25th Jan 2006 07:01
Crest Nicholson PLC25 January 2006 25th January 2006 Preliminary Results Announcement Crest Nicholson PLC, the residential and mixed use development company, todayannounces results for the year ended 31st October 2005. Financial highlights: % increase • Turnover increased to £714.3m (2004: £643.2m) +11%• Operating profit (before exceptional costs) increased to £97.0m (2004: £94.9m) +2%• Profit before tax (before exceptional costs) of £81.3m (2004: £82.1m) -1%• Earnings per share (before exceptional costs) of 48.9p (2004: 49.4p) -1%• Profit before tax (after exceptional costs) £79.2m (2004: £82.1m) -3%• Earnings per share (after exceptional costs) of 47.0p (2004: 49.4p) -5%• Proposed final dividend of 8.7p, making a total for the year of 12.9p (2004: 12.3p) +5%• Net assets attributable to ordinary shares equivalent to 294p (2004: 260p) +13% Operational highlights: • Open market housing units sold up 3% to 1,865 (2004: 1,812)• Affordable housing units sold down 13% to 621 (2004: 712)• Housing turnover up 3% to £545.9m (2004: £529.9m)• Average selling price up 5% to £220,000 (2004: £210,000) due to sales mix• Land sales similar to 2003 at £75.6m (2004: £44.7m)• Commercial sales on mixed use projects up 35% to £92.8m (2004: £68.6m)• Short term housing land bank 14,945 units (2004: 15,060) - 5 years' supply• Housing forward sales currently represent over 50% of 2006 target• Business improvement initiative launched targeting £10m cost savings per annum by 2008 Commenting today Stephen Stone, Chief Executive, said: "Our strong performance in 2005 demonstrates the resilience and flexibility ofour business mix in challenging market conditions. We are particularly excitedby our progress in mixed use and urban regeneration which we expect to be keycomponents in the Group's future earnings growth. In addition, we have initiateda business improvement programme in order to maximise returns and we expect todeliver £10m of cost savings per annum by 2008. "Our strong current forward order position and legal completions to daterepresent over 50% of our targeted housing sales for 2006. While it is too earlyto predict the outcome for 2006, early signs of an improving market,particularly in the South East, make us cautiously optimistic." Enquiries to:Crest Nicholson PLC Brunswick Group LLPStephen Stone, Chief Executive Andrew FenwickPeter Darby, Finance Director Kate Miller Robert GardenerTel: 020 7404 5959 (on day of announcement) Tel: 020 7404 5959Tel: 01932 847272 (thereafter) The analyst presentation will be available on the Company's web sitewww.crestnicholson.com from 9.30am ANNUAL REVIEW Results We are delighted to report another strong set of results for Crest Nicholson PLCwhich was achieved in challenging market conditions. Our mix of businesscombined with the strength of our land bank enabled us to perform resilientlythroughout the year. Turnover was up 11% to £714.3m (2004: £643.2m). 2005 was a record year forCrest's operating profit which was up 2% before exceptional costs to £97.0m(2004: £94.9m). Profit before tax and exceptional costs was down 1% to £81.3m (2004: £82.1m).The exceptional costs of £2.1m relate to professional fees in connection withthe abortive approach from Heron Corporation incurred in the first half of 2005.Profit before tax after exceptional items was £79.2m (2004: £82.1m). TradingHousing Against a background of more challenging market conditions, open market housingcompletions were up 3% to 1,865 (2004: 1,812), slightly higher than we predictedat the interim stage. As expected, completions of affordable units sold to housing associations werelower at 621 (2004: 712) because of a temporary dip in the contracted programme.However, this comfortably exceeded our expectation at the interim stage ofaround 550 units because of improved rates of production in the second half. Open market and affordable housing completions in total were down 1.5% at 2,486units (2004: 2,524 units) The average selling price rose by 5% to £220k (2004: £210k) due to sales mixchanges. The open market average selling price was virtually unchanged at £245k(2004: £244k) while the average selling price of affordable units increased by15% to £142k (2004: £123k). In our year end trading statement issued in November 2005 we announced that,with effect from 2006, revenue on housing units will be recognised upon legalcompletion rather than on exchange of contracts and build completion as in 2005.We