Interim Results
Redrow PLC
07 March 2006
Tuesday 7 March 2006
Redrow plc
Interim results for the six months to 31 December 2005
• Profit before tax at £53.4m (H1 2004/05: £68.3m)
• Basic earnings per share at 23.5p (H1 2004/05: 30.0p)
• Dividend per share increased by 19.4% to 4.3p (H1 2004/05: 3.6p)
• Gearing at 24% (Dec 2004: 37%)
• Forward order book at December 2005 at 1,816 units represents 4.5
months sales, in excess of Redrow and industry norms
• Sales rate per outlet in first 8 weeks of second half up over 10%
from 6% more outlets
• Redrow positioned for growth through:
- Developing our regional structure with the current land bank
increased to 18,400 plots (Dec 2004: 17,500)
- Capitalising on our mixed use and regeneration skills
with pipeline of £750m of projects in Redrow Regeneration
- Expanding our Debut initiative with planning secured in
2006 on 3 further sites for over 300 homes
Robert Jones, Chairman of Redrow plc, said:
'In the short term, the increase in our sales rate per outlet in the early weeks
of 2006 is encouraging. Looking further ahead the growth strategies we have put
in place together with our high quality land bank and a product offering that
maximises its potential, makes us confident in our ability to deliver value for
our shareholders in the future.'
Enquiries:
Redrow plc
Neil Fitzsimmons, Chief Executive 01244 520044
David Arnold, Group Finance Director
Patrick Handley / Nina Coad Brunswick
0207 404 5959
There will be an analyst and investor meeting at 10.30 GMT. A live audio webcast
and slide presentation of this event will be available at 10.30 GMT on
www.redrow.co.uk and www.cantos.com.
You can also dial-in to hear the presentation live at 10.30 GMT on +44 (0) 20
7138 0818. Playback will be available online through www.redrow.co.uk from 14.00
(GMT) or by phone until 21 March on the following dial-in number: +44 (0) 20
7806 1970; passcode 1437414#.
CHAIRMAN'S STATEMENT
Introduction
The Summer of 2004 witnessed significant change in the housing market, which
became more challenging and competitive as overall transaction levels fell.
Redrow was positioned for this adjustment through the strengthening of our
forward sales position and the expansion of the number of sales outlets. This
strategy has served the Group well over the last eighteen months and as we begin
to see encouraging signs in the housing market, it is equally important to
position Redrow for growth. This will be achieved through:
• Developing our regional structure to increase output through further
investment in our current and forward land bank
• Capitalising on our skills in mixed use and regeneration projects
• Expanding our Debut initiative to provide affordable open market homes
for first time buyers
Consequently, the Board remains confident of continuing to deliver value for
shareholders and confirms its intention to increase the dividend for the year to
30 June 2006 by 20% to 13.0 pence per share. The interim dividend has been
increased to 4.3 pence per share (H1 2004/05: 3.6p).
In February 2006, Redrow welcomed its 50,000th customer into their new home. To
recognise this significant milestone, and to further Redrow's commitment to the
communities in which it operates, we have launched the Redrow Foundation. This
is an independent charitable fund with the purpose of providing accommodation
and related assistance to those in need.
The results for the six months to December 2005 have been prepared under
International Financial Reporting Standards (IFRS). These are the first results
by Redrow under IFRS and all relevant comparatives have been restated.
Financial Performance
In the first half of the financial year, Redrow delivered 2,077 legal
completions (H1 2004/05: 2,111). Overall volumes were broadly maintained and
completions from the core Signature range, which accounted for nearly 90% of
first half legal completions, increased by 9% to 1,820 (H1 2004/05: 1,665)
reflecting our strategy of maintaining a strong forward sales position and
increasing our sales outlets. This increase partially mitigated the anticipated
second half weighting on the In the City developments. Due to the timing of
construction completion of these schemes, 152 legal completions were achieved in
the first half, compared with 446 units in the corresponding period last year.
It was pleasing to deliver 105 legal completions from the Group's first two
Debut developments at Willans Green, Rugby and Buckshaw Village, Chorley in line
with our expectations.
The average selling price in the six months ended December 2005 was £163,100 (H1
2004/05: £176,700) and reflected changes in both geographic and product mix. The
average selling price of Signature homes was £165,800 compared with £168,200
last year, influenced by a reduction in the average size of homes completed.
The proportion of higher priced In the City completions was significantly
reduced and the average selling price of these properties at £189,500 (H1 2004/
05: £208,500) was also lower reflecting the geographical mix. In addition, 5%
of legal completions in the first half were Debut homes with an average selling
price of £77,900. As a result of the influence of In the City schemes, turnover
in the Homes business reduced to £338.8m (H1 2004/05: £373.1m).
The gross margin in the Homes operations for the period was 23.9%. This was
0.8% lower than in the second half of the last financial year and 1.6% lower
than in the corresponding period last year, reflecting the market conditions
experienced in 2005. Redrow has consistently maintained that gross margins
would decline as the benefit of the significant sales price inflation of recent
years within the existing land bank unwinds. Additionally, we continued to
invest in our structure as part of our strategy for future growth and as a
result of the impact of overhead recovery, the operating margin was 17.4%
compared with 19.9% last year. Improved overhead recovery in the second half of
the financial year should largely offset any further anticipated gross margin
reduction in that period. The operating profit for the six months ended
December 2005 in Homes was £59.1m (H1 2004/05: £74.2m). We anticipate that the
operating profit for the Homes operations will be more weighted towards the
second half than in 2004/05 primarily due to the timing of In the City
completions which are virtually all forward sold.
