TIDMMCS
RNS Number : 1558P
McCarthy & Stone PLC
15 November 2016
Press release, Tuesday 15 November 2016
McCarthy & Stone plc
Annual results announcement for the year ended 31 August
2016
Robust growth delivered in first year of trading as a public
company
McCarthy & Stone (the 'Group'), the UK's leading retirement
housebuilder, announces its financial results for the full year
ended 31 August 2016. The Group delivered industry-leading growth
in revenue and unit completions and remains on track to build and
sell more than 3,000 units per annum over the medium term.
FY16 FY15 Change
------------------------------- ---------- ----------- ----------
Revenue GBP635.9m GBP485.7m +31%
------------------------------- ---------- ----------- ----------
Legal completions(1) 2,299 1,923 +20%
------------------------------- ---------- ----------- ----------
Net average selling price GBP259k GBP239k +8%
------------------------------- ---------- ----------- ----------
Underlying profit before
tax(2) GBP105.0m GBP88.4m +19%
------------------------------- ---------- ----------- ----------
Profit before tax GBP92.9m GBP80.9m +15%
------------------------------- ---------- ----------- ----------
Adjusted underlying basic
earnings per share(3) 16.1p 14.8p +9%
------------------------------- ---------- ----------- ----------
Underlying operating
profit(2) GBP107.2m GBP95.3m +12%
------------------------------- ---------- ----------- ----------
Operating profit GBP95.1m GBP87.8m +8%
------------------------------- ---------- ----------- ----------
Net cash/ (debt)(4) GBP52.8m (GBP44.4m) +GBP97.2m
------------------------------- ---------- ----------- ----------
Gearing(5) -8% 8% 16ppt
------------------------------- ---------- ----------- ----------
Return on capital employed(6)
(ROCE) 20% 20% -
------------------------------- ---------- ----------- ----------
Total proposed dividend 4.5p - -
per share
------------------------------- ---------- ----------- ----------
Financial highlights
-- Underlying profit before tax(2) increased by 19% to GBP105.0m (FY15: GBP88.4m)
-- Revenue increased by 31% to a new record of GBP635.9m (FY15: GBP485.7m)
-- Legal completions increased by 20% to 2,299 units (FY15: 1,923)
-- Net average selling price increased by 8% to GBP259k (FY15: GBP239k)
-- Adjusted underlying earnings per share(3) increased by 9% to 16.1p (FY15: 14.8p)
-- Strengthened financial position, with GBP52.8m of net cash(4)
(FY15: GBP44.4m of net debt) at the year end
-- The Directors are proposing a final dividend of 3.5 pence per
share in accordance with previous guidance given within our half
year results. This follows the (pro-rata) interim dividend of 1.0
pence per share, giving a total dividend for the year of 4.5 pence
per share
Strategic and operational highlights
-- Re-joined the Main Market of the London Stock Exchange in
November 2015 and re-admitted to the FTSE 250 in March 2016
-- 65 further high-quality development sites (FY15: 90 sites)
added to the land bank. Total land bank of 10,186 plots (FY15:
10,087), equivalent to 4.4 years' supply. Terms agreed on a further
c.1,700 plots (FY15: c.486 plots)
-- Sufficient land with detailed planning consent to deliver all
targeted sales to FY18 and sufficient land under control to deliver
all targeted sales to FY19
-- 64 new sales outlets opened during the period (FY15: 51),
contributing to a 10% increase in net reservations above FY15
-- Improved capital turn(7) of 1.2x (FY15: 1.0x) supported by
key strategic initiatives to increase sales rates, reduce
development time and implement build efficiencies
-- Full Five Star rating for customer satisfaction from the Home
Builders Federation ('HBF') for the eleventh consecutive year - the
only UK housebuilder, of any size or type, to achieve this
accolade
-- Two awards at the annual Housebuilder Awards in November
2016, including Best Retirement Scheme for Ramsay Grange and Lyle
Court, our combined Assisted Living and Ortus Homes development in
Barnton, Edinburgh, and Best Customer Satisfaction Initiative
-- Investment in three new regions and new operational
infrastructure now delivering benefits, with all nine regions
contributing towards full year profit
-- Sufficient land under control and operational platform now
fully in place to deliver strategic objective of building and
selling more than 3,000 units per annum over the medium term
Current trading and outlook
The Group delivered strong growth in the year ended 31 August
2016 notwithstanding the impact of weakness in the secondary
housing market in July and August following the EU Referendum
result in June. This led to the Group carrying a forward order
book(8) of c.GBP114m into the new financial year, which was lower
than the previous financial year (FY15: GBP131m). However, over the
first ten weeks of the new financial year, reservations have been
stronger and cancellation rates have returned to more normal
levels. Sales leads from new enquiries have increased and first
time visitors to developments have also been ahead of the prior
year. The Group has seen a 13% improvement in its weekly net
reservation rate since 1 September compared to the same period last
year, assisted by three additional sales releases (FY16: 13, FY15:
10). Consequently, the Group's forward order book(8) including
legal completions since 1 September is now ahead of the prior year
and stands at c.GBP250m as at 12 November 2016 (FY15: GBP241m).
While there will be some impact on the Group's growth in 2017,
particularly in H1, primarily resulting from a lower forward order
book brought into the year following the EU Referendum and a more
measured approach to land negotiation, the Group has seen evidence
of improved customer sentiment and a return to normal trading
conditions. With the necessary operational infrastructure and
quality land bank in place, the Group's confidence in achieving its
medium term strategic objective of building and selling 3,000 units
per annum remains unchanged.
Commenting on the results, John White, Group Chairman, said: "I
am pleased to present our first set of results since re-joining the
Main Market of the London Stock Exchange in November 2015. The
Group delivered record revenue this year, together with robust
growth in completions, reservations and profits. We continue to
capitalise on the attractive demographic opportunity and structural
shortage of supply of retirement housing in the UK.
"I was greatly encouraged by our flexibility and resilience
shown in response to market uncertainty surrounding the EU
Referendum result in June. Our highly conditional land bank and
experienced management team enabled us to navigate the uncertainty.
We acted quickly to close out completion chains and adopted a more
measured approach with respect to land investment, delivering a
strong balance sheet at the year end and positioning us for a quick
return to business as usual as soon as market conditions
improved."
Clive Fenton, Chief Executive Officer, added: "We have started
the new financial year with a high-quality land bank, a
strengthening forward order book and a strong net cash position. We
also have the necessary regional infrastructure and strength of
brand to ensure that we are uniquely placed to capitalise on the
significant demographic opportunity available to us. We have all
the tools in place to sustain a business capable of building and
selling more than 3,000 units per annum. Our medium term target
remains to deliver a ROCE of 25%."
- Ends -
This announcement contains certain forward-looking statements
about the future outlook for the Group. Although the Directors
believe that these statements are based upon reasonable
assumptions, any such statements should be treated with caution as
future outlook may be influenced by factors that could cause actual
outcomes and results to be materially different.
(1) Includes three commercial units
(2) 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 and exceptional administrative expenses to operating
profit and profit before tax respectively. See note 6 to the
Consolidated Financial Statements for further information
(3) Adjusted underlying basic earnings per share have been
reconciled within note 12 to the Consolidated Financial
Statements
(4) See note 25 to the Consolidated Financial Statements for net
cash/ (debt) reconciliation
(5) Gearing is calculated by dividing net cash/ (debt) by net
assets
(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 at the beginning and end of the 12 month period.
Tangible gross asset value is calculated as net assets excluding
goodwill and intangible assets, excluding net cash/ (debt)
(7) Capital turn is calculated by dividing revenue by the
average opening and closing tangible gross asset value in the
year
(8) Forward order book includes legal completions between 1
September 2016 and 12 November 2016 and reservations as at 12
November 2016.
Forward order book as at 31 August 2016 included revenue after
cash discounts, PX top-ups and other incentives. Forward order book
as at 12 November 2016 included revenue after cash discounts and PX
top-ups. Other incentives amounted to GBP5m (FY15: GBP3m)
Presentation for analysts and investors:
John White, Chairman, Clive Fenton, Chief Executive Officer,
Nick Maddock, Chief Financial Officer and Rowan Baker, Group
Financial Controller, will host an analyst and investor meeting at
9.15am GMT today at Deutsche Bank, Winchester House, 1 Great
Winchester Street, London, EC2N 2DB. Refreshments will be served
from 9.00am.
Webcast for analysts and investors:
A live webcast of the presentation is available via the
following link:
http://www.investis-live.com/mccarthy-and-stone-plc/5800a8282945a21c00127869/3wkmyg.
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.
Conference call details:
A conference call facility is also available. To access the
conference call:
UK Access: 020 3059 8125
International Number: +44 20 3059 8125
Participant Password: McCarthy & Stone
Conference call replay facility:
A replay facility will also be available. To access the
replay:
UK Access: 0121 260 4861
United States: 1844 2308 058
All other locations: +44 121 260 4861
Replay Pin: 4534868#
For more information, please contact:
McCarthy & Stone, 01202 292480
Clive Fenton, Chief Executive Officer
Nick Maddock, Chief Financial Officer
Rowan Baker, Group Financial Controller
Paul Teverson, Director of Communications
Powerscourt, 020 7250 1446 /
mccarthy-stone@powerscourt-group.com
Justin Griffiths
Nick Dibden
Chairman's statement
Robust growth delivered in our first year of trading as a public
company
I am pleased to present our first set of results since
re-joining the London Stock Exchange in November 2015. The Group
delivered record revenue, together with robust growth in
completions, reservations and profits, in its first year of trading
as a public company and continues to capitalise on the attractive
demographic opportunity and structural shortage of supply of
retirement housing in the UK. Revenue increased by 31% to a record
GBP635.9m (FY15: GBP485.7m) and legal completions are now at their
highest level for nine years.
Market conditions were favourable for the first nine months of
the year and during this period we achieved strong growth in our
reservations. However, as previously indicated, there was evidence
of some weakness in the secondary housing market immediately
following the EU Referendum result. Our strong balance sheet and
experienced management team enabled us to show considerable
flexibility and resilience in response to these market developments
- we acted quickly to close out completion chains and adopted a
more measured approach with respect to land investment. This,
together with the net proceeds from the IPO of GBP78.5m, enabled us
to improve significantly our cash position year-on-year to GBP52.8m
of net cash (FY15: GBP44.4m net debt) and maximise cash available
for reinvestment, demonstrating that we are able to respond quickly
and flexibly to preserve our financial strength when external
market conditions require.
Since the year end, we have experienced a return to more normal
trading conditions. Our reservation rates, visitor numbers and
sales leads from new enquiries have all been running at levels in
excess of last year and our forward order book(1) including legal
completions is now ahead of the prior year and stands at c.GBP250m
at 12 November 2016 (FY15: GBP241m) assisted by three additional
sales releases (FY16: 13, FY15: 10).
The investment made in our three new regions and additional
operational infrastructure to create the platform for delivering
our strategic growth plan is now showing benefit, with all nine
regions delivering profit this year. In addition, our continuing
focus on our three strategic initiatives has allowed us to deliver
further improvement in our capital turn to 1.2x (FY15: 1.0x).
We have been encouraged by a recent indication from the
Government that they are beginning to look beyond the first time
buyer when considering their policy options, with housing for older
people identified as the only "critical" housing need in the
Government's 2015 National Planning Practice Guidance. Retirement
housing improves well-being, releases under-occupied and
much-needed family-sized homes and is highly sustainable. The
provision of apartments specifically designed to meet the needs of
the retirement market is an essential part of the UK housing output
and the housing needs of this age group should now become a
priority for Government.
We believe that there are a number of policy options available
to the Government to encourage and assist those wishing to move to
more suitable retirement housing. On 21 October, we wrote to the
Chancellor of the Exchequer to request that he considers a
reduction in Stamp Duty for homeowners looking to downsize. We
firmly believe this would be a highly effective incentive that
would help people to move, provide a much-needed stimulus to the
wider housing market by freeing up large family-sized homes for
those lower down the housing chain, and could result in a net
revenue increase for the Treasury of some GBP740m per year through
increased Stamp Duty receipts from the additional housing chains
created as a result.
(1) Forward order book includes legal completions between 1
September 2016 and 12 November 2016 and reservations as at 12
November 2016. Forward order book as at 31 August 2016 included
revenue after cash discounts, PX top-ups and other incentives.
Forward order book as at 12 November 2016 included revenue after
cash discounts and PX top-ups. Other incentives amounted to GBP5m
(FY15: GBP3m)
Dividend
The Directors are proposing a final dividend of 3.5 pence per
share in accordance with previous guidance. This follows the
(pro-rata) interim dividend of 1.0 pence per share, giving a total
dividend for the year of 4.5 pence. This remains in line with our
dividend policy as stated at the time of our IPO, which targets a
pay-out of c.30% of profit after tax excluding certain exceptional
items.
Board and Executive Team
We experienced some natural Board evolution this year as a
result of our IPO. In November 2015, our National Operations
Director, John Tonkiss was appointed to the Board. John joined
McCarthy & Stone in February 2014 and has been instrumental in
driving our key strategic initiatives within our core processes and
continues to oversee this work at Board level. His previous
experience includes a number of years as Chief Operating Officer at
Unite plc, the UK's leading student housing provider.
Prior to the Group's IPO in November 2015, Nils Albert resigned
from his role as a Nominee Director on the Board, representing the
Group's then largest shareholder.
We will shortly see the departure of Nick Maddock, our Chief
Financial Officer, whose resignation will take effect in Q1 of the
2017 calendar year. We are extremely grateful to Nick for his
significant contribution to the Board over the past five years. He
has played an important role in re-capitalising the Group,
delivering our growth strategy and preparing us for our successful
return to the Main Market of the London Stock Exchange in November
2015. The process to appoint Nick's successor is now underway and a
further announcement on this will be made in due course.
