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Berkeley
The Berkeley Group has announced weak half year results and a complicated scheme to return of cash to shareholders.
The Berkeley Group a brownfield focused developer. As at April 2004, the company’s land holdings included 26,654 plots, over 95% of which was brownfield or recycled land. The company has two main lines of business, residential housebuilding and commercial property; operating profits are split roughly equally between the two.
A 10% drop in turnover as a result of poorer market conditions saw Berkely reporting an 8% fall in operating profits (to £100.8m) and a 5% fall in pre-tax profits )to £110.5m for the six months to October 2004.
Overall group reservations (including joint ventures) fell 28% and unit sales were down 10.6% (to 1,801). Average selling price fell 3.3% to £262,000. Land sales contributed £3.8m (2003: £9.4m). Forward sales were £877.7m, a drop of £67.6m from end April 2004, although at a similar level to last year (2003: £875.4m).
The company is expecting a broadly similar trading profile between the first and second halves of the year, although our view is that the slowdown reflected in the falling volumes and prices will worsen. Results at the pre tax level in the second half will be reduced by higher interest charges resulting from the £604.1m payment to shareholders made on 3rd December.
Following the capital reorganisation announced earlier in the year Berkeley’s focus is on protecting asset values and generating cash, not profit growth which means the units should be valued in terms of yield/return.
The company announced proposals for the return of £11.86 per existing ordinary share to shareholders by way of a capital reorganisation incorporating a Scheme of Arrangement of which £5 was paid on the 3rd of December.
Under the scheme each existing ordinary share in Berkeley Group plc (BG) was exchanged for a newly issued unit (each unit comprising one new ordinary share and four preference shares called 2004 B, 2006 B, 2008 B and 2010 B in a new holding company called The Berkeley Group Holdings plc (BGH).
The ordinary share in BGH has a nominal value of £0.05 and the preference shares are worth respectively, £5.00, £2.00, £1.60 and £3.21. The preference shares are in fact dividend vouchers which will be redeemed at face value by the company in 2006, 2008 and 2010.
BGH issued the units at a nominal value of £11.86, which was the closing price of an ordinary share in BG on 25 October 2004.
BGH is the new holding company of BG and its subsidiaries.
When investors buy units in BGH they will be buying is the income stream in the form of the share buyback as listed above plus any growth thereafter. The 2004 B shares have already been redeemed leaving £6.86 to be paid.
The company will need to generate £242m in 2006, a further £242m in the two years to 2008 and a further £363m in the two years to 2010 in order to meet this committment.
The unit is effectively an ordinary share with a guaranteed dividend stream, the payment of which depends on generating sufficient cash.
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