19th Oct 2006 07:30
Artisan (UK) PLC19 October 2006 ARTISAN (UK) PLC IFRS Conversion Restatement of financial information for the 6 months ended 30 September 2005and the year ended 31 March 2006 under International Financial ReportingStandards Introduction For all accounting periods up to and including the year ended 31 March 2006Artisan has prepared its financial statements under UK Generally AcceptedAccounting Principles (UK GAAP). For accounting periods from 1 April 2006, theGroup has decided to prepare its consolidated financial statements in accordancewith International Financial Reporting Standards (IFRS). Artisan's first results on this basis will be its interim results for the sixmonths ended 30 September 2006. The Group's first annual report under IFRS willbe for the fifteen month period ended 30 June 2007. As comparative figures areprovided when results are reported, the effective date for transition to IFRS is1 April 2005. This summary provides an analysis of the effects of the change from UK GAAP toIFRS on Artisan's financial statements, including: • Summary of the basis of preparation of the IFRS information • Summary of the impact of IFRS adoption on Artisan's key financial performance indicators • Summary of the significant changes in accounting policies • Accounting policies revised under IFRS (Appendix 1) • Restated Income Statement and Balance Sheets for the 6 months ended 30 September 2005 and the year ended 31 March 2006 (Appendix 2) • Reconciliations of profit and equity for those periods (Appendix 3) The transition to IFRS will leave: • Cash flows unaffected • Banking arrangements unaffected Basis of preparation of IFRS information This financial information has been prepared in accordance with IFRS as endorsedby the EU. A summary of the Group's significant accounting policies is detailedin Appendix 1. The endorsed IFRS that will be effective (or available for early adoption) inthe financial statements for the fifteen month period to 30 June 2007 are stillsubject to change and to additional interpretation and therefore cannot bedetermined with certainty. Accordingly, the accounting policies for the periodwill only be determined finally when the consolidated financial statements areprepared for the period ended 30 June 2007. Transitional arrangements The rules for first time adoption of IFRS are set out in IFRS 1 'First TimeAdoption of International Financial Reporting Standards'. In general a companyis required to define its IFRS accounting policies and apply theseretrospectively to determine its opening balance sheet under IFRS. The standardallows a number of exceptions to this general principle to assist companies asthey transition to reporting under IFRS. Where the Group has taken advantage ofthese exemptions they are noted within the accounting policies section. No adjustments have been made for any changes in estimates made at the time ofapproval of the UK GAAP financial statements on which the preliminary IFRSfinancial statements are based, as required by IFRS 1. Subject to there being no further changes from the IASB or changes in theinterpretation of those standards, this information is expected to form thebasis for comparatives when reporting financial results for 2006/7, and forsubsequent reporting periods. Summary of the impact of IFRS adoption on Artisan's key financial performanceindicators Based on the accounting policies detailed in Appendix 1, the impact of thetransition on the key performance indicators is as follows: 31 March 2006 30 September 2005 UK GAAP IFRS UK GAAP IFRS £ £ £ £ Revenue 26,927,485 28,664,400 12,860,211 16,320,848Operating profit 2,574,646 3,684,142 1,039,758 2,276,165Retained profit 2,257,521 2,787,476 1,095,899 1,720,623Basic and diluted eps 0.77p 0.96p 0.38p 0.60pNet assets 19,072,663 18,813,782 16,811,041 16,625,062 The detailed reconciliations of the movements for the Income Statement andBalance Sheet are given in Appendix 3. The changes in accounting policies which have the most significant effects onthe restated numbers for the year ended 31 March 2006 are: • The move from an exchange to a completions basis for revenue recognition • The recognition of deferred tax assets as a result of the above adjustments • The cessation of goodwill amortisation • The recognition of a fair value charge for share based payments Significant