Interim Results - Part Two

RNS Number : 0601C

Taylor Wimpey PLC

27 August 2008

 

Taylor Wimpey plc

Responsibility statement of the directors in respect of the half-yearly financial report 

We confirm that to the best of our knowledge:

The condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting.

The interim management report includes:

• a fair review of the information required by DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of the important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; 
• a description of the principal risks and uncertainties for the remaining six months of the year; 
• DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and 
• any changes in the related party transactions described in the last annual report that could do so.

By order of the Board
Norman Askew, Chairman
Pete Redfern, Group Chief Executive
26 August 2008

Condensed Consolidated Income Statement

for the six months to 30 June 2008

	Continuing Operations			Note	Reviewed  Six months  to 30 June 2008 £m	Reviewed  Six months  to 30 June 2007 £m	Audited Year to 31 December 2007 £m
	Revenue			3	1,894.7	1,401.9	4,714.3
	Cost of sales
	Before exceptional items				(1,676.5)	(1,170.1)	(3,975.9)
	Exceptional items*				(690.0)	(101.5)	(289.7)
					(2,366.5)	(1,271.6)	(4,265.6)
	Gross (loss) / profit
	Before exceptional items				218.2	231.8	738.4
	Exceptional items*				(690.0)	(101.5)	(289.7)
					(471.8)	130.3	448.7
	Net operating expenses:
	Before exceptional items				(151.8)	(93.8)	(289.5)
	Exceptional items*				(856.3)	-	(90.0)
					(1,008.1)	(93.8)	(379.5)
	Share of results of joint ventures				5.0	12.2	23.4
	(Loss)/profit on ordinary activities before finance costs
	Before amortisation of brands and exceptional items				73.8	150.2	476.0
	Amortisation of brands				(2.4)	-	(3.7)
	Exceptional items*			4	(1,546.3)	(101.5)	(379.7)
				3	(1,474.9)	48.7	92.6
	Interest receivable				2.0	5.2	9.7
	Finance costs			5	(69.1)	(35.6)	(121.8)
	(Loss)/profit on ordinary activities before taxation
	Before exceptional items				4.3	119.8	360.2
	Exceptional items*				(1,546.3)	(101.5)	(379.7)
					(1,542.0)	18.3	(19.5)
	Taxation
	Before exceptional items			6	(1.0)	(33.6)	(107.0)
	Exceptional items*			6	124.0	38.2	(70.2)
					123.0	4.6	(177.2)
	(Loss)/profit for the period
	Before exceptional items				3.3	86.2	253.2
	Exceptional items*				(1,422.3)	(63.3)	(449.9)
					(1,419.0)	22.9	(196.7)
	Attributable to:
	Equity holders of the parent				(1,419.3)	22.7	(197.9)
	Minority interest				0.3	0.2	1.2
					(1,419.0)	22.9	(196.7)
	(Loss)/earnings per ordinary share - basic			8	(134.9p)	3.9p	(24.2p)
	(Loss)/earnings per ordinary share - diluted			8	(134.9p)	3.9p	(24.2p)

*    The exceptional items in 2008 and 2007 relate to restructuring costs, impairments of goodwill and intangible assets and land and work in progress write-downs (note 4).

