Barratt Redrow Plc · LSE:BTRW
Barratt Redrow — Barratt Developments — FY2018 Earnings Presentation
62 slides from Barratt Redrow's earnings presentation, Sep 5, 2018
Slide 1: Results Presentation
RESULTS PRESENTATION Year ended 30 June 2018 5 September 2018 Saxon Gate, Stonehouse 1
Slide 2: David Thomas, Chief Executive
David Thomas Chief Executive St Wilfrid’s Walk, Brayton 2
Slide 3: Key Highlights
KEY HIGHLIGHTS • Strong financial and operational performance for the full year • Strong market fundamentals • Highest number of completions in a decade – commitment to grow volumes • Margin improvement initiatives starting to deliver • Attractive cash returns • Confidence in the business going forw
Slide 4: Investment Proposition
INVESTMENT PROPOSITION Highly Strong balance Industry leading Broad Shorter owned experienced sheet and cash quality and geographic land bank build and sales generation service standards spread teams Growing Delivering margin Attractive volumes improvement cash returns 4
Slide 5: Medium Term Targets
MEDIUM TERM TARGETS 3-5% growth per annum Completions Present business capacity of 20,000 Gross margin New land acquisitions at minimum 23% gross margin ROCE Minimum 25% 5
Slide 6: Steven Boyes, Chief Operating Officer
Harts Meadow, Exeter Steven Boyes Chief Operating Officer 6
Slide 7: Strong Sales Performance
STRONG SALES PERFORMANCE Average net private reservations per active outlet per week • Consistent sales rate of 0.72, in-line with strong FY18 FY17 Change prior year • H2 sales rate of 0.77, also in-line with prior year Regional 0.71 0.70 1.4% • Strong JV sales rate with prior year impacted by bulk
Slide 8: Completion Growth
COMPLETION GROWTH Completions • Completions at highest level for a decade FY18 FY17 Change • Wholly owned London completions lower - in-line with build programmes Regional 15,866 15,500 2.4% - strong trading into year-end • JV completion growth driven by London sites in London 814 1,145 (28.9%) Oute
Slide 9: Completions Analysis – Buyer Type
COMPLETIONS ANALYSIS – BUYER TYPE 5% 6% 9% 8% • Similar profile year on year Investor 19% 20% • Help to Buy remains an important Part Exchange customer proposition Affordable 31% 31% Other private Help to Buy 36% 35% FY18 FY17 9
Slide 10: Pricing Trends Remain Positive
PRICING TRENDS REMAIN POSITIVE Private completions average selling price (£’000) • Good pricing trends across the regional FY18 FY17 Change business • London up significantly due to roll-out of Regional 302.4 291.5 3.7% higher ASP sites London 809.8 621.2 30.4% Group 328.8 313.1 5.0% JV 520.7 589.1
Slide 11: Land Market
LAND MARKET Savills UK Residential Land Index versus HBF planning consents HOLDING PICTURE – CB • Land prices remain broadly flat 180 SPEAKING TO PHIL BARNES 160 High quality land opportunities across the country Savills UK Residential Development Land Index • 140 • Significant increase in planning
Slide 12: Land Bank
LAND BANK 6% 3% 94% (1) 97% (2) of plots in of plots regional positioned to business benefit from HtB 94% 97% Regional London up to £600k £600k+ (1) Private owned and controlled land bank plots excluding JVs as at 30 June 2018 (2) Private owned land bank plots excluding JVs, in England only with sel
Slide 13: Barratt London – Wholly Owned Land Bank
BARRATT LONDON – WHOLLY OWNED LAND BANK(1) 4% 3% 8% 96% 97% of plots in of plots Outer below £1m London 96% 89% Outer London Central London up to £600k £600k to £1m £1m+ Current: 118 Central London private, wholly owned units remaining, 77 reserved (1) Private owned and controlled land bank plots ex
Slide 14: Western Circus, East Acton
