9th Dec 2005 07:01
Berkeley Group Holdings (The) PLC09 December 2005 Consolidated Income Statement Six months Six months Year ended ended ended 30 April 31 October 31 October 2005 2005 2004 Unaudited Unaudited Unaudited Notes £'000 £'000 £'000Continuing operationsRevenue 3(a) 503,063 419,521 794,461Cost of sales (379,143) (292,155) (565,395)Gross profit 123,920 127,366 229,066Net operating expenses (34,727) (37,192) (75,687) Net operating expenses include: (1,536) (1,633)Merger expenses - Operating profit 3(b) 89,193 90,174 153,379Interest receivable 4 10,682 6,031 11,292Finance costs 4 (16,472) (4,145) (19,573)Share of post tax results of joint 3(c) 2,610 7,103 10,358venturesProfit on ordinary activities 86,013 99,163 155,456before taxationTaxation 5 (24,352) (27,092) (41,439)Profit on ordinary activities after 61,661 72,071 114,017taxationDiscontinued operationsProfit from discontinued operations 6 80,782 6,421 24,941Profit for the financial period 142,443 78,492 138,958 Dividends per Ordinary Share - 16.5p 16.5p Earnings per Ordinary Share - Basic 7 118.7p 65.8p 116.2p - Continuing 51.4p 60.3p 95.3p operations - Discontinued 67.3p 5.5p 20.9p operations - Diluted 7 118.0p 65.1p 115.1p - Continuing 51.1p 59.8p 94.4p operations - Discontinued 66.9p 5.3p 20.7p operations Consolidated Statement of Recognised Income and Expense Six months Six months Year ended 30 ended ended April 2005 31 October 31 October Unaudited 2005 2004 Unaudited Unaudited £'000 £'000 £'000 Profit for the financial period 142,443 78,492 138,958Actuarial loss recognised in the (529) (1,518) (3,262)pension schemeDeferred tax on actuarial loss 159 455 978recognised in the pension schemeCredit in respect of employee 3,173 417 3,533share schemesDeferred tax in respect of 2,210 329 658employee share schemes Total recognised income for the 147,456 78,175 140,865period Consolidated Balance Sheet Notes At 31 October At 31 October At 30 April 2005 2004 2005 Unaudited Unaudited Unaudited £'000 £'000 £'000AssetsNon-current assetsProperty, plant and equipment 2,555 10,462 8,883Investments accounted for using 65,158 63,929 64,497equity methodDeferred tax assets 10,739 4,816 8,074 78,452 79,207 81,454Current assetsInventories 879,121 1,109,032 1,103,045Trade and other receivables 43,696 27,595 48,067Cash and cash equivalents 568,650 349,311 344,948 1,491,467 1,485,938 1,496,060LiabilitiesCurrent liabilitiesBorrowings (85) (25,106) (88)Trade and other payables (248,620) (253,436) (293,090)Current tax liabilities (25,674) (23,520) (17,870) (274,379) (302,062) (311,048)Net current assets 1,217,088 1,183,876 1,185,012Total assets less current 1,295,540 1,263,083 1,266,466liabilitiesNon-current liabilitiesBorrowings (497,302) (75,000) (600,000)Retirement benefit obligation (12,515) (10,716) (12,089)Other non-current liabilities (17,358) (14,591) (32,968) (527,175) (100,307) (645,057)Net assets 768,365 1,162,776 621,409 Shareholders' equityShare capital 24,164 30,200 24,164Share premium 264 - 264Capital redemption reserve 6,091 - 6,091Other reserve (961,299) (961,299) (961,299)Retained profit 1,670,122 2,066,786 1,522,976Joint ventures' reserves 29,023 26,589 28,713Total shareholders' equity 8 768,365 1,162,276 620,909Minority interest in equity - 500 500Total equity 768,365 1,162,776 621,409Net assets per ordinary share 640p 971p 518p Consolidated Cash Flow Statement Notes Six months Six months Year ended ended ended 30 April 2005 31 October 31 October 2004 Unaudited 2005 Unaudited Unaudited £'000 £'000 £'000 Cash flows from operating activitiesCash generated from operations 116,533 164,169 289,187Dividends from joint ventures - 510 1,564Interest received 10,682 5,580 11,413Interest paid (29,586) (4,055) (7,845)Tax paid (18,893) (29,534) (59,754)Net cash from operating activities 9 78,736 136,670 234,565 Cash flows from investing activitiesPurchase of tangible fixed assets (778) (789) (1,853)Sale of tangible fixed assets 356 3,365 5,764Disposal of subsidiary undertaking 250,736 - -Overdraft balance of subsidiary 572 - -disposedExpenses relating to disposal of (2,765) - -subsidiaryMovements in loans with joint (454) 3,910 4,490venturesMerger expenses - (1,536) (1,633)Net cash from investing activities 247,667 4,950 6,768 Cash flows from financing activitiesCost of share buybacks - (20,656) (20,656)Share options exercised - 5,477 5,667Issue / redemption expenses - (2,746) (2,841)Redemption of shares - - (604,153)Repayment of loan stock (3) (14) (32)Repayment of bank loan (102,698) - (100,000)New bank loan issued - - 600,000Equity dividends paid - (19,676) (19,676)Net cash used in financing (102,701) (37,615) (141,691)activities Net increase in cash and cash 223,702 104,005 99,642equivalentsCash and cash equivalents at start 344,948 245,306 245,306of the periodCash and cash equivalents at end of 568,650 349,311 344,948the period Reconciliation of net cash flow to netcash / (debt)Net increase in cash and cash equivalents 223,702 104,005 99,642Cash outflow / (inflow) from decrease / 102,701 