24th Jun 2005 07:01
Berkeley Group Holdings (The) PLC24 June 2005 The Berkeley Group Holdings plc PRESS RELEASE 24th JUNE 2005 PRELIMINARY RESULTS ANNOUNCEMENT £239.9 MILLION OF CASH GENERATED BEFORE FINANCING AND DIVIDENDS REPAYMENT OF £5 PER UNIT MADE ON 3RD DECEMBER 2004 DISPOSAL OF CROSBY FOR £235.7 MILLION AND £15.0 MILLION IN RESPECT OF WORKING CAPITAL PROVIDED TO CROSBY SINCE 30TH APRIL 2005 The Berkeley Group Holdings plc ("Berkeley" or "The Group") the urbanregenerator and residential property developer announces its full year resultsfor the year ended 30th April 2005. Highlights of the results include: • Payment to Shareholders First £604.1 million (£5 per 2004 B Share) made in December 2004 • Strategic Review On target to meet next tranche (£2 per share) in December 2006. Further payments scheduled for December 2008 (£2) and December 2010 (£3) • Net Debt £255.1 million net debt from £145.2 million net cash at last year-end, with gearing at 38% • Cash Flow £239.9 million of cash generated before financing and dividends • Operating Margins Group house-building operating margins, excluding land sales, up to 18.6% from 17.5% • Pre-tax Profits Down 11.7% to £202.9m • EPS Reduced by 7.2% to 121.0 pence • NAVPS Up 12.5% to 1,062p if 2004 B Share payment (500p) is included. Down 40.9% to 558 pence following B Share redemption • ROCE Increased to 22.2% from 21.4% • Land Holdings 27,278 plots - up from 26,654 • Forward Order Book £948.0 million compared to £945.3 million last year end April 2005 April 2004 ------------ ------------ Turnover £1,070.3m £1,272.4m -15.9%Operating Profit £199.6m £212.8m -6.2%Joint Ventures £15.2m £21.9m -30.6%Merger Expenses (£1.6m) -Interest (£10.3m) (£4.9m) -106.0% ---------- ---------Profit Before Tax £202.9m £229.8m -11.7% ---------- --------- EPS 121.0p 130.4p -7.2%DPS - 22.3pReturn Per Share 500p -NAVPS 558p 944p -40.9% Commenting on the results, AW Pidgley said: "Berkeley is committed to a strategy of maximising returns to shareholders asopposed to concentrating mainly on the profit and loss account. This is in parta consequence of our focus on large-scale regeneration schemes, principally inLondon and the South-East of England. These projects are complex and require adegree of management commitment that creates a natural size for our business. Italso gives us the flexibility - essential in our entrepreneurial culture - tomaximise short-term opportunities within an unambiguous long-term operatingmodel. I announced yesterday the sale of Crosby to Lend Lease for £235.7 million andthe repayment of £15.0 million of working capital provided to Crosby since 30thApril 2005, a total consideration of £250.7 million. This further delivers ourstrategy. This disposal is unconditional and due to complete on 8th July 2005. Berkeley made its first B Share redemption of £5 per Unit on 3rd December 2004as promised and is on target to achieve the next £2 return in December 2006. TheCrosby disposal gives great impetus to our strategy to generate cashflow andthus underpin the full Return to Shareholders whilst retaining the flexibilityto maximise the value of the resultant ongoing business. Berkeley in the lasttwelve months has achieved a pre-tax profit of £202.9 million, generating £239.9million of cashflow which has resulted in a gearing level of 38%. At the sametime we have maintained a forward sales position at £948.0 million in these morenormal but very acceptable market conditions. The disposal of Crosby after the year-end combined with strong performancesthroughout the Group puts Berkeley in a robust position to maximise returns inthe coming period. Achieving these results is only possible through the exceptional performance ofour people. I would like to take this opportunity to acknowledge the hugecontribution they make to our business which is key to our current and continuedsuccess." Roger Lewis, Chairman said: "There has been much commentary on the housing market since the beginning of theyear. From Berkeley's perspective the market has been very acceptable and at thelevel for which we planned when we embarked on our Scheme of Arrangement. Performance in 2005 has been very solid. Berkeley has secured sales with a value6.6% lower than in 2004, a level which is in line with our business plan setfollowing the Scheme of Arrangement. This has enabled us to maintain our strongforward sales position. This is 14.8% ahead of 2003, a year which was affectedby world events. There is continued debate about the planning system. While in many respects itis much slower than we would prefer, it is not for us to press for changes