TIDMMCS
RNS Number : 0086T
McCarthy & Stone PLC
15 July 2020
Wednesday 15 July 2020
McCarthy & Stone plc
Half year results announcement for the six months ended 30 April
2020
McCarthy & Stone (the 'Group'), the UK's leading developer
and manager of retirement communities, announces its financial
results for the six months ended 30 April 2020 (2020). All
comparatives are to the prior year deemed equivalent six-month
period ended 28 February 2019 (2019) unless otherwise stated.
Summary
-- Responded early to Covid-19 with absolute focus on our
customers and our people resulting in Covid-19 infection rates
being 27% lower than the over 65's UK population and four times
lower than the over 85's
o Currently only one confirmed case on our developments
-- Acting decisively to protect the financial health of our business
o Available cash balance as at end of June was c.GBP122m
o Access available to GBP300m CCFF
o Monthly cash burn reduced from c.GBP10m to c.GBP7m during the
lockdown period
-- Remobilisation of both sales and build activities will
continue to be gradual, reflecting the nature of our customer
base
-- While we have passed the peak of the crisis, the financial effect will be weighted towards H2
-- Covid-19 backdrop has illustrated the unique benefits of
independent retirement living - the 'Third Way'
-- Reaffirmed we have the right strategy in place with an
increasingly attractive rental proposition for both customers and
investors
-- Beyond Covid-19, we see exciting opportunities due to our
unique proposition and our strong brand, enhanced by recent
Government policy announcements around stamp duty, planning and
adult social care reform, the evolving land market and the
emergence of a new and attractive retirement living property asset
class
H1 2020 H1 2019 Change
Legal completions, including
rentals(1) 471 845 (44%)
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Revenue GBP101.1m GBP280.5m (64%)
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Average selling price(2) GBP297k GBP319k (7%)
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Gross (loss)/profit (GBP7.9m) GBP39.0m (120%)
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Underlying operating (loss)/profit(3) (GBP24.8m) GBP21.3m (216%)
----------- ----------- ----------
Exceptional items (GBP63.4m) (GBP14.3m) (343%)
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Operating (loss)/profit (GBP89.2m) GBP6.0m (1587%)
----------- ----------- ----------
Underlying operating margin (24.5%) 7.6% (32.1ppt)
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Operating margin (88.2%) 2.1% (90.4ppt)
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Underlying (loss)/profit before
tax(3) (GBP26.9m) GBP18.9m (242%)
----------- ----------- ----------
Profit (loss)/before tax (GBP91.3m) GBP3.6m (2636%)
----------- ----------- ----------
Underlying basic earnings
per share(3,4) (4.1p) 2.9p (7.0p)
----------- ----------- ----------
Basic earnings per share (13.9p) 0.5p (14.4p)
----------- ----------- ----------
Available cash GBP146.5m GBP31.8m 361%
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Net debt(5) GBP53.5m GBP57.2m GBP3.7m
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Return on capital employed(6)
(ROCE) 4% 10% (6ppt)
----------- ----------- ----------
Interim dividend per share 0.0p 1.9p (1.9p)
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John Tonkiss, Chief Executive Officer commented:
"It has been an extraordinary period, with a positive trend
following the General Election curtailed by the onset of Covid-19.
This has had a significant impact on our financial performance, but
thanks to our early and decisive actions to safeguard our
homeowners, protect the health of the business and preserve cash,
we believe we'll emerge from the crisis in a stronger position.
"Independent retirement living has played a vital role during
this pandemic, proving to be a safe haven for older people, with
significantly lower infection rates than within the general over 85
population. An i ncreased focus on the wellbeing of older people as
a consequence of Covid-19 also presents an exciting opportunity for
our sector to better communicate its unique proposition and promote
its many benefits. Working with Government, we want to develop a
long-term plan to provide more options to keep older people safe at
home, rather than in a home, and ensure this is fully understood by
the public. We are pleased that this call is beginning to be heard
with the decision to lift stamp duty, the proposals to reform
planning and potential changes to adult social care.
"Going forward, we will continue to focus on our long-term
strategy to transition to a service-led organisation, offering a
choice of tenures and a range of services - a strategy we know is
the right one and which has supported our homeowners during this
difficult time. We remain particularly excited about our rental
offering in terms of its benefits to customers and increased
attractiveness to investors.
"Finally, I'd like to place on record a huge and heartfelt thank
you to every one of our homeowners and our employees for their
continued support, understanding and co-operation during this
period, and helping to keep our people safe and well. It's been a
challenging period, but there's nothing like a crisis to show what
we're made of, and what we've shown is that our communities are
made of much more than bricks and mortar."
Overview of HY20
There have been three discrete periods of trading: November and
December were impacted by the uncertainty surrounding the 2019
General Election; there was then a strong post-election bounce in
January and February; and this was followed by the Covid-19
lockdown and cessation in activities in March and April.
-- Closure of sales offices and sites under construction from
mid-March resulted in a 44% decrease in volumes to 471 legal
completions (2019: 845), inclusive of 80 rentals (2019: nil) and a
bulk sale of 135 units to Waverstone LLP, including all remaining
units from our Scotland region, as well as sales offices and show
flats (2019: nil), together with a 7% decline in the average
selling price to GBP297k (2019: GBP319k)
-- Gross loss impacted by fixed costs within the divisions and
sales and marketing alongside increased empty property costs. The
site profit margin of c.25-26%, excluding the bulk sale and rental
income, largely consistent with the prior period
-- Underlying operating loss of GBP24.8m (2019: underlying
operating profit of GBP21.3m) , primarily impacted by the lower
level of completions as a result of Covid-19
-- Statutory operating loss of GBP89.2m (2019: statutory
operating profit of GBP6.0m) impacted by the impairment of goodwill
and brand by GBP60.4m which has been treated as an exceptional
charge
-- Three first occupations brought to market in the period due
to the cessation of construction activity prior to the period end
(2019: 15)
-- Strong performance in PX sales with 85 properties sold since 23 March
-- Awarded the full Five Star rating for customer satisfaction
by the Home Builders Federation ('HBF') for a record fifteenth
consecutive year - the only UK developer of any size or type, to
achieve this accolade every year the survey has been run
-- Five Quality awards (2019: 10) at the 2020 National House
Building Council ('NHBC') Pride in the Job awards, underpinning the
Group's exceptional build quality
-- 18 land exchanges and 11 planning consents achieved in the
period (2019: 10 land exchanges and 21 planning consents)
Multi-tenure
-- 127 multi-tenure transactions were completed during the
period (80 rental completions, 22 part buy part rent transactions
and 25 rent to buy)
-- The total rental assets held on the Group's balance sheet as
at 30 April were valued at GBP51.2m. The Group's overall portfolio
as at 30 June 2020 stood at 192 rented units valued at GBP53.2m
with a gross yield of 6.5% and expected gross to net leakage of
21%
Covid-19
Homeowners and Employees
Responded early to Covid-19 with absolute focus on our customers
and our employees
-- Rapid response focused on ensuring safety and wellbeing of
our c.20,000 homeowners and c.2,500 employees
-- Swift closure of all communal areas within developments,
restricted visitors and implemented strict hygiene measures,
including regular deep cleans
-- Provided homeowners with additional tailored on-site
assistance from our c.1,600 strong Services team, with a further
c.500 volunteers joining our Buddy scheme to ensure that homeowners
were never without the food, medicine or other supplies
-- Positive feedback from employee engagement survey.
o 84% felt well informed
o 75% feel recognised for their contribution to the business
o 55% on furlough were volunteering to help homeowners
-- Ensured PPE provision for on-site staff early on
-- Rolled out Buddying scheme and redeployment of staff to support customers
-- Maintained regular communication with our employees,
including furloughed staff through line managers, a weekly CEO
video blog, on-line training and courses
Business
We are acting decisively to protect the financial health of our
business with focus on cash preservation and increasing
liquidity
-- FY19 dividend payment withdrawn
-- Voluntary 20% salary reduction by all members of the Board and wider leadership team
-- Paused all sales, marketing and build activity and stopped discretionary spend
-- Stopped land spend and minimised land liabilities
-- Honoured payments to suppliers and maintained good relationship
-- Employees in build and sales furloughed at 80% of salary
-- Period-end net debt(5) of GBP54m (2019: GBP57m), equivalent to gearing(7) of 8% (2019: 8%)
-- GBP300m Covid Corporate Financing Facility ('CCFF') funding secured on 2 June 2020, undrawn
-- Monthly cash burn rate reduced from c. GBP10m from mid-March
to c.GBP7m during lockdown period
-- Further cost saving measures announced today as we realign
resources across the Group to workflow and review our operating
structure, resulting in an annualised cost saving of c.GBP4m
Gradual remobilisation
Our number one priority continues to be the health and wellbeing
of our customers and employees, as the country re-opens for
business and Covid-19-related restrictions are eased. We are taking
a gradual approach to remobilisation reflecting the nature of our
customer base.
Services:
-- Resumed a majority of services adapted to government
guidelines in England, Scotland and Wales
-- Strict hygiene measures and Covid-secure working practices
therefore remain in place on all developments until further notice,
with processes and incident teams in place to respond to local
lockdowns and any Covid-19 cases as required
-- Currently only one confirmed case of Covid-19 on our developments
Build:
-- Measured remobilisation of build and sales activities commenced on 8 June
-- Construction sites are operating with new Covid-secure
working practices in place. 17 out of 44 sites are now active. 37
sites are scheduled to restart by year end
-- Low Covid-19 impact on build rates and no materials or resources issues with the supply chain
-- In H2, our build activities will focus on further controlled
remobilisation, with an emphasis on smoothing workflow, building up
to pre-Covid-19 volumes by FY22, while managing any Covid-19
related impact on costs and timing of delivery of sites
Sales and marketing:
-- Gradual and systematic ramp up of sales and marketing
activities, with processes adapted to reflect the current
environment and vulnerability of customer base. Hub sales operating
model adopted. Viewings are by appointment only with extensive
front end customer prequalification on-line or over the phone
-- Sales leads and gross reservation rates increasing in line with gradual ramp up plan
-- We are currently focusing on maximising sales and rental
completions of finished stock together with cash generation through
sell down of our on-balance sheet part-exchange properties
-- Marketing effort will be directed towards repositioning the
business for a post Covid-19 world with a clear proposition
highlighting the benefits of independent retirement living and the
services provided in response to the pandemic
Land:
-- Fully reinstated land buying teams and seeing significant new
land opportunities as a result of structural changes in the UK town
centres post Covid-19
Employee return:
-- Furloughed employees are returning in phases in line with ramp up of sales and build activity
While we are passed the peak of the crisis, the financial impact
will be weighed towards H2.
The Third Way
The Covid-19 backdrop has illustrated the unique benefits of
independent retirement living as a safer and happier alternative to
more traditional options (own home or a care home). Infection rates
within our communities stood at 27% and 75% lower(8) compared to
the UK population of over 65s and over 85s respectively. Our latest
customer satisfaction survey conducted during the outbreak showed
that 93% of our homeowners feel safe or extremely safe in their
apartments and 88% are very happy with the support they have
received during the pandemic.
