26th Feb 2007 07:02
Persimmon PLC26 February 2007 RESULTS FOR THE YEAR ENDED 31 DECEMBER 2006 Excellent performance in first full year for enlarged business • Record pre-tax profits* up 17.5% to £582.1m (2005: £495.4m), 11th successive year of profit increase • Final dividend increased by 72% to 32.7p (2005: 19.0p). Full year dividend increased by 50% to a record 46.5p (2005: 31.0p) • Earnings per share* up 16% to 137.5p (2005: 118.4p) • Revenue for the year grew 37% to £3.14bn (2005: £2.29bn) • Completions increased by 32% to 16,701 homes (2005: 12,636). Average selling price advanced by 4% to £188,129 (2005: £180,892) • Acquisition of Westbury successfully concluded: business integrated quickly and future platform for growth established • Free cash inflow of £523m** (2005: £109m) generated in the year. Cash generation and working capital control reflects major strength of enlarged business • Margin repair through the year following dilution from acquired Westbury sites: full year Group operating margin* maintained at top end of industry levels at 20.8% (2005: 23.1%). Second half margin of 21.6% increased from 19.9% in first half • Strong high quality land bank supports future growth: land bank increased to 80,085 plots, land acquired at attractive prices • Exciting strategic land opportunities: margins underpinned by the expected pull-through of 30,000 consented plots over the next three years • Healthy and competitive market: low cancellation rates of 15% (2006: 19%) and stable prospects whilst employment levels are good • Outlook: current forward sales are ahead of 2006 at c. £1.3bn with 120 new outlets to open in the next six months, placing Persimmon in a strong position * stated before one-off reorganisation costs of £15.4m** stated before payment of remaining Westbury acquisition consideration John White, Group Chairman said: "2006 was an exceptional year for Persimmon.During the year we completed the acquisition of Westbury, achieved recordprofit, increased our land bank, whilst reducing debt ahead of our originalprojections. "In the light of our performance during 2006 and our expectations for the yearsahead, we are proposing to increase the final dividend by 72% on 2005. Thisrepresents an increase for the full year dividend of 50% and is the second timein 3 years we have increased our dividend by 50%." For further information, please contact: John White, Group Chairman Faeth BirchMike Farley, Group Chief Executive Edward SimpkinsMike Killoran, Group Finance Director Kirsty FlockhartPersimmon plc FinsburyTel: +44 (0) 20 7251 3801 on 26 February 2007 Tel: +44 (0) 20 7251 3801Tel: +44 (0) 1904 642 199 thereafter A webcast of today's analyst presentation will be available on www.persimmonhomes.com by 2pm today. CHAIRMAN'S STATEMENT It gives me great pleasure to report another record set of results for thePersimmon Group. 2006 was an exceptional year for Persimmon. During the year wecompleted the acquisition of Westbury, legally completed 16,701 homes, achieveda record underlying pre-tax profit of £582.1 million, increased our land bank toover 80,000 plots owned and under control, whilst reducing debt ahead of ouroriginal projections. Turnover for the year was £3.14 billion (2005: £2.29 billion). Pre-tax profit of£582.1 million (before reorganisation costs) was 17.5% ahead of the prior year(2005: £495.4 million). Basic earnings per share were 137.5p (2005: 118.4p) anincrease of 16%. Operating profits (before reorganisation costs) increased by 23.7% to £652.7million (2005: £527.8 million). These operating profits resulted in an increasein operating margins in the second half of the year to 21.6% from 19.9% achievedin the first half. Operating margins for the full year were maintained at thetop end of industry levels at 20.8% (2005: 23.1%) despite the dilution createdby the lower margin sites acquired with Westbury in January 2006. The benefits of the actions we have taken to maximise synergy savings andincrease efficiencies following the acquisition of Westbury are reflected in theimprovement in these margins. We have realised synergy benefits of c. £32million during 2006 and are confident that we will deliver annual synergysavings in excess of £45 million from 2007 onwards. Net borrowings (excluding finance leases) at the year end were £661 million; agearing level of 33% (2005: 16%). This is significantly lower than the c. 80%gearing level immediately following the acquisition of Westbury and well belowthe year end target of 50% we set ourselves originally. Net cash inflow from operations for the year was very strong at £793 million(2005: £347 million) generated from a combination of the realisation ofoperating profits and the release of cash from tighter working capital controlof the acquired Westbury assets. As a result free cash