7th Mar 2006 07:01
Redrow PLC07 March 2006 Tuesday 7 March 2006 Redrow plc Interim results for the six months to 31 December 2005 • Profit before tax at £53.4m (H1 2004/05: £68.3m) • Basic earnings per share at 23.5p (H1 2004/05: 30.0p) • Dividend per share increased by 19.4% to 4.3p (H1 2004/05: 3.6p) • Gearing at 24% (Dec 2004: 37%) • Forward order book at December 2005 at 1,816 units represents 4.5 months sales, in excess of Redrow and industry norms • Sales rate per outlet in first 8 weeks of second half up over 10% from 6% more outlets • Redrow positioned for growth through: - Developing our regional structure with the current land bank increased to 18,400 plots (Dec 2004: 17,500) - Capitalising on our mixed use and regeneration skills with pipeline of £750m of projects in Redrow Regeneration - Expanding our Debut initiative with planning secured in 2006 on 3 further sites for over 300 homes Robert Jones, Chairman of Redrow plc, said: "In the short term, the increase in our sales rate per outlet in the early weeksof 2006 is encouraging. Looking further ahead the growth strategies we have putin place together with our high quality land bank and a product offering thatmaximises its potential, makes us confident in our ability to deliver value forour shareholders in the future." Enquiries: Redrow plcNeil Fitzsimmons, Chief Executive 01244 520044David Arnold, Group Finance Director Patrick Handley / Nina Coad Brunswick 0207 404 5959 There will be an analyst and investor meeting at 10.30 GMT. A live audio webcastand slide presentation of this event will be available at 10.30 GMT onwww.redrow.co.uk and www.cantos.com. You can also dial-in to hear the presentation live at 10.30 GMT on +44 (0) 207138 0818. Playback will be available online through www.redrow.co.uk from 14.00(GMT) or by phone until 21 March on the following dial-in number: +44 (0) 207806 1970; passcode 1437414#. CHAIRMAN'S STATEMENT Introduction The Summer of 2004 witnessed significant change in the housing market, whichbecame more challenging and competitive as overall transaction levels fell.Redrow was positioned for this adjustment through the strengthening of ourforward sales position and the expansion of the number of sales outlets. Thisstrategy has served the Group well over the last eighteen months and as we beginto see encouraging signs in the housing market, it is equally important toposition Redrow for growth. This will be achieved through: • Developing our regional structure to increase output through further investment in our current and forward land bank • Capitalising on our skills in mixed use and regeneration projects • Expanding our Debut initiative to provide affordable open market homes for first time buyers Consequently, the Board remains confident of continuing to deliver value forshareholders and confirms its intention to increase the dividend for the year to30 June 2006 by 20% to 13.0 pence per share. The interim dividend has beenincreased to 4.3 pence per share (H1 2004/05: 3.6p). In February 2006, Redrow welcomed its 50,000th customer into their new home. Torecognise this significant milestone, and to further Redrow's commitment to thecommunities in which it operates, we have launched the Redrow Foundation. Thisis an independent charitable fund with the purpose of providing accommodationand related assistance to those in need. The results for the six months to December 2005 have been prepared underInternational Financial Reporting Standards (IFRS). These are the first resultsby Redrow under IFRS and all relevant comparatives have been restated. Financial Performance In the first half of the financial year, Redrow delivered 2,077 legalcompletions (H1 2004/05: 2,111). Overall volumes were broadly maintained andcompletions from the core Signature range, which accounted for nearly 90% offirst half legal completions, increased by 9% to 1,820 (H1 2004/05: 1,665)reflecting our strategy of maintaining a strong forward sales position andincreasing our sales outlets. This increase partially mitigated the anticipatedsecond half weighting on the In the City developments. Due to the timing ofconstruction completion of these schemes, 152 legal completions were achieved inthe first half, compared with 446 units in the corresponding period last year.It was pleasing to deliver 105 legal completions from the Group's first twoDebut developments at Willans Green, Rugby and Buckshaw Village, Chorley in linewith our expectations. The average selling price in the six months ended December 2005 was £163,100 (H12004/05: £176,700) and reflected changes in both geographic and product mix. Theaverage selling price of Signature homes was £165,800 compared with £168,200last year, influenced by a reduction in the average size of homes completed.The proportion of higher priced In the City completions was significantlyreduced and the average selling price of these properties at £189,500 (H1 2004/05: £208,500) was also lower reflecting the geographical mix. In addition, 5%of legal completions in the first half were Debut homes with an average sellingprice of £77,900. As a result of the influence of In the City schemes, turnoverin the Homes business