Right strategy in place
The Covid-19 backdrop reaffirmed that we have the right
long-term strategy in place and we will continue to focus on
improving customer service and becoming a service-led organisation
that offers a choice of tenure and a range of services to suit
different needs. Looking forward, it is our priority to ensure that
we can maintain the enhanced level of care and support for all our
homeowners and employees that we provided during the peak of the
pandemic.
Our short-term strategic priorities focused on margin
improvement remain in place, building on the good progress already
made in build cost reduction and sales and brand workstreams.
Opportunity beyond Covid-19
As we adjust to the new reality and working practices, we see
exciting future opportunities due to our unique proposition and our
strong brand, enhanced by recent policy announcements around stamp
duty, planning and adult social care reform and the evolving land
market. We are well placed to address the significant annual
shortfall in suitable accommodation for older people against the
backdrop of rapidly ageing population in the UK.
Summary and Outlook
We are emerging from an extraordinary period in which we
successfully put the health and wellbeing of our customers and our
employees above all else and worked hard to protect the financial
health of our business.
As the Covid-19 lockdown eases and the country resumes its
economic activities, we are mindful of the vulnerability of our
customer base and have reflected this within our gradual and
measured remobilisation plans.
Early activities demonstrate that sales leads and gross
reservation rates are increasing in line with this gradual ramp up
plan. While we are passed the peak of the crisis, the financial
effect will be weighted towards H2. However, given the significant
level of ongoing uncertainty, the Board currently have little
visibility as to the expected FY20 outturn. Guidance therefore
remains suspended until we have greater clarity of the Covid-19
impact on the business and wider UK economy.
Throughout the pandemic, the independent retirement living
sector has proved to be a safe and happy place for older people,
and it is clear that it has an important role to play in the post
Covid-19 world. It provides an alternative 'Third Way' for those
needing assistance and there is now a real opportunity to redefine
how we support our ageing population in future. Our unique
proposition, unrivalled capability, strong brand and new land
opportunities, along with the heightened focus from policy makers,
ensures that we are well-placed to capitalise on this exciting
opportunity.
- Ends -
Webcast of half year results presentation for analysts and
investors will be webcast and available via conference call at
9.30am on Wednesday 15 July followed by Q&As.
A live webcast of the presentation is available via the
following link:
https://www.investis-live.com/mccarthy-and-stone-plc/5efdf56627577e100062ec7a/qlql
An on-demand version of the webcast will be made available later
today on the Group's corporate website
Conference call details:
United Kingdom (Local): 020 3936 2999
All other locations: +44 20 3936 2999
Participant Access Code: 877275
Conference call replay facility (available until Wednesday 22
July 2020)
United Kingdom: 020 3936 3001
All other locations: + 44 20 3936 3001
Replay code: 711258
For more information, please contact:
McCarthy & Stone, 01202 292480
John Tonkiss, Chief Executive Officer
Rowan Baker, Chief Financial Officer
Martin Abell, Chief Financial Officer Designate
Paul Teverson, Director of Communications
Marina Calero, IR Director, 07770956122,
marina.calero@mccarthyandstone.co.uk
Powerscourt, 020 7250 1446 /
mccarthy-stone@powerscourt-group.com
Justin Griffiths
Nick Dibden
Victoria Heslop
Legal Entity Identifier (LEI): 213800CEJ4OQ5YPU8Z37
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 The Group recognises a legal completion at the point of
completion of a sale of an apartment to a purchaser or a tenancy
commencement on a rental apartment, including a bulk sale of 135
units (2019: nil). The HY20 transaction comprises the sale of 41
show flats and sales offices with a subsequent 12-month leaseback,
and the sale of 94 finished apartments and apartments under
construction in Scotland.
2 Average selling price is calculated as average list price less
cash discounts and part-exchange top-ups and fair value
adjustments.
3 Underlying operating (loss)/profit (including underlying
operating (loss)/profit margin and underlying basic earnings per
share) and underlying (loss)/profit before tax are calculated by
adding amortisation of brand of GBP1.0m (2019: GBP1.0m) and
exceptional items of GBP63.4m (2019: GBP14.3m) to operating
(loss)/profit and (loss)/profit before tax respectively. See note 3
of condensed consolidated financial statements for further
information.
4 Underlying basic earnings per share have been reconciled
within note 3 of condensed consolidated financial statements.
5 See note 6 of condensed consolidated financial statements for
net debt reconciliation.
6 Return on capital employed ('ROCE') is calculated by dividing
underlying operating profit for the previous 12 months by the
average tangible gross asset value of GBP766.7m (2019: GBP740.7m)
at the beginning and end of the 12-month period. Tangible gross
asset value is calculated as net assets excluding goodwill of
GBPnil (2019: GBP41.7m) and intangible assets of GBP4.3m (2019:
GBP25.2m), excluding net debt of GBP53.5m (2019: GBP57.2m).
7 Gearing is calculated by dividing net debt of GBP53.5m (2019:
GBP57.2m) by net assets of GBP695.1m (2019: GBP748.1m).
8 Infection rate calculated per 1000 people
Interim Management Report
Chief Executive Officer's statement
Reflection on the new reality
Since the start of the outbreak of the Covid-19 pandemic, the
independent retirement living sector has played a vital role in
keeping people safe and secure. Infection rates have been very low
among our c.20,000 homeowners who live in our 441 communities
across the UK and stood at 27% and 75% lower per 1,000 people
compared to the UK population of over 65s and over 85s
respectively. This is broadly typical across our sector due to the
unique benefits of independent living which enables older people to
remain in a private apartment with their own front door supported
by a range of on-site services. Our latest customer satisfaction
survey conducted during the outbreak showed that 93% of our
homeowners feel safe or extremely safe in their apartments and 88%
are very happy with the support they have received during the
pandemic. The Covid-19 backdrop has illustrated the unique benefits
of independent retirement living as a safe, happy and effective
'Third Way' to the current options of remaining in a family home
that has often become unsuitable or moving into residential
care.
Covid-19 has also re-affirmed that we have the right long-term
strategy in place, focused on improving our customer experience and
becoming a service-led organisation built around our three key
principles, Flexibility, Choice and Affordability:
a) Flexibility within our Services to respond to the evolving
needs of our homeowners through the existing operating platform
across all our developments proved invaluable during the pandemic.
Since the launch of our strategy, we have expanded our range of
services, opened up new developments for wider community use and
are integrating technology enabled services in order to provide
additional peace of mind to both our homeowners and their families.
This increase in technology has proved highly effective during the
lockdown period, ensuring that we continue to connect our
homeowners with their loved ones. As we are building on lessons
learnt during the pandemic, we are adapting our service offering
around 'softer' services and working on a phased implementation of
alternative charging models
b) Choice of tenure. Through the roll out of our multi-tenure
options, we are broadening the appeal of our offering. We now have
an even more attractive rental portfolio of a new and attractive
retirement living property asset class valued at c.GBP53.2m with
attractive yields underpinned by pension backed income and
long-term assured tenancies with low levels of void and leakage.
Looking to the future, there is sufficient demand for rental to
become approximately a quarter to a third of our reservations. We
are also looking at the opportunity for Build-to-Rent (BTR), shared
ownership models and development partnerships
c) Affordability of product. This is a longer-term initiative.
We are seeking to maximise the appeal of our product by increasing
its affordability via lower ASPs. We will achieve this through
reduced build costs, increasing efficiencies and introducing new
contemporary and compact designs and Modern Methods of Construction
('MMC'). Our MMC strategy is still sound despite the delay in
implementation caused by Covid-19
Our short term strategic priorities focused on margin
improvement remain in place and we intend to build on the good
progress we have made in build cost reduction and sales and
marketing strands pre-Covid-19. However, the exact impact of
Covid-19 on the quantum and timing of delivery of these initiatives
is currently under review.
This crisis has brought the challenges faced by older people to
the fore and we have a real opportunity to address this. There
remains a chronic undersupply of appropriate housing for older
people with demand estimated to be c.30,000 units a year(1) against
a current supply of c. 8,000 units a year(2) . As the UK's leading
developer and manager of retirement communities, we have an
unrivalled capability to help meet this demand.
We are also witnessing a changing landscape with an increased
focus on addressing the challenges in adult social care in light of
the pandemic. We continue to engage positively with policy makers
and retirement living is firmly on their radar. This is further
supported by Government's 'Build, build, build' approach and the
significant proposed planning reforms.
However, reflecting on the Covid-19 experience, it is also clear
that our proposition is not fully understood by the public. There
is lack of familiarity with the unique benefits of retirement
living and its often association with care homes exacerbated by the
recent events. As a result, we are investing into renewing our
brand purpose centred around a new way of life - a viable 'Third
Way' built around independence with the right level of on-site
assistance, so our customers can be happier, healthier and safer as
they get older.
The re-invigorated brand purpose will embed our ESG thinking
around customers, society, employees and the environment. As a
Group, we are determined to listen to and give a voice to our
customers, supporting the communities in which we operate and
continuing to work with the voluntary sector, including building on
our existing relationships with the charities Beanstalk and the
Royal Voluntary Service, as well as other partners within the wider
retirement living sector. We also plan to launch our own charity,
the McCarthy & Stone Charitable Foundation, in FY21.
Furthermore, we will work with the Government to help drive the
agenda for more and better housing for older people with a
joined-up and long-term plan, starting with better housing that
keeps older people away from social care and hospital, noting that
independent retirement living saves the Government GBP3,500 per
person per annum(3) in reduced costs.
As we adjust to the new working practices, we see an exciting
future due to our unique proposition, our strong brand and the
increased awareness from policy makers to address a significant
annual shortfall in appropriate accommodation for older people.
1 Knight Frank, 2016
2 EAC, 2019
3 WPI, 2019
Covid-19 response
At the onset of the pandemic, we took decisive actions to help
protect our homeowners and to ensure the wellbeing and safety of
our employees. Additionally, we had to act quickly in order to
protect the health of the business. These measures were announced
on 25(th) March.
Homeowner and employee support
Our dedicated Services teams have worked tirelessly to ensure
the wellbeing of our homeowners. We provided clear and frequent
guidance to our customers across all sites from the outset. We
swiftly closed communal areas, restricted visits and implemented
strict hygiene measures including frequent deep cleans.
Furthermore, we provided our homeowners with additional tailored
on-site assistance and support from our c.1,600 strong Services
team, and a further c.500 volunteers joining our Buddy scheme to
ensure that homeowners were never without medication or food
supplies. This level of additional help, support and guidance would
not have been available to them if they lived alone. Our Retirement
Living PLUS developments have teams on site 24 hours a day, 365
days a year, while our Retirement Living developments have on-site
support during the week and a dedicated out-of-hours helpline.
To assist with our response to Covid-19, we also set up an
operation to rapidly manage suspected cases to minimise the risk to
homeowners and employees. We engaged with Government to ensure our
front-line staff in retirement communities have access to
sufficient personal protective equipment to enable them to carry
out their important role in caring for older and vulnerable
people.
