23rd Jun 2005 07:00
Crest Nicholson PLC23 June 2005 23rd June 2005 Interim Results Announcement Crest Nicholson PLC, the residential and mixed use development company, todayannounces interim results for the six months ended 30th April 2005. Financial highlights: • Turnover increased to £315.3m (2004: £283.0m) +11% • Operating profit (before exceptional costs) increased to £45.8m (2004: £41.7m) +10% • Pre-tax profit (before exceptional costs) increased to £38.0m (2004: 36.0m) + 6% • Earnings per share (before exceptional costs) increased to 22.8p (2004: 21.8p) + 5% • Exceptional costs of £2.1m re the approach from Heron Corporation • Pre-tax profit £35.9m (2004: £36.0m) • Proposed interim dividend of 4.2p (2004: 4.0p) + 5% • Net assets attributable to ordinary shares equivalent to 277p (2004: 241p) +15% Operational highlights: • Open market housing completions up 12% to 830 units (2004: 743) • Affordable housing units down 18% to 256 (2004: 312) • Housing turnover up 5% to £238.9m (2004: £226.8m) • Average selling price up 2% at £220,000 (2004: £215,000) • Land sales £32.9m (2004: £18.7m) • Commercial sales up 16% at £43.5m (2004: £37.5m) • Housing forward sales position increased slightly at £214.5m (October 2004 £201.1m) • Short term housing land bank increased to 15,138 units (2004: 14,700) - over 5 years supply • Development value of contracted short term housing and commercial land bank £3.3bn (2004: £3.2bn) • Strategic land bank of 12,022 plots (2004: 12,935 plots) of which we expect c.3,000 to convert to short term within 3 years. • Agreed pipeline of major urban regeneration projects at Oakgrove, Milton Keynes, Aylesbury Town Centre, Penarth Heights and Bath Western Riverside phases 2&3 with a development value of £0.7bn Commenting today John Callcutt, Chief Executive said: "We expect the housing market to continue to be challenging in the short term.However, the quality of our land bank, combined with the strength of ouraffordable and mixed-use commercial businesses, gives us confidence that we willmake further progress in 2005. We have invested significantly over the last few years to increase the value ofour current and strategic land and to create a new source of opportunitiesthrough developing a leading position in the growing urban regeneration market.Our contracted land banks and agreed urban regeneration pipeline projects have acombined development value of £4.54bn, of which we would expect around 50% to bedelivered by 2008. Even without securing additional land, and withoutcontributions from the strategic land bank beyond the first expected 3,000plots, this represents a significant future earnings stream." Enquiries to:Crest Nicholson PLC Brunswick Group LLPJohn Callcutt, Chief Executive Andrew FenwickStephen Stone, Chief Operating Officer Kate MillerPeter Darby, Finance Director 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 CHIEF EXECUTIVE'S STATEMENT RESULTS AND DIVIDEND Profit before tax and exceptional costs was £38.0m (2004: £36.0m) for the sixmonths to 30th April 2005, an increase of 5.5%. The exceptional costs of £2.1mrelate to professional fees in connection with the approach from HeronCorporation. The Directors are pleased to declare a 5% increase in the interim dividend to4.2p (2004: 4.0p) to be paid on 1st September 2005 to shareholders on theregister at the close of business on 5th August 2005. REVIEW OF OPERATIONS Housing The buoyant market in January and February has now been replaced by a steady andconsistent level of demand. The spring selling season taken as a whole wasshorter and less active than in the exceptionally strong opening months of 2004.The pre general election period was quiet and we have not seen a significantincrease in activity since then. In this market, we are pleased to have increased open market completions by 12%to 830 units (2004: 743 units), which is a very solid performance but we expectfull year open market volumes to be relatively flat. As anticipated, the numberof affordable units fell to 256 (2004: 312) leaving overall volumes up 3% at1,086 units (2004: 1,055 units). We expect to complete around 550 affordableunits for the full year before increasing again to over 700 in 2006. The average selling price was up 2% to £220k (2004: £215k). The average sellingprice of open market housing units was almost unchanged at £250k (2004: £251k),while the average selling price of affordable units was £123k (2004: £130k). Our housing forward sales position at the half year was increased slightly at£214.5m (October 2004 £201.1m) but was down on the exceptionally strong positionat April 2004 (£256.2m) reflecting slower sales rates. Our