to asystem which, whatever its faults, looks likely to continue in its currentrevised form for some time. We have also found over the last year an increasedreadiness on the part of public agencies to work enthusiastically with theprivate sector. This is a welcome development, which has mitigated ourfrustrations over the length of time some authorities take to reach a decisionon planning. I am delighted to report Berkeley has secured a number of important consentsincluding approximately 3,000 units at Beaufort Park, Hendon, 800 units atGillingham Waterside and further consents at Chelsea Bridge Wharf, ImperialWharf and Bromyard Avenue, Acton. It was good too to receive the positiveInspector's report for the tallest residential tower at St George Wharf. Housing Market The housing market has continued to respond in accordance with expectations andin line with the macro-economic conditions. Demand for homes has reducedfollowing the five sequential rises in interest rates and the resultant reducedaffordability which restricts new entrants into the market. This is offset bythe constraints in housing supply as a result of planning delays and the overallcomplexity of delivering urban regeneration schemes. The fundamentals for the housing market remain positive with continued forecasteconomic growth in the UK coupled with historically low interest rates andstrong employment. The investment market continued to be very active and accounts for over 50% ofour reservations. Under the Group's definition an investor can range from alarge institution to a customer purchasing a second home. Sales prices have been above our forecast by 3% to 5% and are covering the buildcost increases which we continue to experience. Operating margins are under pressure due to affordable housing requirements andSection 106 planning gain obligations. As we predicted, this has reduced forwardoperating margins by 0.4% in the year and we forecast that this will be repeatedgoing forward. Berkeley has continued to find land prices extremely competitive and inaccordance with its strategy has bought only very selectively. During the yearterms were agreed on only 19 sites, of which 6 were in St James with 3 of those6 from Thames Water. This equates to 2,110 plots. For the Group to achieve its full year targets for 2005/06, 62% of the salesrequired are on units with a selling price under £300,000 and 88% under£500,000. This puts Berkeley in a strong position to achieve our full yearforecast in the current market conditions. Results Berkeley is delighted to announce a pre-tax profit of £202.9 million for the 12months ended 30th April 2005. This is a reduction of 11.7% on the restatedfigure of £229.8 million for the same period last year. This result is in linewith our expectations. Earnings per share is 121.0 pence, a reduction of 7.2%.Five factors have contributed in this earnings per share result: reducedoperating profit (-9.0%), merger expenses (-0.7%), increased interest charge(-2.3%), reduced tax charge (+1.2%) and share buy-backs and other movements (+3.6%). Shareholders' funds have reduced by £473.1 million to £669.5 million (30th April2004 - £1,142.6 million). Net assets per share stand at 558 pence. The decreasein shareholders' funds takes into account share buy-backs of £20.7 million andthe capital repayment of £604.1 million. Return on Capital Employed was 22.2% compared to 21.4% last time. At 30th April 2005 Berkeley had net debt of £255.1 million which represents agearing level of 38% (April 2004 - net cash of £145.2 million), an outflow of£400.3 million in the period. This has resulted from operating cashflow of£205.0 million, a reduction in working capital of £84.2 million and other cashinflows of £13.1 million, off-set by £20.7 million used to buy-back shares,redemption of B Shares of £604.1 million and tax and dividends of £77.8 million. Scheme of Arrangement The Scheme of Arrangement and The Berkeley Group Holdings plc reduction ofcapital was approved by shareholders on 17th September 2004 and by the Court atthe end of October 2004. The Scheme of Arrangement created a Berkeley Unitcomprising one ordinary share and four redeemable B shares. The 2004 B shareswere redeemed on 3rd December 2004 for £5 a share at a cost to Berkeley of£604.1 million. The redemption of the three remaining B shares is expected inDecember 2006, December 2008 and December 2010 for amounts of £2, £2 and £3 ashare respectively. As part of the Scheme of Arrangement, The Group agreed new banking facilitiesfor £825 million. These comprise a £500 million term loan for seven years, a£175 million revolving