In addition to this, there was a further change within our
executive leadership team, which we announced on 4 July 2016. Mike
Jennings, Operations Director South, left McCarthy & Stone on
31 August after 19 years with the Group. Mike's duties as an
Operations Director transferred to John Tonkiss from 1 September
2016, with his other responsibilities being spread across other
existing members of the executive leadership team.
McCarthy & Stone has a strong platform in place to deliver
its planned growth. We have an experienced management team and the
necessary operational capability, a high-quality land bank with
attractive margins, a strong balance sheet and continued strength
of brand to support the achievement of our medium term strategic
objective of building and selling more than 3,000 units per
annum.
The market for retirement housing remains highly attractive.
With research by the Department for Communities and Local
Government (DCLG) now recognising that around 74% of household
growth in the UK to 2039 is expected to come from those aged 65 and
over(2) , McCarthy & Stone remains uniquely placed to
capitalise on this unprecedented demographic opportunity in which
demand continues to exceed supply.
The Group has made great progress towards achieving its
strategic objective this year and my thanks go to all employees,
the management team and my fellow Board members for the significant
contribution they have made.
(2) The Department for Communities and Local Government (DCLG)
projections (July 2016)
Chief Executive Officer's operational review
Our results
The Group has delivered strong growth in its first year since
re-joining the Main Market of the London Stock Exchange. Revenues
increased by 31% to a record GBP635.9m (FY15: GBP485.7m) driven by
an increase in legal completion volumes to 2,299 (FY15: 1,923) and
an increase in net average selling price. This led to a robust
increase in our underlying pre-tax profits of 19% to GBP105.0m
(FY15: GBP88.4m). Under our experienced management team, our legal
completions have now increased by more than 50% since 2013 and we
have made significant progress towards delivering our medium term
objective of doubling the size of the business by building and
selling more than 3,000 units per annum.
We opened 64 new sales outlets during the year (FY15: 51), which
contributed to a year-on-year increase of 10% in our net
reservations. This enabled us to deliver a 20% increase in legal
completions to 2,299 (FY15: 1,923).
Our net average selling price increased by 8% to GBP259k during
the year (FY15: GBP239k), reflecting further improvement in the
quality and location of the developments we are now bringing to
market, together with a small element of house price inflation. We
saw modest house price inflation for the first nine months of the
year, together with continuing discipline around incentives, which
ensured that they remained at a similar overall level to last year
despite the additional help we provided to our customers in July
and August in order to close out completion chains following the EU
Referendum.
In addition to our financial and operational progress, we also
successfully re-joined the Main Market of the London Stock Exchange
in November 2015. This took a huge amount of preparation, energy
and focus from all involved and I am very proud to have led the
Group through this significant milestone. With the appropriate
capital structure now in place, we have the opportunity to focus on
our operational performance and delivery of our planned growth over
the medium and long term.
Investment and growth strategy
We continue to pursue our strategy of creating an efficient and
scalable business, capable of building and selling more than 3,000
units per annum over the medium term. There is significant demand
for our product and we are confident that we have put in place all
the necessary elements that will enable us to achieve our planned
growth. We have a respected brand with nearly 40 years of
experience, a high-quality land bank, a strong balance sheet with a
robust capital structure and the necessary organisational
capability and platform in order to grow our business. Our
experienced management team is focused on achieving this goal.
Market demand
The structural imbalance between supply and demand within the
housing market continues to provide us with exceptional market
opportunity. Despite the recent growth in housebuilding activity,
there remains a significant and growing shortage of housing supply
in the UK. This imbalance is particularly acute in the market for
retirement housing, and McCarthy & Stone stands alone among the
national housebuilders as the only one that focuses entirely on
this market.
During almost four decades as the retirement housing market
leader, the Group has formulated a tailored approach to sales, site
acquisition, design, securing detailed planning consents and
construction that mainstream housebuilders have been unable to
replicate. We also ensure that our customers receive the highest
standards of ongoing support through our management services
offering. The barriers to entry in our market ensure that we
maintain a unique position as the only housebuilder capable of
meeting the nationwide need for high-quality specialist housing for
the growing number of older people who are looking to move to
properties more suited to their needs and lifestyle.
Outlook and current trading
The Group delivered strong growth this year notwithstanding some
impact from the economic and political uncertainty following the EU
Referendum result in June. We experienced some weakness in the
secondary housing market in July and August and, whilst we
continued to take new reservations, these were at a lower level
than we saw in the first nine months of the financial year and with
a higher level of cancellations. This led to the Group carrying a
forward order book(1) of c.GBP114m into the new financial year,
which was lower than the previous financial year (FY15: GBP131m).
However, over the first ten weeks of the new financial year,
reservations have been stronger and cancellation rates have
returned to more normal levels. Sales leads from new enquiries have
increased and first time visitors to our developments have also
been ahead of the prior year. We have seen a 13% improvement in our
weekly net reservation rate since 1 September compared to the same
period last year, assisted by three additional sales releases
(FY16: 13, FY15: 10). Consequently, the Group's forward order
book(1) including legal completions since 1 September is now ahead
of the prior year and stands at c.GBP250m as at 12 November 2016
(FY15: GBP241m).
This provides continued evidence of improving customer sentiment
and a return to normal trading conditions. We will continue to
monitor market conditions and consumer confidence closely as
negotiations between the UK Government and the EU progress.
While there will be some impact on our growth in 2017,
particularly in H1, primarily resulting from a lower forward order
book brought into the year following the EU Referendum and a more
measured approach to land negotiation, we have seen evidence of
improved customer sentiment and a return to normal trading
conditions. With the necessary operational infrastructure and
quality land bank in place, our confidence in achieving our medium
term objective of building and selling 3,000 units per annum
remains unchanged.
Land bank
In total, c.GBP500m was invested in land and build during the
period. We added a further 65 high-quality sites with attractive
embedded margins into the land bank (FY15: 90), equivalent to
c.2,614 additional plots (FY15: c.3,520), with terms agreed on a
further c.1,700 plots (FY15: c.486 plots).
At the year end, our land bank stood at 10,186 plots, equivalent
to 4.4 years' supply, of which 2.5 years had detailed planning
consent. As a result, the Group now has sufficient land under
control to deliver all targeted sales to FY19.
We delivered 60 detailed planning consents (FY15: 56) and
started build on 42 additional sites (FY15: 70). We now have
sufficient detailed planning consents in place to deliver all
targeted sales to FY18 and continue to make progress towards the
target of GBP2.5bn investment in land and build over the four
financial years to FY19.
The market for land remains remarkably benign and competition
for our typical brownfield sites remains highly fragmented. As a
result of this, we were able to increase our minimum hurdle rates
for land purchases during the year in order to maintain operational
focus and discipline and maximise our potential returns. All of our
land investment, regardless of product or location, is assessed
against the same hurdle rates and is required to be approved by our
Group Investment Committee, ensuring a disciplined approach to
investment. In light of the recent economic uncertainty, we have
been more measured in our approach to land investment but we
continue to acquire sites in good locations at attractive margins
to ensure that we can support future growth.
(1) Forward order book includes legal completions between 1
September 2016 and 12 November 2016 and reservations as at 12
November 2016. Forward order book as at 31 August 2016 included
revenue after cash discounts, PX top-ups and other incentives.
Forward order book as at 12 November 2016 included revenue after
cash discounts and PX top-ups. Other incentives amounted to GBP5m
(FY15: GBP3m)
Operational infrastructure and capability
To support this increased investment and the roll-out of our
land bank, we now have a total of nine regional offices, three of
which opened at the start of the financial year and one during the
previous financial year. Our North London region, which was the
first of our new regions to be established in FY15, took
occupations at eight developments this year and had an extremely
successful year for sales. This region is now selling from ten
sites, and has a further 31 sites at various stages of its
development pipeline.
In addition, our newer regional offices established on 1
September 2015, in the South West, East Midlands and North West,
are now fully operational. They have high-calibre senior management
teams in place, combining McCarthy & Stone experience with
volume mainstream housebuilder operational expertise. The
establishment of these new regional offices has been accelerated by
the roll-out of standard processes and systems and the transfer of
workflow from existing regional offices. During the year, these
three regional offices acquired 21 new development sites (881
plots), with terms agreed on a further nine sites (372 plots). The
establishment of these new regional offices completes the platform
required to deliver our planned operational growth to build and
sell more than 3,000 units per annum.
Strategic initiatives
Our continued focus on achieving operational excellence by
accelerating our working capital cycle has allowed us to deliver
further improvement in our capital turn, which now stands at 1.2x
for the year ended 31 August 2016 (FY15: 1.0x). In achieving this,
we have put significant management effort into our three key
strategic initiatives: improving sales rates, reducing time taken
between securing land and starting build and implementing build
programme efficiencies.
Sales initiative
The sales initiative, launched in FY15, sets out consistently to
deliver off-plan reservations of 50% or more by the date of first
occupation, and then to sell out all remaining apartments within an
average 12 month period.
In order to support the sales force and enable them to achieve
these targets, new sales toolkits have been implemented within all
regions. We have also developed a clearer definition of our best
customer prospects to assist the focus of local marketing,
introduced a partnership with a third party contact centre and
launched a new online visitor booking system to provide a more
consistent customer experience.
We have successfully delivered our strategic target for off-plan
reservations this year, with 50% reserved off-plan from the 69
sites that first occupied in FY16. A number of sites achieved
significantly more than this, for example Bourne End and Sidcup
which both sold 100% off-plan. A further nine sites sold more than
80% of apartments off-plan. It is particularly pleasing that we
have been able to achieve these accelerated sales rates while
improving pricing.
In addition to this, we have also made good progress towards our
target of selling out all developments within a 12 month period and
achieved a significant reduction in the average number of months
taken to sell out our developments this year. This average now
stands at 18 months for all sites sold out during FY16.
Development initiative
Our development initiative, also launched in FY15, aims to
reduce the time taken between securing land and build start. This
has involved the implementation of a number of process improvements
with particular focus on the planning process and increased
standardisation. This is enabling the business to bring forward
profitable developments, accelerate its growth plans and improve
its capital turn. The initiative has now been fully rolled out
across all regions and is beginning to produce results.
Our target for reducing the time taken between securing land and
starting build is 16 months for standard sites achieving a
first-time detailed planning consent. In FY15, we took an average
of c.23 months to complete this process and we have been working
hard to improve this. During FY16, we improved this overall average
to c.19 months(2) and, for the 15 out of our 42 build starts which
were developed fully under this initiative from the outset, I am
pleased to report that our average development time across these
sites has beaten our strategic target of 16 months. In addition to
this achievement, we have implemented a new information management
system that allows us to achieve greater consistency across product
specifications and standards. This enables our teams and partners
to work more effectively together throughout the development's
lifecycle and provides technical assurance and compliance. We are
also extending the use of 3D modelling to streamline the
development process further and improve the accuracy of build cost
estimates.
Build initiative
The build initiative, launched in FY15, has driven improvements
to the build process to accelerate build timescales, reduce build
costs, enhance margins and mitigate the impact of build cost
inflation. This includes the roll-out of a new framework of
critical controls designed to ensure that we maintain a robust,
risk-based approach to managing build programmes and budgets. The
initiative is also targeting margin improvements through improved
procurement, a more structured approach to supplier partnership and
value engineering of individual developments.
This initiative has delivered a c.3 week time saving from build
start to first occupation and has identified savings to the value
of GBP3.3m in relation to materials used, including more than
double the amount of rebates collected in the prior year. An
additional c.GBP12m of cost reductions have also been identified,
which are expected to benefit the Group over the next four
years.
Our product ranges
Our two primary product ranges, Retirement Living and Assisted
Living, are well established and continue to be our core focus. We
are also progressing well with our third product, Ortus Homes,
which we launched in late 2014. This newer product is exclusively
for the over 55s and those in the earlier stages of retirement who
are seeking to downsize for their leisure years. We now have a
total of 36 Ortus Homes developments in the pipeline, representing
approximately 8% of our land bank sites. This product is expected
to generate completions over the medium term at comparable margins
to those generated from our established Retirement Living and
Assisted Living product ranges.
This new range presents an exciting opportunity for the future,
helping us to capture a wider share of the active retiree market
for whom the traditional concept of retirement housing has not been
appropriate. Our first Ortus Homes development, at Scarlet Oak in
Solihull, reserved out within a year of opening and won the Best
Retirement Scheme at the annual Housebuilder Awards in November
2015. In addition, we were pleased that Ramsay Grange and Lyle
Court, our combined Assisted Living and Ortus Homes development in
Barnton, Edinburgh, was also voted Best Retirement Scheme at the
same awards in November 2016.
Our Management Services business continued its rapid growth,
adding 68 new developments to its portfolio, which now includes 264
managed developments. Providing our own management services allows
us to establish a unique relationship with our customers, providing
personal and efficient services that not only help them, but also
support the point of sale, and allow us to deliver industry-leading
standards of customer satisfaction.
(2) Excluding sites put on hold for either commercial or complex
planning reasons (FY15: 7 sites, FY16: 6 sites)
Our customers
I am pleased to report that we have, once again, achieved the
full Five Star rating in the Home Builders Federation ('HBF')
customer satisfaction survey this year. This marks the eleventh
consecutive year in which more than 90% of our customers have said
that they would be prepared to recommend us to a friend. We are the
only housebuilder of any size or type to win this award every year
since it was introduced in 2005 and we are one of only three major
housebuilders to have retained the top rating this year. This
sustained recognition by our customers of the quality of product we
deliver is a strong endorsement of our continued desire to design,
build, sell and manage the very best retirement developments. In
this regard, we were pleased to win a further award at the annual
Housebuilder Awards in November 2016, where we picked up Best
Customer Satisfaction Initiative for our approach to ensuring that
we deliver a five-star service for our homeowners.
