Crest Nicholson Holdings plc

Half Year Results for the six months ended 30 April 2017

Chief Executive's statement

Financial Review

Crest Nicholson, a leading residential developer operating in the Southern half of England is pleased to report its results for the first half of the year. Trading continues to be in line with Management expectations and the Group remains on track to deliver growth in revenue for the full year to 31 October 2017. 

Average Selling Prices (ASPs) have risen as the Group has delivered on its strategy of investing in higher quality locations. Open market completion ASPs in the first six months, excluding PRS, were 12% higher at £418k (2016: £372k).

Overall Group revenue in the first six months of the year increased by 3%, to £419.7m (2016: £408.1m). As expected, unit completions for the first half of the 2017 financial year at 1,064 (2016: 1,206) are lower than the comparative period in 2016, primarily due to a reduced first half weighting from the timing of PRS completions. Unit completions excluding the impact of PRS were 1,021 (2016: 1,033), broadly in line with last year.

Headline gross margins at 26.3% are down on the 27.1% achieved last half year, however, excluding the contribution from higher margin fair-valued projects, underlying gross margins are 80 bps ahead of the same period last year at 25.2% (2016: 24.4%). Operating margins were maintained at a healthy 19.1% for the first half of the year.

Operating profits of £80.3m are 3% ahead of the £77.8m achieved in the first half of 2016.

Profit before tax benefited from lower financing costs and improved joint venture performance to move 5% ahead of the prior year at £76.2m (2016: £72.6m). Profit after tax at £62.1m is also 5% ahead (2016: £58.9m).

Basic earnings per share (EPS) for the period at 24.4 pence (2016: 23.3 pence) is 5% higher than the equivalent period in 2016 and is 5% higher than the same period last year on a diluted basis.

Net cash outflows from operating activities in the first half of the year were £65.7m (2016: £33.5m inflow), reflecting continued investment in our land pipeline combined with an element of carry-over from the second half of the 2016 financial year where land expenditure was deferred for a period following the EU referendum.

The Board has resolved to pay an interim dividend of 11.2 pence per share, payable on 6 October 2017 to shareholders on the register on 22 September 2017. The dividend represents approximately one third of the dividend expected to be paid in respect of the financial year ending 31 October 2017. Dividends in respect of the financial year to 31 October 2017 are expected to be covered 2 times by earnings.

Financing

At 30 April 2017, the Group had undrawn revolving credit facilities of £65.0m and cash and cash equivalents of £144.3m (2016: £70.0m and £148.8m).

At 30 April 2017, the business had net debt of £34.5m and a net debt/equity ratio of 4.7% (2016: £26.1m and 4.0%). A modest net debt position at year end is expected, dependent on the timing of land payments.

Sales

The change in product and location mix towards higher ASPs results in the business operating at a lower sales rate per outlet. Sales per outlet week, excluding PRS, at 0.81 is 7% behind the rate of 0.87 for the first half of 2016, but is in line with the average rate of 0.81 achieved through the whole of 2016.

At mid-June, forward sales for the 2017 year of £540.4m (2016: £520.8m), were 4% ahead of prior year. Forward sales for the full year 2017 including year to date completions at mid-June 2017 were 6% ahead of the same period last year. 

Forward sales have been supported by an increase in outlet numbers which averaged 49 for the first half of 2017 (2016: 44) an increase of 11%. The second half of 2017 will see the new Division in the Midlands established and additional outlets opened across the existing Divisions. The business remains focused on expanding overall outlet numbers and growing unit volumes across the Divisions.

Cancellation rates remain stable at 10.4% (2016: 10.5%). With purchaser demand continuing to be strong, moderate house price inflation and the continued availability of mortgage lending the overall market remains robust.

Land and planning

The Group has continued its disciplined approach to land acquisitions, in what is still a benign market. In the first half of 2017, the business has replaced housing revenues purchasing 1,092 plots across 11 sites with a gross development value of £418m, maintaining a broad land pipeline for the future.

A further 1,196 plots across 2 sites were converted from the Strategic land pipeline in the period, after relevant resolutions to grant planning consent were secured. The Strategic pipeline has in turn been replenished with an additional 1,101 plots.

Leasehold sales

There has been some public comment on leasehold sales in recent months and for this reason the Company believes it is prudent to reassure the market about its leasehold sales. It is the Group's general approach to sell houses on a freehold basis and, as a result, very few leasehold houses have been sold. We continually review the terms of ground rents for the sale of leasehold properties and we do not believe that they constitute a material exposure for the Group.

