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McCarthy & Stone PLC   -  MCS   

Half Year Results

Released 07:00 10-Apr-2019

RNS Number : 6850V
McCarthy & Stone PLC
10 April 2019
 

Wednesday 10 April 2019

 

McCarthy & Stone plc

Half year results announcement for the period ended 28 February 2019

Significant progress in delivering new strategy  

 

McCarthy & Stone (the 'Group'), the UK's leading developer and manager of retirement communities, announces its financial results for the six months ended 28 February 2019 (2019).  All comparatives are to the prior year equivalent six-month period ended 28 February 2018 (2018) unless otherwise stated.

 

 

H1 2019

H1 2018

Change

Legal completions1

845

760

11%

Revenue

£280.5m

£239.6m

17%

Average selling price2

£319k

£298k

7%

Gross profit

£39.0m

£32.0m

22%

Underlying operating profit3

£21.3m

£14.5m

47%

Operating profit

£6.0m

£13.5m

(56%)

Underlying operating margin

7.6%

6.0%

1.6ppt

Operating margin

2.1%

5.6%

(3.5ppt)

Underlying profit before tax3

£18.9m

£11.5m

64%

Profit before tax

£3.6m

£10.5m

(66%)

Underlying basic earnings per share3,4

2.9p

1.7p

1.2p

Basic earnings per share

0.5p

1.5p

(1.0p)

Net debt5

£57.2m

£75.9m

£18.7m

Return on capital employed6 (ROCE)

10%

12%

(2ppt)

Interim dividend per share

1.9p

1.9p

-

 

 

Financial highlights
 

·   Revenue increased by 17% to £281m (2018: £240m) reflecting 11% increase in volumes to 845 legal completions (2018: 760) together with a 7% improvement in the average selling price to £319k (2018: £298k), reflecting improvements in the quality and locations of our developments as well as a change in geographic and product mix. 

·   Underlying operating profit3 increased by 47% to £21m (2018: £15m) driven by increased volumes and ASP profile together with planned margin improvement activity in line with the Group's new strategy, partially offset by increased use of discounts and incentives, particularly part-exchange, to counteract a more challenging secondary market. 

·   Underlying profit before tax increased by 64% to £19m (2018: £12m) and statutory profit before tax decreased by 66% to £4m (2018: £11m) impacted by £14m (2018: nil) of exceptional costs incurred in relation to the delivery of the Group's new business strategy including restructuring and redundancy costs, realignment of land bank to deliver steady state volumes and consultancy fees (£6m cash impact from exceptionals in H1). 

·   Underlying basic earnings per share3,4 increased by 71% to 2.9p (2018: 1.7p) and basic earnings per share decreased by 67% to 0.5p (2018: 1.5p). 

·   Period end net debt5 of £57m (2018: £76m) equivalent to gearing7 of 8% (2018: 10%). 

·   Interim dividend of 1.9p per share (2018: 1.9p per share), to be paid on 11 June 2019 to the shareholders on the register at close of business on 3 May 2019.

 

Operational highlights

·    Significant progress in delivering the Group's new strategy with key milestones achieved in accordance with plan:

Two new COO appointments in January 2019, Nigel Turner and Mike Lloyd, to focus on two core activities: Build & Production and Sales & Services

Margin improvement initiatives well underway with right-sizing activity substantially complete, expected to deliver an annualised cash saving of c.£12m across two workstreams

Dedicated teams in place to leverage our strategic opportunities: affordability, flexibility and choice, with incubator hubs now live

·    15 first occupations brought to market in the period (2018: 16).

·    Total land bank of c.8,372 plots (2018: c.10,021), equivalent to c.3.9 years' supply (2018: 4.4 years' supply), with 10 high-quality development sites (2018: 22 sites) added to the landbank and 21 planning consents achieved (2018: 21).

·    Awarded the full Five Star rating for customer satisfaction by the Home Builders Federation ('HBF') for the fourteenth consecutive year - the only UK housebuilder, of any size or type, to achieve this accolade every year the survey has been run. 

·    Board appointment - Gill Barr appointed as a Non-Executive Director of the Group with effect from today bringing the total number of board members to eleven. Gill will succeed Mike Parsons as Chair of the Remuneration Committee.  She will also join the Risk & Audit Committee.

 

 

Current trading and outlook for FY19

·    In April 2019, the Group extended the maturity date of its existing £200m revolving credit facility ('RCF') from May 2021 to March 2023 with Barclays, HSBC and RBS.

·    Completion volumes remain ahead of prior year, despite increasingly challenging market conditions with continued use of part-exchange.

·    Sales leads and enquirers in line with prior year despite the planned lower level of sales releases (28, 2018: 54) reflecting strategic focus on rebalancing workflow.

·    Forward order book as at 5 April 2019 (week 31) currently c.17% behind prior year at c.£485m (6 April 2018: £581m) with higher quality reservations now being held due to improved controls. Shortfall due to:

organisational design changes within the Sales function (now completed)

planned lower level of sales releases

·    FY19 volume out-turn (14 months to 31 October) remains in line with the Board's expectations:

c.2,300 legal completions expected in FY19, with an expected ASP of c.£300k

More than 40 first occupations expected in FY19 with all H2 first occupations currently under construction

FRI sales assumed to go ahead as planned in FY19

Group reiterates the expected FY19 savings range announced as part of the new strategy (c.20-30% of the FY21 targeted P&L saving of £40m) at gross profit level

·    Increased use of discounts and incentives, particularly part-exchange, now expected to continue into H2 to counteract more challenging secondary market.

·    House price inflation remains subdued and build cost inflation expected to remain at c.3-4% level.

 

 

John Tonkiss, Chief Executive Officer commented:

 

"During the first reporting period of our transformation strategy and against the backdrop of continuing uncertainty and challenging market conditions, we delivered encouraging results. Our half year revenue increased to £281m (2018: £240m), representing progress towards a rebalancing of our workflow and we brought 15 (2018: 16) high-quality developments to market.  This revenue increase, together with margin improvement activity in line with our new strategy resulted in a 47% increase in underlying operating profit for the period.

 

"We are making significant progress across our strategic objectives, which focus on optimising our operations to deliver strong financial performance and increasing our return on capital employed, margins and cash generation over the next three years. We are mindful of the economic and political uncertainty that all businesses are currently facing but are confident that our FY19 expected volume out-turn remains in line with the Board's expectations with increased use of discounts and incentives, particularly part-exchange, now expected to continue into H2 to counteract more challenging secondary market conditions."

 

- 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.

 

1The Group recognises legal completion at the point of completion of a sale of an apartment to a purchaser
2 Average selling price is calculated as average list price less cash discounts and part-exchange top-ups and fair value adjustments
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 (2018: £1.0m) and exceptional items of £14.3m (2018: £nil) 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 6 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 £740.7m (2018: £700.1m) at the beginning and end of the 12 month period. Tangible gross asset value is calculated as net assets excluding goodwill of £41.7m (2018: £41.7m) and intangible assets of £25.2m (2018: £26.7m), excluding net debt of £57.2m (2018: £75.9m)
7 Gearing is calculated by dividing net debt of £57.2m (2018: £75.9m) by net assets of £748.1m (2018: £735.4m)

Presentation for analysts and investors:

John Tonkiss, Chief Executive Officer and Rowan Baker, Chief Financial Officer will host an analyst and investor meeting at 9.30am BST today at Deutsche Bank, Winchester House, 75 London Wall, London, EC2N 2DB.  Refreshments will be served from 9.15am. 

