28th Feb 2005 07:01
Persimmon PLC28 February 2005 28 February 2005 RESULTS FOR THE YEAR ENDED 31 DECEMBER 2004 Highlights •Record pre-tax profits*: up 33% on 2003 at £470.4 million (2003: £352.5 million). •Proposed full year dividend to increase by 50% to 27.5p per share (2003: 18.3p)as a result of continued excellent profit growth and strong confidence in the future. Dividend will be covered 4.0 times (2003: 4.5 times). €31% increase in basic earnings per share* to 113.9p (2003: 86.8p). Earnings per share have risen by 70% in the two years since 2002. •Full year operating margin* increased to 23.3% (2003: 20.3%): delivering on strategy of focusing on margin and profitability. •ROACE* improved to 30.5% (2003: 25.5%). •Completed the sale of 12,360 homes (2003: 12,163), producing turnover of £2.13 billion (2003: £1.88 billion). Group average selling price advanced to £172,431 (2003: £154,810). •Currently selling from circa 15% more developments, compared to the same date last year. •Strong net cash inflow from operating activites of £315 million during the year. Free cash flow of £108 million. •Gearing reduced further to 15% (2003: 28%), despite significant investment in land - finished year with 59,947 plots representing a 4.9 year supply. * before goodwill amortisation of £10.8m Duncan Davidson, Group Chairman said: "We are delighted to report record pre-taxprofits of £470.4 million. This excellent result has been achieved despiteexperiencing a more challenging housing market since May 2004. The Group has had a positive start to the year. We have seen a marked up-turn indemand for our homes since early 2005 and have currently sold circa £1 billionhomes for 2005. Persimmon is in a strong position to maintain good sales volumesduring 2005, whilst continuing to deliver on our strategy of focusing on marginand return on capital employed. The Group is well positioned for the coming yearand I am confident that we will continue to move forward successfully." For further information, please contact: Duncan Davidson, Group Chairman Edward Orlebar/ Faeth BirchJohn White, Group Chief Executive FinsburyMike Killoran, Group Finance DirectorPersimmon plc Tel: +44 (0) 20 7251 3801Tel: +44 (0) 20 7251 3801 on 28 February 2005Tel: +44 (0) 1904 642199 thereafter Print resolution images are available for media download at www.newscast.co.uk CHAIRMAN'S STATEMENT ANNUAL REPORT - FEBRUARY 2005 During the 12 months to 31 December 2004, Persimmon achieved record net pre-taxprofits of £470.4 million, which was an increase of 33% over the 2003 profits of£352.5 million. Earnings per share increased by 31% to 113.9p per share (2003:86.8p). Earnings per share have risen by 70% in the two years since 2002. (Allfigures are stated before goodwill amortisation). During 2004 we legally completed the sale of 12,360 homes (2003: 12,163) at anaverage selling price of £172,431 (2003: £154,810), producing a turnover of£2.13 billion (2003: £1.88bn). Despite experiencing a more challenging housing market since May 2004, weincreased our operating margins in the year to 23.3%, from 20.3% in 2003. Returnon average capital employed also increased, to 30.5% from 25.5% in 2003. Operating activities generated a strong net cash inflow of £315 million duringthe year, and our free cash flow of £108 million added further strength to ourbalance sheet. Net debt at 31 December 2004 was reduced to £204 million, givinggearing of 15% (31 December 2003: 28%). Interest was covered 18.8 times. At Persimmon we work very closely with many organisations and advisers, toestablish long term trusted relationships. An example of this was the £500million five year revolving credit facility which we put in place in Decemberwith the same four lead banks that supported Persimmon at our initial flotationin 1985. Since early January 2005 we have seen a marked up-turn in demand for our homes,by comparison with the last eight months of 2004. There have been high levels ofvisitors to our developments, reflecting the pent-up demand from the moresubdued market conditions of the second half of 2004. We have currently soldcirca £1 billion of homes for 2005. Whilst sales rates per site have returned toa more normal level over the last 12 months, we are currently selling from circa15% more developments, compared to the same date last year. Therefore, we are ina strong position to maintain good sales volumes during 2005 and beyond, whilstremaining focused on maximising margins and return on capital employed. Turning to dividends, in our Interim Statement on 24 August 2004, we indicatedan anticipated increase of 25% in our total dividendpay-out for the full year 2004. As a result of Persimmon's continued excellentprofit growth and our strong confidence in the future, we are proposing toincrease the full year dividend by 50% to 27.5p per share (2003: 18.3p pershare), which is covered 4.0 times. We paid an interim dividend of 9.1p pershare in October 2004, and will recommend a final dividend of 18.4p, which willbe payable on 22 April 2005 to shareholders on the Register at 11 