facility for three years and a £150 million 364 dayrevolving facility with a 2 year term-out option. At the time of the Decemberpayment, the Group drew £600 million of its new facilities to make the 2004 Bshare redemption and at 30th April 2005 held £344.9 million of cash balances.This can be used for working capital, new land acquisitions or the 2006 B sharepayment and supports the confidence the Group has in delivering its strategy.The amount of the drawn facility will be reduced following the disposal ofCrosby. Trading Analysis Group turnover was £1,070.3 million (2004 - £1,272.4 million). This comprises£1,002.8 million (2004 - £1,130.1 million) of residential turnover and £67.5million (2004 - £142.3 million) of commercial turnover. During the year Berkeley sold 3,570 units at an average selling price of£282,000. This compares with 3,805 units at an average selling price of £283,000last time. In the financial year the Group turnover from land sales was £16.1 million (2004- £11.4 million). The Group's policy has always been to take suitable land saleopportunities. That said, its performance does not depend on it realising suchopportunities. At £67.5 million (2004 - £142.3 million) Group commercial turnover reflected thedisposal of commercial units on 15 mixed-use sites. This included the sale of62,900 sq. ft. of office space at St George Wharf and 17,300 sq. ft. of retailspace at Gunwharf. Berkeley has now received 98% of the forecast commercialreceipts from Gunwharf. The Group share of joint ventures turnover totalled £145.9 million (2004 -£123.7 million). This comprises £144.7 million (2004 - £121.0 million) ofresidential sales and £1.2 million (2004 - £2.7 million) from commercialschemes. The number of units sold was 809 with an average selling price of£378,000 compared to 1,034 units at an average price of £225,000 for theprevious year. The house-building operating margin, excluding joint ventures and land sales hasincreased to 18.6% from 17.5% last time. Over recent reporting periods the Grouphas achieved operating margins in the range of 17.5% to 19.5% (depending onmix). As reported at the half year we expected to be broadly in this range forthe full year if current market conditions prevailed and this has been achieved.On the basis that current market conditions continue to prevail we arecontinuing to forecast broadly in this range. Joint venture operating marginsare 10.4% compared to 17.7% last year. This is in part due to the St Jamesprofit share arrangements with Thames Water and is forecast to reverse nextyear. Joint Ventures Berkeley currently has £70.4 million of capital employed in joint ventures, anincrease of £2.5 million from last year's figure of £67.9 million. Our share ofjoint venture bank borrowings has decreased by £21.1 million to £57.6 million. Berkeley is committed to developing our partners land holdings through jointventures if there is a mutual benefit in doing so. Berkeley has focused on ourcurrent relationships and no new joint ventures have been set up in the year.Berkeley's largest joint venture is St James, which is jointly owned with ThamesWater. St James is currently developing 2,694 homes within the business with asimilar number being worked up with Thames Water on potential future sites. Forward Sales Berkeley's strategy continues to be to sell homes at an early stage in thedevelopment cycle, often at the off-plan stage, as this secures customers'commitment and consequently the quality of future revenue. It is a good indicator of the underlying state of the market that Berkeley hasmanaged to maintain and marginally increase its forward sales position from£945.3 million at the same time last year to £948.0 million at 30th April 2005.Of this, £139.8 million (2004 - £156.4 million) is included in debtors in thebalance sheet, with the remaining £808.2 million (2004 - £788.9 million)benefiting both the current year and future years profit and loss account andcashflow. If Crosby is excluded, the forward sales position at 30th April 2005is £687.0 million (2004 - £629.6 million). Land Holdings During the year the Group (including its joint ventures) has again more thanreplaced the number of plots used in construction. Berkeley now controls 27,278plots with an estimated gross margin of £1,855 million. This compares with26,654 plots and an estimated gross margin of £1,926 million at 30th April 2004. With the disposal of Crosby the restated position at 30th April 2005 would be22,799 plots with an estimated gross margin of £1,638 million. This maintained land position has been achieved in conjunction with