25th Jan 2007 07:01
Crest Nicholson PLC25 January 2007 25th January 2007 Crest Nicholson PLC Preliminary Results Announcement Crest Nicholson PLC, the residential and mixed use development company, todayannounces results for the year ended 31st October 2006. Financial highlights: % increase __________ • Pre-tax profit of £80.1m (2005: £78.9m) +2% • Earnings per share of 51.2p (2005: 48.2p) +6% • Proposed dividend of 9.7p, making a total for the year +10% of 14.2p (2005: 12.9p) • Net assets attributable to ordinary shares equivalent +13% to 265p (2005: 235p) Operational highlights: • 22% increase in housing completions in 2006 to 2,946 (2005: 2,417) and a further 15% expected for 2007 as the regeneration business grows • 4,694 plots added to the short term housing land bank, 1,748 more than were completed in 2006 • Short term housing land bank of 16,322 plots (2005:16,237 plots) representing over 5 years supply • Total land bank (including strategic land and sites in solicitors hands) of 32,204 plots (2005: 31,970 plots) • Housing forward sales at year end of £400.6m (2005:£389.6m) • 53% of 2007 target completions already secured (2005:50%) • Business Improvement Initiative on track to produce £10m of cost savings per annum by 2008 and now being fed into additional land buying and margins. Commenting today, Stephen Stone, Chief Executive said: "I am delighted with the way that the company has performed in my first year asCEO. We have achieved record operating profits and laid solid foundations forfuture growth. Given a steady housing market, we can look forward with confidence. The lengthand strength of our land bank, the progress of the regeneration business, andthe steps we are taking to improve the business leave us well positioned todeliver strong growth over the next few years." Enquiries to: Crest Nicholson PLC Brunswick Group LLP Stephen Stone, Chief Executive Andrew Fenwick Peter Darby, Finance Director Kate Miller Robert Gardener Tel: 020 7404 5959 (on day of announcement) Tel: 020 7404 5959 Tel: 01932 580555 (thereafter) The analyst presentation will be available on the Company's web sitewww.crestnicholson.com from 9.30am BUSINESS REVIEW RESULTS We are delighted to report an excellent year of progress for Crest Nicholson PLCboth in the financial performance achieved and in the foundations laid forfuture growth and performance improvements. Operating profit reached a new record high of £99.2m (2005: £98.9m) on turnoverof £690.7m (2005: £699m). Profit before tax rose to £80.1m (2005: £78.9m) andearnings per share increased by 6% to 51.2p (2005: 48.2p). We are proposing a dividend of 9.7p per share. This will give a total for theyear of 14.2p, up 10.1% (2005: 12.9p) and is a reflection of our confidence inthe future prospects of the company. We plan to pay the dividend on 10th Aprilto shareholders on the register on 9th March. TRADING HousingThe company operates through six regional business units (four in the SouthEast, one in the South West and one in the Midlands) and one centralregeneration business unit. Total housing completions in 2006 were c. 22% higher than in 2005 at 2,946 units(2005: 2,417). Open market housing completions of 2,035 were slightly ahead of the 2,000 wepredicted at the interim results and the 2005 comparative of 1,960. As expected,we have doubled affordable unit completions to 911 (2005: 457). As predicted, the average selling price was £199k, down from £225k in 2005,largely due to this increased proportion of affordable units. The averageselling price of open market completions was £227k (2005: £248k). The averageselling price of affordable unit completions was £135k (2005: £126k). For 2007, we are on track to increase both open market and affordable housingcompletions by c.15%. The main improvement stems from the regeneration businessunit which is well set to grow unit volumes strongly in 2007 and 2008. Theinvestment made in regeneration expertise in previous years has improved ourability to source additional land and underpins our future growth. The average selling price in 2007 is expected to be around £200k. The volumegains will principally benefit the second half because of the pattern ofapartment completions. Forward sales at the financial year end were £400.6m (2005: £389.6m). At 22ndJanuary , 53% of target 2007 housing turnover had been secured (2005: 50%). In 2006, we experienced a sound housing market which has continued since ouryear end. However, affordability ratios are stretched and recent interest raterises, including the 0.25% increase this month, are likely to moderate 2007volumes and prices. For the longer