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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Countryside Partnerships Plc | LSE:CSP | London | Ordinary Share | GB00BYPHNG03 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 229.80 | 227.00 | 227.60 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From May 2019 to May 2024
TIDMCSP
RNS Number : 3624Q
Countryside Properties PLC
29 November 2016
COUNTRYSIDE PROPERTIES PLC
Audited results for the full year ended 30 September 2016
Strong growth and increased Partnerships potential
Countryside, a leading UK home builder and regeneration partner, today announces its audited results for the twelve months ended 30 September 2016.
Results highlights
Hot Features
Premium
FY 2016 FY 2015 Change
Completions 2,657 2,364 +12%
Adjusted revenue(1) GBP777.0m GBP615.8m +26%
Adjusted operating profit(2) GBP122.5m GBP91.2m +34%
Adjusted operating margin(3) 15.8% 14.8% +100bps
Adjusted basic earnings per share(4) 16.3p 5.5p +196%
Return on capital employed(5) 26.8% 24.7% +210bps
Net cash/(debt)(6) GBP12.0m GBP(59.5)m
Reported revenue GBP671.3m GBP547.5m +23%
Reported operating profit GBP87.3m GBP67.9m +29%
Basic earnings per share 13.6p 4.4p +209%
Dividend per share 3.4p -
Group operational highlights
-- Private net sales rate maintained at 0.78 (2015: 0.76)
-- Open sales outlets of 43, up 48% (2015: 29)
-- Private Average Selling Price of GBP465,000, up 21% (2015: GBP385,000)
-- Group private forward order book of GBP225.4m, up 64% (2015:
GBP137.5m)
Housebuilding highlights
-- Completions: 783 homes (2015: 653) up 20%
-- Adjusted operating profit: GBP66.8m (2015: GBP51.6m) up 30%
-- ROCE: 17.7% (2015: 16.6%) up 110bps
-- Land bank: 19,322 plots (2015: 18,410) of which 89% has been
strategically sourced
Partnerships highlights
-- Completions: 1,874 units (2015: 1,711) up 10%
-- Adjusted operating profit: GBP55.6m (2015: GBP39.6m) up 40%
-- ROCE: 70.7% (2015: 69.4%) up 130bps
-- Land bank plus preferred bidder: 14,504 plots, up 35% (2015:
10,760)
Outlook and current trading
Current trading remains robust with sales rates and values above year end numbers. The markets in which we operate have recovered post the EU Referendum and we continue to trade well. We remain successful at winning new Partnerships work and we had 6,623 plots with preferred bidder status compared with 2,957 plots a year earlier. Additionally we are working on a potential bid pipeline of a further 33,515 plots. Reservations remain robust and any softness in higher price points has been more than compensated for by our lower priced homes and our Partnerships division, which performed strongly during the year. Across the Group we continue to open new sites, with 43 open sales outlets at year end and a further 29 sites under construction, giving us great visibility over delivery in 2017. We have started the year with a record private forward order book up 64% and continued strong demand which gives us great confidence in delivering both our growth plans for 2017 and our medium term targets.
Commenting on the results, Ian Sutcliffe, Group Chief Executive, said:
"We have made tremendous progress in 2016, delivering solid growth, a strengthened balance sheet and marking our return to the London Stock Exchange. We enter the 2017 financial year in a strong position with an industry leading land bank and record private forward order book. Our strategy remains to deliver growth, increasing returns and capital efficiency from our balanced business models of Housebuilding and Partnerships. We see significant growth opportunities in Partnerships with increased estate regeneration in London and our geographic expansion into the West Midlands, while our increased scale and operational efficiency in Housebuilding will continue to improve returns."
There will be an analyst and investor meeting at 9.00am GMT today at Numis Securities, The London Stock Exchange Building, 10 Paternoster Square, London, EC4M 7LT hosted by Group Chief Executive Ian Sutcliffe. The presentation will also be available via a live webcast through the Countryside corporate website.
http://investors.countryside-properties.com/
A playback facility will be provided shortly after the presentation has finished.
Enquiries:
Countryside Properties Tel: +44 (0) 1277 260 000
Ian Sutcliffe - Group Chief Executive
Rebecca Worthington - Group Chief Financial Officer
Victoria Prior - Investor Relations & Strategy Director
Brunswick Group LLP Tel: +44 (0) 20 7404 5959
Nina Coad
Will Rowberry
Oliver Sherwood
Notes to editors:
Countryside is a leading UK home builder specialising in place making and urban regeneration. Our business is centred around two complementary divisions, Housebuilding and Partnerships. The Housebuilding division, operating under Countryside and Millgate brands, develops sites that provide private and affordable housing, on land owned or controlled by the Group. Our Partnerships division specialises in urban regeneration of public sector land, delivering private and affordable homes by partnering with local authorities and housing associations. Countryside was founded in 1958. It operates in locations across outer London, the South East, the North West of England and the West Midlands.
For further information, please visit the Group's website: www.countryside-properties.com.
Cautionary statement regarding forward-looking statements
Some of the information in this document may contain projections or other forward-looking statements regarding future events or the future financial performance of Countryside Properties PLC and its subsidiaries (the Group). You can identify forward-looking statements by terms such as "expect", "believe", "anticipate", "estimate", "intend", "will", "could", "may" or "might", the negative of such terms or other similar expressions. Countryside Properties PLC (the Company) wishes to caution you that these statements are only predictions and that actual events or results may differ materially. The Company does not intend to update these statements to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. Many factors could cause the actual results to differ materially from those contained in projections or forward-looking statements of the Group, including among others, general economic conditions, the competitive environment as well as many other risks specifically related to the Group and its operations. Past performance of the Group cannot be relied on as a guide to future performance.
Dividend Reinvestment Plan
As part of the business to be considered at this year's Annual General Meeting, the board of directors of the Company is recommending for approval by shareholders a final dividend payment of 3.4 pence per ordinary share for the year ended 30 September 2016. The Company is offering shareholders a choice of a share alternative to a cash dividend through the launch of its Dividend Reinvestment Plan (the "DRIP") for the current dividend proposed and in respect of dividends declared in the future. The DRIP is provided by the Company's Registrars, Capita Asset Services, and offers a convenient way for shareholders to increase their shareholding in the Company by using dividend money to purchase additional shares in the Company. Shareholders will be sent an information pack in relation to the DRIP containing an invitation letter, the DRIP Terms and Conditions and a DRIP Application Form. If shareholders wish to join the DRIP, the DRIP Application Form must be received by Capita by 5.30pm on 13 January 2017 to ensure that the dividend is paid in accordance with their instructions.
"Countryside" or the "Group" refers to Countryside Properties PLC and its subsidiary companies.
(1) Adjusted revenue includes the Group's share of revenue of joint ventures.
(2) Adjusted operating profit is defined as Group operating profit plus share of operating profit from associate and joint ventures excluding non-underlying items.
(3) Adjusted operating margin is defined as adjusted operating profit divided by adjusted revenue.
(4) Adjusted basic earnings per share is defined as adjusted profit attributable to ordinary shareholders, net of attributable taxation, divided by the weighted average number of shares in issue from the date of the IPO.
(5) Return on capital employed is defined as adjusted operating profit divided by average tangible net operating asset value. Tangible net operating asset value is calculated as net assets plus net debt less intangible assets. In prior periods, loans from the Group's principal shareholder and accrued loan interest were added back to tangible net operating asset value.
(6) Net debt is defined as bank borrowings less unrestricted cash. Unamortised debt arrangement fees are not included in net debt.
Chairman's statement
2016 performance
2016 has been another year of significant progress for the Group. It marked increased activity for both our Partnerships and Housebuilding divisions and the return of the business to the London Stock Exchange in February 2016. I am delighted to report strong results for the year, with a 12 per cent increase in completions to 2,657 homes and a 34 per cent increase in adjusted operating profit to GBP122.5m.
At 30 September 2016 we had 43 sales outlets, 14 more than the year before. We have a further 29 sites under construction, which when combined with a strong sales rate and record private forward order book, gives us excellent visibility over our growth plans for the coming year.
Strong balance sheet
We have significantly strengthened our balance sheet during 2016. We raised GBP114m of net primary proceeds in new share capital when we listed on the London Stock Exchange in February. Then in May 2016 we successfully refinanced our debt facilities, securing a new GBP300m revolving credit facility together with a further GBP100m accordion facility at a lower interest cost. Our financial strength positions us well to deliver the growth strategy set out at our Initial Public Offering ("IPO"). At the year end we had net cash of GBP12.0m.
Well positioned for growth
We welcome the Government's commitment to housing and particularly to urban regeneration, which is a key differentiator of our business. Our track record in delivering regeneration projects across London and the North West of England over the last 30 years positions us well to help local authorities meet their housing needs. We continue to work in partnership with both private and public sector landowners to develop new communities and undertake urban regeneration.
While we are mindful of the medium-term uncertainty over the United Kingdom's exit from the European Union, our targets, as outlined at our IPO, remain unchanged. We remain firmly on track to deliver our medium--term targets of over 3,600 completions per year, an adjusted operating margin of over 17 per cent and improvement in return on capital employed ("ROCE") to over 28 per cent.
Returns to shareholders
Our share price has held up well since our flotation, despite the turbulence in the market. From our IPO date of 17 February 2016 to the end of our financial year on 30 September 2016 we delivered a total shareholder return of 7.9 per cent.
We have recommended our first dividend of 3.4 pence per share. Subject to approval at the AGM on 26 January 2017, the dividend will be paid on 3 February 2017 to shareholders registered at 13 January 2017.
We have set a target dividend pay-out ratio of 30 per cent of adjusted earnings as we look to use the remaining profits to reinvest in growth, while maintaining a broadly debt-neutral strategy.
Corporate governance
During the year we continued to strengthen our corporate governance ensuring that the financial, operational and qualitative measures required to operate our business and manage the risks are in place.
Our people
Our people are essential in delivering our strategy. At 30 September 2016 we had 1,087 employees across the business, an increase of 25 per cent over the prior year. 70 per cent of our employees subscribed to our Save As You Earn scheme and will therefore participate in our growth.
I would like to thank each and every one of our employees for their hard work during the course of the year.
David Howell
Chairman
28 November 2016
Group Chief Executive's review
Group strategy
The Group continues to make progress with its strategic objectives of sector-leading growth, top quartile returns and building resilience through the economic cycle. We deliver this strategy through our two balanced operating divisions of Housebuilding and Partnerships, both of which offer strong growth through differentiated models that manage capital efficiency and risk. We deliver well designed properties at a wide range of price points, from properties aimed at first-time buyers to our premium brand, Millgate homes.
Our Housebuilding model is based on an industry-leading strategic land bank, all of which is located in economically resilient markets within 50 miles of London but without exposure to the Central London market. Almost 90 per cent of our Housebuilding land bank is strategically sourced via long-term planning promotion, which ensures over 20 years' visibility of future supply, together with an average 10 per cent discount to the prevailing open market value. Additionally, as 67 per cent of this land is controlled via options or conditional contracts, it ensures both balance sheet efficiency and flexibility through the cycle.
Our Partnerships division operates in the outer boroughs of London, the North West of England and, from the 2017 financial year, the West Midlands. Like Housebuilding, it delivers private and affordable homes on larger sites, typically public sector brownfield sites or local authority estate regeneration. The land is sourced via public procurement or direct negotiation and is typically low value being developed in partnership with local authorities, housing associations or Private Rental Sector ("PRS") providers. As such, it is a low capital model offering strong returns and the flexibility of long-term development agreements, many with phased viability and priority returns. The division has an excellent track record of winning new work, reflecting over 30 years of experience on over 45 regeneration schemes, strong relationships with local authorities and expertise in placemaking. Typically we secure around 40 per cent of bids we submit, which gives significant visibility of future work, with a current pipeline (land bank plus preferred bidder) of over seven years.
We aim to maintain the balance between our two divisions depending on market conditions, delivering over 80 per cent of our private for sale homes below the GBP600,000 Help-to-Buy threshold. We have a strong land bank in both divisions but will look to add selectively to this, particularly in the Partnerships division, where we seek to expand our footprint within our existing geographic areas of operation.
Overview of the market
2016 was another positive year for the housebuilding sector, with strong customer demand underpinned by a structural shortage in housing, supportive Government policy and favourable mortgage lending conditions. The demand for all tenures of housing, particularly in London and the South East, continues to be strong and resilient. Political support from all parties in the form of Help-to-Buy and planning policy reform has both stimulated demand for homes and enabled a greater supply of land for development.
The availability of public sector land has also increased, with estate regeneration opportunities in London expanding significantly as local authorities seek to monetise their assets and improve their housing stock. The mortgage market has also improved over the past 12 months, with a wider range of products, low interest rates and stable valuation metrics.
There is evidence of the housing market feeling the stress of increased taxation, with the revised Stamp Duty Land Tax rates having a negative impact on higher value homes and Buy-to-Let properties particularly in the second hand market. This has been more than offset by the growth of Help-to-Buy in the new build market under the GBP600,000 value threshold.
The immediate impact of the EU Referendum in June 2016 was relatively short-lived, with cancellation rates running higher directly before and after the vote. Visitor levels remained solid throughout and net reservations returned to their previously strong performance within a month of the Referendum. The medium-term impact of the Referendum as EU exit terms are negotiated is yet to be seen.
Performance
Both operating divisions have performed well in the past 12 months.
Overall, the Group has grown strongly, with total completions up 12 per cent to 2,657 (2015: 2,364) on the back of construction site starts and open sales outlets. This, combined with a 21 per cent increase in Group private average selling price ("ASP") to GBP465,000 (2015: GBP385,000), resulted in a 26 per cent increase in adjusted revenue to GBP777.0m (2015: GBP615.8m). On a reported basis, revenue increased 23 per cent to GBP671.3m (2015: GBP547.5m). Our reservation rate per open sales outlet remained steady at 0.78 (2015: 0.76) despite the increased number of sales outlets at 43 (2015: 29) and a short period of more cautious consumer behaviour around the EU Referendum. At 30 September 2016 we had a further 29 sites under construction.
Our Housebuilding division performed well, with total completions up 20 per cent at 783 homes versus 653 in 2015. Private ASP increased 14 per cent to GBP665,000 (2015: GBP583,000) largely driven by product mix and underlying house price inflation, particularly in the London commuter markets. We saw particular strength in the mid-priced market and we continue to plan our product to ensure it remains affordable for local people. Despite a tougher market above GBP1m, our premium brand Millgate delivered another strong performance with 81 private completions in the year, up from 52 in 2015.
We started on 15 new Housebuilding sites during the year, including two new phases at Beaulieu in Chelmsford, one of our key strategic sites, and three new sites in our Southern Housebuilding region as we expand our operations there.
Our Partnerships division delivered a strong performance, with total completions up 10 per cent at 1,874 homes versus 1,711 homes in 2015. The Partnerships private ASP rose sharply, up 27 per cent to GBP307,000 (2015: GBP242,000), driven by site mix, the effect of placemaking as we continue with our large estate regeneration projects and house price inflation in the sub GBP600,000 price points. During the year we delivered homes on a number of key regeneration schemes, including St. Paul's Square in Bow and Brook Valley Gardens in Barnet, and are now on site with four different phases at our flagship site in Acton.
PRS homes delivered the largest element of growth for our Partnerships North region, in partnership with Sigma Capital Group and we continue to see PRS as an important method for meeting housing demand across the country. In total, we started work on 21 new Partnerships sites during the year. We see increasing demand for us to work in partnership to regenerate public sector land delivering mixed-tenure communities evidenced by us winning bids during the year which will deliver 6,434 plots. These included Beam Park (Dagenham), Rochester (Kent), Hounslow (London) and a number of smaller sites in our Partnerships North region.
At Group level, adjusted gross margin improved 30bps to 21.9 per cent (2015: 21.6 per cent). Adjusted operating margin improved further, up 100bps to 15.8 per cent (2015: 14.8 per cent), due to greater scale and overhead efficiency. When combined with the additional volume, this has delivered a 34 per cent increase in adjusted operating profit to GBP122.5m (2015: GBP91.2m). On a reported basis, operating profit increased 29 per cent to GBP87.3m (2015: GBP67.9m). Improved capital efficiency, combined with stronger earnings, have resulted in return on capital employed increasing to 26.8 per cent, up 210 bps on the prior year (2015: 24.7 per cent).
During the course of the year we experienced between three per cent and five per cent build cost inflation, initially as a result of higher labour costs, although these eased somewhat in the second half of the year. We continue to build on our strong relationships with our supply chain. By giving them excellent visibility over future workload, we are able to deliver efficiencies for both parties, which helps control our build costs.
The quality of our business has also been maintained throughout this period of growth. Our health and safety Accident Incident Rate was 305 (2015: 265) and our National House Building Council ("NHBC") reportable items were 0.23 (2015: 0.22) per home. Both of these measures are significantly ahead of the industry benchmarks. Our customer service has improved over the prior year, with our NHBC Recommend a Friend score now standing at 84.8 per cent (2015: 82.7 per cent).
Outlook
Current trading remains robust with sales rates and values above year end numbers. The markets in which we operate have recovered post the EU Referendum and we continue to trade well. We remain successful at winning new Partnerships work and we had 6,623 plots with preferred bidder status compared with 2,957 plots a year earlier. Additionally we are working on a potential bid pipeline of a further 33,515 plots. Reservations remain robust and any softness in higher price points has been more than compensated for by our lower priced homes and our Partnerships division, which performed strongly during the year. Across the Group we continue to open new sites, with 43 open sales outlets at year end and a further 29 sites under construction, giving us great visibility over delivery in 2017. We have started the year with a record private forward order book up 64% and continued strong demand which gives us great confidence in delivering both our growth plans for 2017 and our medium term targets.
We remain firmly on track to deliver our medium--term targets of over 3,600 total completions per year, an adjusted operating margin of over 17 per cent and an improvement in return on capital employed to in excess of 28 per cent.
Ian Sutcliffe
Group Chief Executive
28 November 2016
Operational review: Housebuilding
Leading strategic land bank
Our Housebuilding division is well positioned with its industry leading strategic land bank and expertise in placemaking. It performed well with total completions up 20 per cent at 783 homes in 2016.
Significant land bank in place
-- 19,322 plots owned or controlled in South East England
-- Gross margin target of 24 per cent (including 1-2 per cent
from option discounts to open market value)
-- 89 per cent of the land bank has been strategically sourced
Established platform for growth
-- Selling from 25 open sales outlets at 30 September 2016 -- Further nine sites under construction -- 1,931 additional plots secured in FY16
Strong visibility over production
-- 92 per cent of next three years' volume owned or controlled -- 81 per cent of next three years' volume has planning permission
Strategy
Our Housebuilding operations develop medium to larger-scale sites, providing private and affordable housing on land owned or controlled by the Group. Operations are focused on the outer London Boroughs and the South East of England, predominantly in the London commuter towns.