reduced to £338.8m (H1 2004/05: £373.1m). The gross margin in the Homes operations for the period was 23.9%. This was0.8% lower than in the second half of the last financial year and 1.6% lowerthan in the corresponding period last year, reflecting the market conditionsexperienced in 2005. Redrow has consistently maintained that gross marginswould decline as the benefit of the significant sales price inflation of recentyears within the existing land bank unwinds. Additionally, we continued toinvest in our structure as part of our strategy for future growth and as aresult of the impact of overhead recovery, the operating margin was 17.4%compared with 19.9% last year. Improved overhead recovery in the second half ofthe financial year should largely offset any further anticipated gross marginreduction in that period. The operating profit for the six months endedDecember 2005 in Homes was £59.1m (H1 2004/05: £74.2m). We anticipate that theoperating profit for the Homes operations will be more weighted towards thesecond half than in 2004/05 primarily due to the timing of In the Citycompletions which are virtually all forward sold. Our Mixed Use and Regeneration activities achieved the expected break evenposition in the first six months (H1 2004/05: £0.4m) as pre-developmentexpenditure in Redrow Regeneration was offset by profit generated by our mixeduse activities. We currently expect the second half result for Mixed Use andRegeneration to be similar to the first half of this financial year. After charging interest of £5.3m (H1 2004/05: £5.9m), the profit before tax forthe six months ended December 2005 was £53.4m (H1 2004/05: £68.3m) with earningsper share at 23.5p (H1 2004/05: 30.0p). Interest cover remains strong at 11.2times and with net debt as at 31 December 2005 of £116.1m (Dec 2004: £152.1m),gearing fell to 24% (Dec 2004: 37%). We continue to invest in our land bank andwork in progress to support the future growth of our business which, coupledwith the impact of the increased weighting of profits towards the second half,are the principal factors in the return on capital employed being lower at 20.4%(H1 2004/05: 27.9%). Land Redrow has been active in the land market in the six months to December 2005 aswe secured plots to grow our regional operations with the current land bankincreasing to 18,400 plots (Dec 2004: 17,500), representing over four years'supply. As the industry looks to increase sales outlets, land capable of shortterm conversion into an outlet continues to trade at a premium. However, weremain focused on securing plots under contract where we can use our skills toadd value and, as a result, land controlled under contract increased to 3,300plots (Dec 2004: 2,300 plots). Our land owned with planning as at December 2005was 15,100 plots (Dec 2004: 15,200 plots) with an average plot cost of £29,400(Dec 2004: £28,000). The competitiveness of our land bank has been sustained asthis plot cost still represents only 17.3% of the estimated average sellingprice. Forward land remains an integral element of our business and 36% of additions toour owned land bank were generated from this source. Forward land either withplanning or as allocations totalled 8,500 plots as at December 2005 andincreased by 500 plots over the same time last year despite the considerablesuccess in conversion of plots into the current land bank. A number of majoropportunities are progressing through the planning system and we are confidentthat forward land will make a strong contribution to our land bank over thecoming years. Redrow's land bank remains one of the most effective in the industry and 85% of2006/07 projected legal completions are from sites owned with planning and afurther 10% are from controlled sites. Over 75% of 2007/08 projected legalcompletions are from sites either owned or controlled providing a solid base forgrowth. Sales The Autumn 2005 market displayed a seasonal upturn but consumer confidenceremained relatively weak and liquidity in the second hand market was below thelevels expected in a normal housing market. We accelerated investment in workin progress and showhomes to provide our customers with greater opportunity tosee the quality and range of our product offering. Redrow continued toincrease its outlets which were, on average, approximately 12% higher than inthe first half of the previous financial year. This was a major factor inreservations increasing by 12% as the sales rate per outlet was maintained inline with the corresponding period last year. Rather than aggressively seekingsales in a challenging market where incentives were being widely used togenerate activity, we used our strong forward sales to support our salesperformance. As a consequence, forward sales continued to unwind in line withour sales strategy and as at December 2005 totalled 1,816 (Dec 2004: 1,948).This still represents a strong position of over 4.5 months sales which is inexcess of both Redrow and industry norms. Web-site traffic and visitor levels in October and November were moreencouraging and mortgage approval data also provided a more positive outlook aswe moved into 2006. Our web-site traffic has shown a further