IFRS Statement
Persimmon PLC
24 May 2005
Persimmon plc
Restatement of financial information for 2004 under International Financial
Reporting Standards (IFRS)
Persimmon is today presenting its financial statements prepared in accordance
with IFRS for the year ended 31 December 2004 and the six months ended 30 June
2004.
The transition to IFRS has not had a material effect on the consolidated
financial results of Persimmon plc but will include some enhanced disclosure
requirements. These disclosures will be included in the financial statements for
the year ended 31 December 2005.
The transition to IFRS will leave:
• Cash flows unaffected
• Dividend policy and ability to pay dividends unaffected
• Banking arrangements unaffected
• Effective tax rate (pre goodwill charges) undisturbed
Key changes in accounting policy for Persimmon will be:
• Goodwill frozen and subject to an annual impairment review (IFRS 3)
• Pension scheme deficit included on balance sheet (IAS 19)
• Recognition of imputed interest on land creditors (IAS 2)
• Recognition of deferred tax asset on pension scheme deficit and assets/
liabilities disclosed gross (IAS 12)
• Recognition of fair value of financial instruments relating to interest
rate and principle currency swaps (IAS 39)
• Recognition of a charge for share based payment (IFRS 2)
• Final dividend not recognised until declared at the Annual General
Meeting (IAS 10)
Reporting timetable:
• 27 June 2005 Trading update
• 30 June 2005 Half year end
• 23 August 2005 Interim results reported under IFRS
• 22 December 2005 Trading update
• 31 December 2005 Year end
• 27 February 2006 Annual results reported under IFRS
Enquiries:
Persimmon plc Finsbury Group
Mike Killoran, Group Finance Director Faeth Birch
Tel: 01904 642 199 Kirsty Flockhart
Tel: 020 7251 3801
Persimmon plc
Restatement of financial information for 2004 under International Financial
Reporting Standards
Introduction
For all accounting periods up to and including the year ended 31 December 2004
Persimmon has prepared its financial statements under UK Generally Accepted
Accounting Principles (UK GAAP). For accounting periods from 1 January 2005, the
Group is required to prepare its consolidated financial statements in accordance
with International Financial Reporting Standards (IFRS) as adopted by the
European Union.
Persimmon's first results under this basis will be its interim results for the
six months ended 30 June 2005. The Group's first annual report under IFRS will
be for the year ended 31 December 2005. As comparative figures are provided, the
effective date for transition to IFRS is 1 January 2004.
This summary provides an analysis of the effects of the change from UK GAAP to
IFRS on Persimmon's financial statements, including:
• Summary of the basis of preparation of the IFRS information
• Summary of the impact of IFRS adoption on Persimmon
• Summary of the significant changes in accounting policies
• Accounting policies revised under IFRS (Appendix 1)
• Restated primary statements for the 6 months ended 30 June 2004 and the
year ended 31 December 2004 (Appendix 2)
• Reconciliations of profit and equity for those periods (Appendix 3)
• Special Purpose Audit Report of KPMG Audit plc to Persimmon plc
(Appendix 4)
The transition to IFRS will leave:
• Cash flows unaffected
• Dividend policy and ability to pay dividends unaffected
• Banking arrangements unaffected
• Effective tax rate (pre goodwill charges) undisturbed
Basis of preparation of IFRS information
This financial information has been prepared in accordance with IFRS published
by 31 December 2004 as endorsed by the EU, with the exception of IAS 19, and
applying to periods beginning on or after 1 January 2005. The Group has adopted
early the amendment to IAS 19 (Employee Benefits) published in December 2004.
These amendments, if endorsed by the EU, will be effective for accounting
periods commencing on or after 1 January 2006, with earlier adoption encouraged
by the IASB.
A summary of the Group's accounting policies is detailed in Appendix 1.
Transitional arrangements
The rules for first time adoption of IFRS are set out in IFRS 1 'First Time
Adoption of International Financial Reporting Standards'. In general a company
is required to define its IFRS accounting policies and apply these
retrospectively to determine its opening balance sheet under IFRS. The standard
allows a number of exceptions to this general principle to assist companies as
they transition to reporting under IFRS. Where the Group has taken advantage of
these exemptions they are noted within the accounting policies section.
No adjustments have been made for any changes in estimates made at the time of
approval of the UK GAAP financial statements on which the preliminary IFRS
financial statements are based, as required by IFRS 1.
The financial information for the year ended 31 December 2004, as prepared on
the above basis, has been audited by KPMG Audit Plc. Their Special Purpose Audit
Report to Persimmon plc is set out in Appendix 4. The half year information is
unaudited.
Subject to EU endorsement of IAS 19 (revised) and no further changes from the
IASB or changes in the interpretation of those standards, this information is
expected to form the basis for comparatives when reporting financial results for
2005, and for subsequent reporting periods.
Summary of the impact of IFRS adoption on Persimmon
Based on the accounting policies detailed in Appendix 1, the impact of the
transition on the key performance indicators is as follows:
31 December 2004 30 June 2004
UK GAAP IFRS UK GAAP IFRS
(restated)
£m £m £m £m
Operating profit
(before goodwill 496.8 498.0 235.0 236.1
charges)
Net profit (before
goodwill 325.3 324.3 152.5 152.3
charges)
Basic eps 110.1p 113.5p 51.7p 53.5p
Basic eps (before
goodwill 113.9p n/a 53.6p n/a
charges)
Net assets 1387.3 1,405.6 1267.0 1,264.6
The detailed reconciliations of the movements for the Income Statement and
Balance Sheet are given in Appendix 3.
