Telford Homes Regulatory News (TEF)

4 Dec 2007 07:01

Telford Homes PLC04 December 2007 Press Release 4 December 2007 Telford Homes Plc ('Telford' or 'the Company') Interim results for the six months ended 30 September 2007 Telford Homes Plc (AIM:TEF), the residential developer in East London noted forregeneration projects within public sector partnerships, today announces itsinterim results for the six months ended 30 September 2007. Highlights • Turnover for the six months up 56% to £82.1 million (H1 2006: £52.6 million) • Profit before tax increased by 32% to £9.5 million (H1 2006: £7.2 million) • Strong sales across a number of developments are in line with our expectations • Recent launch of Stadthaus, N1 extremely successful with all 19 private homes sold to individual professional investors • Contracts exchanged on 363 private homes at an average price of £257,000 (31 March 2007: £258,000) along with 62 affordable homes and five commercial units • Increased interim dividend of 4.5 pence per share (H1 2006: 4.0 pence per share) • Continuing to sell early in the development process with contracts exchanged for the sale of 85% of the 1,650 properties currently under construction • Robust development pipeline of 2,074 properties which will be enhanced through strong partnerships with housing transfer organisations over the next few years • Growth continues to be supported with a third operating division being formed Andrew Wiseman, Chief Executive of Telford Homes, commented: "Despite thecurrent uncertainty surrounding the national housing market, the prospects inEast London remain sound. Regeneration of the area is ongoing, supported by theOlympic development and the desire for an 'Olympic legacy' to endure after thegames themselves. Demand continues to exceed supply with projected demographicsfor the region suggesting that this will continue. The Company's beneficialpartnerships with affordable housing providers and housing transferorganisations further strengthen its position in East London and underpin thefuture of Telford Homes. The Company remains on track to meet marketexpectations for the year to 31 March 2008." - Ends - For further information:Telford Homes PlcAndrew Wiseman, Chief Executive Tel: +44 (0) 1992 809 800Jon Di-Stefano, Financial Director www.telfordhomes.plc.uk Shore CapitalAlex Borrelli Tel: +44 (0) 20 7408 4090 Media enquiries:AbchurchHenry Harrison-Topham / Joanne Shears Tel: +44 (0) 20 7398 7709joanne.shears@abchurch-group.com www.abchurch-group.com CHIEF EXECUTIVE'S STATEMENT Overview In the six months ended 30 September 2007 turnover has increased by 56% to £82.1million with profit before tax increasing by 32% to £9.5 million. Strong salesacross a number of developments have contributed to another period of growth, inline with our expectations. Although current market sentiment means that we are working harder forindividual sales, our most recent development launch has been extremelysuccessful. On 8 November 2007 all 19 open market private apartments atStadthaus, Murray Grove, N1 were sold, subject to contract, to individualprofessional investors at asking prices averaging almost £350,000 within twohours of release. Despite the current uncertainty surrounding the national housing market, theprospects in East London remain sound. Regeneration of the area is ongoing,supported by the Olympic development and the desire for an 'Olympic legacy' toendure after the games themselves. Demand continues to exceed supply withprojected demographics for the region suggesting that this will continue. TheCompany's beneficial partnerships with affordable housing providers and housingtransfer organisations further strengthen its position in East London andunderpin the future of Telford Homes. Financial results Contracts were exchanged on 363 open market private homes, 62 affordable homesand five commercial units, making a total of 430 properties in the period. Theaverage selling price of the open market private homes has remained steady at£257,000 against £258,000 for the year to 31 March 2007. Changes in the mix ofproperties sold in each period have offset modest price inflation during thefirst six months of the year. The Company's strategy of selling properties at an early stage in thedevelopment process has continued to drive the business forward and givessecurity over future cash flows. There are 1,650 properties currently underconstruction and 85% are sold with contracts exchanged. Our accounting policyis to recognise turnover and profit from the point of exchange of contracts on apercentage complete basis. This means that in addition to profit