Preliminary Results

RNS Number : 3775U

Artisan (UK) PLC

21 December 2011

 



21 December 2011

ARTISAN (UK) plc

PRELIMINARY RESULTS FOR THE YEAR TO 30 JUNE 2011

Artisan (UK) plc ("the Group"), the AIM listed house builder, business park developer and property investor announces its preliminary results for the year to 30 June 2011.

Key points

·      Prolonged difficult market conditions continue to impact the performance of both the residential and commercial development divisions

·      Group turnover for the year reduced to £7.4m (2010: £9.4m), operating losses higher at £2.2m after exceptional item (2010: loss of £1.5m)

·      Some improvement post year end:

o  good reception for new Rippon Homes product

o  sale of long leasehold property in St Neots repaying £2.25m of bank debt and releasing £1.0m of working capital

o  significant forward let contract achieved at Artisan (UK) Developments

·      Ongoing renegotiation of lending facilities from the Group's lenders with outcome expected shortly and

·      Resolution to delist from the AIM market to be put to the next General Meeting

Chairman, Michael W Stevens commented:

"An improvement in market conditions is needed to stimulate higher trading volumes, which in turn will lead to improved profitability.  We need to trade through old stock to then be able to recycle the funds for investment in current day priced land stocks.  A return to normal market volumes with a stable pricing background is more important to the Group than seeing any significant increase in property values.  Artisan develops well regarded product in both its residential and commercial development arms and has demonstrated flexibility and determination in grappling with harsh conditions for the sector and the economy.   We are well placed to capitalise on any market improvement.

We expect to shortly conclude negotiations for new banking facilities which will allow us to move forward with more certainty.  However as part of a successful renegotiation of our banking facilities, there will be a requirement for new equity or similar."

Enquiries:

Artisan (UK) plc                                                                                                     [phone]

Chris Musselle, Chief Executive                                                                                                        

Altium Capital Limited - Nominated Adviser                                                       [phone]

Adrian Reed

Adam Sivner

Bankside Consultants - Financial PR Advisers                                                    [phone]

Simon Rothschild                                                                                             Mobile: [phone]

CHAIRMAN'S STATEMENT

Introduction

The tough trading conditions experienced in 2009 and 2010 have continued into 2011 and this is reflected in our results.  The key issues of restricted customer confidence and the shortage of debt funding available to support property transactions remain the overriding features of our principal trading sectors, residential and commercial property development.

Demand for our product, if only the transaction can be financed, remains relatively high and we have seen improved trading since the 30 June 2011 year end. 

In the residential market there has been a very positive response to our new sites whilst in the commercial arena we have experienced a rise in interest in commissioning new forward let or forward purchased offices.  This is very encouraging and while most of these potential transactions have yet to be translated into sales, we have since the year end sold our long term leasehold property at our Colmworth Business Park in St Neots and completed a substantial forward let contract for a 30,000 sq.ft. office and operations centre to be built on the Group's site in Peterborough. 

Group results

Our Group results were in line with management's expectations and very much influenced by the low volume market and the low margins achievable on our older land stock.  Group turnover for the year reduced to £7.4m (2010: £9.4m).  The residential business generated turnover of £6.6m (2010: £7.6m) and the commercial business generated a turnover of £0.5m (2010: £1.5m).  This reduced level of sales has resulted in an operating loss of £1.6m (2010: loss £1.3m) before exceptional items and an operating loss of £2.2m (2010: loss £1.5m) after exceptional items.  The £0.6m exceptional items (2010: £0.1m) are the result of an impairment review on stocks.

Overview

As I indicated in my opening comment, the market conditions continue to be broadly unfavourable.  On the residential side we have mitigated the loss of sales, particularly at the smaller end of our product range by concentrating planning and production on four bedroom homes and bungalows.  Sales of these products have been more achievable since potential buyers tend to have equity in their current homes.

Until mortgages become more widely available, the market will continue to be difficult especially for those homes aimed at the first time buyer. 

Although Rippon Homes Limited, our residential development subsidiary, has been successful in gaining authority for properties to be sold under the Firstbuy scheme, take up has been slow largely due a lack of awareness of the scheme and its advantages.  This shared equity scheme, which is slowly winning acceptance, is a positive initiative from Government.