inflow (before thepayment of the remaining consideration for the Westbury acquisition) amounted to£523 million (2005: £109 million). At the same time we have increased our land bank to 80,085 plots which compareswith c. 78,000 plots immediately following the acquisition and the 63,336 plotsowned and under control on 1st January 2006. Whilst the land market has remainedcompetitive, we have continued to acquire land at attractive prices,particularly in the latter months of 2006. Our total land bank including plotsproceeding to contract is 94,655. This strong land bank, along with our large strategic land holdings which, aspreviously stated, is set to deliver over 30,000 consented plots over the next 3years, will ensure that the business continues to prosper. We are confident thatthe percentage of plots sourced through the strategic land portfolio over thenext few years will increase to a much higher level than the c. 25% we haveachieved in recent years. In the light of our performance during 2006 and our expectations for the yearsahead, we are proposing to increase the final dividend to 32.7p, an increase of72% on 2005 (19.0p), which will be payable on 20th April 2007 to shareholders onthe Register on 9th March 2007. Once again we are offering a scrip dividendalternative, however this will be replaced in the future with a dividendreinvestment plan. When added to the interim dividend for 2006 of 13.8p pershare the total dividend payable for the year will be 46.5p. This represents anincrease for the full year dividend of 50%. This is the second time in threeyears we have increased our dividend by 50%. Indeed, over the last five yearsdividends have increased at a compound rate of 27.7%. As a reflection of theBoard's continued confidence in the future of the business we have reduced thedividend cover to a level of 2.9x. Looking ahead, we still intend to maintainour policy of a progressive payout to shareholders. Our balance sheet and free cash flow remain strong providing full flexibility toinvest in any suitable opportunities. The first few weeks' sales of 2007 have been encouraging. Currently we havetotal sales revenue for 2007 of c. £1.3 billion which is 4% ahead of the verystrong forward order book held in 2006 and the highest level it has ever been atthis stage of the year. We will be operating from a higher number of new outletsover the next few months when compared with the same period of 2006, when wewere working through to completion a large number of old Westbury sites. Wetherefore expect sales to move further ahead of the prior year over the next fewmonths ensuring a satisfactory start to 2007. We have a great team behind us with many years of experience. We will, asalways, monitor the backdrop to our industry carefully, remain flexible in ourapproach to all aspects of our business and react to opportunities as theyarise. We remain confident both of the underlying strength of the housing marketand in our ability to grow our business over future years whilst continuing toreward our shareholders. I would like to thank our staff for all their hard work during such an excitingand demanding year. CHIEF EXECUTIVE'S REVIEW In my first year as Group Chief Executive, I am delighted to report that thePersimmon Group has made significant progress: we achieved another set of recordresults - our 11th successive year of profit increase, and we have successfullycompleted a further step change in the scale and scope of Persimmon with theacquisition of Westbury. It has been a demanding year during which the market has remained healthy andcompetitive. Persimmon's position as a truly national house builder with strongbranding has once again proved very successful. A buoyant start to 2006 wasfollowed by a slight slow down in April. An atypical resurgence during thetraditionally quieter summer months still needed the selective use ofincentives, especially for first time buyers, and the market remainedcompetitive towards the end of the year. With our successful targeted marketingstrategies and utilisation of part exchange we retained good reservation levels,and turned our part exchange stock quickly, indicating that the second handmarket was still robust for sensibly priced houses. Over the year we saw the average selling price for the Group increase to£188,129 (2005: £180,892) a rise of 4%. In line with our prediction at thebeginning of the year, there was an actual 3% price increase to the value of ourhomes in real terms. The remaining 1% was as a result of a change to our housetype mix across the three brands: Persimmon, Charles Church and WestburyPartnerships. We have seen a dramatic rise in our home completions to 16,701 (2005: 12,636)for the year, a combination of organic growth and from the acquired Westburybusiness. Following the integration of