RNS Number:4106R
Chesterton International PLC
25 September 2000
CHESTERTON INTERNATIONAL PLC
Preliminary Audited Results for the year ended 30 June 2000
Chesterton International plc ("Chesterton") the international property
advisory and facilities management group, reports its preliminary audited
results for the year ended 30 June 2000.
Key Points
* Profit before tax improved by 24% to #5.0m (1998/99 : #4.0m)
* #0.8m investment in new businesses, Chesterton Property Partnering and
Chesterton Structured Finance
* Significant investments in e-commerce, Chesterton Residential and
Information Technology
* With net cash of #4.7m the Group is now in its strongest financial
position since incorporation
* Acquisition opportunities are now being considered
Michael Holmes, Chief Executive of Chesterton, commented:
"These results show excellent progress. We have achieved strong profit growth
and cash generation while making significant investment in our business and
people. We are now well placed in the progressive sectors of the property
services market and we should build on the successes already achieved".
Enquiries:
Chesterton International plc Tel: 020 7495 7282
Michael Holmes, Chief Executive
Ian Fleming, Finance Director
Gavin Anderson & Company Tel: 020 7457 2345
Philip Ward
Lindsey Harrison
Chairman's Statement
Introduction
The Group has made substantial progress in the past year and I am pleased to
report the following improvements:
2000 1999 Improvement
Profit before tax #5.0m #4.0m 24%
Earnings Per Share before tax
related exceptional item in
1998/1999 4.0p 3.3p 21%
Net Cash #4.7m #0.3 m #4.4m
Continuing healthy cash generation means that the Group is now in a better
financial condition than at any time since incorporation.
The 24% increase in profit before tax has been achieved after allowing for net
costs of #0.8 million on new businesses in order to strengthen the range of
property related services the Group can offer.
Net cash increased by #4.4m in the year after higher capital expenditure,
mainly on investment in IT, refurbishing the Residential division's sales and
lettings offices and investing in e-commerce opportunities. This was achieved
through further improvements in working capital management.
There are a number of further opportunities to invest capital to create growth
for shareholders. These include PFI, Property Partnering and e-commerce, as
well as a number of internal initiatives. Acquisitions are being considered
to strengthen the Group's main businesses.
The Board has carefully considered its policy regarding the payment of
dividends and in view of current investment opportunities, it has decided not
to recommend the payment of a dividend at this time.
Trading
The year's result reflects strong improvements in the Residential and
Commercial businesses, offset by the start up costs of new businesses and by a
disappointing result in Consulting. As expected, the Facilities Management
business experienced a reduction in profits as a result of the previously
announced changes in its portfolio. However, following improved activity
during the year, profits increased in the second half. The new business won
by this division over the last few months is encouraging.
The signing of the Treasury PFI contract in May of this year was particularly
pleasing. Chesterton Property Partnering was central to this achievement and
resources were drawn widely from the Group to complete the project. Not only
has this delivered success fees but it also brings a 15% interest in Exchequer
Partnership plc, the vehicle formed to execute the project. Importantly, it
also means a 35 year FM contract starting in 2002.
Business Development
Investment in selected areas of business development remains an important
priority. This will enable the business both to win and to deliver high
quality client service through an efficient network of well informed
professionals. There have been a number of initiatives in the past year in
this area:
- Establishment of Chesterton Property Partnering and Chesterton
Structured Finance
- Further investment in e-commerce
- New marketing initiatives focussed on market sectors
- Comprehensive staff training programmes
- Consolidation of the Group under one blue flag brand
These business development initiatives, which are explained in more detail in
the Chief Executive's Review, are key to the successful future growth and
profitability of the Group. They have the effect, through enhancing cross-
divisional working and understanding, of adding value for clients as the major
projects for the Treasury, ICL and Centrica have already demonstrated.
Board Changes
The Board was saddened and shocked by the sudden death in April of the Group's
non-executive Chairman, Richard Andrew. Richard had made a substantial
contribution to formulating the growth strategy for the Group and on a
personal level he will be missed by all.
The Board is delighted to announce that Peter Brooks will join as Chairman
designate later this month. Peter is currently Chairman of Enodis plc
(previously Berisford plc) and has held senior positions, both at Clifford
Chance and in the investment banking arm of Deutsche Bank.