The changes in policies, which have the most significant effects on the restated
numbers for the year ended 31 December 2004, are:
• The cessation of goodwill amortisation
• The recognition of the pension scheme deficit on the Balance Sheet
• Deferred payments for land held at discounted present value, with a
notional interest charge being applied over the deferral period
• The recognition of deferred tax assets as a result of the above
adjustments
• The inclusion of financial instruments at fair value
• The inclusion of a charge for existing share options and SAYE schemes
• The recognition of dividends only once declared or paid
Significant changes in accounting policies and impact on the financial
statements for the year ended 31 December 2004
The following narrative covers the year to 31 December 2004 illustrating the
nature of the changes and providing an analysis of their magnitude. The
appendices give full and detailed reconciliations for the six months to 30 June
2004 and the year ended 31 December 2004.
Glossary of terms
This narrative includes the following terms:
Opening Balance Sheet - the balance sheet as at 1 January 2004 being the
effective date of transition to IFRS.
IAS 36 Cash Generating Unit - the smallest identifiable group of assets
generating cash inflows largely independent of the cash inflows of other assets
or groups of assets.
IAS 19 Current Service Cost - the increase in the present value of the defined
benefit obligation resulting from employee service in the current period.
IAS 19 Interest Cost - the increase during a period in the present value of a
defined benefit obligation which arises because the benefits are one period
closer to settlement.
IAS 19 Actuarial Gains and Losses - these comprise the effects of differences
between the previous actuarial assumptions and what has actually occurred and
the effects of actuarial assumption changes.
Business Combinations - IFRS 3
IFRS 3 requires that goodwill be capitalised at cost and then be subject to an
annual impairment review. Amortisation of goodwill is prohibited.
The goodwill carried by Persimmon principally relates to the acquisition of
Beazer Group plc in March 2001.
Persimmon has chosen the option to apply IFRS 3 prospectively from the
transition date, rather than restate previous business combinations. Goodwill
has therefore been frozen at net book value on 1 January 2004, and goodwill,
which was amortised in 2004 under UK GAAP, has been written back.
The operating profit impact for 2004 is the elimination of the amortisation
charge of £10.8m with a corresponding increase in net assets. There is no
associated tax impact.
In accordance with IAS 36 (Impairment of Assets) the principal components of
goodwill have been allocated to the following Cash Generating Units; firstly to
the Charles Church business acquired with the Beazer Group and secondly to the
strategic land portfolio acquired with Beazer. There is no impairment charge for
2004.
Employee Benefits - IAS 19
The Group wishes to take advantage of the additional option provided by IAS 19
as amended in December 2004, (which as noted above has yet to be endorsed by the
EU) to account for variations in actuarial gains and losses in full immediately
in the statement of recognised income and expense. The principal components of
the pension charge are the Current Service Cost and the Interest Cost, which
have been recognised in operating expenses. Defined contribution schemes are
unaffected by IAS 19.
The effect on operating profit for the year ended 31 December 2004 is a
reduction of £0.5m. The values of the scheme assets are marked to market at the
end of the accounting period, reflecting the expected future return from the
relevant assets held. The scheme liabilities, representing the pension benefits
of the scheme members, are calculated based on assumptions on general pay
increases, inflation, pension increases and an appropriate discount rate.
The standard permits a number of options for the recognition of Actuarial Gains
and Losses. Persimmon's policy is to recognise any variations in full, via the
Statement of Recognised Income and Expense, as would have been required under
FRS 17. The option to account for Actuarial Gains and Losses in this way is part
of an amendment to IAS 19. The amendment is effective from 1 January 2006, with
earlier adoption encouraged by the IASB. Assuming the EU endorses the proposals,
Persimmon's policy will be to apply the revised standard voluntarily from the
date of transition.
The impact on the Opening Balance Sheet is to recognise a net deficit of £38.0m,
being a gross deficit of £54.3m offset by a deferred tax asset of £16.3m. In
addition, the prepayment of £3.7m which arose following the special
contributions made in 2002 is released. At 31 December 2004 a net pension
deficit of £46.4m is recognised, comprising a gross deficit of £66.3m and a
deferred tax asset of £19.9m. An actuarial loss of £11.1m is taken to reserves.
Inventories - IAS 2
In accordance with IAS 2, deferred payments (including the Group's land
creditors) are to be held at discounted present value, thereby recognising a
financing element on the deferred settlement terms. The liability is then
increased to the settlement value over the period of deferral, with this value
being charged as notional interest through the income statement.
The effect on the Opening Balance Sheet was to reduce the land creditor by
£4.5m, reduce the land balance by £5.6m, recognise a deferred tax asset of £0.3m
and reduce opening reserves by £0.8m. For the year ended 31 December 2004, the
adoption of IAS 2 resulted in an increase in operating profit of £1.4m and the
inclusion of notional interest of £3.6m together with a related tax credit of
£0.7m. The land creditor is reduced by £7.8m and the land balance by £11.1m.
Income Taxes - IAS 12
IAS 12 requires that full provision be made for temporary differences between
the carrying amount and tax bases of assets and liabilities. In addition
deferred tax assets and liabilities must be disclosed separately on the Balance
Sheet.
There is no material impact on the effective tax rate. The Opening Balance Sheet
includes an additional deferred tax asset of £16.3m in relation to the pension
fund deficit, £0.3m relating to share based payments and £0.3m relating to the
tax asset on deferred land payments. A net liability of £1.7m relating to these
items is reclassified which was previously included as a deferred tax liability.
