11th Sep 2007 07:00
Redrow PLC11 September 2007 Tuesday 11 September 2007 Redrow plc Preliminary results for the twelve months ended 30 June 2007 Operational Highlights • Legal completions increased by 1.9% to 4,823 (2006: 4,735) • Owned land bank with planning increased by 5.7% to 17,700 plots • Secured first income and profit in Redrow Regeneration • Forward sales position at year end increased 6.4% to 2,148 homes • Planning position strengthened with 97.5% of anticipated 2007/08 output on sites with implementable consents Financial Highlights • Group turnover increased by 3.3% to £795.7m (2006: £770.1m) • Operating profit increased by 2.9% to £136.6m (2006: £132.8m) • Profit before tax of £120.5m and basic earnings per share of 52.9p both unchanged from previous year • Dividend increased by 20% to 15.6p per share (2006: 13.0p) with commitment to increase by 20% in 2007/08 • Balance sheet retains capacity to increase investment in land with gearing at 31% (2006: 25%) Alan Bowkett, Chairman of Redrow plc, said: "Redrow delivered a solid performance in the last financial year against abackdrop of successive interest rate rises and an increasingly inefficient andcomplex planning system. We focused on optimising returns from our land bankand positioning our business for 2007/08. Our continuing long term strategy for land acquisition and our design ledapproach to our product reaffirms our historic values and strengths. We arefocused on our core competencies to unlock value from development opportunitiesfor the benefit of shareholders." Enquiries: Redrow plcNeil Fitzsimmons, Chief Executive 0207 404 5959 (11 September)David Arnold, Group Finance Director 01244 520044 (thereafter) BrunswickPatrick Handley / Jayne Rosefield 0207 404 5959 There will be an analyst and investor meeting at 09:00 BST. A live audio webcastand slide presentation of this event will be available at 09:00 BST onwww.redrowplc.co.uk. Participants can also dial-in to hear the presentationlive at 09:00 on +44 (0) 20 7138 0838; passcode: 7749534. Playback will be available by phone until 24th September on the followingdial-in number: +44 (0) 20 7806 1970; passcode: 7749534#. CHAIRMAN'S STATEMENT This is my first statement as Chairman of Redrow plc following my appointment inJuly 2007 and I am delighted to be taking on this important role. Redrowpossesses many strong attributes especially the quality of its land holdings,its attention to design and innovation and the experience and capabilities ofits people. The Group continues to invest in and further enhance these importantareas so as to take advantage of the opportunities in its market place. 2006/07 Performance The UK new homes market in 2006/07 was stable but competitive in an interestrate environment that saw four rate increases in the period. The planningregime continues to be inefficient and grows in complexity and as elsewhere inour industry, this resulted in delays in bringing new outlets on stream. Inresponse, the business focused on delivering an appropriate rate of sale fromits developments to optimise returns and to support the forward order book for2007/08, with overall forward sales up 6.4% at June 2007. Group turnover increased by 3.3% to £795.7m (2006: £770.1m). Legal completionsincreased by 1.9% to 4,823 new homes and there was a strong contribution fromour Mixed Use and Regeneration activities. Operating profit was 2.9% higher at£136.6m (2006: £132.8m) with the operating margin in the Homes business in linewith expectations at 17.1% (2006: 17.5%). There was continued investment in theland bank and the number of owned plots with planning consent increased to17,700 plots (2006: 16,750). This investment, together with the increase ininterest rates, resulted in higher financing costs at £15.3m (2006: £11.5m).The Group made a profit before tax of £120.5m and basic earnings per share of52.9p, both unchanged from the previous year. The level of capital employed in the business grew over the last twelve months,principally as we increased our investment in land by £118.4m to £641.4m tosupport our future growth. As a consequence, return on capital employed declinedto 19.4% (2006: 22.0%), still well ahead of the Group's comparable cost ofcapital. At June 2007, gearing was 30.7% (2006: 25.3%) so providing thecapacity for further investment in our land bank. Dividend The twelve months to June 2007 represented the first year of our two yearcommitment to increase the dividend by 20% per annum. The dividend for the yearwill be 15.6 pence per share (2006: 13.0p), subject to shareholder approval atthe Annual General Meeting. The proposed final dividend of 7.8 pence per sharereflects the rebalancing of the dividend payment made in 2006/07 to improve thetiming of cash flows to shareholders through a higher interim dividend payment.In the last five years, the dividend has increased at a compound growth rate ofover 20% per annum and we have reduced our dividend cover from 6.4 times to itspresent level of 3.4 times. The Board There have been significant changes in the composition of the Board since thelast Annual Report. With much sadness we announced in April the death of mypredecessor as Chairman, Robert Jones. Robert is remembered with much fondnesshaving been a Director for nearly ten years and Chairman since October 2000.Jim Martin, who was our Senior Non-Executive Director, acted as Interim Chairmanat short notice and after ten years of service as a Non-Executive Directorstands down on 11 September 2007. The Board wishes to acknowledge the importantcontributions of both Robert and Jim to Redrow's development. I would like tothank Jim for his stewardship in the intervening period and for his invaluableadvice upon my appointment. Brian Duckworth, who has served on the Board sinceJune 2002, has taken on the position of Senior Non-Executive Director. This year also sees two long standing Executive Directors leave the business.Each has played a significant part in making Redrow one of the UK's leadingresidential developers. Paul Pedley has been an integral part of Redrow forover 22 