14th Mar 2006 07:00
PRELIMINARY RESULTS TO 31 DECEMBER 2005Countrywide plc, the UK's largest estate agency and residential propertyservices group, today reports preliminary results for the twelve months ended31 December 2005Operating profit ‚£31.4m (2004: ‚£41.3m)Profit before tax ‚£31.7m (2004: ‚£40.0m)EPS 15.45p (2004: 16.45p)Final dividend 3.00p (2004: 4.50p)House exchanges 85,106 (2004: 80,650)Average house price ‚£179,300 (2004: ‚£173,200)Strong pipeline of sales at year end awaiting exchange of ‚£64.3m (2004: ‚£48.3m)Successful integration of 2004 acquisitions from Bradford & BingleyLife policy sales increased by 5%Continued investment in Surveying and Valuation division in preparation for theintroduction of HIPs in 2007Strong operating cash flow results in ‚£2m net cash at year-end (2004:borrowings ‚£56m)Successful flotation of RightmoveHarry Hill to succeed Christopher Sporborg in 2007Christopher Sporborg, Chairman, commented:"I am pleased to report a considerable improvement over the first half of theyear. In the second half, turnover increased in all divisions, whilst theestate agency business experienced a significant turnaround in profitability.The flotation of Rightmove seems likely to be an outstanding success. Havingalready realised a profit of ‚£16.5 million from a business we founded in 2000our remaining stake is currently worth ‚£95.5 million at the Offer Price of 335pence per share.I am naturally pleased to be able to report that the improvement in the UKresidential property market experienced in the second half of 2005 hascontinued into the New Year.The net fee value of new sales arranged through our estate agency offices inthe first two months of the year was 35% higher than in the same, albeit verydisappointing and subdued, period last year. As a consequence, the aggregatevalue of fees in the hands of conveyancers awaiting exchange of contract, thepipeline, has increased from ‚£61.7 million at the end of February 2005 to ‚£82.3million, a 33% uplift.History proves that predicting the overall size of the UK housing market afteronly two months trading experience is a difficult process. However, the yearhas started well and we believe that, barring unforeseen circumstances, it willbe sufficiently strong to allow Countrywide to achieve a very satisfactoryresult for the year."For further information please contact:Christopher Sporborg, Tel: 07836 204 449 Chairman Harry Hill, Group Managing Tel: 01376 533 700 Director COUNTRYWIDE PLCChairman's StatementHighlights 2005 2004 Change Continuing operations Operating profits - pre exceptional ‚£31.9m ‚£52.6m -39% items Operating profits ‚£31.4m ‚£41.3m -24% Profit before tax ‚£31.7m ‚£40.0m -21% Earnings per share 15.45p 16.45p -6% Interim dividend per share 1.00p 4.50p -78% Final dividend per share 3.00p 4.50p -33% House sales exchanged 85,106 80,650 6% Life policies arranged 33,814 32,229 5% Mortgages arranged 48,432 48,769 -1% Valuations and survey instructions 639,028 572,371 12% Total conveyances completed and panelled 53,367 33,515 59% The results for Countrywide plc are reported under International FinancialReporting Standards (IFRS), as adopted by the European Union, for both 2005 and2004. The results for 2005 incorporate the first full year of trading from theacquisitions made in the second half of 2004.I am pleased to report that, for most of our businesses, trading in the secondhalf of 2005 represented a considerable improvement over the first six months.All divisions benefited from increased turnover, and in the case of our estateagency business, a significant turnaround in profitability.As a result, the operating profit before exceptional items for the six monthsto December increased to ‚£29.9 million from ‚£2.0 million in the first half,bringing the total for the year to ‚£31.9 million.It is difficult to provide meaningful comparison with the 2004 results. Resultsin that year included six months' profits from our Life Company prior to itsdemerger; the expenses of demerger and the return of capital; and the lossesmade in the final quarter by the businesses we acquired in October 2004 fromBradford & Bingley Group (BBG). Such is the progress we have made inintegrating these businesses into the group that it is no longer possible toseparately identify their results.The conveyancing division suffered write-offs of ‚£5.5 million associated withthe decision to abandon the computer system as we announced in September 2005.In February 2006, we finally received judgement in the High Court actionreferred to in our Interim Statement last year. Unfortunately the judgement wasunfavourable. Although, on the basis of legal advice, we intend to appeal,pending a successful outcome to such an appeal we have provided a further ‚£1.3million in respect of this claim. Offsetting these costs were profits ondisposal of freehold property of ‚£5.0 million whilst the disposal of part ofour holding in TMG Holdings generated a profit of ‚£2.6 million over itscarrying value.Cash flow also markedly improved in the second half. The very strong operatingcash flow of ‚£63.0 million achieved in the second half meant that by the yearend, we had net cash of ‚£2.0 million, compared to last year's net borrowings of‚£55.9 million. As outlined in the Interim Statement, we have undertaken alimited share buy-back programme of ‚£6.3 million, substantially in lieu of theinterim dividend. We bought back 1.69 million shares to be held in treasury atan average price of ‚£3.735 per share.Our results are largely unaffected by the change to reporting under IFRS. Thedetails of the adjustments to last year's comparatives are given on page 17.The profit after tax of ‚£27.2 million for the year (2004: ‚£27.5 million) hasresulted in earnings per share of 15.45p (2004: 16.45p). The earnings per sharehas benefited from the low tax charge in the year. The effective tax rate for2005 was 14.1% (2004: 35.4%). This is primarily due to capital gains of ‚£7.6million being sheltered by unprovided losses and the establishment of adeferred tax asset for overseas losses of ‚£1.9 million. Adjusting for theseitems brings the effective tax rate to 26.6%.DividendWe continue to have a meaningful percentage of our shares held