term, house prices remain underpinned by a continuing shortage ofsupply in our areas of operation. Mixed Use Commercial As expected, commercial property sales from our mixed use schemes were lower in2006 at £51.1m (2005: £92.3m). Commercial property sales in 2007 are expected toexceed 2006, supported by a full year contribution from Camberley. In 2006, we experienced a strong appetite from institutional investors fortenanted commercial property but a weaker commercial lettings market than in2005. Land Sales As expected, land sales in 2006 were lower than in 2005 at £54.3m (2005:£62.7m). Crest's unit volumes show good growth in 2007 and 2008 and the planning systemis showing no signs of easing. We therefore plan to sell significantly less landin 2007 than in 2006. Margins Operating margin improved to 14.4% (2005: 14.1%) including a £2.9m capitalprofit on the sale and leaseback of our Chertsey office. If the Chertsey officesales value of £10.2m had been recorded as turnover, the operating margin wouldhave been 14.1%, in line with the prior year. Our investment in regeneration expertise over the last few years has dilutedoperating margin but, in 2007 and beyond, the returns from our regenerationbusiness are set to increase significantly. Land Bank Our land bank can be summarised in terms of units and gross development value asfollows: 2006 2005 Units GDV £m Units GDV £mShort term housing 16,322 3,075 16,237 2,992Short term commercial 491 471 __________________ ________________Total short term 16,322 3,566 16,237 3,463Strategic land 12,926 2,204 12,181 2,039 __________________ ________________ Total under contract 29,248 5,770 28,418 5,502Terms agreed/solicitors instructed 2,956 583 3,552 710 __________________ ________________Total Land Bank 32,204 6,353 31,970 6,212 __________________ ________________ 2006 was a successful year for land buying in which we added 4,694 plots to theshort term housing portfolio,1,748 more than were completed in 2006, leaving uswell placed to deliver volume gains in 2007 and 2008. At the 2006 level ofturnover the short term housing portfolio represents over 5 years supply. Our short term commercial portfolio consists principally of further phases ofour Bristol Harbourside development, Camberley and Chertsey North. We have added to our strategic land portfolio in 2006 and we have madesignificant progress with our holdings at Huntsgrove, Gloucester and HolmerLane, Hereford. We also expect extensions to our strategic sites at Stowmarketand Red Lodge. Planning applications have now been submitted for a total of2,211 units in our strategic land bank. Projects where purchase terms have been agreed and solicitors have beeninstructed include Woolston Riverside in Southampton where we have beennominated as lead developer as well as a number of traditional developmentprojects in our regional business units. Since year end, the total number of plots under control has increased by 1,097plots from 32,204 to 33,301 due to further successes in getting agreed landpurchases into solicitors hands. Design and Business Improvement Initiatives Good design, increasing environmental standards and modern methods of construction are all essential ingredients in working partnerships with local and central government to secure new land. Crest's reputation for design innovation is well established. Our recent successin the ODPM Design for Manufacture competition with the 'SixtyK' submissiondemonstrated our ability to produce groundbreaking designs to increasinglydemanding standards. This success has led to securing three sites totalling 445plots. Crest's ability to meet government aspirations for sustainable development is akey factor in land sourced from the public sector which accounts for 2,200 ofthe plots now in solicitors hands. Producing more new homes is a key objectivefor Government and doing so in an environmentally responsible manner isessential. Crest recognises and welcomes the increasing importance of environmentalconcerns and has developed the necessary expertise to meet the higher standardsrequired for more sustainable development. We believe this will give us acompetitive advantage in the land market in the future. The Business Improvement Initiative is on track to produce £10m of cost savingsper annum by 2008. The savings identified are being used both to secureadditional land by improving competitiveness in the land market and to improvemargins. The Business Improvement process is now embedded in our organisationand culture and, through it, we expect continuously to seek better design, lowercosts, better practices and greater added value. FINANCIAL