1st Jul 2005 07:00
Redrow PLC01 July 2005 REDROW PLC PRE-CLOSE TRADING UPDATE As part of its normal investor relations activity, Redrow plc is issuing thispre-close trading update in advance of its preliminary results announcement forthe twelve months ended June 2005 on 13 September 2005. ANALYST PRESENTATION Redrow plc hosted a presentation for analysts after close of trading on theLondon Stock Exchange on Thursday 30 June 2005. The presentation coveredfinancial performance for the year ended June 2005 and the Group's medium termstrategy, with a particular focus upon the role of forward land. It was also announced that Neil Fitzsimmons is to become Chief Executive andPaul Pedley is to become Executive Deputy Chairman, with effect from 1 August2005. Copies of the presentation are available from the Redrow websitewww.redrow.co.uk. SUMMARY • Pre tax profit for both the year and six months ended June 2005 are expected to be ahead of the same periods last year • For the year ended June 2005, Redrow delivered legal completions 2% higher at 4,372 with the average selling price 11% higher at approximately £172,000 • Redrow's forward sales position remains robust with 2,129 sales in hand at the end of the financial year - ahead of the historic norm • As at June 2005, Redrow owned 15,800 plots with planning consent, an increase of 800 plots on the position twelve months' previous • Forward land made a very strong contribution during the year - with 43% (2,200 plots) of all land acquired from the forward land bank • Net debt reduced by approximately £25m to circa. £105m leaving the Group well placed to take advantage of future opportunities • Forecast increase in sales outlets by Spring 2006, together with the new Debut range, provides the capability to deliver volume growth FINANCIAL PERFORMANCE - HOMES 2004/05 marked the fifteenth consecutive financial year of growth in legalcompletions for Redrow. Having deliberately established a record forward salesposition at the start of the financial year, the Group has successfully focusedupon the maximisation of selling price and profit in the face of a softer salesenvironment where prices remain stable but market activity is at a lower levelthan is expected of a "normal" market. 2004/05 2003/04 ChangeLegal completions 4,372 4,284 +2%Average selling price c. £172,000 £154,700 +c.11% In the financial year ended June 2005, Redrow achieved 4,372 legal completions,an increase of 2% on the previous year (2003/04: 4,284). The average sellingprice for the year as a whole was approximately £172,000 (2003/04: £154,700), anincrease of some 11%. This average selling price is considered to be indicativeof the average selling price for the financial year ended June 2006. This isbefore taking account of any legal completions from the new Debut range wherethe average selling price will be approximately £75,000. As a result of the current housing market, the full year operating margin forthe Homes' business is anticipated to be marginally lower than the 19.8%achieved in the previous financial year. A distinguishing feature of Redrow's financial performance in 2004/05 was thedelivery in the second half of the financial year of top line growth whencompared with the same period last year. Turnover in the six months ended June2005 is anticipated to be some 6% higher at approximately £380m (H2 2003/04:£357.9m). This increase is on the back of an average selling priceapproximately 7% ahead of the same period last year at circa. £168,000 (H2 2003/04: £156,400). In the second half of the year, legal completions at 2,261remained at a broadly similar level to the corresponding period last year (H22003/04: 2,288). The average selling price of circa. £168,000 was lower than in the first half(H1 2004/05: £176,700) due to geographic and product mix. The average sellingprice in the first six months benefited from completions with a relatively highaverage selling price at the Group's Odyssey development in London Docklandswhilst the Northern region, with its lower average selling price, represented alower proportion of turnover in the first half. In respect of the second half performance, as a result of the higher turnoverand taking into account the movement in operating margin previously highlighted,the Homes' business is expected to report growth in operating profit over thesame period last year. Furthermore, the Group overall is expected to report anincrease in profit before tax for both the second half and for the financialyear as a whole when compared to the previous year. FINANCIAL PERFORMANCE - MIXED USE & REGENERATION Redrow's mixed use activities performed more strongly than expected at the timeof the interim results in March. Completion of the sale of commercial land andthe remaining distribution unit at Severnside, Bristol, together with disposalsat Buckshaw Village, Chorley played an important role in delivering both profitand cash to the Group. In its first year of operation, Redrow Regeneration, based in London with aspecific focus to deliver sustainable communities through mixed use development,acquired an option through a joint venture which secures an opportunity toredevelop Watford Junction railway station and surrounding land. This majorproject, at the heart of one of London and the South East's key transport hubs,has the potential to provide in excess of 2,200 new homes and 150,000 squarefeet of commercial space as well as delivering significant improvements to thelocal infrastructure and community. The strong performance from the Group's mixed use interests means that evenafter providing for the relatively significant option and up-frontpre-development expenditure on Watford Junction, the net operating result forthese activities will be approximately £4m, an increase of around £2m