years as Finance Director, Managing Director, Chief Executive and sinceAugust 2005, Executive Deputy Chairman. He has been a leading figure in theindustry for many years and in 2006 was awarded an OBE for services to businessin Wales. Paul will retire on 30 September 2007. Barry Harvey was with theCompany for over twelve years and for the last nine as a Director of Redrow plcin the role of Northern Regional Chairman. Barry stood down from the Board on29 June 2007. The Board wishes to record its appreciation for the long anddistinguished service given by both Paul and Barry to Redrow. I am delightedthat David Campbell-Kelly has joined the senior management team as NorthernRegional Chairman having been with Redrow for 13 years and for the last 8 yearsas a Managing Director and more recently as a Regional Chairman. We have been fortunate to be joined by two excellent new Non-Executive Directorson the Board. Denise Jagger joined the Board on 17 January 2007 and Bob Bennettwas appointed on 1 May 2007. Bob has since taken on responsibility forChairmanship of the Audit Committee. We look forward to their contribution tothe continuing success of Redrow in the coming years. Governance and Corporate Social Responsibility Redrow recognises its responsibility to its shareholders and other stakeholdersand there is a detailed report on corporate governance and an update on our workin the area of corporate social responsibility within the Annual Report. Werecognise the increasing importance of sustainability issues which we areaffording a greater focus in our operations. Alongside our peer group andstakeholders from other sectors we have embraced the Government's 2016 ZeroCarbon Commitment. Redrow is the only housebuilder to be a member of the WorldWildlife Fund's UK Forest and Trade Network and we work with that organisationto increase our use of timber from well managed and sustainable sources. Webelieve in providing a safe environment for everyone on our sites and weredelighted to secure a Gold Award from the Royal Society for Prevention ofAccidents (RoSPA) for Health and Safety for the second successive year. Finally, we continue to invest in our people at all levels to allow them todevelop their skills and to support our business objectives. The Redrow Team inthe widest sense is responsible for achieving success within the business. Wewould like to thank not only our own employees but also our suppliers,sub-contractors, consultants and advisers for their commitment in making Redrowsuccessful. Looking Forward The UK economy overall appears relatively resilient with employment levelsremaining strong. We entered the new financial year with a much strongerposition in terms of implementable planning consents so that the outcome forRedrow in 2007/08 will largely depend on the strength of the markets in which weoperate. Some lead indicators suggest that the increases in interest ratessince August 2006 are beginning to have a dampening effect on the market and wehave positioned the business to best respond to prevailing conditions. The industry in which we operate is increasingly in the public eye. Theshortage and affordability of homes, together with the requirement to respond tothe challenge of sustainability, become ever more prominent issues. We arewitnessing an unprecedented level of new initiatives from Government and we alsohave the market study into UK housebuilding by the Office of Fair Trading takingplace over the next twelve months. With challenge comes opportunity and Redrow has clear strategies for the corecomponents of its business: a long term approach to land acquisition, adevelopment philosophy based on high quality design and a commitment todeveloping the skills of our employees. This leaves us well placed tocapitalise on the opportunities available in our markets for the benefit of ourshareholders. Alan Bowkett Chairman BUSINESS REVIEW Introduction Our strategy is to sustain our long term approach to land acquisition and tocapitalise upon the quality of our current and forward land bank. Allied tothis, our increasing focus on urban design and the strength and experience inour management teams best position Redrow to address the challenges and takeadvantage of the opportunities in our marketplace. In the last two years we have made significant progress in growing our currentland holdings and improving the quality of our forward land bank. The currentland bank has increased by nearly 20% over this time and, within this, our ownedland bank with planning has grown by 12% to 17,700 plots. This has enabled usto strengthen our position in terms of planning, as 97.5% of our anticipatedoutput in 2007/08 now has detailed and implementable planning consent. Thisprovides much greater certainty as regards the delivery of sales outlets intoour markets in the new financial year. Our forward land bank stands at 24,400plots and we have improved its quality with a higher proportion of allocations.We are developing our Mixed Use and Regeneration businesses as a further sourceof long term land as well as additional income streams. We are delighted thatRedrow Regeneration made its first contribution in 2006/07. Urban design and the delivery of high quality developments represent importantpoints of differentiation for Redrow. They enable us to engage more positivelywith planning authorities and to address one of the key issues facing ourindustry which is to secure planning consents within shorter timescales. Thisapproach further enhances the desirability of our products to our customers todrive increased value for Redrow whilst the use of core house types enablesefficiency and quality in construction and control of our cost base. In the last 12 months, we have restructured our business to be more efficientwhilst preserving the capability to grow our business. Our continuing long termstrategy for land acquisition and our design led approach to product reaffirmshistoric values and strengths in Redrow. We are focusing on our corecompetencies of finding development opportunities and using our productportfolio and design