4th Apr 2006 07:00
Bellway PLC04 April 2006 NATIONAL HOUSEBUILDER BELLWAY p.l.c. TODAY, TUESDAY 4 APRIL 2006, ANNOUNCE THEIRINTERIM RESULTS FOR THE SIX MONTHS TO 31 JANUARY 2006 HIGHLIGHTS Six Months to 31 January 2006 2005 • Turnover - £m 507.5 493.9 + 2.8%• Operating profit - £m 96.2 96.6 - 0.4%• Profit before taxation - £m 87.8 89.7 - 2.1%• Basic earnings per ordinary share - pence 54.1 56.1 - 3.6%• Dividend per ordinary share - pence 14.3 13.0 + 10.0%• Net asset value per ordinary share - pence 722 610• Homes sold - no. 2,958 2,930• Average selling price - £000 166.6 167.0• Operating margin - % 19.0 19.6• Return on average capital employed - % 23.2 27.8• Land bank - plots with planning permission 23,000 21,200• Shareholders' funds - £m 820.7 706.4 CHAIRMAN, HOWARD DAWE SAID "THE HOUSING MARKET IN 2005 WAS CHALLENGING AND I AMPLEASED TO REPORT THAT BELLWAY PERFORMED WELL IN THESE CONDITIONS". FURTHERMORE "OUR ORDER BOOK REMAINS EXTREMELY STRONG AT CIRCA £715 MILLION WITHOVER 92% OF THIS YEAR'S TARGET SECURED AND MORE THAN 1,500 HOMES OF NEXT YEAR'SPLANNED PRODUCTION RESERVED OR CONTRACTED". HE ADDED "FEBRUARY AND MARCH HAVE SHOWN EARLY SIGNS OF IMPROVEMENT IN THE MARKETWITH SALES NOT BEING AS INCENTIVE LED AS IN 2005 AND WE REMAIN CAUTIOUSLYOPTIMISTIC AT THIS STAGE". HE CONCLUDED "THE BOARD REMAINS CONFIDENT OF THE GROUP'S FUTURE PROSPECTS". FOR FURTHER INFORMATION, PLEASE CONTACT JOHN WATSON, CHIEF EXECUTIVE OR ALISTAIR LEITCH, FINANCE DIRECTOR TUESDAY 4 APRIL - THURSDAY 6 APRILJ WATSON: 07855 337007A LEITCH: 07855 337001THEREAFTER: 0191 217 0717 CHAIRMAN'S STATEMENT The housing market in 2005 was challenging and I am pleased to report thatBellway performed well in these conditions as can be seen from our results forthe six months ended 31 January 2006. These results are the first to bereported in accordance with International Financial Reporting Standards ('IFRS')and a full restatement of previous results is appended to this statement. In the period we increased the number of homes sold for the fifteenthconsecutive year to 2,958 with an average sales price of £166,600. Turnoverincreased by almost 3% and exceeded £1/2 billion for the first time. Operatingprofit remained broadly similar at £96.2 million despite margins easing to19.0%, a good performance given market conditions. Increased work in progressas a result of our healthy order book and increased investment in land to fundour growth plans resulted in net interest increasing to £8.4 million. Gearinghas increased from 26% to 36%, a level the Board remains comfortable with. Acreditable return on average capital employed of 23.2% was achieved. Net profitbefore tax and earnings per share have dipped only slightly to £87.8 million and54.1p respectively. Dividend The Board is committed to a progressive dividend policy and I am pleased toannounce an increase in the interim dividend of 10% to 14.3 pence from 13 pence. The dividend will be paid on Monday 3 July 2006 to ordinary shareholders on thecompany's Register of Members at the close of business on Friday 9 June 2006.The ex-dividend date is Wednesday 7 June 2006. Trading Bellway's policy of forward selling in the current market gives bothtransparency of margin and continuity of work. Our order book remains extremelystrong at circa £715 million with over 92% of this year's target secured andmore than 1,500 homes of next year's planned production reserved or contracted.We will, in the coming weeks, start to market from 10% more outlets and althoughthese will not contribute to this year's results, they will enable us to lay thefoundations for next year's planned growth. Our Scottish, North East and Thames Gateway divisions have thrived in theirlocal markets and we continue to invest in expanding our divisional network. ASouth Midlands division will be formed to cater both for the Warwickshire areaand our major regeneration scheme which has just commenced at North Solihull.Our City Solutions team continues to procure more regeneration opportunities andI am delighted to announce that we have been given preferred developer status atEast Leeds and South Kilburn in London. These regeneration schemes, and thosealready secured, will form the backbone of the Group's planned growth in thecoming years. As mentioned already, the Group has further invested in its land bank and ourplots with planning permission have increased to 23,000. This, combined withour plots pending planning permission of 16,000, gives the Group a total landbank of 39,000 plots, more than five year's supply at today's volumes. Ofparticular note in the period is our site at the former RAF Cardington base inBedfordshire, purchased in 2001, where planning permission was obtained inOctober for circa 650 homes. Additionally, Bellway controls more than 6,500plots, primarily held on brownfield land, where we hope to receive planningpermissions in the next few years. CHAIRMAN'S STATEMENT (CONTINUED) People As ever, Bellway's employees, sub-contractors, suppliers and partners havecontributed greatly to these results. The Board is extremely grateful for theefforts and enthusiasm of all involved and would like to place on record itssincere thanks. Future Prospects February and March have shown early signs of improvement in the market withsales not being as incentive led as in 2005 and we remain cautiously optimisticat this stage. Bellway has in place the people, the divisional network and theland to continue delivering volume growth in both this and coming