significantincrease during January and February, being 50% higher than in the correspondingperiod last year. Pricing in 2006 has been more robust though customers still remain cautious.Our sales rate per outlet has increased by over 10% since the start of the newcalendar year compared with the same period last year with approximately 6% moreoutlets in the marketplace. We now have approximately 85% of properties for2005/06 sold on a plot specific basis and have already secured over 600 sales totake into the next financial year. Despite Government initiatives, the planningsystem continues to frustrate our industry and we currently expect our averagenumber of outlets for the second half of the financial year to be slightly lowerthan previously anticipated, however this should be mitigated by the increasedrate of sale per outlet currently being achieved. Product and Design A key element of Redrow's offering to our customers is the quality of theproduct in the widest sense. This not only encompasses the homes themselves butthe totality of the development; the way the homes relate to each other, theelevational treatments and the quality of the public realm. Our objective is todeliver developments of superior design aimed at achieving enhanced sales valueswhilst controlling the cost base. We continue to develop our product range to maximise the value generated fromour land bank. Through ongoing re-evaluation of our housing range, we continueto drive cost out of our Signature and Debut product ranges whilst maintainingthe overall quality and flexibility of design. We expect an increasingproportion of standard product to be used, with almost 85% of output in 2006/07being either from these ranges or procured through our central projectmanagement team on our In the City developments. Mixed Use and Regeneration Our mixed use capability has historically unlocked opportunities for residentialdevelopment and continues to be important in generating new opportunities.Bishopton near Glasgow, a potential development in excess of 2,000 new homes and90 acres of commercial property, is making progress through the planning systemand we will be looking to make a planning application during 2006. We are alsopleased to have secured preferred developer status with English Partnerships forthe £70m regeneration of part of Devonport, Plymouth which it is anticipatedwill include over 450 new homes together with 100,000 sq. ft. of office andretail space and additional community benefits. This, together with theemerging forward land at Exeter and Taunton, will provide us with a significantopportunity to grow our new business in the West Country. Redrow Regeneration has continued to make excellent progress and has assembled aportfolio of potential projects with a development value of over £750m. Inaddition to the joint venture entered into in 2004/05 to redevelop WatfordJunction railway station at an estimated development value of £500m, the companyhas now secured two further projects. At Barking, we are delivering a majorregeneration of the Town Square which in the first phase includes the provisionof approximately 250 new homes and a Life-Long Learning Centre. This wholeproject has a total estimated development value of £90m with the first incomeexpected to be generated in the Summer of 2007. Redrow Regeneration has alsorecently secured preferred developer status with Network Rail for the £190mregeneration of Guildford Station which will include approximately 500 new homestogether with 130,000 sq. ft. of office and 15,000 sq. ft. of retail space aswell as significant enhancements to station facilities. Debut by Redrow We expect to deliver over 200 new Debut homes in the current financial year fromour first three projects at Rugby, Chorley and Castle Vale, Birmingham. We aredelighted to have now secured planning for further Debut developments at Stoke,St David's Park and Sittingbourne for a further 300 units. We now have planningpermission for 380 units capable of delivery in 2006/07 and are progressingapplications on a further 4 sites for 450 units which should provide the Groupwith a firm base to increase the contribution from Debut in future years. We continue to evolve the product and remain convinced that Debut offers asignificant opportunity for Redrow in a segment of the market largelyunaddressed by the new homes industry. Our recent experience in Bristolsupports this view as an exhibition to promote a potential new Debut developmentwas attended in a single day by over 700 people. Registrations for all 106proposed Debut homes were taken further underlining the demand and appeal ofthis innovative product. Summary The increase in our sales rate per outlet in the early weeks of 2006 isencouraging and we are well placed to benefit from improvements in the marketover the coming months. We have continued to progress opportunities to delivergrowth through our regional structure, our mixed use and regeneration skills andour Debut homes. The high quality current and forward land bank we haveassembled, coupled with a product offering that maximises the profitabilityinherent in this land bank, gives Redrow the capability to continue to