recognisedfrom contracts exchanged in the period we also have profit continuing to berealised from ongoing construction at developments where the exchanges have beenreported in previous years. The gross margin in the six months was 20.0%, against 22.4% for the full year to31 March 2007. At Queen Mary's Gate, South Woodford the original land owner isbeing paid directly from sales proceeds resulting in a high return on equitybalanced by a reduced margin. The underlying gross margin excluding this siteis 22.0% down from 23.5%. Our target gross margin is 20% and we would expectlong term margins to be around this level. Reported operating margin in the sixmonths was 15.2%, down from 16.0% for the full year to 31 March 2007, withoverheads falling as a percentage of revenue. The Board has declared an increased interim dividend of 4.5 pence which isexpected to be paid on 14 January 2008 to those shareholders on the register atthe close of business on 21 December 2007. The dividend for the first sixmonths of last year was 4.0 pence. The interim results to 30 September 2007 are the first set of accounts that theCompany has prepared under International Financial Reporting Standards (IFRS).There have been no significant changes in accounting required as a result of theCompany adopting IFRS and further details are given in note 6 to these accounts. Planning process The planning process continues to be one of the biggest challenges facing theCompany and the industry as a whole. Our relationships with local councils andtheir planning departments put us in a good position but increasing bureaucracyand on occasion the need to satisfy several different bodies with competingviews have led to delays in the development of some sites. Despite these problems we are pleased to have received a resolution to grantplanning permission for 372 homes at our major development at Creekside Village,Greenwich. This project is a joint venture with The Royal Bank of Scotland andconstruction is expected to commence in January 2008. Development pipeline During the last six months we have acquired a number of sites to add to ourdevelopment pipeline, which have been offset by properties sold in the period.The equity placing in 2006 has enabled the Company to extend its medium to longterm pipeline. The most significant acquisition in the period is a site with planningpermission for 241 homes in Sutherland Road, Walthamstow. Telford Homes ispurchasing the freehold of 66 open market private homes with the remaining homesbeing delivered through a build contract with the current site owners, EastThames Housing Group. This contract means that we have been able to secure asubstantial proportion of the future revenue from the site, with stage paymentsbeing made over the course of construction. Our development pipeline, being properties that are expected to generate profitin future years not including those built for joint venture partners, consistsof 1,462 properties with planning permission and 612 subject to the planningprocess. This is a total of 2,074 properties which are expected to provideturnover in excess of £480 million and gross profit of over £95 million. Ofthis projected gross profit in the pipeline, over £22 million has been securedby contracts already exchanged and this will be recognised as constructionproceeds on developments over the next two to three years. Partnerships We have previously reported that the Company has been chosen as the developmentpartner to Eastend Homes on a number of estates in Tower Hamlets. Eastend Homesis a housing transfer organisation and together we are already developing on theBritish Estate, E3. This estate has set the model for our partnership with landpayments made by Telford Homes being reinvested into the third partyrefurbishment of existing homes on the estate. Under the development name ofMerchants' Quarter we have already exchanged contracts on all 161 open marketprivate homes on this estate and construction is underway. We are continuing toprogress master plans for the regeneration of seven other estates with EastendHomes. In addition to this partnership we have agreed a development framework withPoplar HARCA, another housing transfer organisation with whom we have previouslycompleted a number of developments. This is expected to lead to theconstruction of over 300 new homes across several sites in the next few years.We are also negotiating to enter a joint venture with Family Mosaic, one of ourhousing association partners, to deliver over 100 new homes across five sites.These sites, together with the future estates with Eastend Homes, are expectedto add