Kaufman & Broad SA : Press release - Results for the first half of 2017

Press release

Paris, July 11, 2017

Results for the 1^st HALF OF 2017

• Strong sales and financial results in a market that remains favorable
• Marked improvement in the quality of the financial structure
• Upgrade of the prospects for annual revenues

               

Sales activities

• Housing Segment

Housing unit orders in volume terms amounted to 4,100 housing units in the 1^st half of 2017, i.e. an increase of 16.6% compared with the 1^st half of 2016.
In value terms, housing unit orders amounted to €784.8 million (including VAT) an increase of 16.5% compared with the same period in 2016.

4,005 apartments with a value of €764.2 million (including VAT) were ordered during the 1^st half, i.e. an increase of 17.5% in volume terms and of 18.4% in value terms. Orders of single-family homes in communities represented 95 units, compared with 108 units in the 1^st half of 2016 (€20.6 million (including VAT) compared with €28.0 million (including VAT) in the 1^st half of 2016).

Breakdown of the customer base

Orders by first-time buyers increased by 13.8% in value terms (excluding VAT) over the 1^st half of 2017 as a whole, while orders from second home purchasers increased by 20.1%. Orders by investors increased by 19.2% (growth of 7.8% for the Pinel Scheme on a stand-alone basis, where the percentage of total orders decreased by around 5 points from one first half to the next, and amounted to 35.3%). Block sales increased by 32.6%.

The marketing period for projects was 6.3 months in the 1^st half of 2017, a decrease of 1.5 months compared with the 1^st half of 2016 (7.8 months).

• Commercial Property segment

The Commercial Property segment generated revenues of €87.0 million in the 1^st half of 2017.

In February, Kaufman & Broad won the tender organized by the Bordeaux Euratlantique EPA with a view to building a 26,000 m² office building at the foot of the future TGV station. Furthermore, the Group won a consultation process in Lille involving a 7,000 m² project in the Eurasanté Complex. In the Logistics segment, Kaufman & Broad signed three off-plan leases covering a total surface area of around 150,000 m².

All of the projects on the market represent a potential order volume of between €150 and €200 million over the next six to nine months.

The Commercial Property backlog amounted to €144.5 million (excluding VAT) at the end of May 2017.

• Forward-looking indicators for the sales and development activity

The Housing backlog amounted to €1487.9 million (excluding VAT), i.e. 15.6 months of business at May 31, 2017. Kaufman and Broad had 225 housing programs on the market at the same date, which represent 4,294 housing units, compared with 200 programs representing 4,577 housing units at the end of May 2016.

The Housing property portfolio amounted to 27,296 units, and was up 18% compared with the portfolio at the end of May 2016. This portfolio represents potential revenues equivalent to almost four years of business, Stable compared to November 30, 2016 (4.1 years) and ona one year basis (3.9 years).

The Group is planning to launch 92 new programs in the 2^nd half of 2017, including 32 programs in the Ile-de-France Region, which represent 2,917 units, and 60 programs in the French Regions, which represent 4,035 units.

• Financial results
   

• Business volumes 

Total revenues amounted to €627.7 million (excluding VAT), an increase of 9.2% compared with the 1^st half of 2016.

Housing revenues amounted to €537.9 million (excluding VAT), compared with €451.6 million (excluding VAT) in the 1^st half of 2016. They accounted for 85.7% of the Group's revenues

Revenues from the Apartments business were up 20.6% compared with the 1^st half of 2016, and amounted to €520.0 million (excluding VAT). Revenues from Single-Family Homes in communities amounted to €18.0 million (excluding VAT) compared with €20.6 million (excluding VAT) in the 1^st half of 2016.

The Commercial Property segment's revenues amounted to €87.0 million (excluding VAT) in the 1^st half of 2017. The other businesses generated revenues of €2.7 million (excluding VAT).

• Profitability highlights 

The gross margin amounted to €119.9 million compared with €109.0 million in the 1^st half of 2016. The gross margin ratio was 19.1%, or slightly higher than the level in the 1^st half of 2016 (19.0%).

Current operating expenses amounted to €71.2 million (11.3% of revenues), compared with €63.3 million^[1] in the 1^st half of 2016 (11.0% of revenues).

Income from current operations amounted to €48.8 million, compared with €45.6 million in the 1^st half of 2016. The current operating margin was 7.8%, compared with 7.9% in the 1^st half of 2016.