 

Webcast for analysts and investors:

A live webcast of the presentation is available via the following link:

http://www.mccarthyandstonegroup.co.uk/investors/2019-half-year-results

 

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/2019-half-year-results

 

Conference call details:

United Kingdom (Local): 020 3936 2999

All other locations: +44 20 3936 2999

Participant Access Code: 294247

 

Conference call replay facility (available until Wednesday 17th April 2019)

United Kingdom: 020 3936 3001

All other locations: + 44 20 3936 3001

Replay code: 836469

 

For more information, please contact:

 

McCarthy & Stone, 01202 292480

John Tonkiss, Chief Executive Officer

Rowan Baker, Chief Financial Officer

Paul Teverson, Director of Communications

Marina Calero, IR Director

 

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

 

Throughout the period, trading volumes remained resilient, despite more challenging conditions within the secondary market, largely due to the continuing political and economic uncertainty, as evidenced by persistently low levels of national housing transactions and a declining consumer confidence index. Over the medium term, however, the structural imbalance between supply and demand within the housing market continues to provide us with an exceptional market opportunity.  This imbalance is particularly acute in the market for retirement housing where the demand is estimated at 30,000 retirement units per annum against a supply of just 6,000 units across all tenures.1

 

McCarthy & Stone maintains a unique position as the only developer capable of meeting a significant proportion of the nationwide need for high-quality retirement communities for the growing number of older people who are looking to move to properties that are more suited to their needs and lifestyle.

 

1 Knight Frank, Retirement Housing (2016)

 

 

Our half year results

 

Group revenue increased to £281m (2018: £240m), reflecting an 11% increase in volumes together with a 7% improvement in the average selling price.   The Group achieved 845 legal completions during the half year (2018: 760), with volumes supported by the higher opening stock levels carried over from 2018 and an increased use of in-house part-exchange transactions to create more liquidity in a more challenging secondary housing market.

 

During the first half of the year, 46% of legal completions (2018: 40%) involved some form of part- exchange, with c.25% of transactions completed using in-house part-exchange. The use of in-house part-exchange in preference to third party part-exchange has generated a saving of c.£2.7m (2018: c.£2.6m). In-house part-exchange properties are being successfully resold in line with target at an average of c.13.3 weeks (FY18: c.13.1 weeks) post buy-in, with average capital employed of £27.2m. Part-exchange continues to be a valuable tool for the business and as a result the Board approved an increase to the limit on the value of part-exchange properties held on the balance sheet to 10% of net assets (c.75% utilised at 28 February). The Group expects to utilise the full part-exchange allocation in H2.

 

The 7% increase in the average selling price to £319k (2018: £298k), reflects improvements in the quality and locations of our developments as well as a change in geographic and product mix.

 

The revenue improvements in the period, together with planned margin improvement activity in line with our new strategy, contributed towards the increase in the underlying operating profit by 47% to £21m (2018: £15m), while our underlying operating profit margin increased to 8% (2018: 6%) and gross profit margin increased to 14% (2018: 13%). Statutory operating profit was impacted by total exceptional costs of £14m (2018: £nil) which were incurred in relation to the delivery of the new business strategy and, as a result, has reduced to £6m (2018: £14m).

 

Similarly, underlying profit before tax has increased to £19m (2018: £12m), while statutory profit before tax reduced to £4m (2018: £11m).

 

The Group incurred £14m (2018: £nil) of exceptional costs in relation to the delivery of its new business strategy.  These costs comprised restructuring and redundancy costs, the costs of realigning our land bank to deliver steady state volumes and consultancy fees (resulting in £6m total cash impact from exceptionals in H1).

 

The Group saw its tangible gross asset value decrease to £738m (2018: £743m) and its tangible net asset value increase to £681m (2018: £667m) during the period, while period end net debt improved to £57m (2018: £76m) resulting in 8% gearing (2018: 10%). 

 

ROCE decreased by 2ppts year on year driven by a lower 12 month operating profit to February 2019 (2019: £74m, 2018: £87m).

 

The Group's sale of Freehold Reversionary Interests successfully completed in February 2019 with a total cash value of c.£4m (2018: £11m) based on a smaller portfolio.

 

Revolving Credit Facility extension

 

In April 2019, the Group extended the maturity date of its existing £200m revolving credit facility ('RCF') from May 2021 to March 2023 with Barclays, HSBC and RBS. The nominal interest rate of this facility has increased from a 1, 3 or 6 month LIBOR + 1.6% to a 1, 3 or 6 month LIBOR + 1.7% depending on the length of the drawdown. As at 28 February 2019, £79m (2018: £117m, FY18: £43m) was drawn.

 

New strategic direction - significant progress with key milestones achieved in line with plan

 

In September 2018 we announced our new strategy 'creating retirement communities to enrich the quality of life for our customers and their families'.  It represents a shift in the business mindset from growth to increasing our return on capital employed, margins and cash generation. 

 

Stage 1 FY19-FY21: Optimising operations for strong financial performance

 

Over the next three years, we are focusing on optimising our operations to deliver strong financial performance across four fundamental pillars, for the benefit of all our shareholders:

·    Workflow realignment is aimed at generating a stable monthly flow of land exchanges, build starts, sales releases and first occupations, all of which are fundamental to our operational efficiency.

We have already completed the necessary planning actions within our Group three-year plan, while continuing to maintain land bank optionality and reducing inventory to 1,579 units (FY18: 1,779) with 441 units of new stock added during the period.

We have also put in place an incentive scheme to support delivery of this strategic objective.

·    Rightsizing the business seeks to align the operational cost base to reflect steady state volumes, while retaining the ability to respond if market conditions improve.

We have now substantially completed this stage resulting in an annualised cash saving of c.£10m, we have now closed our South West region and our business in Scotland will be gradually wound down and closed over the next 12 months. Our remaining regions are now resourced to deliver a steady state volume with support functions also adjusted to the new footprint.

We have strengthened the Group's oversight and control through change in organisational design and increased adoption of consistent ways of working. Two new COOs were appointed in January this year to focus on two core activities: Build & Production and Sales & Services.

·    Efficient sales and marketing model involves a reorganisation of our sales teams and a centralised approach to Group marketing to improve standardisation of practices and efficiencies.

The new streamlined sales and marketing operating model is now in place, with annualised headcount cash savings of c.£2m.

We are undertaking a phased roll-out of Salesforce, our new Customer Relationship Management IT system across four regions with training and roll-out preparation underway across the remaining regions. The full roll-out is expected to be completed by summer 2019.

Our improved website and content management system is on track for roll-out in summer 2019.

·    Build cost reduction programme involves increasing standardisation, more efficient designs and optimising subcontract procurement practices.

We have completed design reviews of all FY19 and FY20 schemes, identifying savings in build costs and margin improvements. Any new schemes brought forward are now significantly more compliant with our design standards.