Within our Housebuilding division, we look to maintain our industry-leading strategic land bank with almost 90 per cent of our land strategically sourced at 30 September 2016. In total we had 19,322 plots within our Housebuilding land bank (2015: 18,410) of which only 33 per cent was owned outright with the rest controlled by either option agreements or conditional contracts. This provides flexibility, creates value through embedded discounts to open market value and enhances the efficiency of the balance sheet, while still giving us strong visibility of future work.
Market
During the year, in the markets in which we operate, we continued to see strong demand for new housing outstripping supply, particularly in the outer London Boroughs and commuter towns. We saw a dual speed market, segmented by price band rather than by geographic location, with product under GBP600,000 delivering strong price growth, both as a result of demand for our product and the support of Help-to-Buy. Above GBP600,000, house price inflation was more muted as trade-up from the second--hand market became more difficult and affordability became stretched.
Despite the differentiation in house price inflation, sales rates were strong throughout the first half of the year at all price points. This continued into the second half with no real impact seen from the changes in Buy-to-Let investor Stamp Duty in April 2016, given our relatively limited exposure to that market. The period immediately before and after the EU Referendum saw a short-term increase in cancellations impacting our net reservation rate. This was largely confined to the London and commuter markets, with little or no impact in the regions.
Help-to-Buy continues to be an important mechanism for purchasers, with the increase in the London Help-to-Buy threshold to 40 per cent in February further supporting the new build market.
The planning environment remains broadly positive with the Government having introduced a variety of reforms over the past two years including initiatives such as the National Planning Policy Framework which has made the planning system less complex and is ensuring greater land supply.
Our performance
During 2016, our Housebuilding division continued to grow well, underpinned by strong customer demand for quality homes, particularly in the Home Counties and outer London Boroughs. Total completions were up 20 per cent to 783 units (2015: 653 units).
Total private completions of 499 units were up nine per cent (2015: 456) driven by sales across a range of sites with particular contributions from our sites in Cambridge, Harold Wood, Little Hollows and St Luke's Park in Essex, and Wickhurst Green in West Sussex. Our premium brand, Millgate, delivered significant growth in private homes of over 50 per cent which, along with an improvement in product mix, contributed to a 14 per cent increase in the Housebuilding private ASP to GBP665,000 (2015: GBP583,000).
Affordable completions of 284 units were higher than the prior year (2015: 192 homes) as a result of the mix of sites in the period.
We continued to develop out our legacy sites at Harold Wood, Essex and Horsted Park, Kent in the period, delivering 127 homes from the two sites combined with a further 505 homes planned between now and 2020, which is the expected completion for those sites. Demand for these sites remains strong with good transport links at both locations.
Land bank
During the year we acquired 14 Housebuilding sites with a total of 1,931 plots, taking our Housebuilding land bank to 19,322 plots at 30 September 2016 (2015: 18,410). We continue to focus on maintaining balance sheet flexibility, with only 6,388 plots directly owned (2015: 4,993) and the remainder either controlled or under option agreements.
We were successful on a number of planning applications, with planning gains on 1,289 plots during the year including 800 plots at one of our strategically sourced sites in Maidstone, Kent.
In addition to new sites coming through our pool of option agreements, during the year we bought out our joint venture partner, Land Securities, at our Springhead development at Ebbsfleet in Kent. This gives us control over more than five years' worth of production at that site. We also continue to look at land sales where developing the site is not part of our core offering (for example commercial developments or where we are a smaller partner). During 2016 we completed three significant land sales at Bury St Edmunds (Suffolk), Bicester Village (Oxfordshire) and Medipark (Cambridge).
Outlook
We started on 15 new Housebuilding sites (2015: 31) during the period, taking us to 34 active sites of which 25 had open sales outlets as at 30 September 2016 (2015: 17). This gives us great visibility over delivery for 2017. We continue to actively manage the mix of product that we have on site to make sure it is affordable for local people. We are currently replanning phases at Beaulieu, Chelmsford, and Great Kneighton, Cambridge, to ensure product and price points fit with demand.
We expanded our position in Kent with a larger office at Sevenoaks for our Southern region. This business has more than doubled in size over the past three years with further new sites due to come on stream during the course of 2017 and 2018.
Operational review: Partnerships
Strong land bank underpins future growth
Our Partnerships model is a resilient, low-risk, low-capital model where we look to develop regeneration projects in partnerships. Total completions were up 10 per cent at 1,874 homes (2015: 1,711 homes).
Significant visibility over production
-- Current land bank of 7,881 plots -- Further 6,623 plots awarded as preferred bidder -- More than seven years at current production -- Low planning risk
Established platform for growth
-- Selling from 18 open sales outlets at 30 September 2016 -- Further 20 sites under construction -- 6,434 additional plots awarded in FY16
Strong pipeline of future work
-- Further 33,515 plots identified as bid opportunities -- Historical win rate of 40 per cent -- Significant market opportunity
Strategy
Our Partnerships division specialises in medium to large-scale urban regeneration of public sector land delivering private and affordable homes. It operates primarily in and around London and in the North West of England, with a new office opened in Wolverhampton in 2016 to service the West Midlands conurbations from 2017.
Our Partnerships model is a resilient, low-risk, low-capital model where we look to develop regeneration projects in partnerships, predominantly with public sector landowners, such as local authorities and housing associations. We have a track record of delivering more than 45 regeneration projects over 30 years, making us one of the most experienced deliverers of regeneration in the UK. Developments are mixed tenure in nature with a focus on delivering tenure--blind private, affordable and Private Rental Sector ("PRS") homes in line with the Group's placemaking ethos.
The business models in the North and South are based on the needs of the local areas and therefore differ in product mix but are based on the same principles. Our Northern business builds largely low--rise timber--framed family houses whereas our Southern business often operates in more space constrained environments with a mix of mid-rise apartment blocks and family housing.
Market
During the year we saw significant interest in our regeneration offering, with the need for more housing in the London regions in particular, highlighted by a Savills report commissioned by the UK Government and published in January 2016. At the time of the publication, the UK Government announced that it will seek to regenerate some of England's most run-down housing estates. It stated that 50,000 additional new homes are needed in London alone over each of the next 20 years to make up for past shortfalls in housing supply and to meet new demand. To support this, the formation of a new Estate Regeneration Advisory Panel and GBP140m of funding to regenerate these estates was announced.
In our Northern business, the supply of public sector land remains solid with a strong pipeline of opportunities for mixed--tenure developments, particularly those that incorporate PRS homes.
As with our Housebuilding division, demand for private for sale homes was robust across all geographies and reservation rates were strong throughout the year, aside from a temporary increase in cancellation rates in the South during the period immediately before and after the EU Referendum. Our Northern business did not experience any EU Referendum--related cancellations. Similarly, we saw particular strength in the price bands below GBP600,000 in the South, which represents nearly all our product in our Partnerships division, and below GBP300,000 in the North West of England.
Our performance
Our Partnerships business delivered an excellent performance during 2016, setting the pace for delivery in 2017. Total completions were up 10 per cent to 1,874 units (2015: 1,711 units) driven by significant growth in affordable completions up 17 per cent, as expected, with the private element of delivery on those sites planned for 2017. A large element of the growth in affordable completions came from our Northern business where we continue to develop our partnership with Sigma Capital Group for PRS homes. During the year we delivered 725 PRS homes for Sigma with a further 975 identified plots within our land bank. The delivery of PRS homes, alongside private for sale homes, continued to be successful during the year. We adopted a similar tenure--blind approach to elsewhere in the business, including at Norris Green Village (Liverpool) where we delivered 135 PRS units in 2016 alongside the sale of 35 private homes.
Total private completions of 628 units were broadly flat on the prior year (2015: 634) with a strong increase in private ASP of 27 per cent to GBP307,000 (2015: GBP242,000). This large increase was as a result of house price inflation, with the majority of product sitting in the sub GBP600,000 price bracket, the regeneration effect, along with a change in mix of sites with more in outer London Boroughs than satellite towns. Major schemes in the year included Acton (Ealing), St Paul's Square (Bow) and Brook Valley Gardens (Barnet), with Acton and St Paul's Square also expected to be a significant part of 2017 delivery, particularly for the private units.
Land bank
As at 30 September 2016, our Partnerships division had 7,881 plots within the land bank (2015: 7,803) with a further 6,623 plots at preferred bidder status (2015: 2,957). We have had an outstanding year for winning new work in our Partnerships division with 6,434 plots awarded as preferred bidder. These included 2,781 plots at Beam Park (Dagenham), 1,262 plots at Rochester (Kent), and 288 plots at Hounslow (London) all for our Partnerships South business. Our Partnerships North business also had a strong year for bid success, albeit sites typically tend to be medium sized with the award of 284 plots at Western Avenue (Liverpool) and our first two sites in the West Midlands totalling 367 plots combined.
In addition to where we have been awarded preferred bidder status we have identified a further 33,515 plots in our current bid pipeline (2015: 15,487) providing excellent visibility of future work and growth opportunity across all our geographies.
Outlook
We continue to see increased growth opportunity in the Partnerships division. We have maintained our historic bid win rate at 40% and now have over seven years of future work secured. Furthermore the bid pipeline has grown to 33,515 plots. The public sector seeks to regenerate Local Authority housing estates and brownfield land. We see continued demand for our homes both from private for sale, PRS and affordable. This mixed tenure approach is both accelerating delivery in the short term and also providing resilience in the medium term.
Group Chief Financial Officer's review
A year of strong performance
We have delivered a strong set of results since listing, with both divisions performing well, and we remain firmly on track to deliver the medium--term targets set out at IPO.
Trading performance
Total completions were up 12 per cent to 2,657 homes (2015: 2,364 homes) which, combined with an increase in private average selling price ("ASP") of 21 per cent to GBP465,000 (2015: GBP385,000), increased adjusted revenue by 26 per cent to GBP777.0m (2015: GBP615.8m). Statutory revenue increased by 23 per cent to GBP671.3m (2015: GBP547.5m). The difference between the adjusted and reported measures reflects the proportionate consolidation of the Group's joint ventures.
Our continued focus on operational efficiency as well as the divisional mix of the business resulted in an increase in adjusted operating margin up 100bps to 15.8 per cent (2015: 14.8 per cent) and a 34 per cent increase in adjusted operating profit to GBP122.5m (2015: GBP91.2m). Statutory operating profit increased by 29 per cent to GBP87.3m (2015: GBP67.9m). The difference between the adjusted and reported measures reflects the proportionate consolidation of the Group's associate and joint ventures and non-underlying items relating to the Group's IPO and legacy management incentive plan, partially offset by the reversal of a receivable impairment.
Group
Another year of strong growth saw total completions of 2,657 homes (2015: 2,364 homes), up 12 per cent year on year.
Private unit completions increased by 3 per cent to 1,127 homes (2015: 1,090 homes). Private ASP increased 21 per cent to GBP465,000 (2015: GBP385,000), driven by a greater proportion of our private sales being in the Housebuilding division. Within the Partnerships division, there was a higher proportion of private homes delivered in Greater London compared to the prior year. In both divisions, growth has been strongest at the lower price points, particularly below GBP600,000, with house price inflation on a like-for-like basis steady at 6 per cent (2015: 6 per cent).
Affordable completions were up 22 per cent in the period to 1,415 homes (2015: 1,161 homes). Within this, Private Rental Sector ("PRS") sales were up 60 per cent to 738 homes (2015: 461 homes) due to the increased number of PRS homes delivered in the North West with our strategic partner Sigma Capital Group ("Sigma"). Design and Build completions were broadly flat at 115 homes (2015: 113 homes).
As a result, total adjusted revenue increased by 26 per cent to GBP777.0m (2015: GBP615.8m). On a reported basis, revenue increased by 23 per cent to GBP671.3m (2015: GBP547.5m).
Private forward sales were up 64 per cent to a record GBP225.4m (2015: GBP137.5m), reflecting robust trading through the summer months and the continued strength of the market at price points below GBP600,000.
Our reservation rate per open sales outlet remained steady at 0.78 (2015: 0.76) with the uplift in revenue driven by the increased number of sales outlets at 43 (2015: 29). The introduction of 40 per cent Help-to-Buy in London from February 2016 helped sustain reservation rates and whilst we saw a short-term increase in cancellations following the EU Referendum in June 2016, our net reservation rate returned to normal levels after a few weeks and, with cancelled reservations resold, this has had no impact on results for the year.
Adjusted gross margin (including the Group's share of associate and joint venture gross profit) increased by 30bps to 21.9 per cent (2015: 21.6 per cent), in particular supported by regeneration schemes in the outer London Boroughs. This, together with tight cost control as the business grew, resulted in an uplift in adjusted operating margin of 100bps to 15.8 per cent (2015: 14.8 per cent).
The significant investment made in new offices and increased headcount in previous years has now slowed and should aid future operating margin accretion.
Adjusted operating profit increased by 34 per cent to GBP122.5m (2015: GBP91.2m), as a result of the increased scale of the business and margin accretion discussed above. Within this, land sales contributed GBP10.6m (2015: GBP0.2m), including a number of overage receipts with a further GBP5.9m (2015: GBP11.3m) delivered through commercial sales.
On a reported basis, operating profit increased by 29 per cent to GBP87.3m (2015: GBP67.9m), with the difference to adjusted profit being the impact of significant growth at key sites, including Acton Gardens, London, and Beaulieu Park, Chelmsford, which took place in joint ventures.
After raising GBP114m of net primary proceeds in the IPO, we successfully refinanced the business, signing a GBP300m revolving credit facility in May 2016 on enhanced terms. We ended the year with net cash of GBP12.0m (2015: net debt GBP59.5m) and expect lower interest costs in 2017.
Housebuilding
Our Housebuilding division continued its growth trajectory as we saw customer demand maintained throughout the year. Total completions were up 20 per cent to 783 homes (2015: 653 homes) as we opened additional sales outlets during the year. As a result, adjusted revenue increased by 29 per cent to GBP427.1m (2015: GBP330.7m).
Private completions increased by nine per cent on 2015 to 499 (2015: 456), at an ASP of GBP665,000 (2015: GBP583,000). We continued to see strength in the market at prices below GBP600,000 with Help-to-Buy supporting the market at this level. At higher prices, particularly over GBP1m, the market has been more challenging, although sales volumes in this price band were ahead of 2015.
Affordable revenue increased by 68 per cent to GBP44.6m (2015: GBP26.5m), with completions of 284 (2015: 192) and an increase in ASP up 13 per cent to GBP157,000 from GBP139,000.
Housebuilding adjusted gross margin reduced by 90 bps to 22.4 per cent (2015: 23.3 per cent) as we incurred additional costs at our joint venture with Annington Developments Limited at Mill Hill, London, following the insolvency of a principal sub-contractor. We were able to offset this reduction by tight control of overheads, resulting in adjusted operating margin remaining steady at 15.6 per cent (2015: 15.6 per cent). With growth in sales, we delivered a 30 per cent uplift in adjusted operating profit to GBP66.8m (2015: GBP51.6m). Housebuilding represented 55 per cent of Group adjusted operating profit in 2016 (2015: 57 per cent).
In the second half of the year, we completed the buyout of our joint venture partner, Land Securities, at our development in Springhead, Kent, giving us greater flexibility to develop the site. To date we have developed almost 300 homes at the site with plans for a further 500 homes.
On a reported basis, Housebuilding revenue increased by 28 per cent to GBP358.1m (2015: GBP278.7m) with growth coming from the increased number of open sales outlets and house price growth. Reported Housebuilding operating profit increased to GBP48.5m (2015: GBP38.0m).
Partnerships
Our Partnerships division has had a strong year, with total completions up 10 per cent to 1,874 homes (2015: 1,711 homes) and adjusted revenue up 23 per cent to GBP349.9m (2015: GBP285.1m). A combination of site mix and underlying house price inflation in the period resulted in an increase in private ASP of 27 per cent to GBP307,000 (2015: GBP242,000).
Private completions of 628 homes were down one per cent on the prior period (2015: 634 homes). This reflects the mix of sites in the period and we would expect the growth rate in private homes to increase in 2017 as schemes such as St Paul's Square, Bow and East City Point, Canning Town deliver a full year of production. Affordable completions were up substantially at 1,131 homes (2015: 969 homes). These affordable completions included the delivery of PRS housing in our ongoing partnership with Sigma in the North West, which contributed 725 completions (2015: 461).
Adjusted gross margin was up 160bps to 21.3 per cent (2015: 19.7 per cent) due to the impact of site mix together with house price inflation. Adjusted operating profit of GBP55.6m was up 40 per cent in the period (2015: GBP39.6m), with our operations in the South performing particularly well. The increase in gross margins, combined with a tight focus on divisional cost control, resulted in adjusted operating margin increasing by 200bps to 15.9 per cent (2015: 13.9 per cent). Partnerships represented 45 per cent of Group adjusted operating profit in 2016 (2015: 43 per cent).
Demand for our product has remained strong, particularly at lower price points and in London following the introduction of the Government's 40 per cent Help-to-Buy scheme from February 2016, which has improved affordability of housing.
We made good progress in identifying new opportunities to expand our Partnerships model into the West Midlands, where we will shortly begin development of our first site of 186 homes at Rowley Regis. We opened an office in Wolverhampton in the summer and we have continued to control overheads by utilising resources from our Partnerships business in the North West to develop these opportunities.
On a reported basis, Partnerships revenue increased by 17 per cent to GBP313.2m (2015: GBP268.7m) with sales from St. Paul's Square, Bow and continued strong performance from other Partnerships sites. Partnerships reported operating profit increased to GBP51.3m (2015: GBP33.8m).
Non-underlying items
During the year, the Group engaged in corporate activity in relation to the listing of its ordinary shares on the London Stock Exchange. Advisory costs of GBP10.6m (2015: GBP1.7m) were incurred in relation to this activity. These costs primarily relate to the fees of professional advisors.
The non-recurring charge of GBP2.7m in the year to 30 September 2015 related to the non-cash impairment of a receivable which management believed to be irrecoverable. Subsequent to the year end, substantially all of this amount was received in cash by the Group, resulting in a reversal of the impairment of GBP2.6m in 2016.
In the year ended 30 September 2013, a management incentive plan ("Plan") was approved in which certain senior employees of Countryside Properties (UK) Limited, a subsidiary company, were invited to acquire shares issued by OCM Luxembourg Coppice Holdco S.à r.l.. Further shares were issued under the Plan during the years ended 30 September 2014 and 2015.
GBP1.9m was charged to the income statement in the year ended 30 September 2016 (2015: GBP1.3m) in respect of non-cash accounting charges related to the Plan, including GBP1.0m (2015: GBPNil) which arose as a result of the IPO.
The Group entered into a new debt facility with four lending banks in May 2016. As a result of the new facility, the previous facility was repaid in full in May 2016 and the capitalised arrangement fees of GBP3.2m relating to the previous facility were expensed within finance costs.
A total tax credit of GBP1.0m (2015: GBP1.4m) in relation to all of the above non-underlying items was included within taxation in the income statement.