forward salesposition at 17 June 2005 is £271.2m (June 2004: £325m). Land Sales As part of our strategy, we assemble large sites and create substantial landvalue as we bring them through the planning process and into development.Crest's strength in land buying and planning enables us to secure a dependableflow of planning permissions, both for the Group to develop and for sale tothird parties. Sale of land is, and will continue to be, an integral part ofCrest's method of operation not only to generate cash but also to allow us toadjust our portfolio to changing market conditions. As planned, we increased first half housing land sales to £32.9m (2004: £18.7m).We would expect to make similar sales in the second half, but will respondflexibly to selling opportunities. Mixed Use Commercial Commercial property sales were up 16% to £43.5m (2004: £37.5m). The salesturnover relates principally to progress made in constructing offices and retailproperties at Bristol Harbourside, Park Central in Birmingham and Riverside inHemel Hempstead, which were contracted in 2004. In the half year, we sold ourlast remaining pure commercial development at Reigate for £6.9m at zero marginas anticipated. Commercial property sales for the full year are on track to show strong growthon the £68.6m achieved in 2004. Margins Gross margins were down 0.8% to 22.2% (2004: 23.0%) of which 0.5% isattributable to the Reigate sale mentioned above. The overhead percentage of sales has reduced by 0.7% to 7.6% (2004: 8.3%) due toturnover gains and strong overhead control. Operating margins (before exceptional costs) are down 0.2% to 14.5% (2004:14.7%). The Group operating margin is likely to come under further pressure in thesecond half for three reasons. First, mixed use commercial sales, which carry alower gross margin than housing, will be a bigger proportion of total sales inthe current year. Second, in the current market, we are using a normal level ofsales incentives and discounts and are not benefiting from net sales price gainsas in 2004. Third, modest levels of build cost inflation are not covered bysales price gains and reduce margins. The dilutive effect of these factors couldbe a reduction in operating margin of up to 1.0% in 2005 compared to 2004. Housing and Commercial Land Banks In the six months to April 2005, we acquired sites, including Bath WesternRiverside (Phase 1) and Camberley town centre, comprising 1,794 units (2004:2,549 units), with a projected development value of £360m (2004: £449m). Thestrength of our land bank has enabled us to adopt a more cautious land buyingstance in the six months to the end of April, but we have, opportunistically,completed the purchase of a major site in Stanmore at good margins and increasedour investment in urban regeneration through the acquisition of the Bath WesternRiverside Phase 1 land. Overall, we have increased the short term housing land bank which now stands at15,138 units (2004: 14,700 units) with a projected development value of £2.84bn(2004: £2.75bn), an increase of 3% over the twelve months. At the current levelof turnover, this land bank represents over 5 years' supply. The current commercial land bank covers over 100 acres for 1.95m square feet ofcommercial space with a development value of £0.46bn (2004: £0.47bn). Themajority of this relates to the mixed use schemes at Bristol Harbourside,Riverside in Hemel Hempstead, Park Central in Birmingham, Farnham and ChertseyNorth. In addition, we have a significant strategic land bank, including our 50%share of the 215 acre Chertsey South site. This gives a total development value for our short term land bank (housing andcommercial) of £3.3bn (2004: £3.2bn). Our housing strategic land bank consists of 700 acres controlling 12,022 plots(2004: 12,935 plots). Of these, we estimate that c.3,000 plots with adevelopment value of c.£500m have a high probability of conversion to short termwithin 3 years. We also have a pipeline of agreed urban regeneration projects at Oakgrove inMilton Keynes, Aylesbury Town Centre, Penarth Heights and Bath Western Riverside(Phases 2&3). While these are not yet contracted, they would add a further£0.74bn development value to the short term land bank. Shareholder Value We have invested significantly over the last few years to increase the value ofour current and strategic land and to create a new source of opportunitiesthrough developing a leading position in the growing urban regeneration market.In assessing our response to the approach from Heron Corporation, we haveconsidered carefully the earnings potential of the contracted land banks andagreed pipeline projects. The short term