years and theBoard remains confident of the Group's future prospects. H C DaweChairman 3 April 2006 CONSOLIDATED INCOME STATEMENT(unaudited) Half year Half year Year ended ended ended 31 January 31 January 31 July 2006 2005 2005 (restated) (restated) £m £m £mRevenue 507.5 493.9 1,178.1 Cost of sales (384.1) (372.5) (896.2) Gross profit 123.4 121.4 281.9 Administrative expenses (27.2) (24.8) (51.6) Operating profit 96.2 96.6 230.3 Finance income 1.2 1.4 2.2Finance expenses (9.6) (8.3) (18.6) Profit before taxation 87.8 89.7 213.9 Income tax expense (26.6) (27.0) (64.7) Profit for the period 61.2 62.7 149.2 Earnings per ordinary share - Basic 54.1p 56.1p 133.1p - Diluted 53.6p 55.6p 131.8p Consolidated Statement of Recognised Income and Expense(unaudited) Half year Half year Year ended ended ended 31 January 31 January 31 July 2006 2005 2005 (restated) (restated) £m £m £m Actuarial losses on defined benefit pension scheme (4.8) (3.0) (5.0) Tax on items taken directly to equity 1.4 0.9 1.5 Net expense recognised directly in equity (3.4) (2.1) (3.5) Profit for the period 61.2 62.7 149.2 Total recognised income for the period 57.8 60.6 145.7 CONSOLIDATED BALANCE SHEET(unaudited) At At At 31 January 31 January 31 July 2006 2005 2005 (restated) (restated) £m £m £mASSETSNon-current assetsProperty, plant and equipment 18.5 16.2 17.6Investment property 3.0 - -Investments in associates - - 0.1Other receivables 7.9 1.3 7.5Deferred tax assets 14.6 11.3 11.5 44.0 28.8 36.7Current assetsInventories 1,358.9 1,098.9 1,238.4Trade and other receivables 54.8 28.7 31.6Cash and cash equivalents 9.0 57.9 66.4 1,422.7 1,185.5 1,336.4 Total assets 1,466.7 1,214.3 1,373.1 LIABILITIESNon-current liabilitiesInterest bearing loans and borrowings (256.0) (193.0) (256.0)Retirement benefit obligations (17.2) (10.1) (12.1)Other payables (28.4) (18.2) (19.3) (301.6) (221.3) (287.4)Current LiabilitiesInterest bearing loans and borrowings (48.9) (49.0) (2.0)Trade and other payables (268.1) (210.0) (271.6)Current tax liabilities (27.4) (27.6) (32.3) (344.4) (286.6) (305.9) Total liabilities (646.0) (507.9) (593.3) Net assets 820.7 706.4 779.8 EQUITYIssued capital 14.2 14.1 14.2Share premium 110.5 106.3 108.9Other reserves 1.5 1.5 1.5Retained earnings 694.6 584.6 655.3 Total equity attributable to equity holders of the parent 820.8 706.5 779.9 Minority interest (0.1) (0.1) (0.1) Total equity 820.7 706.4 779.8 CONSOLIDATED CASH FLOW STATEMENT(unaudited) Half year Half year Year ended ended ended 31 January 31 January 31 July 2006 2005 2005 (restated) (restated) £m £m £m Cash flows from operating activitiesProfit for the period 61.2 62.7 149.2 Depreciation charge 1.5 1.6 3.3Profit on sale of property, plant and equipment - (0.1) (0.2)Finance income (1.2) (1.4) (2.2)Finance expenses 9.6 8.3 18.6Share based payment charge 1.1 0.7 1.6Income tax expense 26.6 27.0 64.7Increase in inventories (120.5) (79.5) (219.1)Increase in trade and other receivables (23.6) (2.8) (11.9)Increase / (decrease) in trade and other payables 4.4 (60.2) 0.7 Cash from operations (40.9) (43.7) 4.7 Interest paid (8.1) (6.5) (15.4)Income tax paid (32.1) (35.2) (68.1) Net cash outflow from operating activities (81.1) (85.4) (78.8) Cash flows from investing activitiesAcquisition of property, plant and equipment (2.9) (1.6) (5.1)Acquisition of investment property (3.0) - -Proceeds from sale of property, plant and equipment 0.5 0.5 1.1Interest received 1.2 1.4 2.3 Net cash (outflow) / inflow from investing activities (4.2) 0.3 (1.7) Cash flows from financing activitiesIncrease in bank borrowings 45.0 - 63.0Proceeds from the issue of share capital on exercise of share 1.6 1.8 4.5optionsPurchase of own shares by employee share option plans (0.1) (0.1) (0.3)Dividends paid (20.5) (17.6) (32.2) Net cash inflow / (outflow) from financing activities 26.0 (15.9) 35.0 Net decrease in cash and cash equivalents (59.3) (101.0) (45.5) Cash and cash equivalents at beginning of period 66.4 111.9 111.9 Cash and cash equivalents at end of period 7.1 10.9 66.4 NOTES 1. Consolidated Statement of Changes in Equity (unaudited) Half year ended 31 January 2006 Attributable to equity holders of the parent Ordinary Share Share Premium Other Retained Minority Total capital reserves earnings Total Interest equity £m £m £m £m £m £m £m At 1 August 2005 14.2 108.9 1.5 655.3 779.9 (0.1) 779.8Total recognised income and expense 57.8 57.8 57.8Dividends on equity shares (20.7) (20.7) (20.7)Shares issued 1.6 1.6 1.6Charge in relation to share optionsand tax thereon 2.3 2.3 2.3Exercise of share options / share (0.1) (0.1) (0.1)awards At 31 January 2006 14.2 110.5 1.5 694.6 820.8 (0.1) 820.7 2. Basis of preparation EU law (IAS Regulation EC 1606/2002) requires that the next annual consolidatedfinancial statements of the Group, for the year ending 31 July 2006, be preparedin accordance with International Financial Reporting Standards ('IFRS') adoptedfor use in the EU ('Adopted IFRS'). This interim financial information has been prepared on the basis of therecognition and measurement requirements of Adopted IFRS that are effective (oravailable for early adoption) at 31 July 2006, the Group's first annualreporting date at which it is required to use Adopted IFRS. Based on theseAdopted IFRS, the Directors have applied the accounting policies, as set out inthe attached restatement document, which they expect to apply when the firstannual IFRS financial statements are prepared for the year ending 31 July 2006.In selecting accounting