Non-underlying items
2016 2015
Year ended 30 September 2016 GBP'000 GBP'000
--------------------------------------------------------------- ------- -------
Recorded within operating profit:
Advisory fees 10,561 1,698
Receivable (reversal of impairment)/impairment (2,590) 2,677
Share based payments in respect of the pre--listing management
incentive plan 1,910 1,310
Other - 870
--------------------------------------------------------------- ------- -------
Sub-total 9,881 6,555
--------------------------------------------------------------- ------- -------
Recorded within finance costs:
Impairment of capitalised arrangement fees 3,177 -
--------------------------------------------------------------- ------- -------
Total non-underlying items 13,058 6,555
--------------------------------------------------------------- ------- -------
Net finance costs
Net finance costs were GBP28.3m (2015: GBP50.5m). GBP16.5m (2015: GBP41.0m) of finance costs in relation to mandatory redeemable preference shares issued to the Group's previous owner were incurred prior to the Group's IPO in February 2016. On IPO, these preference shares and all accrued interest were repaid in full.
Interest on bank debt decreased by GBP1.1m to GBP5.2m (2015: GBP6.3m), reflecting both lower levels of debt during the year following the receipt of GBP114.0m of net primary proceeds on IPO and lower borrowing costs in the Group's new debt facility. The interest cost associated with the new facility will be lower than under the previous facility, reflecting the Group's new status as a listed entity and lower market rates. The interest rate on the Group's debt is variable, based on LIBOR and the Group's gearing ratio as measured quarterly.
Net finance costs
2016 2015
Year ended 30 September 2016 GBP'000 GBP'000
--------------------------------------------------- ------- -------
Bank loans and overdrafts 5,211 6,312
Interest on mandatory redeemable preference shares 16,495 40,961
Fair value losses on financial instruments - 406
Unwind of discount 4,094 2,523
Amortisation of debt finance costs 824 1,113
Interest receivable (1,458) (824)
--------------------------------------------------- ------- -------
Underlying net finance costs 25,166 50,491
--------------------------------------------------- ------- -------
Impairment of capitalised arrangement fees 3,177 -
--------------------------------------------------- ------- -------
Net finance costs 28,343 50,491
--------------------------------------------------- ------- -------
Countryside expects net finance costs in 2017 to be lower than 2016, reflecting lower debt levels and interest rates following the IPO.
Taxation
The income tax charge was GBP17.3m (2015: GBP8.2m), with an underlying tax rate of 21.8 per cent (2015: 24.2 per cent) and, on a reported basis, an effective tax rate of 22.0 per cent (2015: 29.2 per cent).
The underlying rate has reduced predominantly due to a reduction in disallowable expenditure during the year, mainly in relation to finance costs connected to the mandatory redeemable preference shares. The underlying tax rate reconciles to the reported rate as follows:
Underlying tax rate
Profit Tax Rate
Year ended 30 September 2016 GBP'000 GBP'000 %
--------------------------------------------------- -------- ------- ----
Underlying profit before tax, and tax thereon 93,911 20,518 21.8
Adjustments, and tax thereon, for:
Advisory fees (10,561) (852)
Receivable impairment 2,590 518
Share based payments in respect of the pre-listing
management incentive plan (1,910) -
Impairment of capitalised arrangement fees (3,177) (635)
--------------------------------------------------- -------- ------- ----
Taxation on associate and joint ventures included
in underlying profit before tax (2,276) (2,276)
--------------------------------------------------- -------- ------- ----
Profit before tax and tax thereon 78,577 17,273 22.0
--------------------------------------------------- -------- ------- ----
In 2017, Countryside expects the underlying tax rate to be broadly in line with the UK statutory corporation tax rate.
Earnings per share ("EPS")
Adjusted basic earnings per share increased by 196 per cent to 16.3 pence (2015: 5.5 pence) reflecting the increase in underlying operating profit during the year, together with a decrease in the underlying tax rate.
As a result of the capital restructuring performed in February 2016 at the time of the IPO, the number of shares in issue is 450 million. For the purposes of the EPS calculation, the number of shares in issue in 2015 is assumed to be 450 million (for further details refer to Note 10 to the financial statements).
The weighted average number of shares in issue was 450 million (2015: 450 million).
Basic earnings per share was 13.6 pence (2015: 4.4 pence). Basic earnings per share is lower than underlying basic earnings per share due to the effect of non-underlying items that are excluded from adjusted results.
Dividend
The Board has recommended a final dividend of 3.4 pence per share (2015: nil), representing a pay out of 30 per cent of adjusted profit after tax for the second half of the financial year. This will be paid on 3 February 2017 to shareholders on the Register of Members at the close of business on 13 January 2017 subject to approval by shareholders at the AGM.
The proposed final dividend was recommended by the Board on 28 November 2016 and, as such, has not been included as a liability as at 30 September 2016.
In 2017, Countryside intends that the dividend will represent 30 per cent of adjusted profit after tax.
Statement of financial position
As at 30 September 2016, TNAV was GBP537.4m (2015: GBP329.0m), an increase of GBP208.4m, which was mainly attributable to the receipt of primary proceeds on IPO and retained earnings.
As we continued to grow the business, inventory grew by GBP144.1m to GBP583.6m (2015: GBP439.5m) and we were active on 72 sites at 30 September 2016 (2015: 68 sites). Investments in associate and joint ventures also grew to GBP59.1m (2015: GBP54.3m), principally due to activity at Acton Gardens in West London, Beaulieu in Chelmsford and Five Oaks Lane at Chigwell in Essex.
Improving returns
By continuing to focus on the efficiency of our build programmes, we maintained asset turn (defined as adjusted revenue divided by average TNAV excluding net cash or debt) at 1.7 times for the financial year (2015: 1.7 times). This, together with the adjusted operating margin improvements, helped our return on capital employed increase by 210 bps to 26.8 per cent (2015: 24.7 per cent), despite our significantly higher level of investment in sites.
Return on capital employed
Year ended 30 September 2016 2016 2015 ------------------------------------------- ------- ------- Underlying operating profit (GBP'000) 122,468 91,166 Average capital employed (GBP'000)(1) 456,988 368,494 ------------------------------------------- ------- ------- Return on capital employed (%) 26.8% 24.7% ------------------------------------------- ------- ------- 52-week ROCE movement to 30 September 2016 210bps ------------------------------------------- -------
(1 Capital employed is defined as TNAV excluding) (net cash or debt)
Financing
On 11 May 2016, the Group signed a new GBP300m Revolving Credit Facility Agreement. The agreement has a variable interest rate based on LIBOR and expires in May 2021, although the Group has the opportunity to extend the term of the facility by a further two years. As a result of the signing of the new facility agreement, the unamortised arrangement fee for the previous facility of GBP3.2m (2015: GBPnil) was expensed to the income statement as a non-underlying finance cost.
Cash flow
Summary cash flow statement
2016 2015
Year ended 30 September 2016 GBP'000 GBP'000
----------------------------------------------------- --------- --------
Cash (used in)/generated from operations (14,892) 29,819
Interest and tax paid (20,015) (13,683)
(Increase)/decrease in loans to associate
and joint ventures (30,977) 1,480
Dividends received from joint ventures 13,632 6,682
Net proceeds from the issue of shares 125,390 206
Repayment of borrowings (140,006) (13,000)
Other net cash (outflows)/inflows (2,006) 1,821
----------------------------------------------------- --------- --------
Net (decrease)/increase in cash and cash equivalents (68,874) 13,325
----------------------------------------------------- --------- --------
As we have continued to grow the Group, our net investment in working capital increased by GBP107m (2015: GBP39m) which, when offset by retained earnings and other non-cash items, resulted in GBP14.9m of cash being used by the Group's operations.
GBP114m of net primary proceeds were raised in the IPO in February 2016. These proceeds were used to repay the Group's debt facility and to accelerate a number of developments, including our joint ventures at Acton Gardens, West London, and Beaulieu, Chelmsford.
Rebecca Worthington
Group Chief Financial Officer
28 November 2016
Consolidated statement of comprehensive income
For the year ended 30 September 2016
2016 2015
Note GBP'000 GBP'000
------------------------------------------------------------------- --------- ---------
Revenue 4 671,258 547,486
Cost of sales (527,200) (431,690)
------------------------------------------------------------------- --------- ---------
Gross profit 144,058 115,796
Administrative expenses (56,731) (47,870)
------------------------------------------------------------------- --------- ---------
Group operating profit 6 87,327 67,926
----------------------------------------------------------- ------ --------- ---------
Analysed as:
Adjusted Group operating profit 6 122,468 91,166
Less: share of associate and joint ventures' operating
profit 13, 14 (25,260) (16,685)
Less: non-underlying items 6 (9,881) (6,555)
----------------------------------------------------------- ------ --------- ---------
Group operating profit 87,327 67,926
------------------------------------------------------------------- --------- ---------
Finance costs 7 (30,518) (52,294)
----------------------------------------------------------- ------ --------- ---------
Analysed as:
Adjusted finance costs 7 (27,341) (52,294)
Less: non-underlying finance costs 6 (3,177) -
----------------------------------------------------------- ------ --------- ---------
Finance costs 7 (30,518) (52,294)
----------------------------------------------------------- ------ --------- ---------
Finance income 8 2,175 1,803
Share of post-tax profit from associate and joint
ventures 13, 14 19,593 10,584
----------------------------------------------------------- ------ --------- ---------
Profit before income tax 78,577 28,019
Income tax expense 9 (17,273) (8,186)
----------------------------------------------------------- ------ --------- ---------
Profit for the year 61,304 19,833
Profit is attributable to:
- Owners of the parent 61,074 19,623
- Non-controlling interests 230 210
------------------------------------------------------------------- --------- ---------
61,304 19,833
------------------------------------------------------------------------------ ---------
Other comprehensive income
Items that may be reclassified to profit and loss
(Decrease)/increase in the fair value of available-for-sale
financial assets 15 (1,501) 443
----------------------------------------------------------- ------ --------- ---------
Total comprehensive income for the year 59,803 20,276
------------------------------------------------------------------- --------- ---------
Total comprehensive income for the year attributable to:
- Owners of the parent 59,573 20,066
- Non-controlling interest 230 210
------------------------------------------------------------------- --------- ---------
59,803 20,276
------------------------------------------------------------------------------ ---------
Revenue and operating profits arise from the Group's continuing operations.
Earnings per share (expressed in pence per share): Basic 10 13.6 4.4 ----------------------- ------- ------------ --------- Diluted 10 13.6 4.4 ----------------------- ------- ------------ ---------
Consolidated statement of financial position
As at 30 September 2016
2016 2015
Note GBP'000 GBP'000
------------------------------------------------- --------- ---------
Assets
Non-current assets
Intangible assets 11 58,923 59,453
Property, plant and equipment 12 2,659 2,406
Investment in joint ventures 13 53,907 50,097
Investment in associate 14 5,235 4,164
Available-for-sale financial assets 15 8,665 10,535
Deferred tax assets 16 3,318 5,606
Trade and other receivables 19 10,782 15,355
--------------------------------------------- --------- ---------
143,489 147,616
------------------------------------------------------------ ---------
Current assets
Inventories 17 583,602 439,542
Trade and other receivables 19 147,912 105,450
Cash and cash equivalents 20 38,301 80,835
--------------------------------------------- --------- ---------
769,815 625,827
------------------------------------------------------------ ---------
Total assets 913,304 773,443
------------------------------------------------- --------- ---------
Liabilities
Current liabilities
Overdrafts 20 (26,340) -
Trade and other payables 21 (177,441) (181,140)
Current income tax liabilities (6,090) (4,043)
Provisions 22 (818) (1,144)
--------------------------------------------- --------- ---------
(210,689) (186,327)
------------------------------------------------------------ ---------
Non-current liabilities
Borrowings 23 - (423,842)
Trade and other payables 21 (109,044) (148,930)
Provisions 22 (685) (1,110)
--------------------------------------------- --------- ---------
(109,729) (573,882)
------------------------------------------------------------ ---------
Total liabilities (320,418) (760,209)
------------------------------------------------- --------- ---------
Net assets 592,886 13,234
------------------------------------------------- --------- ---------
Equity
Share capital 24 4,500 19
Share premium 24 - 1,075
Reserves 24 587,923 11,907
--------------------------------------------- --------- ---------
Equity attributable to owners of the parent 592,423 13,001
Equity attributable to non-controlling interest 463 233
------------------------------------------------- --------- ---------
Total equity 592,886 13,234
------------------------------------------------- --------- ---------
Consolidated statement of changes in equity
For the year ended 30 September 2016
Available-for-sale
financial
assets Equity
Share Share Retained (note attributable Non-controlling Total
capital Premium earnings 15) to owner interest equity
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------- -------- -------- --------- ------------------ ------------- --------------- --------
At 1 October 2014 18 870 (10,591) 1,122 (8,581) 23 (8,558)
------------------------- -------- -------- --------- ------------------ ------------- --------------- --------
Comprehensive income
Profit for the period - - 19,623 - 19,623 210 19,833
Other comprehensive
income - - - 443 443 - 443
------------------------- -------- -------- --------- ------------------ ------------- --------------- --------
Total comprehensive
income - - 19,623 443 20,066 210 20,276
------------------------- -------- -------- --------- ------------------ ------------- --------------- --------
Transactions with owners
Share-based payment
expense pre-IPO 30 - - 1,310 - 1,310 - 1,310
Proceeds from
issue of shares 24 1 205 - - 206 - 206
--------------------- -------- -------- --------- ------------------ ------------- --------------- --------
Total transactions
with owners 1 205 1,310 - 1,516 - 1,516
------------------------- -------- -------- --------- ------------------ ------------- --------------- --------
At 30 September 2015 19 1,075 10,342 1,565 13,001 233 13,234
------------------------- -------- -------- --------- ------------------ ------------- --------------- --------
Comprehensive income
Profit for the period - - 61,074 - 61,074 230 61,304
Other comprehensive
income - - - (1,501) (1,501) - (1,501)
------------------------- -------- -------- --------- ------------------ ------------- --------------- --------
Total comprehensive
income - - 61,074 (1,501) 59,573 230 59,803
------------------------- -------- -------- --------- ------------------ ------------- --------------- --------
Transactions with owners
Share-based payment
expense - pre--IPO 30 - - 1,910 - 1,910 - 1,910 Share-based payment expense - post--IPO, net of deferred tax 30 - - 1,278 - 1,278 - 1,278 Group reorganisation 1 4,481 (1,075) 513,255 - 516,661 - 516,661 --------------------- -------- -------- --------- ------------------ ------------- --------------- -------- Total transactions with owners 4,481 (1,075) 516,443 - 519,849 - 519,849 ------------------------- -------- -------- --------- ------------------ ------------- --------------- -------- At 30 September 2016 4,500 - 587,859 64 592,423 463 592,886 ------------------------- -------- -------- --------- ------------------ ------------- --------------- --------
Consolidated cash flow statement
For the year ended 30 September 2016
2016 2015
Note GBP'000 GBP'000
----------------------------------------------------------- --------- --------
Cash (used in)/generated from operations 25 (14,892) 29,819
Interest paid (7,239) (5,648)
Tax paid (12,776) (8,035)
----------------------------------------------------------- --------- --------
Net cash (outflow)/inflow from operating activities (34,907) 16,136
----------------------------------------------------------- --------- --------
Cash flows from investing activities
Purchase of intangible assets 11 (743) -
Purchase of property, plant and equipment 12 (925) (1,514)
Proceeds from disposal of available-for-sale financial
assets 2,925 2,511
Acquisition of subsidiary (net of cash acquired) 31 (1,951) -
(Increase)/decrease in loans to associate and joint
ventures (30,977) 1,480
Interest received 1,464 824
Dividends received from associate and joint ventures 13 13,632 6,682
------------------------------------------------------- --------- --------
Net cash (outflow)/inflow from investing activities (16,575) 9,983
----------------------------------------------------------- --------- --------
Cash flows from financing activities
Proceeds from issue of ordinary shares 1 130,000 206
Transaction costs from issue of ordinary shares (4,610) -
Borrowing facility arrangement fee (2,776) -
Proceeds from borrowings 91,340 -
Repayment of borrowings (231,346) (13,000)
----------------------------------------------------------- --------- --------
Net cash outflow from financing activities (17,392) (12,794)
----------------------------------------------------------- --------- --------
Net (decrease)/ increase in cash and cash equivalents (68,874) 13,325
Cash and cash equivalents at the beginning of the period 80,835 67,510
----------------------------------------------------------- --------- --------
Cash and cash equivalents at the end of the period 20 11,961 80,835
------------------------------------------------------- --------- --------
Notes to the consolidated financial statements
For the year ended 30 September 2016
1. General information
Countryside Properties PLC is a public limited company incorporated and domiciled in the United Kingdom whose shares are publicly traded on the London Stock Exchange. The Company's registered office is Countryside House, The Drive, Brentwood, Essex CM13 3AT.
The Group's principal activities are building new homes and regeneration of public sector land.
Initial Public Offering ("IPO")
The Company listed its shares on the London Stock Exchange on 17 February 2016.
These are the first full set of consolidated financial statements of Countryside Properties PLC following the reorganisation of the Group to facilitate the IPO. The reorganisation is described below.
The consolidated financial statements have been prepared under the merger method of accounting because the transaction under which the Company became the holding company of OCM Luxembourg Coppice Midco S.à r.l. ("Midco") was a Group reconstruction with no change in the ultimate ownership of the Group. All the shareholdings in Midco were exchanged via a share-for-share transfer on 11 February 2016. The Company did not actively trade at the time.
The result of the application of the capital reorganisation is to present the financial statements as if the Company had always owned the Group - the financial statements, including comparatives, have been presented as a continuation of Midco. The prior year financial statements for Midco are available in the Prospectus, prepared for the purpose of the IPO, which is available on the Group's website: investors.countryside-properties.com.
Group reorganisation
The principal steps of the Group reorganisation were as follows:
The Company was incorporated on 18 November 2015 as a public company limited by shares in the United Kingdom, with share capital of GBP1, consisting of one ordinary share with a GBP1 nominal value. On 19 November 2015, the Company issued a further nine ordinary shares and 50,000 redeemable preference shares, each of GBP1.
The Company became the ultimate holding company of the Group with Midco becoming the Company's direct subsidiary on 11 February 2016 by way of a share--for--share exchange. The insertion of the Company as a new holding company constitutes a Group reorganisation and the transaction is accounted for as a capital reorganisation and merger relief applied in accordance with Section 612 of the Companies Act 2006.
The balance of outstanding mandatory redeemable preference shares of GBP287m and the associated accrued return of GBP111m as of 16 February 2016 was transferred from the holders (being OCM Luxembourg Coppice Topco S.à r.l., being an entity controlled by Oaktree Capital Management L.P., and certain members of the Group's management) to the Company in exchange for 392 million ordinary shares in the Company, each of GBP1.
Under merger relief the shares issued in this transaction were recorded in the consolidated statement of financial position at the nominal value of the shares issued plus the fair value of any additional consideration, which was recorded as a merger reserve in the Group financial statements. The assets and liabilities of the subsidiaries are consolidated at book value in the Group financial statements and the consolidated reserves of the Group are adjusted to reflect the statutory share capital, share premium and merger reserve of the Company as if it had always existed.