We have also been able to open new sites that we have acquired since the market slowed and values fell.  These are proving attractive to customers and good margins are achievable.  Unfortunately our older stock tends to deliver lower profit margins.  Our objective is to trade through sites and then acquire new sites with higher potential margins.  However it will be some time before normal and sustainable market volumes are achievable.

The market for commercial properties continues to be difficult: few customers are willing to commit to new properties currently and those who do feel no time pressure to complete a purchase.  Although there is an increasing shortage of good new or recently built stock available in the market and an extremely restricted development pipeline for any new stock built on a speculative basis, we believe we reflect the industry in not wishing to commit to new speculative build.  Factors other than uncertain demand are the punitive empty business rates regime on built units and the lack of debt funding available to developers to finance speculative stock.

Forward lets are perhaps less difficult to achieve than forward sales as the funding burden remains with the developer, who can either retain the building as an investment or sell the completed unit to an investor.  As a consequence we have been seeing and are continuing to see a number of enquiries to commission new forward let buildings, usually at unit sizes greater than we would have developed on a speculative basis. The aforementioned agreement for a new office in Peterborough is a prime example of what can be achieved.  This has been secured on normal market terms as opposed to the discounted terms available for existing buildings, particularly second hand units.

Stock Values

We have once again very carefully considered our stock values, assessing what is appropriate in terms of potential realisation as developed units.  As part of our banking negotiations since the year end we have provided our bank with professional valuations prepared on the basis of disposal in the short term.  These valuations show that a disposal of our land and work in progress as opposed to finished stocks would attract lower values than those to be achieved through the development of the land and sale of the finished units.  The valuations do generally support our expected sales valuations to within a few percent, support our expected residential build costs and demonstrate that our commercial build costs are very competitive.

Investment Division

During the course of the year to 30 June 2011, the Board decided to pursue a disposal of the Black Teknigas unit at St Neots.  This was a more complicated sale because of a future development option that existed on the property.  The future development option was renegotiated to the mutual benefit of the tenant and landlord and a successful sale was concluded shortly after the year end in August 2011.  This transaction released approximately £1m to the Group's working capital and reduced bank indebtedness by approximately £2.25m.  The working capital released will be useful to the Group's future development activities.

Dividend

The Board believes that it remains sensible to retain funds within the business whilst we await a return to normal trading conditions and better results.  We believe shareholders will recognise this approach as prudent.  Accordingly, no dividend is recommended for the year.  In the future, when the Board do judge it correct to recommend a dividend, the Company will most likely need to apply for a capital reduction to extinguish the accrued negative reserves.

Outlook

An improvement in market conditions is needed to stimulate higher trading volumes, which in turn will lead to improved profitability.  We need to trade through old stock to then be able to recycle the funds for investment in current day priced land stocks.  A return to normal market volumes with a stable pricing background is more important to the Group than seeing any significant increase in property values.  Artisan produces well regarded product in both its residential and commercial development arms and has demonstrated flexibility and determination in grappling with harsh conditions for the sector and the economy.  We are well placed to capitalize on any market improvement.

AIM listing and Share Capital

Your Board has carefully considered whether it is of benefit to the shareholders as a whole to maintain the Group's AIM listing. The Board has concluded that the Group does not receive sufficient benefit from the AIM listing as compared with the costs of maintaining that listing and complying with the associated regulatory requirements.  In addition we have indicated that we expect there will be a requirement for new equity in the short term and the Board is of the view that of the existing shareholders this is only likely to be substantially provided by Aspen Finance Ltd as the major shareholder of the Company rather than from other shareholders in the Company.

If the delisting is approved by shareholders, the Board has resolved to arrange for a matched bargain facility to be put in place initially for a year to allow shareholders the opportunity to trade their shareholdings.

Consequently the Board has decided to put a resolution to the forthcoming General Meeting to delist from the AIM market.  The details are set out in the circular to shareholders. 

As part of the proposals to be put to the General Meeting is a resolution that the ordinary shares of the Company will be sub divided into ordinary and deferred shares.  Currently the ordinary shares of Artisan are trading at below nominal value and a sub division will allow for new shares to be issued at a market value below the existing nominal value.