Condensed Consolidated Statement of Recognised Income and Expense

for the six months to 30 June 2008

			Reviewed  Six months  to 30 June  2008 £m	Reviewed  Six months  to 30 June  2007 £m	Audited  Year to  31 December 2007  £m
Exchange differences on translation of foreign operations			(1.4)	1.4	21.7
Actuarial gains/(losses) on defined benefit pension schemes			-	(3.9)	91.3
Surplus on revaluation			-	-	-
Tax on items taken directly to equity			-	-	(28.5)
Net income / (expense) recognised directly in equity			(1.4)	(2.5)	84.5
(Loss)/profit for the period			(1,419.0)	22.9	(196.7)
Total recognised (expense)/income for the period			(1,420.4)	20.4	(112.2)
Attributable to:
Equity holders of the parent			(1,420.7)	20.2	(113.4)
Minority interest			0.3	0.2	1.2
			(1,420.4)	20.4	(112.2)
Condensed Consolidated Balance Sheet at 30 June 2008
			Reviewed  Six months  to 30 June  2008 £m	Reviewed  Six months  to 30 June  2007 £m	Audited  Year to  31 December 2007  £m
Non-current assets
Goodwill			-	362.9	699.8
Other intangible assets			-	-	120.5
Property, plant and equipment			33.8	23.3	39.0
Interests in joint ventures			71.8	54.2	59.9
Trade and other receivables			61.4	26.7	76.4
Deferred tax assets			117.5	131.8	117.7
			284.5	598.9	1,113.3
Current assets
Inventories			5,376.1	3,041.2	6,017.8
Trade and other receivables			384.3	387.6	391.3
Tax receivables			-	21.7	16.8
Cash and cash equivalents			95.7	151.3	130.0
			5,856.1	3,601.8	6,555.9
Total assets			6,140.6	4,200.7	7,669.2
Current liabilities
Trade and other payables			(1,543.2)	(883.1)	(1,540.3)
Tax payables			(21.5)	(50.5)	(154.4)
Debenture loans			(1.1)	(2.3)	(1.4)
Bank loans and overdrafts			(17.8)	(22.8)	(12.2)
Provisions			(69.1)	-	(48.2)
			(1,652.7)	(958.7)	(1,756.5)
Net current assets			4,203.4	2,643.1	4,799.4
Non-current liabilities
Trade and other payables			(303.4)	(97.8)	(388.4)
Debenture loans			(820.3)	(563.3)	(823.3)
Bank loans			(931.9)	(268.9)	(708.5)
Retirement benefit obligation			(216.2)	(210.0)	(219.1)
Deferred tax liabilities			-	(0.8)	(29.8)
Provisions			(34.8)	(26.4)	(38.4)
			(2,306.6)	(1,167.2)	(2,207.5)
Total liabilities			(3,959.3)	(2,125.9)	(3,964.0)
Net assets			2,181.3	2,074.8	3,705.2
Equity
Share capital			289.6	148.6	289.6
Share premium account			757.7	758.4	758.1
Merger relief reserve			905.9	-	1,934.2
Revaluation reserve			0.5	0.5	0.5
Own shares			(279.5)	(36.9)	(282.0)
Share-based payment tax reserve			5.6	8.2	5.6
Capital redemption reserve			31.5	31.5	31.5
Other reserve			4.8	5.1	4.8
Translation reserve			2.3	(17.7)	3.7
Retained earnings			460.5	1,175.1	957.1
Equity attributable to equity holders of the parent			2,178.9	2,072.8	3,703.1
Minority interests			2.4	2.0	2.1
Total equity			2,181.3	2,074.8	3,705.2
Condensed Consolidated Cash Flow Statement for the six months to 30 June 2008
		Note	Reviewed  Six months  to 30 June  2008 £m	Reviewed  Six months  to 30 June  2007 £m	Audited  Year to  31 December 2007  £m
Net cash (used in)/from operating activities		9	(261.7)	(341.4)	(163.3)
Investing activities
Interest received			5.1	5.3	2.3
Dividends received from joint ventures			5.1	8.1	24.4
Amounts invested in software development			(2.5)	-	(0.4)
Proceeds on disposal of property, plant and investments			8.8	13.4	17.3
Purchases of property, plant and investments			(7.7)	(3.4)	(13.6)
Amounts invested in joint ventures			(5.1)	(2.0)	(3.1)
Amounts repaid by joint ventures			-	3.2	10.6
Acquisition of George Wimpey Plc			-	-	28.1
Net cash inflow on acquisition of remaining 50% of North Central Management Limited			-	-	2.9
Net cash (used in)/from investing activities			3.7	24.6	68.5
Financing activities
Dividends paid			(3.3)	-	(117.3)
Dividends paid by subsidiaries to minority shareholders			-	(0.1)	(1.1)
Proceeds on issue of ordinary share capital			-	0.1	-
Proceeds from sale of own shares				8.1	4.7
Purchase of own shares			(0.4)	(4.9)	(251.6)
New bank loans raised			229.5	277.1	2,083.8
New debenture loans raised			-	-	256.2
Repayment of debenture loans			(0.6)	(50.0)	(52.1)
Repayment of bank loans			(0.8)	(13.7)	(1,944.6)
Increase/(decrease) in bank overdrafts			-	13.1	0.5
Net cash from/(used in) financing activities			224.4	229.7	(21.5)
Net decrease in cash and cash equivalents			(33.6)	(87.1)	(116.3)
Cash and cash equivalents at beginning of year			130.0	236.5	236.5
Effect of foreign exchange rate changes			(0.7)	1.9	9.8
Cash and cash equivalents at end of period			95.7	151.3	130.0

