Final Results
Crest Nicholson PLC
25 January 2006
25th January 2006
Preliminary Results Announcement
Crest Nicholson PLC, the residential and mixed use development company, today
announces results for the year ended 31st October 2005.
Financial highlights: % increase
• Turnover increased to £714.3m (2004: £643.2m) +11%
• Operating profit (before exceptional costs) increased to £97.0m (2004:
£94.9m) +2%
• Profit before tax (before exceptional costs) of £81.3m (2004: £82.1m) -1%
• Earnings per share (before exceptional costs) of 48.9p (2004: 49.4p) -1%
• Profit before tax (after exceptional costs) £79.2m (2004: £82.1m) -3%
• Earnings per share (after exceptional costs) of 47.0p (2004: 49.4p) -5%
• Proposed final dividend of 8.7p, making a total for the year of 12.9p
(2004: 12.3p) +5%
• Net assets attributable to ordinary shares equivalent to 294p (2004:
260p) +13%
Operational highlights:
• Open market housing units sold up 3% to 1,865 (2004: 1,812)
• Affordable housing units sold down 13% to 621 (2004: 712)
• Housing turnover up 3% to £545.9m (2004: £529.9m)
• Average selling price up 5% to £220,000 (2004: £210,000) due to sales
mix
• Land sales similar to 2003 at £75.6m (2004: £44.7m)
• Commercial sales on mixed use projects up 35% to £92.8m (2004: £68.6m)
• Short term housing land bank 14,945 units (2004: 15,060) - 5 years' supply
• Housing forward sales currently represent over 50% of 2006 target
• Business improvement initiative launched targeting £10m cost savings per
annum by 2008
Commenting today Stephen Stone, Chief Executive, said:
"Our strong performance in 2005 demonstrates the resilience and flexibility of
our business mix in challenging market conditions. We are particularly excited
by our progress in mixed use and urban regeneration which we expect to be key
components in the Group's future earnings growth. In addition, we have initiated
a business improvement programme in order to maximise returns and we expect to
deliver £10m of cost savings per annum by 2008.
"Our strong current forward order position and legal completions to date
represent over 50% of our targeted housing sales for 2006. While it is too early
to predict the outcome for 2006, early signs of an improving market,
particularly in the South East, make us cautiously optimistic."
Enquiries to:
Crest Nicholson PLC Brunswick Group LLP
Stephen Stone, Chief Executive Andrew Fenwick
Peter Darby, Finance Director Kate Miller
Robert Gardener
Tel: 020 7404 5959 (on day of announcement) Tel: 020 7404 5959
Tel: 01932 847272 (thereafter)
The analyst presentation will be available on the Company's web site
www.crestnicholson.com from 9.30am
ANNUAL REVIEW
Results
We are delighted to report another strong set of results for Crest Nicholson PLC
which was achieved in challenging market conditions. Our mix of business
combined with the strength of our land bank enabled us to perform resiliently
throughout the year.
Turnover was up 11% to £714.3m (2004: £643.2m). 2005 was a record year for
Crest's operating profit which was up 2% before exceptional costs to £97.0m
(2004: £94.9m).
Profit before tax and exceptional costs was down 1% to £81.3m (2004: £82.1m).
The exceptional costs of £2.1m relate to professional fees in connection with
the abortive approach from Heron Corporation incurred in the first half of 2005.
Profit before tax after exceptional items was £79.2m (2004: £82.1m).
Trading
Housing
Against a background of more challenging market conditions, open market housing
completions were up 3% to 1,865 (2004: 1,812), slightly higher than we predicted
at the interim stage.
As expected, completions of affordable units sold to housing associations were
lower at 621 (2004: 712) because of a temporary dip in the contracted programme.
However, this comfortably exceeded our expectation at the interim stage of
around 550 units because of improved rates of production in the second half.
Open market and affordable housing completions in total were down 1.5% at 2,486
units (2004: 2,524 units)
The average selling price rose by 5% to £220k (2004: £210k) due to sales mix
changes. The open market average selling price was virtually unchanged at £245k
(2004: £244k) while the average selling price of affordable units increased by
15% to £142k (2004: £123k).
In our year end trading statement issued in November 2005 we announced that,
with effect from 2006, revenue on housing units will be recognised upon legal
completion rather than on exchange of contracts and build completion as in 2005.