WESTERN CIRCUS, EAST ACTON • Existing use: Homebase store • Total units: 333 • GDV: £173m • Affordable units: 114 • Private ASP: c. £540k • First private completions: March 2021 14
Slide 15: Romans' Quarter, Bingham, Nottinghamshire
ROMANS’ QUARTER, BINGHAM, NOTTINGHAMSHIRE • Existing use: Agricultural • Total units: 1,050 • GDV: £278m • Affordable units: 200 • Private ASP: c. £300k • First private completions: May 2019 15
Slide 16: Driving Operating Margin - Strategic Land
DRIVING OPERATING MARGIN - STRATEGIC LAND FY18 FY17 • Made good progress towards medium term target of 30% of completions Completions from strategic land 27% 25% (1) • Enhanced margin of c. 300 basis points Acres held 12,435 11,737 • Strategic land bank increased in size and quality Number of locati
Slide 17: Driving Operating Margin - New Product Roll-out
DRIVING OPERATING MARGIN - NEW PRODUCT ROLL-OUT Identified for new Barratt range Building new Barratt range • New product ranges and floorplans well 200 187 120 received by customers 101 95 • Build teams finding ranges easier and quicker 150 132 to build +98% +42% Number of new sites 70 100 Completi
Slide 18: Product Rationalisation
PRODUCT RATIONALISATION 140 118 120 • New ranges developed with customer involved focus groups 100 92 • Development of core and occasional ranges 80 74 - target 80% plotted from core range +41% +92% 60 55 • Continual reviews have allowed further 43 rationalisation 40 40 20 22 23 13 17 0 2010 2016 20
Slide 19: Managing the Cost Environment
MANAGING THE COST ENVIRONMENT Materials Labour • Regional pockets of cost • Some specific pressures pressures • 96% of pricing fixed to • Simplified, faster build December 2018 • Increased use of off-site • 75% of pricing fixed to manufacturing June 2019 • 204 new apprentices, trainees and graduates
Slide 20: Affordable Homes
AFFORDABLE HOMES • Local planning authorities determine content • Factored into land acquisition margin hurdle rates A critical part of our business • Group material suppliers used Barratt FY18 statistics • Standard range of affordable product • 3,241 completions • 19% of total completions • No comp
Slide 21: Strong Performance
STRONG PERFORMANCE • Consistent, strong sales rate and positive pricing trends • Continued focus on improving operating margin • Actively manage our cost base • No compromise on health and safety, customer service or quality Wesley Chase, Fulwood 21
Slide 22: Jessica White, Chief Financial Officer
Ashmeade Park, Pontefract Jessica White Chief Financial Officer 22
Slide 23: Key Highlights
KEY HIGHLIGHTS £m (unless otherwise stated) FY18 FY17 Change Revenue 4,874.8 4,650.2 4.8% Gross profit 1,008.9 932.0 8.3% Gross margin % 20.7% 20.0% 70 bps Operating profit 862.6 799.2 7.9% Operating margin % 17.7% 17.2% 50 bps PBT 835.5 765.1 9.2% Earnings per share pence 66.5p 61.3p 8.5% Net cash
Slide 24: Revenue Summary
REVENUE SUMMARY £m (unless otherwise stated) FY18 FY17 Change Completions Private 13,439 13,303 1.0% Affordable 3,241 3,342 (3.0%) Total completions 16,680 16,645 0.2% % Affordable 19% 20% (100bps) JV 899 750 19.9% Total completions (inc JVs) 17,579 17,395 1.1% ASP (£’000) Private 328.8 313.1 5.0% A
Slide 25: Private Average Selling Price
PRIVATE AVERAGE SELLING PRICE FY18 FY17 Units ASP (£000) Units ASP (£000) Central London 357 1,023.9 351 720.3 Outer London 342 586.4 521 554.5 London total 699 809.8 872 621.2 Regional total 12,740 302.4 12,431 291.5 Total private 13,439 328.8 13,303 313.1 30 June 2018: 145 Central London private,
Slide 26: Delivering Margin Improvement