see significant operational and cash flow advantages in bringing the revenuerecognition point into line with cash collection and this change also bringsCrest into line with its peer group. Changing the revenue recognition point from build completion to legal completionhas a significant effect on the restated 2005 comparatives because of an unusualbunching of apartments at the end of 2004 which legally completed in early 2005: Half Year 2005 Full Year 2005Build completion (existing basis) Open market 830 1,865 Affordable 256 621 Total units 1,086 2,486 Legal completion (new basis) Open market 1,057 1,997 Affordable 300 457 Total units 1,357 2,454 Looking forward to 2006, we would not expect to match the restated open marketunit completions in the first half of the year because of the abnormal bunchingof apartment completions referred to above but would expect open market unitcompletions for the full year to be similar to the restated 2005 level of 1,997.We would expect a doubling of affordable unit completions to around 900 units. Our housing forward sales position at the year end was 13% up at £227.9m (2004:£201.1m). Upon restatement to legal completion, forward sales at October 2005rise to £389.6m (2004: £387.4m). Our current forward sales position and legalcompletions to date represent over 50% of the 2006 target. Land Sales Land sales continue to be an integral part of Crest's method of operation as ourstrength in land buying and planning enables us to secure more developable landthan we need for our own production requirements. As planned, the land sale programme for 2005 exceeded 2004 levels and wassimilar to that achieved in 2003. Land sales were £75.6m (2004: £44.7m, 2003:£74.0m). Demand for housing land remains good and, provided that our price expectationsare met, we would expect the 2006 land sale programme to be similar to 2005. Mixed Use Commercial As anticipated, commercial property sales from our mixed use schemes grewstrongly and ended the year up 35% at £92.8m (2004: £68.6m). The revenueincrease reflects construction progress on offices and retail properties atBristol Harbourside and Riverside, Hemel Hempstead. Looking forward to 2006, we expect to finish Riverside, Hemel Hempstead and tobring through the first revenues from our urban regeneration scheme inCamberley. Overall commercial property sales in 2006 are likely to be similar to2005. Margins Gross margins were down 1.7% to 20.7% (2004: 22.4%) for 3 reasons. First, mixeduse commercial sales, which carry a lower gross margin than housing, grewstrongly and formed a larger proportion of total sales in 2005 than in 2004. Second, we increased the use of sales incentives to maintain volume. Third, modest levels of build cost inflation reduced margin. The overhead percentage of sales improved to 7.1% (2004: 7.6%) due to turnovergains and strong overhead control. Operating margins (before exceptional costs) were therefore 13.6% (2004: 14.8%). Housing and Commercial Portfolios Our strong land bank and agreed pipeline of urban regeneration projects enabledus to adopt a more selective land buying stance in 2005 and we secured shortterm land with a projected development value of £750m (2004: £883m). The short term housing portfolio remains strong at 14,945 plots (2004: 15,060plots) with a projected development value of £2.76bn (2004: £2.89bn). At thecurrent level of turnover the short term housing portfolio represents 5 years'supply. Our housing strategic land bank consists of 12,181 plots (2004: 13,182 plots).In 2005 we converted 495 plots from the strategic to the short term portfolioand the prospects for bringing more through in 2006 remain good. The current mixed use commercial land portfolio amounts to 1.62m square feet(2004: 1.83m square feet) with a development value of £450m (2004: £418m). Themajority of this relates to the mixed use schemes at Bristol Harbourside;Farnham; Camberley; and Chertsey North. These housing and commercial statistics now include urban regeneration projectscontracted in the year at Bath Western Riverside (Phase 1) and Camberley. In addition to the contracted housing and commercial land bank shown above,there is a pipeline of agreed but not contracted regeneration projects atOakgrove, Milton Keynes; Penarth Heights; and later phases of Bath WesternRiverside. The agreed pipeline at October 2005 represents a further £540m offuture development value. Since the 2005 year end, Oakgrove, Milton Keynes