Westbury, completions in the second halfof the year increased to 8,475 (2005: 6,682) building on our first halfcompletions and further underlining our solid performance in 2006. This year the Government has brought forward a number of initiatives forconsultation that affect the industry. The most significant of these is theambitious announcement that all new homes will be built to zero carbonperformance standards by 2016. This environmental issue is important to us all.We will play our part by working with Government to achieve this demandingtarget. We welcome the phasing of this requirement which will allow time to moveto a carbon zero home. With Space4 we are already well placed to meet the firstof the new standards that are set to be achieved by 2010. There have also been a number of new consultations regarding the planning systemand the general direction is to be welcomed. The Government recognises thatchanges to the system are required if we are to build the 200,000 plus homesthat need to be built per annum. The Barker II Review and PPS3 will help in thisdelivery. As a leading house builder with a large strategic land holding we arein a strong position to deliver much needed homes for the country and this is agreat opportunity for our business. Divisional Structure In order to establish a strong platform for future sustainable growth we haverestructured the business into 3 new divisions. This ensures that Persimmon,Charles Church, and now Westbury Partnerships are fully integrated into eachdivision. As is Persimmon's hallmark, these divisions will retain their regionalflexibility to maximise the market opportunities within their areas. This newfocus will provide further scope for long term growth to the business. Thehighly experienced management teams in each division have already shown fromtheir excellent performance this year the benefits of this restructuring. North Division This division has completed 4,069 (2005: 3,608) units, an increase on last yearof 13%, due mainly to organic growth. Selling prices have decreased slightly to£166,584 (2005: £167,049) due to the impact of the increase in volumes deliveredby our successful Partnerships business in Scotland. Excluding Partnerships thisincrease is more muted than we have seen in previous years, encouraging a moresustainable market. The strongest region was Scotland with good growth particularly in thePartnerships business which completed 403 homes (2005: 227). We were delightedto achieve recognition by the Prince's Trust for our regeneration scheme AnchorMills, Paisley, demonstrating the Group's skill in developing complexrefurbishment projects. The North East has achieved excellent results this yearafter a more challenging market in 2005. It has completed 970 homes at anaffordable average selling price of only £161,444. Central Division This is the largest of the 3 divisions. Completions here increased substantiallyto 6,156 (2005: 4,815) and whilst the business has continued to grow organicallyit has also benefited from the Westbury acquisition. Although price growthwithin the division as a whole was more modest at 5%, there has been a widevariation in the level of increase. In the Birmingham region two of our significant brownfield regeneration sites atCape Hill, Birmingham and Banner Brook, Coventry commenced with their firstlegal completions this year and have sold very well. These substantial schemeswill benefit the business in these areas for a number of years. Whilst themarket in Birmingham remains competitive, lower average selling prices of ourhomes in this area at £162,553 means we can maintain affordability. In the North West there was little real price growth, however we saw substantialgrowth in volume. The integration of Senator Homes into our Lancashire operationhas gone very well whilst providing a large number of sites in an area where ithas been difficult to obtain planning consents. South Division The South division has increased completions substantially as a result of theWestbury acquisition to 3,578 (2005: 2,927). It has performed very well andthere is a consistent demand across the whole division. We have seen sustainedprice growth of 4% noticeably in the West Country and on into Wales where themarket remains strong. In Wales we received a highly acclaimed regional winner award from the NHBC. Oursite manager was voted one of the top 8 managers in the house building industry,demonstrating our continued commitment to quality. In addition the Groupachieved 5 Seal of Excellence Awards from the NHBC for our developments acrossthe whole of the UK. Charles Church Within Charles Church we have invested significantly and now have 10 operatingcompanies. We have increased completions by 125% to 2,898 completions (2005:1,286). The decision was made to extend the range of homes