Final Results
Crest Nicholson PLC
29 January 2004
29 January 2004
Preliminary Results Announcement
Crest Nicholson PLC, the residential and mixed use development company, today
announces results for the year ended 31st October 2003.
Financial highlights: % increase
• Profit before taxation increased to £74.6m (2002: £63.0m) +18%
• Earnings per share increased to 45.2p (2002: 38.8p) +16%
• Proposed final dividend of 7.5p, making a total for the year of 11.0p
(2002: 9.5p) +16%
• Compound earnings per share growth 1999-2003 +18%
• Gearing 29% (2002: 53%)
• Net assets attributable to ordinary shares equivalent to 224p (2002:
192p) +17%
• Return on average capital employed increased to 23.4% (2002: 21.8%)
Operational highlights:
• 1,936 houses sold (2002: 1,899); average selling price £239,300 (2002:
£225,100)
• Operating profit up 15% at £87.3m (2002: £75.8m)
• Development operating margins increased to 15.9% (2002: 15.4%)
• 2,121 strategic plots successfully brought through the planning
process into the short term housing land bank
• Short term housing land bank up 17% to 13,204 plots including 1,031
for resale (2002: 11,264 plots including 504 for resale)
• Development portfolio sales value up 18% to £2.8bn (2002: £2.4bn)
• Joint venture to develop 315 acre site at Chertsey - 100 acre business
park, 215 acre mixed use development
• Current housing forward sales position is 10% up at £275m (2002:
£250m).
Commenting today John Callcutt, Chief Executive, said:
"Crest is now recognised as a market leader in the master planning, design and
delivery of large scale residential and mixed use developments. Our focus on
sustainable development in recent years has been central to our success and is
closely in line with current Government policy, so providing further exciting
opportunities for us going forward.
"We start the current year with low gearing and an excellent land bank which
puts us in a strong position to adapt to any market changes. 2004 will also see
a growing contribution from our mixed use schemes. Consequently, we are
confident that Crest is well positioned to make further progress in the current
year and, given a stable housing market, the longer term outlook also remains
positive."
Enquiries to:
John Callcutt, Chief Executive Andrew Fenwick/
Peter Darby, Finance Director Kate Miller
Crest Nicholson PLC Brunswick Group Limited
Tel: 0207 404 5959 (on day of announcement) Tel: 0207 404 5959
Tel: 01932 847272 (thereafter)
The analyst presentation is available on the Company's web site
www.crestnicholson.com.
CHAIRMAN'S STATEMENT
Results
I am delighted to report another year of record results and to report further
progress in establishing Crest Nicholson as the urban regenerator of choice with
Local Authorities.
Pre-tax profits increased by 18% to £74.6m. Earnings per share increased by 16%
to 45.2p. Our year end gearing was reduced to 29%. Our short term housing land
bank including plots for resale now stands at 13,204 plots, up 17% on 2002. We
also have over 2 million sq ft of commercial space in our mixed use portfolio.
Dividend
We are recommending a final dividend of 7.5p per share. This will give a total
for the year of 11.0p, up 16%. The dividend will be covered 4.1 times.
Strategy
In this last year, as previously reported, we have exited from construction in
accordance with our strategy to focus more clearly on our core business of
residential and mixed use development with a strong emphasis on sustainability
and urban regeneration.
These changes have resulted in a simplification of our organisational structure.
Crest is now an integrated residential and mixed use developer trading through
seven operating units each of which has residential and mixed use capability.
This structure improves our flexibility and responsiveness to market
opportunities and allows for some rationalisation of overhead costs.
Our focus on sustainable development in recent years has been central to our
success and is closely in line with current Government policy, so providing
further exciting opportunities for us going forward. We are supportive of
Government efforts to increase the supply of new homes to the areas of greatest
need and are continuing to explore ways of making our product more affordable to
a wider range of purchasers, whilst at the same time further improving quality,
design and sustainability.
