Final Results - Year Ended 31 December 1999
Persimmon PLC
6 March 2000
PERSIMMON PLC
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 1999
Highlights
* Record pre-tax profits of £81.6 million, an increase of 35%
* Basic earnings per share of 32.1p, an increase of 28%
* Further margin growth with operating margin of 13.5% *
* 7,101 homes legally completed (1998: 6,483)
* Return on average capital employed increased to 19.6%
* Over 31,600 plots available for development
* Average selling price of £96,055 (1998: £86,414), an increase of 11%,
supported by change in sales mix
* Dividend of 11.1p (1998: 10.4p), covered 2.9 times
* Gearing of 26%, (1998: 30%); interest cover of 9 times
* excluding BES re-sales from turnover
Duncan Davidson, Group Chairman, commented: 'We have now increased our profits
nearly four-fold over the last four years.
Some observers seem convinced that the market for new homes is about to
decline as a result of recent interest rate rises, and despite firm
fundamentals. Due to the healthy state of the economy, low unemployment
levels, rising real incomes, good affordability and continuing planning
delays, demand for new homes continues to exceed supply. The outlook for our
markets therefore remains very positive.
At 1 March sales for the current year were at a record level. The value of
our forward sales is currently 15% ahead of that at the same date in 1999. We
are confident of achieving another excellent result in 2000.'
ENQUIRIES: Duncan Davidson, Group Chairman Michael Sandler/Justin
Strong
John White, Group Chief Executive Hudson Sandler Limited
Persimmon plc Tel: 0171 796 4133
Tel: 0171 796 4133 on Monday, 6 March 2000 only
Tel: 01904 642199 thereafter
CHAIRMANS STATEMENT
During 1999 Persimmon has increased net-pre-tax profit by 35% to a record
£81.6 million (1998: £60.5 million). We have now increased our profits nearly
four-fold over the last four years. Earnings per share in 1999 rose by 28% to
32.1 pence (1998: 25.1 pence).
Some observers seem convinced that the market for new homes is about to
decline as a result of recent interest rate rises, and despite firm
fundamentals. In fact, over the 27 years of Persimmons history our profits
have never declined because of modest interest rate rises. The only falls
were as a result of the housing market turmoil following the dramatic MIRAS
changes from 1988. Due to the healthy state of the economy, low unemployment
levels, rising real incomes, good affordability and continuing planning
delays, demand for new homes continues to exceed supply. The outlook for our
markets therefore remains very positive.
In 1999 we legally completed a record 7,101 homes (1998: 6,483 homes). Profit
per unit increased by 23% to £11,486. (1998: £9,337). Return on average
capital employed increased to 19.6% (1998: 17.0%). Net borrowing was slightly
lower at £95 million, giving gearing of 26% and interest cover of 9 times.
The average maturity of our committed debt facilities is four years.
We are proposing to increase the dividend by 6.7% to 11.1p per share (1998:
10.4p per share), which is covered 2.9 times. We paid an interim dividend of
3.5p per share in October 1999 and will recommend a final dividend of 7.6p,
which will be payable on 28th April 2000 to shareholders on the register as at
17th March 2000.
The growth of Persimmon has mainly been achieved through pursuing organic
expansion, the only major exception being the acquisition of Ideal Homes in
1996. On 22nd February 2000 we acquired Tilbury Douglas Homes Ltd. for £19.5
million in cash. This adds over 1,000 plots to Persimmons Scottish landbank.
We continue to watch our industry very carefully for further acquisition
opportunities.
The time has now come for us to implement our strategic plans for the
continued organic growth of our business. During the next few weeks we are
therefore splitting our operations into two new Divisions, Persimmon Homes
South led by Mike Farley, and Persimmon Homes North led by John Millar. Each
Division will consist of ten of our existing operating companies. We have a
number of key Directors immediately below Main Board level who are very
capable of assuming increased responsibilities. They will form the Boards of
the two new Divisions, without introducing any additional layers of
management.
This structural change is the most significant event at Persimmon since our
acquisition of Ideal Homes. These two new Divisions, combined with the
strength of our increasing landbank, place Persimmon in a very strong position
to grow our market share, whilst at the same time continuing to focus on the
further improvement of our profit margins and return on capital employed.
