8th Dec 2006 07:01
Berkeley Group Holdings (The) PLC08 December 2006 The Berkeley Group Holdings plc PRESS RELEASE INTERIM RESULTS ANNOUNCEMENT 2006 B SHARE OF £2 PER SHARE APPROVED FOR PAYMENT ON 8TH JANUARY 2007 AT A COST OF £242 MILLION ACQUIRED REMAINING 50% OF ST JAMES FOR £97.5 MILLION ON 7TH NOVEMBER ESTABLISHED ST EDWARD HOMES, A 50:50 JOINT VENTURE WITH PRUDENTIAL The Berkeley Group Holdings plc ("Berkeley" or the "Group") - the urbanregenerator and residential property developer - announces its unaudited interimresults for the six months ended 31st October 2006. Highlights of the resultsinclude: • Return of Capital 2006 B share of £2 per share approved for payment on 8th January 2007. Further payments scheduled for January 2009 (£2 per share) and January 2011 (£3 per share) • Net Cash £322.0 million net cash up from £220.6 million at the year -end (30th April 2006) - an increase of £101.4 million • Net Asset Value Per Share Up 8.0% from 697 pence at the year-end to 753 pence • Land Holdings 26,633 plots in the Group - up from 23,819 at the year-end • Forward Order Book £568.5 million compared to £581.9 million for the Group at the year-end October 2006 October 2005 £'million £'million (unaudited) (unaudited) __________ __________Continuing OperationsGroup Revenue 381.2 503.1 -24.2% __________ __________Operating Profit 70.4 89.2 -21.1%Net Finance Income / (Costs) 5.0 (5.8)Joint Ventures (after tax) 6.1 2.6 +134.6% __________ __________Profit Before Tax 81.5 86.0 -5.2%Tax (21.6) (24.4) __________ __________Profit After Tax 59.9 61.6 -2.8%Profit from Discontinued Operations - 80.8 __________ __________Profit for the Financial Period 59.9 142.4 ========== ========== EPS - Basic 49.8p 118.7p -58.0%EPS - Continuing 49.8p 51.4p -3.1%ROCE (excluding profit on disposal) 26.3% 24.0% Commenting on the results, Managing Director, A. W. Pidgley said: "I am delighted to report another set of strong results which are a consequenceof Berkeley's continuing and determined drive to ensure that its product andtalent are focused correctly to take advantage of the prevailing marketconditions. In the first half we have undoubtedly enjoyed a strong sales market. Berkeleyhas thrived in an environment where relentless attention to detail and qualityin every aspect of its business, from design, through the development process,to sales and marketing, is the key to unlocking real value. Our unique operatingmodel allows us to not only seize the short term opportunities presented by themarket, but also recognises that we operate in a cyclical industry and so givesus the flexibility to drive the business forward under a long-term strategy. This strategy aligns the interests of our people, our customers and ourshareholders and I am delighted that the 2006 B share payment of £2 per sharehas been approved for payment at the beginning of January 2006. This is thesecond payment under the Scheme of Arrangement that was put in place as part ofthe Group's strategy in 2004. I am also delighted that we received shareholder approval to acquire theremaining 50% in St James from RWE Thames Water plc on 7th November. Established10 years ago, St James represented a visionary approach to land development andwhilst I am sad that the relationship with Thames has ended, it is pleasing thatPrudential has chosen Berkeley as its residential development partner to createSt Edward Homes, along similar lines. Prudential's financial strength andcommercial development expertise, working in combination with Berkeley's passionand talent for creating sustainable new communities, is an inspiring prospect. This has all contributed to Berkeley strengthening its unrivalled land bankwhich has been built up over the last 10 years to 26,633 plots, an increase ofover 2,500 plots in the period, with the capacity to strengthen further in thefuture. Such a strong performance is only possible through the exceptional contributionof Berkeley's people who continue to produce outstanding results in anincreasingly complex business and I would like to take this opportunity toacknowledge this and thank each and every one of them." Roger Lewis, Chairman said: "The housing market has been favourable in the period with Berkeley experiencingsales price increases across our sites, which are focused in London and theSouth-East. This is as a result of London's standing as a World City andfinancial centre, along with the continuation of limited supply, strongemployment, forecast economic growth and historically low interest rates. It has been a busy period for Berkeley with planning applications submitted onexisting sites, and a number of new acquisitions flowing from partnerships withlocal authorities and our joint ventures with Thames Water and Prudential. Berkeley has secured a number of new or additional consents in the period,notably at The Warren in Woolwich, St George Wharf in Vauxhall, Queen Mary'sHospital in Roehampton and Fleet in Hampshire. Planning consents are invariably taking over a year to achieve and, in manycases, over two years. This is despite the good intentions of centralGovernment, the Greater London Authority and those local authorities with thevision to see the community benefits of regeneration. There are two principalreasons for this: the steadily increasing number of parties with whomconsultation is required or necessary; and the need to adapt to evolvingregulations, be they related to planning, subsidised housing or energyefficiency. We accept this situation, but it does slow the planning process and,in a number of cases, consents are secured only at appeal." Results Berkeley is delighted to announce a pre-tax profit of £81.5 million for the sixmonths ended 31st October 2006 from its