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. This information is provided by RNS The company news service from the London Stock Exchange

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