I intend, therefore, to stand down as Chairman at the conclusion of the AGM
later this year and to remain as a non-executive director.
Prospects and Strategy
The market in PFI, property partnering and facilities management is becoming
stronger. As a result of the investment in new service areas the Group is now
well placed to take advantage of this exciting environment.
In the last quarter of the Group's financial year, the residential sales
market in London experienced a reduction from the high levels enjoyed over the
previous 12 months. Activity levels have remained subdued since June and,
although there is evidence to suggest that conditions are again improving,
uncertainty remains about the year ahead. Commercial property market
prospects remain favourable, both in London and the regions.
The property sector has always been subject to short term market fluctuations
and we are not completely immune from this. However, bearing in mind the
development of the new service areas outlined above, I consider our prospects
for the future to be encouraging.
The goal of becoming a pre-eminent provider of property services, firstly in
the UK and then internationally, remains. Important steps have been taken in
the last year to progress towards this goal.
The Group's financial position now enables investment in organic growth and
also provides the means to make acquisitions in areas that will strengthen its
main businesses. These would include operations delivering contracted
services such as facilities or property management, in line with the Group's
strategy to grow recurring income streams.
Finally, I would like to thank our people for their continued commitment and
enthusiasm. With their support, we will reinforce and grow Chesterton's
reputation as a leader in its field.
Alan Davis
Chairman
Chief Executive's Review
Summary of Results
The Group's profit before tax increased by a further 24% in the year,
following the improvement achieved in the previous year.
These results are after the substantial investment which has been made in
developing people, systems and new businesses. The Group is now much better
placed to deliver a comprehensive range of services to new and existing
clients in a constantly changing environment.
Progress has been made in formulating and delivering an innovative integrated
service to clients which addresses their business needs. This is evident in
the following developments:-
- The launch of Chesterton Property Partnering has led the Group's
involvement in PFI as well as property outsourcing in the private
sector. This business is now well advanced in its development into
a substantial long term contract generator for the Group.
- Chesterton Structured Finance is establishing itself as a provider
of innovative financial solutions in property related transactions.
- The e-commerce team is making encouraging progress. New products to
address property performance benchmarking and property insurance
have already been announced. Other launches in the area of property
management and procurement should follow in the next few months.
- #0.5 million has been invested in Fastcrop plc, the provider of the
leading on-line listings database for residential property in the
UK. This complements the existing investment in EGPropertylink and
PRIDE, its commercial property counterparts.
- Marketing initiatives are being organised along market sector lines
in order to offer clients the full breadth of Chesterton's services
more effectively. Initially ten market sectors have been identified
where Chesterton has extensive experience and expertise.
- Comprehensive training programmes have been launched to improve
business and leadership skills and improve communication across all
divisions.
- In recognition of the strength of the blue flag Chesterton brand,
the Residential, Consulting and FM divisions have all adopted the
Group brand in place of those used previously.
The above progress should position Chesterton well for future sustained
growth.
Divisional Review
Fee income and net profit before tax by operating division are as follows:-
Fee Income 2000 1999
#m #m
Commercial 39.9 37.8
Residential 15.1 12.1
FM 8.1 11.6
Consulting & Other 4.1 3.7
67.2 65.2
New businesses 0.5 -
67.7 65.2
Net Profit
Commercial 3.3 2.7
Residential 3.0 1.9
FM 0.1 0.5
Consulting & Other - (0.1)
Central (0.6) (1.0)
5.8 4.0
New businesses (0.8) -
5.0 4.0
Commercial
Income improved by 6% compared with the previous year and net profit increased
by 22%. This reflected strong performances from operations outside London,
particularly the Midlands and the North, where the regional network benefited
from improved processes and market conditions.
The Property Asset Management function was restructured during the year to
improve efficiency and profit. Income produced by the Professional Advisory
function rose by 8%. These income streams are being built to provide
sustainable income wherever possible through long term client relationships.
The Agency function won one of its largest ever instructions, on 850,000 sq ft
of office space to be pre-let in the World Trade Centre in Docklands.
Chesterton has built on its reputation as a market leader in negotiating
rating appeals, with significant successes on behalf of the Met Office, the
Foreign Office and a number of significant private sector clients.
