19th Jan 2006 07:01
Galliford Try PLC19 January 2006 Galliford Try plc Proposed Acquisition of Chartdale Limited Summary- Galliford Try plc ("Galliford Try" or "the Company") has entered into a conditional agreement to purchase the entire issued share capital of Chartdale Limited ("Chartdale") for £67.0 million in cash. - Chartdale is a well-established regional housebuilder operating throughout Lincolnshire. - The Acquisition represents a financially attractive opportunity to acquire a well- established regional housebuilder in an adjacent location to Stamford Homes, the eastern counties based subsidiary within Galliford Try's housebuilding division. - At Completion, Chartdale is expected to own or have contracts over a land bank of approximately 1,350 plots, substantially all of which have planning permission and approximately 95 per cent. of which will be developed as houses with the balance to be developed as apartments. - The consideration of £67.0 million is payable in cash over a two year period and will be financed from the committed bank facilities of the Company and the cashflow of the Enlarged Group. At Completion, Chartdale is expected to have cash balances of between £10 - £15 million. - The Acquisition will create a more diversified and balanced land bank within the Enlarged Group. Following the Acquisition, the Enlarged Group will have a land bank of approximately 3,900 units, thereby contributing towards Galliford Try's expansion plan to increase the number of units sold by its housebuilding division to 1,250 per annum. As a result of the Acquisition the Enlarged Group will have less exposure to the market for new apartments which will represent less than 25 per cent. of units within the enlarged land bank. - An experienced team led by the Managing Director of Stamford Homes will oversee the integration of the Chartdale business and Galliford Try expects to be able to realise synergies from applying best practice from within the housebuilding division to the operations of Chartdale. - The Board believes that the return on the investment to be made in Chartdale will exceed the Company's weighted average cost of capital, assuming a measured build out programme of Chartdale's land bank. The Board believes that this build out programme can be realised at margins similar to the existing margins being earned within the housebuilding division. - The Acquisition is also expected to enhance Galliford Try's earnings in the first full financial year of acquisition, the year ending 30 June 2007*. - The Acquisition is conditional on shareholder approval at an EGM to be held on 15 February 2006. Commenting on the Acquisition, Greg Fitzgerald, Chief Executive of GallifordTry, said today: "This is an exciting acquisition for Galliford Try that we have secured withoutcompetition from other housebuilders. It fits our strategy of growing oursuccessful housebuilding division through expansion in adjacent geographicallocations on terms that satisfy the Company's investment criteria. TheAcquisition adds significantly to our landbank giving greater visibility to ourtarget of 1,250 unit sales per annum in our housebuilding division. Chartdalealso expands our geographic footprint and further raises the level of awarenessof the enlarged business amongst land owners and agents, generating additionalopportunities for house sales and land purchases" This summary should be read in conjunction with the full text of the followingannouncement. Enquiries: Galliford Try plcGreg Fitzgerald, Chief Executive +44 (0) 18 9585 5220Frank Nelson, Finance Director +44 (0) 18 9585 5221 PricewaterhouseCoopers LLP (financial adviser)Gerry Young +44 (0) 20 7212 4027 Bell Pottinger Corporate & Financial (PR adviser)Ann-marie Wilkinson +44 (0) 20 7861 3232Geoff Callow A presentation for sell-side analysts will be held at 9.30am this morning at theoffices of Bell Pottinger Corporate & Financial, 6th Floor Holborn Gate, 330High Holborn, London. Please call Katie Ratner on 020 7861 3874 to confirmattendance. PricewaterhouseCoopers LLP, which is authorised and regulated in the UnitedKingdom by the Financial Services Authority for designated investment businessis acting exclusively for Galliford Try plc and for no one else in relation tothe Acquisition and will not be responsible to anyone other than Galliford Tryplc for providing the protections afforded to clients of PricewaterhouseCoopersLLP or for giving advice in relation to the Acquisition, or any other matterreferred to in this announcement. * The statement as to earnings enhancement does not constitute a profit forecast and should not be interpreted to mean that the earnings of the Enlarged Group will be higher in the year ending 30 June 2007 than for any prior year. 19 January 2006 Galliford Try plc ("the Company") Acquisition of Chartdale Limited 