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McCarthy & Stone PLC  -  MCS   

Half year results

Released 07:00 11-Apr-2018

RNS Number : 4942K
McCarthy & Stone PLC
11 April 2018
 

Wednesday 11 April 2018

 

 

McCarthy & Stone plc

Half year results announcement

 

McCarthy & Stone (the 'Group'), the UK's leading retirement housebuilder, today announces its half year results for the six months ended 28 February 2018 ('2018').  All comparatives are to the prior year equivalent six month period ended 28 February 2017 ('2017') unless otherwise stated.

 

 

H1 2018

H1 2017

Change

Legal completions1

760

864

(12%)

Revenue

£239.6m

£238.2m

1%

Average selling price2

£298k

£260k

15%

Gross profit

£32.0m

£39.7m

(19%)

Operating profit

£13.5m

£23.1m

(42%)

Underlying operating profit3

£14.5m

£24.1m

(40%)

Profit before tax

£10.5m

£21.8m

(52%)

Underlying profit before tax3

£11.5m

£22.8m

(50%)

Basic earnings per share

1.5p

3.3p

(1.8p)

Underlying basic earnings per share3,4

1.7p

3.5p

(1.8p)

Net debt5

£75.9m

£30.4m

(£45.5m)

Return on capital employed6 (ROCE)

12%

14%

(2ppt)

Interim dividend per share

1.9p

1.8p

 0.1p

 

Performance highlights

·   Total legal completions of 760 units (2017: 864 units) at an average selling price of £298k (2017: £260k), reflecting the improved quality and location of developments brought to market.

·   As previously announced, H1 trading was constrained by the ongoing subdued conditions in the secondary market and the lower number of new first occupations (2018: 16, 2017: 19) resulting from a pause in build start activity following the EU Referendum in June 2016.

·   Underlying operating profit of £14.5m (2017: £24.1m) is in line with guidance given in March, reflecting the lower level of completions, inflationary build cost increases, an increased usage of part-exchange to counteract subdued market conditions in the period and additional marketing activity required to promote 50 sales releases (2017: 32) and deliver H2 legal completions.

·  Statutory profit before tax of £10.5m (2017: £21.8m) and underlying profit before tax of £11.5m (2017: £22.8m).

·   Period end net debt of £75.9m (2017: £30.4m), equivalent to gearingof 10% (2017: 4%).

·  Underlying trading has remained resilient despite a challenging secondary market, with forward sales including legal completions currently running c.13% ahead of prior year at c.£581m as at 6 April 2018 (2017: c.£512m as at 7 April 2017) supported by 54 new sales releases during the period (2017: 35).

·  Additional caution exercised in direct response to the uncertainty resulting from the Government's proposals on ground rents, with 22 land exchanges and 21 planning consents secured during H1 (2017: 30 land exchanges and 34 planning consents).  This reflects a more measured approach to land buying and additional time taken to renegotiate s.106 contributions.

·   Home Builders Federation ('HBF') Five Star customer satisfaction award received in March for an industry-record thirteenth consecutive year - the only housebuilder of any size or type to achieve this.

·   The Group is announcing an interim dividend of 1.9p per share (2017: 1.8p per share), to be paid on 8 June 2018 to shareholders on the register at close of business on 4 May 2018.

 

Outlook

·   Year end guidance given in March 2018 remains unchanged and the full year outturn is expected to be in line with the current range of analyst forecasts8, albeit there is continuing uncertainty created by the Government's proposals on ground rents. We continue to work with the Government to seek an exemption from these changes due to the unique viability model of retirement housing.

·  All build programmes remain on track to deliver c.80 new sales releases (FY17: 52) and more than 65 new first occupations by the end of FY18 (FY17: 49).

·  We continue to maintain a strong balance sheet and cash discipline, notwithstanding significant ongoing investment in work in progress, and expect to be in a net cash position at the year end.

·  As mentioned above, the lower level of H1 land exchanges and planning consents is likely to result in a more modest growth trajectory for the business than previously expected over the next two financial years.

 

Clive Fenton, Chief Executive Officer, commented:

"Trading remained resilient during the first half of FY18 despite the ongoing subdued conditions within the secondary market.  We delivered 16 high quality new first occupations to market and are delighted to have recently been awarded the Five Star rating for customer satisfaction by the Home Builders Federation for the thirteenth consecutive year. We released 54 new sites for sale since the start of FY18 and our forward order  book9, including legal completions, is now c.13% ahead of the prior year.  This provides continued confidence in our expectation that the full year outturn will be within the current range of analyst forecasts, albeit there remains some uncertainty created by the Government's announcement on ground rents.

"The growing need for retirement housing caused by our rapidly ageing population also means the long-term prospects for our business continue to be positive.  However, the UK remains woefully unprepared for these demographic changes and we are calling for a joined-up policy approach across all Government departments to encourage the delivery of better housing options for older people.

"We recognise the need to support first time buyers but Government must not ignore the many benefits of building more retirement housing.  This form of housing frees up existing homes for families and young people, and reduces pressure on social care services, which are set to account for half of all taxes raised by local authorities by 203510The current reviews of planning and social care policy provide an excellent opportunity to rebalance housing policy and help the millions of older people who want to downsize into properties better suited to their needs."

- Ends -

This announcement contains certain forward-looking statements about the future outlook for the Group.  Although the Directors believe that these statements are based upon reasonable assumptions, any such statements should be treated with caution as future outlook may be influenced by factors that could cause actual outcomes and results to be materially different.
 

[1] Excludes 20 affordable housing units and one commercial unit (2017: excludes two commercial units)
[2] Average selling price is calculated as average list price less cash discounts and PX top-ups
[3] Underlying operating profit (including underlying operating profit margin and underlying basic earnings per share) and underlying profit before tax are calculated by adding amortisation of brand of £1.0m (2017: £1.0m) to operating profit and profit before tax respectively. See note 2 of condensed consolidated financial statements for further information
[4] Underlying basic earnings per share have been reconciled within note 2 of condensed consolidated financial statements
[5] See note 5 of condensed consolidated financial statements for net debt reconciliation
[6] Return on capital employed (ROCE) is calculated by dividing underlying operating profit for the previous 12 months by the average tangible gross asset value of £700.1m (2017: £629.9m) at the beginning and end of the 12 month period. Tangible gross asset value is calculated as net assets excluding goodwill of £41.7m (2017: £41.7m) and intangible assets of £26.7m (2017: £28.5m), excluding net debt of £75.9m (2017: £30.4m)
[7] Gearing is calculated by dividing net debt by net assets
[8] FY18 PBT range currently stands at £91m - £108m
[9] Forward order book includes legal completions between 1 September 2017 (2017: 1 September 2016) and 6 April 2018 (2017: 7 April 2017) and reservations as at 6 April 2018 (2017: 7 April 2017). Forward order book as at 6 April 2018 (2017: 7 April 2017) included revenue after cash discounts and PX top-ups
[10] Institute of Fiscal Studies (2018), Adult social care funding: a local or national responsibility?

Presentation for analysts and investors:

Clive Fenton, Chief Executive Officer, Rowan Baker, Chief Financial Officer and John Tonkiss, Chief Operations Officer will host an analyst and investor meeting at 9.15am BST today at Deutsche Bank, Winchester House, 75 London Wall, London, EC2N 2DB.  Refreshments will be served from 9.00am.