land bank (£3.3bn), the first expected3,000 strategic plots (£0.5bn) and the agreed urban regeneration pipelineprojects (£0.74bn) have a combined development value of £4.54bn of which wewould expect around 50% to be delivered and completed by the 2008 financial year. If one were to assume, for instance, an 11% pre-tax profit to sales and a 30%tax charge, these land opportunities, without any further additions, wouldrepresent about £0.35bn of future earnings. The present day value of thisearnings stream would vary according to investors' perception of discount rates,the rate of build and level of market risk but it is clear that, withoutsecuring additional land and without contributions from the strategic land bankbeyond the first 3,000 plots, the land bank and pipeline projects represent asignificant store of future value to be added to historic net assets of 277p pershare. Product Quality We have continued to receive awards for quality and service, gaining the toprating (3 stars) in all categories in MORI National Customer Service Surveys. We have received more awards from the Commission for Architecture and the BuiltEnvironment (CABE) than any other major housebuilder. With a further GoldStandard "Building for Life" award won for Park Central, Birmingham, we now havethree such awards recognising our contribution to design excellence. These achievements clearly promote Crest's brand awareness with the house buyingpublic and land owners. FINANCIAL POSITION Shareholders' funds increased 13.9% to £348.6m (2004: £306.1m). The net assetsattributable to the ordinary shares are equivalent to 277p per share compared to241p per share at April 2004, an increase of 14.9%. Net borrowings of £219.5m represented gearing of 63% of shareholders funds(2004: 59%) which is in line with our normal gearing policy. Average borrowingswere £235.1m (2004: £165.2m) The Group has negotiated a 33% reduction in the margins on its five yearRevolving Credit Facility and increased it by £30m to £255m. This, together withthe £120m US Private Placement and overdraft facilities, means the Group hastotal borrowing facilities available of £380m (2004: £352m). Net interest costs at £7.8m (2004: £5.7m) reflect the increase in averageborrowings. Interest cover has reduced to 5.6 times, compared with 7.3 times in2004. We adopt International Financial Reporting Standards on 1st November 2005 and animplementation plan is being prepared to give effect to those standards. PROSPECTS We expect the housing market to continue to be stable but challenging in theshort term. Volume objectives will be more difficult to achieve until purchaserconfidence in the housing market improves. However, the quality of the housingland bank, combined with the strength of our affordable and mixed use commercialbusinesses, gives us confidence that we will make further progress in 2005.In the medium term, the fundamentals of the housing market remain attractive,underpinned by continuing supply shortages, low interest rates and goodemployment prospects, particularly in the southern half of the country where weoperate. Our track record and growing reputation for sustainable redevelopment is evidentin the increasing flow of secured and agreed urban regeneration projects, whichwill further enhance earnings potential for all shareholders in the medium term. STATEMENT OF RESULTS Unaudited Group results for the Half Year to 30th April 2005 Half Year Half Year Full Year 2005 2004 2004 £m £m £m Turnover - including joint ventures 315.3 283.0 643.2 Less: attributable to joint ventures (4.6) (5.0) (12.0) -------- -------- --------Turnover - Group companies 310.7 278.0 631.2 ======== ======== ======== Operating profit before exceptional costs 45.2 40.8 92.9Exceptional administrative costs - seeNote 1 (2.1) - - -------- -------- --------Operating profit - Group companies 43.1 40.8 92.9Operating profit of joint ventures 0.6 0.9 2.0 -------- -------- --------Operating profit including joint ventures 43.7 41.7 94.9 Net interest payable (7.8) (5.7) (12.8) -------- -------- --------Profit before taxation 35.9 36.0 82.1Estimated taxation - Note 2 (10.9) (10.8) (25.1) -------- -------- --------Profit after taxation 25.0 25.2 57.0Preference dividends (1.0) (1.0) (2.1) -------- -------- --------Profit attributable to ordinaryshareholders 24.0 24.2 54.9 Ordinary dividends (4.7) (4.5) (13.7) -------- -------- --------Retained profit 19.3 19.7 41.2 ======== ======== ======== Earnings per 10p ordinary share - Note 3Basic - before exceptional costs 22.8p 21.8p 49.4pBasic 21.5p 21.8p 49.4pDiluted 21.3p 21.6p 49.0p Dividends per 10p ordinary share 4.2p 4.0p 12.3p There are no