March 2005. At this level of dividend cover we maintain the flexibility to increase futuredividend payments in line with on-going performance and prospects. Dividendspaid have doubled in the last three years. In addition the strength of ourbalance sheet enables us to achieve further expansion of the business. During 2004 we completed 11,273 homes through our core housing business at anaverage selling price of £164,488. We increased output in our premium rangeCharles Church brand by a further 10% to 1,087 homes at an average selling priceof £254,810. Included in these total completions were over 1,000 social housingunits, providing circa 5% of the industry output in the UK in this sector of themarket. The economies of scale we are achieving continue to minimise build costincreases in support of our focus on maximum efficiency and, ultimately,improvement of shareholder value. This efficiency of build and associated costsalso ensures that we remain competitive in the land market. Our landbank iscurrently at 59,947 plots (2003: 57,222 plots), which enables us to plan ourbusiness growth with some certainty, while responding to the demands andchallenges of our industry. We offer a wide range of new homes, our experience and skills are extensive, andwe remain committed to further profitable growth. We recognise the need to workclosely with a wide range of interested parties at both local and nationallevels, and are ready to respond to Government initiatives to address theshortage of new housing. We believe our strong balance sheet, depth of proven management, good landbankand truly national exposure to all markets positions us to achieve further goodprogress over future years. In 2004 Persimmon achieved the highest profits before tax ever recorded by anyUK building company. This has been made possible by the excellent efforts ofevery member of the Persimmon team, and I thank them all for their fineachievements. Duncan Davidson, Chairman25 February 2005 CHIEF EXECUTIVE'S REVIEW Overview Another excellent set of results has been achieved by the Persimmon Group in ayear when the industry experienced a range of increasing pressures and almostall aspects of our business faced real challenges. Despite this, Persimmon hasonce again grown its business and profits to produce a record performance. Looking back over the year it is interesting to note how conditions changedduring the 12 months. In the first four months of 2004 potential housepurchasers were extremely active causing a significant increase in volumes fromthe first week of January. As expected, this situation could not and did not continue. From the end ofApril it was clear that sales prices had reached a level in many parts of thecountry which caused customers to give greater consideration to their decisionto purchase a new home. During early 2004 interest rates began to increase, a decision that we welcomed.However, the greatest influence upon the housing market and customer sentimentlast year, was the threat of falling house prices. This understandablyundermined confidence and resulted in a slow-down of sales volumes throughoutthe last eight months of 2004. Looking back, this was entirely necessary and has resulted in a strengthening ofthe sustainability of our markets for the future. Notwithstanding this effect,we increased the number of homes sold during 2004 to 12,360 (2003: 12,163) at anaverage selling price of £172,431 (2003: £154,810). Build Whilst we continued to experience increases in our build costs last year it waslargely due to labour cost pressures. However, these pressures receded aroundthe half year as the effect of a slowing market caused a general reduction inactivity across the UK. Material prices were mainly affected by steel and fuel cost increases. However,through our Group procurement strategy, and because of our long-term valuedrelationships with suppliers, we have been able to mitigate these increases. North The North Division completed 5,086 (2003: 5,295) units during 2004, with anaverage selling price of £154,287 (2003: £129,328). This 19% increase in averageselling price reflects some very strong price growth in all regions as well as achange of mix to slightly larger homes. All regions performed well and it was pleasing to note that our new Teessideoperation, opened in January 2004, made a good contribution to profits in itsfirst year of operation. South In the South we increased our volumes by 5% to 6,187 units (2003: 5,878) at anaverage selling price of £172,874 (2003: £164,531). Average selling priceincreases in the South were strongest in our Western Region, moving ahead by 16%to £183,768 (2003: £157,746). Across the South Division selling prices increased by a more sustainable 5%,including the impact of mix changes in some areas where we introduced moresmaller units in response to local market conditions. Charles Church Charles Church, our premium brand business, achieved further good progressduring 2004. We increased volumes by 10% to 1,087 units (2003: 990) at anaverage selling price of £254,810 (2003: £233,381). During the year we achievedthe first legal completions in the North West. We also commenced work on newsites in Scotland and acquired new land for development in South Wales. Our plans for the expansion of Charles Church continue to move forward asanticipated and this business is now well set for further growth over futureyears. Landbank During early 2004, we raised our hurdle rates for land purchases in reaction toa general slow-down in the housing market. Nevertheless we selectively purchasedland in most parts of the UK and finished the year with 59,947 plots owned andunder control. In doing so we have maintained a most competitive plot cost toselling price ratio of 19.1% ensuring that margin performance over the life ofthe landbank, circa 4.9 years, is protected. At the year end we had also agreedterms on a further 8,565 plots which were proceeding to contract. This gives atotal of all plots on our landbank of 68,512 (2003: 65,346). Our strategic land portfolio gained further successes during 2004 with circa2,500 plots pulled through to the landbank. We also made good progress on manyother land holdings which we are confident will eventually achieve planningconsents over the next few years. We believe that Government initiatives will, in the medium term, allow us tounlock the potential for more large developments as the undersupply of newhousing is addressed. Current Trading Outlook Since the beginning of this year we have experienced strong interest in ourhomes, high levels of visitors to our show homes and a good level of newreservations. Comparisons with 2004 can be misleading due to the unprecedented high level ofsales taken in the first few months of last year. However, it is encouragingthat our sales levels over the first weeks of 2005 have been at similar levelsto 2004 and circa 25% better by volume than the same weeks of 2003. As noted in the Chairman's Statement we are currently selling from 15% moreoutlets than a year ago which has partly offset the reduction in sales per sitewe have experienced since May 2004. Environment and Innovation During the year we continued to research and develop the use of more factorymanufactured components. In doing so we continue to reduce the number of skilledman-hours on site whilst improving the quality of our new homes. During the yearwe built over 2,000 homes using off site manufactured timber or steel frameprocesses. In addition, we set up a working group to establish a project to build a smallnumber of homes to trial "Modern Methods of Construction" for the future. Theproject itself was launched at the recent "Sustainable Communities Summit"attended by both the Prime Minister and Deputy Prime Minister. Five homes willbe built this year on our development at Irlam near Manchester as part of thisproject, and will feature many factory finished products as well as many Ecofriendly adaptations. Staff and Training Our Management Development Programme continues to be a tremendous success withgraduates from previous years' intakes now firmly established in their chosenroles within their operating businesses. The number of apprentices continues to increase, with over 400 now engaged inthe Group. This number will be maintained as the number of young peoplebeginning their training replace those who are completing their apprenticeships. The Group is committed to giving young people a start to their career in theindustry, and in addition to our graduates and apprentices who are followingstructured programmes, we have many trainees in the business, including sitemanagers, surveyors, buyers and sales people. We have increased training with over 2,000 more training days being delivered in2004 than in previous years, much of it taking place at site level, to ensureour labour force is well informed of operating procedures and has the correctskills to maintain our quality standards. Customers During the year we have continued to invest in all aspects of our service to ourcustomers. The considerable investments we have made in IT in support of ourcustomer service is also assisting management to monitor, manage and react toour customer's expectations. We are also working closely with the House Builders Federation in order toestablish a national survey of the Industry's performance for the future, inresponse to the issues raised on this subject by the Barker Review. Whilst much progress has already been made in our commitment to continuouslyimprove our customer service, we remain focused on further improvements over theforthcoming years. Social Housing Persimmon has continued to establish and maintain its relationships withnumerous social landlords and housing associations to build mixed, integratedand inclusive developments which support greater social cohesion. During 2004, our West Midlands operation was named "Partner of the Year" byWolverhampton based Bromford Housing Group. Bromford Housing Group is dedicatedto the provision of affordable housing and associated care and support services.Persimmon was commended for its strong product offering, its