15th Sep 2005 07:04
Kier Group PLC15 September 2005 KIER GROUP PLC TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS RESTATEMENT OF FINANCIAL INFORMATION FOR THE YEAR ENDED 30 JUNE 2005 Kier Group plc has adopted International Financial Reporting Standards (IFRS)with effect from 1 July 2005, in accordance with European Union regulations.Kier Group will therefore publish its results for the six months to 31 December2005 and its Annual Report and Accounts for the year to 30 June 2006 inaccordance with IFRS. Kier Group plc has, today, published its preliminary results for the year to 30June 2005 under UK Generally Accepted Accounting Practice (GAAP) in a separatestatement. This statement sets out an unaudited restatement of those results andnet assets under IFRS. The resulting balance sheets and income statement must beregarded as preliminary and will only be determined with certainty when theGroup issues its annual financial statements under IFRS for the year to 30 June2006. The key points relating to the restatement are:- • The transition to IFRS has no impact on business operations, cash, financing or the ability to pay dividends; • There is no impact on the profit recognition policy for Construction or Support Services and only minor impact on profit recognition for Housebuilding and Property; • The most significant effect of IFRS is in accounting for pensions which reduces stated net assets; • No account has been taken of IAS 32 and IAS 39 'Financial Instruments'. This will apply to Kier from 1 July 2005 with there being no requirement to restate comparatives. This statement sets out the following, restated in accordance with IFRS. • A consolidated income statement for the year to 30 June 2005; • A consolidated statement of changes in equity for the year to 30 June 2005; and • Consolidated balance sheets at 30 June 2004 and 2005. An explanation of the principal differences between UK GAAP and IFRS affectingKier Group plc is set out in note 2 and reconciliations of the statements fromUK GAAP to IFRS are set out in note 4 to this statement. Note 3 sets out anexplanation relating to two areas (largely affecting PFI concessions) wherethere is no requirement to apply IAS to the balance sheet at 30 June 2005 butwhere there is likely to be an impact in the future. For further information, please contact: Deena Mattar, Finance DirectorKier Group plc Tel: 01767 640 111 Consolidated income statement - restated in accordance with IFRSfor the year ended 30 June 2005 (unaudited) 2005 £m Continuing operationsTotal revenue 1,623.2Revenue - joint ventures (50.2) Group revenue 1,573.0Cost of sales (1,433.8) Gross profit 139.2Administrative expenses (91.1)Share of post tax profits from joint ventures 0.9 Profit from operations 49.0Other income (1) 6.7Finance cost (net) - group (1.2) Profit before tax 54.5Taxation (17.9) Profit for the year 36.6 Earnings per ordinary share- basic 103.4p- diluted 102.5p Adjusted earnings per ordinary share (excluding otherincome)- basic 96.6p- diluted 95.8p (1) Other income represents the exceptional profits disclosed under UK GAAP Consolidated statement of changes in equity - restated in accordance with IFRSfor the year ended 30 June 2005 (unaudited) Share Share Capital Share Retained Total capital premium redemption scheme earnings reserve reserve £m £m £m £m £m £m Balance at 1 July 2004 0.4 17.2 2.7 (0.3) 31.2 51.2 Foreign exchange translation 0.1 0.1differencesActuarial gains and losses in pension (41.5) (41.5)schemeDeferred tax on actuarial gains and 12.5 12.5losses in pension scheme Net income recognised directly in (28.9) (28.9)equityProfit for the year 36.6 36.6 Total recognised income for the year 7.7 7.7 Dividends (7.1) (7.1)Issue of shares 0.8 0.8Share based payments 0.2 0.2 Balance at 30 June 2005 0.4 18.2 2.7 (0.3) 31.8 52.8 Consolidated balance sheet - restated in accordance with IFRS (unaudited)at 30 June 2005 2005 2004 £m £m Non current assetsIntangible assets 16.7 18.6Property, plant and equipment 75.8 68.9Investment in joint ventures 23.6 31.8Deferred tax assets 37.6 27.7Trade & other receivables 14.6 6.2 Non current assets 168.3 153.2 Current assetsInventories 325.7 321.8Trade & other receivables 233.3 225.0Cash & cash equivalents 93.5 41.4 Current assets 652.5 588.2 Total assets 820.8 741.4 Current liabilitiesBank overdrafts and loans (5.3) (3.7)Trade & other payables (566.5) (516.4)Tax liabilities (9.5) (5.1) Current liabilities (581.3) (525.2) Non current