over 1,500 homes to our development pipeline. Partnerships of this naturewill be significant to the future of Telford Homes. We announced on 9 October 2007 that the Company has been chosen as apre-qualified partner for the Housing Corporation. We have now submitted ourfirst bid for a grant on one of our future developments and we expect to makefurther bids in the future. This status reflects Telford Homes' long termcommitment to public sector partnerships and gives us greater flexibility andcontrol in the financing of affordable housing. Organisation and people From 1 January 2008 there will be three operating divisions dealing with thedelivery of all properties going through the planning process and thosecurrently in detailed design or under construction. The new division, Strada,will increase our operational capacity as the Company continues to grow. Once again we have taken on a number of new people across every area of thebusiness and our employees remain one of the key strengths of Telford Homes.Their ability to adapt to growth and change has been fantastic and I thank eachof them for their continued efforts. Our high standards in construction have been recognised again during the lastsix months with two of our site managers winning prestigious 'Pride in the Job'awards from the NHBC. In addition the Company's commitment to employee shareownership was recognised by a commendation at the 2007 'ifs ProShare' awards.Involving employees in the ownership of Telford Homes has been crucial inretaining people at all levels and giving them an incentive to drive thebusiness forward. Finance Telford Homes continues to receive strong support from all of its bankingpartners and Barclays Bank has funded its first Telford Homes development duringthe six months to 30 September 2007. Gearing at 30 September 2007 was 173%, compared to 102% at 31 March 2007 withthe increase due to completion on sites purchased with the placing funds raisedat the end of 2006. We will continue to monitor the certainty of future cashinflows against exposure to debt and our internal measure of uncovered gearingexcludes debt matched by the value of contracts exchanged on a givendevelopment. This was 56% at 30 September 2007 compared to 18% at 31 March 2007and is well within acceptable limits. Current trading and outlook We are delighted with the outcome of the sales launch at Stadthaus, N1 with allof the open market private homes being reserved within two hours by individualprofessional investors. These sales are now proceeding to contract and are anindication that demand is still strong for the right product in the rightlocation. Build completion at this development is expected in early 2009. Sales at Queen Mary's Gate, our only major sales outlet, have been slower in thelast few weeks as the current market sentiment has resulted in caution fromprospective purchasers. The period leading up to Christmas is traditionallyquiet and market conditions over the next few months will determine how quicklysales at this development pick up in 2008. Handovers of the first phase shouldcommence later in December going through to April 2008 and on this phase we havealready exchanged contracts on 166 of the 184 open market private homes. Overall the six months to 30 September 2007 have been extremely successful and,with results weighted towards the first half together with profit flowing fromongoing construction, the Company remains on track to meet market expectationsfor the year to 31 March 2008. Andrew Wiseman Chief Executive 3 December 2007 INCOME STATEMENT FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2007 Note 6 months 6 months Year ended ended ended 30 September 30 September 31 March 2007 2006 2007 restated (note 6) £000 £000 £000 Revenue 82,062 52,558 104,383 Cost of sales (65,644) (40,585) (81,001) Gross profit 16,418 11,973 23,382 Administrative expenses (3,928) (3,003) (6,676) Operating profit 12,490 8,970 16,706 Finance income 291 164 794Finance costs (3,255) (1,920) (3,985) Profit before income tax 9,526 7,214 13,515 Income tax expense 3 (2,774) (2,164) (3,557) Profit from continuing 6,752 5,050 9,958operations after tax Earnings per share: Basic 5 18.3p 16.9p 30.4p Diluted 5 18.0p 16.4p 29.4p All activities are in respect of continuing operations. STATEMENT OF RECOGNISED INCOME AND EXPENSE FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2007 6 months 6 months Year ended ended ended 30 September 30 September 31 March 2007 2006 2007 £000 £000 £000Movement in excess tax on share (23) 72 (27)options Net (expense) income recognised (23) 72 (27)directly into equity Profit for the period 6,752 