generating£239.9 million from cashflow before financing and dividends. Berkeley hasmaintained very strict land acquisition criteria and consequently has onlyagreed 19 new sites in the year, of which, 6 were St James with 3 of those 6being Thames Water sites. Berkeley's focus in 2004/05 has been to concentrate on maximising the returnsfrom our land holdings and we continue to submit further planning applicationson the majority of our regeneration sites. This is compatible with localplanning objectives and policy. At 30th April 2005, of the plots controlled by the Group 23,288 (2004 - 21,449)are owned on the balance sheet, while 3,407 (2004 - 4,315) are contracted forand a further 583 plots (2004 - 890) have terms agreed and solicitorsinstructed. Over 95% of our holdings are on brownfield or recycled land. Excluding Crosby, the Group has 22,799 plots in its control at 30th April 2005.Of these, 19,767 are owned on the balance sheet, with 2,680 contracted and 352with terms agreed and solicitors instructed. Board Structure The Board has remained unchanged during the year and comprises a Chairman, fourExecutive Directors and three Non-Executive Directors. The stability of theBoard has been the key to our success in delivering the substantial strategicchanges in the year, including primarily the Scheme of Arrangement and, afterthe year end, the disposal of the Crosby Group. The Board has continued to consider further Non-Executive Directors to achievethe Board balance set out in the Combined Code and has identified a suitablecandidate. It is the current intention therefore to appoint a furtherNon-Executive Director by the AGM on 1st September 2005. Group Structure One of the key elements of Berkeley's strategy is to continue to simplify thestructure of the Group. The objective is to create an autonomous operatingstructure with few layers of management and consequently very short decisionmaking processes. This creates an environment of greater responsibility at alllevels, creating greater job satisfaction and incentive to perform. We believewe have made great progress in delivering this strategy in the year. At the year-end Berkeley had 6 divisions and 21 operating companies, of whichone division and 8 operating companies are site based. In the year ended 30thApril 2005 the Group recorded sales from 101 sites, down from 130 in 2004. Thisagain is in line with our strategy to develop a smaller number of sites, thoughthe sites themselves are of larger-scale and warrant dedicated managementattention. In the current year excluding Crosby, Berkeley is forecast to achieve sales fromapproximately 50 sites. The benefits of this model are apparent in a fall of overhead costs from £94.4million to £89.3 million. Crosby Group On the 28th August 2003, we announced the transaction whereby the Crosbymanagement team led by its Chairman, Geoff Hutchinson, subscribed for the newshares in Crosby which after the generation of £450 million of operatingcashflow, entitled them to 50.01% of the economic voting rights of Crosby. Ofthis Berkeley has received approximately £157.1 million of operating cashflowand this was in line with its business plan. Berkeley were delighted to announce the disposal of Crosby to Lend Lease for£235.7 million. In addition, Berkeley will be repaid £15 million in respect ofworking capital provided to Crosby since the 30th April 2005. The Disposal accelerates the return from Crosby and leaves Berkeley with a morefocused development portfolio based around its core markets in London and theSouth-East of England. It also gives Berkeley increased financial flexibilitywhich will allow Berkeley to take advantage of land opportunities in its coremarkets as they arise. Berkeley proposes to repay the £100 million currently drawn under its existingrevolving facility. The remaining proceeds will be invested in Berkeley's coremarkets in London and the South-East of England. Crosby is a leading urban regenerator and residential property developer thatoperates out of three regional offices which are located in Birmingham,Manchester and Leeds. Crosby also benefits from a number of joint venturerelationships. At 30th April 2005, Crosby had 4,479 plots under its control. The major sites Crosby is developing are Redbank, Manchester; Clarence Dock,Leeds; Southside, Navigation Street, Essex Street and John Bright Street inBirmingham; Gosforth in Newcastle; and St James in Cheltenham. Its largest jointventure sites are Hungate in York and Smithfield in Manchester. For the twelve months ended 30th April 2005, Crosby made an operating profit of£38.2 million on a turnover of £251.7 million (including its share of jointventures). International Financial Reporting Standards (IFRS) Commencing with the interim results for the year ended 30th April 2006, Berkeleywill report its results in accordance with International Financial ReportingStandards (IFRS). Berkeley is well prepared for the adoption of IFRS and will present to themarket its opening IFRS balance sheet (as at 1 May 2004) and restated profit andloss account and balance sheet for the year ended 30th April 2005 in Septemberor October 2005. The one significant area of change for Berkeley will be with regard to therecognition of revenue and profit (IAS 18). Berkeley's current policy reflectsthe two different types of scheme the Group develops. For traditionalhouse-building, revenue and profit on exchanged sales contracts is recognized onphysical completion. This will not change and will be the policy adopted for oururban regeneration business where revenue and profit are currently recognized ona phased basis, reflecting the stage of completion of the relevant exchangedunit. The impact of the change at 30th April 2005 will be to reduce shareholders fundsby approximately 5%. Other areas that will affect shareholders funds at 30th April 2005 on theadoption of IFRS are pensions and land creditors. IAS 19 (Employee Benefits) will require the inclusion of any pension schemesurplus or deficit to be recorded in the balance sheet. At 30th April 2005,Berkeley's pension scheme deficit has been calculated at £8.4 million. Theimpact on shareholders' funds at 30th April 2005 will be a reduction of 1.3%. IAS 2 (Inventories) requires land purchased on deferred payment terms to be heldat discounted present value. The liability is then increased over the period tosettlement, with this increase being recorded as interest. This will reduceshareholders' funds at 30th April 2005 by approximately 1%. Our People At the heart of Berkeley's success is a uniquely talented and experiencedmanagement team, driven by entrepreneurial flair and an unrivalled practicalunderstanding of the land and property market. It has given Berkeley theaptitude and foresight to identify and take advantage of new opportunities. Berkeley has always recognised that part of its strength has been built on thecommitted, hardworking and imaginative people it employs. But the success of ourbusiness model also rests on the manner in which we create our teams, generatingresults far in excess of the simple sum of individuals. Through our powerfully branded divisions and joint ventures, we haveconsistently demonstrated our ability to undertake and manage any form ofdevelopment that presents itself. The confidence that the Group has in themanagement capability within its divisions, matched with the financial strengthof the Group as a whole, has allowed us to unlock the flair and vision of ourmanagement teams. Such a performance is not achieved without the commitment, dedication andexpertise of our staff. On behalf of the Board and shareholders, we would liketo express our sincere appreciation and thanks to them all. Current Trading and Prospects Berkeley has developed a strategy that gives it maximum flexibility, which webelieve to be best suited to the particular challenges of a cyclical business.This strategy is based around our unrivalled land bank from which we willoperate over the medium to long-term. This land bank coupled with a highlytalented entrepreneurial workforce and flexibility demonstrates how well placedBerkeley is for the future. Our primary goal is to maximise our returns to shareholders as opposed to mainlyconcentrating on the profit and loss account and this alignment allows thebusiness to continue maximising short-term opportunities within an unambiguouslong-term operating model. We look forward to the future with a great deal ofconfidence - supported by a business model that is cash generative, efficient interms of scale and which allows the skills of our people to converge on addingvalue throughout the development process. We remain on target to achieve the2006 B share payment and the £12 return by January 2011, and to create asustainable and meaningful ongoing business. We have planned our business for the long-term, for which the fundamentals lookvery encouraging. We look forward to the future with enthusiasm and confidence. END For further information please contact: The Berkeley Group Holdings plc Cardew Group A W Pidgley Tim RobertsonR C Perrins Sofia Rehman T: 01932 868555 T: 0207 930 0777 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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