Kaufman & Broad SA :RESULTS FOR THE FIRST NINE MON

Press release

Paris, September 29, 2017

Results for the first nine months

• Strong sales and financial results, strengthened financial structure                                                                               
• Full-year targets confirmed

Sales activities

• Housing Segment

In the first nine months of 2017, orders for housing amounted to €1,166.7 million (including VAT) in value terms, up 15.0% on the same period in 2016.

In volume terms, orders for housing totaled 5,879 units, up 12.5% on the same period in 2016.

The marketing period for projects was 6.1 months on a rolling 12-month basis, a decrease of 1.1 months compared with the same period in 2016 (7.2 months).

The commercial offer, at 92.2% in housing shortage areas, amounted to 4,487 units at the end of August 2017, up 5.3% on the end of 2016.

Breakdown of the customer base

In the first nine months of the year, orders from first-time buyers accounted for 16% of sales by volume, and those from second-time buyers 6%. Orders by investors accounted for 48% of sales (Pinel arrangements alone 35%) and block sales 29%.

• Commercial Property segment

In the first nine months of 2017, the Commercial Property segment recorded €108.6 million (including  VAT) in orders.

During the summer, Kaufman & Broad (through its specialist subsidiary Concerto) signed an off-plan sale (VEFA) and a promissory off-plan sale for two logistics platforms totaling more than 100,000 sq.m, representing some €110 million excluding VAT of orders, in line with the €150 to €200 million target announced last July.

At the end of August 2017, the Commercial Property backlog totaled €194.7 million (excluding VAT).

• Forward-looking indicators for the sales and development activity

At August 31, 2017, the Housing backlog amounted to €1,529.9 million (excluding VAT), i.e. 15.4 months of business. Kaufman and Broad had 238 housing programs on the market at the same date, which represent 4,487 housing units, compared with 208 programs representing 4,739 housing units at the end of August 2016.

The Housing property portfolio, 98% of which is in housing shortage areas, amounted to 28,167 units, and was up 17.0% compared with the portfolio at the end of August 2016. This corresponds to potential revenue of close to 4 years of business, stable relative to November 30, 2016 (4.1 years) and to August 31, 2016 (4 years).

In the 4 ^th quarter of 2017, the Group is planning to launch 50 new programs, including 15 in the Ile-de-France Region, representing 1,466 units; 34 programs in the French Regions, representing 2,907 units, and 1 Commercial Property program.

• Financial results  

• Business activity 

Total revenues amounted to €947.9 million (excluding VAT), up 13.5% compared with the same period in 2016.

Housing revenues amounted to €820.8 million (excluding VAT), compared with €692.5 million (excluding VAT) in 2016. They accounted for 86.6% of the group's revenues.

Revenues from the Apartments business were up 20% compared with the first nine months of 2016, and amounted to €792.6 million (excluding VAT).

Revenues from the Commercial property segment totaled €122.9 million (excluding VAT), compared with €137.8 million (excluding VAT) over the same period in 2016.

The other businesses generated revenues of €4.3 million (excluding VAT).

• Profitability highlights 

The gross margin for the first nine months of 2017 totaled €181.8 million compared with €158.3 million in 2016. The gross margin ratio was 19.2%, or slightly higher than in the same period of 2016 (19.0%).

Current operating expenses for the first nine months amounted to €106.4 million (11.2% of revenues), versus €92.5 million for the same period in 2016 (11.1% of revenues).

Current operating profit totaled €75.4 million, compared with €65.8 million in the first nine months of 2016. The current operating margin was 8.0%, compared with 7.9% in the first nine months of 2016.

The Group's adjusted EBIT amounted to €80.6 million in the first nine months of 2017 (versus €70.9 million in the same period 2016). The adjusted EBIT was 8.5% (stable relative to the same period in 2016).

Attributable net income amounted to €33.2 million, compared with €27.8 million for the first nine months of 2016.

• Financial structure and liquidity

Net financial debt amounted to €35.0 million at August 31, 2017. Cash assets (available cash and investment securities) amounted to €214.7 million, compared with €118.1 million at November 30, 2016. Financing capacity totaled €314.7 million (€218.1 million at November 30, 2016).

Working capital requirement amounted to €118.9 million (8.8% of revenues on a 12-month rolling basis), compared with €129.2 million at 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.

• Offer reserved for employees

Pursuant to a decision by its Board of Directors on July 10, Kaufman & Broad launched a subscription offer for new shares reserved for group employees, from September 21 to October 1 inclusive, representing a maximum total of 1.7% of the share capital at August 31, 2017. Subscribed through the corporate mutual fund (FCPE "KB Actions 2017"), the shares will be unavailable until July 1, 2022 unless released early where permitted by applicable regulations.

The main objective is to link employees more closely to the future of the business by allowing them to subscribe to shares on preferential terms. Currently holding close to 12.4% of their company's capital, employees are now the largest shareholder in Kaufman & Broad. A policy of strong employee shareholding is a guarantee of independence and stability for the company, as well as an opportunity for every employees to benefit from its growth.

• 2017 outlook

The group believes that the increase in its revenues over the 2017 fiscal year should be in the order of 10%, despite the wait-and-see attitudes to government land tax announcements. The gross margin and adjusted EBIT ratios should remain around 19% and 8.5% respectively. Net financial debt will continue to decline relative to 2016 to around €50 million.

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

• Next regular publication date:  
  • Second half of January: 2017 Annual results (after 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 risk 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 

Backlog : For off-plan sales (VEFA), it covers housing ordered but not delivered for which the notarized sale deeds have not yet been signed, and housing ordered but not delivered for which the notarized sale deeds have been signed but not yet posted to revenue (for a program that is 30% completed, 30% of housing revenue for which the notarized sale deed has been signed is accounted for as sales, 70% is included in the backlog). The backlog is a summary at any given time that allows an estimate of the remaining revenue to be recognized in the months ahead and that serves as a basis the group's forecasts. It should be noted that a degree of uncertainty exists when converting backlog into revenue, especially for orders not yet officially notarized.

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

Marketing period : the inventory marketing period is the number of months required for the available housing units to be sold, if sales continue at the same rate as for the previous units, or the number of housing units (available supply) per quarter divided by the orders for the previous quarter, and divided by three in turn.

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

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. 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.

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).

Property portfolio : represents all of the land for which any commitment (contract for sale, etc.) has been signed.

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.

Land reserve: This includes land to be developed (otherwise known as the "land portfolio"), i.e. land for which a deed or contract of sale has been signed, as well as land still being surveyed or assessed, i.e. land for which a deed or a contract of sale has not yet been signed.

Marketing period ratio : the marketing period ratio represents the percentage of the initial inventory that is sold on a monthly basis for a property program (sales per month divided by the initial inventory), i.e. net monthly orders divided by the ratio between the opening inventory and the closing inventory, divided by two. NB: The inverse of the take-up rate (1/Te) gives the projected duration (in months) of the marketing of a program, i.e. the take-up period. For example, a 4.0% take-up rate corresponds to a projected duration of 25 months of marketing.

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.

Off-plan sale (VEFA): anoff-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.

APPENDICES

• Financial data

Key consolidated data*

• Unaudited and not approved by the Board of Directors.

• 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.

Consolidate income statement*

*Unaudited and not approved by the Board of Directors.

Consolidated balance sheet*

* Unaudited and not approved by the Board of Directors .

• Operating data

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