Interim Results
Crest Nicholson PLC
23 June 2005
23rd June 2005
Interim Results Announcement
Crest Nicholson PLC, the residential and mixed use development company, today
announces interim results for the six months ended 30th April 2005.
Financial highlights:
• Turnover increased to £315.3m (2004: £283.0m) +11%
• Operating profit (before exceptional costs) increased to £45.8m (2004:
£41.7m) +10%
• Pre-tax profit (before exceptional costs) increased to £38.0m (2004:
36.0m) + 6%
• Earnings per share (before exceptional costs) increased to 22.8p (2004:
21.8p) + 5%
• Exceptional costs of £2.1m re the approach from Heron Corporation
• Pre-tax profit £35.9m (2004: £36.0m)
• Proposed interim dividend of 4.2p (2004: 4.0p) + 5%
• Net assets attributable to ordinary shares equivalent to 277p (2004:
241p) +15%
Operational highlights:
• Open market housing completions up 12% to 830 units (2004: 743)
• Affordable housing units down 18% to 256 (2004: 312)
• Housing turnover up 5% to £238.9m (2004: £226.8m)
• Average selling price up 2% at £220,000 (2004: £215,000)
• Land sales £32.9m (2004: £18.7m)
• Commercial sales up 16% at £43.5m (2004: £37.5m)
• Housing forward sales position increased slightly at £214.5m (October
2004 £201.1m)
• Short term housing land bank increased to 15,138 units (2004: 14,700) -
over 5 years supply
• Development value of contracted short term housing and commercial land
bank £3.3bn (2004: £3.2bn)
• Strategic land bank of 12,022 plots (2004: 12,935 plots) of which we
expect c.3,000 to convert to short term within 3 years.
• Agreed pipeline of major urban regeneration projects at Oakgrove, Milton
Keynes, Aylesbury Town Centre, Penarth Heights and Bath Western Riverside
phases 2&3 with a development value of £0.7bn
Commenting today John Callcutt, Chief Executive said:
"We expect the housing market to continue to be challenging in the short term.
However, the quality of our land bank, combined with the strength of our
affordable and mixed-use commercial businesses, gives us confidence that we will
make further progress in 2005.
We have invested significantly over the last few years to increase the value of
our current and strategic land and to create a new source of opportunities
through developing a leading position in the growing urban regeneration market.
Our contracted land banks and agreed urban regeneration pipeline projects have a
combined development value of £4.54bn, of which we would expect around 50% to be
delivered by 2008. Even without securing additional land, and without
contributions from the strategic land bank beyond the first expected 3,000
plots, this represents a significant future earnings stream."
Enquiries to:
Crest Nicholson PLC Brunswick Group LLP
John Callcutt, Chief Executive Andrew Fenwick
Stephen Stone, Chief Operating Officer Kate Miller
Peter Darby, Finance Director 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
CHIEF EXECUTIVE'S STATEMENT
RESULTS AND DIVIDEND
Profit before tax and exceptional costs was £38.0m (2004: £36.0m) for the six
months to 30th April 2005, an increase of 5.5%. The exceptional costs of £2.1m
relate to professional fees in connection with the approach from Heron
Corporation.
The Directors are pleased to declare a 5% increase in the interim dividend to
4.2p (2004: 4.0p) to be paid on 1st September 2005 to shareholders on the
register at the close of business on 5th August 2005.
REVIEW OF OPERATIONS
Housing
The buoyant market in January and February has now been replaced by a steady and
consistent level of demand. The spring selling season taken as a whole was
shorter and less active than in the exceptionally strong opening months of 2004.
The pre general election period was quiet and we have not seen a significant
increase in activity since then.
In this market, we are pleased to have increased open market completions by 12%
to 830 units (2004: 743 units), which is a very solid performance but we expect
full year open market volumes to be relatively flat. As anticipated, the number
of affordable units fell to 256 (2004: 312) leaving overall volumes up 3% at
1,086 units (2004: 1,055 units). We expect to complete around 550 affordable
units for the full year before increasing again to over 700 in 2006.
The average selling price was up 2% to £220k (2004: £215k). The average selling
price of open market housing units was almost unchanged at £250k (2004: £251k),
while the average selling price of affordable units was £123k (2004: £130k).
Our housing forward sales position at the half year was increased slightly at
£214.5m (October 2004 £201.1m) but was down on the exceptionally strong position
at April 2004 (£256.2m) reflecting slower sales rates. Our forward sales
position at 17 June 2005 is £271.2m (June 2004: £325m).