by fundsdomiciled in locations unable to receive dividends without sufferingwithholding tax. Accordingly, we propose to pay a final dividend of 3.0p pershare, but also allocate ‚£5.0 million to a further share buy back programme,the cost of this proposal being equivalent to a further 2.82p per share.DevelopmentsAlthough cash constraints were very tight for much of the year, we havecontinued to invest for the future, despite the fact that much of ourinvestment is revenue in nature. John D Wood, which operates in the upper endof the market in London and the country, had an excellent year, assisted by anencouraging contribution from its branch in South Kensington, which only openedits doors in March 2005.We have restructured our new homes businesses across the group around thesuccessful former Bradford & Bingley Estate Agency new homes operation.Developers are able to take advantage of our multi-brand and branchproposition, whilst having the convenience and reassurance of dealing with onededicated new homes team.Our newly established emergency relocation business, branded A3, which works toassist victims of insured catastrophes, has grown rapidly since launch, and inDecember, assisted some of those made homeless by the fire at the Buncefieldfuel depot near Hemel Hempstead.Countrywide Surveyors "Enterprise" computer system has now been rolled out to68 offices and by the end of the year was being used by 374 surveyors. Althoughthere have been the inevitable teething problems emerging as the user baseincreases, these have now been overcome, and we anticipate that the roll-out tothe remainder of the original Countrywide Surveyors team will be completed bythe early Autumn.Since we decided to abandon the conveyancing software which we had beendeveloping for some time, the project to install a considerably enhancedversion of our existing legacy system has made good progress. The technicalinfrastructure required to run the new software has been successfully installedand tested, allowing a phased rollout of the new software to commence inmid-February. This new system will be upgraded in a series of phaseddevelopments during 2006 designed to increase capacity and reduce unit costs.The Government has announced that the start date for the introduction of HomeInformation Packs (HIPs) is to be 1 June 2007. We are working with Governmentand the various representative bodies to iron out some of the remaininguncertainties, particularly in the detailed requirements, for example asregards the Home Inspector accreditation regime. We strongly support thisinitiative and accordingly are throwing our resources behind it as we believeit will prove of benefit to our vendor and purchaser clients.Rightmove plans to enter the market as a supplier of HIPs to its estate agencyclients, for onward sale to vendors, through the electronic consolidation ofthe information which will be required by law to be included in a HIP. We haveentered into a distribution agreement with Rightmove whereby our estate agencydivision will sell Rightmove HIPs to our clients. We have also reachedagreement with Rightmove for Countrywide Surveyors and Securemove to supplysurveying services for the preparation of Home Condition Reports which will berequired to be included in HIPs. We also anticipate that TMG Holdings willsupply those electronic Land Registry and Local Authority searches needed inthe HIPs prepared by Rightmove for its customers.On 22 February 2006, Rightmove issued a Price Range Prospectus in which it wasstated that Countrywide Estate Agents together with the other foundingshareholders would be selling some of the shares it holds in Rightmove. It wasalso stated that Rightmove would be seeking Admission to the Official List andtrading on the London Stock Exchange. On 10 March 2006, it was announced thatthe price of the offer was 335p. Countrywide Estate Agents will be selling5,300,000 shares on which, at the offer price, we will realise a profit of ‚£16.5 million. Following Admission, we will own 28,515,375 shares which at theOffer Price will be worth ‚£95.5 million. Countrywide Estate Agents has agreedwith Rightmove and with UBS, the sponsors, that it will not dispose of any ofits retained shares in the twelve months following Admission, and that in thefollowing twelve months it will conduct any disposal of shares in such a mannerso as to ensure an orderly market in the shares. Full details of the offeringcan be found in the Price Range Prospectus.Following the demerger of the Life Company and after fifteen years associationwith KPMG as our auditors, we undertook a review of our audit requirements, andconcluded that it was an appropriate time to consider a change. As announced on23 December 2005, after a comprehensive tender process, we have appointed BDOStoy Hayward LLP. I would like to take this opportunity to thank KPMG partnersand staff for their hard work, efforts and advice.PeopleIn our business, we are totally reliant on the commitment and enthusiasm of ouremployees, on whom we depend to provide the high level of service that westrive to achieve for our clients.During the winter of 2004, as the UK housing market contracted quickly, we setout to reduce our costs wherever possible. In addition, it was decided tofreeze basic salaries for our directors, management and sales staff at 2004levels. Despite reduced awards for almost all employees the team have, Ibelieve, worked incredibly hard both to successfully integrate the newlyacquired businesses and produce, in difficult trading conditions, good resultsfor clients and shareholders alike. For those efforts, I would like to warmlyand sincerely thank them.The Remuneration Committee has been giving consideration as to how best to takeadvantage of its position as a listed company able to offer an interest inshares to its management and employees. With this in mind, the Committeeintends to ask shareholders to approve a new Performance Share Plan at theforthcoming Annual General Meeting. The intention is to offer awards toexecutives and employees in the senior management group. These awards will besubject to stretching criteria.In March 2006 I will have served twenty years as Non-Executive Chairman of thegroup which I