14 (499,968)(increase) in debtMovement in net (debt) / cash in the 326,403 104,019 (400,326)periodOpening net (debt) / cash (255,140) 145,186 145,186Closing net cash / (debt) 71,263 249,205 (255,140) At 31 October At 31 October At 30 April 2005 2004 2005 Unaudited Unaudited Unaudited £'000 £'000 £'000 Net cash / (debt)Cash and cash equivalents 568,650 349,311 344,948Borrowings (497,387) (100,106) (600,088)Net cash / (debt) 71,263 249,205 (255,140) 1 Basis of preparation The financial statements of the Group for the year ended 30 April 2006 will beprepared in accordance with International Financial Reporting Standards ("IFRS")as adopted for use in the European Union. The interim report has been preparedin accordance with the Listing Rules of the Financial Services Authority andwith the accounting policies which the Group intends to adopt for the yearending 30 April 2006, which will be in accordance with IFRS and with those partsof the Companies Act applicable to companies reporting under IFRS. Inparticular, the Directors have followed the amendment to IAS 19 "EmployeeBenefits" issued by the IASB on 16 December 2004 and which has now been adoptedby the European Union, for use in the financial statements for the year ending30 April 2006. The Directors may determine that some changes are necessary whenpreparing the financial statements for the year ended 30 April 2006 inaccordance with IFRS, as the IFRS standards and International FinancialReporting Interpretations Committee ("IFRIC") interpretations that will beapplicable and adopted for use in the European Union at 30 April 2006 are notknown with certainty at the time of preparing this financial information. The Group has elected to take the optional exemption from applying IAS 32 andIAS 39 in the comparative year (and to first apply them at 1 May 2005, for thesix months ended 31 October 2005 and for the year ended 30 April 2006). There isno impact on the financial statements of applying IAS 32 and IAS 39 on theimplementation of these standards at 1 May 2005. The accounting policies which the Group intends to adopt for the year ending 30April 2006, and which are have been adopted in preparing the interim report, areset out below. 2 Accounting policies Basis of preparationThese financial statements have been prepared in accordance with InternationalFinancial Reporting Standards and IFRIC interpretations and with those parts ofthe Companies Act 1985 applicable to companies reporting under IFRS, apart fromthe exception described above. The financial statements have been prepared underthe historical cost convention. The preparation of financial statements in conformity with generally acceptedaccounting principles requires the use of estimates and assumptions that affectthe reported amounts of assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period. Although these estimates are based on management's bestknowledge of the amount, event or actions, actual results ultimately may differfrom those estimates. Basis of consolidationThe consolidated accounts comprise the accounts of the parent company and allits subsidiary undertakings. The accounting date for subsidiary undertakings is30 April. In the case of acquisitions or disposals, the Group's result includesthat proportion from or to the effective date of acquisition or disposal asappropriate. 2 Accounting policies continued GoodwillWhere the cost of acquiring new and additional interests in subsidiaries, jointventures and businesses exceeds the fair value of the net assets acquired, theresulting premium on acquisition (goodwill) is capitalised and its subsequentmeasurement is based on annual impairment reviews, with any impairment lossesrecognised immediately in the income statement. Goodwill written off to reservesprior to 1998 under UK GAAP was not reinstated on transition to IFRS and is notincluded in determining any subsequent profit or loss on disposal. Joint venturesThe results attributable to the Company's holding in joint ventures are shownseparately in the consolidated profit and loss account. The amount included inthe consolidated balance sheet is the Group's share of the net assets of thejoint ventures plus net loans receivable. Goodwill arising on the acquisition ofjoint ventures is accounted for in accordance with the policy set out above. Thecarrying value of goodwill is included in the carrying value of the investmentin joint ventures. RevenueRevenue represents the amounts receivable from the sale of properties during theyear. Properties are treated as sold and profits are taken when contracts areexchanged and the building work is physically complete. This policy applies toboth residential housebuilding and commercial property activities. Revenue doesnot include the value of the onward sale of part exchange properties, for whichthe net gain or loss is recognised in cost of sales. TaxationThe taxation expense represents the sum of the tax currently payable anddeferred tax. Deferred taxation is the tax expected to be payable