Our employees
The growth delivered this year would not have been possible
without the dedication, enthusiasm and expertise of our people. We
are building a culture of excellence that provides opportunities
for development and recognises achievements by regularly
celebrating those employees who go the extra mile for a customer or
colleague through our instant, quarterly and annual PRIDE awards. I
am also delighted to report that, in our most recent employee
survey, 89% of our employees confirmed that they are proud to work
for McCarthy & Stone.
During FY16, ten of the Group's site managers were awarded NHBC
Pride in the Job Awards. These awards are amongst the industry's
most prestigious awards and are an excellent reflection of the
quality of our construction staff.
Our recent Admission to the Main Market of the London Stock
Exchange has provided an opportunity to enable our employees to
share in our medium term success through the introduction of
employee share plans. We have introduced a long-term incentive plan
for Executive Directors and 61 senior managers and an all-employee
save as you earn ('SAYE') scheme and share incentive plan ('SIP').
We were delighted by the initial 64% of payroll employees who took
up the SAYE scheme launched in December 2015, providing a powerful
confirmation of the commitment and dedication of our staff to the
future success of McCarthy & Stone.
Health and safety
I am pleased to report that we have continued to make good
progress with developing a culture of excellence in health and
safety across the Group. Our vision is not just to achieve health
and safety compliance but to lead our sector with a robust and
consistent safety culture across our organisation. Our internal
monitoring regime is supported by a rigorous, independent site
inspection programme including regular reporting updates to the
Board.
During FY16, we received five NHBC health and safety
commendations, with one site going on to receive a highly commended
award.
Strategic delivery
We have started the new financial year with a high-quality land
bank, a strengthening forward order book, a strong net cash
position and an experienced management team in place. We also have
the necessary regional infrastructure and strength of brand that
ensures that we are uniquely placed to capitalise on the
significant demographic opportunity available to us. We remain on
track to deliver our medium term strategic objective of building
and selling more than 3,000 units per annum.
Financial Review
Our performance
McCarthy & Stone has made good progress towards achieving
its medium term strategic objective this year with significant
focus placed on achieving growth, improving capital turn and
maintaining a favourable capital structure and robust balance
sheet. The Group delivered an increase in legal completions, as
well as improved pricing, revenue and profit before tax.
Revenue
Revenue increased by 31% this year to GBP635.9m (FY15:
GBP485.7m) driven by both volume growth and an increase in net
average selling prices. Legal completions increased by 20% to 2,299
units (FY15: 1,923) benefiting from an increased number of new
developments released for sale and accelerated sales rates,
especially off-plan sales.
The Group's net average selling price increased by 8% to GBP259k
(FY15: GBP239k) which primarily reflects further improvements in
the quality and location of the developments McCarthy & Stone
is now bringing to market, together with a small element of house
price inflation. Management also exerted continued control over the
level of discounts and incentives given to customers which, despite
the impact of the EU Referendum and subsequent use of higher
incentives to close completion chains, ended at 6% for the year, in
line with FY15.
Profit
The Group achieved strong growth in underlying profit before tax
for the year, which was up 19% to GBP105.0m (FY15: GBP88.4m), and
in statutory profit before tax, which was up 15% to GBP92.9m (FY15:
GBP80.9m). This was achieved at a gross profit margin of 21.4%
(FY15: 25.3%) and an underlying operating margin of 16.9% (FY15:
19.6%). The reduction in these margin percentages was driven by the
profitability mix of units sold, the increase in incentive usage in
July and August together with some additional abortive land costs
and our investment in new regions and additional operational
infrastructure to support our growth.
Our regions saw a return to modest house price inflation during
the first nine months of the year but the effect of this increase
has been offset at a gross profit level by build cost inflation,
particularly driven by an increase in labour costs. Further build
cost inflation is expected during FY17 and the work currently being
undertaken as part of our build cost initiative seeks to mitigate
the impact of this where possible by working towards securing 70%
build cost certainty prior to build start and managing 75% of build
spend via centrally negotiated framework agreements.
The level of overheads in the business continued to be tightly
controlled, with total administrative expenses, excluding
exceptional items and amortisation of brand, remaining broadly at
the same level as last year of GBP32.6m (FY15: GBP32.4m) despite a
31% increase in revenue.
Capital structure and interest
The Group closed the year with a further increase in its
tangible gross asset value to GBP574.1m (FY15: GBP513.5m) and a
tangible net asset value of GBP626.8m (FY15: GBP469.1m). The
November IPO raised GBP78.5m of net proceeds and the Group
continues to maintain a robust financial position with a net cash
balance of GBP52.8m at 31 August 2016 (FY15: net debt of GBP44.4m)
and negative gearing of 8% (FY15: positive gearing of 8%). This
reflects a strong financial year, the net proceeds from the IPO,
actions taken by management in response to economic uncertainty and
disciplined cash management. We continued to maintain a strong
balance sheet and appropriate headroom against our GBP200m
revolving credit facility ('RCF') throughout the year.
The Group amended its financing arrangements relating to its RCF
during the year. This has resulted in improved commercial terms,
including the extension of the facility's maturity from 19 December
2019 to 23 May 2021 and improved margin terms, which are expected
to save c.GBP1.0m per annum in interest expense.
This refinancing demonstrates the strong and ongoing commitment
of McCarthy & Stone's relationship banks in supporting our
GBP2.5bn investment programme and our medium term strategic
objective of building and selling more than 3,000 units per
annum.
The Group incurred net finance expenses of GBP2.2m during the
year (FY15: GBP6.9m), benefiting from lower interest costs under
the Group's amended RCF and the annual revaluation of its shared
equity debtors.
Exceptional costs
Total exceptional costs recognised within the Consolidated
Statement of Comprehensive Income during the year were GBP10.0m, of
which GBP8.5m related to IPO advisor fees and associated costs and
GBP1.5m related to Management Incentive Plan charges,
restructuring, redundancy and refinancing costs.
Taxation
We adopt a clear and transparent approach to taxation and do not
pursue aggressive techniques to reduce our tax liability.
The total tax charge for the year is GBP19.4m which represents
an effective tax rate of 20.9% (FY15: 20.5%) based on a profit
before tax of GBP92.9m. The main tax reconciling item that
increased the effective tax rate to 20.9% from the statutory rate
of 20.0% is the c.GBP6.9m non-deductible portion of advisor costs
incurred in connection with the listing. These costs largely
related to the secondary proceeds and were incurred by the Company
for the benefit of the exiting shareholders prior to the listing.
We expect our effective tax rate to revert to close to the
statutory rate from the current financial year onwards.
Earnings and dividend
Adjusted underlying basic earnings per share increased by 9% to
16.1 pence (FY15: 14.8 pence). Basic earnings per share for FY16
were 13.9 pence (FY15: 3.4 pence). Details of the calculation of
earnings per share can be found in note 12 to the financial
statements.
We are delighted to be proposing our first final dividend of 3.5
pence per share resulting in a total ordinary dividend for the year
of 4.5 pence. This reflects our ordinary dividend policy as stated
at the IPO which commits to paying a dividend equivalent to c.30%
of underlying profit after tax and before certain exceptional
items. The proposed dividend is covered 3 times by earnings.
Subject to shareholder approval at the AGM, the dividend will be
paid on 1 February 2017 to shareholders on the register at 6
January 2017.
The total cost of the final dividend is GBP18.8m, resulting in a
total dividend cost relating to the year of GBP24.2m.
Risk management
The Group maintains a robust risk management framework,
providing a clear link between 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. The control
environment has been further enhanced during the year through the
establishment of a risk manual and a further review and update of
our existing finance manual.
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 national reach 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.
Target returns
We have demonstrated sustained capital discipline this year,
maintaining a 20% ROCE (FY15: 20%). This has been achieved despite
the constraints of build cost inflation, additional investment in
our operational infrastructure necessary to support growth,
sustained investment in our growing land bank and additional
incentives used in July and August to close out completion chains.
However, we have seen a marked improvement in capital turn to 1.2x
(FY15: 1.0x) illustrating that our key strategic initiatives to
improve sales rates, reduce development time and implement build
efficiencies are on track and continuing to produce results.
The Group continues to target future increases in operating
margin and ROCE and remains committed to its medium term strategic
objective of building and selling more than 3,000 units per annum
and achieving a ROCE of 25%.
Principal risks and uncertainties
The principal risks and uncertainties have been set out
below:
Risk area Risk description Mitigating actions Risk
change
------------------ ---------------------------- -------------------------- ----------
Economic Housebuilding The Group closely Increased
conditions is cyclical and monitors industry
reliant on the indicators and
broader economy. assesses the potential
A deterioration impact of different
in the economic economic scenarios.
outlook could Decisions to allocate
have a significant new capital to
impact on the land and build
Group's financial are managed centrally
performance. The through the Group
result of the Investment Committee.
EU Referendum The Group aims
has increased to maintain a national
the uncertainty and product spread
in the economy of developments
and specifically to ensure that
the secondary it is not reliant
housebuilding on one particular
market in the locality or product
short term. type.
------------------ ---------------------------- -------------------------- ----------
Reputation The Group constructs The Group enforces Constant
and customer and sells a quality strict procedures
satisfaction product to an over the hand-over
ageing and sometimes of developments
frail customer for occupation
base and provides and the hand-over
ongoing management of specific apartments
and personal care to individual customers.
services. Any Ongoing management
issues with the and personal care
products or services services are provided
the Group provide within a robust
could impact on framework of controls
customer satisfaction which is closely
to the detriment monitored. The
of the Group's business has dedicated
business model. customer services
capability and
tracks customer
satisfaction through
NHBC surveys and
other routes.
---------------- ------------------------------ -------------------------- ----------
Illiquidity Land and apartments Whenever possible, Increased
of land can be relatively the Group
and apartments illiquid assets tries to preserve
affecting the the maximum
Group's ability amount of optionality
to value or liquidate in land
part of its land payments. The Group
bank in a timely also closely
fashion and at monitors its forecasted
satisfactory prices cash
in response to position to ensure
changes in economic, it is funded in
property market the most cost effective
or other conditions. manner.
---------------- ------------------------------ -------------------------- ----------
Owned The net realisable Whenever possible, Increased
land may value of land contracts to purchase
decline owned by the Group land are conditional
in value may decline due on the Group obtaining
to changes in detailed planning
the property market consent. The Group
or other conditions, performs impairment
or the Group being reviews in line
unable to secure with IFRS requirements.
detailed planning
consent on land
purchased unconditionally.
---------------- ------------------------------ -------------------------- ----------
Risk area Risk description Mitigating actions Risk
change
------------------- ------------------------------ --------------------------- ---------
Build The Group's financial Build progress and Constant
programmes performance is costs are reviewed
and build dependent on its regularly by dedicated
costs ability to deliver regional commercial
build programmes teams, as well as
on time and on being reported to
budget. Build regional and Group
programme or cost management. Independent
over-runs could assurance is provided
result in slower through a dedicated
sales or reduced commercial internal
margins. audit resource involving
deep dives into
developments under
construction. Framework
agreements have
been established
with key subcontractors
and suppliers to
provide greater
certainty of price
and supply. There
is a continuing
drive to realise
procurement efficiencies.
------------------- ------------------------------ --------------------------- ---------
Employees The Group's employees The Group has put Constant
are central to in place attractive
the achievement reward mechanisms
of the Group's and provides extensive
objectives. Failure opportunities for
to recruit and personal development
retain sufficient and training, both
staff resource of which are regularly
of the right quality reviewed against
could constrain peer housebuilders
growth plans. and other employers
in local markets.
Resource requirements
are assessed against
annual budgets and
recruitment processes
are designed to
ensure the availability
of the right resource
to deliver against
the Group's plans.
----------------- -------------------------------- --------------------------- ---------
Health Construction sites The Group strives Constant
and safety are inherently for excellence in
risky, which could health and safety
expose employees/contractors and considers it
to the risk of to be the top priority.
serious injury/fatality. The Health & Safety
Home owners in Operations Director
the developments reports directly
the Group manages to the executive
are ageing and leadership team,
sometimes frail, identifying areas
with the risk of concern, near
that they can misses and accidents,
be more susceptible and supports this
to injury. with a rigorous,
independent site
inspection process
which routinely
assesses and reports
on standards. Building
Safety Group audits
help the Group move
closer to its goal
of achieving a culture
of excellence in
health and safety.
----------------- -------------------------------- --------------------------- ---------
Land acquisition Poor quality land Regional land buying Constant
and planning and/ or location teams are in place
could result in across all regions
programme and providing local
cost over-runs knowledge and expertise.
and difficulty These teams are
in selling. Failure targeted on land
to obtain timely exchange as part
planning permissions of their bonus structure.
will adversely Regional planning
affect workflow teams have the support
resulting in failure and oversight of
to meet targeted the Group Investment
growth rates, Committee and are
future sales and/ overseen by the
or cash flow. Board.
----------------- -------------------------------- --------------------------- ---------
Viability statement
In addition to making a going concern statement, the Directors
are also required to make a longer-term viability statement to
comply with provision C.2.2 of the UK Corporate Governance Code
2014.
In response to that, the Directors have assessed the prospects
and financial viability of the Group, taking into account both its
current position and circumstances, and the potential impact of its
principal risks. The Directors considered that a three-year period
was appropriate for this assessment. The capital cycle from land
completion to final sell-out of a development, for FY16 build
starts, is approximately three years. The land pipeline also
provides us with sufficient land under control to meet sales
targets for the next three years. Accordingly, it is considered
appropriate that the viability review period is broadly aligned
with the expected longevity of the owned land supply.
The Group is subject to a number of principal risks (as outlined
above) and the Directors viability statement review considered the
impact that these risks might have on the Group's ability to meet
its targets. This was undertaken through the performance of a
single downside case sensitivity, which reflects a severe but
plausible impact assuming that appropriate steps are taken to
mitigate the impact of the downside.
The Directors have a reasonable expectation that the Company
will be able to continue in operation and meet its liabilities as
they fall due over the three-year assessment period.