We see significant operational and cash flow advantages in bringing the revenue
recognition point into line with cash collection and this change also brings
Crest into line with its peer group.
Changing the revenue recognition point from build completion to legal completion
has a significant effect on the restated 2005 comparatives because of an unusual
bunching of apartments at the end of 2004 which legally completed in early 2005:
Half Year 2005 Full Year 2005
Build completion (existing basis) Open market 830 1,865
Affordable 256 621
Total units 1,086 2,486
Legal completion (new basis) Open market 1,057 1,997
Affordable 300 457
Total units 1,357 2,454
Looking forward to 2006, we would not expect to match the restated open market
unit completions in the first half of the year because of the abnormal bunching
of apartment completions referred to above but would expect open market unit
completions for the full year to be similar to the restated 2005 level of 1,997.
We would expect a doubling of affordable unit completions to around 900 units.
Our housing forward sales position at the year end was 13% up at £227.9m (2004:
£201.1m). Upon restatement to legal completion, forward sales at October 2005
rise to £389.6m (2004: £387.4m). Our current forward sales position and legal
completions to date represent over 50% of the 2006 target.
Land Sales
Land sales continue to be an integral part of Crest's method of operation as our
strength in land buying and planning enables us to secure more developable land
than we need for our own production requirements.
As planned, the land sale programme for 2005 exceeded 2004 levels and was
similar to that achieved in 2003. Land sales were £75.6m (2004: £44.7m, 2003:
£74.0m).
Demand for housing land remains good and, provided that our price expectations
are met, we would expect the 2006 land sale programme to be similar to 2005.
Mixed Use Commercial
As anticipated, commercial property sales from our mixed use schemes grew
strongly and ended the year up 35% at £92.8m (2004: £68.6m). The revenue
increase reflects construction progress on offices and retail properties at
Bristol Harbourside and Riverside, Hemel Hempstead.
Looking forward to 2006, we expect to finish Riverside, Hemel Hempstead and to
bring through the first revenues from our urban regeneration scheme in
Camberley. Overall commercial property sales in 2006 are likely to be similar to
2005.
Margins
Gross margins were down 1.7% to 20.7% (2004: 22.4%) for 3 reasons. First, mixed
use commercial sales, which carry a lower gross margin than housing, grew
strongly and formed a larger proportion of total sales in 2005 than in 2004.
Second, we increased the use of sales incentives to maintain volume. Third,
modest levels of build cost inflation reduced margin.
The overhead percentage of sales improved to 7.1% (2004: 7.6%) due to turnover
gains and strong overhead control.
Operating margins (before exceptional costs) were therefore 13.6% (2004: 14.8%).
Housing and Commercial Portfolios
Our strong land bank and agreed pipeline of urban regeneration projects enabled
us to adopt a more selective land buying stance in 2005 and we secured short
term land with a projected development value of £750m (2004: £883m).
The short term housing portfolio remains strong at 14,945 plots (2004: 15,060
plots) with a projected development value of £2.76bn (2004: £2.89bn). At the
current level of turnover the short term housing portfolio represents 5 years'
supply.
Our housing strategic land bank consists of 12,181 plots (2004: 13,182 plots).
In 2005 we converted 495 plots from the strategic to the short term portfolio
and the prospects for bringing more through in 2006 remain good.
The current mixed use commercial land portfolio amounts to 1.62m square feet
(2004: 1.83m square feet) with a development value of £450m (2004: £418m). The
majority of this relates to the mixed use schemes at Bristol Harbourside;
Farnham; Camberley; and Chertsey North.
These housing and commercial statistics now include urban regeneration projects
contracted in the year at Bath Western Riverside (Phase 1) and Camberley.
In addition to the contracted housing and commercial land bank shown above,
there is a pipeline of agreed but not contracted regeneration projects at
Oakgrove, Milton Keynes; Penarth Heights; and later phases of Bath Western
Riverside. The agreed pipeline at October 2005 represents a further £540m of
future development value. Since the 2005 year end, Oakgrove, Milton Keynes has
contracted and our 50% share of this 2,000 unit project has moved to the short
term housing portfolio.
Financial Position
Shareholders funds increased by £39m or 12% to £367.4m. The net assets
attributable to the ordinary shares are equivalent to 294p per share compared
with 260p at October 2004, an increase of 13%.
The Group's capital employed of £527.4m has increased by £20.6m and the return
on average capital employed is 18.4% compared to 21.7% in 2004.