or recoverable ondifferences between the carrying amounts of assets and liabilities in thefinancial statements and corresponding tax bases used in the computation oftaxable profit, and is accounted for using the balance sheet liability method.Deferred tax liabilities are generally recognised on all taxable temporarydifferences. Deferred tax assets are recognised to the extent that it isprobable that taxable profits will be available against which deductibletemporary differences can be utilised. Such assets and liabilities are notrecognised if the temporary difference arises from goodwill, or from the initialrecognition (except in a business combination) of other assets and liabilitiesin a transaction that affects neither the taxable profit nor the accountingprofit, or from differences relating to investments in subsidiaries to theextent that it is probable that they will not reverse in the foreseeable future. Deferred taxation is calculated at the tax rates that are expected to apply inthe period when the liability is settled or the asset is realised. The carryingvalue of deferred tax assets is reviewed at each balance sheet date and reducedto the extent that it is no longer probable that sufficient taxable profits willbe available against which taxable temporary differences can be utilised.Deferred taxation is charged or credited to the income statement, except when itrelates to items charged or credited directly to reserves, in which case thedeferred taxation is also dealt with in reserves. 2 Accounting policies continued Property, plant and equipmentProperty, plant and equipment is carried at cost. Depreciation is provided towrite off the cost of the assets on a straight line basis over their estimateduseful lives at the following annual rates: Freehold property 2% Fixtures and fittings 15% / 20%Motor vehicles 25% Computer equipment 33 1/3 % Leasehold property is amortised over the period of the lease. Computer equipmentis included within fixtures and fittings. The assets' residual values and usefullives are reviewed on an annual basis and adjusted if appropriate at eachbalance sheet date. InvestmentsThe parent company's investments in subsidiary undertakings are included in thebalance sheet at cost less provision for any permanent diminution in value. InventoriesProperty in the course of development is valued at the lower of cost and netrealisable value. Direct cost comprises the cost of land, raw materials anddevelopment costs but excludes indirect overheads and interest. Progresspayments are deducted from work in progress. Provision is made, whereappropriate, to reduce the value of inventories and work in progress to theirnet realisable value. Land purchased for development, including land in the course of development, isinitially recorded at fair value. Where such land is purchased on deferredsettlement terms, and the fair value differs from the amount that willsubsequently be paid in settling the liability, this difference is charged as afinance cost in the income statement over the period to settlement. Cash and cash equivalentsCash and cash equivalents comprises cash balances in hand and at the bank,including bank overdrafts repayable on demand which form part of the Group'scash management, for which offset arrangements across Group businesses have beenapplied where appropriate. Derivative financial instrumentsFrom time to time the Group makes use of interest rate swaps and caps to manageits exposure to fluctuations in interest rates. The Group does not usederivative financial instruments for speculative purposes. During the period andat the period end the Group held no such instruments. On 1 May 2005, the Group adopted IAS 32 and IAS 39. Derivative financialinstruments are initially recognised at cost. Subsequent to initial recognitionthese instruments are stated at fair value. Where the derivative instrument isdeemed an effective hedge over the interest rate exposure, the instrument istreated as a cash flow hedge, and hedge accounting is applied, whereby gains andlosses in the fair value of the derivative instrument are recognised directly inequity until such time as the gains or losses are realised. On realisation, anygains are reported in the income statement net of related charges. 3 Analysis by Activity Six months Six months Year ended ended ended 30 April 2005 31 October 2005 31 October 2004 Unaudited Unaudited Unaudited Continuing operations £'000 £'000 £'000(a) Revenue Residential housebuilding 495,826 381,539 738,349 Commercial property and other 7,237 37,982 56,112 activities 503,063 419,521 794,461 (b) Operating profit Residential housebuilding 87,770 87,829 146,026 Commercial property and other 1,423 3,881 8,986 activities Merger expenses - (1,536) (1,633) 89,193 90,174 153,379 (c) Share of post tax results of joint ventures Residential housebuilding 2,610 6,981 10,117 Commercial property and other - 122 241 activities 2,610 7,103 10,358 All revenue and profit disclosed in the table above relate to continuingactivities of the Group and are derived from activities performed in the UnitedKingdom. Included in Group residential housebuilding revenue and operatingprofit are £528,000 and £467,000 in respect of land sales (2004: £3,800,000 and£1,266,000). 