Notes to the Condensed Consolidated Financial Statements

for the six months to 30 June 2008 

1. General Information

The interim report has been prepared in accordance with the recognition and measurement criteria of IFRS and the disclosure requirements of the Listing Rules.

The information for the year ended 31 December 2007 does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. A copy of the statutory accounts for the year prepared under IFRS as adopted by the EU has been delivered to the Register of Companies. The auditors' report on those accounts was unqualified and did not contain statements under section 237 (2) or (3) of the Companies Act 1985.

These interim accounts were approved by the Directors on 26 August 2008. They are unaudited but have been reviewed by the auditors whose review report is set out on page 20.

2. Basis of Preparation and Principal Accounting policies 

The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting', as adopted by the European Union.

The accounting policies adopted are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2007.

The following new standards, amendments to standards or interpretations are mandatory for the first time for the year ending 31 December 2008 but have no material impact on the Group's financial statements.

IFRIC 11,IFRS 2 - Group and Treasury Share Transactions, effective for annual periods beginning on or after 1 March 2007

IFRIC 14,IAS 19 - The limit on a defined benefit asset, minimum funding requirements and their interaction

The Corporate component was added in 2007 to reflect better the way the Group is managed following the acquisition of George Wimpey Plc. Corporate costs of £13.8m (including exceptional restructuring costs) have been separately identified in the 6 months to 30 June 2008 (6 months to 30 June 2007 £6.9m, year ended 31 December 2007 £19.6m).

Going Concern

The condensed consolidated interim financial statements have been prepared on a going concern basis.  

The Group is currently in full compliance with the financial covenants contained in all of its borrowing agreements. However, as a consequence of the rapid decline in the UK Housing market a breach of the Group's interest cover covenants is likely when tested for the full year and the Group has therefore entered discussions with the relevant lenders to agree amended terms.  If such a covenant breach were to occur then the lenders would be able to request early repayment of all outstanding borrowings and cancel their commitments.  

If the Group is not able to agree the required amendments, on terms which accommodate management's latest forecasts, and in the absence of other funding alternatives, the Group would be unable to repay the borrowings. As a result, there exists a material uncertainty which may cast significant doubt about the ability of the Group to continue as a going concern such that the Group could be unable to realise its assets and discharge its liabilities in the normal course of business.   Accordingly, assets may be realised at significantly less than book value and additional liabilities may arise.

In the directors' view, constructive discussions with the relevant lenders are ongoing and the directors are not aware of any issues which would prevent the required amendments from being agreed. 

Based on these discussions and the projected trading for the Group, the directors are of the view that a satisfactory conclusion to the negotiations will be reached and are therefore confident that the Group will have adequate resources to continue in operational existence for the foreseeable future.  For this reason they continue to adopt the going concern basis in preparing the condensed consolidated interim financial statements.  Therefore, these financial statements do not include any adjustments that would result if the going concern basis of preparation is inappropriate.

Estimates and Judgements

The preparation of a condensed set of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amount of assets and liabilities, income and expense. Actual results may differ from these estimates.

The significant judgements made by management in applying the Group's accounting policy and the key sources of uncertainty were principally the same as those applied to the Group's financial statements as at 31 December 2007. In particular the carrying value of land and work in progress has involved considerable judgement around future margins from sites in assessing the level of net realisable value write downs. Also during the period management has reassessed its estimates in respect of the recoverable amount of goodwill and deemed a full impairment is required. 

3. Business segments

The following is an analysis of the revenue, results and capital employed, analysed by business segment, the Group's primary basis of segmentation.