policies from the Adopted IFRS available at 31 July2006, the Group has chosen to apply early the amendments made to IAS 19 inrespect of actuarial gains and losses published by the IASB in December 2004ahead of their effective date. However, the Adopted IFRS that will be effective (or available for earlyadoption) in the financial statements for the year ending 31 July 2006 are stillsubject to change and to additional interpretations and therefore cannot bedetermined with certainty. Accordingly, the accounting policies for that annualperiod will be determined finally only when the financial statements areprepared for the year ending 31 July 2006. The preparation of this financial information resulted in changes to theaccounting policies as compared with the most recent annual financial statementsprepared under previous Generally Accepted Accounting Practice (GAAP). Therevised accounting policies have been applied consistently to all periodspresented in this financial information. NOTES (continued) 2. Basis of preparation (continued) IFRS 1 - 'First Time Adoption of International Financial ReportingStandards' mandates that most IFRS are applied fully retrospectively, meaningthat the opening balance sheet at 1 August 2004 is restated as if thoseaccounting policies had always been applied. IFRS 1 permits companies to applycertain exemptions from the full requirements of IFRS during transition. Detailsof the exemptions applied by the Group are outlined in the attached restatementdocument. A detailed review of the changes in our accounting policies andreconciliations of our financial statements from UK GAAP to IFRS at key dateswas published to the London Stock Exchange on 31 March 2006, a copy of thisdocument is appended to the interim report. 3. Accounting policies The accounting policies that the Group intends to apply for the year ending 31July 2006 are set out in the document referred to in note 2. 4. Status of financial information The comparative figures for the year ended 31 July 2005 are not the Group'sstatutory financial statements for that year. Those financial statements, whichwere prepared under UK GAAP, have been reported on by the Group's auditors anddelivered to the Registrar of Companies. The report of the auditors wasunqualified and did not contain statements under section 237(2) or (3) of theCompanies Act 1985. The interim information for the half years ended 31 January 2006 and 31 January2005 is unaudited. This information does not constitute statutory accountswithin the meaning of the Companies Act 1985. In relation to the financialstatements for the year ended 31 July 2005, this has been extracted from arestatement of the financial information taken from the Group's statutoryfinancial statements for that year. 5. Taxation The taxation charge for the half years ended 31 January 2006 and 31 January 2005is calculated by applying the Directors' best estimate of the annual effectivetax rate to the profit for the period. 6. Interim report The interim accounts were approved by the Board of Directors on 3 April 2006 andcopies are being posted to all shareholders. Further copies are available onapplication to the Company Secretary, Bellway plc, Seaton Burn House, DudleyLane, Seaton Burn, Newcastle upon Tyne, NE13 6BE and are also available on ourwebsite at www.bellway.co.uk Bellway plc Restatement of financial information under Adopted International FinancialReporting Standards Introduction Bellway plc (the Group) has, historically, prepared its consolidated financialstatements under UK Generally Accepted Accounting Principles (UK GAAP). Foraccounting periods beginning on or after 1 January 2005, the Group is requiredto prepare its consolidated financial statements in accordance withInternational Financial Reporting Standards (IFRS) as adopted by the EuropeanUnion (Adopted IFRS). The Group's first published information prepared on the basis of Adopted IFRSwill be in respect of its interim results for the half year ended 31 January2006. The results for this half year will be announced on Tuesday 4 April 2006.The Group's first annual report under Adopted IFRS will be for the year ending31 July 2006. As comparative figures are provided, the effective date fortransition to Adopted IFRS is 1 August 2004. Accordingly the financialinformation for the half year ended 31 January 2005 and the year ended 31 July2005 has been restated. This report summarises, for the half year ended 31 January 2005 and the yearended 31 July 2005, the effects of the change from UK GAAP to Adopted IFRS onthe Group's financial statements. The contents of the report are: • Outline of the basis used for the preparation of the IFRS information • Overview of the impact of IFRS adoption • Significant changes in accounting policies and impact on the financial statements • Significant accounting policies applied under IFRS • (Appendix 1) Restated primary statements for the half year ended 31 January 2005 and the year ended 31 July 2005 • (Appendix 2) Reconciliations of profit and equity for the half year ended 31 January 2005 and the year ended 31 July 2005 • (Appendix 3) Reconciliation of equity at 1 August 2004 Basis of preparation of transitional information under Adopted IFRS The financial information has been prepared on the recognition and measurementbasis of IFRS adopted by the EU and in accordance with the accounting policiesthat the Group expects to apply in its first IFRS financial statements. The significant accounting policies applied