The Group has negotiated a 33% reduction in the margins paid on its five year
Revolving Credit Facility and increased it by £30m to £255m. This, together with
the £120m US Private Placement and overdraft facilities, means that the Group
now has total borrowing facilities available of £380m (2004: £352m).
On 2 November 2005, the 5.5% Cumulative Redeemable Preference Shares of £38m
were repaid at par. The repayment of the preference shares has converted non tax
deductible preference dividends into tax deductible interest charges. While this
reduces profit before tax by around £2m, earnings per share are enhanced.
Changes of Accounting Policy and adoption of IFRS
As noted above, with effect for 2006, revenue on housing units will be
recognised upon legal completion rather than on build completion as in 2005. If
this change had been adopted in 2005, profits before tax would have been £11.2m
higher because of the unusually high numbers of apartments which were exchanged
and build complete at the 2004 year end but were not legally completed until
2005.
Crest is also implementing International Financial Reporting Standards (IFRS)
for the 2006 financial year.
The impact of these changes of accounting policy will be finalised and reported
in full in February. Their anticipated effect is summarised below:
£m
Profit before tax after exceptional costs per UK GAAP 79.2
Net increase in cost of sales arising principally from expensing sales and
marketing (4.7)
Preference dividend reclassified as finance cost (2.1)
Net impact of discounting deferred payments (principally land creditors) (2.7)
Other (2.0)
-----
Profit before tax restated for IFRS 67.7
Housing gain arising from change to legal completion 11.2
-----
Profit before tax restated for IFRS and change to legal completion 78.9
-----
The combined effect of accounting policy changes on capital and reserves is
summarised below:
£m
Capital and reserves per UK GAAP 367.4
Preference capital (repaid on 2 November 2005) (38.0)
-----
Equity and reserves 329.4
Pension fund deficit (26.1)
Reduction in stock (principally sales and marketing costs expensed) (12.0)
Final dividend not accrued 9.8
Other revenue recognition deferrals (7.8)
Deferred payments and currency swaps (4.2)
-----
Equity and reserves restated to IFRS 289.1
Deferred profit on change to legal completion (23.0)
-----
Equity and reserves restated for IFRS and change to legal completion 266.1
-----
In addition, Crest will bring its accounting policy for recognising land stock
and land creditors into line with the peer group. This change has no impact on
net asset value.
Dividend
We are recommending a final dividend of 8.7p per share. This will give a total
for the year of 12.9p, up 5% (2004: 12.3p). The dividend will be covered 3.6
times (2004: 4.0 times). The final dividend will be paid on 12 April 2006 to
shareholders on the register at 24 March 2006.
Board Changes
In September 2005, we announced the retirement of John Callcutt as Chief
Executive Officer (CEO) and his appointment as Non-Executive Deputy Chairman
with effect from 1 November 2005. In this role, John will continue to promote
the Company's expertise in sustainable development and to develop our urban
regeneration strategy. Stephen Stone was promoted to CEO with effect from 1
November 2005.
Awards
The Company's significant contribution to urban regeneration was recognised at
the annual Building Regeneration Awards in December 2005 where Crest received
the awards for the Regeneration Developer of the year, the Regeneration
Partnership of the year and Regeneration Housebuilder of the year. This triple
success further underpins Crest's reputation for excellence in the urban
regeneration field and should help create further opportunities for the Group in
this important market.
Business Development and Improvement
Crest is now recognised as a market leader in urban regeneration and we intend
to build on this base. We have the capability to design and manage large scale
sustainable developments in an urban environment and have established a
reputation for successful delivery.
Establishing our leading position in urban regeneration has required significant
investment both in product and overhead. We have tested a wide range of designs
and built up skills to deliver solutions which meet local and national planning
and design objectives. We are now working to extract maximum benefit from this
investment and to eliminate cost through the simplification of our product range
and by focusing on proven designs and construction methods.
Our aim is to drive up operating margins through a range of cost reduction
initiatives, both in relation to urban regeneration projects and elsewhere in
the business. To this end, business improvement workgroups have been set up for
each function of our business, and these are chaired by an operating unit
managing director. The role of these workgroups is to deliver bottom line gains
through targeted savings. We are targeting annualised reductions in our product
and overhead cost base of £10m by 2008. We expect this process to enhance future
shareholder returns by improving cost effectiveness whilst maintaining the
excellence of our product.