DELIVERING MARGIN IMPROVEMENT 21% 20.7% 20.0% 20% • Margin improvement despite Central London 19.0% 18.9% headwinds 19% • New sites driving margin improvement 18% 17.7% 17.2% • Some underlying sales price inflation and build cost 17% 16.8% inflation 15.8% 16% 15.3% 15% 14% 13.0% 13% Jun-14 Jun-15 Ju
Slide 27: Operating Margin Bridge
OPERATING MARGIN BRIDGE 19.0% Increase Decrease 10bps 18.5% 110bps (40bps) 18.0% (30bps) 17.5% 17.7% 17.0% 17.2% 16.5% 16.0% 15.5% 15.0% - FY17 Regional new sites Regional legacy & traded Central London trading Admin, commercial & FY18 starting trading, mix & out sites adjusted items other 27
Slide 28: Balance Sheet
BALANCE SHEET £m 30 June 2018 30 June 2017 Goodwill and intangible assets 892.2 892.2 Investment in joint ventures and associates 234.1 213.1 Gross land bank 2,963.4 2,895.6 Land creditors (996.7) (1,064.0) Net land bank 1,966.7 1,831.6 Land creditor % 33.6% 36.7% WIP 1,463.1 1,509.1 Net cash 791.3
Slide 29: Land Bank
LAND BANK 21% 20.7% (1) Plot cost as % of ASP in land bank 20.4% Land bank plots 30 June 2018 30 June 2017 20% 19.7% Owned 61,504 58,965 Controlled 17,928 16,078 19% Total 79,432 75,043 Land bank years 4.8 4.5 18.0% 18% JV – Owned and 5,137 5,709 17.4% controlled Total including JV 84,569 80,752 17%
Slide 30: Gross Margin Hurdle Rates
GROSS MARGIN HURDLE RATES 24% • Land consistently purchased above previous 23% hurdle rate 23% Minimum hurdle rates for land acquisition 22% • New minimum gross margin hurdle rate - 23% 300bps 21% • New land acquisitions to come through the 20% 20% P&L over medium term 19% 18% 17% 16% FY17 FY18 30
Slide 31: Joint Ventures - Housebuilding
JOINT VENTURES - HOUSEBUILDING Balance sheet Number of JVs(1) Plots(1) Reserved (%) ASP (£’000) investment (£m) Central London 3 588 46 951 83.9 Outer London 4 2,182 9 384 124.8 Regional 2 1,229 29 306 23.9 Total 9 3,999 21 441 232.6 650 completions FY19 guidance: Share of profit c. £20m (1) Owned J
Slide 32: Work in Progress
WORK IN PROGRESS 2.0 18,000 • WIP is tightly controlled WIP Wholly owned completions 1.6 • Reduction reflects the trade 16,000 through from some high value London sites 1.2 Units £bn • Unsold stock per site remains stable 14,000 0.8 12,000 0.4 0.0 10,000 Jun-16 Jun-17 Jun-18 Unsold stock per active
Slide 33: Cash Flow
CASH FLOW 900 Inflow £863m Outflow 800 £(146m) 700 £(88m) £26m £(71m) 600 £(67m) 500 £(5m) £m £512m 400 £(435m) 300 200 100 £(9m) £68m 0 Profit from Net cash Other non- WIP / PX Land Land creditors JV investment Operating Dividends Other Net operations interest and cash and cash inflow investing cas
Slide 34: Gearing
GEARING 40% Net debt/cash and land creditors as % of tangible 35% net assets • Highly cash generative business 30% • Focus on managing total gearing across the cycle 25% • Modest average net cash and year-end net cash 20% 15% 10% 5% 0% Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 34
Slide 35: Attractive Cash Returns
ATTRACTIVE CASH RETURNS Capital Return Plan Framework Payable through the cycle Ordinary dividend 2.5x dividend cover When market conditions allow Special returns Payment of special dividends preferred, with share buybacks considered at certain share price points Proposed payments(1) Interim ordinar
Slide 36: Guidance for FY19
GUIDANCE FOR FY19 3-5% growth in wholly owned completions Completions c. 19% affordable c. 650 JV ASP ASP reducing due to less Central London product Total admin expenses c. £165m JV share of profits c. £20m c. £45m Interest cost (£12m cash, £33m non-cash) Land cash spend c. £1.0bn Land creditors 30
Slide 37: Operating Framework
OPERATING FRAMEWORK Land bank c. 3.5 years owned and c. 1.0 year controlled Land creditors Reduce usage to 25 - 30% of owned land bank over the medium term Modest average net cash Net cash Year-end net cash Treasury Appropriate financing facilities 2.5x ordinary dividend cover Capital Return Plan Su