 

Webcast for analysts and investors:

A live webcast of the presentation will be available via the following link: http://www.mccarthyandstonegroup.co.uk/investors/webcast

 

An on demand version of the webcast will be made available later today on the Group's corporate website: http://www.mccarthyandstonegroup.co.uk/investors/webcast

 

Conference call details:

A conference call facility is also available.  To access the conference call:

UK Access: 020 3936 2999

International Number: +44 20 3936 2999

Participant Access Code: 220235

 

Conference call replay facility:

A replay facility will also be available. To access the replay dial in details:

UK Access: 020 3936 3001

United States: 1845 709 8569

All other locations: +44 20 3936 3001

Replay code: 575886

 

 

For more information, please contact:

 

McCarthy & Stone, 01202 292480

Clive Fenton, Chief Executive Officer

Rowan Baker, Chief Financial Officer

Paul Teverson, Director of Communications

 

Powerscourt, 020 7250 1446 / mccarthy-stone@powerscourt-group.com

Justin Griffiths

Nick Dibden

 

Legal Entity Identifier (LEI): 213800CEJ4OQ5YPU8Z37

 

 

 

 

 

Interim Management Report

 

Chief Executive Officer's statement

 

Market demand

 

Trading remained resilient throughout the period, despite the ongoing subdued conditions within the secondary market. There remains a significant and growing shortage of housing supply in the UK and this imbalance between supply and demand is particularly acute in the market for retirement housing.  In the UK 3.5 million people over the age of 60 have expressed particular interest in buying a retirement property11, and yet only c.162,000 specialist retirement properties for homeowners have ever been built12

 

McCarthy & Stone remains the only national provider of specialist retirement housing and is uniquely placed to capitalise on this demographic opportunity.  During four decades as the UK's leading retirement housebuilder, we have formulated a tailored approach to sales, site acquisition, design, securing detailed planning consents and construction that mainstream housebuilders have been unable to replicate on a national scale.  We also ensure that our customers receive the highest standards of ongoing support through our in-house management services offering.  The barriers to entry in our market ensure that we maintain a unique position as the only housebuilder capable of meeting the nationwide need for high-quality specialist housing for the growing number of older people who are looking to move to properties more suited to their needs and lifestyle.

 

Trading performance

 

The Group delivered half year revenue of £239.6m (2017: £238.2m), supported by a significant improvement in average selling price, which increased by 15% in the period to £298k (2017: £260k).  This reflected substantial improvements in the quality and location of our developments.  The lower number of new first occupations (2018: 16, 2017: 19) resulting from a pause in build starts following the EU Referendum as well as ongoing subdued conditions in the secondary housing market resulted in a 12% reduction in legal completions during the period to 760 units (2017: 864 units).  This included the sale of 25 units (2017: nil) across 9 sites to PfP Capital as we continued to develop this strategic relationship and the opportunity to access the growing rental market.

 

Consistent with previous guidance, underlying operating profit decreased to £14.5m (2017: £24.1m) in the period, while operating profit decreased to £13.5m (2017: £23.1m).  Our gross profit margin decreased to 13% (2017: 17%) and our underlying operating profit margin decreased to 6% (2017: 10%).  This reduction in profitability and margin percentage was mainly driven by sales mix, inflationary build cost increases partially offset by pricing increases, increased usage of part-exchange to counteract subdued market conditions, additional marketing activity to promote the high level of current year sales releases (2018: c.80, 2017: 52) and our continued investment in regional operational infrastructure in support of our growth strategy. We expect margins substantially to recover in the second half due to an increased weighting of completions from our 49 new first occupation sites scheduled to come through in H2.

 

Underlying profit before tax decreased to £11.5m (2017: £22.8m) during the period with statutory profit before tax of £10.5m (2017: £21.8m).  This was impacted by a revaluation of our shared equity portfolio which resulted in an increase in finance expenses to £3.1m (2017: £1.6m) reflecting an adverse change in the forward looking HPI assumptions.

 

Investment and growth strategy

 

In response to the uncertainty resulting from the Government announcement on 21 December 2017 regarding ground rents, the Group exercised additional caution in H1 with 22 land exchanges and 21 planning consents achieved during the period (2017: 30 land exchanges and 34 planning consents).  This lower level of activity reflects a more measured approach to land buying and further time taken to renegotiate s.106 contributions with local planning authorities and land prices with vendors in order to partially mitigate the potential impact.  The market for land remains benign and competition for our typical brownfield sites is still highly fragmented. 

 

The land bank now stands at c.10,021 plots (2017: c.10,035 plots), equivalent to 4.4 years13 supply (2017: 4.4 years), of which 2.7 years (2017: 2.7 years) have full planning consent.  Additionally, there has been a significant increase in the pipeline of sites for which terms have been agreed from 1,120 plots to 2,096 plots as we seek to renegotiate terms prior to progressing through to exchange of contracts.

 

Strategic initiatives

 

Sales initiative

 

Our sales initiative continued to make good progress during the period.  The main focus has been on launching our new brand campaign "Retirement living to the full" which has been delivered across several media channels with the television advertising campaign premiered on 10 January.  The campaign has already resulted in improved brand awareness with an additional 14,150 web sessions and a 16% increase in calls generated from our website, which have, in turn, delivered an additional 1,000 enquiries to date.

 

We have also now moved on to the next phase of our Customer Relationship Management system replacement project, with market-leading software 'Salesforce' having been selected and implementation now underway.

 

During the period we successfully completed 126 in-house part-exchange transactions in which dependent properties are temporarily taken onto our balance sheet pending onward sale (2017: 22).  This has proved to be a useful tool to improve our resilience in light of the ongoing subdued secondary market, with a saving of c.£2.6m achieved in relation to the 130 properties re-sold during 1H18, when compared to costs associated with using third-party part-exchange providers.  As at 28 February 2018 we held 110 properties on the balance sheet at a net carrying value of £32.5m.

 

Development and build initiatives

 

Over the last six months we have continued to implement changes designed to accelerate the time taken from land exchange to build start. This has included maintaining our focus on standardisation and embedding our new construction estimating tool, Bidcon, to allow greater cost certainty.  Build cost inflation is currently at the 3-4% level  with various additional cost saving initiatives in areas such as ground floor and cavity wall insulation now in place in order to partially offset this. 

 

A new subcontractor tender process has also recently been adopted by all regions which will provide improved pricing as well as greater consistency and oversight of tendering activities.

 

Diversifying our product

 

Rental initiative

 

During the first six months of FY18 we continued to develop our strategic relationship with PfP Capital to diversify and enhance our business model.  In addition to the 126 apartments sold to them during FY17, a further 25 units have been sold in the period across 9 developments as part of this initiative. 

 

We are making good progress with our potential shared ownership offering and are shortly intending to launch a pilot in our North West region.  We are also continuing to work through site specification considerations in relation to build to rent with several sites being considered in order to deliver medium term benefits. 

 

Bungalows

 

We released three bungalow sites for sale during the period in order to capitalise on the strong demand and undersupply of this product.  All three sites have delivered a strong off plan sales performance so far with a net average selling price of c.£400k per unit achieved to date.  The use of this product opens up new land opportunities for our business and enables full development potential to be realised on larger sites.  We now have 240 units across 15 sites within our land bank and terms agreed on a further 7 sites.  

 

Financial position

 

The Group saw its tangible gross asset value14 increase to £743m (2017: £657m) and its tangible net asset value15 increase to £667m (2017: £627m) during the period.  We continue to maintain a robust financial position with net debt of £75.9m (2017: £30.4m) as at 28 February 2018.  This resulted in gearing of 10% (2017: 4%), reflecting our continued investment in land, build and sales and marketing expenditure ahead of the delivery of 49 first occupations in the second half of the financial year as well as an increased number of in-house part-exchange properties held on our balance sheet. 