Residential
The division delivered impressive growth in income of 25% and in net profit of
58%. Market conditions were favourable for much of the year but slowed
markedly in the last quarter.
In addition to its Central London activities, the division established a
presence in existing Commercial offices in Birmingham, Bristol and Manchester.
These new operations are aimed primarily at servicing residential development
markets. They have already generated substantial order books for the coming
year, building on Chesterton's position and reputation in those cities.
In London the sales operation increased units sold by 14% at an average
selling price of #525,000 (1998/99 - #487,000). The lettings business, which
typically tends to be counter cyclical to sales, maintained profit at #1.1m
and is the market leader in London.
The Residential division rebranded during the year and adopted the Chesterton
blue flag logo in line with its main sister operations.
Facilities Management
Chesterton Workplace Management experienced a reduction in income and profit
during the year in line with expectations, following changes in the contract
portfolio in early 1999. However, with the benefit of newly developed
systems, now considered best in class, demand has substantially increased
during 2000. Income for the second half of the year exceeded the first half
by 19%.
There is particular optimism about the future of this division. Long term FM
contracts for St George's Hospital and the Treasury both of which will
commence in 2002 have already been secured through PFI activities. They will
add significantly to profit in due course. Additionally, a number of
contracts in the private sector have been won in the last few months which
will also improve future profits.
The FM business is now on a firm footing, is profitable and cash generative.
Demand for FM services should increase as prospective clients search for
procurement and other facilities related cost savings.
Consulting and Other
The Consulting division produced a disappointing result and management changes
were made during the second half to address this.
Internationally, profit improved from the Far Eastern operations in Hong Kong
and Singapore whilst the Indian operation maintained last year's levels.
Also included is a profit of #0.6m in respect of the successful completion of
the Treasury contract in May of this year. This flagship PFI project will
generate approximately #20m of income for Chesterton in future years in
addition to the profit recorded in these accounts.
New Businesses
Chesterton Property Partnering, which was formed in mid 1999, has begun to
establish itself in the fast developing market of property outsourcing.
Strong relationships have been developed with major funding institutions and
contractors to enable the creation and leadership of credible consortia.
It is also being asked to provide advice on major partnering proposals.
Chesterton Structured Finance has also established itself well within the
Group and is now working on a number of projects which it is hoped will yield
appreciable benefits in the coming year.
Central
Central costs reduced in the year mainly as a result of lower interest charges
arising from further improvements in cash flow. Progress has also been made
on reducing office costs during the year so that annualised rent, rates and
service charges for the Group's properties has fallen from #7.2m in late 1998
to #5.5m at 30 June 2000.
Summary
The Group's strategy of broadening and strengthening its service offering and
supporting systems has been accomplished whilst achieving significant and
sustained profit growth.
Whilst there may be uncertainty regarding the sustainability of last year's
market conditions, the Group is well positioned for the future. Given its
involvement in FM, property partnering and residential lettings, which are not
subject to property market fluctuations, the Group's diversity should enable
it to continue to deliver sound growth.
