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McCarthy & Stone the Natural Choice for a Happy Retirement

McCarthy & Stone the Natural Choice for a Happy Retirement. McCARTHY & STONE Half 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%

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McCarthy & Stone the Natural Choice for a Happy Retirement

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  1. McCarthy & Stone the Natural Choice for a Happy Retirement

  2. McCARTHY & STONEHalf year to 28/2/06HIGHLIGHTS • 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%)

  3. McCARTHY & STONEHalf year to 28/2/062003-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

  4. McCARTHY & STONEHalf year to 28/2/06OUR 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

  5. McCARTHY & STONEHalf year to 28/2/06OUR 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

  6. 12 months 12 months 10 months 24 months+ c. 5 years Planning Sales Negotiate Build Practical Completion Sell Out Secure Site Planning Consent Identify Site McCARTHY & STONEHalf year to 28/2/06BARRIERS • 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

  7. Q8 Would you recommend your builder to a friend Q7 Overall, satisfaction with the quality of the new home McCARTHY & STONEHalf year to 28/2/06CUSTOMER 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

  8. McCARTHY & STONEHalf year to 28/2/06McCARTHY & STONE BRAND

  9. McCARTHY & STONEHalf year to 28/2/06SALES/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

  10. £170.9k £165.4k £142.0k £122.9k £103.1k £94.0k £85.9k £79.5k McCARTHY & STONEHalf year to 28/2/06SALES • 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

  11. McCARTHY & STONEHalf year to 28/2/06SALES Regional Average Selling Prices 2005/06 2004/05 £’000 £’000% South West 168.8 179.0 -6 Western 177.3 171.2 4 S East 182.8 185.1 -1 North London 179.2 182.4 -2 Midland 161.0 147.0 10 N West 158.9 150.6 6 North East 166.3 156.5 6 Scotland 144.3 137.4 5 Assisted Living 234.9 200.9 17 Average 170.9 165.4 3 3% Increase in Average Selling Price

  12. McCARTHY & STONEHalf year to 28/2/06UNIT SALES 2005/2006 2004/2005 N E (57) 8% S W (145) 19% NE (49) 6% S W (156) 20% Scotland (100) 13% Scotland (114) 14% S E (102) 14% S E (117) 15% N W (137) 17% N W (102) 13% W (45) 6% W (47) 6% Midland (76) 10% NL (64) 8% AL (34) 4% Midland (97) 13% NL (53) 7% AL (50) 7% • Sales close to London only account for 6% (7%) • Southern Regions 46% (48%) : Northern Regions 47% (48%) Strong performance of Assisted Living : 50 units (34)

  13. McCARTHY & STONEHalf year to 28/2/06LAND • 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)

  14. McCARTHY & STONEHalf year to 28/2/06PLANNING • 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

  15. McCARTHY & STONEHalf year to 28/2/06CONSTRUCTION • 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

  16. McCARTHY & STONEHalf year to 28/2/06INCOME STATEMENT ANALYSIS Half year endedFeb ‘06 Feb ’05 Unit Sales 753792 £m £m Revenue 131.1131.0 Gross Profit 61.5 68.2 Administrative expenses (24.5) (21.2) Other operating income 2.52.4 Operating profit 39.5 49.5 Net 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

  17. McCARTHY & STONEHalf year to 28/2/06INCOME STATEMENT ANALYSIS Half year endedFeb ’06 Feb ’05 PBT 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

  18. McCARTHY & STONEHalf year to 28/2/06UK UNIT SALES 00/01 01/02 02/03 03/04 04/05 05/06 H1 570 37% 619 37% 831 43% 780 38% 792 40% 753 H29801,0521,1171,2751,191? 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 £162.2k Full 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

  19. McCARTHY & STONEHalf year to 28/2/06HOUSE BUILDING MARGINS Average per Plot Half-year Av. Sales CoS Gross Gross February Price Profit Profit £’000 £’000 £’000 % 2000 85.9 48.6 37.3 43 2001 94.0 45.9 48.1 51 2002 103.1 50.7 52.3 51 2003 122.9 60.7 62.2 51 2004 142.0 66.9 75.1 53 2005 165.4 79.2 86.2 52 2006 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

  20. McCARTHY & STONEHalf year to 28/2/06ADMINISTRATIVE EXPENSES Feb ‘06 Feb ‘05Y/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

  21. McCARTHY & STONEHalf year to 28/2/06CASH/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

  22. McCARTHY & STONEHalf year to 28/2/06UNIT STOCK POSITION Half-year Half-year Full-year Full-year Full year 28/2/06 28/2/05 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 1,693 WIP 1,5602,5161,6031,9772,092 4,266 4,494 4,295 4,194 3,785 Land with PP 2,884 2,207 2,443 2,212 1,875 Land without PP 3,4574,0573,9243,9903,753 10,607 10,758 10,662 10,396 9,413 ==== ==== === ==== ==== Y/e Land investment £266.5m £241.1m £259.9m £226.0 £158.1m Net 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

  23. McCARTHY & STONEHalf year to 28/2/06STOCK 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 227.6151.5205.6 600.0 538.5 571.1 ==== ==== ==== • Increase in finished stock value • Overall increase in stock value Strong Stock Position

  24. McCARTHY & STONEHalf year to 28/2/06DIVIDENDS 31.8.06 31.8.05 p p Interim Dividend 6.0 5.4 +11% Final Dividend ?14.0? 19.4 ==== ==== Year end Year end 31.8.06 31.8.05 Basic EPS ? 87.6p Cover ? 4.5x 11% Increase in Interim Dividend

  25. McCARTHY & STONEHalf year to 28/2/06RETURN ON CAPITAL 12 mths to 28/2/06 £m Pre-tax Profits (last 12 months) 118.1 === NTA at 28.2.06 449.3 === Return on Capital 26% === Good return on capital

  26. McCARTHY & STONEHalf year to 28/2/06RECENT TRACK RECORDY/e 31/8/05 Pre-tax profits (£m) - 26% Compound Growth Earnings per share (p) – 28% Compound Growth 99.2p 147.8 87.9p* 127.8* 76.5p *Restated for IFRS Pence 116.0 £m 49.2p 75.4 39.2p 60.5 34.7p 53.5 25.3p 39.1 17.3p 28.5 20.5 12.0p Dividend per share (p) - 26% Compound Growth Net assets per share (p) - 23% Compound Growth 19.4p 427p* 17.3p 357p* Pence Pence 13.7p 11.4p 268p 9.7p 206p 8.7p 169p 6.3p 140p 115p 4.5p 94p 3.0p 80p

  27. McCARTHY & STONEHalf year to 28/2/06FINANCIAL 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

  28. McCARTHY & STONEHalf year to 28/2/06CURRENT 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

  29. McCARTHY & STONEHalf year to 28/2/06THE 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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