4 Net finance costs Six months Six months Year ended ended ended 30 April 2005 31 October 2005 31 October 2004 Unaudited Unaudited UnauditedContinuing operations £'000 £'000 £'000 Interest receivable 10,682 6,031 11,292 Finance costsInterest payable on bank loans and (15,657) (3,517) (18,058)overdraftsOther finance costs (815) (628) (1,515) (16,472) (4,145) (19,573) (5,790) 1,886 (8,281) 5 Taxation Six months Six months Year ended ended ended 30 April 2005 31 October 2005 31 October 2004 Unaudited Unaudited UnauditedContinuing operations £'000 £'000 £'000 Current taxUK corporation tax payable (25,049) (26,318) (43,157)Adjustments in respect of previous 276 341 427periods (24,773) (25,977) (42,730)Deferred tax 421 (1,115) 1,291 (24,352) (27,092) (41,439) 6 Profit from discontinued operations The Group completed the sale of The Crosby Group plc ("Crosby") to Lend LeaseCorporation Limited on 8 July 2005 for consideration of £250,736,000 whichincluded the settlement of £151,306,000 of intercompany balances. The profitfrom discontinued operations which has been included in the consolidated incomestatement is as follows: Six months Six months Year ended ended ended 30 April 2005 31 October 2005 31 October 2004 Unaudited Unaudited UnauditedDiscontinued operations £'000 £'000 £'000 Revenue 8,176 84,200 236,977 Operating profit 1,514 8,576 35,042Share of post tax results of joint - 602 548venturesFinance costs (130) (122) (196)Taxation (348) (2,635) (10,453)Post tax results from discontinued 1,036 6,421 24,941operationsProfit on disposal 79,746 - - 80,782 6,421 24,941 Revenue and operating profit from discontinued operations include £nil inrespect of commercial property and other activities (2004: £6,506,000 and£687,000 respectively). The profit on disposal of Crosby is set out as Unauditedfollows: £'000 Non-current assets 8,523Current assets 202,513Current liabilities (34,313)Non-current liabilities (7,791)Minority interest (500)Net assets disposed 168,432Expenses relating to the disposal 2,765Curtailment gain in The Berkeley Group plc staff (207)benefits planProfit on disposal 79,746Consideration 250,736Of which:Cash 99,430Settlement of intercompany balances 151,306 250,736 7 Earnings per Ordinary Share Earnings per Ordinary Share is based on the profit for the financial period of£142,443,000 (2004: £78,492,000) and the weighted average number of OrdinaryShares in issue during the period of 120,007,731 (2004: 119,248,313). Fordiluted earnings per Ordinary Share, the weighted average number of OrdinaryShares in issue is adjusted to assume the conversion of all dilutive potentialOrdinary Shares. The dilutive potential Ordinary Shares relate to shares grantedunder employee share schemes where the exercise price is less than the averagemarket price of the Ordinary Shares during the period. The effect of thedilutive potential Ordinary Shares is 740,873 shares (2004: 1,252,873), whichgives a diluted weighted average number of Ordinary Shares of 120,748,604 (2004:120,501,186). 8 Consolidated Statement of Changes in Shareholders' Equity Six months Six months Year ended 30 ended ended April 2005 31 October 31 October Unaudited 2005 2004 Unaudited Unaudited £'000 £'000 £'000 Profit for the financial period 142,443 78,492 138,958Dividends paid to shareholders - (19,646) (19,646)Share buy-backs - (20,656) (20,656)Shares issued on exercise of share - 5,476 5,667optionsIssue / redemption expenses - (2,746) (2,841)Share redemptions - - (604,153)Actuarial loss recognised in the (529) (1,518) (3,262)pension schemeDeferred tax on actuarial loss 455 978recognised in the pension scheme 159Credit in respect of employee share 3,173 417 3,533schemesDeferred tax in respect of employee 2,210 329 658share schemesNet movement on equity shareholders' 147,456 40,603 (500,764)fundsOpening equity shareholders' funds 620,909 1,121,673 1,121,673Closing equity shareholders' funds 768,365 1,162,276 620,909 9 Notes to the Consolidated Cash Flow Statement Six months Six months Year ended ended ended 30 April 2005 31 October 31 October Unaudited 2005 2004 Unaudited Unaudited £'000 £'000 £'000Net cash flows from operatingactivities Continuing operationsProfit for the period 61,661 72,071 114,017Adjustments for:- Tax 24,352 27,092 41,439- Depreciation 799 1,151 2,168- Profit on sale of property, plant (100) (366) (1,340)and equipment- Interest income (10,682) (6,031) (11,292)- Finance costs 16,472 4,145 19,573- Share of results of joint ventures (2,610) (7,103) (10,358)after tax- Merger expenses - 1,536 1,633- Non-cash charge in respect of share 3,173 417 3,533awardsChanges in working capital:- Decrease / (increase) in inventories 39,424 (15,105) (26,281)- (Increase) / decrease in debtors (6,712) 44,533 31,017- Increase in creditors 9,802 11,747 