We have rolled out a standard construction programme, preliminary schedule and agreed Wave 1 (of four) of framework/specification value improvements for materials.  A programme for competitive tendering of sub-contract packages has also been launched.

 

Stage 1 Strategic targets reiterated

·    Steady state volume of c.2,100 units per annum.

·    ROCE improvement to greater than 15% by FY21, increasing to over 20% by FY23.

·    Improvement in operating margins to more than 15% by FY21.

·    Total cost savings of more than £40m per annum by FY21.

·    Total cumulative cash savings in excess of £90m between FY19-FY21.

·    The Group will focus on reduction in capital employed by at least £70m between FY18 and FY21.

 

Stage 2 FY19 - FY23: Leveraging strategic opportunities

 

In parallel, we will also aim to leverage our longer term strategic opportunities within our services and product offering.  We will aim to create even deeper and longer relationships with customers to increase our customer appeal, diversify our revenue streams and reduce overall exposure to market cyclicality.

 

The Group's proposition is underpinned by three key principles with an incubator approach adopted to refine the proposition for each:

 

·    Flexibility within our services to respond to evolving customer needs and increase revenue. 

We identified, assessed and launched trials on 21 services across 6 categories: Care & Support, Health & Wellbeing, Technology, Transport, Food & Drink and Social

We have launched an incubator hub in West Midlands involving 300 customers

We have engaged several business partners and shortlisted services for the first wave of tests, while also reviewing results and collecting regular feedback to enable an agile approach

A further incubator hub has also been launched in our South East region

 

·    Choice of ownership through multi-tenure options, including outright ownership, shared ownership and rental. As we enter the rental market, we intend to sell our rental properties on to investors whilst retaining an interest.

We have launched incubator projects in two regions across 11 developments with three additional developments in West Midlands to join in early May

We are conducting ongoing performance and feedback monitoring to refine the proposition

Our marketing material and customer website has now been updated to reflect tenure options

 

·    Affordability to maximise our mass market appeal by increasing the affordability of our products.  This will be achieved by reducing build costs, increasing efficiencies and introducing new contemporary and compact designs. 

Agreed designs for compact, contemporary, affordable (Modern Methods of Construction, 'MMC') offering and tested using customer focus groups with scope covering Classic and Bungalow products

Working with various MMC suppliers for panelised solutions

Volumetric partner assessed and selected to develop the modular designs and design to cost

Location for first panelised scheme identified and planning is underway for build start towards the end of 2019

Shortlist of volumetric schemes identified to commence in FY20

 

Land bank

 

During the period, we invested £58m (2018: £71m) in land and our landbank now stands at 8,372 units (2018: 10,021 units), which equates to over 3.9 years' supply (2018: 4.4 years' supply). 10 high-quality development sites (2018: 22 sites) have been added to the land bank in line with our new strategy focusing on a more measured trajectory and smoother workflow objectives.  We also completed on the purchase of 13 sites (2018: 25 sites) and achieved 21 planning consents (2018: 21) during the period.

 

Our customers

 

Our customers are at the heart of our business and we are delighted to have maintained our full Five Star rating in the Home Builders Federation ('HBF') customer satisfaction survey for 2018 for the fourteenth consecutive year. In the year 92.5% (2018: 93.5%) of our customers said they would recommend us to a friend.  We remain the only housebuilder of any size or type to have won this award every year since it was introduced in 2005.  This sustained recognition by our customers of the quality of product and service we deliver is a strong endorsement of our continued commitment to design, build, sell and manage the very best retirement developments and create the very best customer experience. 

 

Our employees

 

Our performance in the first six months of the year would not have been possible without the dedication, enthusiasm and expertise of our people.   The Board would like to record their appreciation of the huge efforts undertaken by all employees across the Group, particularly against the backdrop of a difficult market and the organisational restructure programme which took place in the last calendar quarter of 2018.

 

Our people are critical to the continuing evolution and success of the business.  We continue to work on building a culture of excellence that provides clear career pathways and opportunities for development in all areas of our business and we recognise and celebrate those employees who go the extra mile for a customer or colleague with our popular instant, quarterly and annual PRIDE awards.

 

Our expanding Management Development Programme continues to attract new and aspiring managers to develop their leadership skills.  Our first Chartered Management Institute accredited Level Five Management and Leadership programme began at the end of March 2019 with an initial cohort of ten employees, whilst our Senior Leaders Programme was recognised as a finalist in the HBF 2018 Awards Best Training Initiative category. 

 

Our Site Manager Apprenticeship scheme is ongoing and will be supplemented this year by a new Finance apprenticeship programme. 

 

Nigel Turner, Chief Operating Officer - Build & Production, has been appointed as our first Board level equality and diversity champion and will be spearheading our new equality and diversity programme.

 

Independent Director appointment

Gill Barr has been appointed as a Non-Executive Director of the Group with effect from today and will succeed Mike Parsons as Chair of the Remuneration Committee.  She will also join the Risk & Audit Committee.

She has held senior strategy, marketing and business development positions at John Lewis & Partners, Kingfisher plc, MasterCard and KPMG, and was Group Marketing Director of The Co-operative Group between 2011 and 2014.  She is currently a Non-Executive Director of PayPoint plc, N Brown Group plc, Wincanton plc and was previously a Non-Executive Director of Morgan Sindall plc.

Gill also has considerable experience as a Remuneration Committee member and Chair.  She is currently the Chair of N Brown Group plc and Wincanton plc's Remuneration Committee and sits on the same committee for PayPoint plc.  She was also previously chair of Morgan Sindall plc's Remuneration Committee. 

 

Charity partnership

 

To support and help deliver our purpose of creating communities that enrich the quality of life for our customers and families, we are delighted to have Beanstalk as our charity partner for 2019.  Beanstalk are a national children's literacy charity providing one-to-one support to disadvantaged children who struggle with reading.  We hope to raise at least £100,000 during the year to help Beanstalk's vital reading programmes and we are engaging our homeowners and employees from across the UK to volunteer to assist disadvantaged children in their local communities through the charity's services.

 

Government initiatives

 

Ground rents

 

On 15 October 2018, Government announced that it is proposing to allow the retirement community sector to continue charging an economic ground rent after they are capped elsewhere, subject to offering customers a choice between paying a higher sale price or a ground rent.  We worked closely with the Government during the consultation period, which ended on 26 November 2018 and expect the outcome to be announced later this year.

 

Reform planning

 

We called for new local and national policies to encourage supply and expect new guidance in due course, although it is unlikely to be radical. We also called for a joined-up housing and care policy through the forthcoming Social Care Green Paper 

 

Unlocking the secondary housing market

 

To unlock the secondary housing market we have also called for a Help-to-Move package to help the millions of older people who want to downsize, which could include a one-time stamp duty exemption. This would increase the number of downsizer moves significantly and net HM Treasury additional revenue from the new chains created.

 

The Spring Statement

 

We welcomed two statements of positive intent by the Government in the Spring Statement on 13 March 2019, which may be beneficial for our business. This included plans for new guidance on diversifying housing types on large sites and an 'Accelerated Planning Green Paper'.