On 17 February 2016 the Company issued 57,777,778 additional shares, each of GBP1, for consideration of GBP130m, the balance being recorded as share premium, in an IPO. As permitted by Section 610(2b) of the Companies Act 2006, GBP4.6m of the IPO costs have been charged to the share premium account. The mandatory redeemable preference shares were redeemed on IPO.
On 9 March 2016, the Company undertook a court-approved capital reduction, in which the nominal value of the ordinary shares was reduced to GBP0.01 each, which had the effect of reducing the merger reserve and share premium arising on IPO to GBPNil.
2. Critical accounting judgements and estimates
The preparation of the Group's financial statements under International Financial Reporting Standards ("IFRS") requires the Directors to make estimates and assumptions that affect the application of policies and the reported amounts of assets, liabilities, income, expenses and related disclosures.
Critical accounting judgements
In the process of applying the Group's accounting policies, which are described in Note 3, the Directors have made no individual judgements that have a significant impact on the financial statements, apart from those involving estimates which are described below.
Key sources of estimation uncertainty
Estimates and underlying assumptions affecting the financial statements are based on historical experience and other relevant factors and are reviewed on an ongoing basis. This approach forms the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Changes in accounting estimates may be necessary if there are changes in the circumstances on which the estimate was based or as a result of new information. Such changes are recognised in the year in which the estimate is revised.
The key assumptions about the future and key sources of estimation uncertainty that have a risk of causing a material adjustment to the carrying value of assets and liabilities are described below.
Estimation of site profitability
In order to determine the profit or loss that the Group recognises on its developments and construction contracts in a specific period, the Group allocates the total cost of each development and construction contract between the proportion completing in the period and the proportion to complete in a future period. The assessment of the total costs to be incurred requires a degree of estimation due to the long-term nature of the Group's activities and because actual costs are subject to market fluctuations. Group management has established internal controls to review and ensure the appropriateness of estimates made on an individual contract basis.
Carrying value of inventory
Inventory generated through the normal course of business is recorded at the lower of cost and net realisable value. A financial appraisal is prepared and updated monthly for each development which records an estimate of future revenues and expenditure. As both future cost and sales prices fluctuate in line with local market conditions, significant adverse variances in either costs or sales prices estimates could lead to an impairment of inventory. In circumstances where forecast revenues are lower than anticipated expenditure, an inventory provision is made. This inventory provision may be reversed in future periods when there is evidence of improved selling prices or reduced expenditure forecast on a development.
Available-for-sale financial assets
Available-for-sale financial assets comprise loans that have been advanced to homebuyers to assist in their purchase of property under historical shared equity schemes. The loans are secured by either a first or second charge over the property and are either interest free or have interest chargeable from the fifth year onwards.
The loans are held at fair value, which is based on an estimate of the future cash flows from the loans. The estimate considers the value of the property based upon market conditions, including potential future house price increases, and possible borrower default. The loans are discounted at an interest rate equivalent to that which would be payable for loans made against property by a third party.
3. Accounting policies
Basis of preparation
The following financial information does not amount to full financial statements within the meaning of Section 434 of Companies Act 2006. The financial information has been extracted from the Group's Annual Report and Financial Statements for the year ended 31 September 2016 on which an unqualified report has been made by the Company's auditors.
The consolidated financial statements of Countryside Properties PLC have been prepared under the historical cost convention modified for fair values under International Financial Reporting Standards as adopted by the European Union ("IFRS"). These consolidated financial statements have been prepared in accordance with IFRS, IFRS Interpretations Committee ("IFRS IC") and the Companies Act 2006 applicable to companies reporting under IFRS.
Financial statements for the year ended 31 September 2015 have been delivered to the Registrar of Companies; the report of the auditors on those accounts was unqualified and did not contain a statement under Section 498 of the Companies Act 2006. The 2016 statutory accounts will be delivered in due course.
Copies of the Annual report and Financial Statements will be posted to shareholders shortly and will be available from the Company's registered office at Countryside House, The Drive, Brentwood, Essex CM13 3AT.
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.
These financial statements have been prepared on a going concern basis, in Sterling and rounded to the nearest thousand pounds under the historical cost convention, except for available-for-sale financial assets and share-based payments.
Going concern
The Directors have assessed the prospects and viability of the Company over a three-year period to September 2019. The Board has performed a robust assessment of the principal risks facing the Company, including those risks that would threaten Countryside's business model, future performance, solvency or liquidity.
Having considered these forecasts, the Directors are satisfied the Group has sufficient liquidity and covenant headroom to enable the Group to conduct its business and meet its liabilities as they fall due for at least the next 12 months. Accordingly these financial statements are prepared on a going concern basis.
New standards, amendments and interpretations
During the period the Interpretations Committee received a request to clarify an issue related to IAS 32: Financial Statements: Presentation in connection with whether particular cash pooling arrangements meet the requirement for off-setting in accordance with IAS 32. Following the observations published by the Interpretations Committee the Group has reassessed the treatment of its cash pooling arrangements and concluded that the comparative financial information should be represented compared to the financial information for the year ended 30 September 2015 and 30 September 2014 as disclosed in the Prospectus.
The impact of this change is that the amount of cash previously reported at 30 September 2015 of GBP354,000 (2014: GBP172,000) has increased by GBP80,481,000 (2014: GBP67,338,000) to GBP80,835,000 (2014: GBP67,510,000) and borrowings which were previously reported at GBP343,361,000 (GBP2014: 433,746,000) have increased by a corresponding amount to GBP423,842,000 (2014: GBP366,408,000). This also had the impact of increasing the amount of cash and cash equivalents reported in the cash flow statement from GBP354,000 to GBP80,835,000. There was no impact on the consolidated statement of comprehensive income.
Within the exception of the above, no new standards, amendments or interpretations effective for the first time for the financial year beginning on 1 October 2015 have had a material impact on the financial statements.
The following amendments to standards and interpretations which will be relevant to the preparation of the Group's financial statements have been issued, but are not effective and have not been early adopted for the financial year beginning 1 October 2016:
-- IFRS 9 'Financial Instruments', on 'Classification and Measurement' (effective 1 October 2018).
This is the first part of a new standard on classification and measurement of financial assets
that will replace IAS 39. IFRS 9 has two measurement categories: amortised cost and fair value.
All equity instruments are measured at fair value. A debt instrument is at amortised cost
only if the entity is holding it to collect contractual cash flows and the cash flows represent
principal and interest. Otherwise it is at fair value through profit or loss. Amortised cost
accounting will also be applicable for most financial liabilities, with bifurcation of embedded
derivatives. The main change is that in cases where the fair value option is taken for financial
liabilities, the part of a fair value change due to an entity's own credit risk is recorded
in other comprehensive income rather than the income statement, unless this creates an accounting
mismatch.
-- IFRS 15 'Revenue from Contracts with Customers' (effective 1 October 2018). This standard
will replace both IAS 18, which covers contracts for goods and services, and IAS 11, which
covers construction contracts. The basis for IFRS 15 is revenue is now recognised when control
of a good or service is transferred to a customer, which replaces the existing treatment of
risks and rewards. Under the new standard, revenue is also allocated to separate performance
obligations under a contract and revenue is recognised once the performance obligations are
met.
-- IFRS 16 'Leases' (effective 1 October 2019) re-defines how an entity will recognise, measure,
present and disclose leases. The standard requires lessees to recognise all leases as assets,
unless the underlying asset has a low value, or the lease term is one year or less. IFRS 16
replaces IAS 17.
-- Amendments to IAS 7 and IAS 12 (effective 1 October 2018). These amendments require additional
disclosures in the statement of cash flows and recognition of deferred tax assets for unrealised
losses respectively.
-- Amendment to IFRS 2 (effective 1 October 2018). This amendment clarifies the measurement for
cash--settled, to equity--settled. It also introduces an exception to the principles in IFRS
2 that will require an award to be treated as if it was wholly equity--settled, where an employer
is obliged to withhold an amount for the employee's tax obligations associated with a share-based
payment and pay that amount to the tax authority.
-- Amendment to IFRS 15 (effective 1 October 2018). These amendments comprise clarifications
of the guidance on identifying performance obligations, accounting for licences of intellectual
property and the principal v agent assessment (gross verses net revenue presentation).
There are no IFRSs or IFRS IC interpretations that are not yet effective that would be expected to have a material impact on the Group for the financial year beginning 1 October 2016.
The Group has not applied the following amendments to standards which are EU endorsed but not yet effective:
-- Amendments to IFRS 11: Accounting for Acquisitions of Interest in
Joint Operations
-- Amendments to IAS 1: Disclosure Initiative
-- Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods
of Depreciation and Amortisation
-- Amendments to IAS 27: Separate Financial Statements on the Equity
Method
-- Annual Improvements to IFRSs 2014 Cycle
The Group is currently considering the impact of these amendments on the Group; however, it is anticipated they will be minimal and effects will principally relate to the amendment of current disclosures.
Basis of consolidation
Subsidiaries are entities which the Group has the power to control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to govern the financial and operating policies so as to obtain economic benefits from its activities. The financial statements of subsidiaries are consolidated in the financial statements using the acquisition method of accounting from the date on which control is obtained up until the date that control ceases.
Non-controlling interests in the results and equity of subsidiaries are shown separately in the income statement, the statement of changes in equity and statement of financial position.
Where the accounting policies of a subsidiary or equity-accounted investee do not conform in all material respects to those of the Group, adjustments are made on consolidation to reflect the accounting policies of the Group.
Intragroup transactions, balances and unrealised gains and losses on transactions between Group companies are eliminated in preparing the financial statements. Gains arising from transactions with joint arrangements and associate are eliminated to the extent of the Group's interest in the entity.
Associate and joint ventures
An associate is an entity over which the Group is in a position to exercise significant influence but does not exercise control or joint control. Investments in associates are accounted for using the equity method.
The Group has applied IFRS 11 to all joint arrangements. Under IFRS 11 investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations of each investor. Joint ventures are accounted for using the equity method.
Under the equity method of accounting, interests in the associate and joint ventures are initially recognised at cost and adjusted thereafter to recognise the Group's share of the post-acquisition profits or losses and movements in other comprehensive income. When the Group's share of losses in an associate or joint venture equals or exceeds its interests in the associate or joint venture, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate or joint venture.
Unrealised losses arising on transactions between the Group and its associate and joint ventures are eliminated unless the transaction provides evidence of an impairment of the asset transferred.
The Group funds its associate and joint ventures through a combination of equity investment and shareholder loans. The Directors review the recoverability of investments and shareholder loans for impairment annually. Where an investment is held in an associate which has net liabilities, the investment is held at GBPNil and other long-term interests, such as shareholder loans, are reduced by the value equal to the net liabilities, unless it has incurred legal or constructive obligations or made payments on behalf of its associate or joint ventures.
Business combinations
All acquisitions are accounted for using the acquisition method of accounting. The cost of an acquisition is the aggregate of the fair values of the assets transferred, liabilities incurred or assumed and equity instruments issued at the date of acquisition. The consideration transferred includes the fair value of the asset or liability resulting from a deferred and contingent consideration arrangement.
Costs directly relating to an acquisition are expensed to the income statement. The identified assets and liabilities and contingent liabilities are measured at their fair value at the date of acquisition. The excess of cost of acquisition over the aggregate fair value of the Group's share of the net identified assets plus identified intangible assets is recorded as goodwill.
Intangible assets
Goodwill
Goodwill represents the excess of the consideration on acquisition of a subsidiary over the interest in net fair value of the identifiable net assets and contingent liabilities acquired. If the total consideration transferred is less than the fair value of the net assets acquired, the difference is recognised directly in the income statement.
An impairment review is carried out annually or when circumstances arise that may indicate an impairment is likely. The carrying value of goodwill is compared to its recoverable amount being the higher of its value in use and its fair value less costs of disposal. Any impairment is charged immediately to the income statement and is not subsequently reversed.
For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the cash generating units ("CGUs"), or groups of CGUs, that are expected to benefit from the synergies of the combination. Each unit or group of units to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes.
Brands
The Group carries assets on the statement of financial position for brands that have been acquired. Internally generated brands are not recognised. Cost is determined at acquisition as being directly attributable cost or, where relevant, by using an appropriate valuation method. Acquired brands are tested for impairment when a triggering event is identified. Acquired brands are amortised over a period of 20 years.
Software
Computer software that generates an economic benefit of greater than one year is recognised as an intangible asset and carried at cost less accumulated amortisation. Computer software costs that are recognised as assets are amortised on a straight line basis over their economic useful life of four years. These are reviewed for impairment at such time as there is a change in circumstances by which the carrying value may no longer be recoverable.
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation and any applicable impairment losses.
Depreciation is charged at rates to write off the cost of the asset on a straight line basis over the estimated useful life of the asset. The applicable annual rates are:
-- Plant and machinery 20 per cent to 25 per cent -- Fixtures and fittings 10 per cent
The Group does not own any land or buildings considered to be non-trade related.
The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.
Financial assets
The Group classifies its financial assets in the following categories:
-- loans and receivables; and -- available for sale.
The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. Financial assets are derecognised only when the contractual rights to the cash flows from the financial asset expire or the Group transfers substantially all risks and rewards of ownership.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for those with maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets. The Group's loans and receivables comprise "trade and other receivables" and "cash and cash equivalents" in the Consolidated Statement of Financial Position.
Available-for-sale financial assets
Available-for-sale financial assets are non-derivative assets that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless the investment matures or management intends to dispose of it within 12 months of the end of the reporting period.
Equity share scheme loans are classified as available-for-sale financial assets and are initially recorded at fair value net of transaction costs. Fair value is assessed annually with gains and losses being recognised directly in the Consolidated Statement of Other Comprehensive Income until the loan is repaid. The loans are discounted at an interest rate equivalent to market rate. On repayment the accumulated fair value, which had been recognised in the Consolidated Statement of Changes in Equity, is recognised in the Income Statement. If a loan is determined to be impaired, any impairment loss is recognised immediately in the Income Statement.
Increases in the fair value of available-for-sale assets are initially deferred and recorded within reserves. Reductions in the fair value of available-for-sale assets are recorded as a reduction in reserves, to the extent available, with any additional reduction recorded in the Income Statement. The net deferral of increases in fair value are disclosed in the available for sale reserve.
Inventories
Inventories are normally stated at cost (or fair value if acquired as part of a business combination) and held at the lower of cost and net realisable value. Costs comprise direct materials, applicable direct labour and those overheads incurred to bring the inventories to their present location and condition. Net realisable value represents estimated selling price less all estimated costs to sell, including sales and marketing costs.
Land options purchased are initially stated at cost. Option costs are written off over the remaining life of the option and are also subject to impairment review. Impairment reviews are performed when circumstances arise which indicate an impairment is likely, such as a refusal of planning permission. Any impairments are recognised immediately in the income statement.
Land inventory is recognised when the substantial risks and rewards of ownership transfer to the Group after unconditional exchange of contracts. Where land is purchased with deferred payment terms, a corresponding liability is recognised within trade and other payables.
Pre-contract expenditure is capitalised where it is probable that a contract will be signed or otherwise is recognised as an expense within costs of sales in the Income Statement.
Provisions for inventories are made, where appropriate, to reduce the value of inventories and work in progress to their net realisable value.
Trade receivables
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost, less any provision for impairment. A provision for impairment is established when the carrying value of the receivable exceeds the present value of the future cash flows discounted using the original effective interest rate. The carrying value of the receivable is reduced and any impairment loss is recognised in the Income Statement. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), receivables are classified as current assets. If not, they are classified as non-current assets.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand and other short-term deposits held by the Group with maturities of three months or less. Bank overdrafts are classified within current liabilities.
Trade payables
Trade payables on normal terms are not interest bearing and are stated initially at their fair value and subsequently amortised cost.
Where land is purchased on deferred settlement terms the land and associated liability are discounted to their fair value. The discount to fair value is amortised over the period of the credit term and charged to finance costs using the effective interest rate method. Changes in estimates of the final payment due are capitalised into inventory and, in due course, to cost of sales in the Income Statement.
Trade payables also include liabilities in respect of land overage where the Group is committed to make contractual payments to land vendors related to the performance of the development in the future. Land overage is estimated based on expected future cash flows in relation to relevant developments and, where payment will take place in more than one year, is discounted.
Deposits received from customers relating to sales of new properties are classified within current trade payables.
Trade payables are classified as current liabilities if payment is due within one year or less. If not, they are classified as non-current liabilities.
Borrowings
Interest-bearing bank loans and overdrafts are recorded initially at their fair value and bank loans are reported, net of direct transaction costs to the extent that borrowings are available for offset. Such instruments are subsequently carried at their amortised cost and finance charges, including premiums payable on settlement or redemption, are amortised over the term of the instrument using the effective interest rate method. The excess of unamortised borrowing costs is disclosed within prepayments.
Bank loans are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the date of the statement of financial position. Overdrafts are classified as current liabilities.
Provisions
Provisions are recognised when the Group has a present legal obligation as a result of a past event which it is probable will result in an outflow of economic benefits that can be reliably estimated. Where the effect of the time value of money is material, the provision is discounted at the pre-tax discount rate that reflects the risks specific to the liability. Provisions for onerous leases are recognised when the foreseeable net cash outflows on a lease exceed the benefits derived from the lease which has more than one year before expiring or option to exercise a break.
Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in share premium as a deduction from the proceeds.
Where any Group company holds shares in the Company's equity share capital, the consideration paid, including any directly attributable incremental costs, is deducted from equity until the shares are cancelled or reissued.
Mandatory redeemable preference shares
Mandatory redeemable preferred shares were interest-bearing financial liabilities which were recorded at their fair value. Such instruments are carried at their amortised cost with returns recognised over the term of the instrument using the effective interest rate method. The Mandatory Redeemable Preference Shares were all settled as part of the pre-IPO reorganisation as described in Note 1.
Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the Statement of Financial Position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously.
Revenue
Revenue comprises the fair value of the consideration received or receivable, net of applicable value added tax, Stamp Duty Land Tax, rebates and discounts and after eliminating sales within the Group. Revenue and profit are recognised as set out below.
Private housing
Revenue is recognised in the income statement on legal completion at the fair value of the consideration received.
Part exchange
In certain instances, property may be accepted in part consideration for a sale of a residential property. The fair value is established by independent surveyors, reduced for cost to sell. Net proceeds generated from the subsequent sale of part-exchange properties are recorded as a reduction to cost of sales. The original sale is recorded in the normal way, with the fair value of the exchanged property replacing cash receipts.
Cash incentives
Cash incentives are considered to be a discount from the purchase price offered to the acquirer and are therefore accounted for as a reduction to revenue.
Land and commercial sales
Revenue is recognised when substantially all of the risks and rewards of ownership of the land or commercial property transfer to the buyer, generally when there is an unconditional exchange of contracts. Revenue is measured as the fair value of consideration received or receivable.
Affordable housing contracts and design and build contracting
Contract revenue and costs are recognised in accordance with IAS 11 'Construction Contracts'.