Our Mixed Use and Regeneration activities achieved the expected break even
position in the first six months (H1 2004/05: £0.4m) as pre-development
expenditure in Redrow Regeneration was offset by profit generated by our mixed
use activities. We currently expect the second half result for Mixed Use and
Regeneration to be similar to the first half of this financial year.
After charging interest of £5.3m (H1 2004/05: £5.9m), the profit before tax for
the six months ended December 2005 was £53.4m (H1 2004/05: £68.3m) with earnings
per share at 23.5p (H1 2004/05: 30.0p). Interest cover remains strong at 11.2
times and with net debt as at 31 December 2005 of £116.1m (Dec 2004: £152.1m),
gearing fell to 24% (Dec 2004: 37%). We continue to invest in our land bank and
work in progress to support the future growth of our business which, coupled
with the impact of the increased weighting of profits towards the second half,
are the principal factors in the return on capital employed being lower at 20.4%
(H1 2004/05: 27.9%).
Land
Redrow has been active in the land market in the six months to December 2005 as
we secured plots to grow our regional operations with the current land bank
increasing to 18,400 plots (Dec 2004: 17,500), representing over four years'
supply. As the industry looks to increase sales outlets, land capable of short
term conversion into an outlet continues to trade at a premium. However, we
remain focused on securing plots under contract where we can use our skills to
add value and, as a result, land controlled under contract increased to 3,300
plots (Dec 2004: 2,300 plots). Our land owned with planning as at December 2005
was 15,100 plots (Dec 2004: 15,200 plots) with an average plot cost of £29,400
(Dec 2004: £28,000). The competitiveness of our land bank has been sustained as
this plot cost still represents only 17.3% of the estimated average selling
price.
Forward land remains an integral element of our business and 36% of additions to
our owned land bank were generated from this source. Forward land either with
planning or as allocations totalled 8,500 plots as at December 2005 and
increased by 500 plots over the same time last year despite the considerable
success in conversion of plots into the current land bank. A number of major
opportunities are progressing through the planning system and we are confident
that forward land will make a strong contribution to our land bank over the
coming years.
Redrow's land bank remains one of the most effective in the industry and 85% of
2006/07 projected legal completions are from sites owned with planning and a
further 10% are from controlled sites. Over 75% of 2007/08 projected legal
completions are from sites either owned or controlled providing a solid base for
growth.
Sales
The Autumn 2005 market displayed a seasonal upturn but consumer confidence
remained relatively weak and liquidity in the second hand market was below the
levels expected in a normal housing market. We accelerated investment in work
in progress and showhomes to provide our customers with greater opportunity to
see the quality and range of our product offering. Redrow continued to
increase its outlets which were, on average, approximately 12% higher than in
the first half of the previous financial year. This was a major factor in
reservations increasing by 12% as the sales rate per outlet was maintained in
line with the corresponding period last year. Rather than aggressively seeking
sales in a challenging market where incentives were being widely used to
generate activity, we used our strong forward sales to support our sales
performance. As a consequence, forward sales continued to unwind in line with
our sales strategy and as at December 2005 totalled 1,816 (Dec 2004: 1,948).
This still represents a strong position of over 4.5 months sales which is in
excess of both Redrow and industry norms.
Web-site traffic and visitor levels in October and November were more
encouraging and mortgage approval data also provided a more positive outlook as
we moved into 2006. Our web-site traffic has shown a further significant
increase during January and February, being 50% higher than in the corresponding
period last year.
Pricing in 2006 has been more robust though customers still remain cautious.
Our sales rate per outlet has increased by over 10% since the start of the new
calendar year compared with the same period last year with approximately 6% more
outlets in the marketplace. We now have approximately 85% of properties for
2005/06 sold on a plot specific basis and have already secured over 600 sales to
take into the next financial year. Despite Government initiatives, the planning
system continues to frustrate our industry and we currently expect our average
number of outlets for the second half of the financial year to be slightly lower
than previously anticipated, however this should be mitigated by the increased
rate of sale per outlet currently being achieved.
Product and Design
A key element of Redrow's offering to our customers is the quality of the
product in the widest sense. This not only encompasses the homes themselves but
the totality of the development; the way the homes relate to each other, the
elevational treatments and the quality of the public realm. Our objective is to
deliver developments of superior design aimed at achieving enhanced sales values
whilst controlling the cost base.
We continue to develop our product range to maximise the value generated from
our land bank. Through ongoing re-evaluation of our housing range, we continue
to drive cost out of our Signature and Debut product ranges whilst maintaining
the overall quality and flexibility of design. We expect an increasing
proportion of standard product to be used, with almost 85% of output in 2006/07
being either from these ranges or procured through our central project
management team on our In the City developments.
Mixed Use and Regeneration
Our mixed use capability has historically unlocked opportunities for residential
development and continues to be important in generating new opportunities.
Bishopton near Glasgow, a potential development in excess of 2,000 new homes and
90 acres of commercial property, is making progress through the planning system
and we will be looking to make a planning application during 2006. We are also
pleased to have secured preferred developer status with English Partnerships for
the £70m regeneration of part of Devonport, Plymouth which it is anticipated
will include over 450 new homes together with 100,000 sq. ft. of office and
retail space and additional community benefits. This, together with the
emerging forward land at Exeter and Taunton, will provide us with a significant
opportunity to grow our new business in the West Country.