founded, and I have decided to stand down at the end of 2006.The Nominations Committee has thought long and hard about my successor and hasconducted a thorough external search, meeting some excellent candidates.However, the committee has concluded that the best candidate to succeed me asNon-Executive Chairman is Harry Hill, currently Group Managing Director. Harry,who also joined the group in 1986 and who has been Group Managing Director for17 years, has indicated his desire to step down from this role at the end of2006.In reaching this conclusion the committee were mindful of Principle A.2.2 ofthe Combined Code which recommends that, other than in exceptionalcircumstances, the Chief Executive should not go on to become Chairman of thecompany. However, the committee concluded that the greatest challenge facingthe company over the next few years is represented by the fundamental change tothe housing market that will come about through the introduction of HomeInformation Packs. The Board are unanimous in their view that it is vital toretain the wealth of experience represented by Harry and other members of thesenior management team at a time of such great change. The Board stronglyrecommends that Harry be appointed Chairman for a three year term commencingJanuary 2007, and that shareholders support this proposal as being in the verybest interests of the company. The Committee will now commence the search forHarry's replacement. In addition to a number of excellent internal candidates,consideration will also be given to other suitably experienced executives fromoutside the company.OutlookI am naturally pleased to be able to report that the gradual improvement in theUK residential property market experienced in the second half of 2005 hascontinued into the New Year.The net fee value of new sales arranged through our estate agency offices inthe first two months of the year was 35% higher than in the same, albeit verydisappointing and subdued, period last year. As a consequence, the value offees in the hands of conveyancers awaiting exchange of contract, the pipeline,has increased from ‚£61.7 million at the end of February 2005 to ‚£82.3 million,a 33% uplift. Property prices on homes exchanged during the first two months of2006 averaged ‚£183,435 up from ‚£174,535 a year ago, whilst commission ratesaveraged 1.72%, ‚£3,156 per transaction, as opposed to 1.61%, ‚£2,818, at thesame time last year. Great efforts have been made in the intervening period toincrease commission rates across the whole group with particular emphasis givento the offices acquired in the autumn of 2004. It is therefore deeplygratifying to see the outcome of those efforts, all of which are continuing.Increased sales, of course, give more enquiries to our retail financial salesforce, and I am pleased to be able to report that those sales opportunities arebeing captured in good numbers with the level of new mortgages arranged inFebruary reaching near record levels.2006 has seen a 17.25% year on year increase in surveying instructions to theenlarged Countrywide Surveyors business whilst conveyancing instructions toCountrywide Property Lawyers were up 19%.We announced on 23 September 2005 the abandonment of the IT systems upgrade andrelated outsourced IT support services and the decision to develop an upgradedversion of our existing software and to provide the IT support infrastructurein-house.Progress on both these latter initiatives has gone well. The new IT technicalinfrastructure has been installed and is now fully operational. The newsoftware has been fully tested to ensure both the functionality is effectiveand that it is capable of meeting our aspirations to handle volumes well inexcess of current levels.The new software was successfully launched in a phased programme during Q1 2006and is now processing all new instructions. A programme of process improvementswill ensure planned productivity and service enhancements are achieved thisyear.History proves that predicting the overall size of the UK housing market afteronly two months trading experience is a difficult process. However, the yearhas started well and we believe that, barring unforeseen circumstances, it willbe sufficiently strong to allow Countrywide to achieve a very satisfactoryresult for the year.Christopher Sporborg14 March 2006COUNTRYWIDE PLCOPERATING REVIEWEstate Agency DivisionEstate agency 2005 2004 Change Turnover ‚£275.2m ‚£247.4m 11% Operating profit ‚£9.4m ‚£25.0m -62% House exchanges 85,106 80,650 6% Average commission 1.66% 1.69% Average house price ‚£179,294 ‚£173,162 4% Lettings Turnover ‚£39.5m ‚£30.7 m 29% Operating profit ‚£5.6m ‚£4.0m 40% H2O Homes Overseas Countrywide Turnover ‚£2.0m ‚£2.6m -23% Operating loss ‚£(1.0)m ‚£(2.7)m -63% Franchising Turnover ‚£1.2m ‚£1.5m -20% Operating profit ‚£0.1m ‚£0.4m -75% House exchanges 4,017 4,484 -10% Total division Turnover ‚£317.9m ‚£282.2m 12% Operating profit ‚£14.1m ‚£26.7m -47% Headcount (average FTE) 7,030 6,072 16% Branches at year end group 1,064 1,117 -5% Franchised 113 107 6% Residential Estate AgencyAlthough the underlying volume of housing transactions recorded by the LandRegistry in 2005 was still some way below the long-run average, marketconditions in the second half of 2005 were much improved over the first half,and significantly better than the same period in 2004. Sales arranged peroffice were 32% higher than in the six months to December 2004. We have seen aprogressive improvement throughout the second half which means that for 2005 asa whole, sales arranged per office were only 5% below the whole of 2004, whenthe market had been particularly active at the beginning of that year. In linewith the market, the average price of the houses sold has continued to gentlyincrease, recording a December year-on-year increase of 3.9%. These two factorshave caused the value of the pipeline of sales awaiting exchange at the end of2005 to be some 33% higher than in December 2004.The divisional management, together with their new colleagues, have done asuperb job in consolidating the 300 estate agency branches acquired from BBGinto the group. Many of the neglected brands have been resuscitated and therehas been enthusiastic acceptance of