Interim Results

Redrow PLC 06 March 2003 Redrow plc today announces interim results for the six months to 31 December 2002: Highlights: Dec 2002 Dec 2001 £m £m Turnover 296.4 264.6 +12% Operating Profit 55.1 45.5 +21% Profit before tax 51.5 41.6 +24% Earnings per share 22.8p 18.9p +21% Dividend per share 2.50p 2.02p +24% • Earnings per share increased by 21% to 22.8p (2001: 18.9p) • Interim dividend per share increased by 24% to 2.50p (2001: 2.02p) • Redrow Homes operating margins at 18.4% (2001: 17.6%) • Return on capital employed increased to 32% (2001: 30%) • Value of forward sales increases by 23% to £211m (2001: £171m) • Sales in first two months of 2003 ahead of corresponding period last year • Current land bank at 16,200 plots (2001: 15,000 plots); maintained at 4 years supply • Plot cost of land with planning improves to 14.4% of historic average selling price (Dec 2001: 15.8%) Commenting on the results, Robert Jones, Chairman of Redrow plc said: 'I am pleased to report that Redrow remains in excellent health. We have made strong progress in the past six months and both our half year forward sales and current land bank are at record levels. We remain confident that Redrow is well positioned to respond to any changes in the market and that the Group will deliver another very satisfactory performance in the current financial year.' Enquiries: Robert Jones, Chairman Redrow plc Paul Pedley, Chief Executive 0207-404-5959 (6 March) Neil Fitzsimmons, Finance Director 01244-520044 (thereafter) Patrick Handley/Nina Richmond Brunswick Public Relations 0207-404-5959 Further information on Redrow plc can be found at www.redrow.co.uk CHAIRMAN'S STATEMENT Overview I am pleased to report that Redrow remains in excellent health. We have made strong progress in the past six months and both our half year forward sales and current land bank are at record levels. These achievements are set against a background of economic and political uncertainty and continuing media speculation regarding the housing market. Some two years ago, the Board affirmed that sustained shareholder value lay at the heart of its strategy. This would be achieved by concentrating on our core skills: the development of high quality good value homes built on land secured at a competitive edge, developing synergies between the Redrow product ranges and using our commercial arm to deliver opportunities in the growing market for mixed-use developments. These results reflect that strategy, with profit before tax at £51.5m, representing an increase of 24% over the comparable half year and generating an increase in earnings per share of 21%. Dividends It is profitability, combined with a focus on return on capital, that generates the ability to pay dividends to our shareholders and the Board is proud of its record since flotation in May 1994. Over that period the Group has delivered compound growth in dividends of approximately 10% per year. Given the improvement in profitability in recent years, the Board considers it appropriate to re-base the dividend and this year's interim dividend will therefore rise by 24% to 2.50p. We propose to maintain our historic split between the interim and final dividend, so providing a higher reference level for our progressive policy. Operating Performance Turnover in the period for the Homes Division increased by 23%. This was due to a combination of a 14% increase in the number of legal completions to 1,970, in part reflecting the benefit from the Tay Homes acquisition in January 2002, and an 8% increase to £146,500 in the average selling price. In addition, the Homes operating margin for this half year increased to 18.4% from 17.6% last year. This improvement reflects the strength of the sales market in the Spring of 2002. If, as widely anticipated house price inflation moderates back in line with increases in earnings, we expect our margins to return gradually to those levels we have previously identified as sustainable. The combination of enhanced turnover and improved operating margin resulted in the operating profit increasing by 29% to £53.1m. Redrow Commercial performed ahead of our expectations in the first half generating an operating profit of £2.3m. With the completion of the pre-let and pre-sold 51,000 sq. ft. distribution warehouse at Western Approach near Bristol expected to cover overhead costs in the second half, the operating profits