Redrow Regeneration has continued to make excellent progress and has assembled a
portfolio of potential projects with a development value of over £750m. In
addition to the joint venture entered into in 2004/05 to redevelop Watford
Junction railway station at an estimated development value of £500m, the company
has now secured two further projects. At Barking, we are delivering a major
regeneration of the Town Square which in the first phase includes the provision
of approximately 250 new homes and a Life-Long Learning Centre. This whole
project has a total estimated development value of £90m with the first income
expected to be generated in the Summer of 2007. Redrow Regeneration has also
recently secured preferred developer status with Network Rail for the £190m
regeneration of Guildford Station which will include approximately 500 new homes
together with 130,000 sq. ft. of office and 15,000 sq. ft. of retail space as
well as significant enhancements to station facilities.
Debut by Redrow
We expect to deliver over 200 new Debut homes in the current financial year from
our first three projects at Rugby, Chorley and Castle Vale, Birmingham. We are
delighted to have now secured planning for further Debut developments at Stoke,
St David's Park and Sittingbourne for a further 300 units. We now have planning
permission for 380 units capable of delivery in 2006/07 and are progressing
applications on a further 4 sites for 450 units which should provide the Group
with a firm base to increase the contribution from Debut in future years.
We continue to evolve the product and remain convinced that Debut offers a
significant opportunity for Redrow in a segment of the market largely
unaddressed by the new homes industry. Our recent experience in Bristol
supports this view as an exhibition to promote a potential new Debut development
was attended in a single day by over 700 people. Registrations for all 106
proposed Debut homes were taken further underlining the demand and appeal of
this innovative product.
Summary
The increase in our sales rate per outlet in the early weeks of 2006 is
encouraging and we are well placed to benefit from improvements in the market
over the coming months. We have continued to progress opportunities to deliver
growth through our regional structure, our mixed use and regeneration skills and
our Debut homes. The high quality current and forward land bank we have
assembled, coupled with a product offering that maximises the profitability
inherent in this land bank, gives Redrow the capability to continue to generate
high quality returns. We remain confident in our ability to deliver value for
our shareholders.
Robert Jones
Chairman
Consolidated Income Statement (Unaudited)
6 months ended 12 months ended
31 December 30 June
Restated Restated
2005 2004 2005
Note £m £m £m
Continuing operations
Revenue 2 338.9 373.8 780.4
Cost of sales (257.4) (278.0) (583.7)
Gross profit 2 81.5 95.8 196.7
Administrative expenses 2 (22.4) (21.2) (42.7)
Operating profit before financing costs 59.1 74.6 154.0
Financial income 0.2 0.4 0.8
Financial expenses (5.5) (6.3) (13.4)
Net financing costs 2 (5.3) (5.9) (12.6)
Share of loss of joint ventures after
interest and taxation 2 (0.4) (0.4) (2.4)
Profit before tax 2 53.4 68.3 139.0
Income tax expense 2, 3 (16.1) (20.6) (42.5)
Profit for the period 2 37.3 47.7 96.5
Earnings per share
Basic earnings per share 5 23.5p 30.0p 60.7p
Diluted earnings per share 5 23.4p 29.9p 60.5p
Consolidated Statement of Recognised Income and Expense (Unaudited)
6 months ended 12 months ended
31 December 30 June
Restated Restated
2005 2004 2005
£m £m £m
Effective portion of changes in fair value of interest rate cash
flow hedges 0.1 (0.8) (1.6)
Deferred tax on change in fair value of interest rate cash flow
hedges (0.1) 0.2 0.5
Share-based payment recognised in the income statement - - 0.2
Deferred tax on share-based payment recognised in the income
statement - - (0.1)
Actuarial (losses)/gains on defined benefit pension scheme (2.0) 1.5 0.7
Deferred tax on actuarial (losses)/gains taken directly to equity 0.6 (0.5) (0.2)
Net (expense)/income recognised directly in equity (1.4) 0.4 (0.5)
Profit for the period 37.3 47.7 96.5
Total recognised income and expense for the period 35.9 48.1 96.0
Reconciliation of Movements in Consolidated Equity (Unaudited)
6 months ended 12 months ended
31 December 30 June
Restated Restated
2005 2004 2005
£m £m £m
Profit for the period 37.3 47.7 96.5
Dividends on equity shares (11.5) (9.5) (15.2)
Other recognised income and expense relating to the period (net) (1.4) 0.4 (0.5)
Shares issued 0.9 0.2 1.0
Movement in LTSIP/SAYE (0.6) (0.2) -
Net increase in equity 24.7 38.6 81.8
Opening equity 452.5 370.7 370.7
Closing equity 477.2 409.3 452.5
Consolidated Balance Sheet (Unaudited)
As at As at
31 December 30 June
Restated Restated
2005 2004 2005
Note £m £m £m
Assets
Plant, property and equipment 24.1 22.6 24.1
Intangible assets 0.2 0.3 0.2
Investments 2.4 1.9 2.6
Deferred tax assets 8.6 6.9 8.1
Trade and other receivables 0.5 0.5 0.5
Total non-current assets 35.8 32.2 35.5
Inventories 6 786.2 730.8 761.0
Trade and other receivables 8.4 15.5 12.2
Derivative financial instruments - 0.6 0.3
Cash and cash equivalents 8 0.1 0.4 23.7
