Crest Nicholson Holdings Plc · LSE:CRST
Crest Nicholson — Investor Day (October 2021)
63 slides from Crest Nicholson's investor day presentation, Oct 20, 2021
Slide 1: Capital Markets Day: Ready for Growth
Crest Nicholson Holdings plc CAPITAL MARKETS DAY READY FOR GROWTH Wycke Place Maldon Essex 20 October 2021
Slide 2: Cautionary Statement Regarding Forward-Looking Statements
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This presentation may include statements that are, or may be deemed to be, ‘forward-looking statements’. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms ‘believes’, ‘estimates’
Slide 3: Introduction and Welcome
01 INTRODUCTION AND WELCOME PETER TRUSCOTT Chief Executive Wycke Place, Maldon 3 CREST NICHOLSON CAPITAL MARKETS DAY October 2021
Slide 4: Who Is in the Room?
INTRODUCTION AND WELCOME WHO IS IN THE ROOM? PETER TRUSCOTT Chief Executive TOM NICHOLSON DUNCAN COOPER JANE COOKSON KIERAN DAYA KEVIN MAGUIRE DAVID MARCHANT Chief Operating Officer Group Finance Director Group Human Managing Director, General Counsel & Group Resources Director CNPSL Company Secreta
Slide 5: Agenda and Plan for Today
INTRODUCTION AND WELCOME AGENDA AND PLAN FOR TODAY 9:30am PROGRESS AGAINST OUR STRATEGY PETER TRUSCOTT MARKET CONTEXT OUR VISION FOR THE FUTURE 10:15am FIVE-YEAR FINANCIAL PLAN AND INVESTMENT PROPOSITION DUNCAN COOPER 10:30am COFFEE BREAK 10.45am THE MULTI CHANNEL OPPORTUNITY KIERAN DAYA 11.15am Q&A
Slide 6: Progress Against Our Strategy
02 PROGRESS AGAINST OUR STRATEGY PETER TRUSCOTT Chief Executive Kilnwood Vale, Horsham 6 CREST NICHOLSON CAPITAL MARKETS DAY October 2021
Slide 7: Turnaround Now Complete
PROGRESS AGAINST OUR STRATEGY TURNAROUND NOW COMPLETE • Significant progress with strategy – New operating model embedded – Balance sheet transformed • Five-star customer satisfaction rating • New house type range roll out on track The Chesham • Overheads and selling costs addressed • Build costs re
Slide 8: Market Context
03 MARKET CONTEXT PETER TRUSCOTT Chief Executive THE STANLEY FAMILY Potters Grange, Ashby-de-la-Zouch 8 CREST NICHOLSON CAPITAL MARKETS DAY October 2021
Slide 9: Changing Population and Demographics
MARKET CONTEXT CHANGING POPULATION AND DEMOGRAPHICS Population growth 1945 – 2020 • Steady population growth since 1945 driven by immigration 150 • England is one of the most densely populated major 140 economies in the world • Smaller household size, driven by changing lifestyles, have 130 now stab
Slide 10: Housing Supply Since 1945
MARKET CONTEXT HOUSING SUPPLY SINCE 1945 • A generation of under-supply • Significant reduction in subsidised housing • Overall under supply of homes for occupation regardless of tenure Supply of housing (‘000 units built) 1946 – 2020 400 Private HAs/LAs Current Net dwellings additional target targe
Slide 11: Housing Market Drivers
MARKET CONTEXT HOUSING MARKET DRIVERS Average Earnings to House Price Ratio vs Interest Rate 1990 - 2020 Earnings to house price ratio (%) Interest base rate (%) 10 15 • The ‘push and pull’ factors – Consumer choice 8 12 – Income growth 6 9 – Mortgage rates 4 6 – House prices to average earnings – H
Slide 12: Planning and Land Supply
MARKET CONTEXT PLANNING AND LAND SUPPLY • Changes to the Planning System • Political choices • Levelling up • Impact on affordability 12 CREST NICHOLSON CAPITAL MARKETS DAY October 2021
Slide 13: Competition and Market Structure
MARKET CONTEXT COMPETITION AND MARKET STRUCTURE • Significant barriers to entry • Resilience comes through scale and balance sheet strength • The land market has tightened recently • Potential for ‘disrupters’ but not without execution risk 13 CREST NICHOLSON CAPITAL MARKETS DAY October 2021
Slide 14: Supply Side Challenges
MARKET CONTEXT SUPPLY SIDE CHALLENGES • Materials shortages – Short term vs structural • Labour shortages • Build costs inflation • Modern Methods of Construction (MMC) – Off site manufacture 14 CREST NICHOLSON CAPITAL MARKETS DAY October 2021