We expect to have shortly concluded the negotiations for new banking facilities which will allow us to move forward with more certainty.  I should also advise shareholders that it is part of the renegotiation of our banking facilities, that new equity or similar will be required as already referred to in this statement.

We will also continue to explore any other opportunities that would allow us to improve the scale of the Group.

Michael W Stevens

Chairman                                                                                                                           21 December 2011

OPERATIONAL AND FINANCIAL REVIEW

Residential Division

The continuing unfavourable market conditions have seen a further difficult year of trading for Rippon Homes resulting in a lower volume of transactions than is necessary for profitable trading.    The market has stabilised to some degree but the volumes are too low.  Sales of 37 units at an average value of £177,650 (2010 - 44 units at an average value of £173,500) reflect the current market.

Sales of the smaller homes, linked or semi-detached three bedroom houses have been most difficult to achieve, but since the year end, Rippon Homes have successfully applied to become part of the Government's Firstbuy scheme and started marketing the smaller homes under this scheme.  Public awareness of the scheme is low but we are now starting to see the first transactions submitted for approval to the Government agency.

The management continue to use part exchange as a key incentive for achieving sales and it is an attractive incentive for customers.  These part exchange stocks are carefully managed and at the year end we had a stock of 12 units (2010 - 11 units).

A new product of a detached three bedroom home has been successfully introduced and been met with a good customer response.  Other than this our more successful products are four bedroom houses and bungalows.  We continue to look for more sites that can accommodate these types of properties.

We have carefully considered the carrying value of work in progress as we do each time we report.  This year we have had the benefit of a professional valuation being undertaken to support our banking negotiations.  We have carefully examined these valuations when considering our own assessment of the carrying value.  The basis of assessment used in the accounts is that we plan to develop out each of our sites and eventually sell the finished product.  This contrasts with the professional valuers assessment by calculating the potential value of the sites in the present state and also after allowing an at least reasonable profit margin and provision for interest costs.  This is at odds with our own approach whereby future interest is ignored as we expense interest cost as it is incurred and because applicable accounting standards do not allow any write down in value until a potential loss is anticipated on a site.  This review has resulted in a total exceptional provision of £591,500 of which £460,700 relates to the residential stock (2010: £138,500, all on residential stocks).  Much of the current year provision relates to one particular site for which we have changed the planning permission for product that better suits the current market conditions.

Sales of properties on the previous Rippon Homes shared equity scheme have been more modest this year at 4 units (2010 - 6 units).  The Group therefore has an interest in a total of 12 and more are expected to follow in the next financial year though more likely from the Government's Firstbuy scheme.  The accounting treatment requires that the estimated implied interest cost of deferring part of the sale value is deducted from turnover and recognised as interest receivable over the term. 

Production at Rippon Homes continues to be gauged in relation to sales, with management exercising careful judgement in order that production will provide stock to meet anticipated sales, without creating excess stock holdings.

Commercial Division

The commercial division has been severely impacted by the trading conditions resulting in the sale of just two stock units in the year totalling 3,400 ft² of commercial property (2010 - 9,700 ft²all from stock units).

Nevertheless the management team have been busy soliciting potential sales of stock units and also negotiating potential forward lets or forward sales.  There has been much more interest in forward lets of more substantial office units this year than in recent years.  Unfortunately many of these do not translate into contracts despite great efforts by our management. 

However whilst it was too late to be reflected in the year ended 30 June 2011, Artisan (UK) Developments has been able to secure a forward let agreement to develop a new office of about 30,000 sq ft on the Group's site at Peterborough.  Construction has started following success in gaining the required planning permission within a tight timescale. It is anticipated that because of the contract terms the Group will be advantaged by holding the investment for a period once the construction has been completed. Contrary to criticism frequently levelled at planning authorities, the planning department in Peterborough were constructive and efficient throughout the whole planning process, delivering a planning permission in much less time than they would have been permitted to take.  This supportive attitude to development is very much welcomed and ensured new jobs can be created in Peterborough rather than elsewhere.

This contract demonstrates the expected nature of future deals as speculative construction funding is likely to be very restricted in the future - we believe this to be the case for most developers. 

