10th Mar 2005 07:00
Press Release PRELIMINARY RESULTS FOR TWELVE MONTHS ENDED 31 DECEMBER 2004 * Pro forma Operating Profit of the existing business ‚£58.2m (2003: ‚£81.6m) * Profit before tax ‚£42.7m (2003: ‚£74.2m) * Earnings per share 16.84p (2003: 28.80p) * Adjusted EPS 24.49p (2003: 29.50p) * Pro forma operating Cash Flow ‚£68.0m (2003: ‚£92.8m) * Total shareholder return of 60% in 2004 * Integration of October acquisitions well in hand * Pipeline carried forward reduced, but small signs of improvement in market * Remortgage conveyancing operation launched * Final dividend 4.50p, total dividend for the year 9.00p (2003: adjusted final dividend 9.50p, full year 13.80p) The Chairman, Christopher Sporborg said ¢â‚¬¦ "I am pleased to present my firstChairman's Statement for Countrywide plc, since the demerger of the LifeBusiness last May.Turnover and profitability for the first half of the year were satisfactory andclose to 2003 levels. However, since we issued our Interim Statement lastAugust, volumes of residential housing transactions have reduced significantlycompared to previous years.Despite the pressure and impact of the most difficult trading conditions seenfor many years, our employees have done much to enhance shareholder value inboth the year under review and for the future. Shareholders will have gained atotal return of 60% in 2004 from an investment in Countrywide Assured Group plcon 1 January 2004, and future returns are expected to benefit from thesubstantial acquisitions from Bradford & Bingley Group plc in October.The outlook for 2005 remains uncertain. The pipeline of sales in the originalbusiness brought forward from last year was ‚£15.9 million lower than theprevious year, but sales, and activities in our other divisions have, duringJanuary and February, shown signs of increased activity such as we wouldnormally expect at this time of the year. Accordingly, assuming an ongoingbenign interest rate environment and no extraordinary external factors, we viewthe short term future with cautious optimism and the longer term, following the2007 introduction of HIPs with considerable enthusiasm."For further information please contact:Countrywide plc Christopher Sporborg, Mob: 07836 204449 Chairman Harry Hill, Group Managing Tel: 01376 533 700 Director Conference Call Details UK Investors +44 2071620181 US Investors +01 3343236203COUNTRYWIDE PLCChairman's StatementHighlights 12 Months 12 Months 2004 2003 Change Pro forma Operating Profit of the ‚£58.2m ‚£81.6m -29%existing business Pro forma operating profits ‚£50.6m ‚£81.6m -38% Pro forma profit before tax ‚£40.8m ‚£76.5m -47% Pro forma earnings per share 16.30p 29.87p -45% Operating profits ‚£52.5m ‚£78.8m -33% Profit before tax ‚£42.7m ‚£74.2m -42% Earnings per share 16.84p 28.80p -42% Adjusted earnings per share 24.49p 29.50p -17% Interim dividend per share 4.50p 4.30p 5% Final dividend per share 4.50p 9.50p -53% House sales exchanged 85,134 84,765 - Life policies arranged 32,229 43,587 -26% Mortgages arranged 48,769 52,763 -8% Valuations and survey instructions 572,371 605,857 -6% Conveyances completed 33,515 35,063 -4%On 25 May 2004 Countrywide Assured Group completed the demerger of the LifeBusiness, which obtained a separate listing on the London Stock Exchange asChesnara plc. Shareholders received one Chesnara share for every fourCountrywide Assured Group plc shares previously held. On the previous day, theCourt had approved the restructuring and return of capital and consequentlyshareholders received two shares in the newly listed Countrywide plc for everyfour Countrywide Assured Group plc shares previously held. The process wascompleted on 12 June when shareholders received 25.13p per share in cash.I am pleased to present my first Chairman's Statement for Countrywide plc,following the demerger of the Life Business. The full year results for 2004shown on pages 12 to 19 reflected in this statement include the profits arisingin the Life Business in the first five months. In addition, the operatingprofit, profit before tax and earnings per share have been struck after takingaccount of the cost of the demerger and return of capital, the losses arisingin the acquisitions and the discontinued business, totalling ‚£14.7 million.However, in order to assist shareholders to assess the new group, we haveprepared pro forma accounts for the continuing business, including historiccomparisons based on the Accountants Report which was included in theCountrywide plc's Listing Particulars. These are shown on pages 20 to 25.Turnover and profitability for the first half of the year was satisfactory andclose to 2003 levels. However, since we issued our Interim Statement lastAugust, volumes of residential housing transactions have reduced significantlycompared to previous years. This followed a serious decline in confidence as aresult of five successive