 

 

Summary

 

We have delivered an encouraging performance during H1 despite the continuing economic and political uncertainty and have made significant progress across our new strategic objectives, which focus on optimising our operations to deliver strong financial performance and increasing our return on capital employed, margins and cash generation over the next three years.

 

We have strengthened the Group's oversight and control through change in organisational design. Our two new COOs, Nigel Turner and Mike Lloyd, appointed in January this year have a clear roadmap and now focus on our core activities: Build & Production and Sales & Services.

 

We have dedicated teams in place to leverage our strategic opportunities: affordability, flexibility and choice with incubator hubs now live.

 

We continue to make our sector's case with Government across various initiatives.

 

 

Outlook

 

Our FY19 volume out-turn (14 months to 31 October) remains in line with the Board's expectations, with increased use of discounts and incentives, particularly part-exchange, now expected to continue into the second half of this year to counteract a more challenging secondary market.

 

Our focus for FY19 will be on rolling out our new strategy, achieving key milestones and delivering savings in accordance with our new strategic plan.  In addition, our strong balance sheet, focus on careful cash management and strengthened management team gives us confidence that we can navigate through the ongoing headwinds created by the current economic and political uncertainty.

 

 

Earnings per share and interim dividend

 

Underlying basic earnings per share increased by 71% to 2.9p (2018: 1.7p) reflecting the uplift in underlying profit before tax from £12m in 2018 to £19m in 2019.  Basic earnings per share for 2019 were 0.5p (2018: 1.5p).  Details of the calculation of underlying earnings per share can be found in note 2 to the condensed consolidated financial statements.  Details of the calculation of earnings per share can be found in note 10 to the condensed consolidated financial statements.

 

The Group is announcing an interim dividend of 1.9p per share (2018: 1.9p per share), to be paid on Tuesday, 11 June 2019 to all ordinary shareholders on the register of members at close of business on Friday, 3 May 2019. The ex-dividend date is Thursday, 2 May 2019.

 

The total cost of the interim dividend is £10m (2018: £10m).

 

 

Risk management

 

The Group maintains a robust risk management framework, providing a clear link between its strategy and the strategic, operational and financial risks faced by the business.  The approach to risk is set by the Board, which maintains a close involvement in identifying and mitigating risk and monitors certain key risk indicators at Board meetings on a regular basis. 

 

As part of managing the financial risk in the business, the potential impact of a downturn in the housing market or the broader UK economic environment is regularly evaluated and we have a number of key risk indicators that are used at Board level in order to assess this. Our geographic coverage and diversified portfolio of land ensures that we are not overly dependent on particular local markets or individual developments.  In addition, our distinct business model helps to insulate our business from a downturn, with land acquisition normally contracted subject to planning and also often subject to commercial viability or by way of option, enabling us to review land acquisition decisions in light of planning outcomes and latest market conditions prior to committing significant capital. 

 

The following risks have been identified by the Board with respect to delivering the new Group strategy:

·    Unit completion pattern continues to be lumpy with a significant proportion delivered towards the year end.

·    Land buying and build programmes are not successfully calibrated to deliver a steady state production.

·    Failure to deliver required cost savings through changes to the organisational design.

·    The build cost reduction programme is not fully achieved.

·    Failure to streamline the sales model and centralise the marketing function.

 

Liquidity risk is the risk the Group will encounter difficulty in meeting obligations associated with financial liabilities. The Group's strategy in relation to managing liquidity risk is to ensure that the Group has sufficient liquid funds to meet all its potential liabilities as they fall due. The liquidity of the Group is dependent on achieving the level of sales volumes and prices in line with current forecasts and strategic objectives as announced on the 25 September 2018.  Liquidity risks are managed through the regular review of detailed short term and long-term cash flow forecasts to monitor the expected requirements of the Group against the available facilities, principally the revolving credit facility in place, and by maintaining adequate committed banking facilities to ensure appropriate headroom.
 

 

 

 

INDEPENDENT REVIEW REPORT TO McCARTHY & STONE PLC

 

Introduction

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 2019 which comprises the Condensed Consolidated Statement of Comprehensive Income, Condensed Consolidated Statement of Financial Position, Condensed Consolidated Statement of Changes in Equity, Condensed Consolidated Cash Flow Statement and the 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 guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our 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 Guidance 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 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 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 2019 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

  

Ernst & Young LLP

London

9 April 2019

 

 

 

 

McCarthy & Stone plc

Condensed Consolidated Statement of Comprehensive Income

For the half year ended 28 February 2019 (unaudited)

 

 

 

Half year ended

28 February 2019
(unaudited)

Half year ended

28 February 2018
(unaudited)

Year ended

31 August 2018

(audited)

 

 

 

Notes

£m

£m

£m

 

 

 

 

 

Revenue

 

280.5

239.6

671.6

Cost of sales

 

(241.5)

(207.6)

(567.0)

 

 

 

 

 

 

 

 

 

 

Gross profit

 

39.0

32.0

104.6

 

 

 

 

 

Other operating income*

3

64.5

4.7

11.3

Administrative expenses

 

(34.8)

(19.3)

(44.0)

Other operating expenses*

3

(62.7)

(3.9)

(8.4)

 

 

 

 

 

Operating profit

 

6.0

13.5

63.5

 

 

 

 

 

 

 

 

 

 

Amortisation of brand

 

(1.0)

(1.0)

(2.0)

Exceptional items

 

(14.3)

-

(2.0)

 

 

 

 

 

 

 

 

 

 

Underlying operating profit

2

21.3

14.5

67.5

 

 

 

 

 

 

 

 

 

 

Finance income

 

0.3

0.1

0.4

Finance expense

 

(2.7)

(3.1)

(5.8)

 

 

 

 

 

 

 

 

 

 

Profit before tax

 

3.6

10.5

58.1

Income tax expense

4

(0.8)

(2.4)

(11.6)

 

 

 

 

 

 

 

 

 

 

Profit for the period from continuing operations and total comprehensive income

2

2.8

8.1

46.5

 

 

 

 

 

 

 

 

 

 

Profit attributable to

 

 

 

 

Owners of the Company

 

2.7

7.9

46.2

Non-controlling interests

 

0.1

0.2

0.3

 

 

 

 

 

 

 

2.8

8.1

46.5

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

Basic (p per share)

10

0.5

1.5

8.6

Diluted (p per share)

10

0.5

1.5

8.6

 

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

21.3

14.5

67.5

Underlying profit before tax

2

18.9

11.5

62.1

 

* The Group has applied IFRS 15, effective from 1 September 2018, using the cumulative effect method. The significant change relates to the accounting treatment of part-exchange properties. Further detail on the adoption of these standards is included within note 1. Comparatives have not been restated in respect of the adoption of IFRS 15 or IFRS 9.