Total current assets 794.7 747.3 797.2
Total assets 830.5 779.5 832.7
Equity
Issued capital 15.9 15.9 15.9
Share premium 55.1 53.5 54.2
Hedge reserve (0.1) 0.4 (0.1)
Other reserves 7.9 8.2 7.9
Retained earnings 398.4 331.3 374.6
Total equity 477.2 409.3 452.5
Liabilities
Bank overdrafts and loans 8 103.9 108.8 103.8
Trade and other payables 7 32.5 27.4 47.2
Derivative financial instruments 0.1 - -
Deferred tax liabilities 1.9 1.9 1.8
Retirement benefit obligations 10.5 6.7 7.9
Long-term provisions 2.2 2.1 2.1
Total non-current liabilities 151.1 146.9 162.8
Bank overdrafts and loans 8 12.3 43.7 23.1
Trade and other payables 7 168.5 155.9 170.1
Derivative financial instruments - - 0.5
Current income tax liabilities 21.4 23.7 23.7
Total current liabilities 202.2 223.3 217.4
Total liabilities 353.3 370.2 380.2
Total equity and liabilities 830.5 779.5 832.7
Consolidated Cash Flow Statement (Unaudited)
6 months ended 12 months ended
31 December 30 June
Restated Restated
2005 2004 2005
Note £m £m £m
Cash flow from operating activities
Profit for the period 59.1 74.6 154.0
Depreciation 1.0 0.8 2.2
Adjustment for non-cash items (2.0) (0.9) (3.4)
Operating profit before changes in working
capital and provisions 58.1 74.5 152.8
Decrease/(increase) in trade and other receivables 3.8 (21.3) (1.3)
Increase in inventories (25.2) (35.3) (65.8)
(Decrease)/increase in trade and other payables (17.6) (4.1) 13.8
Increase/(decrease) in employee benefits and
provisions 2.7 (1.2) -
Cash generated from operations 21.8 12.6 99.5
Interest paid (3.9) (4.2) (10.6)
Tax paid (18.5) (18.2) (39.8)
Net cash from operating activities (0.6) (9.8) 49.1
Cash flows from investing activities
Acquisition of property, plant and equipment (1.0) (1.2) (5.4)
Proceeds from sale of plant and equipment - - 1.4
Interest received 0.2 - 0.8
Payments to joint ventures (0.2) (0.5) (3.1)
Net cash from investing activities (1.0) (1.7) (6.3)
Cash flows from financing activities
Increase in/(repayment of) bank borrowings - 4.5 (0.5)
Issue costs of bank borrowings - (0.8) (0.8)
Purchase of own shares (0.6) (0.2) (0.7)
Dividends paid (11.5) (9.5) (15.2)
Proceeds from issue of share capital 0.9 0.2 1.0
Net cash from financing activities (11.2) (5.8) (16.2)
Net (decrease)/increase in cash and cash
equivalents (12.8) (17.3) 26.6
Cash and cash equivalents at the beginning of the
period 0.6 (26.0) (26.0)
Cash and cash equivalents at the end of the
period 8 (12.2) (43.3) 0.6
NOTES
1. The financial statements of the Group for the year ending 30 June 2006 will
be prepared in accordance with International Financial Reporting Standards
(IFRS) as adopted for use by the European Union at 30 June 2006, the
Group's first annual reporting date at which it is required to use IFRS.
The interim financial statements have been prepared using the accounting
policies which the Group intend to adopt for the year ending 30 June 2006
and are in accordance with the IFRS that are either adopted by the European
Union and effective, or are expected to be effective at 30 June 2006.
These accounting policies and restated comparatives are consistent with
those used in the 'Transition to International Financial Reporting
Standards' announcement made by the Group on 30 November 2005, a summary of
which follows these notes to the interim financial statements.
The information for the year ended 30 June 2005 does not constitute
statutory accounts within the meaning of section 240 Companies Act 1985.
A copy of the statutory accounts, prepared under UK GAAP, which received an
unqualified audit opinion, has been delivered to the Registrar of
Companies.
2a. Segmental information - Income (Unaudited):-
6 months ended 12 months ended
31 December 30 June
Restated Restated
2005 2004 2005
£m £m £m
Turnover
Homes 338.8 373.1 753.8
Mixed Use & Regeneration 0.1 0.7 26.6
338.9 373.8 780.4
Framing Solutions - share of joint venture - 0.5 0.6
338.9 374.3 781.0
Gross contribution 81.1 95.3 189.3
Overheads (22.0) (21.1) (41.9)
Homes - operating profit 59.1 74.2 147.4
Mixed Use & Regeneration - operating profit - 0.4 4.5
59.1 74.6 151.9
Mixed Use & Regeneration - share of joint venture - - 2.1
Operating profit before financing costs 59.1 74.6 154.0
Net financing costs (5.3) (5.9) (12.6)
53.8 68.7 141.4
Share of loss of joint ventures after interest and taxation (0.4) (0.4) (2.4)
Profit before tax 53.4 68.3 139.0
Income tax expense (16.1) (20.6) (42.5)
Profit for the period 37.3 47.7 96.5
2b. Segmental information - Balance Sheet (Unaudited):-
As at As at
31 December 30 June
Restated Restated
2005 2004 2005
£m £m £m
Segment assets
Homes 814.3 752.5 790.8
Mixed Use & Regeneration 14.5 24.8 17.1
828.8 777.3 807.9
Eliminations (0.2) (0.1) (0.5)
828.6 777.2 807.4
Cash and cash equivalents 0.1 0.4 23.7
Consolidated total assets 828.7 777.6 831.1
Segment liabilities
Homes 235.5 203.0 249.3
Mixed Use & Regeneration 1.8 14.8 4.5
237.3 217.8 253.8
Eliminations (0.2) (0.1) (0.5)
237.1 217.7 253.3
Borrowings 116.2 152.5 126.9
Consolidated total liabilities 353.3 370.2 380.2
Framing Solutions - share of joint venture 1.8 1.9 1.6
Total equity 477.2 409.3 452.5
3. The taxation charge reflects the estimated effective rate for the full year
to 30 June 2006.