increases in interest rates, coupled with negativepress reporting of the Bank of England's future intentions. This severeslowdown in the market has reduced turnover in all our divisions. In addition,the advent of mortgage regulation in the autumn caused a further slowdown inmortgage lending, which in turn led to a decline in survey work for ourSurveying and Valuation Division. There was no improvement in the market forour mortgage protection life insurance products and sales remaineddisappointing. These factors have given rise to a reduction in profitability inthe second half of 2004, and weak pipelines being carried forward to 2005.In October, we acquired 297 estate agency offices, the associated financialservices business and Securemove Property Services Ltd, a firm of surveyors andvaluers, from Bradford & Bingley Group plc. As far as possible, we haveseparated out the results of these acquisitions from the existing business tohelp understanding of the underlying performance of each.The pro forma operating profit, excluding the exceptional costs of thedemerger, the Life Business result and the results from the acquisitions, was ‚£58.2million. This compares to ‚£81.6 million in 2003. The adjusted earnings pershare on this basis was 24.49p against 29.50p in 2003.Late in 2004 we conducted a detailed review of our operation against thebackground of lower volumes of house sales since mid 2004. Following thisreview we have reluctantly decided to close 35 offices and a mortgageprocessing centre. In accordance with FRS12, we have accrued the ‚£2.6 millioncost of these closures.As a result of the difficult trading environment in the second half of theyear, the Board are recommending a final dividend of 4.50p (2003 9.50p)DevelopmentsDespite the pressure and impact of the most difficult trading conditions seenfor many years, our employees have done much to enhance shareholder value bothin the year under review and for the future. The combined value of thedividends, return of capital, the Chesnara shares distributed on demerger andthe uplift in the company's share price gave a total return of 60% to all thoseshareholders on the register at the end of 2003 and remained with us throughout2004. In addition, in the future, shareholders will, we believe, benefit fromthe progress made in the year on a number of initiatives.Countrywide Property Lawyers commenced the delayed roll-out of its new computersystem which, incorporating a high level of automation, is designed to reducethe unit cost of processing, increase capacity and improve customer servicestandards. By the end of the year, three of the five property law centres wereconnected to the new system, and as at February 2005, 20% of our activepipeline and approximately 50% of new instructions were being handled by thenew system. We continue to implement enhancements to the system, designed toaccelerate the ongoing gain in our productivity and thus capacity capability.In December we successfully processed the first instructions through our newremortgage conveyancing centre in conjunction with our offshore Indianpartners. Realisation of the full potential of this business depends onsecuring new contracts from lenders as these come up for renewal. We remainconfident that in due course mortgage banks and building societies will be veryattracted to the service, not only because of our highly competitive pricing,but also by the enhanced transaction speed and professionalism we offer.Countrywide Surveyors has now completed the initial pilot of its new computersystem and has implemented a number of enhancements. The system has beeninstalled in four of our one hundred and forty offices and full rollout willcommence after Easter. When completed in 2006, it will bring productivityimprovements and cost savings.In November, the Housing Act, under which Home Information Packs are likely tobecome compulsory in 2007, passed into law. Whilst full details are awaitedfrom the government working parties, undoubtedly, the most successful providerswill utilise electronic delivery, and the systems developments referred toabove will greatly assist the marketability of our product in this respect. Theproposals will have far-reaching effects on all our businesses, and work hascommenced on how we can best capitalise on this opportunity to offer acomprehensive service to the market.Our financial services team faced the considerable challenge of adapting ourbusiness to FSA regulation of, first, the placing and sale of mortgages, andsecond, the placing and sale of insurance products. I am pleased to say we wereequal to the task, which was a major exercise for the whole industry, and weobtained the required FSA approval of our regulated entity CountrywidePrincipal Services, and achieved a smooth transition to the new regime.The final development in the year which will serve to increase future returns,was