In this new environment Artisan (UK) Developments has shown that it can successfully win contracts of this type.  A key factor in favour of Artisan is that it retains its own construction management team which allows for much closer controlled costing and build management, providing a cost advantage over other developers who typically sub contract all of their projects to a main contractor for construction.

Investment properties

Throughout the year to 30 June 2011, the investment properties continued to be occupied.  However your Board had decided that it would be appropriate to realise the investment in the lease held on our property in St Neots by Black Teknigas and Watts Industries.  The terms of an option to provide an extension to the property were renegotiated to the benefit of landlord and tenant alike.  With the benefit of the revised option terms, the unit was marketed and sold shortly after the year end as announced at the time.  The disposal of this property realised approximately £1m of cash after repaying the bank debt associated with this property.  The disposal of the property was modestly in excess of the carrying value of the property.

The remaining office property is Vantage House occupied by a tenant and also by Artisan.  After considering the professional valuations recently prepared, we consider there to be no adjustment required to the carrying value.

Land stocks

We have not completed on any land purchase during the year to 30 June 2011, although two small purchases were completed shortly after the year end.  We regard it as essential further land is purchased and, with the confidence that new banking facilities will soon be finalised, we are making greater efforts to secure new residential land sites.

The land stock of owned or secured plots at Rippon Homes is 198 plots (2010 - 239).  All of these plots have the benefit of either detailed planning permission or we expect planning permission to be granted shortly.  In addition Rippon Homes has some small plots of land with some prospect of obtaining a planning permission at some point in the future.  Wingerworth as referred to below is also held by the Group.

The commercial operation currently holds freehold land amounting to 15,340m² (2010 - 15,340m²).    All of this land has planning permission, most of it detailed.  In addition there are stock units totalling 2,870m² (2010: 3,180m²). Control of land is a key requirement for generating forward sales and lets and it is the intention of management to secure land opportunities where possible using methods other than outright purchase.  

Writing down values on land stocks in accordance with financial accounting standards has resulted in most of the exceptional losses disclosed in the accounts.  These write-downs have been effected so as to reduce the carrying value to a position where our stock will breakeven at gross margin level where there are no future profits expected on a site.  The Board is aware that should the land be disposed of as land rather than developed, then there could be losses arising on disposal.

For many years we have held land at Wingerworth near Chesterfield, which has been let for horsiculture.  This site of about 42 acres is modestly valued in our Group accounts, but has some potential to gain partial planning permission, although it is located just outside the current local development framework.  This is an area which is short of housing stock.  We have therefore been pursuing, with the help of planning professionals, a planning application to develop a small part of the site.  Whether planning can be achieved is uncertain, but we believe our proposal for the site is an attractive one offering a well laid out scheme sympathetic to the existing housing stock in the village

Results

	Residential £m	Commercial £m	Investment £m	Central & Other £m	Total £m
Revenue 2011	6.6	0.5	0.3	-	7.4
2010	7.6	1.5	0.3	-	9.4
Operating (loss)/profit before Group management charges and exceptional items
2011	(0.6)	(0.5)	0.3	(0.8)	(1.6)
2010	(0.9)	(0.5)	0.6	(0.5)	(1.3)

The divisional analysis of operating (loss)/profit is before Group management charges and exceptional costs.  The Central & Other column deducts from turnover any inter segment trading.

The tax credit for the year is £44,860 (2010 - £90,142) resulting in an effective tax rate credit of 1.68% (2010 - 4.69%). The reduction to standard rate is primarily a result of unrelieved trading losses carried forward, for which no deferred tax asset has been recognised.

The exceptional items may be analysed as follows:

			2011	2010
			£m	£m
	Residential land and WIP provisions	0.6		0.2
	Residential land and WIP provisions reversals	-		(0.1)
		_______		_______
	Total	0.6		0.1
			_______	_______

The net assets have reduced from £13.5m to £10.9m as a result of the trading losses for the year and exceptional items. 

Debt and Banking

The Group has net borrowings of £17.2m (2010: £18.5m).  The Group has drawn bank debt of £19.8m (2010: £22.7m), resulting in cash balances which provide funds for continuing trading.  The development facility was due to terminate on 1 July 2011, but as already disclosed, has been extended for a total of 7 months whilst negotiations for a new facility continue.  The Board is confident that a new facility will be agreed and that this will require an injection of new equity or similar. Since the year end the investment property loan which forms part of the total net borrowings above, has been reduced by £2.25m to £0.93m.