POSITION The Group's capital employed of £453.1m has increased by £8.1m and the return onaverage capital employed is 22.1% compared to 22.7% in 2005. The Group operates a defined contribution pension scheme for new employees andthe defined benefit scheme is closed to new entrants. The deficit on the definedbenefit scheme has increased in 2006 by £9.7m net of tax (2005: £3.3m) from£24.7m to £34.4m due principally to the effects of longevity assumptions. Shareholders funds increased by £35.2m or 13.4% to £298.5m. The net assetsattributable to the ordinary shares are equivalent to 265p per share comparedwith 235p at October 2005, an increase of 13%. At October 2006, the Group has total borrowing facilities available of £357.4m(2005: £364m). Of these £97.4m at year end exchange rates relate to US privateplacement notes of which £18.4m has been repaid in December 2006. Improved working capital controls have contributed to a £27.1m reduction in netborrowings from £181.7m at October 2005 to £154.6m at October 2006. Gearing wasreduced to 51.8% (2005: 69.0%). On 2 November 2005, the 5.5% Cumulative Redeemable Preference Shares of £38mwere repaid at par. The repayment of the preference shares has converted non taxdeductible preference dividends into tax deductible interest charges. While thisreduces profit before tax by around £2m, earnings per share are enhanced. OUTLOOK While interest rate increases could moderate house price inflation in 2007, thefundamentals of the housing market remain good with low unemployment and acontinuing shortage of supply in our main areas of operation in southern Englandand the Midlands. Given a steady housing market, we can look forward with confidence. The lengthand strength of our land bank, the progress of the regeneration business, andthe steps we are taking to improve the business leave us well positioned todeliver strong growth over the next few years. Note: On 12 January 2007, Crest confirmed it is in discussions with Castle BidcoLimited ("Castle Bidco") with a view to Castle Bidco making an offer for all theissued and to be issued share capital of Crest which it does not already own, at629.7 pence per share, consisting of a cash offer of 620 pence per share and theright to a final dividend of 9.7 pence per share. The Board intends to recommendthe offer. In view of this the Takeover Panel has agreed to extend the "put up or shut up"deadline to 28 February 2007. There can be no certainty that an offer will beforthcoming. A further announcement will be made as and when appropriate. Consolidated income statementfor year ended 31st October 2006 2006 2005 £m £m Revenue 690.7 699.0 Cost of sales (544.8) (547.5) ______ ______ Gross profit 145.9 151.5 Administrative expenses (50.8) (54.0) Share of post tax profits from jointly controlled entities 1.2 1.4 Other operating income 2.9 - ______ ______ Profit from Operations 99.2 98.9 ______ ______ Finance income 5.9 5.6 Finance costs (25.0) (25.6) ______ ______ Profit before taxation 80.1 78.9 Income tax expense (22.5) (25.0) ______ ______ Profit for the period 57.6 53.9 ====== ====== Earnings per share (Note 1) Basic 51.2p 48.2p Diluted 50.8p 47.8p Dividends per share Paid 4.50p 4.20p Proposed 9.70p 8.70p Consolidated balance sheetat 31st October 2006 2006 2005 £m £m Non-current assets 24.8 47.3 Current assets Inventories 713.7 742.0 Trade and other receivables 73.3 42.7 Cash and cash equivalents 29.3 57.0 ______ ______ 816.3 841.7 Current liabilities (317.4) (295.7) ______ ______ Net current assets 498.9 546.0 Non-current liabilities (225.2) (330.0) ______ ______ Net assets 298.5 263.3 ====== ====== Total shareholders' equity (Note 2) 298.5 263.3 ====== ====== Net borrowings 154.6 181.7 Gearing 52% 69% Net assets per share (Note 3) 265p 235p Consolidated cash flow statementfor year ended 31st October 2006 2006 2005 £m £m Cash flows from operating activities Profit for the year 57.6 53.9 Adjustments for: Depreciation charge 0.8 1.0 Finance charge 19.1 20.0 Share of profit of joint ventures (1.2) (1.4) Gain on sale of property, plant and equipment (2.9) - Equity settled share-based payment expenses 1.0 0.6 Taxation 22.5 25.0 ______ ______ Operating profit before changes in working capital and provisions 96.9 99.1 (Increase)/decrease in trade and other receivables (31.1) (8.6) (Increase)/decrease in inventories 28.3 (14.4) Increase/(decrease) in trade and other payables (38.0) (7.7) ______ ______ Cash generated from the operations 56.1 68.4 Interest paid (19.9) (17.0) Income tax paid (14.4) (24.1) ______ ______ Net cash from operating activities 21.8 27.3 ______ ______ Cash flows from