At 31 December 2004 the corresponding values are £19.9m, £1.2m, £1.0m and £0.3m
respectively. The Opening Balance Sheet also includes a deferred tax liability
in respect of IAS 39, further details are given in the note below.
Financial instruments: Recognition and Measurement - IAS 39
IAS 39 addresses the accounting for financial instruments. The Group has
retrospectively adopted the standard. As at 1 January 2004 the only material
difference between the book value and fair value of the financial instruments
held by the Group related to the US Private Placement loans (USPP). The USPP
were entered into to provide long term finance to the Group. To eliminate all
forward foreign exchange risk in relation to the loan capital values all USPP
Dollar capital cash flows were swapped into sterling cash flows on issue. In
addition, these swap arrangements hedge the fixed US Dollar interest rate cash
flows into a mix of fixed and floating UK Sterling interest rate cash flows.
Persimmon has designated these derivatives as hedges of exposure to variability
in cash flows associated with a liability arising from highly probable forecast
transactions (cash flow hedges). The USPP loans are accounted for on an
amortised cost basis and retranslated at the spot exchange rate at each period
end.
The impact of adopting IAS 39 on the Opening Balance Sheet as at 1 January 2004
is to revalue the USPP at the year end exchange rate, thereby reducing
borrowings by £31.2m. A cash flow hedge liability of £14.9m is also recognised
in respect of the hedging swaps relating to these loans, giving rise to an
unrealised hedge reserve of £16.3m and a related deferred tax liability of
£4.9m.
IAS 39 has no impact on the net profit of the Group for the year ended 31
December 2004. The fair value of the USPP as at 31 December 2004 results in a
reduction in the loan liabilities by £44.8m. The fair value of the cash flow
hedge is a liability of £37.4m, giving rise to an unrealised hedge reserve of
£7.4m and related deferred tax liability of £2.2m.
Share-based Payment - IFRS 2
In accordance with IFRS 2, Persimmon has recognised a charge for the SAYE scheme
and employee share options granted after 7 November 2002. The fair value has
been calculated using the binomial option-pricing model. A fair value charge
continues to be made for the LTIP scheme. The charge is spread over the vesting
period and is adjusted to reflect the actual and expected level of vesting.
The operating profit impact for 2004 is a credit of £0.3m.
Employee services relating to share options are expensed and their accounting
carrying value is therefore nil at the end of a reporting period. An estimate of
the tax base at the end of the period is determined by multiplying an option's
intrinsic value (the difference between the market value of the related share
and the exercise price at the reporting date) by the vesting period that has
lapsed. The deductible temporary difference results in the recognition of a
deferred tax asset. The deferred tax asset at 31 December 2004 is £1.2m.
The excess of the total expected tax benefit over the cumulative share-based
payment expense at the current corporation tax rate of £0.4m is recognised in
equity with the balance of £0.4m recognised in the income statement.
Events After the Balance Sheet Date - IAS 10
Under IAS 10 only dividends declared before the Balance Sheet date can be shown
as a liability. Persimmon's final dividend is declared at the Annual General
Meeting. Consequently, there is a requirement to remove the liability for the
final dividends for the years ended 31 December 2003 and 2004. The impact
therefore, is to increase the net assets of the opening Balance Sheet by £32.1m
and the net assets as at 31 December 2004 by £53.1m.
Conclusion
The transition to IFRS has not had a material effect on the consolidated
financial results of Persimmon plc but will include some enhanced disclosure
requirements. These disclosures will be included in the financial statements for
the year ended 31 December 2005.
There is no material impact on Persimmon's cash flows, effective tax rate (pre
goodwill charges) and ability to pay dividends. Persimmon's banking arrangements
are unaffected.
Appendix 1
Appendix 1 provides a summary of Persimmon's new accounting policies under IFRS.
Accounting Policies
The consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards as
endorsed by the European Union, with the exception of IAS 19, and
applying to periods beginning on or after 1 January 2005. A summary
of the more important Group accounting policies is set out below.
Basis of accounting
The financial statements are prepared in accordance with the
historical cost and fair value conventions modified by the
revaluation of certain fixed assets.
Changes in accounting policy
On 1 January 2005 the Company adopted International Financial
Reporting Standards (IFRS). These accounts have been prepared on a
consistent basis under applicable IFRS and the effects of this
transition reported in accordance with IFRS 1 (First-time Adoption of
IFRSs).
Basis of consolidation
The Group's financial statements consolidate the financial statements
of the Company and its subsidiary undertakings. The results of any
subsidiaries sold or acquired are included in the Group income
statement up to, or from, the date control passes. Intra-group sales
and profits are eliminated fully on consolidation.
On acquisition of a subsidiary, all of the subsidiary's separable,
identifiable assets and liabilities existing at the date of
acquisition are recorded at their fair values reflecting their
condition at that date. All changes to those assets and liabilities,
and the resulting gains and losses, that arise after the Group has
gained control of the subsidiary are charged to the post acquisition
income statement.
Joint arrangements
The Group's share of profits and losses from its investments in joint
arrangements is accounted for on a direct basis and is included in
the consolidated income statement. The Group's share of its
investments' assets and liabilities is accounted for on a directly
proportional basis in the consolidated balance sheet.
Goodwill
Goodwill arising on consolidation represents the excess of the fair
value of the consideration given over the fair value of the separable
identifiable net assets acquired. Goodwill arising on acquisition of
subsidiaries and businesses is capitalised as an asset.