Turning to current trading, at 1st March sales for the current year are at a
record level. The value of our forward sales is currently 15% ahead of that
at the same date in 1999. We are confident of achieving another excellent
result in 2000.
All the Persimmon team have worked extremely hard to get our company into such
a strong position. I thank them all for their continuing efforts and success.
Duncan Davidson
3 March, 2000
CHIEF EXECUTIVE'S REVIEW
During 1999 we made further good progress in the planned expansion of the
Persimmon Group.
Our unit completions increased by around 10% to 7,101 against a background of
good demand in all areas.
Whilst the increase in volumes was in line with our expectations, we continued
to pursue progressive margin growth. The further improvement in our operating
margin to 14% for the second half clearly demonstrates our focus on improving
margins whilst expanding our business geographically.
We will continue to adopt this approach in what we believe will be a further
continuing period of good demand despite the threat of higher interest rates.
With forward sales revenues currently 15% ahead of last year we are in a
strong position to maximise margin per plot and protect our land bank, whilst
moving Group profits ahead.
We are therefore confident of another successful year in 2000 without
expecting or requiring much volume growth.
STRATEGY
Since the acquisition of Ideal Homes in 1996 our business has continued to
grow and all of the medium term targets we set ourselves have been achieved or
exceeded. At the time of acquisition we put in place a management structure
which would ensure that we would deliver the results.
Having achieved these targets, we now believe it is time to implement the
necessary structure to ensure that our successful management culture and
control continues. We will position the business for further growth without
introducing extra layers of management, by realising the potential of both our
top quality management and asset base.
With effect from 3rd April 2000 we are creating two divisions, South and
North, which will be led by Mike Farley and John Millar respectively. Mike
Farley is currently Chairman of the Central Region. Mike joined Persimmon in
1983 and was appointed to the Main Board in 1989. John Millar joined
Persimmon in 1986 and became a Main Board Director in 1993. The Northern
Region has grown successfully under his Chairmanship.
Each Division will have the ability to grow their business further to 5,000-
6,000 units per annum over the medium term.
We have some extremely talented and keen operations directors who will join
the Boards of the two new Divisions.
We believe that the proven key decision makers within our business will have
the structure to operate most effectively whilst building their businesses to
increase profitability and market share.
Looking ahead there are opportunities for the business which we continue to
view with great excitement as our industry rises to the challenges of
increased customer demands, in terms of quality, choice and service. We are
still encountering unnecessary and frustrating planning delays which continue
to emphasise the importance of maximising margins per plot.
Through our continued imaginative approach to all our developments in
partnership with our customers, we are well positioned to maximise sales
values. The improvement to our customer offer through our Finishing Touches
scheme further enhances our ability to grow our market share and maximise
returns per plot. In addition, our new improved web site makes our customers'
choice more accessible and is already attracting great interest.
MARKET CONDITIONS
We are experiencing good demand in all regions with price movement more
noticeable in areas of short supply in the Central and Southern parts of the
UK. Further North and into Scotland prices are generally more stable,
although again where there is a short supply of good quality housing the
demand is increasing. We expect a good level of demand to continue and to see
further increases in selling prices where conditions permit.
LAND AND PLANNING
We have once again increased our total land bank, to 31,652 plots, with an
average plot cost of £21,797 representing 20.4% of anticipated future sales
revenue. In addition, we have 6,562 acres of strategic land under our
control. This strategic land holding has provided further successes this year
with over 25% of our replacement plots being acquired from this source.
We expect our strategic land bank to provide an increasing amount of our plot
replacement in the future.
BUILD COSTS
Our overall costs last year increased by c. 4%. Most of this was due to a
rise in labour costs. However, we were able to mitigate this by smoothing out
our build programmes following the introduction of new construction management
tools associated with the implementation of our new IT systems.
