Morgan Sindall Group Regulatory News (MGNS)

8 Aug 2005 07:00

Morgan Sindall PLC08 August 2005 Morgan Sindall plc ('Morgan Sindall' or 'the Group') Interim Results for the six months to 30 June 2005 reported on an IFRS basis Morgan Sindall plc, the construction group, today announces interim results forthe six months to 30 June 2005. 2005 2004 (restated) £m £m % increase Group revenue 615 604 +2%Operating profit 17.4 13.0 +34%Profit before tax 18.2 13.1 +39%Earnings per share 29.72p 21.89p +36%Interim dividend per share 7.00p 5.25p +33% Key points • Excellent results driven by Fit Out and Affordable Housing• Cash balances of £35 million reflect investment across the business but particularly in Affordable Housing• Total order book increased to £2.9 billion Divisional highlightsFit Out • Strong growth with profit up by 41% to £7.9 million and margins up to 5.2%• Benefited from recovering market and reduced competition• Order book increased to £117 million Construction • Profit doubled to £1.3 million and margins increased to 0.8%• Two thirds of the workload now from chosen market sectors of health, education, light industrial and property services• Next wave of LIFT schemes offers exciting opportunities for the future• Order book more than doubled to £482 million Infrastructure Services • Profit of £2.8 million as Terminal 5 and Channel Tunnel Rail Link draw to a close• Success in utilities sector with up to £770 million of work secured with United Utilities and National Grid Affordable Housing • Record £7.7 million profit with a full percentage point increase in margins to 4.3%• New opportunities secured including Sheffield and Cheltenham refurbishment programmes• Order book increased to £1.4 billion John Morgan, Chairman, said: "Morgan Sindall continues to perform. I am pleased with the achievements of allof our divisions and excited by the challenges and opportunities that presentthemselves for the foreseeable future." 8 August 2005 Enquiries:Morgan Sindall plc Tel: 020 7307 9200John Morgan, ChairmanPaul Smith, Chief ExecutiveDavid Mulligan, Finance Director College Hill Tel: 020 7457 2020Matthew Smallwood MORGAN SINDALL PLC Interim Results for the six months to 30 June 2005 Chairman and Chief Executive's Statement The Group has had an excellent first half and we are pleased to announce recordresults for the six month period to 30 June 2005. Profit before tax rose by 39%to £18.2m (2004: £13.1m) from an increased revenue of £615m (2004: £604m).Earnings per share for the period grew by 36% to 29.72p (2004: 21.89p). Inlight of the positive start to the year the Board has declared an increasedinterim dividend, up by 33%, of 7.00p (2004: 5.25p). The increase in profitability was driven primarily by the performance of the FitOut and Affordable Housing divisions. Fit Out continued to consolidate itsmarket leadership in a recovering commercial property market, while Lovell againdelivered a strong performance in the fast growing affordable housing sector.In addition, Construction's margins improved further as a result of its moretightly focused strategy and Infrastructure Services performed in line withexpectations by holding its margins on lower volumes. Cash at 30 June 2005 was £35m (2004: £39m) with the movement since the start ofthe year reflecting investment in work in progress at Affordable Housing andlower levels of cash generated by Infrastructure Services as its volumes havereduced. Divisional reviews Fit Out Fit Out saw strong growth during the first half of 2005 with profit increasingby 41% to £7.9m (2004: £5.6m) on revenue increasing by 26% to £152m (2004:£121m). The opening of the Northern office, the establishment of a team focusedon larger projects, the withdrawal of a number of competitors in 2004 andimproving conditions in the London market all contributed to the growth of thebusiness. The margin increased to 5.2% compared with more typical historiclevels of 4.5%, although it remains to be seen whether these higher margins canbe sustained in the longer term. With further market improvement anticipatedand a healthy forward order book of £117m, the division looks well set for thefuture. Construction Construction successfully continued its focus on key sectors and frameworkcontracts, increasing its margin to 0.8% (2004: 0.5%). Operating profit morethan doubled to £1.3m (2004: £0.6m) on revenue which increased by 27% to £164m(2004: £130m). This performance benefited from positive contributions from thethree offices and associated contracts acquired at the end of last year. Twothirds of the division's workload now comes from its chosen sectors of health,education, light industrial and property