offered and bring itinto the mid range market by reducing the average size of the Charles Churchhomes. This has reduced the average selling price to £253,236 (2005: £283,260),but without compromising our quality. This year we have taken first completions from Charles Church Scotland andCharles Church Wales, both companies benefiting from our existing strongpresence in these regions. Charles Church Wales has also benefited from theintegration of Westbury premium sites. The acquisition of Westbury has provided Charles Church a step change in volumewhich will lead to greater overhead efficiency and profitability in the future. Westbury Partnerships In 2007/08 the Government will be providing an additional 49,000 affordablehomes with the prospect of further new homes in the years to follow, resultingin a significantly expanding sector. We have created a specialist business basedin Gloucester which is committed to the delivery of affordable houses inEngland. This is a business which Westbury had been developing for a number ofyears which we have refocused. The team is working on a number of projects inthe south that will provide affordable homes in the future. It should be notedthat there is a longer lead in period before these schemes commence. This is dueto the number of stakeholder interests that need to be accommodated for eachscheme. Westbury Partnerships completed 197 homes at an average selling price of£91,036, making a positive contribution to Group profits in its first year oftrading. I was particularly pleased that the Persimmon Group was one of the firstdevelopers to receive a direct housing grant of £16.5 million from the HousingCorporation, the Government's body responsible for the delivery of affordablehomes. This will accelerate the rate at which affordable houses are delivered bythe Group for local communities. In the current climate Westbury Partnerships isset to grow significantly. Space4 This is our state of the art manufacturing plant based in Castle Bromwich,Birmingham producing Modern Method of Construction housing. We have carried outa full business review since the acquisition of Westbury, both in the factoryand on site. In the factory we have changed a number of suppliers to benefit from theenhanced Group buying power. We have developed a new range of affordable housesthat are factory efficient, environmentally friendly and meet all Governmentrequirements regarding affordable housing standards. This has resulted inpositive feedback from housing associations regarding the future use of thesehouses. On site we have carried out a number of technical changes which will simplifythe process and lead to greater efficiency. In the future Westbury Partnershipswill begin to build this new housing range on sites controlled by Persimmon. This year has been a transitional year and these changes when combined with theenvironmental benefits of the system will lead to increased volumes andprofitability in 2007. Land Bank Our land bank has benefited significantly from the Westbury acquisition,standing at 80,085 plots (2005: 63,336 plots) owned and under control, anincrease of 26%. There has been an expected increase to our plot cost ratio toselling price due to the acquisition. A number of these plots have beenallocated to Charles Church which generally has a higher ratio. These plots willsustain Charles Church into the future. In the second half of the year we wereparticularly successful in the land market and our land bank now stands at 4.8years. We continue to advocate holding a long land bank while the planningenvironment remains difficult. Our strategic land bank now stands at c. 23,200 acres and we have benefited froma number of exciting and value enhancing opportunities deriving from theWestbury portfolio. We have been successful in delivering c. 25% of our newplots through strategic land, and in addition we believe there will be a majorbenefit to the business by the delivery of 30,000 strategic plots in the next 3years. Investment in this land will exceed £1 billion and will deliver organicgrowth in terms of volumes and margins for the business in the medium and longterm. Our track record, balance sheet, and reputation, enables us to invest innew long term opportunities that will sustain the business for many years. Westbury Integration As referred to in the Chairman's statement we have now successfully completedthe Westbury integration. The new staff have integrated well, enhancing ourbusiness, and we are pleased they have embraced our culture. The Westbury sites have been transferred throughout the entire Group withparticular benefit being derived by the Charles Church operation. Wherenecessary we have cleared stock and put in tighter management controls over workin progress, resulting in a substantial reduction in gearing. We