Our development bank facility is split between a LIBOR based facility and a base rate based facility.  The base rate facility allows positive bank balances in the Group to be offset against drawdown funds for the purposes of interest calculation, facilitating effective management of funding.  The current margins are Base Rate plus 3.25% and LIBOR plus 2.25% for the respective sub-divisions of the development loan.  Our covenants are to be negotiated as part of the current bank discussions. The gearing ratio at 30 June 2011 is 158.2% (2010: 137.2%).

Work in Progress

Work-in-progress has reduced from £28.4m to £24.6m, reflecting the lower level of activity in the Group and reduction in land bank as it has been utilised for production.  The key management issue is to maintain sufficient but not excessive stocks of product available for purchase and to manage any slow moving items.  In this poor market the commercial finished goods stock has been difficult to move.    

 

Going Concern

The Report of the Directors refers to the considerations addressed when making the assessment of the Group's ability to continue as a going concern and note 1 of the accounting policies refers to the going concern basis upon which these accounts are prepared.

The Group's revolving credit facility was due to expire on 1 July 2011 but has been extended by a total of 7 months to 31 January 2012.  Renegotiation of this facility is crucial to the ongoing operations of the business.  We have been negotiating this for some time and those negotiations are now at an advanced stage.  As part of those negotiations, updated valuations in respect of stock and work in progress and properties have been undertaken and final pricing and structure of the facility is dependent on the assessment of these valuations.  Our lender remains supportive of the Group and has provided a temporary waiver of a potential covenant breach together with an extension to the facility referred to above, in order to give us sufficient time to complete the valuation exercise and conclude negotiations and documentation of the new facility.  The Directors are confident that a successful conclusion to the negotiations can be reached although as stated it is expected that this will require an injection of equity or similar to fund working capital and reduce the bank loan to value of security ratios.

Christopher Musselle

Chief Executive

21 December 2011

GROUP STATEMENT OF COMPREHENSIVE INCOME

For the year ended 30 June 2011

	Note	2011	2010
		£	£
Revenue		7,403,852	9,403,279
Cost of sales
Before exceptional items		(7,009,225)	(9,394,169)
Exceptional items	2	(591,507)	(138,499)
Cost of sales		(7,600,732)	(9,532,668)
		_________	_________
Gross loss
Before exceptional items		394,627	9,110
Exceptional items		(591,507)	(138,499)
Gross loss		(196,880)	(129,389)
Other operating income		366,517	321,589
Administrative expenses		(2,353,319)	(1,988,906)
		_________	_________
		(2,183,682)	(1,796,706)
Revaluation surplus on investment properties	5	17,476	325,754
		_________	_________
Operating loss
Before exceptional items		(1,574,699)	(1,332,453)
Exceptional items		(591,507)	(138,499)
Operating loss		(2,166,206)	(1,470,952)
Finance income		26,174	22,855
Finance expense		(526,617)	(474,507)
		_________	_________
Loss before taxation
Before exceptional items		(2,075,142)	(1,784,105)
Exceptional items		(591,507)	(138,499)
Loss before taxation		(2,666,649)	(1,922,604)
Tax credit
Before exceptional items		44,860	90,142
Exceptional items		-	-
Tax credit		44,860	90,142
		_________	_________
Loss for the year attributable to the equity
holders of the parent
Before exceptional items		(2,030,282)	(1,693,963)
Exceptional items		(591,507)	(138,499)
Other comprehensive income		-	-
Loss for the year and total comprehensive expense
attributable to the equity holders of the parent		(2,621,789)	(1,832,462)
		_________	_________
Basic and diluted loss per share	4	(19.67)p	(13.75)p
		_________	_________