services compared to 40% four yearsago. In the health sector, the division achieved financial close on the EastHampshire Fareham and Gosport LIFT (Local Improvement Finance Trust) during theperiod and is at preferred bidder stage with the Doncaster LIFT. In themeantime the next wave of LIFT schemes has been announced which offers excitingopportunities for the future. In addition, the division is on track to achieveits target of 60% of workload sourced from key client and framework contracts bythe end of 2006, having achieved a level of 48% during the first six months ofthis year, compared with a 35% base in 2001. The achievement of this target willbe assisted by the recently signed Driving Standards Agency framework to deliverup to £40m of new motorcycle testing centres across the UK over the next threeyears. With the planned move towards longer term framework agreements theforward order book has increased to £482m from £197m at the start of the year. Infrastructure Services Infrastructure Services produced an operating profit in the first half of £2.8m(2004: £2.9m) on revenue of £118m (2004: £177m). As previously announced thedivision's revenue and profit will be lower this year as two large civilengineering projects, the tunnels at Heathrow Terminal 5 and a section of theChannel Tunnel Rail Link, draw to a close. Nevertheless, Infrastructure Serviceshas been successful in the utilities sector, securing a contract with UnitedUtilities worth up to £450m for the renewal and maintenance of water andelectricity distribution networks over the next five years. As this contractcommenced in July and since work on the contract secured with National Grid,with a potential value of up to £320m, only began in April, the division'sperformance this year will be weighted slightly to the second half. Thedivision's forward order book stands at a record £911m (December 2004: £626m)with workload moving toward longer term utilities contracts. Affordable Housing Affordable Housing increased its profit by 36% to a record £7.7m (2004: £5.7m)on revenue at a similar level to last year of £180m (2004: £177m). It achieved asignificantly better margin of 4.3% compared with 3.2% for the correspondingperiod last year. The business maintained its position as market leadersecuring, among others, key refurbishment opportunities at Sheffield andCheltenham during the first half. As previously announced, the phasing of keyprojects will result in this year's performance being weighted to the secondhalf. The forward order book increased again to £1.4bn from £1.3bn at the startof the year. Outlook The Group's forward order book now stands at a record £2.9bn. With Fit Out andAffordable Housing strongly positioned in their chosen markets, Construction nowrealising the benefits of its focused strategy and Infrastructure Servicessecuring longer term framework contracts, the Group has never been betterplaced. As we reported in June we are confident of meeting our expectations forthe current year and are excited by the challenges and opportunities for 2006and beyond. John Morgan Paul SmithChairman Chief Executive 8 August 2005 Reporting under International Financial Reporting Standards (IFRS) From 2005 Morgan Sindall plc will produce its consolidated report and accountsin accordance with IFRS. Previously the Group reported under UK GenerallyAccepted Accounting Practice (UK GAAP). This commentary highlights the keychanges that have arisen due to the transition from reporting under UK GAAP toreporting under IFRS. The Group's date of transition to IFRS is 1 January 2004,which is the beginning of the comparative period for the 2005 financial year.Therefore the opening balance sheet for IFRS purposes is that reported at 31December 2003 as amended for changes due to IFRS. This interim financial report is the first to be prepared under IFRS, whichresults in the comparative figures being prepared on the same basis and aretherefore restated from those previously reported under UK GAAP. To helpunderstand the impact of the transition, reconciliations have been produced toshow the changes made to statements previously reported under UK GAAP inarriving at the equivalent statements under IFRS. The following are the fiveunaudited reconciliations which are included at the back of this report. 