Crest's leadership in this field has been evidenced by numerous awards including
the award of a Gold Standard "Building for Life" by the Commission for
Architecture and the Built Environment (CABE) for our development at Port
Marine, Bristol. It is important to our future that we remain sympathetic to the
way the Government is thinking on residential and mixed use development, so I am
very pleased that John Callcutt, our Chief Executive, has been asked by the
Office of The Deputy Prime Minister to join the Sustainable Buildings Task
Group.
Board
As previously reported, we have made a number of Board changes this year. Of the
executive directors, Don Ross resigned on the sale of Pearce Construction. Peter
Murray retired from the Board in October. After some 25 years as Finance
Director, Clive Littler retired in August and Bob Erith, Senior Independent
Director, also retired in August. We would thank them for their significant
contributions to the Group and wish them all the best for the future.
We welcome three new directors, all of whom seek re-election at the forthcoming
Annual General Meeting; Peter Darby who has succeeded Clive as Finance Director,
Stephen Lidgate and Richard Scholes, who are both non-executive Directors.
As a consequence of these changes, the Board is now smaller and more evenly
split between executive and non-executive Directors.
OPERATING REVIEW
Market Positioning
In accordance with its strategy, Crest is now well recognised as a market leader
in the master planning, design and delivery of large scale residential and mixed
use developments. These capabilities are well suited to participation in current
government initiatives designed to remedy housing shortfalls.
Public bodies have recognised the economic and social need to create an
increased supply of affordably priced housing within neighbourhoods which
combine residential, commercial and leisure uses. This is particularly true in
Crest's traditional areas of operation.
The redevelopment of urban and urban edge areas into sustainable communities for
modern living is a political imperative but one currently impeded by the
non-responsive planning system. It remains to be seen what changes will be made
as a result of the Barker inquiry and if they will increase the flow of homes
where they are most needed.
Crest's proven skills in large scale residential and mixed use developments are
well suited to urban regeneration opportunities. Our reputation for design
quality and appreciation of sustainability issues make us an ideal partner for
public sector bodies. We are already working successfully with public sector
partners and gaining a reputation for delivering innovative and sustainable
solutions. This creates exciting new opportunities for the future.
Trading Performance
2003 was another excellent year for Crest, with pre-tax profits up 18.4% to a
new record of £74.6m (2002: £63.0m).
In terms of units taken to profit, we achieved 1,936 unit sales, a slight
increase from 1,899 units in 2002. Open market units fell marginally from 1,662
to 1,628 but this was more than offset by an increase in housing association
units from 237 to 308. In line with our strategy, we expect to increase our
overall unit output in the current year by over 20%.
The average selling price of open market housing units was £258,000 (2002:
£240,000). The increasing proportion of housing association sales reduces the
2003 average selling price to £239,000, but this was nevertheless still 6% up on
£225,000 for 2002. We enjoyed some house price inflation in the Midlands and the
South West but in the South East there was some price weakness at prices above
£400,000.
Due to our strategy to reduce our exposure to high priced South East units, the
growth in our Midlands region and the expected doubling of our social housing
units in 2004, we expect the Group average selling price to fall by about 10% in
the current year.
The summer months were unusually buoyant and we took maximum advantage of this
to secure year on year volume growth and a solid forward sales position for
2004. Second half open market net reservations were 36% up, leaving the full
year 6% ahead of 2002. Our forward sales position at the year end is solid at
£193m (2002: £192m), representing about five months worth of 2003 housing sales.
Our current forward sales position is £275m (2002: £250m).
Sales of housing land continue to be an integral part of Crest's method of
operation. As part of our strategy we assemble large sites and create
substantial land value as we bring them through the planning process and start
the development phase. In order to deliver consistent profit growth and a good
return on capital to our shareholders and also to rebalance our housing land
portfolio, we will sell land where appropriate to generate profits and cash.
Housing land sales amounted to £74m, compared with £40m last year. The 2003
increase over 2002 is due principally to rebalancing the South Eastern
portfolio. We sold land in the South East which would otherwise have increased
our exposure to the upper market sector. We continued to sell land in the South
West where our development concepts had been established and we were able to
capture a good proportion of the added value.
