FINANCIAL REVIEW Profit before tax and earnings per share The Group generated turnover of 478.9m in the year ended 30 June 2012 (2011: 452.7m). This reflected a 15% increase in the average selling price of our homes. Revenue ( m) Residential 466.7 432.8 Land sales 10.5 18.7 Commercial 1.7 1.2 478.9 452.7 The Group delivered an operating profit of 48.0m (2011: 31.2m), an increase of 54% on prior year levels and representing a 10% operating margin (2011: 6.9%). It is pleasing to report that operating margin has increased over threefold between 2010 and 2012 as we continue to make significant strides forward in returning our operating margin to pre downturn levels. Net financing costs at 5.0m were 0.9m lower than the previous year reflecting lower bank interest costs as a result of lower average gearing levels throughout the year. The Group generated a profit before tax of 43.0m, a 70% increase on the prior year (2011: 25.3m). Basic earnings per share were 9.7p (2011: 4.4p). Basic earnings per share excluding the impact of rate changes on our deferred tax assets were up 80% to 10.8p (2011: 6.0p). The Return on Capital Employed for 2012 at 8.7% is 43% higher than 2011 levels and we continue to focus on improving this key performance indicator. Tax As a consequence of tax losses brought forward, the Group again paid no corporation tax in the year (2011: 0.5m refund on earlier overpayment). This situation is expected to continue in 2013. The Group's tax rate for the year was 25.5% (2011: 27.5%) before taking into account the reduction in the corporation tax rate to 24% on deferred tax assets ( 3.5m (2011: 4.8m)). A deferred tax asset of 51.8m (2011: 63.8m) was carried at 24% at 30 June 2012, primarily in relation to brought forward tax losses, for use against future profits. A corporation tax rate of 23% applicable from 1 April 2013 was substantively enacted on 3 July 2012. The carrying value of the deferred tax asset based on a 23% rate would be 49.6m. The 2.2m difference between this number and the closing balance will be charged to the Consolidated Income Statement in the first half of the 2013 financial year. The normalised rate of tax for the year ending 30 June 2013 is projected to be 23.75% based on rates which are currently substantively enacted.
Dividends No dividends have been proposed in respect of the financial year ended 30 June 2012 (2011: nil). However, in line with the statement made in the prospectus for the Firm Placing and Open Offer, subject to economic circumstances, we intend to resume dividend payments in the 2013 financial year. Balance Sheet Net assets at June 2012 were 561.5m (2011: 458.6m), a 22% increase as follows: m Net assets at 1 July 2011 458.6 Net proceeds of Firm Placing and Open Offer 78.0 Profit for the period 30.2 IAS19 actuarial losses net of tax (6.0) Movement in share based payment 0.7 561.5 In May, the Group successfully completed a Firm Placing and Open Offer for 14,902,867 and 46,289,592 new shares respectively at 130 pence per new share. This generated 78.0m of funds net of 1.6m expenses of which 6.1m has been credited to Share capital and 71.9m to Retained earnings. The net asset value per share at the end of June 2012 was 1.52, an increase of 5% on the prior year (2011: 1.45) adjusting for the recent share issue. Our investment in land increased by 138.1m in the year to 515.9m reflecting a 12% increase in plots owned with residential planning permission and targeted investment in strategic land. Our investment in work in progress continues to be carefully managed with the number of equivalent units in work in progress excluding London reducing for the third consecutive year to 1,048 units (a 15% reduction on June 2011 levels). Trade and other receivables decreased by 16.4m during the year to 53.2m. The decrease related primarily to the receipt of 12.3m of deferred consideration from the disposal of our Scotland business which took place in June 2011. Capital employed increased by 41.5m to 575.5m mainly due to increases in land holdings. Our net realisable value (NRV) provision reduced by 46.8m to 111.5m in the year due to legal completions and land sales. Land creditors increased by 63.5m to 108.3m in the year as a result of c.60% of land purchases in the year including some element of deferred purchase consideration. Pensions Redrow closed both the defined benefit and defined contribution sections of The Redrow Staff Pension Scheme (The Scheme) to future accrual with effect from 1 March 2012. New pension benefits from this date are being provided via the Redrow Group Personal Pension Plan (GPP) which is a type of defined contribution plan.