Where the outcome of a long-term contract can be estimated reliably, revenue and costs are recognised by reference to the stage of completion of the contract activity at the balance sheet date. This is normally measured by surveys of work performed to date. Variations in contract work, claims and incentive payments are included to the extent that it is probable that they will result in revenue and they are capable of being reliably measured.
Where the outcome of a long-term contract cannot be estimated reliably, contract revenue is recognised to the extent of contract costs incurred that it is probable will be recoverable. Contract costs are recognised as expenses in the period in which they are incurred. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised immediately in the income statement within cost of sales.
Project management services
Revenue earned for the provision of project management services, typically to the Group's joint ventures and associate, are recognised on an accruals basis in line with the underlying contract.
Cost of sales
For sales of private housing, the Group determines the value of inventory charged to cost of sales based on the total budgeted cost of developing a site. Once the total expected costs of development are established they are allocated to individual plots to achieve a build cost per plot. These costs are recognised within cost of sales when the related revenue is recognised in accordance with the Group's revenue recognition policy.
To the extent that additional costs or savings are identified as the site progresses, these are recognised over the remaining plots unless they are specific to a particular plot, in which case they are recognised in the income statement at the point of sale.
For land and commercial property sales, cost of sales represents the carrying value of the related inventory on the Group's balance sheet and this is recognised within cost of sales when revenue is recognised in accordance with the Group's revenue recognition policy.
As outlined above, costs in relation to the sale of affordable housing and design and build contracts are recognised in accordance with IAS 11.
Leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases.
Rentals payable and incentives receivable under operating leases are recognised on a straight line basis over the term of the relevant lease.
Finance costs and finance income
Borrowing costs
Borrowing costs in relation to the Group's debt facility are recognised on an accruals basis. Also included in borrowing costs is the amortisation of fees associated with the arrangement of the financing. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis in the income statement using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.
The Group does not capitalise borrowing costs into developments.
Unwind of discounting
The finance cost associated with the time value of money on discounted receivables and payables is recognised within finance costs as the discount unwinds over the life of the relevant item.
Current and deferred income taxation
Income tax comprises current and deferred tax.
Current taxation
The current tax payable is based on taxable profit for the period which differs from accounting profit as reported in the Income Statement because it excludes items of income or expense that are taxable or deductible in other years and those items never taxable or deductible. The Group's liability for current tax is measured using tax rates that have been enacted or substantively enacted by the reporting date.
Deferred taxation
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax rates used in the computation of taxable profit, and is accounted for using the balance sheet liability method.
Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction which affects neither the taxable profit nor the accounting profit.
Deferred tax is calculated at the substantively enacted tax rates that are expected to apply to the period when the asset is realised or the liability is settled based upon tax rates that have been enacted or substantively enacted by the reporting date. Deferred tax is charged or credited in comprehensive income, except when it relates to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity, or items charged or credited directly to other comprehensive income, in which case the deferred tax is also recognised in other comprehensive income.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the Group intends to settle the balances on a net basis.
Segment reporting
Segment reporting is presented in the consolidated financial statements in respect of the Group's business segments. Segmental reporting reflects the Group's management structure and primary basis of internal reporting.
Segmental results include items directly attributable to the segment, as well as those that can be allocated on a reasonable basis.
The chief operating decision-maker ("CODM") has been identified as the Group's Executive Committee. The CODM reviews the Group's internal reporting in order to assess performance and allocate resources. The CODM assesses the performance of the operating segments based on underlying operating profit and tangible net operating asset values ("TNOAV").
Pension obligations
The Group operates a defined contribution pension scheme. A defined contribution plan is a pension plan under which the Group pays fixed contributions to a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods.
The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they fall due.
Share-based payments
The Group provides benefits to employees (including Directors) of the Group in the form of equity-settled and cash-settled share-based payment transactions, whereby employees render services in exchange for rights over shares. For equity-settled share-based payments, the fair value of the employee services rendered is determined by reference to the fair value of the shares awarded or options granted, excluding the impact of any non-market vesting conditions. All share options are valued using an option-pricing model (Black Scholes or Monte Carlo). This fair value is charged to the income statement over the vesting period of the share-based payment scheme.
For cash-settled share-based payments, the fair value of the employee services rendered is determined at each balance sheet date and the charge recognised through the income statement over the vesting period of the share-based payment scheme, with the corresponding increase in accruals. The value of the charge is adjusted in the income statement over the remainder of the vesting period to reflect expected and actual levels of options vesting, with the corresponding adjustments made in equity and accruals.
Countryside Properties PLC invoices its subsidiary undertakings an amount equivalent to the fair value of the grant by the Company of options over its equity instruments to the employees of subsidiaries. The fair value of employee services received, measured by reference to the grant date fair value, is recognised over the vesting period as an increase to investment in subsidiary undertakings, with a corresponding credit to equity.
Adjusted measures
Certain items which do not relate to the Group's underlying performance are presented separately in the Income Statement as non-underlying items where, in the judgement of the Directors, they need to be disclosed separately by virtue of their nature, size or incidence in order to obtain a clear and consistent presentation of the Group's underlying business performance. As these non-underlying items can vary significantly from year to year they create volatility in reported earnings. In addition, the Directors believe that in discussing the performance of the Group, the results of joint ventures and associate should be proportionally consolidated, including the Group's share of revenue, operating profit and TNOAV given their importance to the Group's operations.
As such, the Directors believe that the "adjusted revenue", "adjusted Group operating profit" and "adjusted basic and diluted earnings per share" measures presented provide a clear and consistent presentation of the underlying performance of the Group's ongoing business for shareholders. Adjusted Group operating profit is not defined by IFRS and therefore may not be directly comparable with the "adjusted" or "underlying" profit measures of other companies.
Examples of material and non-recurring items which may give rise to disclosure as non-underlying items are:
-- fees incurred in relation to business combinations or capital market transactions;
-- adjustments to the balance sheet that do not relate to trading activity such as the recognition
and reversal of non-trade impairments; and
-- accelerated write-off of unamortised issue costs on the refinancing of borrowings.
Share-based payment charges in respect of the pre-IPO Management Incentive Plan established during the year ended 30 September 2013 in connection with the acquisition of Copthorn Holdings Limited and its subsidiary companies by Oaktree Capital Management LLC are also treated as a non-underlying item. This allows the underlying performance of the Group to be measured from period to period, due to that fact the full benefits of owning these shares are crystallised only following an exit event, such as the IPO.
Adjusted Group operating profit is one of the key measures used by the Board to monitor Group's performance.
Dividends
Dividend income from investments is recognised when the shareholders' rights to receive payment have been established.
Dividends payable are recorded in the period in which they are approved or paid, whichever is earliest.
4. Segmental reporting
Segmental reporting is presented in respect of the Group's business segments reflecting the Group's management and internal reporting structure and is on the basis on which strategic operating decisions are made by the Group's Chief Operating Decision-Maker ("CODM"). The Group's two business segments are Housebuilding and Partnerships.
The Housebuilding division develops large-scale sites, providing private and affordable housing on land owned or controlled by the Group, primarily around London and in the South and East of England, operating under both the Countryside and Millgate brands.
The Partnerships division specialises in medium to large-scale housing regeneration schemes delivering private and affordable homes in partnership with public sector land owners and operates primarily in and around London, the North West of England and the West Midlands.
Segmental adjusted operating profit and segmental operating profit includes items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Central head office costs have been allocated between the segments using a percentage of revenue basis. Items below Group operating profit have not been allocated.
Segmental net assets and tangible net operating asset value includes items directly attributable to the segment as well as those that can be allocated on a reasonable basis with the exception of intangibles, mandatory redeemable preference share (including the return) and net bank loans (excluding unamortised bank loan and arrangement fees).
Countryside operates entirely within the United Kingdom.
a) Segmental income statement
Housebuilding Partnerships Group Total
GBP'000 GBP'000 items GBP'000
GBP'000
--------------------------------------------------------- ------------ -------- ---------
Year ended 30 September 2016
Adjusted revenue including share of joint
ventures' revenue 427,113 349,869 - 776,982
Share of joint ventures' revenue (69,027) (36,697) - (105,724)
----------------------------------------------- -------- ------------ -------- ---------
Revenue 358,086 313,172 - 671,258
----------------------------------------------- -------- ------------ -------- ---------
Segment result:
Adjusted operating profit including share
of operating profit from associate and
joint ventures 66,829 55,639 - 122,468
Less: share of operating profit from associate
and joint ventures (18,326) (6,934) - (25,260)
Less: non-underlying items - 2,590 (12,471) (9,881)
----------------------------------------------- -------- ------------ -------- ---------
Operating profit/(loss) 48,503 51,295 (12,471) 87,327
----------------------------------------------- -------- ------------ -------- ---------
Housebuilding Partnerships Group Total
GBP'000 GBP'000 items GBP'000
GBP'000
--------------------------------------------------------- ------------ -------- --------
Year ended 30 September 2015
Group revenue including share of joint
ventures' revenue 330,701 285,139 - 615,840
Share of joint ventures' revenue (51,958) (16,396) - (68,354)
----------------------------------------------- -------- ------------ -------- --------
Revenue 278,743 268,743 - 547,486
----------------------------------------------- -------- ------------ -------- --------
Segment result:
Total operating profit including share
of operating profit from associate and
joint ventures 51,562 39,604 - 91,166
Less: share of operating profit from associate
and joint ventures (13,565) (3,120) - (16,685)
Less: non-underlying items - (2,678) (3,877) (6,555)
----------------------------------------------- -------- ------------ -------- --------
Operating profit/(loss) 37,997 33,806 (3,877) 67,926
----------------------------------------------- -------- ------------ -------- --------
b) Segmental capital employed
Housebuilding Partnerships Group Total
GBP'000 GBP'000 items GBP'000
GBP'000
----------------------- ------------ -------- --------
Year ended 30 September 2016
Net assets(1) 422,175 103,301 67,410 592,886
-------------- ------- ------------ -------- --------
TNOAV(2) 422,175 103,301 - 525,476
-------------- ------- ------------ -------- --------
Housebuilding Partnerships Group Total
GBP'000 GBP'000 items GBP'000
GBP'000
------------------------------------- ------------ --------- --------
Year ended 30 September 2015
Net assets/(liabilities)(1) 334,321 54,179 (375,266) 13,234
---------------------------- ------- ------------ --------- --------
TNOAV(2) 334,321 54,179 - 388,500
---------------------------- ------- ------------ --------- --------
1 Group items includes intangible assets of GBP58.9m (2015: GBP59.4m) (net of deferred tax of GBP3.5m (2015: GBP4.3m)) and net cash/debt of GBP12.0m (2015: debt GBP59.5m) (excluding unamortised bank loan arrangement fees of GBP2.5m (2015: GBP3.5m)) and, in 2015, mandatory redeemable preference shares and outstanding returns in respect of the mandatory redeemable preference shares of GBP375.2m.
2 TNOAV is calculated as net assets/(liabilities) excluding the Group items described above.
c) Segmental other items
Housebuilding Partnerships Group Total
GBP'000 GBP'000 items GBP'000
GBP'000
-------------------------------------------------- ------------ -------- --------
Year ended 30 September 2016
Investment in associate 5,235 - - 5,235
Investment in joint ventures 47,460 6,447 - 53,907
Share of post-tax profit from associate
and joint ventures 13,005 6,588 - 19,593
Capital expenditure - property, plant and
equipment 508 417 - 925
Capital expenditure - software - - 743 743
Acquisitions 2,293 - - 2,293
Depreciation and amortisation 369 302 1,273 1,944
Share-based payments - - 3,035 3,035
------------------------------------------ ------ ------------ -------- --------
Housebuilding Partnerships Group Total
GBP'000 GBP'000 items GBP'000
GBP'000
-------------------------------------------------- ------------ -------- --------
Year ended 30 September 2015
Investment in associate 4,164 - - 4,164
Investment in joint ventures 47,143 2,954 - 50,097
Share of post-tax profit from associate
and joint ventures 7,581 3,003 - 10,584
Capital expenditure - property, plant and
equipment 813 701 - 1,514
Depreciation and amortisation 189 163 1,201 1,553
Share-based payments - - 1,310 1,310
------------------------------------------ ------ ------------ -------- --------
5. Employees and directors
(a) Staff costs for the Group during the year
2016 2015
GBP'000 GBP'000
---------------------------------------------------------- ---------
The aggregate remuneration for the employees and Directors of the
Group comprised:
Salaries 58,246 51,637
Social security costs 6,935 5,375
Pension costs (Note 5b) 2,630 1,995
Share-based payments - pre-IPO (Note 30) 1,910 1,310
Share-based payments - post-IPO (Note 30) 1,124 -
Compensation for loss of office - 750
------------------------------------------------- ------- ---------
70,845 61,067
---------------------------------------------------------- ---------
The average monthly number of employees (including Directors) for the period for each of the Group's principal activities was as follows:
2016 2015
Number Number
---------------------------------- -------
Housebuilding and development 886 704
Head office 124 107
1,010 811
---------------------------------- -------
(b) Retirement benefits
All the Group's employees are entitled to join the Group's defined contribution schemes, which are invested with Aegon. Annual contributions to these plans charged against income amounted to GBP2,630,000 (2015: GBP1,995,000), of which GBP197,000 (2015: GBP172,000) was outstanding at 30 September 2016.
(c) Directors' emoluments
2016 2015
GBP'000 GBP'000
---------------------------- --------
Aggregate emoluments 2,517 1,462
--------------------- ----- --------
(d) Emoluments of the highest paid Director
2016 2015
GBP'000 GBP'000
---------------------------- --------
Aggregate emoluments 1,415 1,144
--------------------- ----- --------
(e) Key management compensation
The following table details the aggregate compensation paid in respect of the members of the Executive Committee of the Board of Directors, including the Executive Directors.
2016 2015
GBP'000 GBP'000
---------------------------------- --------
Wages and salaries 4,470 4,356
Accrued retirement benefits 111 130
Termination payment - 750
Share-based payments 1,474 1,123
--------------------------- ----- --------
6,055 6,359
---------------------------------- --------
Compensation for loss of office of GBP750,000 paid in the year ended 30 September 2015 is considered to be a non-underlying item (Note 6b).
The Group does not operate any defined benefit pension schemes. Pension costs under defined contribution schemes are included in the accrued retirement benefits disclosed above. The disclosures of shares granted under the long-term incentive schemes are included in Note 30(b).
6. Group operating profit
(a) Group operating profit is stated after charging/(crediting):
2016 2015
Note GBP'000 GBP'000
------------------------------------------------------- -------- --------
Staff costs 5a 70,845 61,067
Depreciation of property, plant and equipment 12 671 352
Amortisation of intangible assets 11 1,273 1,201
Provisions/(reversal of provision) for inventories 17 635 (352)
Inventories expensed to cost of sales 17 523,674 423,881
Operating leases 4,205 3,435
Auditors' remuneration (see below) 1,815 1,413
------------------------------------------------------- -------- --------
During the year the Group obtained the following services from the Group's auditors as detailed below:
2016 2015
GBP'000 GBP'000
------------------------------------------------------------------ --------
Fees payable to Group's auditor and its associates for
the audit of parent and consolidated financial statements: 139 82
Fees payable to the Group's auditors and its associates
for other services:
- Audit of subsidiary companies 126 294
- Audit of joint ventures 99 90
- Audit-related services 47 20
- Tax advisory services - 229
- Other advisory services 121 -
- Audit related assurance and transaction services in
relation to the IPO 1,283 698
----------------------------------------------------------- ----- --------
1,815 1,413
------------------------------------------------------------------ --------
(b) Non-underlying items
2016 2015
GBP'000 GBP'000
------------------------------------------------------------------- --------
Non-recurring items:
Advisory costs 10,561 1,698
(Reversal)/impairment of non-trade receivable (2,590) 2,677
Share-based payments - pre-IPO 1,910 1,310
Change of Board Director - 870
---------------------------------------------------------- ------- --------
Total non-underlying items included within administrative
expenses 9,881 6,555
Impairment of unamortised loan arrangement fees 3,177 -
---------------------------------------------------------- ------- --------
Total non-underlying items 13,058 6,555
---------------------------------------------------------- ------- --------
Advisory fees
During the years ended 30 September 2016 and 2015, the Group engaged in corporate activity in relation to the listing of its ordinary shares on the London Stock Exchange. Advisory costs of GBP10,561,000 (2015: GBP1,698,000) were charged to the consolidated statement of comprehensive income in relation to this activity. Additionally, as disclosed in Note 1, GBP4,610,000 of IPO-related costs were charged to the share premium account. These costs primarily relate to the fees of professional advisors.
Impairment of non-trade receivable
The non-recurring charge of GBP2,677,000 relates to the impairment of a receivable during the prior year which management believed to be irrecoverable. During the year GBP2,590,000 has been received in cash resulting in partial reversal of the impairment.
Share-based payments - pre-IPO
In the year ended 30 September 2013, a Management Incentive Plan (the "Plan") was approved by the Board in which certain senior employees of Countryside Properties (UK) Limited, a subsidiary company, were invited to acquire shares issued by OCM Luxembourg Midco S.à r.l. The Directors believe that this Plan should be treated as a non-underlying item, as this allows the underlying performance of the Group to be measured from period to period. No awards under the Plan have been made since the IPO.
GBP1,910,000 was charged to the consolidated statement of comprehensive income in the year ended 30 September 2016 (2015: GBP1,310,000) in respect of charges related to the Plan.
Impairment of unamortised loan arrangement fees
As described in Note 23, the Group refinanced in May 2016. As a result, unamortised debt finance costs in relation to the previous facility as at the refinancing date of GBP3,177,000 were expensed as a non-underlying finance cost.
Change of Board Director
During the year ended 30 September 2015, GBP870,000 of costs were incurred in relation to the resignation and appointment of Chief Financial Officers of Copthorn Holdings Limited. This amount includes compensation for loss of office of GBP750,000 and GBP120,000 of recruitment costs.
Taxation
A total tax credit of GBP969,000 (2015: GBP1,419,000) in relation to all of the above non-recurring items was included within taxation in the income statement.
(c) Non-GAAP performance measures
The Directors believe that adjusted revenue (including share of revenue from associate and joint ventures), adjusted operating profit (including share of operating profit from associates and joint ventures) and underlying diluted and basic earnings per share measures presented provide a clear and consistent presentation of the underlying performance of the Group's ongoing business for shareholders. These are not measures that are defined by IFRS and therefore may not be directly comparable with the adjusted or underlying profit measures of other companies.
The following table reconciles revenue to adjusted Group revenue:
2016 2015
GBP'000 GBP'000
------------------------------------------------- --------
Revenue 671,258 547,486
Add: share of revenue of joint ventures 105,724 68,354
---------------------------------------- ------- --------
Adjusted Group revenue 776,982 615,840
---------------------------------------- ------- --------
The following table reconciles operating profit to adjusted Group operating profit:
2016 2015
GBP'000 GBP'000
--------------------------------------------------------------- --------
Operating profit 87,327 67,926
Add: non-underlying items 9,881 6,555
Add: share of operating profit of associate and joint
ventures 25,260 16,685
------------------------------------------------------ ------- --------
Adjusted Group operating profit 122,468 91,166
------------------------------------------------------ ------- --------
7. Finance costs
2016 2015
Note GBP'000 GBP'000
------------------------------------------------- ---- ---------- --------
Bank loans and overdrafts 5,211 6,312
Interest on mandatory redeemable preferred shares 16,495 40,961
Fair value losses on financial instruments - 406
Unwind of discount 4,811 3,502
Amortisation of debt finance costs 23 824 1,113
------------------------------------------------- ------ -------- --------
Adjusted finance costs 27,341 52,294
Write off unamortised debt arrangement fees 6 3,177 -
30,518 52,294
------------------------------------------------------------------- --------
The mandatory redeemable preferred shares accrued interest annually until redemption in February 2016 (Note 23).