have carriedout a full review and reduced build costs by improving procurement and subcontractor costs. In a number of cases our technical teams identified costeffective solutions which have benefited our margins. As a result of these efforts we are able to maximise the synergy benefits forthe Group which are c. £32 million for 2006. We are confident of increasingthese benefits in future years as the savings are rolled out on Westbury sitesand we make further procurement savings due to the size of the enlargedbusiness. We are confident that Westbury Partnerships, when combined with Space4, willprovide much needed affordable housing that can be delivered in an energyefficient and environmentally friendly manner. Corporate Responsibility We seek to integrate our policies and procedures into our normal businessactivities in a constructive and responsible way to ensure that when buildingnew homes we take into account our impact on the environment, how we look afterour customers and how we treat our employees. Our positive and robust approachto Corporate Responsibility will improve our reputation and lead to increasedcustomer satisfaction, employee loyalty and facilitate improvements inefficiency and our business performance. During 2006 we have continued our good work of previous years. Building energyefficient housing has a significant role to play in tackling climate change andwe have again last year increased the average energy efficiency of our newhomes. We have also continued our Modern Methods of Construction project atIrlam, Manchester and we were rewarded by winning the "Best Innovation in theUse of Materials and Products" for our Techno House at the 2006 House BuildingInnovation Awards. Last year we set ourselves a target to reduce the amount of waste generated foreach new home we built. We have reduced this waste by 17% to 9 tonnes per homebuilt and over two thirds of this is recycled. We have continued to invest heavily in our Health and Safety management andtraining. I am pleased to report that we have seen a reduction in major injuriesof 15% during the year, despite a 25% increase in the number of sites from whichwe operate. We are again setting all our operating businesses performancetargets for Health and Safety to increase our performance in this vital area ofour business. We continue to improve our quality control processes and invest heavily intraining our staff to improve customer service. All our staff are dedicated toensuring higher levels of customer satisfaction. During 2006 our surveys foundthat in excess of 86% of our customers would recommend a friend to purchase anew home from us. Current Trading Outlook The beginning of the year has started well despite the unexpected rise ininterest rates, and to date we have achieved a good level of reservations andhave not experienced any loss of purchaser confidence as a result of this rateincrease. This is further supported by the fact that our cancellation rate forthe first 7 weeks of 2007 is only 15% (2006: 19%) an improvement on the previousyear. At this time we have c. 7,000 forward sales with a total value of £1.3billion, an increase over the same time last year. We have 120 new sites openingin the next few months. Some will replace existing sites that are closing butwill lead to an overall increase of 50 in the number of outlets when compared to2006. The market remains competitive but we have seen some opportunity formodest price growth on new outlets. Summary This year has seen the successful integration of the Westbury business and weare very pleased to be able to report record profits. Key corporate achievements this year have been the reduction of our netborrowings to £661.3 million taking gearing to 33% at the year end and theincrease of our synergy savings to £32 million, both ahead of expectations. Ourtotal land bank is at an all time high at 94,655 plots (including landproceeding to contract). In addition to this we continue to achieve success withadditional consented plots from our strategic land portfolio. Combining thiswith growth opportunities from our Persimmon core housing, Charles Church brand,Westbury Partnerships and Space4, we have an excellent platform on which to growthe business in the future. We have a good forward sales position and a strongbalance sheet that will enable us to take advantage of any opportunities thatwill enhance the business. I would like to take this opportunity to thank all our staff for theircommitment to the successful divisional restructuring and the integration ofWestbury. With their support I am confident the business is in great shape andin an excellent position to continue its growth in the future. PERSIMMON PLCConsolidated Income Statement for the year ended 31 December 2006 ------------------------------------------------------------------------------- Note 