34,404- (Decrease) / increase in employee (304) 167 (359)benefit obligationsCash generated from continuing 135,275 134,254 198,154operating activitiesDividends from joint ventures - 183 459Interest received 10,682 5,519 11,292Interest paid (29,456) (3,872) (7,528)Taxation (18,893) (29,534) (59,754)Net cash from continuing operating 97,608 106,550 142,623activities Discontinued operationsProfit for the period / year 80,782 6,421 24,941Adjustments for:- Tax 348 2,635 10,453- Depreciation 58 207 413- Profit on sale of property, plant - (34) (39)and equipment- Interest income - (61) (121)- Finance costs 130 183 317- Share of results of joint ventures - (602) (548)after tax- Profit on disposal of subsidiary (79,746) - -undertaking- Non-cash movement in profit on 707 - -disposal of subsidiaryChanges in working capital:- Increase / (decrease) in inventories (15,785) (2,958) 14,205- Decrease in debtors 5,925 33,999 28,655- (Increase) / decrease in creditors (11,161) (9,875) 12,757Cash generated from discontinued (18,742) 29,915 91,033operating activitiesDividends from joint ventures - 327 1,105Interest received - 61 121Interest paid (130) (183) (317)Net cash from discontinued operating (18,872) 30,120 91,942activities Net cash from operating activities 78,736 136,670 234,565 Other net cash flows from discontinuedoperations Net cash from investing activities 248,556 4,012 441 10 Transition from UK GAAP to IFRS Reconciliation of prior period income statements Six months Year ended ended 31 October 30 April 2004 2005 Unaudited Unaudited £'000 £'000 RevenueGroup turnover as reported under UK GAAP 518,665 1,070,317IAS 18 - Impact of change of revenue recognition policy (14,944) (38,879)IFRS 5 - Eliminate revenue from discontinued operations (84,200) (236,977)Revenue (continuing operations) as reported under IFRS 419,521 794,461 Operating profitGroup operating profit as reported under UK GAAP 100,791 199,569IAS 1 - Merger expenses classified within operating (1,536) (1,633)profit under IFRSIAS 2 - Increased margin from inventory held at lower 127 250costIAS 18 - Impact of change of revenue recognition policy (1,046) (11,272)IAS 19 - Reduced charge for pension costs 78 828IFRS 2 - Reduction in charge for share-based payments 336 679IFRS 5 - Eliminate profit from discontinued operations (8,576) (35,042)Operating profit (continuing operations) as reported 90,174 153,379under IFRS Net finance costsNet interest receivable / (payable) as reported under UK 630 (10,289)GAAPIAS 2 - Unwinding of interest charge on discounted land (473) (1,206)creditorsIAS 19 - Increased charge for pension costs (155) (309)IAS 31 - Reclassify joint venture interest to share of 1,762 3,327profit of joint venturesIFRS 5 - Eliminate finance costs from discontinued 122 196operationsNet finance costs (continuing operations) as reported 1,886 (8,281)under IFRS Joint venturesShare of operating profit of joint ventures as reported 10,663 15,244under UK GAAPIAS 2 - Net adjustment from discounting of land 298 595creditors (net of interest and tax)IAS 18 - Impact of change of revenue recognition policy 1,279 1,895(net of interest and tax)IAS 31 - Reclassification of joint venture interest and (4,535) (6,828)taxIFRS 5 - Eliminate profit from discontinued operations (602) (548)(net of interest and tax)Share of post tax results of joint ventures (continuing 7,103 10,358operations) as reported under IFRS TaxationTaxation as reported under UK GAAP (32,612) (58,248)IAS 2 - Net tax adjustment from discounting of land 104 287creditorsIAS 18 - Impact of change of revenue recognition policy 314 3,382IAS 19 - Reduced charge for pension costs 23 (156)IAS 31 - Reclassify joint venture tax to share of profit 2,773 3,501of joint venturesIFRS 2 - Reclassification of deferred tax to Statement (329) (658)of Recognised Income and ExpenseIFRS 5 - Eliminate tax from discontinued operations 2,635 10,453Taxation (continuing operations) as reported under IFRS (27,092) (41,439) 10 Transition from UK GAAP to IFRS continued Reconciliation of prior period equity At At At 1 May 31 October 30 April 2004 2004 2005 Unaudited Unaudited Unaudited £'000 £'000 £'000 Total shareholders' funds as reported under 1,142,610 1,203,373 669,482UK GAAPGroupIAS 18 - Impact of change of revenue (25,413) (26,145) (33,303)recognition policyIAS 10 - Eliminate accrued dividend 19,646 - -IAS 19 - Recognition of pension scheme (5,074) (6,190) (6,994)deficitIAS 2 - Reduction in value of long-term (1,154) (1,397) (1,824)creditorsJoint venturesIAS 18 - Impact of change of revenue (3,931) (2,652) (2,036)recognition policyIAS 2 - Reduction in value of long-term (4,511) (4,213) (3,916)creditors Total equity as reported under IFRS 1,122,173 1,162,776 621,409 The tables above set out how the Group's reported opening balance sheet under UKGAAP at 1 May 2004, its financial results under UK GAAP for the six months ended31 October 2004 and financial position at that date and its audited financialresults for the year ended 30 April 2005 and financial position