Les Nouveaux Constructeurs – First-Half 2013 Earnings Report

Regulatory News:

LES NOUVEAUX CONSTRUCTEURS (Paris:LNC), a leading residential real estate developer, today released its earnings report for the six months ended June 30, 2013. The financial statements for the period were examined by the Supervisory Board on September 20. They have been reviewed by the auditors, who issued their report on September 25, 2013.

*Adjusted for the change in accounting method, whereby selling fees are now recognized in construction costs (see page 10).

Moïse Mitterrand, Chairman of the Management Board, said:
"During the first six months of the year, in a market environment shaped by a slowdown in sales, we delivered an increase in revenue and managed to limit the decline in orders, particularly in France, thanks to a product portfolio aligned with demand. Our deep backlog offers us clear visibility over the months ahead. Interim operating profit improved, notably in France, where it represented 9.5% of revenue. While still impacted by the repercussions from the operating difficulties experienced by Zapf’s Bau division, our profitability is expected to show further improvement in the second half, with major deliveries scheduled in Spain and Germany.”

REVENUE

LNC reported revenue of €268.4 million for the first six months of 2013, an increase of 27% over the prior-year period.

REVENUE BY OPERATING SEGMENT

In France, first-half 2013 housing revenue increased by 9% to €150.7 million. The rise was due to the increase in technical production of housing that was a result of 2011’s strong sales and marketing operations.

In Spain, revenue amounted to €2.1 million, compared with €11 million in first-half 2012. Only 15 housing units were delivered during the period, compared with 59 in the prior-year period, in line with a program completion calendar focused on the second half.

In Germany, revenue from Concept Bau totaled €42 million, compared with €8.6 million in first-half 2012. The increase corresponds to the delivery of 129 units in first-half 2013, compared with ten in the first six months of 2012, also in line with the program completion calendar. Because of different program types, the homes delivered in first-half 2013 had much lower average unit prices than those delivered in first-half 2012.

Zapf’s revenue amounted to €55.7 million, versus €45.2 million in the year-earlier period, an increase of 23%. The prefabricated garage division accounted for 64% of the subsidiary’s first-half revenue, with 6,474 units delivered during the period. The increase in revenue came from Bau, with €20 million for the first six months of 2013, versus €9 million in first-half 2012.

Commercial real estate revenue for the first six months of the year totaled €17.9 million, versus €8.6 million for the same period of 2012. This amount corresponds to revenue recognized by the percentage of completion method on the building in Boulogne, which is scheduled for delivery in fourth-quarter 2013.

BUSINESS PERFORMANCE

Orders in first-half 2013 totaled €273 million, a decline of 20% compared with the same period of 2012, when orders came to €343 million. They represented 1,134 homes in the first six months of 2013, compared with 1,517 in the prior-year period, a volume decline of 25%.

TOTAL ORDERS

In France, first-half housing orders contracted to €213 million, compared with €263 million in first-half 2012. They involved 886 housing units, down 21% in volume from the 1,117 units ordered in the first six months of 2012. Most of the decline was in block sales because of delays in signings that should be resolved in the second half.

In the first six months of the year, sales to individual homebuyers accounted for nearly all orders, with only 26 units sold in block to public housing developers, compared with 208 in first-half 2012. Buy-to-live sales represented nearly 79% of first-half 2013 sales to private buyers, with buy-to-let sales accounting for the other 21%. By comparison, buy-to-let sales accounted for 32% of sales to private buyers in first-half 2012.

Despite an extensive product portfolio, with 14 programs launched in the first half (versus 13 in first-half 2012), sales to individual homebuyers declined as a result of the overall deterioration in the market during the first six months of 2013.

In Spain, orders totaled €26 million (135 homes) versus €30 million (180 homes) in first-half 2012. They were mainly for affordably priced housing units. The period-on-period decline was due to a high basis of comparison owing to the Spanish subsidiary’s exceptional performance in first-half 2012, with the launch of the Hospitalet 1 program which generated 103 orders in less than three months.
Premier España had six completed homes that were unsold as of June 30, 2013, compared with 19 units six months earlier.

In Germany, orders from Concept Bau amounted to €20 million, a 31% decline from the €29 million recorded in first-half 2012. During the first six months of the year, the subsidiary booked 39 orders, compared with 86 in the prior-year period. The decline was due to a temporary contraction in the product portfolio, in a market that is still buoyant and where selling prices are on the rise.