for the financial year are largely secured. Finance The strong profit and cash flow performance has also enabled us to maintain our prudent approach to borrowings that provides flexibility and strength within our balance sheet. Gearing at the end of the half year was 31%, continuing the reduction achieved last year despite the continuing investment in our owned land bank. In addition, the value of forward sales within the Homes Division has increased by 23% to £211m, further strengthening the Group's financial position. Redrow has always placed great emphasis on the efficient use of its funding base with a corresponding focus on return on capital employed. At 32% for the latest financial period, this remains a sector leading performance. Land Redrow has for some years placed an emphasis on 'brownfield' development and ' mixed-use' schemes. The Company's head office at St David's Park is situated on a Redrow development embracing both principles. During the half year some 63% of our completions were on brownfield sites, marginally ahead of the Government's own target of 60%. Furthermore, this emphasis is mirrored within our land bank. In terms of mixed-use developments, the contribution of Redrow Commercial has been important in adding value, both in the acquisition of land and its subsequent profitable development. This is reflected in the 400 acre mixed-use scheme at Buckshaw Village near Chorley, Lancashire and the continued development of St David's Park. It was also an essential component in maximising the return from Whitworthwest in Manchester which secured a coveted award from the Association of Town Centre Management for 'Best Town Centre Residential Development'. Despite delays created by the current planning system, Redrow has increased its owned land bank with planning to 13,700 plots, over three years' supply, with a further 2,500 plots under contract to give a record current land bank of 16,200 plots. The low cost of our owned land bank has been maintained with an average plot cost of only £21,100 (June 2002: £21,200) representing 14.4% of the historic average selling price. In addition, the effectiveness of our land bank can be further demonstrated with 100% of projected legal completions for 2003/04 from our owned land bank and over 95% of projected legal completions for 2004/05 from sites either owned or controlled. The forward land bank now totals 24,250 plots of which 35% are allocations in local plans. The Company's strong margins reflect to a large degree its success in forward land with 35% of land acquired in the period being sourced through this route. There has been widespread coverage of recent announcements from the Office of the Deputy Prime Minister regarding the changes to the planning system through the Planning and Compulsory Purchase Bill and policies to increase land available for development, particularly in the South East. Whilst we welcome initiatives to improve the efficiency of the planning system and to increase the supply of new homes in areas of shortage, the effectiveness of these initiatives has yet to be established and care must be taken not to create opportunities and excuses for further delays in delivering planning permissions, thereby restricting housing supply even further. Framing Solutions The Board reported at the end of the last financial year that trends in the labour market, both in terms of quality and cost, made it important to embrace new construction practices. As a result, Framing Solutions was formed, a joint venture company with Corus plc, to fabricate light steel frames. This form of construction has now been used on a number of sites and our expectations for improved efficiencies have been confirmed. Orders have been placed for several more sites and it will be steadily extended through the Group during the next two years. I am pleased to report that we expect the new plant to be installed on schedule in the second quarter of this calendar year which will significantly increase the capacity of the operation. Strategy Following a detailed strategic review of future growth opportunities within the Southern Housing Region, it has been decided to refocus the Region on four geographical areas, namely Midlands, South Midlands, Southern and Eastern. Redrow Homes (Midlands) will be more focused in the area around its office at Tamworth with a new company, Redrow Homes (South