onprevious expectations. Looking forward to the financial year ended June 2006, as a result of Redrow'sprudent accounting policy, which provides for option and pre-developmentexpenditure until such time as a site has planning and is purchased, it isanticipated that the continued expenditure of such costs on Watford Junction,together with those of potential new schemes, is likely to match and thereforeoffset any profits generated from the mixed use activities. SALES Redrow entered 2004/05 with a record forward sales position. This salesposition was equivalent to approximately 28 weeks sales and compares with ahistoric norm of approximately 15 weeks. This strong forward sales position had been established during the buoyantmarkets of the two previous financial years in anticipation that the marketwould revert to more normal levels of activity and, in so doing, would likelyexperience an element of weakness prior to reaching a sustainable level. Whilstthe establishment of this strong forward sales position did restrain margingrowth in more favourable markets, it has now provided and continues to providea cushion in the current market. Demand in the U.K. housing market weakened in June 2004 following four interestrate rises and, in particular, further comments in a speech by the Governor ofthe Bank of England in June 2004. Prices have remained relatively stable duringthe last twelve months although the market as a whole has been operating at alower level of activity than would be expected of a "normal" market. Asanticipated and as previously highlighted, Redrow's forward sales position hasstarted to unwind although it remains robust in historic terms. 2004/05 2003/04 Change 1 July b/f 2,344 2,0626 months ended DecSales 1,715 2,006 -15%Legal completions (2,111) (1,996) +6%31 Dec sales c/f 1,948 2,072 -6% 6 months ended JuneSales 2,442 2,560 -5%Legal completions (2,261) (2,288) -1%30 June sales c/f 2,129 2,344 -9% Of the 2,129 forward sales at June 2005, 151 are social homes at Celestia,Redrow's In the City scheme in Cardiff. The build contract for these units willbe novated to the scheme's main contractor early in 2005/06, thereby eliminatingconstruction risk for Redrow. These units will therefore not feature as legalcompletions in future years and the underlying profitability of this contract isembedded within the overall profitability of the development. Sales in the sixmonths ended June 2005 also include 90 reservations, the majority of which arenow exchanged, secured at the launch of the first Debut development at Rugby. As at the end of June 2005, Redrow was trading from 112 outlets. The strengthof the owned and controlled land bank provides the potential to maintain outletgrowth and it is currently expected that the Group will be trading fromapproximately 10% more outlets by Spring 2006. This higher level of outletswill be an important element of the Group's strategy to increase the level ofsales in 2005/06. LAND Jun 05 Dec 04 Jun 04Current Land Land owned with planning 15,800 15,200 15,000Contracted plots 1,500 2,300 2,400 17,300 17,500 17,400Forward land Forward land with planning 750 1,500 1,800Allocations 7,500 6,500 6,200Sub-total 8,250 8,000 8,000Realistic prospect - Homes 12,750 13,750 14,500Realistic prospect - Regeneration 1,100 - - 22,100 21,750 22,500 As at June 2005, Redrow owned, with planning permission 15,800 plots, anincrease of 800 plots on twelve months previous. Included within this figureare 300 plots in respect of Debut developments at Willans Green in Rugby, CastleVale in Birmingham and Buckshaw Village near Chorley. Redrow remained cautiously active in the land market during the year and whilstthere appeared to be greater realism about values from vendors, the marketremained competitive. This greater caution is reflected in the land held undercontract, which stood at 1,500 plots at the end of the financial year. TheGroup is able to adopt this approach without adversely impacting its futuresustainability since it already owns, with planning, all the plots it requiresfor 2005/06 and owns or controls approximately 85% of the following year'santicipated production. 2004/05 marked an extremely successful year as regards the conversion of theforward land bank into current land. Forward land will always represent theGroup's most profitable land as a result of the discount to open market value,an integral part of option arrangements. In 2002/03, 30% (1,400 plots) of allplots acquired in the year were from forward land and in 2003/04, this figurewas 28% (1,500 plots). In 2004/05, 43% (2,200 plots) of net land acquired inthe year was from forward land, representing 13 sites with the potential togenerate approximately £385m of revenue. Notwithstanding its significant contribution in 2004/05, the forward land bankstood at 22,100 plots at the end of the financial year, including 1,100 plots atWatford Junction, Redrow's share of this potential development. This forwardland bank has the potential to deliver 30% of the Group's land requirements overthe next three years, thus maintaining the strong transfer of plots to thecurrent land bank and thereby contributing to the on-going sustainability ofRedrow. PRODUCTION AND BUILD COSTS Materials prices have seen greater pressure than in recent years, particularlythose with a high energy or commodity content. Nevertheless, Redrow's centralpurchasing function and existing partnering arrangements have contained overallincreases to a minimal level. Labour cost pressures continue to abate fromtheir historic levels, however hot spots will always appear around the countryas a result of major infrastructure or redevelopment schemes. Framing Solutions, the Group's 50:50 joint venture which provides light steelframes for use in residential construction, is anticipated