After the reorganization and resizing of Zapf’s construction division, the business resumed selective marketing and sales operations in first-half 2013. For the first six months of the year, Zapf’s housing sales totaled €12 million and 74 houses. This was sharply lower than the 134 homes sold for a total of €21 million in the prior year period. These new orders are for standardized homes, to be built in a restricted geographic area.

BACKLOG

At June 30, 2013, backlog stood at €760 million, up slightly from year-end 2012.

Housing backlog totaled €748 million, excluding VAT, and represented 15 months of revenue compared with 16 months at year-end 2012.

BACKLOG

In France, housing backlog was up slightly at €544 million.

In Spain, backlog amounted to €83 million at June 30, 2013, up 34% from December 31, 2012. The increase was due to the high level of orders for affordably priced homes and to the very low number of deliveries during the half.

In Germany, backlog stood at €121 million at June 30, 2013, compared with €115 million six months earlier. At Concept Bau, backlog was down 25% following the first-half deliveries. For Zapf, the Garage business accounted for 59% of backlog, with Bau accounting for the remaining 41%.
Backlog for the Commercial real estate business totaled €12 million, corresponding to the remaining revenue to be recognized on the office building in Boulogne.

LAND POTENTIAL

LNC’s land potential at June 30, 2013 amounted to a net €1,804 million, unchanged overall from year-end 2012. Housing land potential amounted to a net €1,544 million, the equivalent of 6,855 units, compared with €1,580 million and 7,168 units at year-end 2012. This represented two and a half years of business based on the past 12 months’ revenues.

LAND POTENTIAL

In France, where 84% of LNC’s housing land potential is located, purchase selection criteria have been adapted more closely to recent market conditions. Housing land potential totaled €1,301 million at June 30, 2013 and represented 6,336 housing units.

In Spain, land potential stood at 140 housing units at June 30, 2013, versus 223 units at year-end 2012. This low level corresponds to a "just-in-time” land purchase strategy. At June 30, 2013, LNC had four lots in Spain that were intentionally not being developed, as well as two tranches of suspended programs.

In Germany, Concept Bau’s land potential increased slightly to €220 million and represented 379 units at June 30, 2013, compared with €209 million and 409 units at December 31, 2012.

In Commercial real estate, land potential rose by 18% to €260 million. It is comprised of two programs in Montrouge and one in Chatenay-Malabry, which is currently being built.

FINANCIAL REVIEW

• Income statement

Gross profit for the first six months of 2013 rose by €5.5 million to €44.8 million, from an adjusted €39.3 million in the prior-year period. Gross margin stood at 16.7% of revenue, compared with 18.5% in first-half 2012. Gross profit may be analyzed by country as follows:

GROSS PROFIT BY COUNTRY

* Adjusted for the change in accounting method in 2013, whereby selling fees are now recognized in property construction costs (see page 10).

In France, gross profit from the Housing business totaled €28.8 million, an increase of €1 million compared with first-half 2012. However, tougher market conditions led to an erosion of gross margin to 19.1% of revenue from 20.1% in the year-earlier period.
Gross profit in the Commercial real estate business came to €4.7 million, a €2.6 million increase from the year-earlier period that was due to the recognition of revenue from the office building in Boulogne by the percentage of completion method.
In Spain, gross margin for first-half 2013 was a negative €0.6 million, reflecting the very low revenue for the period and the €0.7 million write-down of lots that are intentionally not yet being developed.
In Germany, the €2.Z2 million increase in Concept Bau’s gross margin was consistent with the €33.4 million growth in revenue compared with first-half 2012. Gross margin declined to 10.2% from 24.4%, however, mainly because the majority of revenue for the period came from lower-margin block sales.
At Zapf, gross margin was a healthier 13.6% of revenue. Deliveries by the construction division (Bau) continued to concern old loss-making programs, while margins in the Garages division held steady.

LNC ended the period with recurring operating profit of €3.8 million versus an adjusted €1.1 million loss in first-half 2012.
In France, tight control over operating expenses drove a sharp rise in overall recurring operating profit (from the Housing and Commercial real estate businesses) to €16.1 million from €11.7 million in first-half 2012, representing 9.5% of revenue versus 8% in the year-earlier period.
In Spain and Germany, the recurring operating loss was due to the traditionally low level of deliveries in the first half, as gross margin did not cover overheads.
Zapf reported a recurring operating loss of €11 million, due to seasonal factors and also to the roughly €5 million in non-recurring costs incurred by the construction division (Bau) to put right defects in housing units built in 2012.