hascontracted and our 50% share of this 2,000 unit project has moved to the shortterm housing portfolio. Financial Position Shareholders funds increased by £39m or 12% to £367.4m. The net assetsattributable to the ordinary shares are equivalent to 294p per share comparedwith 260p at October 2004, an increase of 13%. The Group's capital employed of £527.4m has increased by £20.6m and the returnon average capital employed is 18.4% compared to 21.7% in 2004. The Group has negotiated a 33% reduction in the margins paid on its five yearRevolving Credit Facility and increased it by £30m to £255m. This, together withthe £120m US Private Placement and overdraft facilities, means that the Groupnow has total borrowing facilities available of £380m (2004: £352m). 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. Changes of Accounting Policy and adoption of IFRS As noted above, with effect for 2006, revenue on housing units will berecognised upon legal completion rather than on build completion as in 2005. Ifthis change had been adopted in 2005, profits before tax would have been £11.2mhigher because of the unusually high numbers of apartments which were exchangedand build complete at the 2004 year end but were not legally completed until2005. Crest is also implementing International Financial Reporting Standards (IFRS)for the 2006 financial year. The impact of these changes of accounting policy will be finalised and reportedin full in February. Their anticipated effect is summarised below: £mProfit before tax after exceptional costs per UK GAAP 79.2Net increase in cost of sales arising principally from expensing sales andmarketing (4.7)Preference dividend reclassified as finance cost (2.1)Net impact of discounting deferred payments (principally land creditors) (2.7)Other (2.0) -----Profit before tax restated for IFRS 67.7Housing gain arising from change to legal completion 11.2 -----Profit before tax restated for IFRS and change to legal completion 78.9 ----- The combined effect of accounting policy changes on capital and reserves issummarised below: £mCapital and reserves per UK GAAP 367.4Preference capital (repaid on 2 November 2005) (38.0) -----Equity and reserves 329.4Pension fund deficit (26.1)Reduction in stock (principally sales and marketing costs expensed) (12.0)Final dividend not accrued 9.8Other revenue recognition deferrals (7.8)Deferred payments and currency swaps (4.2) -----Equity and reserves restated to IFRS 289.1Deferred profit on change to legal completion (23.0) -----Equity and reserves restated for IFRS and change to legal completion 266.1 ----- In addition, Crest will bring its accounting policy for recognising land stockand land creditors into line with the peer group. This change has no impact onnet asset value. Dividend We are recommending a final dividend of 8.7p per share. This will give a totalfor the year of 12.9p, up 5% (2004: 12.3p). The dividend will be covered 3.6times (2004: 4.0 times). The final dividend will be paid on 12 April 2006 toshareholders on the register at 24 March 2006. Board Changes In September 2005, we announced the retirement of John Callcutt as ChiefExecutive Officer (CEO) and his appointment as Non-Executive Deputy Chairmanwith effect from 1 November 2005. In this role, John will continue to promotethe Company's expertise in sustainable development and to develop our urbanregeneration strategy. Stephen Stone was promoted to CEO with effect from 1November 2005. Awards The Company's significant contribution to urban regeneration was recognised atthe annual Building Regeneration Awards in December 2005 where Crest receivedthe awards for the Regeneration Developer of the year, the RegenerationPartnership of the year and Regeneration Housebuilder of the year. This triplesuccess further underpins Crest's reputation for excellence in the urbanregeneration field and should help create further opportunities for the Group inthis important market. Business Development and Improvement Crest is now recognised as a market leader in urban regeneration and we intendto build on this base. We have the capability to design and manage large scalesustainable developments in an urban environment and have established areputation for successful delivery. Establishing our leading position in urban regeneration has required significantinvestment both in product and overhead. We have tested a wide range of designsand built up skills to deliver solutions which meet local and