1. Balance sheet at 1 January 20042. Income statement for the year to 31 December 20043. Balance sheet at 31 December 20044. Income statement for the six months to 30 June 20045. Balance sheet at 30 June 2004 The income statement for the six months to 30 June 2005 and the balance sheet atthat date are reported under IFRS. As they have not previously been reportedunder UK GAAP no reconciliation to IFRS is provided. Key accounting policy changes are included within this report. A full set ofIFRS accounting policies will be published in the Group's report and accountsfor the year to 31 December 2005. The net effect of presenting the 2004 full year financial statements under IFRSrather than UK GAAP is to increase profit before tax reported from £27.9m to£33.8m and net assets from £93.2m to £98.2m. The changes have no impact on thecash flows previously reported. The key areas of change are outlined below. First time adoption IFRS1 'First Time Adoption of International Financial Reporting Standards' setsout the approach to be followed when IFRS are applied for the first time. IFRSaccounting policies are, in general, to be applied retrospectively althoughIFRS1 provides a number of exceptions to this general principle. The policychoices made under IFRS1 are mentioned under the relevant headings below. Goodwill Under UK GAAP, goodwill was amortised over its useful economic life. UnderIFRS3 'Business Combinations' goodwill is not amortised but is carried at costwith impairment reviews being undertaken annually or when there is an indicationthat the carrying value has been reduced. Under IFRS1 the Group has applied thechange from the date of transition as opposed to full application to allbusiness combinations prior to that date. The goodwill in the balance sheet atthe date of transition to IFRS was £53.0m. The impact on the 2004 incomestatement is a reversal of the amortisation previously charged under UK GAAP of£3.1m. Subsequent to the transition date, goodwill of £3.7m arose on theacquisition in December 2004 giving the balance at 30 June 2005 of £56.7m. Dividends Under UK GAAP proposed dividends were accrued at the balance sheet date althoughthere was no obligation to pay until formal approval by shareholders was grantedat the Annual General Meeting. Under International Accounting Standard (IAS)10'Events after the Balance Sheet Date', a liability should only be recognisedonce there is an obligation to pay. As a result the dividend will only berecognised once shareholders approve it. The impact is that the proposeddividends have been added back and have resulted in an increase in net assets of£4.8m at 31 December 2003, £2.2m at 30 June 2004 and £5.6m at 31 December 2004. Pension Under UK GAAP, FRS17 'Retirement Benefits' required the pension deficit to beshown by way of memorandum disclosure in the notes to the accounts rather thanaccounted for in the balance sheet. IAS19 'Employee Benefits' requires that theoperating and financing costs of defined benefit pension schemes are shownseparately in the income statement and allows a number of options for therecognition of actuarial gains and losses. The Group has adopted the approachof recognising the full pension deficit at the date of transition. The overallimpact of recognising the pension deficit is a reduction in net assets of £0.7mat 31 December 2003, £0.9m at 30 June 2004, and £2.0m at 31 December 2004.Actuarial gains and losses have been recognised in full in the consolidatedstatement of recognised income and expense (SORIE) on the assumption that the EUwill endorse the revised version of IAS19 during 2005. The impact of thetransition on the income statement is an increase for the six months to 30 June2004 of nil and £0.2m for the year to 31 December 2004. Deferred tax Under UK GAAP deferred tax was provided for timing differences between when anamount was taxable or allowable for tax purposes as against when it wasrecognised in the profit and loss account and was only recognised if realisablein the short term. Under IAS12 'Income Taxes' deferred tax is provided ontemporary differences based upon the discrepancy between the tax base and thecarrying value of assets and liabilities. The accounting changes made areprincipally related to the deferred tax provided on the revaluation ofinvestment properties in our joint venture, Primary Medical Properties, and thepension deficit recognised as noted above. The net result is a decrease in netassets of £1.2m at 31 December 2003 and at 30 June 2004 and £1.8m at 31 December2004. Share based payments Under UK GAAP no charge was made to the profit and loss account for the value ofoptions granted to employees as options were granted at their intrinsic value.Under IFRS2 'Share Based Payments' a charge is made reflecting the fair value ofoptions granted since 7 November 2002, which is applying the exemption permittedunder IFRS1. The impact has been a charge to operating profit for the six monthsto 30 June 2004 of £0.01m, £0.03m for the year to 31 December 2004 and £0.07mfor the six months to 