 

We expect a net cash position at the financial year end with sufficient headroom consistently maintained against the Group's revolving credit facility.  This facility was increased from £200m to £250m for 12 months from February 2018 in order to provide additional headroom as build activity increases during the second half of the financial year. 

 

Government support

 

We continue to address the increasing market demand for retirement housing generated by a rapidly ageing population and welcome the recent CLG Select Committee report from a group of leading MPs which called for a new national strategy for older people's housing. We are working with Government to build on policies in this area, which have the potential to support the delivery of a greater range of specialist retirement housing to address the significant shortfall of supply across the UK.

 

While the new draft National Planning Policy Framework includes few references to older people, we understand additional guidance on older people's housing is being prepared separately and will be published this summer.

 

In addition, the forthcoming Social Care Green Paper provides an excellent opportunity to put retirement housing front and centre of UK housing policy.  Such a policy would ensure older people get the housing they deserve while also reducing social care bills, which are set to account for half of all taxes raised by local authorities by 203516.

 

As previously stated, we are actively engaging with Government in an effort to secure an exemption from the proposed changes to ground rents announced on 21 December 2017. We believe that there is a strong case for a very specific exemption for the retirement housebuilding sector due to its unique viability model and the need to fund the construction of the shared areas, and we are seeking swift clarification on this matter.  Until this is received, we continue our planning to mitigate the potential impact on the business, including maintaining discipline around our cash position and adopting a more measured approach to securing land.

 

Customers

 

I am delighted to report that we have once again achieved the full Five Star rating in the Home Builders Federation ('HBF') survey for customer satisfaction.  This marks the thirteenth consecutive year in which more than 90% of our customers have said that they would recommend us to a friend.  We are the only housebuilder - of any size or type - to win this award every year since it was introduced in 2006.

 

Employees

 

Our people are critical to the continued growth and success of our business.  We are building a culture of excellence where our people can progress and fulfil their potential and we are pleased to report that 36 individuals were promoted internally in the first half of FY18 (2017: 54 individuals). 

 

November saw the opening of our new Sales Training Academy in Coventry and 161 delegates have already attended the sales training courses since its opening. We also launched our new senior leadership and management development programmes and online induction portal.  200 delegates have already attended at least one management development module since its launch in Q4 FY17.   

 

We continue to celebrate those employees who go the extra mile for a customer or colleague through our instant, quarterly and annual PRIDE awards.  During the first six months of FY18 we awarded 280 PRIDE awards to our employees (2017: 302 awards). 

 

Board changes

 

As previously announced, John Carter joined the Board as an Independent Non-Executive Director on 1 October 2017.  Additionally, Paul Lester joined the Board on 3 January 2018 and was appointed as the Group's Chairman at the AGM on 24 January 2018, taking over the role from John White whose resignation was announced on 9 November 2017.   

 

Dividend

 

The Group is announcing an interim dividend of 1.9p per share (2017: 1.8p per share) to be paid on 8 June 2018 to shareholders on the register at close of business on 4 May 2018.

 

Current trading and outlook

 

Current trading remains resilient despite a subdued secondary market with forward sales including legal completions running c.13% ahead of the prior year as at 6 April 2018 at c.£581m (2017: c.£512m as at 7 April 2017) supported by 54 new sales releases since the start of FY18 (2017: 35).

 

Our FY18 first occupations are heavily weighted towards the second half of the year due to the timing of build programmes with more than 49 first occupations expected in H2.  All build programmes are on track for sites expected to first occupy and deliver unit completions in H2. 

We therefore reiterate our previous guidance given in March that the full year outturn remains in line with the current range of analyst forecasts17, albeit there is continuing uncertainty created by the Government announcement on ground rents.  As mentioned above, the lower level of H1 land exchanges and planning consents is likely to result in a more modest growth trajectory for the business than previously expected over the next two financial years.

 

McCarthy & Stone will release a further update on trading on 4 July 2018.

 

 

Clive Fenton

Chief Executive Officer

 

10 April 2018

 

Principal risks and uncertainties

The principal risks and uncertainties set out at the time of the Annual Report and Accounts 2017 (issued in December 2017) remain valid at the date of this report and, based on the current outlook, will continue to remain valid for the remainder of the financial year.  In summary, these include government legislation, a deterioration in economic conditions, adverse reputation and poor customer satisfaction, sales under performance, workflow management, build programmes and increases to build costs, a decline in value of owned land, recruitment and retention of employees, health and safety, poor quality land acquisition and planning and cyber security.

 

In addition to these risks and uncertainties the Group is subject to increased corporate regulation such as the Listing Rules and failure to comply with these rules could lead to regulatory censure and potential penalties.  To address this risk, the Group employs an experienced Company Secretary (and external consultants when required) to ensure continued compliance with the Listing Rules. 

  

[11] Demos (2013) – Top of the Ladder
[12] Knight Frank (2018) Retirement Housing: Market update
[13] Based on 2,302 legal completions achieved in FY17
[14] Tangible gross asset value is calculated as tangible net asset value of £667.0m (2017: 626.9m) less net debt £75.9m (2017: £30.4m)
[15] Tangible net asset value is calculated as net assets excluding goodwill of £41.7m (2017: £41.7m) and intangible assets of £26.7m (2017: £28.5m)
[16] Institute of Fiscal Studies (2018), Adult social care funding: a local or national responsibility?
[17] FY18 PBT range currently stands at £91m - £108m.
 

INDEPENDENT REVIEW REPORT TO McCARTHY & STONE PLC

 

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 28 February 2018 which comprises the condensed consolidated statement of comprehensive income, condensed consolidated statement of financial position, the condensed consolidated statement of changes in equity, the condensed consolidated cash flow statement and related notes 1 to 15. 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 condensed set of financial statements.

 

This report is made solely to the company 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.  Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.

 

Directors' responsibilities

 

The half-yearly financial report is the responsibility of, and has been approved by, the directors.  The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union.  The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union.

 

Our responsibility

 

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

 

Scope of review

 

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 inquiries, 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 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.

 

Conclusion

 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 28 February 2018 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

 

 

Deloitte LLP

Statutory Auditor

London, United Kingdom

10 April 2018

 

 

 

 

McCarthy & Stone plc

Condensed Consolidated Statement of Comprehensive Income

For the half year ended 28 February 2018 (unaudited)

 

 

 

Half year ended 28 February 2018
(unaudited)

Half year ended 28 February 2017
(unaudited)

Year ended 31 August 2017 (audited)

 

 

 

Notes

£m

£m

£m

 

 

 

 

 

Revenue

 

239.6

               238.2

660.9

Cost of sales

 

(207.6)

(198.5)

 

 

 

 

 

Gross profit

 

32.0

                     39.7

130.7

 

 

 

 

 

Other operating income

 

4.7

                      4.1

8.9

Administrative expenses

 

(19.3)

(17.5)

(38.8)

Other operating expenses

 

(3.9)

(3.2)

 

 

 

 

 

Operating profit

 

13.5

                23.1

94.2

 

 

 

 

 

 

 

 

 

 

Amortisation of brand intangible asset

 

(1.0)

(1.0)

(2.0)

 

 

 

 

 

 

 

 

 

 

Underlying operating profit

2

14.5

                     24.1

96.2

 

 

 

 

 

 

 

 

 

 

Finance income

 

0.1

                       0.3

1.6

Finance expense

 

(3.1)

(1.6)

 

 

 

 

 

Profit before tax

 

10.5

                      21.8

92.1

Income tax expense

3

(2.4)

(4.2)

 

 

 

 

 

Profit for the period from continuing operations and total comprehensive income

2

8.1

17.6

74.4

 

 

 

 

 

Profit attributable to:

 

 

 

 

Owners of the Company

 

7.9

                      17.6

74.2

Non-controlling interest

 

0.2

-

0.2

 

 

 

 

 

 

 

8.1

                    17.6

74.4

 

 

 

 

 

Earnings per share

 

 

 

 

Basic (p per share)

9

1.5

3.3

13.8

Diluted (p per share)

9

                         1.5

3.3

13.8

 

Notes 1 to 15 form part of the Condensed Consolidated Financial Statements shown above. All trading derives from continuing operations.

