Final Results
Redrow PLC
11 September 2007
Tuesday 11 September 2007
Redrow plc
Preliminary results for the twelve months ended 30 June 2007
Operational Highlights
• Legal completions increased by 1.9% to 4,823 (2006: 4,735)
• Owned land bank with planning increased by 5.7% to 17,700 plots
• Secured first income and profit in Redrow Regeneration
• Forward sales position at year end increased 6.4% to 2,148 homes
• Planning position strengthened with 97.5% of anticipated 2007/08 output on
sites with implementable consents
Financial Highlights
• Group turnover increased by 3.3% to £795.7m (2006: £770.1m)
• Operating profit increased by 2.9% to £136.6m (2006: £132.8m)
• Profit before tax of £120.5m and basic earnings per share of 52.9p both
unchanged from previous year
• Dividend increased by 20% to 15.6p per share (2006: 13.0p) with commitment
to increase by 20% in 2007/08
• Balance sheet retains capacity to increase investment in land with gearing
at 31% (2006: 25%)
Alan Bowkett, Chairman of Redrow plc, said:
'Redrow delivered a solid performance in the last financial year against a
backdrop of successive interest rate rises and an increasingly inefficient and
complex planning system. We focused on optimising returns from our land bank
and positioning our business for 2007/08.
Our continuing long term strategy for land acquisition and our design led
approach to our product reaffirms our historic values and strengths. We are
focused on our core competencies to unlock value from development opportunities
for the benefit of shareholders.'
Enquiries:
Redrow plc
Neil Fitzsimmons, Chief Executive 0207 404 5959 (11 September)
David Arnold, Group Finance Director 01244 520044 (thereafter)
Brunswick
Patrick Handley / Jayne Rosefield 0207 404 5959
There will be an analyst and investor meeting at 09:00 BST. A live audio webcast
and slide presentation of this event will be available at 09:00 BST on
www.redrowplc.co.uk. Participants can also dial-in to hear the presentation
live at 09:00 on +44 (0) 20 7138 0838; passcode: 7749534.
Playback will be available by phone until 24th September on the following
dial-in number: +44 (0) 20 7806 1970; passcode: 7749534#.
CHAIRMAN'S STATEMENT
This is my first statement as Chairman of Redrow plc following my appointment in
July 2007 and I am delighted to be taking on this important role. Redrow
possesses many strong attributes especially the quality of its land holdings,
its attention to design and innovation and the experience and capabilities of
its people. The Group continues to invest in and further enhance these important
areas so as to take advantage of the opportunities in its market place.
2006/07 Performance
The UK new homes market in 2006/07 was stable but competitive in an interest
rate environment that saw four rate increases in the period. The planning
regime continues to be inefficient and grows in complexity and as elsewhere in
our industry, this resulted in delays in bringing new outlets on stream. In
response, the business focused on delivering an appropriate rate of sale from
its developments to optimise returns and to support the forward order book for
2007/08, with overall forward sales up 6.4% at June 2007.
Group turnover increased by 3.3% to £795.7m (2006: £770.1m). Legal completions
increased by 1.9% to 4,823 new homes and there was a strong contribution from
our Mixed Use and Regeneration activities. Operating profit was 2.9% higher at
£136.6m (2006: £132.8m) with the operating margin in the Homes business in line
with expectations at 17.1% (2006: 17.5%). There was continued investment in the
land bank and the number of owned plots with planning consent increased to
17,700 plots (2006: 16,750). This investment, together with the increase in
interest rates, resulted in higher financing costs at £15.3m (2006: £11.5m).
The Group made a profit before tax of £120.5m and basic earnings per share of
52.9p, both unchanged from the previous year.
The level of capital employed in the business grew over the last twelve months,
principally as we increased our investment in land by £118.4m to £641.4m to
support our future growth. As a consequence, return on capital employed declined
to 19.4% (2006: 22.0%), still well ahead of the Group's comparable cost of
capital. At June 2007, gearing was 30.7% (2006: 25.3%) so providing the
capacity for further investment in our land bank.
Dividend
The twelve months to June 2007 represented the first year of our two year
commitment to increase the dividend by 20% per annum. The dividend for the year
will be 15.6 pence per share (2006: 13.0p), subject to shareholder approval at
the Annual General Meeting. The proposed final dividend of 7.8 pence per share
reflects the rebalancing of the dividend payment made in 2006/07 to improve the
timing of cash flows to shareholders through a higher interim dividend payment.
In the last five years, the dividend has increased at a compound growth rate of
over 20% per annum and we have reduced our dividend cover from 6.4 times to its
present level of 3.4 times.
The Board
There have been significant changes in the composition of the Board since the
last Annual Report. With much sadness we announced in April the death of my
predecessor as Chairman, Robert Jones. Robert is remembered with much fondness
having been a Director for nearly ten years and Chairman since October 2000.
Jim Martin, who was our Senior Non-Executive Director, acted as Interim Chairman
at short notice and after ten years of service as a Non-Executive Director
stands down on 11 September 2007. The Board wishes to acknowledge the important
contributions of both Robert and Jim to Redrow's development. I would like to
thank Jim for his stewardship in the intervening period and for his invaluable
advice upon my appointment. Brian Duckworth, who has served on the Board since
June 2002, has taken on the position of Senior Non-Executive Director.
This year also sees two long standing Executive Directors leave the business.