PROCUREMENT
Over the years we have worked very closely with both manufacturers and
builders merchants to ensure that we not only enjoy the very best prices, but
also excellent service levels and guaranteed deliveries. However during 1999
we carried out a detailed review of our procurement procedures. Following
this review, it is our strong conclusion that the advantages of our present
system of supplies and deliveries direct to our sites, will increase following
the recent consolidation in this part of our sector. We have excellent
relationships with all the major merchants and manufacturers which will ensure
competitive pricing to us whilst tapping into their nationwide distribution
network, thereby ensuring prompt deliveries. We therefore expect to continue
to buy and receive our products on time and at the most attractive prices.
In fact, whilst some material prices rose during the year, it was pleasing to
note that overall we saw a reduction in the cost of our materials.
We believe this is the most efficient system and will continue to be so whilst
allowing us to concentrate on the main areas of business of buying land and
selling houses.
LOOKING FORWARD
In addition to the plans implemented in respect of our management structure,
we have a clear focus on our product and customers. With this in mind we have
further improved the Persimmon Pledge. We are constantly reviewing our house
types and layouts. We continue to realise many benefits to our business by
the implementation of our new I.T. systems. Customer care, procurement, sales
management, construction and WIP management, and other areas of our business
will all continue to benefit.
We believe that in the future there will be less standardisation of housing
with an ever increasing number of bespoke schemes. Our diverse range of house
types, our relationships with national suppliers and our emphasis on
controlled build programmes will stand us in good stead as these planning led
changes affect our industry.
We remain confident in our future.
John White
3 March, 2000
Consolidated profit and loss account
for the year ended 31 December 1999
1999 1998
£'000 £'000
Turnover
Continuing operations 695,854 572,407
Cost of sales (577,474) (478,849)
________ ________
Gross profit 118,380 93,558
Net operating expenses (26,216) (20,336)
________ ________
Operating profit
Continuing operations 92,164 73,222
Net interest payable and similar charges (10,600) (12,689)
________ ________
Profit on ordinary activities before
taxation 81,564 60,533
Tax on ordinary activities (23,928) (15,738)
________ ________
Profit for the financial year 57,636 44,795
Dividends (20,079) (18,548)
________ ________
Retained profit for the year 37,557 26,247
Basic earnings per share 32.1p 25.1p
Diluted earnings per share 31.8p 25.1p
Dividend per share 11.1p 10.4p
The group has no recognised gains or losses other than the profits above
and therefore no separate statement of total recognised gains and losses
has been presented.
Consolidated balance sheet
at 31 December 1999
1999 1998
Note £'000 £'000
Fixed assets
Tangible assets 11,105 10,569
________ ________
Current assets
Stocks and work in progress 584,694 558,865
BES assets - 14,065
Debtors due after one year 1,158 4,624
Debtors due within one year 45,426 36,767
Cash at bank and in hand 3 51,762 184
________ ________
683,040 614,505
________ ________
Creditors due within one year
Borrowings 3 (22,605) (15,809)
BES advances - (19,128)
Other creditors (164,963) (169,718)
________ ________
(187,568) (204,655)
________ ________
Net current assets 495,472 409,850
________ ________
Total assets less current liabilities 506,577 420,419
________ ________
Creditors due after more than one year
Borrowings 3 (123,998) (81,270)
Other creditors (18,904) (18,403)
________ ________
(142,902) (99,673)
________ ________
Net assets 363,675 320,746
Capital and reserves
Called up share capital 18,133 17,873
Share premium account 200,801 197,920
Merger reserve 3,123 3,123
Revaluation reserve 1,242 1,242
Profit and loss account 140,376 100,588
________ ________
Equity shareholders' funds 363,675 320,746
Net assets per share 200.6p 179.5p
Consolidated cash flow statement
for the year ended 31 December 1999
1999 1998
Note £'000 £'000
Net cash inflow from operating
activities 2 56,954 18,014
_______ _______
Return on investments and servicing
of finance
Interest received 161 153
Interest paid (7,185) (11,970)
Interest paid on finance leases (384) (349)
_______ _______
(7,408) (12,166)
_______ _______
Taxation
UK corporation tax paid (16,744) (8,790)
_______ _______
Capital expenditure
Purchase of tangible fixed assets (3,010) (655)
Sale of tangible fixed assets 490 745
_______ _______
(2,520) 90
_______ _______
Acquisitions and disposals
Acquisition of businesses and
subsidiaries (12,030) (6,578)
_______ _______
Equity dividends paid (16,621) (17,320)
_______ _______
Net cash inflow/(outflow) before
financing 1,631 (26,750)
_______ _______
Financing
Bank loans advanced 280,621 187,030
Repayment of bank loans (236,300) (162,000)
Exercise of share options 2,641 208
Repayment of principal under finance
leases (2,218) (2,028)
_______ _______
Net cash inflow from financing 44,744 23,210
_______ _______
Increase/(decrease) in cash 4 46,375 (3,540)
Notes
1. Accounting policies
The financial information has been prepared on the basis of the
accounting policies set out in the financial statements for the year
ended 31 December 1998. The group has adopted Financial Reporting
Standard ('FRS') 12 (Provisions, Contingent Liabilities and Contingent
Assets) and FRS 13 (Derivatives and other Financial Instruments:
Disclosures) this year, with no material effect on the group's results.