changes in accounting policies and impact on the financialstatements for the year ended 31 March 2006 The following narrative covers the year to 31 March 2006 illustrating the natureof the changes and providing an analysis of their magnitude. The appendicesgive full and detailed reconciliations for the six months to 30 September 2005and the year ended 31 March 2006. Revenue - IAS18 IAS18 provides that revenue from the sale of goods shall be recognised only whena number of conditions have been satisfied. These conditions include therequirements that: (a) the significant risks and rewards of ownership of the goods have beentransferred to the buyer; and (b) we retain neither continuing managerial involvement to the degree usuallyassociated with ownership nor effective control over the goods sold. IAS 18 also states that, in most cases, the transfer of risks and rewards ofownership coincides with the transfer of legal title or the passing ofpossession to the buyer. We have, therefore, changed the point at which werecognise revenue from exchange to completion to fall in line with IFRS. The impact on the Opening Balance Sheet at 1 April 2005 is to reduce net assetsby £1,165,376 and debtors by £6,037,750 and to increase inventories by£4,872,374, as sales originally recognised in the profit and loss account on anexchange basis in the year ended 31 March 2005 would not have been recognised inthe Income Statement under IFRS until the following year. For the year ended 31March 2006 the net effect on revenue and profit before tax is an increase of£1,736,915 and £594,777 respectively. The change to IFRS affects the timing of revenue and hence profit recognition.Over the lifecycle of a development there will be no effect on the total amountof profit recognised in the Income Statement. Income Taxes - IAS 12 IAS 12 requires that full provision be made for temporary differences betweenthe carrying amount and tax bases of assets and liabilities. The Opening Balance Sheet includes an additional deferred tax asset of £349,613in respect of the change in the timing of revenue recognition on speculativehousing and commercial sales in line with IAS 18. At 30 September 2005 and 31March 2006 the corresponding values are £106,296 and £171,180 respectively. Business Combinations - IFRS 3 IFRS 3 requires that goodwill be capitalised at cost and then be subject to anannual impairment review. Amortisation of goodwill is prohibited. The goodwill carried by Artisan relates to the acquisition of Rippon Homes Ltdin December 2000. Artisan has chosen the option allowed by IFRS 1 to apply IFRS3 prospectively from the transition date, rather than restate previous businesscombinations. Goodwill has therefore been frozen at net book value on 1 April2005, and goodwill, which was amortised in the year ended 31 March 2006 under UKGAAP, has been written back. The operating profit impact for the year ended 31 March 2006 is the eliminationof the amortisation charge of £156,984 with a corresponding increase in netassets. There is no associated tax impact. There is no impairment charge forthe year ended 31 March 2006. Share-based Payment - IFRS 2 In accordance with the transitional provisions of IFRS 2 and as allowed by IFRS1, Artisan has recognised a charge for employee share options granted after 7November 2002 that had not vested by 1 April 2005. As the options in existenceare equity settled with market based performance conditions their fair value hasbeen calculated using the Monte Carlo simulation model. The resulting charge isspread over the vesting period of the options, adjusted to reflect any optionslapsing as a result of termination of employment. The operating profit impact of share options for the year ended 31 March 2006 isa charge to the income statement of £43,373. Employee services relating to share options are expensed and their accountingcarrying value is therefore nil at the end of a reporting period. Conclusion The principal impact of transition to IFRS on the consolidated financial resultsof Artisan (UK) plc has been to defer the recognition of revenue and henceprofit on speculative housing and commercial sales, resulting in a reduction innet assets. The period by which revenue and profit is deferred will vary foreach property sold dependant on the gap between exchange and completion. Overthe lifecycle of a development there