  

 

McCarthy & Stone plc

Condensed Consolidated Statement of Financial Position

As at 28 February 2019 (unaudited)

 

 

 

Half year ended

28 February 2019
(unaudited)

 

Half year ended 28 February 2018
(unaudited)

 

Year ended

31 August 2018 (audited)

 

 

 

Notes

£m

£m

£m

 

 

 

 

 

Assets

 

 

 

 

Non-current assets

 

 

 

 

Goodwill

 

41.7

41.7

41.7

Intangible assets

 

25.2

26.7

26.1

Property, plant and equipment

 

1.9

2.2

2.1

Investments in joint ventures

 

0.4

0.4

0.4

Investment properties

 

0.2

0.2

0.2

Other receivables

 

25.3

29.3

27.8

 

 

 

 

 

 

 

 

 

 

Total non-current assets

 

94.7

100.5

98.3

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

Inventories

5

826.6

834.6

817.5

Trade and other receivables

 

10.2

12.2

22.4

Cash and cash equivalents

 

31.8

41.1

57.0

 

 

 

 

 

 

 

 

 

 

Total current assets

 

868.6

887.9

896.9

 

 

 

 

 

 

 

 

 

 

Total assets

 

963.3

988.4

995.2

 

 

 

 

 

 

 

 

 

 

Equity and liabilities

 

 

 

 

Capital and reserves

 

 

 

 

Share capital

 

43.0

43.0

43.0

Share premium

 

101.6

101.6

101.6

Retained earnings

 

602.1

589.6

617.5

 

 

 

 

 

 

 

 

 

 

Equity attributable to owners of the Company

 

746.7

734.2

762.1

 

 

 

 

 

 

 

 

 

 

Non-controlling interest

 

1.4

1.2

1.3

 

 

 

 

 

 

 

 

 

 

Total equity

 

748.1

735.4

763.4

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

Trade and other payables

 

94.1

83.3

114.9

UK corporation tax

 

0.9

2.2

6.5

Land payables

 

30.1

50.4

56.9

Short-term borrowings

      6

10.0

-

-

 

 

 

 

 

 

 

 

 

 

Total current liabilities

 

135.1

135.9

178.3

 

 

 

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

Long-term borrowings

6

77.8

115.1

51.4

Deferred tax liability

 

2.3

2.0

2.1

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

215.2

253.0

231.8

 

 

 

 

 

 

 

 

 

 

Total equity and liabilities

 

963.3

988.4

995.2

 

 

 

 

 

 

 

 

 

 

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 2019 (unaudited)

                                                                                                                                                      

 

 

Share capital

Share premium

Retained earnings

Total

Non-controlling interest

Total equity

 

Notes

£m

£m

£m

£m

£m

£m

 

 

 

 

 

 

 

 

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

 

-

-

0.9

0.9

-

0.9

Dividends

11

-

-

(19.3)

(19.3)

-

(19.3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 28 February 2018 (unaudited)

 

   43.0

101.6

589.6

734.2

1.2

735.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the period

 

-

-

38.3

38.3

0.1

38.4

Total comprehensive income for the period

 

-

-

38.3

38.3

0.1

38.4

Transactions with owners of the Company:

 

 

 

 

 

 

 

Share-based payments

 

-

-

(0.1)

(0.1)

-

(0.1)

Dividends

11

-

-

(10.3)

(10.3)

-

(10.3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 31 August 2018 (audited)

 

43.0

101.6

617.5

762.1

1.3

763.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the period

 

-

-

2.7

2.7

0.1

2.8

Total comprehensive income for the period

 

-

-

2.7

2.7

0.1

2.8

Transactions with owners of the Company:

 

 

 

 

 

 

 

Share-based payments

 

-

-

0.7

0.7

-

0.7

Dividends

11

-

-

(18.8)

(18.8)

-

(18.8)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 28 February 2019 (unaudited)

 

43.0

101.6

602.1

746.7

1.4

748.1

 

 

 

 

 

 

 

 

 

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 2019 (unaudited)

 

 

 

Half year ended

28 February 2019 (unaudited)

Half year ended

28 February 2018 (unaudited)

Year ended

31 August 2018 (audited)

 

Notes

£m

£m

£m

 

 

 

 

 

Net cash (outflow)/inflow from operating activities

7

(41.7)

(86.6)

14.8

 

 

 

 

 

 

 

 

 

 

Investing activities

 

 

 

 

Purchases of property, plant and equipment

 

(0.3)

(0.2)

(0.8)

Purchases of intangible assets

 

(0.4)

(0.5)

(1.1)

 

 

 

 

 

 

 

 

 

 

Net cash (used in) investing activities

 

(0.7)

(0.7)

(1.9)

 

 

 

 

 

 

 

 

 

 

Financing activities

 

 

 

 

Issue of long-term borrowings

 

90.0

172.0

250.0

Repayment of long-term borrowings

 

(54.0)

(65.0)

(217.0)

Dividends paid

 

(18.8)

(19.3)

(29.6)

 

 

 

 

 

 

 

 

 

 

Net cash from financing activities

 

17.2

87.7

3.4

 

 

 

 

 

 

 

 

 

 

Net (decrease)/increase in cash and cash equivalents

 

(25.2)

0.4

16.3

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of the period

 

57.0

40.7

40.7

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of the period

 

31.8

41.1

57.0

 

 

 

 

 

 

 

 

 

 

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 2019 (unaudited)

 

1.      Accounting policies

 

Basis of preparation

McCarthy & Stone plc is a public Company limited by shares incorporated in England and Wales under the Companies Act 2006.

These Condensed Consolidated Half Yearly Financial Statements are unaudited and were authorised for issue by the Board on 9 April 2019.

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 2018 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 Financial Statements, for the year ended 31 August 2018, which were prepared in accordance with International Financial Reporting Standards as adopted by the European Union ('EU IFRS') and those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The Annual Report and Financial Statements for the year ended 31 August 2018 were approved by the Board of Directors on 12 November 2018 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 April 2019, the Group extended the maturity date of its existing £200m Revolving Credit Facility ('RCF') from May 2021 to March 2023 with Barclays, HSBC and RBS.  As at the balance sheet date a total of £79.0m (2018: £117.0m) has been drawn down, in addition to £10.0m (2018: £nil) of issued promissory notes, with a further £31.8m (2018: £41.1m) held on the balance sheet in cash. The level of drawdown on the RCF fluctuates during the year, however the Group operates within a minimum medium-term headroom requirement of £40.0m. If headroom were at risk, management can take mitigating action by curtailing uncommitted land purchases and build costs.

 

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. Further information on the Group's borrowings is given in note 6.

 

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 Financial Statements for the year ended 31 August 2018, with the exception of the adoption of new accounting standards as disclosed below:

 

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 2017 and later periods are disclosed on page 158 of the Annual Report for the year ended 31 August 2018. During the period the Group has adopted the following new and revised standards and interpretations:

 

IFRS 15 'Revenue from Contracts with Customers' is effective for the Group from 1 September 2018. The standard sets out requirements for revenue recognition from contracts with customers under a five-step model to apportion revenue against performance obligations within a contract based upon the transfer of control. Revenue and profit on the sale of units is recognised when substantially all the risks and rewards of ownership have transferred to the customer, which is deemed at legal completion, and does not change under IFRS 15.