 

Adjusted measures

 

 

 

 

Underlying operating profit

2

14.5

24.1

96.2

Underlying profit before tax

2

11.5

22.8

94.1

  

 

McCarthy & Stone plc

Condensed Consolidated Statement of Financial Position

As at 28 February 2018 (unaudited)

 

 

 

Half year ended

28 February 2018
(unaudited)

 

Half year ended 28 February 2017
(unaudited)

 

Year ended 31 August 2017 (audited)

 

 

 

Notes

£m

£m

£m

Assets

 

 

 

 

Non-current assets

 

 

 

 

Goodwill

 

41.7

41.7

41.7

Intangible assets

 

26.7

28.5

27.6

Property, plant and equipment

 

2.2

2.6

2.4

Investments in joint ventures

 

0.4

0.4

0.4

Investment properties

 

0.2

0.2

0.2

Trade and other receivables

 

29.3

31.7

32.1

 

 

 

 

 

Total non-current assets

 

100.5

105.1

104.4

 

 

 

 

 

Current assets

 

 

 

 

Inventories

4

834.6

737.7

760.4

Trade and other receivables

 

12.2

9.6

9.5

Cash and cash equivalents

 

41.1

24.6

40.7

 

 

 

 

 

Total current assets

 

887.9

771.9

810.6

 

 

 

 

 

Total assets

 

988.4

877.0

915.0

 

 

 

 

 

Equity and liabilities

 

 

 

 

Capital and reserves

 

 

 

 

Share capital

 

43.0

43.0

43.0

Share premium

 

101.6

100.8

101.6

Retained earnings

 

589.6

552.5

600.1

 

 

 

 

 

Equity attributable to owners of the Company

 

734.2

696.3

744.7

 

 

 

 

 

Non-controlling interest

 

1.2

0.8

1.0

 

 

 

 

 

Total equity

 

735.4

697.1

745.7

 

 

 

 

 

Current liabilities

 

 

 

 

Trade and other payables

 

83.3

76.9

85.4

UK corporation tax

 

2.2

4.0

6.7

Land payables

 

50.4

44.7

67.4

 

 

 

 

 

Total current liabilities

 

135.9

125.6

159.5

 

 

 

 

 

Non-current liabilities

 

 

 

 

Long-term borrowings

5

115.1

52.7

8.0

Deferred tax liability

 

2.0

1.6

1.8

 

 

 

 

 

Total liabilities

 

253.0

179.9

169.3

 

 

 

 

 

Total equity and liabilities

 

988.4

877.0

915.0

 

 

 

 

 

Notes 1 to 15 form part of the Condensed Consolidated Financial Statements shown above.

 

 

 

McCarthy & Stone plc

Condensed Consolidated Statement of Changes in Equity

For the half year ended 28 February 2018 (unaudited)

 

 

 

Share capital

Share premium

Retained earnings

Total

Non-controlling interest

Total equity

 

Notes

£m

£m

£m

£m

£m

£m

 

 

 

 

 

 

 

 

Balance at 31 August 2016 (audited)

 

43.0

100.8

 553.5

697.3

   0.8

698.1

 

 

 

 

 

 

 

 

Profit for the period

 

-

-

     17.6

 17.6

-

17.6

Total comprehensive income for the period

 

-

-

       17.6

    17.6

-

   17.6

Transactions with owners of the Company:

 

 

 

 

 

 

 

Share-based payments

13

-

-

         0.2

     0.2

-

     0.2

Dividends

10

-

-

(18.8)

(18.8)

-

(18.8)

 

 

 

 

 

 

 

 

Balance at 28 February 2017 (unaudited)

 

   43.0

    100.8

    552.5

 696.3

           0.8

697.1

 

 

 

 

 

 

 

 

Profit for the period

 

-

-

56.6

56.6

0.2

56.8

Total comprehensive income for the period

 

-

-

56.6

56.6

0.2

56.8

Transactions with owners of the Company:

 

 

 

 

 

 

 

Share-based payments

13

-

-

0.7

0.7

-

0.7

Dividends

10

-

-

(9.7)

(9.7)

-

(9.7)

Share issue related costs - tax credit

 

-

0.8

-

0.8

-

0.8

 

 

 

 

 

 

 

 

Balance at 31 August 2017 (audited)

 

43.0

101.6

600.1

744.7

1.0

745.7

 

 

 

 

 

 

 

 

Profit for the period

 

-

-

7.9

7.9

0.2

8.1

Total comprehensive income for the period

 

-

-

7.9

7.9

0.2

8.1

Transactions with owners of the Company:

 

 

 

 

 

 

 

Share-based payments

13

-

-

0.9

0.9

-

0.9

Dividends

10

-

-

(19.3)

(19.3)

-

(19.3)

 

 

 

 

 

 

 

 

Balance at 28 February 2018 (unaudited)

 

   43.0

101.6

589.6

734.2

1.2

735.4

 

Notes 1 to 15 form part of the Condensed Consolidated Financial Statements shown above.

 

  

 

McCarthy & Stone plc

Condensed Consolidated Cash Flow Statement

For the half year ended 28 February 2018 (unaudited)

 

 

 

Half year ended 28 February 2017 (unaudited)

Half year ended 28 February 2017 (unaudited)

Year ended 31 August 2017 (audited)

 

Notes

£m

£m

£m

 

 

 

 

 

Net cash (outflow)/inflow from operating activities

6

(86.6)

(64.0)

(3.8)

 

 

 

 

 

Investing activities

 

 

 

 

Purchases of property, plant and equipment

 

(0.2)

(0.2)

(0.7)

Purchases of intangible assets

 

(0.5)

(0.1)

(0.4)

Proceeds from sale of property, plant and equipment

 

-

-

0.1

 

 

 

 

 

Net cash (used in) investing activities

 

(0.7)

(0.3)

(1.0)

 

 

 

 

 

Financing activities

 

 

 

 

Proceeds from long-term borrowings

 

107.0

-

-

Repayment of short-term borrowings

 

-

(11.3)

-

Repayment of long-term borrowings

 

-

-

(45.0)

Dividends paid

 

(19.3)

(18.8)

(28.5)

 

 

 

 

 

Net cash from/(used in) financing activities

 

87.7

(30.1)

(73.5)

 

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

 

0.4

(94.4)

(78.3)

 

 

 

 

 

Cash and cash equivalents at beginning of the period

 

40.7

                119.0

119.0

 

 

 

 

 

Cash and cash equivalents at end of the period

 

41.1

                 24.6

40.7

 

 

 

 

 

Notes 1 to 15 form part of the Condensed Consolidated Financial Statements shown above.