generatehigh quality returns. We remain confident in our ability to deliver value forour shareholders. Robert JonesChairman Consolidated Income Statement (Unaudited) 6 months ended 12 months ended 31 December 30 June Restated Restated 2005 2004 2005 Note £m £m £m Continuing operationsRevenue 2 338.9 373.8 780.4Cost of sales (257.4) (278.0) (583.7)Gross profit 2 81.5 95.8 196.7 Administrative expenses 2 (22.4) (21.2) (42.7)Operating profit before financing costs 59.1 74.6 154.0 Financial income 0.2 0.4 0.8Financial expenses (5.5) (6.3) (13.4)Net financing costs 2 (5.3) (5.9) (12.6) Share of loss of joint ventures afterinterest and taxation 2 (0.4) (0.4) (2.4) Profit before tax 2 53.4 68.3 139.0 Income tax expense 2, 3 (16.1) (20.6) (42.5) Profit for the period 2 37.3 47.7 96.5 Earnings per share Basic earnings per share 5 23.5p 30.0p 60.7pDiluted earnings per share 5 23.4p 29.9p 60.5p Consolidated Statement of Recognised Income and Expense (Unaudited) 6 months ended 12 months ended 31 December 30 June Restated Restated 2005 2004 2005 £m £m £m Effective portion of changes in fair value of interest rate cashflow hedges 0.1 (0.8) (1.6)Deferred tax on change in fair value of interest rate cash flowhedges (0.1) 0.2 0.5Share-based payment recognised in the income statement - - 0.2Deferred tax on share-based payment recognised in the incomestatement - - (0.1)Actuarial (losses)/gains on defined benefit pension scheme (2.0) 1.5 0.7 Deferred tax on actuarial (losses)/gains taken directly to equity 0.6 (0.5) (0.2) Net (expense)/income recognised directly in equity (1.4) 0.4 (0.5) Profit for the period 37.3 47.7 96.5 Total recognised income and expense for the period 35.9 48.1 96.0 Reconciliation of Movements in Consolidated Equity (Unaudited) 6 months ended 12 months ended 31 December 30 June Restated Restated 2005 2004 2005 £m £m £m Profit for the period 37.3 47.7 96.5Dividends on equity shares (11.5) (9.5) (15.2)Other recognised income and expense relating to the period (net) (1.4) 0.4 (0.5)Shares issued 0.9 0.2 1.0Movement in LTSIP/SAYE (0.6) (0.2) -Net increase in equity 24.7 38.6 81.8Opening equity 452.5 370.7 370.7Closing equity 477.2 409.3 452.5 Consolidated Balance Sheet (Unaudited) As at As at 31 December 30 June Restated Restated 2005 2004 2005 Note £m £m £m Assets Plant, property and equipment 24.1 22.6 24.1Intangible assets 0.2 0.3 0.2Investments 2.4 1.9 2.6Deferred tax assets 8.6 6.9 8.1Trade and other receivables 0.5 0.5 0.5Total non-current assets 35.8 32.2 35.5 Inventories 6 786.2 730.8 761.0Trade and other receivables 8.4 15.5 12.2Derivative financial instruments - 0.6 0.3Cash and cash equivalents 8 0.1 0.4 23.7Total current assets 794.7 747.3 797.2 Total assets 830.5 779.5 832.7 Equity Issued capital 15.9 15.9 15.9Share premium 55.1 53.5 54.2Hedge reserve (0.1) 0.4 (0.1)Other reserves 7.9 8.2 7.9Retained earnings 398.4 331.3 374.6Total equity 477.2 409.3 452.5 Liabilities Bank overdrafts and loans 8 103.9 108.8 103.8Trade and other payables 7 32.5 27.4 47.2Derivative financial instruments 0.1 - -Deferred tax liabilities 1.9 1.9 1.8Retirement benefit obligations 10.5 6.7 7.9Long-term provisions 2.2 2.1 2.1Total non-current liabilities 151.1 146.9 162.8 Bank overdrafts and loans 8 12.3 43.7 23.1Trade and other payables 7 168.5 155.9 170.1Derivative financial instruments - - 0.5Current income tax liabilities 21.4 23.7 23.7Total current liabilities 202.2 223.3 217.4 Total liabilities 353.3 370.2 380.2 Total equity and liabilities 830.5 779.5 832.7 Consolidated Cash Flow Statement (Unaudited) 6 months ended 12 months ended 31 December 30 June Restated Restated 2005 2004 2005 Note £m £m £m Cash flow from operating activities Profit for the period 59.1 74.6 154.0Depreciation 1.0 0.8 2.2Adjustment for non-cash items (2.0) (0.9) (3.4)Operating profit before changes in workingcapital and provisions 58.1 74.5 152.8 Decrease/(increase) in trade and other receivables 3.8 (21.3) (1.3)Increase in inventories (25.2) (35.3) (65.8)(Decrease)/increase in trade and other payables (17.6) (4.1) 13.8Increase/(decrease) in employee benefits andprovisions 2.7 (1.2) -Cash generated from operations 21.8 12.6 99.5 Interest paid (3.9) (4.2) (10.6)Tax paid (18.5) (18.2) (39.8) Net cash from operating activities (0.6) (9.8) 49.1 Cash flows from investing activities Acquisition of property, plant and equipment (1.0) (1.2) (5.4)Proceeds from sale of plant and equipment - - 1.4Interest received 0.2 - 0.8Payments to joint ventures (0.2) (0.5) (3.1)Net cash from investing activities (1.0) (1.7) (6.3) Cash flows from financing activities Increase in/(repayment of) bank borrowings - 4.5 (0.5)Issue costs of bank borrowings - (0.8) (0.8)Purchase of own shares (0.6) (0.2) (0.7)Dividends paid (11.5) (9.5) (15.2)Proceeds from issue of share capital 0.9 0.2 1.0Net cash from financing activities (11.2) (5.8) (16.2) Net (decrease)/increase in cash and cashequivalents (12.8) (17.3) 26.6 Cash and cash equivalents at the beginning of theperiod 0.6 (26.0) (26.0)Cash and cash equivalents at the end of theperiod 8 (12.2) (43.3) 0.6 NOTES 1. The financial statements of the Group for the year ending 30 June 2006 will be prepared in accordance with International