Each has played a significant part in making Redrow one of the UK's leading
residential developers. Paul Pedley has been an integral part of Redrow for
over 22 years as Finance Director, Managing Director, Chief Executive and since
August 2005, Executive Deputy Chairman. He has been a leading figure in the
industry for many years and in 2006 was awarded an OBE for services to business
in Wales. Paul will retire on 30 September 2007. Barry Harvey was with the
Company for over twelve years and for the last nine as a Director of Redrow plc
in the role of Northern Regional Chairman. Barry stood down from the Board on
29 June 2007. The Board wishes to record its appreciation for the long and
distinguished service given by both Paul and Barry to Redrow. I am delighted
that David Campbell-Kelly has joined the senior management team as Northern
Regional Chairman having been with Redrow for 13 years and for the last 8 years
as a Managing Director and more recently as a Regional Chairman.
We have been fortunate to be joined by two excellent new Non-Executive Directors
on the Board. Denise Jagger joined the Board on 17 January 2007 and Bob Bennett
was appointed on 1 May 2007. Bob has since taken on responsibility for
Chairmanship of the Audit Committee. We look forward to their contribution to
the continuing success of Redrow in the coming years.
Governance and Corporate Social Responsibility
Redrow recognises its responsibility to its shareholders and other stakeholders
and there is a detailed report on corporate governance and an update on our work
in the area of corporate social responsibility within the Annual Report. We
recognise the increasing importance of sustainability issues which we are
affording a greater focus in our operations. Alongside our peer group and
stakeholders from other sectors we have embraced the Government's 2016 Zero
Carbon Commitment. Redrow is the only housebuilder to be a member of the World
Wildlife Fund's UK Forest and Trade Network and we work with that organisation
to increase our use of timber from well managed and sustainable sources. We
believe in providing a safe environment for everyone on our sites and were
delighted to secure a Gold Award from the Royal Society for Prevention of
Accidents (RoSPA) for Health and Safety for the second successive year.
Finally, we continue to invest in our people at all levels to allow them to
develop their skills and to support our business objectives. The Redrow Team in
the widest sense is responsible for achieving success within the business. We
would like to thank not only our own employees but also our suppliers,
sub-contractors, consultants and advisers for their commitment in making Redrow
successful.
Looking Forward
The UK economy overall appears relatively resilient with employment levels
remaining strong. We entered the new financial year with a much stronger
position in terms of implementable planning consents so that the outcome for
Redrow in 2007/08 will largely depend on the strength of the markets in which we
operate. Some lead indicators suggest that the increases in interest rates
since August 2006 are beginning to have a dampening effect on the market and we
have positioned the business to best respond to prevailing conditions.
The industry in which we operate is increasingly in the public eye. The
shortage and affordability of homes, together with the requirement to respond to
the challenge of sustainability, become ever more prominent issues. We are
witnessing an unprecedented level of new initiatives from Government and we also
have the market study into UK housebuilding by the Office of Fair Trading taking
place over the next twelve months.
With challenge comes opportunity and Redrow has clear strategies for the core
components of its business: a long term approach to land acquisition, a
development philosophy based on high quality design and a commitment to
developing the skills of our employees. This leaves us well placed to
capitalise on the opportunities available in our markets for the benefit of our
shareholders.
Alan Bowkett
Chairman
BUSINESS REVIEW
Introduction
Our strategy is to sustain our long term approach to land acquisition and to
capitalise upon the quality of our current and forward land bank. Allied to
this, our increasing focus on urban design and the strength and experience in
our management teams best position Redrow to address the challenges and take
advantage of the opportunities in our marketplace.
In the last two years we have made significant progress in growing our current
land holdings and improving the quality of our forward land bank. The current
land bank has increased by nearly 20% over this time and, within this, our owned
land bank with planning has grown by 12% to 17,700 plots. This has enabled us
to strengthen our position in terms of planning, as 97.5% of our anticipated
output in 2007/08 now has detailed and implementable planning consent. This
provides much greater certainty as regards the delivery of sales outlets into
our markets in the new financial year. Our forward land bank stands at 24,400
plots and we have improved its quality with a higher proportion of allocations.
We are developing our Mixed Use and Regeneration businesses as a further source
of long term land as well as additional income streams. We are delighted that
Redrow Regeneration made its first contribution in 2006/07.
Urban design and the delivery of high quality developments represent important
points of differentiation for Redrow. They enable us to engage more positively
with planning authorities and to address one of the key issues facing our
industry which is to secure planning consents within shorter timescales. This
approach further enhances the desirability of our products to our customers to
drive increased value for Redrow whilst the use of core house types enables
efficiency and quality in construction and control of our cost base.
In the last 12 months, we have restructured our business to be more efficient
whilst preserving the capability to grow our business. Our continuing long term
strategy for land acquisition and our design led approach to product reaffirms
historic values and strengths in Redrow. We are focusing on our core
competencies of finding development opportunities and using our product
portfolio and design skills to unlock value for the benefit of shareholders.
Overview of Performance
In 2006/07, we concentrated on maximising returns over the medium term through
the delivery of an appropriate rate of sale and forward sales position to
optimise the returns from our land bank. As we highlighted in March 2007, this
was a response to the growing inefficiencies and complexity of the planning
system which had delayed some of our sites from obtaining a detailed,
implementable planning consent. As a consequence of our sales strategy, legal
completions grew by 1.9% to 4,823 homes (2006: 4,735).
