Berkeley Group Regulatory News (BKG)

7 Dec 2007 07:01

Berkeley Group Holdings (The) PLC07 December 2007 The Berkeley Group Holdings plc PRESS RELEASE 7TH DECEMBER 2007 INTERIM RESULTS ANNOUNCEMENT NET CASH OF £112.7 MILLION - AN INCREASE OF £31.7 MILLION IN THE PERIOD 2008 B SHARE OF £2 PER SHARE APPROVED FOR PAYMENT ON 4TH JANUARY 2008 AT A COST OF £242 MILLION - ONE YEAR AHEAD OF SCHEDULE FORWARD SALES OF £1.45 BILLION The Berkeley Group Holdings plc ("Berkeley" or "the Group") - the urbanregenerator and residential property developer - announces its unaudited interimresults for the six months ended 31st October 2007. Highlights of the resultsinclude: • Return of Capital £241.6 million (£2 per 2008 B share) approved for payment on 4th January 2008 - one year ahead of schedule. Shareholder approval obtained at AGM to accelerate final (2010) B share to a date to be determined by the Board but not later than 31 January 2011 • Operating Profit £94.7 million (21.5% operating margin) - Up from £70.4 million (18.5%) in the corresponding period last year • Net Cash £112.7 million - Up from £81.0 million at the year-end (30th April 2007) • Land Holdings 31,307 plots - Up from 30,128 at the year-end • Forward Sales £1,452.9 million - Up from £936.3 million at the year-end • NAVPS 705 pence - Up from 649 pence at the year-end October 2007 October 2006 £'million £'million (unaudited) (unaudited) ____________ ____________Continuing operationsGroup Revenue 441.4 381.2 +15.8% ____________ ____________Operating Profit 94.7 70.4 +34.5%Net Finance (Costs) / Income (2.6) 5.0Joint Venture Results (after tax) (1.5) 6.1 ____________ ____________Profit Before Tax 90.6 81.5 +11.2%Tax (27.2) (21.6) ____________ ____________Profit After Tax 63.4 59.9 +5.8% ============ ============EPS - Basic 52.6p 49.8p +5.6%EPS - Diluted 52.5p 49.6p +5.8%ROCE (excluding profit on 25.8% 26.3%disposal) Commenting on the results, Managing Director, A. W. Pidgley said: "I am pleased to report another set of strong results continuing the patternsince the current strategy was put in place with the Scheme of Arrangement in2004. In addition to the excellent operating performance, Berkeley closed theperiod with forward sales of £1.45 billion, net cash of £112.7 million and aland bank of over 31,000 plots, so placing the Group in a position of realstrength for the future. Berkeley's strategy is founded on the Board's belief that the business has anatural size and is not scaleable in a traditional sense due to the complexitiesof developing and delivering sustainable mixed-use urban regeneration schemesand the cyclical nature of residential development. It is this strategy, combined with the strength of the Group's balance sheet,that afford Berkeley the time to optimise the value of its land holdings througha considered and innovative approach to land acquisition and development, asopposed to a primary focus on the income statement, that maximises returns forshareholders. From this strong position, Berkeley is uniquely placed to respond to the marketconditions initiated in the credit markets that currently prevail. We believethat the fundamentals of the housing market in London and the South East remainstrong. Demand continues to outstrip supply, interest rates remain athistorically low levels, and benefited from yesterday's decision by the Bank ofEngland to reduce rates by a quarter per cent, and London - a World City inevery sense - continues to attract investment and employment. In competitivemarkets, customers become more discerning and this provides an environment inwhich the best will thrive. Through identifying individual strategies for eachof our sites which match supply with demand, never compromising on qualitythrough a relentless attention to detail and by acquiring land on anopportunistic basis, Berkeley's strategy, with its London and South-East focus,is uniquely suited to the prevailing market conditions. Berkeley's business model is a truly sustainable one and I am delighted that thehard work of our people to put Berkeley at the forefront of the sustainabilityagenda in our industry has seen the Group recognised through its first placeranking in the NextGeneration(1) Housing Benchmark. Planning remains a major challenge for Berkeley as it does for all developers.We welcome the Government's undoubted ambition for increasing the supply ofhousing and simplifying the planning process. However, the benefits of this areyet to show through on the ground where there is often conflict betweennational, regional and local government and the numerous other stakeholderswhich results in applications invariably going to appeal, even after extensiveconsultation. In this environment, I am therefore delighted that we achieved anumber of consents in the period, including 798 homes at Stanmore, obtained atappeal, and 311 homes in Cirencester. (1) NextGeneration is a combined initiative supported and directed by TheHousing Corporation, WWF-UK and Insight Investment launched to build on theprevious benchmarking of the UK listed home builders by these organisations. The2007 Housing Benchmark rates the top 20 UK home builders in terms of bothreporting and performance on sustainability issues. Victoria Mitchell, Chairman said: "In my first announcement as Chairman, I am delighted to confirm theacceleration of the 2008 B share of £2 per share for payment on 4th January2008, five business days after the record date of 27th December 2007. Theacceleration of this payment, one year ahead of schedule, is testament to