30 June 2005. There is no impact on net assets as theincome statement charge is offset by an equivalent amount credited to the equityreserve. Joint ventures Under UK GAAP the results of joint ventures were included within turnover,operating profit and taxation in the profit and loss account and the netinvestment as a single line in the balance sheet albeit gross assets andliabilities were disclosed. Under the option allowed in IAS31 'Interests inJoint Ventures', the approach adopted by the Group is that joint ventures areaccounted for using the equity method and are reported in the income statementas part of operating profit and the net investment in the balance sheet on asingle line as before. Previously revaluation gains (or losses) on jointventure properties were recognised in the revaluation reserve. Under IFRS thistreatment no longer exists and revaluation gains will now be recognised in theincome statement. The net impact is to reduce profit before tax for the sixmonths to 30 June 2004 by £0.1m and to increase profit before tax by £2.8m forthe year to 31 December 2004 as a result of the joint venture tax charge andrevaluation gains now being reflected in arriving at profit before tax. Treasury instruments Certain of the Group's joint ventures make use of interest rate swaps in orderto reduce the risk exposure to changes in interest rates. Under IAS39 'Financial Instruments Recognition and Measurement' these interest rate swaps arerecognised and measured at fair value. These swaps are designated as part of ahedging relationship and hence any changes in fair value are accounted for inequity. IAS39 will be applied from 1 January 2005 as permitted under thetransition arrangements in IFRS1. The impact of IAS39 has been to reduce netassets at 30 June 2005 by £1.8m by the creation of a hedge reserve withinequity. Currently there are proposals to take a different approach in accounting forservice concessions with regard to the valuation of financial assets. Until astandard is issued the Group will follow the above approach under IAS39. The financial statements presented are unaudited and there is a possibility thatadjustments may be required before they are incorporated as part of the firstaudited annual report and accounts prepared under IFRS, which will be publishedin March 2006. MORGAN SINDALL PLC Interim results for the six months to 30 June 2005 Consolidated Income Statement for the six months to 30 June 2005 (unaudited) Unaudited Unaudited Audited Six months to Six months to Year to 30 June 2005 30 June 2004 31 December 2004 (restated) (restated) £'000s £'000s £'000s Continuing operations Revenue (note 2) 615,154 604,445 1,219,297Cost of sales (546,284) (549,461) (1,095,932)Gross profit 68,870 54,984 123,365 Administrative expenses (51,668) (42,087) (93,248)Other operating income 80 17 21Share of profits of joint ventures 122 54 2,810Operating profit 17,404 12,968 32,948 Investment income 1,744 1,228 3,235Finance costs (943) (1,068) (2,413) Profit before tax 18,205 13,128 33,770Tax (note 3) (5,795) (4,012) (9,736) Profit for the period from continuing 12,410 9,116 24,034operations Earnings per shareFrom continuing operationsBasic (note 5) 29.72p 21.89p 57.61p Diluted (note 5) 28.95p 21.00p 56.54p MORGAN SINDALL PLC Interim results for the six months to 30 June 2005 Consolidated Balance Sheet at 30 June 2005 (unaudited) Unaudited Unaudited Audited 30 June 2005 30 June 2004 31 December 2004 (restated) (restated) £'000s £'000s £'000s Non current assets Goodwill 56,666 53,002 55,961Tangible assets 15,710 13,413 14,890Interest in joint ventures 11,076 5,300 9,145Investments 103 103 103Deferred tax assets 1,448 1,243 1,513 85,003 73,061 81,612 Current assets Inventories 89,573 65,020 60,817Trade and other receivables 242,953 197,800 203,093Cash and cash equivalents 34,902 39,044 73,447 367,428 301,864 337,357Total assets 452,431 374,925 418,969 Current liabilitiesTrade and other payables (337,902) (280,651) (309,000)Tax liabilities (5,601) (4,403) (5,572) (343,503) (285,054) (314,572) Net current assets 23,925 16,810 22,785 Non current liabilities Retirement benefit obligation (2,010) (888) (2,225)Deferred tax liabilities (2,306) (1,434) (2,306)Obligations under finance leases (1,814) (1,394) (1,707) (6,130) (3,716) (6,238) Total liabilities (349,633) (288,770) (320,810)Net assets 102,798 86,155 98,159 Equity Called up share capital 2,111 2,105 2,107Share premium account 25,828 25,590 25,679Investment in own shares (1,775) (1,094) (993)Capital redemption reserve 623 623 623Equity reserve 112 20 39Hedge reserve (1,814) - -Retained earnings 77,713 58,911 70,704 Total equity 102,798 86,155 98,159 MORGAN