The sales market remained stable but competitive against a backdrop of four
increases in interest rates in the financial period. Stronger conditions were
experienced in the South East of England and in Scotland than in other parts of
the country. Our sales reservations in 2006/07 totalled 4,953, an increase of
3.7% on the previous year. Sales in the second half of the financial year
remained at satisfactory levels with reservations of our Signature and 'In the
City' homes together up 3.5% on the same period last year. We also strengthened
our overall forward sales position which increased by 6.4% to 2,148 homes as
compared with 2,018 at the beginning of the financial year.
Operating profit increased by 2.9% to £136.6m (2006: £132.8m) with profit before
tax unchanged at £120.5m. Redrow's balance sheet remains strong with net debt
at the year end of £177.6m (2006: £129.8m) representing gearing of 30.7% (2006:
25.3%). Return on capital employed in the year to June 2007 was 19.4% (2006:
22.0%), primarily reflecting our increased level of capital employed as we
continue to invest in our land bank.
In our Homes operations, we legally completed 4,728 new homes, in line with the
previous year (2006: 4,735). Legal completions of our Signature product were
3,689 homes (2006: 4,027). This was short of our original volume aspirations at
the start of the year and reflected the planning environment and our sales
strategy. The average selling price of Signature increased by 1.0% to £167,900
(2006: £166,200). 'In the City' legal completions were ahead of our
expectations at 537 (2006: 495). The average selling price was 13.7% higher at
£182,200 (2006: £160,200) as a result of the mix of developments on stream. We
more than doubled the output of our affordable Debut product to 502 homes (2006:
213) which sold at an average selling price of £79,100 (2006: £79,200). With a
higher proportion of Debut homes in 2007, the turnover in Homes was 1.1% lower
at £757.0m (2006: £765.5m).
Gross margins within the Homes business were 23.1% in 2007 (2006: 23.2%) and
operating margins were in line with our expectations at 17.1% (2006: 17.5%). In
a strong land market and in line with our land strategy, we generated profit of
£15.1m (2006: £8.9m) from the disposal of surplus land holdings during the year.
This included £9.1m (2006: £3.6m) from current developments where we released
value on large sites to enable the efficient use of capital and £6.0m (2006:
£5.3m) from sundry land holdings.
We maintained tight control on our overheads which increased by 2.3% during the
year to £45.0m (2006: £44.0m) in our Homes operations. During 2007, we
rationalised our fixed cost base to increase its efficiency whilst still
providing capacity for growth within our regional structure. The costs of this
restructuring are included in our 2007 results. We currently anticipate that the
overhead cost within our Homes operations in the 12 months ending June 2008
should be no higher than in 2006/07 which should benefit our operating margins
in the forthcoming financial year.
The Homes business now has 10 principal offices with a satellite office in
Exeter to manage our activities in the West Country. We have strengthened our
management and land bank in Scotland. Our investment in the large site at
Cheswick in Bristol, together with our major forward land holdings at Exeter and
Taunton provide a platform for growth in the South West and West Country. We
also continue to pursue our strategy to increase our presence in the South East
and have increased our investment in both current and forward land in this
important market.
Our Mixed Use and Regeneration businesses performed ahead of expectations,
delivering an operating profit, including our share of joint ventures, of £6.6m
(2006: £0.7m) on turnover of £38.7m (2006: £4.6m). We achieved sales of
completed commercial developments and land to end users across a number of
locations, including St David's Park and Buckshaw Village, and importantly we
achieved our first income from Redrow Regeneration as it successfully delivered
the Lifelong Learning Centre and the first 95 homes of Phase 1 at Barking Town
Square.
The Board has considered the position of Framing Solutions plc, the Group's 50:
50 joint venture with Corus. Redrow's share of the operating loss of Framing
Solutions in the year to June 2007 was £0.7m (2006: £0.8m), with the
attributable loss after interest and tax being £0.6m (2006: £0.6m). Our
involvement in the joint venture since 2002 has enabled us to gain a greater
understanding of modern methods of construction which are now more prevalent and
for which the market is now more established. Taking these factors into
consideration, the Board has decided that it no longer sees the benefit of
having a direct involvement in this area of activity and we are investigating
our options accordingly.
Land
The key element in delivering sustainable and profitable growth rests in the
quality of the land bank. In a competitive land market, where the value of
existing sites with planning is increasing, we continue to promote a long term
approach to sourcing our land requirements to deliver margins in excess of those
available in the open market. These higher returns represent our reward for the
skills and capital we invest in adding value during the planning process.
Through the strength and experience we possess within our regional land and
planning teams, we continue to identify new forward land opportunities and to
promote existing sites through the planning system. Our track record in forward
land over many years demonstrates to landowners our ability to secure planning
consents and optimise development values.
In 2007, approximately 30% of the net additions to our owned land bank with
planning were secured through our investment in forward land. Within our
forward land bank of 24,400 plots with a realistic prospect of securing a
consent, we have 25 forward land sites representing 10,300 plots spread across
our operations that are allocated in local plans. Our existing forward land
opportunities have significant value not recognised in our balance sheet and
represent a source of higher margin opportunity in the future.