reliable andprofessional approach to construction, efficiency and value for money. In addition, our Persimmon Partnerships operating business in Scotland, in ajoint venture with North Lanarkshire Council, the Scottish Executive and ClydeValley Housing Association won the Chartered Institute of Housing award - "BestRegeneration - Building Sustainable Communities" UK National Winner 2004 - forthe Old Monkland housing development at Coatbridge. Health & Safety The safety of our employees, sub-contractors, visitors and members of the publicis vitally important to Persimmon. We continue to provide our workers withsuitable and relevant health and safety training to enable them to manage andcarry out their duties safely and to ensure the safety of others who may beaffected by their work activities. To reinforce our commitment to health andsafety we have signed up to the House Builders Federation's Health and SafetyCharter launched in May 2004. Summary We have once again successfully traded through what have undoubtedly been morechallenging times. The current environment brings out the best from ourbusiness, our staff, our contractors and suppliers. It is also apparent that thescale of our business gives us many advantages, whether through our procurementstrengths or ability to manoeuvre our way through long term land negotiationsand planning issues. Over the years we have grown our business by adapting tochanging conditions. We believe that, as the need for a suitable housing supplyfor the UK becomes a more pressing issue, we will be able to react and fulfilany new challenges. The resilience and progress of our business is built on the true national spreadand scale of our operations and extensive range of new homes. I am thereforeconfident that with the continued hard work, commitment and loyalty of ourseveral thousands of staff, contractors and suppliers we will continue to moveforward successfully. John WhiteGroup Chief Executive25 February 2005 PERSIMMON PLCConsolidated Profit and Loss Account for the year ended 31 December 2004------------------------------------------------------------------------------ Note Year to Year to 31 December 31 December 2004 2003 £m £m------------------------------------------------------------------------------ Turnover 2,131.3 1,883.0 Cost of sales (1,550.8) (1,423.6)------------------------------------------------------------------------------ Gross profit 580.5 459.4 Net operating expenses (94.5) (88.5)--------------------------------------------------------------------------------|Operating profit before goodwill 496.8 381.7 ||amortisation || ||Goodwill amortisation (10.8) (10.8)|-------------------------------------------------------------------------------- Operating profit 486.0 370.9 Net interest payable and similar charges (26.4) (29.2)------------------------------------------------------------------------------ Profit on ordinary activities before 459.6 341.7taxation Tax on ordinary activities 5 (145.1) (107.5)------------------------------------------------------------------------------ Profit for the financial year 314.5 234.2 Dividends (79.2) (51.9)------------------------------------------------------------------------------ Retained profit 235.3 182.3------------------------------------------------------------------------------ Basic earnings per share 6Before goodwill 113.9p 86.8pAfter goodwill 110.1p 83.0p Diluted earnings per share 6Before goodwill 113.1p 86.0pAfter goodwill 109.4p 82.2p Dividend per share 27.50p 18.30p------------------------------------------------------------------------------ No separate statement of total recognised gains and losses has been prepared asthe Group has no recognised gains or losses other than the profit for the yearas shown above. There is no material difference between the profit on ordinary activities beforetaxation and the retained profit for the year stated above, and their historiccost equivalents. The results of the Group relate entirely to continuing operations. Consolidated Balance Sheet at 31 December 2004------------------------------------------------------------------------------ Note 31 December 31 December 2004 2003 £m (Restated) £m------------------------------------------------------------------------------ Fixed assetsTangible assets 28.2 24.1Intangible assets 171.2 182.0------------------------------------------------------------------------------ 199.4 206.1------------------------------------------------------------------------------ Current assetsStocks and work in progress 2,003.9 1,661.2Debtors 102.3 112.4Cash at bank and in hand 3 84.6 0.8------------------------------------------------------------------------------ 2,190.8 1,774.4------------------------------------------------------------------------------ Creditors due within one yearBorrowings 3 (21.6) (19.7)Other creditors (650.9) (501.1)------------------------------------------------------------------------------ (672.5) (520.8)------------------------------------------------------------------------------Net current assets 1,518.3 