SINDALL PLC Interim results for the six months to 30 June 2005 Consolidated Cash Flow Statement for the six months to 30 June 2005 (unaudited) Unaudited Unaudited Audited Six months to Six months to Year to 30 June 2005 30 June 2004 31 December 2004 (restated) (restated) £'000s £'000s £'000s Net cash (used in)/from operating activities (note 6) (28,563) 29,406 70,242 Investing activitiesInterest received 1,754 1,246 3,217Dividends received from joint ventures - 335 335Proceeds on disposal of property, plant and equipment 75 188 501Purchases of property, plant and equipment (2,224) (1,831) (4,296)Payments to acquire investments in joint ventures (3,619) - -Acquisition of business (120) - (3,409)Net cash used in investing activities (4,134) (62) (3,652) Financing activitiesProceeds from issue of share capital 153 203 294Dividends paid (5,530) (4,889) (7,099)Repayments of obligations under finance leases (471) (227) (951)Net cash used in financing activities (5,848) (4,913) (7,756) Net (decrease)/increase in cash and cash equivalents (38,545) 24,431 58,834 Cash and cash equivalents at beginning of period 73,447 14,613 14,613 Cash and cash equivalents at end of period 34,902 39,044 73,447 MORGAN SINDALL PLC Interim results for the six months to 30 June 2005 Consolidated Statement of Recognised Income and Expense for the six months to 30 June 2005 (unaudited) Unaudited Unaudited Audited Six months to Six months to Year to 30 June 2005 30 June 2004 31 December 2004 (restated) (restated) £'000s £'000s £'000s Losses on cash flow hedges (1,814) - -Actuarial gains/(losses) on defined benefit pension 215 (152) (1,493)schemesTax on items taken directly to equity (65) 45 448Net income recognised directly in equity (1,664) (107) (1,045) Profit for the period from continuing operations 12,410 9,116 24,034Total recognised income and expense for the period 10,746 9,009 22,989attributable to equity shareholders Consolidated Statement of Changes in Equity for the six months to 30 June 2005 (unaudited) Unaudited Unaudited Audited Six months to Six months to Year to 30 June 2005 30 June 2004 31 December 2004 (restated) (restated) £'000s £'000s £'000s Balance at start of period 98,159 81,754 81,754 Profit for period 12,410 9,116 24,034Recognition of share based payments 73 14 33Interim dividend declared and paid - - (2,188)Prior year final dividend paid (5,551) (4,824) (4,824)Actuarial gains/(losses) on defined benefit pension 215 (154) (1,493)schemesIncome taxes on pension benefits (65) 46 448Own shares purchased (782) - (48)Options exercised 153 203 294LTIP shares vested - - 149Losses on cash flow hedges (1,814) - -Balance at end of period 102,798 86,155 98,159 MORGAN SINDALL PLC Interim results for the six months to 30 June 2005 Notes to the interim report (unaudited) 1. Key changes in accounting policies The interim report has been prepared using accounting policies consistent withInternational Financial Reporting Standards (IFRS). The policies withsignificant changes on the transition from UK Generally Accepted AccountingPractice (UK GAAP) are disclosed below. Basis of accounting The financial statements and reconciliations shown in this report have beenprepared on an historic cost basis except for certain financial instruments andpension assets and liabilities, which are measured at fair value. Thestatements are also prepared on the basis of IFRS expected to be in issue at 31December 2005. In addition, the Group has elected to adopt the amendments toIAS19 'Employee Benefits' issued in December 2004 in advance of their effectivedate of 1 January 2006. The financial statements presented are unaudited. Acquisitions The results of acquired businesses are included in the consolidated incomestatement from the date of acquisition. Goodwill is the difference between thefair value of consideration given on acquisition and the aggregate fair value ofits identifiable net assets. In accordance with IFRS3 'Business Combinations',goodwill is no longer amortised but stated at cost less any provision forimpairment in value. Goodwill is reviewed annually for any impairment in itsvalue or at such time there is an indication that its value has reduced. Pensions The expense of defined benefit pension schemes is determined using the projectedunit method and charged to the income statement based on actuarial assumptionsat the beginning of the financial year. Actuarial gains and losses arerecognised in full in the statement of recognised income and expense in theperiod in which they occur. Net pension obligations are included in the balancesheet at the present value of the scheme liabilities, less the fair value of thescheme assets. The