Six months to 30 June 2008	Housing United Kingdom £m	Housing North America £m	Housing Spain and Gibraltar £m	Construction £m	Corporate £m	Consolidated £m
Revenue
External sales	1,159.6	362.9	26.4	345.8	–	1,894.7
Inter-segment sales	–	–	–	14.2	–	14.2
Eliminations	–	–	–	(14.2)	–	(14.2)
Total revenue	1,159.6	362.9	26.4	345.8	–	1,894.7
Result:
Operating profit/(loss) before joint ventures, brand amortisation and exceptional items	61.8	13.9	0.3	0.9	(8.1)	68.8
Share of results of joint ventures	1.6	3.4	–	–	–	5.0
Profit/(loss) on ordinary activities before finance costs, brand amortisation and exceptional items	63.4	17.3	0.3	0.9	(8.1)	73.8
Brand amortisation	(2.4)	–	–	–	–	(2.4)
Exceptional items	(1,431.0)	(76.3)	(33.3)	–	(5.7)	(1,546.3)
Loss/(profit) on ordinary activities before finance costs	(1,370.0)	(59.0)	(33.0)	0.9	(13.8)	(1,474.9)
Finance costs, (net)						(67.1)
Taxation						123.0
Loss for the period						(1,419.0)

Inter-segment construction and housing revenue relates to contracts conducted on an arm's-length basis.

30 June 2008	Housing United Kingdom £m	Housing North America £m	Housing Spain and Gibraltar £m	Construction £m	Corporate £m	Consolidated £m
Asset and liabilities:
Segment assets	4,646.9	871.1	165.3	130.4	41.9	5,855.6
Joint ventures	51.1	20.3	0.2	0.2	–	71.8
Segment liabilities	(1,423.6)	(263.7)	(61.1)	(251.2)	(167.1)	(2,166.7)
Net operating assets/(liabilities)*	3,274.4	627.7	104.4	(120.6)	(125.2)	3,760.7
Current taxation (net)						(21.5)
Deferred taxation (net)						117.5
Net debt						(1,675.4)
Net assets						2,181.3

  *   The Group is unable to allocate the defined benefit pension scheme assets and liabilities of the Taylor Woodrow Group Pension and Life Assurance Fund on an actuarial basis by entity. However, for the purposes of the segmental analysis above the Group has allocated the deficit on the basis of members in the plan. This allocation is performed solely for the purposes of providing a more meaningful segmental analysis and is not an appropriate apportionment in accordance with IAS 19. The assets and liabilities of the George Wimpey Staff Pension Scheme have been allocated in their entirety to UK Housing.

Six months to 30 June 2007	Housing United Kingdom* £m	Housing North America* £m	Housing Spain and Gibraltar* £m	Construction* £m	Corporate* £m	Consolidated £m
Revenue
External sales	751.5	342.5	30.0	277.9	–	1,401.9
Inter-segment sales	–	–	–	20.5	–	20.5
Eliminations	–	–	–	(20.5)	–	(20.5)
Total revenue	751.5	342.5	30.0	277.9	–	1,401.9
Result:
Operating profit/(loss) before joint ventures and exceptional items	100.8	39.4	2.0	2.7	(6.9)	138.0
Share of results of joint ventures	4.2	8.0	–	–	–	12.2
Profit/(loss) on ordinary activities before finance costs and exceptional items	105.0	47.4	2.0	2.7	(6.9)	150.2
Exceptional items	–	(101.5)	–	–	–	(101.5)
Profit/(loss) on ordinary activities before finance costs	105.0	(54.1)	2.0	2.7	(6.9)	48.7
Finance costs, (net)						(30.4)
Taxation						4.6
Profit for the period						22.9

 

 

30 June 2007	Housing United Kingdom* £m	Housing North America* £m	Housing Spain and Gibraltar* £m	Construction* £m	Corporate* £m	Consolidated £m
Asset and liabilities:
Segment assets	2,316.9	841.6	174.9	124.7	20.7	3,478.8
Joint ventures	35.3	18.9	–	–		54.2
Segment liabilities	(572.6)	(237.4)	(76.9)	(257.5)	(72.9)	(1,217.3)
Net operating assets/(liabilities)	1,779.6	623.1	98.0	(132.8)	(52.2)	2,315.7
Goodwill						362.9
Current taxation (net)						(28.8)
Deferred taxation (net)						131.0
Net debt						(706.0)
Net assets						2,074.8

 * Restated see Note 2.