Cash saving measures
As a Group, we entered the Covid-19 period with a strong balance
sheet. Our Tangible Net Asset Value at 28 February 2020 was
c.GBP687m, with gearing of 8% and, as of 18 March, a cash balance
of c.GBP127m. At the end of February, its main liquid assets were
c.GBP350m of finished stock, a total portfolio of >GBP50m of
rental and shared ownership assets (at attractive yields) and
>GBP50m of part exchange assets. Our intention was to utilise
our strong asset base to generate further revenue or liquidity as
necessary during the expected period of low sales activity and it
successfully managed to increase its available cash balance via
continued sell down of part-exchange during the Covid-19 lockdown
period as a result.
To ensure the long-term health of the business, our financial
priority was to preserve cash by undertaking a series of measures.
We paused all build activity across our entire development
programme with the exception of certain specific sites that were
nearing completion. We also paused our land spend and contractually
committed land spend has been reviewed and minimised where
possible. All marketing activity was paused, and on-site sales
offices were closed. Employees impacted by these actions were
either redeployed to support our homeowners as the additional
demand for our services significantly increased or placed on
furlough as they qualified for support under the new Government Job
retention scheme.
The key financial actions taken were:
-- As previously announced, the Group took the decision to
cancel its final dividend payment resulting in a cash saving of
c.GBP19m
-- All members of the Board and wider leadership team took a
voluntary 20% reduction in basic salary from 1 April. The salary
reduction for the Board remains in place until further notice
-- Sale of 135 units with a balance sheet asset value of
c.GBP32m for a total consideration of c.GBP35m to Waverstone LLP.
This generated an immediate cash flow of c.GBP13m
-- Strong performance in part-exchange property re-sales with 42
sold properties since mid-March. Only 34 of the 130 properties on
the balance sheet at 30 April remain unsold
-- Secured access to additional GBP300m liquidity through access
to the HM Treasury and Bank of England Covid Corporate Financing
Facility ('CCFF')
-- Negotiated a waiver of the interest cover banking covenant
until April 2021 and a relaxation in this covenant test for October
2021
The above actions contributed to a reduction in monthly cash
burn rate from c.GBP10m per month to c.GBP7m and an increased cash
balance of c.GBP146m as at 30 April 2020. The business is now
therefore well positioned to navigate through the continued
uncertainty, with strong cash controls remaining in place.
Short term strategic initiatives
While the quantum and timing of delivery of our short-term
priorities focused on margin improvement are currently under review
due to Covid-19, we made good progress, as planned, across these
initiatives prior to Covid-19.
Sales and marketing
We maintained our focus on improving our off-plan sales and
reducing incentives and discount costs by fully integrating our
rental and multi-tenure offering into our sales practices and
tightly controlled use of on balance sheet part exchange.
Build Cost Reduction (BCR)
Good progress was made with securing planning consents on
schemes reviewed as part of our BCR work stream, resulting in a
total of GBP30m now in construction budget or delivered. Before the
lockdown only c.GBP18m (2019: GBP25m) remained as subject to
planning.
Post lockdown, BCR practises are now embedded into the business,
but timing and quantum will be impacted by Covid-19 and the
business is carefully managing the impact of additional Covid-19
related compliance costs. The focus now is on continuing refinement
of standardisation, tendering of subcontractors and supply chain
and optimisation of used components.
Workflow re-alignment
We continued to focus on smoothing our workflow delivery. Prior
to lockdown we delivered three first occupations (2019: 15) and 11
planning consents (2019: 21), 18 land exchanges (2019: 10) and 11
new build starts (2019: 14).
Ceasing of all build activities due to Covid-19 allowed the
business to fully optimise the workflow and align with
re-mobilisation plans, gradually increasing build volumes and
scaling workflow back up to pre-Covid-19 levels by FY22 with focus
on reducing finished stock, gradually releasing land from exchange
to completion and into build stages, while proactively buying land
to enhance the land bank.
Finished stock
We made good progress toward reducing our finished stock levels
to the 1,100 units target achieving 1,373 units at the end of the
period (FY19: 1,628). The value of finished stock on the balance
sheet stood at GBP323m (H1 2019: GBP381m). Post Covid-19 sales
activities firmly focused on reducing the levels of finished stock
further, while build activities are gradually re-mobilised.
Land bank
During the period and pre-Covid-19 pause on land activities, we
invested GBP48m (2019: GBP58m) in land and our landbank now stands
at 7,959 units (2019: 8,372 units), which equates to over 4.2
years' supply (2019: 3.9 years' supply). 18 high-quality
development sites (2019: 10 sites) have been added to the land
bank. We also completed on the purchase of 21 sites (2019: 13
sites) and achieved 11 planning consents (2019: 21) during the
period.
We have now fully reinstated our land buying teams and are
seeing significant new land opportunities as a result of structural
changes in the economy post Covid-19. We have not noted any
significant post-Covid pricing impact for the type of land we
target.
Health and Safety
We continued to make good progress with developing a culture of
excellence in health and safety across the Group with accident
incident rate reducing significantly to 100 from 532 (HY19) vs 268
industry benchmark.
Board changes
Chief Financial Officer (CFO) change
As announced on 12 May 2020, our current CFO, Rowan Baker, has
informed the Board of her intention to step down as CFO and as a
Director of the Company to become CFO of Laing O'Rourke.
Her replacement, Martin Abell joined the business as CFO
Designate on 26 May 2020, and will become CFO on 1 August 2020,
following Rowan's departure. Martin most recently held the position
of CFO at Clinigen Group plc, the pharmaceutical and services
company, and prior to that was the Finance Director (Europe and
Rest of World division) for Hays plc, the FTSE 250 professional
recruitment company.
Rowan will remain in the business to provide a smooth handover
with Martin and the wider finance team. Her departure date will be
31 July 2020.
Chief Operational Office (COO)
Nigel Turner, COO - Build, is to leave the Company with effect
from 15 July 2020. The change follows an internal review as the
business adjusts to the impact of Covid-19. The Company's four
Divisional Managing Directors, who are responsible for all build
operations, will now report directly to John Tonkiss, Chief
Executive Officer.
Charity partnership
To support and help deliver our purpose of creating communities
that enrich the quality of life for our customers and families, we
are preparing to launch the McCarthy & Stone Charitable
Foundation in FY21 to bring together our charitable activities
across the business. This has included our national partnerships
with Beanstalk, the national children's literacy charity, and the
Royal Voluntary Service in recent years. The new foundation will
help to further embed our organisational purpose and support both
older people and the communities in which we operate.
Summary and Outlook
We are emerging from an extraordinary period in which we
successfully put the health and wellbeing of our customers and our
employees above all else and worked hard to protect the financial
health of our business.
As the Covid-19 lockdown eases and the country resumes its
economic activities, we are mindful of the vulnerability of our
customer base and have reflected this within our gradual and
measured remobilisation plans.
Early activities demonstrate that sales leads and gross
reservation rates are increasing in line with this gradual ramp up
plan. While we are passed the peak of the crisis, the financial
effect will be weighted towards H2. However, given the significant
level of ongoing uncertainty, the Board currently have little
visibility as to the expected FY20 outturn. Guidance therefore
remains suspended until we have greater clarity of the Covid-19
impact on the business and wider UK economy.
Throughout the pandemic, the independent retirement living
sector has proved to be a safe and happy place for older people,
and it is clear that it has an important role to play in the post
Covid-19 world. It provides an alternative 'Third Way' for those
needing assistance and there is now a real opportunity to redefine
how we support our ageing population in future. Our unique
proposition, unrivalled capability, strong brand and new land
opportunities, along with the heightened focus from policy makers,
ensures that we are well-placed to capitalise on this exciting
opportunity.
Financial Review
Revenue
The Group experienced challenging trading conditions during the
first six months of FY20, first impacted by the December 2019
General Election and then by the Covid-19 pandemic. The pandemic
has adversely affected our sales and caused disruption to our build
activities. Closure of sales offices and sites under construction
from mid-March, typically one of our busiest sales and construction
seasons, resulted in a significant decrease in our sales volumes.
Only three first occupations (2019: 15) were brought to market in
the period due to the pause in construction activity.
This resulted in a 64% reduction in revenue to GBP101.1m (2019:
GBP280.5m) during the first six months of FY20, reflecting a 44%
decrease in sales volumes to 391 legal completions (2019: 845) plus
80 rentals (2019: nil), recognised within other income, together
with a 7% reduction in the average selling price to GBP297k (2019:
GBP319k). Our revenue for the period included Freehold Reversionary
Interest (FRI) revenue of GBP3.9m (2019: GBP11.2m).
The Group's completions during the period included the sale of
135 units to Waverstone LLP, where McCarthy & Stone is a
non-controlling member. This comprises the sale of 41 show flats
and sales offices with a subsequent 12-month leaseback, and the
sale of 94 finished apartments and apartments under construction in
Scotland. The number of completions of 471 (2019: 845) is inclusive
of the delivery of 80 rental transactions (2019: nil) and 22 part
buy part rent transactions (2019: 12). We also delivered a further
25 'rent to buy' transactions (2019: nil).
Profit
Gross (loss)/profit was impacted by fixed costs within the
divisions and sales and marketing costs alongside increased empty
property costs. The site profit margin of c.25-26%, excluding the
bulk sale and rental income, is largely consistent with the prior
period.
In light of the challenging trading conditions the underlying
operating loss for the period was GBP24.8m (2019: GBP21.3m
underlying operating profit), whilst our underlying operating loss
margin decreased to 24.5% (2019: 7.6% underlying operating profit
margin).
Total administrative expenses for the period amounted to
GBP20.2m (2019: GBP19.5m), excluding exceptional items and
amortisation of brand, however they increased as a proportion of
revenue to 20% (2019: 7%).
Statutory operating loss for the period decreased to GBP89.2m
(2019: GBP6.0m operating profit) impacted by GBP63.4m (2019:
GBP14.3m) of exceptional costs - GBP60m one-off non-cash impairment
of goodwill and brand, plus GBP3m of Covid-19 and restructuring
costs. This in turn impacted our statutory operating loss margin
which decreased to 88.2% (2019: 2.1% operating profit margin).
Similarly, underlying profit before tax for the period decreased
to a loss of GBP26.9m (2019: GBP18.9m underlying profit before tax)
whilst the statutory loss before tax of GBP91.3m (2019: GBP3.6m
profit before tax) has also been impacted by GBP63.4m (2019:
GBP14.3m) of exceptional costs.
Impairment of goodwill and brand
Considering the impact of Covid-19 on business performance and
market capitalisation being below the carrying value of net assets,
management have concluded that a full impairment review of goodwill
and other intangibles should be undertaken at the half year
reporting date. Following this impairment test, the carrying value
of goodwill of GBP41.7m and the carrying value of brand of GBP18.7m
were written off in full. This gave rise to a charge of GBP60.4m
for the six months period ended 30 April 2020. The charge was
presented as an exceptional item.