are set out below. These arepreliminary accounting policies pending finalisation at the year end. Transitional arrangements IFRS 1 - 'First Time Adoption of International Financial Reporting Standards'permits companies to apply certain exemptions from the full requirements of IFRSduring transition. No adjustments have been made for any changes in estimates that were made at thetime of approval of the UK GAAP financial statements on which the preliminaryIFRS financial information is based. The Group has applied the following keyexemptions : IFRS 2 - 'Share-based Payment' The Group has elected to apply IFRS 2 only to share-based payment transactionsgranted after 7 November 2002 which had not fully vested at 1 January 2005. IFRS 3 - 'Business Combinations' The Group has chosen not to restate business combinations prior to thetransition date on an IFRS basis. Overview of the impact of IFRS adoption Certain key areas of the Group's activities will remain unaffected by theadoption of IFRS. Most notably : • Dividend policy• Cashflow• Effective tax rate• Banking arrangements• Group strategy and processes for decision making Based on the accounting policies detailed in the subsequent section, the effectof the transition on key reported results is as follows: Half year ended Year ended 31 January 2005 31 July 2005 UK GAAP IFRS UK GAAP IFRS £m £m £m £mOperating profit 96.2 96.6 229.7 230.3Profit for the period 64.2 62.7 152.8 149.2Basic EPS 56.5p 56.1p 134.6p 133.1pNet assets 725.9 706.4 796.1 779.8 Appendices 2 and 3 provide detailed reconciliations of the movements for theIncome Statement and Balance Sheet. The most significant changes in the Group's financial statements, resulting fromthe transition to IFRS are in the following areas : • The reclassification of the preference shares in the balance sheet, outof equity and into non-current liabilities. • The recognition of the pension scheme deficit in the balance sheet, andthe corresponding increases in administrative expenses and finance expenses inthe income statement and the actuarial loss in the Statement of RecognisedIncome and Expense (SORIE). • The exclusion of proposed equity dividends from the income statementand from liabilities in the balance sheet. Applying Adopted IFRS, an interimequity dividend is not recorded until it is paid, also a final equity dividendis not recorded until it is approved by shareholders. Under Adopted IFRS, thedividend is presented as a movement in equity. • Land creditors are now discounted to fair value with a correspondingreduction in inventories. The discount represents notional interest and this isreflected as increased financing costs over the deferral period. The reductionin the inventory results in reduced cost of sales and a higher operating marginover the life of a development. • There is now a change to the basis of measurement of the charge to theincome statement in relation to share based payments. Significant changes in accounting policies and impact on the financialinformation The following narrative covers the half year to 31 January 2005 ('the halfyear') and the year to 31 July 2005 ('the year end'). IAS 32 and IAS 39 - 'Financial Instruments' Preference dividends expensed are now disclosed within financing costs ratherthan as dividends. This results in finance costs increasing by £0.9m for thehalf year ended 31 January 2005 and by £1.9m for the year ended 31 July 2005. The preference shares of £20.0m are removed from equity and shown withinnon-current liabilities. The £0.6m preference dividend, which is accrued usingthe effective interest rate method at each balance sheet date, is recognisedwithin interest bearing loans and borrowings. IAS 2 - 'Inventories' Land purchased on deferred terms is measured at fair value. The associated landcreditor is reduced by an amount of notional interest; the liability is thenincreased to the settlement value over the period of deferral. The net effect isa reduction in the creditor of £2.2m at the half year and £2.9m at the year end.The corresponding inventory is also reduced by the notional interest; the lowerland value results in a reduced charge to cost of sales as the profit is takenon a development. The net effect on inventories is a reduction of £6.8m at thehalf year and £8.0m at the year end. Cost of sales is reduced by £0.6m and £1.5m respectively. The increased interest is charged to financing costs over the deferral periodand amounts to £1.3m at the half year and £2.7m at the year end. The differing rate at which the finance costs and cost of sales are recognisedin the income statement produces a deferred tax credit shown in income taxexpense. IAS 10 - 'Events After the Balance Sheet Date' Under IAS 10 only dividends which are approved at the balance sheet date areshown as a liability. Dividends are recognised as an appropriation of equity when they are paid, foran interim dividend, or approved by shareholders at the AGM, for a finaldividend. Amounts previously accrued in the balance sheet are now removed,resulting in reduced liabilities at the half year of £14.7m and £20.7m at theyear end. The net increase in equity is shown within the Statement of Changes inEquity. IAS 19 - 'Employee Benefits' Under UK GAAP the Group accounted for the defined benefit pension scheme inaccordance with SSAP 24. A pension prepayment was held in the balance sheetrepresenting the difference between pension contributions and the regularpension cost established actuarially. The Group made a special