Land Sales
As part of our strategy, we assemble large sites and create substantial land
value as we bring them through the planning process and into development.
Crest's strength in land buying and planning enables us to secure a dependable
flow of planning permissions, both for the Group to develop and for sale to
third parties. Sale of land is, and will continue to be, an integral part of
Crest's method of operation not only to generate cash but also to allow us to
adjust our portfolio to changing market conditions.
As planned, we increased first half housing land sales to £32.9m (2004: £18.7m).
We would expect to make similar sales in the second half, but will respond
flexibly to selling opportunities.
Mixed Use Commercial
Commercial property sales were up 16% to £43.5m (2004: £37.5m). The sales
turnover relates principally to progress made in constructing offices and retail
properties at Bristol Harbourside, Park Central in Birmingham and Riverside in
Hemel Hempstead, which were contracted in 2004. In the half year, we sold our
last remaining pure commercial development at Reigate for £6.9m at zero margin
as anticipated.
Commercial property sales for the full year are on track to show strong growth
on the £68.6m achieved in 2004.
Margins
Gross margins were down 0.8% to 22.2% (2004: 23.0%) of which 0.5% is
attributable to the Reigate sale mentioned above.
The overhead percentage of sales has reduced by 0.7% to 7.6% (2004: 8.3%) due to
turnover gains and strong overhead control.
Operating margins (before exceptional costs) are down 0.2% to 14.5% (2004:
14.7%).
The Group operating margin is likely to come under further pressure in the
second half for three reasons. First, mixed use commercial sales, which carry a
lower gross margin than housing, will be a bigger proportion of total sales in
the current year. Second, in the current market, we are using a normal level of
sales incentives and discounts and are not benefiting from net sales price gains
as in 2004. Third, modest levels of build cost inflation are not covered by
sales price gains and reduce margins. The dilutive effect of these factors could
be a reduction in operating margin of up to 1.0% in 2005 compared to 2004.
Housing and Commercial Land Banks
In the six months to April 2005, we acquired sites, including Bath Western
Riverside (Phase 1) and Camberley town centre, comprising 1,794 units (2004:
2,549 units), with a projected development value of £360m (2004: £449m). The
strength of our land bank has enabled us to adopt a more cautious land buying
stance in the six months to the end of April, but we have, opportunistically,
completed the purchase of a major site in Stanmore at good margins and increased
our investment in urban regeneration through the acquisition of the Bath Western
Riverside Phase 1 land.
Overall, we have increased the short term housing land bank which now stands at
15,138 units (2004: 14,700 units) with a projected development value of £2.84bn
(2004: £2.75bn), an increase of 3% over the twelve months. At the current level
of turnover, this land bank represents over 5 years' supply.
The current commercial land bank covers over 100 acres for 1.95m square feet of
commercial space with a development value of £0.46bn (2004: £0.47bn). The
majority of this relates to the mixed use schemes at Bristol Harbourside,
Riverside in Hemel Hempstead, Park Central in Birmingham, Farnham and Chertsey
North. In addition, we have a significant strategic land bank, including our 50%
share of the 215 acre Chertsey South site.
This gives a total development value for our short term land bank (housing and
commercial) of £3.3bn (2004: £3.2bn).
Our housing strategic land bank consists of 700 acres controlling 12,022 plots
(2004: 12,935 plots). Of these, we estimate that c.3,000 plots with a
development value of c.£500m have a high probability of conversion to short term
within 3 years.
We also have a pipeline of agreed urban regeneration projects at Oakgrove in
Milton Keynes, Aylesbury Town Centre, Penarth Heights and Bath Western Riverside
(Phases 2&3). While these are not yet contracted, they would add a further
£0.74bn development value to the short term land bank.
Shareholder Value
We have invested significantly over the last few years to increase the value of
our current and strategic land and to create a new source of opportunities
through developing a leading position in the growing urban regeneration market.
In assessing our response to the approach from Heron Corporation, we have
considered carefully the earnings potential of the contracted land banks and
agreed pipeline projects. The short term land bank (£3.3bn), the first expected
3,000 strategic plots (£0.5bn) and the agreed urban regeneration pipeline
projects (£0.74bn) have a combined development value of £4.54bn of which we
would expect around 50% to be delivered and completed by the 2008 financial year.