recognised gains or losses other than those shown above. SUMMARY BALANCE SHEET Unaudited Consolidated Balance Sheet as at 30th April 2005 April April October 2005 2004 2004 Restated £m £m £mFixed assetsTangible assets 2.7 2.4 2.5Investments 20.1 22.1 21.2 -------- -------- -------- 22.8 24.5 23.7 -------- -------- --------Current assets/liabilitiesStocks 786.0 735.8 771.9Debtors 210.6 176.2 239.4Creditors (301.0) (265.5) (301.2)Net (short term borrowings)/cash in hand (2.4) 20.8 7.7 -------- -------- --------Net current assets 693.2 667.3 717.8 -------- -------- --------Total assets less current liabilities 716.0 691.8 741.5 Creditors falling due after morethan one yearBank and other loans (217.1) (200.0) (186.1)Other creditors and provisions (150.3) (185.7) (227.0) -------- -------- -------- (367.4) (385.7) (413.1) -------- -------- --------Net Assets represented by Shareholders' funds -Note 4 348.6 306.1 328.4 ======== ======== ======== Net borrowings 219.5 179.2 178.4 Gearing 63% 59% 54% Net assets per ordinary share - Note 5 277p 241p 260p SUMMARY CASH FLOW STATEMENT Unaudited Consolidated Cash Flow Statement for the Half Year to 30th April 2005 Half Year Half Year Full Year 2005 2004 2004 £m £m £m Net cash outflow from operatingactivities (12.8) (68.5) (41.6) Dividend received from joint venture - - 1.4 Returns on investments and servicing offinanceInterest received 0.1 0.3 0.4Interest paid (7.3) (5.6) (12.8)Preference dividends paid (1.0) (1.0) (2.1) -------- -------- -------- (8.2) (6.3) (14.5) -------- -------- -------- Taxation paid (12.3) (12.9) (24.9) Capital expenditure and financialinvestment 0.9 (1.8) (7.4) Acquisitions and disposals - - 2.3 Equity dividends paid (9.3) (8.4) (12.8) -------- -------- --------Net cash flow before financing (41.7) (97.9) (97.5) FinancingShare issues 0.6 0.6 1.0Increase in bank and other loans 31.0 64.9 51.0 -------- -------- -------- 31.6 65.5 52.0 -------- -------- --------Decrease in cash (10.1) (32.4) (45.5) ======== ======== ======== NOTES 1 Basis of presentation The summarised half year financial information is unaudited and does not constitute full accounts. The accounting policies are as stated in the last Annual Report. The balance sheet for the 2004 half year has been restated to reflect the change in accounting for ESOP Trusts as disclosed in the 2004 Annual Report, the effect of which has been to increase shareholders' funds by £0.3m. The exceptional costs consist of professional fees incurred in connection with the approach the Company received from Heron Corporation. The figures for 31st October 2004 are not the Company's statutory accounts but the information has been extracted from statutory accounts which have been reported on by the auditors and filed with the Registrar of Companies. The report of the auditors was unqualified and did not contain a statement under Section 237(2) or (4) of the Companies Act 1985. 2 Taxation Half Year Half Year Full Year 2005 2004 2004 £m £m £m Corporation tax charge at 30% (10.7) (10.5) (24.5) Joint venture undertakings (0.2) (0.3) (0.6) -------- ------- ------- (10.9) (10.8) (25.1) ======== ======= ======= 3 Earnings per share Basic earnings per share are calculated on the profit attributable to ordinary shareholders of £24.0m (2004: £24.2m) on a weighted average of 111.7m (2004: 110.8m) ordinary shares in issue during the six months. Diluted earnings per share are calculated on the profit attributable to ordinary shareholders of £24.0m (2004: £24.2m) on a weighted average of 112.6m (2004: 111.8m) ordinary shares on the basis that 2.3m (2004: 2.5m) share options had been exercised. 4 Reconciliation of shareholders' funds Half Year Half Year Full Year 2005 2004 2004 Restated £m £m £m Retained profit 19.3 19.7 41.2 Net proceeds from share issues 0.6 0.6 1.0 Purchase of shares for ESOT - (0.4) (0.4) Cost of employee share schemes 0.3 0.4 0.8 -------- ------- ------- Net increase in shareholders' funds 20.2 20.3 42.6 Opening shareholders' funds 328.4 285.8 285.8 -------- ------- ------- Closing shareholders' funds 348.6 306.1 328.4 ======== ======= ======= 5 Net assets per share Net assets per ordinary share is calculated on net assets of £310.6m (2004: £268.1m), after deducting the preference capital of £38.0m (2004: £38.0m) from the capital and reserves, on 111.9m (2004: 111.2m) ordinary shares in issue at 30th April 2005. 6 Interim Statement The Interim Statement for the half year will be sent to all shareholders and copies will also be available from Crest House, 39 Thames Street, Weybridge, Surrey KT13 8JL, the Company's Registered Office. 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