In accordance with IFRS 3, goodwill has been frozen at its net book
value as at 1 January 2004 and will not be amortised. Instead, it
will be subject to an annual impairment review, with any impairment
losses being recognised immediately in the income statement.
Goodwill arising prior to 31 December 1997 of £32.7m and previously
written off against reserves, has not been reinstated.
Property, plant and equipment
Depreciation on property, plant and equipment is provided using the
straight line method to write off the cost or valuation less
estimated residual value, over the following number of years:
Plant, fixtures and fittings - 3 to 5 years.
Freehold buildings - 50 years.
No depreciation is provided on freehold land.
Leases
Assets financed by means of a finance lease are treated as if they
had been purchased outright and the corresponding liability to the
leasing company is included as an obligation under finance leases.
Depreciation on such assets is charged to the income statement in
accordance with the accounting policy above, over the shorter of the
lease term and the asset life.
The interest element of payments to leasing companies is calculated
on a straight line basis over the lease term and charged to the
income statement.
Amounts payable under operating leases are charged to work in
progress or net operating expenses on a straight line basis over the
lease term.
Inventories
Inventories are stated at the lower of cost and net realisable value
(excluding capitalised interest) after deducting deposits received.
Land includes undeveloped land and land under development but
excludes land being developed under licence agreements and land
option payments (see below). Work in progress comprises direct
materials, labour costs, site overheads, associated professional
charges and other attributable overheads.
Licenced land prepayments
The Group makes payments when entering into licence agreements for
the right to build and sell houses on land owned by third parties.
Upon legal completion, the house purchaser makes a land payment to
the third party and the balance of the sales proceeds is paid to the
Group. In some instances the Group has guaranteed certain payments at
appropriate dates. Where there are timing differences between the
contracted payment terms and the profile of legal completions these
are shown within current assets and liabilities.
Land options
Payments made to secure purchase option agreements over land are
shown as a current asset prepayment within receivables and are stated
at the lower of cost and net realisable value. Upon exercise, in
accordance with the option agreement, the amounts are transferred
into inventories.
Revenue recognition
Revenue represents the total sales value of legally completed
properties, excluding land sales and part exchange properties (which
are included within operating expenses). Revenue and profit on sales
are recognised upon legal completion of the legal transfer of title
to the customer.
Dividends
Dividends are recorded in the group's financial statements in the
period in which they are declared or paid.
Net operating expenses
Net operating expenses represent administration costs incurred by the
business, which are written off to the income statement as
incurred.
Cash and cash equivalents
Cash and cash equivalents are defined as cash balances in hand and in
the bank, including bank overdrafts repayable within one year. Offset
arrangements across group businesses have been applied to arrive at
the net overdraft figure.
Borrowing costs and interest income
Interest is recognised in the income statement as incurred.
Taxation
Provision is made for current tax on taxable profits for the year.
Full provision is made for deferred tax on temporary differences in
line with IAS 12 (Income Taxes).
Retirement benefit costs
The Group operates a defined benefit pension scheme, and also makes
payments into defined contribution schemes for employees.
The liability in respect of the defined benefit plan is the present
value of the defined benefit obligation at the balance sheet date,
less the fair value of the plan assets, together with adjustments for
actuarial gains/losses.
In accordance with IFRS 1, the Group has recognised the pension
liability in full as at 1 January 2004.
The Group has applied the requirements of IAS 19 (revised) for the
year ended 31 December 2004 recognising expected scheme gains and
losses via the income statement and actuarial gains and losses via
reserves. This policy is subject to the endorsement of IAS 19
(revised) by the EU.
Payments to the defined contribution schemes are accounted for on an
accruals basis. Once the payments have been made the Group has no
further obligation.
Financial instruments
The Group uses currency swaps and interest rate swaps to manage
financial risk. Interest charges and financial liabilities are stated
after taking account of these swaps.
The Group has also entered into cash flow hedges to mitigate exposure
to both foreign currency and interest rates on these loans. Cash flow
hedges are held at fair value in the balance sheet. Gains/losses on
these instruments are taken to reserves until realised. On
realisation such gains are reported in the income statement net of
related charges.
Share-based Payment
Charges for employee services received in exchange for share-based
payment have been made for all schemes granted after 7 November 2002
in accordance with IFRS 2.
The fair value of such options has been calculated using a binomial
option-pricing model, based upon publicly available market data at
the point of grant.