Countrywide's profit-focused, devolvedmanagement ethos. One of the more obvious tangible benefits of this isincreased commission rates. Prior to our ownership, the business was achievingan average commission rate of 1.43%, compared to our own 1.72%. Following theintroduction of our excellent training programmes and marketing, by December2005, the average rate across the group had increased to 1.69%, and some of theacquired offices are now exceeding this rate. We have also been able to reducecosts in the acquired business. Consequently, whilst variable costs haveincreased in line with income and profits, fixed costs have remained wellcontrolled. We are, however, recently seeing a modest increase in headcountrecently in response to the more buoyant market conditions.Residential LettingsCountrywide Residential Lettings, which, following the acquisition now operatesout of 120 locations throughout the UK, has had an excellent year. The businessacquired from BBG was very quickly assimilated, and new structures, guidelinesand processes established. The resulting improvement in productivity has led toincreased profitability and we expect further growth from this operation.Countrywide Property Management, the corporate division of CountrywideResidential Lettings, increased the number of managed service charge units by34% in the year to a little under 24,000. Although residential property willnot now be eligible for inclusion in SIPPs, we nevertheless anticipate therewill be a considerable increase in the amount of investment in commercialproperty using this investment medium and this division is well placed tobenefit from this growth.FranchisingThe franchising business had a less successful year. The combination of fewernew openings, lower fees and the difficult market served to reduce profits.Nevertheless, the network increased slightly during the year, and there arestill a number of committed signed-up franchises which will be opened whensuitable premises become available.H2O Homes Overseas CountrywideThe coastal property market in Spain is influenced by the state of the UKhousing market. The prospect of falling prices in the UK eroded confidence,particularly on the Costa del Sol. In response, we have significantly reducedthe operating costs of our Spanish operation, entered into collaborativearrangements, and revamped the UK structure. Client referrals in the final fourmonths of the year were 76% higher than the same period in 2004 and if theyconvert into sales, the business should become profitable.Financial Services Division 2005 2004 Change Turnover ‚£74.5m ‚£64.0m 16% Operating profit ‚£11.7m ‚£8.3m 41% Life protection policies 33,814 32,229 5% Total mortgages arranged 48,432 48,769 -1% Value ‚£5.1bn ‚£4.6bn 11% Panel mortgages arranged 41,151 45,482 -10% Value ‚£4.3bn ‚£4.4bn -2% General insurance polices 42,027 42,260 -1% Conversion rate Mortgages 56.9% 60.5% Life polices 39.7% 40.0% Headcount (average FTE) 1,374 1,377 - There was a material recovery in sales in this division in the second half ofthe year. There was a clear benefit from an increased volume of house sales,but in addition, penetration rates improved significantly right across theproduct range compared to the first half year (panel mortgages: 50.7% v 45.6%;life policies: 44.1% v 32.6%; general insurance policies: 52.6% v 45.6%). Totalrevenue increased by 24% in the second six months and, although variable costsmatched this increase, operating profit was up 74%.Prior to October 2005, the former BBG financial services business had beenoperated separately from the rest of the group branch based financial servicessales force. The former had been achieving lower penetration rates across allfinancial products, which has masked the strength of the underlying improvementacross the rest of the group in enhanced conversion rates.In July we introduced a suite of lower priced life insurance products andpenetration markedly improved. The resultant increase in volumes has more thanoffset the lower commission rates we now receive and we are also hopeful ofbetter persistency, both of which will improve overall profitability.During the year we renewed our arrangements with AXA for the sale of theirgeneral insurance products to our clients. In addition to commission income,these arrangements with AXA permit us to share in profits arising in theinsurance books and this year, for the first time, we have realised profitshares from the household and contents book.Surveying and Valuation Division 2005 2004 Change Turnover ‚£118.1m ‚£106.8m 11% Operating profit ‚£18.7m ‚£27.0m -31% Valuations and survey instructions 639,028 572,371 12% completed Headcount (average FTE) 1,678 1,428 18% Whilst the second half of 2005 saw some improvement in the volume of workreceived, the division was still operating well below capacity. Althoughlending volumes increased in the overall market, this was not reflected in thelevel of instructions received from our major clients. In addition, as a resultof mortgage regulation, and consequent consolidation in the mortgage brokermarket, more valuation instructions are now controlled by I.F.A. networks.Spare capacity in the industry meant competition for instructions from oursmaller clients became price-lead. As a result of these factors we lost marketshare.Costs were kept under tight control, but, as we have previously reported toshareholders, we have been reluctant to reduce capacity whilst we anticipateincreasing demand for surveyors following the introduction of Home InformationPacks, now confirmed for June 2007.The first stage of the integration of Securemove, acquired from BBG in 2004, isnow complete and restructuring costs of ‚£0.8 million were incurred. Weanticipate that annual cost savings of ‚£2.8 million will be achieved, and thatfurther benefits will accrue following the roll-out of our `Enterprise'computer system to Securemove surveyors and clients.Conveyancing Division 2005 2004 Change Turnover ‚£19.1m ‚£22.3m -14% Operating loss - pre exceptional loss ‚£7.7m ‚£4.1m -88% Exceptional loss - write off of computer ‚£5.5m - software and associated contracts Operating loss ‚£13.2m ‚£4.1m 222% Completions 53,367 33,515 59% Countrywide Property Lawyers 