mccarthy & stone the natural choice for a happy retirement
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McCarthy & Stonethe
Natural Choicefor a
Happy Retirement
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McCARTHY & STONEHalf year to 28/2/06
HIGHLIGHTS
• Revenue £131.1m (£131.0m)
• Pre-tax profit of £39.1m (£48.8m) -20%
• Headline EPS of 26.7p (34.2p) -22%
• Interim dividend of 6.0p (5.4p) +11%
• UK unit sales of 753 (792) -5%
• Average sales price £170,900 (£165,400) +3.3%
• Overall stock position of 10,607 units (10,758) -1.4%
• Group net borrowings £4.9m (£20.2m)
• Pre-tax return on capital over last 12 months 26% (40%)
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McCARTHY & STONEHalf year to 28/2/06
2003-BASED HOUSEHOLD PROJECTIONS
• 2003-2026 av. annual household growth 209,000 pa. – 4.8m homes
• Average household size to fall 2.34 in 2003 to 2.10 in 2026
• Annual growth: 55,000+ one person households in over 65 age group
• One person households over 65 increased from 2.7m+ to 3.9m+
• Under occupation of existing family homes
• McCarthy & Stone only building at rate of c. 2,000 pa
Increase in number of one person elderly households
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McCARTHY & STONEHalf year to 28/2/06
OUR CORE PRODUCT
Secure Flats for the Elderly
• 45 unit developments with 1 and 2 Bedroom flats
• Town Centre sites – near shops and amenities
• House Managers
• Communal Lounge, Guest Room, Laundry
• High level of Security and Central Monitoring
• Core Purchaser – Single/Widowed Female in mid 70’s – Needs-based over 50% of total sales
Independent Living in Secure Environment
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McCARTHY & STONEHalf year to 28/2/06
OUR MARKET
NHBC Retirement Homes “Started” 2005 with Warden in England and Wales
Year to
31/12/05
McCarthy & Stone starts 1,725
All Builders 2,651
McCarthy & Stone – 65% of market (with Warden)
High Market Share
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• Difficulties that major housebuilders experienced 1988-93• Heavy investment in finished stock/WIP in niche market• Length of time: Average timescales
• Competitors: Private Companies: Pegasus sold 160 units y/e 31.3.06 (133), Churchill sold 135 units y/e 30.11.05 (112)
• Bovis “very sheltered” product does not compete with core product (sold 251 units y/e 31.12.05 (308))
• Others, occasionally: Wilson Bowden
No significant competition from Major Housebuilders
McCARTHY & STONEHalf year to 28/2/06
BARRIERS
12 months 12 months 10 months 24 months+ c. 5 years
IdentifySite
Secure Site
Planning Consent
Practical Completion
SellOut
Negotiate Planning Build Sales
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McCARTHY & STONEHalf year to 28/2/06
CUSTOMER CARE
• HBF 2006 National Homes Survey – Maximum Five Star Rating• “Quality of Home” and “Recommend a Friend”
• Also outstanding results in NHBC Customer Satisfaction Survey & 1st in 13/17 questions
Strong Customer Care
75.376.176.2
79.180.18181.98282.58383.184.286.2
91.2
Survey Av.Builder 13Builder 12Builder 11Builder 10Builder 9Builder 8Builder 7Builder 6Builder 5Builder 4Builder 3Builder 2
MCTY
Q8 Would you recommend your builder to a friend
76.477.377.978.380.180.481.382.282.582.983.885.8
90.394
Survey Av.Builder 13Builder 12Builder 11Builder 10Builder 9Builder 8Builder 7Builder 6Builder 5Builder 4Builder 3Builder 2
MCTY
Q7 Overall, satisfaction with the quality of the new home
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McCARTHY & STONEHalf year to 28/2/06
McCARTHY & STONE BRAND
THE NATURAL CHOICEFOR A HAPPY RETIREMENT
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McCARTHY & STONEHalf year to 28/2/06
SALES/MARKETING
• Reservations in period 991 (755) +31%• Low opening reservation position 255 (440)• Average active sales points 117 (91) +29%• Continuing use of sales allowances to facilitate external part exchange• Importance of internet/website in sales process – 8.5% of completions