 

There are however presentational changes to our Statement of Comprehensive Income regarding the treatment of part-exchange properties. Under IFRS 15, the requirement is to present the non-cash consideration received from a customer within revenue. This should be measured at fair value with any provision applied taken as a reduction to revenue. The key difference is that previously, upon subsequent resale of the property, the income and costs associated with part-exchange properties were recognised on a net basis within cost of sales. Under IFRS 15, there is requirement to present the proceeds from resale on a gross basis and this has been reclassified within 'other operating income' and the associated costs within 'other operating expenses' on the basis that it is not considered part of the core trading activities of the Group due to the differences in the nature and purpose of the properties being sold. As a result, the gross profit for H1 2019 has been reduced by £0.5m with a nil impact on operating profit:

 

Impact on Consolidated Statement of Comprehensive income

Adjustment in respect of

part-exchange properties

H1 2019

£m

Revenue

-

Cost of sales

(0.5)

Gross profit

(0.5)

Other operating income

58.0

Administrative expenses

-

Other operating expenses

(57.5)

Operating profit

-

 

The Group reviewed the transition options and opted to apply IFRS 15 using the cumulative effect method due to the only adjustment for the Group being presentational, and therefore the comparative information has not been restated. 

  

IFRS 9 'Financial Instruments' is effective for the Group from 1 September 2018. The Group does not presently hold any complex financial instruments. The principal impact area for the Group is in applying the "expected credit loss" model introduced for bad debt provisions. However, as the Group's accounting policy is not to recognise revenue until legal completion, no material bad debt provisions are anticipated. This will continue to be reviewed as the Group's new multi-tenure offerings develop.

 

Other financial instruments impacted by IFRS 9 are already held at fair value through profit or loss and therefore we do not expect and changes in valuation or presentation.

 

There were no other key estimates or judgements made in assessing the impact of IFRS 15 and 9 on the Group.

 

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 2018, 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 2018, remain the same. The Annual Report 2018 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.

 

Exceptional items are unusual to the normal activity of the Group, are of significant cost and non-recurring and therefore have been separately classified by the Directors in order to draw them to the attention of the reader.

 

Adjusted cost items are items which are quantitively or qualitatively material and are presented separately within the Consolidated Statement of Comprehensive Income. The Directors are of the opinion that the separate presentation of these items provides helpful information about the Group's underlying business performance. Amortisation of brand has been adjusted in order to reconcile to underlying operating profit and underlying profit before tax given the Directors do not believe this cost reflects the underlying trading of the business.

 

Half year ended 28 February 2019 (unaudited)

 

 

Statutory

Exceptional items

Amortisation of brand

Underlying

 

Notes

£m

£m

£m

£m

 

 

 

 

 

 

Operating profit

 

6.0

14.3

1.0

21.3

 

 

 

 

 

 

Finance income

 

0.3

-

-

0.2

Finance expense

 

(2.7)

-

-

(2.7)

 

 

 

 

 

 

 

 

 

 

 

 

Profit before tax

 

3.6

14.3

1.0

18.9

 

 

 

 

 

 

Income tax expense

 

(0.8)

(2.7)

(0.2)

(3.7)

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the year

 

2.8

11.6

0.8

15.2

 

 

 

 

 

 

 

 

 

 

 

 

Attributable to non-controlling interests

 

0.1

-

-

0.1

Attributable to owners of the Company

 

2.7

11.6

0.8

15.1

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

Basic (p per share)

          10

0.5

2.2

0.2

2.9

Diluted (p per share)

10

0.5

2.2

0.2

2.9

 

 

 

 

 

 

 

 

 

 

 

 

 

The exceptional costs in H1 2019 represent the cost of land which will no longer be developed net of any residual land value to be recovered of £6.3m, redundancy costs of £3.5m and consultants' fees in relation to the strategic review of £4.5m.

The income tax expense impact is a credit in relation to the cost items above.

  

Half year ended 28 February 2018 (unaudited)

 

 

Statutory

Exceptional items

Amortisation of brand

Underlying

 

Notes

£m

£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

 

8.1

-

0.8

8.9

 

 

 

 

 

 

 

 

 

 

 

 

Attributable to non-controlling interests

 

0.2

-

-

0.2

Attributable to owners of the Company

 

7.9

-

0.8

8.7

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

Basic (p per share)

          10

1.5

-

0.2

1.7

Diluted (p per share)

10

1.5

-

0.2

1.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Full year ended 31 August 2018 (audited)

 

 

Statutory

Exceptional items

Amortisation of brand

Underlying

 

Notes

£m

£m

£m

£m

 

 

 

 

 

 

Operating profit

 

63.5

2.0

2.0

67.5

 

 

 

 

 

 

Finance income

 

0.4

-

-

0.4

Finance expense

 

(5.8)

-

-

(5.8)

 

 

 

 

 

 

 

 

 

 

 

 

Profit before tax

 

58.1

2.0

2.0

62.1

 

 

 

 

 

 

Income tax expense

 

(11.6)

(0.4)

(0.4)

(12.4)

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the year

 

46.5

1.6

1.6

49.7

 

 

 

 

 

 

 

 

 

 

 

 

Attributable to non-controlling interests

 

0.3

-

-

0.3

Attributable to owners of the Company

 

46.2

1.6

1.6

49.4

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

Basic (p per share)

          10

8.6

0.3

0.3

9.2

Diluted (p per share)

10

8.6

0.3

0.3

9.2

 

 

 

 

 

 

 

 

 

 

 

 

 

  

3.      Other operating income/expenses

 

Other operating income

Half year ended

28 February 2019 (unaudited)

Half year ended 28 February 2018 (unaudited)

Year ended

31 August 2018 (audited)

 

£m

£m

£m

 

 

 

 

Net rental income

0.2

0.1

0.3

Other income

6.1

4.5

9.5

Non-core business revenue

0.2

0.1

1.5

Part-exchange income

58.0

-

-

 

 

 

 

 

 

 

 

 

64.5

4.7

11.3

 

 

 

 

 

Other operating expenses

Half year ended

28 February 2019 (unaudited)

Half year ended 28 February 2018 (unaudited)

Year ended

31 August 2018 (audited)

 

£m

£m

£m

 

 

 

 

Other expenses

5.2

3.9

8.4

Part-exchange expenditure

57.5

-

-

 

 

 

 

 

 

 

 

 

62.7

3.9

8.4

 

 

 

 

 

Given changes in presentation of part-exchange properties within other operating income and expenses from FY19 under IFRS 15 (see note 1), additional disclosure has been made to illustrate this change.

  

4.      Income tax expense

 

 

Half year ended 28 February 2019

Half year ended 28 February 2018

Year ended

31 August 2018

 

(unaudited)

(unaudited)

(audited)

 

£m

£m

£m

 

 

 

 

Corporation tax charges:

 

 

 

Current year

0.6

2.2

11.3

 

 

 

 

Deferred tax charges:

 

 

 

Current year

0.1

0.2

0.3

Adjustments in respect of prior years

0.1

-

-

 

 

 

 

 

 

 

 

 

0.8

2.4

11.6

 

 

 

 

 

 

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 2019

(unaudited)

Half year ended 28 February 2018

(unaudited)

Year ended

31 August 2018 (audited)

 

£m

£m

£m

 

 

 

 

Profit before tax

3.6

10.5

58.1

 

 

 

 

 

 

 

 

Tax charge at the UK corporation tax rate of 19.00%

(2018: 19.00%)

0.7

2.0

11.0

 

 

 

 

Tax effect of:

 

 

 

Expenses that are not deductible in determining taxable profit

-

0.2

0.3

Share options timing difference

-

0.2

0.3

Adjustments in respect of prior years

0.1

-

-

 

 

 

 

 

 

 

 

Tax charge for the period

0.8

2.4

11.6

 

 

 

 

 

The main rate of corporation tax was lowered to 19% from 1 April 2017 and a further reduction to 17% will take effect from 1 April 2020. The UK deferred tax liabilities at 28 February 2019 have been calculated based on the appropriate rate at which the liability will unwind.