Year to 31 December 2007	Housing United Kingdom £m	Housing North America £m	Housing Spain and Gibraltar £m	Construction £m	Corporate £m	Consolidated £m
Revenue
External sales	3,053.8	986.8	64.4	609.3	–	4,714.3
Inter-segment sales	–	–	–	34.5	–	34.5
Eliminations	–	–	–	(34.5)	–	(34.5)
Total revenue	3,053.8	986.8	64.4	609.3	–	4,714.3
Result:
Operating profit/(loss) before joint ventures, brand amortisation and exceptional items	409.1	53.3	2.2	3.4	(15.4)	452.6
Share of results of joint ventures	9.1	14.2	–	0.1	–	23.4
Profit/(loss) on ordinary activities before finance costs, brand amortisation and exceptional items	418.2	67.5	2.2	3.5	(15.4)	476.0
Brand amortisation	(3.7)	–	–	–	–	(3.7)
Exceptional items	(47.9)	(321.3)	(6.3)	–	(4.2)	(379.7)
Loss/(profit) on ordinary activities before finance costs	366.6	(253.8)	(4.1)	3.5	(19.6)	92.6
Finance costs, (net)						(112.1)
Taxation						(177.2)
Loss for the period						(196.7)

31 December 2007	Housing United Kingdom £m	Housing North America £m	Housing Spain and Gibraltar £m	Construction £m	Corporate £m	Consolidated £m
Asset and liabilities:
Segment assets	5,350.1	976.7	182.1	96.6	39.5	6,645.0
Joint ventures	39.6	20.0	0.2	0.1	–	59.9
Segment liabilities	(1,548.7)	(316.4)	(66.7)	(232.0)	(70.6)	(2,234.4)
Net operating assets/(liabilities)	3,841.0	680.3	115.6	(135.3)	(31.1)	4,470.5
Goodwill						699.8
Current taxation (net)						(137.6)
Deferred taxation (net)						87.9
Net debt						(1,415.4)
Net assets						3,705.2

 4. Exceptional Items

 

	Six months to 30 June 2008 £m	Six months to 30 June 2007 £m	Year to 31 December 2007 £m
Restructuring costs	40.2	–	60.0
Impairment of goodwill	699.8	–	–
Impairment of other intangible assets	116.3	–	30.0
Land and work in progress write-downs	690.0	86.0	289.7
Litigation	–	15.5	–
	1,546.3	101.5	379.7

 

 

 

The exceptional charge in 2008 in respect of restructuring consists principally of costs arising from the announcement of the closures of 13 of our 39 regional offices in the UK. 

The Group has tested its goodwill and other intangible assets for impairment during the period. The impairment has been determined on the basis of the business' value in use. The value in use is the present value of the future cash flows expected to be derived from the cash-generating units over the next 20 years. Key assumptions used in the calculation are:

• Gross margins are based upon past experience and latest forecasts which incorporate expectations of future 
  changes in the market.

• Growth rate applied for the period beyond three years is 0 per cent.

• A pre-tax discount rate of 12 per cent based on the Group's average cost of capital.

As a result the goodwill and other intangible assets were fully impaired.

The carrying value of inventories has been written down to net realisable value as a result of significant deterioration in market conditions.  Further details are provided in the interim management report above.

5. Finance costs

	Six months to 30 June 2008 £m	Six months to 30 June 2007 £m	Year to 31 December 2007 £m
Interest on bank overdrafts and loans	32.5	9.1	45.9
Interest on debenture loans	26.5	19.8	47.4
Movement on interest rate derivatives	(6.4)	(1.4)	5.4
	52.6	27.5	98.7
Amortisation of discount on land creditors	13.4	7.0	19.3
Notional interest on pension liability	3.1	1.1	3.8
	69.1	35.6	121.8

 

