Crest Nicholson Holdings Plc · LSE:CRST
Crest Nicholson — FY2019 Earnings Presentation
46 slides from Crest Nicholson's earnings presentation, Jan 28, 2020
Slide 1: Preliminary Results 2019 Presentation
BARKHAM PLACE WOKINGHAM PRELIMINARY RESULTS 2019 PRESENTATION 28 JANUARY 2020
Slide 2: Welcome & Introductions
WELCOME & INTRODUCTIONS THE OAKS EAST GRINSTEAD IAIN FERGUSON CHAIRMAN 2 Preliminary Results 2019 | January 2020
Slide 3: Agenda
AGENDA CHIEF EXECUTIVE OVERVIEW PETER TRUSCOTT FINANCIAL REVIEW DUNCAN COOPER STRATEGIC REVIEW AND UPDATE PETER TRUSCOTT & TOM NICHOLSON • Our Updated Strategy – Five strategic priorities – Four foundations • Summary Q&A FARINGDON FIELDS FARINGDON, OXON 3 Preliminary Results 2019 | January 2020
Slide 4: Overview
OVERVIEW KINGSMEAD FAVERSHAM PETER TRUSCOTT CHIEF EXECUTIVE 4 Preliminary Results 2019 | January 2020
Slide 5: Overview
OVERVIEW A year of considerable change for Crest Nicholson New Executive Leadership Team now in place Updated strategy launched and being implemented Adjusted PBT in line with previous guidance at £121.1m Maintained full year dividend at 33.0p per share KILNWOOD VALE FAYGATE, HORSHAM 5 Pre
Slide 6: Financial Review
FINANCIAL REVIEW RESONATE STOCKWELL DUNCAN COOPER GROUP FINANCE DIRECTOR 6 Preliminary Results 2019 | January 2020
Slide 7: Income Statement
INCOME STATEMENT IN LINE WITH GUIDANCE FY18 % £m (unless otherwise stated) FY19 restated 1 Change Adjusted profit before tax in Revenue 1,086.4 1,121.0 3% £120m-£130m range Cost of sales (884.5) (874.1) Adjusted gross profit2 201.9 246.9 18% NRV provision of £7.0m Adjusted gross profit margin %2
Slide 8: Volume by Channel
VOLUME BY CHANNEL ONGOING BREXIT UNCERTAINTY FY18 % Open market performance FY19 restated 1 Change impacted in H2 Outlets (full year equivalents) 59 55 7% − Customer verbatims − Elevated cancellation Sales per outlet week (Open market private) 0.45 0.64 30% rates Sales per outlet week (Open market
Slide 9: Average Selling Price and Forward Sales by Channel
AVERAGE SELLING PRICE AND FORWARD SALES BY CHANNEL FY18 % OM (private) ASPs increase £’000 FY19 restated 1 Change due to mix Home completions − Strong Bulk performance Open market (private) 437 429 2% on lower-priced segment Open market (inc-Bulk) 388 396 2% − London effect continuing Affordable 1
Slide 10: Cash Flow
CASH FLOW GOOD CASH CONVERSION IN SLOW MARKET FY18 £m FY19 restated 1 Change Operating profit before changes in working capital and provisions 116.7 186.4 69.7 Increase in trade and other receivables (11.5) - 11.5 Decrease / (increase) in inventories 62.1 (125.9) 188.0 Increase in trade and other pa
Slide 11: Balance Sheet
BALANCE SHEET ROBUST AND WELL-FINANCED Net cash £37.2m (2018: £14.1m) Average net debt £144.2m (2018: £193.4m) Net debt and land creditors £179.3m (2018: £195.6m) Inventories £1,151.1m (2018: £1,213.2m) − Higher completed units due to sales rate − Lower WIP mainly due to lower land spend P
Slide 12: Current Land Portfolio
CURRENT LAND PORTFOLIO A CAPITAL-EFFICIENT STORE OF FUTURE VALUE Short term land Plots 1 36,344 37,129 GDV (£bn) 12.2 12.1 2,912 home completions ASP (£k) 328 324 1,290 plots sold through land sales Short-term 19,507 16,960 − 419 to JV with Sovereign Housing Association land 1,655 plots added
Slide 13: Underlying Profitability
UNDERLYING PROFITABILITY STUCTURAL AND SELF-INFLICTED OPERATIONAL DE-LEVERAGE FY17 to FY19 MARGIN WATERFALL Open market business in 20.5% decline Land % IFRS 15 Increasing land sales – not OM AFF Land £ conversion always accretive to rate 16.7% 16.2% Other One-offs recognised in FY18 No redu
Slide 14: Rebuilding Profitability in 2020
REBUILDING PROFITABILITY IN 2020 COST-LED RECOVERY FY19 to FY20 MARGIN WATERFALL Cost reductions London effect and other low margin sites continue to unwind 12.2% Lower land sale contribution OM AFF NRV/ECL not repeated Cost initiatives start to contribute Market conditions improvement an
Slide 15: Summary
SUMMARY Robust balance sheet and adequate liquidity − Significant working capital opportunity £12.1bn of GDV in flexible land portfolio − Lower future land sale contribution Open market decline continues into 2020 Cost-led recovery FY20 PBT guidance of £110m-£120m WATERSIDE AT MONKSMOOR PA
Slide 16: Strategic Review and Update
STRATEGIC REVIEW AND UPDATE FARINGDON FIELDS FARINGDON, OXON PETER TRUSCOTT CHIEF EXECUTIVE 16 Preliminary Results 2019 | January 2020
Slide 17: Market Context