contribution of£9.8m to the scheme to address the deficit identified in the actuarial valuationin 2002 and this accounted for a large part of the total pension prepayment.Under IFRS this prepayment reverses, reducing trade and other receivables by£8.4m at the half year and £9.1m at the year end. IAS 19, as amended in 2004, provides an option for companies to account foractuarial gains and losses in full in the SORIE. The Group has adopted thisapproach from the date of transition. The Group's full year financial statements under UK GAAP disclosed definedbenefit pension scheme assets and liabilities under FRS 17 within a note to thefinancial statements. The valuation approach used under FRS 17 is similar tothat used for IAS 19 with the exception that IAS 19 requires the marketvaluation of scheme assets is carried out on a bid basis rather than amid-market basis. The deficit under IAS 19 is disclosed within retirementbenefit obligations on the balance sheet. The deficit is £10.1m at the half yearand £12.1m at the year end. Under IAS 19, the current service cost (which is the increase in the presentvalue of the defined benefit obligation as a result of employee service in thecurrent period) is recognised within the income statement. Past service costs(which arise when the employer makes a commitment to provide an increased levelof benefit) are also recognised within the income statement. The SSAP 24 pensioncharge has been reversed. The net effect is an increased charge to the incomestatement of £0.2m for the half year and £0.6m for the full year. The interest charge (which is the increase during the period in the presentvalue of defined benefit obligations) is recognised in financing costs. For thehalf year the charge was £0.2m and for the full year it was £0.3m. IFRS 2 - 'Share-based Payments' In accordance with IFRS 2, the Group has recognised a charge to the incomestatement in relation to equity settled share options granted after 7 November2002 which had not fully vested at 1 January 2005. The corresponding entry isrecognised directly in equity. Fair values have been calculated for the Group'svarious option schemes using an appropriate option pricing model. For thesavings related share option schemes, a method using the Black-Scholes formulahas been used due to the relatively short exercise window. For the employeeshare option schemes, a lattice model has been used. This enables early exercisebehaviour to be modelled in a more sophisticated manner than the Black-Scholesformula. For the performance share plan, a Monte Carlo simulation technique hasbeen applied since the performance test measures the Group's total shareholderreturn relative to the appropriate peer group. The charges calculated for the schemes are spread over the period in which theoptions vest. Adjustments are made to allow for actual and expected levels ofvesting. Charges made previously under UK GAAP, have been reversed (to the extent thatthey related to options now incorporated into the IFRS 2 calculation) and anIFRS 2 charge has been recognised. The net effect is a £nil charge toadministrative expenses for the half year and £0.3m for the full year. The corresponding liability under UK GAAP (which is part of retained earnings)for options now dealt with under IFRS 2 has also been reversed. An estimate of the tax base at each balance sheet date is established bymultiplying the option's intrinsic value, which is the difference between theexercise price and the market value at the balance sheet date, by the vestingperiod that has lapsed. The temporary difference resulted in a deferred taxasset of £2.6m at the half year and £2.4m at the year end. Conclusion Adopting IFRS has not affected the Group's operations in terms of strategy.Also, cash flows and banking arrangements are unaffected, and there is nomaterial impact on the effective tax rate. ACCOUNTING POLICIES The preliminary restated financial information ('the financial information') hasbeen prepared in accordance with the recognition and measurement requirements ofInternational Financial Reporting Standards (IFRS) as adopted by the EuropeanUnion and IFRS 1 - 'First time adoption of IFRS'. IAS 19, as amended in 2004, provides an option for companies to account foractuarial gains and losses in full in the SORIE. The Group has adopted thisapproach from the date of transition. A summary of the significant accounting policies adopted and consistentlyapplied in the preparation of the financial information is shown below : (a) Consolidation The consolidated financial information incorporates the financial statements ofthe Company and all its subsidiary undertakings. The consolidated financial information includes the Group's share of costs andsubsequent share of profits of associates on an equity accounted basis and forjointly controlled entities, includes the Group's proportionate share of theentity's assets, liabilities, revenues and expenses. (b) Goodwill The Group's policy up to and including 1997 was to eliminate goodwill arisingupon acquisitions against reserves. Under IFRS 1 and IFRS 3, such goodwill willremain eliminated against reserves. (c) Property, plant and equipment Items are stated at cost less accumulated depreciation and impairment losses. (d) Investment property Investment property is initially recognised at cost. Subsequent to recognition,investment property is measured using the cost model and is carried at cost lessany accumulated depreciation and any accumulated impairment