5,050 9,958 Total recognised income andexpense for the period 6,729 5,122 9,931 BALANCE SHEET AT 30 SEPTEMBER 2007 30 September 30 September 31 March 2007 2006 2007 restated (note 6) restated (note 6) £000 £000 £000Non current assetsTangible and intangible assets 733 899 851Deferred income tax assets 207 273 226 940 1,172 1,077 Current assetsInventories 69,722 42,340 70,135Trade and other receivables 117,997 44,228 56,104Cash and cash equivalents 1,094 8,190 17,617 188,813 94,758 143,856 Total assets 189,753 95,930 144,933 Non current liabilitiesHire purchase liabilities (53) (136) (96) (53) (136) (96) Current liabilitiesTrade and other payables (21,464) (10,003) (15,028)Current income tax liabilities (2,778) (2,146) (1,655)Borrowings (105,186) (46,787) (73,210)Hire purchase liabilities (97) (116) (113) (129,525) (59,052) (90,006) Total liabilities (129,578) (59,188) (90,102) Net assets 60,175 36,742 54,831 Capital and reservesIssued share capital 3,715 3,034 3,694Share premium 29,094 13,228 28,641Retained earnings 27,366 20,480 22,496 Total equity 60,175 36,742 54,831 CASH FLOW STATEMENT FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2007 6 months 6 months Year ended ended ended 30 September 30 September 31 March 2007 2006 2007 restated (note 6) restated (note 6) £000 £000 £000Cash flow from operating activitiesOperating profit 12,490 8,970 16,706Depreciation 182 178 360Write down in value of own shares 52 52 109Share-based payments 48 43 90Profit on sale of tangible assets (9) (25) (34)Decrease (increase) in inventories 413 3,207 (24,588)(Increase) decrease in debtors (61,893) 15,226 3,347Increase (decrease) in creditors 6,391 (70) 4,870 (42,326) 27,581 860Interest paid (3,204) (1,914) (3,885)Income taxes paid (1,655) (1,621) (3,554)Cash flow from operating activities (47,185) 24,046 (6,579) Cash flow from investing activitiesPurchase of tangible assets (64) (65) (182)Proceeds from sale of tangible 9 28 38assetsInterest received 291 164 794Cash flow from investing activities 236 127 650 Cash flow from financing activitiesProceeds from issuance of ordinary 474 625 15,895share capitalExpenses of share issue - - (627)Purchase of own shares (332) (355) (365)Sale of own shares 189 161 180Increase (decrease) in bank loans 31,976 (22,166) 4,257Dividend paid (1,816) (1,391) (2,867)Capital element of hire purchase (59) (62) (123)paymentsHire purchase interest (6) (6) (15)Cash flow from financing activities 30,426 (23,194) 16,335 Net (decrease) increase in cash and (16,523) 979 10,406cash equivalentsBrought forward 17,617 7,211 7,211Cash and cash equivalents carried 1,094 8,190 17,617forward STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2007 Share Share Retained Total capital premium earnings equity £000 £000 £000 £000 Restated balance at 1 April 2007 (note 6) 3,694 28,641 22,496 54,831Profit for the period - - 6,752 6,752Dividend on equity shares - - (1,816) (1,816)Net expense recognised directly in equity - - (23) (23)Proceeds of equity share issue 21 453 - 474Share-based payments - - 48 48Purchase of own shares - - (332) (332)Sale of own shares - - 189 189Write down in value of own shares - - 52 52 Balance at 30 September 2007 3,715 29,094 27,366 60,175 STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2006 Share Share Retained Total capital premium earnings equity £000 £000 £000 £000 Restated balance at 1 April 2006 (note 6) 2,981 12,656 16,848 32,485Profit for the period - - 5,050 5,050Dividend on equity shares - - (1,391) (1,391)Net income recognised directly in equity - - 72 72Proceeds of equity share issue 53 572 - 625Share-based payments - - 43 43Purchase of own shares - - (355) (355)Sale of own shares - - 161 161Write down in value of own shares - - 52 52 Balance at 30 September 2006 3,034 13,228 20,480 36,742 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 MARCH 2007 Share Share Retained Total capital premium earnings equity £000 £000 £000 £000Restated balance at 1 April 2006 (note 6) 2,981 12,656 16,848 32,485Profit for the year - - 9,958 9,958Dividend on equity shares - - (2,867) (2,867)Net expense recognised directly in equity - - (27) (27)Shares issued under the Deferred Payment 55 1,375 (1,430) -Share Purchase PlanProceeds of equity share issue 658 15,237 - 15,895Costs arising from shares issued - (627) - (627)Share-based payments - - 90 90Purchase of own shares - - (365) (365)Sale of own shares - - 180 180Write down in value of own shares - - 109 109 Balance at 31 March 2007 3,694 28,641 22,496 54,831 NOTES 1 Basis of preparation EU law (IAS Regulation EC 1606/2002) requires that the annual financialstatements, for the year