Slide 38: David Thomas, Chief Executive
Marston Fields, Bedford David Thomas Chief Executive 38
Slide 39: Investment Proposition
INVESTMENT PROPOSITION Highly Strong balance Industry leading Broad Shorter owned experienced sheet and cash quality and geographic land bank build and sales generation service standards spread teams Growing Delivering margin Attractive volumes improvement cash returns 39
Slide 40: Market Fundamentals Remain Attractive
MARKET FUNDAMENTALS REMAIN ATTRACTIVE Projected household 1.85% growth expected average 2 year to average fixed rate at 85% 210,000 per year LTV(1) from 2014 to 2039(2) Positive lending Strong Government Demand continues Attractive land market environment support to exceed supply (1) Rates are from
Slide 41: Positive Lending Environment - Affordability
POSITIVE LENDING ENVIRONMENT - AFFORDABILITY Average mortgage rates(1) Halifax Mortgage Affordability Index(2) 3.9% 70% Standard 85% product Halifax affordability Help to Buy (Equity Loan) Average 60% Mortgage costs as proportion of earnings 3.4% 50% Mortgage rate 2.9% 40% 2.4% 30% 1.9% 20% 1.4% 10%
Slide 42: Positive Lending Environment - Greater Competition in New Build Sector
POSITIVE LENDING ENVIRONMENT - GREATER COMPETITION IN NEW BUILD SECTOR 2013 2018 16% 1% 7% 2% 2% 23% 2% 3% 34% 5% 4% 6% 10% 17% 9% 13% 16% 30% Lloyds Nationwide Santander Natwest Lloyds Nationwide Santander Natwest Woolwich Others(1) Barclays Leeds Skipton Precise TSB HSBC Virgin Money Others (1) Wo
Slide 43: Strong Government Support - Help to Buy Equity Loan
STRONG GOVERNMENT SUPPORT - HELP TO BUY EQUITY LOAN GOVERNMENT STATISTICS(1) BARRATT STATISTICS(2) • 169k homes have been bought under the scheme Average ASP of HtB purchase since inception • 81% bought by first time buyers Regional £285k • Average price of home purchased: £250k London £445k • Avera
Slide 44: Addressing Market Challenges
ADDRESSING MARKET CHALLENGES Alternative Skills shortage methods of Quality and construction service 44
Slide 45: Addressing the Skills Shortage
ADDRESSING THE SKILLS SHORTAGE Apprenticeship programmes Graduate Employee schemes training Skills shortage Armed Focus on Forces site employee manager retention programme 45
Slide 46: Alternative Methods of Construction
ALTERNATIVE METHODS OF CONSTRUCTION • Increasing the number of homes built using some element of off-site construction in FY18 including: - Timber Frame – 1,683 units - Light Gauge Steel Frame – 138 units - Large Format Concrete Block – 113 units • Further methods to be rolled out via our new produc
Slide 47: Quality, Service and Health & Safety
QUALITY, SERVICE AND HEALTH & SAFETY 83 NHBC Pride in HBF 5 star customer 9 site managers were the Job Awards – recommendation awarded ‘highly more than any award – 9th commended’ status and housebuilder for consecutive year National Award in the 14th year Large Builder category 47
Slide 48: Current Trading
CURRENT TRADING FY19 FY18 Change to date to date Net private reservations per active 0.75 0.74 1.4% outlet per average week Average active outlets 352 356 (1.1%) Net private reservations per average 264 265 (0.4%) week Total forward sales (including JVs)(1) £3,054.0m £2,749.9m 11.1% (1) As at 2nd Se
Slide 49: Positive on Outlook
POSITIVE ON OUTLOOK • Strong market fundamentals • New, clearly defined medium term targets • Strong forward order book • Confidence in the business going forward Manor Farm, North Hykeham 49
Slide 50: Q&A
Q&A Merrington Park, Spennymoor 50
Slide 51: Appendices – Index