MARKET CONTEXT Political certainty helpful but future EU relationship still unclear Good market fundamentals remain − Imbalance of supply and demand − Low interest rate environment − Stable employment levels Encouraging early signs this year FAIRFIELD GARDENS STOTFOLD 17 Preliminary Results 20
Slide 18: First Impression
FIRST IMPRESSION Visited all the sites and divisions Passionate, enthusiastic people Strong land portfolio and great placemaking Bespoke on design and specification − Pricing premium difficult to sustain Failure to achieve procurement scale and benefits Unsustainable levels of operating
Slide 19: A Business Model That Has Relied on Inflation
A BUSINESS MODEL THAT HAS RELIED ON INFLATION OPERATING MARGIN OF UK LISTED HOUSEBUILDERS 1 AND HPI 2 (%) Operating margin (%) HPI (%) 35.0 12.0 Help to Buy Scheme Introduced 30.0 10.0 1 1 Persimmon 2 2 Berkeley 25.0 8.0 3 Bellway 3 4 Galliford Try 20.0 4 6.0 5 Redrow 5 6 7 6 Barratt 8 7 Taylor Wimp
Slide 20: Detailed Strategy Review
DETAILED STRATEGY REVIEW Retain and build on our strong brand and placemaking Realise maximum value from land portfolio − Grow outlet capacity for Crest Nicholson − Clear prioritisation of development options Much greater focus on operational efficiency − New standardised housing range − Full
Slide 21: Crest Nicholson Regeneration Restructured
CREST NICHOLSON REGENERATION RESTRUCTURED Now becomes two businesses − Crest Nicholson Southern Counties (CNSC) − Crest Nicholson Partnership and Regeneration (CNPR) CNSC – focused on building and selling dwellings in its own geographical area CNPR – a business development function only Four
Slide 22: Our Updated Strategy
OUR UPDATED STRATEGY A CLEAR PLAN TO BECOME A LEADING HOUSE BUILDER Placemaking & Quality Multi Channel Land Approach Portfolio Five-Star Operational Customer Efficiency Service 22 Preliminary Results 2019 | January 2020
Slide 23: Placemaking and Quality
PLACEMAKING AND QUALITY Creating attractive and vibrant communities Distinctive design and focus on sustainability Maintain reputation for build quality and specification Focus investment where customers value it MEADOWSIDE DAVENTRY 23 Preliminary Results 2019 | January 2020
Slide 24: Land Portfolio
LAND PORTFOLIO Strong land portfolio offering flexible opportunities Strategic land capability a differentiator Clear prioritisation of development options: 1. Develop as a Crest Nicholson outlet 2. Create an additional Crest Nicholson outlet 3. Partner with Private Rented Sector (PRS) or Regi
Slide 25: Land Portfolio
LAND PORTFOLIO LAND PORTFOLIO SHORT TERM V CONTROLLED Visibility of controlled land is desirable Yr 5 Land portfolio needs to be capital efficient Yr 4 Short-term land portfolio GM at 24.4% Yr 3 − Before selling expenses and overheads Yr 2 Yr 1 0 25 50 75 100 Short term Controlled 25 Prelimina
Slide 26: Placemaking and Land Portfolio: Case Study Kilnwood Vale
PLACEMAKING AND LAND PORTFOLIO CASE STUDY – KILNWOOD VALE 26 Preliminary Results 2019 | January 2020
Slide 27: Operational Efficiency
OPERATIONAL EFFICIENCY WESTVALE PARK HORLEY TOM NICHOLSON CHIEF OPERATING OFFICER 27 Preliminary Results 2019 | January 2020
Slide 28: Operational Efficiency
OPERATIONAL EFFICIENCY Significant opportunity for self-help £9m reduction in sales-related costs and overheads realised Detailed review of housing range and specification Introduction of best-practice disciplines across all divisions − Delivery process − Build times and rates − Stock manage
Slide 29: Operational Efficiency: Sales-Related Costs & Overheads
OPERATIONAL EFFICIENCY SALES-RELATED COSTS & OVERHEADS Standardised team structures and job role − Headcount reductions Group-led approach to procurement of materials and resources − Creative agency costs − Brochure costs Sales office costs reduced Central overheads streamlined − Entertainin
Slide 30: Operational Efficiency: Uniform Processes and Best Practice
OPERATIONAL EFFICIENCY UNIFORM PROCESSES AND BEST PRACTICE Five new divisional MDs Leading point-of-sale presentation and materials Investment in training and development across the divisions Operational forums setting clear targets: − Build times including earlier outlet and show home openi
Slide 31: Operational Efficiency: New Standardised Specification
OPERATIONAL EFFICIENCY NEW STANDARDISED SPECIFICATION Detailed specification review completed Enhanced specification at lower cost − Solus kitchen supplier − Wardrobe specification − Enhanced white goods package Significant opportunity taken to drive greater quality and buying power Strategi