originated through website• NOP Awareness Research – Increase in prompted/unprompted
awareness• New marketing campaign initiated in March 2006
Improving Reservation Performance
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McCARTHY & STONEHalf year to 28/2/06
SALES
• Sold 753 units (792): Testing market, improved somewhat mid-Jan ’06 onwards• Average Selling Price - £170.9k (£165.4k) +3%: 4.6% incr. in ASP, square foot basis• 2 Bed flats 28% (29%)
Growth in ASP
£70,000
£90,000
£110,000
£130,000
£150,000
£170,000
£190,000
1999 2000 2001 2002 2003 2004 2005 2006
£79.5k£85.9k
£94.0k
£103.1k
£122.9k
£142.0k
£165.4k£170.9k
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McCARTHY & STONEHalf year to 28/2/06
SALES
Regional Average Selling Prices2005/06 2004/05
£’000 £’000 %South West 168.8 179.0 -6Western 177.3 171.2 4S East 182.8 185.1 -1North London 179.2 182.4 -2Midland 161.0 147.0 10N West 158.9 150.6 6North East 166.3 156.5 6Scotland 144.3 137.4 5Assisted Living 234.9 200.9 17Average 170.9 165.4 3
3% Increase in Average Selling Price
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McCARTHY & STONEHalf year to 28/2/06
UNIT SALES2005/2006
2004/2005
• Sales close to London only account for 6% (7%)• Southern Regions 46% (48%) : Northern Regions 47% (48%)
S W(156) 20%
S E(117) 15%
Midland(76) 10%
N W(137) 17%
Scotland(114) 14%
NE(49) 6%
Strong performance of Assisted Living : 50 units (34)
W(45) 6%
NL(64) 8%
AL(34) 4%
S W(145) 19%
S E(102) 14%
W(47) 6%
NL(53) 7%AL
(50) 7%
Midland(97) 13%
N W(102) 13%
Scotland(100) 13%
N E(57) 8%
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McCARTHY & STONEHalf year to 28/2/06
LAND
• Net sites exchanged 17 (26) : Equivalent units 768 (1,209)
• Tight land market. 3 sites (2) acquired unconditionally
• Average basic land cost per unit in period increased by 3% compared to H1 ‘05
• Average cost of land per unit in stock £39k (£34.8k)
• Average cost of land in stock c. 23% of ASP in period (21%)
• Moratorium causing difficulties for land acquisition in North
• Planning process pushes additional costs onto land
Total 10,607 units (10,758)
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McCARTHY & STONEHalf year to 28/2/06
PLANNING
• Secured 30 consents (25) representing 1,286 units (1,172)
• 3% more units secured at Planning from land acquisition stage
• Average time taken to secure consent was 67 weeks (exchange to PP)
• Increasing contributions Affordable Housing: £2.6m and 73 AH units
• Won 7 out of 11 appeals
• Moratorium creating difficulties at planning
• Joint DoH/ODPM report acknowledges shortage of specialist private retirement housing
Robust Planning Strategies
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McCARTHY & STONEHalf year to 28/2/06
CONSTRUCTION
• Completed 17 sites (12) with 768 units (553)
• Build starts, 18 sites (25) 722 units (1,087)
• Slowed build starts slightly in period as finished stock increased
• Closing WIP 1,560 units (2,516)
• Some material cost pressures, energy and commodity price related
• Budget build costs increasing by 5%
Controlling build costs
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McCARTHY & STONEHalf year to 28/2/06
INCOME STATEMENT ANALYSIS
Half year ended Feb ‘06 Feb ’05Unit Sales 753 792
£m £mRevenue 131.1 131.0
Gross Profit 61.5 68.2Administrative expenses (24.5) (21.2)Other operating income 2.5 2.4Operating profit 39.5 49.5Net interest (0.4) (0.7)PBT 39.1 48.8 -20%
=== ===• Net impact of IFRS on PBT for H1 ’05 +£0.5m
Decrease in PBT. Volume and margin related
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McCARTHY & STONEHalf year to 28/2/06
INCOME STATEMENT ANALYSIS
Half year ended Feb ’06 Feb ’05PBT 39.1 48.8 -20%Tax (11.7) (13.3)Profit after tax 27.4 35.3
=== ===Headline EPS 26.7p 34.2p -22%
• Net impact of IFRS on EPS for H1’05 +0.3p• Tax rate 30% (27.5%) – Benefit of commutation payment in prior year• 1.4m shares repurchased, cost £8.6m, since 28.2.05.