Commercial property sales amounted to £13.2m, compared with £47.7m last year.
This reduction is a temporary lull before the flow of sales from our mixed use
schemes at Bristol Harbourside and Attwood Green, Birmingham begins to increase
in the current year.
Going forward, Crest's joint venture with Morley Fund Management to develop the
315 acre site at Chertsey, the former Defence Estates Research Agency, is an
exciting opportunity for our future. The 100 acre site to the north of the M3
has the capacity to accommodate a premier office business park in excess of 1m
sq ft. The joint venture will promote a substantial mixed use development on the
remaining 215 acres to the south of the M3. After a master planning period of
two to three years, Chertsey is expected to deliver profits over a 10 year
period.
Build cost pressures have been well contained. Material prices have shown little
change and we continue to benefit from trading agreements with major suppliers.
However, subcontract labour rates are rising not least because of a shortage of
skilled tradesmen.
Operating margins at 15.9% are a significant improvement on the 15.4% achieved
in 2002 and the ROCE improvement from 21.8% to 23.4% is pleasing.
Crest's Housing and Commercial Portfolios
Crest's housing land strategy has been to acquire sites that are well located
and where units should continue to sell in more difficult markets. We continue
to put greater emphasis on middle and lower priced sectors. In the course of the
year we have tightened our land buying benchmarks to improve the resilience of
the short term housing land portfolio to any possible softening in trading
conditions.
The short term housing land portfolio now stands at 13,204 units, up 17% on
2002. Included in this are 1,031 plots held for resale (2002: 504 plots held for
resale). The short term housing portfolio held for development has a current
development value of £2,287m. Based on 2003 housing turnover of £463m, this
represents about a five year land supply. We have continued to reduce our
exposure to upper market sector product and the anticipated average selling
price of the units held in the land bank at October 2003 was £188,000, which is
£10,000 lower than at the beginning of the year.
In 2003, we had significant successes at Stowmarket, Red Lodge and Hinckley in
bringing forward 2,121 strategic plots into the short term housing portfolio.
These will contribute to profits in 2004 and beyond. The strategic housing land
portfolio now stands at 804 acres controlling 13,236 plots.
At October 2003, the commercial land portfolio stood at over 2 million square
feet and had a current development value of approximately £479m. The majority of
this relates to the mixed use schemes at Bristol Harbourside, Attwood Green,
Birmingham, Hemel Hempstead, Farnham and Chertsey.
Finance
The Company's financial position continues to strengthen. Shareholders' funds at
31 October 2003 increased 16% to £285.5m. Net assets per ordinary share are
equivalent to 224p per share compared to 192p per share at October 2002, an
increase of 17%.
We continue to improve the return we obtain on our assets. Operating profit of
£87.3m represents a return on average capital employed of 23.4% compared to
21.8% last year.
Net borrowings at the year end were £81.9m (2002: £131.8m), representing gearing
of 29% (2002: 53%).
Net interest costs at £12.7m were at a similar level to 2002 but with cover of
6.9 times, compared with 5.9 times in 2002.
Outlook
We remain focused on delivering shareholder value by implementing a corporate
strategy which achieves profit growth and good returns on capital whilst
minimising risk. We start the current year with low gearing and an excellent
land bank which puts us in a strong position to adapt to any changes in market
conditions.
After several years of strong house price inflation we expect to see a more
stable market emerging in 2004, which we welcome. Our response to this market
outlook has been to reduce our exposure to the upper market sector, to increase
our social housing output and to tighten our land buying criteria. 2004 will
also see a growing contribution from our mixed use schemes. Consequently, we are
confident that Crest is well positioned to make further progress in the current
year and, given a stable housing market, the longer term outlook also remains
positive.