Financing and net debt
The Group's rapid response to preserve liquidity position at the
start of Covid-19 pandemic and continuing focus on cash management
resulted in an available cash balance as at 30 April 2020 of
GBP146.5m (2019: GBP31.8m) and a net debt of GBP53.5m (2019:
GBP57.2m), notwithstanding a seed portfolio of 181 rentals on the
balance sheet. This resulted in a gearing of 8% (2019: 8%) at the
end of the period.
The Group holds a GBP200m Revolving Credit Facility ('RCF')
provided by Barclays, HSBC and RBS, which expires in March 2023.
This facility includes financial covenants which test the Group's
interest cover, gearing, tangible net asset value and restrictions
on the value of rental, shared ownership and part-exchange
properties held on the balance sheet. On 7 July the Group secured a
waiver of the interest cover banking covenant until April 2021 and
a relaxation in this covenant test for October 2021.
On 2 June 2020, the Group secured access to the HM Treasury and
Bank of England Covid Corporate Financing Facility ('CCFF') and has
put in place a GBP300m commercial paper programme under this
scheme. The facility will be used to provide additional liquidity
should it be required, however it remains undrawn.
Exceptional costs
Exceptional costs of GBP63.4m (2019: GBP14.3m) were incurred
during the period. They represented the cost of GBP60.4m goodwill
and brand impairment charge, GBP2.7m of costs incurred in relation
to the strategic restructuring and GBP0.3m of costs associated with
Covid-19.
Taxation
The effective tax rate was close to the statutory rate during
the period. The total tax credit for the period was GBP16.8m (2019:
GBP0.8m charge) reflective of the loss for the period. As at 30
April 2020, the Group recognised a deferred tax asset of GBP13.6m
(2019: GBP2.3m liability) representing the future utilisation of
current year trade losses at 19%.
Earnings per share and dividend
Underlying basic earnings per share decreased by 6.8p to a 4.1p
loss per share (2019: 2.9p profit per share) reflecting a decrease
in underlying loss before tax to GBP26.9m from a profit of GBP18.9m
in 2019. Basic earnings per share resulted in a 13.9p loss per
share (2019: 0.5p profit per share).
As announced on the 18 March, given the uncertainties
surrounding the remainder of the financial year and the need for
prudent cash management, the Board suspended the payment of the
final dividend of 3.5p per ordinary share (2019: 1.9p per
share).
Related party transaction
During the year, the Group completed the sale of a portfolio of
135 units to Waverstone LLP. This comprises the sale of 41 show
flats and sales offices with a subsequent 12-month leaseback, and
the sale of 94 finished apartments and apartments under
construction in Scotland.
Waverstone LLP is an entity between Waverley Investments Limited
and McCarthy & Stone Extra Care Limited, where McCarthy &
Stone Extra Care Living Limited holds a non-controlling 49% equity
interest and therefore has been treated as an associate in the
Group financial statements. Waverstone LLP was created to
facilitate the purchase, management and disposal of various assets
built by the Group. Waverstone LLP has appointed McCarthy &
Stone Management Services Limited a property manager and a sales
agent.
The transaction resulted in additional cash flow for the Group
of GBP13.0m with the remaining balance of GBP22.0m expected to be
paid over 3 years. The half year underlying operating loss for the
Group includes GBP1.7m loss from the transaction, after taking
account of unrealised profit and fair value adjustments in relation
to the outstanding receivable balance.
RISK MANAGEMENT
Risk Overview
Effective risk management is fundamental to the successful
delivery of the Group's strategic objectives. The Group identifies
and manages risk in line with its Risk Management Framework. 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.
Covid-19
The Covid-19 pandemic has had, and continues to impact on our
people, business model, business performance and the economic
environment in which we operate and has led the Group to invoke a
number of business continuity procedures to manage the immediate
impact of the pandemic.
Actions taken to manage the risk posed by Covid-19 include:
ü Weekly operational and Executive committees set up and focused
on
o understanding and managing the implication of the pandemic on
our business model
o understanding emerging exposures to the developing and
evolving situation
o defining and agreeing actions to mitigate as far as possible
any adverse impacts to our business and customers
o ensuring timely and effective communication to our customers,
staff and other stakeholders
ü Buddy scheme with c.500 volunteers, looking after the
wellbeing of our c.20,000 customers created and operationalised
ü Introduction of various measures to protect the health and
safety of our staff, ensuring continuity of critical services for
our customers; measures are continually evaluated and adjusted to
reflect Public Health England and UK Government guidelines
ü Response planning to manage any unavailability of key
resources on our developments, ensuring our customers are cared
for
ü Close dialogue with our critical suppliers, with sufficient
PPE inventories held to deal with all anticipated scenarios
ü Implementing a comprehensive business remobilisation plan
ü Preparation and implementation of a detailed set of working
practices and protocols for when we started to return to sites from
8 June 2020
ü Maximising liquidity through:
o Reduced operating expenditure across the business and head
office functions
o Executive Board members and senior leadership team taking
voluntary 20% reduction in salary
o c.640 staff on furlough between 1 April and 30 June 2020, with
appropriate claim made against the Government job retention
scheme
o Final dividend payment for 2019 of 3.5p suspended
o Secured additional GBP300m liquidity through access to the HM
Treasury and Bank of England Covid Corporate Financing Facility
('CCFF')
o Full drawdown of GBP200m revolving credit facility
o Secured relaxation of the interest cover banking covenant to
October 2021.
Beyond the immediate impact of Covid-19, a forecasted recession
in the UK and global economies is likely to have an impact on the
business over the next few years. The Group will continue to
monitor the impact of the pandemic and the business plan is being
continually assessed through comprehensive scenario planning to
manage risks as they arise.
UK withdrawal from the EU
With discussions continuing between the UK and the EU to agree
suitable trading arrangements following the transitional period
which the UK Government has said ceases at the end of 2020, and the
associated risk of no agreement being reached, there may be a
period of uncertainty and a reduced level of consumer confidence,
which may also impact other Principal Risks. Scenario planning has
incorporated various outcomes in order for the Board to assess the
potential situations and make informed decisions.
Principal risks and uncertainties
As part of the Group's Risk Management Framework, Principal
Risks and uncertainties have been identified that could prevent the
Group from achieving its strategic objectives and how these risks
could be effectively mitigated to an acceptable level, its risk
appetite. These risks are reviewed, updated and approved on a
regular basis by the Group's Executive and Risk & Audit
Committees.
Detail on the Group's Principal Risks, and how they are managed
is available in the McCarthy & Stone plc Annual Report 2019 or
online at www.mccarthyandstonegroup.co.uk, with the exception the
new Pandemic principal risk, which is detailed below.
All the Group's principal risks and uncertainties have been
reviewed in light of the impact of Covid-19, while the pandemic has
potential to impact them all, the most material impacts on the
Group's Principal Risks are detailed in the table below:
Principal Risk Key Mitigating Actions
Pandemic's (new)
An epidemic or pandemic of an Business continuity plans have
infectious disease (either a second been strengthened following learnings
wave of Covid-19 or the emergence from the current situation.
of a new disease) may lead to
the imposition of Government controls, Maintenance of a strong balance
including social distancing, on sheet able to withstand a sustained
the movement of people with the period of complete or partial
associated cessation of large cessation of business activity.
parts of the economy for a significant
period of time. The cessation
of business will lead to reduced
business activity and revenues
until normal sales and construction
activity can be safely recommenced.
--------------------------------------------
Economic
House building is cyclical and A review is underway across all
reliant on the state of the economy. aspects of the Group's business
A recession could have a significant model to provide greater resilience
impact on ability to deliver against against any potential recession
the Group's strategic objectives. and minimise the impact on its
financial position and performance.
Current indications are that as
a direct result of the Covid-19 Investment in land, levels of
pandemic, there is an increased committed expenditure and production
risk of a global recession, which programmes are all carefully targeted,
could impact the Group adversely. monitored and continually assessed
against market conditions. The
business is equipped and has demonstrated
in light of the current pandemic
that it maintains flexibility
to react swiftly, when necessary
to changes in market conditions.
--------------------------------------------
Liquidity & Funding
The inability to sell apartments Capital, funding and liquidity
during the lockdown and the extended are all subject to extensive stress
duration of shielding and protective testing with the results informing
measures our customers may take, the levels of capital and liquidity
due to them being at increased that are required to be held in
risk, may have an increased risk the event of adverse conditions.
on the Group's liquidity and funding
position in the future. Sales and marketing initiatives
have been developed and will be
rolled out across all sales sites,
which will improve the proposition
to customers and facilitate improved
sales rates in the future.
--------------------------------------------
Health & Safety
The safety of our customers, employees The Group is following all Government
and contractors has always been advice with most employees working
and will continue to be the Group's from home where possible, and
priority. social distancing and additional
cleaning measures are in place
There is an impact on staff health to support key workers based in
from risk of illness and in addition our developments and offices.
to longer term well-being risks, The Group is ensuring that individuals
such as mental health impacts, are protected through
which may arise from societal adhering to the Government's physical
factors. These factors could also and health measures, while recognising
increase pressure and reduce skills there is uncertainty surrounding
availability in key areas. timing of their removal or relaxation.
Our customers are at an increased Significant and decisive actions
risk of Covid-19 due their age have been taken to mitigate the
profile, which could also add risk to our customers, introducing
additional pressures to the business an early lockdown, clear and frequent
model. homeowner guidance, strict hygiene
measures and restrictions to movements
on and around our developments
which we manage and engaging c.500
volunteers as part of our buddy
scheme to ensure they have the
support needed.
Significant investment in Personal
Protective Equipment has also
reduced the contagion of Covid-19
amongst our customers, contractors
and employees.
--------------------------------------------
Operational & Technology
Increased remote working, the There is additional focus on business
implementation of new continuity and potential fraud
processes and the pressure on monitoring within our technology
customer care and support all function.
have the potential to increase
the Group's operational risk levels, A significant amount of work has
which in turn could lead to subsequent been undertaken to enable and
loss. improve home working conditions
and network capacity.
Enabling working from home could
increase risk of internal fraud, Incident and issue management
which may arise as a result of and escalation governance structures
unauthorised access to critical and processes are in place with
systems and data. There is an oversight from the Executive and
increased risk of cyber-attacks, Risk & Audit Committees.
due to phishing emails which use
a Covid-19 theme, and breaches Potential customers are now able
could have legal and privacy implications. to visit our developments on a
pre-booked and pre-qualified basis
There is an increased risk of - with strict guidelines in place
fraud, as fraudsters take to maximise safety, customers
advantage of the vulnerabilities are also now able to purchase
created by the current apartments over the telephone
situation. with the use of virtual tools
and detailed plans.
--------------------------------------------
Build programmes and cost
All build programmes were halted While continuing to respect additional
during March 2020 as a direct Government guidelines in light
result of the Covid-19 pandemic. of the pandemic, remobilisation
This will have an impact on workflow plans have been drawn up for all
and sales releases to market in sites in the workflow pipeline
the future, both having a potential and build has commenced on a number
adverse impact on profitability of sites across the country.
and liquidity.
--------------------------------------------
Emerging risks
The Groups Risk Management Framework provides for an ongoing
identification and assessment of potential emerging risks.