liabilitiesInterest-bearing loans and borrowings (30.1) (30.1)Trade & other payables (17.2) (26.1)Retirement benefit obligations (121.9) (92.5)Long-term provisions (17.5) (14.9)Deferred tax liabilities - (1.4) Non current liabilities (186.7) (165.0) Total liabilities (768.0) (690.2) Net assets 52.8 51.2 EquityShare capital 0.4 0.4Share premium 18.2 17.2Capital redemption reserve 2.7 2.7Share scheme reserve (0.3) (0.3)Retained earnings 31.8 31.2 Total equity 52.8 51.2 Selected notes to the IFRS statements 1. Basis of preparation The restated financial statements have been prepared in accordance with IFRS forillustrative purposes. The transition to IFRS is governed by the requirements ofIFRS 1 'First-time adoption of IFRS'. The opening balance sheet on 1 July 2004(the date of transition to IFRS) has been prepared using accounting policieswhich the directors expect to be applicable for the year to 30 June 2006 exceptfor the requirement to apply IAS 32 and IAS 39 'Financial Instruments'. TheGroup has taken advantage of the exemption in IFRS 1 that enables theapplication of IAS 32 and IAS 39 to be delayed to 1 July 2005 without therequirement to restate comparative figures. The principal differences between UK GAAP and IFRS for the Group are set out innote 2. Note 3 sets out the potential effect of IAS 32 and 39 'Financialinstruments' on Kier Group as at 1 July 2005 and includes details on the draftstandard on accounting for service concessions. The disclosures required by IFRS1 concerning the transition from UK GAAP to IFRS are given in the reconciliationschedules in note 4. 2. Principal differences between UK GAAP and IFRS There are eight principal differences which give rise to changes in the Group'sreported profit for the year to 30 June 2005 and net assets at 30 June 2005.These are categorised as follows:- i ) Retirement benefit costsii) Sales and marketing costsiii) Deferred land paymentsiv) Property transactionsv) Other including:- - proposed dividends - deferred tax - share-based payments - goodwill In addition there is a change to the way in which joint ventures are disclosedhaving no impact on net assets or net profits. i) Retirement benefit costs Under UK GAAP the Group accounted for its defined benefit schemes in accordancewith SSAP 24 'Accounting for Pension Costs'. The cost of providing the definedbenefit pensions was charged against 'operating profit' with surpluses anddeficits arising in the funds amortised to 'operating profit' over the remainingservice lives of participating employees. Under IAS 19 'Employee Benefits' thecost of providing pension benefits (current service cost) for defined benefitpensions schemes is recognised in the income statement, together with theinterest cost arising on the projected obligations and returns on scheme assets. The defined benefit obligation is determined annually by independent actuariesand recognised on the balance sheet. Actuarial gains and losses are recognisedin full in the statement of recognised income and expense in the period in whichthey occur. The financial impacts arising from these changes are: - a reduction of £93.7m will be reported on the restated 30 June 2005 balancesheet to reflect the additional pension liability; and - the charge to the income statement will reduce by £0.1m before tax. This impact is similar to that arising under the UK GAAP standard FRS 17 'Retirement Benefits', details of which will be disclosed in the notes to theGroup's 2005 Financial Statements. ii) Sales and marketing costs Under current Group accounting policies adopted in accordance with UK GAAP salesand marketing costs for the Residential and Property divisions are capitalisedin site work in progress and written off through cost of sales as the siteprogresses. Under IAS 2 'Inventories' costs relating to sales and marketingactivities are required to be written off as incurred. The financial impact of this on the restated 30 June 2005 results and balancesheet are: - a reduction in net assets of £3.9m (after tax); and - a £1.8m increase in the charge to the income statement (£1.3m after tax). iii) Deferred land payments Under UK GAAP deferred land payments (land creditors) are included in 'creditors' at their gross value. Under IAS 2 'Inventories' imputed interest isrecognised on deferred land payments with the result that the land creditors arecarried in the balance sheet at net present value and the value of land held onthe balance sheet in inventories