Financial Reporting Standards (IFRS) as adopted for use by the European Union at 30 June 2006, the Group's first annual reporting date at which it is required to use IFRS. The interim financial statements have been prepared using the accounting policies which the Group intend to adopt for the year ending 30 June 2006 and are in accordance with the IFRS that are either adopted by the European Union and effective, or are expected to be effective at 30 June 2006. These accounting policies and restated comparatives are consistent with those used in the 'Transition to International Financial Reporting Standards' announcement made by the Group on 30 November 2005, a summary of which follows these notes to the interim financial statements. The information for the year ended 30 June 2005 does not constitute statutory accounts within the meaning of section 240 Companies Act 1985. A copy of the statutory accounts, prepared under UK GAAP, which received an unqualified audit opinion, has been delivered to the Registrar of Companies. 2a. Segmental information - Income (Unaudited):- 6 months ended 12 months ended 31 December 30 June Restated Restated 2005 2004 2005 £m £m £mTurnoverHomes 338.8 373.1 753.8Mixed Use & Regeneration 0.1 0.7 26.6 338.9 373.8 780.4Framing Solutions - share of joint venture - 0.5 0.6 338.9 374.3 781.0Gross contribution 81.1 95.3 189.3Overheads (22.0) (21.1) (41.9)Homes - operating profit 59.1 74.2 147.4 Mixed Use & Regeneration - operating profit - 0.4 4.5 59.1 74.6 151.9Mixed Use & Regeneration - share of joint venture - - 2.1 Operating profit before financing costs 59.1 74.6 154.0 Net financing costs (5.3) (5.9) (12.6) 53.8 68.7 141.4 Share of loss of joint ventures after interest and taxation (0.4) (0.4) (2.4)Profit before tax 53.4 68.3 139.0 Income tax expense (16.1) (20.6) (42.5)Profit for the period 37.3 47.7 96.5 2b. Segmental information - Balance Sheet (Unaudited):- As at As at 31 December 30 June Restated Restated 2005 2004 2005 £m £m £m Segment assets Homes 814.3 752.5 790.8Mixed Use & Regeneration 14.5 24.8 17.1 828.8 777.3 807.9Eliminations (0.2) (0.1) (0.5) 828.6 777.2 807.4Cash and cash equivalents 0.1 0.4 23.7Consolidated total assets 828.7 777.6 831.1 Segment liabilities Homes 235.5 203.0 249.3Mixed Use & Regeneration 1.8 14.8 4.5 237.3 217.8 253.8Eliminations (0.2) (0.1) (0.5) 237.1 217.7 253.3Borrowings 116.2 152.5 126.9Consolidated total liabilities 353.3 370.2 380.2 Framing Solutions - share of joint venture 1.8 1.9 1.6 Total equity 477.2 409.3 452.5 3. The taxation charge reflects the estimated effective rate for the full year to 30 June 2006. 4. The final dividend for the year ended 30 June 2005 of 7.2p per share (2004: 6.0p) was approved by shareholders at the Annual General Meeting on 9 November 2005, paid on 18 November 2005 and a charge of £11.5m (2004: £9.5m) has been taken to reserves. The Directors have declared an interim dividend of 4.3p per share (2004: 3.6p) which was approved by the Board on 6 March 2006. This gives an interim dividend of £6.9m (2004: £5.7m) which will be paid on 5 May 2006 to shareholders whose names are on the Register of Members at the close of business on 17 March 2006. The shares will become ex-dividend on 15 March 2006. In accordance with IAS 10 "Events After The Balance Sheet Date" the interim dividend has not been included as a liability as at 31 December 2005. 5. The basic earnings per share calculation for the half year ended 31 December 2005 is based on the weighted number of shares in issue during the period of 159.1m (2004:158.5m) excluding those held in trust under the Redrow Long Term Incentive Plan, which are treated as cancelled. The equivalent weighted average number of shares in issue for the year ended 30 June 2005 was 158.9m. Diluted earnings per share has been calculated after adjusting the weighted average number of shares in issue for all potentially dilutive shares held under exercised options. 6. Inventories (Unaudited) As at 31 December Restated 2005 2004 £m £mLand for development 453.6 436.4Work in progress 319.2 286.3Stock of showhomes 13.4 8.1 786.2 730.8 7. Land Creditors (Unaudited) (included in trade and other payables) As at 31 December Restated 2005 2004 £m £mDue within one year 49.7 37.4Due in more than one year 32.5 27.4 82.2 64.8 8. Analysis of net debt (Unaudited) As at 31 December 2005 2004 £m £mCash and cash equivalents 0.1 0.4Bank overdrafts and loans- current liabilities (12.3) (43.7) (12.2) (43.3)- non-current liabilities (103.9) (108.8) (116.1) (152.1) 9. The Registrar is Computershare Investor Services PLC. Shareholder enquiries should be addressed to the Registrar at the following address: Registrars Department PO Box 82 The Pavilions Bridgwater Road Bristol BS99 7NH TRANSITION TO IFRS In preparation for the adoption of IFRS, Redrow plc published its 'Transition toInternational Financial Reporting Standards' document in November 2005. Thisincluded a summary of principal impacts and restated financial information forthe year ended 30 June 2005 and six months ended 31 December 2004 which havebeen reproduced here. Summary of the Principal Impacts The principal impacts in respect of the