Midlands), to exploit the ' Milton Keynes Triangle'. Redrow Homes (Southern) will be expanded to incorporate the South Coast whilst Redrow Homes (Eastern) and Redrow Homes (South East) will merge retaining an office in Essex with an operational centre south of the Thames to give the combined company a greater focus on the East Thames corridor whilst retaining the ability to service opportunities in Kent, particularly around Ashford. To a large degree this corporate focus mirrors the Government's recently announced initiatives within the South East for increased land supply. Employees As ever, the delivery of these excellent results is a team effort and it is right that the Board should thank its employees, suppliers and contractors for their loyalty, enthusiasm and commitment. Outlook There is evidence that to some degree consumer confidence has been weakened by the issues to which I have already referred. We recognised last Autumn that this Spring was unlikely to be as positive as the extremely strong Spring market of last year. Accordingly, we established a marketing strategy to keep Redrow in the forefront of our prospective customers' minds. This included maintenance of our emphasis on Group marketing, in particular television advertising, a programme of new development launches throughout the Spring to increase our outlets thereby strengthening our forward sales position and a continued focus on profit and not turnover to maximise the value to be secured from our land bank. In addition we have within our range a breadth of product to appeal to a wide audience of customers from the affordable Harwood Range to the more exclusive and higher specification Heritage Range whilst not ignoring the potential of City Centre developments and opportunities provided by refurbishment schemes. As a result sales in the first two months of 2003 are ahead of the corresponding period last year. Whilst we recognise the issues surrounding consumer confidence, the fundamentals of the housing market remain sound. As a country we are still providing significantly less new housing than demographic change and personal choice require as the planning system continues to restrict supply. Affordability remains sound and the cost of borrowing is likely to remain at low levels whilst a significant proportion of the existing housing stock is poor and ageing. We remain confident that Redrow is well positioned to respond to any changes in the market and that the Group will deliver another very satisfactory performance in the current financial year. CONSOLIDATED PROFIT AND LOSS ACCOUNT Unaudited Audited 6 months 12 months ended ended 31 December 30 June 2002 2001 2002 Note £m £m £m Turnover 2 296.4 264.6 573.3 Total operating profit 2 55.1 45.5 94.1 Interest payable (3.6) (3.9) (9.0) Profit before taxation 51.5 41.6 85.1 Taxation 3 (15.4) (11.9) (24.3) Profit after taxation 36.1 29.7 60.8 Dividends 4 (4.0) (3.2) (9.6) Profit retained 32.1 26.5 51.2 Earnings per share - basic 5 22.8p 18.9p 38.5p - diluted 5 22.8p 18.8p 38.3p Dividends per share 4 2.50p 2.02p 6.06p There are no recognised gains or losses other than as shown above. There is no material difference between the profit on ordinary activities before taxation and the retained profit for the period stated above and their historic cost equivalents. CONSOLIDATED BALANCE SHEET Unaudited Audited As at As at 31 December 30 June 2002 2001 2002 Note £m £m £m Fixed assets Tangible assets 16.3 14.3 15.8 Investments 2.5 0.1 0.1 18.8 14.4 15.9 Current assets Assets held for resale - - 0.8 Land for development 300.9 252.2 294.5 Work in progress 202.4 156.8 192.0 Stock of showhomes 8.9 9.2 10.3 Debtors 9.8 7.3 8.8 Bank and cash deposits 7.2 5.1 1.0 529.2 430.6 507.4 Creditors Bank borrowings (90.5) (94.2) (94.1) Land creditors 6 (64.9) (39.4) (66.9) Other creditors and provisions (121.5) (97.5) (123.7) (276.9) (231.1) (284.7) Equity shareholders' funds 271.1 213.9 238.6 Reconciliation of movement in Equity shareholders' funds Opening shareholders' funds 238.6 187.1 187.1 Retained profit for the period 32.1 26.5 51.2 Shares issued 0.4 0.3 0.6 Contribution to QUEST - - (0.3) Closing shareholders' funds 271.1 213.9 238.6 CONSOLIDATED CASH FLOW STATEMENT Unaudited Audited 6 months 12 months ended ended 31 December 30 June 2002 2001 2002 Note £m £m £m Cash inflow from operating activities 7 34.4 40.5 104.6 Returns on investments and