Consolidated Statement of Comprehensive Income
For the year ended 31 August 2016
2016 2015
Notes GBPm GBPm
------------------------------------ ----- ------- -------
Continuing operations
Revenue 4 635.9 485.7
Cost of sales (499.5) (362.6)
------------------------------------ ----- ------- -------
Gross profit 136.4 123.1
Other operating income 8 8.5 9.1
Administrative expenses (44.7) (39.9)
Other operating expenses (5.1) (4.5)
------------------------------------ ----- ------- -------
Operating profit 95.1 87.8
------------------------------------ ----- ------- -------
Amortisation (2.1) (2.1)
Exceptional administrative expenses 6 (10.0) (5.4)
Underlying operating profit 107.2 95.3
------------------------------------ ----- ------- -------
Finance income 9 2.7 1.2
Finance expense 10 (4.9) (8.1)
------------------------------------ ----- ------- -------
Profit before tax 92.9 80.9
Income tax expense 11 (19.4) (16.6)
------------------------------------ ----- ------- -------
Profit for the year from continuing
operations and total comprehensive
income 73.5 64.3
------------------------------------ ----- ------- -------
Profit attributable to:
Owners of the Company 73.1 64.1
Non-controlling interest 0.4 0.2
------------------------------------ ----- ------- -------
73.5 64.3
------------------------------------ ----- ------- -------
Notes 1 to 35 form part of the financial statements shown above.
All trading derives from continuing operations.
Earnings per share:
Basic (p per share) 12 13.9 3.4
Diluted (p per share) 12 13.9 3.4
Adjusted basic (p per share)(1) 12 13.9 13.5
Adjusted diluted (p per share)(1) 12 13.9 13.5
Adjusted measures
Underlying operating profit 6 107.2 95.3
Underlying profit before tax 6 105.0 88.4
---------------------------------- ----- ----
(1) Prior year EPS has been adjusted to reflect the 4:1 share
consolidation that took place in FY16. A reconciliation to the
previously stated EPS has been provided in note 12.
Consolidated Statement of Financial Position
As at 31 August 2016
2016 2015
Notes GBPm GBPm
------------------------------------- ----- ----- -----
Assets
Non-current assets
Goodwill 13 41.7 41.7
Intangible assets 14 29.6 31.7
Property, plant and equipment 15 2.9 2.6
Investments in joint ventures 17 0.4 0.4
Investment properties 0.2 0.5
Trade and other receivables 19 32.7 31.5
Derivative financial assets 21 - 0.3
------------------------------------- ----- ----- -----
Total non-current assets 107.5 108.7
------------------------------------- ----- ----- -----
Current assets
Inventories 18 685.8 585.8
Trade and other receivables 19 7.5 10.9
Cash and cash equivalents 29 119.0 56.9
------------------------------------- ----- ----- -----
Total current assets 812.3 653.6
------------------------------------- ----- ----- -----
Total assets 919.8 762.3
------------------------------------- ----- ----- -----
Equity and liabilities
Capital and reserves
Share capital 26 43.0 381.1
Share premium 27 100.8 56.4
Retained earnings 553.5 104.3
------------------------------------- ----- ----- -----
Equity attributable to owners of the
Company 697.3 541.8
------------------------------------- ----- ----- -----
Non-controlling interests 0.8 0.7
------------------------------------- ----- ----- -----
Total equity 698.1 542.5
------------------------------------- ----- ----- -----
Current liabilities
Trade and other payables 22 107.1 83.8
Short-term borrowings 24 11.3 -
Land payables 23 49.3 36.5
------------------------------------- ----- ----- -----
Total current liabilities 167.7 120.3
------------------------------------- ----- ----- -----
Non-current liabilities
Long-term borrowings 24 52.5 99.2
Deferred tax liability 20 1.5 0.3
------------------------------------- ----- ----- -----
Total liabilities 221.7 219.8
------------------------------------- ----- ----- -----
Total equity and liabilities 919.8 762.3
------------------------------------- ----- ----- -----
Notes 1 to 35 form part of the financial statements shown
above.
These financial statements were approved by the Board on 14
November 2016 and signed on its behalf by:
Clive Fenton Nick Maddock
Director Director
Consolidated Statement of Changes in Equity
For the year ended 31 August 2016
Share Share Retained Non-controlling Total
capital premium earnings Total interest equity
Notes GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ----- -------- -------- --------- ----- --------------- -------
Balance at 1 September
2014 381.1 56.4 39.3 476.8 0.4 477.2
---------------------------- ----- -------- -------- --------- ----- --------------- -------
Profit for the period - - 64.1 64.1 0.2 64.3
Total comprehensive income
for the period - - 64.1 64.1 0.2 64.3
Transactions with owners
of the Company:
Share-based payments 32 - - 0.9 0.9 - 0.9
Movement in non-controlling
interest - - - - 0.1 0.1
---------------------------- ----- -------- -------- --------- ----- --------------- -------
Balance at 31 August
2015 381.1 56.4 104.3 541.8 0.7 542.5
---------------------------- ----- -------- -------- --------- ----- --------------- -------
Profit for the period - - 73.1 73.1 0.4 73.5
Total comprehensive income
for the period - - 73.1 73.1 0.4 73.5
Transactions with owners
of the Company:
Issue of ordinary shares 26 4.9 104.8 (19.4) 90.3 (0.3) 90.0
Capital reduction of
share capital and share
premium 26 (343.0) (56.4) 399.4 - - -
Share-based payments 32 - - 1.5 1.5 - 1.5
Share issue related costs - (4.0) - (4.0) - (4.0)
Dividends 26 - - (5.4) (5.4) - (5.4)
---------------------------- ----- -------- -------- --------- ----- --------------- -------
Balance at 31 August
2016 43.0 100.8 553.5 697.3 0.8 698.1
---------------------------- ----- -------- -------- --------- ----- --------------- -------
Notes 1 to 35 form part of the financial statements shown
above.
Consolidated Cash Flow Statement
For the year ended 31 August 2016
2016 2015
Notes GBPm GBPm
--------------------------------------------- ----- ------ -------
Net cash inflow from operating activities 29 18.3 19.7
--------------------------------------------- ----- ------ -------
Investing activities
Purchases of property, plant and equipment (1.5) (2.0)
Purchases of intangible assets (0.4) (1.0)
Proceeds from sale of property, plant
and equipment 0.1 1.5
--------------------------------------------- ----- ------ -------
Net cash used in investing activities (1.8) (1.5)
--------------------------------------------- ----- ------ -------
Financing activities
Proceeds from issue of share capital 86.0 -
Proceeds from long-term borrowings - 87.9
Repayment of long-term borrowings (35.0) (160.0)
Purchase of interest rate cap - (0.3)
Dividend paid (5.4) -
--------------------------------------------- ----- ------ -------
Net cash from/(used in) financing activities 45.6 (72.4)
--------------------------------------------- ----- ------ -------
Net increase/(decrease) in cash and
cash equivalents 62.1 (54.2)
--------------------------------------------- ----- ------ -------
Cash and cash equivalents at beginning
of year 56.9 111.1
--------------------------------------------- ----- ------ -------
Cash and cash equivalents at end of
year 119.0 56.9
--------------------------------------------- ----- ------ -------
Notes 1 to 35 form part of the financial statements shown
above.
Notes to the Consolidated Financial Statements
1. Significant accounting policies
The above results and the accompanying notes do not constitute
statutory accounts within the meaning of Section 435 of the
Companies Act 2006.
The Auditors have reported on the Group's statutory accounts for
the year ended 31 August 2016 under s495 of the Companies Act 2006,
which do not contain a statement under s498 (2) or s498 (3) of the
Companies Act 2006 and are unqualified. The statutory accounts for
the year ended 31 August 2015 have been delivered to the Registrar
of Companies and the statutory accounts for the year ended 31
August 2016 will be filed with the Registrar in due course.
The audited consolidated financial statements from which these
results are extracted have been prepared under the historical cost
convention and in accordance with International Financial Reporting
Standards (IFRS) as adopted by the European Union, IFRIC
interpretations and those parts of the Companies Act 2006
applicable to companies reporting under IFRS. The principal
accounting policies as set out in the McCarthy & Stone plc
Annual Report and Financial Statements for the year ended 31 August
2015 have been applied consistently to all the periods
presented.
The preparation of the financial statements in conformity with
the Group's accounting policies requires the Directors to make
estimates and assumptions that affect the reported amounts of
assets and liabilities at the balance sheet date and the reported
amounts of revenue and expenses during the reported period. Whilst
these estimates and assumptions are based on the Directors' best
knowledge of the amount, events or actions, actual results may
differ from those estimates.
Going concern
The Group meets its day-to-day working capital requirements
through cash in hand and its bank facilities. The Group's forecasts
and projections, taking into account reasonably possible changes in
trading performance, show that the Group should be able to operate
within the level of its current facilities. After making enquiries,
the Directors have a reasonable expectation that the Group has
adequate resources to continue in operational existence for the
foreseeable future. The Group therefore continues to adopt the
going concern basis in preparing its financial statements. Further
information on the Group's borrowings is given in note 24.
2. Outlook for adoption of future standards (new and
amended)
There have not been any new standards and amendments adopted for
the first time for the financial year ending 31 August 2016.
3. Critical accounting judgements and key sources of estimation
uncertainty
In the application of the Group's accounting policies, which are
described in note 1, 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.
Critical judgements in applying the Group's accounting
policies
The following are the critical judgements that the Directors
have made in the process of applying the Group's accounting
policies and that have the most significant effect on the amounts
recognised in the financial statements. The critical judgements
made by the Group all involve estimation uncertainty.
Accounting and tax treatment of the IPO costs
Within the year the Group incurred exceptional costs in relation
to transaction fees and other costs of listing. These costs have
been reviewed by management under the accounting treatment guidance
of IAS 32 to ensure the correct allocation of costs between share
premium in the Consolidated Statement of Financial Position and
expenses within the Consolidated Statement of Comprehensive Income.
External advice has been sought regarding the tax treatment of
these costs.
Fair value of shared equity receivables
Shared equity receivables are initially recognised within
revenue at fair value, being the estimated future amount receivable
by the Group, discounted to present day values. The fair value of
future anticipated cash receipts takes into account the Directors'
view of future house price movements and expected timing of
receipts. The assessment of anticipated future cash flows from the
assets is carried out at each reporting date.
3. Critical accounting judgements and key sources of estimation
uncertainty (continued)
Cost capitalisation of overheads
Inventory includes a proportion of design, construction,
commercial and planning costs. During the year procurement costs
have also been included within the cost calculations based on a
change in the procurement focus and approach across the Group.
Costs associated with these functions are reviewed by management to
attribute those costs relating directly to the cost of the
developments to inventory and those that relate to general business
overheads to expenses. The assumptions used are reviewed annually
by the function heads before being proposed to the Risk and Audit
Committee.
Share-based payments
Assumptions are made in determining the fair value of employee
services received in exchange for the grant of options under
share-based payment awards at the date of grant. Assumptions are
around lapse rates, share performance and the expected outcome of
performance conditions. An element of one of the equity-settled
share-based payment plans is subject to market-based conditions,
judgements have been made in order to determine the fair values of
this market-based element. Further detail of the share-based
payment schemes has been provided in note 32.
4. Revenue
Continuing operations
Year ended 31
August
-----------------------
2016 2015
GBPm GBPm
------------ ----------- ----------
Unit sales 608.2 468.8
FRI revenue 27.7 16.9
------------ ----------- ----------
635.9 485.7
------------ ----------- ----------
All unit sales revenue arose from the sale of properties and is
attributable to continuing operations. All revenue was generated
within the UK. No individual customer is significant to the Group's
revenue in any period.
5. Segmental analysis
IFRS 8 Operating Segments, establishes standards for reporting
information about operating segments and related disclosures,
products and services, geographic areas and major customers.
Operating segments are components of an enterprise about which
separate financial information is available that is evaluated
regularly by the chief operating decision-maker in deciding how to
allocate resources and in assessing performance.
The Group conducts its activities through a single operating
segment. Consequently, no detailed segment information has been
presented.
None of the Group's customers represented more than 10% of the
Group's revenue generated from the building of retirement
apartments for any reporting period presented herein.
6. Profit for the year
Profit for the year has been arrived at after
charging/(crediting):
Continuing operations
Year ended 31
August
----- -----------------------
2016 2015
Notes GBPm GBPm
-------------------------------------- ----- ----------- ----------
Depreciation of property, plant and
equipment 15 1.1 1.0
Amortisation of intangibles 14 2.5 2.5
Operating lease rental expense 28
Land and buildings 0.9 1.0
Plant and machinery 2.3 2.0
Cost of inventories recognised as
an expense 436.0 314.6
Staff costs 7 69.3 59.2
Change in fair value of derivatives 21 0.3 0.1
Share-based payments charge to profit
and loss 32 1.5 1.5
Movement in inventory provision (0.3) (2.5)
-------------------------------------- ----- ----------- ----------
Reconciliation to underlying operating profit and profit before
tax
The following tables present a reconciliation between the
statutory profit measures disclosed on the Consolidated Statement
of Comprehensive Income and the underlying measures used by the
Board to appraise performance.
Exceptional items are items which, due to their one-off,
non-trading and non-recurring nature, have been separately
classified by the Directors in order to draw them to the attention
of the reader. 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. In the judgement of the
Directors this presentation shows the underlying performance of the
Group.