to report in linewith expectations. The Framing Solutions business with Redrow will beincreasingly focused upon the new Debut range and the Group's standard apartmentschemes. Looking to the new financial year, it is currently anticipated thatthe joint venture will report a marginally reduced loss. Whilst the FramingSolutions' financial result remains small in a Group context, its operationaland commercial significance, particularly to the new Debut range, is importantto the future development of Redrow. BALANCE SHEET Despite further investment in land, net debt at June 2005 of approximately £105mwas circa. £25m lower than at June 2004 with a resultant reduction in gearing.Cash flow during the year benefited from the successful performance of theGroup's mixed use activities and lower work in progress on In the City schemes,principally as a result of legal completions at Odyssey and Altolusso. Landcreditors remained at similar levels to last year. Average net debt in thetwelve months ended June 2005 was approximately £175m and it is anticipated thatthe interest charge for 2004/05 will be circa. £10m. The reduction in net debtand gearing means that the Group remains financially well placed to takeadvantage of future opportunities. DIVIDEND The Board re-confirms its previous commitment to increase the dividend by 20% inrespect of each of the financial years ended June 2005 and June 2006. Thismeans that the dividend will have grown from 4.95 pence per share paid inrespect of the year ended June 2000 to 13.0 pence per share to be paid inrespect of the year ended June 2006, representing a compound annual growth rateof 17.5% p.a.. MANAGEMENT CHANGES The Group's strength rests with its people, its land bank and its products. Asregards people, there are many aspects to building and maintaining a qualityteam and the issue of succession planning is fundamentally important at alllevels throughout the organisation. Paul Pedley and Neil Fitzsimmons haveworked together for the last eight years, initially as Chief Executive and GroupFinance Director and more recently as Chief Executive and Group ManagingDirector. It is the Board's collective view that the time is now right for Neilto assume the responsibility of Chief Executive, a position he will formallyadopt from 1 August 2005. Paul will have been part of Redrow for 20 years onthat date and remains firmly committed to Redrow's continued development.Accordingly, Paul will become Executive Deputy Chairman with specificresponsibilities for piloting major land transactions and the continueddevelopment of the Group's product range. Specifically, Paul will focus uponthe Debut range, to support the objective of delivering at least 2,000 units perannum within a five year period. This role will also allow Paul to participatemore actively in representing the views of the industry during an importantphase of consultation with Government. CURRENT MARKET AND OUTLOOK As the market continues its process of adjustment, the sales rate per outletremains marginally below the level expected in normal markets. Redrow's forwardsales strategy has enabled, and will continue to enable, the Group to focus uponthe maximisation of selling price and profit at a time when selling prices havebeen stable. It is currently expected that house prices will remain broadlystatic for the remainder of this calendar year and markets are likely to remaincompetitive. As a result, operating margins will continue the move towards thepreviously identified sustainable level of approximately 17%. The underlyingmacro-economic position remains supportive but consumers are generally cautiousat present. However, delayed housing transactions will gradually increase pentup demand and affordability will improve as time passes. This will further besupported if interest rates begin to fall. These factors, taken together withthe benefit from potential changes to the U.K. pension regime in April 2006,suggest that there may be a stronger market in the Spring of 2006. Redrow retains a robust forward sales position. It has the land bank andorganisational structure in place to deliver increased outlets and supportvolume growth. It has the product range to provide the ability to optimise thereturns inherent in its land bank. With the launch of the new Debut range,Redrow has a market leading opportunity to address a significant market sectorand to deliver incremental growth. All these factors leave Redrow wellpositioned to meet the challenges of a more normal market and to continue todeliver value for its shareholders. Enquiries Redrow plc 020 7839 6072 (1 July) 01244 520044 (thereafter) Neil Fitzsimmons, Group Managing DirectorDavid Arnold, Group Finance Director Brunswick 020 7404 5959 Patrick HandleyNina Coad Note on Debut for Editors: Debut is a new housing range from Redrow, designed to provide affordable homesfor people to buy. Utilising light steel frame and other modern methods ofconstruction, together with communal heating and hot water systems, it offers arange of homes that are innovative, exciting and designed to stand the test oftime. With a single monthly service charge to cover the main utility bills andexternal maintenance, Debut is geared towards making home ownership accessible,affordable and easy to manage. It is also available on a shared equity basis,with Redrow retaining up to 10% equity in the property as an interest free fixedsum for up to 10 years. At Redrow's first Debut development at Willans GreenRugby, cash prices for a one bedroom home start at £49,995. Redrow has nowcommenced construction of its second Debut development at Buckshaw Village, nearChorley. Images of Debut are available from Brunswick This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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