the substantial acquisitions made in the final quarter of the year fromBradford & Bingley Group plc. Our estate agency and financial services andsurveying teams, assisted by their new colleagues, have already made greatstrides in the integration of the acquired businesses. The timing of theseacquisitions, coinciding as it did with the market downturn, means the acquiredbusinesses made a negative contribution to group profits in 2004. However, weanticipate they will add to our profits in 2005, and make materialcontributions from 2006 onwards.PeopleThe unprecedented level of corporate activity and developments, together withtough trading conditions in the second half, meant 2004 was a very demandingyear for many of our employees, in most cases accompanied by lesser rewards.Lower levels of activity have also meant we have had to reduce our headcount insome areas, which is never welcome. Despite this our employees remain positive,and I know we can rely on them all to continue their efforts on your behalf. Iwould like to thank them all for their commitment and effort, and also welcomeall our new employees to the group. I very much hope that all will individuallyand collectively prosper and grow as part of the Countrywide group.OutlookThe outlook for 2005 remains uncertain. Whilst we carried a strong pipeline ofsales into 2004, the value of the pipeline of sales arranged brought forwardfrom last year, excluding the newly acquired offices, was ‚£15.9 million lowerthan the corresponding figure last year. We can therefore predict a lower valueof exchanges in the first quarter, with a consequent effect on profitabilityand cash flow.Despite remaining cautious about short term trading we are confident that arecovery in the housing market will return the group to profitable growth.January started slowly as the UK gradually returned to work after an extendedChristmas/New Year holiday period. However, the second half of January saw apick up in activity in our house agency offices which has continued intoFebruary despite many parts of the country suffering inclement weather. Whilstactivity still falls below that seen at the same time last year, when tradingwas extremely brisk, the number of sales arranged per office in February washigher than at any time since July 2004 and as a consequence we have seen areasonable improvement to our substantially depleted year-end pipelines.Whilst there is an inevitable short delay before work feeds through toCountrywide Surveyors, they too have seen a normal seasonal uplift in activitythrough the month of February - and at 8,350, the referrals to CountrywideProperty Lawyers is the third best ever month - and the highest level sinceMarch last year.On newly arranged sales, although the market shows some regional variations,house prices appear to have roughly stabilised at about 7‚½% below the peaklevels achieved in the late Spring last year. Barring extraordinary externalfactors, we do not envisage any further substantial adjustments occurring inthe short-term.After the hiatus in the mortgage market before Christmas, caused principally bysubstantially increased mortgage regulation, normality appears to be returningand we anticipate that there will be a similar remortgage market to thatexperienced in the last couple of years, giving work opportunities to both oursurveying and conveyancing businesses.The very poor, and extensively commented upon, housing market that existedduring the second half of 2004 will, despite the cost saving measures that wehave rigorously introduced, have a negative impact on our trading performanceduring, particularly the first quarter of, 2005. Prospects thereafter dependentirely on the strength of the housing market - and in that regard as we arecurrently experiencing a "normal" seasonal pick up in activity, albeit belowthe high levels seen in 2004, we are now cautiously optimistic, particularly ifthe interest rate environment remains benign.Christopher Sporborg9 March 2005COUNTRYWIDE PLCOPERATING REVIEWPerformance in the periodThe pro forma operating profits for the second half of 2004 were significantlylower than the first six months. There were a number of one-off factors: lossesarising in the new acquisitions, ‚£7.6 million; the start-up costs of ourremortgage conveyancing business, ‚£1.1 million and a provision for branch andoffice closure costs of ‚£2.6 million. However, the main reason for thereduction was the severe downturn in the residential housing market which gaverise to lower turnover in the Estate Agency, Financial Services and Surveyingand Valuation Divisions.Estate Agency Division 12 Months 12 Months Estate agency 2004 2003 Change Existing operations Turnover ‚£231.5m ‚£224.7m 3% Operating profit ‚£31.3m ‚£32.3m -3% House exchanges 75,406 81,633 -8% Average 1.71% 1.76% commission Average house ‚£172,264 ‚£149,755 15% price Acquisitions