GROUP STATEMENT OF CHANGES IN EQUITY

For the year ended 30 June 2011

		Share		Capital			Own
	Share	premium	Merger	redemption	Revaluation	Retained	shares
	capital	account	reserve	reserve	reserve	earnings	held	Total
	£	£	£	£	£	£	£	£
At 30 June 2009	2,668,291	11,356,683	515,569	91,750	28,044	683,901	(19,065)	15,325,173
Loss for the year	-	-	-	-	-	(1,832,462)	-	(1,832,462)
	_________	_________	_________	_________	_________	_________	_________	_________
Total recognised expense
for the year	-	-	-	-	-	(1,832,462)	-	(1,832,462)
Credit in respect of
employee share schemes	-	-	-	-	-	601	-	601
	_________	_________	_________	_________	_________	_________	_________	_________
At 30 June 2010	2,668,291	11,356,683	515,569	91,750	28,044	(1,147,960)	(19,065)	13,493,312
Loss for the year	-	-	-	-	-	(2,621,789)	-	(2,621,789)
	_________	_________	_________	_________	_________	_________	_________	_________
At 30 June 2011	2,668,291	11,356,683	515,569	91,750	28,044	(3,769,749)	(19,065)	10,871,523
	_________	_________	_________	_________	_________	_________	_________	_________

GROUP STATEMENT OF FINANCIAL POSITION

at 30 June 2011

Company Number: 3630998	Note		2011		2011	2010	2010
				£	£	£	£
ASSETS
Non-current assets
Investment properties		5			3,740,668		3,723,192
Property, plant and equipment					777,215		801,522
Other receivables					539,929		479,793
					_________		_________
					5,057,812		5,004,507
Current assets
Inventories		6		24,590,964		28,397,947
Trade and other receivables				303,601		490,700
Current tax recoverable				-		33,872
Cash and cash equivalents				881		403,874
				_________		_________
				24,895,446		29,326,393
				_________		_________
Total assets					29,953,258		34,330,900
					_________		_________
LIABILITIES
Non-current liabilities
Interest bearing loans and borrowings					-		(18,920,431)
Current liabilities
Trade and other payables				(1,886,604)		(1,686,705)
Interest bearing loans and borrowings				(17,195,131)		-
Provisions				-		(230,452)
				_________		_________
				(19,081,735)		(1,917,157)
				_________		_________
Total liabilities					(19,081,735)		(20,837,588)
					_________		_________
Net assets					10,871,523		13,493,312
					_________		_________
EQUITY ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE PARENT COMPANY
Called up share capital					2,668,291		2,668,291
Share premium account					11,356,683		11,356,683
Merger reserve					515,569		515,569
Capital redemption reserve					91,750		91,750
Revaluation reserve					28,044		28,044
Retained earnings					(3,769,749)		(1,147,960)
Own shares					(19,065)		(19,065)
					_________		_________
Total equity					10,871,523		13,493,312
					_________		_________

GROUP STATEMENT OF CASH FLOWS

For the year ended 30 June 2011

	2011	2011	2010	2010
	£	£	£	£
Cash flows from operating activities
Loss before taxation	(2,666,649)		(1,922,604)
Depreciation	39,545		52,102
Finance income	(26,174)		(22,855)
Finance expense	526,617		474,507
Share based payments charge	-		601
Profit on disposal of property, plant and equipment	(851)		-
Revaluation surplus on investment properties	(17,476)		(325,754)
	_________		_________
Operating loss before changes in
working capital and provisions	(2,144,988)		(1,744,003)
Decrease in inventories	3,806,983		5,326,560
Decrease in trade and other receivables	126,963		101,157
Decrease in trade and other payables	(20,000)		(1,067,014)
	_________		_________
Cash from by operations		1,768,958		2,616,700
Finance income received		26,174		22,855
Finance costs paid		(537,170)		(437,210)
Tax received		78,732		75,388
		_________		_________
Net cash from operating activities		1,336,694		2,277,733
Cash flows from investing activities
Purchase of property, plant and equipment	(15,238)		(20,107)
Proceeds from sale of property, plant and
equipment	851		-
	_________		_________
Net cash used in investing activities		(14,387)		(20,107)
Cash flows from financing activities
Movement on borrowings	(1,725,300)		(1,855,148)
	_________		_________
Net cash used in financing activities		(1,725,300)		(1,855,148)
		_________		_________
Net (decrease)/increase in cash and cash equivalents		(402,993)		402,478
Cash and cash equivalents
at the beginning of the year		403,874		1,396
		_________		_________
Cash and cash equivalents
at the end of the year		881		403,874
		_________		_________

NOTES

For the year ended 30 June 2011

1	Basis of preparation

The financial statements included in this preliminary announcement have been prepared using recognition and measurement principles consistent with those of International Financial Reporting Standards ("IFRS") issued by the International Accounting Standards Board as endorsed by the European Union, and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.  Accounting policies have been applied consistently to all periods presented in the consolidated financial statements, except for one policy which has changed this year.  Items of income and expense were previously presented in two separate primary statements, an income statement and a statement of comprehensive income.  The Group has decided to change its accounting policy and present a single statement of comprehensive income this year.