skills to unlock value for the benefit of shareholders. Overview of Performance In 2006/07, we concentrated on maximising returns over the medium term throughthe delivery of an appropriate rate of sale and forward sales position tooptimise the returns from our land bank. As we highlighted in March 2007, thiswas a response to the growing inefficiencies and complexity of the planningsystem which had delayed some of our sites from obtaining a detailed,implementable planning consent. As a consequence of our sales strategy, legalcompletions grew by 1.9% to 4,823 homes (2006: 4,735). The sales market remained stable but competitive against a backdrop of fourincreases in interest rates in the financial period. Stronger conditions wereexperienced in the South East of England and in Scotland than in other parts ofthe country. Our sales reservations in 2006/07 totalled 4,953, an increase of3.7% on the previous year. Sales in the second half of the financial yearremained at satisfactory levels with reservations of our Signature and 'In theCity' homes together up 3.5% on the same period last year. We also strengthenedour overall forward sales position which increased by 6.4% to 2,148 homes ascompared with 2,018 at the beginning of the financial year. Operating profit increased by 2.9% to £136.6m (2006: £132.8m) with profit beforetax unchanged at £120.5m. Redrow's balance sheet remains strong with net debtat the year end of £177.6m (2006: £129.8m) representing gearing of 30.7% (2006:25.3%). Return on capital employed in the year to June 2007 was 19.4% (2006:22.0%), primarily reflecting our increased level of capital employed as wecontinue to invest in our land bank. In our Homes operations, we legally completed 4,728 new homes, in line with theprevious year (2006: 4,735). Legal completions of our Signature product were3,689 homes (2006: 4,027). This was short of our original volume aspirations atthe start of the year and reflected the planning environment and our salesstrategy. The average selling price of Signature increased by 1.0% to £167,900(2006: £166,200). 'In the City' legal completions were ahead of ourexpectations at 537 (2006: 495). The average selling price was 13.7% higher at£182,200 (2006: £160,200) as a result of the mix of developments on stream. Wemore than doubled the output of our affordable Debut product to 502 homes (2006:213) which sold at an average selling price of £79,100 (2006: £79,200). With ahigher proportion of Debut homes in 2007, the turnover in Homes was 1.1% lowerat £757.0m (2006: £765.5m). Gross margins within the Homes business were 23.1% in 2007 (2006: 23.2%) andoperating margins were in line with our expectations at 17.1% (2006: 17.5%). Ina strong land market and in line with our land strategy, we generated profit of£15.1m (2006: £8.9m) from the disposal of surplus land holdings during the year.This included £9.1m (2006: £3.6m) from current developments where we releasedvalue on large sites to enable the efficient use of capital and £6.0m (2006:£5.3m) from sundry land holdings. We maintained tight control on our overheads which increased by 2.3% during theyear to £45.0m (2006: £44.0m) in our Homes operations. During 2007, werationalised our fixed cost base to increase its efficiency whilst stillproviding capacity for growth within our regional structure. The costs of thisrestructuring are included in our 2007 results. We currently anticipate that theoverhead cost within our Homes operations in the 12 months ending June 2008should be no higher than in 2006/07 which should benefit our operating marginsin the forthcoming financial year. The Homes business now has 10 principal offices with a satellite office inExeter to manage our activities in the West Country. We have strengthened ourmanagement and land bank in Scotland. Our investment in the large site atCheswick in Bristol, together with our major forward land holdings at Exeter andTaunton provide a platform for growth in the South West and West Country. Wealso continue to pursue our strategy to increase our presence in the South Eastand have increased our investment in both current and forward land in thisimportant market. Our Mixed Use and Regeneration businesses performed ahead of expectations,delivering an operating profit, including our share of joint ventures, of £6.6m(2006: £0.7m) on turnover of £38.7m (2006: £4.6m). We achieved sales ofcompleted commercial developments and land to end users across a number oflocations, including St David's Park and Buckshaw Village, and importantly weachieved our first income from Redrow Regeneration as it successfully deliveredthe Lifelong Learning Centre and the first 95 homes of Phase 1 at Barking TownSquare. The Board has considered the position of Framing Solutions plc, the Group's 50:50 joint venture with Corus. Redrow's share of the operating loss of FramingSolutions in the year to June 2007 was £0.7m (2006: £0.8m), with theattributable loss after interest and tax being £0.6m (2006: £0.6m). Ourinvolvement in the joint venture since 2002 has enabled us to gain a greaterunderstanding of modern methods of construction which are now more prevalent andfor which the market is now more established. Taking these factors intoconsideration, the Board has decided that it no longer sees the benefit ofhaving a direct involvement in this area of activity and we are investigatingour options accordingly. Land The key element in delivering sustainable and profitable growth rests in thequality of the land bank. In a competitive land market, where the value ofexisting sites with planning is increasing, we continue to promote a long termapproach to sourcing our land requirements to deliver margins in excess of thoseavailable in the open market. These higher returns represent our reward for theskills and capital we invest in adding value during the planning process. Through the strength and experience we possess within our regional land andplanning teams, we continue to identify new forward land opportunities and topromote existing sites through the planning system. Our track record in forwardland