2006 2005 £m £m------------------------------------------------------------------------------- Revenue 3,141.9 2,285.7 Cost of sales (2,404.2) (1,681.4)------------------------------------------------------------------------------- Gross profit 737.7 604.3 Operating expenses (85.7) (76.5)Share of results of jointly controlled entities 0.7 -------------------------------------------------------------------------------- Profit from operations before reorganisation costs 652.7 527.8 Reorganisation costs 2 (15.4) -------------------------------------------------------------------------------- Profit from operations 637.3 527.8 Finance income 0.5 0.8Finance costs (71.1) (33.2)------------------------------------------------------------------------------- Profit before tax 566.7 495.4 Income tax expense 3 (170.3) (150.6)------------------------------------------------------------------------------- Profit after tax (all attributable to equity 396.4 344.8holders of the parent) ------------------------------------------------------------------------------- Earnings per share (after reorganisation costs)Basic 5 133.8p 118.4pDiluted 5 133.1p 118.0p Earnings per share (before reorganisation costs, net ofrelated tax credit)Basic 5 137.5p 118.4pDiluted 5 136.7p 118.0p PERSIMMON PLCConsolidated Balance Sheet at 31 December 2006 ------------------------------------------------------------------ Note 2006 2005 £m £m------------------------------------------------------------------ ASSETSNon-current assetsIntangible assets 470.4 182.0Property, plant and equipment 48.9 32.5Investments 2.8 169.1Trade and other receivables 11.5 -Deferred tax assets 62.8 33.3------------------------------------------------------------------ 596.4 416.9 ------------------------------------------------------------------Current assetsInventories 2,910.8 2,197.9Trade and other receivables 178.7 107.2Cash and cash equivalents 8 18.9 10.7------------------------------------------------------------------ 3,108.4 2,315.8 ------------------------------------------------------------------Total assets 3,704.8 2,732.7 ------------------------------------------------------------------ LIABILITIESNon-current liabilitiesInterest bearing loans and 8 (511.0) (233.6)borrowingsForward currency swaps 8 (94.8) (19.5)Deferred tax liabilities (25.9) (8.3)Retirement benefit obligation (103.7) (73.5)Other liabilities (96.8) (61.5)------------------------------------------------------------------ (832.2) (396.4) ------------------------------------------------------------------Current liabilitiesInterest bearing loans and 8 (70.6) (24.4)borrowingsForward currency swaps 8 (6.7) (1.4)Trade and other payables (657.3) (529.4)Current tax liabilities (106.7) (89.1)------------------------------------------------------------------ (841.3) (644.3) ------------------------------------------------------------------Total liabilities (1,673.5) (1,040.7) ------------------------------------------------------------------Net assets 2,031.3 1,692.0 ------------------------------------------------------------------ SHAREHOLDERS' EQUITYOrdinary share capital issued 29.9 29.5Share premium 233.4 229.2Own shares (5.1) (4.1)Hedge reserve (4.3) 0.6Consolidation reserve 281.4 281.4Retained earnings 1,496.0 1,155.4------------------------------------------------------------------Total shareholders' equity 2,031.3 1,692.0 ------------------------------------------------------------------ PERSIMMON PLCConsolidated Cash Flow Statement for the year ended 31 December 2006 ----------------------------------------------------------------------------- Note 2006 2005 £m £m----------------------------------------------------------------------------- Cash flows from operating activities:Profit for the year 396.4 344.8 Adjustments for:Income tax expense 170.3 150.6Finance income (0.5) (0.8)Finance costs 71.1 33.2Depreciation charge 9.6 7.3Amortisation of intangible assets 0.3 -Share of results of jointly controlled entities (0.7) -Profit on disposal of property, plant and equipment (0.7) (0.4)Share-based payment charge 5.3 2.0Other non-cash items (8.3) (0.4)-----------------------------------------------------------------------------Profit from operations before working capital movements 642.8 536.3 Movements in working capital:Decrease/(increase) in inventories 209.5 (191.4)Decrease/(increase) in trade and other receivables 32.0 (8.5)(Decrease)/increase in trade and other payables (91.3) 10.2-----------------------------------------------------------------------------Net cash from operations 793.0 346.6 Interest paid (57.6) (25.8)Interest received 0.5 0.8Tax paid (146.8) (144.5)-----------------------------------------------------------------------------Net cash from operating activities 589.1 177.1 Cash