Michael Holmes
Chief Executive
Group profit and loss account for the year ended 30 June 2000
2000 1999
Notes #'000 #'000
Turnover 2 142,070 152,734
Operating costs (137,111)(148,060)
Group operating profit before
associated undertakings 4,959 4,674
Income from interests in associated
undertakings 234 105
Total operating profit 5,193 4,779
Net interest payable and similar
charges (181) (742)
Profit on ordinary activities before
tax 5,012 4,037
Tax on profit on ordinary activities (1,784) (321)
Retained earnings for the year 3,228 3,716
Earnings per ordinary share (pence)
- basic and diluted 4 4.0 4.4
Earnings per share before tax
related exceptional items (pence)
- basic and diluted 4 4.0 3.3
Group balance sheet as at 30 June 2000
2000 1999
#'000 #'000
Fixed assets
Intangible assets 1,470 2,060
Tangible assets 4,941 5,096
Investments 3,693 1,600
10,104 8,756
Current assets
Stock 2,886 2,863
Debtors 23,958 20,397
Cash at bank and in hand 9,410 6,376
36,254 29,636
Creditors: amounts falling due within one
year (33,770) (26,512)
Net current assets 2,484 3,124
Total assets less current liabilities 12,588 11,880
Creditors: amounts falling due after more
than one year (3,011) (4,776)
Provisions for liabilities and charges (3,028) (3,745)
6,549 3,359
Capital and reserves
Called up share capital 4,229 4,229
Share premium account 6,571 6,571
Profit and loss account (4,251) (7,441)
Equity shareholders' funds 6,549 3,359
Group cash flow statement for the year ended 30 June 2000
2000 1999
#'000 #'000
Net cash inflow from operating activities 8,850 8,129
Dividends received from associates 135 49
Returns on investments and servicing of
finance 125 (519)
Taxation (907) (1,067)
Capital expenditure and financial
investment (3,074) (816)
Acquisitions and disposals (198) 1,087
Net cash inflow before financing 4,931 6,863
Financing (1,899) (2,368)
Increase in cash 3,032 4,495
Reconciliation of operating profit to net cash inflow from operating
activities for the year ended 30 June 2000
Group operating profit before associated
undertakings 4,959 4,674
Depreciation and amortisation of fixed
assets 2,398 2,832
Movement in working capital 1,493 623
Net cash inflow from operating activities 8,850 8,129
Reconciliation of net cash flow to movements in net debt for the year ended
30 June 2000
Increase in cash 3,032 4,495
Cash inflow from increase in loans - (5,000)
Issue cost of loans - 20
Repayment of short term loans 1,300 6,158
Repayment of capital element of finance
leases and Hire purchase contracts 599 1,210
Change in net debt resulting from cash
flows 4,931 6,883
New finance leases (494) (1,017)
Other (3) -
Movement in net debt 4,434 5,866
Net cash/(debt) at 1 July 1999 289 (5,577)
Net cash at 30 June 2000 4,723 289
Consolidated statement of total recognised gains and losses for the year ended
30 June 2000
2000 1999
#'000 #'000
Profit for the year 3,228 3,716
Currency translation differences on
foreign currency
Net investments (38) 55
Total recognised gains and losses for the
year 3,190 3,771
Reconciliation of movements in consolidated shareholders' funds for the year
ended 30 June 2000
Total recognised gains and losses for the
year 3,190 3,771
Opening shareholders' funds 3,359 (412)
Closing shareholders' funds 6,549 3,359
Notes
1 Basis of preparation of financial information
The figures for the year ended 30 June 2000 are audited and do not constitute
statutory accounts within the meaning of Section 240 of the Companies Act
1985. The figures for the year ended 30 June 1999 have been extracted from
the audited statutory accounts. The statutory accounts for the year ended 30
June 1999, upon which the auditors issued an unqualified report, have been
delivered to the Registrar of Companies. The accounting policies applied are
those set out in the annual report and accounts for the year ended 30 June
1999.
2. Turnover
Turnover comprises commissions and fees receivable and rechargeable costs
incurred as principal on behalf of clients.
Analysis of turnover 2000 1999
#'000 #'000
Total net fee income 67,741 65,228
Costs recharged to clients 74,329 87,506
142,070 152,734
3. Dividend
The directors do not recommend the payment of a final dividend.
4. Earnings per share
The earnings per share calculation is based on profit attributable to
ordinary shareholders of #3,228,000 (1999: #3,716,000) and the weighted
average number of shares in issue during the year, excluding shares held by
the employee benefit trust, of 80.6million (1999: 84.6 million). Diluted EPS
is calculated based on the same profit after tax and weighted average number
of shares in issue, adjusted for the dilutive effect of potential ordinary
shares.
The calculation of EPS before tax related exceptional items for the year
ended 30 June 1999 is based on the ordinary activities after tax of
#3,716,000 adjusted for the exceptional tax credit of #928,000. This is
disclosed in addition to the disclosures required by FRS14, since in the
opinion of the directors it gives shareholders a more meaningful measure of
performance.
5. Annual General Meeting
The Annual General Meeting will be held at 11am on Wednesday 29 November 2000
at SG Securities (London) Limited, Exchange House, Primrose Street, London,
EC2A 2DD.
6. Announcement
Copies of this announcement are available from the Company's Registered
Office at York House, 45 Seymour Street, London WIH 5JT and may also be
obtained from the Group website at www.chesterton.co.uk. The annual report
and accounts will be circulated to shareholders shortly.
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