Slide 15: Regulatory Reform and ESG
MARKET CONTEXT REGULATORY REFORM AND ESG • Operating environment is complex and rapidly changing • Planning reform – New planning system • Technical changes – Future Homes Standard • Environmental – Race to Zero – Biodiversity net gains • Social and Governance – New Homes Ombudsman NEW HOMES • Taxat
Slide 16: Market Context Summary
MARKET CONTEXT SUMMARY • Overall market conditions remain favourable – Structural supply and demand imbalance – Political support – Good level of mortgage availability • Short term challenges to manage and overcome • Our strategy is designed to navigate us through these risks and opportunities • We
Slide 17: Our Vision for the Future
04 OUR VISION FOR THE FUTURE PETER TRUSCOTT Chief Executive Highlands Park, Henley-on-Thames 17 CREST NICHOLSON CAPITAL MARKETS DAY October 2021
Slide 18: Business Transformation Has Given Us Options
OUR VISION FOR THE FUTURE BUSINESS TRANSFORMATION HAS GIVEN US OPTIONS • Operational and financial turnaround complete • Rapidly transformed balance sheet has enabled review of investment proposition – Maintain existing scale and distribute surplus cash – Invest cash for growth • Opportunity for gro
Slide 19: Our Principles for Growth
OUR VISION FOR THE FUTURE OUR PRINCIPLES FOR GROWTH • Build on our positive legacy – Strong brand – Reputation for placemaking – Customer service and build quality – High quality land portfolio • Leverage our scalable model – Standardised operating procedures and processes – Utilise new house type r
Slide 20: People Strategy
OUR VISION FOR THE FUTURE PEOPLE STRATEGY • Leverage experience of senior team • Hire the right people with local knowledge • People with our values and the right attitude • Development opportunities for our existing teams • Some overhead de-leverage until we reach maturity Morton Park Training Day,
Slide 21: Our Approach to Growth
OUR VISION FOR THE FUTURE OUR APPROACH TO GROWTH YORKSHIRE 90k • Established operating platform scalable Northumberland Housing transaction volume (2019) – Existing divisions yet to reach maturity Tyne & Wear 12.5k New homes completed (2019) – New geographic expansion Cumbria Durham 5.4m • Why new g
Slide 22: Organic Growth or M&A?
OUR VISION FOR THE FUTURE ORGANIC GROWTH OR M&A? • Plan is presented on basis of organic growth • In our control with some upfront investment and new divisions take time to reach maturity • M&A is also a possible option – We continue to review appropriate assets – Opportunity to accelerate our ambit
Slide 23: Our Vision Summary
OUR VISION FOR THE FUTURE SUMMARY • Operational and financial turnaround complete • Strong balance sheet and cash generation provides strategic options • Market context right for our growth strategy – New geographies - Yorkshire and East Anglia first – Organic growth plan outlined today but M&A an o
Slide 24: Five-Year Financial Plan & Investment Proposition
05 FIVE-YEAR FINANCIAL PLAN & INVESTMENT PROPOSITION DUNCAN COOPER Group Finance Director Kilnwood Vale, Horsham 24 CREST NICHOLSON CAPITAL MARKETS DAY October 2021
Slide 25: Strong Foundations to Support Growth
FIVE-YEAR FINANCIAL PLAN & INVESTMENT PROPOSITION STRONG FOUNDATIONS TO SUPPORT GROWTH • Sustainable recovery in earnings – Poorer GM sites identified and remedied – Operational efficiency programme put in place • Robust balance sheet with FY21 net cash >£170m – FY21 run on net cash basis throughout
Slide 26: How We See Capital Allocation
FIVE-YEAR FINANCIAL PLAN & INVESTMENT PROPOSITION HOW WE SEE CAPITAL ALLOCATION ORGANIC GROWTH BY GROWTH ACQUISITION • Sequential, case-proven • Disciplined investment criteria approach • Acquiring more than just a • Standard operating land portfolio protocols and controls • Minimising execution ris
Slide 27: Investing for Growth