expense of the defined contribution pension schemes and other employeebenefits is charged in the income statement as incurred. Share based payments The value of share based payments is determined at the date of grant andrecognised as an expense over the vesting period taking account of theanticipated number of shares that will vest. The fair value is determined byuse of a modified Black Scholes model. Deferred taxation Deferred tax is provided in full on temporary differences which result in anobligation at the balance sheet date to pay more tax, or a right to pay lesstax, at a future date, at rates expected to apply when they crystallise based oncurrent tax rates and laws. Temporary differences arise from the inclusion ofitems of income and expenditure in tax computations in periods different fromthose in which they are included in the financial statements. In a change fromthe previous policy, deferred tax is provided on temporary differences arisingfrom the differences between the tax value and the balance sheet value of assetsand liabilities. This accounting change principally relates to the deferred taxprovided on the revaluation of fixed assets in our joint venture, PrimaryMedical Properties. Deferred tax assets are recognised to the extent that it isregarded as more likely than not that they will be recovered. Deferred taxassets and liabilities are not discounted. Financial instruments Derivative financial instruments are used by joint ventures to hedge long terminterest rate risks. Under IAS39 'Financial Instruments', interest rate swapsare stated in the balance sheet at fair value. Where financial instruments aredesignated as a cash flow hedge and are deemed to be effective, gains and losseson re-measurement are recognised in equity. When the financial instrument isdetermined to be no longer effective as a hedge, gains or losses are recognisedin the income statement. IAS39 will be applied from 1 January 2005 as permittedunder the transition arrangements in IFRS1. 2. Analysis of revenue and profit from business segments Unaudited Unaudited Six months to Six months to 30 June 2005 30 June 2004 Revenue Profits/ Revenue Profits/ (losses) (losses) (restated) £'000s £'000s £'000s £'000s Fit Out 152,495 7,886 120,923 5,583Construction 164,098 1,274 129,688 597Infrastructure Services 118,171 2,753 176,506 2,910Affordable Housing 180,390 7,723 177,328 5,674Group activities - (2,354) - (1,850)Joint ventures - 122 - 54 615,154 17,404 604,445 12,968Investment income 1,744 1,228Finance costs (943) (1,068)Profit before tax 18,205 13,128Tax (5,795) (4,012)Profit for the period from continuing 12,410 9,116operations 3. Tax Unaudited Six months to 30 June 2005 2004 £'000s (restated) £'000s Current year UK corporation tax (5,795) (4,011)Current year deferred tax - (1) (5,795) (4,012) Corporation tax for the interim period is charged at 32% (2004: 31%), being theestimated effective corporation tax rate for the full financial year. 4. Dividends Unaudited Six months to 30 June 2005 2004 £'000s (restated) £'000s Final dividend for the prior year recognised in the period 5,551 4,824of 13.25p per share (2004: 11.75p) Proposed interim dividend for the current year of 7.00p per share (2004: 2,920 2,1885.25p) The proposed interim dividend was approved by the Board on 8 August 2005 and hasnot been included as a liability at 30 June 2005. It will be paid on 16September 2005 to shareholders on the register at 19 August 2005. Theex-dividend date will be 17 August 2005. 5. Earnings per share The calculation of the earnings per ordinary share is based on theweighted average number of 41,756,000 (30 June 2004: 41,643,000) ordinary sharesin issue during the period and on the profit for the period attributable toordinary shareholders of £12,410,000 (30 June 2004: £9,116,000). In calculating the diluted earnings per share, the weighted average number ofordinary shares is adjusted for the dilutive effect of share options by 920,000(30 June 2004: 1,569,000) and a further 190,000 (30 June 2004: 202,000) forcontingent awards under the Long Term Incentive Plan giving an adjusted numberof ordinary shares of 42,866,000 (30 June 2004: 43,414,000). In calculating the diluted earnings per share in June 2004, options to buy47,500 ordinary shares at 495 pence per share were excluded because they wereclassified as antidilutive options as the strike price of the options was belowthe market price of the share. These options were issued on 14 February 2002and will be exercisable between 14 February 2007 and 13 February 2009 andtherefore they were not exercised during the six months to 30 June 2004. 