is reduced. The unwinding of the imputedinterest (or discount) on land creditors is charged to finance cost and thereduction in land values in inventories will result in an eventual reduction incost of sales as the land is traded out. The effect of this is to increase thecharge to the 2005 income statement by £1.6m (£1.1m after tax) with aconsequential effect on net assets at 30 June 2005. The increased chargerepresents the 'interest cost' of the deferred payments of £2.1m less theincrease in operating profit brought about by a reduction in the land valuewritten off through cost of sales amounting to £0.5m. iv) Property transactions Under current Group accounting policies where Group property developments aresold with construction being undertaken directly by the Group, turnover andprofit are recognised over the life of the contract in accordance with SSAP 9 'Stocks and Long-Term Contracts.' Under IAS 18 'Revenue', where such developments are sold in advance of theconstruction contract being signed then the sale can be considered to be aconstruction contract. As such, revenue and profit should be recognised inaccordance with IAS 11 'Construction Contracts' over the term of theconstruction contract (as for SSAP 9). However, if the sale is agreed after theconstruction contract is signed, revenue and profits can only be recognised whenconstruction has been completed. The impact of this is to defer revenue of £1.8m and profit before tax of £0.5m(£0.3m after tax) taken in the year to June 2004 under UK GAAP until the year toJune 2005. v) Other adjustments Other changes to accounting policies that will have an impact on restated netassets and the profit for the year to June 2005 under IFRS are as follows: Profit after tax for Net Assets the year to June 2005 June 2005 £m £m a) Proposed dividends - 5.4b) Deferred taxation 0.2 (2.0)c) Share-based payments - 0.1d) Goodwill 0.6 0.6 Net impact 0.8 4.1 a) Proposed dividends Under UK GAAP, proposed dividends are recognised as a liability in the period towhich they relate. Under IAS 10 'Events after the Balance Sheet Date' dividendsare not recognised as a liability until they are declared. As a result theprovision for the final dividend is eliminated, increasing net assets at June2005 by £5.4m. b) Deferred taxation IAS 12 'Income Taxes' requires deferred tax to be recognised on all temporarydifferences and not just timing differences as previously under UK GAAP.Deferred tax liabilities are recognised in full but deferred tax assets are onlyrecognised if future taxable profits are available to cover the assets. As a result the provision for deferred tax liabilities will increase at June2005 by £2.0m which reduces restated net assets. c) Share-based payments IFRS 2 'Share-based Payments' requires that share-based payments granted after 7November 2002, but not vested, should be valued at the fair value of the sharesat the date of grant. This affects the Sharesave and Long-Term Incentive Planschemes. The fair value of these shares at date of award has been calculatedusing the Black Scholes model. The impact on profits and net assets is notsignificant. d) Goodwill and intangible assets Under UK GAAP, goodwill is amortised on a straight line basis over its usefuleconomic life (in the case of Kier for up to ten years) tested for impairmentand provided for as necessary. Under IFRS 3 'Business Combinations' goodwill isno longer amortised but is carried at cost and subject to annual review forimpairment at 30 June. It is effectively frozen at June 2004 with amountsamortised subsequently under UK GAAP being reinstated. At June 2004 the Group balance sheet contained £18.6m of goodwill. £13.4m ofthis relates to the business and assets of the Construction and BuildingServices operation of Sheffield City Council. This has been reclassified fromgoodwill to intangible assets in respect of contract rights under IFRS and willcontinue to be amortised on a straight line basis over the remaining life of thecontract. The balance of £5.2m relates to the acquisition of Partnerships Firstin 2002. This balance has been maintained at the 30 June 2004 carrying value. Asa result goodwill amortisation of £0.6m under UK GAAP for the year ended 30 June2005 has been added back increasing profits and net assets by £0.6m at June2005. vi) Joint ventures (disclosure item) Under IFRS the results of joint ventures may either be accounted for under thenet equity method or proportional consolidation. The