 

  

 

McCarthy & Stone plc

Notes to the Condensed Consolidated Half Yearly Financial Statements

For the half year ended 28 February 2018 (unaudited)

 

1.      Accounting policies

 

Basis of preparation

McCarthy & Stone plc is a Company incorporated in England and Wales.

These Condensed Consolidated Half Yearly Financial Statements are unaudited and were authorised for issue by the Board on 10 April 2018.

These Condensed Consolidated Half Yearly Financial Statements have been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union and the Disclosure and Transparency Rules of the Financial Conduct Authority.

The information for the year ended 31 August 2017 does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006. The Half Yearly Financial Statements should be read in conjunction with the Annual Report and Accounts, for the year ended 31 August 2017, which were prepared in accordance with European Union endorsed International Financial Reporting Standards ('IFRS') and those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The Annual Report and Accounts for the year ended 31 August 2017 were approved by the Board of Directors on 13 November 2017 and delivered to the Registrar of Companies. The auditor's report on those Financial Statements was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498(2) or (3) of the Companies Act 2006.

Going concern

The Directors consider that the Group is well placed to manage business and financial risks in the current economic environment and have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future, a period not less than 12 months from the date of this report. In February 2018 the Group extended its revolving credit facility from £200m to £250m for a period of 12 months (existing facility of £200m ends in May 2021).  As at the balance sheet date a total of £117.0m (2017: £55.0m) has been drawn down with a further £41.1m (2017: £24.6m) held on the balance sheet in cash, resulting in net debt of £75.9m (2017: £30.4m).  This increased level of net debt reflects the Group's additional investment in land, build and sales and marketing expenditure ahead of the delivery of 49 first occupations in the second half of the financial year and the increased number of in-house part-exchange properties held on the balance sheet.  In making our assessment as to the Group's ability to continue as a going concern and managing the related funding risk, we have considered forecast net debt levels reflecting on interest cover, gearing and tangible net asset value covenants with no breaches identified.   Accordingly, the Directors continue to adopt the going concern basis in preparing these Condensed Consolidated Half Yearly Financial Statements.

 

Accounting policies

The unaudited Condensed Consolidated Half Yearly Financial Statements have been prepared using accounting policies consistent with those applied in the preparation of the Group's Annual Report and Accounts for the year ended 31 August 2017.

 

New standards, amendments and interpretations that have been published and are therefore mandatory for the Group's accounting periods beginning on or after 1 September 2016 and later periods are disclosed on page 128 of the Annual Report and Accounts for the year ended 31 August 2017. There have not been any new standards and amendments adopted for the first time in the current or prior financial year.

 

Critical accounting judgements and key sources of estimation uncertainty

In the application of the Group's accounting policies, which are described within the Annual Report and Accounts for the year ended 31 August 2017, the Directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
 

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

 

The critical judgements identified at the year end, as included in the Annual Report and Accounts for the year ended 31 August 2017, remain the same. The Annual Report and Accounts 2017 can be obtained from the Group's registered office or www.mccarthyandstonegroup.co.uk.

 

2.      Profit for the year

 

Reconciliation to underlying operating profit and profit before tax

The following tables present a reconciliation between the statutory profit measures disclosed on the Condensed Consolidated Statement of Comprehensive Income and the underlying measures used by the Board to appraise performance.

 

Amortisation of brand has been adjusted in order to reconcile to underlying operating profit and underlying profit before tax given that it is not related to performance in the period and therefore the Directors do not believe this cost reflects the underlying trading of the business.  In the judgement of the Directors this presentation shows the underlying performance of the Group.

 

Half year ended 28 February 2018 (unaudited)

 

 

Statutory

Amortisation of brand

Underlying

 

Notes

£m

£m

£m

 

 

 

 

 

Operating profit

 

13.5

            1.0

14.5

 

 

 

 

 

Finance income

 

0.1

-

0.1

Finance expense

 

(3.1)

-

(3.1)

 

 

 

 

 

Profit before tax

 

10.5

1.0

11.5

 

 

 

 

 

Income tax expense

 

(2.4)

(0.2)

(2.6)

 

 

 

 

 

Profit for the year from continuing operations and total comprehensive income

 

 

8.1

                           0.8

 

8.9

 

 

 

 

 

Earnings per share

 

 

 

 

Basic (p per share)

9

1.5

0.2

1.7

Diluted (p per share)

9

1.5

0.2

1.7

                                                                                                                    

 

 

 

 

 

 

Half year ended 28 February 2017 (unaudited)

 

 

Statutory

Amortisation of brand

Underlying

 

Notes

£m

£m

£m

 

 

 

 

 

Operating profit

 

23.1

            1.0

  24.1

 

 

 

 

 

Finance income

 

0.3

-

0.3

Finance expense

 

(1.6)

-

(1.6)

 

 

 

 

 

Profit before tax

 

21.8

1.0

22.8

 

 

 

 

 

Income tax expense

 

(4.2)

(0.2)

(4.4)

 

 

 

 

 

Profit for the year from continuing operations and total comprehensive income

 

                 17.6

                           0.8

                         18.4

 

 

 

 

 

Earnings per share

 

 

 

 

Basic (p per share)

9

3.3

0.2

3.5

Diluted (p per share)

9

3.3

0.2

3.5

 

Full year ended 31 August 2017 (audited)

 

 

Statutory

Amortisation of brand

Underlying

 

Notes

£m

£m

£m

 

 

 

 

 

Operating profit

 

94.2

2.0

96.2

 

 

 

 

 

Finance income

 

1.6

-

1.6

Finance expense

 

(3.7)

-

(3.7)

 

 

 

 

 

Profit before tax

 

92.1

2.0

94.1

 

 

 

 

 

Income tax expense

 

(17.7)

(0.4)

(18.1)

 

 

 

 

 

Profit for the year from continuing operations and total comprehensive income

 

74.4

1.6

76.0

 

 

 

 

 

Earnings per share

 

 

 

 

Basic (p per share)

9

13.8

0.4

14.2

Diluted (p per share)

9

13.8

0.4

14.2

 

 

 

 

 

 

 

3.      Income tax expense

 

 

Half year ended 28 February 2018

Half year ended 28 February 2017

Year ended 31 August 2017

 

(unaudited)

(unaudited)

(audited)

 

£m

£m

£m

 

 

 

 

Corporation tax charges:

 

 

 

Current year

2.2

4.0

17.7

Adjustments in respect of prior years

-

-

(0.3)

 

 

 

 

Deferred tax charges:

 

 

 

Current year deferred tax charges

0.2

0.2

0.3

 

 

 

 

 

2.4

4.2

17.7

 

The tax charge for each period can be reconciled to the profit per the Condensed Consolidated Statement of Comprehensive Income as follows:

 

Half year ended 28 February 2018 (unaudited)

Half year ended 28 February 2017

(unaudited)

Year ended 31 August 2017 (audited)

 

£m

£m

£m

 

 

 

 

Profit before tax

10.5

21.8

92.1

 

 

 

 

Tax charge at the UK corporation tax rate of 19.00% (2017: 19.58%)

2.0

4.3

18.0

 

 

 

 

Tax effect of:

 

 

 

Expenses that are not deductible in determining taxable profit

0.2

-

0.1

Income not taxable in determining taxable profit

-

(0.1)

(0.1)

Adjustments in respect of previous years

-

-

(0.3)

Share options timing difference

0.2

-

0.2

Other reconciling items

-

-

(0.2)

 

 

 

 

Tax charge for the period

2.4

4.2

17.7

 

Reductions in the rate of corporation tax to 19% and 18% from 1 April 2017 and 1 April 2020 were substantially enacted on 18 November 2015. A further reduction in the corporation tax main rate from 1 April 2020 to 17% was fully enacted on 15 September 2016. The deferred tax assets and liabilities at 28 February 2018 have been calculated based on the appropriate rate at which the asset/liability will unwind.