24,089 33,515 -28% Remortgage Conveyancing Matters 7,047 - TitleAbsolute 22,231 - Headcount (average FTE) 591 544 9% Countrywide Property LawyersThis business has had an extremely difficult and frustrating year. The truecost of the failures of the abandoned IT system cannot be measured easily, butin addition to the write-off of the fixed assets, there are potential penaltiesfor termination of ancillary contracts; the wider cost of reduced capacityduring the attempted transition to the now aborted system; and the burden ofextra costs incurred both during the transition period and subsequently. Wewill be seeking full recovery from the supplier.Since the decision was taken to abandon the system, we have made encouragingprogress. The move to a recently updated version of our existing software hasfacilitated the phased introduction of a new system during February 2006 with arollout planned to be completed early in the second quarter of 2006. Acombination of increased instructions from the estate agency network and areduction in the proportion of instructions panelled to third party lawyers,has gone some way to rebuild the pipeline, which at the end of December 2005was 18% higher than at the end of 2004.Remortgage Conveyancing MattersIn the first full year of operation, this business handled over 10,000instructions, peaking at a monthly volume over the 2,300 level. Whilst oursystems, IT infrastructure and offshore capability coped admirably with thesevolumes, the rate of the increase (circa 65% of new business occurred in threemonths) stretched the capacity of our staff resources.These issues have now been addressed and rectified and we move into 2006 withresources and systems capable of effectively handling over 50,000 cases perannum - an annualised level which would deliver profitability.We have retained our existing customers and secured a major new client in 2006thus facilitating the ability to manage a controlled build up of instructionsover the first six months of the year to ensure optimum service delivery.Title AbsoluteThis business manages the conveyancing panel for the Countrywide PropertyLawyers' instructions which are not processed in-house. In addition it offerssimilar panel management services to other clients including high streetlenders, and the opportunity to offer conveyancing services to our estateagency clients in Scotland. During the year it processed 22,231 completedcases, of which 61% were passed across from Countrywide Property Lawyers, andachieved an operating profit of just over ‚£1.2 million.Joint Ventures and Associates 2005 2004 Change Joint Venture Turnover ‚£5.5m ‚£2.7m 104% Profit after tax ‚£0.9m ‚£0.5m 80% Associated companies Turnover ‚£11.7m ‚£9.2m 27% Profit/(loss) after tax ‚£0.1m ‚£(0.3)m - Profit on disposal ‚£2.6m - rightmove.co.uk (30% owned - Joint Venture)Rightmove had another excellent year. Revenues passed ‚£18 million, whilstoperating profit before exceptional development costs was ‚£8.9 million. In 2005it added over 2,500 new offices to its website. At the end of December it hadover 8,500 estate agency offices listing their properties on its website,including all those estate agency chains in excess of 100 offices. At the endof 2005 it also numbered more than 1,500 new homes developments and 1,000lettings offices amongst its clients. In January 2006 the site was ranked 9thin the Top 10 most popular UK websites.T M G Holdings (50% owned - Associate)In December 2005, Connells Ltd made an offer to acquire the shares in TMG heldby all the non-Countrywide Shareholders, including the TMG employee trust. As aresult of this, certain ratchet arrangements were triggered whereby Countrywideincreased its shareholding. The majority of these additional shares were alsoacquired by Connells Ltd. Following the restructuring Countrywide and Connellseach held 50% of TMG. In January 2006, Rightmove and Halifax Estate AgencyLimited each acquired a 25% holding in TMG from Connells and Countrywiderespectively.Following the expansion of its product range in 2004 TMG has had an encouragingyear. Turnover increased by 26% whilst the operating loss of ‚£0.3 millionincurred in 2004 was converted to an operating profit of ‚£0.5 million in 2005,before the exceptional costs associated with the restructuring.Property development and central costsDuring 2005, the group sold at auction and leased back 31 freehold branches,receiving ‚£11.0 million in cash and achieving a profit of ‚£5.0 million.Central costs at ‚£4.9 million (2004: ‚£5.2 million) have benefited from thereceipt of a dividend of ‚£1.0 million from the insurance cell but also includethe additional provision of ‚£1.3 million in respect of the legal claim,mentioned earlier. Ignoring these items, underlying central costs were ‚£4.6million.Group Income Statementfor the year ended 31 December 2005 Note 2005 2004 ‚£'000 ‚£'000 ‚£'000 ‚£'000 Continuing operations Revenue 3 528,164 474,186 Other income 14,264 9,614 Exceptional income 4,982 -- Profit on disposal of freehold properties ----- ----- 547,410 483,800 Employee benefit costs 4 (317,007) (269,115) Depreciation and impairment (10,872) (9,782) Other expenses: Regular expenses (182,608) (152,262) Exceptional items: - Cost of group restructuring - (9,424) - Write of computer software and associated contracts (5,540) - - Loss on disposal of properties - (1,909) ----- ----- (188,148) (163,595) Group operating profit before 31,941 52,641 exceptional items - Exceptional items (net) (558) (11,333) ----- ----- ----- ----- Group operating profit 3 31,383 41,308 Finance expense 2,252 (3,736) Finance income (5,603) 2,219 Share of profit/(loss) of 70 (287)associates Profit on part disposal of 2,621 -associated undertaking Share of profit of joint ventures 1,591 746 Share of tax charge (647) 944 (224) 522 ----- ----- ----- ----- Profit before taxation 31,667 40,026 Taxation 5 (4,468) (13,989) ----- ----- Profit for the year from 27,199 26,037continuing operations ----- ----- Discontinued operations Post tax profit for the year from - 1,419discontinued activities ----- ----- Profit for the year 27,199 27,456 ----- ----- Earnings per share Basic 6 15.45p 16.45p Diluted 6 15.37p 16.36p Earnings per share - continuing 6 15.45p 