transition to IFRS upon the previouslyreported UK GAAP financial statements of Redrow plc are: IAS 19 : Employee BenefitsIAS 2 : InventoriesIAS 39 : Financial InstrumentsIFRS 2 : Share-based PaymentIAS 10 : Events after the Balance Sheet DateIAS 38 : Intangible AssetsIAS 31 : Interests in Joint Ventures 1. IAS 19: Employee Benefits Defined contribution pension schemes are unaffected by IAS 19. In respect of its defined benefit pension scheme, Redrow plc is required underIAS 19 to recognise the net surplus or deficit in the scheme on its balancesheet. IAS 19 also requires that a provision be made in respect of holiday paydue to employees, where the holiday year-end does not coincide with that of thefinancial year-end. The impact on the opening balance sheet at 1 July 2004 is to recognise a netdeficit of £6.1m representing a gross deficit of £7.9m in respect of the pensiondeficit, a £0.8m provision in respect of holiday pay and a deferred tax asset of£2.6m. The principal components of the defined benefit pensions charge to theconsolidated income statement are the current service cost and finance costs.Current service cost has been included in administrative expenses to the extentthat it exceeds the UK GAAP charge, resulting in an increase in administrativeexpenses of £0.4m and an increase in finance costs of £0.3m in the year ended 30June 2005. Actuarial gains of £0.7m in the year ended 30 June 2005 have been taken directlyto reserves as permitted under IAS 19 (December 2004 amendment) via thestatement of recognised income and expense. At 30 June 2005, the restated IFRS balance sheet recognised a net deficit of£6.1m with both pension deficit and holiday pay provisions unchanged. 2. IAS 2: Inventories In accordance with IAS 2, all marketing and selling costs are excluded from thecost of inventories and are expensed as incurred. Under UK GAAP, Redrow plc included certain direct selling costs in arriving atthe cost of work in progress, as permitted under SSAP 9. The impact of thischange on the opening balance sheet at 1 July 2004 is to reduce work in progressby £9.6m and create a deferred tax asset of £2.9m. The overall impact on netassets is a reduction of £6.7m. The adoption of IFRS will generally lead to earlier recognition of directselling costs than was the case under UK GAAP. This arises because previously,direct selling costs were reflected within the reported gross profit of eachhome as it legally completed. Since selling costs are usually borne prior tolegal completion, recognition of these costs as incurred will be reflectedearlier. There was a £0.9m impact on the reported cost of sales for the year ended 30June 2005 as a result of the adoption of IAS 2. Due to the product mix andnumber of new developments being marketed in the financial year ending June2006, the implementation of IAS 2 is likely to have a slightly greater impactupon the gross margin than in the previous year. At 30 June 2005, the restated IFRS balance sheet showed a £10.5m reduction inwork in progress partly offset by the creation of a £3.2m deferred tax assetresulting in a £7.3m reduction in net assets. 3. IAS 39: Financial Instruments: Recognition and Measurement i) Land Creditors In accordance with IAS 39, the deferred payments arising from land creditors areto be held at discounted present value, hence recognising a financing element onthe deferred settlement terms. The liability is then increased to thesettlement value over the period of the deferral. The value of the discount isexpensed through net financing costs in the consolidated income statement. The impact on the opening balance sheet at 1 July 2004 was to reduce landcreditors by £3.2m, reduce the land balance by £8.4m, recognise a deferred taxasset of £1.6m and reduce opening reserves by £3.6m. The IFRS treatment of land creditors has an impact on the timing of the costscharged to the income statement. This will generally result in the financeelement in respect of the land creditor being expensed in advance of thecompensating improvement in gross profit as a result of legal completionsgenerally continuing beyond the settlement date of the land creditor for themajority of projects. Cost of sales for the year ended 30 June 2005 reduced by £1.2m with netfinancing costs increasing by £2.5m as a result of the timing of the value ofdiscount being expensed. At 30 June 2005, the revised IFRS balance sheet had a reduction in landcreditors of £5.5m, a decrease in the value of land held in stock of £12.0m, adeferred tax asset of £1.9m and a reduction in reserves of £4.6m. ii) Financial Instruments and Trade Receivables Under IAS 39, the fair value of the Group's cashflow hedging arrangements mustbe recognised in the balance sheet. Any gains or losses on the fair value ofthe cashflow hedging arrangements are taken to reserves until they are realised.Long term trade debtors are to be held at discounted present value, hencerecognising a financing element. The debtor is then increased to settlementvalue over the period of the deferred terms. The impact on the opening balance sheet at 1 July 2004 was to recognise a £1.4masset in respect of derivative financial instruments, a £0.4m deferred taxliability and a £1.0m hedge reserve. Trade receivables reduce by £0.2m with anassociated £0.1m deferred tax asset and a £0.1m reduction in retained earnings. At 30 June 2005, the IFRS revised balance sheet impact was a £0.2m reduction innet assets following a net £1.1m charge direct to the hedge reserve via thestatement of recognised income and expense. 