 6. Tax   

		Reviewed Six months to 30 June 2008 £m		Reviewed Six months to 30 June 2007 £m		Audited Year to 31 December 2007 £m
Current tax:
UK corporation tax:         Current year		(89.0)		22.8		88.9
	Prior years		0.9		–		(9.8)
	Relief for foreign tax		–		(1.0)		(5.0)
	Foreign tax:                    Current year		(7.3)		13.6		18.0
Prior years		1.4		–		16.9
		(94.0)		35.4		109.0
Deferred tax:
UK:                               Current year		(33.4)		2.4		(9.1)
Prior years		–		–		6.3
Foreign:                         Current year		3.7		(42.4)		80.9
Prior years		0.7		–		(9.9)
		(29.0)		(40.0)		68.2
		(123.0)		(4.6)		177.2
Taxation before exceptional items		1.0		33.6		107.0
Taxation on exceptional items		(124.0)		(38.2)		70.2
		(123.0)		(4.6)		177.2

 

Corporation tax for the interim period is credited at 8.0% (six months to 30 June 2007: 25.1%). The tax credit on the loss before tax is at a rate of 8% largely due to the restricted credits on exceptional items. In the UK, US and Spain, tax credits against the inventory provisions will be dependent on a combination of the sale of the land and WIP as well as the levels of future profitability. Accordingly, limited credits have been taken at this stage in the group accounts. There is no tax relief available on the impairment of goodwill on consolidation

7. Dividends

	Six months to 30 June 2008 £m	Six months to 30 June 2007 £m	Year to 31 December 2007 £m
Final dividend for the year to 31 December 2007 of 10.25p (2006: 9.75p) per share	107.9	56.6	56.6
Interim dividend for the year to 31 December 2007 of 5.5p per share	–	–	60.7
	107.9	56.6	117.3

 

 

	Six months to 30 June 2008 £m	Six months to 30 June 2007 £m
Proposed interim dividend for the year to 31 December 2008 of nil p (2007: 5.5p) per share	–	60.7

 

8. Earnings per share

 

Earnings per share	Six months  to 30 June  2008 £m	Six months  to 30 June  2007 £m	Year to  31 December 2007 £m
Basic	(134.9p)	3.9p	(24.2p)
Diluted	(134.9p)	3.9p	(24.2p)
Adjusted basic	0.3p	14.9p	30.8p
Adjusted diluted	0.3p	14.8p	30.7p

Adjusted basic and adjusted diluted earnings per share, which exclude the impact of exceptional items and the associated tax effects, are shown to provide clarity on the underlying performance of the Group.

The calculation of the basic and diluted earnings per share is based on the following data:

Earnings	Six months  to 30 June  2008 £m	Six months  to 30 June  2007 £m	Year to  31 December 2007 £m
Earnings for basic earnings per share and diluted earnings per share	(1,419.3)	22.7	(197.9)
Add exceptional items	1,546.3	101.5	379.7
Add tax effect of exceptional items	(124.0)	(38.2)	70.2
Earnings for adjusted basic and adjusted diluted earnings per share	3.0	86.0	252.0

Weighted average number of shares:	Six months  to 30 June  2008 m	Six months  to 30 June  2007 m	Year to  31 December 2007 m
For basic earnings per share	1,051.8	579.3	818.5
Weighted average of dilutive options	-	2.4	2.5
Weighted average of dilutive awards under bonus plans	-	0.1	-
For diluted earnings per share	1,051.8	581.8	821.0

9. Notes to the cash flow statement 

	Six months  to 30 June  2008 £m	Six months  to 30 June  2007 £m	Year to  31 December  2007* £m
(Loss)/profit on ordinary activities before finance costs	(1,474.9)	48.7	92.6
Non cash exceptional items:
restructuring costs	37.7	-	33.6
Impairment of goodwill	699.8	-	-
Impairment of other intangible assets	116.3	-	30.0
Land and work in progress write-downs	690.0	86.0	289.7
Litigation	-	15.5	-
Adjustments for:
Amortisation of brands	2.4	-	3.7
Amortisation of software development costs	4.3	-	2.0
Depreciation of plant and equipment	5.1	3.4	8.3
Share-based payment charge	1.9	2.1	0.6
Gain on disposal of property and plant	(1.2)	(5.8)	(5.7)
Share of joint ventures' operating result	(5.0)	(12.2)	(23.4)
Increase in provisions	(13.0)	(0.5)	5.0
Operating cash flows before movements in working capital	63.4	137.2	436.4
Increase in inventories	(42.9)	(204.6)	(316.0)
Decrease/(increase) in receivables	15.7	(65.1)	38.9
(Decrease)/increase in payables	(195.0)	(100.9)	(81.6)
Pension contributions in excess of charge	(10.0)	-	(30.0)
Cash (used in)/generated by operations	(168.8)	(233.4)	47.7
Income taxes paid	(22.2)	(62.0)	(127.3)
Interest paid	(70.7)	(46.0)	(83.7)
Net cash (used in)/from operating activities	(261.7)	(341.4)	(163.3)