Appendix 2
Consolidated Income Statement
Six months
to Year to
30 June 31 December
2004 2004
(unaudited) (audited)
(restated) (restated)
£m £m
Revenue 1,036.4 2,131.3
Cost of sales (760.4) (1,549.4)
__________ __________
Gross profit 276.0 581.9
Net operating expenses (39.9) (83.9)
__________ __________
Profit from operations 236.1 498.0
Finance costs - net (16.5) (30.0)
__________ __________
Profit before tax 219.6 468.0
Income tax expense (67.3) (143.7)
__________ __________
Profit after tax 152.3 324.3
__________ __________
Earnings per share
Basic 53.5p 113.5p
Diluted 53.0p 112.8p
Consolidated Balance Sheet
30 June 31 December
2004 2004
(unaudited) (audited)
(restated) (restated)
£m £m
ASSETS
Non-current assets
Intangible assets 182.0 182.0
Property, plant and equipment 26.7 28.2
Deferred tax assets 16.0 22.4
__________ __________
224.7 232.6
Current assets
Inventories 1,852.6 1,992.8
Trade and other receivables 109.4 98.7
Cash and cash equivalents 24.7 84.6
__________ __________
1,986.7 2,176.1
__________ __________
Total assets 2,211.4 2,408.7
__________ __________
LIABILITIES
Non-current liabilities
Interest bearing loans and borrowings (246.6) (223.7)
Forward currency swaps (21.9) (35.2)
Deferred tax liabilities (3.6) (2.2)
Retirement benefit obligation (54.3) (66.3)
Other liabilities (62.2) (61.1)
__________ __________
(388.6) (388.5)
Current liabilities
Trade and other payables (472.0) (511.5)
Current tax liabilities (74.1) (81.2)
Forward currency swaps (0.2) (2.2)
Interest bearing loans and
liabilities (11.9) (19.7)
__________ __________
(558.2) (614.6)
__________ __________
Total liabilities (946.8) (1,003.1)
__________ __________
__________ __________
Net assets 1,264.6 1,405.6
========== ==========
SHAREHOLDERS' EQUITY
Ordinary share capital issued 28.7 28.9
Share premium 217.9 221.2
Own shares (3.2) (3.2)
Hedge reserve 8.4 5.2
Merger reserve 281.4 281.4
Other reserve 1.2 1.2
Retained earnings 730.2 870.9
__________ __________
Total shareholders' equity 1,264.6 1,405.6
========== ==========
Consolidated Cash Flow Statement
Six months
to Year to
30 June 31 December
2004 2004
(unaudited) (audited)
(restated) (restated)
£m £m
Cash flows from operating activities:
Net profit after income taxes 152.3 324.3
Adjustments for:
Tax 67.3 143.7
Pensions charge - 0.9
Depreciation charge 3.4 7.0
(Profit) / loss on disposal of property, plant and equipment (0.1) 0.1
Net interest expenses 16.5 30.0
Share based payment charge 0.9 2.1
__________ __________
Operating profit before working capital charges 240.3 508.1
Changes in working capital (excluding the effects of acquisition and disposal
of subsidiaries) Increase in inventories (197.0) (337.2)
(Increase) / decrease in trade and other receivables (0.7) 10.0
Increase in trade and other payables 98.0 134.2
__________ __________
Cash generated from operations 140.6 315.1
Interest paid (14.9) (26.4)
__________ __________
Tax paid (55.5) (127.6)
Net cash from operating activities 70.2 161.1
Cash flows from investing activities:
Purchases of property, plant and equipment (6.1) (12.9)
Proceeds from sale of property, plant and equipment 0.6 2.5
Interest received 0.3 0.6
__________ __________
Net cash used in investing activities (5.2) (9.8)
Cash flows from financing activities:
Repayments of borrowings (16.6) (16.6)
Finance lease principal payments (0.4) (0.9)
Exercise of share options 2.6 6.0
Dividends paid to group shareholders (18.2) (43.1)
__________ __________
Net cash used in financing activities (32.6) (54.6)
__________ __________
Net increase in cash and cash equivalents 32.4 96.7
Cash and cash equivalents at beginning of period (17.3) (17.3)
__________ __________
Cash and cash equivalents at end of period 15.1 79.4
========== ==========
Consolidated Statement of Recognised Income and
Expense
Six months
to Year to
30 June 31 December
2004 2004
(unaudited) (audited)
(restated) (restated)
£m £m
Losses on cash flow hedges (4.3) (8.9)
Actuarial losses on defined benefit schemes - (11.1)
Taxation on items taken directly to equity 1.3 6.0
Net expense recognised directly in equity (3.0) (14.0)
Profit for the period 152.3 324.3
__________ __________
Total recognised income for the period 149.3 310.3
========== ==========
Appendix 3
Reconciliation of Profit
6 months to 30 June 2004 Previously
reported IFRS 2 IFRS 3 IAS 19 Effect of Restated
under Share-based Business IAS 2 Employee transition under
UK GAAP Payment Combinations Inventories Benefits to IFRS IFRS
£m £m £m £m £m £m £m
Revenue 1,036.4 - - - - - 1,036.4
Cost of sales (761.1) - - 0.7 - 0.7 (760.4)
______________________________________________________________________________________
Gross profit 275.3 - - 0.7 - 0.7 276.0
Net operating expenses (45.7) 0.2 5.4 - 0.2 5.8 (39.9)
______________________________________________________________________________________
Profit from operations 229.6 0.2 5.4 0.7 0.2 6.5 236.1
Finance costs - net (14.7) - - (1.8) - (1.8) (16.5)
______________________________________________________________________________________
Profit before tax 214.9 0.2 5.4 (1.1) 0.2 4.7 219.6
Income tax expense (67.8) 0.2 - 0.3 - 0.5 (67.3)
______________________________________________________________________________________
Profit from ordinary
activities after tax 147.1 0.4 5.4 (0.8) 0.2 5.2 152.3
======================================================================================
Earnings per share
Basic 51.7p 0.1p 1.9p (0.3)p 0.1p 1.8p 53.5p
Diluted 51.2p 0.1p 1.9p (0.3)p 0.1p 1.8p 53.0p
Reconciliation of Profit
12 months to 31 December 2004 Previously
reported IFRS 2 IFRS 3 IAS 19 Effect of Restated
under Share-based Business IAS 2 Employee transition under