The Group's adjusted EBIT amounted to €52.1 million in the 1^st half of 2017 (compared with €49.4 million in the 1^st half of 2016). The adjusted EBIT was 8.3% (compared with 8.6% in the 1^st half of 2016).

Attributable net income amounted to €20.2 million (compared with €18.1 million in the 1^st half of 2016).

• Financial structure and liquidity

Kaufman and Broad issued its first "Euro PP" bond placement amounting to €150 million in May, as part of a private placement with institutional investors in Europe. This private placement broke down between a €50 million 7-year tranche and a €100 million 8-year tranche.

This loan, which was arranged under favorable market conditions, gives the Group new financial resources to support its growth. It also provides €100 million to refinance the existing bank debt, and significantly extends the maturity of that debt, which increased from 4.3 years at the end of 2016 to 6.2 years at the end of May 2017.

This strengthening of the Group's financial structure was compounded by the positive impact on the shareholders' equity of the high number (74% success rate) of shareholders who opted to receive the 2016 dividend in Kaufman & Broad shares.

Following these transactions, net financial debt amounted to €59.4 million on May 31, 2017. Cash assets (available cash and investment securities) amounted to €189.4 million, compared with €118.1 million on November 30, 2016.

Working capital amounted to €131.5 million (10.2% of revenues on a 12-month rolling basis), compared with €129.2 million on November 30, 2016 (10.4% of revenues). The tight control on working capital primarily relies on the very short marketing period for the Group's programs.

• Dividend

Kaufman & Broad paid out a dividend of €1.85 per share in respect of the financial year ended November 30, 2016, including a share-based dividend option, on June 2, 2017. The issue price for these new shares was set at €30.13, which corresponds to 90% of the average prices quoted for Kaufman & Broad shares on the Euronext Paris regulated market during the 20 trading sessions prior to the day of said General Meeting, minus the net amount of the dividend of €1.85 per share, rounded up to the next euro cent.

The option period was opened between May 16 and May 26, 2017 inclusive. At the close of the period, shareholders who had opted for payment of the dividend in shares represented 74% of
Kaufman & Broad S.A.'s shares. 947,136 new shares were issued in order to pay the share-based dividend, which represents 4.55% of the share capital, and 4.57% of the voting rights on the basis of Kaufman & Broad S.A.'s share capital and voting rights on May 31, 2017. Settlement & delivery of the shares, and their admission to trading on the Euronext Paris regulated market occurred on June 2, 2017.

Following this transaction, and in order to keep the number of shares unchanged on a fully-diluted basis, Kaufman & Broad canceled 947,136 treasury shares. The overall cash dividend payable to shareholders who did not choose to have their dividends paid in shares amounted to €7.6 million, and was paid on June 2, 2017.

• 2017 outlook

The Group believes that the increase in its revenues over the 2017 financial year should be at least 10%, while the gross margin and adjusted EBIT ratios will remain around 19% and 8.5%, respectively. Furthermore, net financial debt should amount less than €80 million". 

This release is available on the www.kaufmanbroad.fr website

• Next regular publication date:
   
  • September 30, 2017: Results for the 3rd quarter of 2017 (after the market close)

Contacts

About Kaufman & Broad - Kaufman & Broad has been designing, building and selling single-family homes in communities, apartments, and offices on behalf of third parties for almost 50 years. Kaufman & Broad is one of the leading French Property Development & Construction companies due to the combination of its size and profitability, and the strength of its brand.

The Kaufman & Broad Registration Document was filed with the French Financial Markets Authority ("AMF") under No. D.17.0286 on March 31, 2017. It is available on the AMF (www.amf-france.org) and Kaufman & Broad (www.kaufmanbroad.fr) websites. It contains a detailed description of Kaufman & Broad's business activities, results, and prospects, as well as of the related risks factors. Kaufman & Broad specifically draws attention to the risk factors set out in Chapter 1.2 of the Registration Document. The materialization of one or several of these risks may have a material adverse impact on the Kaufman & Broad Group's business activities, net assets, financial position, results, and outlook, as well as on the price of Kaufman & Broad's shares.
This press release does not amount to, and cannot be construed as amounting to a public offering, a sale offer or a subscription offer, or as intended to seek a purchase or subscription order in any country.