8. Finance income
2016 2015
GBP'000 GBP'000
--------------------------- --------
Interest receivable 1,458 824
Unwind of discount 717 979
-------------------- ----- --------
2,175 1,803
-------------------- ----- --------
9. Taxation
2016 2015
Analysis of charge for the year GBP'000 GBP'000
-------------------------------------------------- -------- --------
UK corporation tax
Current period 14,811 8,087
Adjustments in respect of prior periods 83 (200)
-------------------------------------------------- -------- --------
Total UK current tax 14,894 7,887
Foreign tax
Luxembourg corporation tax (63) 3
-------------------------------------------------- -------- --------
Total current tax 14,831 7,890
-------------------------------------------------- -------- --------
Deferred tax (Note 16)
Origination and reversal of temporary differences 2,988 553
Other differences (546) (257)
-------------------------------------------------- -------- --------
Total deferred tax 2,442 296
-------------------------------------------------- -------- --------
Income tax expense 17,273 8,186
-------------------------------------------------- -------- --------
Changes to the UK corporation tax rates were substantively enacted as part of the Finance Bill 2015 on 26 October 2015. These include reductions to the main rate to 19 per cent from 1 April 2017 and to 18 per cent from 1 April 2020. Deferred taxes at the balance sheet date have been measured using these enacted rates and reflected in these financial statements.
The tax assessed for the year is higher than the standard rate of corporation tax in the United Kingdom, which is 20 per cent (2015: 29.22 per cent being the statutory rate in Luxembourg).
The table below shows the reconciliation of profit before tax to the income tax expense.
2016 2015
GBP'000 GBP'000
---------------------------------------------------------------- --------
Profit before income tax 78,577 28,019
------------------------------------------------------- ------- --------
Tax calculated at the parent entity rate of tax: 20
per cent (2015: 29.22 per cent) 15,715 8,187
Adjustments to deferred tax due to reduction in UK tax
rates 782 -
Associate and joint venture tax (1,286) (3,093)
Deferred tax charged directly to reserves 154 -
Adjustments in respect of prior periods (1,558) (477)
Expenses not deductible for tax 2,889 2,482
Temporary timing differences (332) (48)
Deferred tax not recognised (222) -
Transfer pricing adjustments 1,194 3,728
Foreign tax (63) 3
Overseas subsidiaries taxed at different rates - (2,596)
------------------------------------------------------- ------- --------
Income tax expense 17,273 8,186
------------------------------------------------------- ------- --------
Adjustments in respect of prior periods
In both years presented the adjustments relate to the finalisation of entity tax computations following the signing of the Group financial statements.
Expenses not deductible for tax
These items in both years largely relate to disallowable costs incurred in relation to the IPO, principally legal and advisory fees.
Transfer pricing adjustments
These adjustments in both years relate to the disallowable portion of interest costs in relation to loans from the Group's previous parent entity which was based in Luxembourg. These loans were repaid in full on IPO.
Income tax charged directly to equity
Income tax of GBP154,000 (2015: GBPNil) was charged directly to equity in relation to share based payments.
10. Earnings per share
Basic and diluted earnings per share are calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares in issue from the date of the IPO to 30 September 2016. The weighted average number of shares for both the current and preceding years has been stated as if the Group reorganisation had occurred at the beginning of the comparative year. When calculating diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of 0.2 million of potentially dilutive ordinary shares. These represent share options granted to employees under the Group's Save As You Earn plan.
(a) Basic and diluted earnings per share
2016 2015
----------------------------------------------------------------- ------
Profit from continuing operations attributable to equity
holders of the parent (GBP'000) 61,074 19,623
Basic weighted average number of shares (millions) 450.0 450.0
Basic earnings per share (pence per share) 13.6 4.4
Diluted weighted average number of shares (millions) 450.2 450.2
Diluted earnings per share (pence per share) 13.6 4.4
--------------------------------------------------------- ------ ------
(b) Adjusted basic and diluted earnings per share
Adjusted Group operating profit represents a key measure for the Group. Adjusted earnings per share excludes non-underlying items from Group profit as follows:
2016 2015
----------------------------------------------------------------- ------
Profit from continuing operations attributable to equity
holders of the parent (GBP'000) 61,074 19,623
Add: non-underlying items net of tax (GBP'000) 12,089 5,136
Adjusted profit from continuing operations attributable
to equity holders of the parent (GBP'000) 73,163 24,759
--------------------------------------------------------- ------ ------
Basic weighted average number of shares (millions) 450.0 450.0
Basic adjusted earnings per share (pence per share) 16.3 5.5
Diluted weighted average number of shares (millions) 450.2 450.2
Diluted adjusted earnings per share (pence per share) 16.3 5.5
--------------------------------------------------------- ------ ------
Non-underlying items net of tax include costs of GBP13,058,000 net of tax of GBP969,000 (2015: costs of GBP6,555,000 net of tax of GBP1,419,000).
The above analysis represents a non-GAAP measure which has been included to assist understanding of the Group's business.
11. Intangible assets
Movement in intangible assets
Software Brand Goodwill Total
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------------- -------- -------- --------
Cost
At 1 October 2014 and 30 September 2015 - 24,200 37,824 62,024
Additions 743 - - 743
---------------------------------------- --- -------- -------- --------
At 30 September 2016 743 24,200 37,824 62,767
---------------------------------------- --- -------- -------- --------
Accumulated amortisation
At 1 October 2014 - 1,370 - 1,370
Amortisation - 1,201 - 1,201
---------------------------------------- --- -------- -------- --------
At 30 September 2015 - 2,571 - 2,571
Amortisation 72 1,201 - 1,273
---------------------------------------- --- -------- -------- --------
At 30 September 2016 72 3,772 - 3,844
---------------------------------------- --- -------- -------- --------
Net book value
At 30 September 2016 671 20,428 37,824 58,923
---------------------------------------- --- -------- -------- --------
At 30 September 2015 - 21,629 37,824 59,453
---------------------------------------- --- -------- -------- --------
Goodwill
Goodwill relates to the acquisition of the Copthorn Holdings Group in April 2013 (GBP19,297,000) and Millgate Developments in February 2014 (GBP18,527,000). Both entities are considered to be cash generating units ("CGUs"). The goodwill balance is tested annually for impairment. The recoverable amount has been determined as the value in use of the business assessed on the current five-year cash flow forecasts. These forecasts are based on achieving the Group's medium term targets of 17 per cent operating margin and 28 per cent ROCE with appropriate growth rates applied in following years. Cash flow beyond the five-year period is extrapolated using a growth rate of 2 per cent. Cash flows generated by both CGUs are discounted using a pre-tax discount rate of 12.5 per cent, approved by the Board of Directors. The cash flow forecasts are also sensitised for a slowdown in sales and a reduction in selling prices. Significant headroom exists on all sensitised forecasts given the relative size of goodwill compared to annual operating profits and cash flows.
Brand
Brand relates to both the Countryside brand (GBP13,500,000), acquired as part of the Copthorn Holdings Group in 2013, and the Millgate brand (GBP10,700,000), acquired as part of Millgate Developments Limited in 2014. Both brands have been valued using the income method and are considered to have a useful economic life of 20 years.
Amortisation expense in respect of the Group's brands of GBP1,201,000 (2015: GBP1,201,000) has been charged to administrative expenses.
12. Property, plant and equipment
Fixtures
Plant and and
machinery fittings Total
GBP'000 GBP'000 GBP'000
------------------------------------------ --------- --------
Cost
At 1 October 2014 5,597 2,487 8,084
Additions 781 733 1,514
Disposals (1,381) - (1,381)
--------------------------------- ------- --------- --------
At 30 September 2015 4,997 3,220 8,217
Additions 405 520 925
Disposals (3) - (3)
--------------------------------- ------- --------- --------
At 30 September 2016 5,399 3,740 9,139
--------------------------------- ------- --------- --------
Accumulated depreciation
At 1 October 2014 4,721 2,119 6,840
Depreciation charge for the year 208 144 352
Disposals (1,381) - (1,381)
--------------------------------- ------- --------- --------
At 30 September 2015 3,548 2,263 5,811
Depreciation charge for the year 445 226 671
Disposals (2) - (2)
--------------------------------- ------- --------- --------
At 30 September 2016 3,991 2,489 6,480
--------------------------------- ------- --------- --------
Net book value
At 30 September 2016 1,408 1,251 2,659
--------------------------------- ------- --------- --------
At 30 September 2015 1,449 957 2,406
--------------------------------- ------- --------- --------
Depreciation expense of GBP671,000 (2015: GBP352,000) has been charged to administrative expenses.
13. Investment in joint ventures
The Directors have aggregated disclosure of joint ventures' statement of financial position and income statement on the basis that all of the joint ventures share a similar risk profile. The Groups' aggregate investment in its joint ventures is represented by:
Housebuilding Partnerships Group Housebuilding Partnerships Group
Investment in joint ventures 2016 2015
GBP'000 GBP'000 GBP000 GBP'000 GBP'000 GBP000
Summarised statement of financial
position:
Non-current assets 96 - 96 808 - 808
Current assets 393,182 53,254 446,436 372,824 37,370 410,194
Cash 336 7,986 8,322 10,950 704 11,654
Current liabilities (37,292) (7,800) (45,092) (42,820) (16,868) (59,688)
Non-current liabilities (261,402) (40,546) (301,948) (247,476) (15,298) (262,774)
94,920 12,894 107,814 94,286 5,908 100,194
------------------------------ -------------- ------------- ---------- -------------- ------------- ----------
Reconciliation to carrying
amount:
At 1 October 94,286 5,908 100,194 39,370 14 39,384
Profit for the year 23,868 13,176 37,044 14,030 6,006 20,036
Dividends paid (21,074) (6,190) (27,264) (13,252) (112) (13,364)
Capital contribution 2,757 - 2,757 - - -
Increase/decrease in
loans to joint ventures (2,624) - (2,624) 6,962 - 6,962
Additional investment
in a joint ventures - - - 47,176 - 47,176
Disposal of joint venture (2,293) - (2,293) - - -
At 30 September 94,920 12,894 107,814 94,286 5,908 100,194
------------------------------ -------------- ------------- ---------- -------------- ------------- ----------
Summarised statement of comprehensive
income:
Revenue 138,164 73,284 211,448 104,108 32,600 136,708
Expenses (104,742) (59,416) (164,158) (78,432) (26,360) (104,792)
Operating profit 33,422 13,868 47,290 25,676 6,240 31,916
Finance cost (6,130) (692) (6,822) (7,462) (234) (7,696)
Income tax (3,424) - (3,424) (4,184) - (4,184)
Profit for the year 23,868 13,176 37,044 14,030 6,006 20,036
------------------------------ -------------- ------------- ---------- -------------- ------------- ----------
Group's share in per
cent 50.0% 50.0%
Share of revenue 105,724 68,354
Share of operating profit 23,645 15,958
Dividends received by
the Group 13,632 6,682
Investment in joint ventures 53,907 50,097
------------------------------ -------------- ------------- ---------- -------------- ------------- ----------
The table below reconciles the movement in the Group's net investment in joint ventures:
2016 2015
GBP000 GBP000
-------------------------- --------- --------
As at 1 October 50,097 19,692
Share of post-tax profit 18,522 10,018
Dividends paid (13,632) (6,682)
Other movements (1,080) 27,069
------------------------------ --------- --------
At 30 September 53,907 50,097
------------------------------ --------- --------
The aggregate amount due from joint ventures is GBP84,543,000 (2015: GBP62,435,000). The amount due to joint ventures is GBP310,000 (2015: GBP318,000). Transactions between the Group and its joint ventures are disclosed in Note 27.
The Group's investments in joint ventures, all of which are incorporated in the United Kingdom and are accounted for using the equity method, comprise:
Country of Ownerships
incorporation interest
% Principal activity
----------------------------------------------- ---------- ------------------
Acton Gardens LLP UK 50.00 Housebuilding
Brenthall Park (Commercial) Limited UK 50.00 Non-trading
Brenthall Park (Infrastructure) Limited UK 50.00 Dormant
Brenthall Park (Three) Limited UK 50.00 Dormant
Brenthall Park Limited UK 50.00 Non-trading
Cambridge Medipark Limited UK 50.00 Commercial
CBC Estate Management Limited UK 50.00 Estate management
C.C.B. (Stevenage) Limited UK 33.33 Non-trading
Countryside 27 Limited UK 50.00 Commercial
Countryside L&Q (Oaks Village) LLP UK 50.00 Housebuilding
Countryside Annington (Colchester) Limited
(in liquidation) UK 50.00 Housebuilding
Countryside Annington (Mill Hill) Limited UK 50.00 Housebuilding Countryside Properties (Accordia) Limited UK 50.00 Non-trading Countryside Properties (Booth Street 2) UK 39.00 Non-trading Limited Countryside Properties (Merton Abbey Mills) UK 50.00 Non-trading Limited Countryside Properties (Salford Quays) UK 50.00 Non-trading Limited Countryside Maritime Limited UK 50.00 Housebuilding Countryside Neptune LLP UK 50.00 Housebuilding Countryside Zest (Beaulieu Park) LLP UK 50.00 Housebuilding Greenwich Millennium Village Limited UK 50.00 Housebuilding iCO Didsbury Limited UK 50.00 Commercial Mann Island Estate Limited UK 50.00 Estate management Peartree Village Management Limited UK 50.00 Dormant Silversword Properties Limited UK 50.00 Commercial The Edge 1A Limited (in liquidation) UK 39.00 Non-trading Woolwich Countryside Limited UK 50.00 Non-trading ------------------------------------------- ---------- ------------------
14. Investment in associate
The Group holds 28.5 per cent of the ordinary share capital with pro rata voting rights in Countryside Properties (Bicester) Limited, a company incorporated in the United Kingdom, whose principal activity is housebuilding. It is accounted for using the equity method.
The Group's investment in its associate is represented by:
Investment in associate 2016 2015
GBP000 GBP000
Summarised statement of financial
position:
Non-current assets 1,500 -
Current assets 11,156 13,895
Cash 19,814 19,067
Current liabilities (14,102) (17,204)
Non-current liabilities - (1,147)
18,368 14,611
--------------------------------------- --------- ---------
Reconciliation to carrying amount:
At 1 October 14,611 31,021
Profit for the year 3,758 1,986
Dividends paid - (18,396)
At 30 September 18,368 14,611
------------------------------------------ --------- ---------
Summarised statement of comprehensive
income:
Revenue 17,670 13,302
Expenses (12,003) (10,751)
Operating profit 5,667 2,551
Finance income 70 305
Income tax (1,979) (870)
Profit for the year 3,758 1,986
------------------------------------------ --------- ---------
Group's share in per cent 28.5% 28.5%
Share of operating profit 1,615 727
Dividends received by the Group - 5,243
------------------------------------------ --------- ---------
Investment in associate 5,235 4,164
------------------------------------------ --------- ---------
The amount due from the associate is GBPNil (2015: GBPNil).
Transactions between the Group and its associate are disclosed in Note 27.
15. Available-for-sale financial assets
2016 2015
Note GBP'000 GBP'000
-------------------------------------- -------- --------
At 1 October 10,535 10,862
Additions from acquisitions 31 544 -
(Decrease)/increase in fair value (1,501) 443
Unwind of discount 717 515
Redemptions (1,630) (1,285)
---------------------------------- -------- --------
At 30 September 8,665 10,535
---------------------------------- -------- --------
The available-for-sale financial assets comprise loans advanced to homebuyers to assist in the purchase of their property under shared equity schemes. The loans are secured by either a first or second legal charge over the property and are either interest free or have interest chargeable from the fifth year onwards or tenth year onwards, dependent upon the scheme under which the loans were issued.
The assets are held at fair value, which represents the current market value of the properties held discounted to fair value, based on the redemption date of the loan. These loans are subject to credit risk, where loans may potentially not be repaid if the borrower defaults on repayment. An adjustment for credit risk is built into the calculation by using a discount rate equivalent for home loans, which rank behind mortgages. None of these financial assets are either past due or impaired.
The estimated value takes into consideration movements in house prices, the anticipated timing of the repayment of the asset and associated credit risk. As the precise valuation and timing of the redemption of these assets remains uncertain, the Group applies assumptions based upon current market conditions and the Group's experience of actual cash flows resulting from these transactions. These assumptions are reviewed at the end of each financial year as part of the impairment review conducted by the Directors. The difference between the estimated future value and the initial fair value is credited to finance income over the term of the loan.
Future house price inflation is assumed to be zero (2015: zero). The discount rate applied is 8.5 per cent (2015: 8.5 per cent) which the Directors believe approximates the cost of a second charge mortgage on similar properties.
If UK house price inflation had been one per cent higher or lower, with all other variables held constant and excluding any effect of current or deferred tax, the value of shared equity would increase or decrease by GBP139,000 (2015: GBP90,000) respectively, whilst if the discount rate used had been one per cent higher or lower, the value of these financial instruments would decrease or increase by GBP453,000 (2015: GBP492,000) and GBP506,000 (2015: GBP524,000), respectively. Changes in economic conditions will change the estimates made, therefore impacting the fair value of these loans.
The inputs used are by nature estimated and the resultant fair value has been classified as Level 3 under the fair value hierarchy.
16. Deferred tax assets
2016 2015
GBP'000 GBP'000
----------------------------------------------------------- --------
Amounts due to be recovered within one year 1,811 -
Amounts due to be recovered after more than one year 1,507 5,606
---------------------------------------------------- ----- --------
3,318 5,606
----------------------------------------------------------- --------
The movement in the year in the Group's net deferred tax position was as follows:
Losses Other Total
GBP'000 GBP'000 GBP'000
-------------------------------------------------------- -------- --------
At 1 October 2014 5,900 2 5,902
Charge to Income Statement for the year (262) (34) (296)
----------------------------------------------- ------- -------- --------
At 30 September 2015 5,638 (32) 5,606
Charge to Income Statement for the year (3,182) 740 (2,442)
Amount transferred to the Statement of Changes
in Equity - 154 154
----------------------------------------------- ------- -------- --------
At 30 September 2016 2,456 862 3,318
----------------------------------------------- ------- -------- --------
A deferred tax asset of GBP2,456,000 (2015: GBP5,638,000) has been recognised in respect of unutilised losses where realisation of the related tax benefit through future taxable profits is probable. A deferred tax asset of GBP862,000 (2015: GBP32,000 liability) in respect of other short-term timing differences and share-based payments has also been recognised. Temporary differences arising in connection with interests in associate and joint ventures are not significant. No deferred tax asset has been recognised in relation to losses where it is considered that they are not recoverable in the near future. The Group has unrecognised deferred tax assets of GBP1,260,000 on historical losses of GBP7,413,000 (2015: GBP1,483,000 on losses of GBP7,413,000).