Principal risks and uncertainties

The Group is subject to a number of risks and uncertainties as part of its day to day operations. The principal risks and uncertainties facing the Group are the same as those set out in detail on pages 44 to 47 of the 2016 Annual Integrated Report, which is available from www.crestnicholson.com, with the exception of the risk in relation to the Government's draft Starter Homes policy as it is no longer relevant. The Board regularly considers these and seeks to ensure that appropriate processes are in place to manage, monitor and mitigate these risks.

In summary, our principal risks are:

· Adverse macro-economic climate, caused by: uncertainty following the UK vote to leave the EU; Global economic slow-down with wider global growth issues (especially China and the Eurozone)

· Loss of income at housing associations due to budget changes to rents;

· Pressure on cash headroom and generation due to: potential for delayed receipts in the short term due to uncertainty over the UK leaving the EU; commitments to land and build obligations made ahead of certainty in revenue; high work-in-progress costs for new sites;

· Build cost inflation;

· Rapid and extensive changes to planning system and changes in political priorities combined with under resourcing in planning departments produce uncertainty, delays and potential challenges to viable development;

· Costs not adequately controlled and managed; unforeseen cost increases;

· Cyber security breach;

· Help to Buy incentive scheme;

· Rising complexity of projects;

· Customer service falls significantly below targeted Crest Nicholson standard;

· Employee retention and succession management; Experience gaps lead to poor outcomes;

· Reputational damage from a major product failure or significant environmental, health or safety issue; and,

· Supply and quality of materials and/or labour fails to match desired production levels, affecting lead times, efficiency and cost.

Outlook

We expect the housing market to continue to be robust across the Group's principal operating areas, although the outcome of the UK General Election may introduce some uncertainty in the short term. The market is underpinned by strong demand with good mortgage access and support from the Help to Buy Scheme. Moderate sales inflation should help to maintain affordability in the near term and, while we expect some additional build cost inflation, actions we are taking in the business should help to underpin margins.

Addressing production capacity, clearance of planning conditions and the shortage of skilled labour continue to be the key areas of focus for the sector in terms of securing volume delivery and growth.

Against this market backdrop the Board remains confident that the business is well positioned to continue to deliver a strong operational and financial performance in the medium term to meet the  2019 targets of £1.4bn sales and 4,000 homes.

Statement of Director's responsibilities

The Directors confirm that these condensed consolidated half year financial statements have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

·    an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

·    material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.

The Directors of Crest Nicholson Holdings plc are listed in the Annual Integrated Report for the year ended 31 October 2016, with the exceptions of the following changes in the period: Chris Tinker was appointed to the board on 10 January 2017, Robert Allen was appointed to the Board on 13 February 2017, and Octavia Morley was appointed to the board on 1 May 2017. A list of current directors is maintained on the Crest Nicholson website: www.crestnicholson.com.

By order of the Board

Stephen Stone

Chief Executive

13 June 2017

Registered number 6800600

Crest Nicholson Holdings plc

Half Year Results for the six months ended 30 April 2017

Crest Nicholson Holdings plc Registered number 6800600

These condensed consolidated half year financial statements were approved by the Board of Directors on 13 June 2017. 

Crest Nicholson Holdings plc

Half Year Results for the six months ended 30 April 2017

Independent review report to Crest Nicholson Holdings plc

Report on the condensed consolidated half year financial statements

Our conclusion

We have reviewed Crest Nicholson Holdings plc's condensed consolidated half year financial statements (the "half year financial statements") in the half year results of Crest Nicholson Holdings plc for the 6 month period ended 30 April 2017. Based on our review, nothing has come to our attention that causes us to believe that the half year financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

What we have reviewed

The half year financial statements comprise:

·     the Condensed Consolidated Statement of Financial Position as at 30 April 2017;

·     the Condensed Consolidated Income Statement and Condensed Consolidated Statement of Comprehensive Income for the period then ended;

·     the Condensed Consolidated Cash Flow Statement for the period then ended;

·     the Condensed Consolidated Statement of Changes in Equity for the period then ended; and

·     the explanatory notes to the half year financial statements.

The half year financial statements included in the half year results have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

As disclosed in Note 1 to the half year financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. 

Responsibilities for the half year financial statements and the review

Our responsibilities and those of the Directors

The half year results, including the half year financial statements, is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half year results in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

Our responsibility is to express a conclusion on the half year financial statements in the half year results based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose.  We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

What a review of half year financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the half year financial statements.

PricewaterhouseCoopers LLP

Chartered Accountants

London

13 June 2017

a)   The maintenance and integrity of the Crest Nicholson Holdings plc website is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the half year financial statements since they were initially presented on the website.

b)   Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.