UK GAAP Payment Combinations Inventories Benefits to IFRS IFRS
£m £m £m £m £m £m £m
Revenue 2,131.3 - - - - - 2,131.3
Cost of sales (1,550.8) - - 1.4 - 1.4 (1,549.4)
______________________________________________________________________________________
Gross profit 580.5 - - 1.4 - 1.4 581.9
Net operating expenses (94.5) 0.3 10.8 - (0.5) 10.6 (83.9)
______________________________________________________________________________________
Profit from operations 486.0 0.3 10.8 1.4 (0.5) 12.0 498.0
Finance costs - net (26.4) - - (3.6) - (3.6) (30.0)
______________________________________________________________________________________
Profit before tax 459.6 0.3 10.8 (2.2) (0.5) 8.4 468.0
Income tax expense (145.1) 0.4 - 0.7 0.3 1.4 (143.7)
______________________________________________________________________________________
Profit from ordinary
activities after tax 314.5 0.7 10.8 (1.5) (0.2) 9.8 324.3
======================================================================================
Earnings per share
Basic 110.1p 0.2p 3.8p (0.5)p (0.1)p 3.4p 113.5p
Diluted 109.4p 0.2p 3.8p (0.5)p (0.1)p 3.4p 112.8p
Reconciliation of Equity
As at 1 January 2004
Previously IFRS 2
reported IAS 19 Share- IAS 39 Effect of Restated
under Employee based Financial Dividend IAS 2 Reclass transition under
UK GAAP Benefits Payment Instruments adjustment Inventories -ification to IFRS IFRS
£m £m £m £m £m £m £m £m £m
ASSETS
Non-current assets
Intangible assets 182.0 - - - - - - - 182.0
Property, plant and
equipment 24.1 - - - - - - - 24.1
Deferred tax assets - 16.3 0.3 - - 0.3 (1.7) 15.2 15.2
__________________________________________________________________________________________________
206.1 16.3 0.3 - - 0.3 (1.7) 15.2 221.3
Current asse
Inventories 1,661.2 - - - - (5.6) - (5.6) 1,655.6
Trade and other
receivables 112.4 (3.7) - - - - - (3.7) 108.7
Cash and cash
equivalents 0.8 - - - - - - - 0.8
__________________________________________________________________________________________________
1,774.4 (3.7) - - - (5.6) - (9.3) 1,765.1
__________________________________________________________________________________________________
Total assets 1,980.5 12.6 0.3 - - (5.3) (1.7) 5.9 1,986.4
__________________________________________________________________________________________________
LIABILITIES
Non-current liabilities
Interest bearing loans
and liabilities (295.6) - - 31.0 - - (1.4) 29.6 (266.0)
Forward currency swaps - - - (14.7) - - - (14.7) (14.7)
Deferred tax liabilities - - - (4.9) - - - (4.9) (4.9)
Retirement benefit
obligation - (54.3) - - - - - (54.3) (54.3)
Other liabilities (37.8) - - - - 2.1 1.4 3.5 (34.3)
__________________________________________________________________________________________________
(333.4) (54.3) - 11.4 - 2.1 - (40.8) (374.2)
Current liabilities
Trade and other payables (439.4) - - - 32.1 2.4 2.7 37.2 (402.2)
Current tax liabilities (61.7) - - - - - - - (61.7)
Forward currency swaps - - - (0.2) - - - (0.2) (0.2)
Interest bearing loans
and liabilities (19.7) - - 0.2 - - (1.0) (0.8) (20.5)
__________________________________________________________________________________________________
(520.8) - - - 32.1 2.4 1.7 36.2 (484.6)
__________________________________________________________________________________________________
Total liabilities (854.2) (54.3) - 11.4 32.1 4.5 1.7 (4.6) (858.8)
__________________________________________________________________________________________________
__________________________________________________________________________________________________
Net assets 1,126.3 (41.7) 0.3 11.4 32.1 (0.8) - 1.3 1,127.6
==================================================================================================
SHAREHOLDERS' EQUITY
Ordinary share capital
issued 28.4 - - - - - - - 28.4
Share premium 214.2 - - - - - - - 214.2
Own shares (5.5) - - - - - - - (5.5)
Hedge reserve - - - 11.4 - - - 11.4 11.4
Merger reserve 281.4 - - - - - - - 281.4
Other reserve 1.2 - - - - - - - 1.2
Retained earnings 606.6 (41.7) 0.3 - 32.1 (0.8) - (10.1) 596.5
__________________________________________________________________________________________________
Total shareholders'
equity 1,126.3 (41.7) 0.3 11.4 32.1 (0.8) - 1.3 1,127.6
==================================================================================================
Reconciliation of Equity
As at 30 June 2004
Previously
reported Opening IFRS 2 IAS 39 IFRS 3
under balance IAS 19 Share- Financial Dividend Business IAS 2 Effect of Restated
UK GAAP sheet Employee based Instr adjust combin Invent Reclass transition under
(restated) adjustment Benefits Payment -uments -ment -ations -ories -ification to IFRS IFRS
£m £m £m £m £m £m £m £m £m £m £m
ASSETS
Non-current assets
Intangible
assets 176.6 - - - - - 5.4 - - 5.4 182.0
Property, plant
and equipment 26.7 - - - - - - - - - 26.7
Deferred tax
assets - 15.2 - 0.4 - - - 0.4 - 16.0 16.0
___________________________________________________________________________________________________________
203.3 15.2 - 0.4 - - 5.4 0.4 - 21.4 224.7
Current assets
Inventories 1,861.2 (5.6) - - - - - (3.0) - (8.6) 1,852.6
Trade and other
receivables 112.9 (3.7) 0.2 - - - - - - (3.5) 109.4
Cash and cash
equivalents 24.7 - - - - - - - - - 24.7
___________________________________________________________________________________________________________
1,998.8 (9.3) 0.2 - - - - (3.0) - (12.1) 1,986.7
___________________________________________________________________________________________________________
Total assets 2,202.1 5.9 0.2 0.4 - - 5.4 (2.6) - 9.3 2,211.4
___________________________________________________________________________________________________________
LIABILITIES