continuing operations. This is £4.5million less than the £86.0 million reported for the same period last year, areduction of 5.2%. For the full year ended 30th April 2006, Berkeley reported52% of its pre-tax profits in the first half of the year. In 2006/07 we expectthis profile to reverse as the second half of the year will include the resultsof 100% of St James, following the acquisition of the 50% not already owned byBerkeley on 7th November 2006. Profit from discontinued operations of £80.8 million in the first half of 2005/06 related to Crosby which was sold to Lend Lease on 8th July 2005. Basic earnings per share from continuing operations totals 49.8 pence, adecrease of 3.1% on the 51.4 pence reported for the same period last year. Ifdiscontinued operations are included, the basic earnings per share figure of49.8 pence compares to 118.7 pence last time, a fall of 58.0%. Since the year-end, total equity has increased by £70.0 million to £907.2million(April 2006 - £837.2 million) and net assets per share by 8.0% from 697 pence to753 pence. Return on Capital Employed for the period was 26.3% compared to 24.0% last time,excluding the profit on disposal of Crosby. At 31st October 2006, Berkeley had net cash balances of £322.0 million (April2005 - £220.6 million) after generating £101.4 million of cash flow in the sixmonths. Berkeley held forward sales of £568.5 million at 31st October 2006. This is asimilar level to the year-end position of £581.9 million and is at a levelcommensurate with the ongoing business profile and in line with the Group'sstrategy in which forward sales remain a key component. Selling homes at anearly stage in the development cycle, often at the off-plan stage, securescustomers' commitment and ensures the quality and certainty of future revenue. Scheme of Arrangement and 2006 B Share Payment The Scheme of Arrangement and The Berkeley Group Holdings plc reduction ofcapital were approved by shareholders on 17th September 2004 and by the Court atthe end of October 2004. The Scheme of Arrangement created a Berkeley Unitcomprising one ordinary share and four redeemable B shares, facilitating theproposed payment to shareholders of £12 per share by January 2011. The 2004 Bshares were redeemed on 3rd December 2004 for £5 a share at a cost to Berkeleyof £604.1 million. The Board of Berkeley is delighted to confirm that it has approved theredemption of the 2006 B shares to take place on 8th January 2007 for £2 ashare, five business days after the record date of 29th December 2006. The costto Berkeley of this redemption will be £242 million, bringing the total value ofB shares redeemed (including the 2004 B shares) to £846 million. Since 1st May2004, the time of the strategic review that led to the Scheme of Arrangement,Berkeley has generated some £819 million of cash before payments toshareholders, so demonstrating the underlying strength of the Group and itsability to generate cash and meet its strategic objectives. The redemptions of the two remaining tranches of B shares are scheduled forJanuary 2009 and January 2011 for amounts of £2 and £3 a share respectively,subject to the necessary Board approvals and the terms set out in the Scheme ofArrangement shareholder circular. Housing Market The housing market in Berkeley's core region of London and the South-East hasbeen favourable over the six months ended 31st October 2006, proving resilientto the two recent quarter point increases in interest rates. This is a result ofLondon's continued standing as a World City and financial centre, along withlimited supply, strong employment, forecast economic growth and historically lowinterest rates. We are however conscious of the need for caution in looking ahead. There areuncertainties over UK interest rates and inflation, concerns over theaffordability of housing and there remain threats to the stability of theworld's economic and political climate. The Group's strategy of focusing on maximising value as opposed to concentratingon volume and profit growth allows us to match supply and demand appropriately.In this environment, Berkeley has secured sales reservations in the first sixmonths of the year with a value similar to the corresponding period last yearand this level is consistent with our business plan for achieving the Scheme ofArrangement. This strategy allows Berkeley to focus on getting the product right in terms ofdesign, quality, location and price. In a competitive market, this creates a keycommercial advantage and enables Berkeley to fully optimise returns. Investors remain an important segment of Berkeley's purchaser profile and haveaccounted for approximately 40% of reservations in the period. This is lowerthan the 50% reported last time but remains very much in our range whichfluctuates due to market conditions and the mix of product and phasing oflaunches on our sites. Investors are attracted by the fundamentals underpinningthe housing market in London and the South-East and the lack of alternativeinvestment opportunities. Under the Group's definition, investors range from alarge institution to a customer purchasing a second home. The land market has remained very competitive, especially for sites withplanning permission or in prime locations. In accordance with our strategy wehave bought sites on a very selective basis and, in the period, agreed toacquire 11 sites. Trading Analysis Revenue for the Group was £381.2 million (2005 - £503.1 million). This comprises£375.3 million (2005 - £495.8 million) of residential revenue, of which £3.2million was from land sales (2005 - £0.5 million), along with £5.9 million (2005- £7.2 million) of commercial revenue. During the period, the Group sold 1,296 units at an average