6. Notes to the consolidated cash flow statement Unaudited Unaudited Audited Six months to Six months to Year to 30 June 2005 30 June 2004 31 December 2004 (restated) (restated) £'000s £'000s £'000s Operating profit 17,404 12,968 32,948 Adjusted for:Share of profits of joint ventures (122) (54) (2,810)Depreciation of property, plant and equipment 1,982 1,642 3,465Expense in respect of share options 73 14 33Income on pensions assets - (2) (4)Loss/(gain) on disposal of property, plant and equipment 30 (37) 20Operating cash flows before movements in working capital 19,367 14,531 33,652(Increase)/decrease in inventories (28,756) 391 4,594(Increase)/decrease in receivables (39,870) (3,247) (5,784)Increase/(decrease) in payables 27,360 20,344 46,223Cash (utilised)/generated by operations (21,899) 32,019 78,685Income taxes paid (5,766) (1,577) (6,134)Interest paid (898) (1,036) (2,309)Net cash (used in)/from operating activities (28,563) 29,406 70,242 Additions to fixtures and equipment during the period amounting to £0.53 millionwere financed by new finance leases. Cash and cash equivalents (which are presented as a single class of assets onthe face of the balance sheet) comprise cash at bank and other short term highlyliquid investments with a maturity of three months or less. 7. Acquisition of business On 13 December 2004 Bluestone plc acquired part of the trade and certain assetsand contracts from Benson Limited. The cash consideration was £3.4m withacquisition costs of £0.3m. The net assets acquired were nil following fairvalue adjustments of £2.9m made during 2004. The resultant goodwill arising onacquisition is £3.7m. The acquisition has been accounted for by the acquisition method of accounting.The fair values are provisional to allow the directors the opportunity toconsider and finalise them in the coming year. The provisional fair valueadjustments are in relation to accruals for contract liabilities. 8. Retirement benefit schemes The Group operates a plan on defined contribution principles which includes somedefined benefit liabilities, full details of which were disclosed under UK GAAPin the Group's annual report and accounts. For the purposes of understandingthese interim financial statements details of the valuation of the scheme aregiven below. Unaudited Unaudited Audited Six months to Six months to Year to 30 June 2005 30 June 2004 31 December 2004 (restated) (restated) £'000s £'000s £'000s Fair value of scheme assets 4,083 3,819 3,918Present value of scheme liabilities (6,093) (4,707) (6,143)Scheme shortfall (2,010) (888) (2,225)Related deferred taxation at 30.0% 604 267 669Net pension liability (1,406) (621) (1,556) 9. Related party transactions Transactions between the Company and its subsidiaries, which are relatedparties, have been eliminated on consolidation and are not disclosed in thisnote. Transactions between the Group and its associates are disclosed below: Investing transactions in joint ventures During the period, the Group increased its investment in Morgan Vinci Limited by£1.4m and in Claymore Roads (Holdings) Limited by £2.2m. These scheduledinvestments were both made by way of loan notes. The other joint venturepartners have also invested in the same proportion so that the relativeshareholdings at 50% have remained unchanged. 10. The results for the six months to 30 June 2005 and 2004 and the balancesheets as at those dates have not been audited and do not constitute statutoryaccounts. The figures for the year to 31 December 2004 are an unauditedrestatement of the Group's statutory accounts prepared under UK GAAP, whichreceived an unqualified audit report and have been filed with the Registrar ofCompanies. The balance sheet reconciliations at 1 January 2004 (date of transition to IFRS)and at 31 December 2004 (date of last UK GAAP financial statements) and thereconciliation of profit for 2004, as required by IFRS1 are shown below. Thebalance sheet reconciliation at 30 June 2004 and the reconciliation of profitfor the six months to 30 June 2004 have also been included to enable acomparison of the 2005 interim figures with those published in the correspondingperiod of the previous financial year. 1 Unaudited balance sheet reconciliation at 1 January 2004 UK GAAP IAS10 IAS12 IAS19 IAS12 IAS31 IFRS2 Income Employee Income Interests Share Post Taxes Benefits Taxes in Joint Based Balance Ventures Payments Reclass IFRS Sheet - Dividends Non current assets £'000s £'000s £'000s £'000s £'000s £'000s £'000s £'000s £'000sGoodwill 53,002 - - - - - - - 53,002Tangible assets 13,375 - - - - - - - 13,375Interests in joint 5,798 - - - - - - - 5,798venturesInvestments 103 - - - - - - - 103Deferred tax assets - - - - 221 - - 976 1,197 72,278 - - - 