FIVE-YEAR FINANCIAL PLAN & INVESTMENT PROPOSITION INVESTING FOR GROWTH Admin Expenses £m 80 • Small teams established locally to develop new divisions – Strong central oversight and control 60 • Three new divisions established over the planned period 40 • Progressive overhead leverage as volumes gro
Slide 28: Operating Margin Evolution – 2 Phases
FIVE-YEAR FINANCIAL PLAN & INVESTMENT PROPOSITION OPERATING MARGIN EVOLUTION – 2 PHASES Phase 1 Operating margin FY17 – FY26e • GM rate accretion – poorer sites and new land 25% – Weaker sites unwind on track Phase 1 Phase 2 – Farnham and London Chest Hospital remain dilutive 20% – Growing JV contri
Slide 29: Five-Year Financial Targets
FIVE-YEAR FINANCIAL PLAN & INVESTMENT PROPOSITION FIVE-YEAR FINANCIAL TARGETS FY20 FY24 FY26 • Targets to reflect 2-phase growth agenda HOME COMPLETIONS (UNITS) 2,247 >3,000 >4,200 DIVISIONS 5 5+ 8 – Aspiration to deliver >4,200 units by FY26 • Growing partnerships business REVENUE COMPOSITION 60% P
Slide 30: A Compelling Investment Proposition
FIVE-YEAR FINANCIAL PLAN & INVESTMENT PROPOSITION A COMPELLING INVESTMENT PROPOSITION • A clear strategy for growth guided by strong principles 1 2 3 – Maintaining a robust balance sheet Strong Attractive Brand – Disciplined allocation of capital and incremental fundamentals for land portfolio synon
Slide 31: The Multi Channel Opportunity
06 THE MULTI CHANNEL OPPORTUNITY KIERAN DAYA Managing Director, CN Partnerships & Strategic Land 31 CREST NICHOLSON CAPITAL MARKETS DAY October 2021
Slide 32: Our Partnership and Specialist Land Platform
THE MULTI CHANNEL OPPORTUNITY OUR PARTNERSHIP AND SPECIALIST LAND PLATFORM • National relationships – Providing partners with a single point of contact Mixed Tenure • Mixed tenure sophistication Housing – Maximising values • Counter cyclical position • Reducing capital requirement Specialist – Aidin
Slide 33: Mixed Tenure Housing
THE MULTI CHANNEL OPPORTUNITY Mixed Tenure Housing MIXED TENURE HOUSING 60% 15-20% Open market B Intermediate sales Tenure The Waterfront, Gloucester Quays A C D E S106 Affordable Housing 20-25% A Private Rented Sector B Help to Buy C Shared Ownership D First Homes E Social / Affordable Rent 33 CRES
Slide 34: Our Partnership Model
THE MULTI CHANNEL OPPORTUNITY OUR PARTNERSHIP MODEL • Increased pre sold position • Increased ROCE • Small discount to Open Market value • Supplement Open Market delivery • Select tenure appropriate house types but as a part of a Arborfield Green, Reading wider Open Market development • Delivered th
Slide 35: Complementary to Open Market Operations
THE MULTI CHANNEL OPPORTUNITY COMPLEMENTARY TO OPEN MARKET OPERATIONS Price Spread to Open Market Value Traditional Our Partnership £‘000 Model Model 250 Operating Margin 18%-20% 20% discount 12-15% discount 6-9% discount ROCE 20%-25% 30%-35% 230 Capital Requirement Normal Reduced 210 Sales Risk Nor
Slide 36: Mixed Tenure Housing: Major Growth Sector
THE MULTI CHANNEL OPPORTUNITY Mixed Tenure Housing MIXED TENURE HOUSING MAJOR GROWTH SECTOR Open Intermediate market Tenure sales PRS GROWTH S106 Affordable 300% sector growth in last 5 years Housing 21% in last 12 months £2.4bn invested in Q1/Q2 2021 Number of Build to Rent Homes ‘000, per quarter
Slide 37: Specialist Land Procurement
THE MULTI CHANNEL OPPORTUNITY Specialist Land Procurement SPECIALIST LAND PROCUREMENT • Strategic Land specialists managing and promoting c.18,000 plots • Lead Developer capabilities with large scale sites – Longcross Garden Village – Kilnwood Vale – Arborfield Garrison Longcross, Chertsey • Public
Slide 38: Strategic Land Portfolio
THE MULTI CHANNEL OPPORTUNITY Specialist Land Procurement STRATEGIC LAND PORTFOLIO • Potential to successfully promote land for c.7,000 homes in • The sum of Local Plan targets represents 80% of housing the current and next round of Local Authority plan making need according - a shortfall of 54,000
Slide 39: Key Relationships