The current land bank as at June 2007 was 20,700 plots, representing in excess
of four years' supply (2006: 21,000). In sourcing our current land
opportunities we look for opportunities to add value to the development process
by resolving planning, technical or legal issues. In 2007, approximately 45% of
land was acquired through this route delivering land for our business that
should produce profit at margins better than is typically available on sites
with a planning consent sold on the open market.
The balance of our land is secured in the open market where sites already have a
planning permission. In these instances, we use our skills in design to be
competitive in generating land values at the appropriate levels of return. Such
sites can support volumes where they deliver incremental income without an
increase in fixed overheads and can be particularly beneficial in growing output
in our newer business.
We have made good progress in converting land controlled under contract into our
owned land bank with planning. At June 2007, we held 17,700 plots with
planning, representing a 5.7% increase on the 16,750 plots held as at June 2006.
Our Homes companies increased their land owned with planning to 17,280 plots
with the balance of 420 plots held in Redrow Regeneration.
The average plot cost of our Homes land bank with planning was £36,300 (2006:
£31,000) representing 20.4% (2006: 18.3%) of the estimated average selling price
of those plots. This increase reflects our strategy of growing our presence in
the South East of England where the relationship between land cost and selling
price is intrinsically higher. During 2007, we invested a net £241.8m in new
land at an average plot cost of £43,900. 31% of our net additions were in the
South East and as at June 2007, 20% of our Homes land bank owned with planning
was in this market as compared with 16% as at the previous year end.
A key issue in the development process is in securing implementable, detailed
planning consents to enable a site to be converted into a sales outlet. We now
have 97.5% of our anticipated output for the financial year ended June 2008 with
implementable planning secured.
Effective management of our investment in land is an essential ingredient in
providing the capability to deliver growth at appropriate margins whilst
retaining a return on capital employed significantly ahead of our cost of
capital. Redrow continues to invest in larger sites which provide opportunities
to improve margins over a development's lifetime through enhanced design and
value creation derived through its quality. We also look to use such sites to
generate outlets through trading land with our peer group as well as releasing
value for shareholders at the appropriate time and managing our overall
investment.
Product
Product plays a prominent role within our business. The Government is setting
significant challenges for the industry in terms of meeting improved
sustainability levels and our Product Development Team is assessing the ways in
which these challenges can be addressed in a cost effective way that delivers a
home that meets the aspirations of our customers.
Product maximises the value inherent in the land whilst ensuring the
desirability and attractiveness of our developments to our customers. The call
for improved design from Government and other bodies requires that the product
must be viewed in a much more holistic way. Through our focus on urban design
we view the product as not just the individual home but one that embraces all
the constituent elements of the development to deliver communities where people
will want to live. This includes the street scenes and interaction of roads,
the treatment of public realm through the use of open space and use of hard and
soft landscaping to deliver a premium offering to our customers which will drive
value.
Our Signature and Debut ranges provide a strong platform in terms of house types
to meet this objective particularly when taken with our award winning record on
our 'In the City' developments. This platform, together with the design skills
within our business through our Regional Directors of Design and establishing
Centres of Design Excellence in our regions, provides the tools to capitalise on
our progressive design philosophy. This is already being reflected in our
developments now coming on stream and this approach reinvigorates a historic
element of differentiation in Redrow's heritage.
The Debut range has been enthusiastically received by customers who otherwise
would not have been able to secure a foothold on the home owning ladder. In
total, over 700 Debut customers are now living in affordable open market new
homes. Our customer survey results show that 94% of Debut homeowners were
satisfied with their home. Debut's imaginative and innovative elements have
been recognised in over 11 different awards. However, local authorities in
England and Wales have generally remained focused on traditional approaches to
tackling affordability through social housing for rent and shared equity through
Registered Social Landlords. This has been further reinforced by the
Government's definition of affordable housing in recent planning guidance which
is likely to impact our original volume aspirations for this product.
There is now an increasing focus in Government policy upon expanding the supply
of new affordable homes. In Debut, we have a product with strong positive
customer endorsement from which we can leverage future opportunities and it will
continue to represent part of our armoury. However, the overall priority for
Redrow must be to manage our resources to
deliver value to our shareholders in the most effective and efficient way and on
sourcing development opportunities without a specific concentration on one
element of our portfolio.
The Redrow product offering continues to embrace mixed use development which in
recent years has been strengthened by our new Redrow Regeneration business
concentrating on major opportunities in London and the South East. We continue
to deliver value from our mixed use schemes at St David's Park and Buckshaw
Village and are proceeding with new opportunities at City Wharf in Lichfield,
Vision in Devonport and at Cheswick in Bristol.
In Redrow Regeneration, we are successfully moving forward with Phase 1 at
Barking Town Square with the Lifelong Learning Centre handed over and 95 of the
246 apartments legally completing in 2006/07. The balance of the apartments in
Phase 1 will legally complete in the new financial year. We secured planning on
Phase 2 of the development in June 2007 and this comprises 272 apartments and
40,000 sq ft of office and retail space. We have already sold 96 apartments
within Phase 2 and the overall scheme will be an important catalyst in
regenerating the centre of Barking. Progress continues to be made at Watford
Junction through our Joint Venture, Waterford Park, as we explore with Network
Rail how we can optimise the regeneration of this high profile site. We
continue to investigate further opportunities to utilise our regeneration
skills.