over many years demonstrates to landowners our ability to secure planningconsents and optimise development values. In 2007, approximately 30% of the net additions to our owned land bank withplanning were secured through our investment in forward land. Within ourforward land bank of 24,400 plots with a realistic prospect of securing aconsent, we have 25 forward land sites representing 10,300 plots spread acrossour operations that are allocated in local plans. Our existing forward landopportunities have significant value not recognised in our balance sheet andrepresent a source of higher margin opportunity in the future. The current land bank as at June 2007 was 20,700 plots, representing in excessof four years' supply (2006: 21,000). In sourcing our current landopportunities we look for opportunities to add value to the development processby resolving planning, technical or legal issues. In 2007, approximately 45% ofland was acquired through this route delivering land for our business thatshould produce profit at margins better than is typically available on siteswith a planning consent sold on the open market. The balance of our land is secured in the open market where sites already have aplanning permission. In these instances, we use our skills in design to becompetitive in generating land values at the appropriate levels of return. Suchsites can support volumes where they deliver incremental income without anincrease in fixed overheads and can be particularly beneficial in growing outputin our newer business. We have made good progress in converting land controlled under contract into ourowned land bank with planning. At June 2007, we held 17,700 plots withplanning, representing a 5.7% increase on the 16,750 plots held as at June 2006.Our Homes companies increased their land owned with planning to 17,280 plotswith the balance of 420 plots held in Redrow Regeneration. The average plot cost of our Homes land bank with planning was £36,300 (2006:£31,000) representing 20.4% (2006: 18.3%) of the estimated average selling priceof those plots. This increase reflects our strategy of growing our presence inthe South East of England where the relationship between land cost and sellingprice is intrinsically higher. During 2007, we invested a net £241.8m in newland at an average plot cost of £43,900. 31% of our net additions were in theSouth East and as at June 2007, 20% of our Homes land bank owned with planningwas in this market as compared with 16% as at the previous year end. A key issue in the development process is in securing implementable, detailedplanning consents to enable a site to be converted into a sales outlet. We nowhave 97.5% of our anticipated output for the financial year ended June 2008 withimplementable planning secured. Effective management of our investment in land is an essential ingredient inproviding the capability to deliver growth at appropriate margins whilstretaining a return on capital employed significantly ahead of our cost ofcapital. Redrow continues to invest in larger sites which provide opportunitiesto improve margins over a development's lifetime through enhanced design andvalue creation derived through its quality. We also look to use such sites togenerate outlets through trading land with our peer group as well as releasingvalue for shareholders at the appropriate time and managing our overallinvestment. Product Product plays a prominent role within our business. The Government is settingsignificant challenges for the industry in terms of meeting improvedsustainability levels and our Product Development Team is assessing the ways inwhich these challenges can be addressed in a cost effective way that delivers ahome that meets the aspirations of our customers. Product maximises the value inherent in the land whilst ensuring thedesirability and attractiveness of our developments to our customers. The callfor improved design from Government and other bodies requires that the productmust be viewed in a much more holistic way. Through our focus on urban designwe view the product as not just the individual home but one that embraces allthe constituent elements of the development to deliver communities where peoplewill want to live. This includes the street scenes and interaction of roads,the treatment of public realm through the use of open space and use of hard andsoft landscaping to deliver a premium offering to our customers which will drivevalue. Our Signature and Debut ranges provide a strong platform in terms of house typesto meet this objective particularly when taken with our award winning record onour 'In the City' developments. This platform, together with the design skillswithin our business through our Regional Directors of Design and establishingCentres of Design Excellence in our regions, provides the tools to capitalise onour progressive design philosophy. This is already being reflected in ourdevelopments now coming on stream and this approach reinvigorates a historicelement of differentiation in Redrow's heritage. The Debut range has been enthusiastically received by customers who otherwisewould not have been able to secure a foothold on the home owning ladder. Intotal, over 700 Debut customers are now living in affordable open market newhomes. Our customer survey results show that 94% of Debut homeowners weresatisfied with their home. Debut's imaginative and innovative elements havebeen recognised in over 11 different awards. However, local authorities inEngland and Wales have generally remained focused on traditional approaches totackling affordability through social housing for rent and shared equity throughRegistered Social Landlords. This has been further reinforced by theGovernment's definition of affordable housing in recent planning guidance whichis likely to impact our original volume aspirations for this product. There is now an increasing focus in Government policy upon expanding the supplyof new affordable homes. In Debut, we have a product with strong positivecustomer endorsement from which we can leverage future opportunities and it