will be no effect on the total amount ofprofit recognised. The financial statements for the fifteen months ended 30 June 2007 will includesome enhanced disclosures as required by IFRS. There is no material impact on Artisan's cash flows and Artisan's bankingarrangements are unaffected. Artisan (UK) plc 01480 436666Chris Musselle, Chief Executive Brewin DolphinIfor Williams 0121 236 7000 Bankside Consultants 020 7367 8888 Simon Rothschild/Louise MasonMobile: 07703 167065 Appendix 1 - Summary of Artisan's significant accounting policies under IFRS. Accounting Policies The consolidated financial statements have been prepared in accordance withInternational Financial Reporting Standards issued by the InternationalAccounting Standards Board as endorsed by the European Union and those parts ofthe Companies Act 1985 applicable to companies preparing their financialstatements in accordance with IFRS. A summary of the more important Groupaccounting policies is set out below. Basis of consolidation The Group's financial statements consolidate the financial statements of theCompany and its subsidiary undertakings. The results of any subsidiaries soldor acquired are included in the Group income statement up to, or from, the datecontrol passes. Intra-group sales and profits are eliminated fully onconsolidation. On acquisition of a subsidiary, all of the subsidiary's separable, identifiableassets and liabilities existing at the date of acquisition are recorded at theirfair values reflecting their condition at that date. All changes to thoseassets and liabilities, and the resulting gains and losses, that arise after theGroup has gained control of the subsidiary are charged to the post acquisitionincome statement. Goodwill Goodwill arising on consolidation represents the excess of the fair value of theconsideration given over the fair value of the separable identifiable net assetsacquired. Goodwill arising on acquisition of subsidiaries and businesses iscapitalised as an asset. In accordance with IFRS 3 and as allowed by IFRS 1, goodwill has been frozen atits net book value as at 1 April 2005 and will not be amortised. Instead, itwill be subject to an annual impairment review, with any impairment losses beingrecognised immediately in the income statement. Property, plant and equipment Property, plant and equipment is stated at cost less depreciation. Depreciationon property, plant and equipment is provided at rates calculated to write offthe cost less estimated residual value of each asset over its expected usefullife. It is calculated at the following rates: Freehold buildings - 2% per annum on the straight line basis Leasehold improvements - 25% per annum on the straight line basis Motor vehicles - 20-25% per annum on the straight line or reducing balance basis Fixtures and fittings - 15-25% per annum on the straight line or reducing balance basis Plant and machinery - 15-25% per annum on the straight line or reducing balance basis Leases Where assets are financed by hire purchase or by way of finance leases, theassets are treated as if they had been purchased outright. The amountcapitalised is the present value of the minimum lease payments. Thecorresponding hire purchase and finance lease commitments are shown increditors. Depreciation on the relevant assets is charged to the incomestatement. Hire purchase and finance lease payments are analysed between capital andinterest components so that the interest element of the payment is charged tothe income statement over the period of the agreement and represents a constantproportion of the lease liability. The capital part reduces the outstandingcapital amounts. When assets are financed by operating leases, their annual rentals are chargedto the income statement on a straight-line basis over the term of the lease. Inventories Inventories are valued at the lower of cost and net realisable value. Cost isdetermined on a purchase cost basis. Work in progress includes materials andlabour costs and an appropriate proportion of overheads incurred on developmentsin progress or awaiting sale at the year end. Land held for building is stated at the lower of cost and net realisable value.Cost comprises land cost and direct materials and labour. Net realisable valueis the actual or estimated net selling price. Revenue recognition Revenue is stated exclusive of VAT and