2. Reconciliation of operating profit to net cash inflow from operating
activities
1999 1998
£'000 £'000
Operating profit 92,164 73,222
Depreciation charge 2,720 2,228
Profit on sale of tangible fixed assets (3) (58)
LTIP charge 350 200
Increase in stocks and work in progress
and BES assets (14,996) (71,231)
Increase in debtors (5,673) (7,679)
(Decrease)/increase in creditors (17,608) 21,332
_______ _______
Net cash inflow from operating
activities 56,954 18,014
3. Analysis of net debt
Cash flow and
1999 lease financing 1998
£'000 £'000 £'000
Net cash:
Cash at bank and in hand 51,762 51,578 184
Bank overdrafts (14,712) (5,203) (9,509)
______ _______ _______
Net cash per cash flow
statement 37,050 46,375 (9,325)
Debt and lease financing:
Bank loans - 44,920 (44,920)
US senior loan notes (131,891) (89,241) (42,650)
Finance leases (4,328) 1,487 (5,815)
_______ _______ _______
Debt and lease financing (136,219) (42,834) (93,385)
_______ _______ _______
Net debt (99,169) 3,541 (102,710)
Analysed as:
Cash at bank and in hand 51,762 184
Borrowings due within
one year (22,605) (15,809)
Borrowings due after
more than one year (123,998) (81,270)
Finance leases (4,328) (5,815)
_______ _______
(99,169) (102,710)
4. Reconciliation of net cash flow to net debt
1999 1998
£'000 £'000
Increase/(decrease) in cash
in the year 46,375 (3,540)
Increase in debt and lease finance (42,103) (23,002)
_______ _______
Decrease/(increase) in net debt
from cash flows 4,272 (26,542)
New finance leases (731) (3,042)
_______ _______
Decrease/(increase) in net debt in
the year 3,541 (29,584)
Net debt at 1 January (102,710) (73,126)
_______ _______
Net debt at 31 December (99,169) (102,710)
5. Earnings per share
The calculation of basic earnings per share is based on earnings after
taxation of £57,636,000 (1998: £44,795,000) and 179,796,076 ordinary
shares (1998: 178,134,131) being the weighted average number of ordinary
shares in issue during the period.
Diluted earnings per share is calculated by dividing earnings after
taxation by the weighted average number of ordinary shares in issue for
the period, adjusted for the dilutive effect of shares held under
unexercised options. The weighted average number of ordinary shares so
calculated is 181,063,710 (1998: 178,578,294).
6. The financial information set out above does not constitute the
company's statutory accounts for the years ended 31 December 1999 or
1998 but is derived from those accounts. Statutory accounts for the
year ended 31 December 1998 have been delivered to the Registrar of
Companies, and those for the year ended 31 December 1999 will be
delivered following the company's annual general meeting. The auditors
have reported on those accounts; their reports were unqualified and did
not contain statements under section 237(2) or (3) of the Companies Act
1985.
7. The annual report will be posted to shareholders on 21 March 2000.
Copies of the annual report will also be available from the Company
Secretary, Persimmon plc, Persimmon House, Fulford, York, YO19 4FE.
Further information on the Group can be found on the Persimmon website at
www.persimmonhomes.com
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