1. Introduction The Company has today entered into a conditional agreement to acquire, subjectto Shareholder approval, the entire issued share capital of Chartdale for a cashconsideration of £67.0 million payable over a two year period. Chartdale is aregional housebuilder operating throughout Lincolnshire. The Board believes the Acquisition represents a financially attractiveopportunity to acquire a well established regional housebuilder in an adjacentlocation to Stamford Homes Limited (''SHL''), the eastern counties basedsubsidiary within Galliford Try's housebuilding division. Due to the size of the Acquisition, it is conditional upon the approval ofShareholders at an Extraordinary General Meeting to be held on 15 February 2006. 2. Information on Chartdale Chartdale operates throughout Lincolnshire employing approximately 80 staff andhas its head office in Grimsby. Chartdale was formed in order to acquire Alfred McAlpine plc's housebuildingoperations in the Lincolnshire area in 1986 through a management buy out led byGeoff Dyson, who is the company's managing director and principal shareholder. At Completion, Chartdale is expected to own or have contracts over a land bankof approximately 1,350 plots, substantially all of which have planningpermission and approximately 95 per cent. of which will be developed as houseswith the balance to be developed as apartments. In the year to 31 October 2005,Chartdale generated turnover of £26.3 million from the sale of 143 units at anaverage selling price of £183,900. 3. Financial information on Chartdale and its subsidiaries Summary financial information relating to Chartdale and its subsidiaries for thethree years ended 31 October 2005, is set out in the table below: 2003 2004 2005 £m £m £m Turnover 27.0 25.5 26.3Profit on ordinary activities before interest andtaxation 7.5 8.9 14.0Operating profit margin 27.8% 34.9% 53.2%Gross assets 27.0 32.9 43.2Net assets 19.9 26.0 36.1Cash at bank and in hand 9.1 10.7 15.2 Chartdale accounts for its land bank, its largest asset category by value, atthe lower of historical cost and net realisable value. Galliford Try intends toconsolidate the net assets of Chartdale at fair value, which the Board expectsto approximate to the purchase consideration. Galliford Try will thereforereport lower operating profit margins as it develops Chartdale's land bank thanthose historically reported by Chartdale. 4. Business plan for Chartdale Galliford Try has developed a plan to integrate Chartdale into the existingregional structure of the housebuilding division. Galliford Try currently hasregional representation throughout the South and East of England throughregional housebuilding businesses comprising Midas Homes and Gerald Wood Homesin the South West, Stamford Homes in the Eastern Counties and Try Homes in theSouth East. Chartdale operates to the north of, and adjacent to, Stamford Homes'current area of operation and will become a new regional business withinStamford Homes. Ian Baker, Managing Director of Stamford Homes, will be responsible forintegrating the Chartdale business. Ian Baker successfully oversaw theintegration of Gerald Wood Homes following its acquisition by Galliford Try in2001. Galliford Try will retain Chartdale's head office in Grimsby and willoperate the business with the existing employees. Geoff Dyson has agreed to stayfor a limited period to assist in the transition into new ownership. Chartdale's land bank represents approximately nine years of stock at thecompany's current level of production and Galliford Try intends to develop thisland bank over a period that takes into account local market requirements. Inaddition, the combined business of Chartdale and Stamford Homes will create asizeable housebuilding business in the Eastern Counties which the Board believeswill provide opportunities to source additional land for development in the areaover the medium to long term. 5. Consideration payable and funding of the Acquisition Galliford Try believes that the use of debt combined with deferred payments tofinance the Acquisition will maximise returns to Shareholders. The consideration of £67.0 million is payable in cash in three instalments asfollows: £ million At Completion 27.5On 19 January 2007 7.5On the second anniversary of Completion 32.0 67.0 The cash payment of £27.5 million at Completion will be financed from thecommitted bank facilities of the Company. Galliford Try has arranged with itsexisting lenders, HSBC Bank plc and Barclays Bank plc, to increase itsfacilities by £40 million to meet the funding requirements of the EnlargedGroup. The deferred payments will be financed from the cashflow of the Enlarged Groupand from the Company's committed bank facilities. The deferred payments willcarry bank guarantees in favour of the Sellers to a maximum of £32.0 million.The