Decrease in EPS
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McCARTHY & STONEHalf year to 28/2/06
UK UNIT SALES
00/01 01/02 02/03 03/04 04/05 05/06H1 570 37% 619 37% 831 43% 780 38% 792 40% 753H2 980 1,052 1,117 1,275 1,191 ?
1,550 1,671 1,948 2,055 1,983 ?
Average Selling Price H1 £94k £103.1k £122.9k £142k £165.4k £170.9k +3%H2 £101.9k £117.2k £137k £162k £162.2kFull year £99k £112k £130.9k £154k £163.5k
• Incr. in ASP to £170.9k in H1 (05/06) +5% compared to £162.2k in H2 (04/05)
ASP nudges ahead
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McCARTHY & STONEHalf year to 28/2/06
HOUSE BUILDING MARGINS
Average per PlotHalf-year Av. Sales CoS Gross GrossFebruary Price Profit Profit
£’000 £’000 £’000 %2000 85.9 48.6 37.3 432001 94.0 45.9 48.1 512002 103.1 50.7 52.3 512003 122.9 60.7 62.2 512004 142.0 66.9 75.1 532005 165.4 79.2 86.2 522006 170.9 89.3 81.6 47
• Increase in ASP 3%, increase in CoS 13%: reduced Gross Profit per unit
Increase in Land and Build Costs counter ASP increase
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McCARTHY & STONEHalf year to 28/2/06
ADMINISTRATIVE EXPENSES
Feb ‘06 Feb ‘05 Y/e 31.8.05
Administrative expenses £24.5m £21.1m +16% £44.6m
Total Staff Numbers 1,086 1,126 -4% 1,136
• Increase in Admin costs of £3.4m : nearly 50%, due to extra S&M costs• Empty Property Costs increased by £0.8m on higher finished stock• Modest redundancy programme in September ’05 as build starts slow
Addressing cost increases
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McCARTHY & STONEHalf year to 28/2/06
CASH/BORROWINGS
Feb ‘06 Feb ‘05£m £m
Net Cash (4.9) (20.2)=== ===
Shareholders Funds 449.3 392.6=== ===
• Net impact of IFRS on S. Funds at Feb ’05 +7.9m• Average net borrowings £8.0m (cash £5.7m: repayment of Fin. Lease Dec ’04
£18.4m)• Over 12 months Company repurchased 1.4m Ordinary shares for £8.6m• Over 12 months sales of Freeholds for £45.8m• Increase in S. Funds over 12 months £56.7m. NTA per share 438p
Strong balance sheet
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McCARTHY & STONEHalf year to 28/2/06
UNIT STOCK POSITION
Half-year Half-year Full-yearFull-year Full year 28/2/0628/2/05 31/8/05 31/08/04 31/8/03
Unit Sales 753 792 1,983 2,055 1,948==== ==== === === ===
Finished Stock 2,706 1,978 +37% 2,692 2,217 1,693WIP 1,560 2,516 1,603 1,977 2,092
4,266 4,494 4,295 4,194 3,785Land with PP 2,884 2,207 2,443 2,212 1,875Land without PP 3,457 4,057 3,924 3,990 3,753
10,607 10,758 10,662 10,396 9,413==== ==== === ==== ====
Y/e Land investment £266.5m £241.1m £259.9m £226.0 £158.1mNet Units exch. in period 768 1,209 2,099 2,864 2,750
• Land creditor 28/2/06 £142.0m (£139.2m) – At 31.8.05 £160.7m
Overall stock position represents c. 5 years’ sales at recent sales rates
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McCARTHY & STONEHalf year to 28/2/06
STOCK POSITION
Feb ’06 Feb ’05 Aug ’05£’m £’m £’m
Land 266.5 241.1 259.9
WIP 105.9 145.9 105.6