Group currently reports itsjoint ventures under UK GAAP using the net equity method and has opted tocontinue to follow this method. Under the net equity method trading results fromjoint ventures are shown net of tax within profit before tax. This has no impacton net assets or on profit after tax. 3. Other differences between UK GAAP and IAS largely relating to PFI concessions i) Financial instruments The accounting for, and presentation of, financial instruments is dealt withunder IAS 39 'Financial instruments: Recognition and measurement' and IAS 32 'Financial instruments: Disclosure and presentation'. Under UK GAAP there is nocomprehensive standard which addresses the accounting for financial instruments. FRS 13 'Derivatives and other financial instruments' in the UK requiresdisclosures to be made in respect of financial instruments but these are lesscomprehensive than IAS 32. As permitted by IFRS 1, the Group has elected not to restate comparativeinformation in accordance with IAS 39 and IAS 32. The significant changes inaccounting polices that will arise when IAS 39 and IAS 32 are applied from 1July 2005 are in relation to the accounting treatment of derivative financialinstruments. The Group does not enter into significant derivative transactions. However anumber of the Group's joint ventures (including PFI joint ventures) enter intointerest rate swap derivatives. IAS 39 requires the fair value of derivativefinancial instruments to be included on balance sheet. Under UK GAAP they arenot recognised. IAS 39 requires interest rate swap derivatives to be accountedfor as cash flow hedges and movements in fair value are recognised in equityprovided the hedge is effective. The Group's share of the fair value of theseinterest rate swaps together with other minor Group derivatives, at 1 July 2005results in a liability of £10.4m (excluding the Group's share of the relateddeferred tax). The application of IAS 39 at that date will reduce the netassets of the Group by £7.3m (£10.4m less tax). ii) Accounting for service concessions In March 2005, the International Financial Reporting Interpretations Committee(IFRIC) issued draft guidance on accounting for service concession arrangements(drafts D12 to D14). IFRIC is currently considering the comments received onthis draft guidance, with final guidance expected to be issued by the end of2005. Until the final guidance is issued and endorsed by the EU and in the absence ofspecific guidance within IFRS, the Group has recognised the FRS 5 'Reporting thesubstance of transactions' finance debtors relating to concession arrangementsheld by PFI jointly controlled entities at amortised cost. The effect ofadopting this policy is to maintain the accounting within PFI joint ventures inline with existing UK GAAP whilst ensuring that the accounting treatment remainsconsistent with existing IFRS. The draft guidance from IFRIC, if it were issued in final form, wouldpotentially require a number of changes to the accounting treatment of serviceconcession arrangements. One of the more significant aspects would be therequirement to recognise the assets associated with concession arrangements atfair value. This requirement could potentially produce an increase in theGroup's share of the net carrying value of the PFI jointly controlled entitiesaffected which would offset the effects of IAS 39 set out above. 4. Reconciliation of UK GAAP to IFRS The effects of the differences between UK GAAP and IFRS, as set out in note 2,are shown below in the consolidated income statement for the year to 30 June2005, the consolidated statement of recognised income and expense for the yearto 30 June 2005 and the consolidated balance sheets at 30 June 2004 and 2005. a) Consolidated income statement for the year ended 30 June 2005 -reconciliation UK GAAP to IFRS UK GAAP IFRS Adjustments (Notes) IFRS Balances (i) (ii) (iii) (iv) (v) (vi) in IAS Retirement Sales & Deferred Property Other Joint format benefits marketing land transactions ventures payments £m £m £m £m £m £m £m £mContinuing OperationsTotal revenue 1,621.4 1.8 1,623.2Revenue - joint ventures (48.4) (1.8) (50.2) Group revenue 1,573.0 - 1,573.0Cost of sales (1,430.7) (1.7) 0.5 (1.9) (1,433.8) Gross profit 142.3 (1.7) 0.5 - (1.9) 139.2Administrative expenses (91.2) 0.1 (91.1)Goodwill amortisation (2.5) 2.5 -Operating profit - joint 4.8 (0.1) 0.5 (5.2) -venturesShare of post tax profits from 0.9 0.9joint ventures Profit from operations 