Non-current liabilities
Interest bearing
loans and
liabilities (280.4) 29.6 - - 2.8 - - - 1.4 33.8 (246.6)
Forward currency
swaps - (14.7) - - (7.2) - - - - (21.9) (21.9)
Deferred tax
liabilities (1.6) (4.9) - - 1.3 - - - 1.6 (2.0) (3.6)
Retirement benefit
obligation - (54.3) - - - - - - - (54.3) (54.3)
Other liabilities (65.2) 3.5 - - - - - 0.9 (1.4) 3.0 (62.2)
___________________________________________________________________________________________________________
(347.2) (40.8) - - (3.1) - - 0.9 1.6 (41.4) (388.6)
Current
liabilities
Trade and other
payables (501.6) 37.2 - - - (5.9) - 0.9 (2.6) 29.6 (472.0)
Current tax
liabilities (74.1) - - - - - - - - - (74.1)
Forward currency
swaps - (0.2) - - - - - - - (0.2) (0.2
Interest bearing
loans and
liabilities (12.2) (0.8) - - 0.1 - - - 1.0 0.3 (11.9)
___________________________________________________________________________________________________________
(587.9) 36.2 - - 0.1 (5.9) - 0.9 (1.6) 29.7 (558.2)
___________________________________________________________________________________________________________
Total
liabilities (935.1) (4.6) - - (3.0) (5.9) - 1.8 - (11.7) (946.8)
___________________________________________________________________________________________________________
___________________________________________________________________________________________________________
Net assets 1,267.0 1.3 0.2 0.4 (3.0) (5.9) 5.4 (0.8) - (2.4) 1,264.6
===========================================================================================================
SHAREHOLDERS' EQUITY
Ordinary share
capital
issued 28.7 - - - - - - - - - 28.7
Share 217.9 - - - - - - - - - 217.9
premium
Own shares (3.2) - - - - - - - - (3.2)
Hedge reserve - 11.4 - - (3.0) - - - - 8.4 8.4
Merger reserve 281.4 - - - - - - - - - 281.4
Other reserve 1.2 - - - - - - - - - 1.2
Retained earnings 741.0 (10.1) 0.2 0.4 - (5.9) 5.4 (0.8) - (10.8) 730.2
___________________________________________________________________________________________________________
Total
shareholders'
equity 1,267.0 1.3 0.2 0.4 (3.0) (5.9) 5.4 (0.8) - (2.4) 1,264.6
===========================================================================================================
Comparative figures as at 30 June 2004 have been restated from those previously
published to reflect the adoption of UITF 38 (Accounting for ESOP trusts) at 31
December 2004.
Reconciliation of Equity
As at 31 December 2004
Previously Opening IFRS 2 IAS 39 IFRS 3
reported balance IAS 19 Share- Financial Dividend Business IAS 2 Effect of Restated
under sheet Employee based Instr adjust combin Invent Reclass transition under
UK GAAP adjustment Benefits Payment -uments -ment -ations -ories -ification to IFRS IFRS
£m £m £m £m £m £m £m £m £m £m £m
ASSETS
Non-current
assets
Intangible
assets 171.2 - - - - - 10.8 - 10.8 182.0
Property,
plant and
equipment 28.2 - - - - - - - - - 28.2
Deferred tax
assets - 15.2 3.6 0.9 - - - 0.7 2.0 22.4 22.4
___________________________________________________________________________________________________________
199.4 15.2 3.6 0.9 - - 10.8 0.7 2.0 33.2 232.6
Current assets
Inventories 2,003.9 (5.6) - - - - - (5.5) - (11.1) 1,992.8
Trade and
other
receivables 102.3 (3.7) 0.4 - - - - (0.3) (3.6) 98.7
Cash and cash
equivalents 84.6 - - - - - - - - - 84.6
___________________________________________________________________________________________________________
2,190.8 (9.3) 0.4 - - - - (5.5) (0.3) (14.7) 2,176.1
___________________________________________________________________________________________________________
Total assets 2,390.2 5.9 4.0 0.9 - - 10.8 (4.8) 1.7 18.5 2,408.7
___________________________________________________________________________________________________________
LIABILITIES
Non-current liabilities
Interest
bearing loans
and
liabilities (264.2) 29.6 - - 10.8 - - - 0.1 40.5 (223.7)
Forward currency
swaps - (14.7) - - (20.5) - - - - (35.2) (35.2)
Deferred tax
liabilities - (4.9) - - 2.7 - - - - (2.2) (2.2)
Retirement
benefit
obligation - (54.3) (12.0) - - - - - - (66.3) (66.3)
Other liabilities (66.2) 3.5 - - - - - 1.7 (0.1) 5.1 (61.1)
___________________________________________________________________________________________________________
(330.4) (40.8) (12.0) - (7.0) - - 1.7 - (58.1) (388.5)
Current liabilities
Trade and
other
payables (569.7) 37.2 - - - 21.0 - 1.6 (1.6) 58.2 (511.5)
Current tax
liabilities (81.2) - - - - - - - - - (81.2)
Forward
currency
swaps - (0.2) - - (2.0) - - - - (2.2) (2.2)
Interest
bearing loans
and liabilities (21.6) (0.8) - - 2.8 - - - (0.1) 1.9 (19.7)
___________________________________________________________________________________________________________
(672.5) 36.2 - - 0.8 21.0 - 1.6 (1.7) 57.9 (614.6)
___________________________________________________________________________________________________________
Total
liabilities (1,002.9) (4.6) (12.0) - (6.2) 21.0 - 3.3 (1.7) (0.2)(1,003.1)
___________________________________________________________________________________________________________
___________________________________________________________________________________________________________
Net assets 1,387.3 1.3 (8.0) 0.9 (6.2) 21.0 10.8 (1.5) - 18.3 1,405.6
===========================================================================================================
SHAREHOLDERS' EQUITY
Ordinary share
capital issued 28.9 - - - - - - - - - 28.9
Share 221.2 - - - - - - - - - 221.2
premium
Own shares (3.2) - - - - - - - - - (3.2)
Hedge reserve - 11.4 - - (6.2) - - - - 5.2 5.2
Merger reserve 281.4 - - - - - - - - - 281.4
Other reserve 1.2 - - - - - - - - - 1.2