Bringing large scale regeneration projects into production is a lengthy process,
but the Group will begin to see an increasing contribution from these schemes in
2007 and later years.
Outlook
Our strong performance in 2005 demonstrates the resilience and flexibility of
our business mix in challenging market conditions. We are particularly excited
by our progress in mixed use and urban regeneration which we expect to be key
components in the Group's future earnings growth. In addition, we have initiated
a business improvement programme in order to maximise returns and we expect to
deliver £10m of cost savings per annum by 2008.
Our strong current forward order position and legal completions to date
represent over 50% of our targeted housing sales for 2006. While it is too early
to predict the outcome for 2006, early signs of an improving market,
particularly in the South East, make us cautiously optimistic.
STATEMENT OF RESULTS
for the year ended 31st October 2005
2005 2004
£m £m £m £m
Turnover - including joint ventures 714.3 643.2
Less: attributable to joint ventures (12.6) (12.0)
------ ------
Group turnover 701.7 631.2
Cost of sales (555.3) (489.3)
------ ------
Gross profit 146.4 141.9
Operating costs
Exceptional costs (Note 1) (2.1) -
Other costs (51.0) (53.1) (49.0) (49.0)
------ ------ ------ ------
Group operating profit 93.3 92.9
Operating profit of joint ventures 1.6 2.0
------ ------
Operating profit - including joint
ventures 94.9 94.9
Net interest payable (15.7) (12.8)
------ ------
Profit before taxation 79.2 82.1
Taxation (24.5) (25.1)
------ ------
Profit for the financial year 54.7 57.0
Preference dividends (2.1) (2.1)
------ ------
Profit attributable to ordinary
shareholders 52.6 54.9
Ordinary dividends (14.5) (13.7)
------ ------
Retained profit 38.1 41.2
====== ======
Earnings per share (Note 2)
Basic - before exceptional costs 48.9p 49.4p
Basic 47.0p 49.4p
Diluted 46.7p 49.0p
Dividends per share 12.9p 12.3p
CONSOLIDATED BALANCE SHEET
At 31st October 2005
2005 2004
£m £m £m £m
Fixed assets
Tangible assets 2.5 2.5
Investments in joint ventures 41.2 21.2
-------- -------
43.7 23.7
Current assets
Stocks 640.1 771.9
Debtors 223.2 239.4
Cash at bank and in hand 57.0 10.9
-------- -------
920.3 1,022.2
Creditors: amounts falling due
within one year (295.6) (304.4)
-------- -------
Net current assets 624.7 717.8
-------- -------
Total assets less current liabilities 668.4 741.5
Creditors: amounts falling due
after more than one year (297.8) (411.4)
Provisions for liabilities and charges (3.2) (1.7)
-------- -------
(301.0) (413.1)
-------- -------
Net assets 367.4 328.4
======== =======
Shareholders' funds (Note 3) 367.4 328.4
======== =======
Net borrowings 160.0 178.4
Gearing 44% 54%
Net assets per ordinary share (Note 4) 294p 260p
Consolidated Cash Flow Statement
For the year ended 31st October 2005
2005 2004
£m £m £m £m
Net cash inflow/(outflow) from operating
activities 93.1 (41.6)
Dividend received from joint venture 0.1 1.4
Returns on investments and servicing of
finance
Interest received 0.4 0.4
Interest paid (15.9) (12.8)
Preference dividends paid (2.1) (2.1)
------ ------
Net cash outflow from returns on
investments (17.6) (14.5)
and servicing of finance
Taxation
Corporation tax paid (24.1) (24.9)
Capital expenditure and financial
investment
Tangible fixed assets acquired (1.0) (1.3)
Other fixed asset investment loan advances (24.5) (8.8)
Other fixed asset investment loan 5.6 3.1
repayments ------ ------
Net cash outflow from capital expenditure
and financial investment (19.9) (7.0)
Acquisitions and disposals
Disposal of subsidiary companies - 2.3
Equity dividends paid (14.0) (12.8)
------ ------
Net cash inflow/(outflow) before financing 17.6 (97.1)
Financing
Proceeds from equity share issues 0.8 1.0
Acquisition of own shares for ESOP Trust - (0.4)
Increase in bank loan and loan notes 18.0 51.0
------ ------
Net cash inflow from financing 18.8 51.6
------ ------
Increase/(decrease) in cash in year 36.4 (45.5)
====== ======
NOTES
1 Exceptional Costs
The exceptional costs consist of professional fees incurred in connection with
the approach the Company received from Heron Corporation.