at that datewould have been reported under IFRS. The material accounting policy changesresulting from the adoption of IFRS, including the optional exemptions fromretrospective application of IFRS that the Group has applied, are set out below. Presentation of financial statements - primary statements The primary statements have been presented in accordance with the guidelines setout in IAS 1 "Presentation of Financial Statements". Joint ventures (IAS 31): The Group has elected to account for its investments injoint ventures using the equity method of accounting rather than adopting theproportionate consolidation method that is allowable under IAS 31. This isconsistent with the existing UK practice, subject to the following keydifference. Under IFRS, the Group's share of the results of joint ventures arepresented net of interest and tax in one line in the consolidated incomestatement. Under UK GAAP, the Group's share of the operating profit, interestand tax of joint ventures were disclosed separately. Deferred taxation (IAS 12): Under IFRS, the Group's deferred tax asset ispresented in non-current assets on the face of the consolidated balance sheet.Under UK GAAP, it was classified within other debtors in current assets. Discontinued operations (IFRS 5): Under IFRS, the results and profit on disposalfrom discontinued operations are shown in one line below profit after taxationin the income statement. Under UK GAAP, the results from discontinued operationswere included line-by-line in the profit and loss account. 10 Transition from UK GAAP to IFRS continued Group reconstruction In October 2004, the Group implemented a capital reorganisation, incorporating aScheme of Arrangement, in order to effect the return of £12 per share toshareholders by January 2011. In the opinion of the Directors, the Scheme of Arrangement was a groupreconstruction rather than an acquisition, since the shareholders in the holdingcompany of the Group after the implementation of the Scheme (The Berkeley GroupHoldings plc) were the same as the shareholders in the holding company of theGroup before the implementation of the Scheme (The Berkeley Group plc), with nochange to the rights of each shareholder, relative to the others, and noalteration to minority interests in the net assets of the Group. Accordingly,the Directors adopted merger rather than acquisition accounting principles indrawing up the financial statements, having regard to the overriding requirementof section 227(6) of the Companies Act 1985 for the accounts to present a trueand fair view of the Group's results and financial position. IFRS 3 ("Business Combinations") does not identify merger accounting asapplicable for business combinations; however it does not address the accountingfor business combinations involving entities under common control, such as groupreconstructions. There is currently no guidance as to the appropriate accountingfor group reconstructions under IFRS. The Directors therefore believe that it isappropriate to continue to adopt merger accounting for the Group reconstructionunder IFRS. Business Combinations before the transition date (IFRS 3) The Group has elected not to apply IFRS 3 retrospectively to businesscombinations that took place before the beginning of the first IFRS reportingperiod. Revenue recognition (IAS 18) On traditional developments under UK GAAP, properties were treated as sold andprofits were taken when contracts were exchanged and the building work wasphysically complete. On complex multi-unit developments, revenue and profit wererecognised on a staged basis, commencing when the building work wassubstantially complete, which was defined as being plastered, and when contractswere exchanged. On transition to IFRS, the Group has amended its policy to recognise revenue onproperties on both traditional and complex multi-unit developments whencontracts are exchanged and the building work is physically complete. Thisbrings the policy on complex multi-unit developments into line with the Group'sexisting revenue recognition policy on traditional developments and reflects theprovisions of IAS 18 ("Revenue"). This change in policy constitutes a timing difference in terms of the point atwhich revenue is recognised, and has no impact on the underlying profitabilityof the Group. Profit in any one year will be higher or lower than under theexisting policy based on the timing of build programmes. There is no impact on the Group's net debt position as a result of the change inpolicy. 