thesuccessful execution of Berkeley's strategy over the last three years and I amdelighted that shareholders continue to show their support for Berkeley and itsmanagement team as demonstrated at the Annual General Meeting held in September. Since becoming Chairman in August, I have welcomed the opportunity to meet moreof the people at Berkeley who work so hard to keep the Group at the forefront ofthe regeneration of our towns and cities. I have found this an inspiringexperience as Berkeley's people truly are remarkable in their commitment,enthusiasm and innovation for delivering the complex regeneration schemes forwhich Berkeley is renowned. On behalf of the Board and shareholders, I wouldlike to thank them all for their outstanding contribution to these results. Indoing so, I am delighted that, once again, Berkeley has topped its peer group inthe recent prestigious Management Today "Most Admired Companies" league,achieving 11th place overall. The criteria used in the poll, which asks the 10largest public companies in 22 sectors to evaluate its peers, ranged from thequality of management to the ability to attract, develop and retain top talent." Results Berkeley is delighted to announce a pre-tax profit of £90.6 million for the sixmonths ended 31st October 2007. This is £9.1 million more than the £81.5 millionreported for the same period last year, an increase of 11.2%. Three principal factors have contributed to this £9.1 million increase. First,operating profit has increased by £24.3 million due to strong trading in theunderlying business and the inclusion of St James as a fully consolidatedsubsidiary for the first time. Secondly, there is a consequential reduction inthe Group's share of post tax results from joint ventures, to which St Jamescontributed £6.1 million last time, and which this time shows a loss of £1.5million, a net reduction of £7.6 million. Thirdly, net finance costs are £2.6million in the first half of the year compared to interest income of £5.0million in the corresponding period last time - a movement of £7.6 million. Basic earnings per share are 52.6 pence, an increase of 5.6% on the 49.8 pencereported for the same period last year. The 5.6% increase in earnings per shareis lower than the 11.2% increase in profit before tax due to the inclusion ofthe post tax share of joint venture results in profit before tax. Since the year-end, total equity has increased by £69.3 million to £850.9million (April 2007 - £781.6 million) and net assets per share by 56 pence(8.6%) from 649 pence to 705 pence. At 31st October 2007, Berkeley had net cash of £112.7 million (April 2007 -£81.0 million) after generating £31.7 million of cash flow in the six months. Return on Capital Employed for the period was 25.8% compared to 26.3% last time. Berkeley held forward sales of £1,452.9 million at 31st October 2007. This is anincrease of 55% on the £936.3 million at the year-end. It has always beenBerkeley's strategy to sell homes at an early stage in the development cycle,often off-plan, to secure customers' commitment and ensure the quality andcertainty of future revenue and cash flow. The increase at the half-year is dueto Berkeley fully capitalising on favourable prevailing market conditions inLondon during the period and includes the disposal to an investor of theremaining 355 units at St James' scheme at Grosvenor Waterside in London. At 31st October 2007, Berkeley's land bank had increased from 30,128 plots atthe year-end to 31,307 plots, with an associated gross profit of £2,661 million,up from £2,234 million at the year-end. Scheme of Arrangement and Strategy In June 2004 Berkeley announced its proposals to return £12 per share toshareholders in conjunction with its future strategy to focus on its urbanregeneration business. This was approved by shareholders and effected by a Courtapproved Scheme of Arrangement in October 2004 which created four tranches of Bshares. To date, and in line with the original payment schedule, £7 per sharehas been returned to shareholders. With its results for the year ended 30th April 2007, the Board announced itsintention to seek approval at its Annual General Meeting on 5th September 2007to accelerate the payment of the 2008 B share (£2 per share) by 12 months to thebeginning of January 2008 and to pay the final (2010) B share of £3 per share ata date to be determined but no later than the original scheduled date of January2011. The Board received support for this proposal from over 98% of shareholdersvoting at the AGM and is delighted to confirm that it has now formally approvedthe redemption of the 2008 B shares to take place on 4th January 2008 for £2 ashare, five business days after the record date of 27th December 2007. The costto Berkeley of this redemption will be £242 million and will bring the totalvalue of B shares redeemed to date to £1,088 million (£9 per share) in a littleover three years. This leaves the 2010 B share of £3 per share to be redeemedand it remains the intention of the Board to accelerate payment of this ahead ofits January 2011 scheduled payment date. The acceleration of the B share payments has been possible through Berkeley'srelentless and successful execution of its strategy, founded on the Board'sbelief that the business has a natural size and is not scaleable in atraditional sense due to the complexities of developing and deliveringsustainable mixed-use urban regeneration schemes and the cyclical nature ofresidential development. It is through optimising the value of its land holdings