4. The final dividend for the year ended 30 June 2005 of 7.2p per share (2004:
6.0p) was approved by shareholders at the Annual General Meeting on 9
November 2005, paid on 18 November 2005 and a charge of £11.5m (2004:
£9.5m) has been taken to reserves.
The Directors have declared an interim dividend of 4.3p per share (2004:
3.6p) which was approved by the Board on 6 March 2006. This gives an
interim dividend of £6.9m (2004: £5.7m) which will be paid on 5 May 2006 to
shareholders whose names are on the Register of Members at the close of
business on 17 March 2006. The shares will become ex-dividend on 15 March
2006.
In accordance with IAS 10 'Events After The Balance Sheet Date' the interim
dividend has not been included as a liability as at 31 December 2005.
5. The basic earnings per share calculation for the half year ended 31
December 2005 is based on the weighted number of shares in issue during the
period of 159.1m (2004:158.5m) excluding those held in trust under the
Redrow Long Term Incentive Plan, which are treated as cancelled. The
equivalent weighted average number of shares in issue for the year ended 30
June 2005 was 158.9m. Diluted earnings per share has been calculated after
adjusting the weighted average number of shares in issue for all
potentially dilutive shares held under exercised options.
6. Inventories (Unaudited)
As at
31 December
Restated
2005 2004
£m £m
Land for development 453.6 436.4
Work in progress 319.2 286.3
Stock of showhomes 13.4 8.1
786.2 730.8
7. Land Creditors (Unaudited)
(included in trade and other payables)
As at
31 December
Restated
2005 2004
£m £m
Due within one year 49.7 37.4
Due in more than one year 32.5 27.4
82.2 64.8
8. Analysis of net debt (Unaudited)
As at
31 December
2005 2004
£m £m
Cash and cash equivalents 0.1 0.4
Bank overdrafts and loans
- current liabilities (12.3) (43.7)
(12.2) (43.3)
- non-current liabilities (103.9) (108.8)
(116.1) (152.1)
9. The Registrar is Computershare Investor Services PLC. Shareholder
enquiries should be addressed to the Registrar at the following address:
Registrars Department
PO Box 82
The Pavilions
Bridgwater Road
Bristol
BS99 7NH
TRANSITION TO IFRS
In preparation for the adoption of IFRS, Redrow plc published its 'Transition to
International Financial Reporting Standards' document in November 2005. This
included a summary of principal impacts and restated financial information for
the year ended 30 June 2005 and six months ended 31 December 2004 which have
been reproduced here.
Summary of the Principal Impacts
The principal impacts in respect of the transition to IFRS upon the previously
reported UK GAAP financial statements of Redrow plc are:
IAS 19 : Employee Benefits
IAS 2 : Inventories
IAS 39 : Financial Instruments
IFRS 2 : Share-based Payment
IAS 10 : Events after the Balance Sheet Date
IAS 38 : Intangible Assets
IAS 31 : Interests in Joint Ventures
1. IAS 19: Employee Benefits
Defined contribution pension schemes are unaffected by IAS 19.
In respect of its defined benefit pension scheme, Redrow plc is required under
IAS 19 to recognise the net surplus or deficit in the scheme on its balance
sheet. IAS 19 also requires that a provision be made in respect of holiday pay
due to employees, where the holiday year-end does not coincide with that of the
financial year-end.
The impact on the opening balance sheet at 1 July 2004 is to recognise a net
deficit of £6.1m representing a gross deficit of £7.9m in respect of the pension
deficit, a £0.8m provision in respect of holiday pay and a deferred tax asset of
£2.6m.
The principal components of the defined benefit pensions charge to the
consolidated income statement are the current service cost and finance costs.
Current service cost has been included in administrative expenses to the extent
that it exceeds the UK GAAP charge, resulting in an increase in administrative
expenses of £0.4m and an increase in finance costs of £0.3m in the year ended 30
June 2005.
Actuarial gains of £0.7m in the year ended 30 June 2005 have been taken directly
to reserves as permitted under IAS 19 (December 2004 amendment) via the
statement of recognised income and expense.
At 30 June 2005, the restated IFRS balance sheet recognised a net deficit of
£6.1m with both pension deficit and holiday pay provisions unchanged.
2. IAS 2: Inventories
In accordance with IAS 2, all marketing and selling costs are excluded from the
cost of inventories and are expensed as incurred.
Under UK GAAP, Redrow plc included certain direct selling costs in arriving at
the cost of work in progress, as permitted under SSAP 9. The impact of this
change on the opening balance sheet at 1 July 2004 is to reduce work in progress
by £9.6m and create a deferred tax asset of £2.9m. The overall impact on net
assets is a reduction of £6.7m.
The adoption of IFRS will generally lead to earlier recognition of direct
selling costs than was the case under UK GAAP. This arises because previously,
direct selling costs were reflected within the reported gross profit of each
home as it legally completed. Since selling costs are usually borne prior to
legal completion, recognition of these costs as incurred will be reflected
earlier.
There was a £0.9m impact on the reported cost of sales for the year ended 30
June 2005 as a result of the adoption of IAS 2. Due to the product mix and
number of new developments being marketed in the financial year ending June
2006, the implementation of IAS 2 is likely to have a slightly greater impact
upon the gross margin than in the previous year.