 

5.    Inventories

 

28 February 2019 (unaudited)

28 February 2018 (unaudited)

31 August 2018 (audited)

 

£m

£m

£m

 

 

 

 

Land held for development

90.2

112.0

99.6

Sites in the course of construction

299.2

451.1

290.3

Finished stock

381.4

239.0

385.9

Part-exchange properties

55.8

32.5

41.7

 

 

 

 

 

 

 

 

 

826.6

834.6

817.5

 

 

 

 

 

Days in inventory amounted to 693 days in the half year ended 28 February 2019 (H1 2018: 851 days and FY18: 590 days).

  

 

6.    Borrowings

 

Short-term borrowings

 

 

28 February 2019 (unaudited)

28 February 2018 (unaudited)

31 August 2018 (audited)

 

 

£m

£m

£m

 

 

 

 

 

Promissory notes

 

10.0

-

-

 

 

 

 

 

 

 

 

 

 

 

 

10.0

-

-

 

 

 

 


Promissory notes are related to land purchases and are classified as borrowings due to the substance of their contractual arrangements.

Long-term borrowings

 

 

28 February 2019 (unaudited)

28 February 2018 (unaudited)

31 August 2018 (audited)

 

 

£m

£m

£m

 

 

 

 

 

Loans

 

79.0

117.0

43.0

Unamortised issue costs

 

(1.2)

(1.9)

(1.6)

Promissory notes

 

-

-

10.0

 

 

 

 

 

 

 

 

 

 

 

 

77.8

115.1

51.0

 

 

 

 

 

 

 

Outstanding at

Outstanding at

Outstanding at

 

 

28 February 2019 (unaudited)

28 February 2018 (unaudited)

31 August 2018 (unaudited)

 

Maturity

£m

£m

£m

 

 

 

 

 

Revolving Credit Facility

March 2023

79.0

117.0

43.0

 

 

 

 

 

 

In April 2019, the Group extended the maturity date of its existing revolving credit facility ('RCF') from May 2021 to March 2023 with Barclays, HSBC and RBS. The nominal interest rate of this facility has increased from a 1, 3 or 6 month LIBOR + 1.6% to a 1, 3 or 6 month LIBOR + 1.7% depending on the length of the drawdown. As at 28 February 2019, £79.0m (H1 2018: £117.0m, FY18: £43.0m) 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, McCarthy & Stone Total Care Management Limited, McCarthy & Stone Rental Properties Limited and McCarthy & Stone Rental Properties No.2 Limited.

 

Net debt/(cash)

 

28 February 2019

28 February 2018

31 August 2018

 

(unaudited)

(unaudited)

(audited)

 

£m

£m

£m

 

 

 

 

Loans and borrowings

87.8

115.1

51.4

Add back unamortised debt issue costs

1.2

1.9

1.6

Cash and cash equivalents

(31.8)

(41.1)

(57.0)

 

 

 

 

 

 

 

 

Net debt/(cash)

57.2

75.9

(4.0)

 

 

 

 

  

 

7.    Notes to the Condensed Consolidated Cash Flow Statement

 

 

Half year ended 28 February 2019

(unaudited)

Half year ended 28 February 2018 (unaudited)

Year ended

31 August 2018 (audited)

 

£m

£m

£m

 

 

 

 

Profit for the financial period

2.8

8.1

46.5

Adjustments for:

 

 

 

Income tax expense

0.8

2.4

11.6

Amortisation of intangible assets

1.3

1.3

2.6

Share-based payment charge

0.7

0.9

0.8

Depreciation of property, plant and equipment

0.5

0.6

1.1

Finance expense

2.7

3.1

5.8

Finance income

(0.3)

(0.1)

(0.4)

 

 

 

 

 

 

 

 

Operating cash flows before movements in working capital

8.5

16.3

68.0

 

 

 

 

 

 

 

 

Decrease/(increase) in trade and other receivables

14.7

(1.3)

(9.8)

(Increase) in inventories

(9.1)

(74.2)

(47.1)

(Decrease)/increase in trade and other payables

(47.4)

(18.9)

19.1

 

 

 

 

 

 

 

 

Cash (used in)/generated by operations

(33.3)

(78.1)

30.2

 

 

 

 

 

 

 

 

Interest received

0.1

0.1

0.1

Interest paid

(2.3)

(1.9)

(4.0)

Income taxes paid

(6.2)

(6.7)

(11.5)

 

 

 

 

Net cash (outflow)/inflow from operating activities

(41.7)

(86.6)

14.8

 

 

 

 

 

 

Half year ended 28 February 2019

(unaudited)

Half year ended 28 February 2018 (unaudited)

Year ended

31 August 2018 (audited)

 

£m

£m

£m

 

 

 

 

Cash and cash equivalents

31.8

41.1

57.0

 

 

 

 

 

 

8.    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.

9.    Seasonality and financial year end

 

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. The second half for FY19 will be an extended financial period of 8 months to 31 October 2019, being a new financial year end in accordance with the announcement made by the Group on 25 September 2018.

 

10.  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

2019

28 February

2018

31 August

2018

 

(unaudited)

(unaudited)

(audited)

 

 

 

 

Profit attributable to owners of the Company (£m)

2.7

7.9

46.2

Weighted average no. of shares (m)

537.3

537.3

537.3

 

 

 

 

Basic earnings per share (p)

0.5

1.5

8.6

 

 

 

 

 

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 2019, the Company had two categories of potentially dilutive ordinary shares: 3.8m nil cost share options under the LTIP schemes and 0.5m 167.4p share options and 1.7m 106.9p share options under the Sharesave plans.

 

A calculation is performed 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

2019

28 February

2018

31 August

2018

 

(unaudited)

(unaudited)

(audited)

 

 

 

 

Profit used to determine diluted EPS (£m)

2.7

7.9

46.2

Weighted average no. of shares (m)

537.3

537.3

537.3

Adjustments for:

 

 

 

Share options - LTIP

1.4

1.4

1.3

Shares used to determine diluted EPS (m)

538.7

538.7

538.6

 

 

 

 

Diluted earnings per share (p)

0.5

1.5

8.6

 

 

 

 

 

  

11.    Dividends on equity shares

 

Half year ended
28 February

2019

Half year ended
28 February

2018

Year ended
31 August 2018

 

(unaudited)

(unaudited)

(audited)

 

£m

£m

£m

 

 

 

 

Amounts recognised as distributions to equity holders in the period

 

 

Interim dividend for the previous year

-

                            -  

10.3

Final dividend for the year

18.8

19.3

19.3

 

 

 

 

 

 

 

 

Total distributions to equity holders in the period

18.8

19.3

29.6

 

 

 

 

 

 

 

 

Interim dividend for the period ended 31 October 2019 (p)

1.9p

 

 

 

 

 

 

 

In accordance with IAS 10 'Events after the Reporting Period' the interim dividend of 1.9p (H1 2018: 1.9p) has not been included as a liability in these Condensed Consolidated Half Yearly Financial Statements.