10 Transition from UK GAAP to IFRS continued Events after the Balance Sheet date (IAS 10) IAS 10 ("Events after the Balance Sheet date") requires that dividends approvedafter the balance sheet date should not be recognised as a liability at thatbalance sheet date since the liability did not represent a present obligation atthat date. Employee benefits (IAS 19) Under UK GAAP, the Group applied SSAP 24 in respect of the Group's pensionschemes, and provided detailed information under the FRS 17 transitionaldisclosures. The Group has adopted IAS 19 ("Employee benefits") in preparing the IFRS openingbalance sheet, including the amendment to IAS 19 issued by the IASB on 16December 2004 which allows all actuarial gains and losses to be charged orcredited to equity through the statement of recognised income and expense. Sincethe Group has elected to follow this approach, all cumulative actuarial gainsand losses in relation to employee benefit schemes have been recognised at thebeginning of the first IFRS reporting period. Share-based payments (IFRS 2) The Group has elected to follow the transitional provisions of IFRS 2, andtherefore to apply IFRS 2 only to grants under the Group's share option schemesand Long Term Incentive Plans made after 7 November 2002 which had not vested by1 January 2005. All options under the Group's existing share option schemes had vested by 1January 2005, and as such, in accordance with IFRS 2, will be included on adisclosure basis in the first IFRS financial statements. Of the four grants under The Berkeley Group plc 2000 Long Term Incentive Plan,only the grant of 22 July 2003 has been accounted for under IFRS 2. The earliergrants of 21 December 2000, 7 August 2001 and 19 August 2002 will be included ona disclosure basis in the first IFRS financial statements. Deferred tax on the 2000 LTIP is calculated at each reporting date based on anestimate of the future tax deduction. The tax benefit up to the amount of thetax effect of the cumulative expense is recorded in the income statement, andthe excess tax benefit above this amount is recorded in equity. The Berkeley Group Holdings plc 2004(b) Long-Term Incentive Plan was introducedduring the year ended 30 April 2005, and the only grants under this scheme werethose made to four main Board Directors on Court approval of the Scheme ofArrangement on 26 October 2004. As such these grants fall to be treated underIFRS 2. The accounting treatment under IFRS 2 is similar to the UK GAAPtreatment under UITF 17 (revised) and no significant adjustment arises ontransition to IFRS. 10 Transition from UK GAAP to IFRS continued Land purchased on deferred settlement terms (IAS 2) IAS 2 ("Inventories") requires that, where a company purchases inventories ondeferred settlement terms and the arrangement effectively contains a financingelement, then that element should be recognised as interest expense over theperiod of financing. This affects the Group in respect of long-term landcreditors (which have a price determined at inception but payable a year or morein the future) which must be recognised at a discounted net present ("fair")value on recognition, with the discount being unwound through finance costs overthe period to settlement of the liability. This adjustment does not affect net profit or net assets over time. It is areduction of work in progress and creditors by an equal amount in the balancesheet at inception, and a reclassification between cost of sales and financecosts in the income statement. The timing of recognition of the finance costs(on an effective interest basis) and of the equivalent benefit in operatingprofit (when sales are recognised on the relevant sites) will however give riseto a net impact on net assets at each balance sheet date. Financial Instruments (IAS 32 and IAS 39) The Group has elected to take the optional exemption from applying IAS 32 andIAS 39 in the comparative year (and to first apply them at 1 May 2005 and forthe year ended 30 April 2006). There is one area in which the adoption of thesestandards would have impacted on the comparative results as at 31 October 2004: Classification of B sharesIAS 32 sets out guidelines in respect of the classification of financialinstruments between debt and equity. Following the Scheme of Arrangement, thenew holding company of the Group, The Berkeley Group Holdings plc, issued Units(each Unit comprising one ordinary share of 5p, one 2004 B share of 5p, one 2006B share of 5p, one 2008 B share of 5p and one 2010 B share of 5p) to existingshareholders in The Berkeley Group plc in return for their shares in TheBerkeley Group plc. Each B share is a non-voting redeemable share in the capitalof the Company and is entitled to a return of £5, £2, £2, and £3 respectively atspecified dates at the discretion of the Directors. The B shares are classifiedas equity under UK GAAP, and will continue to be classified as equity underIFRS. The share capital of the Company (including the ordinary shares and the Bshares) can only be held and traded in the form of Units and, having no fixedredemption date and amount, are equity. However, at the point at which the Board formally commits to making each B sharepayment, that B share will become debt under IFRS. Were IAS 32 to have beenadopted early, the 2004 B shares would have been reclassified as debt in theHalf Year balance sheet at 31 October 2004 under IFRS, as the Directors, at thatdate, had formally committed to the redemption of the 2004 B shares in December2004. This would have resulted in a reclassification of £604,153,000 fromshareholders' equity to borrowings in creditors (amounts falling due in lessthan one year) at 31 October 2004. There is no impact of IAS 32 and IAS 39 on the results at 1 May 2004 and 30April 2005. 