ending 31 March 2008, be prepared in accordance withInternational Financial Reporting Standards (IFRS) adopted for use in the EU. The interim accounts have been prepared on the basis of the recognition andmeasurement requirements of IFRS in issue that are expected to be endorsed bythe EU and effective at 31 March 2008, the first annual reporting date at whichthe Company is required to use adopted IFRS. The interim accounts do not constitute statutory accounts within the meaning ofSection 240 of the Companies Act 1985. The figures for the six months ended 30September 2007 and 30 September 2006 are unaudited. The figures for the yearended 31 March 2007 are also unaudited but have been derived from the Company'sstatutory accounts for the year ended 31 March 2007 as adjusted to comply withIFRS expected to be effective at 31 March 2008. The Company's statutory accountsfor the year ended 31 March 2007, which were prepared in accordance with UKGenerally Accepted Accounting Practices (UK GAAP), have been reported on by theCompany's auditors and delivered to the registrar of companies. The report ofthe auditors was unqualified and did not contain statements under Section 237(2) or (3) of the Companies Act 1985. The preparation of financial statements in conformity with IFRS requiresmanagement to make judgements, estimates and assumptions that affect theapplication of policies and reported amounts of assets, liabilities, income andexpenses. The estimates and associated assumptions are based on historicalexperience and various other factors that are believed to be reasonable underthe circumstances, the result of which form the basis of making judgements aboutcarrying values of assets and liabilities that are not readily apparent fromother sources. Actual results may differ from these estimates. The estimates andjudgements are reviewed on an ongoing basis. Revisions to accounting estimatesare recognised in the period in which the estimate is revised if the revisionaffects only that period or in the period of the revision and future periods ifthe revision affects both the current and future periods. No adjustments havebeen made for any changes in estimates made at the time of approval of the UKGAAP financial statements on which the preliminary IFRS financial statements arebased, as required by IFRS 1. 2 Accounting policies The accounting policies set out below have been applied consistently for allperiods presented in these interim accounts and in preparing an opening IFRSbalance sheet at 1 April 2006 for the purpose of the transition to IFRS. Accounting convention The financial statements have been prepared under the historical cost conventionand in accordance with applicable International Accounting Standards. Revenue and profit recognition Revenue is recognised from the date of exchange of contracts for the sale ofproperties at a rate equivalent to the value of work undertaken in respect ofland development. The value of revenue less deposits and completion moniesreceived is included as amounts recoverable on contracts within tradereceivables. All revenue is generated in the United Kingdom. Commission receivedon property sales made on behalf of third parties is recorded within revenue,with all costs associated with the sale of those properties recognised withincost of sales. Profit on developments is recognised over the life of each development inproportion to revenue only to the extent that the total eventual profit on thedevelopment can be foreseen with reasonable certainty. Until there is reasonablecertainty over the final outcome of a development the profit is restricted tothe non-refundable deposits received. Losses are provided for as soon asforeseen. Joint arrangements The Company has certain contractual arrangements with other participants toengage in joint activities that do not create an entity carrying on a trade orbusiness of its own. The Company includes its share of the assets, liabilities,profits and cash flows in such joint arrangements, measured in accordance withthe terms of the arrangement and pro-rata to the Company's interest in thearrangement, in its financial statements. Development properties Development properties are included in inventories and are stated at the lowerof cost and net realisable value. Cost comprises costs of acquisition anddevelopment, including directly attributable fees and expenses but not loaninterest. Included within development properties are freehold interests held incompleted developments. These are recognised at a multiple of annual rentalincome. Land purchased on extended payment terms When land is purchased on extended payment