 

The interim dividend will be paid on 11 June 2019 to all ordinary shareholders on the register of members at the close of business on Friday 3 May 2019. The ex-dividend date is Thursday 2 May 2019.

 

12.    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 2019

Half year ended
28 February 2018

Year ended
31 August 2018

 

(unaudited)

(unaudited)

(audited)

 

£m

£m

£m

 

 

 

 

Financial assets

 

 

 

Financial assets at fair value through profit or loss:

 

 

 

Shared equity receivables

23.1

26.2

25.0

Loans and receivables:

 

 

 

Cash and cash equivalents

31.8

41.1

57.0

Trade and other receivables

2.7

7.7

13.3

Secured mortgages

2.2

3.0

2.8

 

 

 

 

 

 

 

 

 

59.8

78.0

98.1

 

 

 

 

 

 

 

 

Financial liabilities

 

 

 

Amortised cost:

 

 

 

Trade and other payables

74.0

68.8

89.5

Land payables

30.1

50.4

56.9

Loans

77.8

115.1

41.4

Land-related promissory notes

10.0

-

10.0

 

 

 

 

 

 

 

 

 

191.9

234.3

197.8

 

 

 

 

 

All financial instruments are grouped into Levels 1 to 3 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 are the shared equity receivables which are measured at fair value through profit or loss using methods associated with Level 3. At 28 February 2019, these were valued at £23.1m (H1 2018: £26.2m; FY18: £25.0m).

 

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 2019

Half year ended
28 February 2018

Year ended
31 August 2018

Assumptions

 

(unaudited)

(unaudited)

(audited)

 

 

 

 

 

Discount rate

 

3.8 to 4.4%

3.8 to 4.4%

3.8 to 4.4%

New build premium

 

0 to 5%

0 to 5%

0 to 5%

House price inflation

 

0 to 6%1

0 to 6%

0 to 6%

Timing of receipt

 

5 to 10 years

5 to 11 years

5 to 11 years

 

 

 

 

 

 

 

 

 

 

 

1 The Group applied future HPI over the next five years based on industry forecasts. The 2019 HPI used in the calculation varies between 0.0-2.5% dependent upon geographical location.

 

 

 

 

 

 

 

Half year ended

28 February 2019
Increase in assumptions by 1%/1 year
(unaudited)

Half year ended

28 February 2019
Decrease in assumptions by 1%/1 year
(unaudited)

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

£m

£m

 

 

 

 

Discount rate

 

(1.1)

1.2

House price inflation

 

1.2

(1.1)

Timing of receipt

 

(0.5)

0.5

 

 

 

 

           

 

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 2019 and 28 February 2018 and the full year ended 31 August 2018:

 

 

 

 

Half year ended 28 February 2019

 

 

 

Shared equity receivables

 

 

 

£m

 

 

 

 

Opening balance

 

 

25.0

Disposals

 

 

(1.6)

Revaluation (losses) recognised in profit or loss

 

 

(0.3)

 

 

 

 

 

 

 

 

Closing balance

 

 

23.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Half year ended 28 February 2018

 

 

 

Shared equity receivables

 

 

 

£m

 

 

 

 

Opening balance

 

 

28.9

Disposals

 

 

(1.3)

Revaluation (losses) recognised in profit or loss

 

 

(1.4)

 

 

 

 

 

 

 

 

Closing balance

 

 

26.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended 31 August 2018

 

 

 

Shared equity receivables

 

 

 

£m

 

 

 

 

Opening balance

 

 

28.9

Disposals

 

 

(2.7)

Revaluation (losses) recognised in profit or loss

 

 

(1.2)

 

 

 

 

 

 

 

 

Closing balance

 

 

                       25.0

 

 

 

 

 

  

13.    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.

 

14.    Events after the balance sheet date

The FY19 interim dividend has been approved by the Board of Directors on 9 April 2019 as described in note 11. On 4 April 2019, the Group extended the maturity date of its existing revolving credit facility ('RCF') from May 2021 to March 2023.

          

15.    Half year announcement

The Condensed Consolidated Half Yearly Financial Statements were approved by the Board on 9 April 2019. 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 10 April 2019, are available on our website at www.mccarthyandstonegroup.co.uk.

 

  

 

McCarthy & Stone plc

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

For the half year ended 28 February 2019

 

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 eight months of the 14 month period) and DTR 4.2.8R (disclosure of related party transactions and changes thereto).

 

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

Paul Lester, CBE (Independent Non-Executive Chairman)

John Tonkiss (Chief Executive Officer), appointed 25 September 2018 (formerly Chief Operating Officer)

Rowan Baker (Chief Financial Officer)

Nigel Turner (Chief Operating Officer - Build & Production), appointed 1 January 2019

Mike Lloyd (Chief Operating Officer - Sales & Services), appointed 1 January 2019

Frank Nelson (Senior Independent Director)

Mike Parsons (Independent Non-Executive Director)

Geeta Nanda, OBE (Independent Non-Executive Director)

John Carter (Independent Non-Executive Director)

Arun Nagwaney (Non-Executive Director)

 

The Half Yearly Financial Report was approved by the Board on 9 April 2019, and signed on its behalf by:

 

 

J Tonkiss

Chief Executive Officer

 

R Baker

Chief Financial Officer

 

 

 

Notes to Editors

McCarthy & Stone is the UK's leading developer and manager of retirement communities, with a significant market share.  The Group buys land and then builds, sells and manages high-quality retirement developments.  It has built and sold more than 56,000 properties across more than 1,200 retirement developments since 1977 and is renowned for its focus on the needs of those in later life.

 

There is growing demand for retirement communities.  There are currently 11.8 million people aged 65 or over, rising to 17.3m by 2037, representing a 47% increase1.[2]  For those aged 85 or over, the increase will be larger, from 1.6m to 3.0m, representing an 87.5% increase.  One in four over 60s are interested in retirement living2, yet only c.162,000 units of specialist retirement housing for homeowners have been built3.

 

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. 

 

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 2019, the Group received the full Five Star rating for customer satisfaction from the Home Builders Federation for the fourteenth consecutive year - making it the only UK housebuilder, of any size or type, to achieve this accolade.

 

 

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

 

 

Forward-looking statements

Some of the information in this document may contain forward-looking statements regarding McCarthy & Stone plc and its subsidiaries (the Group). You may be able to 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 or by discussions of strategy, plans, objectives, goals, future events or intentions. These forward-looking statements include all matters that are not historical facts. McCarthy & Stone plc (the Company) wishes to caution you that actual events or results may differ materially from those anticipated. The forward-looking statements reflect knowledge and information available at the date of preparation of this document and the Company undertakes no obligation 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 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. Nothing in this document should be construed as a profit forecast

 

1 ONS household projections: 2016-based (2018)
2 ONS (2017, 2014 based figures)
3 Knight Frank, Retirement Housing (2018)

 

 


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
 
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Half Year Results - RNS