APPENDICES – INDEX Page Definitions 52 P&L 53 Balance sheet - land bank 54 Completions - product type 55 Investment in joint ventures and associates 56 Joint ventures breakdown 57 Land prices versus house price inflation 58 Net interest charge analysis 59 Future financing arrangements 60 Current tra
Slide 52: Definitions
DEFINITIONS • Active outlet is a site with at least one plot for sale • ASP is average selling price • Average debt is calculated on annual average daily closing position • Central London is defined as Zones 1 and the inner edge of Zone 2. Outer London is the remainder within the M25 • Earnings per
Slide 53: P&L
P&L £m (unless otherwise stated) FY18 FY17 Change Revenue 4,874.8 4,650.2 4.8% Cost of sales (3,865.9) (3,718.2) (4.0%) Gross profit 1,008.9 932.0 8.3% Gross margin 20.7% 20.0% 70 bps Administrative expenses (146.3) (132.8) (10.2%) Operating profit 862.6 799.2 7.9% Operating margin 17.7% 17.2% 50 bp
Slide 54: Balance Sheet – Land Bank
BALANCE SHEET – LAND BANK Land bank plots 30 June 2018 30 June 2017 Owned / unconditional contracts 61,504 58,965 Conditional contracts 17,928 16,078 Total land bank plots 79,432 75,043 JV plots – owned / conditional 5,137 5,709 Total land bank plots (including JV’s) 84,569 80,752 Land bank pricing
Slide 55: Completions Analysis – Product Type
COMPLETIONS ANALYSIS – PRODUCT TYPE 4% 4% 33% 32% Flats (non-London) Flats (London) 1 & 2 Bed 3 Bed 4 Bed 5 & 6 Bed 33% 32% 11% 12% 5% 6% 14% 14% FY18 FY17 55
Slide 56: Investment in Joint Ventures and Associates
INVESTMENT IN JOINT VENTURES AND ASSOCIATES £m 30 June 2018 30 June 2017 Housebuilding London 208.7 186.3 Non-London 23.9 24.2 Total housebuilding 232.6 210.5 Other Commercial 1.5 2.0 Associates - 0.6 Total 234.1 213.1 56
Slide 57: Joint Ventures Breakdown
JOINT VENTURES BREAKDOWN Housebuild JV’s only FY19 (f’cast) FY18 FY17 Completions - London c. 380 555 409 - Non-London c. 270 344 341 Total c. 650 899 750 (1) Share of profit £m - London c. 7 4.0 10.0 - Non-London c. 13 15.1 16.3 Total c. 20 19.1 26.3 (1) JV income is accounted for in the Group Cons
Slide 58: Land Prices versus House Price Inflation
LAND PRICES VERSUS HOUSE PRICE INFLATION Greenfield land Prime London land 140 140 UK greenfield land Savills UK Residential Development Land Index UK house prices Savills UK Residential Development Land Index 120 London land 120 House prices London (100 = 2007 peak) 100 100 (100 = 2007 peak) 80 80
Slide 59: Net Interest Charge Analysis
NET INTEREST CHARGE ANALYSIS £m FY18 FY17 Interest on term debt and overdrafts (0.6) 3.3 Interest on private placement notes 5.3 3.9 Utilisation / non-utilisation fees on RCF’s 4.0 4.1 Swap interest - 11.9 Other interest 0.6 1.1 Total cash interest 9.3 24.3 Land creditors / deferred payables 34.3 32
Slide 60: Future Financing Arrangements
FUTURE FINANCING ARRANGEMENTS Loan Facility Amount Maturity Interest basis (1) RCF facilities £700m December 2022 LIBOR +1.25-2.75% Private placement notes £200m August 2027 2.77% (1) Does not include utilisation and non-utilisation fees 60
Slide 61: Current Trading – Forward Order Book
CURRENT TRADING – FORWARD ORDER BOOK 2 Sep 18 3 Sep 17 % change £m Plots £m Plots £m Plots Private 1,650.4 5,273 1,722.3 4,994 (4.2)% 5.6% Affordable 1,013.1 6,592 749.0 6,260 35.3% 5.3% Wholly owned 2,663.5 11,865 2,471.3 11,254 7.8% 5.4% JV 390.5 783 278.6 906 40.2% (13.6)% Total 3,054.0 12,648 2,
Slide 62: Disclaimer
DISCLAIMER This document has been prepared by Barratt Developments PLC (the “Company”) solely for use at a presentation in connection with the Company‘s Full Year Results Announcement in respect of the year ended 30 June 2018. For the purposes of this notice, the presentation (the “Presentation”) sh