Exceptionals
Exceptional Adjusted
administrative cost amortisation
Statutory costs of brand Underlying
Year ended 31 August 2016 Notes GBPm GBPm GBPm GBPm
------------------------------------------- ----- --------- --------------- ------------------- ----------
Operating profit 95.1 10.0 2.1 107.2
Finance income 9 2.7 - - 2.7
Finance expense 10 (4.9) - - (4.9)
------------------------------------------- ----- --------- --------------- ------------------- ----------
Profit before tax 92.9 10.0 2.1 105.0
Income tax expense (19.4) (0.7) (0.4) (20.5)
------------------------------------------- ----- --------- --------------- ------------------- ----------
Profit for the year from continuing
operations and total comprehensive income 73.5 9.3 1.7 84.5
------------------------------------------- ----- --------- --------------- ------------------- ----------
Earnings per share
Basic (p per share) 13.9 1.8 0.4 16.1
Diluted (p per share) 13.9 1.8 0.4 16.1
The exceptional administrative costs in FY16 primarily relate to
the transaction fees and other costs of listing (GBP8.5m). Other
costs recognised within exceptionals relate to redundancy and
restructuring costs (GBP0.9m), Management Incentive Plan payments
(GBP0.4m) and refinancing and other costs (GBP0.2m).
6. Profit for the year Exceptional
(continued) Costs
----- --------- -------------------------- ------------- ----------
Adjusted
Restructuring cost
related Refinancing amortisation
Year ended 31 August Statutory costs costs of brand Underlying
2015 Notes GBPm GBPm GBPm GBPm GBPm
---------------------------- ----- --------- ------------- ----------- ------------- ----------
Operating profit 87.8 5.0 0.4 2.1 95.3
Finance income 9 1.2 - - - 1.2
Finance expense 10 (8.1) - - - (8.1)
---------------------------- ----- --------- ------------- ----------- ------------- ----------
Profit before tax 80.9 5.0 0.4 2.1 88.4
Income tax expense (16.6) (0.9) (0.1) (0.4) (18.0)
---------------------------- ----- --------- ------------- ----------- ------------- ----------
Profit for the year
from continuing operations
and total comprehensive
income 64.3 4.1 0.3 1.7 70.4
---------------------------- ----- --------- ------------- ----------- ------------- ----------
Earnings per share
Adjusted Basic (p per
share)(1) 13.5 0.9 0.1 0.3 14.8
Adjusted Diluted (p
per share)(1) 13.5 0.9 0.1 0.3 14.8
(1) Prior year EPS has been adjusted to reflect the 4:1 share
consolidation that took place in FY16. A reconciliation to the
previously stated EPS has been provided in note 12.
The operating exceptional costs in FY15 relate to advisory costs
in relation to a potential transaction, redundancy, office
relocation and restructuring costs following an operational review
of the business, and advisory costs in relation to the refinancing
of the Group's debt.
Auditor's remuneration
Continuing operations
Year ended 31
August
------------------------------------------------- -----------------------
2016 2015
GBPm GBPm
------------------------------------------------- ----------- ----------
Fees payable to the Group's auditor:
Annual audit 0.2 0.2
Transaction related audit and advisory services 0.7 0.5
------------------------------------------------- ----------- ----------
0.9 0.7
------------------------------------------------- ----------- ----------
There were no other non-audit fees payable to Group auditor in
the year.
Audit fees in relation to joint ventures audited by the Group's
auditor were GBP3,000 (2015: GBP2,000).
7. Staff costs
Staff costs for the year include Directors' emoluments, which
are detailed below
Continuing operations
Year ended 31
August
-----------------------
2016 2015
GBPm GBPm
---------------------- ----------- ----------
Wages and salaries 58.4 50.3
Social security costs 6.5 5.7
Other pension costs 2.0 1.7
Share-based payments 1.5 1.5
Termination payments 0.9 -
---------------------- ----------- ----------
69.3 59.2
---------------------- ----------- ----------
7. Staff costs (continued)
The average number of persons, including Executive Directors,
employed by the Group during the year was as follows:
Continuing operations
Year ended 31
August
-----------------------
2016 2015
Number Number
------------------ ----------- ----------
Office management 1,048 824
Construction 241 220
------------------ ----------- ----------
1,289 1,044
------------------ ----------- ----------
At 31 August 2016 the Group employed 1,344 people (2015:
1,158).
Amounts recognised in respect of Directors' emoluments:
Directors' emoluments
Continuing operations
Year ended 31
August
-----------------------
2016 2015
GBPm GBPm
---------------------- ----------- ----------
Wages and salaries 1.5 1.4
Social security costs 0.2 0.4
Share-based payments 0.6 0.8
Other pension costs 0.2 -
---------------------- ----------- ----------
2.5 2.6
---------------------- ----------- ----------
The emoluments of the highest paid director was GBP0.9m (2015:
GBP0.7m), including pension contributions of nil (2015: nil). The
number of Directors in the Company pension plan was two (2015:
one).
8. Other income and expenses
Continuing operations
Year ended 31
August
-----------------------
2016 2015
GBPm GBPm
-------------------------- ----------- ----------
Net rental income 0.6 0.3
Other income 5.9 4.6
Non-core business revenue 2.1 3.9
Land sales (loss)/profit (0.1) 0.3
-------------------------- ----------- ----------
8.5 9.1
-------------------------- ----------- ----------
Other income arises on the services provided by plc Group
subsidiaries to manage certain developments. Non-core business
revenue relates to other income such as rebates and customer
extras.
9. Finance income
Continuing operations
Year ended 31
August
-------------------------------------- -----------------------
2016 2015
GBPm GBPm
-------------------------------------- ----------- ----------
Change in fair value of shared equity
receivables 2.5 0.9
Interest income received 0.2 0.3
-------------------------------------- ----------- ----------
2.7 1.2
-------------------------------------- ----------- ----------
10. Finance expense
Continuing operations
Year ended 31
August
-----------------------
2016 2015
GBPm GBPm
----------------------------------------- ----------- ----------
Loans and overdraft fees 3.6 7.7
Promissory note interest and fees 0.5 -
Refinancing issue costs 0.5 0.3
Fair value movement on interest rate cap 0.3 0.1
----------------------------------------- ----------- ----------
4.9 8.1
----------------------------------------- ----------- ----------
11. Tax
2016 2015
Notes GBPm GBPm
-------------------------------------- ----- ----- -----
Corporation tax charges:
Current year 18.6 16.0
Adjustments in respect of prior years (0.4) (0.3)
Deferred tax charges:
Current year 20 1.2 0.7
Adjustments in respect of prior years - 0.2
-------------------------------------- ----- ----- -----
19.4 16.6
-------------------------------------- ----- ----- -----
The tax charge for each year can be reconciled to the profit per
the income statement as follows:
2016 2015
GBPm GBPm
------------------------------------------------ ----- -----
Profit before tax on continuing operations 92.9 80.9
------------------------------------------------ ----- -----
Tax charge at the UK corporation tax rate
of 20.00% (2015: 20.58%) 18.6 16.6
Tax effect of:
Expenses that are not deductible in determining
taxable profit 1.5 0.3
Income not taxable in determining taxable
profit (0.1) (0.3)
Adjustments in respect of previous periods (0.4) -
Other reconciling items (0.2) -
------------------------------------------------ ----- -----
Tax charge for the year 19.4 16.6
------------------------------------------------ ----- -----
Reductions in the rate of corporation tax to 19% and 18% from 1
April 2017 and 1 April 2020 were substantively enacted on 18
November 2015. The UK deferred tax assets and liabilities at 31
August 2016 have been calculated based on the appropriate rate at
which the asset/liability will unwind.
12. Earnings per share
Basic earnings per share is calculated as the profit for the
financial period attributable to shareholders of the Company
divided by the weighted average number of shares in issue during
the period. The actual weighted average number of ordinary shares
during the full year ended 31 August 2016 was 525.6m for the basic
and 525.9m for the diluted calculations, giving a statutory
earnings per share for the year ended 31 August 2016 of 13.9p (both
basic and diluted).
2016 2015
------------------------------------------- ----- -------
Profit attributable to shareholders (GBPm) 73.1 64.1
Weighted average no. of shares (m) 525.6 1,905.6
------------------------------------------- ----- -------
Basic earnings per share (p) 13.9 3.4
------------------------------------------- ----- -------
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 31 August 2016, the
Company had two categories of potentially dilutive ordinary shares:
1.9m nil cost share options under the 2015 LTIP and 4.1m 167.4p
share options under the 2015 Sharesave plan.
A calculation is done to determine the number of shares that
could have been acquired at fair value based on the aggregate of
the exercise price of each share option and the fair value of
future services to be supplied to the Group, which is the
unamortised share-based payments charge. The difference between the
number of shares that could have been acquired at fair value and
the total number of options is used in the diluted earnings per
share calculation.
2016 2015
-------------------------------------------- ----- -------
Profit used to determine diluted EPS (GBPm) 73.1 64.1
Weighted average no. of shares (m) 525.6 1,905.6
Adjustments for:
Share options - 2015 LTIP (m) 0.3 -
Share options - 2015 Sharesave plan (m) - -
Shares used to determine diluted EPS (m) 525.9 1,905.6
Diluted earnings per share (p) 13.9 3.4
-------------------------------------------- ----- -------
The year ended 31 August 2015 earnings per share calculations
shown below have been calculated using a re-based weighted average
number of ordinary shares of 476,387,438 (for both the basic and
diluted calculations) to allow meaningful comparison with the year
ended 31 August 2016 earnings per share data. This was pursuant to
the consolidation of the Group's share capital at a ratio of 4:1
which occurred on 11 November 2015.
Earnings per share for the year ending 31 August 2015,
reconciliation to prior year reported figures:
Basic Diluted
-------------------------------------------------- --------- ---------
Profit attributable to shareholders (GBPm) 64.1 64.1
Weighted average no. of shares (m) 1,905.6 1,905.6
-------------------------------------------------- --------- ---------
Earnings per share (p) 3.4 3.4
Reduction in shares following share consolidation (1,429.2) (1,429.2)
Weighted average no. of shares (m) - restated 476.4 476.4
-------------------------------------------------- --------- ---------
Adjusted earnings per share (p) 13.5 13.5
-------------------------------------------------- --------- ---------
13. Goodwill
GBPm
------------------------------------------- ----
Cost
At 1 September 2014 and 31 August 2015 and
2016 41.7
------------------------------------------- ----
Carrying amount
At 1 September 2014 and 31 August 2015 and
2016 41.7
------------------------------------------- ----
No impairment losses have been recognised in any of the
reporting periods presented herein.
Goodwill arose as a result of an acquisition in 2009 of the
assets and liabilities of Monarch Realisations 1 plc (in
liquidation).
As the goodwill relates to the business as a whole, it has not
been allocated to a specific CGU. For key assumptions in
determining recoverable amounts in goodwill impairment testing,
refer to note 16.
14. Intangible assets
Brand Software Total
GBPm GBPm GBPm
-------------------- ------ -------- ------
Cost
At 1 September 2014 41.4 2.9 44.3
Additions - 1.0 1.0
-------------------- ------ -------- ------
At 31 August 2015 41.4 3.9 45.3
Additions - 0.4 0.4
-------------------- ------ -------- ------
At 31 August 2016 41.4 4.3 45.7
-------------------- ------ -------- ------
Amortisation
At 1 September 2014 (11.1) - (11.1)
Charge for the year (2.1) (0.4) (2.5)
-------------------- ------ -------- ------
At 31 August 2015 (13.2) (0.4) (13.6)
Charge for the year (2.1) (0.4) (2.5)
-------------------- ------ -------- ------
At 31 August 2016 (15.3) (0.8) (16.1)
-------------------- ------ -------- ------
Carrying amount
At 31 August 2015 28.2 3.5 31.7
-------------------- ------ -------- ------
At 31 August 2016 26.1 3.5 29.6
-------------------- ------ -------- ------
Brand assets represent McCarthy & Stone plc brand name
purchased as part of the business combination in 2009. Brand assets
have 12 years and 7 months of useful life remaining.
All amortisation charged is recognised in administrative
expenses in the Consolidated Statement of Comprehensive Income.
15. Property, plant and equipment
Fixtures,
fittings
and equipment Total
GBPm GBPm
---------------------------------------- -------------- -----
Cost
At 1 September 2014 6.9 6.9
Additions 2.0 2.0
Disposals (2.9) (2.9)
---------------------------------------- -------------- -----
At 31 August 2015 6.0 6.0
Additions 1.5 1.5
Disposals (0.3) (0.3)
---------------------------------------- -------------- -----
At 31 August 2016 7.2 7.2
---------------------------------------- -------------- -----
Accumulated depreciation and impairment
At 1 September 2014 (4.0) (4.0)
Charge for the year (1.0) (1.0)
Eliminated on disposals 1.6 1.6
---------------------------------------- -------------- -----
At 31 August 2015 (3.4) (3.4)
Charge for the year (1.1) (1.1)
Eliminated on disposals 0.2 0.2
---------------------------------------- -------------- -----
At 31 August 2016 (4.3) (4.3)
---------------------------------------- -------------- -----
Carrying amount
At 31 August 2015 2.6 2.6
---------------------------------------- -------------- -----
At 31 August 2016 2.9 2.9
---------------------------------------- -------------- -----
16. Impairment testing
During the periods reported in the financial statements, no
impairments have been recognised against the Group's assets. For
each reported period, management have performed an impairment
review of goodwill, being an indefinitely lived asset. The Group
only has one CGU, being the McCarthy & Stone (Developments)
Limited's business, which was acquired in 2009.
The key assumptions for the value in use calculations are those
regarding the discount rates, growth rates and expected changes to
earnings before interest, tax, depreciation and amortisation
(EBITDA) used as a proxy of free cash flows beyond the budgeted
years) as well as the level of capital expenditure required to
maintain the existing business into the future. These assumptions
are reviewed and revised annually in light of current economic
conditions and the future outlook for the business. Management
estimates discount rates using pre-tax rates that reflect current
market assessments of the time value of money and the risks
specific to the business; rates used for 2016 are 8.4% (2015:
8.4%).