As at 30 June 2012, the Group s financial statements showed a 2.6m deficit (2011: 5.0m surplus) in respect of the defined benefits section of The Scheme, as calculated in accordance with IAS19. The 7.6m movement from last year is due to an increase in defined benefit obligations resulting from changes in bond yields. Cash flow and Net Debt Net debt decreased by 61.4m to 14.0m during the year, with gearing at 2% at the year-end (2011: 16%). This reflects the timing of the receipt of proceeds from the Firm Placing and Open Offer in May. Gearing has increased since June 2012 and is expected to rise going forward due to investment in new land to grow the business. Financing and Treasury Management Redrow is a UK based housebuilder and therefore the main focus of its financial risk management surrounds the management of liquidity and interest rate risk. (i) Liquidity The Group regularly prepares and reviews its cash flow forecasts which are used to manage liquidity risks in conjunction with the maintenance of appropriate committed banking facilities to ensure adequate headroom. Facilities are kept under regular review and the Group maintains regular contact with its banks and other financial institutions. This ensures Redrow remains attuned to new developments and opportunities and that our facilities remain aligned to our strategic and operational objectives and market conditions. Our current banking syndicate comprises four banks and in addition to our committed facilities, Redrow also has further uncommitted bank facilities which are used to assist day to day cash management. (ii) Interest rate risk The Group is exposed to interest rate risk as it borrows money at floating rates. Redrow uses simple risk management products, notably sterling denominated interest rate swaps, as appropriate to manage this risk. Such products are not used for speculative or trading purposes. Redrow regularly reviews its hedging requirements. During the year the Board decided, taking into account current predicted LIBOR rates and the pricing of interest rate swaps, to take out 20m of two year sterling interest rate swaps. They have a neutral value at 30 June 2012. Financial management at Redrow is conducted centrally using policies approved by the Board. Barbara Richmond Group Finance Director
Consolidated Income Statement 12 months ended 30 June Note Revenue 478.9 452.7 Cost of sales (396.1) (388.4) Gross profit 82.8 64.3 Administrative expenses (34.8) (33.1) Operating profit before financing costs 48.0 31.2 Financial income 2.4 2.7 Financial expenses (7.4) (8.6) Net financing costs (5.0) (5.9) Profit before tax 43.0 25.3 Income tax (expense) 2 (12.8) (11.8) Profit for the period 30.2 13.5 Earnings per share - basic 4 9.7p 4.4p - diluted 4 9.7p 4.4p
Consolidated Statement of Comprehensive Income 12 months ended 30 June Profit for the period Other comprehensive income/(expense) Effective portion of changes in fair value of interest rate cash flow hedges Deferred tax on change in fair value of interest rate cash flow hedges 30.2 13.5-1.1 - (0.3) Actuarial (losses)/gains on defined benefit pension scheme (7.9) 9.7 Deferred tax on actuarial (losses)/gains taken directly to equity 1.9 (2.5) Other comprehensive (expense)/income for the period net of tax (6.0) 8.0 Total comprehensive income for the period 24.2 21.5
Balance Sheet As at 30 June Note Assets Intangible assets 1.8 1.7 Property, plant and equipment 12.1 12.9 Investments 9.3 2.6 Deferred tax assets 51.8 63.8 Retirement benefit surplus - 5.0 Trade and other receivables 26.0 31.4 Total non-current assets 101.0 117.4 Non-current assets held for sale 1.4 1.4 Inventories 5 708.2 562.7 Trade and other receivables 27.2 38.2 Cash and cash equivalents 8 37.4 32.0 Total current assets 774.2 634.3 Total assets 875.2 751.7 Equity Share capital 9 37.0 30.9 Share premium account 58.7 58.7 Hedge reserve - - Other reserves 7.9 7.9 Retained earnings 457.9 361.1 Total equity 561.5 458.6 Liabilities Bank loans 8 30.0 85.0 Trade and other payables 6 40.6 12.4 Deferred tax liabilities 0.7 1.8 Retirement benefit obligations 2.6 - Long-term provisions 8.2 8.0 Total non-current liabilities 82.1 107.2 Bank overdrafts and loans 8 21.4 22.4 Trade and other payables 6 210.2 163.5 Total current liabilities 231.6 185.9 Total liabilities 313.7 293.1 Total equity and liabilities 875.2 751.7