Emerging Risk Key Mitigating Actions
Sustainability and Climate Change
The effects of climate change The Group has appointed a Group
and associated future legislative Non-Executive Director as Chair
requirements may potentially have of the Corporate, Social Responsibility
an impact on our business model (CSR) Committee and restructured
and the way we work in the future. the agenda and members to ensure
appropriate focus and attention
The pandemic has enhanced the is given to ESG strategy and initiatives
public's focus on building more across the Group.
sustainable businesses in the Revised ESG objectives and targets
future, which may require greater are being developed in line with
investment in our economic, social the United Nations Sustainability
and sustainability agenda. goals and these will be set over
the short, medium and long term.
The Group CSR team identifies
strategic climate change risks
and opportunities facing the business
through regular review of issues
and trends, working in active
collaboration with external experts.
We welcome the recommendations
from the Financial Stability Board's
Task Force on Climate-related
Financial Disclosures (TCFD) and
are taking action to implement
these over time through the evolvement
of our processes and reporting.
-------------------------------------------
McCarthy & Stone plc
Condensed Consolidated Statement of Comprehensive Income
For the half year ended 30 April 2020 (unaudited)
14 month
Half year Half year period ended
ended ended
30 April 28 February 31 October
2020 2019 2019
(unaudited) (unaudited) (audited)
Notes GBPm GBPm GBPm
------------------------------------ ------ -------------- -------------- --------------
Revenue 2 101.1 280.5 725.0
Cost of sales (109.0) (241.5) (620.1)
Gross (loss)/profit (7.9) 39.0 104.9
Other operating income 106.8 64.5 238.1
Administrative expenses (84.6) (34.8) (64.1)
Other operating expenses (103.5) (62.7) (230.5)
------------------------------------ ------ -------------- -------------- --------------
Operating (loss)/profit (89.2) 6.0 48.4
Amortisation of brand (1.0) (1.0) (2.4)
Exceptional items (63.4) (14.3) (17.3)
Underlying operating (loss)/profit 3 (24.8) 21.3 68.1
Finance income 0.5 0.3 1.0
Finance expense (2.6) (2.7) (6.0)
(Loss)/profit before tax (91.3) 3.6 43.4
Income tax credit/(expense) 4 16.8 (0.8) (8.5)
(Loss)/profit for the period
from continuing operations
and total comprehensive income 3 (74.5) 2.8 34.9
(Loss)/profit attributable
to
Owners of the Company (74.5) 2.7 35.1
Non-controlling interests - 0.1 (0.2)
------------------------------------ ------ -------------- -------------- --------------
(74.5) 2.8 34.9
Earnings per share
Basic (p per share) 11 (13.9) 0.5 6.5
Diluted (p per share) 11 (13.9) 0.5 6.5
Notes 1 to 16 form part of the Condensed Consolidated Financial
Statements shown above. All trading derives from continuing
operations.
Adjusted measures
Underlying operating (loss)/profit 3 (24.8) 21.3 68.1
Underlying (loss)/profit
before tax 3 (26.9) 18.9 63.1
McCarthy & Stone plc
Condensed Consolidated Statement of Financial Position
As at 30 April 2020 (unaudited)
14 month
Half year Half year period ended
ended ended
30 April 28 February 31 October
2020 2019 2019
(unaudited) (unaudited) (audited)
Notes GBPm GBPm GBPm
------------------------------- ------ -------------- -------------- --------------
Assets
Non-current assets
Goodwill 5 - 41.7 41.7
Intangible assets 5 4.3 25.2 24.2
Property, plant and equipment 1.1 1.9 1.3
Right of use assets 7.5 - -
Investments in joint ventures 0.4 0.4 0.4
Investment properties 51.2 0.2 28.5
Deferred tax asset 13.6 - -
Other receivables 58.9 25.3 43.0
Total non-current assets 137.0 94.7 139.1
Current assets
Inventories 6 709.0 826.6 724.9
Trade and other receivables 13.5 10.2 12.9
UK corporation tax 0.6 - -
Cash and cash equivalents 146.5 31.8 36.7
Total current assets 869.6 868.6 774.5
Total assets 1,006.6 963.3 913.6
Equity and liabilities
Capital and reserves
Share capital 43.0 43.0 43.0
Share premium 101.6 101.6 101.6
Retained earnings 550.5 602.1 624.4
Equity attributable to owners
of the Company 695.1 746.7 769.0
Non-controlling interest - 1.4 -
Total equity 695.1 748.1 769.0
Current liabilities
Trade and other payables 77.4 94.1 94.6
UK corporation tax - 0.9 3.7
Land payables 28.5 30.1 34.1
Lease liabilities 1.6 - -
Short-term borrowings 7 - 10.0 -
Total current liabilities 107.5 135.1 132.4
Non-current liabilities
Long-term borrowings 7 198.1 77.8 9.6
Lease liabilities 5.9 - -
Deferred tax liability - 2.3 2.6
Total liabilities 311.5 215.2 144.6
Total equity and liabilities 1,006.6 963.3 913.6
Notes 1 to 16 form part of the Condensed Consolidated Financial
Statements shown above.
McCarthy & Stone plc
Condensed Consolidated Statement of Changes in Equity
For the half year ended 30 April 2020 (unaudited)
Share Share Retained Total Non-controlling Total
capital premium earnings interest equity
Notes GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------- ------ --------- --------- ---------- ------- ---------------- --------
Balance at 31 August 2018
(audited) 43.0 101.6 617.5 762.1 1.3 763.4
Profit for the period - - 2.7 2.7 0.1 2.8
Total comprehensive income
for the period - - 2.7 2.7 0.1 2.8
Transactions with owners
of the Company:
Share-based payments - - 0.7 0.7 - 0.7
Dividends 12 - - (18.8) (18.8) - (18.8)
Balance at 28 February 2019
(unaudited) 43.0 101.6 602.1 746.7 1.4 748.1
Profit for the period - - 32.4 32.4 (0.3) 32.1
Total comprehensive income
for the period - - 32.4 32.4 (0.3) 32.1
Transactions with owners
of the Company:
Share-based payments - - 0.7 0.7 - 0.7
Dividends 12 - - (10.5) (10.5) - (10.5)
Acquisition of NCI without
a change in control - - (0.3) (0.3) (1.1) (1.4)
Balance at 31 October 2019
(audited) 43.0 101.6 624.4 769.0 - 769.0
Loss for the period - - (74.5) (74.5) - (74.5)
Total comprehensive loss
for the period - - (74.5) (74.5) - (74.5)
Transactions with owners
of the Company:
Share-based payments - - 0.6 0.6 - 0.6
Dividends 12 - - - - - -
Balance at 30 April 2020
(unaudited) 43.0 101.6 550.5 695.1 - 695.1
Notes 1 to 16 form part of the Condensed Consolidated Financial
Statements shown above.
McCarthy & Stone plc
Condensed Consolidated Cash Flow Statement
For the half year ended 30 April 2020 (unaudited)
14 month
Half year Half year period ended
ended ended
30 April 28 February 31 October
2020 2019 2019
(unaudited) (unaudited) (audited)
Notes GBPm GBPm GBPm
--------------------------------------- ------ -------------- -------------- --------------
Net cash (outflow)/inflow from
operating activities 8 (55.1) (41.7) 81.4
Investing activities
Purchases of property, plant
and equipment (0.2) (0.3) (0.4)
Purchases of intangible assets (0.2) (0.4) (1.4)
Proceeds from sale of property,
plant and equipment - - 0.1
Outflows in relation to investment
properties (22.7) - (28.3)
Net cash used in investing activities (23.1) (0.7) (30.0)
Financing activities
Issue of long-term borrowings 195.0 90.0 214.0
Repayment of long-term borrowings (7.0) (54.0) (255.0)
Dividends paid - (18.8) (29.3)
Acquisition of non-controlling
interests - - (1.4)
Net cash from/(used in) financing
activities 188.0 17.2 (71.7)
Net increase/(decrease) in cash
and cash equivalents 109.8 (25.2) (20.3)
Cash and cash equivalents at
beginning of the period 36.7 57.0 57.0
Cash and cash equivalents at
end of the period 146.5 31.8 36.7
Notes 1 to 16 form part of the Condensed Consolidated Financial
Statements shown above.
McCarthy & Stone plc
Notes to the Condensed Consolidated Half Yearly Financial
Statements
For the half year ended 30 April 2020 (unaudited)
1. Accounting policies
Basis of preparation
McCarthy & Stone plc is a public Company limited by shares
incorporated in England and Wales under the Companies Act 2006.
These Condensed Consolidated Half Yearly Financial Statements
are unaudited and were authorised for issue by the Board on 14 July
2020.
These Condensed Consolidated Half Yearly Financial Statements
have been prepared in accordance with IAS 34 'Interim Financial
Reporting' as adopted by the European Union and the Disclosure and
Transparency Rules of the Financial Conduct Authority.
The information for the 14 month period ended 31 October 2019
does not constitute statutory accounts within the meaning of
section 434 of the Companies Act 2006. The Half Yearly Financial
Statements should be read in conjunction with the Annual Report and
Accounts, for the 14 month period ended 31 October 2019, which were
prepared in accordance with International Financial Reporting
Standards as adopted by the European Union ('EU IFRS') and those
parts of the Companies Act 2006 applicable to companies reporting
under IFRS. The Annual Report and Financial Statements for the 14
month period ended 31 October 2019 were approved by the Board of
Directors on 27 January 2020 and delivered to the Registrar of
Companies. The auditor's report on those Financial Statements was
unqualified, did not contain an emphasis of matter paragraph and
did not contain any statement under section 498(2) or (3) of the
Companies Act 2006.
Going concern
As a result of future economic uncertainty created by Covid-19,
the Group has carefully considered its liquidity position. To
preserve the liquidity of the business and maintain a strong cash
position, several cash optimisation measures have been put in
place.
On 18 March 2020, the Board announced the withdrawal of the
final dividend payment of 3.5p per ordinary share, resulting in a
cash saving of c.GBP19m. In addition, the Group has taken action to
fully draw down its GBP200m Revolving Credit Facility (RCF).
As announced on 25 March 2020, from mid-March the Group paused
all build activity across its entire development programme. We also
paused our land spend and contractually committed land spend has
been reviewed and minimised where possible. All marketing activity
was paused and on-site sales offices were closed.
Employees impacted by these actions were either redeployed to
support our homeowners as the additional demand for our services
significantly increased or placed on furlough as they qualified for
support under the Government's Coronavirus Job Retention Scheme.
c.640 staff across sales, construction and head office functions
were furloughed since April 2020 (a proportion of which have now
returned), while all members of the Board and wider leadership team
have taken a voluntary 20% salary reduction.
Taking into account the reduced cash burn rate from the above
cash saving measures and RCF availability, the Group announced that
the business would be able to operate with no sales revenue for a
period of c.2.5 years.
On 30 April 2020, the Group completed a portfolio sale of 135
apartments to Waverstone LLP, generating c.GBP13m cash.