If one were to assume, for instance, an 11% pre-tax profit to sales and a 30%
tax charge, these land opportunities, without any further additions, would
represent about £0.35bn of future earnings. The present day value of this
earnings stream would vary according to investors' perception of discount rates,
the rate of build and level of market risk but it is clear that, without
securing additional land and without contributions from the strategic land bank
beyond the first 3,000 plots, the land bank and pipeline projects represent a
significant store of future value to be added to historic net assets of 277p per
share.
Product Quality
We have continued to receive awards for quality and service, gaining the top
rating (3 stars) in all categories in MORI National Customer Service Surveys.
We have received more awards from the Commission for Architecture and the Built
Environment (CABE) than any other major housebuilder. With a further Gold
Standard "Building for Life" award won for Park Central, Birmingham, we now have
three such awards recognising our contribution to design excellence.
These achievements clearly promote Crest's brand awareness with the house buying
public and land owners.
FINANCIAL POSITION
Shareholders' funds increased 13.9% to £348.6m (2004: £306.1m). The net assets
attributable to the ordinary shares are equivalent to 277p per share compared to
241p per share at April 2004, an increase of 14.9%.
Net borrowings of £219.5m represented gearing of 63% of shareholders funds
(2004: 59%) which is in line with our normal gearing policy. Average borrowings
were £235.1m (2004: £165.2m)
The Group has negotiated a 33% reduction in the margins 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 the Group has
total borrowing facilities available of £380m (2004: £352m).
Net interest costs at £7.8m (2004: £5.7m) reflect the increase in average
borrowings. Interest cover has reduced to 5.6 times, compared with 7.3 times in
2004.
We adopt International Financial Reporting Standards on 1st November 2005 and an
implementation plan is being prepared to give effect to those standards.
PROSPECTS
We expect the housing market to continue to be stable but challenging in the
short term. Volume objectives will be more difficult to achieve until purchaser
confidence in the housing market improves. However, the quality of the housing
land bank, combined with the strength of our affordable and mixed use commercial
businesses, gives us confidence that we will make further progress in 2005.
In the medium term, the fundamentals of the housing market remain attractive,
underpinned by continuing supply shortages, low interest rates and good
employment prospects, particularly in the southern half of the country where we
operate.
Our track record and growing reputation for sustainable redevelopment is evident
in the increasing flow of secured and agreed urban regeneration projects, which
will further enhance earnings potential for all shareholders in the medium term.
STATEMENT OF RESULTS
Unaudited Group results for the Half Year to 30th April 2005
Half Year Half Year Full Year
2005 2004 2004
£m £m £m
Turnover - including joint ventures 315.3 283.0 643.2
Less: attributable to joint ventures (4.6) (5.0) (12.0)
-------- -------- --------
Turnover - Group companies 310.7 278.0 631.2
======== ======== ========
Operating profit before exceptional costs 45.2 40.8 92.9
Exceptional administrative costs - see
Note 1 (2.1) - -
-------- -------- --------
Operating profit - Group companies 43.1 40.8 92.9
Operating profit of joint ventures 0.6 0.9 2.0
-------- -------- --------
Operating profit including joint ventures 43.7 41.7 94.9
Net interest payable (7.8) (5.7) (12.8)
-------- -------- --------
Profit before taxation 35.9 36.0 82.1
Estimated taxation - Note 2 (10.9) (10.8) (25.1)
-------- -------- --------
Profit after taxation 25.0 25.2 57.0
Preference dividends (1.0) (1.0) (2.1)
-------- -------- --------
Profit attributable to ordinary
shareholders 24.0 24.2 54.9
Ordinary dividends (4.7) (4.5) (13.7)
-------- -------- --------
Retained profit 19.3 19.7 41.2
======== ======== ========
Earnings per 10p ordinary share - Note 3
Basic - before exceptional costs 22.8p 21.8p 49.4p
Basic 21.5p 21.8p 49.4p
Diluted 21.3p 21.6p 49.0p
Dividends per 10p ordinary share 4.2p 4.0p 12.3p
There are no recognised gains or losses other than those shown above.