15.60poperations Basic Diluted 6 15.37p 15.52p ----- -----Group Statement of Recognised Income and Expensefor the year ended 31 December 2005 2005 2004 ‚£'000 ‚£'000 Foreign exchange translation differences (6) 217 Actuarial (losses)/gains arising in the (2,619) 510pension scheme Deferred tax adjustment arising on the 786 (153)pension scheme assets and liabilities Share of deferred tax asset in respect of joint venture equity settled share options 500 -recognised directly in equity ----- ----- Income and expense recognised directly in equity (1,339) 574 Profit for the year 27,199 27,456 ----- ----- Total income and expense recognised for the 25,860 28,030year attributable to equity shareholders ----- -----Group Balance Sheet as at 31 December 2005 2005 2004 ‚£'000 ‚£'000 Assets Non-current assets Intangible assets: Goodwill 37,737 35,377 Other intangible assets 6,164 11,224 Property, plant and equipment 22,397 30,742 Investments accounted for using the equity method: Investments in associates 1,689 2,456 Investments in joint venture 2,049 2,105 Other investments 1,225 1,217 Other receivables 1,401 2,294 Deferred tax asset 11,479 7,512 ----- ----- Total non-current assets 84,141 92,927 ----- ----- Current assets Trade and other receivables 78,006 72,820 Cash and cash equivalents 6,987 21,398 ----- ----- Total current assets 84,993 94,218 ----- ----- ----- ----- Total assets 169,134 187,145 ----- -----Shareholders' equity Share capital 8,872 8,515 Share premium 30,213 1,711 Capital redemption reserve 50 50 Capital reserve (433,829) (433,829) Treasury share reserve (6,216) - ESOP share reserve (571) (839) Other reserves 1,109 1,109 Translation reserve 211 217 Retained earnings 423,584 406,557 ----- ----- Total shareholders' equity 23,423 (16,509) ----- ----- Non-current liabilities Financial liabilities - loans and borrowings 5,000 75,000 Defined benefit scheme liabilities 15,514 13,481 Provisions 8,450 12,024 Other liabilities 1,204 - Deferred income 18,060 19,618 ----- ----- Total non-current liabilities 48,228 120,123 ----- ----- Current liabilities Financial liabilities - bank overdrafts - 2,297 Trade and other payables 82,399 69,779 Provisions 10,130 7,072 Current tax liabilities 4,954 4,383 ----- ----- Total current liabilities 97,483 83,531 ----- ----- ----- ----- Total liabilities 145,711 203,654 ----- ----- Total equity and liabilities 169,134 187,145 ----- -----Group Cash Flow for the year ended 31 December 2005 2005 2004 Note ‚£'000 ‚£'000 ‚£'000 ‚£'000 Cash flows from operating activities Cash generated from operations 8 45,021 74,015 Interest paid (5,800) (2,479) Tax paid (5,069) (22,020) ----- ----- Net cash from operating 34,152 49,516activities Cash flows from investing activities Acquisition of subsidiaries, net (1,008) (48,479) of cash acquired Purchase of investments (10) (11) De-merger of subsidiary - (1,043) Costs of group restructuring - (10,550) Net portfolio - Life business - (8,337) shareholder investments Purchase of property, plant and (5,510) (10,526) equipment Purchase of intangible assets (1,407) (4,059) Proceeds from sale of property, 11,021 22,730 plant and equipment Proceeds from part disposal of 3,412 - associated undertaking Dividend received 1,537 - Interest received 2,193 2,180 ----- ----- Net cash generated from/(used 10,228 (58,095)in) investing activities Cash flows from financing activities Proceeds from issuance of share 28,943 12,749 capital Proceeds from disposal of own 268 1,742 shares Proceeds from term loan - 75,000 Repayment of term loan (70,000) (15,600) Return of capital - (85,004) Buyback of shares (6,300) - Dividend paid (9,405) (23,528) ----- ----- Net cash used in financing (56,494) (34,641)activities ----- ----- Net decrease in cash and cash (12,114) (43,220)equivalents Cash and cash equivalents at 1 19,101 62,321January ----- ----- Cash and cash equivalents at 31 6,987 19,101December ----- -----1. Basis of preparationThese financial statements have been prepared in accordance with InternationalFinancial Reporting Standards including International Accounting Standards andInterpretations (collectively 'IFRS') issued by the International AccountingStandards Board ('IASB') and endorsed for use by companies in the EU, and withthose parts of the UK Companies Act 1985 applicable to companies reportingunder IFRS.Full details of IFRS policies applied and reconciliations of comparativefigures between UK GAAP and IFRSs are available in our Interim Statement, acopy of which is available from our website www.countrywideplc.co.uk. A briefreconciliation of the main changes is detailed in note 11.2 Status of financial informationThe financial information contained in this preliminary announcement does notconstitute the company's consolidated statutory financial statements for theyears ended 31 December 2005 or 2004, but is derived from those financialstatements. The financial statements for the year ended 31 December 2004, whichwere prepared under UK GAAP, have been delivered to the Registrar of Companies.The financial statements for the year ended 31 December 2005 prepared underIFRSs will be delivered following the company's Annual General Meeting. Theauditors have reported on those financial statements; their reports wereunqualified and did not contain statements under section 237 (2) or (3) of theCompanies Act 1985.The annual report and financial statements will be posted to shareholders on 30March 2006. Copies of which will also be available from the Company Secretary,Countrywide plc, Countrywide House, Perry Way, Witham. Essex CM8 3SX.3 Segment results 2005 2004 Inter- External Inter- External segment sales segment Revenue sales sales Total sales Total revenue revenue ‚£000 ‚£000 ‚£000 ‚£000 ‚£000 ‚£000 Estate Agency 316,489 1,414 317,903 281,181 983 282,164 Financial Services 74,473 - 74,473 63,966 - 63,966 Surveying and 118,075 - 118,075 106,736 33 106,769Valuation Conveyancing 19,127 - 19,127 22,303 - 22,303 Eliminations - (1,414) (1,414) - (1,016) (1,016) ----- ----- ----- ----- ----- ----- Total 528,164 - 528,164 474,186 - 474,186 ----- ----- ----- ----- ----- ----- Operating profit/(loss) 2005 2004 ‚£000 ‚£000 ‚£000 Estate Agency 14,089 26,677 Financial Services 11,713 8,311 