Net finance costs and other financial income and expense represented a net expense of €1.8 million, compared with a net expense of €1.5 million in the prior-year period.
Income tax expense was €2.3 million higher at €5.3 million in first-half 2013, primarily reflecting the increase in taxable profit in France.

Net profit, Group share, came to €0.9 million in first-half 2013 compared with €1.1 million in the year-earlier period.

• Balance sheet structure

Working capital requirement came to €239.8 million at June 30, 2013, roughly the same amount as at December 31, 2012 excluding the effect of the change of accounting method.

Net debt was also largely unchanged, at €20.4 million versus €21.6 million at end-2012. With consolidated equity at €225.8 million, this represented a gearing ratio of 9%. Equity in France amounted to 90% of the consolidated total at end-June 2013.

OUTLOOK

In the second half of 2013, Les Nouveaux Constructeurs will pursue its efforts to optimize construction and marketing costs.
In France, a strategic market where more than 84% of the Housing business’s land potential is now concentrated, Les Nouveaux Constructeurs intends to continue developing sales while remaining very vigilant to ensure that the product portfolio is aligned with demand and maintaining strict requirements with regard to land development.
In Spain, affordably priced housing program launches continue to be popular and backlog is on the rise.
In Germany, following a period of reorganization, Zapf’s construction division has taken new orders, focusing on projects that offer little technical risk. However, it’s still not possible to completely rule out any risk of further construction defects being discovered or of revenues failing to adequately cover the subsidiary’s fixed costs.
The major deliveries scheduled for the latter part of the year in Spain and Germany and the completion of block sales in France should drive an improvement in profitability in the second half.

FINANCIAL CALENDAR

• Third-quarter 2013 business review: Thursday, October 31, 2013
  (before start of trading on the NYSE-Euronext Paris stock exchange)

LES NOUVEAUX CONSTRUCTEURS

Les Nouveaux Constructeurs, founded by Olivier Mitterrand, is a leading developer of new housing, as well as offices, in France and two other European countries.
Since 1972, the Company has delivered nearly 65,000 apartments and single-family homes in France and abroad. It has an extensive presence in France, where its operations in the country’s six largest metropolitan areas and high-quality programs have made Les Nouveaux Constructeurs one of the most well known names in the industry.
Les Nouveaux Constructeurs has been listed on NYSE Euronext Paris, compartment C, since November 16, 2006 (symbol: LNC; ISIN: FR0004023208).
All LNC press releases are posted on its website at: http://www.lesnouveauxconstructeurs.fr/fr/communiques

APPENDICES

QUARTERLY REVENUE - BY BUSINESS

AVERAGE UNIT PRICE – HOUSING ORDERS

^{(1) Including VAT of 7% or 19.6%. (2) Including VAT of 7% for first-time homebuyers. (3) Indonesia deconsolidated in 2012.}

NUMBER OF HOUSING ORDERS, NET

QUARTERLY ORDERS BY BUSINESS

BACKLOG BY QUARTER (PERIOD END)

LAND POTENTIAL - HOUSING

Excluding commercial real estate

LAND POTENTIAL BY QUARTER (PERIOD END)

DISCLAIMER

The statements on which the Company objectives are based may contain forward-looking statements. Such forward-looking statements involve risks and uncertainties regarding the economic, financial, competitive, and regulatory environment and the completion of investment programs and asset transfers. In addition, the occurrence of certain risks [see chapter 4 in the Document de Référence registered with the French Stock Exchange Commission (AMF) under D.13-0322] could affect the business of the Company and its financial performance. Moreover, the achievement of the objectives supposes the success of the marketing strategy of the Company (see chapter 6 of the Document de Base). Therefore, the Company hereby makes no commitment nor gives any guarantee as to the fulfillment of objectives. The Company does not undertake to update any forward-looking statement subject to the respect of the principles of the permanent information as provided by articles 221-1 et seq. of the AMF’s general regulations.

CONSOLIDATED INCOME STATEMENT

*The interim financial statements for the period ended June 30, 2012 have been adjusted for the change in accounting method in 2013, whereby selling fees are now recognized in property construction costs.
All of these adjustments are presented in detail in Note 2.2 to the consolidated financial statements.
The effect of this change of method on first-half 2012 was a €7.1 million reduction in gross profit, a €1.8 million increase in operating profit and a €1.2 million increase in net profit.

CONSOLIDATED BALANCE SHEET

CONSOLIDATED STATEMENT OF CASH FLOWS