terms, the Company initially recordsit at its fair value with a land creditor recorded for any outstanding moniesbased on this fair value assessment. Fair value is determined by using theeffective interest method. The difference between the nominal value and theinitial fair value is amortised over the period of the extended credit term andcharged to finance costs, increasing the value of the land creditor, so that atthe date of maturity the land creditor equals the payment required. Property, plant and equipment Property, plant and equipment is stated at cost less accumulated depreciation.Depreciation is provided on a straight line basis at rates calculated to writedown the cost, less estimated residual value, of each asset over its expecteduseful life as follows: Leasehold improvements shorter of term of lease and 10 yearsPlant and machinery 2 to 5 yearsMotor vehicles 3 years Taxation Corporation tax is provided at amounts expected to be paid or recovered usingthe tax rates and laws that have been enacted or substantially enacted by thebalance sheet date. Deferred tax is recognised in respect of all temporary differences that haveoriginated but not reversed at the balance sheet date where transactions orevents that result in an obligation to pay more tax in the future or a right topay less tax in the future have occurred. Deferred tax is measured at theaverage tax rates that are expected to apply in the periods in which the timingdifferences are expected to reverse based on tax rates and laws that have beenenacted or substantially enacted by the balance sheet date. A net deferred taxasset is regarded as recoverable and therefore recognised when, on the basis ofall available evidence, it can be regarded as more likely than not that therewill be suitable taxable profits from which the reversal of the underlyingtiming differences can be deducted. Finance leases and hire purchase contracts Assets held under finance leases and hire purchase contracts are capitalised anddepreciated over the shorter of their expected useful lives and the lease term.The capital elements of the future lease obligations are recorded asliabilities, while the interest elements are charged to the profit and lossaccount over the period of the leases to produce a constant rate of charge onthe balance of capital repayments outstanding. Operating leases Operating lease rentals are charged to the profit and loss account as incurred. Pension costs Contributions paid to group personal pension schemes (defined contribution), inrespect of employees, are charged to the profit and loss account as incurred. Share-based payments In accordance with IFRS 2, the fair value of equity settled share optionsgranted is recognised as an employee expense with a corresponding increase inequity. The fair value is measured as at the date the options are granted usingthe Black-Scholes-Merton pricing model and is charged equally over the vestingperiod. The amount recognised as an expense is adjusted to reflect the actualnumber of options that vest. With respect to share-based payments, a deferredtax asset is recognised on the relevant tax base. The tax base is then comparedto the cumulative share-based payment expense recognised in the incomestatement. Deferred tax arising on the excess of the tax base over thecumulative share-based payment expense recognised in the income statement hasbeen recognised directly in equity through the statement of recognised incomeand expense. 3 Taxation Taxation has been calculated on the profit for the six months ended 30 September2007 at the estimated effective tax rate of 29.2%. 4 Dividends The interim dividend declared for the six months ended 30 September 2007 is 4.5pence per ordinary share and is expected to be paid on 14 January 2008 to thoseshareholders on the register at the close of business on 21 December 2007. Thisdividend was declared after 30 September 2007. The interim dividend paid for the six months ended 30 September 2006 was 4.0pence per ordinary share and the final dividend paid for the year ended 31 March2007 was 4.9 pence making a total of 8.9 pence per ordinary share. 