through a considered andinnovative approach to land acquisition and development, as opposed to a primaryfocus on the income statement, that shareholder value is maximised. It is thisability to successfully combine an entrepreneurial approach to land acquisitionand creating new sustainable communities with a highly disciplined constructionand selling process that makes Berkeley different, and able to deliver theinspiring communities that we, our customers and all our stakeholders demand. Looking to the future, the Board was also delighted to receive approval at theAGM for its future strategic proposals and the associated alignment of itsremuneration policy which will see the key features of the Scheme of Arrangementreplicated to preserve the environment in which Berkeley and its entrepreneurialmanagement team has thrived in recent years. As a result, following thecompletion of the £12 per share Scheme of Arrangement payments, the Board isproposing to make annual dividend payments at a cover ratio of less than 2times. This will ensure shareholders continue to see immediate benefit from theGroup's strategy, while allowing the Board to maximise short term opportunitiesunder an unambiguous long term strategy. Housing Market In the six months ended 31st October 2007, London continued to provide afavourable environment for Berkeley to operate within. Outside London, themarket has been satisfactory for well conceived schemes in the right location. In this market Berkeley's continued focus on the quality of its product, thelocation of its developments and its pricing strategy, rather than the pursuitof volume growth, has proved successful, enabling the Group to match supply anddemand effectively and fully optimise returns. Berkeley has ended the periodwith an exceptional forward sales position of £1,452.9 million, up 55% on theyear-end position. This includes the sale of the remaining 355 units atGrosvenor Waterside. If this sale is excluded, Berkeley has secured underlyingsales reservations with a sales value broadly in line with the previous 12months. One cannot ignore the current tightening of the credit markets as thisinevitably has an impact on consumer confidence and the all important"feel-good" factor. However, the economic fundamentals remain strong with demandoutstripping supply, high levels of employment and interest rates athistorically low levels, which benefited from yesterday's decision by the Bankof England to reduce rates by a quarter per cent. Equally important is London'sunique allure as a World City and global financial centre. It is too early todetermine the extent to which there will be an impact on the housing market andBerkeley is certainly not immune to any downturn that may materialise. However,it is well placed through its London market position and strong forward sales toperform in whatever market conditions prevail. Investors remain an important segment of Berkeley's customer profile and haveaccounted for approximately 50% of underlying sales reservations in the period.This is very much in our range which fluctuates due to market conditions, themix of product and the phasing of launches on our sites. Investors are attractedby the fundamentals underpinning the housing market in London and the South-Eastand the lack of alternative investment opportunities. Sales prices achieved in the period have been above our business plan forecastsand continued to cover cost increases which come from the costs and thetechnical challenges presented by today's high standards of environmental andsustainable development practices as well as materials prices, particularlywhere global demand is exceeding supply. Labour costs are currently stable, duein part to supply from the European Union, but may come under pressure asconstruction progresses on the 2012 London Olympics site. The most significant cost pressure on the business comes from the costs requiredto achieve planning consents due to increasing section 106 contributions,including affordable housing requirements, and the complexities of the planningsystem. Berkeley welcomes the Government's decision to withdraw its initialproposals for a Planning Gain Supplement in favour of local contributions and,more generally, its undoubted ambition to increase the housing supply though thesimplification and stream-lining of the planning process. Unfortunately, ourexperiences on the ground indicate that the benefits of this are yet to bearfruit and planning consents continue to take over a year, and in many cases, twoyears, to agree. There frequently seems to be a conflict between national,regional and local government as well as the disparate agendas of otherstakeholders. In this environment, even after extensive consultation, it isoften only at Appeal that planning consents are finally obtained. In broader terms, the principal business risks and uncertainties facing Berkeleyfor the first six months and the remaining six months of the financial yearremain the same as those set out on page 21 of the Annual Report for the yearended 30th April 2007. Sustainability Berkeley has long recognised the importance of sustainability to its business -indeed long before it became the recognised term it is today. It is not simplythe "right thing to do" and Berkeley has never viewed it as such. Accordingly,Berkeley operates a business model that is sustainable in every sense. From therecycling of brown-field land, through the careful planning and efficient use ofthat land, the use of modern environmental materials and