Slide 32: Operational Efficiency: New Standardised Housing Range
OPERATIONAL EFFICIENCY NEW STANDARDISED HOUSING RANGE Customer feedback on the Aurora range − Aim of 40 types – finished with 128 − Open-plan living arrangements Flexible, high-quality range with no deviations − 24 core house types − A defined ‘toolkit’ of 14x houses − 7 common structure depths
Slide 33: Operational Efficiency: Can Be Elevated to Suit Location
OPERATIONAL EFFICIENCY CAN BE ELEVATED TO SUIT LOCATION 33 Preliminary Results 2019 | January 2020
Slide 34: New Standardised Housing Range - Plotting Efficiency
OPERATIONAL EFFICIENCY NEW STANDARDISED HOUSING RANGE - PLOTTING EFFICIENCY PREVIOUSLY APPROVED SCHEME CURRENT PLANNING APPROVED SCHEME Same number of plots Total units 25 25 – all detached Number of house types 9 6 More variety in street scene Average Private Unit size 1,370 sq ft 1,409 sq ft
Slide 35: Operational Efficiency: Divisional Restructure
OPERATIONAL EFFICIENCY DIVISIONAL RESTRUCTURE Creation of new Crest Nicholson Southern Counties (CNSC) division − Based out of Hampshire Rebalances capacity from other divisions Better alignment with our land portfolio Target 550-600 homes per division pa Opportunity to enter new geographi
Slide 36: Five-Star Customer Service
FIVE-STAR CUSTOMER SERVICE Ambition to be Five-Star Group Production Director is leading Detailed process review completed Increased focus from site teams on delivery of product, service and aftercare Improved link to remuneration Currently trending above 2018 level 36 Preliminary Result
Slide 37: Multi-Channel Approach
MULTI-CHANNEL APPROACH BUILDING A MORE RESILIENT BUSINESS Buying land − Strategic − Major projects − Open market Selling homes − Individual sales − PRS − RPs / Affordable LONGCROSS CHERTSEY 37 Preliminary Results 2019 | January 2020
Slide 38: Multi-Channel Approach
MULTI-CHANNEL APPROACH BUILDING A MORE RESILIENT BUSINESS Major project capabilities − Working with partners to procure major projects Management of key relationships: Government, DIO, PRS funds and RPs Responsibility for specialist sales − PRS − RPs /Affordable Commercial development capaci
Slide 39: Multi-Channel Approach: Private Rented Sector
MULTI-CHANNEL APPROACH PRIVATE RENTED SECTOR Fastest growing sector of the residential property industry Driven by affordability issues of home ownership M&G CASE STUDY Arborfield – owned by M&G Real Estate Investment Two schemes providing 1 and 2 bedroom homes Professionally managed on be
Slide 40: Safety, Health & Environment
SAFETY, HEALTH & ENVIRONMENT FOUR FOUNDATIONS Number one priority AIIR of 372 (2018: 342) including one fatality Executive oversight from Group Production Director Thorough process review and benchmarking − Increased number of site tours − Restructure to drive best practice from Group − New
Slide 41: Sustainability & Social Value
SUSTAINABILITY & SOCIAL VALUE FOUR FOUNDATIONS Area of strength for Crest Nicholson Significant regulatory changes coming: − Future Homes − Biodiversity − Climate change − New building and planning regulations − Design codes − OSM agenda Active engagement influencing political agenda Control
Slide 42: People
PEOPLE FOUR FOUNDATIONS Strong track record of developing people Diversity and inclusion a key priority Pay at or above National Living Wage New values launched Committed to success Investing in our people Work as A positive One Crest Considered decision legacy for our making customers and c
Slide 43: Financial Targets
FINANCIAL TARGETS A CLEAR PLAN TO BECOME A LEADING HOUSE BUILDER FY19 FY22 Home completions (units) 2,912 >3,500 Outlets 59 >70 Adjusted operating profit margin 12.2% Minimum of 250bps growth by FY22 Admin expenses as % of sales 6% 5% ROCE 15.9% >20.0% Net cash £37.2m Strong cash surplus to invest o
Slide 44: Summary and Outlook
SUMMARY AND OUTLOOK Good early progress on updated strategy New senior team now in place Decisive political outcome welcome Green shoots on footfall and visitors Understand we must rebuild trust − Opportunity to outperform beyond self help measures MANDEVILLE PLACE BRAMPTON 44 Preliminary
Slide 45: Q&A
CLARION GATE CHELMSFORD Q&A
Slide 46: Disclaimer
DISCLAIMER You should note that the financial projections and other statements regarding Crest Nicholson's intentions, beliefs or current expectations referred to in this document are forward looking and do not relate solely to historical or current facts. These statements are provided on a confiden
Crest Nicholson Holdings — FY2019 Earnings Presentation on 6ix