 

 

4.      Inventories

 

28 February 2018 (unaudited)

28 February 2017 (unaudited)

31 August 2017 (audited)

£m

£m

£m

 

 

 

 

Land held for development

112.0

186.2

148.6

Sites in the course of construction

451.1

304.2

341.2

Finished stock

239.0

243.0

238.7

Part-exchange properties

32.5

4.3

31.9

 

 

 

 

 

834.6

737.7

760.4

 

Days in inventory amounted to 851 days in the half year ended 28 February 2017 (H1 FY17: 811 days and FY17: 582 days).

 

 

5.     Borrowings

 

Long-term borrowings

 

 

28 February 2018 (unaudited)

28 February 2017 (unaudited)

31 August 2017 (audited)

 

 

£m

£m

£m

 

 

 

 

 

Loans

 

117.0

55.0

10.0

Unamortised issue costs

 

(1.9)

(2.3)

(2.0)

 

 

 

 

 

 

 

115.1

52.7

8.0

 

 

 

Outstanding at

Outstanding at

Outstanding at

 

 

28 February 2018 (unaudited)

28 February 2017 (unaudited)

31 August 2017 (unaudited)

 

Maturity

£m

£m

£m

 

 

 

 

 

Revolving Credit Facility

May 2021

117.0

55.0

10.0

 

In February 2018, an amendment was made to the revolving credit facility ('RCF') agreement to increase the size of the facility by £50.0m for 12 months to £250.0m. The nominal interest rate of this facility remains the same at a 1, 3 or 6 month LIBOR + 1.6% depending on the length of the drawdown. As at 28 February 2018, £117.0m (H1 FY17: £55.0m, FY17: £10.0m) was drawn. The RCF is secured by a floating charge over the assets of McCarthy & Stone plc, McCarthy & Stone Retirement Lifestyles Limited, McCarthy & Stone (Developments) Limited, McCarthy & Stone Extra Care Living Limited and McCarthy & Stone Total Care Management Limited.

 

Net debt/(cash)

 

28 February 2018

28 February 2017

31 August 2017

 

(unaudited)

(unaudited)

(audited)

 

£m

£m

£m

 

 

 

 

Long-term and short-term borrowings

115.1

52.7

8.0

Add back unamortised debt issue costs

1.9

2.3

2.0

Cash and cash equivalents

(41.1)

(24.6)

(40.7)

 

 

 

 

Net debt/(cash)

75.9

30.4

(30.7)

                                                            

Net debt/(cash) is a non-GAAP measure and is calculated as cash and cash equivalents less long-term and short-term borrowings (excluding unamortised debt issue costs).
 

  

6.     Notes to the Condensed Consolidated Cash Flow Statement

 

 

Half year ended 28 February 2018 (unaudited)

Half year ended 28 February 2017

(unaudited)

Year ended

31 August 2017 (audited)

 

£m

£m

£m

 

 

 

 

Profit for the period

8.1

17.6

74.4

Adjustments for:

 

 

 

Income tax expense

2.4

4.2

17.7

Amortisation of intangibles

1.3

1.3

2.4

Share-based payment charge

0.9

0.2

0.9

Depreciation of property, plant and equipment

0.6

0.5

1.1

Finance expense

3.1

1.6

3.7

Finance income

(0.1)

(0.3)

(1.6)

 

 

 

 

 

 

 

 

Operating cash flows before movements in working capital

16.3

25.1

98.6

 

 

 

 

(Increase)/decrease in trade and other receivables

(1.3)

(1.1)

0.1

(Increase) in inventories

(74.2)

(51.9)

(85.9)

(Decrease)/increase in trade and other payables

(18.9)

(26.4)

5.4

 

 

 

 

 

 

 

 

Operating cash flows before interest and tax paid

(78.1)

(54.3)

18.2

 

 

 

 

Interest received

0.1

0.1

0.1

Interest paid

(1.9)

(1.2)

(2.9)

Income taxes paid

(6.7)

(8.6)

(19.2)

 

 

 

 

 

 

 

 

Cash (used by) operations

(86.6)

(64.0)

(3.8)

 

 

 

 

 

 

 

 

Net cash (outflow) from operating activities

(86.6)

(64.0)

(3.8)

 

 

Half year ended 28 February 2018 (unaudited)

Half year ended 28 February 2017 (unaudited)

Year ended 31 August 2017 (audited)

 

£m

£m

£m

 

 

 

 

Cash and cash equivalents

41.1

24.6

40.7

 

 

Cash and cash equivalents comprise cash and bank balances and short-term bank deposits with an original maturity of three months or less, net of outstanding bank overdrafts. The carrying amount of cash and cash equivalents approximates fair value.

 

The movement in trade and other payables includes the movement in land payables.

 

7.     Segmental analysis

 

The Board regularly reviews the Group's performance and balance sheet position for its entire operations, which are based in its country of domicile, the UK, and receives financial information for the UK as a whole. As a consequence the Group has one reportable segment which is UK housebuilding.

 

As there continues to be only one reportable segment whose revenue, profits, expenses, assets, liabilities and cash flows are measured and reported on a basis consistent with the Group financial statements, no additional numerical disclosures are necessary.

 

8.     Seasonality

 

In common with the rest of the UK housebuilding industry, activity occurs throughout the year, but is subject to the main house selling seasons of Spring and Summer. As these seasons fall in the second half of the Group's financial year, the Group's results are weighted to the second half of the financial year.

 

 

9.     Earnings per share

 

Basic earnings per share are calculated as the profit for the financial period attributable to shareholders of the Group divided by the weighted average number of shares in issue during the period.

 

28 February 2018

28 February 2017

31 August 2017

 

(unaudited)

(unaudited)

(audited)

 

 

 

 

Profit attributable to shareholders (£m)

7.9

17.6

74.2

Weighted average no. of shares (m)

537.3

537.3

537.3

 

 

 

 

Basic earnings per share (p)

1.5

3.3

13.8

 

For diluted earnings per share, the weighted average number of shares in issue is adjusted to assume the conversion of all potentially dilutive ordinary shares. At 28 February 2018, the Company had three categories of potentially dilutive ordinary shares: 3.0m nil cost share options under the LTIP schemes and 4.1m 167.4p share options under the Sharesave plan.

 

A calculation is done to determine the number of shares that could have been acquired at fair value based on the aggregate of the exercise price of each share option and the fair value of future services to be supplied to the Group, which is the unamortised share-based payments charge. The difference between the number of shares that could have been acquired at fair value and the total number of options is used in the diluted earnings per share calculation.

 

28 February 2018

28 February 2017

31 August 2017

 

(unaudited)

(unaudited)

(audited)

 

 

 

 

Profit used to determine diluted EPS (£m)

7.9

17.6

74.2

Weighted average no. of shares (m)

537.3

537.3

537.3

Adjustments for:

 

 

 

Share options - LTIP

1.4

-

0.3

Shares used to determine diluted EPS (m)

538.7

537.3

537.6

 

 

 

 

Diluted earnings per share (p)

1.5

3.3

13.8

  
 

 

10.    Dividends on equity shares

 

Half year ended
28 February 2018

Half year ended
28 February 2017

Year ended
31 August 2017

 

(unaudited)

(unaudited)

(audited)

 

£m

£m

£m

 

 

 

 

Amounts recognised as distributions to equity holders in the period

 

 

Interim dividend for the previous year

-

                            -  

     9.7

Final dividend for the year

19.3

18.8  

18.8

 

 

 

 

 

 

 

 

Total distributions to equity holders in the period

19.3

                 18.8  

28.5

 

 

 

 

Interim dividend for the year ended 31 August 2018 (p)

1.9p

-

 

 

In accordance with IAS 10 'Events after the Reporting Period' the interim dividend of 1.9p (H1 FY17: 1.8p) has not been included as a liability in these Condensed Consolidated Half Yearly Financial Statements.