Turnover ‚£16.5m - Operating loss ‚£(6.8)m - House exchanges 5,244 - Average 1.40% - commission Average house ‚£186,064 - price Lettings Existing operations Turnover ‚£27.8m ‚£26.0m 7% Operating profit ‚£4.1m ‚£3.8m (note) 8% Acquisitions Turnover ‚£2.9m - Operating loss ‚£(0.1)m - H2O Homes Overseas Turnover ‚£2.6m ‚£1.7m 53%Countrywide Operating loss ‚£(2.7)m ‚£(2.7)m - Franchising Turnover ‚£1.5m ‚£1.2m 25% Operating profit ‚£0.4m ‚£0.2m 100% House exchanges 4,484 3,132 43% Total division Turnover ‚£282.8m ‚£253.6m 12% Operating profit ‚£26.2m ‚£33.6m -22% Headcount Average FTE 6,072 5,408 12% Branches at year end Group 1,117 804 39% Franchised 107 76 41% (Note: The comparative operating profit for the lettings business has been restated to reflect ‚£894,000 of other income that was incorrectly attributedto the Conveyancing Division in 2003.) Thanks to a strong pipeline of sales arranged at the end of June, the fullimpact of the housing market slowdown was not felt by the Estate Agencydivision until the final quarter. Nevertheless, in contrast to the previousyear, operating profit in the second half was significantly less than the firsthalf, as exchanges reduced to 34,763, from 40,643 in the first half of 2004,and from 44,361 in the second half of 2003. In addition the volume of salesarranged in the pipeline carried into 2005 was much depleted, down 33% over thesame figure the previous year. As reported in the Interim Statement, new salesarranged began to decline in July, and this trend continued unabated in thesecond half. For the full year the reduction in new sales arranged over 2003was 16.4% whilst taking the second half in isolation, the reduction on anunusually strong comparator was 40%.House prices on exchanges remained relatively robust, recording only a slightfall towards the end of the year. However, by the end of the year, prices ofnew instructions were coming under pressure, although the average for thesecond half was only 2.7% lower than the first half, and was still nearly 9% upon the same period last year.Commission rates for instructions in the first half of the year, which becamecompleted sales in the second half, continued to be subject to intensecompetitive pressure, and consequently commission rates on exchanges reducedyear on year. However, in the face of the decline in market volumes, we havemade every effort to reverse this trend, and this is evidenced by the betterrates being achieved on new instructions.In the light of the reduction in market activity, we have taken action toreduce costs where possible. Since July 2004, headcount has been reduced by 335to 5,222, mainly through natural wastage. Following the acquisition of theBradford & Bingley Group estate agency business, we have decided that thesenior management costs of this division, previously included in Central Costs,should properly be allocated to this division. This gave rise to a reallocationof costs from Central costs of ‚£2.1 million, the comparative figure in 2003 was‚£2.3 million. Ignoring this reallocation, total costs reduced by ‚£3.2 millionin the second half over the first 6 months, whilst the costs in the finalquarter were 10% below those incurred in the third quarter. As a result of thedownturn we have carefully reviewed our network. Reluctantly we have decided toclose 35 offices including 17 of the acquired offices. Closure costs totalling‚£2.2 million have been provided in 2004. We will maintain a vigilant approachto all aspects of expenditure until there are definite signs of market volumesreturning to more normal levels.Whilst the rental market in London and other major cities showed signs ofsaturation, elsewhere in the provinces the market remained strong. Thus, whilstthe contribution from our London lettings operations fell, CountrywideResidential Lettings, which has branches throughout the country, improved itscontribution by 16.5%. This was the result of an increase in the propertiesunder management and let of over 8%, and growth in average rents of just under2%. With the additional outlets that we have obtained through the Bradford &Bingley estate agency acquisition, the business now has 120 branches and willmake a steadily growing and meaningful contribution to group profits.Our franchising business had another good year, signing up a further 69 newfranchises, and overseeing the opening of 31 new offices. This brought thetotal franchised outlets, trading mainly under the Bairstow Eves brand, to 107at the year-end. However, in common with our owned offices, business becametougher as the year wore on, and financial services sales in particular weredifficult.Our Spanish operation reduced its loss in the second half, aided by higherturnover. However, as the UK market has turned down, so demand for Spanishproperty has dropped, particularly in the Costa del Sol, and so we have had toconsiderably downscale