1,253.6------------------------------------------------------------------------------Total assets less current liabilities 1,717.7 1,459.7------------------------------------------------------------------------------ Creditors due after more than one yearBorrowings 3 (264.2) (295.6)Other creditors (66.2) (37.8)------------------------------------------------------------------------------ (330.4) (333.4)------------------------------------------------------------------------------Net assets 1,387.3 1,126.3------------------------------------------------------------------------------ Capital and reservesCalled up share capital 28.9 28.4Share premium account 221.2 214.2Merger reserve 281.4 281.4Revaluation reserve 1.2 1.2Own shares 9 (3.2) (5.5)Profit and loss account 857.8 606.6------------------------------------------------------------------------------Equity shareholders' funds 1,387.3 1,126.3------------------------------------------------------------------------------Net assets per share 481.5p 398.7p------------------------------------------------------------------------------ Consolidated Cash Flow Statement for the year ended 31 December 2004------------------------------------------------------------------------------ Note Year to Year to 31 December 31 December 2004 2003 £m £m------------------------------------------------------------------------------ Net cash inflow from operating activities 2 315.1 243.6------------------------------------------------------------------------------ Return on investments and servicing of financeInterest received 0.6 1.1Interest paid (26.2) (30.6)Interest paid on finance leases (0.2) (0.2)------------------------------------------------------------------------------ (25.8) (29.7)------------------------------------------------------------------------------ TaxationUK corporation tax paid (127.6) (89.8)------------------------------------------------------------------------------ Capital expenditurePurchase of tangible fixed assets (12.9) (7.1)Sale of tangible fixed assets 2.5 2.9------------------------------------------------------------------------------ (10.4) (4.2)------------------------------------------------------------------------------ Acquisitions and disposalsAcquisition of businesses and subsidiaries - (48.1)Net borrowings acquired with subsidiaries - (9.1)------------------------------------------------------------------------------ - (57.2)------------------------------------------------------------------------------ Equity dividends paid (43.1) (41.9)------------------------------------------------------------------------------ Net cash inflow before financing 108.2 20.8------------------------------------------------------------------------------ FinancingRepayment of bank loans (16.6) (32.9)Exercise of share options 6.0 3.5Repayment of principal under finance leases (0.9) (1.5)------------------------------------------------------------------------------ Net cash outflow from financing (11.5) (30.9)------------------------------------------------------------------------------ Increase/(decrease) in cash 3, 4 96.7 (10.1)------------------------------------------------------------------------------ Notes 1. Accounting policies The financial information has been prepared on the basis of the accounting policies set out in the financial statements for the year ended 31 December 2003, with the exception of the adoption of UITF 38 (Accounting for ESOP trusts) as detailed in note 9. The continued transitional disclosure requirements of FRS 17 (Retirement Benefits) are set out, in an abbreviated format, in note 7. 2. Reconciliation of operating profit to net cash inflow from operating activities ------------------------------------------------------------------------------ Year to Year to 31 December 31 December 2004 2003 £m £m------------------------------------------------------------------------------ Operating profit 486.0 370.9Depreciation charge 7.0 6.5Amortisation of goodwill 10.8 10.8Loss/(profit) on sale of tangible fixed assets 0.1 (0.2)LTIP charge 2.3 1.7Increase in stocks and work in progress (342.7) (159.1)Decrease/(increase) in debtors 10.4 (5.8)Increase in creditors 141.2 18.8------------------------------------------------------------------------------Net cash inflow from operating activities 315.1 243.6------------------------------------------------------------------------------ 3. Analysis of net debt ------------------------------------------------------------------------------- 31 December Cash flow Other non-cash 31 December changes 2004 £m £m 2003 £m £m-------------------------------------------------------------------------------Net cash:Cash at bank and in hand 84.6 83.8 - 0.8Bank overdrafts (5.2) 12.9 - (18.1)------------------------------------------------------------------------------- 79.4 96.7 - (17.3)-------------------------------------------------------------------------------Debt and lease financing:Bank loans - 15.0 - (15.0)US & UK senior loan notes (280.6) 1.6 - (282.2)Finance leases (2.3) 0.9 (0.8) (2.4)------------------------------------------------------------------------------ (282.9) 17.5 (0.8) (299.6)------------------------------------------------------------------------------Net debt (203.5) 114.2 (0.8) (316.9)------------------------------------------------------------------------------ Analysed as:Cash at bank and in hand 84.6 0.8Borrowings due within one year (21.6) (19.7)Borrowings due after morethan one year (264.2) (295.6)Finance leases (2.3) (2.4)-------------------------------------------------------------------------------Net debt (203.5) (316.9)------------------------------------------------------------------------------- 4. Reconciliation of net cash flow to net debt ------------------------------------------------------------------------------ 2004 2003 £m £m------------------------------------------------------------------------------ Increase/(decrease) in cash 96.7 (10.1)Decrease in debt and lease finance 17.5 34.4------------------------------------------------------------------------------Decrease in net debt from cash flows 114.2 24.3New finance leases (0.8) (1.8)------------------------------------------------------------------------------Decrease in net debt 113.4 22.5Net debt at 1 January (316.9) (339.4)------------------------------------------------------------------------------Net debt at 31 December (203.5) (316.9)------------------------------------------------------------------------------ 5. Taxation Taxation has been calculated at an effective rate of 30.8% of profit on ordinary activities before taxation and goodwill amortisation (2003: 30.5%). 6. Earnings per share The calculation of basic earnings per share after goodwill is based on earnings after taxation of £314.5m (2003: £234.2m) and 285,707,897 ordinary shares (2003: 282,113,458) being the weighted average number of ordinary shares in issue during the period. Diluted earnings per share after goodwill is calculated by dividing earnings after taxation by the weighted average number of ordinary shares in issue for the period, adjusted for the dilutive effect of shares held under unexercised options and awards granted to directors and employees. The weighted average number of ordinary shares so calculated is 287,530,169 (2003: 284,785,791). The calculations of basic and diluted earnings per share before goodwill are based on earnings after taxation of £325.3m (2003: £245.0m). 7. Pension and life assurance scheme In November 2000 the Accounting Standards Board ('ASB') issued FRS 17 (Retirement Benefits) to replace SSAP 24 (Accounting for pension costs). FRS 17 was initially due to become fully effective for periods ending on or after 22 June 2003. However, in November 2002 the ASB issued an amendment to FRS 17 extending the transitional arrangements and therefore deferring the mandatory requirement for its full adoption. The requirements of FRS 17 as amended will now become mandatory for accounting periods beginning on or after 1 January 2005. The relevant transitional rules have again been adopted for 2004, with no effect on the Group's results other than extensive disclosure requirements regarding defined benefit pension schemes. In summary, calculation of the illustrative balance sheet figures using the required valuation assumptions results in a market value of scheme assets of £132.6m and a present value of scheme liabilities of £198.9m. Net of the deferred tax asset of £19.9m, the deficit is £46.4m (2003: £38.0m deficit). 8. Final dividend It is proposed to pay a final dividend of 18.4p per share on 22 April 2005 to shareholders on the register at the close of business on 11 March 2005. 9. Prior period adjustment During the year the Group has adopted UITF 38 (Accounting for ESOP trusts). Comparative figures have been restated for the adoption of this new policy. UITF 38 requires that shares held by employee related trusts be stated at cost and treated as a reduction in shareholders' funds. As a result of this new accounting policy £3.2m (2003: £5.5m) of investment in own shares has been reclassified appropriately. There has been no impact on the previously reported profit and loss account or cash flow statement. 10. Disclaimer The financial information set out above does not constitute the Company's consolidated statutory accounts for the years ended 31 December 2004 or 2003 but is derived from those accounts. Statutory accounts for the year ended 31 December 2003 have been delivered to the Registrar of Companies, and those for the year ended 31 December 2004 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts; their reports were unqualified and did not contain statements under section 237(2) or (3) of the Companies Act 1985. The annual report will be posted to shareholders on Friday 18 March 2005. Copies of the annual report will also be available from the Company Secretary, Persimmon plc, Persimmon House, Fulford, York, YO19 4FE. Further information on the Group can be found on the Persimmon website at:www.persimmonhomes.com This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Persimmon