The forecast period employed in the impairment assessment was
five years followed by an assessment of cash flows and growth into
perpetuity. The growth rates used are based on management's
assessment of the cash flow forecasts over the medium term. Due to
the headroom within the calculation no further growth has been
assumed within the perpetuity calculation. These are based on
conservative estimates of the Group's ability to participate in the
growth expected in the industry. Changes in selling prices and
direct costs are based on past practices and expectations of future
changes in the market.
The value of goodwill recognised in the financial statements has
been compared to the derived value in use with no impairment
charges arising. The Group has conducted a sensitivity analysis on
the key assumptions which are material to the impairment assessment
including the discount rate, the cash flow projections and the
terminal growth rate and concluded no material sensitivity exists
in these calculations.
No impairment charges were recorded on items of property, plant
and equipment throughout the period covered by these financial
statements.
17. Investment in joint ventures
The Group has a 50% ownership interest of ordinary shares in
each of Kindle Housing (Worthing) Limited, Kindle Housing
(Christchurch) Limited and Kindle Housing (Exeter) Limited, which
rent affordable housing to local key worker employees. The Group
also has a 50% ownership interest in Kindle Housing Limited, which
manages affordable housing. These companies are all registered in
England and Wales.
The Group accounts for its interests in these companies using
the equity method of accounting.
The share of the assets, liabilities, income and expenses of the
jointly controlled entities is not material.
18. Inventories
2016 2015
GBPm GBPm
------------------------------------ ----- -----
Land held for development 236.5 130.9
Sites in the course of construction 201.0 258.8
Finished stock 248.3 196.1
------------------------------------ ----- -----
685.8 585.8
------------------------------------ ----- -----
Days in inventory amounted to 574 days in 2016 (2015: 685
days).
Inventory days are calculated by taking cost of inventories
recognised as an expense in the year divided by year end
inventory.
19. Trade and other receivables
2016 2015
GBPm GBPm
---------------------------------------- ----- -----
Trade and other receivables due in less
than one year
Trade receivables 1.5 1.0
Other debtors and prepayments 6.0 9.9
---------------------------------------- ----- -----
7.5 10.9
---------------------------------------- ----- -----
19. Trade and other receivables (continued)
Trade and other receivables due in greater than one year
2016 2015
GBPm GBPm
-------------------------- ----- -----
Secured mortgages 3.4 3.5
Shared equity receivables 29.3 28.0
-------------------------- ----- -----
32.7 31.5
-------------------------- ----- -----
Trade receivables and secured mortgages disclosed above are
classified as loans and receivables and are measured at amortised
cost.
The Directors consider that the carrying amounts of trade and
other receivables and non-current receivables approximates their
fair value.
20. Deferred tax
The following are the major deferred tax liabilities and assets
recognised by the Group:
Other Unrelieved
Accelerated temporary tax
tax depreciation differences losses Total
GBPm GBPm GBPm GBPm
------------------------ ----------------- ------------ ---------- ---------------
At 1 September 2014 0.2 0.4 - 0.6
Income statement charge (0.2) (0.7) - (0.9)
------------------------ ----------------- ------------ ---------- ---------------
At 31 August 2015 - (0.3) - (0.3)
Income statement charge - (1.2) - (1.2)
------------------------ ----------------- ------------ ---------- ---------------
At 31 August 2016 - (1.5) - (1.5)
------------------------ ----------------- ------------ ---------- ---------------
Deferred tax assets are represented by positive values and
deferred tax liabilities are represented by negative values in the
table above.
Deferred tax assets of GBP0.1m in relation to capital losses
carried forward were not recognised as there is uncertainty as to
whether these losses could be utilised by the Group prior to expiry
(2015: GBP0.3m). These losses have no expiry date.
21. Derivative financial assets
2016 2015
GBPm GBPm
------------------ ----- -----
Interest rate cap - 0.3
------------------ ----- -----
22. Trade and other payables
2016 2015
GBPm GBPm
-------------------------------------- ----- -----
Trade payables 26.8 23.0
UK Corporation tax 8.4 8.5
Other taxes and social security costs 1.9 1.8
Accrued expenses 51.4 36.9
Other creditors 18.6 13.6
-------------------------------------- ----- -----
107.1 83.8
-------------------------------------- ----- -----
Trade payables and accrued expenses principally comprise amounts
outstanding for trade purchases and ongoing costs. The average
credit period taken for trade purchases was 21 days during 2016
(2015: 20 days). No material interest costs have been incurred in
relation to such payables. The Group policy is to ensure that
payables are paid within the pre-agreed credit terms and to avoid
incurring penalties and/or interest on late payments. Other
creditors include sales taxes, property taxes, social security and
employment taxes due to local tax authorities. The Directors
consider that the carrying amount of trade payables approximates
their fair value.
No trade payables are purchased on extended payment terms.
23. Land payables
2016 2015
GBPm GBPm
-------------- ----- -----
Land payables 49.3 36.5
-------------- ----- -----
Land payables relate to payment due in respect of land which has
been purchased under an unconditional contract.
24. Borrowings
Short-term borrowings
2016 2015
GBPm GBPm
----------------- ----- -----
Promissory notes 11.3 -
----------------- ----- -----
Long-term borrowings
2016 2015
GBPm GBPm
------------------------ ----- -----
Loans 55.0 90.0
Unamortised issue costs (2.5) (2.1)
Promissory notes - 11.3
------------------------ ----- -----
52.5 99.2
------------------------ ----- -----
Outstanding at
31 August
-----------------------
2016 2015
Maturity GBPm GBPm
-------------------------- ----------------- ----- -----
Revolving Credit Facility May 2021 55.0 90.0
--------------------------- ----------------- ----- -----
During December 2014, the GBP160.0m term debt facility was
replaced by a new GBP200.0m revolving credit facility ('RCF'), with
a 5-year term, maturing December 2019. The nominal interest rate of
this facility has been amended within the year to a 1, 3 or 6 month
LIBOR + 1.6% (2015: 1, 3 or 6 month LIBOR + 2.5%) depending on the
length of the drawdown. As at 31 August 2016, GBP55.0m (2015:
GBP90.0m) was drawn. The RCF is secured by a floating charge over
the assets of McCarthy & Stone plc, McCarthy & Stone
Retirement Lifestyles Limited, McCarthy & Stone (Developments)
Limited, McCarthy & Stone Extra Care Living Limited and
McCarthy & Stone Total Care Management Limited.
In May 2016 an amendment was made to the RCF agreement to
improve commercial terms and extend the facility's maturity date
from 19 December 2019 to 23 May 2021. As part of the amendment the
margins have been reduced. There have been no changes to the size
of the facility.
Land-related promissory notes with terms of 3-6 months were used
for two land acquisitions in the prior year. The total finance cost
of the land-related promissory notes is 4%. The land-related
promissory notes in issue are structured as ancillary facilities of
the RCF and are therefore linked to the security arrangements
discussed above.
25. Net (cash)/ debt
2016 2015
GBPm GBPm
---------------------------------------- ------- ------
Loans 63.7 99.2
Add back unamortised issue costs 2.5 2.1
Cash and cash equivalents (119.0) (56.9)
---------------------------------------- ------- ------
Net (cash)/ debt (52.8) 44.4
Add back land-related promissory notes (11.3) (11.3)
---------------------------------------- ------- ------
Net (cash)/ debt excluding land-related
promissory notes (64.1) 33.1
---------------------------------------- ------- ------
Net debt is a non-GAAP measure and is calculated as cash and
cash equivalents less long-term and short-term borrowings
(excluding unamortised debt issue costs). As at 31 August 2015, net
debt was reported as cash and cash equivalents less long-term
borrowings (excluding land-related promissory notes and unamortised
debt issue costs).
26. Share capital
The Company has one class of ordinary shares which carry no
right to fixed income. There is no limit to authorised share
capital.
2016 2015
Number Number
'000 '000
--------------------------------------- ------- ---------
Issued and fully paid:
Ordinary shares of 8p (2015: 20p) each 537,314 1,905,550
--------------------------------------- ------- ---------
2016 2015
GBP'000 GBP'000
--------------------------------------- -------- --------
Issued and fully paid:
Ordinary shares of 8p (2015: 20p) each 42,985 381,110
--------------------------------------- -------- --------
Issuance of equity securities
Capital reduction of share capital and share premium
In order to create additional distributable reserves for the
Company, the Company resolved, by a special resolution passed as a
written resolution on 26 October 2015, that the nominal value of
the Company's shares be reduced from 20p to 2p, reducing the amount
standing to the credit of share capital account of the Company by
GBP342,998,955.18 from GBP381,109,950.20 to GBP38,110,995.02 and
that the Company's share premium of GBP56,400,000 be cancelled.
Issuance of new shares in relation to the Management Incentive
Plan
On 26 October 2015, the Company resolved, by a special
resolution passed as a written resolution, to issue 43,706,526
ordinary shares at a nominal value of 2p to the 16 participants in
the Management Incentive Plan in exchange for the transfer by these
participants of the shares held by them in M&S MipCo
S.Ã .r.l.
Consolidation of share capital
On 26 October 2015, the Company resolved by special resolution
passed as written resolution, to consolidate the issued and fully
paid ordinary share capital of the Company at a ratio of 4:1.
Issuance of new shares in relation to primary proceeds from the
IPO
On 26 October 2015, the Company resolved, by a special
resolution passed as a written resolution, to issue 50,000,000 new
ordinary shares of the Company at a nominal value of 8p pursuant to
the raising of primary proceeds from the IPO. These shares were
issued on 11 November 2015.
Dividends on equity shares
The interim dividend was approved by the Board on 18 April 2016
and paid on 31 May 2016 to all ordinary shareholders on the
register of members at the close of business on Friday 29 April
2016, The ex-dividend date was 28 April 2016. The final dividend
proposed by the Board is 3.5p per share resulting in a total
ordinary dividend for the year of 4.5p. It will be paid on 1
February 2017 to those shareholders who are on the register at 6
January 2017 subject to approval at the Company's Annual General
Meeting. The ex-dividend date is 5 January 2017. These financial
statements do not reflect the final dividend payment.
27. Share premium reserve
2016 2015
GBPm GBPm
-------------- ----- -----
Share premium 100.8 56.4
-------------- ----- -----
The share premium reserve represents the consideration that has
been received in excess of the nominal value of shares on issue of
new ordinary share capital.
Movements in share capital are explained within note 26, and
presented within the Consolidated Statement of Changes in
Equity.
28. Operating lease arrangements
2016 2015
GBPm GBPm
---------------------------------------- ----- -----
Minimum lease payments under operating
leases recognised as an expense during
the year 3.2 3.0
---------------------------------------- ----- -----
28. Operating lease arrangements (continued)
At year end the Group had outstanding commitments for future
minimum lease payments under non-cancellable operating leases,
which fall due as follows:
2016 2015
GBPm GBPm
------------------------------------------- ----- -----
Within one year 3.9 3.2
In the second to fifth years inclusive 8.7 7.8
After five years 2.8 2.8
------------------------------------------- ----- -----
Outstanding commitments for future minimum
lease payments 15.4 13.8
------------------------------------------- ----- -----
Operating lease payments typically represent rentals payable by
the Group for its office properties and cars. Rent reviews and
break clauses apply to leased property agreements.
29. Notes to the cash flow statement
2016 2015
Notes GBPm GBPm
---------------------------------------------- ----- ------ ------
Profit for the financial year 73.5 64.3
Adjustments for:
Income tax expense 11 19.4 16.6
Amortisation of intangibles 14 2.5 2.5
Share option charge 32 1.5 1.5
Depreciation of property, plant and equipment 15 1.1 1.0
Interest expense 10 4.9 8.1
Interest income 9 (2.7) (1.2)
---------------------------------------------- ----- ------ ------
Operating cash flows before movements
in working capital 100.2 92.8
---------------------------------------------- ----- ------ ------
Decrease/(increase) in trade and other
receivables 2.2 (5.5)
(Increase) in inventories (99.5) (78.9)
Increase in trade and other payables 37.5 32.2
---------------------------------------------- ----- ------ ------
Operating cash flows before interest and
tax paid 40.4 40.6
---------------------------------------------- ----- ------ ------
Interest received 0.2 0.3
Interest paid (4.1) (8.0)
Income taxes paid (18.2) (13.2)
---------------------------------------------- ----- ------ ------
Cash generated by operations 18.3 19.7
---------------------------------------------- ----- ------ ------
Net cash inflow from operating activities 18.3 19.7
---------------------------------------------- ----- ------ ------
2016 2015
GBPm GBPm
-------------------------- ----- -----
Cash and cash equivalents
-------------------------- ----- -----
Cash and bank balances 119.0 56.9
-------------------------- ----- -----
Cash and cash equivalents comprise cash and bank balances and
short-term bank deposits with an original maturity of three months
or less, net of outstanding bank overdrafts. The carrying amount of
cash and cash equivalents approximates fair value.
The increase in inventories comprises movements in inventories
and investment property (transferred to inventory), offset by the
issuance of promissory notes in respect of two land acquisitions.
The transfer of investment property to inventory and the issuance
of promissory notes represent non-cash movements recognised against
the associated inventory.
The increase in trade and other payables includes the movement
in land payables.
30. Retirement benefit schemes
The Group operates a stakeholder defined contribution retirement
benefit scheme which is open to all employees.
Other than amounts that are deducted from employees'
remuneration and accrued pending payment to the benefit scheme, no
further obligations fall on the Group as the assets of these
arrangements are held and managed by third parties entirely
separate from the Group.
The benefit scheme charge for the period represents
contributions payable to the benefit scheme and amounted to GBP2.0m
for the year ended 31 August 2016 (2015: GBP1.7m). Unpaid
contributions amounted to GBP0.2m as at 31 August 2016 (2015:
GBP0.2m).
