David Arnold Group Finance Director

1
David ArnoldGroup Finance Director

• Transition to IFRS
• Presentation to Analysts
• 30 November 2005

2
AGENDA

• RNS announcement
• Introduction and overview of impact
• Specific changes
• IAS 19 Employee benefits (pensions)
• IAS 2 Inventories (sales expenses)
• IAS 39 Financial Instruments (deferred land
  payments)
• 2005/06 impact
• Conclusion

3
RNS ANNOUNCEMENT

• Executive summary
• Transitional arrangements
• Summary of principal impacts
• Accounting policies
• IFRS financial statements
• Reconciliations
• Adjusting UK GAAP for IFRS joint venture
  treatment
• Balance sheets
• Profit

4
INTRODUCTION

• Interim results for the 6 months to December 2005
  will be first results prepared on IFRS basis
• Year ending June 2006 will be first set of Annual
  Report Accounts prepared on IFRS basis
• 2005 comparatives restated
• Restated figures subject to ongoing review re
  developing guidance and best practice regarding
  IFRS interpretation and application

5
EXECUTIVE SUMMARY

• The move to IFRS will
• not impact our strategy or capability to deliver
  shareholder value into the future
• leave cashflows unaffected
• not impact the ability of Redrow plc to pay
  dividends or adversely impact our dividend policy

6
IFRS IMPACT ON 2005 FULL YEAR RESULTS

• Profit before tax restated to 139.0m (Reported
  UK GAAP 141.1m)
• Basic earnings per share restated to 60.7p
  (Reported UK GAAP 62.1p)
• Net assets reduced by 6.5m to 452.5m

7
FIRST TIME ADOPTION

• IFRS 1 governs first time adoption
• Permitted exemptions from retrospective
  application applied by Redrow
• Recognition of pension scheme deficit in full
  through reserves
• Application of IFRS 2 to share based payments
  granted after7 November 2002
• Revalued fixed asset property held at deemed cost
• IAS 39 (financial instruments) adopted from 1
  July 2004

8
MAIN IMPACTS OF IFRS (1)

• IAS 19 Employee Benefits - resulting in the
  recognition of the net pension deficit and
  slightly higher charge to income statement
• IAS 2 Inventories - resulting in the write off
  of certain sales costs previously included in
  WIP, with future selling costs expensed as
  incurred
• IAS 39 Financial Instruments Recognition and
  Measurement - resulting in deferred payments
  arising from land creditors being held at
  discounted present value with a financing element
  recognised on the deferred terms resulting in
  reduced land cost of sales and increased
  financing charges

9
MAIN IMPACTS OF IFRS (2)

• IAS 39 Financial Instruments Recognition and
  Measurement - cashflow hedging arrangements
  recognised at fair value
• IFRS 2 Share-based Payment - Accounting for
  SAYE options exempt under UITF 17 resulting in
  slightly higher charge to income statement
• IAS 10 Events After the Balance Sheet Date -
  dividends declared post balance sheet date no
  longer recognised as a liability at the balance
  sheet date
• IAS 31 Interests in Joint Ventures now shown
  on income statement as a separate line as profit
  less interest less tax

10
IAS 19 - EMPLOYEE BENEFITS

• Net pension deficit recognised in balance sheet
  at June 2004 of 7.9m gross deficit and 2.4m
  deferred tax asset
• Actuarial gains and losses recognised in full
  annually through statement of recognised income
  and expense (SORIE)
• Revised basis for calculation of service costs
• Holiday pay accrual gives rise to a 0.8m
  increase in current liabilities as at 30 June
  2004 and 30 June 2005 and a corresponding 0.2m
  deferred tax asset

11
IAS 19 EMPLOYEE BENEFITSFULL YEAR 2005 IMPACT

• Profit before tax reduced by 0.7m and profit
  after tax reduced by 0.5m
• Net 5.5m reduction on UK GAAP net assets as at
  30 June 2005in respect of pensions
• Net 0.6m reduction on UK GAAP net assets as at
  30 June 2005 in respect of holiday pay

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IAS 2 - INVENTORIES

• IAS 2 requires all selling costs to be expensed
  as incurred
• As permitted under SSAP 9, Redrow previously
  included certain direct selling costs within work
  in progress and charged them to cost of sales on
  a plot elimination basis
• The change to IFRS results in a 9.6m reduction
  in WIP as at June 2004 and a net 6.7m reduction
  in reserves after taking into account the related
  deferred tax asset of 2.9m

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IAS 2 - INVENTORIESFULL YEAR 2005 IMPACT

• 0.9m reduction in operating profit
• Impact in 12 months to June 2005 reflects product
  mix in that year. Proportion of legal
  completions from In the City was at top end of
  normal range the bulk of sales and marketing
  costs on these schemes would have been incurred
  in the previous financial years
• Net assets reduced by 7.3m as at 30 June 2005

14
IAS 39 DEFERRED LAND PAYMENTS

• Land creditors recognised at discounted present
  value
• Land asset recognised at fair value
• Land creditor liability is increased to
  settlement value over the period of the deferral
• Value of the discount is expensed through net
  financing costs in the income statement
• Profit impact is to increase gross profit by
  reducing land cost of sales and increase
  financing costs
• Net reduction of 8.4m in land stock and 3.2m in
  land creditors, hence 3.6m reduction in net
  assets at 30 June 2004 after allowing for a 1.6m
  deferred tax asset

15
IAS 39 - DEFERRED LAND PAYMENTSFULL YEAR 2005
IMPACT

• Operating profit increased by 1.2m
• Financing costs increased by 2.5m
• Profit before tax reduced by 1.3m
• Net assets reduced by 4.6m as at 30 June 2005

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IAS 39 FINANCIAL INSTRUMENTSCASHFLOW HEDGES

• Floating rate borrowings are converted to fixed
  rate via interest rate swaps
• Deemed to be effective cashflow hedges and
  therefore changes in fair value recognised
  through SORIE
• Net assets at 30 June 2004 increased by 1.0m
  reflecting 1.4m asset and 0.4m deferred tax
  liability
• Net assets reduced by 0.1m as at 30 June 2005

17
IFRS 2 SHARE BASED PAYMENT

• Fair value assessed at date of grant using Black
  Scholes option pricing model
• Operating profit reduced by 0.2m in 2005

18
IAS 10 - DIVIDENDS

• Dividends declared after the balance sheet date
  were adjusting post balance sheet events under UK
  GAAP but this is not the case under IAS 10
• Net assets increased by 9.5m as at 30 June 2004
  (being the 2004 final dividend)
• Net assets increased by 11.5m as at 30 June 2005
  (being the 2005 final dividend)

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IMPACT OF IFRS ON 2005/06 EARNINGS ESTIMATES

• Pensions and SAYE
• Impact on 2005/06 at a similar level to 2004/05
• Selling costs
• Slightly greater impact upon the gross margin
  than in 2004/05 due to product mix and number of
  new developments
• Land creditors
• Will always depend upon timing of land deals and
  therefore less predictable
• Segmental impact
• Slides in pack reflect segmental and margin impact

20
CONCLUSION

• Group strategy is unaffected
• Cashflows are unaffected
• Dividend policy is unaffected