Berkeley profits receive one-off boost

A £30.1m profit on the disposal of a 51% shareholding in a post-graduate accommodation scheme for Imperial College at Clapham Junction inflated the profits of Berkeley Group but even without it the London and South-East focused house builder still notched up a healthy improvement in the bottom line.

Profit before tax in the six months to the end of October rose 64.1% to £101.1m from £61.6m at the interim stage last year. Post-tax profits rose 67.4% to £74.0m from £44.2m last year. Return on equity improved to 20.8% from 14.4% at the half-way point last year.

Revenue rose 20.4% to £404.9m from £336.2m, comprising £392.4m (2010: £333.1 million) of residential revenue and £10.4m (2010: £3.1 million) of commercial revenue, as well as £2.1m (2010: nil) from land sales.

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The average selling price in the period dipped to £254,000 from £262,000 in the corresponding period of last year.

"This operating performance has been achieved by an increase in volume of new homes, an improvement in gross margin by 1.0% to 28.8%, largely the result of changes in mix, and the control of operating costs, resulting in an increase in the pre-exceptional operating margin of 1.5% to 18.9%," said Rob Perrins, Berkeley's managing director.

In Central London, demand for prime residential property in good locations remained strong over the reporting period as a whole and this has seen Berkeley increase its level of forward sales by 15.2% from £813.5m to £937.2m and the number of sites on sale by a similar percentage since the fiscal year-end.

Outside London, the market dynamic is different, the group explains, as typical demand is characterised by traditional owner occupiers who tend to purchase later in the development cycle when product is completed and is available for immediate occupation.

The levels of visitors to non-London sites, which is a measure of the confidence in the UK market more generally, has remained broadly consistent with the levels achieved in the same period last year, but remain some 40% lower than the site traffic experienced at the peak of the market in 2007. Cancellation rates are running at around 10%, which is at the lower end of historical ranges.

As for replenishment of the land bank, in the first half of its financial year Berkeley acquired 1,271 plots on eight sites. At 31 October 2011, the group (including joint ventures) controlled some 26,404 plots with an estimated gross margin of £2,462m. This compares with 27,026 plots at 30 April 2011 and an estimated gross margin of £2,304m.

Net asset value per share rose 8.7% to 770.8p from 709.2p at the end of April.

"Despite the current challenging economic environment, Berkeley's performance in the first half, combined with its strong balance sheet, forward sales, well-bought land bank and brand reputation, places the group in a strong position to deliver its near term operational targets and to return £13 per share set out in the long term strategic plan," Perrins said.

Berkeley aims to return £13 per share over the next 10 years, to be paid as a series of dividends.

Net cash at the end of October stood at £13.9m, down from £42.0m at the end of April. Cash due on forward sales increased by £124m (15.2%) to £937m since end of April.

The company announced that John Armitt, currently Chairman of the Olympic Delivery Authority, will become Senior Independent Director on the Berkeley board before taking over as Deputy Chairman at the next annual general meeting. He will replace Victoria Mitchell, who has announced her decision to step down from the board.

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