Statement of Changes in Equity The Group Total comprehensive income relating to the period (net) 24.2 21.5 Shares issued 78.0 - Share-based payment 0.3 0.3 Movement in LTSIP/SAYE 0.4 0.9 Net increase in equity 102.9 22.7 Opening equity 458.6 435.9 Closing equity 561.5 458.6
The Statement of Cash Flows 12 months ended 30 June Note Cash flow from operating activities Operating profit before financing costs 48.0 31.2 Depreciation and amortisation 1.3 1.3 Adjustment for non-cash items (3.1) (2.8) Operating profit before changes in working capital and provisions 46.2 29.7 Decrease/(increase) in trade and other receivables 6.3 (10.2) (Increase) in inventories (145.5) (71.1) Increase in trade and other payables 75.2 25.1 Increase/(decrease) in provisions 0.2 (0.4) Cash (outflow) generated from operations (17.6) (26.9) Interest paid Tax received (3.6) (4.9) - 0.5 Net cash from operating activities (21.2) (31.3) Cash flows from investing activities Sale of business 12.3 5.0 Acquisition of property, plant and equipment (0.7) (0.7) Proceeds from sale of property, plant and equipment - 0.6 Interest received - 1.0 Payments to joint ventures - continuing operations (6.7) (0.4) Net cash inflow from investing activities 4.9 5.5 Cash flows from financing activities Issue of bank borrowings 7 30.0 85.0 Repayment of bank borrowings 7 (85.0) (50.0) Issue costs of bank borrowings - (2.5) Purchase of own shares (0.3) - Proceeds from issue of share capital 78.0 - Net cash inflow from financing activities 22.7 32.5 Increase in net cash and cash equivalents 6.4 6.7 Net cash and cash equivalents at the beginning of the period 9.6 2.9 Net cash and cash equivalents at the end of the period 8 16.0 9.6
NOTES 1. Basis of preparation The above results and the accompanying notes do not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006. The Auditors have reported on the Group's statutory accounts for the year ended 30 June 2012 under s495 of the Companies Act 2006, which do not contain a statement under s498 (2) or s498(3) of the Companies Act 2006 and are unqualified. The statutory accounts for the year ended 30 June 2011 have been delivered to the Registrar of Companies and the statutory accounts for the year ended 30 June 2012 will be filed with the Registrar in due course. The audited consolidated financial statements from which these results are extracted have been prepared under the historical cost convention and in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union, IFRIC interpretations and those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The principal accounting policies have been applied consistently in the periods presented. 2. Income Tax expense 12 months ended 30 June Current year UK Corporation Tax at 25.5% (2011: 27.5%) - - (Over) provision in respect of prior year - - - - Deferred tax Origination and reversal of temporary differences 9.3 7.0 Impact of change in deferred tax rate 3.5 4.8 Total income tax charge in income statement 12.8 11.8 Reconciliation of tax charge for the year Profit for the year 43.0 25.3 Tax on total profit at 25.5% (2011: 27.5%) 11.0 7.0 Impact of change in deferred tax rate 3.5 4.8 Expenses not deductible for tax purposes net of rolled over capital gains - - Short term temporary differences (1.7) - Tax charge for the year 12.8 11.8 3. Dividends No dividend was paid in the year ended 30 June 2012 (2011: nil).