At 30 June 2005, the restated IFRS balance sheet showed a £10.5m reduction in
work in progress partly offset by the creation of a £3.2m deferred tax asset
resulting in a £7.3m reduction in net assets.
3. IAS 39: Financial Instruments: Recognition and Measurement
i) Land Creditors
In accordance with IAS 39, the deferred payments arising from land creditors are
to be held at discounted present value, hence recognising a financing element on
the deferred settlement terms. The liability is then increased to the
settlement value over the period of the deferral. The value of the discount is
expensed through net financing costs in the consolidated income statement.
The impact on the opening balance sheet at 1 July 2004 was to reduce land
creditors by £3.2m, reduce the land balance by £8.4m, recognise a deferred tax
asset of £1.6m and reduce opening reserves by £3.6m.
The IFRS treatment of land creditors has an impact on the timing of the costs
charged to the income statement. This will generally result in the finance
element in respect of the land creditor being expensed in advance of the
compensating improvement in gross profit as a result of legal completions
generally continuing beyond the settlement date of the land creditor for the
majority of projects.
Cost of sales for the year ended 30 June 2005 reduced by £1.2m with net
financing costs increasing by £2.5m as a result of the timing of the value of
discount being expensed.
At 30 June 2005, the revised IFRS balance sheet had a reduction in land
creditors of £5.5m, a decrease in the value of land held in stock of £12.0m, a
deferred tax asset of £1.9m and a reduction in reserves of £4.6m.
ii) Financial Instruments and Trade Receivables
Under IAS 39, the fair value of the Group's cashflow hedging arrangements must
be recognised in the balance sheet. Any gains or losses on the fair value of
the cashflow hedging arrangements are taken to reserves until they are realised.
Long term trade debtors are to be held at discounted present value, hence
recognising a financing element. The debtor is then increased to settlement
value over the period of the deferred terms.
The impact on the opening balance sheet at 1 July 2004 was to recognise a £1.4m
asset in respect of derivative financial instruments, a £0.4m deferred tax
liability and a £1.0m hedge reserve. Trade receivables reduce by £0.2m with an
associated £0.1m deferred tax asset and a £0.1m reduction in retained earnings.
At 30 June 2005, the IFRS revised balance sheet impact was a £0.2m reduction in
net assets following a net £1.1m charge direct to the hedge reserve via the
statement of recognised income and expense.
4. IFRS 2: Share-based Payment
In accordance with IFRS 2, a charge has been recognised for share options
granted on or after 7 November 2002. The charge is spread over the vesting
period, with adjustments made to reflect the actual and expected number of
shares vesting at the year-end. The Black Scholes option pricing model has been
used to determine the extent of the charge.
The impact on the opening balance sheet as at 1 July 2004 was a £0.1m increase
in deferred tax assets.
The impact on the income statement for the year ended 30 June 2005 was an
increase in administrative expenses of £0.2m.
At 30 June 2005, the IFRS revised balance sheet impact was a £0.2m increase in
deferred tax assets.
5. IAS 10: Events After the Balance Sheet Date
Under IAS 10, the declaration of a dividend after the reporting date is no
longer an adjusting post balance sheet event as it was under UK GAAP.
Accordingly, the final dividends for the years ended 30 June 2004 and 30 June
2005 do not constitute a liability at the respective balance sheet dates under
IAS 10.
The impact on the opening balance sheet as at 1 July 2004 was a £9.5m increase
in net assets.
The impact on the balance sheet at 30 June 2005 was an increase in net assets of
£11.5m.
6. IAS 38: Intangible Assets
Under IAS 38, eligible software development costs that were previously held
within tangible fixed assets under UK GAAP must now be classified as intangible
fixed assets. As this is a balance sheet re-categorisation, with no change in
depreciation rates, there is no impact on the income statement.
The impact on the opening balance sheet as at 1 July 2004 was a reduction of
£0.4m of plant, property and equipment with a corresponding £0.4m increase in
intangible assets.
The impact on the balance sheet as at 30 June 2005 was a reduction of £0.2m of
plant, property and equipment with a corresponding increase of £0.2m in
intangible assets.
7. IAS 31: Interests in Joint Ventures
Redrow intends to account for jointly-controlled entities using the equity
method of accounting. Under IAS 31, such an approach requires the results of
jointly-controlled entities to be reflected as a separate item on a post tax
basis and disclosed immediately before profit before tax. This contrasts with UK
GAAP, where the results are disclosed at an operating profit level with the
jointly-controlled entities' financing costs and tax charges included within the
corresponding headings for the Group income statements.