flows from investing activities:Acquisition of subsidiary 6 (508.5) (169.1)Repayment of loan by jointly controlled 1.0 -entitiesPurchase of property, plant and equipment (9.6) (11.1)Proceeds from sale of property, plant and 2.6 1.3equipment-----------------------------------------------------------------------------Net cash used in investing activities (514.5) (178.9) Cash flows from financing activities:Repayment of borrowings (265.8) (26.2)Drawdown of loan facilities 257.3 10.0Finance lease principal payments (1.5) (1.2)Exercise of share options 3.2 6.1Dividends paid to Group shareholders (59.6) (58.6)-----------------------------------------------------------------------------Net cash used in financing activities (66.4) (69.9) -----------------------------------------------------------------------------Increase/(decrease) in net cash and cash 7 8.2 (71.7)equivalents----------------------------------------------------------------------------- Net cash and cash equivalents at beginning 7.7 79.4of year -----------------------------------------------------------------------------Net cash and cash equivalents at end of year 8 15.9 7.7 ----------------------------------------------------------------------------- PERSIMMON PLCConsolidated Statement of Recognised Income and Expense for the year ended 31December 2006 ------------------------------------------------------------------- 2006 2005 £m £m------------------------------------------------------------------- Effective portion of changes in fair value (7.0) (6.5)of cash flow hedgesActuarial losses on defined benefit pension (4.7) (7.6)schemesTaxation on items taken directly to equity 3.5 4.2-------------------------------------------------------------------Net expense recognised directly in equity (8.2) (9.9) Profit for the year 396.4 344.8-------------------------------------------------------------------Total recognised income for the year 388.2 334.9(all attributable to equity shareholders ofthe parent)------------------------------------------------------------------- PERSIMMON PLCNotes 1. Accounting policies The financial information has been prepared by applying the accounting policies and presentation that were applied in the preparation of the Group's published consolidated financial statements for the year ended 31 December 2005, except for the following changes: Brand intangibles Internally generated brands are not held on the balance sheet. The Group carries assets in the balance sheet only for brands that have been acquired. Acquired brand values are calculated based on discounted cash flows. No amortisation is charged on brand intangibles, as the Group believes that the value of the brands is maintained indefinitely. The factors that result in the durability of the brands capitalised is that there are no material legal, regulatory, contractual, competitive, economic or other factors that limit the useful life of these intangibles. The acquired brands are tested annually for impairment. Where a brand's life is not deemed to be indefinite it is written off over its expected useful life on a straight-line basis. Retirement benefits The Group has assumed additional retirement benefit obligations following the acquisition of Westbury plc. The schemes have been stated at the present value of the obligation at the date of acquisition, less the fair value of the scheme assets. Further detail on the schemes will be presented in the financial statements for the year ended 31 December 2006. 2. Reorganisation costs In January 2006, the Group acquired Westbury plc. To the extent that workers could not be redeployed, termination terms were agreed. Further costs were incurred in closing offices and terminating associated contracts. 3. Taxation Taxation has been calculated at an effective rate of 30.0% of profit after financing costs (2005: 30.4%). 4. Dividends It is proposed to pay a final dividend of 32.7p per share on 20 April 2007 to shareholders on the register at the close of business on 9 March 2007. In accordance with IAS 10, the liability for the payment of the dividend has not been included in the financial statements. During the year the 2005 final dividend of 19.0p and the 2006 interim dividend of 13.8p were paid to shareholders 5. Earnings per share Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders of £396.4m (£407.3m before reorganisation costs of £15.4m, net of related tax credit of £4.5m) (2005: £344.8m) by the weighted average number of ordinary shares in issue, excluding those held by the Employee Share Ownership Trust and the Employee Benefit Trust which are treated as cancelled. The weighted average number of ordinary shares in issue during the year is 296,155,856 (2005: 291,120,186). For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares from the start of the accounting period. The company has only one category of potentially dilutive ordinary shares: those share options and awards granted to Directors and employees where the exercise price is less than the average market price of the Company's ordinary shares during the year. The weighted average number of ordinary shares so calculated is 297,918,639 (2005: 292,236,493). 