4. Earnings per share The basic earnings per share calculation for the year ended 30 June 2012 is based on the weighted number of shares in issue during the period of 311.9m (2011: 304.3m) excluding those held in trust under the Redrow Long Term Incentive Plan (4.3m shares (2011: 4.3m shares)), which are treated as cancelled. Diluted earnings per share has been calculated after adjusting the weighted average number of shares in issue for all potentially dilutive shares held under unexercised options. 12 months ended 30 June 2012 Earnings No. of shares Per share m millions pence Basic earnings per share 30.2 311.9 9.7p Effect of share options and SAYE - 0.4 - Diluted earnings per share 30.2 312.3 9.7p Earnings No. of shares Per share m millions pence Basic earnings per share 30.2 311.9 9.7p Adjustment to deferred tax rate change 3.5-1.1p Adjusted earnings per share 33.7 311.9 10.8p Adjusted diluted earnings per share are 10.8p (2011: 6.0p) 12 months ended 30 June 2011 Earnings No. of shares Per share m millions pence Basic earnings per share 13.5 304.3 4.4p Effect of share options and SAYE - 0.3 - Diluted earnings per share 13.5 304.6 4.4p 5. Inventories As at 30 June Land for development 515.9 377.8 Work in progress 170.5 161.6 Stock of showhomes 21.8 23.3 708.2 562.7 Inventories of 373.2m net of 46.7m net realisable value provision utilisation, were expensed in the year (2011: 415.4m net of 95.5m net realisable value provision). Work in progress includes 9.7m (2011: 7.2m) in respect of part exchange properties. Of the net realisable value provision of 111.5m (2011: 158.3m), 88.2m (2011: 135.0m) is attributed to land and 23.3m (2011: 23.3m) is attributed to work in progress. For provisioning purposes, we classify our inventory into two categories: Type 1: land where the construction of homes has commenced or we are proposing to develop. Type 2: land that we have not yet concluded that we are to develop and are more likely to sell.
The net realisable value provision movement is analysed below: Type 1 Type 2 Total m As at 1 July 2011 132.1 26.2 158.3 Utilised during the year (40.3) (6.4) (46.7) Created during the year 21.3 0.8 22.1 Reclassified during the year 6.3 (6.3) - Released during the year (17.7) (4.5) (22.2) As at 30 June 2012 101.7 9.8 111.5 The net realisable value provisions of 22.1m and 22.2m created and released in the year are the result of our review at the balance sheet date in the context of prevailing market conditions and the re-assessment of selling prices and costs. They represent the creation of additional provisions against sites acquired pre June 2009 and the reduction of provisions already in place against such sites as required i.e. a reallocation of the quantum of provision amongst sites where provisions already exist. 6. Land Creditors (included in trade and other payables) As at 30 June Due within one year 67.7 32.4 Due in more than one year 40.6 12.4 108.3 44.8 7. Borrowings and loans 12 months ended 30 June Opening net book amount 85.0 50.0 Issue of bank borrowings 30.0 85.0 Repayment of bank borrowings (85.0) (50.0) Closing net book amount 30.0 85.0 At 30 June 2012 the Group had total unsecured bank borrowing facilities of 202.5m, representing 200.0m committed facilities and 2.5m uncommitted facilities. 8. Analysis of net debt As at 30 June Cash and cash equivalents 37.4 32.0 Bank overdrafts (21.4) (22.4) 16.0 9.6 Bank loans - current liabilities - - 16.0 9.6 Bank loans - non-current liabilities (30.0) (85.0) (14.0) (75.4)
9. Share capital As at 30 June Authorised 480,000,000 ordinary shares of 10p each 48.0 48.0 Allotted, called up and fully paid 37.0 30.9 Number of ordinary shares of 10p each 1 July 2011 308,607,479 Shares issued re Firm Placing and Open Offer 61,192,459 At 30 June 2012 369,799,938 10. Shareholder Enquiries The Registrar is Computershare Investor Services PLC. Shareholder enquiries should be addressed to the Registrar at the following address: Registrars Department The Pavilions Bridgwater Road Bristol BS99 6ZZ 11. Annual General Meeting The Annual General Meeting of Redrow plc will be held at De Vere St. David's Park Hotel, St. David's Park, Flintshire on 12 November 2012, commencing at 12.00 noon. A copy of this statement is available for inspection at the registered office.