willcontinue to represent part of our armoury. However, the overall priority forRedrow must be to manage our resources to deliver value to our shareholders in the most effective and efficient way and onsourcing development opportunities without a specific concentration on oneelement of our portfolio. The Redrow product offering continues to embrace mixed use development which inrecent years has been strengthened by our new Redrow Regeneration businessconcentrating on major opportunities in London and the South East. We continueto deliver value from our mixed use schemes at St David's Park and BuckshawVillage and are proceeding with new opportunities at City Wharf in Lichfield,Vision in Devonport and at Cheswick in Bristol. In Redrow Regeneration, we are successfully moving forward with Phase 1 atBarking Town Square with the Lifelong Learning Centre handed over and 95 of the246 apartments legally completing in 2006/07. The balance of the apartments inPhase 1 will legally complete in the new financial year. We secured planning onPhase 2 of the development in June 2007 and this comprises 272 apartments and40,000 sq ft of office and retail space. We have already sold 96 apartmentswithin Phase 2 and the overall scheme will be an important catalyst inregenerating the centre of Barking. Progress continues to be made at WatfordJunction through our Joint Venture, Waterford Park, as we explore with NetworkRail how we can optimise the regeneration of this high profile site. Wecontinue to investigate further opportunities to utilise our regenerationskills. People The Redrow Team is an essential element in the delivery of our businessobjectives and the Board appreciates the commitment they make to ourperformance. We have an Executive team which has accumulated in excess of 130years involvement in the development industry and a team of Managing Directorsin our operating companies with significant experience to take Redrow forward. The labour market for high quality professional people continues to be tightwithin our sector and we recognise that stable teams are important in theefficiency and quality of our business. As part of our review of ouroperational cost base we have re-examined and adjusted our remuneration packagesto ensure we remain competitive in the marketplace. This has been achievedwithin our overall objective of maintaining Homes' overheads in the newfinancial year in line with 2006/07. To retain and motivate our employees, we continue to invest in the skills of ourpeople through training@redrow with its dedicated facility at Tamworth. In2007, we provided over 5,000 training days from essential induction courses fornew employees to more specific initiatives which support the quality of ourbusiness. As part of our focus upon design, we are working with Oxford BrookesUniversity and the Commission for Architecture in the Built Environment (CABE)to enhance the skills and awareness of key members of our team on how gooddesign can be used to best advantage for Redrow. Over 30 Assistant SiteManagers have now been through, or are progressing with, our accreditationprogramme which includes the achievement of an appropriate NVQ qualification andwhich supports our objective of improving build quality. In recent years we haveworked hard on the quality of construction and we have experienced a significantimprovement in standards relative to National House Building Council (NHBC)industry benchmarks. We are also delighted that we have seen a significantincrease in the number of our Site Managers achieving NHBC Pride in the JobAwards in 2007. Improving build quality is an important element in raising levels of customersatisfaction. Our customer service surveys carried out by an independentresearch organisation showed that our satisfaction levels increased from 75% to79% in 2007 and the proportion of customers who would recommend Redrow to afriend increased from 80% to 83%. In 2007, five of our companies achievedsatisfaction levels in excess of 85% and all but one company achieved arecommendation level of over 75%. We recognise we have more to do in meetingthe expectations of our customers and to help secure this objective we haveappointed external specialists to review our approach in this aspect of ourbusiness and recommend ways of achieving further improvements. Redrow has continued to deliver improvements in Health and Safety in the lasttwelve months. In 2007 we achieved a Gold award for the second year runningfrom the Royal Society for the Prevention of Accidents. As Principal Contractorthere were no fatalities on our sites in 2007 (2006: nil), no prosecutions forHealth and Safety issues (2006: nil), no Prohibition Notices (2006 : 2) and onlyone Improvement Notice issued (2006: 1). The number of injuries reportedunder the Reporting of Injuries, Diseases and Dangerous Occurrences Regulations(RIDDOR) stood at 41 (2006: 40) and the level of injuries requiring first aidreduced by 10%. Financial Review Income Statement Turnover in the year totalled £795.7m (2006: £770.1m), a 3.3% increase on prioryear levels. This reflected a strong performance by our Mixed Use andRegeneration activities. Homes turnover was £757.0m (2006:£765.5m) reflecting areduction in average selling price compared to the previous year as a result ofchanges in the mix of properties with an increased proportion of our affordableDebut homes. Operating profit in the year was £136.6m (2006: £132.8m), an increase of £3.8mon the previous year with the Group's operating margin unchanged at 17.2%.Homes delivered an operating profit of £129.7m (2006: £133.8m), a 3.1% reductionon the previous year with operating margins declining slightly, in line with ourexpectations at 17.1% (2006: 17.5%). Mixed Use and Regeneration performed strongly generating an operating profit,including its share of joint ventures, of £6.6m in the year, compared to £0.7min the prior year. This reflected increased levels of activity across our mixeduse developments and the commencement of returns from our first regenerationdevelopment at Barking. The Group's net financing costs in the year totalled £15.3m (2006:£11.5m) whichwere covered 8.9 times by operating profits. Underlying bank interest costs were£13.2m, an increase of £4.6m on the previous year reflecting higher interestrates during the year and an increased average debt level used to finance ourinvestment in land for future development. Average debt in the year ended June2007 was approximately £230m (2006: c.