investing activities Proceeds from sale/Purchases of property, plant and equipment 2.0 (1.0) Interest received 1.2 0.4 Repayment of loans to joint ventures 12.6 5.6 Increase in investment properties (2.4) (0.7) ______ ______ Net cash from investing activities 13.4 4.3 ______ ______ Cash flows from financing activities Proceeds from the issue of share capital 0.7 0.8 (Decrease) /Increase in bank & other loans (19.0) 18.0 Repayment of preference shares (38.0) Dividends paid (14.9) (14.0) ______ ______ Net cash flow from financing activities (71.2) 4.8 ______ ______ Net (decrease) / increase in cash and cash equivalents (36.0) 36.4 Cash and cash equivalents at beginning of the period 56.9 20.5 ______ ______ Cash and cash equivalents at end of the period 20.9 56.9 ====== ====== Notes 1 Earnings per share Basic earnings per share are calculated on the profit attributable to ordinaryshareholders of £57.6m (2005 £53.9m) on a weighted average of 112,407,321 (2005111,852,392) ordinary shares in issue during the year. Diluted earnings per share are calculated on the profit attributable to ordinaryshareholders of £57.6m (2005 £53.9m) on a weighted average of 113,344,118 (2005112,700,749) ordinary shares, on the basis that 2,402,821 (2005 2,282,232) shareoptions had been exercised. 2 Reconciliation of equity shareholders' funds 2006 2005 £m £m Retained profit 42.7 39.9Net proceeds from share issues 0.7 0.8Actuarial losses on defined benefit pension (10.4) (3.3)scheme, net of tax Cash flow hedges: effective portion of changes 0.8 (3.9)in fair value, net of tax Equity settled share based payments, net of tax 1.4 0.6 ______ ______ Net increase in shareholders' funds 35.2 34.1Opening shareholders' funds 263.3 229.2 ______ ______ Closing shareholders' funds 298.5 263.3 ====== ====== 3 Net assets per share Net assets per ordinary share is calculated on net assets of £298.5m (2005£263.3m) on 112,796,209 (2005 112,128,638) ordinary shares in issue and rankingfor full dividends at 31st October 2006. 4 Statutory accounts The financial information set out above does not constitute the Company'sstatutory accounts for the years ended 31st October 2006 or 2005 but is derivedfrom those accounts. Statutory accounts for 2005 have been delivered to theRegistrar of Companies, whereas those for 2006 will be delivered following theCompany's Annual General Meeting. The auditors have reported on those accounts;their reports were unqualified and did not contain a statement under Section 237(2) or (4) of the Companies Act 1985. FIVE YEAR RECORD 2002 2003 2004 2005 2005 2006 UK GAAP UK GAAP UK GAAP UK GAAP Restated IFRS to IFRS Turnover £m £m £m £m £m £m Development - subsidiaries 505.1 538.5 631.2 701.7 699.0 690.7 Development - joint ventures 10.4 12.0 12.0 12.6 Construction - discontinued 180.9 23.9 - - - - ___________________________________________________ 696.4 574.4 643.2 714.3 699.0 690.7 ___________________________________________________ Operating profit (including joint ventures) Development 79.2 87.3 94.9 94.9 98.9 99.2 Construction - discontinued (3.4) - - - - - ___________________________________________________ 75.8 87.3 94.9 94.9 98.9 99.2 ___________________________________________________ Operating margin - development 15.4% 15.9% 14.8% 13.3% 14.1% 14.4% Pre-tax profit Development 66.3 74.6 82.1 79.2 78.9 80.1 Construction - discontinued (3.3) - - - - - ___________________________________________________ 63.0 74.6 82.1 79.2 78.9 80.1 ___________________________________________________Housing Houses sold (units) 1,899 1,936 2,524 2,486 2,417 2,946 Average selling price £225,100 £239,300 £210,000 £219,600 £225,100 £198,700Land bank - Short term (units) 10,760 13,204 15,060 14,945 16,237 16,322 Average selling price £197,600 £187,900 £192,200 £184,500 £184,300 £188,400Land bank - Strategic (units) 13,735 13,236 13,182 12,181 12,181 12,926 Balance sheet Shareholders' funds 247.1 285.8 328.4 367.4 263.3 298.5 Net borrowings 131.8 81.9 178.4 160.0 181.7 154.6 ___________________________________________________Capital employed 378.9 367.7 506.8 527.4 445.0 453.1 ___________________________________________________Gearing 53% 29% 54% 44% 69% 52% Return on shareholders' funds (average) 27.3% 28.0% 26.7% 22.8% 32.0% 28.5% Return on capital employed (average) 21.8% 23.4% 21.7% 18.4% 22.7% 22.1% Ordinary shares Earnings per share 38.8p 45.2p 49.4p 47.0p 48.2p 51.2p Dividends per share 9.5p 11.0p 12.3p 12.9p 12.9p 14.2p Dividend cover 4.1x 4.1x 4.0x 3.6x 3.7x 3.6x Net tangible assets per share 192p 224p 260p 294p 235p 265p This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Crest Nicholson