People
The Redrow Team is an essential element in the delivery of our business
objectives and the Board appreciates the commitment they make to our
performance. We have an Executive team which has accumulated in excess of 130
years involvement in the development industry and a team of Managing Directors
in our operating companies with significant experience to take Redrow forward.
The labour market for high quality professional people continues to be tight
within our sector and we recognise that stable teams are important in the
efficiency and quality of our business. As part of our review of our
operational cost base we have re-examined and adjusted our remuneration packages
to ensure we remain competitive in the marketplace. This has been achieved
within our overall objective of maintaining Homes' overheads in the new
financial year in line with 2006/07.
To retain and motivate our employees, we continue to invest in the skills of our
people through training@redrow with its dedicated facility at Tamworth. In
2007, we provided over 5,000 training days from essential induction courses for
new employees to more specific initiatives which support the quality of our
business. As part of our focus upon design, we are working with Oxford Brookes
University and the Commission for Architecture in the Built Environment (CABE)
to enhance the skills and awareness of key members of our team on how good
design can be used to best advantage for Redrow. Over 30 Assistant Site
Managers have now been through, or are progressing with, our accreditation
programme which includes the achievement of an appropriate NVQ qualification and
which supports our objective of improving build quality. In recent years we have
worked hard on the quality of construction and we have experienced a significant
improvement in standards relative to National House Building Council (NHBC)
industry benchmarks. We are also delighted that we have seen a significant
increase in the number of our Site Managers achieving NHBC Pride in the Job
Awards in 2007.
Improving build quality is an important element in raising levels of customer
satisfaction. Our customer service surveys carried out by an independent
research organisation showed that our satisfaction levels increased from 75% to
79% in 2007 and the proportion of customers who would recommend Redrow to a
friend increased from 80% to 83%. In 2007, five of our companies achieved
satisfaction levels in excess of 85% and all but one company achieved a
recommendation level of over 75%. We recognise we have more to do in meeting
the expectations of our customers and to help secure this objective we have
appointed external specialists to review our approach in this aspect of our
business and recommend ways of achieving further improvements.
Redrow has continued to deliver improvements in Health and Safety in the last
twelve months. In 2007 we achieved a Gold award for the second year running
from the Royal Society for the Prevention of Accidents. As Principal Contractor
there were no fatalities on our sites in 2007 (2006: nil), no prosecutions for
Health and Safety issues (2006: nil), no Prohibition Notices (2006 : 2) and only
one Improvement Notice issued (2006: 1). The number of injuries reported
under the Reporting of Injuries, Diseases and Dangerous Occurrences Regulations
(RIDDOR) stood at 41 (2006: 40) and the level of injuries requiring first aid
reduced by 10%.
Financial Review
Income Statement
Turnover in the year totalled £795.7m (2006: £770.1m), a 3.3% increase on prior
year levels. This reflected a strong performance by our Mixed Use and
Regeneration activities. Homes turnover was £757.0m (2006:£765.5m) reflecting a
reduction in average selling price compared to the previous year as a result of
changes in the mix of properties with an increased proportion of our affordable
Debut homes.
Operating profit in the year was £136.6m (2006: £132.8m), an increase of £3.8m
on the previous year with the Group's operating margin unchanged at 17.2%.
Homes delivered an operating profit of £129.7m (2006: £133.8m), a 3.1% reduction
on the previous year with operating margins declining slightly, in line with our
expectations at 17.1% (2006: 17.5%).
Mixed Use and Regeneration performed strongly generating an operating profit,
including its share of joint ventures, of £6.6m in the year, compared to £0.7m
in the prior year. This reflected increased levels of activity across our mixed
use developments and the commencement of returns from our first regeneration
development at Barking.
The Group's net financing costs in the year totalled £15.3m (2006:£11.5m) which
were covered 8.9 times by operating profits. Underlying bank interest costs were
£13.2m, an increase of £4.6m on the previous year reflecting higher interest
rates during the year and an increased average debt level used to finance our
investment in land for future development. Average debt in the year ended June
2007 was approximately £230m (2006: c.£170m). We anticipate an increase in the
interest charge in 2007/08 principally as a consequence of higher cost of
borrowing.
In accordance with IAS 39, deferred payments arising from land creditors are
held at discounted present value, recognising a financing element on the
deferred settlement terms.
The value of the discount is expensed through net financing costs and amounted
to £2.8m in the year (2006: £3.0m).
Our joint ventures, Framing Solutions and Waterford Park, delivered a combined
loss of £0.8m attributable to Redrow after interest and tax (2006: £0.8m).
The Group's effective tax rate was 30.0% (2006: 30.2%) during the year. It is
anticipated that the effective tax rate in 2007/08 will be approximately 29.5%,
benefiting from the reduction in the rate of UK corporation tax from 30.0% to
28.0% from April 2008.
Balance sheet
The Group's capital employed increased to £755.4m (2006: £643.6m) and reflected
the increased investment made into land over the 12 months ended June 2007.
Total land held for development increased to £641.4m (2006: £523.0m) with Homes
land representing £634.0m (2006: £522.5m) of this figure, an increase of £111.5m
on the prior year.
When appropriate we will seek to purchase land on deferred terms and in these
cases, the vendor may retain a legal charge over the land to which the
transaction related or be provided with a guarantee to support future payments.
The overall level of land creditors at £124.2m increased by £45.9m compared to
the previous year (2006: £78.3m) and funded 19.4% of our investment in land as
compared with 15.0% in 2006.