£170m). We anticipate an increase in theinterest charge in 2007/08 principally as a consequence of higher cost ofborrowing. In accordance with IAS 39, deferred payments arising from land creditors areheld at discounted present value, recognising a financing element on thedeferred settlement terms. The value of the discount is expensed through net financing costs and amountedto £2.8m in the year (2006: £3.0m). Our joint ventures, Framing Solutions and Waterford Park, delivered a combinedloss of £0.8m attributable to Redrow after interest and tax (2006: £0.8m). The Group's effective tax rate was 30.0% (2006: 30.2%) during the year. It isanticipated that the effective tax rate in 2007/08 will be approximately 29.5%,benefiting from the reduction in the rate of UK corporation tax from 30.0% to28.0% from April 2008. Balance sheet The Group's capital employed increased to £755.4m (2006: £643.6m) and reflectedthe increased investment made into land over the 12 months ended June 2007. Total land held for development increased to £641.4m (2006: £523.0m) with Homesland representing £634.0m (2006: £522.5m) of this figure, an increase of £111.5mon the prior year. When appropriate we will seek to purchase land on deferred terms and in thesecases, the vendor may retain a legal charge over the land to which thetransaction related or be provided with a guarantee to support future payments.The overall level of land creditors at £124.2m increased by £45.9m compared tothe previous year (2006: £78.3m) and funded 19.4% of our investment in land ascompared with 15.0% in 2006. Work in progress amounted to £347.3m at the end of June 2007 (2006: £326.6m),net of cash on account. The increased level of work in progress reflected ahigher level of investment into our Signature and Debut developments as well asinto Mixed Use & Regeneration. Work in progress on our 'In the City' schemesreduced by £12.8m. Part exchange is a tool used to a limited extent as part of our incentivepackage. It is generally used for higher value properties or stock plots and atthe end of June 2007, we only owned 55 properties with a value of £9.8m (2006:£6.6m) included in work in progress. Net assets per share increased by 12.3% to 361.5p (2006: 322.0p). Cash flow Cash generated from operations was £30.5m (2006: £44.5m) and reflected thesignificant increase in inventories of £139.1m (2006: £88.6m) as a result of theinvestment made during the year into the land bank. Net debt increased by £47.8m to £177.6m (2006: £129.8m). Treasury management The Group has funded its increased investment in land and work in progress in2007 through a combination of retained profits, bank financing and landcreditors. Redrow has a policy of funding itself with an appropriate mix ofdebt and equity and with balance sheet gearing at June 2007 of 30.7% (2006:25.3%) and interest cover of 8.9 times (2006: 11.5 times) the Group retains thecapacity for further investment. Treasury management is conducted centrally with the focus being upon liquidityand interest rate risks. Since Redrow operates wholly within the UK and almostexclusively with a sterling denominated supplier base, direct foreign exchangeexposure is not regarded as a significant area of risk. Liquidity risks are managed through the regular review of cash forecasts and bymaintaining adequate committed banking facilities to ensure appropriateheadroom. As at June 2007, Redrow had committed funding of £400m together withfurther uncommitted bank facilities totalling £40m which are used in the processof daily cash management. Day to day cash management is achieved by eachcompany operating its own bank account with bank accounts managed at a Grouplevel under a set off arrangement. Within the Board's interest rate risk management framework, interest rates andcash flow forecasts are regularly monitored to ensure that the level of hedgingto mitigate risks remains appropriate. The policy prohibits any trading inderivative financial instruments and requires any hedging to be undertaken usingsimple risk management products such as interest rate swaps. The notional level of debt protected by interest rate swaps as at June 2007 was£100.0m (2006: £62.5m). These swaps had an average remaining life of 1.6 yearsat a fixed rate of 5.1% before borrowing margins are added. Pensions Following the results of the triennial valuation of the defined benefits sectionof the Redrow Staff Pension Scheme undertaken as at 30 June 2005, the Companyhad agreed with the Trustees to make special contributions totalling £11.0mtowards the past service deficit of £11.5m. The balance of this contribution,being £8.0m, was paid in July 2006. The defined benefit section of the pensionscheme is now closed to new entrants but as a consequence of the scheme'sinvestment performance, together with favourable movements in bond yields overthe last twelve months, the Group accounts record the scheme having a pre taxsurplus of £6.1m at the end of June 2007. The Company, together with theTrustees, continues to monitor closely both the financial position of thedefined benefit section and the underlying actuarial assumptions, particularlyas regards mortality and increasing life expectancy. Earnings per share and dividends Basic earnings per share were 52.9p, unchanged on the previous year. Dilutedearnings per share were 52.8p (2006: 52.7p). In accordance with the Board'spreviously stated commitment and subject to approval at the Annual GeneralMeeting on 7 November 2007, a final dividend of 7.8 pence per share will be paidon 16 November 2007. This represents an increase in the full year dividend of20% to 15.6 pence (2006:13.0 pence). Business Outlook In our Homes operations we have