221 - - 976 73,475Current assetsInventories 65,411 - - - - - - - 65,411Trade and other 195,546 - - - - - - (976) 194,570receivablesCash and cash 14,613 - - - - - - - 14,613equivalents 275,570 - - - - - - (976) 274,594Total assets 347,848 - - - 221 - - - 348,069Current liabilitiesTrade and other (262,511) - - - - - - - (262,511)payablesDividends (4,890) 4,824 - - - - - - (66) (267,401) 4,824 - - - - - - (262,577)Non currentliabilitiesObligations under (1,569) (1,569)finance leases - - - - - - -Deferred tax - - (1,433) - - - - - (1,433)Defined benefit - - - (736) - - - - (736)pensions (1,569) - (1,433) (736) - - - - (3,738)Total liabilities (268,970) 4,824 (1,433) (736) - - - - (266,315)Net assets 78,878 4,824 (1,433) (736) 221 - - - 81,754EquityIssued capital 2,100 - - - - - - - 2,100Share premium account 25,392 - - - - - - - 25,392Investment in own (1,094) - - - - - - - (1,094)sharesCapital redemption 623 - - - - - - - 623reserveRevaluation reserve 5,507 - - - - (5,507) - - -Equity reserve - - - - - - 6 - 6Retained earnings 46,350 4,824 (1,433) (736) 221 5,507 (6) - 54,727Total equity 78,878 4,824 (1,433) (736) 221 - - - 81,754 2 Unaudited income statement reconciliation for the year to 31December 2004 IAS19 IAS12 IAS36 IAS31 IFRS2 Employee Income Impairment UK Benefits Taxes Interests Share GAAP of Assets in Joint Based Ventures Payments Reclass IFRS Continuing operations £'000s £'000s £'000s £'000s £'000s £'000s £'000s £'000s Revenue 1,219,297 - - - - - - 1,219,297Cost of sales (1,095,932) - - - - - - (1,095,932)Gross profit 123,365 - - - - - - 123,365 Administrative expenses (96,536) 220 - 3,101 - (33) - (93,248)Other operating income 21 - - - - - - 21Share of profit of joint - - - - 2,542 - 268 2,810venturesOperating profit 26,850 220 - 3,101 2,542 (33) 268 32,948 Share of profit of joint 268 - - - - - (268) -ventures Investment income 3,235 - - - - - - 3,235Finance costs (2,413) - - - - - - (2,413) Profit before tax 27,940 220 - 3,101 2,542 (33) - 33,770 Tax (9,891) - (66) - 221 - - (9,736)Profit for the period 18,049 24,034from continuingoperations 220 (66) 3,101 2,763 (33) - 3 Unaudited balance sheet reconciliation at 31 December 2004 UK GAAP Prior year IAS10 IAS10 IAS19 IAS12 IAS31 IAS36 IFRS2 IFRS adjustment Employee Income Interests Impairment Share to 31 Post Post Benefits Taxes in Joint of Assets Based December Balance Balance Ventures Payments 2003 Sheet - Sheet - Dividends Dividends £'000s £'000s £'000s £'000s £'000s £'000s £'000s £'000s £'000s £'000sNon currentassetsGoodwill 52,860 - - - - - - 3,101 - 55,961Tangible assets 14,890 - - - - - - - - 14,890Interests in 9,145 9,145joint ventures - - - - - - - -Investments 103 - - - - - - - - 103Deferred tax - 1,513assets 1,197 - - - 316 - - - 76,998 1,197 - - - 316 - 3,101 - 81,612Current assetsInventories 60,817 - - - - - - - - 60,817Trade and other 204,002 203,093receivables (976) - - - 67 - - -Cash and cash 73,447 73,447equivalents - - - - - - - - 338,266 (976) - - - 67 - - - 337,357Total assets 415,264 221 - - - 383 - 3,101 - 418,969CurrentliabilitiesTrade and other (314,809) (314,593)payables - - - 216 - - - -Dividends (5,530) 4,824 (4,824) 5,551 - - - - - 21 (320,339) 4,824 (4,824) 5,551 216 - - - - (314,572)Non currentliabilitiesObligations (1,707) (1,707)under financeleases - - - - - - - -Deferred tax - (1,433) - - - (873) - - - (2,306)Defined benefit - (2,225)pensions (736) - - (1,489) - - - - (1,707) (2,169) - - (1,489) (873) - - - (6,238)Total (322,046) 2,655 (4,824) 5,551 (1,273) (873) - - - (320,810)liabilitiesNet assets 93,218 2,876 (4,824) 5,551 (1,273) (490) - 3,101 - 98,159EquityIssued capital 2,107 - - - - - - - - 2,107Share premium 25,679 25,679account - - - - - - - -Investment in (993) (993)own shares - - - - - - - -Capital 623 623redemptionreserve - - - - - - - -Revaluation 9,142 -reserve (5,507) - - - - (3,635) - -Equity reserve - 6 - - - - - - 33 39Retained 56,660 8,377 (4,824) 5,551 (1,273) (490) 3,635 3,101 (33) 70,704earningsTotal equity 93,218 2,876 (4,824) 5,551 (1,273) (490) - 3,101 - 98,159 4 Unaudited income statement reconciliation for the six months to 30June 2004 IAS19 IAS12 IAS36 IFRS2 IAS31 UK Employee Income Impairment Share Based Interests GAAP Benefits Taxes of Assets Payments in Joint Ventures Reclass IFRSContinuing operations £'000s £'000s £'000s £'000s £'000s £'000s £'000s £'000s Revenue 604,445 - - - - - - 604,445Cost of sales (549,461) - - - - - - (549,461)Gross profit 54,984 - - - - - - 54,984 Other operating income 17 - - - - - - 17Administrative expenses (43,626) 2 - 1,551 (14) - - (42,087)Share of profit of - 54joint ventures - - - - (56) 110Operating profit 11,375 2 - 1,551 (14) (56) 110 12,968