On 2 June 2020, the Group secured access to the HM Treasury and
Bank of England Covid Corporate Financing Facility ('CCFF') and has
put in place a GBP300m commercial paper programme under this
scheme. This facility, which is a 12 month instrument from the
point of draw down, can be drawn at any time until 23 March
2021.
The Group holds a GBP200m Revolving Credit Facility provided by
Barclays, HSBC and RBS, which expires in March 2023. This facility
includes financial covenants which test the Group's interest cover,
gearing, tangible net asset value and restrictions on the value of
rental, shared ownership and part-exchange properties held on the
balance sheet.
On 7 July 2020, the Group secured a waiver of the interest cover
banking covenant until April 2021 and a relaxation in this covenant
test for October 2021.
On 2 June 2020, we announced a phased return to construction and
sales activity from 8 June 2020. As part of this remobilisation
planning, management have undertaken a detailed review of the
previous business plan to allow for a gradual re-opening of sales
offices and construction sites together with a phased
reintroduction of marketing activity and land purchasing ensuring
that the Group is able to m aintain sufficient cash headroom in
order to navigate through a prolonged impact from a possible second
wave of Covid-19.
In stress testing the cash flows of the business, management has
modelled a single combined downside scenario demonstrating a
prolonged impact of Covid-19 with a further 16% volume reduction
together with a further 7% house price deflation and normal sales
conditions not returning until June 2021. As part of the systematic
remobilisation of the Group's sales, we are seeing this activity
gradually increasing in line with a phased ramp up plan reflecting
vulnerability of our customer base.
The single combined downside scenario also reflects the impact
of an increased build cost inflation and its continuation into
FY22. In addition, management have modelled a delay of the sale of
the first rental tranche to June 2021 and lower FRI multiples.
Principal mitigation actions have been modelled such as curtailing
land purchasing, delaying build starts and a reduction in bonuses,
marketing costs and staff levels. As already demonstrated in March
2020 such mitigating actions are within management's control and
the business closely monitors appropriate lead indicators to
implement these actions in sufficient time to achieve the required
cash preservation impact.
Despite the combined impact of the above downside assumptions,
the stress testing model demonstrates that the business is able to
maintain a positive cash headroom and that the Group does not
envisage taking advantage of the CCFF facility throughout the going
concern assessment period. The facility could be used to provide
standby liquidity should it be required, however to date it remains
undrawn and management do not currently envisage the need to
drawdown.
The remobilisation plan and the stress testing models also
support sufficient headroom for compliance with the RCF covenants
throughout the going concern assessment period, except for the
interest cover covenant. To ensure no breach of the interest cover
covenant the Group has secured an interest cover waiver until April
2021 and a relaxation of the interest cover covenant as at October
2021.
The Directors consider that the Group has adequate resources in
place for at least 12 months from the date of these results and
have therefore adopted the going concern basis of accounting in
preparing the interim financial statements.
Accounting policies
The unaudited Condensed Consolidated Half Yearly Financial
Statements have been prepared using accounting policies consistent
with those applied in the preparation of the Group's Annual Report
and Accounts for the 14 month period ended 31 October 2019, with
the exception of the adoption of new accounting standards as
disclosed below. The Group for the first time has accounted for
government grants for which the accounting policy has been
disclosed:
Government grants
Grants have been received for furlough payments under the
Government's Coronavirus Job Retention Scheme. Commencing in April
2020, the Group have claimed under this scheme and recognise the
income received as a deduction to the related expense in the period
incurred. Where grant income is outstanding at the period end date,
subsequent to a claim being made, the balance is shown on the
Consolidated Statement of Financial Position within 'trade and
other receivables'. The total grant income in the period amount to
GBP1.1m (2019: GBPnil).
New standards, amendments and interpretations that have been
published and are therefore mandatory for the Group's accounting
periods beginning on or after 1 November 2018 and later periods are
disclosed on page 132 of the Annual Report for the 14 month period
ended 31 October 2019 . During the period the Group has adopted the
following new and revised standards and interpretations:
IFRS 16 'Leases'
IFRS 16 replaces IAS 17 'Leases', IFRIC 4 'Determining whether
an Arrangement contains a Lease', SIC-15 'Operating
Leases-Incentives' and SIC-27 'Evaluating the Substance of
Transactions Involving the Legal Form of a Lease' and was effective
for the Group from 1 November 2019. This standard brings
significant changes to the accounting of leases by lessees. IFRS 16
requires the recognition of a 'right-of-use' asset and a
corresponding lease liability on the Statement of Financial
Position of the lessee. In the Statement of Comprehensive Income,
the previous operating lease charges (the majority of which were
previously recognised within operating profit) have been replaced
by a depreciation charge against the 'right-of-use' asset.
Additionally, interest costs in relation to the lease liabilities
have been recognised within finance expenses. The impact on the
Consolidated Statement of Comprehensive Income is not a material
change.
IFRS 16 has been applied using the modified retrospective
transition approach, whereby the Group has measured right-of-use
assets at an amount equal to the lease liabilities on the date of
transition.
GBPm
---------------------- -----
Assets
Right of use assets 7.6
Liabilities
Lease liabilities 7.6
Net impact on equity -
The Group continues to take advantage of several practical
expedients available to lessees. These exemptions are:
-- Exclusion of all leases with term dates that end within 12
months of the date of application
-- Exclusion of low value leases (e.g. printers and laptops)
-- Application of a single discount rate to a portfolio of
leases with reasonably similar characteristics
There were no other key estimates or judgements made in
assessing the impact of IFRS 16 on the Group.
Other standards and interpretations
Annual Improvements to IFRS Standards 2015-2017 Cycle and
Amendment to IAS 28 'Investments in Associates and Joint Ventures'
have also been adopted but have not had a material impact on the
Group.
Critical accounting judgements and key sources of estimation
uncertainty
In the application of the Group's accounting policies, which are
described within the Annual Report and Accounts for the 14 month
period ended 31 October 2019, the Directors are required to make
judgements, estimates and assumptions about the carrying amounts of
assets and liabilities that are not readily apparent from other
sources. The estimates and associated assumptions are based on
historical experience and other factors that are considered to be
relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period, or in the period of the revision and future
periods if the revision affects both current and future
periods.
The critical judgements identified at the period end, as
included in the Annual Report and Accounts for the 14 month period
ended 31 October 2019, remain the same. The Annual Report 2019 can
be obtained from the Group's registered office or
www.mccarthyandstonegroup.co.uk.
2. Revenue
30 April 2020 28 February 31 October
(unaudited) 2019 (unaudited) 2019 (audited)
GBPm GBPm GBPm
---------------------------------- ------------------------------------ ------------------ ----------------
Unit sales - external customers 79.8 269.3 677.6
Unit sales - revenue from an
associate 15.4 - 16.7
FRI revenue 3.9 11.2 30.3
Rental revenue 2.0 - 0.4
101.1 280.5 725.0
3. (Loss)/profit for the year
Reconciliation to underlying operating (loss)/profit and
(loss)/profit before tax
The following tables present a reconciliation between the
statutory profit measures disclosed on the Condensed Consolidated
Statement of Comprehensive Income and the underlying measures used
by the Board to appraise performance.
Exceptional items are unusual to the normal activity of the
Group, are of significant cost and non-recurring and therefore have
been separately classified by the Directors in order to draw them
to the attention of the reader.
Adjusted cost items are items which are quantitively or
qualitatively material and are presented separately within the
Consolidated Statement of Comprehensive Income. The Directors are
of the opinion that the separate presentation of these items
provides helpful information about the Group's underlying business
performance. Amortisation of brand has been adjusted in order to
reconcile to underlying operating profit and underlying profit
before tax given the Directors do not believe this cost reflects
the underlying trading of the business.
Half year ended 30 April 2020 (unaudited)
Exceptional Amortisation
Statutory items of brand Underlying
Notes GBPm GBPm GBPm GBPm
--------------------------------- ------ ---------- ------------ ------------- -----------
Operating (loss)/profit (89.2) 63.4 1.0 (24.8)
Finance income 0.5 - - 0.5
Finance expense (2.6) - - (2.6)
(Loss)/profit before
tax (91.3) 63.4 1.0 (26.9)
Income tax credit/(expense) 16.8 (12.0) (0.2) 4.7
(Loss)/profit for the
year (74.5) 51.4 0.8 (22.3)
Attributable to non-controlling
interests - - - -
Attributable to owners
of the Company (74.5) 51.4 0.8 (22.3)
Earnings per share
Basic (p per share) 11 (13.9) 9.6 0.2 (4.1)
Diluted (p per share) 11 (13.9) 9.6 0.2 (4.1)
The exceptional costs in H1 2020 represent the cost of land
which will no longer be developed net of any residual land value to
be recovered of GBP0.4m (H1 2019: GBP6.3m; FY19: GBP7.2m),
redundancy costs of GBP2.1m (H1 2019: GBP3.5m; FY19: GBP3.8m),
consultants' fees in relation to the strategic review of GBP0.2m
(H1 2019: GBP4.5m; FY19: GBP6.3m) and COVID-19 related costs of
GBP60.7m (H1 2019: GBPnil; FY19: GBPnil), which incorporates
goodwill impairment of GBP41.7m and brand impairment of
GBP18.7m.
Covid-19 related costs are deemed to be those which are directly
attributable to the coronavirus outbreak and are both: a)
incremental to costs incurred prior to the outbreak and not
expected to recur once the crisis has subsided and operations
return to normal; and b) clearly separable from normal
operations.
Half year ended 28 February 2019 (unaudited)
Exceptional Amortisation
Statutory items of brand Underlying
Notes GBPm GBPm GBPm GBPm
--------------------------------- ------ ---------- ------------ ------------- -----------
Operating profit 6.0 14.3 1.0 21.3
Finance income 0.3 - - 0.3
Finance expense (2.7) - - (2.7)
Profit before tax 3.6 14.3 1.0 18.9
Income tax expense (0.8) (2.7) (0.2) (3.7)
Profit for the year 2.8 11.6 0.8 15.2
Attributable to non-controlling
interests 0.1 - - 0.1
Attributable to owners
of the Company 2.7 11.6 0.8 15.1
Earnings per share
Basic (p per share) 11 0.5 2.2 0.2 2.9
Diluted (p per share) 11 0.5 2.2 0.2 2.9
14 months to 31 October 2019 (audited)
Exceptional Amortisation
Statutory items of brand Underlying
Notes GBPm GBPm GBPm GBPm
--------------------------------- ------ ---------- ------------ ------------- -----------
Operating profit 48.4 17.3 2.4 68.1
Finance income 1.0 - - 1.0
Finance expense (6.0) - - (6.0)
Profit before tax 43.4 17.3 2.4 63.1
Income tax expense (8.5) (3.3) (0.5) (12.3)
Profit for the year 34.9 14.0 1.9 50.8
Attributable to non-controlling
interests (0.2) - - (0.2)
Attributable to owners
of the Company 35.1 14.0 1.9 51.0
Earnings per share
Basic (p per share) 11 6.5 2.6 0.4 9.5
Diluted (p per share) 11 6.5 2.6 0.4 9.5
4. Income tax credit/(expense)
14 month
Half year Half year period ended
ended ended
30 April 28 February 31 October
2020 2019 2019
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
------------------------------------- ---------------- -------------- --------------
Corporation tax charges:
Current year - 0.6 7.9
Adjustments in respect of prior
periods (0.6) - 0.1
Deferred tax charges:
Current year (15.8) 0.1 0.6
Adjustments in respect of prior
periods (0.4) 0.1 (0.1)
Tax (credit)/charge for the period (16.8) 0.8 8.5
The tax charge for each period can be reconciled to the profit
per the Condensed Consolidated Statement of Comprehensive Income as
follows:
14 month
Half year Half year period ended
ended ended
30 April 28 February 31 October
2020 2019 2019
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
------------------------------------ ------------- -------------- --------------
(Loss)/profit before tax (91.3) 3.6 43.4
Tax (credit)/charge at the UK
corporation tax rate of 19%
(2019: 19%) (17.3) 0.7 8.2
Tax effect of:
Expenses that are not deductible
in determining taxable profit 0.1 - 0.2
Share options timing difference 0.1 - 0.1
Adjustments in respect of prior
periods 0.3 0.1 -
Tax (credit)/charge for the period (16.8) 0.8 8.5
The main rate of corporation tax is 19% (2019: 19%). The UK
deferred tax liabilities at 30 April 2020 have been calculated
based on the appropriate rate at which the asset/liability will
unwind.