6. Business Combinations On 17 January 2006, the Group acquired the remaining share capital of Westbury plc for a total consideration (including the preliminary investment) of £664.0m. Westbury plc is the parent company of a group of companies involved in housebuilding. The transaction has been accounted for by the purchase method of accounting. Effect of the acquisition The acquisition had the following effect on the Group's assets and liabilities: -----------------------------------------------------------------------------Acquiree's net assets at the acquisition date Book Value Fair Value £m £m----------------------------------------------------------------------------- Intangible assets 43.1 61.9Property, plant and equipment 17.3 16.4Investment in jointly controlled entities 3.1 3.1Deferred tax assets 13.5 30.0Inventories 944.6 922.4Cash 104.3 104.3Bank overdrafts (131.3) (131.3)Bank loans (370.4) (370.4)Forward currency derivatives (24.5) (24.5)Other receivables and payables (94.9) (114.6)Retirement benefit obligation (38.4) (38.4)Deferred tax liabilities (2.2) (21.7)-----------------------------------------------------------------------------Net assets 464.2 437.2Goodwill on acquisition 226.8-----------------------------------------------------------------------------Consideration paid (including costs) 664.0 Loan notes issued as consideration (13.4)Net cash and cash equivalents acquired 27.0Existing investment in Westbury plc shares (169.1)-----------------------------------------------------------------------------Net cash outflow in year 508.5----------------------------------------------------------------------------- During the period the Group acquired the remaining 50% interest in Wescott Holdings Limited. Westbury plc contributed £684.1m of revenue and £124.8m to gross profit for the period between the date of acquisition and the balance sheet date. There would have been no material change in the figures reported if the acquisition of Westbury plc had been completed on the first day of the financial year. 7. Reconciliation of net cash flow to net debt ------------------------------------------------------------------------------ Note 2006 2005 £m £m------------------------------------------------------------------------------ Increase/(decrease) in net cash and cash equivalents 8.2 (71.7)Decrease in debt and finance leases 10.0 17.4 ------------------------------------------------------------------------------Decrease/(increase) in net debt from cash flows 18.2 (54.3)Net debt acquired (394.9) -New finance lease obligations (1.9) (1.4)Non-cash movements (17.4) (16.3) ------------------------------------------------------------------------------Increase in net debt (396.0) (72.0)Net debt at 1 January (268.2) (196.2) ------------------------------------------------------------------------------Net debt at 31 December 8 (664.2) (268.2)------------------------------------------------------------------------------ 8. Analysis of net debt -------------------------------------------------------------------------------- Note 2006 2005 £m £m-------------------------------------------------------------------------------- Cash and cash equivalents 18.9 10.7Bank overdrafts (3.0) (3.0)--------------------------------------------------------------------------------Net cash and cash equivalents 15.9 7.7Bank loans - (10.0)US and UK senior loan notes due within one (48.8) (20.2)yearUS, UK & EU senior loan notes due after more (509.1) (222.3)than one yearOther loan notes due within one year (17.8) -Forward currency swaps (101.5) (20.9)Finance leases (2.9) (2.5) --------------------------------------------------------------------------------Net debt at 31 December 7 (664.2) (268.2)-------------------------------------------------------------------------------- 9. Status of financial information The financial information set out above does not constitute the Company's consolidated statutory accounts for the years ended 31 December 2006 or 2005 but is derived from those accounts. Statutory accounts for the year ended 31 December 2005, under IFRSs, have been delivered to the Registrar of Companies, and those for the year ended 31 December 2006, under IFRSs, will be delivered following the Company's Annual General Meeting. The auditors have reported on these 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 Monday 19 March 2007. 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