 

The interim dividend will be paid on 8 June 2018 to all ordinary shareholders on the register of members at the close of business on Friday 4 May 2018. The ex-dividend date is Thursday 3 May 2018.
 

 

11.    Financial instruments' fair value disclosure

 

The Group's financial instruments comprise cash, bank loans and overdrafts, trade receivables, other financial assets and trade and other payables.

 

Categories of financial instruments

 

 

Half year ended
28 February 2018

Half year ended
28 February 2017

Year ended
31 August 2017

 

(unaudited)

(unaudited)

(audited)

 

£m

£m

£m

 

 

 

 

Financial assets

 

 

 

Financial assets at fair value through profit or loss:

 

 

 

Shared equity receivables

26.2

28.4

28.9

Loans and receivables:

 

 

 

Cash and cash equivalents

41.1

24.6

40.7

Trade and other receivables

7.7

3.3

2.7

 

 

 

 

 

 

 

 

 

75.0

56.3

72.3

 

 

 

 

Financial liabilities

 

 

 

Amortised cost:

 

 

 

Trade and other payables

68.8

65.8

77.2

Land payables

50.4

44.7

67.4

Loans

115.1

52.7

8.0

 

 

 

 

 

 

 

 

 

234.3

163.2

152.6

 

 

Valuation of level 1, 2 and 3 financial assets and liabilities

·    The fair values of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices (including listed redeemable notes, bills of exchange, debentures and perpetual notes).

·    The fair values of other financial assets and financial liabilities (excluding derivative instruments) are determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current market transactions and dealer quotes for similar instruments.

 

The fair values of derivative instruments are calculated using quoted prices. Where such prices are not available, a discounted cash flow analysis is performed using the applicable yield curve for the duration of the instruments for non-optional derivatives, and option pricing models for optional derivatives.

 

Fair value measurements recognised in the statement of financial position

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value. The grouping into levels 1 to 3 is based on the degree to which their fair value is observable:

 

·    Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities.

·    Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

·    Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

 

The financial instruments held by the Group that are measured at fair value all relate to financial assets measured at fair value through profit and loss ('FVTPL') using methods associated with Level 3.

 

Half year ended 28 February 2018 (unaudited)

 

Level 1

Level 2

Level 3

Total

 

£m

£m

£m

£m

Financial assets at FVTPL

 

 

 

 

Shared equity receivables

-

-

26.2

26.2

 

 

 

 

 

Total financial assets designated at FVTPL

-

-

26.2

26.2

 

 

 

 

 

 

 

 

 

 

 

Half year ended 28 February 2017 (unaudited)

 

Level 1

Level 2

Level 3

Total

 

£m

£m

£m

£m

Financial assets at FVTPL

 

 

 

 

Shared equity receivables

-

-

28.4

28.4

 

 

 

 

 

Total financial assets designated at FVTPL

-

-

28.4

28.4

 

 

 

 

 

 

 

Year ended 31 August 2017 (audited)

 

Level 1

Level 2

Level 3

Total

 

£m

£m

£m

£m

Financial assets at FVTPL

 

 

 

 

Shared equity receivables

-

-

28.9

28.9

 

 

 

 

 

Total financial assets designated at FVTPL

-

-

28.9

28.9

 

There were no transfers between Levels 1, 2 or 3 in the above periods.

 

Financial assets are recorded at fair value, being the estimated amount receivable by the Group, discounted to present day values.

 

For shared equity receivables, the fair value of future anticipated cash receipts takes into account the Directors' views of an appropriate discount rate, a new build premium, future house price movements and the expected timing of receipts. These assumptions cover a variety of different schemes and the range of assumptions used are stated below. The assumptions are reviewed at each period end.

 

 

Half year ended
28 February 2018

Half year ended
28 February 2017

Year ended
31 August 2017

 

Assumptions

 

(unaudited)

(unaudited)

(audited)

 

 

 

 

 

 

 

Discount rate

 

3.8 to 4.4%

4.0 to 4.7%

3.8 to 4.4%

 

New build premium

 

5.0%

5.0%

5.0%

 

House price inflation

 

0 to 5.7%

0 to 5.5%

0 to 5.8%

 

Timing of receipt

 

5 to 11 years

6 to 11 years

5 to 14 years

 

 

 

 

 

 

 

 

 

Half year ended

28 February 2018
Increase in assumptions by 1%/1 year
(unaudited)

Half year ended

28 February 2018
Decrease in assumptions by 1%/1 year
(unaudited)

Sensitivity-effect on value of other financial assets (less)/more

£m

£m

 

 

 

Discount rate

(1.1)

1.4

House price inflation

1.5

(1.4)

Timing of receipt

(0.5)

0.6

 

The fair value of the shared equity receivable is based on external data. The sensitivity-effect of a 1% change is representative of our best estimate of a reasonably possible alternative assumption.

 

The Directors review the anticipated future cash receipts from the assets at each reporting date and the difference between the anticipated future receipt and the initial fair value is credited to finance income.

  

At initial recognition, the fair values of the assets are calculated using a discount rate appropriate to the class of assets that reflects market conditions at the date of entering into the transaction. The Directors consider at the end of each reporting period whether the initial market discount rate still reflects up to date market conditions. If a revision is required, the fair values of the assets are re-measured at the present value of the revised future cash flows using this revised discount rate. The difference between these values and the carrying values of the assets is recorded against the carrying value of the assets and recognised directly in the Consolidated Statement of Comprehensive Income.

The following tables present the changes in Level 3 instruments for the half years ended 28 February 2018 and 28 February 2017 and the full year ended 31 August 2017:

 

 

 

 

Half year ended 28 February 2018

 

 

 

Shared equity receivables

Total

 

 

 

£m

£m

 

 

 

 

 

Opening balance

 

 

28.9

28.9

Additions

 

 

-

-

Disposals

 

 

(1.3)

(1.3)

Revaluation (losses) recognised in profit or loss

 

 

(1.4)

(1.4)

 

 

 

 

 

Closing balance

 

 

26.2

26.2

 

 

 

 

 

 

 

 

 

 

 

 

Half year ended 28 February 2017

 

 

 

Shared equity receivables

Total

 

 

 

£m

£m

 

 

 

 

 

Opening balance

 

 

29.3

29.3

Additions

 

 

0.5

0.5

Disposals

 

 

(1.8)

(1.8)

Revaluation gains recognised in profit or loss

 

 

0.4

0.4

 

 

 

 

 

Closing balance

 

 

28.4

28.4

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended 31 August 2017

 

 

 

Shared equity receivables

Total

 

 

 

£m

£m

 

 

 

 

 

Opening balance

 

 

                                 29.3

29.3

Additions

 

 

                                   0.8

    0.8

Disposals

 

 

(2.7)

(2.7)

Revaluation gains recognised in profit or loss

 

 

1.5

1.5

 

 

 

 

 

Closing balance

 

 

                       28.9

28.9

  
 

12.    Related party transactions

 

Balances and transactions between the parent Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the Group and other related parties are disclosed below.