constructionmethodologies to the creation of homes and communities that allow our customersto live the sustainable lives to which they now aspire, Berkeley is a trueinnovator and leader in its field. This commitment to sustainability provides acompetitive advantage in the market place and helps meet the demands of ourstakeholders. In October Berkeley announced the launch of seven key commitments to furtherincrease the sustainability of its homes and business operations. These includedthe commitment for all sites seeking planning permission after 1 January 2008 tocertify all new homes to Level 3 of the Code for Sustainable Homes forSustainable Commitments and commitments to meet stretching targets for thereduction of carbon, water usage and landfill waste. These are the firstcommitments from a major house-builder to exceed current Governmentsustainability targets, receiving praise from the Minister for Housing for thisleadership position, and were one of the factors that resulted in Berkeleyachieving first place ranking in the NextGeneration Housing Benchmark. Trading Analysis Revenue for the Group was £441.4 million (2006 - £381.2 million). This comprised£422.1 million (2006 - £375.3 million) of residential revenue, of which £13.1million was from land sales (2006 - £3.2 million), along with £19.3 million(2006 - £5.9 million) of commercial revenue. During the period, the Group sold 1,630 units at an average selling price of£245,000. This compares with 1,296 units at an average selling price of £284,000in the same period last year. The reduction is due to mix and is forecast toreverse in the second half of the year with the average selling price for thefull year expected to be similar to that achieved in the last full year. At £19.3 million (2006 - £5.9 million), the Group's revenue from commercialactivities represents the disposal of commercial units on ten mixed-use sites.The most significant of these was the disposal of a 220 bedroom four-star hotelat Chelsea Bridge Wharf in London. Excluding joint ventures and land sales, the house-building operating margin forthe Group was 21.8% compared to 19.5% for the full year ended 30th April 2007.This is above the long-term historic range of 17.5% to 19.5% range (depending onmix) reported by the Group over recent reporting periods and reflects thefavourable market conditions in London during the period. Net operating expenses have increased by £7.3 million to £46.7 million sincelast time and this is principally due to the inclusion of St James in theresults as a fully consolidated subsidiary this time. Net finance costs of £2.6 million compare to net finance income of £5.0 millionlast time. The £7.6 million movement is due to three factors. First, average netcash balances have been lower in the first six months of the year, compared tothe same period last year, following the 2006 B share payment and the acquisition of the 50% of St James not already owned in the second half of last year,offset by the cash generated in the last 12 months, resulting in a £2.6 millionreduction in finance income; secondly, a £2.8 million increase in the financecost resulting from the unwinding of the discount on deferred land payments inaccordance with IAS 2; and thirdly, £1.7 million of finance costs associatedwith the refinancing of the Group's bank facilities during the period. Thisre-financing was completed on 6th July 2007 and increased the Group's facilitiesfrom £575 million to £800 million. The Group's share of post-tax results from joint ventures was a loss of £1.5million and compares to a profit of £6.1 million last time which related to StJames, our then joint venture with RWE Thames Water plc. With the acquisition ofthe 50% of St James not already owned in November 2006, its results are nowfully consolidated. Both St Edward Homes, Berkeley's joint venture withPrudential, and the Group's new joint ventures with Saad Investments CompanyLimited are in the start up phase with sites in the planning pre-productionstage and this is the reason for the £1.5 million loss in the six months. Land Holdings At 31st October 2007, the Group (including joint ventures) controlled some31,307 plots with an estimated gross margin of £2,661 million. This compareswith 30,128 plots and an estimated gross margin of £2,234 million at 30th April2007. Of these holdings, 22,463 plots (April 2007 - 21,209) are owned andincluded on the balance sheet. In addition, 8,785 plots (April 2007 - 8,848) arecontracted and a further 59 plots (April 2007 - 71) have terms agreed andsolicitors instructed. Over 95% of our holdings are on brown-field or recycledland. Berkeley agreed nine new sites in the period and continued to submit newplanning applications on its development sites where appropriate and optimiseits land holdings. The new sites include the first site acquired by Saad Berkeley RegenerationLimited, one of the new joint ventures established with Saad Investments CompanyLimited at the end of last year. These new joint ventures enable Berkeley toinvest up to £175 million over an expected 10 year investment period which,together with Saad's investment and external bank debt at a target equity todebt ratio of 30:70, envisage a fund of approximately £1 billion to be availableto take advantage of land opportunities as they present themselves. It is pleasing that a detailed planning application has been submitted on SaadBerkeley Limited's 300 unit site at Fleet, which was initially acquired underoption a number of years ago and which obtained an outline planning consent