our operation in Malaga to reflect the changed marketconditions but, however, have taken the opportunity to increase the number ofdestinations providing lower entry priced properties for customers.In August we purchased 14 offices trading in West Kent and Sussex as FreemanForman. This is a highly respected brand with an excellent reputation, and weare pleased to have made this acquisition. The management and employees haveintegrated well into the Countrywide structure.The estate agency businesses acquired from Bradford & Bingley Group plc inOctober made a loss of ‚£6.8 million in the quarter. Of this, approximately ‚£2.4million related to the costs of separation and integration and office closures.It is difficult to make a valid comparison of this performance with our ownnetwork. However, on a per office basis we estimate that sales arranged andexchanges by the acquired offices in the final quarter were slightly lower thanour existing offices, leaving room for improvement. Costs measured in the sameway were some 18% higher, and we would anticipate being able to reduce these inthe futureFinancial Services Division 12 Months 12 Months 2004 2003 Change Existing Turnover ‚£62.1m ‚£72.9m -15%operations Operating profit ‚£8.5m ‚£21.9m -61% Life protection 30,992 43,587 -29% policies Total mortgages 47,112 52,763 -11% arranged Value ‚£4.6bn ‚£4.7bn -2% Panel mortgages 45,482 50,773 -10% arranged Value ‚£4.4bn ‚£4.6bn -4% General insurance 42,260 49,664 -15% polices Conversion rate Mortgages 62.5% 62.2% Life polices 41.1% 51.4% Acquisitions Turnover ‚£1.9m - Operating loss ‚£(0.1)m - Mortgages arranged 1,657 - Life protection 1,237 - policies Conversion rate Mortgages 31.5% - Life polices 23.5% - Total division Turnover ‚£64.0m ‚£72.9m -12% Operating profit ‚£8.4m ‚£21.9m -62% Headcount Average FTE 1,377 1,288 7%Falling volumes of house sales, increasing affordability issues for protectionproducts, and the demands of the preparation for mortgage regulation allcontributed to reduced turnover and lower life commission rates. Althoughconversion rates held up well in the second half, for the year as a whole theywere below those achieved in 2003. The reduction in income led to lowerearnings for our consultants, and this, together with an active recruitmentmarket for financial services personnel, ahead of regulation of the sale ofmortgages by the FSA, resulted in an increase in staff turnover to adisappointing level. This, in turn, reduced productivity and also resulted inhigher costs. In addition, we experienced worse than expected persistency oflife assurance products necessitating a strengthening of our provisions by ‚£3.3million.In response to the slowdown in the market in the Autumn, we allowed staffnumbers to reduce through natural wastage, although the full benefit of thiswas not felt in the second half results. Mortgage regulation gave rise to someadditional costs: training, printing and stationery, computer costs andcompliance. Despite these additional expenses, underlying costs in the divisionreduced by 2.8% in the second half. Furthermore, in December, we reduced ourmortgage processing capacity by closing the processing centre in Basingstoke,but incurred closure costs of ‚£395,000 to save future annual running costs ofaround ‚£800,000.Although these results are disappointing, our estate agency based financialconsultants nevertheless managed to place over ‚£4.3 billion of market leadingmortgages with our panel of blue chip lenders to the benefit of our clients.Access to rapid decision making for competitively priced mortgage products willbe of major benefit to our home buying clients when Home Information Packs areintroduced. In this environment, offer and closure speed will become even morecritical to a successful purchase. In this respect, our web-based electroniclinks with lenders will be of considerable assistance in obtaining rapidunderwriting decisions and mortgage approvals in principle for our clients.Surveying and Valuation Division 12 Months 12 Months 2004 2003 Change Existing operations - Turnover ‚£99.3m ‚£108.0m -8% - Operating profit ‚£27.2m ‚£31.9m -15% Valuations and survey instructions 572,371 605,857 -6%completed Acquisitions - Turnover ‚£7.5m - - Operating loss ‚£(0.5)m - Total division - Turnover ‚£106.8m ‚£108.0m -1% - Operating profit ‚£26.7m ‚£31.9m -16% Headcount (average FTE) 1,428 1,233 16%Countrywide SurveyorsThe fall in housing transactions which affected the estate agency business inthe second half of the year was also detrimental to Countrywide Surveyors,which suffered a severe downturn in the number of mortgage valuations andsurveys conducted. This effect was exacerbated by a reduction in instructionsdue to the near withdrawal of many lenders from the mortgage and remortgagemarkets immediately prior to and subsequent to mortgage regulation in October.Total instructions for all