 

Transactions involving Directors and key management personnel

No advances, credits or guarantees have been entered into with any of the Directors of the Company during the current or preceding period.

 

 

13.    Share plans

 

The Group operates three employee incentive schemes: an all-employee Sharesave plan ('SAYE') and two discretionary plans - the Long Term Incentive Plan ('LTIP') and the Annual and Deferred Bonus Plan ('ABP').

 

The SAYE plan is an ell-employee savings-related share option plan.

 

The Group has granted three sets of nil-cost options under the Group's ('LTIP') to Executive Directors and senior managers. The LTIP is subject to three performance conditions and vests over three years.

 

Vesting Schedule for FY16 LTIP Awards:

 

Measure

Weighting

(of total award)

Threshold

(25% vesting of that measure)

Maximum

(100% vesting of that measure)

 

Total Shareholder Return

(Index = Housebuilder Peer Group Index)

40.0%

Equal to Index

Index + 7.5% per annum

Cumulative Earnings Per Share (pre-exceptional) to year ended 31 August 2018

30.0%

61.4p

69.8p

Return on Capital Employed (pre-exceptional) for the year ended 31 August 2018

30.0%

22.0%

25.0%

 

 

Vesting Schedule for FY17 LTIP Awards:

 

Measure

Weighting

(of total award)

Threshold

(25% vesting of that measure)

Maximum

(100% vesting of that measure)

 

Total Shareholder Return

(Index = Housebuilder Peer Group Index)

33.3%

Equal to Index

Index + 7.5% per annum

Earnings Per Share (pre-exceptional) for the year ended 31 August 2019

33.3%

21.8p

27.8p

Return on Capital Employed (pre-exceptional) for the year ended 31 August 2019

33.3%

22.0%

25.0%

 

The Vesting Schedule for FY18 LTIP Awards:

 

Measure

Weighting

(of total award)

Threshold

(25% vesting of that measure)

Maximum

(100% vesting of that measure)

 

Total Shareholder Return

(Index = two groups equally weighted: Housebuilder Peer Group Index and FTSE 250 constituents)

25.0%

Equal to Index /
median of FTSE 250

Index + 7.5% per annum / upper quartile of FTSE 250

Earnings Per Share (pre-exceptional) for the year ended 31 August 2020

37.5%

21.8p

27.8p

Return on Capital Employed (pre-exceptional) for the year ended 31 August 2020

37.5%

20.0%

25.0%

 

Further details of these plans can be found in the Group's Annual Report and Accounts dated 14 November 2017.

 

 

14.    Events after the balance sheet date

 

The FY18 interim dividend has been approved by the Board of Directors on 10 April 2018 as described in
note 10.

  

15.    Half year announcement

 

The Condensed Consolidated Half Yearly Financial Statements were approved by the Board on 10 April 2018. Copies of this announcement, along with further information on McCarthy & Stone plc and the analyst presentation document which will be presented at the Group's results meeting on 11 April 2018, are available on our website at www.mccarthyandstonegroup.co.uk.

 

Cautionary statement regarding forward-looking statements

Some of the information in this document may contain projections or other forward-looking statements regarding future events or the future financial performance of McCarthy & Stone plc and its subsidiaries (the Group). You can identify forward-looking statements by terms such as "expect", "believe", "anticipate", "estimate", "intend", "will", "could", "may" or "might", the negative of such terms or other similar expressions. McCarthy & Stone plc (the Company) wishes to caution you that these statements are only predictions and that actual events or results may differ materially. The Company does not intend to update these statements to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. Many factors could cause the actual results to differ materially from those contained in projections or forward-looking statements of the Group, including among others, general economic conditions, the competitive environment as well as many other risks specifically related to the Group and its operations. Past performance of the Group cannot be relied on as a guide to future performance.

 

Statement of Directors' responsibility in respect of the Half Year Results Announcement

The Directors confirm that to the best of their knowledge these condensed consolidated interim financial statements have been prepared in accordance with IAS 34 and applicable accounting standards as required by DTR 4.2.4R. They also confirm that to the best of their knowledge the half year results announcement includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year) and DTR 4.2.8R (disclosure of related party transactions and changes thereto).

The Directors of McCarthy & Stone plc during the half year were:

John White (Independent Non-Executive Chairman), resigned on 24 January 2018

Paul Lester (Independent Non-Executive Chairman), appointed on 3 January 2018 and appointed as Chairman on 24 January 2018

Clive Fenton (Chief Executive Officer)

Rowan Baker (Chief Financial Officer)

John Tonkiss (Chief Operating Officer)  

Frank Nelson (Senior Independent Director)

Mike Parsons (Independent Non-Executive Director)

Geeta Nanda (Independent Non-Executive Director)

John Carter (Independent Non-Executive Director), appointed on 1 October 2017

 

 

C Fenton

Chief Executive Officer

 

 

R Baker

Chief Financial Officer

10 April 2018

  

- Ends -


Notes to editors:

McCarthy & Stone is the UK's leading retirement housebuilder, with a c.70% share of the owner-occupied market18. The Group buys land and then builds, sells and manages high-quality retirement developments.  It has built and sold more than 54,000 properties across c.1,200 retirement developments since 1977, and is renowned for its focus on the needs of those in later life.

 

There is a growing demand for retirement housing. There are currently 11.8 million people aged 65 or over, rising to 17.3m by 2037, representing a 47% increase19. For those aged 85 or over, the increase will be larger, from 1.6m to 3.0m, representing an 88% increase. One in four over 60s are interested in retirement living20, yet only c.162,000 units of specialist retirement housing for homeowners have been built21.

 

McCarthy & Stone has two main product ranges - Retirement Living and Retirement Living Plus, which provide mainly one and two bedroom apartments across the country with varying levels of support and care for older homeowners. Retirement Living developments provide independence in private apartments designed specifically for the over-60s, as well as facilities such as shared lounges and guest suites that support companionship. Retirement Living Plus developments, which are designed specifically for the over-70s, offer all of this plus more on-site facilities such as restaurants, well-being suites and function rooms. Importantly, they also provide flexible care and support packages to assist those needing additional help. 

 

In 2014, McCarthy & Stone also launched its Lifestyle Living (formerly Ortus Homes) product, which is exclusively for the over-55s and those in the earlier stages of retirement who are seeking to downsize for their leisure years.

 

All developments built since 2010 are managed by the company's in-house management services team, providing peace of mind that it will look after customers and their properties over the long term. This is a key part of how McCarthy & Stone seeks to enrich its customers' lives. This commitment to quality and customer service continues to be recognised by homeowners. In March 2018, the Group received the full Five Star rating for customer satisfaction from the Home Builders Federation for the thirteenth consecutive year - making it the only UK housebuilder, of any size or type, to achieve this accolade.

 

The Group was also pleased to win 15 awards at the 2017 NHBC Pride in the Job awards and seven Seals of Excellence, marking a 50% increase in awards from 2016.  The scheme recognises construction site managers who achieve the highest standards in housebuilding and has been instrumental in driving up standards in the sector for 37 years.

 

For further information, please visit www.mccarthyandstone.co.uk.

 

 

[18] Based on 4,778 registrations of cross-tenure properties specifically designed for the elderly with the NHBC during 18 month period ended 30 June 2017, of which 3,684 were registered by McCarthy & Stone  
[19] ONS (2017) 
[20] ONS (2017, 2014 based figures)  
[21] Knight Frank (2018)  

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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Half year results - RNS