national planningand design objectives. We are now working to extract maximum benefit from thisinvestment and to eliminate cost through the simplification of our product rangeand by focusing on proven designs and construction methods. Our aim is to drive up operating margins through a range of cost reductioninitiatives, both in relation to urban regeneration projects and elsewhere inthe business. To this end, business improvement workgroups have been set up foreach function of our business, and these are chaired by an operating unitmanaging director. The role of these workgroups is to deliver bottom line gainsthrough targeted savings. We are targeting annualised reductions in our productand overhead cost base of £10m by 2008. We expect this process to enhance futureshareholder returns by improving cost effectiveness whilst maintaining theexcellence of our product. Bringing large scale regeneration projects into production is a lengthy process,but the Group will begin to see an increasing contribution from these schemes in2007 and later years. Outlook Our strong performance in 2005 demonstrates the resilience and flexibility ofour business mix in challenging market conditions. We are particularly excitedby our progress in mixed use and urban regeneration which we expect to be keycomponents in the Group's future earnings growth. In addition, we have initiateda business improvement programme in order to maximise returns and we expect todeliver £10m of cost savings per annum by 2008. Our strong current forward order position and legal completions to daterepresent over 50% of our targeted housing sales for 2006. While it is too earlyto predict the outcome for 2006, early signs of an improving market,particularly in the South East, make us cautiously optimistic. STATEMENT OF RESULTS for the year ended 31st October 2005 2005 2004 £m £m £m £mTurnover - including joint ventures 714.3 643.2Less: attributable to joint ventures (12.6) (12.0) ------ ------Group turnover 701.7 631.2Cost of sales (555.3) (489.3) ------ ------Gross profit 146.4 141.9Operating costsExceptional costs (Note 1) (2.1) -Other costs (51.0) (53.1) (49.0) (49.0) ------ ------ ------ ------Group operating profit 93.3 92.9Operating profit of joint ventures 1.6 2.0 ------ ------Operating profit - including jointventures 94.9 94.9Net interest payable (15.7) (12.8) ------ ------Profit before taxation 79.2 82.1Taxation (24.5) (25.1) ------ ------Profit for the financial year 54.7 57.0Preference dividends (2.1) (2.1) ------ ------Profit attributable to ordinaryshareholders 52.6 54.9Ordinary dividends (14.5) (13.7) ------ ------Retained profit 38.1 41.2 ====== ====== Earnings per share (Note 2)Basic - before exceptional costs 48.9p 49.4pBasic 47.0p 49.4pDiluted 46.7p 49.0p Dividends per share 12.9p 12.3p CONSOLIDATED BALANCE SHEET At 31st October 2005 2005 2004 £m £m £m £mFixed assetsTangible assets 2.5 2.5Investments in joint ventures 41.2 21.2 -------- ------- 43.7 23.7Current assetsStocks 640.1 771.9Debtors 223.2 239.4Cash at bank and in hand 57.0 10.9 -------- ------- 920.3 1,022.2Creditors: amounts falling duewithin one year (295.6) (304.4) -------- -------Net current assets 624.7 717.8 -------- -------Total assets less current liabilities 668.4 741.5 Creditors: amounts falling dueafter more than one year (297.8) (411.4)Provisions for liabilities and charges (3.2) (1.7) -------- ------- (301.0) (413.1) -------- -------Net assets 367.4 328.4 ======== =======Shareholders' funds (Note 3) 367.4 328.4 ======== ======= Net borrowings 160.0 178.4 Gearing 44% 54% Net assets per ordinary share (Note 4) 294p 260p Consolidated Cash Flow Statement For the year ended 31st October 2005 2005 2004 £m £m £m £mNet cash inflow/(outflow) from operatingactivities 93.1 (41.6) Dividend received from joint venture 0.1 1.4 Returns on investments and servicing offinanceInterest received 0.4 0.4Interest paid (15.9) (12.8)Preference dividends paid (2.1) (2.1) ------ ------Net cash outflow from returns oninvestments (17.6) (14.5)and servicing of finance TaxationCorporation tax paid (24.1) (24.9) Capital expenditure and financialinvestmentTangible fixed assets acquired (1.0) (1.3)Other fixed asset investment loan advances (24.5) (8.8)Other fixed asset investment loan 5.6 3.1repayments ------ ------Net cash outflow from capital expenditureand financial investment (19.9) (7.0) Acquisitions and disposalsDisposal of subsidiary companies - 2.3 Equity dividends paid (14.0) (12.8) ------ ------Net cash inflow/(outflow) before financing 17.6 (97.1) FinancingProceeds from equity share issues 0.8 1.0Acquisition of own shares for ESOP Trust - (0.4)Increase in bank loan and loan notes 18.0 51.0 ------ ------Net cash inflow from financing 18.8 51.6 ------ ------Increase/(decrease) in cash in year 36.4 (45.5) ====== ====== NOTES 1 Exceptional Costs The exceptional costs consist of professional fees incurred in connection withthe approach the Company received from Heron Corporation. 