Retained earnings 857.8 (10.1) (8.0) 0.9 - 21.0 10.8 (1.5) - 13.1 870.9
___________________________________________________________________________________________________________
Total
shareholders'
equity 1,387.3 1.3 (8.0) 0.9 (6.2) 21.0 10.8 (1.5) - 18.3 1,405.6
===========================================================================================================
Appendix 4
Special Purpose Audit Report of KPMG Audit Plc to Persimmon plc ('the Company')
on its Preliminary International Financial Reporting Standards ('IFRS')
Financial Statements
In accordance with the terms of our engagement letter dated 12 May 2005, we have
audited the accompanying consolidated preliminary IFRS balance sheet of
Persimmon plc ('the Company') as of 31 December 2004, and the related
consolidated statements of income, statement of recognised income and expense
and cash flows for the year then ended and the related accounting policies note
('the preliminary IFRS financial statements') set out in Appendix 1 and Appendix
2.
Respective responsibilities of directors and KPMG Audit Plc
The directors of the Company have accepted responsibility for the preparation of
the preliminary IFRS financial statements which have been prepared as part of
the Company's conversion to IFRS. Our responsibilities, as independent auditors,
are established in the United Kingdom by the Auditing Practices Board, our
profession's ethical guidance and the terms of our engagement.
Under the terms of engagement we are required to report to you our opinion as to
whether the preliminary IFRS financial statements have been properly prepared,
in all material respects, in accordance with the basis of preparation note to
the preliminary IFRS financial statements. We also report to you if, in our
opinion, we have not received all the information and explanations we require
for our audit.
We read the other information accompanying the preliminary IFRS financial
statements and consider whether it is consistent with the preliminary IFRS
financial statements. We consider the implications for our report if we become
aware of any apparent misstatements or material inconsistencies with the
preliminary IFRS financial statements.
Our report has been prepared for the Company solely in connection with the
Company's conversion to IFRS.
Our report was designed to meet the agreed requirements of the Company
determined by the Company's needs at the time. Our report should not therefore
be regarded as suitable to be used or relied on by any party wishing to acquire
rights against us other than the Company for any purpose or in any context. Any
party other than the Company who chooses to rely on our report (or any part of
it) will do so at its own risk. To the fullest extent permitted by law, KPMG
Audit Plc will accept no responsibility or liability in respect of our report to
any other party.
Basis of audit opinion
We conducted our audit having regard to Auditing Standards issued by the UK
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the preliminary IFRS
financial statements. It also includes an assessment of the significant
estimates and judgements made by the directors in the preparation of the
preliminary IFRS financial statements, and of whether the accounting policies
are appropriate to the Group's circumstances, consistently applied and
adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the preliminary IFRS
financial statements are free from material misstatement, whether caused by
fraud or other irregularity or error. In forming our opinion we also evaluated
the overall adequacy of the presentation of information in the preliminary IFRS
financial statements.
Emphasis of matters
Without qualifying our opinion, we draw your attention to the following matters:
• The basis of preparation note to the preliminary IFRS financial statements
explains why the accompanying preliminary IFRS financial statements may
require adjustment before their inclusion as comparative information in the
IFRS financial statements for the year to 31 December 2005 when the Company
prepares its first IFRS financial statements.
• As described in the basis of preparation note to the preliminary IFRS
financial statements, as part of its conversion to IFRSs, the Company has
prepared the preliminary IFRS financial statements for the year ended 31
December 2004 to establish the financial position, results of operations
and cash flows of the Company necessary to provide the comparative
financial information expected to be included in the Company's first
complete set of IFRS financial statements as at 31 December 2005. The
preliminary IFRS financial statements do not themselves include comparative
financial information for the prior period.
• As explained in the basis of preparation note, no adjustments have been
made for any changes in estimates made at the time of approval of the UK
GAAP financial statements on which the preliminary IFRS financial
statements are based, as required by IFRS 1.
Opinion
In our opinion, the accompanying preliminary IFRS financial statements for the
year-ended 31 December 2004 have been prepared, in all material respects, in
accordance with the basis set out in the accounting policies note, which
describes how IFRS have been applied under IFRS 1, including the assumptions
made by the directors of the Company about the standards and interpretations
expected to be effective, and the policies expected to be adopted, when they
prepare the first complete set of consolidated IFRS financial statements of the
Company for the year to 31 December 2005.
KPMG Audit Plc
Chartered accountants
Leeds
24 May 2005
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