31. Financial risk management
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
2016 2015
Notes GBPm GBPm
------------------------------------------------------- ----- ----- -----
Financial assets
Financial assets at fair value through profit or loss:
Shared equity receivables 19 29.3 28.0
Interest rate cap 21 - 0.3
Loans and receivables:
Cash and cash equivalents 29 119.0 56.9
Trade and other receivables 19 2.2 5.1
------------------------------------------------------- ----- ----- -----
150.5 90.3
------------------------------------------------------- ----- ----- -----
Financial liabilities
Amortised cost:
Trade and other payables 22 92.0 77.3
Land payables 23 49.3 36.5
Loans 24 52.5 87.9
Land-related promissory notes 24 11.3 11.3
------------------------------------------------------- ----- ----- -----
205.1 213.0
------------------------------------------------------- ----- ----- -----
Capital risk management
The Group manages its capital (being debt, cash and cash
equivalents and equity) to ensure entities within the Group have a
strong capital base in order to continue as going concerns, to
maintain investor and creditor confidence and to provide a basis
for the future development of the business while maximising the
return to stakeholders.
The Group is not subject to any externally imposed capital
requirements. Equity includes all capital and reserves of the Group
that are managed as capital.
The Group does not routinely make additional issues of capital,
other than for the purpose of raising finance for the management of
the cost of capital of the Group or to fund significant
developments designed to grow value in future.
Share-based payment schemes have been introduced to allow senior
employees of the Group to participate in the ownership of one of
the Group entities in order to ensure the senior employees are
focused on growing the value of the Group to achieve the aims of
all shareholders.
Financial risk management
The Group's finance function is responsible for all aspects of
corporate treasury. It co-ordinates access to financial markets and
monitors and manages the financial risks relating to the operations
of the Group through internal reports which analyse exposures by
degree and magnitude. The risks reviewed include market risk
(including currency risk, fair value interest rate risk and price
risk), credit risk, liquidity risk and cash flow interest rate
risk.
The Board is responsible for managing these risks and the
policies adopted are as set out below.
31. Financial risk management (continued)
Housing market risk management
The Group's activities expose it primarily to macroeconomic
risks such as deflation and the cyclical nature of UK property
prices. A deterioration in the economic outlook could have a
significant impact on the Group's financial performance and the
Group has the following procedures which mitigate its market
related operational risk:
-- The Group closely monitors industry indicators and assesses
the potential impact of different economic scenarios
-- Decisions to allocate new capital to land and build are
managed centrally through the Group Investment Committee,
membership of which includes the Group Chief Executive Officer, the
Group Chief Financial Officer, the National Operations Director and
the Land and Planning Director
-- The Group aims to maintain a national and product spread of
developments to ensure that it is not reliant on one particular
location, development or product
-- The Group undertakes a weekly review of sales, reservations
and incentives at regional and Group level
The value of the Group's house price linked financial assets is
sensitive to UK house prices since the amount repayable is
dependent upon the market price of the property to which the asset
is linked. At 31 August 2016 if UK house prices were 5% lower for a
one year period and all other variables were held constant, the
Group's house price linked financial assets would decrease in
value, excluding the effects of tax, by GBP1.1m with a
corresponding reduction in both the result for the year and
equity.
Credit risk management
Credit risk refers to the risk that a counterparty will default
on its contractual obligations resulting in financial loss to the
Group. The Group has a low exposure to credit risk due to the
nature and legal framework of the UK housing industry. As stated in
the Group's accounting policy for revenue recognition, a sale is
only recognised upon legal completion and this is accompanied by
full cash receipt in virtually all cases.
In certain circumstances the Group offers sales incentives
resulting in a long-term debt being recognised under which the
Group will receive a proportion of the resale proceeds of an
apartment. The Group's equity share is protected by a registered
entry on the title and usually represents the first interest in the
property. A reduction in property values leads to an increase in
the credit risk of the Group in respect of such sales.
The credit risk relating to shared equity receivables is deemed
immaterial as the value is recovered though subsequent disposal of
the related asset. As a result, management consider the credit
quality of these receivables to be good in respect of the amounts
outstanding, resulting in low credit risk. Exposure to house price
sensitivity is built into the fair value calculation.
Trade receivables consist of a large number of customers, spread
across different regions. Ongoing credit evaluation is performed on
the financial condition of trade receivables.
The Group does not have any significant credit risk exposure to
any single counterparty or group of counterparties having similar
characteristics. The Group defines counterparties as having similar
characteristics if they are related entities. There is no material
concentration of credit risk in respect of one individual
customer.
The carrying amount recorded for financial assets in the
financial statements is net of impairment losses and represents the
Group's maximum exposure to credit risk. No guarantees have been
given in respect to third parties. In addition for contracted
rental agreements deposits or advances may be held to mitigate
risk. The Group also holds legal recourse and can exercise its
right to recover rental equipment from non-performing
customers.
Liquidity risk management
Liquidity risk is the risk that 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 cash flow liquid
funds to meet all its potential liabilities as they fall due. The
Group produces cash flow forecasts to monitor the expected
requirements of the Group against the available facilities. The
principal risks with these cash flows relate to achieving the level
of sales volumes and prices in line with current forecast.
31. Financial risk management (continued)
Liquidity risk management (continued)
The maturity of the financial liabilities of the Group at 31
August 2016 is as follows:
2015
---------------------------------------------------
Contractual
Carrying cash Within
value flows 1 year 2-5 years 5+ years
GBPm GBPm GBPm GBPm GBPm
---------------------------- -------- ----------- ------- --------- --------
Loans 90.0 102.8 3.9 98.9 -
Other financial liabilities
carrying interest 11.3 11.7 0.3 11.4 -
Financial liabilities
carrying no interest 113.8 113.8 113.8 - -
---------------------------- -------- ----------- ------- --------- --------
Total 215.1 228.3 118.0 110.3 -
---------------------------- -------- ----------- ------- --------- --------
2016
---------------------------------------------------
Contractual
Carrying cash Within
value flows 1 year 2-5 years 5+ years
GBPm GBPm GBPm GBPm GBPm
---------------------------- -------- ----------- ------- --------- --------
Loans 55.0 64.7 2.0 62.7 -
Other financial liabilities
carrying interest 11.3 11.4 11.4 - -
Financial liabilities
carrying no interest 141.3 141.3 141.3 - -
---------------------------- -------- ----------- ------- --------- --------
Total 207.6 217.4 154.7 62.7 -
---------------------------- -------- ----------- ------- --------- --------
Other financial liabilities carrying interest are promissory
notes, which attract availability and discount fees. Financial
liabilities carrying no interest are trade and other payables and
land payables. The timing and amount of future cash flows given in
the table above is based on the year end position.
Interest rate risk management
Interest rate risk reflects the Group's exposure to fluctuations
to interest rates in the market. The risk arises because the
Group's RCF is subject to floating interest rates based on LIBOR.
From 2015 the interest rate risk has been partially mitigated by
the purchase of an interest rate cap. See note 21 for further
details.
In the year ended 31 August 2016, if UK interest rates had been
0.5% higher or lower, as this is a reasonably possible change, and
all other variances were held constant, the Group's pre-tax profit
would decrease/increase by GBP0.5m (2015: GBP0.7m). Calculations
have been based on borrowing values at each month end.
Fair value of financial instruments
Valuation techniques and assumptions applied for the purposes of
measuring fair value
Fair value of financial instruments carried at amortised
cost
The Directors consider that the carrying amounts of financial
assets and financial liabilities recorded at amortised cost in the
financial statements approximate their fair values.
Bank and other loans
Fair value is calculated based on discounted expected future
principal and interest flows.
Interest rate swaps
At each period end, the Directors appoint a valuer to perform an
external valuation of the fair value of each interest rate swap or
cap outstanding. Fair values are based on broker quotes, which are
reviewed by the Directors and reflect the actual transactions in
similar instruments.
31. Financial risk management (continued)
Fair value of financial instruments (continued)
Valuation of level 1, 2 and 3 financial assets and
liabilities
-- The fair values of financial assets and financial liabilities
with standard terms and conditions and traded on active liquid
markets are determined with reference to quoted market prices
(includes listed redeemable notes, bills of exchange, debentures
and perpetual notes)
-- The fair values of other financial assets and financial
liabilities (excluding derivative instruments) are determined in
accordance with generally accepted pricing models based on
discounted cash flow analysis using prices from observable current
market transactions and dealer quotes for similar instruments
-- The fair values of derivative instruments are calculated
using quoted prices. Where such prices are not available, a
discounted cash flow analysis is performed using the applicable
yield curve for the duration of the instruments for non-optional
derivatives, and option pricing models for optional derivatives.
Foreign currency forward contracts are measured using quoted
forward exchange rates and yield curves derived from quoted
interest rates matching maturities of the contracts. Interest rate
swaps are measured at the present value of future cash flows
estimated and discounted based on the applicable yield curves
derived from quoted interest rates
Fair value measurements recognised in the Consolidated Statement
of Financial Position
The following table provides an analysis of financial
instruments that are measured subsequent to initial recognition at
fair value. The grouping into Levels 1 to 3 is based on the degree
to which their fair value is observable:
-- Level 1 fair value measurements are those derived from quoted
prices (unadjusted) in active markets for identical assets or
liabilities
-- Level 2 fair value measurements are those derived from inputs
other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices)
-- Level 3 fair value measurements are those derived from
valuation techniques that include inputs for the asset or liability
that are not based on observable market data (unobservable
inputs)
The financial instruments held by the Group that are measured at
fair value all relate to financial assets measured at fair value
through profit and loss (FVTPL) using methods associated with Level
3. The sensitivities are not material on assets held at fair
value.
2015
--------------------------
Level Level Level
1 2 3 Total
GBPm GBPm GBPm GBPm
---------------------------------- ----- ----- ----- -----
Financial assets at FVTPL
Shared equity receivables - - 28.0 28.0
Interest rate cap - - 0.3 0.3
---------------------------------- ----- ----- ----- -----
Total financial assets designated
at FVTPL - - 28.3 28.3
---------------------------------- ----- ----- ----- -----
2016
--------------------------
Level Level Level
1 2 3 Total
GBPm GBPm GBPm GBPm
---------------------------------- ----- ----- ----- -----
Financial assets at FVTPL
Shared equity receivables - - 29.3 29.3
Interest rate cap - - - -
---------------------------------- ----- ----- ----- -----
Total financial assets designated
at FVTPL - - 29.3 29.3
---------------------------------- ----- ----- ----- -----
There were no transfers between Levels 1, 2 or 3 in the
year.
Financial assets comprise shared equity loans secured by way of
a second charge on the property, investment properties and an
interest rate cap.
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.
31. Financial risk management (continued)
Assumptions 2016 2015
---------------------- ------- -------
4.7 to 4.7 to
Discount rate 5.1% 5.2%
New build premium 5% 5%
0 to 0 to
House price inflation 4.0% 3.2%
5 to 6 to
Timing of receipt 12 yrs 12 yrs
---------------------- ------- -------
2016 2016
Increase Decrease
assumptions assumptions
by 1% by 1%
Sensitivity-effect on value of other /1 year /1 year
financial assets (less)/more GBPm GBPm
------------------------------------- ------------ ------------
Discount rate (2.4) 2.7
House price inflation 2.3 (2.1)
Timing of receipt (1.3) 1.3
------------------------------------- ------------ ------------
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 years ended 31 August 2015 and 2016:
2015
-----------------------------
Shared Interest
equity rate
receivables cap Total
GBPm GBPm GBPm
------------------------------------------------------- ------------ -------- -----
Opening balance 24.3 - 24.3
Additions 4.8 0.4 5.2
Disposals (2.0) - (2.0)
Revaluation gains or (losses) recognised in the income
statement 0.9 (0.1) 0.8
------------------------------------------------------- ------------ -------- -----
Closing balance 28.0 0.3 28.3
------------------------------------------------------- ------------ -------- -----
2016
-----------------------------
Shared Interest
equity rate
receivables cap Total
GBPm GBPm GBPm
------------------------------------------------------- ------------ -------- -----
Opening balance 28.0 0.3 28.3
Additions 0.5 - 0.5
Disposals (1.7) - (1.7)
Revaluation gains or (losses) recognised in the income
statement 2.5 (0.3) 2.2
------------------------------------------------------- ------------ -------- -----
Closing balance 29.3 - 29.3
------------------------------------------------------- ------------ -------- -----
32. Share-based payments
Cash-settled and equity-settled share-based payment scheme
Within the year the existing Management Incentive Plan that had
been granted to certain employees crystallised. This Plan was a
partly equity-settled and partly cash-settled share-based payment
arrangement whereby the employees were entitled to a cash bonus and
shares if certain future conditions were met.
The split of equity and cash was based on a hurdle mechanism
which accrued from a predetermined starting equity value compounded
at a set rate of interest per annum. The cash payment was a
percentage of the final valuation above the starting equity but
below the hurdle. The shares entitled the participants to a
percentage of the total value created above the hurdle delivered in
McCarthy & Stone plc shares. The number of directors in respect
of whose qualifying services shares were received or receivable
under long term incentive schemes was 6 (2015: 5).
Equity-settled share-based payment
The cost of the equity-settled transactions with the
participants is measured by reference to their fair value at the
date at which they are granted and is recognised as an expense over
the expected vesting period. In 2014, 19,150 shares were issued to
the participants and the fair value of the shares at the grant date
was measured at GBP1.3m based on management's most recent
valuation. Therefore the Group recognised a cost of GBP0.1m in the
year ended 31 August 2016 (2015: GBP0.9m) in the Consolidated
Statement of Comprehensive Income in relation to the equity-settled
share-based payment.
Upon crystallisation a total of 43,706,526 shares were issued to
participants of the Management Incentive Plan (post consolidated
figure of 10,926,632 shares). Further information on movements to
share capital within the year is included in note 26.
Cash-settled share-based payment
The total cash payment made under this scheme was GBP0.8m. The
fair value in relation to the cash payment of the scheme as at 31
August 2016 was GBPnil following full settlement (2015: GBP0.9m).