SUMMARY BALANCE SHEET
Unaudited Consolidated Balance Sheet as at 30th April 2005
April April October
2005 2004 2004
Restated
£m £m £m
Fixed assets
Tangible assets 2.7 2.4 2.5
Investments 20.1 22.1 21.2
-------- -------- --------
22.8 24.5 23.7
-------- -------- --------
Current assets/liabilities
Stocks 786.0 735.8 771.9
Debtors 210.6 176.2 239.4
Creditors (301.0) (265.5) (301.2)
Net (short term borrowings)/cash in hand (2.4) 20.8 7.7
-------- -------- --------
Net current assets 693.2 667.3 717.8
-------- -------- --------
Total assets less current liabilities 716.0 691.8 741.5
Creditors falling due after more
than one year
Bank and other loans (217.1) (200.0) (186.1)
Other creditors and provisions (150.3) (185.7) (227.0)
-------- -------- --------
(367.4) (385.7) (413.1)
-------- -------- --------
Net Assets represented by Shareholders' funds -
Note 4 348.6 306.1 328.4
======== ======== ========
Net borrowings 219.5 179.2 178.4
Gearing 63% 59% 54%
Net assets per ordinary share - Note 5 277p 241p 260p
SUMMARY CASH FLOW STATEMENT
Unaudited Consolidated Cash Flow Statement for the Half Year to 30th April 2005
Half Year Half Year Full Year
2005 2004 2004
£m £m £m
Net cash outflow from operating
activities (12.8) (68.5) (41.6)
Dividend received from joint venture - - 1.4
Returns on investments and servicing of
finance
Interest received 0.1 0.3 0.4
Interest paid (7.3) (5.6) (12.8)
Preference dividends paid (1.0) (1.0) (2.1)
-------- -------- --------
(8.2) (6.3) (14.5)
-------- -------- --------
Taxation paid (12.3) (12.9) (24.9)
Capital expenditure and financial
investment 0.9 (1.8) (7.4)
Acquisitions and disposals - - 2.3
Equity dividends paid (9.3) (8.4) (12.8)
-------- -------- --------
Net cash flow before financing (41.7) (97.9) (97.5)
Financing
Share issues 0.6 0.6 1.0
Increase in bank and other loans 31.0 64.9 51.0
-------- -------- --------
31.6 65.5 52.0
-------- -------- --------
Decrease in cash (10.1) (32.4) (45.5)
======== ======== ========
NOTES
1 Basis of presentation
The summarised half year financial information is unaudited and does not
constitute full accounts. The accounting policies are as stated in the last
Annual Report. The balance sheet for the 2004 half year has been restated
to reflect the change in accounting for ESOP Trusts as disclosed in the
2004 Annual Report, the effect of which has been to increase shareholders'
funds by £0.3m.
The exceptional costs consist of professional fees incurred in connection
with the approach the Company received from Heron Corporation.
The figures for 31st October 2004 are not the Company's statutory accounts
but the information has been extracted from statutory accounts which have
been reported on by the auditors and filed with the Registrar of Companies.
The report of the auditors was unqualified and did not contain a statement
under Section 237(2) or (4) of the Companies Act 1985.
2 Taxation
Half Year Half Year Full Year
2005 2004 2004
£m £m £m
Corporation tax charge at 30% (10.7) (10.5) (24.5)
Joint venture undertakings (0.2) (0.3) (0.6)
-------- ------- -------
(10.9) (10.8) (25.1)
======== ======= =======
3 Earnings per share
Basic earnings per share are calculated on the profit attributable to
ordinary shareholders of £24.0m (2004: £24.2m) on a weighted average of
111.7m (2004: 110.8m) ordinary shares in issue during the six months.
Diluted earnings per share are calculated on the profit attributable to
ordinary shareholders of £24.0m (2004: £24.2m) on a weighted average of
112.6m (2004: 111.8m) ordinary shares on the basis that 2.3m (2004: 2.5m)
share options had been exercised.
4 Reconciliation of shareholders' funds
Half Year Half Year Full Year
2005 2004 2004
Restated
£m £m £m
Retained profit 19.3 19.7 41.2
Net proceeds from share issues 0.6 0.6 1.0
Purchase of shares for ESOT - (0.4) (0.4)
Cost of employee share schemes 0.3 0.4 0.8
-------- ------- -------
Net increase in shareholders' funds 20.2 20.3 42.6
Opening shareholders' funds 328.4 285.8 285.8
-------- ------- -------
Closing shareholders' funds 348.6 306.1 328.4
======== ======= =======
5 Net assets per share
Net assets per ordinary share is calculated on net assets of £310.6m (2004:
£268.1m), after deducting the preference capital of £38.0m (2004: £38.0m)
from the capital and reserves, on 111.9m (2004: 111.2m) ordinary shares in
issue at 30th April 2005.
6 Interim Statement
The Interim Statement for the half year will be sent to all shareholders
and copies will also be available from Crest House, 39 Thames Street,
Weybridge, Surrey KT13 8JL, the Company's Registered Office.
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