10 Transition from UK GAAP to IFRS continued Segmental reporting (IAS 14) The primary reporting format for the Group is by activity, reflecting thedifferent risks and returns in the Group's residential and commercialactivities. As all of the Group's operations are within the United Kingdom, oneeconomic environment in the context of the Group's activities, there are nogeographic segments to be disclosed. Information on adoption of International Financial Reporting Standards On 26 October 2005, the Group published the document "Information on adoption ofInternational Financial Reporting Standards; Impact on results for the yearended 30 April 2005", which is available on the Group's websitewww.berkeleygroup.co.uk. The document explains how the Group's reported openingbalance sheet under UK GAAP at 1 May 2004, its financial results under UK GAAPfor the six months ended 31 October 2004 and financial position at that date andits audited financial results for the year ended 30 April 2005 and financialposition at that date would have been reported under IFRS. The document alsoexplains the material accounting policy changes resulting from the adoption ofIFRS. 11 Interim accounts These interim accounts are unaudited but have been reviewed by the auditorswhose review report is set out below. The abridged financial informationrelating to the year ended 30 April 2005 does not constitute statutory accountsfor the purposes of Section 240 of the Companies Act 1985. A copy of thestatutory accounts for the year ended 30 April 2005 under UK GAAP has been filedwith the Registrar of Companies. The report of the auditors on these financialstatements was unqualified and did not contain a statement under section 237(2)or (3) of the Companies Act 1985. These interim results were approved by the Board on 9 December 2005 and theinterim statement, which is available for inspection at the Company's RegisteredOffice, will be sent by mail to shareholders in December 2005. Independent review report to The Berkeley Group Holdings plc Introduction We have been instructed by the Company to review the financial information forthe six months ended 31 October 2005 which comprises the Consolidated IncomeStatement, the Consolidated Statement of Recognised Income and Expense, theConsolidated Balance Sheet, the Consolidated Cashflow Statement and relatednotes. We have read the other information contained in the interim report andconsidered whether it contains any apparent misstatements or materialinconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the Directors. The Directors areresponsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority. As disclosed in note 1, the next annual financial statements of the Group willbe prepared in accordance with accounting standards adopted for use in theEuropean Union. This interim report has been prepared in accordance with thebasis set out in note 1. The accounting policies are consistent with those that the Directors intend touse in the next annual financial statements. As explained in note 1, there is,however, a possibility that the Directors may determine that some changes arenecessary when preparing the full annual financial statements for the first timein accordance with accounting standards adopted for use in the European Union.The IFRS standards and IFRIC interpretations that will be applicable and adoptedfor use in the European Union at 30 April 2006 are not known with certainty atthe time of preparing this interim financial information. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom. A reviewconsists principally of making enquiries of management and applying analyticalprocedures to the financial information and underlying financial data and, basedthereon, assessing whether the accounting policies and presentation have beenconsistently applied unless otherwise disclosed. A review excludes auditprocedures such as tests of controls and verification of assets, liabilities andtransactions. It is substantially less in scope than an audit and thereforeprovides a lower level of assurance. Accordingly we do not express an auditopinion on the financial information. This report, including the conclusion, hasbeen prepared for and only for the Company for the purpose of the Listing Rulesof the Financial Services Authority and for no other purpose. We do not, inproducing this report, accept or assume responsibility for any other purpose orto any other person to whom this report is shown or into whose hands it may comesave where expressly agreed by our prior consent in writing. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 31 October 2005. PricewaterhouseCoopers LLPChartered Accountants, London9 December 2005 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Berkeley Group