• Glossary 

Adjusted EBIT: corresponds to income from current operations restated for capitalized "IAS 23 revised" borrowing costs, which are deducted from the gross margin.

Backlog: Covers, for sales before completion (VEFA): ordered but undelivered housing units; sales for which a notarized deed of sale has not yet been signed; and the incomplete portion of undelivered housing units for which a notarized deed of sale has been signed (for a program that is 30% complete, 30% is accounted for as sales, and 70% remains in the backlog). The backlog is a summary at any given point in time that can be used to estimate the revenue remaining to be recognized in coming months and to confirm group forecasts - it being understood that translating the backlog into revenues involves uncertainties, especially for orders that have not yet been officially notarized.

Commercial offer: is represented by the total inventory of housing units available for sale at the relevant date, i.e. all housing units that have not been ordered on that (minus the sales tranches that have not been released for marketing).

EHU: The EHUs (Equivalent Housing Units) delivered are a direct reflection of business volumes. The number of EHUs is obtained by multiplying (i) the number of housing units in a given program for which notarized sale deeds have been signed by (ii) the ratio between the Group's property expenses and construction expenses incurred on said program and the total expense budget for said program.

Gross margin: Gross margin corresponds to revenues less cost of sales. The cost of sales consists of the price of land parcels, the related property costs (taxes, etc.), commissions paid to developers and to Kaufman & Broad sales staff, as well as fees and commissions provided for in the agency agreements executed by Kaufman & Broad in order to sell its real estate programs, construction costs and borrowing costs that may be directly attributed to program development.

Land reserve: This includes land for development (otherwise called the land portfolio), i.e., the land for which an act or promise of sale was signed, as well as land under consideration, i.e., the land for which an act or promise of sale has not yet been signed

Off-plan lease (BEFA): an off-plan lease involves a customer leasing a building before it is even built or redeveloped.

Off-plan sale (VEFA): an off-plan sale is an agreement via which the vendor transfers their rights to the land and their ownership of the existing buildings to the purchaser immediately. The future structures will become the purchaser's property as they are completed: the purchaser is required to pay the price of these structures as the works progress. The vendor retains Project Management powers until the works are accepted.

Orders: measured in volume (Units) and in value terms; orders reflect the Group's sales activity. Their inclusion in revenues is conditional on the time required to turn an order into a signed and notarized deed, which is the triggering event for booking the income. In addition, in the case of multiple-dwelling programs that include mixed-use buildings (apartments, business premises, retail space, and offices), all of the floor space is converted into housing equivalents.

Property portfolio: represents all of the land for which any commitment (contract for sale, etc.) has been signed.
Program, i.e. the marketing period. For instance, a 4.0% marketing period corresponds to an estimated marketing period of 25 months, which represents the number of orders compared with the average commercial offer for the period.

Take-up period: The inventory take-up period is the number of months required for the available housing units to be sold if sales are maintained at the same pace as in previous months, i.e., housing units outstanding (offer available) per quarter divided by the number of orders per quarter ended and with orders in turn divided by three.

Take-up rate (Te): The take-up rate (Te) represents the percentage of initial inventory sold per month in a real estate program (sales/month divided by initial inventory); i.e., net monthly orders divided by the beginning of the period inventory ratio plus the end of period inventory divided by two. NB: The reverse of the take-up ratio (1/Te) gives the projected duration (in months) of a program's promotion and marketing, in other words the take-up period. For example, a 4.0% take-up ratio corresponds to a projected promotion and marketing of 25 months.

Units: units are used to define the number of housing units or equivalent housing units (for mixed programs) in a given program. The number of equivalent housing units is calculated as a ratio between the surface area by type (business premises, retail space, or offices) and the average surface area of the housing units previously obtained.

APPENDICES

• Financial data

Key consolidated data

• Adjusted EBIT corresponds to income from current operations restated for capitalized "IAS 23 revised" borrowing costs, which are deducted from the gross margin.

• Based on the number of shares that make up Kaufman & Broad S.A.'s share capital, i.e. 20,839,037 shares.

Consolidated income statement

•    Approved by the Board of Directors. The procedures for the limited review of the semi-annual financial statements were implemented by the Statutory Auditors. The limited review report is in the process of publication.

Consolidated balance sheet

•    Approved by the Board of Directors. The procedures for the limited review of the semi-annual financial statements were implemented by the Statutory Auditors. The limited review report is in the process of publication.

• Operating data

•