53.4 0.1 (1.8) 0.5 0.5 0.6 (4.3) 49.0Other income 6.7 6.7Finance income/cost (net) - 0.9 (2.1) (1.2)groupFinance cost - joint ventures (3.1) 3.1 - Profit before tax 57.9 0.1 (1.8) (1.6) 0.5 0.6 (1.2) 54.5Taxation (20.1) 0.5 0.5 (0.2) 0.2 1.2 (17.9) Profit for the year 37.8 0.1 (1.3) (1.1) 0.3 0.8 - 36.6 Earnings per ordinary share 106.8p 103.4p Adjusted earnings per ordinary 105.4p 96.6pshare(excluding other income andgoodwill amortisation) b) Consolidated statement of recognised income and expense for the year ended 30June 2005 - reconciliation UK GAAP to IFRS UK GAAP IFRS Adjustments (Notes) IFRS Balances (i) (ii) (iii) (iv) (v) (vi) in IAS Retirement Sales & Deferred Property Other Joint format benefits marketing land transactions ventures payments £m £m £m £m £m £m £m Foreign exchange translation 0.1 0.1differencesActuarial gains and losses in (41.5) (41.5)pension schemeDeferred tax on actuarial 12.5 12.5gains and losses in pensionscheme Net income recognised directly 0.1 (29.0) (28.9)in equity Profit for the year 37.8 0.1 (1.3) (1.1) 0.3 0.8 36.6 Dividends (7.9) 0.8 (7.1) Retained earnings for the year 30.0 (28.9) (1.3) (1.1) 0.3 1.6 0.6 Retained earnings at 30 June 96.6 (64.8) (2.6) (0.3) 2.3 31.22004 Retained earnings at 30 June 126.6 (93.7) (3.9) (1.1) - 3.9 31.82005 c) Consolidated balance sheet at 30 June 2005 - reconciliation UK GAAP to IFRS IFRS Adjustments (Notes) IFRS (i) (ii) (iii) (iv) (v) UK GAAP Retirement Sales & Deferred Property Other Balances in benefits marketing land transactions IFRS format payments £m £m £m £m £m £m £mNon current assetsIntangible assets 16.1 0.6 16.7Property, plant and equipment 75.8 75.8Investment in joint ventures 23.8 (0.2) 23.6Deferred tax assets 36.6 1.0 37.6Trade & other receivables 14.6 14.6 Non current assets 130.3 36.6 (0.2) 1.6 168.3 Current assetsInventories 334.2 (5.3) (3.2) 325.7Trade & other receivables 245.3 (12.0) 233.3Cash & cash equivalents 93.5 93.5 Current assets 673.0 (12.0) (5.3) (3.2) 652.5 Total assets 803.3 24.6 (5.5) (3.2) 1.6 820.8 Current liabilitiesBank overdrafts and loans (5.3) (5.3)Trade & other payables (572.5) 0.6 5.4 (566.5)Tax liabilities (9.5) (9.5) Current liabilities (587.3) 0.6 5.4 (581.3) Non current liabilitiesInterest-bearing loans and (30.1) (30.1)borrowingsTrade & other payables (18.2) 1.0 (17.2)Retirement benefit obligations (121.9) (121.9)Long-term provisions (17.5) (17.5)Deferred tax liabilities (2.8 ) 3.6 1.6 0.5 (2.9) -Non Current liabilities (68.6) (118.3) 1.6 1.5 (2.9) (186.7) Total liabilities (655.9) (118.3) 1.6 2.1 2.5 (768.0) Net assets 147.4 (93.7) (3.9) (1.1) 4.1 52.8 EquityShare capital 0.4 0.4Share premium 17.9 0.3 18.2Capital redemption reserve 2.7 2.7Share scheme reserve (0.2) (0.1) (0.3)Retained earnings 126.6 (93.7) (3.9) (1.1) 3.9 31.8 Total equity 147.4 (93.7) (3.9) (1.1) 4.1 52.8 d) Opening consolidated balance sheet at 30 June 2004 - reconciliation UK GAAPto IFRS IFRS Adjustments (Notes) IFRS (i) (ii) (iii) (iv) (v) UK GAAP Retirement Sales & Deferred Property Other Balances in benefits marketing land transactions IFRS format payments £m £m £m £m £m £m £mNon current assetsIntangible assets 18.6 18.6Property, plant and equipment 68.9 68.9Investment in joint ventures 32.2 (0.1) (0.3) 31.8Deferred tax assets 27.7 27.7Trade & other receivables 6.2 6.2 Non current assets 125.9 27.7 (0.1) 0.0 (0.3) 153.2 Current assetsInventories 328.6 (3.6) (3.2) 321.8Trade & other receivables 225.0 225.0Cash & cash equivalents 41.4 41.4 Current assets 595.0 (3.6) (3.2) 588.2 Total assets 720.9 27.7 (3.7) (3.2) (0.3) 741.4 Current liabilitiesBank overdrafts and loans (3.7) (3.7)Trade & other payables (521.9) 0.9 4.6 (516.4)Tax liabilities (5.1) (5.1) Current liabilities (530.7) 0.9 4.6 (525.2) Non current liabilitiesInterest-bearing loans and (30.1) (30.1)borrowingsTrade & other payables (28.4) 2.3 (26.1)Retirement benefit obligations (92.5) (92.5)Long-term provisions (14.9) (14.9)Deferred tax liabilities (0.4) 1.1 (2.1) (1.4) Non Current liabilities (73.8) (92.5) 1.1 2.3 (2.1) (165.0) Total liabilities (604.5) (92.5) 1.1 3.2 2.5 (690.2) Net assets 116.4 (64.8) (2.6) - (0.3) 2.5 51.2 EquityShare capital 0.4 0.4Share premium 17.1 0.1 17.2Capital redemption reserve 2.7 2.7Share scheme reserve (0.4) 0.1 (0.3)Retained earnings 96.6 (64.8) (2.6) - (0.3) 2.3 31.2 Total equity 116.4 (64.8) (2.6) - (0.3) 2.5 51.2 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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