Cala a step closer to breaking from Lloyds

Deputy Business Editor, Sunday Herald

Tuesday 11 September 2012

EDINBURGH housebuilder Cala Group has taken a major step towards independence from majority owner Lloyds by posting its highest pre-tax profit since going private in 1999.

solid FOUNDATIONS: Alan Brown, right, and finance director Graham Reid claim Cala has a strong platform for future growth. Picture: VisualMedia

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Steven Vass

Cala surrendered control to the bank in a £280 million debt-for-equity swap in 2010, having racked up borrowings as a longstanding customer of Peter Cummings' corporate banking division at Bank of Scotland.

In the year ended June 30, 2012, it recorded a near six-fold jump in pre-tax profits to £11.4m – a major turnaround compared to the £27m loss in 2010.

Having slashed costs and closed its finance and commercial property divisions to help survive the economic crisis, Cala's performance was driven by increased house sales and a landbank that includes proportions of legacy land acquired before the crash lower than the industry average.Turnover rose 18% year on year to £253.7m as private housing completions rose 24% to 666, thanks in particular to steady business in the east of Scotland and south-east of England. Chief executive Alan Brown said: "We had a really good performance in every area of the business. Completions are up 24% on the year and we have contracted nearly £2 billion of land. We're almost half-sold for this year already. We have a really strong platform for future growth."Cala has revived by focusing heavily on the premium end of the market. The average sale price of its properties rose £12,000 to £340,000 – 4% growth compared to an average 1% rise across the UK that is flattered by the relative strength of the south-east of England. More than two-thirds of Cala property sales are houses. Of its apartment sales, two-thirds are priced at more than £200,000. It has easily the highest average price of any of the major UK housebuilders – next highest is Berkeley Group on £280,000.Of the company's £3bn land bank, only 8% was acquired pre-2008, which helps Cala to achieve higher margins than rivals.Mr Brown said: "While the economy has headwinds, the housing market across the whole of the UK is actually quite stable. The industry as a whole is probably delivering half what's required in terms of demand, so that has quite a big influence."The market for us has been better in Edinburgh and south-east England and a little bit more challenging in the west of Scotland and around the Midlands, but all our markets are relatively stable. West of Scotland prices are flat and East of Scotland are rising slightly."Mr Brown acknowledged that Cala's number of plots with consents fell from 3094 to 2854, the second year of falls in a row, but said this was more than offset by the rise in sale prices. In future, he expected the com-pany's average sales prices to be relatively flat.Net debt fell over the year from £116.1m to £98.4m – still high for a business of Cala's size, and net interest payments stayed around the same £11m as the year before.Mr Brown said it would take another two years before the company achieved its goal of being able to raise debt with "any funder in the marketplace".On the Lloyds ownership, Mr Brown said: "We are not under any pressure to do anything, although Lloyds have stated they don't want to be long-term holders of equity in the business."Meanwhile, the Scottish housing market weakened slightly, according to the August update from the Royal Institute of Chartered Surveyors. As many as 72% of surveyors said prices in newly agreed sales had fallen, compared to 52% the month before, with RICS blaming the Olympics. Slightly more positively, 71% of surveyors see falling demand compared to 81% in June.

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Cala a step closer to breaking from Lloyds

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