Board is confident that the combination of the increased bank facilities andthe deferred payments will give the Enlarged Group the financial flexibility tofurther develop its business. At Completion Chartdale is expected to have cash balances of between £10-15million, inclusive of the proceeds from the sale of certain Chartdale Groupassets to Geoff Dyson for £4.15 million described in paragraph 7 below. Thesecash balances will be applied to the build out programme of Chartdale's landbank. Galliford Try intends to consolidate the net assets of Chartdale at fair value,which the Board expects to approximate to the purchase consideration. TheAcquisition is not therefore expected to have a material effect on the netassets of the Group. On a pro-forma basis under UK GAAP at 31 December 2005 the gearing of theEnlarged Group would have been below 80 per cent. (treating deferredconsideration as debt). If deferred consideration is not treated as debt, thegearing of the Enlarged Group would have been below 40 per cent. 6. Benefits of the Acquisition Galliford Try's strategy is to expand its successful housebuilding divisionthrough organic growth in itsexisting areas of operation, and through expansion into adjacent geographicallocations on terms that satisfy the Company's investment criteria. Chartdale fits this strategy as it is a well established business with theinfrastructure in place to grow Galliford Try's business in Lincolnshire, givingGalliford Try improved geographical spread directly to the north of its currentarea of operation, and allowing Chartdale to be integrated into Galliford Try'shousebuilding division as a regional business of SHL. The Board believes thewider geographic representation that the Acquisition will create for GallifordTry's housebuilding business should raise the level of awareness of the enlargedbusiness amongst land owners and agents, generating additional opportunities forhouse sales and future land purchases. The Board believes the area in which Chartdale operates has profitable growthopportunities. In the latest quarterly regional Halifax House Price Index forthe Yorkshire and the Humber area (which incorporates most of Lincolnshire), theannual rate of house price inflation in the region stood at 8.4 per cent.,compared to the UK average of 5.1 per cent., and the average house price in theregion stood at £131,064 compared to the UK average of £169,901. The Acquisition will also create a more diversified and balanced land bankwithin the Enlarged Group. Following the Acquisition, the Enlarged Group willhave a land bank of approximately 3,900 units, thereby contributing towardsGalliford Try's expansion plan to increase the number of units sold by itshousebuilding division to 1,250 per annum. As a result of the Acquisition theEnlarged Group will have less exposure to the market for new apartments whichwill represent less than 25 per cent. of units within the enlarged land bank. An experienced team led by Ian Baker will oversee the integration of theChartdale business and Galliford Try expects to be able to realise synergiesfrom applying best practice from within the housebuilding division to theoperations of Chartdale. The Board believes that the return on the investment to be made in Chartdalewill exceed the Company's weighted average cost of capital, assuming a measuredbuild out programme of Chartdale's land bank. The Board believes that this buildout programme can be realised at margins which approximate to the existingmargins being earned within the housebuilding division. The Acquisition is also expected to enhance Galliford Try's earnings in thefirst full financial year of acquisition, the year ending 30 June 2007*. * The statement as to earnings enhancement does not constitute a profit forecastand should not be interpreted to mean that the earnings of the Enlarged Groupwill be higher in the year ending 30 June 2007 than for any prior year. 7. Principal terms of the Acquisition Under the terms of the Share Purchase Agreement, SHL will purchase the entireissued share capital of Chartdale. The consideration for the Acquisition is £67.0 million, payable in threeinstalments over a two year period as described in paragraph 5 above. The finalinstalment of £32.0 million may be adjusted in certain limited circumstances. At Completion certain Chartdale Group assets, comprising principally investmentproperties, various minor landholdings, motor vehicles and plant, will be soldto dormant subsidiaries of Chartdale, such subsidiaries to be acquiredimmediately thereafter by Geoff Dyson, for the aggregate consideration of £4.15million in cash. The book value of these assets at 31 October 2005 was £4.15million and these assets produced approximately £200,000 of income classified as"other operating income" in Chartdale's audited accounts for the year ended 31October 2005. Completion is conditional upon the approval of Galliford Try Shareholders. TheShare Purchase Agreement will terminate automatically if this approval is notreceived on or before 30 April 2006. The Share Purchase Agreement may also beterminated by SHL prior to Completion if, amongst other things, there is amaterial breach of the Share Purchase Agreement. Geoff Dyson has given certain warranties in favour of SHL which are usual for atransaction of this nature, including warranties relating to title to assets,accounts, trading and taxation. Further information on the Acquisition will be included in the Circular to besent to Shareholders in connection with the Acquisition. 