4. IFRS 2: Share-based Payment In accordance with IFRS 2, a charge has been recognised for share optionsgranted on or after 7 November 2002. The charge is spread over the vestingperiod, with adjustments made to reflect the actual and expected number ofshares vesting at the year-end. The Black Scholes option pricing model has beenused to determine the extent of the charge. The impact on the opening balance sheet as at 1 July 2004 was a £0.1m increasein deferred tax assets. The impact on the income statement for the year ended 30 June 2005 was anincrease in administrative expenses of £0.2m. At 30 June 2005, the IFRS revised balance sheet impact was a £0.2m increase indeferred tax assets. 5. IAS 10: Events After the Balance Sheet Date Under IAS 10, the declaration of a dividend after the reporting date is nolonger an adjusting post balance sheet event as it was under UK GAAP.Accordingly, the final dividends for the years ended 30 June 2004 and 30 June2005 do not constitute a liability at the respective balance sheet dates underIAS 10. The impact on the opening balance sheet as at 1 July 2004 was a £9.5m increasein net assets. The impact on the balance sheet at 30 June 2005 was an increase in net assets of£11.5m. 6. IAS 38: Intangible Assets Under IAS 38, eligible software development costs that were previously heldwithin tangible fixed assets under UK GAAP must now be classified as intangiblefixed assets. As this is a balance sheet re-categorisation, with no change indepreciation rates, there is no impact on the income statement. The impact on the opening balance sheet as at 1 July 2004 was a reduction of£0.4m of plant, property and equipment with a corresponding £0.4m increase inintangible assets. The impact on the balance sheet as at 30 June 2005 was a reduction of £0.2m ofplant, property and equipment with a corresponding increase of £0.2m inintangible assets. 7. IAS 31: Interests in Joint Ventures Redrow intends to account for jointly-controlled entities using the equitymethod of accounting. Under IAS 31, such an approach requires the results ofjointly-controlled entities to be reflected as a separate item on a post taxbasis and disclosed immediately before profit before tax. This contrasts with UKGAAP, where the results are disclosed at an operating profit level with thejointly-controlled entities' financing costs and tax charges included within thecorresponding headings for the Group income statements. Reconciliation of Equity (Unaudited) As at 1 July 2004 Previously IAS 19 IAS 2 IAS 39 IAS 39 IFRS 2 IAS 10 IAS 38 Effect of Restated Reported Employee Inventories Land Financial Share-based Dividend Intangible Transition Under Under Benefits Creditors Instruments Payment Assets To IFRS IFRS UK GAAPSummary ofPrincipalImpactsparagraph 1 2 3i 3ii 4 5 6 £m £m £m £m £m £m £m £m £m £mAssetsPlant,propertyand 22.5 (0.4) (0.4) 22.1equipmentIntangibleassets - 0.4 0.4 0.4Investments 1.8 - 1.8Deferredtax - 2.6 2.9 1.6 0.1 0.1 7.3 7.3assetsDerivativefinancialinstruments - 0.5 0.5 0.5Trade andotherreceivables 0.5 (0.2) (0.2) 0.3Totalnon-currentassets 24.8 2.6 2.9 1.6 0.4 0.1 - - 7.6 32.4 Inventories 713.4 (9.6) (8.4) (18.0) 695.4Trade andotherreceivables 11.1 - 11.1Derivativefinancialinstruments - 0.9 0.9 0.9Cash andcash 1.2 - 1.2equivalentsTotalcurrent 725.7 - (9.6) (8.4) 0.9 - - - (17.1) 708.6assets Total 750.5 2.6 (6.7) (6.8) 1.3 0.1 - - (9.5) 741.0assets EquityIssued 15.9 - 15.9capitalShare 53.2 - 53.2premiumHedge - 1.0 1.0 1.0reserveOther 8.2 - 8.2reservesRetainedearnings 299.3 (6.1) (6.7) (3.6) (0.1) 0.1 9.5 (6.9) 292.4Total 376.6 (6.1) (6.7) (3.6) 0.9 0.1 9.5 - (5.9) 370.7equity LiabilitiesBankoverdraftsand 104.7 - 104.7loansTrade andother 29.7 (2.6) (2.6) 27.1payablesDeferredtax 1.7 0.4 0.4 2.1liabilitiesRetirementbenefitobligations - 7.9 7.9 7.9Long-termprovisions 2.2 - 2.2Totalnon-currentliabilities 138.3 7.9 - (2.6) 0.4 - - - 5.7 144.0 Bankoverdraftsand 27.2 - 27.2loansTrade andother 187.2 0.8 (0.6) (9.5) (9.3) 177.9payablesTax 21.2 - 21.2liabilitiesTotalcurrent 235.6 0.8 - (0.6) - - (9.5) - (9.3) 226.3liabilities Totalliabilities 373.9 8.7 - (3.2) 0.4 - (9.5) - (3.6) 370.3 Totalequityand 750.5 2.6 (6.7) (6.8) 1.3 0.1 - - (9.5) 741.0liabilitiesNet Assets 376.6 (6.1) (6.7) (3.6) 0.9 0.1 9.5 - (5.9) 370.7 Reconciliation of Profit (Unaudited) 6 months to 31 December 2004 Previously IAS 19 IAS 2 IAS 39 IFRS 2 Effect of Restated Reported Employee Inventories Land Share-based Transition Under Under Benefits Creditors Payment To IFRS IFRS UK GAAPSummary ofPrincipalImpactsparagraph 1 2 3i 4 £m £m £m £m £m £m £m Continuing OperationsRevenue 373.8 - 373.8Cost of Sales (278.7) 0.1 0.6 0.7 (278.0)Gross Profit 95.1 - 0.1 0.6 - 0.7 95.8 Administrativeexpenses (20.9) (0.2) (0.1) (0.3) (21.2) OperatingProfit beforefinancingcosts 74.2 (0.2) 0.1 0.6 (0.1) 0.4 74.6 