets 14,890 - - - - - - - - 14,890
Interests in 9,145 9,145
joint ventures
- - - - - - - -
Investments 103 - - - - - - - - 103
Deferred tax - 1,513
assets
1,197 - - - 316 - - -
76,998 1,197 - - - 316 - 3,101 - 81,612
Current assets
Inventories 60,817 - - - - - - - - 60,817
Trade and other 204,002 203,093
receivables
(976) - - - 67 - - -
Cash and cash 73,447 73,447
equivalents
- - - - - - - -
338,266 (976) - - - 67 - - - 337,357
Total assets 415,264 221 - - - 383 - 3,101 - 418,969
Current
liabilities
Trade and other (314,809) (314,593)
payables
- - - 216 - - - -
Dividends (5,530) 4,824 (4,824) 5,551 - - - - - 21
(320,339) 4,824 (4,824) 5,551 216 - - - - (314,572)
Non current
liabilities
Obligations (1,707) (1,707)
under finance
leases - - - - - - - -
Deferred tax - (1,433) - - - (873) - - - (2,306)
Defined benefit - (2,225)
pensions
(736) - - (1,489) - - - -
(1,707) (2,169) - - (1,489) (873) - - - (6,238)
Total (322,046) 2,655 (4,824) 5,551 (1,273) (873) - - - (320,810)
liabilities
Net assets 93,218 2,876 (4,824) 5,551 (1,273) (490) - 3,101 - 98,159
Equity
Issued capital 2,107 - - - - - - - - 2,107
Share premium 25,679 25,679
account
- - - - - - - -
Investment in (993) (993)
own shares
- - - - - - - -
Capital 623 623
redemption
reserve - - - - - - - -
Revaluation 9,142 -
reserve
(5,507) - - - - (3,635) - -
Equity reserve - 6 - - - - - - 33 39
Retained 56,660 8,377 (4,824) 5,551 (1,273) (490) 3,635 3,101 (33) 70,704
earnings
Total equity 93,218 2,876 (4,824) 5,551 (1,273) (490) - 3,101 - 98,159
4 Unaudited income statement reconciliation for the six months to 30
June 2004
IAS19 IAS12 IAS36 IFRS2 IAS31
UK Employee Income Impairment Share Based Interests
GAAP Benefits Taxes of Assets Payments in
Joint
Ventures Reclass IFRS
Continuing operations £'000s £'000s £'000s £'000s £'000s £'000s £'000s £'000s
Revenue 604,445 - - - - - - 604,445
Cost of sales (549,461) - - - - - - (549,461)
Gross profit 54,984 - - - - - - 54,984
Other operating income 17 - - - - - - 17
Administrative expenses (43,626) 2 - 1,551 (14) - - (42,087)
Share of profit of - 54
joint ventures
- - - - (56) 110
Operating profit 11,375 2 - 1,551 (14) (56) 110 12,968
Share of profit of 110 -
joint ventures
- - - - - (110)
Investment income 1,229 - - - - - - 1,229
Finance costs (1,069) - - - - - - (1,069)
Profit before tax 11,645 2 - 1,551 (14) (56) - 13,128
Tax (4,067) - (1) - - 56 - (4,012)
Profit for the period 7,578 9,116
from continuing
operations 2 (1) 1,551 (14) - -
5 Unaudited balance sheet reconciliation at 30 June 2004
Prior year IAS10 IAS10 IAS19 IAS12 IAS36 IFRS2 IFRS
UK adjustment Income
GAAP to 31 Post Post Employee Impairment Share Based
December Balance Balance Benefits Taxes of Assets Payments
2003 Sheet - Sheet -
Dividends Dividends
£'000s £'000s £'000s £'000s £'000s £'000s £'000s £'000s £'000s
Non current
assets
Goodwill 51,451 - - - - - 1,551 - 53,002
Tangible assets 13,413 - - - - - - - 13,413
Interests in 5,300 5,300
joint ventures
- - - - - - -
Investments 103 - - - - - - - 103
Deferred tax - 1,197 - - - 46 - - 1,243
assets
70,267 1,197 - - - 46 1,551 - 73,061
Current assets
Inventories 65,020 - - - - - - - 65,020
Trade and other 198,776 197,800
receivables
(976) - - - - - -
Cash and cash 39,044 39,044
equivalents
- - - - - - -
302,840 (976) - - - - - - 301,864
Total assets 373,107 221 - - - 46 1,551 - 374,925
Current
liabilities
Trade and other (285,054) (285,054)
payables
- - - - - - -
Dividends (2,188) 4,824 (4,824) 2,188 - - - - -
(287,242) 4,824 (4,824) 2,188 - - - - (285,054)
Non current
liabilities
Obligations under (1,394) (1,394)
finance leases
- - - - - - -
Deferred tax - (1,433) - - - (1) - - (1,434)
Defined benefit - (888)
pensions
(736) - - (152) - - -
(1,394) (2,169) - - (152) (1) - - (3,716)
Total liabilities (288,636) 2,655 (4,824) 2,188 (152) (1) - - (288,770)
Net assets 84,471 2,876 (4,824) 2,188 (152) 45 1,551 - 86,155
Equity
Issued capital 2,105 - - - - - - - 2,105
Share premium 25,590 25,590
account
- - - - - - -
Investment in own (1,094) (1,094)
shares
- - - - - - -
Capital 623 623
redemption
reserve - - - - - - -
Revaluation 5,507 (5,507) - - - - - - -
reserve
Equity reserve - 6 - - - - - 14 20
Retained earnings 51,740 8,377 (4,824) 2,188 (152) 45 1,551 (14) 58,911
Total equity 84,471 2,876 (4,824) 2,188 (152) 45 1,551 - 86,155
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