losses. The residual values and useful lives of investment properties are reviewed ateach financial year end. No depreciation is charged where the residual value isequal to, or greater than, the carrying amount of the asset. (e) Inventories Inventories, including part exchange properties, are stated at the lower of costand estimated net realisable value, less payments on account and related grants.Housebuilding work in progress includes direct material and labour costs andsite overheads. (f) Trade and other receivables Trade receivables are stated at their fair value at the date of initialrecognition and subsequently at amortised cost less allowances for impairment. (g) Trade and other payables Trade payables on normal terms are not interest bearing and are stated at theirfair value at the point of initial recognition and subsequently at amortisedcost. Trade payables on deferred terms, most notably in relation to landpurchases, are recorded at their fair value and subsequently at amortised cost. (h) Share capital I. Preference share capital Preference share capital is redeemable and is classified as a liability.Dividends thereon are recognised in the income statement as interest expense. II. Dividends Dividends on redeemable preference shares are recognised as a liability andaccrued using the effective interest rate method. Other dividends are recognised as a liability in the period in which they areapproved. (i) Grants Grants are included within work in progress and stocks in the balance sheet andare credited to the profit and loss account over the life of the developments towhich they relate. (j) Revenue recognition Revenue from private housing sales is recognised when transactions have legallycompleted. Sales of part exchange properties are not included in revenue. Thenet result of these transactions is classified as a cost of sale. (k) Depreciation Freehold land is not depreciated. Buildings held as fixed assets are depreciatedin equal annual instalments over 40 years. Vehicles, plant and equipment aredepreciated on a straight line basis at rates which are calculated to write offthe cost of those assets over their useful lives, which are estimated at betweenthree and ten years. (l) Taxation The charge for taxation is based on the profit for the year and takes intoaccount current and deferred taxation. The charge is recognised in the incomestatement except to the extent that it relates to items recognised in equity, inwhich case it is recognised in equity. Deferred taxation is provided for all temporary differences between the carryingamounts of assets and liabilities in the financial statements and thecorresponding tax bases. (m) Employee benefits - retirement benefit costs For the defined benefit scheme, the liability is calculated as the present valueof the defined benefit obligation at the balance sheet date. The fair value ofscheme assets are then deducted. The calculation is performed by a qualifiedactuary using the projected unit credit method. All actuarial gains and lossesare recognised immediately in the Statement of Recognised Income and Expense(SORIE). Defined contribution pension costs are charged to the income statement in theperiod for which contributions are payable. (n) Employee benefits - share-based payment In accordance with IFRS 2, the fair value of equity settled share optionsgranted is recognised as an employee expense with a corresponding increase inequity. The fair value is measured as at the date the options are granted.Various option pricing models are used according to the terms of the optionscheme under which the options were granted. The fair value is spread over theperiod during which the employees become unconditionally entitled to theoptions. The amount recognised as an expense is adjusted to reflect the actualnumber of options that vest. IFRS 2 has been applied to options granted after 7 November 2002, which had notvested at 1 January 2005. (o) Operating leases Operating lease rentals are charged to the Income Statement on a straight linebasis over the period of the lease. (p) Finance income and expenses Finance expenses includes interest on bank borrowings and dividends onredeemable preference shares. The discounting of the deferred payments for landpurchases produces a notional interest payable amount and this is also chargedto finance expenses. Finance income includes interest receivable on bank deposits. Appendix 1 Consolidated Income Statement (unaudited) Half year Year ended ended 31 January 31 July 2005 2005 (restated) (restated) £m £m Revenue 493.9 1,178.1 Cost of sales (372.5) (896.2) Gross profit 121.4 281.9 Administrative expenses (24.8) (51.6) Operating profit 96.6 230.3 Finance income 1.4 2.2 Finance expenses (8.3) (18.6) Profit before taxation 89.7 213.9 Income tax expense (27.0) (64.7) Profit for the period 62.7 149.2 Earnings per ordinary share - Basic 56.1p 133.1p - Diluted 55.6p 131.8p Consolidated Statement of Recognised Income and Expense (unaudited) Half year Year ended ended 31 January 31 July 2005 2005 (restated) (restated) £m £m Actuarial losses on defined benefit pension scheme (3.0) (5.0) Tax on items taken directly to equity 0.9 1.5 Net expense recognised directly in equity (2.1) (3.5) Profit for the period 62.7 149.2 Total recognised income for the period 60.6 145.7 Appendix 1 Consolidated Balance Sheet (unaudited) At At 31 January 31 July 2005 2005 (restated) (restated) £m £m ASSETS Non-current assets Property, plant and equipment 16.2 17.6 Investments