STATEMENT OF RESULTS
for the year ended 31st October 2003
2003 2002
£m £m £m £m
Turnover - including joint ventures 574.4 696.4
(Note 1)
Less: attributable to joint ventures (12.0) (10.4)
------ ------
Group turnover - continuing 538.5 505.1
operations
Group turnover - discontinued 23.9 562.4 180.9 686.0
operations ------ ------
Cost of sales (423.7) (553.2)
------ ------
Gross profit 138.7 132.8
Operating costs (50.8) (59.5)
------ ------
Group operating profit - continuing 87.9 75.7
Group operating profit - - 87.9 (2.4) 73.3
discontinued ------ ------
Operating profit of joint ventures - (0.6) 3.5
continuing
Operating loss of joint ventures - - (0.6) (1.0) 2.5
discontinued ------ ------ ------ ------
Operating profit - including joint 87.3 75.8
ventures (Note 1)
Net interest payable (12.7) (12.8)
------ ------
Profit before taxation (Note 1) 74.6 63.0
Taxation (23.0) (19.0)
------ ------
Profit for the financial year 51.6 44.0
Preference dividends (2.1) (2.1)
------ ------
Profit attributable to ordinary 49.5 41.9
shareholders
Ordinary dividends (12.2) (10.3)
------ ------
Retained profit 37.3 31.6
====== ======
Earnings per share (Note 2)
Basic 45.2p 38.8p
Diluted 44.7p 38.2p
Dividends per share 11.0p 9.5p
CONSOLIDATED BALANCE SHEET
At 31st October 2003
2003 2002
£m £m £m £m
Fixed assets
Tangible assets 2.1 3.8
Investments in joint ventures 15.6 10.1
Other investments - 0.6
-------- -------
17.7 14.5
Current assets
Stocks 651.6 598.3
Debtors 125.9 169.8
Cash at bank and in hand 55.2 18.3
-------- -------
832.7 786.4
Creditors: amounts falling due
within one year (300.9) (244.0)
-------- -------
Net current assets 531.8 542.4
-------- -------
Total assets less current 549.5 556.9
liabilities
Creditors: amounts falling due
after more than one year (262.9) (308.7)
Provisions for liabilities and (1.1) (1.1)
charges -------- -------
(264.0) (309.8)
-------- -------
285.5 247.1
======== =======
Shareholders' funds (Note 3) 285.5 247.1
======== =======
Net borrowings 81.9 131.8
Gearing 29% 53%
Net assets per ordinary share (Note 4) 224p 192p
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31st October 2003
2003 2002
£m £m £m £m
Net cash inflow from operating 88.7 15.1
activities
Returns on investments and
servicing of finance
Interest received 0.3 0.4
Interest paid (13.2) (14.0)
Preference dividends paid (2.1) (2.1)
------ ------
Net cash outflow from returns on (15.0) (15.7)
investments and servicing of
finance
Taxation
Corporation tax paid (15.8) (16.3)
Capital expenditure and financial
investment
Tangible fixed assets acquired (0.8) (1.6)
Tangible fixed assets disposed 0.3 0.4
Other fixed asset investments (8.7) (3.7)
acquired
Other fixed asset investments 3.3 0.2
disposed ------ ------
Net cash outflow from capital (5.9) (4.7)
expenditure and financial
investment
Acquisitions and disposals
Disposal of Pearce Group 7.7 -
Equity dividends paid (10.9) (9.2)
------ ------
Net cash inflow/(outflow) before 48.8 (30.8)
financing
Financing
Proceeds from share issues 1.1 1.5
(Decrease)/increase in bank loan (15.0) 4.2
and loan notes ------ ------
Net cash (outflow)/inflow from (13.9) 5.7
financing ------ ------
Increase/(decrease) in cash in 34.9 (25.1)
year ====== ======
NOTES
1 Segmental Analysis Operating Pre-tax Capital
Turnover profit profit employed
£m £m £m £m
2003
Development 550.5 87.3 74.6 367.4
Construction - 23.9 - - -
discontinued --------- --------- --------- ---------
574.4 87.3 74.6 367.4
========= ========= ========= =========
2002
Development 515.5 79.2 66.3 379.5
Construction - 180.9 (3.4) (3.3) (0.6)
discontinued --------- --------- --------- ---------
696.4 75.8 63.0 378.9
========= ========= ========= =========
2 Earnings per share
Earnings per share are calculated on the profit attributable to ordinary
shareholders of £49.5m (2002: £41.9m), on a weighted average of
109,505,528 (2002: 108,140,464) ordinary shares in issue during the year.