The movement in deferred tax represents the future utilisation
of current year trade losses at 19%.
5. Goodwill and intangible assets
Goodwill Brand Software Total
GBPm GBPm GBPm GBPm
------------------------ --------- ------- --------- -------
Cost
At 1 November 2019 41.7 41.4 7.0 48.4
Additions - - 0.2 0.2
At 30 April 2020 41.7 41.4 7.2 48.6
Amortisation
At 1 November 2019 - (21.7) (2.5) (24.2)
Charge for the period - (1.0) (0.4) (1.4)
Impairment (41.7) (18.7) - (18.7)
At 30 April 2020 (41.7) (41.4) (2.9) (44.3)
Carrying amount
At 30 October 2019 41.7 19.7 4.5 24.2
At 30 April 2020 - - 4.3 4.3
Goodwill arose as a result of an acquisition in 2009 of the
assets and liabilities of Monarch Realisations 1 plc. The Group
tests goodwill and intangible assets for impairment annually or
where there is an indication that goodwill might be impaired. For
the purpose of impairment testing, goodwill is allocated to
McCarthy & Stone (Developments) Limited.
Brand assets represent the McCarthy & Stone brand name
purchased as part of the business combination in 2009.
In light of the recent global impact of Covid-19 and its impact
on McCarthy & Stone's operations, management have undertaken
full impairment review of goodwill and other intangible assets at
the half year reporting date.
The recoverable amount of the Group's net assets of GBP695m was
determined by an impairment test of the fair value less the cost of
disposal of the CGU, being higher than the CGU's value in use. The
fair value measurement was based on the Group's share price
adjusted for management's view of the achievable control
premium.
Following this impairment test, the carrying value of goodwill
of GBP41.7m and the carrying value of brand of GBP18.7m were
written off in full. This gave rise to a charge of GBP60.4m for the
six months period ended 30 April 2020. The charge was presented in
operating loss as an exceptional item in relation to Covid-19.
6. Inventories
30 April 2020 28 February 31 October
(unaudited) 2019 (unaudited) 2019 (audited)
GBPm GBPm GBPm
-------------------------------------- -------------- ------------------ ----------------
Land held for development 89.3 90.2 57.6
Sites in the course of construction 252.2 299.2 179.6
Finished stock 323.4 381.4 393.9
Part-exchange properties 44.1 55.8 93.8
709.0 826.6 724.9
7. Borrowings
Short-term borrowings
30 April 28 February 31 October
2020 (unaudited) 2019 (unaudited) 2019 (audited)
GBPm GBPm GBPm
----------------- ------------------ ------------------ ----------------
Promissory notes - 10.0 -
- 10.0 -
Promissory notes are related to land purchases and are
classified as borrowings due to the substance of their contractual
arrangements.
Long-term borrowings
30 April 28 February 31 October
2020 (unaudited) 2019 (unaudited) 2019 (audited)
GBPm GBPm GBPm
------------------- ------------------ ------------------ ----------------
Loans 200.0 79.0 12.0
Unamortised issue
costs (1.9) (1.2) (2.4)
198.1 77.8 9.6
Outstanding Outstanding Outstanding
at at at
30 April 28 February 31 October
2020 2019 (unaudited) 2019 (audited)
(unaudited)
Maturity GBPm GBPm GBPm
------------------ ------------ ------------- ------------------ ----------------
Revolving Credit
Facility March 2023 200.0 79.0 12.0
The RCF is secured by a floating charge over the assets of
McCarthy & Stone plc, McCarthy & Stone Retirement
Lifestyles Limited, McCarthy & Stone (Developments) Limited,
McCarthy & Stone Extra Care Living Limited, McCarthy &
Stone Total Care Management Limited, McCarthy & Stone Rental
Properties Limited and McCarthy & Stone Rental Properties No.2
Limited.
Net debt/(cash)
30 April 28 February 31 October
2020 2019 (unaudited) 2019 (audited)
(unaudited)
GBPm GBPm GBPm
--------------------------------- ------------- ------------------ ----------------
Loans and borrowings 198.1 87.8 9.6
Add back unamortised debt issue
costs 1.9 1.2 2.4
Cash and cash equivalents (146.5) (31.8) (36.7)
Net debt/(cash) 53.5 57.2 (24.7)
8. Notes to the Condensed Consolidated Cash Flow Statement
14 month
Half year Half year period ended
ended ended
30 April 28 February 31 October
2020 2019 2019
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
---------------------------------------- -------------- -------------- --------------
(Loss)/profit for the financial
period (74.5) 2.8 34.9
Adjustments for:
Income tax (credit)/expense (16.8) 0.8 8.5
Amortisation of intangible assets 1.4 1.3 3.2
Impairment of goodwill 41.7 - -
Impairment of brand 18.7 - -
Share-based payment charge 0.6 0.7 1.4
Depreciation of property, plant
and equipment 1.3 0.5 1.1
Finance expense 2.6 2.7 6.0
Finance income (0.5) (0.3) (1.0)
Revaluation of inventories to
investment properties (4.1) - (6.6)
Loss/(profit) from a transaction
with related party 1.7 - (2.7)
Operating cash flows before movements
in working capital (27.9) 8.5 44.8
(Increase)/decrease in trade
and other receivables (18.7) 14.7 (5.8)
Decrease/(increase) in inventories 11.8 (9.1) 99.2
(Decrease) in trade and other
payables (15.2) (47.4) (42.4)
Cash (used in)/generated by operations (49.9) (33.3) 95.8
Interest received - 0.1 0.1
Interest paid (1.5) (2.3) (3.7)
Income taxes paid (3.7) (6.2) (10.8)
Net cash (outflow)/inflow from
operating activities (55.1) (41.7) 81.4
14 month
Half year Half year period ended
ended ended
30 April 28 February 31 October
2020 2019 2019
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
--------------------------- -------------- -------------- --------------
Cash and cash equivalents 146.5 31.8 36.7
9. Segmental analysis
The Board regularly reviews the Group's performance and balance
sheet position for its entire operations, which are based in its
country of domicile, the UK, and receives financial information for
the UK as a whole. As a consequence, the Group has one reportable
segment which is UK housebuilding. As there continues to be only
one reportable segment whose revenue, profits, expenses, assets,
liabilities and cash flows are measured and reported on a basis
consistent with the Group financial statements, no additional
detailed segment information has been presented.
10. Seasonality
In common with the rest of the UK housebuilding industry,
activity occurs throughout the year, but is subject to the main
house selling seasons of Spring and Summer. As the majority of
these seasons fall in the second half of the Group's financial
year, the Group's results are typically weighted to the second half
of the financial year. As a result of the impact of Covid-19, this
seasonality may not be reflective of the trading pattern in the
current financial year and while we are past the peak of the
crisis, the financial impact will be weighted towards H2.
The current period financial statements report the six months
ended 30 April 2020, in comparison with the deemed equivalent six
month period ended 28 February 2019, being the first six months of
the accounting year. These are therefore are not entirely
comparable.
11. Earnings per share
Basic earnings per share are calculated as the profit for the
financial period attributable to shareholders of the Group divided
by the weighted average number of shares in issue during the
period.
30 April 28 February 31 October
2020 2019 (unaudited) 2019
(unaudited) (audited)
-------------------------------- ------------- ------------------ -----------
(Loss)/profit attributable to
owners of the Company (GBPm) (74.5) 2.7 35.1
Weighted average no. of shares
(m) 537.4 537.3 537.3
Basic earnings per share (p) (13.9) 0.5 6.5
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, however only where their
conversion would decrease earnings per share or increase loss per
share, hence there is no difference for the current period. At 30
April 2020, the Company had two categories of potentially dilutive
ordinary shares: 9.8m GBPnil cost share options under the LTIP
schemes and 2.1m share options under the SAYE.
A calculation is performed to determine the number of shares
that could have been acquired at fair value based on the aggregate
of the exercise price of each share option and the fair value of
future services to be supplied to the Group, which is the
unamortised share based payments charge. The difference between the
number of shares that could have been acquired at fair value and
the total number of options is used in the diluted earnings per
share calculation.
30 April 28 February 31 October
2020 2019 (unaudited) 2019
(unaudited) (audited)
---------------------------------- ------------- ------------------ -----------
(Loss)/profit used to determine
diluted EPS (GBPm) (74.5) 2.7 35.1
Weighted average no. of shares
(m) 537.4 537.3 537.3
Adjustments for:
Share options - LTIP (m) - 1.4 4.4
Share options - SAYE (m) - - 2.2
Shares used to determine diluted
EPS (m) 537.4 538.7 543.9
Diluted earnings per share (p) (13.9) 0.5 6.5
12. Dividends on equity shares
14 month
Half year Half year period ended
ended ended
30 April 28 February 31 October
2020 2019 2019
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
--------------------------------------- -------------- ----------------------------- --------------
Amounts recognised as distributions to equity
holders in the period
Interim dividend for the previous
year - - 10.5
Final dividend for the year - 18.8 18.8
Total distributions to equity
holders in the period - 18.8 29.3
Interim dividend for the year
ended 31 October 2020 (p) 0.0p
No interim dividend will be paid in respect of half year ended
30 April 2020.
13. Financial instruments' fair value disclosure
The Group's financial instruments comprise cash, bank loans and
overdrafts, trade receivables, other financial assets and trade and
other payables.