The financial statements are presented in pounds sterling and on the going concern basis (see below).

Going concern

In determining the appropriate basis of preparation of the financial statements, the Directors are required to consider whether the Group can continue in operational existence for the foreseeable future.

The financial performance of the Group is dependent upon both the wider economic environment in which the Group operates and upon the continued availability of banking facilities enabling it to operate as a going concern for the foreseeable future.

At 30 June 2011 the Group has drawn £14m of bank borrowings under the revolving credit facility, net of offset credit balances, against its revolving credit facility of £25m.  There is an additional borrowing of £3.2m drawn on a property loan.  These borrowings are secured by fixed and floating charges over the assets of the Group and are due for repayment in full on 31 January 2012.  The Directors are required to consider the renewal or repayment of the bank borrowings as part of their going concern assessment.

The Directors are in the process of renegotiating the banking facilities to ensure that suitable facilities remain in place after 31 January 2012.  Negotiations have been ongoing for some time and those negotiations are now at an advanced stage.  As part of those negotiations, updated valuations in respect of stock and work in progress and properties have been prepared and final pricing of the facility will be dependent on the assessment of the outcome of those valuations.  Our lender remains supportive of the Group and has provided a temporary waiver of a potential covenant breach together with an extension to the facility referred to above, in order to give sufficient time to complete an agreement of working capital requirements compared with a desire to reduce loan to value ratios and conclude negotiations and documentation of the new facility.  These negotiations are linked to the requirement for new equity or similar.  Our lender remains supportive of the Group and the Directors are confident that a successful conclusion to the negotiations can be reached.  However, if appropriate terms cannot be agreed the Group would need to secure alternative facilities elsewhere.  Because of uncertainties in the banking market, the lessening in the loan to value multiples available and anticipated increased borrowing costs, there is no certainty that acceptable alternative facilities would be readily available.

Given the above factors the Directors recognise that without a binding agreement to extend the Group's facilities on acceptable terms that a material uncertainty exists that may cast significant doubt over the Group's ability to continue as a going concern.  The financial statements do not include the adjustments that would be necessary if the Group was unable to continue as a going concern.  Such adjustments would include presenting assets at their recoverable amounts which would be likely to result in further provisions to the current carrying amounts in the financial statements.

The Directors however consider it appropriate to prepare the Group financial statements on the going concern basis given their belief that sufficient funding will be available for a period of 12 months from the date of approval of these financial statements.

Status of financial information

The financial information contained in this preliminary announcement does not constitute the Company's consolidated statutory financial statements for the years ended 30 June 2011 and 2010, but is derived from those financial statements.  The financial statements for the year ended 30 June 2010 have been delivered to the Registrar of Companies.  The financial statements for the year ended 30 June 2011 will be delivered shortly.  The auditors have reported on those financial statements; their reports were unqualified and did not contain statements under section 498 (2) or (3) of the Companies Act 2006.  However, whilst their audit report was not qualified, it included an emphasis of matter statement regarding going concern which is reproduced as follows:

"In forming our opinion on the financial statements, which is not modified, we have considered the adequacy of the disclosures made in note 1 concerning the Group's ability to continue as a going concern.

The Group's loan facility of £25m, of which £16.7m had been drawn as at 30 June 2011 expired on 1 July 2011. The Group's lender has granted further extensions which will expire on 31 January 2012. The Directors are in the process of renegotiating the banking facilities to ensure that suitable facilities remain in place after 31 January 2012.  Whilst the Group expects to be able to agree revised loan facilities on acceptable terms a significant uncertainty exists given the absence of any legally binding facility agreement between the Group and their lender.