Reconciliation of Equity (Unaudited)
As at 1 July 2004
Previously IAS 19 IAS 2 IAS 39 IAS 39 IFRS 2 IAS 10 IAS 38 Effect of Restated
Reported Employee Inventories Land Financial Share-based Dividend Intangible Transition Under
Under Benefits Creditors Instruments Payment Assets To IFRS IFRS
UK GAAP
Summary of
Principal
Impacts
paragraph 1 2 3i 3ii 4 5 6
£m £m £m £m £m £m £m £m £m £m
Assets
Plant,
property
and 22.5 (0.4) (0.4) 22.1
equipment
Intangible
assets - 0.4 0.4 0.4
Investments 1.8 - 1.8
Deferred
tax - 2.6 2.9 1.6 0.1 0.1 7.3 7.3
assets
Derivative
financial
instruments - 0.5 0.5 0.5
Trade and
other
receivables 0.5 (0.2) (0.2) 0.3
Total
non-current
assets 24.8 2.6 2.9 1.6 0.4 0.1 - - 7.6 32.4
Inventories 713.4 (9.6) (8.4) (18.0) 695.4
Trade and
other
receivables 11.1 - 11.1
Derivative
financial
instruments - 0.9 0.9 0.9
Cash and
cash 1.2 - 1.2
equivalents
Total
current 725.7 - (9.6) (8.4) 0.9 - - - (17.1) 708.6
assets
Total 750.5 2.6 (6.7) (6.8) 1.3 0.1 - - (9.5) 741.0
assets
Equity
Issued 15.9 - 15.9
capital
Share 53.2 - 53.2
premium
Hedge - 1.0 1.0 1.0
reserve
Other 8.2 - 8.2
reserves
Retained
earnings 299.3 (6.1) (6.7) (3.6) (0.1) 0.1 9.5 (6.9) 292.4
Total 376.6 (6.1) (6.7) (3.6) 0.9 0.1 9.5 - (5.9) 370.7
equity
Liabilities
Bank
overdrafts
and 104.7 - 104.7
loans
Trade and
other 29.7 (2.6) (2.6) 27.1
payables
Deferred
tax 1.7 0.4 0.4 2.1
liabilities
Retirement
benefit
obligations - 7.9 7.9 7.9
Long-term
provisions 2.2 - 2.2
Total
non-current
liabilities 138.3 7.9 - (2.6) 0.4 - - - 5.7 144.0
Bank
overdrafts
and 27.2 - 27.2
loans
Trade and
other 187.2 0.8 (0.6) (9.5) (9.3) 177.9
payables
Tax 21.2 - 21.2
liabilities
Total
current 235.6 0.8 - (0.6) - - (9.5) - (9.3) 226.3
liabilities
Total
liabilities 373.9 8.7 - (3.2) 0.4 - (9.5) - (3.6) 370.3
Total
equity
and 750.5 2.6 (6.7) (6.8) 1.3 0.1 - - (9.5) 741.0
liabilities
Net Assets 376.6 (6.1) (6.7) (3.6) 0.9 0.1 9.5 - (5.9) 370.7
Reconciliation of Profit (Unaudited)
6 months to 31 December 2004
Previously IAS 19 IAS 2 IAS 39 IFRS 2 Effect of Restated
Reported Employee Inventories Land Share-based Transition Under
Under Benefits Creditors Payment To IFRS IFRS
UK GAAP
Summary of
Principal
Impacts
paragraph 1 2 3i 4
£m £m £m £m £m £m £m
Continuing Operations
Revenue 373.8 - 373.8
Cost of Sales (278.7) 0.1 0.6 0.7 (278.0)
Gross Profit 95.1 - 0.1 0.6 - 0.7 95.8
Administrative
expenses (20.9) (0.2) (0.1) (0.3) (21.2)
Operating
Profit before
financing
costs 74.2 (0.2) 0.1 0.6 (0.1) 0.4 74.6
Financial
income 0.4 - 0.4
Financial
expenses (4.9) (0.1) (1.3) (1.4) (6.3)
Net Financing
Costs (4.5) (0.1) - (1.3) - (1.4) (5.9)
Share of loss
of joint
ventures after
interest and
taxation (0.4) - (0.4)
Profit Before
Tax 69.3 (0.3) 0.1 (0.7) (0.1) (1.0) 68.3
Income tax
expense (20.9) 0.1 - 0.2 - 0.3 (20.6)
Profit for the
Period 48.4 (0.2) 0.1 (0.5) (0.1) (0.7) 47.7
Earnings per
share (basic) 30.5p 30.0p
Earnings per
share
(diluted) 30.4p 29.9p
Reconciliation of Equity (Unaudited)
As at 31 December 2004
Previously IAS 19 IAS 2 IAS 39 IAS 39 IAS 10 IAS 38 Effect of Restated
Reported Employee Inventories Land Financial Dividend Intangible Transition Under
Under Benefits Creditors Instruments Assets To IFRS IFRS
UK GAAP
Summary of
Principal
Impacts
paragraph 1 2 3i 3ii 5 6
£m £m £m £m £m £m £m £m £m
Assets
Plant,
property and
equipment 22.9 (0.3) (0.3) 22.6
Intangible
assets - 0.3 0.3 0.3
Investments 1.9 - 1.9
Deferred tax
assets - 2.2 2.9 1.7 0.1 6.9 6.9
Derivative - - -
financial
instruments
Trade and
other
receivables 0.7 (0.2) (0.2) 0.5
Total
non-current
assets 25.5 2.2 2.9 1.7 (0.1) - - 6.7 32.2
Inventories 749.2 (9.5) (8.9) (18.4) 730.8
Trade and
other
receivables 15.5 - 15.5
Derivative
financial
instruments - 0.6 0.6 0.6
Cash and cash
equivalents 0.4 - 0.4
Total current
assets 765.1 - (9.5) (8.9) 0.6 - - (17.8) 747.3
Total assets 790.6 2.2 (6.6) (7.2) 0.5 - - (11.1) 779.5
Equity
Issued capital 15.9 - 15.9