Due to the crystallisation within the year there is no fair value
in relation to the cash payment of the scheme as at 31 August 2016
(2015: GBP0.9m). The Group recognised a total cost of GBP0.3m
(2015: GBP0.6m) in relation to the cash-settled share-based payment
during the year ended 31 August 2016.
Equity-settled share-based payment plans
Following the IPO of the Group in November 2015, the Group
entered into new share incentive plans: the McCarthy & Stone
plc Long Term Incentive Plan (the 'LTIP'), and the McCarthy &
Stone plc Annual and Deferred Bonus Plan (the 'ABP'). In addition,
the Group has also established two all-employee share incentive
plans: the McCarthy & Stone plc Share Incentive Plan (the
'SIP') and the McCarthy & Stone plc Sharesave Plan (the
'SAYE').
Long Term Incentive Plan
During the period the Group introduced a LTIP for key management
at the discretion of the Board. Awards under the scheme are granted
in the form of nil-priced share options. LTIP awards will normally
vest, and LTIP Options become exercisable, on the third anniversary
of the date of the grant of the LTIP award to the extent that any
applicable performance conditions have been satisfied. LTIP Options
will remain exercisable for 10 years after the date of the grant.
Awards are to be settled by the issue of new shares or acquisition
of shares in the market. The performance conditions for the first
grant under the LTIP are earnings per share ('EPS'), comparative
shareholder return ('TSR') and return on capital employed ('ROCE').
The TSR performance condition is a market-based condition. In order
to value the TSR performance conditions against the FTSE 250, a
Monte Carlo simulation model is required which can simulate
correlation between companies.
LTIP 2016
------------------------------------ -----------------
Date of grant 25 November
2015
Options granted 1,930,524
Fair value at measurement date*
(GBP) 2.12
Share price on date of grant (GBP) 2.32
Exercise price (GBP) 0
Vesting period 3 years
Expected dividend yield n/a
Expected volatility 26.07%
Risk free interest rate 0.8% p. a.
Valuation model Black-Scholes
and Monte Carlo
Movements in the year:
Options at beginning of the year 0
Granted during the year 1,930,524
Exercised during the year 0
Lapsed during the year 113,888
Expired in the year 0
------------------------------------ -----------------
Options at the end of the year 1,816,636
------------------------------------ -----------------
Exercisable at end of the year 0
------------------------------------ -----------------
* This is the average fair value
of the fair values for the three
tranches of the LTIP scheme
The weighted average of the average price for the LTIP award is
nil.
32. Share-based payments (continued)
Expected volatility was determined by calculating the average
historical volatility over a period commensurate with the expected
life of the award for the LTIP based on the FTSE 250, which
McCarthy & Stone are a constituent of post-IPO.
Sharesave Plan
The SAYE Plan is an all-employee savings related share option
plan. Employees are invited to make regular monthly contributions
to a SAYE scheme operated by Capita Asset Services. On completion
of the contract period (3 or 5 years) employees are able to
purchase ordinary shares in the Company based on the average
closing middle market price over the three days prior to the award,
less 20% discount. There are no performance conditions.
SAYE 2016 2016 Total Weighted
average
exercise
price
2016
---------------------- -------------- -------------- ---------- ----------
Date of grant 10 December 10 December
2016 2016
Options granted 2,912,247 1,197,514
Fair value at
measurement date
(GBP) 0.68 0.75
Share price on
date of grant
(GBP) 2.34 2.34
Exercise price
(GBP) 1.674 1.674
Vesting period 3 years 5 years
Expected dividend
yield 26.20% 28.16%
Expected volatility 26.07% 26.07%
Risk free interest 0.8% p.a. 1.2% p.a.
rate
Valuation model Black-Scholes Black-Scholes
Movements in
the year:
Options at beginning - - - -
of the year
Granted during
the year 2,912,247 1,197,514 4,109,761 1.674
Exercised during - - - -
the year
Lapsed during
the year (259,219) (35,839) (295,058) 1.674
Expired in the - - - -
year
---------------------- -------------- -------------- ---------- ----------
Options at the
end of the year 2,653,028 1,161,675 3,814,703 1.674
---------------------- -------------- -------------- ---------- ----------
Exercisable at - - - -
end of the year
---------------------- -------------- -------------- ---------- ----------
Expected volatility was determined by calculating the average
historical volatility over a period commensurate with the expected
life of the savings term for the SAYE options, based on the FTSE
250, which McCarthy & Stone are a constituent of post-IPO.
Share Incentive Plan
In May 2016, the Group established a Share Incentive Plan
available to all employees. This allows employees to purchase
partnership shares each month from pre-tax pay, which are then held
in trust. These shares can be sold or taken from the SIP or be left
within the trust for as long as the plan remains open. All plan
shares and any other assets held by the trustees will be held upon
trust for the participants; there is therefore no impact to the
Group's financial statements in respect of this plan.
Annual and Deferred Bonus Plan
The ABP incorporates the Company's executive bonus scheme as
well as a mechanism for the deferral of bonus into awards
over ordinary shares. All employees (including the Executive
Directors) of the Group are eligible to participate in the ABP at
the discretion of the Board. At 31 August 2016 three Executive
Directors were participating in the scheme. As maximum bonus
targets have not been achieved, a cash portion of the bonus has
been awarded.
Total share incentive plan
2016 2015
Analysis of the income charge: GBPm GBPm
-------------------------------------------- ----- -----
Equity-settled and cash-settled share-based
payments:
Management Incentive Plan 0.4 1.5
-------------------------------------------- ----- -----
Equity-settled share-based payments:
SAYE 0.4 -
LTIP 0.7 -
-------------------------------------------- ----- -----
1.1 -
-------------------------------------------- ----- -----
1.5 1.5
-------------------------------------------- ----- -----
33. Subsidiaries
2016 2015
Principal Company Class
Name activity number of shares % %
-------------------------------- -------------------- -------- ---------- ---- ----
McCarthy & Stone (Developments)
Limited Holding Company 06622183 Ordinary 100 90
McCarthy & Stone Retirement
Lifestyles Limited Developer 06622231 Ordinary 100 100
McCarthy & Stone (Equity
Interests) Limited Property Investment 05663330 Ordinary 100 100
McCarthy & Stone (Home
Equity Interests) Limited Property Investment 05984851 Ordinary 100 100
McCarthy & Stone Investment
Properties No. 23 Limited* Property Investment 06496130 Ordinary 100 100
McCarthy & Stone (Total
Care Living) Limited* Property Investment 06069509 Ordinary 100 100
McCarthy & Stone (Alnwick)
Limited* Property Investment 07517819 Ordinary 100 100
McCarthy & Stone (Extra
Care Living) Limited Property Investment 06897363 Ordinary 100 100
McCarthy & Stone Total
Care Management Limited Property Investment 06897301 Ordinary 100 100
McCarthy & Stone Rental
Interests No. 1 Limited* Property Investment 06897272 Ordinary 100 100
McCarthy & Stone Management Development
Services Limited management 07166051 Ordinary 100 100
McCarthy & Stone Lifestyle
Services Limited* Holding Company 07165986 Ordinary 100 100
McCarthy & Stone Financial Financial
Services Limited* Services 07798214 Ordinary 100 100
Keyworker Properties Limited Property Investment 04213618 Ordinary 100 100
McCarthy & Stone Estates
Limited* Property Resale 07165952 Ordinary 100 100
YourLife Management Services Development
Limited Management 07153519 Ordinary 50 50
McCarthy & Stone Independent
Living Limited Dormant 06897315 Ordinary 100 100
McCarthy & Stone Properties
Limited* Dormant 01925738 Ordinary 100 100
The Planning Bureau Limited* Dormant 02207050 Ordinary 100 100
Ortus Homes Limited Dormant 08658235 Ordinary 100 100
-------------------------------- -------------------- -------- ---------- ---- ----
* These UK subsidiaries will take advantage of the audit
exemption set out within section 479A of the Companies Act 2006 for
the year ended 31 August 2016.
Each of the above shareholdings gives the immediate Parent
Company 100% voting rights, with the exception of YourLife
Management Services Limited where the parent has 50% voting rights,
but the power to appoint the majority of the Directors. Accordingly
this gives the Group power over the relevant activities of this
entity.
The registered address of all of the above subsidiaries is 4th
Floor, 100 Holdenhurst Road, Bournemouth, Dorset, BH8 8AQ.
34. 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.
Remuneration of key management personnel
The key management personnel are the executive leadership team.
The remuneration that they have received during the year is set out
below in aggregate for each of the categories specified in IAS 24
Related Party Disclosures.
2016 2015
GBPm GBPm
----------------------------------------- ----- -----
Short-term employee benefits 2.5 3.2
----------------------------------------- ----- -----
Share-based payments 0.9 1.1
----------------------------------------- ----- -----
Pension contributions 0.2 0.2
----------------------------------------- ----- -----
Termination payment 0.4 -
----------------------------------------- ----- -----
4.0 4.5
----------------------------------------- ----- -----
Aggregate emoluments of the highest paid
director 0.9 0.7
----------------------------------------- ----- -----
As part of the Management Incentive Plan shares totalling
33,098,147 were issued to key management personnel, prior to share
consolidation. Note 26 details movements in share capital within
the year.
35. Events after the balance sheet date
There were no events after the reporting period that required
adjustment or disclosure in the financial statements.
Cautionary statement regarding forward-looking statements
Some of the information in this document may contain projections
or other forward-looking statements regarding future events or the
future financial performance of McCarthy & Stone plc and its
subsidiaries (the Group). You can identify forward-looking
statements by terms such as "expect", "believe", "anticipate",
"estimate", "intend", "will", "could", "may" or "might", the
negative of such terms or other similar expressions. McCarthy &
Stone plc (the Company) wishes to caution you that these statements
are only predictions and that actual events or results may differ
materially. The Company does not intend to update these statements
to reflect events and circumstances occurring after the date hereof
or to reflect the occurrence of unanticipated events. Many factors
could cause the actual results to differ materially from those
contained in projections or forward-looking statements of the
Group, including among others, general economic conditions, the
competitive environment as well as many other risks specifically
related to the Group and its operations. Past performance of the
Group cannot be relied on as a guide to future performance.
Notes to Editors
About McCarthy & Stone
McCarthy & Stone is the UK's leading retirement housebuilder
with a c.70% share of the owner-occupied market(1) . The Group has
sold over 51,000 properties across more than 1,100 retirement
developments since 1977 and is renowned for its focus on the needs
of those in later life. It re-joined the Main Market of the London
Stock Exchange in November 2015 and re-entered the FTSE 250
following its quarterly review on 21 March 2016.
There is a growing demand for specialist retirement housing,
with the number of people aged 85 and over in the UK expected to
more than double between 2015 and 2035 from 1.5 million to 3.2
million, and the number of people aged 65 and over expected to
increase by more than 50% from 11.6 million to 17.2 million(2) .
According to research by Demos, 1 in 4 over 60s are interested in
retirement living(3) , yet only c.141, 000 units of specialist
retirement housing for homeowners have been built(4) .
Older people are also the one group where rates of homeownership
have risen in recent years. Homeownership among those aged 65 to 74
increased from 50% in 1981 to 78% in 2012 and among the over 75s it
rose from 47% to 73%. However, for those aged 25 to 34, it has
fallen from 62% in 1981 to 43% in 2012 and for 35 to 44 year olds
it fell from 69% to 63%5. The Department for Communities and Local
Government (DCLG) is forecasting that older householders (aged 65+)
will grow by 155,000 per year to 2039 and will account for about
three quarters (74%) of total household growth over that period(6)
.
We believe that there are a number of policy options available
to the Government to encourage and assist those wishing to move to
more suitable retirement housing. In October 2016 we wrote to the
Chancellor of the Exchequer to propose that he considers a
reduction in Stamp Duty for people looking to downsize. We firmly
believe this would be a highly effective incentive that would help
people to move, provide a much-needed stimulus to the wider housing
market by freeing up large family homes for those lower down the
housing chain, and could result in a net revenue increase for the
Treasury of some GBP740 million through increased Stamp Duty
receipts from the additional housing chains created as a
result.
The Group has two established product ranges - Retirement Living
and Assisted Living - which provide one and two bedroom apartments
across the country with varying levels of support and care for
older homeowners. In late 2014, McCarthy & Stone launched its
Ortus Homes product, which is exclusively for the over 55s and
those in the earlier stages of retirement who are seeking to
downsize for their leisure years. McCarthy & Stone is currently
selling its first apartments in this new product range across seven
locations, helping the Group to capture a wider share of the active
retiree market.
The first Ortus Homes development at Scarlet Oak in Solihull won
the Best Retirement Scheme at the annual Housebuilder Awards in
November 2015. At the same awards in November 2016, we were pleased
to again receive Best Retirement Scheme for Ramsay Grange and Lyle
Court, our combined Assisted Living and Ortus Homes development in
Barnton, Edinburgh, as well as Best Customer Satisfaction
Initiative for our approach to ensuring that we deliver a five-star
service for our homeowners.
McCarthy & Stone's commitment to quality and customer
service continues to be recognised by homeowners. In March 2016,
the Group received the full Five Star rating for customer
satisfaction from the HBF for the eleventh consecutive year -
making it the only UK housebuilder, of any size or type, to achieve
this accolade. www.mccarthyandstonegroup.co.uk
(1) Based on 3,453 registrations of cross-tenure properties
specifically designed for the elderly with the NHBC during calendar
year 2015, of which 2,672 were registered by McCarthy &
Stone
(2) Population projections by the Office for National Statistics (2014 based)
(3) Demos - Top of the Ladder (September 2013)
(4) Independent data provided by Elderly Accommodation Counsel (April 2016)
(5) Office for National Statistics - Housing and home ownership
in the UK (2015)
(6) The Departure for Communities and Local Government (DCLG)
projections (July 2016)
This information is provided by RNS
The company news service from the London Stock Exchange
END
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