2 Earnings per share Earnings per share are calculated on the profit attributable to ordinaryshareholders of £52.6m (2004: £54.9m), on a weighted average of 111,852,392(2004: 111,043,698) ordinary shares in issue during the year. Earnings per sharebefore exceptional costs are calculated on the profit attributable to ordinaryshareholders before exceptional costs of £54.7m (2004: £54.9m). Diluted earnings per share are calculated on the profit attributable to ordinaryshareholders of £52.6m (2004: £54.9m), on a weighted average of 112,700,749(2004: 112,042,818) ordinary shares on the basis that 2,282,232 (2004:2,555,643) share options had been exercised. 3 Reconciliation of shareholders' funds 2005 2004 £m £m Retained profit 38.1 41.2Net proceeds from share issues 0.8 1.0Employee Share Ownership Trust movements 0.1 0.4 -------- --------Net increase in shareholders' funds 39.0 42.6Opening shareholders' funds 328.4 285.8 -------- --------Closing shareholders' funds 367.4 328.4 ======== ======== 4 Net assets per share Net assets per ordinary share is calculated on net assets of £329.4m (2004:£290.4m), after deducting the preference capital of £38.0m (2004: £38.0m) fromthe capital and reserves, on 112,128,638 (2004: 111,395,562) ordinary shares inissue and ranking for full dividends at 31st October 2005. 5 Statutory accounts The financial information set out above does not constitute the Company'sstatutory accounts for the years ended 31st October 2005 or 2004 but is derivedfrom those accounts. Statutory accounts for 2004 have been delivered to theRegistrar of Companies, whereas those for 2005 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. 6 Annual General Meeting The Annual General Meeting will be held at the Runnymede Hotel, Windsor Road,Egham, Surrey on Friday, 7th April at 12.00 noon. FIVE YEAR RECORD 2001 2002 2003 2004 2005Turnover (including joint ventures) £m £m £m £m £m-------------------------Development 392.9 515.5 550.5 643.2 714.3Construction - discontinued 193.2 180.9 23.9 - - -------- -------- -------- -------- -------- 586.1 696.4 574.4 643.2 714.3 -------- -------- -------- -------- -------- Operating profit (including joint ventures) £m £m £m £m £m--------------------------Development 59.6 79.2 87.3 94.9 94.9Construction - discontinued 1.2 (3.4) - - - -------- -------- -------- -------- -------- 60.8 75.8 87.3 94.9 94.9 -------- -------- -------- -------- --------Operating margin -development 15.2% 15.4% 15.9% 14.8% 13.3% Pre-tax profit £m £m £m £m £m----------------Development 49.3 66.3 74.6 82.1 79.2Construction - discontinued 1.2 (3.3) - - - -------- -------- -------- -------- -------- 50.5 63.0 74.6 82.1 79.2 -------- -------- -------- -------- -------- Housing---------Houses sold 1,543 1,899 1,936 2,524 2,486Average selling price £186,700 £225,100 £239,300 £210,000 £219,600Land bank - Short term(units) 10,424 10,760 13,204 15,060 14,945Average selling price £185,800 £197,600 £187,900 £192,200 £184,500Land bank - Strategic(units) 11,862 13,735 13,236 13,182 12,181 Balance sheet £m £m £m £m £m---------------Shareholders' funds 214.0 247.1 285.8 328.4 367.4Net borrowings 102.5 131.8 81.9 178.4 160.0 -------- -------- -------- -------- --------Capital employed 316.5 378.9 367.7 506.8 527.4 -------- -------- -------- -------- --------Gearing 48% 53% 29% 54% 44%Return on shareholders'funds (average) 25.1% 27.3% 28.0% 26.7% 22.8%Return on capitalemployed (average) 20.8% 21.8% 23.4% 21.7% 18.4% Ordinary shares-----------------Earnings per share 30.8p 38.8p 45.2p 49.4p 47.0pDividends per share 8.00p 9.50p 11.0p 12.3p 12.9pDividend cover 3.8x 4.1x 4.1x 4.0x 3.6xNet tangible assets pershare 164p 192p 224p 260p 294p Note: The figures for 2001 have been restated to reflect the change in incomerecognition policy in 2002. The figures for 2003 have been restated for theeffect of UITF38 - Accounting for ESOP Trusts. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Crest Nicholson