moved into the new financial year with astronger forward sales position and we are on programme to increase our outletsin the coming months as we move through the Autumn selling season. We alsoanticipate additional social housing legal completions in 2007/08. We have97.5% of our anticipated output for the current year on sites with implementableplanning consent which provides us with the capacity to grow our volumes. The key factor in the outcome for 2007/08 will be the strength of demand in thehousing markets in which we operate. It is always difficult to assess thehousing market based on activity in the weaker selling months of July andAugust. However, the effect of the succession of base rate rises since August2006, coupled with remaining uncertainties over interest rates and the debtmarkets, appear to be influencing consumer confidence and the housing markets aswe move into the Autumn selling season. We will closely monitor lead indicatorsand retain a careful balance between selling prices and rate of sale to optimisereturns from our land bank. In conjunction with this sales strategy we will exercise robust management ofboth our build cost and our overheads. However, as we have previouslyindicated, land acquired in recent years which in general has not benefited frominflation in the selling prices of new homes, will influence margins over thenext twelve months as compared with their current level. We have some excellent developments on stream in our mixed use portfolio andwill complete Phase 1 of Barking with the legal completion of the remaining 151apartments in 2007/08. We will continue to invest in the future of RedrowRegeneration through pre-development expenditure but given the very strongperformance in 2006/07 do not, at this stage, anticipate the same strength ofcontribution in the new financial year from our Mixed Use and Regenerationactivities. The spotlight has been increasingly on our industry in recent years in terms ofthe number, affordability and sustainability of new homes. There have beennumerous changes to the planning system aimed at making it more efficient andnew challenges set as regards addressing the issues of climate change. We haveconcerns whether the changes to the planning system will deliver benefits interms of the speed of delivery of implementable planning consents. We supportthe objective to improve the sustainability of new homes and Redrow has,alongside its peer group and stakeholders from other sectors, signed the 2016Zero Carbon Commitment. In July of this year the Government published a Green Paper that set out itsagenda for the housing sector with the over arching objective of delivering 3million new homes by 2020 with increased levels of sustainability. We believethe key issue is whether the proposals will resolve the conflict between theGovernment's agenda to increase the delivery of new homes and some LocalAuthorities' resistance to new development. The essential elements in our strategy continue to be in our long term approachto land acquisition and the capacity in our company structure to deliver growthin output. We are using our skills in mixed use development to enable us tounlock residential opportunities and continue to invest in Redrow Regenerationas a further source of long term land yielding a profit stream in the future. The focus on design to optimise value is taking on an increasing importance inour business, especially in conjunction with our product development investmentto address the requirements in respect of sustainability. This can make us morecompetitive in the land market, assist in delivering planning consents moreeffectively and secure increased value for Redrow and our customers. The fundamentals for our industry in the medium and long term remain positiveand our land bank, product and experienced management teams will enable us toaddress the challenges and take advantage of the opportunities in ourmarketplace for the benefit of shareholders in the coming years. Neil Fitzsimmons David ArnoldChief Executive Group Finance Director Consolidated Income Statement 12 months ended 30 June 2007 2006 Note £m £m Revenue 2 795.7 770.1Cost of sales (612.7) (592.0)Gross profit 183.0 178.1 Administrative expenses (46.4) (45.3)Operating profit before financing costs 2 136.6 132.8 Financial income 1.6 0.6Financial expenses (16.9) (12.1)Net financing costs 2 (15.3) (11.5) Share of loss of joint ventures after 2 (0.8) (0.8)interest and taxation Profit before tax 2 120.5 120.5 Income tax expense 3 (36.1) (36.4) Profit for the period 84.4 84.1 Earnings per share Basic earnings per share 5 52.9p 52.9pDiluted earnings per share 5 52.8p 52.7p Consolidated Balance Sheet As at 30 June 2007 2006 Note £m £m Assets Intangible assets 0.3 0.4Plant, property and equipment 24.6 23.8Investments 3.7 2.4Deferred tax assets 3.4 5.0Derivative financial instruments 0.6 0.2Retirement benefit surplus 6.1 -Trade and other receivables 4.1 0.8Total non-current assets 42.8 32.6 Inventories 6 988.7 849.6Trade and other receivables 28.5 25.5Derivative financial instruments 1.1 0.2Cash and cash equivalents 8 12.2 24.5Total current assets 1,030.5 899.8 Total assets 1,073.3 932.4 Equity Issued capital 16.0 16.0Share premium 58.1 56.2Hedge reserve 1.2 0.3Other reserves 7.9 7.9Retained earnings 494.6 433.4Total equity 577.8 513.8 Liabilities Bank loans 8 169.7 131.5Trade and other payables 7 48.8 41.9Deferred tax liabilities 3.0 1.6Retirement benefit obligations - 8.6Long-term provisions 3.4 4.4Total non-current liabilities 224.9 188.0 Bank overdrafts and loans 8 20.1 22.8Trade and other payables 233.8 191.4Current income tax liabilities 16.7 16.4Total current liabilities 270.6 230.6 Total liabilities 495.5 418.6 Total equity and liabilities 1,073.3 932.4 Consolidated Cash Flow Statement 12 months ended 30 June 2007 2006 Note £m £mCash flow from operating activities Operating profit before financing costs 136.6 132.8Depreciation and amortization 2.3 2.3Adjustment for non-cash items 3.1 (7.4)Operating profit before changes in working capital and 142.0 127.7provisionsIncrease in