17. Inventories
2016 2015
GBP'000 GBP'000
------------------------------------------------------------ --------
Development land and work in progress 550,620 408,700
Completed properties unlet, unsold or awaiting sale 32,982 30,842
--------------------------------------------------- ------- --------
583,602 439,542
------------------------------------------------------------ --------
The value of inventories expensed during the period and included in cost of sales was GBP523,674,000 (2015: GBP423,881,000). During the year inventories were written down through cost of sales by GBP1,235,000 (2015: GBP300,000). During the year impairment of inventories, which in previous years amounted to GBP600,000 (2015: GBP652,000), has been reversed, due to improved market conditions. During the year provisions of GBP1,119,000 (2015: GBP5,546,000) were utilised as inventory was consumed.
Total provisions against inventory at 30 September 2016 were GBP14,560,000 (2015: GBP15,044,000).
Interest incurred on deferred land purchases amounting to GBP919,000 (2015: GBP300,000) was capitalised during the year to inventories.
18. Construction contracts
2016 2015
GBP'000 GBP'000
----------------------------------------------------------------- --------
Contracts in progress at the reporting date:
Amounts due from contract customers included in trade
and other receivables 28,121 12,644
Retentions held by customers for contract work included
in trade and other receivables 10,023 7,099
Revenue generated from contracting activities during
the period 174,060 149,274
-------------------------------------------------------- ------- --------
19. Trade and other receivables
2016 2015
GBP'000 GBP'000
------------------------------------------------------ --------
Amounts falling due within one year:
Trade receivables 12,861 16,500
Amounts recoverable on construction contracts 36,736 18,010
Amounts owed by joint ventures 84,543 62,435
Other taxation and social security - 4,819
Other receivables 1,023 965
Prepayments and accrued income 12,749 2,721
--------------------------------------------- ------- --------
147,912 105,450
------------------------------------------------------ --------
Amounts falling due in more than one year:
Amounts recoverable on construction contracts 1,408 1,733
Trade receivables 9,374 13,622
--------------------------------------------- ------- --------
10,782 15,355
------------------------------------------------------ --------
Total trade and other receivables 158,694 120,805
--------------------------------------------- ------- --------
The Directors are of the opinion that there are no significant concentrations of credit risk (Note 29). The fair value of the financial assets is not considered to be materially different from their carrying value. The fair values are based on discounted cash flows and are within Level 3 of the fair value hierarchy.
Trade receivables at year end have been assessed for recoverability. A provision for impairment is made when there is objective evidence of impairment, which is usually indicated by a delay in the expected cash flows or non-payment from customers. Trade receivables remaining outstanding past their due date are GBP480,000 (2015: GBP219,000); however, none were impaired.
A provision of GBP8,000,000 (2015: GBP8,000,000) has been made against amounts due from Countryside Neptune LLP, a joint venture, to reflect the Directors' view of the recoverability of this advance.
The other classes within trade and other receivables do not contain impaired assets.
20. Cash and cash equivalents
2016 2015
GBP'000 GBP'000
---------------------------------------- --------
Cash and cash equivalents 38,301 80,835
Overdrafts (26,340) -
------------------------------ -------- --------
Net cash and cash equivalents 11,961 80,835
------------------------------ -------- --------
Cash and cash equivalents of GBP38,301,000 (2015: GBP80,835,000) comprise cash and short-term deposits held, of which GBP36,578,000 (2015: GBP80,481,000) is available to offset against loans drawn under the Group's revolving credit facility and overdraft. If these assets were fair valued, they would be considered as Level 3 under the fair value hierarchy. The carrying amount of these assets is equal to their fair value. At the year end, all financial assets held were in Sterling.
Cash and cash equivalents available for offset
Within the revolving credit facility the Group has a GBP30,000,000 overdraft facility which can be drawn by any Group company which is in the pooling arrangement. Following an IFRS IC clarification in this area, the Group has presented these on a gross basis in the statement of financial position.
21. Trade and other payables
2016 2015
GBP'000 GBP'000
------------------------------------------- --------
Amounts falling due within one year:
Trade payables 99,341 114,006
Accruals and deferred income 71,299 58,229
Other taxation and social security 2,676 1,793
Other payables 3,817 6,794
Advances due to joint ventures 310 318
---------------------------------- ------- --------
177,441 181,140
------------------------------------------- --------
Amounts falling due in more than one year:
Trade payables 109,044 61,055
Accruals and deferred income - 87,875
---------------------------------- ------- --------
109,044 148,930
---------------------------------- ------- --------
Total trade and other payables 286,485 330,070
---------------------------------- ------- --------
Trade and other payables principally comprise amounts outstanding for trade purchases and land acquired on deferred terms. The Directors consider that the carrying amount of trade and other payables approximates to their fair value, as the impact of discounting is not significant.
22. Provisions
2016 2015
GBP'000 GBP'000
------------------------------------------------------------- --------
At 1 October 2,254 5,795
Provisions released to the income statement during the
year - (2,106)
Provisions utilised during the year (774) (1,478)
Unwind of discount 23 43
------------------------------------------------------ ----- --------
At 30 September 1,503 2,254
------------------------------------------------------ ----- --------
Disclosed as current liabilities 818 1,144
Disclosed as non-current liabilities 685 1,110
------------------------------------------------------ ----- --------
1,503 2,254
------------------------------------------------------------- --------
The provision relates to an onerous lease on a leasehold office property, and is calculated on the estimated cash flows over the remaining length of the lease, discounted at a risk--free rate.
23. Borrowings
2016 2015
GBP'000 GBP'000
---------------------------------------- --------
Bank loans - 140,000
Bank loan and arrangement fees - (3,487)
--------------------------------------- --------
- 136,513
Mandatory redeemable preference shares - 287,329
--------------------------------------- --------
- 423,842
---------------------------------------- --------
Bank loans
In May 2016, the Group signed a new GBP300,000,000 revolving credit facility with Lloyds Bank plc, Barclays Bank PLC, HSBC Bank plc and Santander UK plc. The agreement has a variable interest rate based on LIBOR and expires in May 2021, although the Group has the opportunity to extend the term of the facility by a further two years. Subject to obtaining credit approval from the syndicate banks, the Group also has the option to extend the facility by a further GBP100,000,000. This facility is subject to both financial and non-financial covenants and is secured by floating charges over all the Group's assets.
At 30 September 2015, the Group had a committed bank loan facility of GBP215,000,000 made available by Lloyds Bank plc, Barclays Bank PLC and Santander UK plc. This facility was originally GBP200,000,000 but was extended during 2015. The facility was further extended during 2016 to GBP265,000,000 and GBP273,000 of debt arrangement fees were incurred. This facility was subject to both financial and non-financial covenants and was secured by fixed charges over the Group's property interests and fixed assets and a floating charge over all other assets.
The carrying value of the loans drawn under both the old and new facilities is equal to their fair value. As the impact of discounting is not significant, the fair values are based on discounted cash flows and are within Level 2 of the fair value hierarchy.
Bank loan arrangement fees are amortised over the term of the facility. As a result of the signing of the new facility agreement, the unamortised loan arrangement fee for the previous facility of GBP3,177,000 was expensed to the income statement as a non-underlying finance cost (Note 6b). GBP2,776,000 of debt finance costs were capitalised in relation to the new facility. Of these GBP241,000 were expensed during the year. At 30 September 2016, unamortised loan arrangement fees were GBP2,535,000 (2015: GBP3,487,000) and GBP824,000 (2015: GBP1,113,000) of debt finance costs are included in finance costs (Note 7). As the Group did not have any debt at 30 September 2016, the unamortised loan arrangement fees are disclosed as a prepayment.
The Group has the following undrawn facilities:
2016 2015
GBP'000 GBP'000
------------------------------------------- --------
Floating rate:
Expiring after more than one year 300,000 75,000
---------------------------------- ------- --------
Mandatory redeemable preference shares
Mandatory redeemable preference shares were issued as follows:
-- 16 April 2013 - GBP207,404,865 to OCM Luxembourg Coppice Topco S.à r.l. and GBP19,944,135
to management
-- 3 February 2014 - GBP54,546,493 to OCM Luxembourg Coppice Topco S.à r.l. and GBP3,230,558
to management
-- 3 November 2014 - GBP2,203,321 to management
The characteristics of these instruments have determined that they are classed as financial liabilities rather than equity.
These shares were redeemable on a date to be determined by the issuer, upon liquidation of Midco or on the tenth anniversary of the date of issue, the mandatory redemption date. Interest on the shares issued on 16 April 2013 accrues annually at 14.5 per cent for the first 12 months from issue, then 12.0 per cent thereon which is payable on a date determined by the issuer or on the mandatory redemption date. Interest on the shares issued on 3 February 2014 accrues annually at 15 per cent for the first 12 months from issue, then 12.0 per cent thereon which is payable on a date determined by the issuer or on the mandatory redemption date.
Redemption of MRPS
As described in Note 1, as part of the reorganisation and prior to IPO, the balance of the mandatory redeemable preference shares of GBP287.3m and the associated accrued return of GBP111.2m as of 16 February 2016 were transferred from the current holders to the Company in exchange for 392,222,212 ordinary shares in the Company.
The fair value of the financial liability is not considered to be materially different from its current value, as the impact of the discount is not significant. The fair values are based on discounted cash flows and are within Level 3 of the fair value hierarchy.
24. Reserves
(a) Share capital
Number of shares (m)
2016 2015 2016 2015
GBP'000 GBP'000
----------------------------------------- ------------- ------------ -------- --------
Allotted, issued and fully paid
Ordinary shares of GBP0.01 each 450 - 4,500 -
Ordinary A1 to A5 shares of GBP0.01 each - - - 7
Ordinary B1 to B5 shares of GBP0.01 each - - - 1
Ordinary C shares of GBP0.01 each - - - 10
Ordinary D shares of GBP0.01 each - - - -
Ordinary AA shares of GBP0.01 each - - - 1
Ordinary BB shares of GBP0.01 each - - - -
----------------------------------------- ------------- ------------ -------- --------
450 - 4,500 19
----------------------------------------- ------------- ------------ -------- --------
Share premium
Ordinary A shares - 844
Ordinary B shares - 35
Ordinary C shares - -
Ordinary D shares - 12
Ordinary AA shares - 172
Ordinary BB shares - 12
----------------------------------------- ------------- ------------ -------- --------
- 1,075
----------------------------------------- --------------------------- -------- --------
The share capital of the Group represents the share capital of the parent company, Countryside Properties PLC. As described in Note 1, this Company became the Group's ultimate parent company on 11 February 2016. Prior to this the share capital of the Group represented the share capital of the previous parent, OCM Luxembourg Coppice Midco S.à r.l..
Movements in the Company's share capital from the date of incorporation to year end are described in note 1. There have not been any other changes to the Company's share capital since the steps laid out in Note 1.
All ordinary shares allotted and issued have equal voting rights of one vote per share, with the right to receive dividends if declared.
During the year to 30 September 2015 the following shares were issued:
-- 23 October 2014 - 1,520 B shares of GBP0.01;
-- 29 October 2014 - 2,280 B shares of GBP0.01; and
-- 26 May 2015 - 8,016 A shares of GBP0.01; 1,050 B shares of GBP0.01; 700 BB shares of GBP0.01;
and 3,100 C shares of GBP0.01 were issued.
The following describes the nature and purpose of each reserve within shareholders' equity:
Share premium
The amount subscribed for share capital in excess of nominal value less any costs directly attributable to the issue of new shares.
(b) Reserves
Cumulative net gains and losses recognised in the Income Statement and Statement of Changes in Equity.
Available-for-sale
Retained financial Total
earnings assets reserves
GBP'000 GBP'000 GBP'000
------------------------------------- ------------------ ---------
At 1 October 2014 (10,591) 1,122 (9,469)
Profit for the period 19,623 443 20,066
Share-based payment 1,310 - 1,310
--------------------------- -------- ------------------ ---------
At 30 September 2015 10,342 1,565 11,907
Profit for the period 61,074 - 61,074
Other comprehensive income - (1,501) (1,501)
Share-based payment 3,188 - 3,188
Group reorganisation 513,255 - 513,255
--------------------------- -------- ------------------ ---------
At 30 September 2016 587,859 64 587,923
--------------------------- -------- ------------------ ---------
25. Notes to the cash flow statement
Reconciliation of operating profit to cash generated from operations
2016 2015
Note GBP'000 GBP'000
--------------------------------------------------------------------- -------- --------
Cash flows from operating activities
Profit before taxation 78,577 28,019
Adjustments for:
- Depreciation charge 12 671 352
- Amortisation charge 11 1,273 1,201
- Non-cash items 635 (977)
- Share of post-tax profit from joint ventures and associate 13, 14 (19,593) (10,584)
- Share-based payment - pre- IPO 30 1,910 1,310
- Share-based payment - post- IPO 30 1,124 -
- Finance costs 7 27,341 52,294
- Impairment of debt amortisation fees 23 3,177 -
- Finance income 8 (2,175) (1,803)
- Profit on disposal of available-for-sale financial assets (1,295) (1,226)
Changes in working capital:
- (Increase)/decrease in inventories (38,463) 2,648
- Increase in trade and other receivables (13,012) (5,589)
- Decrease in trade and other payables (54,288) (34,348)
- Decrease in provisions for liabilities and charges 22 (774) (1,478)
------------------------------------------------------------- ------ -------- --------
Cash (used in)/generated from operations (14,892) 29,819
--------------------------------------------------------------------- -------- --------
Non-cash items
Non-cash items primarily relate to net stock provision expense amounting to GBP635,000 (2015: credit of GBP352,000).
26. Investments
The Company substantially owns directly or indirectly the whole of the issued and fully paid ordinary share capital of its subsidiary undertakings. Subsidiary undertakings of the Group at 30 September 2016 are presented below:
Country of Voting rights
incorporation % Principal activity
----------------------------------------------------------------------- ------------- ------------------
Direct investment
Copthorn Holdings Limited UK 100.00 Holding company
OCM Luxembourg Coppice Midco S.à r.l. (in liquidation) Luxembourg 100.00 Holding company
Indirect investment
Beaulieu Park Limited UK 100.00 Dormant
Brenthall Park (One) Limited UK 100.00 Dormant
Cliveden Village Management Company Limited UK 100.00 Dormant
Copthorn 2009 Limited (in liquidation) UK 100.00 Dormant
Copthorn Finance Limited (in liquidation) UK 100.00 Dormant
Copthorn Limited (in liquidation) UK 100.00 Dormant
Countryside 26 Limited UK 100.00 Housebuilding
Countryside 28 Limited UK 100.00 Housebuilding
Countryside Build Limited UK 100.00 Dormant
Countryside Cambridge One Limited UK 100.00 Housebuilding
Countryside Cambridge Two Limited UK 100.00 Housebuilding
Countryside Commercial & Industrial Properties Limited UK 100.00 Dormant
Countryside Developments Limited UK 100.00 Dormant
Countryside Eight Limited UK 100.00 Housebuilding
Countryside Four Limited UK 100.00 Housebuilding
Countryside Investments Limited UK 100.00 Dormant
Countryside Properties (Commercial) Limited UK 100.00 Dormant
Countryside Properties (Holdings) Limited UK 100.00 Holding company
Countryside Properties (In Partnership) Limited UK 100.00 Housebuilding
Countryside Properties (Joint Ventures) Limited UK 100.00 Housebuilding
Countryside Properties Land (One) Limited UK 100.00 Housebuilding
Countryside Properties Land (Two) Limited UK 100.00 Housebuilding
Countryside Properties (London & Thames Gateway) Limited UK 100.00 Dormant
Countryside Properties (Northern) Limited UK 100.00 Housebuilding
Countryside Properties (Southern) Limited UK 100.00 Housebuilding
Countryside Residential (South Thames) Limited UK 100.00 Dormant
Countryside Properties (Special Projects) Limited UK 100.00 Dormant
Countryside Properties (Springhead) Limited UK 100.00 Housebuilding
Countryside Properties (Uberior) Limited UK 100.00 Housebuilding
Countryside Properties (UK) Limited UK 100.00 Housebuilding
Countryside Residential Limited UK 100.00 Dormant
Countryside Residential (South West) Limited UK 100.00 Dormant
Countryside Seven Limited UK 100.00 Housebuilding
Countryside Sigma Limited UK 74.90 Housebuilding
Countryside Thirteen Limited UK 100.00 Housebuilding
Countryside (UK) Limited UK 100.00 Dormant
Dunton Garden Suburb Limited UK 100.00 Dormant
Harold Wood Management Limited UK 100.00 Dormant
Lakenmoor Ltd UK 100.00 Dormant
Mandeville Place (Radwinter) Management Limited UK 100.00 Estate management
Millgate Developments Limited UK 100.00 Housebuilding
Millgate Homes Limited UK 100.00 Dormant
Millgate Homes UK Limited UK 100.00 Dormant
Millgate (UK) Holdings Limited UK 100.00 Holding company
Skyline 120 Management Limited UK 100.00 Estate management
Skyline 120 Nexus Management Limited UK 100.00 Estate management
Springhead Resident Management Company Limited UK 100.00 Estate management
South at Didsbury Point Two Management Limited UK 100.00 Estate management
Trinity Place Residential Management Company Limited UK 100.00 Estate management
Urban Hive Hackney Management Limited UK 100.00 Dormant
Wychwood Park Golf Club Limited UK 100.00 Non-trading
Wychwood Park (Holdings) Limited UK 100.00 Estate management
Wychwood Park (Management) Limited UK 100.00 Estate management
----------------------------------------------------------- ---------- ------------- ------------------
All subsidiaries are fully consolidated, after eliminating intergroup transactions. The non-controlling interest relates to Countryside Sigma Limited.
27. Related party transactions
Transactions with Group joint ventures and associate
Joint ventures Associate
------------------
2016 2015 2016 2015
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------- -------- -------- --------
Sales during the year 26,150 20,648 674 1,522
------------------------------- ------ -------- -------- --------
At 1 October 62,117 45,442 - -
Net advances during the period 21,116 16,675 - -
------------------------------- ------ -------- -------- --------
At 30 September 84,233 62,117 - -
------------------------------- ------ -------- -------- --------
The transactions noted above are between the Group and its joint ventures and associate whose relationship is described in Note 13 and Note 14 respectively.
Sales of goods to related parties were made at the Group's usual list prices. No purchases were made by the Group from its joint ventures or associate. The amounts outstanding ordinarily bear no interest and will be settled in cash.
Remuneration of key management personnel
The aggregate remuneration of the Executive Committee, who are considered to be key management personnel of the Group, was GBP6.1m (2015: GBP6.4m).