8. Current trading and prospects Galliford Try On 5 January 2006, Galliford Try issued a trading update for the six monthperiod to 31 December 2005, stating that the Company's order book in itsconstruction division stood at £1.1 billion, an increase of approximately £380million above the corresponding figure at 31 December 2004, and that theCompany's housebuilding division had completed the sale of 484 units in the sixmonths to 31 December 2005, at an average selling price of £203,000 (six monthsto 31 December 2004: 387 units at an average selling price of £228,000). Galliford Try also reported that the Group had traded in line with the Board'sexpectations in the six month period to 31 December 2005 and that the Board isconfident of a satisfactory outturn for the financial year ending 30 June 2006. The Company's interim results for the half year to 31 December 2005 are expectedto be announced on 23 February 2006. Chartdale Since its year end of 31 October 2005, Chartdale has traded satisfactorily. Enlarged Group The Directors are confident of the financial and trading prospects of theEnlarged Group due both to the encouraging state of the order book in theconstruction division and of sales in hand in the housebuilding division, asdescribed in more detail in the trading update issued by the Company on 5January 2006, and also due to the benefits that are expected to accrue as aresult of the Acquisition as described in paragraph 6 above. 9. Circular and Extraordinary General Meeting A Circular will be posted to Shareholders shortly containing, inter alia,information on the Acquisition and a notice convening an Extraordinary GeneralMeeting to be held at 9.00 am on 15 February 2006 when a resolution relating tothe approval of the Acquisition will be proposed. 10. Recommendation and voting intentions The Directors, who have received financial advice from PricewaterhouseCoopersLLP, consider the Acquisition to be in the best interests of the Shareholders asa whole. In providing advice to the Directors, PricewaterhouseCoopers LLP hasplaced reliance upon the Directors' commercial assessment of the Acquisition. Accordingly, the Directors are unanimously recommending Shareholders to vote infavour of the resolution to approve the Acquisition to be proposed at theExtraordinary General Meeting, as they intend to do in respect of the 3,604,994Shares in which they are beneficially interested, representing approximately1.59 per cent. of the issued share capital of the Company. Appendix: Definitions The following definitions apply throughout this announcement unless the contextrequires otherwise: ''Acquisition'' the proposed acquisition of the entire issued share capital of Chartdale by SHL ''Chartdale'' Chartdale Limited "Circular" the circular to be sent to Shareholders convening the Extraordinary General Meeting and containing information on the Acquisition ''Completion'' Completion of the Acquisition pursuant to the terms of the Share Purchase Agreement ''Directors''or the directors of Galliford Try''Board'' "Enlarged Group" the Group as enlarged by the acquisition of Chartdale ''Extraordinary the extraordinary general meeting of the Company convened forGeneral Meeting'' 9.00 am on 15 February 2006 (or any adjournment of it) ''Galliford Try''or Galliford Try plc''Company'' ''Galliford Try Group'' Galliford Try and its subsidiary undertakingsor ''Group'' "Sellers" Geoff Dyson and the Trustees ''Shareholders'' holders of Shares ''SHL'' or Stamford Homes Limited, a wholly owned subsidiary of Galliford Try,''Stamford Homes'' which operates as a housebuilding business in the eastern counties of England ''Share Purchase the agreement dated 18 January 2006 and entered into between Agreement'' the Sellers, SHL and Galliford Try for the acquisition of the entire issued share capital of Chartdale "Shares" ordinary shares of 5p each in the capital of the Company "Trust" the settlement established by Geoff Dyson as settlor "Trustees" the trustees of the Trust at Completion ''UK GAAP'' UK Generally Accepted Accounting Practices End of announcement This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Galliford Try