mortgage surveys and valuations in the second sixmonths were over 17% lower than in the first half. The proportion of remortgagesurveys carried out in the second half increased to 52%, from 45% in the firstsix months, although the absolute number of remortgage surveys carried out wasless. Whilst, to an extent, we were able to alleviate the effect of the reducedlevel of instructions by cutting back the amount of work passed to third partysurveyors, turnover for the year was 8% lower than in 2003. For the year as awhole, remortgage surveys constituted 48% of total instructions compared to 47%in 2003.A reduction in turnover inevitably gives rise to some degradation in margins,but its effect was mitigated by close control of costs, and the resultantoperating profit can, under the circumstances, be considered satisfactory.In July, we acquired Harvey Donaldson Gibson, a leading survey and valuationpractice in Scotland. We have merged our Scottish offices with the newacquisition, and are continuing to trade under the Harvey Donaldson Gibsonname. We have subsequently opened two new offices, and aim to continue toexpand our representation in Scotland.Securemove Property ServicesSecuremove Property Services, acquired from Bradford & Bingley Group plc inOctober, has suffered a similar market downturn in its residential surveyingmarket. The business is of a smaller scale than Countrywide Surveyors, andconsequently margins suffered disproportionately and, despite a smallcontribution from its commercial survey division, it made a small loss in thethree months. For the full year the business made a profit of ‚£1.9 million.Whilst it is our intention for this business to continue to be managed as anautonomous unit within the Surveying and Valuation division, good progress hasbeen made in merging several back office functions with Countrywide Surveyors.This move, together with the lower operating costs that will arise under ourownership should yield cost savings of ‚£1.5 million per annum.Securemove has seen continued success in licencing its unique Securemove surveyproduct throughout the year. The commercial division has grown following thesuccessful integration of the broad based practice of Douglas Duff, which wasacquired in 2003.Conveyancing Division 12 Months 12 Months 2004 2003 Change Turnover ‚£20.9m ‚£20.2m 3% Operating loss ‚£3.0m ‚£2.4m (note) 25% Completions 33,515 35,063 -4% Headcount (average FTE) 544 502 8% (Note: The comparative operating loss has been restated to reflect ‚£894,000 of other income that was incorrectly attributed in 2003.) Countrywide Property LawyersThe 2004 results for Countrywide Property Lawyers, our residential conveyancingbusiness, were less affected by the downturn in the housing market than theresults of our other businesses. There are a number of reasons for this. Formost of the year, our property law centres were operating close to capacity,and we continued to panel instructions to third party lawyers. Although, thereferral rate of our estate agency customers to our residential conveyancingbusiness has increased, these reduced in number as the housing market slowed.However, when the market slows, the lead time before transactions completelengthens and therefore the effect on the shortfall of instructions will not befelt until 2005, where the pipeline of business brought forward from 2004 was28% lower than the previous year. Rising house prices also helped moderate thedampening effect of reduced volumes, and the average fee increased by 7% overlast year.Good progress was made in finalising, testing and implementing the software forthe new conveyancing system, and an increasing proportion of new instructionsand completions were processed using the new technology. However, theadditional full year costs associated with the new processes and system, ofapproximately ‚£2.2 million, led to a small increase in the operating losscompared to 2004.Our systems objective is to handle all new instructions on this technology bythe middle of 2005 and we are on target to achieve this goal. Thereafter theobjective will be to increase productivity and grow capacity in the second halfof they year, which will be reflected by higher completions in 2006.Remortgage Conveyancing MattersEarlier in the year, after experiencing lengthy and frustrating delays in thedelivery of the computer software commissioned for this venture, we reluctantlydecided to seek an alternative supplier. It is very satisfying to report thatwe have now installed replacement software and systems and thus were able toprocess our first cases in December, completing our first case before the yearend. We are very pleased with this outcome, which clearly demonstrates that itis possible to provide a high quality service to lenders whilst capturing thecost benefits of outsourcing non-critical parts of the process to our partnersin India. We