Work in progress amounted to £347.3m at the end of June 2007 (2006: £326.6m),
net of cash on account. The increased level of work in progress reflected a
higher level of investment into our Signature and Debut developments as well as
into Mixed Use & Regeneration. Work in progress on our 'In the City' schemes
reduced by £12.8m.
Part exchange is a tool used to a limited extent as part of our incentive
package. It is generally used for higher value properties or stock plots and at
the end of June 2007, we only owned 55 properties with a value of £9.8m (2006:
£6.6m) included in work in progress.
Net assets per share increased by 12.3% to 361.5p (2006: 322.0p).
Cash flow
Cash generated from operations was £30.5m (2006: £44.5m) and reflected the
significant increase in inventories of £139.1m (2006: £88.6m) as a result of the
investment made during the year into the land bank.
Net debt increased by £47.8m to £177.6m (2006: £129.8m).
Treasury management
The Group has funded its increased investment in land and work in progress in
2007 through a combination of retained profits, bank financing and land
creditors. Redrow has a policy of funding itself with an appropriate mix of
debt and equity and with balance sheet gearing at June 2007 of 30.7% (2006:
25.3%) and interest cover of 8.9 times (2006: 11.5 times) the Group retains the
capacity for further investment.
Treasury management is conducted centrally with the focus being upon liquidity
and interest rate risks. Since Redrow operates wholly within the UK and almost
exclusively with a sterling denominated supplier base, direct foreign exchange
exposure is not regarded as a significant area of risk.
Liquidity risks are managed through the regular review of cash forecasts and by
maintaining adequate committed banking facilities to ensure appropriate
headroom. As at June 2007, Redrow had committed funding of £400m together with
further uncommitted bank facilities totalling £40m which are used in the process
of daily cash management. Day to day cash management is achieved by each
company operating its own bank account with bank accounts managed at a Group
level under a set off arrangement.
Within the Board's interest rate risk management framework, interest rates and
cash flow forecasts are regularly monitored to ensure that the level of hedging
to mitigate risks remains appropriate. The policy prohibits any trading in
derivative financial instruments and requires any hedging to be undertaken using
simple risk management products such as interest rate swaps.
The notional level of debt protected by interest rate swaps as at June 2007 was
£100.0m (2006: £62.5m). These swaps had an average remaining life of 1.6 years
at a fixed rate of 5.1% before borrowing margins are added.
Pensions
Following the results of the triennial valuation of the defined benefits section
of the Redrow Staff Pension Scheme undertaken as at 30 June 2005, the Company
had agreed with the Trustees to make special contributions totalling £11.0m
towards the past service deficit of £11.5m. The balance of this contribution,
being £8.0m, was paid in July 2006. The defined benefit section of the pension
scheme is now closed to new entrants but as a consequence of the scheme's
investment performance, together with favourable movements in bond yields over
the last twelve months, the Group accounts record the scheme having a pre tax
surplus of £6.1m at the end of June 2007. The Company, together with the
Trustees, continues to monitor closely both the financial position of the
defined benefit section and the underlying actuarial assumptions, particularly
as regards mortality and increasing life expectancy.
Earnings per share and dividends
Basic earnings per share were 52.9p, unchanged on the previous year. Diluted
earnings per share were 52.8p (2006: 52.7p). In accordance with the Board's
previously stated commitment and subject to approval at the Annual General
Meeting on 7 November 2007, a final dividend of 7.8 pence per share will be paid
on 16 November 2007. This represents an increase in the full year dividend of
20% to 15.6 pence (2006:13.0 pence).
Business Outlook
In our Homes operations we have moved into the new financial year with a
stronger forward sales position and we are on programme to increase our outlets
in the coming months as we move through the Autumn selling season. We also
anticipate additional social housing legal completions in 2007/08. We have
97.5% of our anticipated output for the current year on sites with implementable
planning consent which provides us with the capacity to grow our volumes.
The key factor in the outcome for 2007/08 will be the strength of demand in the
housing markets in which we operate. It is always difficult to assess the
housing market based on activity in the weaker selling months of July and
August. However, the effect of the succession of base rate rises since August
2006, coupled with remaining uncertainties over interest rates and the debt
markets, appear to be influencing consumer confidence and the housing markets as
we move into the Autumn selling season. We will closely monitor lead indicators
and retain a careful balance between selling prices and rate of sale to optimise
returns from our land bank.
In conjunction with this sales strategy we will exercise robust management of
both our build cost and our overheads. However, as we have previously
indicated, land acquired in recent years which in general has not benefited from
inflation in the selling prices of new homes, will influence margins over the
next twelve months as compared with their current level.
We have some excellent developments on stream in our mixed use portfolio and
will complete Phase 1 of Barking with the legal completion of the remaining 151
apartments in 2007/08. We will continue to invest in the future of Redrow
Regeneration through pre-development expenditure but given the very strong
performance in 2006/07 do not, at this stage, anticipate the same strength of
contribution in the new financial year from our Mixed Use and Regeneration
activities.
The spotlight has been increasingly on our industry in recent years in terms of
the number, affordability and sustainability of new homes. There have been
numerous changes to the planning system aimed at making it more efficient and
new challenges set as regards addressing the issues of climate change. We have
concerns whether the changes to the planning system will deliver benefits in
terms of the speed of delivery of implementable planning consents. We support
the objective to improve the sustainability of new homes and Redrow has,
alongside its peer group and stakeholders from other sectors, signed the 2016
Zero Carbon Commitment.