These conditions indicate the existence of a material uncertainty which may cast significant doubt about the ability of the Group to be able to continue as a going concern.  The financial statements do not include the adjustments that would result if the Group was unable to continue as a going concern."

The annual report and financial statements will be posted to shareholders who have elected to receive a printed copy.  Copies of the annual report and financial statements will also be available from the Company's website at www.artisan-plc.co.uk or the Company Secretary, Artisan (UK) plc, Vantage House, Vantage Park, Washingley Road, Huntingdon, Cambridgeshire, PE29 6SR.

2	Exceptional items
		2011	2010
		£	£
	Costs charged to cost of sales
	Inventory impairment charge	591,507	138,499
		_________	_________

Further details of inventory impairment charges are provided in note 6.

3

Dividends

No interim dividend was paid (2010 - Nil p per ordinary share).  The Directors do not propose to pay a final dividend for the year (2010 - Nil p per ordinary share).

4	Earnings per share

The basic earnings per share is calculated by dividing the loss after taxation by the weighted average number of shares (excluding treasury shares) in issue.

		2011	2010
		Number	Number
	The weighted average number of shares (excluding treasury shares) were:
	Basic weighted average number of shares (excluding treasury shares)	13,326,863	13,326,863
		__________	__________

There were no dilutive potential ordinary shares in 2011 or 2010.

5	Investment properties

	Fair value
		2011	2010
		£	£
	At beginning of year	3,723,192	3,397,438
	Revaluations included in income statement	17,476	325,754
		__________	__________
	At end of year	3,740,668	3,723,192
		__________	__________

As at 30 June 2011, the historical cost of investment property owned by the Group was £2,779,931 (2010 - £2,779,931).

The fair values of the Group's investment properties at 30 June 2011 have been arrived at on the basis of open market value by the Directors, who are suitably experienced and having regard to professional advice.

During the year £294,334 (2010 - £294,334) was recognised in the income statement as revenue in respect of rental income from investment properties.  Direct operating expenses arising from investment properties amounted to £4,163 (2010 - £4,163).

6	Inventories
		2011	2010
		£	£
	Raw materials and consumables	23,345	25,478
	Land held for development	10,925,715	11,822,237
	Work in progress	1,191,119	4,208,305
	Completed developments and houses
	for sale	12,450,785	12,341,927
		_________	_________
		24,590,964	28,397,947
		_________	_________

Inventories with a carrying amount of £24,590,964 (2010 - £28,397,947) have been pledged as security for the Group's bank borrowings.

During the year ended 30 June 2011, the Group conducted a further net realisable value review of its inventories. The review compared the estimated net realisable value of each of the Group's development sites with its balance sheet carrying-value. Where the estimated net realisable value of an individual site was less than its carrying-value within the balance sheet, the Group impaired the inventory value of the site. The impairment review resulted in a further impairment charge of £614,151 (2010 - £260,197) in the year and a reversal of £22,644 (2010 - £121,698) on inventories that were written down in previous accounting periods.  The net impairment charge of £591,507 is included within exceptional items (note 2).

The key judgement in estimating the net realisable value of the sites was the estimation of likely sales prices and estimated costs to complete. Sales prices were estimated on a site-by-site basis based upon local market conditions and considered the current prices being achieved upon each site for each product type.

Although the impairment of inventories was based upon the current prices being achieved or anticipated prices by the Group in the difficult conditions within the UK housing market, if the UK housing market were to deteriorate or improve beyond management expectations in the future then further adjustments to the carrying-value of inventories may be required.

Following these impairment charges £6,335,468 (2010 - £5,087,415) of inventories are valued at net realisable value rather than at historical cost.

7	Events after the reporting period date

After the end of the year one of the Group's investment properties was sold for £3,350,000, realising a small profit compared to carrying value.  Following the sale borrowings of £2,246,000 which had been secured against the property were repaid.

8        Annual General Meeting

The Annual General Meeting will be held at the offices of Altium Capital Limited, 30 St James's Square, London, SW1Y 4AL on 25 January 2012 at 11.30 pm.

Copies of this announcement will be available to the public, free of charge, from the offices of Altium Capital Limited, 30 St James's Square, London SW1Y 4AL during normal office hours, with the exception of Saturdays, Sundays and bank holidays, for 14 days from today.

 

END

 

 

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