*    Exceptional cashflows for the year ended 31 December 2007 have been restated to a consistent basis with the interim cashflows.

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 an original maturity of three months or less.

	Six months  to 30 June  2008 £m	Six months  to 30 June  2007 £m	Year to  31 December 2007 £m
Net debt
Cash and cash equivalents	95.7	151.3	130.0
Bank overdrafts and bank loans	(949.7)	(291.7)	(720.7)
Debenture loans	(821.4)	(565.6)	(824.7)
Net debt	(1,675.4)	(706.0)	(1,415.4)

10. Reconciliation of movements in consolidated equity

	Six months  to 30 June  2008 £m	Six months  to 30 June  2007 £m	Year to  31 December 2007  £m
Total recognised income/(expense) for the period	(1,420.4)	20.4	(112.2)
Dividends on equity shares	(107.9)	(56.6)	(117.3)
New share capital subscribed	-	0.1	2,075.3
Replacement options granted on acquisition of George Wimpey Plc	-	-	2.9
Disposal of own shares	2.7	8.1	14.6
Purchase of own shares	(0.2)	-	(251.6)
(Decrease)/increase in share-based payment tax reserve	-	-	(2.6)
Share-based payment charge	1.9	2.1	0.6
Cash cost of satisfying share options	-	(4.9)	(8.9)
Decrease in other reserve	-	0.3	-
Dividends to minority shareholders	-	(0.2)	(1.1)
Net (decrease)/increase in equity	(1,523.9)	(30.7)	1,599.7
Opening equity	3,705.2	2,105.5	2,105.5
Closing equity	2,181.3	2,074.8	3,705.2

A transfer of £1bn has been made from the merger relief reserve to retained earnings in the period to align the group reserves with those of the company. 

11. 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 joint ventures are as follows: The Group purchased land from joint ventures for £7.3m during the six months to 30 June 2008 (six months to 30 June 2007: £8.0m; year to 31 December 2007: £21.4m).

12. Seasonality

Weekly sales rates in some of the Group's key markets historically experience significant seasonal variation, with the highest levels of reservations occurring in the spring and autumn in the UK, and in the winter and spring in Florida. As such, economic weaknesses which affect these peak selling seasons can have a disproportionate impact on our results for the year.

This pattern of reservations tends to result in higher levels of home completions towards the end of the financial year. As a result, the Group's debt profile exhibits significant peaks and troughs over the course of the financial year.

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2008 which comprises the condensed consolidated income statement, the condensed consolidated balance sheet, the condensed consolidated statement of recognised income and expense, the condensed consolidated cash flow statement and related condensed consolidated notes 1 to 12. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority. As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting,' as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of Review 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2008 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

Emphasis of matter - going concern

Without qualifying our conclusion, we draw attention to Note 2 to the condensed consolidated interim financial statements, which indicates that the Group, whilst currently in full compliance with all its debt covenants is likely to breach its interest cover covenants when tested for the full year. If such a covenant breach were to occur the lenders would be able to request early repayment of all outstanding borrowings and cancel their commitments.  As a result, the Group has entered into discussions with the relevant lenders to agree amended terms which would assume that sufficient financing based on projected trading will continue to be provided by its lenders to enable the Group to meet its liabilities as they fall due.   This position, along with other matters as set forth in Note 2, indicate the existence of a material uncertainty which may cast significant doubt about the Group's ability to continue as a going concern.

Deloitte & Touche LLP

Chartered Accountants
26 August 2008
London

 

    

 

 

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IR SEDFIMSASELA