2 Earnings per share
Earnings per share are calculated on the profit attributable to ordinary
shareholders of £52.6m (2004: £54.9m), on a weighted average of 111,852,392
(2004: 111,043,698) ordinary shares in issue during the year. Earnings per share
before exceptional costs are calculated on the profit attributable to ordinary
shareholders before exceptional costs of £54.7m (2004: £54.9m).
Diluted earnings per share are calculated on the profit attributable to ordinary
shareholders of £52.6m (2004: £54.9m), on a weighted average of 112,700,749
(2004: 112,042,818) ordinary shares on the basis that 2,282,232 (2004:
2,555,643) share options had been exercised.
3 Reconciliation of shareholders' funds
2005 2004
£m £m
Retained profit 38.1 41.2
Net proceeds from share issues 0.8 1.0
Employee Share Ownership Trust movements 0.1 0.4
-------- --------
Net increase in shareholders' funds 39.0 42.6
Opening shareholders' funds 328.4 285.8
-------- --------
Closing shareholders' funds 367.4 328.4
======== ========
4 Net assets per share
Net assets per ordinary share is calculated on net assets of £329.4m (2004:
£290.4m), after deducting the preference capital of £38.0m (2004: £38.0m) from
the capital and reserves, on 112,128,638 (2004: 111,395,562) ordinary shares in
issue and ranking for full dividends at 31st October 2005.
5 Statutory accounts
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 31st October 2005 or 2004 but is derived
from those accounts. Statutory accounts for 2004 have been delivered to the
Registrar of Companies, whereas those for 2005 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 Friday, 7th April at 12.00 noon.
FIVE YEAR RECORD
2001 2002 2003 2004 2005
Turnover
(including joint ventures) £m £m £m £m £m
-------------------------
Development 392.9 515.5 550.5 643.2 714.3
Construction - discontinued 193.2 180.9 23.9 - -
-------- -------- -------- -------- --------
586.1 696.4 574.4 643.2 714.3
-------- -------- -------- -------- --------
Operating profit
(including joint ventures) £m £m £m £m £m
--------------------------
Development 59.6 79.2 87.3 94.9 94.9
Construction - discontinued 1.2 (3.4) - - -
-------- -------- -------- -------- --------
60.8 75.8 87.3 94.9 94.9
-------- -------- -------- -------- --------
Operating margin -
development 15.2% 15.4% 15.9% 14.8% 13.3%
Pre-tax profit £m £m £m £m £m
----------------
Development 49.3 66.3 74.6 82.1 79.2
Construction - discontinued 1.2 (3.3) - - -
-------- -------- -------- -------- --------
50.5 63.0 74.6 82.1 79.2
-------- -------- -------- -------- --------
Housing
---------
Houses sold 1,543 1,899 1,936 2,524 2,486
Average selling price £186,700 £225,100 £239,300 £210,000 £219,600
Land bank - Short term
(units) 10,424 10,760 13,204 15,060 14,945
Average selling price £185,800 £197,600 £187,900 £192,200 £184,500
Land bank - Strategic
(units) 11,862 13,735 13,236 13,182 12,181
Balance sheet £m £m £m £m £m
---------------
Shareholders' funds 214.0 247.1 285.8 328.4 367.4
Net borrowings 102.5 131.8 81.9 178.4 160.0
-------- -------- -------- -------- --------
Capital employed 316.5 378.9 367.7 506.8 527.4
-------- -------- -------- -------- --------
Gearing 48% 53% 29% 54% 44%
Return on shareholders'
funds (average) 25.1% 27.3% 28.0% 26.7% 22.8%
Return on capital
employed (average) 20.8% 21.8% 23.4% 21.7% 18.4%
Ordinary shares
-----------------
Earnings per share 30.8p 38.8p 45.2p 49.4p 47.0p
Dividends per share 8.00p 9.50p 11.0p 12.3p 12.9p
Dividend cover 3.8x 4.1x 4.1x 4.0x 3.6x
Net tangible assets per
share 164p 192p 224p 260p 294p
Note: The figures for 2001 have been restated to reflect the change in income
recognition policy in 2002. The figures for 2003 have been restated for the
effect of UITF38 - Accounting for ESOP Trusts.
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