5 Earnings per share Basic earnings per share is calculated by dividing the earnings attributable toordinary shareholders by the weighted average number of ordinary sharesoutstanding during the year, excluding those held in the Share Incentive Plan,which are treated as cancelled. For diluted earnings per share, the weightedaverage number of ordinary shares in issue is adjusted to assume conversion ofall dilutive potential ordinary shares. Earnings per share have been calculated using the following figures: 6 months ended 6 months ended Year 30 September 30 September ended 2007 2006 31 March 2007 restated (note 6) Weighted average number of shares in 36,836,908 29,842,792 32,781,546issueDilution - effect of share schemes 672,963 970,043 1,054,146Diluted weighted average number of 37,509,871 30,812,835 33,835,692shares in issue Profit after tax £6,752,000 £5,050,000 £9,958,000 Earnings per share:Basic 18.3p 16.9p 30.4pDiluted 18.0p 16.4p 29.4p 6 Transition to IFRS As stated in note 1 these are the Company's first interim accounts prepared inaccordance with the recognition and measurement requirements of InternationalFinancial Reporting Standards (IFRS) in issue that are expected to be endorsedby the EU and effective at 31 March 2008, the Company's first annual reportingdate at which it is required to use adopted IFRS. The accounting policies innote 2 have been applied in preparing the interim accounts for the six monthsended 30 September 2007, the comparative information for the six months ended 30September 2006 and the year ended 31 March 2007 and the opening IFRS balancesheet at 1 April 2006. In preparing the opening balance sheet and comparativeinformation for the six months ended 30 September 2006 and for the year ended 31March 2007 the Company has restated the figures previously prepared inaccordance with UK GAAP. An explanation of each IFRS that has resulted in a restatement of the figuresprepared under UK GAAP is given below. This is followed by reconciliationsbetween UK GAAP and IFRS covering the income statement and balance sheet for theyear ended 31 March 2007 and the six months ended 30 September 2006 and thebalance sheet at 31 March 2006. IAS 12 Income taxes IAS 12 requires that the expected value of future tax deductions relating to theexercise of share options is recognised as a deferred tax asset over the vestingperiod of the options. Under UK GAAP deferred tax was recognised only to theextent that a charge for share-based payments was recorded in the profit andloss account. Under IAS 12 any deferred tax over and above that on the share-based payment charge is recognised directly in the statement of recognisedincome and expense. Adoption of IAS 12 results in an additional deferred taxasset of £324,000 at 31 March 2006, £396,000 at 30 September 2006 and £297,000at 31 March 2007 with the movement in this additional asset being recognised inthe statement of recognised income and expense. IAS 39 Financial instruments - recognition and measurement IAS 39 requires that financial assets and liabilities are recognised initiallyat their fair value. For land purchased on extended payment terms the Companywill initially record it at its fair value with a land creditor recorded for anyoutstanding monies based on this fair value assessment. Previously landpurchased on extended payment terms was recognised at the cost determined in thepurchase contract. The difference between the ultimate cost of the land and theinitial fair value will be amortised over the period of the extended paymentterm and charged to finance costs increasing the value of the land creditor suchthat at the date of maturity the land creditor equals the payment required. No restatement was required to the opening balance sheet at 1 April 2006, theincome statement for the six months ended 30 September 2006 or the balance sheetat 30 September 2006. Under UK GAAP the balance sheet at 31 March 2007 includeda liability of £1.4 million in relation to land purchased at Queen Mary's Gate,South Woodford on extended payment terms. Adjusting this to fair value reducedthe liability by £78,000 and reduced inventories by the same amount. Theinterest charge in the year to 31 March 2007 has increased by £5,000 as a resultof amortising the difference between the ultimate cost of the land and the fairvalue over the period of the extended payment term. In addition the recognitionof profit at the development has changed to reflect the reduction in therecognised cost of the land resulting in a reduction in revenue of £24,000 and areduction in trade receivables of the same amount and a reduction in cost ofsales of £39,000 and an increase in inventories of the same amount. Income statement reconciliation for the year ended 31 March 2007 Previously IAS 12 IAS 39 Effect of Restated reported Income Financial transition under under UK taxes instruments to IFRS IFRS GAAP £000 £000 £000 £000 £000 Revenue 104,407 - (24) (24) 104,383 Cost of sales (81,040) - 39 39 (81,001) Gross profit 23,367 - 15 15 23,382 Administrative expenses (6,676) - - - (6,676) Operating profit 16,691 - 15 15 16,706 Finance income 794 - - - 