Diluted earnings per share are calculated on the profit attributable to
ordinary shareholders of £49.5m (2002: £41.9m), on a weighted average of
110,641,033 (2002: 109,576,300) ordinary shares on the basis that 3,156,724
(2002: 4,185,672) share options had been exercised.
3 Reconciliation of shareholders' funds
2003 2002
£m £m
Retained profit 37.3 31.6
Net proceeds from share issues 1.1 1.5
-------- --------
Net increase in shareholders' funds 38.4 33.1
Opening shareholders' funds 247.1 214.0
-------- --------
Closing shareholders' funds 285.5 247.1
======== ========
4 Net assets per share
Net assets per ordinary share is calculated on net assets of £247.5m
(2002: £209.1m), after deducting the preference capital of £38.0m (2002:
£38.0m) from the capital and reserves, on 110,417,298 (2002: 108,770,923)
ordinary shares in issue and ranking for full dividends at 31st October
2003.
5 Statutory accounts
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 31st October 2003 or 2002 but is
derived from those accounts. Statutory accounts for 2002 have been
delivered to the Registrar of Companies, whereas those for 2003 will be
delivered following the Company'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 Thursday, 25th March 2004 at 12.00 noon.
FIVE YEAR RECORD
1999 2000 2001 2002 2003
Turnover (including joint ventures) £m £m £m £m £m
-------------------------------------
Development 383.5 411.4 392.9 515.5 550.5
Construction - discontinued 128.0 133.1 193.2 180.9 23.9
-------- -------- -------- -------- --------
511.5 544.5 586.1 696.4 574.4
-------- -------- -------- -------- --------
Operating profit (including joint ventures) £m £m £m £m £m
--------------------------------------------
Development 46.6 52.2 59.6 79.2 87.3
Construction - discontinued 1.7 0.9 1.2 (3.4) -
-------- -------- -------- -------- --------
48.3 53.1 60.8 75.8 87.3
-------- -------- -------- -------- --------
Operating margin - development 12.2% 12.7% 15.2% 15.4% 15.9%
Pre-tax profit £m £m £m £m £m
----------------
Development 37.3 41.9 49.3 66.3 74.6
Construction - discontinued 2.0 0.8 1.2 (3.3) -
-------- -------- -------- -------- --------
39.3 42.7 50.5 63.0 74.6
-------- -------- -------- -------- --------
Housing
---------
Houses sold 2,479 1,717 1,543 1,899 1,936
Average selling price £121,300 £162,500 £186,700 £225,100 £239,300
Land bank - Short term (units) 6,788 7,778 10,424 10,760 12,173
Average selling price £162,600 £185,700 £185,800 £197,600 £187,900
Land bank - Strategic (units) 11,680 12,562 11,862 13,735 13,236
Balance sheet £m £m £m £m £m
---------------
Shareholders' funds 167.2 188.3 214.0 247.1 285.5
Net borrowings 75.2 79.7 102.5 131.8 81.9
-------- -------- -------- -------- --------
Capital employed 242.4 268.0 316.5 378.9 367.4
-------- -------- -------- -------- --------
Gearing 45% 42% 48% 53% 29%
Return on shareholders' funds (average) 24.9% 24.0% 25.1% 27.3% 28.0%
Return on capital employed (average) 20.6% 20.8% 20.8% 21.8% 23.4%
Ordinary shares
-----------------
Earnings per share 23.4p 26.4p 30.8p 38.8p 45.2p
Dividends per share 6.00p 7.00p 8.00p 9.50p 11.0p
Dividend cover 3.9x 3.8x 3.8x 4.1x 4.1x
Net tangible assets per share 121p 141p 164p 192p 224p
Note: The figures for the years 1999 to 2001 have been restated to reflect
the change in income recognition policy in 2002.
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