look forward to the expansion of this operation and the capture ofmeaningful market share. In 2004, we had a number of group employees dedicatedto this development and their costs, together with associated revenue expensesand development costs incurred by the centre in India, in all totalling ‚£1.1million, have been borne by Central Costs in 2004. From 2005, the results ofthis business will be reported in the Conveyancing Division.Joint Ventures and Associates 12 Months 12 Months 2004 2003 Change Joint Venture Turnover ‚£2.7m ‚£1.4m 93% Profit before tax ‚£0.6m ‚£0.2m 200% Associated companies Turnover ‚£9.2m ‚£6.4m 44% Profit/(loss) before tax ‚£1.4m ‚£(2.7)m of which net goodwill written back/ ‚£1.6m ‚£(2.4)m (amortised) rightmove.co.uk (30% owned)rightmove had an excellent year, and is profitable and cash generative. Itcontinues to grow its customer base, and at the end of February 2005, it hadmore than 6,900 resale estate agency branches, 1,200 lettings offices and 1,000new homes developments advertising on the site. The number of propertiesdisplayed stands at 562,000 up 88% on last year. Site traffic continues togrow, visits in December 2004 were 132% higher than the previous December. Therightmove property index is now acknowledged as a leading indicator as to thestate of the UK housing market.The new overseas' homes site, launched in 2004, had signed up 71 branches bythe year-end and is likely to grow substantially in the future. Severalexciting new developments are in hand, including products designed to addressthe Home Information Pack market.T M G Holdings (47% owned)T M G Holdings has much improved its financial position. Its core product,electronic search information for conveyancers, has become increasingly indemand as have its related property search products, in particular its newpersonal search products. As a result, Countrywide's share of trading losses,excluding goodwill write off, has reduced. Following the passing of the HousingAct this business should experience an increase in sales volumes when HomeInformation Packs are introduced, since the Government's stated objective is toincrease the number of local authorities providing search informationelectronically. Consequently, having conducted an impairment review, thedirectors consider it is appropriate to write back the one off impairment of ‚£1.9 million of goodwill made in 2003.Property development and central costsOn 16 July 2004 we disposed of our interest in the investment property at 100Cannon Street for ‚£22.5 million in cash to Standard Life Investments Limited.Whilst our intention was to retain 100 Cannon Street until fully let and thenseek a sale of the property, the approach from Standard Life InvestmentsLimited represented an attractive opportunity to reduce our debt earlier thanwould otherwise be the case. However, the early sale of the property, whilstonly part let, has resulted in a loss of ‚£1.9 million, in addition to theincome and costs related to the development prior to sale.Central costs in 2004 included a number of one-off expenses. As mentionedearlier, the costs of developing our remortgage conveyancing business,totalling ‚£1.1 million, have been included in this category. As a result of thedemerger, all employee share options became exercisable. Some of those optionsexercised incurred accelerated national insurance costs, whilst the exercise ofnil priced options necessitated a write off of the costs of those options whichwere linked to the company's share price. At the end of the year we settled ourdispute with the supplier of our remortgage conveyancing computer system.However, the negotiated settlement resulted in an under recovery of the fullcosts, thus giving a charge to profits. This charge was, however, fullyprovided at the half-year. As mentioned earlier, Central Costs have reduced bythe reallocation of costs relating to the estate agency division seniormanagement.The underlying central costs for the year were ‚£7.1 million, increasing by ‚£1.7million over 2003. This increase is largely attributable to a ‚£1.6 millionamortisation of the defined pension scheme deficit. This is a one off charge tothe profit & loss account which will not recur following the adoption of IFRSfrom January 2005.International Financial Reporting StandardsAll European Union companies listed on a regulated market are required to adoptInternational Financial Reporting Standards (IFRS) for their consolidatedfinancial statements from 2005, which will include comparative information for2004 subject to certain exemptions. The group is on schedule to implement IFRSfor reporting its consolidated results from 2005 onwards.The impact of the accounting standards has been evaluated in respect of thereported results and the data collection requirements. Fortunately, the group'sbusiness is fairly straightforward and consequently, it has not been necessaryto change the way in which we record our financial data.The key areas of expected impact for Countrywide plc's group relate to:- Accounting for pension schemes under IAS 19: Employee Benefits. Under IAS 19the net position of the group's defined benefit pension scheme will be includedon the balance sheet.