Transactions with key management personnel
In 2014, properties were sold at market value by the Group to parties related to key management personnel who continue to lease them back to the Group as follows:
-- Close family members of Ian Sutcliffe received GBP17,250 (2015: GBP17,250).
-- A company of which Graham Cherry, a member of the Group's Executive Committee, is a Director
and shareholder received GBP21,000 (2015: GBP21,000).
-- In 2016 a close family member of Ian Sutcliffe jointly purchased a property from Acton Gardens
LLP, an entity in which the Group has a 50 per cent interest, at market value of GBP530,000.
-- Last financial year, a close family member of Ian Sutcliffe and a close family member of Graham
Cherry were employed by a subsidiary of the Group. Both individuals were recruited through
the normal interview process and are employed at salaries commensurate with their experience
and roles. The combined annual salary and benefits of these individuals is less than GBP100,000
(2015: less than GBP100,000).
28. Financial instruments
The following tables categorise the Group's financial assets and liabilities included in the Consolidated Statement of Financial Position:
Loans and Available
receivables for sale Total
GBP'000 GBP'000 GBP'000
----------------------------------------------- ------------ --------- --------
2016
Assets
Available-for-sale financial assets - 8,665 8,665
Trade and other receivables 60,379 - 60,379
Amounts due from associate and joint ventures 84,543 - 84,543
Cash and cash equivalents 38,301 - 38,301
----------------------------------------------- ------------ --------- --------
183,223 8,665 191,888
2015
Assets
Available-for-sale financial assets - 10,535 10,535
Trade and other receivables 49,865 - 49,865
Amounts due from associate and joint ventures 62,435 - 62,435
Cash and cash equivalents 80,835 - 80,835
----------------------------------------------- ------------ --------- --------
193,135 10,535 203,670
----------------------------------------------- ------------ --------- --------
Other financial
liabilities at
amortised cost
GBP'000
---------------------------------------------------------------- ---------------
2016
Liabilities
Overdrafts 26,340
Trade and other payables (excluding non-financial liabilities) 214,878
Amount due to joint ventures 310
----------------------------------------------------------------- ---------------
241,528
---------------------------------------------------------------- ---------------
2015
Liabilities
Bank loan and finance cost 142,355
Mandatory redeemable preference shares 375,204
Trade and other payables (excluding non-financial liabilities) 177,402
Amount due to joint ventures 318
----------------------------------------------------------------- ---------------
695,279
---------------------------------------------------------------- ---------------
Fair value estimation
The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices).
Level 3: Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).
The following table presents the Group's assets that are measured at fair value at 30 September:
Level 1 Level 2 Level 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------- -------- -------- --------
2016
Assets
Available-for-sale financial assets - - 8,665 8,665
------------------------------------ -------- -------- --------
2015
Assets
Available-for-sale financial assets - - 10,535 10,535
------------------------------------ -------- -------- --------
There were no transfers between levels during the period.
The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in Level 2. If one or more of the significant inputs is not based on observable market data, the instrument is included in Level 3.
Level 1: None of the Group's financial instruments are categorised as Level 1.
Level 2: None of the Group's financial instruments are categorised as Level 2. .
Level 3: The key assumptions used in Level 3 valuations include house price movements, the expected timing of receipts, credit risk and discount rates. Future house price inflation is assumed to be zero (2015: zero). The discount rate applied was 8.5 per cent (2015: 8.5 per cent) which the Directors believe approximates the cost of a second charge mortgage on similar properties. Techniques, such as discounted cash flow analysis, have been used to determine fair value for the Level 3 financial instruments.
The fair values of the financial instruments that are measured at amortised cost is not shown, because the difference is not material.
29. Financial risk management
The main financial risks associated with the Group have been identified as liquidity risk, interest rate risk, housing market risk and credit risk. The Directors are responsible for managing these risks and the policies adopted are set out below.
Liquidity risk
The Group finances its operations through a mixture of equity (Company share capital, reserves and retained earnings) and debt (bank loan facilities and, in 2015, mandatory redeemable preference shares). The Group manages its liquidity risk by monitoring its existing facilities for both financial covenant and funding headroom against forecast requirements based on short-term and long-term cash flow forecasts.
Maturity analysis
The following table sets out the contractual undiscounted maturities including estimated cash flows of the financial assets and liabilities of the Group at 30 September:
Less than One to two Two to five Over five
one year years years years Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------------------------- ---------- ----------- --------- --------
2016
Assets
Cash and cash equivalents 38,301 - - - 38,301
Available-for-sale financial assets - 1,123 6,003 9,048 16,174
Trade and other receivables 49,597 5,913 4,705 164 60,379
Amounts due from joint ventures and associate 84,543 - - - 84,543
----------------------------------------------- ------- ---------- ----------- --------- --------
172,441 7,036 10,708 9,212 199,397
-------------------------------------------------------- ---------- ----------- --------- --------
2016
Liabilities
Overdrafts 26,340 - - - 26,340
Trade and other payables 102,200 48,804 75,844 1,568 228,416
Amounts due to joint ventures 310 - - - 310
Provisions 834 510 159 - 1,503
----------------------------------------------- ------- ---------- ----------- --------- --------
129,684 49,314 76,003 1,568 256,569
-------------------------------------------------------- ---------- ----------- --------- --------
2015
Assets
Cash and cash equivalents 80,835 - - - 80,835
Available-for-sale financial assets - - - 13,924 13,924
Trade and other receivables 34,530 6,530 10,603 - 51,663
Amounts due from joint ventures and associate 62,435 - - - 62,435
----------------------------------------------- ------- ---------- ----------- --------- --------
177,800 6,530 10,603 13,924 208,857
-------------------------------------------------------- ---------- ----------- --------- --------
2015
Liabilities
Bank loans and finance cost 2,355 - 140,000 - 142,355
Mandatory redeemable preferred shares - - - 287,329 287,329
Return on mandatory redeemable preferred shares - - - 87,872 87,872
Trade and other payables 118,179 14,665 45,666 12,669 191,179
Amounts due to joint ventures 318 - - - 318
Provisions 1,144 534 621 - 2,299
----------------------------------------------- ------- ---------- ----------- --------- --------
121,996 15,199 186,287 387,870 711,352
-------------------------------------------------------- ---------- ----------- --------- --------
Cash and cash equivalents includes GBP36,578,000 (2015: GBP80,481,000) which is available for offset against loans drawn under the Group's revolving credit facility and overdrafts.
Interest rate risk
Interest rate risk reflects the Group's exposure to fluctuations in interest rates in the market. This risk arises from bank loans that are drawn under the Group's loan facilities with variable interest rates based upon UK LIBOR. For the year ended 30 September 2016 it is estimated that an increase by 0.5 per cent in interest rates would have decreased the Group's profit before tax by GBP650,000 (2015: GBP575,000).
The following table sets out the interest rate risk associated with the Group's financial liabilities at 30 September 2016:
Non-interest
Fixed rate Floating rate bearing Total
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------------------------- ------------- ------------ --------
2016
Liabilities
Bank loans and finance cost - 26,340 - 26,340
Trade and other payables 32,180 - 182,698 214,878
Amounts due to joint ventures - - 310 310
----------------------------------------------- ------- ------------- ------------ --------
32,180 26,340 183,008 241,528
-------------------------------------------------------- ------------- ------------ --------
2015
Liabilities
Bank loans and finance cost - 142,355 - 142,355
Mandatory redeemable preferred shares 287,329 - - 287,329
Return on mandatory redeemable preferred shares 87,872 - - 87,872
Trade and other payables 5,189 - 172,213 177,402
Amounts due to joint ventures - - 318 318
----------------------------------------------- ------- ------------- ------------ --------
380,390 142,355 172,531 695,276
-------------------------------------------------------- ------------- ------------ --------
The financial assets of the Group amounting to GBP191,888,000 (2015: GBP203,670,000) with the exception of cash and cash equivalents amounting to GBP38,301,000 (2015: GBP80,835,000) are all non-interest bearing.
The Group has no exposure to foreign currency risk.
Housing market risk
The Group is affected by price fluctuations in the UK housing market. These are in turn affected by the wider economic conditions such as mortgage availability and associated interest rates, employment and consumer confidence. Whilst these risks are beyond the Group's ultimate control, risk is spread across business activities undertaken by the Group and the geographic regions in which it operates. We have considered the sensitivity in relation to available-for-sale financial assets, which is detailed in Note 15.
Credit risk
The Group's exposure to credit risk is limited solely to the United Kingdom for housebuilding activities and by the fact that the Group receives cash at the point of legal completion of its sales.
The Group's remaining credit risk predominantly arises from trade receivables and cash and cash equivalents.
Loans receivable from financial assets held for sale are those advanced to homebuyers to assist in their purchase of property under the shared equity schemes. The loans are secured by either a first or second charge over the property and are held at fair value.
Trade receivables on deferred terms arise from land sales. The amount deferred is secured by a charge over the land until such time payment is received.
Trade and other receivables comprise mainly the amounts receivable from the Homes & Communities Agency in relating to the Help-to-Buy scheme, housing associations, joint ventures and the associate. The Directors consider the credit rating of the various debtors is good in respect of the amounts outstanding and therefore credit risk is considered to be low.
Cash and cash equivalents and derivative financial instruments are held with UK clearing banks which are either A or A- rated.
Capital management
The Group's policies seek to protect returns to shareholders by ensuring the Group will continue to trade profitably in the foreseeable future. The Group also aims to optimise its capital structure of debt and equity so as to minimise its cost of capital. The Group manages its capital with regard to the risks inherent in the business and the sector within which it operates by monitoring its actual cash flows against bank loan facilities, financial covenants and the cash flow forecasts approved by the Directors.
2016 2015
GBP'000 GBP'000
-------------------------------------------------------------- --------
Total borrowings - 427,329
Less: cash and cash equivalents available for offset - (80,481)
----------------------------------------------------- ------- --------
Net borrowings - 346,848
Total equity 592,886 13,234
----------------------------------------------------- ------- --------
Total capital 592,886 360,082
----------------------------------------------------- ------- --------
30. Share-based payments
The Group recognised GBP3,034,000 (2015: GBP1,310,000) of employee costs related to share-based payment transactions made during the financial year comprising the pre-IPO Management Incentive Plan of GBP1,910,000, and the post-IPO incentive plan of GBP1,124,000. Of these, GBPNil (2015: GBPNil) were cash settled. A deferred tax asset of GBP358,000 (2015: GBPNil) was recognised in relation to the plan, of which GBP205,000 was credited to the income statement and GBP154,000 was credited directly to equity. National Insurance contributions are payable in respect of certain share-based payment transactions and are treated as cash settled transactions. At 30 September 2016, the carrying amount of National Insurance contributions payable was GBP218,000 (2015: GBPNil).
The Group operates a number of share-based payment schemes as set out below:
(a) Savings-Related Share Option Scheme
The Group operates a Savings-Related Share Option Scheme, which is open to all employees with more than three months' continuous service. This is an approved HMRC scheme and the first savings contracts were issued during the year.
Under the scheme, participants remaining in the Group's employment at the end of the three-year savings period are entitled to use their savings to purchase shares in the Company at a stated exercise price. Employees leaving for certain reasons are able to use their savings to purchase shares within six months of their leaving. At 30 September 2016, employees held 650 three-year savings contracts (2015: nil) in respect of options over 3.0 million shares (2015: nil). 691 employees subscribed to the original offer, representing a participation rate of 70 per cent of eligible employees (2015: nil). A reconciliation of option movements is shown below.
2016
2016 Weighted
Number average
of options exercise price
(m) (p)
------------------------------------------------ ---------------
Outstanding at the beginning of the year - -
Granted 3.0 192
Forfeited (0.2) 192
Exercised - -
Expired - -
----------------------------------------- ----- ---------------
Outstanding at the end of the year 2.8 192
----------------------------------------- ----- ---------------
As the first award of options under the scheme was made during the year, none of the options are currently exercisable. The weighted average remaining contractual life of share options outstanding at 30 September 2016 was 2.4 years (2015: nil). Details of options at 30 September 2016 are set out below:
2016
Options 2015
Exercise price outstanding Options
Date of grant Date of expiry p no.(m) outstanding
-------------- --------------- -------------- ------------ ------------
16 March 2016 March 2019 192 2.8 -
-------------- --------------- -------------- ------------ ------------
Options granted during the year were valued using the Black Scholes option-pricing model. No performance conditions were included in the fair value calculations. The fair value per option granted during the year and the assumptions used in the calculation are as follows:
2016
--------------------------------------
Share price at date of grant (p) 240
Exercise price (p) 192
Volatility (%) 29
Option life (years) 3
Expected dividend yield (%) 3
Risk-free rate (%) 1
Fair value per option (p) 57
--------------------------------- ---
As the Company had no share price history prior to the grant of the options, the expected volatility is based on the standard deviation of the share prices of other listed housebuilders for the period immediately prior to the date of grant of award.
The resulting fair value is expensed over the service period of three years, on the assumption that 45 per cent of options will be cancelled over the service period as employees leave the Sharesave scheme based on the Group's experience of employee attrition rates.
(b) Long Term Incentive Plan 2016
Under the Long Term Incentive Plan 2016, shares are conditionally awarded to the senior managers in the Company. The core awards are calculated as a percentage of the participants' salaries and scaled according to grades. The award granted in 2016 is assessed against ROCE, TNAV and relative total shareholder return. Straight line vesting will apply if performance falls between two points. Awards are structured as nil-cost options. Performance will be measured at the end of the three-year performance period. If the required level of performance has been reached, the awards vest and the award will be released. Options granted to acquire the award of shares will expire two years from the vesting date. Dividends will not accrue on the shares that vest.
A reconciliation of the number of shares conditionally allocated is shown below:
2016
Number
of options
(m)
------------------------------------------------
Outstanding at the beginning of the year -
Granted 3.8
Forfeited (0.2)
Exercised -
Expired -
----------------------------------------- -----
Outstanding at the end of the year 3.6
----------------------------------------- -----
The weighted average remaining contractual life of share options outstanding at 30 September 2016 was 2.4 years. Details of the shares conditionally allocated at 30 September 2016 are set out below.
2016
Options
Outstanding
Date of grant (m)
----------------- ------------
18 February 2016 3.6
----------------- ------------
Options to acquire the shares were valued using the following methods:
-- for the non-market-based elements of the award, a combination of a Black Scholes option-pricing
model together with management's best estimate of the future vesting of the options based
on current performance expectations; and
-- for the relative TSR element of the award, a Monte Carlo simulation.
The key assumptions underpinning the Black Scholes model and Monte Carlo simulation were as follows:
2016
-----------------------------------------------
Share price at date of grant (p) 237
Exercise price (p) nil
Volatility (%) 29
Option life (years) 3
Expected dividend yield (%) 3
Risk-free rate (%) 1
Fair value per option - Black Scholes (p) 219
Fair value per option - Monte Carlo (p) 140
------------------------------------------ ---
(c) Legacy Management Incentive Plan
Prior to IPO, Ian Sutcliffe and Rebecca Worthington participated in a Management Incentive Plan (the "Plan") under which participants were awarded shares in OCM Luxembourg Coppice Midco S.à r.l. ("Midco"). These interests were purchased at fair value, determined by a third party.
Immediately prior to IPO, any shares in Midco held by the participants were exchanged for new shares in Countryside Properties PLC. On 17 February 2016, the awards vested when the Company was admitted to the London Stock Exchange. No further performance or employment conditions are attached to these shares, save for a requirement not to sell for a period of one year following the IPO. The number of shares which vested under the awards are detailed in the table below. The residual shareholding for Ian Sutcliffe and Rebecca Worthington at 30 September 2016 is disclosed as part of the total shareholding in the Directors' Remuneration Report.
Number
of shares
--------------------------------
Ian Sutcliffe 7,795,068
Rebecca Worthington 724,253
Other participants 27,980,073
-------------------- ----------
On IPO, as set out in the Prospectus published by the Company, Ian Sutcliffe sold 2,338,520 shares and Rebecca Worthington sold 217,276 shares at the offer price of 225 pence.
31. Acquisition
On 15 April 2016, the Group purchased 50 per cent of the issued share capital of Countryside Properties (Springhead) Limited ("Springhead"), a joint venture company that it did not already own. This transaction has been accounted for using the acquisition method of accounting, under which the Group is deemed to have disposed of its 50 per cent holding in the company and immediately to have acquired 100 per cent of the issued share capital.
Springhead is developing land at Springhead Park at Northfleet in Kent. The book value of net assets acquired was also considered to be the fair value of the net assets acquired, and also equal to the cash consideration paid. As a result no goodwill arose as a result of the transaction.
An analysis of the net assets acquired is set out below:
Fair value
GBP'000
----------------------------------------------
Available-for-sale financial assets 544
Inventories 11,369
Trade and other receivables 239
Cash and cash equivalents 342
Trade and other payables (10,201)
------------------------------------ --------
2,293
Goodwill -
------------------------------------ --------
Total 2,293
------------------------------------ --------
Satisfied by:
Cash 2,293
------------------------------------ --------
The post-acquisition revenue and profit of Springhead was immaterial. The impact of the acquisition on a pro forma basis for the Group is not material.
32. Commitments and contingent liabilities
Operating lease commitments
The Group has various leases under non-cancellable operating lease agreements. The lease terms are between one and 20 years, and the majority of lease agreements are renewable at the end of the lease period at market rate.
The Group also leases various vehicles, under cancellable lease agreements. The Group is required to give a six-month notice for termination of these agreements. The lease expenditure charged to the income statement during the year is disclosed in Note 6.
At 30 September the future aggregate minimum lease payments under non-cancellable operating leases were as follows:
2016 2015
GBP'000 GBP'000
--------------------------------------------------- --------
Within one year 4,038 3,041
Later than one year and less than five years 8,453 8,074
After five years 1,591 2,756
-------------------------------------------- ----- --------
14,082 13,871
--------------------------------------------------- --------
Capital commitments
The Group was not committed to the purchase of any property, plant and equipment or software intangible assets at 30 September 2016 (2015: GBPNil).
Parent company guarantees
The Group has made parent company guarantees to its joint ventures and associate in the normal course of business.
The Group has entered into counter indemnities to banks, insurance companies, statutory undertakings and the National House Building Council in the normal course of business, including those in respect of joint venture partners from which it is anticipated that no material liabilities will arise.
Litigation and claims
The Group is subject to various claims, audits and investigations that have arisen in the ordinary course of business. These matters include but are not limited to employment and commercial matters. The outcome of all of these matters is subject to future resolution, including the uncertainties of litigation. Based on information currently known to the Group and after consultation with external lawyers, the Directors believe that the ultimate resolution of these matters, individually or in aggregate, will not have a material adverse impact on the Group's financial condition.
33. Dividend
The Board of Directors recommended a final dividend of 3.4 pence per share (2015: Nil pence), amounting to a total dividend of GBP15.3m (2015: GBPNil), which will be paid on 3 February 2017 to shareholders on the register on 13 January 2017, subject to shareholder approval. The expense has not been recognised in these financial statements as the shareholders' right to receive the dividend had not been established at 30 September 2016.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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November 29, 2016 02:01 ET (07:01 GMT)
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