in associates - 0.1 Other receivables 1.3 7.5 Deferred tax assets 11.3 11.5 28.8 36.7 Current assets Inventories 1,098.9 1,238.4 Trade and other receivables 28.7 31.6 Cash and cash equivalents 57.9 66.4 1,185.5 1,336.4 Total assets 1,214.3 1,373.1 LIABILITIES Non-current liabilities Interest bearing loans and borrowings (193.0) (256.0) Retirement benefit obligations (10.1) (12.1) Other payables (18.2) (19.3) (221.3) (287.4) Current Liabilities Interest bearing loans and borrowings (49.0) (2.0) Trade and other payables (210.0) (271.6) Current tax liabilities (27.6) (32.3) (286.6) (305.9) Total liabilities (507.9) (593.3) Net assets 706.4 779.8 EQUITY Issued capital 14.1 14.2 Share premium 106.3 108.9 Other reserves 1.5 1.5 Retained earnings 584.6 655.3 Total equity attributable to equity holders of the parent 706.5 779.9 Minority interest (0.1) (0.1) Total equity 706.4 779.8 Appendix 1 Group Cash Flow Statement (unaudited) Half year Year ended ended 31 January 31 July 2005 2005 (restated) (restated) £m £m Cash flows from operating activities Profit for the period 62.7 149.2 Depreciation charge 1.6 3.3 Profit on sale of property, plant and equipment (0.1) (0.2) Finance income (1.4) (2.2) Finance expenses 8.3 18.6 Share based payment charge 0.7 1.6 Income tax expense 27.0 64.7 Increase in inventories (79.5) (219.1) Increase in trade and other receivables (2.8) (11.9) (Decrease) / increase in trade and other payables (60.2) 0.7 Cash from operations (43.7) 4.7 Interest paid (6.5) (15.4) Income tax paid (35.2) (68.1) Net cash outflow from operating activities (85.4) (78.8) Cash flows from investing activities Acquisition of property, plant and equipment (1.6) (5.1) Proceeds from sale of property, plant and equipment 0.5 1.1 Interest received 1.4 2.3 Net cash inflow / (outflow) from investing activities 0.3 (1.7) Cash flows from financing activities Increase in bank borrowings - 63.0 Proceeds from the issue of share capital on exercise of share options 1.8 4.5 Purchase of own shares by employee share option plans (0.1) (0.3) Dividends paid (17.6) (32.2) Net cash (outflow) / inflow from financing activities (15.9) 35.0 Net decrease in cash and cash equivalents (101.0) (45.5) Cash and cash equivalents at beginning of period 111.9 111.9 Cash and cash equivalents at end of period 10.9 66.4 Appendix 1 Consolidated Statement of Changes in Equity (unaudited) Half year ended 31 January 2005 Attributable to equity holders of the parent Ordinary share Share Other Retained Total Minority Total capital premium reserves earnings Interest equity £m £m £m £m £m £m £m At 1 August 2004 14.0 104.5 1.5 540.8 660.8 (0.1) 660.7 Total recognised 60.6 60.6 60.6 income and expense Dividends on (17.6) (17.6) (17.6) equity shares Shares issued 0.1 1.8 1.9 1.9 Charge in relation 1.0 1.0 1.0 to share options and tax thereon Exercise of share (0.2) (0.2) (0.2) options / share awards At 31 January 2005 14.1 106.3 1.5 584.6 706.5 (0.1) 706.4 Year ended 31 July 2005 Attributable to equity holders of the parent Ordinary share Share Other Retained Total Minority Total capital premium reserves earnings Interest equity £m £m £m £m £m £m £m At 1 August 2004 14.0 104.5 1.5 540.8 660.8 (0.1) 660.7 Total recognised 145.7 145.7 145.7 income and expense Dividends on (32.2) (32.2) (32.2) equity shares Shares issued 0.2 4.4 4.6 4.6 Charge in relation 1.4 1.4 1.4 to share options and tax thereon Exercise of share (0.4) (0.4) (0.4) options / share awards At 31 July 2005 14.2 108.9 1.5 655.3 779.9 (0.1) 779.8 Appendix 2 Reconciliation of Profit (unaudited) Half year ended 31 January 2005 Previously reported IFRS 2 IAS 19 IAS 2 IAS 32 Effect of Restated under UK Share-based Employee Inventories Financial transition under IFRS GAAP payment benefits instruments to IFRS £m £m £m £m £m £m £m Revenue 493.9 - - - - 0.0 493.9 Cost of sales (373.1) - - 0.6 - 0.6 (372.5) Gross profit 120.8 0.0 0.0 0.6 0.0 0.6 121.4 Administrative (24.6) - (0.2) - - (0.2) (24.8) expenses Operating profit 96.2 0.0 (0.2) 0.6 0.0 0.4 96.6 Finance income 1.4 - - - - - 1.4 Finance expenses (5.9) - (0.2) (1.3) (0.9) (2.4) (8.3) Profit before 91.7 0.0 (0.4) (0.7) (0.9) (2.0) 89.7 taxation Income tax (27.5) 0.2 0.1 0.2 - 0.5 (27.0) expense Profit for the 64.2 0.2 (0.3) (0.5) (0.9) (1.5) 62.7 period Earnings per ordinary share - Basic 56.5p 56.1p - Diluted 56.0p 55.6p Appendix 2 Reconciliation of Profit (unaudited) Year ended 31 July 2005 Previously reported IFRS 2 IAS 19 IAS 2 IAS 32 Effect of Restated under UK Share-based Employee Inventories Financial transition under IFRS GAAP payment benefits instruments to IFRS £m £m £m £m £m £m £m Revenue 1,178.1 - - - - 0.0 1,178.1 Cost of sales (897.7) - - 1.5 - 1.5 (896.2) Gross profit 280.4 0.0 0.0 1.5 0.0 1.5 281.9 Administrative (50.7) (0.3) (0.6) - - (0.9) (51.6) expenses Operating profit 229.7 (0.3) (0.6) 1.5 0.0 0.6 230.3 Finance income 2.2 - - - - - 2.2 Finance expenses (13.7) - (0.3) (2.7) (1.9) (4.9) (18.6) Profit before 218.2 (0.3) (0.9) (1.2) (1.9) (4.3) 213.9 taxation Income tax (65.4) 0.1 0.3 0.3 - 0.7 (64.7) expense Profit for the 152.8 (0.2) (0.6) (0.9) (1.9) (3.6) 149.2 period Earnings per ordinary share - Basic 134.6p 133.1p - Diluted 133.3p 131.8p Appendix 2 Reconciliation of Equity (unaudited) At 31 January 2005 Previously IFRS 2 IAS 19 IAS 2 IAS 10 IAS 32 Effect of Restated reported Share-based Employee Inventories Events Financial transition under under UK payment benefits after instruments to IFRS GAAP the IFRS balance sheet date £m £m £m £m £m £m £m £m ASSETS Non-current assets Property, 16.2 - - - - - - 16.2 plant and equipment Investments - - - - - - - - in associates Other 1.3 - - - - - - 1.3 receivables Deferred tax 2.4 2.0 5.5 1.4 - - 8.9 11.3 assets 19.9 2.0 5.5 1.4 - - 8.9 28.8 Current assets Inventories 1,105.7 - - (6.8) - - (6.8) 1,098.9 Trade and 37.1 - (8.4) - - - (8.4) 28.7 other receivables Cash and cash 57.9 - - - - - - 57.9 equivalents 1,200.7 - (8.4) (6.8) - - (15.2) 1,185.5 Total assets 1,220.6 2.0 (2.9) (5.4) - - (6.3) 1,214.3 LIABILITIES Non-current liabilities Interest (173.0) - - - - - - (173.0) bearing loans and borrowings Preference - - - - - (20.0) (20.0) (20.0) shares Retirement - (10.1) (10.1) (10.1) benefit obligations Land (19.9) - - 1.7 - - 1.7 (18.2) creditors - (192.9) - (10.1) 1.7 - (20.0) (28.4) (221.3) Current Liabilities Interest (49.0) - - - - - - (49.0) bearing loans and borrowings Trade and (143.6) - - - - (0.6) (0.6) (144.2) other payables Land (66.3) - - 0.5 - - 0.5 (65.8) creditors Dividends (15.3) - - - 14.7 0.6 15.3 - Current tax (27.6) - - - - - - (27.6) liabilities (301.8) - - 0.5 14.7 - 15.2 (286.6) Total (494.7) - (10.1) 2.2 14.7 (20.0) (13.2) (507.9) liabilities Net assets 725.9 2.0 (13.0) (3.2) 14.7 (20.0) (19.5) 706.4 EQUITY Non-equity 20.0 - - - - (20.0) (20.0) - share capital - preference shares Issued 14.1 - - - - - - 14.1 capital Share premium 106.3 - - - - - - 106.3 Other 1.5 - - - - - - 1.5 reserves Retained 584.1 2.0 (13.0) (3.2) 14.7 - 0.5 584.6 earnings Total equity 726.0 2.0 (13.0) (3.2) 14.7 (20.0) (19.5) 706.5 attributable to equity holders of the parent Minority (0.1) - - - - - - (0.1) interest Total equity 725.9 2.0 (13.0) (3.2) 14.7 (20.0) (19.5) 706.4 Appendix 2 Reconciliation of Equity (unaudited) At 31 July 2005 Previously IFRS 2 IAS 19 IAS 2 IAS 10 IAS 32 Effect of Restated reported Share-based Employee Inventories Events Financial transition under under UK payment benefits after instruments to IFRS GAAP the IFRS balance sheet date £m £m £m £m £m £m £m £m ASSETS Non-current assets Property, 17.6 - 17.6 plant and equipment Investments 0.1 - 0.1 in associates Other 7.5 - 7.5 receivables Deferred tax 2.2 1.4 6.4 1.5 - - 9.3 11.5 assets 27.4 1.4 6.4 1.5 - - 9.3 36.7 Current assets Inventories 1,246.4 (8.0) (8.0) 1,238.4 Trade and 40.7 (9.1) (9.1) 31.6 other receivables Cash and cash 66.4 - 66.4 equivalents 1,353.5 - (9.1) (8.0) - - (17.1) 1,336.4 Total assets 1,380.9 1.4 (2.7) (6.5) - - (7.8) 1,373.1 LIABILITIES Non-current liabilities Interest (236.0) - (236.0) bearing loans and borrowings Preference - (20.0) (20.0) (20.0) shares Retirement - (12.1) (12.1) (12.1) benefit obligations Land (21.5) 2.2 2.2 (19.3) creditors (257.5) - (12.1) 2.2 - (20.0) (29.9) (287.4) Current Liabilities Interest (2.0) - (2.0) bearing loans and borrowings Trade and (167.5) (0.6) (0.6) (168.1) other payables Land (104.2) 0.7 0.7 (103.5) creditors Dividends (21.3) 20.7 0.6 21.3 - Current tax (32.3) - (32.3) liabilities (327.3) - - 0.7 20.7 - 21.4 (305.9) Total (584.8) - (12.1) 2.9 20.7 (20.0) (8.5) (593.3) liabilities Net assets 796.1 1.4 (14.8) (3.6) 20.7 (20.0) (16.3) 779.8 EQUITY Non-equity 20.0 (20.0) (20.0) - share capital - preference shares Issued 14.2 - 14.2 capital Share premium 108.9 - 108.9 Other 1.5 - 1.5 reserves Retained 651.6 1.4 (14.8) (3.6) 20.7 - 3.7 655.3 earnings Total equity 796.2 1.4 (14.8) (3.6) 20.7 (20.0) (16.3) 779.9 attributable to equity holders of the parent Minority (0.1) - - - - - - (0.1) interest Total equity 796.1 1.4 (14.8) (3.6) 20.7 (20.0) (16.3) 779.8 Appendix 3 Reconciliation of Equity (unaudited) At 1 August 2004 Previously IFRS 2 IAS 19 IAS 2 IAS 10 IAS 32 Effect of Restated reported Share-based Employee Inventories Events Financial transition under under UK payment benefits after instruments to IFRS GAAP the IFRS balance sheet date £m £m £m £m £m £m £m £m ASSETS Non-current assets Property, 16.6 - 16.6 plant and equipment Investments 0.1 - 0.1 in associates Other 0.3 - 0.3 receivables Deferred tax 2.4 1.4 4.6 1.2 7.2 9.6 assets 19.4 1.4 4.6 1.2 - - 7.2 26.6 Current assets Inventories 1,025.8 (6.4) (6.4) 1,019.4 Trade and 35.5 (8.5) (8.5) 27.0 other receivables Cash and cash 111.9 - 111.9 equivalents 1,173.2 - (8.5) (6.4) - - (14.9) 1,158.3 Total assets 1,192.6 1.4 (3.9) (5.2) - - (7.7) 1,184.9 LIABILITIES Non-current liabilities Interest (160.0) - (160.0) bearing loans and borrowings Preference - (20.0) (20.0) (20.0) shares Retirement - (6.8) (6.8) (6.8) benefit obligations Land (20.8) 1.2 1.2 (19.6) creditors (180.8) - (6.8) 1.2 - (20.0) (25.6) (206.4) Current Liabilities Interest (15.0) - (15.0) bearing loans and borrowings Trade and (153.1) (0.6) (0.6) (153.7) other payables Land (115.2) 1.3 1.3 (113.9) creditors Dividends (18.3) 17.7 0.6 18.3 - Current tax (35.2) - (35.2) liabilities (336.8) - - 1.3 17.7 - 19.0 (317.8) Total (517.6) - (6.8) 2.5 17.7 (20.0) (6.6) (524.2) liabilities Net assets 675.0 1.4 (10.7) (2.7) 17.7 (20.0) (14.3) 660.7 EQUITY Non-equity 20.0 (20.0) (20.0) - share capital - preference shares Issued 14.0 - 14.0 capital Share premium 104.5 - 104.5 Other 1.5 - 1.5 reserves Retained 535.1 1.4 (10.7) (2.7) 17.7 - 5.7 540.8 earnings Total equity 675.1 1.4 (10.7) (2.7) 17.7 (20.0) (14.3) 660.8 attributable to equity holders of the parent Minority (0.1) - - - - - - (0.1) interest Total equity 675.0 1.4 (10.7) (2.7) 17.7 (20.0) (14.3) 660.7 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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