In July of this year the Government published a Green Paper that set out its
agenda for the housing sector with the over arching objective of delivering 3
million new homes by 2020 with increased levels of sustainability. We believe
the key issue is whether the proposals will resolve the conflict between the
Government's agenda to increase the delivery of new homes and some Local
Authorities' resistance to new development.
The essential elements in our strategy continue to be in our long term approach
to land acquisition and the capacity in our company structure to deliver growth
in output. We are using our skills in mixed use development to enable us to
unlock residential opportunities and continue to invest in Redrow Regeneration
as a further source of long term land yielding a profit stream in the future.
The focus on design to optimise value is taking on an increasing importance in
our business, especially in conjunction with our product development investment
to address the requirements in respect of sustainability. This can make us more
competitive in the land market, assist in delivering planning consents more
effectively and secure increased value for Redrow and our customers.
The fundamentals for our industry in the medium and long term remain positive
and our land bank, product and experienced management teams will enable us to
address the challenges and take advantage of the opportunities in our
marketplace for the benefit of shareholders in the coming years.
Neil Fitzsimmons David Arnold
Chief Executive Group Finance Director
Consolidated Income Statement
12 months ended
30 June
2007 2006
Note £m £m
Revenue 2 795.7 770.1
Cost of sales (612.7) (592.0)
Gross profit 183.0 178.1
Administrative expenses (46.4) (45.3)
Operating profit before financing costs 2 136.6 132.8
Financial income 1.6 0.6
Financial expenses (16.9) (12.1)
Net financing costs 2 (15.3) (11.5)
Share of loss of joint ventures after 2 (0.8) (0.8)
interest and taxation
Profit before tax 2 120.5 120.5
Income tax expense 3 (36.1) (36.4)
Profit for the period 84.4 84.1
Earnings per share
Basic earnings per share 5 52.9p 52.9p
Diluted earnings per share 5 52.8p 52.7p
Consolidated Balance Sheet
As at
30 June
2007 2006
Note £m £m
Assets
Intangible assets 0.3 0.4
Plant, property and equipment 24.6 23.8
Investments 3.7 2.4
Deferred tax assets 3.4 5.0
Derivative financial instruments 0.6 0.2
Retirement benefit surplus 6.1 -
Trade and other receivables 4.1 0.8
Total non-current assets 42.8 32.6
Inventories 6 988.7 849.6
Trade and other receivables 28.5 25.5
Derivative financial instruments 1.1 0.2
Cash and cash equivalents 8 12.2 24.5
Total current assets 1,030.5 899.8
Total assets 1,073.3 932.4
Equity
Issued capital 16.0 16.0
Share premium 58.1 56.2
Hedge reserve 1.2 0.3
Other reserves 7.9 7.9
Retained earnings 494.6 433.4
Total equity 577.8 513.8
Liabilities
Bank loans 8 169.7 131.5
Trade and other payables 7 48.8 41.9
Deferred tax liabilities 3.0 1.6
Retirement benefit obligations - 8.6
Long-term provisions 3.4 4.4
Total non-current liabilities 224.9 188.0
Bank overdrafts and loans 8 20.1 22.8
Trade and other payables 233.8 191.4
Current income tax liabilities 16.7 16.4
Total current liabilities 270.6 230.6
Total liabilities 495.5 418.6
Total equity and liabilities 1,073.3 932.4
Consolidated Cash Flow Statement
12 months ended
30 June
2007 2006
Note £m £m
Cash flow from operating activities
Operating profit before financing costs 136.6 132.8
Depreciation and amortization 2.3 2.3
Adjustment for non-cash items 3.1 (7.4)
Operating profit before changes in working capital and 142.0 127.7
provisions
Increase in trade and other receivables (6.3) (13.6)
Increase in inventories (139.1) (88.6)
Increase in trade and other payables 49.6 16.0
(Decrease)/increase in employee benefits and provisions (15.7) 3.0
Cash generated from operations 30.5 44.5
Interest paid (13.9) (8.9)
Tax paid (35.2) (40.5)
Net cash from operating activities (18.6) (4.9)
Cash flows from investing activities
Acquisition of plant, property and equipment (5.2) (2.2)
Proceeds from sale of plant and equipment 2.6 -
Interest received 0.9 0.5
Payments to joint ventures (2.3) (0.6)
Net cash from investing activities (4.0) (2.3)
Cash flows from financing activities
Issue of bank borrowings 170.0 98.0
Repayment of bank borrowings (132.0) (70.5)
Issue costs of bank borrowings (0.1) -
Purchase of own shares (0.5) (2.9)
Dividends paid (26.3) (18.4)
Proceeds from issue of share capital 1.9 2.1
Net cash from financing activities 13.0 8.3
(Decrease)/increase in net cash and cash equivalents (9.6) 1.1
Net cash and cash equivalents at the beginning of the period 1.7 0.6
Net cash and cash equivalents at the end of the period 8 (7.9) 1.7
Consolidated Statement of Recognised Income and Expense
12 months ended
30 June
2007 2006
£m £m
Effective portion of changes in fair value of interest rate cash flow hedges 1.3 0.6
Deferred tax on change in fair value of interest rate cash flow hedges (0.4) (0.2)
Actuarial gains/(losses) on defined benefit pension scheme 5.8 (2.8)
Deferred tax on actuarial gains/(losses) taken directly to equity (1.7) 0.8
Net income/(expense) recognised directly in equity 5.0 (1.6)
Profit for the period 84.4 84.1
Total recognised income and expense for the period 89.4 82.5
Reconciliation of Movements in Consolidated Equity
12 months ended
30 June
£m £m
Profit for the period 84.4 84.1
Dividends on equity shares (26.3) (18.4)
Other recognised income and expense relating to the period (net) 5.0 (1.6)
Shares issued 1.9 2.1
Movement in LTSIP/SAYE and share based payment (net) (1.0) (4.9)
Net increase in equity 64.0 61.3
Opening equity 513.8 452.5
Closing equity 577.8 513.8
NOTES
1. Basis of Preparation
The above results and the accompanying notes do not constitute statutory
accounts within the meaning of Section 240 of the Companies Act 1985. They
are taken from the full accounts which have received an unqualified report
by the Auditors and will be filed with the Registrar of Companies.