selling price of£284,000. This compares with 1,656 units at an average selling price of £292,000in the same period last year. At £5.9 million (2005 - £7.2 million), the Group's revenue from commercialactivities represents the disposal of commercial units on five mixed-use sites. Excluding joint ventures and land sales, the house-building operating margin forthe Group was 18.2% compared to 17.5% for the full year ended 30th April 2006.This remains within the 17.5% to 19.5% range (depending on mix) reported by theGroup over recent reporting periods and which we anticipate continuing, on thebasis that current market and planning conditions prevail. Sales price increases have been ahead of build cost inflation which has resultedin the increased operating margins in the period. Looking forward, ourexpectation for new planning consents is that operating margins will continue tocome under pressure even allowing for the increases in sales prices that we haveseen recently. This is a result of the ever increasing cost of the cross-subsidyrequired by affordable housing, planning gain obligations, increased regulationand the costs associated with meeting today's high standards of environmentaland sustainable development practices. Included within net operating expenses is a £1.5 million one-off charge inrespect of the Group's defined benefit pension scheme. During the period,members were offered an enhanced transfer value to leave the scheme. In excessof 70% of members accepted this offer with a resulting reduction in the pensiondeficit of £9.1 million. The cash cost to the Group, including expenses, was£10.6 million, of which £9.0 million remains to be paid in the second half ofthe year. At the 31st October 2006, the retirement benefit obligation was £1.8million, reduced from £10.4 million at the year-end. Net finance income of £5.0 million reflects the positive cash position of theGroup and cash generative nature of operating activities in the period which hasseen net cash increase from £220.6 million to £322.0 million. In the same periodlast year the Group had net finance costs of £5.8 million, reflecting an openingnet debt position of £255.1 million at 1st May 2005 and closing net cashposition of £71.3 million at the end of the period which included the disposalof Crosby. The Group's share of post-tax results from joint ventures was £6.1 millioncompared to £2.6 million last year. This arises from the sale of 441 residentialunits (2005 - 254 units) at an average selling price of £329,000 (2005 -£520,000) by St James, our joint venture with Thames Water. The result in 2005included 5 units at Wycombe Square in London with an average sales price of £5.5million. This scheme was fully sold by 30th April 2006. Joint venture operating margins are 14.2% which is similar to the 14.1% achievedfor the year ended 30th April 2006 and reflect the profit share arrangementswith Thames Water. Joint Ventures At 31st October 2006, Berkeley's share of its joint ventures' net assets was£61.5 million, a reduction of £7.5 million from the year-end figure of £69.0million. £18.1 million of this was represented by net cash (April 2006 - netdebt of £5.3 million), principally due to the level of cash generation in StJames during the period. On 7th November 2006, after the end of the first half of the year, Berkeleyacquired from RWE Thames Water plc the 50% of St James not already owned for£97.5 million. Following completion of the acquisition, St James paid Thames afurther £93.5 million to accelerate the settlement of outstanding land creditorsand to acquire six previously identified and negotiated sites. Including the sixnew sites, which contain approximately 700 plots, St James' land bank atacquisition totalled some 5,000 plots on 23 sites. Completing some 5,000 unit sales since it was established, St James has proved ahighly successful joint venture for its shareholders and Berkeley is delightedto have been able to take this opportunity to acquire 100% control of a businessto which it has always been fully committed and in which it has historicallyinvested significant management time and expertise. As a joint venture partner,Berkeley had an intimate knowledge of St James' business and, in particular, itsland bank which includes an increasing proportion of third party land. St Jamesis now an established business in its own right with its own distinct managementteam, a number of whom transferred from Berkeley, guided by the same philosophyand operating procedures as Berkeley's wholly owned divisions. In what was widely regarded as a visionary approach to land development, StJames was established as a 50:50 joint venture company by Thames and Berkeley inMay 1996 to develop residential Thames sites and sites acquired on the openmarket. While sad that this relationship with Thames has ended, Berkeley wasdelighted to announce, on 23rd October, that it had finalised the arrangementsfor the creation of St Edward Homes, its new joint venture with Prudential. StEdward has now agreed to purchase its first three sites - Green Park in Readingand an office building in Kensington from Prudential, and a site in Stanmorefrom Berkeley - comprising approximately 2,500 plots in total. In addition, it is pleasing to report that Saad Berkeley Limited has securedplanning on a site for 300 units at Fleet in Hampshire and we continue to workwith the Saad Group to identify further development and investmentopportunities. Land Holdings At 31st October 2006, the Group (including joint ventures) controlled some26,633 plots with an estimated gross margin of £1,878 million. This compareswith 23,819 plots and an estimated gross margin of £1,672 million at 30th April2006. Of these holdings, 19,837 plots (April 2006 - 19,860) are owned andincluded on the balance sheet. In addition, 6,713 plots (April 2006 - 3,264) arecontracted and a further 83 plots (April 2006 - 695) have terms agreed andsolicitors instructed. Over 95% of our holdings are on brownfield or recycledland. Berkeley has sourced land from four main areas in the period. These are: openmarket opportunities (including within St James), St Edward, local authoritiesand from maximising our existing land holdings on many of which new applicationshave been submitted. In the first half of the year, Berkeley has agreed 11 new sites, including thetwo Prudential sites in St Edward, and Woodberry Down in the London Borough ofHackney where we are working in partnership with the local authority on a siteof over 1,200 units. The Group's land holdings include approximately 1.75 million ft2 of commercialspace within our mixed-use schemes. The Group is not undertaking any standalonecommercial schemes. Sustainability Berkeley has long recognised the importance of embedding policies forsustainable development within its operating culture, believing that what wecreate inherently benefits the wider community. Whilst these policies inevitablycarry with them associated costs that may place operating margins underpressure, any such cost risk must be balanced by the importance of demonstratingsustainable development practices when pursuing planning consents that wouldotherwise be withheld and without which our ability to add value to our sitesand to continue matching the expectations of our customers would be restricted. A sensitivity to energy efficiency and, in particular a commitment to thereduction of CO2 emissions, is a key feature of the lifestyles to which ourcustomers aspire and Berkeley is proud to be operating in the vanguard of theindustry in this respect. It is therefore particularly gratifying that BerkeleyHomes was named Sustainable Housebuilder of the Year and its development atRopetackle in Shoreham-by-Sea (a site developed in partnership with SEEDA)awarded Sustainable Development of the Year at November's Building MagazineSustainability Awards 2006. The Board At the Company's Annual General Meeting on 1st September 2006, the Board wasdelighted to announce the appointment of Alan Coppin as a Non-ExecutiveDirector. Currently a non-executive director of Capital and Regional plc and non-executive Chairman of Redstone plc, Alan previously held a non-executivedirectorship at Carillion plc and served on the board of Wembley plc as CEO inaddition to being the Chairman of The Prince of Wales's Foundation for the BuiltEnvironment. He therefore brings with him a wealth of relevant experience andwill be a valuable addition to the Board. The appointment will also ensure that the Main Board of Berkeley (which nowcomprises a Chairman, four executive directors and five non-executivedirectors) retains the right proportion of independent directors to meet theCombined Code's recommendations regarding the balance of the Board. This isimportant for the future given that Tony Palmer, the current Senior IndependentDirector, intends to retire from the Board next year. Prospects With the second B share payment approved and scheduled for the beginning ofJanuary 2007, it is an appropriate time to reflect on the success of Berkeley'sstrategy since announcing the strategic review and Scheme of Arrangement in 2004as we look to the future. At the time, Berkeley identified its own place within the market from where itcould operate with strength as an added value developer at a size that maximisedthe impact of its uniquely experienced and talented management team. The aim wasto fully optimise the value in Berkeley's land bank, delivering immediate valueto shareholders through the B share payments, whilst not detracting from thevalue of the ongoing business. It has allowed us to focus on attention todetail, taking time to create innovative development solutions and develop thesustainable communities demanded by our customers and stakeholders and, indeed,our own high standards. The strategy is proving a success at every level as demonstrated by the BerkeleyGroup being named Regeneration Housebuilder of the Year at the RegenerationAwards hosted by Building Magazine, Property Week and Building Design inDecember. By focusing on London and the South-East, Berkeley operates in a market aboutwhich experience and knowledge is embedded throughout its management. In spiteof the two recent rises in interest rates, the economic fundamentals of theCapital region remain strong, with the effect of London's standing as a WorldCity continuing to have a major impact on its vitality and economic success. Nevertheless, our strategy is a measured one. It has enabled Berkeley togenerate cash to meet the B share payments to shareholders but this focus oncash generation also stands the Group in good stead should the market changedirection. This is always a possibility in a cyclical industry wheremacro-economic and global events can have a significant impact. This balancedand prudent approach has served Berkeley well in the past and it is one weintend to continue. Berkeley is looking forward to the future with confidence underpinned by thestrength of our current developments, which places us at the forefront of therenaissance of our cities, and our unrivalled land bank which providesconsiderable opportunity to add further value for our shareholders and otherstakeholders. END For further information please contact: The Berkeley Group Holdings plc Cardew GroupA W Pidgley Tim RobertsonR C Perrins Sofia RehmanT: 01932 868555 T: 0207 930 0777 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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