Share premium 53.5 - 53.5
Hedge reserve - 0.4 0.4 0.4
Other reserves 8.2 - 8.2
Retained
earnings 341.7 (5.3) (6.6) (4.1) (0.1) 5.7 (10.4) 331.3
Total equity 419.3 (5.3) (6.6) (4.1) 0.3 5.7 - (10.0) 409.3
Liabilities
Bank
overdrafts and
loans 108.8 - 108.8
Trade and
other payables 29.9 (2.5) (2.5) 27.4
Deferred tax
liabilities 1.7 0.2 0.2 1.9
Retirement
benefit
obligations - 6.7 6.7 6.7
Long-term
provisions 2.1 - 2.1
Total
non-current
liabilities 142.5 6.7 - (2.5) 0.2 - - 4.4 146.9
Bank
overdrafts and
loans 43.7 - 43.7
Trade and
other payables 161.4 0.8 (0.6) (5.7) (5.5) 155.9
Tax liabilities 23.7 - 23.7
Total current
liabilities 228.8 0.8 - (0.6) - (5.7) - (5.5) 223.3
Total
liabilities 371.3 7.5 - (3.1) 0.2 (5.7) - (1.1) 370.2
Total equity
and
liabilities 790.6 2.2 (6.6) (7.2) 0.5 - - (11.1) 779.5
Net Assets 419.3 (5.3) (6.6) (4.1) 0.3 5.7 - (10.0) 409.3
Reconciliation of Profit (Unaudited)
12 months to 30 June 2005
Previously IAS 19 IAS 2 IAS 39 IFRS 2 Effect of Restated
Reported Employee Inventories Land Share-based Transition Under
Under Benefits Creditors Payment To IFRS IFRS
UK GAAP
Summary of
Principal
Impacts
paragraph 1 2 3i 4
£m £m £m £m £m £m £m
Continuing Operations
Revenue
Cost of Sales 780.4 - 780.4
(584.0) (0.9) 1.2 0.3 (583.7)
Gross Profit 196.4 - (0.9) 1.2 - 0.3 196.7
Administrative
expenses (42.1) (0.4) (0.2) (0.6) (42.7)
Operating
Profit before
financing
costs 154.3 (0.4) (0.9) 1.2 (0.2) (0.3) 154.0
Financial
income 0.8 - 0.8
Financial
expenses (10.6) (0.3) (2.5) (2.8) (13.4)
Net Financing
Costs (9.8) (0.3) - (2.5) - (2.8) (12.6)
Share of loss
of joint
ventures after
interest and
taxation (2.4) - (2.4)
Profit Before
Tax 142.1 (0.7) (0.9) (1.3) (0.2) (3.1) 139.0
Income tax
expense (43.4) 0.2 0.3 0.3 0.1 0.9 (42.5)
Profit for the
Period 98.7 (0.5) (0.6) (1.0) (0.1) (2.2) 96.5
Earnings per
share (basic) 62.1p 60.7p
Earnings per
share
(diluted) 61.9p 60.5p
Reconciliation of Equity (Unaudited)
As at 30 June 2005
Previously IAS 19 IAS 2 IAS 39 IAS 39 IFRS 2 IAS 10 IAS 38 Effect of Restated
Reported Employee Inventories Land Financial Share-based Dividend Intangible Transition Under
Under Benefits Creditors Instruments Payment Assets To IFRS IFRS
UK GAAP
Summary of
Principal
Impacts
paragraph 1 2 3i 3ii 4 5 6
£m £m £m £m £m £m £m £m £m £m
ASSETS
Non-current
assets
Plant,
property
and 24.3 (0.2) (0.2) 24.1
equipment
Intangible
assets - 0.2 0.2 0.2
Investments 2.6 - 2.6
Deferred
tax - 2.6 3.2 1.9 0.2 0.2 8.1 8.1
assets
Derivative - - -
financial
instruments
Trade and
other
receivables 0.7 (0.2) (0.2) 0.5
27.6 2.6 3.2 1.9 - 0.2 - - 7.9 35.5
Current
assets
Inventories 783.5 (10.5) (12.0) (22.5) 761.0
Trade and
other
receivables 12.2 - 12.2
Derivative
financial
instruments - 0.3 0.3 0.3
Cash and
cash 23.7 - 23.7
equivalents
819.4 - (10.5) (12.0) 0.3 - - - (22.2) 797.2
Total 847.0 2.6 (7.3) (10.1) 0.3 0.2 - - (14.3) 832.7
assets
Equity
Issued 15.9 - 15.9
capital
Share 54.2 - 54.2
premium
Hedge - (0.1) (0.1) (0.1)
reserve
Other 7.9 - 7.9
reserves
Retained
earnings 381.0 (6.1) (7.3) (4.6) (0.1) 0.2 11.5 (6.4) 374.6
Total 459.0 (6.1) (7.3) (4.6) (0.2) 0.2 11.5 - (6.5) 452.5
equity
Liabilities
Non-current
liabilities
Bank
overdrafts
and 103.8 - 103.8
loans
Trade and
other 52.4 (5.2) (5.2) 47.2
payables
Deferred
tax 1.8 - 1.8
liabilities
Retirement
benefit
obligations - 7.9 7.9 7.9
Long-term
provisions 2.1 - 2.1
160.1 7.9 - (5.2) - - - - 2.7 162.8
Current
liabilities
Bank
overdrafts
and 23.1 - 23.1
loans
Trade and
other 181.1 0.8 (0.3) (11.5) (11.0) 170.1
payables
Derivative
financial
instruments - 0.5 0.5 0.5
Tax 23.7 - 23.7
liabilities
227.9 0.8 - (0.3) 0.5 - (11.5) - (10.5) 217.4
Total
liabilities 388.0 8.7 - (5.5) 0.5 - (11.5) - (7.8) 380.2
Total
equity
and 847.0 2.6 (7.3) (10.1) 0.3 0.2 - - (14.3) 832.7
liabilities
Net Assets 459.0 (6.1) (7.3) (4.6) (0.2) 0.2 11.5 - (6.5) 452.5
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