794Finance costs (3,980) - (5) (5) (3,985) Profit before income tax 13,505 - 10 10 13,515 Income tax expense (3,557) - - - (3,557) Profit from continuing 9,948 - 10 10 9,958operations after tax Balance sheet reconciliation as at 31 March 2007 Previously IAS 12 IAS 39 Effect of Restated reported Income Financial transition under under UK taxes instruments to IFRS IFRS GAAP £000 £000 £000 £000 £000Non current assetsTangible and intangible 851 - - - 851assetsDeferred income tax assets - 226 - 226 226 851 226 - 226 1,077Current assetsInventories 70,174 - (39) (39) 70,135Trade and other 56,128 - (24) (24) 56,104receivablesCash and cash equivalents 17,617 - - - 17,617 143,919 - (63) (63) 143,856 Total assets 144,770 226 (63) 163 144,933 Non current liabilitiesDeferred income tax (71) 71 - 71 -liabilitiesHire purchase liabilities (96) - - - (96) (167) 71 - 71 (96)Current liabilitiesTrade and other payables (15,101) - 73 73 (15,028)Current income tax (1,655) - - - (1,655)liabilitiesBorrowings (73,210) - - - (73,210)Hire purchase liabilities (113) - - - (113) (90,079) - 73 73 (90,006) Total liabilities (90,246) 71 73 144 (90,102) Net assets 54,524 297 10 307 54,831 Capital and reservesIssued share capital 3,694 - - - 3,694Share premium 28,641 - - - 28,641Retained earnings 22,189 297 10 307 22,496Total equity 54,524 297 10 307 54,831 Income statement reconciliation for the six months ended 30 September 2006 Previously IAS 12 IAS 39 Effect of Restated reported Income Financial transition under under UK taxes instruments to IFRS IFRS GAAP £000 £000 £000 £000 £000 Revenue 52,558 - - - 52,558Cost of sales (40,585) - - - (40,585)Gross profit 11,973 - - - 11,973Administrative expenses (3,003) - - - (3,003)Operating profit 8,970 - - - 8,970Finance income 164 - - - 164Finance costs (1,920) - - - (1,920)Profit before income tax 7,214 - - - 7,214Income tax expense (2,164) - - - (2,164)Profit from continuing 5,050 - - - 5,050operations after tax Balance sheet reconciliation as at 30 September 2006 Previously IAS 12 IAS 39 Effect of Restated reported Income Financial transition under under UK taxes Instruments to IFRS IFRS GAAP £000 £000 £000 £000 £000Non current assetsTangible and intangible 899 - - - 899assetsDeferred income tax assets - 273 - 273 273 899 273 - 273 1,172Current assetsInventories 42,340 - - - 42,340Trade and other 44,228 - - - 44,228receivablesCash and cash equivalents 8,190 - - - 8,190 94,758 - - - 94,758 Total assets 95,657 273 - 273 95,930 Non current liabilitiesDeferred income tax (123) 123 - 123 -liabilitiesHire purchase liabilities (136) - - - (136) (259) 123 - 123 (136)Current liabilitiesTrade and other payables (10,003) - - - (10,003)Current income tax (2,146) - - - (2,146)liabilitiesBorrowings (46,787) - - - (46,787)Hire purchase liabilities (116) - - - (116) (59,052) - - - (59,052) Total liabilities (59,311) 123 - 123 (59,188) Net assets 36,346 396 - 396 36,742 Capital and reservesIssued share capital 3,034 - - - 3,034Share premium 13,228 - - - 13,228Retained earnings 20,084 396 - 396 20,480Total equity 36,346 396 - 396 36,742 Balance sheet reconciliation as at 31 March 2006 Previously IAS 12 IAS 39 Effect of Restated reported Income Financial transition under under UK taxes instruments to IFRS IFRS GAAP £000 £000 £000 £000 £000Non current assetsTangible and intangible 871 - - - 871assetsDeferred income tax assets - 188 - 188 188 871 188 - 188 1,059Current assetsInventories 45,547 - - - 45,547Trade and other 59,454 - - - 59,454receivablesCash and cash equivalents 7,211 - - - 7,211 112,212 - - - 112,212 Total assets 113,083 188 - 188 113,271 Non current liabilitiesDeferred income tax (136) 136 - 136 -liabilitiesHire purchase liabilities (75) - - - (75) (211) 136 - 136 (75)Current liabilitiesTrade and other payables (10,073) - - - (10,073)Current income tax (1,590) - - - (1,590)liabilitiesBorrowings (68,953) - - - (68,953)Hire purchase liabilities (95) - - - (95) (80,711) - - - (80,711) Total liabilities (80,922) 136 - 136 (80,786) Net assets 32,161 324 - 324 32,485 Capital and reservesIssued share capital 2,981 - - - 2,981Share premium 12,656 - - - 12,656Retained earnings 16,524 324 - 324 16,848Total equity 32,161 324 - 324 32,485 7 Interim report Copies of this announcement are available from the Company at First Floor,Stuart House, Queensgate, Britannia Road, Waltham Cross, Hertfordshire EN8 7TF. The Company's interim report for the six months ended 30 September 2007 will beposted to shareholders shortly and will be available on our website atwww.telfordhomes.plc.uk. This information is provided by RNS The company news service from the London Stock Exchange