represents the value of work done andproperties sold, excluding part exchange properties which are included withincost of sales. In respect of sales of property, revenue and profit arerecognised upon legal completion of the transfer of title to the customer.Profit or loss is calculated with reference to each site or phase within a site. Profit is recognised on long term work in progress contracts if the finaloutcome can be assessed with reasonable certainty, by including in the incomestatement revenue and related costs as contract activity progresses. Revenue iscalculated as that proportion of total contract value which costs to date bearto total expected costs for that contract. Losses are recognised as soon asthey are foreseen. Dividends Dividends are recorded in the group's financial statements in the period inwhich they become legally payable. Sales and marketing costs In accordance with IAS 2 "Inventories" costs relating to sales and marketingactivities are written off through cost of sales as incurred. Exceptional items Exceptional items are material items which derive from events or transactionsthat fall within the ordinary activities of the group and which, individuallyor, if of a similar type, in aggregate, need to be disclosed by virtue of theirsize or incidence if the financial statements are to give a true and fair view. Deferred tax Deferred tax expected to be payable or recoverable on differences at the balancesheet date between the tax bases of assets and liabilities and their carryingamounts for financial reporting purposes is accounted for using the liabilitymethod. Deferred tax liabilities are generally recognised for all taxabletemporary differences, and deferred tax assets are recognised to the extent thatit is probable that taxable profits will be available against which deductibletemporary differences can be utilised. Such assets and liabilities are not recognised if the temporary differencesarise from goodwill or from the initial recognition (other than in a businesscombination) of other assets and liabilities in a transaction that at the timeof the transaction, affects neither the taxable profit nor the accountingprofit. Deferred tax is calculated at the rates of taxation enacted orsubstantively enacted at the balance sheet date, and is not discounted. Retirement benefit costs The Group operates defined contribution pension schemes for employees.Contributions are charged to the income statement in the year in which theybecome payable. Share-based payments Charges for employee services received in exchange for share-based payment havebeen made for all options granted after 7 November 2002 and not vested by 1April 2005 in accordance with IFRS 2 and IFRS 1. Calculation of the fair value of share options at the date of grant isundertaken using an appropriate method of calculation and charged to the incomestatement over the vesting period. Market vesting conditions are factored intothe calculation of the fair value of the options granted. As long as all othervesting conditions are satisfied, a charge is made irrespective of whether themarket vesting conditions are satisfied. The cumulative expense is not adjustedfor failure to achieve a market condition. The fair value of options currentlyin existence has been calculated using the Monte Carlo simulation model, basedupon publicly available market data at the point of grant. Appendix 2Unaudited Consolidated Income Statement Six months to Year to 30 September 31 March 2005 2006 (restated) (restated) £ £ Revenue 16,320,848 28,664,400 Cost of sales (13,272,884) (23,503,665) Gross profit 3,047,964 5,160,735 Net operating expenses (1,309,977) (2,214,052) Other operating income 169,812 336,351 Exceptional items:(Provision) arising on current asset investments and loannotes - (4,000) Exceptional release of provision in respect of sale ofgroup undertakings in previous years 368,366 405,108 Operating profit before exceptional items 1,907,799 3,283,034Exceptional items (net) 368,366 401,108 Operating profit 2,276,165 3,684,142 Finance expense (208,911) (448,686)Finance income 94,082 119,425 Profit before taxation 2,161,336 3,354,881 Taxation (440,713) (567,405) Profit after taxation 1,720,623 2,787,476 Earnings per shareBasic and diluted 0.60p 0.96p Unaudited Consolidated Balance Sheet 30 September 31 March 2005 2006 (restated) (restated) £ £ASSETS Non-current assetsIntangible assets 2,454,760 2,454,760Property, plant and equipment 350,040 352,779Deferred tax assets 106,296 171,180 2,911,096 2,978,719Current assetsInventories 26,737,279 30,167,798Trade and other receivables 1,653,052 1,243,085Cash and cash equivalents 3,005 3,350 28,393,336 31,414,233 Total assets 31,304,432 34,392,952 LIABILITIES Non-current liabilities Interest bearing loans and borrowings (5,370,196) (6,563,065) (5,370,196) (6,563,065) Current liabilitiesTrade and other payables (8,228,737) (8,058,660)Current tax liabilities (606,106) (509,700)Provisions (474,331) (447,745) (9,309,174) (9,016,105) Total liabilities (14,679,370) (15,579,170) Net assets 16,625,062 18,813,782 EQUITYCalled up share capital 1,442,647 1,642,647Share premium account 9,456,668 10,356,668Merger reserve 515,569 515,569Capital redemption reserve 91,750 91,750Retained earnings 5,118,428 6,207,148 Total equity 16,625,062 18,813,782 Appendix 3 Reconciliation of Profit - 6 months to 30 September 2005 Previously Reclassif- IFRS 2 IFRS 3 IAS 18 Effect of Restated reported ications Share-based Business Revenue IFRS under IFRS under UK GAAP payments combinations recognition transition (restated) £ £ £ £ £ £ £ Revenue 12,860,211 - - - 3,460,637 3,460,637 16,320,848Cost of sales (10,623,302) - - - (2,649,582) (2,649,582) (13,272,884) Gross profit 2,236,909 - - - 811,055 811,055 3,047,964 Net operating expenses (1,366,963) - (21,506) 78,492 - 56,986 (1,309,977)Other operating income 169,812 - - - - - 169,812 Exceptional release ofprovision in respectof sale of groupundertakings inprevious years - 368,366 - - - 368,366 368,366 Operating profitbefore exceptionalitems 1,039,758 - (21,506) 78,492 811,055 868,041 1,907,799 Exceptional operatingitems (net) - 368,366 - - - 368,366 368,366 Operating profit 1,039,758 368,366 (21,506) 78,492 811,055 1,236,407 2,276,165 Exceptional release ofprovision in respectof sale of groupundertakings inprevious years 368,366 (368,366) - - - (368,366) - 1,408,124 - (21,506) 78,492 811,055 868,041 2,276,165 Finance expense (208,911) - - - - - (208,911)Finance income 94,082 - - - - - 94,082 Profit before tax 1,293,295 - (21,506) 78,492 811,055 868,041 2,161,336 Taxation (197,396) - - - (243,317) (243,317) (440,713) Profit after taxation 1,095,899 - (21,506) 78,492 567,738 624,724 1,720,623 Earnings per shareBasic and diluted 0.38p 0.60p Reconciliation of Profit - year ended 31 March 2006 Previously Reclassif IFRS 2 IFRS 3 IAS 18 Effect of Restated reported -ications Share-based Business Revenue IFRS under IFRS under UK GAAP payments combinations recognition transition £ £ £ £ £ £ £ Revenue 26,927,485 - - - 1,736,915 1,736,915 28,664,400Cost of sales (22,361,527) - - - (1,142,138) (1,142,138) (23,503,665) Gross profit 4,565,958 - - - 594,777 594,777 5,160,735 Net operating expenses (2,327,663) - (43,373) 156,984 - 113,611 (2,214,052)Other operating income 336,351 - - - - - 336,351 Exceptional (provision)arising on currentasset investments andloan notes - (4,000) - - - (4,000) (4,000) Exceptional release ofprovision in respect ofsale of groupundertakings inprevious years - 405,108 - - - 405,108 405,108 Operating profit beforeexceptional items 2,574,646 - (43,373) 156,984 594,777 708,388 3,283,034 Exceptional operatingitems (net) - 401,108 - - - 401,108 401,108 Operating profit 2,574,646 401,108 (43,373) 156,984 594,777 1,109,496 3,684,142 (Provision) arising oncurrent assetinvestments and loannotes (4,000) 4,000 - - - 4,000 - Exceptional release ofprovision in respect ofsale of groupundertakings inprevious years 405,108 (405,108) - - - (405,108) - 2,975,754 - (43,373) 156,984 594,777 708,388 3,684,142 Finance expense (448,686) - - - - - (448,686)Finance income 119,425 - - - - - 119,425 Profit before tax 2,646,493 - (43,373) 156,984 594,777 708,388 3,354,881 Taxation (388,972) - - - (178,433) (178,433) (567,405) Profit after taxation 2,257,521 - (43,373) 156,984 416,344 529,955 2,787,476 Earnings per shareBasic and diluted 0.77p 0.96p Reconciliation of Equity - As at 1 April 2005 Previously IFRS 3 Business IAS 18 Revenue Effect of Restated under reported under UK combinations recognition IFRS IFRS GAAP transition £ £ £ £ £ASSETS Non-current assets Intangible assets 2,471,206 (16,446) - (16,446) 2,454,760Property, plant andequipment 340,199 - - - 340,199Deferred tax assets - - 349,613 349,613 349,613 2,811,405 (16,446) 349,613 333,167 3,144,572 Current assets Inventories 21,786,214 - 4,872,374 4,872,374 26,658,588Trade & other receivables 6,796,533 - (6,037,750) (6,037,750) 758,783Cash & cash equivalents 5,207 - - - 5,207 28,587,954 - (1,165,376) (1,165,376) 27,422,578 Total assets 31,399,359 (16,446) (815,763) (832,209) 30,567,150 LIABILITIES Non-current liabilitiesInterest bearing loans andborrowings (7,060,746) - - - (7,060,746) (7,060,746) - - - (7,060,746)Current liabilities Trade and other payables (7,290,888) - - - (7,290,888)Current tax liabilities (803,740) - - - (803,740)Provisions (528,843) - - - (528,843) (8,623,471) - - - (8,623,471) Total liabilities (15,684,217) - - - (15,684,217) Net assets 15,715,142 (16,446) (815,763) (832,209) 14,882,933 EQUITYCalled up share capital 1,442,647 - - - 1,442,647Share premium account 9,456,668 - - - 9,456,668Merger reserve 515,569 - - - 515,569Capital redemption reserve 91,750 - - - 91,750Retained earnings 4,208,508 (16,446) (815,763) (832,209) 3,376,299 Total equity 15,715,142 (16,446) (815,763) (832,209) 14,882,933 Reconciliation of Equity - As at 30 September 2005 Previously Opening balance IFRS 3 IAS 18 Effect of Restated under reported under sheet Business Revenue IFRS IFRS UK GAAP adjustments combinations recognition transition £ £ £ £ £ £ASSETS Non-current assets Intangible assets 2,392,714 (16,446) 78,492 - 62,046 2,454,760 Property, plant andequipment 350,040 - - - - 350,040 Deferred tax assets - - - 106,296 106,296 106,296 2,742,754 (16,446) 78,492 106,296 168,342 2,911,096 Current assets Inventories 24,514,487 - - 2,222,792 2,222,792 26,737,279Trade & other receivables 4,230,165 - - (2,577,113) (2,577,113) 1,653,052Cash & cash equivalents 3,005 - - - - 3,005 28,747,657 - - (354,321) (354,321) 28,393,336 Total assets 31,490,411 (16,446) 78,492 (248,025) (185,979) 31,304,432 LIABILITIES Non-current liabilitiesInterest bearing loans andborrowings (5,370,196) - - - - (5,370,196) (5,370,196) - - - - (5,370,196)Current liabilities Trade and other payables (8,228,737) - - - - (8,228,737)Current tax liabilities (606,106) - - - - (606,106)Provisions (474,331) - - - - (474,331) (9,309,174) - - - - (9,309,174) Total liabilities (14,679,370) - - - - (14,679,370) Net assets 16,811,041 (16,446) 78,492 (248,025) (185,979) 16,625,062 EQUITY Called up share capital 1,442,647 - - - - 1,442,647Share premium account 9,456,668 - - - - 9,456,668Merger reserve 515,569 - - - - 515,569Capital redemption reserve 91,750 - - - - 91,750Retained earnings 5,304,407 (16,446) 78,492 (248,025) (185,979) 5,118.428 Total equity 16,811,041 (16,446) 78,492 (248,025) (185,979) 16,625,062 Reconciliation of Equity - As at 31 March 2006 Previously Opening balance IFRS 3 IAS 18 Effect of Restated under reported under sheet Business Revenue IFRS IFRS UK GAAP adjustments combinations recognition transition £ £ £ £ £ £ASSETS Non-current assets Intangible assets 2,314,222 (16,446) 156,984 - 140,538 2,454,760Property, plant andequipment 352,779 - - - - 352,779Deferred tax assets - - - 171,180 171,180 171,180 2,667,001 (16,446) 156,984 171,180 311,718 2,978,719 Current assets Inventories 26,437,562 - - 3,730,236 3,730,236 30,167,798Trade & other receivables 5,543,920 - - (4,300,835) (4,300,835) 1,243,085Cash & cash equivalents 3,350 - - - - 3,350 31,984,832 - - (570,599) (570,599) 31,414,233 Total assets 34,651,833 (16,446) 156,984 (399,419) (258,881) 34,392,952 LIABILITIES Non-current liabilitiesInterest bearing loans andborrowings (6,563,065) - - - - (6,563,065) (6,563,065) - - - - (6,563,065) Current liabilities Trade and other payables (8,058,660) - - - - (8,058,660)Current tax liabilities (509,700) - - - - (509,700)Provisions (447,745) - - - - (447,745) (9,016,105) - - - - (9,016,105) Total liabilities (15,579,170) - - - - (15,579,170) Net assets 19,072,663 (16,446) 156,984 (399,419) (258,881) 18,813,782 EQUITY Called up share capital 1,642,647 - - - - 1,642,647Share premium account 10,356,668 - - - - 10,356,668Merger reserve 515,569 - - - - 515,569Capital redemption reserve 91,750 - - - - 91,750Retained earnings 6,466,029 (16,446) 156,984 (399,419) (258,881) 6,207,148 Total equity 19,072,663 (16,446) 156,984 (399,419) (258,881) 18,813,782 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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