servicing of finance Net interest paid (3.0) (3.2) (8.4) Issue costs of new bank borrowings (0.5) - - Net cash (outflow) from returns on investments (3.5) (3.2) (8.4) and servicing of finance Corporation tax paid (11.8) (7.5) (24.2) Capital expenditure and financial investment Net purchase of tangible fixed assets (1.1) (1.0) 0.3 Payment to Joint Venture (2.7) - - Net cash (outflow)/inflow from capital expenditure (3.8) (1.0) 0.3 and financial investment Acquisition Purchase of Tay Homes plc - - (30.6) Net overdrafts acquired - - (12.9) Net cash (outflow) from acquisition - - (43.5) Dividends paid (6.4) (5.8) (9.0) Net cash inflow before financing 8.9 23.0 19.8 Financing and liquid resources Issue of ordinary share capital 0.4 0.3 0.3 Issue of bank borrowings 75.0 - - Repayment of bank borrowings (40.0) (30.0) (70.0) Net cash inflow/(outflow) from financing 35.4 (29.7) (69.7) Increase/(decrease) in cash in period 44.3 (6.7) (49.9) Net movement in bank borrowings (35.0) 30.0 70.0 Other non-cash movements 0.5 (0.2) (1.0) Change in net (debt) 9.8 23.1 19.1 Net (debt) at start of period (93.1) (112.2) (112.2) Net (debt) at end of period (83.3) (89.1) (93.1) NOTES 1. The interim report does not represent statutory accounts within the meaning of section 240 Companies Act 1985. The comparative figures for the year ended 30 June 2002 are however an abridged version of the Group's statutory accounts which received an unqualified audit report and have been delivered to the Registrar of Companies. 2. Segmental information:- Unaudited Audited 6 months 12 months ended ended 31 December 30 June 2002 2001 2002 £m £m £m Turnover Homes 288.7 234.6 543.1 Commercial 7.7 30.0 30.2 296.4 264.6 573.3 Profit on ordinary activities before taxation Homes 53.1 41.3 91.0 Commercial 2.3 4.2 3.1 Framing Solutions plc - Joint Venture (0.3) - - 55.1 45.5 94.1 Interest (3.6) (3.9) (9.0) 51.5 41.6 85.1 Net assets Homes 338.6 294.4 317.8 Commercial 13.4 8.6 13.9 Framing Solutions plc - Joint Venture 2.4 - - 354.4 303.0 331.7 Net (debt) (83.3) (89.1) (93.1) Net assets 271.1 213.9 238.6 3. The taxation charge reflects the estimated effective rate for the full year to 30 June 2003. 4. The Directors have declared an interim dividend of 2.50p per share (2001: 2.02p). This gives an interim dividend of £4.0m (2001: £3.2m) which will be paid on 9 May 2003 to shareholders whose names are on the Register of Members at the close of business on 14 March 2003. The shares will become ex-dividend on 12 March 2003. 5. The basic earnings per share calculation for the half year ended 31 December 2002 is based on the weighted average number of shares in issue during the period of 158.4m (2001: 157.7m) after adjusting for surplus shares held in trust under the Redrow Long Term Share Incentive Plan. The weighted average number of shares in issue for the year ended 30 June 2002 was 158.1m. Diluted earnings per share has been calculated after adjusting the weighted average number of shares in issue for shares held under unexercised options in accordance with FRS 14. 6. Land creditors:- Unaudited Audited As at As at 31 December 30 June 2002 2001 2002 £m £m £m Due within one year 39.7 25.9 41.0 Due in more than one year 25.2 13.5 25.9 64.9 39.4 66.9 7. Analysis of cash inflow from operating activities:- Unaudited Audited 6 months 12 months ended ended 31 December 30 June 2002 2001 2002 £m £m £m Total operating profit 55.1 45.5 94.1 Add back share of Joint Venture operating loss 0.3 - - Group operating profit 55.4 45.5 94.1 Depreciation including profits and losses on disposals of fixed assets 0.6 0.5 1.3 Increase in stocks and work in progress and assets held for resale (14.6) (1.1) (27.3) Movement in other current assets, creditors and provisions (7.0) (4.4) 36.5 34.4 40.5 104.6 8. The interim report has been prepared using accounting policies consistent with those applied in the Group accounts for the year ended 30 June 2002. The interim report has not been audited or reviewed and was approved by the Board of Directors on 5 March 2003. 9. The Registrar is Computershare Investor Services PLC. Shareholder enquiries should be addressed to the Registrar at the following address: Registrars Department PO Box 82 The Pavilions Bridgwater Road Bristol BS99 7NH This information is provided by RNS The company news service from the London Stock Exchange

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