23rd Nov 2005 07:00
Crest Nicholson PLC23 November 2005 23rd November 2005 Crest Nicholson PLC Year End Trading Statement Crest Nicholson PLC (Crest) the residential and mixed use development company,is providing the following trading update in advance of its results for the yearended 31st October 2005 expected to be announced on 25th January 2006. Commenting today, Stephen Stone, Chief Executive said: "Trading for the full year 2005 has been in line with our expectations. We arepleased with our volume performance in both open market and affordable housing.The fundamentals of the housing market remain good and we enter the 2006 yearwith forward sales 13% higher than a year ago. Our focus now is to build on ourexcellent reputation for urban regeneration and to drive shareholder returns bycombining the design excellence of our current product offering with improvedcost effectiveness." HOUSING Against a background of challenging market conditions, open market housingcompletions rose by about 3% in 2005, slightly higher than we predicted at theinterim stage. As expected, completions of affordable units sold to housing associations werelower than in 2004 but we ended the year with over 600 completions, well aheadof the 550 units predicted in our interim announcement. The average selling price rose by about 5% to around £220k due to the mix effectof lower volumes of affordable units sold. Forward sales at the financial year end were around 13% up on 2004. MIXED USE COMMERCIAL As anticipated, commercial property sales from our mixed use schemes grewstrongly and ended the year over 30% higher than in 2004. The revenue increasereflects construction progress on offices and retail properties at BristolHarbourside and Riverside in Hemel Hempstead which were presold in 2004. 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 saleprogramme for 2005 exceeded 2004 levels and was similar to that achieved in2003. OPERATING MARGINS As flagged at the interims, operating margins for the 2005 year as a whole werea little over 1% lower than in 2004 reflecting higher sales discounts andincentives, modest build cost inflation and increased mixed use commercialsales. LAND BANKS We adopted a more cautious and selective approach to land buying in 2005 andhave maintained the short term land bank at around the October 2004 level. CHANGES IN FINANCIAL STRUCTURE AND ACCOUNTING POLICIES On 2nd November 2005, the 5.5% Cumulative Redeemable Preference Shares of £38mwere repaid at par. The preference shares were no longer convertible and wouldhave been categorised as borrowings under International Financial ReportingStandards (IFRS) which Crest adopt for the 2006 financial year. The repayment ofthe preference shares has converted non tax deductible preference dividends intotax deductible interest charges. While this reduces pretax profit by around £2m,repayment enhances earnings. A thorough review of Crest's accounting policies has been performed to coincidewith the implementation of IFRS in 2006. As a result, with effect for 2006,revenue on housing units will be recognised upon legal completion rather thanupon build completion as at present. Crest sees operational and cash flow advantages in bringing the revenuerecognition point into line with cash collection and this change also bringsCrest into line with its listed peer group. If implemented in 2005, recognising housing revenue on legal completion wouldhave increased profits by over £10m because of the unusually high numbers ofapartments which were exchanged and build complete at the 2004 year end but werenot legally completed until 2005. At the 2005 year end there was no suchbunching of apartment build completions, so while the 2005 year would havebenefited from recognising revenue on legal completion rather than on buildcompletion, it is probable that the change in policy will have a negative effectof about 100 units in 2006. Nevertheless, Crest believes that implementing IFRS and the change to legalcompletion in the same year is in the best interests of shareholders. BUSINESS DEVELOPMENT AND IMPROVEMENT We are recognised as a market leader in urban regeneration and we intend tobuild on this base. Engaging with the public sector to bring large urbanregeneration projects into production is, however, a lengthy process, thebenefits of which will be more clearly seen in 2007 and later years. Establishing a leading position in urban regeneration has required significantinvestment both in product and overhead as we have tested a wide range ofdesigns and built up skills to deliver bespoke solutions which meet local andnational planning and design objectives. We are now working to extract maximumbenefit from this investment and to eliminate cost through simplification of ourproduct range. We expect this to enhance future shareholder returns by combiningthe design excellence of our current product offering with improved costeffectiveness. MARKET OUTLOOK The housing market continues to be stable but customers remain cautious. In2006, we expect open market housing market conditions to be similar to 2005 andwe expect our affordable homes business to grow to around 900 units. The fundamentals of the housing market remain good with low unemployment and acontinuing shortage of housing supply in our main areas of operation in SouthernEngland and the Midlands. Enquiries to: Stephen Stone, Chief Executive Peter Darby, Finance Director Crest Nicholson PLC Tel: 020 7404 5959 (day of announcement) Tel: 01932 847272 (thereafter) Andrew Fenwick/Kate MillerRobert GardenerBrunswick Group LLPTel: 020 7404 5959 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Crest Nicholson