2. Segmental Information
2a) Income Statement
12 months ended
30 June
2007 2006
£m £m
Revenue
Homes 757.0 765.5
Mixed Use & Regeneration 38.7 4.6
795.7 770.1
Profit before tax
Homes 129.7 133.8
Mixed Use & Regeneration 6.6 0.7
Framing Solutions - operating loss (0.7) (0.8)
135.6 133.7
Jersey provision - (2.0)
135.6 131.7
Add back share of joint venture operating losses 1.0 1.1
Operating profit before financing costs 136.6 132.8
Net financing costs (15.3) (11.5)
121.3 121.3
Share of loss of joint ventures after interest and (0.8) (0.8)
taxation
Profit before tax 120.5 120.5
Segmental Information continued
2b) Balance Sheet
As at
30 June
2007 2006
£m £m
Segment assets
Homes 1,018.3 884.9
Mixed Use & Regeneration 43.2 23.0
Framing Solutions - share of joint venture 1.8 1.6
1,063.3 909.5
Elimination of inter-segment items (2.2) (1.6)
1,061.1 907.9
Cash and cash equivalents 12.2 24.5
Consolidated total assets 1,073.3 932.4
Segment liabilities
Homes 284.7 254.8
Mixed Use & Regeneration 23.2 11.1
307.9 265.9
Elimination of inter-segment items (2.2) (1.6)
305.7 264.3
Borrowings 189.8 154.3
Consolidated total liabilities 495.5 418.6
Total equity 577.8 513.8
3. Income Tax Expense
12 months ended
30 June
2007 2006
£m £m
Current year
UK Corporation Tax at 30% (2006: 30%) 34.6 33.2
Under/(over) provision in respect of prior year 0.5 (0.2)
35.1 33.0
Deferred tax
Origination and reversal of temporary 1.0 3.4
differences
36.1 36.4
Reconciliation of tax expense for the year
Tax on total profits @ 30% (2006: 30%) 36.2 36.2
Under/(over) provision in respect of prior year 0.5 (0.2)
Tax effect of share of losses in joint ventures 0.4 0.3
Expenses not deductible for tax purposes net of 0.2 0.2
rolled over capital gains
Short term temporary differences (1.2) (0.1)
36.1 36.4
4. Dividends
The final dividend of 7.8p will be recommended to shareholders for approval
at the Annual General Meeting on 7 November 2007. This dividend will be
paid on 16 November 2007 to shareholders whose names are on the Register of
Members at close of business on 21 September 2007. The shares will become
ex-dividend on 19 September 2007. This dividend, when added to the
interim, makes a total dividend for the year of 15.6p (2006: 13.0p).
5. Earnings Per Share
The calculation of the basic earnings per share of 52.9p (2006: 52.9p) is
based on Group profit for the period of £84.4m (2006: £84.1m) and on the
weighted average number of 10p ordinary shares in issue of 159.5m (2006:
159.1m). The average reflects an adjustment in respect of surplus shares
held in trust under the Redrow Long Term Share Incentive Plan.
Diluted earnings per share has been calculated by adjusting the weighted
average number of 10p ordinary shares in issue to assume the conversion of
all potentially dilutive ordinary shares and dividing earnings by this
diluted weighted average number of shares being 159.9m (2006: 159.5m).
6. Inventories
As at
30 June
2007 2006
£m £m
Land for development 641.4 523.0
Work in progress 333.1 312.4
Stock of showhomes 14.2 14.2
988.7 849.6
7. Amounts Due in Respect of Development Land
As at
30 June
2007 2006
£m £m
Due within one year 75.4 36.4
Due in more than one year 48.8 41.9
124.2 78.3
8. Analysis of Net Debt
As at
30 June
2007 2006
£m £m
Cash and cash equivalents 12.2 24.5
Bank overdrafts and loans (20.1) (22.8)
Net cash and cash equivalents (7.9) 1.7
Bank loans (169.7) (131.5)
Net debt (177.6) (129.8)
9. Annual General Meeting
The Annual General Meeting of Redrow plc will be held at St. David's Park
Hotel, St. David's Park, Flintshire on 7 November 2007, commencing at 12.00
noon. A copy of this statement is available for inspection at the
registered office.
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