inthe last financial year. 2,200 of the contracted plots are on the three St Edward sites and we aredelighted that St Edward has received a planning consent for 798 units atStanmore in North London. St Edward is Berkeley's joint venture with Prudentialand we are working on a number of other exciting opportunities with our jointventure partner, which we hope will come to fruition over the next 12 months. Last year, Berkeley reported the growing importance of our partnerships withlocal authorities for the regeneration of our towns and cities and we aredelighted to add Dickens Yard in Ealing town centre, which we will develop inpartnership with the local authority and comprises 698 new homes andapproximately 109,000 ft2 of commercial space, to this portfolio. When added toBerkeley's other local authority sites at Woodberry Down in Hackney andKidbrooke in Greenwich, these three sites account for some 5,500 of thecontracted plots and represent an important element of Berkeley's land supply.Given their size and complexity, they do of course take time to come throughinto production. The land bank has also benefited significantly from the strong London marketwith a number of sites being reassessed in the period to reflect their uniquenature and the premium that is being generated in this market for prime Londonlocations. The Group's land holdings include approximately 1.5 million ft2 of commercialspace within our mixed-use schemes. The Group is not undertaking any standalonecommercial schemes. Board Changes As announced in June, Roger Lewis retired from the Board of Berkeley on 31stJuly 2007 after 16 years with the Group, the last eight as Chairman. Alsoretiring from the Board in the period was Tony Palmer, a Non-executive Directorfor nine years and, at the point of his retirement, the senior independentdirector. The Board would like to thank both Roger and Tony for theiroutstanding contributions to Berkeley over the years. Victoria Mitchell, already a Non-executive Director of Berkeley, replaced RogerLewis as Chairman on 1st August and David Howell, a Non-executive Directorsince February 2004, succeeded Tony Palmer as the Senior Independent Director onTony's retirement at the AGM on 5th September 2007. On 1st October 2007 the Board was delighted to welcome John Armitt as a new Non-executive Director. John is currently Chairman of the Olympic DeliveryAuthority and Chairman of the Engineering and Physical Science Research Council.From 2001 to 2007 he was Chief Executive of Network Rail and its predecessor,Railtrack. A civil engineer by training, he was previously Chief Executive ofCostain and Union Railways and has a wealth of experience and expertise whichwill be of significant benefit to Berkeley. The appointment also ensures that the Main Board of Berkeley complies with theCombined Code's recommendations regarding the balance of the Board, which nowcomprises a Chairman, four Executive Directors and four Non-executive Directors. Our People These results once again demonstrate the exceptional qualities of Berkeley'speople. As the complexity and ambition of our business increases, so do thechallenges we place upon our people. To deliver the landmark schemes for whichBerkeley is renowned, each one with its own unique characteristics, requiresinnovation, rigour and, above all else, boundless enthusiasm and energy. It isthis passion for quality and delivering the best possible solution that setsBerkeley apart and ensures that our developments are true exemplars of thesustainable communities we strive to create. By empowering autonomous managementteams, with the support and experience of the Executive team always available todraw upon, Berkeley has created an environment in which these attributesflourish. On behalf of the Board and shareholders, we would like again to express ourcontinued thanks and appreciation to all those at Berkeley who have contributedto these outstanding results. Prospects These results have clearly demonstrated the success of the strategy put in placealongside the Scheme of Arrangement in 2004. This has resulted in the strongbalance sheet, record forward sales and unrivalled land bank with which Berkeleyhas ended the first half of the year. Looking at the housing market, the "feel-good" factor has been impacted by thecurrent credit conditions and concerns over affordability, but will benefit fromyesterday's decision by the Bank of England to reduce rates by a quarter percent. Most importantly, the fundamentals of the market remain unchanged,particularly in Berkeley's core market of London and the South-East, with ashortage of supply, historically low interest rates, high employment andforecast economic growth. Berkeley's unique operating model allows us to not only seize the short termopportunities presented by the market, but also gives us the flexibility todrive the business forward in all market conditions under an unambiguouslong-term strategy with a talented and driven management team. Having set the business up to prioritise on optimising its land holdings,maintaining a strong balance sheet and securing future cash flow through forwardsales, as opposed to a principal focus on the income statement, Berkeley is nowin a unique position to take advantage of the prevailing market conditions. For further information please contact: The Berkeley Group Holdings plc Cardew GroupA W Pidgley Tim RobertsonR C Perrins Sofia RehmanT: 01932 868555 T: 0207 930 0777 This information is provided by RNS The company news service from the London Stock Exchange