Surveying and Valuation 18,722 27,005 Conveyancing - pre exceptional loss (7,657) (4,114) - exceptional loss (5,540) - ----- (13,197) ----- ----- 31,327 57,879 Unallocated expenses (4,926) (5,238) Profit/(loss) on disposal of freehold 4,982 (1,909)properties Group restructuring costs - (9,424) ----- ----- Operating profit from continuing businesses 31,383 41,308 Operating profit from discontinued operations - 2,374 ----- ----- Total operating profit 31,383 43,682 ----- -----4. Staff costs 2005 2004 ‚£'000 ‚£'000 Wages and salaries 280,276 238,022 Defined contribution pension cost 5,442 4,404 Other long-term employee benefits 225 - Share-based payment expense 566 515 Employer's national insurance contributions and similar 30,498 26,174taxes ----- ----- 317,007 269,115 ----- -----5. TaxationAnalysis of tax charge in the year 2005 2004 ‚£'000 ‚£'000 Current tax - Continuing operations 7,649 12,187 - Discontinued operations - 2,359 Deferred tax - Continuing operations (3,181) 1,802 ----- ----- - Discontinued operations - (1,404) Taxation 4,468 14,944 ----- -----The tax charge for the year differs from the standard rate of corporation taxin the UK (30%). The differences are explained below: 2005 2004 ‚£'000 ‚£'000 Profit on ordinary activities from continuing 31,667 40,026operations before tax ----- ----- Profit on ordinary activities multiplied by rate of 9,500 12,008corporation tax in the UK of 30% (2004 - 30%) Effects of: Utilisation of unprovided trading losses (86) (2) Profits from joint venture and associates (1,091) (27) Share options (394) (1,936) Group restructuring costs disallowed - 2,268 Other permanent differences 193 784 Utilisation of unprovided capital losses (2,056) (487) Overseas trading losses not group relieved (1,598) 816 Loss on disposal of investment property - 565 ----- ----- Total taxation charge (continuing operations) 4,468 13,989 ----- -----Deferred tax assets have been recognised in respect of all tax losses and othertemporary differences giving rise to deferred tax assets because it is probablethat these assets will be recovered.The movements in deferred tax assets and liabilities (prior to the offsettingof balances within the same jurisdiction as permitted by IAS 12) during theyear are shown below. Deferred tax assets and liabilities are only offset wherethere is a legally enforceable right of offset and there is an intention tosettle the balances net. Asset/ (Charged) (Charged) Asset/ (liability) / / (liability) 31 Dec credited credited 31 Dec 2004 to to equity 2005 income ‚£'000 ‚£'000 ‚£'000 ‚£'000 Capital allowances 1,165 987 - 2,152 Employee pension liabilities 5,169 382 786 6,337 Share options 936 285 - 1,221 Other temporary and deductible 242 (388) - (146)differences Overseas losses - 1,915 1,915 ----- ----- ----- ----- 7,512 3,181 786 11,479 ----- ----- ----- -----A deferred tax asset has not been recognised in respect of unused capitallosses ‚£32,097,000 (2004: ‚£32,221,000).6. Earnings per shareEarnings per share has been calculated on the weighted average number ofordinary shares in issue during the year entitled to dividend of 176,082,000(2004: 166,911,000). Shares held by the Employee Benefit Trust and those heldin Treasury are excluded from the calculation. The fully diluted number ofshares was 176,944,000 (2004: 167,823,000), the difference representing thenumber of shares that would be issued for no consideration if all outstandingshare options were to be exercised.7. Dividend 2005 2004 ‚£'000 ‚£'000 Final dividend at 4.50p (2004: 9.50p) per 5p share 7,625 15,966proposed and paid during the year relating to the previous year's results Interim dividend of 1.0p (2004: 4.50p) per 5p share 1,780 7,562paid during the year ----- ----- 9,405 23,528 ----- -----In addition, the directors are proposing a final dividend in respect of thefinancial year ending 31 December 2005 of 3.0p per share which will absorb anestimated ‚£5,304,000 of Shareholders' Funds. It will be paid on 22 May 2006 tomembers on the register of members on 22 March 2006.8.Cash flow from operating activitiesReconciliation of operating profit to net cash inflow from operatingactivities:Cash generated from operations 2005 2004 ‚£'000 ‚£'000 Profit before taxation - continuing operations 31,839 39,880 Adjustments for: Depreciation 8,102 7,369 Amortisation of intangible asset 2,770 2,612 Share-based payments 566 515 (Profit)/loss on sale of investments (7,603) 1,909 Income from joint ventures (1,116) (376) (Profit)/loss from associates (70) 287 Movement on provisions 2,738 3,534 Profit on sales of fixed assets and intangibles (232) (422) Exceptional write off of computer software 5,540 -and associated contracts Group restructuring charge - 9,424 Finance expense 5,603 3,736 Finance income (2,252) (2,219) Changes in working capital (excluding affects of acquisitions and disposals of group undertakings): (Increase)/decrease in trade and other receivables (4,596) 10,515 Increase/(decrease) in trade and other payables 3,732 (8,728) ----- ----- Cash generated from continuing operations 45,021 68,036 Net cash generated from discontinued operations - 5,979 ----- ----- Cash generated from operations 45,021 74,0159. AcquisitionsAs reported in our interim statement we acquired TitleAbsolute and TradePartners on 1 January 2005. The provisional fair values and estimation ofdeferred consideration have been refined and the summary of the acquisition isrepresented below: Carrying Fair values pre value acquisition ‚£'000 ‚£'000 Intangible assets - 66 Property, plant and equipment 144 144 Trade and other receivables 497 497 Cash and cash equivalents 255 255 Trade and other payables (855) (855) ----- ----- Net assets acquired 41 107 ----- Goodwill 2,360 ----- Consideration 2,467 ----- Cash 1,263 Deferred consideration 1,204 ----- Total consideration 2,467 -----The intangible asset represents the capitalisation of internal costs directlyincurred in the development of computer software.The sale and purchase agreement provides for deferred consideration to be paid,the amount being dependent on the cash flows of the business between 2005 and2008 and certain hurdles being achieved. Based on the current estimates thedeferred consideration is expected to be ‚£1,204,000. However should theperformance of the business change in future periods, then this figure may berevised.10. Acquisitions in previous yearIn accordance with IFRS 3: Business Combinations, the group has restated the2004 comparatives to reflect the adjustments to the fair values of the assetsand liabilities acquired with the two businesses purchased from Bradford &Bingley Group in October 2004.In October 2004 the group acquired the net assets and trade of Bradford &Bingley Estate Agents (BBEA) including the lettings and retail financialservices operations. The fair values of identifiable net assets were assessedprovisionally pending the results of an independent valuation of dilapidationcosts in respect of leased properties. The result of the valuation has been anincrease in the provision for dilapidations of ‚£1,557,000 and a reduction ofthe consideration by ‚£1,499,000. There was also an adjustment to trade debtorsfor ‚£944,000, accruals ‚£195,000 and other debtors ‚£74,000, the petty cashbalances were reduced by ‚£28,000 and there has been a reallocation of deferredtax assets of ‚£30,000 to Securemove Property Services Limited. Carrying Fair values pre value acquisition ‚£'000 ‚£'000 Intangible assets - 47 Property, plant and equipment 5,840 5,355 Deferred tax assets - 1,331 Trade and other receivables 19,443 17,889 Cash and cash equivalents 28 - Trade and other payables (2,284) (4,087) Provisions - (2,555) ----- ----- Net assets acquired 23,027 17,980 ----- Goodwill 9,214 ----- Consideration paid 27,194 -----The intangible asset acquired at acquisition represented the pipeline of workin the hands of solicitors. Since the pipeline has a life less than fourmonths, it has been written off subsequent to the acquisition.At the same time, Countrywide plc acquired the entire issued ordinary sharecapital of Securemove Property Services Limited. The fair values of theidentifiable net assets were assessed provisionally pending the results of anindependent valuation of dilapidation costs in respect of leased properties.The result of the valuation has been an increase in the provision fordilapidations of ‚£43,000, a transfer of deferred tax assets from BBEA and areduction of the consideration by ‚£88,000. Carrying Fair values pre value acquisition ‚£'000 ‚£'000 Property, plant and equipment 1,839 1,565 Deferred tax assets - 186 Trade and other receivables 8,804 8,557 Trade and other payables (1,875) (1,875) Provisions - (145) ----- ----- Net assets acquired 8,768 8,288 Goodwill 8,767 ----- Consideration paid 17,055 -----11. Reconciliation of net assets and profit under UK GAAP to IFRSCountrywide plc reported under UK GAAP in its previously published financialstatements for the year ended 31 December 2004. The summary reconciliationbelow shows the profits and net assets reported under UK GAAP to the revisednet assets and profit under IFRS as reported in these financial statements:Results for the year ended Profit Taxation Profit31 December 2004 before after tax tax ‚£000 ‚£000 ‚£000 As previously reported under UK GAAP 40,274 (13,588) 26,686 IFRS revisions Pensions 859 (258) 601 Share based payments (515) (343) (858) Amortisation of goodwill and impairment (249) - (249) Lease incentives 80 (24) 56 Amortisation of intangible assets (199) - (199)(pipeline) Restatement of JV and associate tax, (224) 224 -net of tax ----- ----- ----- Continuing business results as reported 40,026 (13,989) 26,037under IFRS Discontinued operation under UK GAAP 2,377 (955) 1,422 Share based payments (3) - (3) ----- ----- ----- Discontinued operation under IFRS 2,374 (955) 1,419 Group profit for the year reported 42,400 (14,944) 27,456under IFRS ----- ----- ----- At 1 At 31 January December 2004 2004 ‚£000 ‚£000 Net assets/(liabilities) as reported 140,158 (12,288)under UK GAAP IFRS revisions Pensions deficit (12,787) (11,829) Lease incentives (561) (505) Post balance sheet events - dividends 15,517 7,625 Deferred taxation 1,279 936 Amortisation of goodwill and impairment - (249) Amortisation of intangible assets - (199)(pipeline) ----- ----- Net assets/(liabilities) as reported 143,606 (16,509)under IFRS ----- -----A full explanation of the above adjustments was given in the Interim Statement.It should be noted that the share based payment charge for 2004 was originallyreported at ‚£684,000. It has been subsequently adjusted because it wasconcluded that certain share options fell outside the scope of the standard andno adjustment was required in respect of these. The results of the jointventure operation have also been restated to reflect the audited IFRS financialstatements recently published. This has increased our share of profits by ‚£146,000 due to the reversal of goodwill amortisation.12. Forward looking statementsThis document may contain forward-looking statements with respect to certain ofthe plans and current goals and expectations relating to the future financialcondition, business performance and results of Countrywide plc. By theirnature, all forward looking statements involve risk and uncertainty becausethey relate to future events and circumstances that are beyond the control ofCountrywide plc including, amongst other things, UK domestic and globaleconomic and business conditions, market related risks such as fluctuations ininterest rates, inflation, deflation, the impact of competition, changes incustomer preferences, delays in implementing proposals, the timing, impact andother uncertainties of future acquisitions or other combinations withinrelevant industries, the policies and actions of regulatory authorities, theimpact of tax or other legislation and other regulations in the jurisdictionsin which Countrywide plc and its affiliates operate. As a result, Countrywideplc's actual future condition, business performance and results may differmaterially from the plans, goals and expectations expressed or implied in theseforward looking statements.13. Additional informationCopies of the Analyst Presentation slides and the corporate overview, whichprovide additional historical information, may be found on the group's website:www.countrywideplc.co.uk. ENDCOUNTRYWIDE PLCRelated Shares:
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