- Fair valuing share option schemes in accordance with IFRS2: Share BasedPayments. Under this standard, those share options which were exchanged as aresult of the demerger and have not vested at 1 January 2005 will be valuedusing a option pricing model. A charge will be made to the profit and lossaccount for those options in place during the period.- The cessation of goodwill amortisation as required by IFRS3: BusinessCombinations. This standard prohibits the amortisation of goodwill, instead,annual impairment reviews are conducted.- IAS 36: Impairment of Assets prohibits the write back of previously impairedgoodwill.- The valuation of intangible assets on acquisition as required by IAS 38:Intangible Assets. When estate agency businesses are acquired there is apipeline of business which transfers to the new owners. Under this standard,this pipeline is required to be recognised as an Intangible Asset. Unlike mostIntangible Assets, the pipeline unwinds over a short period, normally threemonths and therefore will be written off in the year of acquisition.Below is an unaudited reconciliation of the key adjustments to the 2004 resultsthat are expected to arise as a result of implementing IFRS. However, as thegroup's convergence project is not yet complete and, in particular is notaudited, it remains likely that these numbers will be refined. ‚£m ‚£m Profit before tax 42.7 Add back items charged under UK GAAP: Amortisation of goodwill 1.5 SSAP 24 charge for amortisation of 1.6 pension deficit Write back of goodwill impairment (1.9) 1.2 reversal ---------- New charges under IFRS Share based payment charge (0.6) Pensions charge (0.7) Acquisition pipeline written off (13.0) ---------- (14.3) ---------- Estimated profit before tax under IFRS 29.6 ---------- Group Profit and Loss AccountFor the year ended 31 December Notes 2004 2003 ‚£000 ‚£000 Turnover Continuing operations 445,776 454,979 - Acquisitions 28,748 - ---------- ---------- Total continuing operations 474,524 454,979 Discontinued business 59,350 146,584 ---------- ---------- 533,874 601,563 Share of joint venture turnover 2,681 1,433 ---------- ---------- 536,555 602,996 ====== ====== Group operating profit Continuing operations 57,690 80,390 - Acquisitions (7,604) - ---------- ---------- Total continuing operations 50,086 80,390 Discontinued business 2,377 (1,603) ---------- ---------- 52,463 78,787 ---------- ---------- Share of operating profit/(loss) in - 600 160 joint ventures - associates 1,357 (2,735) ---------- ---------- 1,957 (2,575) Total operating profit; group and ---------- ----------share of joint venture and associates 54,420 76,212 Loss on disposal/amounts written off (1,909) (2,750) investment property Costs of group restructuring (9,424) - Net interest (payable)/ receivable (436) 760 and other similar charges ---------- ---------- Profit on ordinary activities before 42,651 74,222 tax Tax on profit on ordinary activities 6 (14,543) (25,166) ---------- ---------- Profit for the financial year 28,108 49,056 Dividends (15,636) (22,478) ---------- ---------- Retained profit for the year 12,472 26,578 ====== ====== Earnings per share 4 16.84p 28.80p Adjusted earnings per share 4 24.49p 29.50p Diluted earnings per share 4 16.75p 28.68p Dividend per share 5 9.00p 13.80p The comparative figures for earnings per share and dividend have been restatedto reflect the share consolidation in May 2004.Group Balance Sheetat 31 December Restated Restated 2004 2004 2003 2003 Fixed assets ‚£000 ‚£000 ‚£000 ‚£000 Intangible assets: Goodwill 34,848 16,745 Tangible fixed assets 40,728 36,652 Other investments 1,217 60,508 Investments in joint ventures Goodwill 359 - Share of gross assets 2,126 1,328 Share of gross liabilities (529) (165) ---------- ---------- 1,956 1,163 Investments in associates Goodwill 3,481 1,834 Share of net assets 622 914 ---------- ---------- 4,103 2,748 ---------- ---------- Total investments 7,276 64,419 ---------- ---------- Total fixed assets 82,852 117,816 Policyholders assets to cover - 472,413 linked liabilities Policyholder other investments - 234,133 Policyholder net current assets - 11,603 Deferred acquisition costs - 16,134 Current assets Deferred tax asset 1,291 - Debtors 77,842 63,977 Cash at bank 21,398 65,036 ---------- ---------- 100,531 129,013 Current liabilities Creditors: amounts falling due (87,549) (113,431) within one year ---------- ---------- Net current assets 12,982 15,582 ---------- ---------- Total assets less current 95,834 867,Related Shares:
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