Financialincome 0.4 - 0.4Financialexpenses (4.9) (0.1) (1.3) (1.4) (6.3) Net FinancingCosts (4.5) (0.1) - (1.3) - (1.4) (5.9) Share of lossof jointventures afterinterest andtaxation (0.4) - (0.4) Profit BeforeTax 69.3 (0.3) 0.1 (0.7) (0.1) (1.0) 68.3 Income taxexpense (20.9) 0.1 - 0.2 - 0.3 (20.6) Profit for thePeriod 48.4 (0.2) 0.1 (0.5) (0.1) (0.7) 47.7 Earnings pershare (basic) 30.5p 30.0p Earnings pershare(diluted) 30.4p 29.9p Reconciliation of Equity (Unaudited) As at 31 December 2004 Previously IAS 19 IAS 2 IAS 39 IAS 39 IAS 10 IAS 38 Effect of Restated Reported Employee Inventories Land Financial Dividend Intangible Transition Under Under Benefits Creditors Instruments Assets To IFRS IFRS UK GAAPSummary ofPrincipalImpactsparagraph 1 2 3i 3ii 5 6 £m £m £m £m £m £m £m £m £mAssetsPlant,property andequipment 22.9 (0.3) (0.3) 22.6Intangibleassets - 0.3 0.3 0.3Investments 1.9 - 1.9Deferred taxassets - 2.2 2.9 1.7 0.1 6.9 6.9Derivative - - -financialinstrumentsTrade andotherreceivables 0.7 (0.2) (0.2) 0.5Totalnon-currentassets 25.5 2.2 2.9 1.7 (0.1) - - 6.7 32.2 Inventories 749.2 (9.5) (8.9) (18.4) 730.8Trade andotherreceivables 15.5 - 15.5Derivativefinancialinstruments - 0.6 0.6 0.6Cash and cashequivalents 0.4 - 0.4Total currentassets 765.1 - (9.5) (8.9) 0.6 - - (17.8) 747.3 Total assets 790.6 2.2 (6.6) (7.2) 0.5 - - (11.1) 779.5 EquityIssued capital 15.9 - 15.9Share premium 53.5 - 53.5Hedge reserve - 0.4 0.4 0.4Other reserves 8.2 - 8.2Retainedearnings 341.7 (5.3) (6.6) (4.1) (0.1) 5.7 (10.4) 331.3Total equity 419.3 (5.3) (6.6) (4.1) 0.3 5.7 - (10.0) 409.3 LiabilitiesBankoverdrafts andloans 108.8 - 108.8Trade andother payables 29.9 (2.5) (2.5) 27.4Deferred taxliabilities 1.7 0.2 0.2 1.9Retirementbenefitobligations - 6.7 6.7 6.7Long-termprovisions 2.1 - 2.1Totalnon-currentliabilities 142.5 6.7 - (2.5) 0.2 - - 4.4 146.9 Bankoverdrafts andloans 43.7 - 43.7Trade andother payables 161.4 0.8 (0.6) (5.7) (5.5) 155.9Tax liabilities 23.7 - 23.7Total currentliabilities 228.8 0.8 - (0.6) - (5.7) - (5.5) 223.3 Totalliabilities 371.3 7.5 - (3.1) 0.2 (5.7) - (1.1) 370.2 Total equityandliabilities 790.6 2.2 (6.6) (7.2) 0.5 - - (11.1) 779.5Net Assets 419.3 (5.3) (6.6) (4.1) 0.3 5.7 - (10.0) 409.3 Reconciliation of Profit (Unaudited) 12 months to 30 June 2005 Previously IAS 19 IAS 2 IAS 39 IFRS 2 Effect of Restated Reported Employee Inventories Land Share-based Transition Under Under Benefits Creditors Payment To IFRS IFRS UK GAAPSummary ofPrincipalImpactsparagraph 1 2 3i 4 £m £m £m £m £m £m £m Continuing OperationsRevenueCost of Sales 780.4 - 780.4 (584.0) (0.9) 1.2 0.3 (583.7)Gross Profit 196.4 - (0.9) 1.2 - 0.3 196.7 Administrativeexpenses (42.1) (0.4) (0.2) (0.6) (42.7) OperatingProfit beforefinancingcosts 154.3 (0.4) (0.9) 1.2 (0.2) (0.3) 154.0 Financialincome 0.8 - 0.8Financialexpenses (10.6) (0.3) (2.5) (2.8) (13.4) Net FinancingCosts (9.8) (0.3) - (2.5) - (2.8) (12.6) Share of lossof jointventures afterinterest andtaxation (2.4) - (2.4) Profit BeforeTax 142.1 (0.7) (0.9) (1.3) (0.2) (3.1) 139.0 Income taxexpense (43.4) 0.2 0.3 0.3 0.1 0.9 (42.5) Profit for thePeriod 98.7 (0.5) (0.6) (1.0) (0.1) (2.2) 96.5 Earnings pershare (basic) 62.1p 60.7p Earnings pershare(diluted) 61.9p 60.5p Reconciliation of Equity (Unaudited) As at 30 June 2005 Previously IAS 19 IAS 2 IAS 39 IAS 39 IFRS 2 IAS 10 IAS 38 Effect of Restated Reported Employee Inventories Land Financial Share-based Dividend Intangible Transition Under Under Benefits Creditors Instruments Payment Assets To IFRS IFRS UK GAAPSummary ofPrincipalImpactsparagraph 1 2 3i 3ii 4 5 6 £m £m £m £m £m £m £m £m £m £m ASSETSNon-currentassetsPlant,propertyand 24.3 (0.2) (0.2) 24.1equipmentIntangibleassets - 0.2 0.2 0.2Investments 2.6 - 2.6Deferredtax - 2.6 3.2 1.9 0.2 0.2 8.1 8.1assetsDerivative - - -financialinstrumentsTrade andotherreceivables 0.7 (0.2) (0.2) 0.5 27.6 2.6 3.2 1.9 - 0.2 - - 7.9 35.5CurrentassetsInventories 783.5 (10.5) (12.0) (22.5) 761.0Trade andotherreceivables 12.2 - 12.2Derivativefinancialinstruments - 0.3 0.3 0.3Cash andcash 23.7 - 23.7equivalents 819.4 - (10.5) (12.0) 0.3 - - - (22.2) 797.2Total 847.0 2.6 (7.3) (10.1) 0.3 0.2 - - (14.3) 832.7assets EquityIssued 15.9 - 15.9capitalShare 54.2 - 54.2premiumHedge - (0.1) (0.1) (0.1)reserveOther 7.9 - 7.9reservesRetainedearnings 381.0 (6.1) (7.3) (4.6) (0.1) 0.2 11.5 (6.4) 374.6Total 459.0 (6.1) (7.3) (4.6) (0.2) 0.2 11.5 - (6.5) 452.5equity LiabilitiesNon-currentliabilitiesBankoverdraftsand 103.8 - 103.8loansTrade andother 52.4 (5.2) (5.2) 47.2payablesDeferredtax 1.8 - 1.8liabilitiesRetirementbenefitobligations - 7.9 7.9 7.9Long-termprovisions 2.1 - 2.1 160.1 7.9 - (5.2) - - - - 2.7 162.8CurrentliabilitiesBankoverdraftsand 23.1 - 23.1loansTrade andother 181.1 0.8 (0.3) (11.5) (11.0) 170.1payablesDerivativefinancialinstruments - 0.5 0.5 0.5Tax 23.7 - 23.7liabilities 227.9 0.8 - (0.3) 0.5 - (11.5) - (10.5) 217.4Totalliabilities 388.0 8.7 - (5.5) 0.5 - (11.5) - (7.8) 380.2Totalequityand 847.0 2.6 (7.3) (10.1) 0.3 0.2 - - (14.3) 832.7liabilitiesNet Assets 459.0 (6.1) (7.3) (4.6) (0.2) 0.2 11.5 - (6.5) 452.5 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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