Finished 227.6 151.5 205.6600.0 538.5 571.1==== ==== ====
• Increase in finished stock value• Overall increase in stock value
Strong Stock Position
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McCARTHY & STONEHalf year to 28/2/06
DIVIDENDS
31.8.06 31.8.05p p
Interim Dividend 6.0 5.4 +11%Final Dividend ? 14.0
? 19.4==== ====
Year end Year end31.8.06 31.8.05
Basic EPS ? 87.6pCover ? 4.5x
11% Increase in Interim Dividend
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McCARTHY & STONEHalf year to 28/2/06
RETURN ON CAPITAL
12 mths to28/2/06
£mPre-tax Profits (last 12 months) 118.1
===NTA at 28.2.06 449.3
===Return on Capital 26%
===
Good return on capital
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McCARTHY & STONEHalf year to 28/2/06
RECENT TRACK RECORDY/e 31/8/05
0
20
40
60
80
100
120
140
160
1997 1998 1999 2000 2001 2002 2003 2004 20050
102030405060708090
100
1997 1998 1999 2000 2001 2002 2003 2004 2005
0.02.04.06.08.0
10.012.014.016.018.020.0
1997 1998 1999 2000 2001 2002 2003 2004 2005
12.0p17.3p
25.3p34.7p
Pence
Earnings per share (p) – 28% Compound GrowthPre-tax profits (£m) - 26% Compound Growth
Dividend per share (p) - 26% Compound Growth
£m
Pence
3.0p4.5p
6.3p8.7p
9.7p
20.528.5
39.153.5
60.539.2p
75.449.2p
11.4p
116.076.5p
13.7p
Net assets per share (p) - 23% Compound Growth
0
50
100
150
200
250
300
350
400
450
1997 1998 1999 2000 2001 2002 2003 2004 2005
80p94p
115p140p
169p206p
268pPence
THE NATURAL CHOICEFOR A HAPPY RETIREMENT
147.899.2p
17.3p
357p*
127.8* 87.9p*
19.4p427p*
* Restatedfor IFRS
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McCARTHY & STONEHalf year to 28/2/06
FINANCIAL STRENGTHS
• Good margins. Return on Capital 26.0%
• Shareholders Funds increased to £449.3m (£392.6m)
• Reduced borrowing position over 12 months to £4.9m (£20.2m)
• Over last 12 months bought back 1.4m shares for £8.6m
• Strong operating cash flow
Strong Financial Position
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McCARTHY & STONEHalf year to 28/2/06
CURRENT TRADING
• Started the year with 111 active sites (86) and 255 (440) forward sales
• Sept/mid-Jan. trading was testing
• Since mid-Jan. some signs that reservation position improving
• Lower completions in H1 but higher reservations
• Carrying forward 493 reservations (403) into H2
• Fewer 1st occupations in H2, 24 (42)
• Will do well to over-achieve last years unit volumes of 1,983
• Margins will continue to ease
More selling points and more stock
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McCARTHY & STONEHalf year to 28/2/06
THE FUTURE
• Affordability is stretched
• Other housing fundamentals remain sound: Sound underlying demand, short supply, high employment, economic growth, low interest rates
• Strong business model and meeting demographic need
• Strong Balance Sheet/cash position
• Market leader – strong brand
Short term constraints/Fundamentals remain sound
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