Categories of financial instruments
14 month
Half year Half year period ended
ended ended
30 April 28 February 31 October
2020 2019 2019
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
-------------------------------- -------------- -------------- --------------
Financial assets
Financial assets at fair value
through profit or loss:
Shared equity receivables 20.6 23.1 22.1
Shared ownership receivables 4.6 - 3.6
Loans and receivables:
Cash and cash equivalents 146.5 31.8 36.7
Trade receivables due from an
associate 31.3 - 14.8
Trade and other receivables 2.8 2.7 1.1
Secured mortgages 2.4 2.2 2.5
208.2 59.8 80.8
Financial liabilities
Trade and other payables 59.5 74.0 55.5
Land payables 28.5 30.1 34.1
Loans 198.1 77.8 9.6
Land-related promissory notes - 10.0 -
286.1 191.9 99.2
All financial instruments are grouped into Levels 1 to 3 based
on the degree to which their fair value is observable:
-- Level 1 fair value measurements are those derived from quoted
prices (unadjusted) in active markets for identical assets or
liabilities
-- Level 2 fair value measurements are those derived from inputs
other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices)
-- Level 3 fair value measurements are those derived from
valuation techniques that include inputs for the asset or liability
that are not based on observable market data (unobservable
inputs)
The financial instruments held by the Group that are measured at
fair value are the shared equity receivables and shared ownership
receivables which are both measured at fair value through profit or
loss using methods associated with Level 3. At 30 April 2020, the
shared equity receivables were valued at GBP20.6m (H1 2019:
GBP23.1m; FY19: GBP22.1m) and the shared ownership receivables were
valued at GBP4.6m (H1 2019: GBPnil; FY19: GBP3.6m).
Financial assets are recorded at fair value, being the estimated
amount receivable by the Group, discounted to present day
values.
During the period, the Group's valuation technique over the
significantly largest shared equity scheme was amended to account
for its expected credit loss, driven by the historic profits and
losses on redemptions of these scheme assets over the past two
years, as shown within the table below.
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, historic gains and
losses on redemptions 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.
Shared equity receivables
14 month
Half year ended Half year ended period ended
28 February 31 October 2019
30 April 2020 2019
Assumptions (unaudited) (unaudited) (audited)
---------------------------------- ----- ---------------- ---------------- -----------------
Discount rate 3.2 to 5.0% 3.8 to 4.4% 3.8 to 4.3%
New build premium 0 to 5% 0 to 5% 0 to 5%
House price inflation n/a 0 to 6% 0 to 6%
Timing of receipt 5 to 10 years 5 to 10 years 5 to 10 years
Expected credit
loss 17.4% n/a 14.7%
Half year ended Half year ended
30 April 2020 30 April 2020
Increase in Decrease in
assumptions by assumptions
1%/1 year by 1%/1 year
(unaudited) (unaudited)
Sensitivity-effect on value of other
financial assets (less)/more GBPm GBPm
----------------------------------------------------------- ---------------- -----------------
Discount rate (0.3) 0.3
Timing of receipt (0.2) 0.2
Expected credit loss (0.2) 0.2
The fair value of the shared equity receivables are based on the
external available data. The sensitivity effect of a 1%/1year
change is representative of management's best estimate of a
reasonably possible change based on management's expectations of
changes in economic conditions.
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 subsequent fair value is
credited to finance income/expense.
The following tables present the changes in Level 3 instruments
for the half years ended 30 April 2020 and 28 February 2019 and the
14 month period ended 31 October 2019:
Half year ended 30 April
2020
----------------------------
Shared equity receivables
GBPm
--------------------------------- --- ----------------------------
Opening balance 22.1
Disposals (1.1)
Revaluation (losses) recognised
in profit or loss (0.4)
Closing balance 20.6
Half year ended 28 February
2019
----------------------------
Shared equity receivables
GBPm
--------------------------------- --- ----------------------------
Opening balance 25.0
Disposals (1.6)
Revaluation (losses) recognised
in profit or loss (0.3)
Closing balance 23.1
14 month period ended
31 October 2019
----------------------------
Shared equity receivables
GBPm
--------------------------------- --- ----------------------------
Opening balance 25.0
Disposals (2.6)
Revaluation (losses) recognised
in profit or loss (0.3)
Closing balance 22.1
Shared ownership receivables
14 month
Half year ended Half year ended period ended
28 February 31 October 2019
30 April 2020 2019
Assumptions (unaudited) (unaudited) (audited)
------------------- ---- ---------------- ---------------- -----------------
Discount rate 4.3% n/a 4.3%
New build premium 5% n/a 5%
Timing of receipt 10 years n/a 10 years
The following tables present the changes in Level 3 instruments
for the half years ended 30 April 2020 and 28 February 2019 and the
14 month period ended 31 October 2019:
Half year ended 30 April
2020
-----------------------------
Shared ownership receivables
GBPm
----------------- --- -----------------------------
Opening balance 3.6
Additions 2.1
Disposals (1.1)
Closing balance 4.6
Half year ended 28 February
2019
-----------------------------
Shared ownership receivables
GBPm
----------------- --- -----------------------------
Opening balance -
Additions -
Closing balance -
14 month period ended
31 October 2019
-----------------------------
Shared ownership receivables
GBPm
----------------- --- -----------------------------
Opening balance -
Additions 3.6
Closing balance 3.6
14. Related party transactions
Balances and transactions between the Company and its
subsidiaries, which are related parties, have been eliminated on
consolidation and are not disclosed in this note. Transactions
between the Group and other related parties are disclosed below.
Transactions between the Group and associates of the Group are
eliminated proportionally based upon the percentage of shares
owned.
During the six months ended 30 April 2020, the Group completed
the sale of a portfolio of 135 units to Waverstone LLP. This
comprises the sale of 41 show flats and sales offices with a
subsequent 12-month leaseback, and the sale of 94 finished
apartments and apartments under construction in Scotland.
Waverstone LLP is an entity between Waverley Investments Limited
and McCarthy & Stone Extra Care Limited, where McCarthy &
Stone Extra Care Living Limited holds a non-controlling 49% equity
interest and therefore has been treated as an associate in the
Group financial statements. Waverstone LLP was created to
facilitate the purchase, management and disposal of various assets
built by the Group. Waverstone LLP has appointed McCarthy &
Stone Management Services Limited a property manager and a sales
agent.
The transaction resulted in an additional cash flow for the
Group of c.GBP13m with the remaining balance of c.GBP22m expected
to be paid over 3 years. The half year underlying operating loss
for the Group includes c.GBP1.7m loss from the transaction, after
taking account of unrealised profit and fair value adjustments in
relation to the outstanding receivable balance.
Transactions involving Directors and key management
personnel
No advances, credits or guarantees have been entered into with
any of the Directors of the Company during the current or preceding
period.
15. Events after the balance sheet date
On 2 June 2020, the Group secured access to the HM Treasury and
Bank of England Covid Corporate Financing Facility ('CCFF') and has
put in place a GBP300m commercial paper programme under this
scheme. The facility will be used to provide additional liquidity
should it be required, however it remains currently undrawn.
On 7 July the Group secured a waiver of the interest cover
banking covenant until April 2021 and a relaxation in this covenant
test for October 2021.
16. Half year announcement
The Condensed Consolidated Half Yearly Financial Statements were
approved by the Board on 14 July 2020 . Copies of this
announcement, along with further information on McCarthy &
Stone plc and the analyst presentation document which will be
presented at the Group's results meeting on 15 July 2020, are
available on our website at www.mccarthyandstonegroup.co.uk.
The Directors confirm that to the best of their knowledge these
condensed consolidated interim financial statements have been
prepared in accordance with IAS 34 and applicable accounting
standards as required by DTR 4.2.4R. They also confirm that to the
best of their knowledge the half year results announcement includes
a fair review of the information required by DTR 4.2.7R (indication
of important events during the first six months and description of
principal risks and uncertainties for the remaining eight months of
the 14 month period) and DTR 4.2.8R (disclosure of related party
transactions and changes thereto).
The Directors of McCarthy & Stone plc during the half year
were:
Paul Lester, CBE (Independent Non-Executive Chairman)
John Tonkiss (Chief Executive Officer)
Rowan Baker (Chief Financial Officer), due to leave on 31 July
2020
Martin Abell (Chief Financial Officer Designate), appointed 26
May 2020, becoming Chief Financial Officer on 1 August 2020
Nigel Turner (Chief Operating Officer - Build)
Mike Lloyd (Chief Operating Officer - Services and
Customers)
Frank Nelson (Senior Independent Director)
Geeta Nanda, OBE (Independent Non-Executive Director)
John Carter (Independent Non-Executive Director)
Arun Nagwaney (Non-Independent Non-Executive Director)
Gill Barr (Independent Non-Executive Director)
The Half Yearly Financial Report was approved by the Board on 14
July 2020, and signed on its behalf by:
J Tonkiss
Chief Executive Officer
R Baker
Chief Financial Officer
INDEPENT REVIEW REPORT TO McCARTHY & STONE PLC
Introduction
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 April 2020 which comprises the Condensed
Consolidated Statement of Comprehensive Income, Condensed
Consolidated Statement of Financial Position, Condensed
Consolidated Statement of Changes in Equity, Condensed Consolidated
Cash Flow Statement and the related notes 1 to 16. We have read the
other information contained in the half yearly financial report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of financial statements.
This report is made solely to the company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the
Auditing Practices Board. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
company, for our work, for this report, or for the conclusions we
have formed.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the
group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34, "Interim
Financial Reporting", as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of Review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
April 2020 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure Guidance and Transparency Rules
of the United Kingdom's Financial Conduct Authority.
Ernst & Young LLP
London
14th July 2020
Notes to Editors
McCarthy & Stone is the UK's leading developer and manager
of retirement communities , with a significant market share. The
Group buys land and then builds, sells and manages high-quality
retirement developments. It has built and sold more than 58,000
properties across more than 1,300 retirement developments since
1977 and is renowned for its focus on the needs of those in later
life.
There is growing demand for retirement communities. There are
currently 12.2 million people aged 65 or over, rising to 17.4m by
2043, representing a 43% increase(1) . For those aged 85 or over,
the increase will be larger, from 1.6m to 3.0m, representing an 87%
increase. Research shows that 33% of those aged 65 or over are
interested in moving, equating to c.4 million people(2) .
McCarthy & Stone has two main product ranges - Retirement
Living and Retirement Living PLUS - which provide mainly one and
two-bedroom apartments across the country with varying levels of
support and care for older people. Retirement Living developments
provide independence in private apartments designed specifically
for the over-60s, as well as facilities such as communal lounges
and guest suites that support companionship. Retirement Living PLUS
developments, which are designed specifically for the over-70s,
offer all of this plus more on-site facilities such as restaurants,
well-being suites and function rooms. Importantly, they also
provide on-site flexible care and support packages to assist those
needing additional help.
All developments built since 2010 are managed by the company's
in-house management services team, providing peace of mind that it
will look after customers and their properties over the long term.
This is a key part of how McCarthy & Stone seeks to enrich its
customers' lives. This commitment to quality and customer service
continues to be recognised by residents. In March 2020, the Group
received the full five star rating for customer satisfaction from
the Home Builders Federation for the fifteenth consecutive year -
making it the only UK developer, of any size or type, to achieve
this accolade.
For further information, please visit
www.mccarthyandstone.co.uk
(1) ONS population projections (2018)
2 YouGov research for McCarthy & Stone (2019)
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR ZZGMNRDFGGZM
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