trade and other receivables (6.3) (13.6)Increase in inventories (139.1) (88.6)Increase in trade and other payables 49.6 16.0(Decrease)/increase in employee benefits and provisions (15.7) 3.0Cash generated from operations 30.5 44.5 Interest paid (13.9) (8.9)Tax paid (35.2) (40.5)Net cash from operating activities (18.6) (4.9) Cash flows from investing activities Acquisition of plant, property and equipment (5.2) (2.2)Proceeds from sale of plant and equipment 2.6 -Interest received 0.9 0.5Payments to joint ventures (2.3) (0.6)Net cash from investing activities (4.0) (2.3) Cash flows from financing activities Issue of bank borrowings 170.0 98.0Repayment of bank borrowings (132.0) (70.5)Issue costs of bank borrowings (0.1) -Purchase of own shares (0.5) (2.9)Dividends paid (26.3) (18.4)Proceeds from issue of share capital 1.9 2.1Net cash from financing activities 13.0 8.3 (Decrease)/increase in net cash and cash equivalents (9.6) 1.1Net cash and cash equivalents at the beginning of the period 1.7 0.6Net cash and cash equivalents at the end of the period 8 (7.9) 1.7 Consolidated Statement of Recognised Income and Expense 12 months ended 30 June 2007 2006 £m £m Effective portion of changes in fair value of interest rate cash flow hedges 1.3 0.6 Deferred tax on change in fair value of interest rate cash flow hedges (0.4) (0.2) Actuarial gains/(losses) on defined benefit pension scheme 5.8 (2.8) Deferred tax on actuarial gains/(losses) taken directly to equity (1.7) 0.8 Net income/(expense) recognised directly in equity 5.0 (1.6) Profit for the period 84.4 84.1 Total recognised income and expense for the period 89.4 82.5 Reconciliation of Movements in Consolidated Equity 12 months ended 30 June £m £m Profit for the period 84.4 84.1Dividends on equity shares (26.3) (18.4)Other recognised income and expense relating to the period (net) 5.0 (1.6)Shares issued 1.9 2.1Movement in LTSIP/SAYE and share based payment (net) (1.0) (4.9)Net increase in equity 64.0 61.3Opening equity 513.8 452.5Closing equity 577.8 513.8 NOTES 1. Basis of Preparation The above results and the accompanying notes do not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985. They are taken from the full accounts which have received an unqualified report by the Auditors and will be filed with the Registrar of Companies. 2. Segmental Information 2a) Income Statement 12 months ended 30 June 2007 2006 £m £m Revenue Homes 757.0 765.5 Mixed Use & Regeneration 38.7 4.6 795.7 770.1 Profit before tax Homes 129.7 133.8 Mixed Use & Regeneration 6.6 0.7 Framing Solutions - operating loss (0.7) (0.8) 135.6 133.7 Jersey provision - (2.0) 135.6 131.7 Add back share of joint venture operating losses 1.0 1.1 Operating profit before financing costs 136.6 132.8 Net financing costs (15.3) (11.5) 121.3 121.3 Share of loss of joint ventures after interest and (0.8) (0.8) taxation Profit before tax 120.5 120.5 Segmental Information continued 2b) Balance Sheet As at 30 June 2007 2006 £m £m Segment assets Homes 1,018.3 884.9 Mixed Use & Regeneration 43.2 23.0 Framing Solutions - share of joint venture 1.8 1.6 1,063.3 909.5 Elimination of inter-segment items (2.2) (1.6) 1,061.1 907.9 Cash and cash equivalents 12.2 24.5 Consolidated total assets 1,073.3 932.4 Segment liabilities Homes 284.7 254.8 Mixed Use & Regeneration 23.2 11.1 307.9 265.9 Elimination of inter-segment items (2.2) (1.6) 305.7 264.3 Borrowings 189.8 154.3 Consolidated total liabilities 495.5 418.6 Total equity 577.8 513.8 3. Income Tax Expense 12 months ended 30 June 2007 2006 £m £m Current year UK Corporation Tax at 30% (2006: 30%) 34.6 33.2 Under/(over) provision in respect of prior year 0.5 (0.2) 35.1 33.0 Deferred tax Origination and reversal of temporary 1.0 3.4 differences 36.1 36.4 Reconciliation of tax expense for the year Tax on total profits @ 30% (2006: 30%) 36.2 36.2 Under/(over) provision in respect of prior year 0.5 (0.2) Tax effect of share of losses in joint ventures 0.4 0.3 Expenses not deductible for tax purposes net of 0.2 0.2 rolled over capital gains Short term temporary differences (1.2) (0.1) 36.1 36.4 4. Dividends The final dividend of 7.8p will be recommended to shareholders for approval at the Annual General Meeting on 7 November 2007. This dividend will be paid on 16 November 2007 to shareholders whose names are on the Register of Members at close of business on 21 September 2007. The shares will become ex-dividend on 19 September 2007. This dividend, when added to the interim, makes a total dividend for the year of 15.6p (2006: 13.0p). 5. Earnings Per Share The calculation of the basic earnings per share of 52.9p (2006: 52.9p) is based on Group profit for the period of £84.4m (2006: £84.1m) and on the weighted average number of 10p ordinary shares in issue of 159.5m (2006: 159.1m). The average reflects an adjustment in respect of surplus shares held in trust under the Redrow Long Term Share Incentive Plan. Diluted earnings per share has been calculated by adjusting the weighted average number of 10p ordinary shares in issue to assume the conversion of all potentially dilutive ordinary shares and dividing earnings by this diluted weighted average number of shares being 159.9m (2006: 159.5m). 6. Inventories As at 30 June 2007 2006 £m £m Land for development 641.4 523.0 Work in progress 333.1 312.4 Stock of showhomes 14.2 14.2 988.7 849.6 7. Amounts Due in Respect of Development Land As at 30 June 2007 2006 £m £m Due within one year 75.4 36.4 Due in more than one year 48.8 41.9 124.2 78.3 8. Analysis of Net Debt As at 30 June 2007 2006 £m £m Cash and cash equivalents 12.2 24.5 Bank overdrafts and loans (20.1) (22.8) Net cash and cash equivalents (7.9) 1.7 Bank loans (169.7) (131.5) Net debt (177.6) (129.8) 9. Annual General Meeting The Annual General Meeting of Redrow plc will be held at St. David's Park Hotel, St. David's Park, Flintshire on 7 November 2007, commencing at 12.00 noon. A copy of this statement is available for inspection at the registered office. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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