THE MULTI CHANNEL OPPORTUNITY Key Relationships KEY RELATIONSHIPS 39 CREST NICHOLSON CAPITAL MARKETS DAY October 2021
Slide 40: Multi Channel Summary
THE MULTI CHANNEL OPPORTUNITY SUMMARY • Culture shift • Maximise mixed tenure opportunity (S106 / Pre Sale) Mixed Tenure • Rejuvenated land teams (Strategic / Public) Housing • Focus on quality not volume • Add value not complication Specialist Land Procurement Key Relationships 40 CREST NICHOLSON C
Slide 41: Bringing Our Strategy to Life
07 BRINGING OUR STRATEGY TO LIFE TOM NICHOLSON Chief Operating Officer Monksmoor Park, Daventry 41 CREST NICHOLSON CAPITAL MARKETS DAY October 2021
Slide 42: Our Strategy
BRINGING OUR STRATEGY TO LIFE OUR STRATEGY • Strategy built on aligning efficient platform with existing strength • Margin growth evolution – New House Type range – Operational efficiency – Divisional overhead structures – Enhanced customer journey – Land portfolio optimisation – How we will deliver
Slide 43: New House Type Range
BRINGING OUR STRATEGY TO LIFE NEW HOUSE TYPE RANGE OCT ‘19 128 • Effective portfolio core to standardisation house types • New specification enhancing quality and consistency JAN ‘20 • Fully embedded across all divisions 24 house types • Existing short-term land portfolio re-plans undertaken • Curre
Slide 44: Operational Efficiency Delivered
BRINGING OUR STRATEGY TO LIFE OPERATIONAL EFFICIENCY DELIVERED New House Type Range – enhanced offering reducing costs • New homes excellent placemaking – Key accommodation features – Standardised engineering – Elevation flexibility THE KESWICK West Malling • Increased sub-contractor base and reduce
Slide 45: Divisional Overhead Structures
BRINGING OUR STRATEGY TO LIFE DIVISIONAL OVERHEAD STRUCTURES Number of Unit Completions per Divisional Employee 7 • Experienced and industry wide divisional leadership teams 6 5 • Standardised and simplified divisional staff structures 4 • Removed operational ‘overlapping’ 3 • Core processes embedde
Slide 46: Enhanced Customer Journey
BRINGING OUR STRATEGY TO LIFE ENHANCED CUSTOMER JOURNEY • Five-Star customer satisfaction achieved • Comprehensive brand guidelines established • Benchmarking and best practice established • Enhanced CRM system rolled out, achieving increased lead management effectiveness • Supply chain and partner
Slide 47: Land Portfolio Optimisation
BRINGING OUR STRATEGY TO LIFE Strategic Land Conversion Gross Margin (after S&M) LAND PORTFOLIO 27% 26% OPTIMISATION 25% 24% • Value improvement to existing land portfolio 23% – Cost base 22% FY18 FY19 FY20 FY21 – Added value • Robust hurdle rates utilised in land acquisitions Short-Term Land Portfo
Slide 48: Land Portfolio Optimisation: Highlands Park, Henley
BRINGING OUR STRATEGY TO LIFE LAND PORTFOLIO OPTIMISATION Northern Field Promotion CASE STUDY: HIGHLANDS PARK, HENLEY RESERVED MATTERS CONSENT REVISED PLANNING SECURED May 2017 August 2020 • 163 units (Open Market (OM):98) • 191 units (additional 28) • 1,985m2 B1 floor space • Product mix appeal to
Slide 49: Our Approach to New Divisions
BRINGING OUR STRATEGY TO LIFE RICHMOND OUR APPROACH TO NEW DIVISIONS SCARBOROUGH YORKSHIRE RIPON MALTON A64 A166 • Office location options identified HARROGATE A1 (M) YORK – Transport networks A614 BEVERLEY BRADFORD LEEDS – Accessibility to regional markets SELBY M62 A63 HULL HALIFAX WAKEFIELD • Det
Slide 50: How Will We Grow?
BRINGING OUR STRATEGY TO LIFE HOW WILL WE GROW? • Disciplined growth with no compromise on quality of Unit Growth from Existing and New Divisions earnings / KPIs • Initial investment – Small team recruitment – Key disciplines – land led – Adjacent divisional support • Land investment combining ancho
Slide 51: Adapting to a New World
08 ADAPTING TO A NEW WORLD DAVID MARCHANT Group Production Director Morton Park, Milton Keynes 51 CREST NICHOLSON CAPITAL MARKETS DAY October 2021
Slide 52: Unprecedented Regulatory Change
ADAPTING TO A NEW WORLD UNPRECEDENTED REGULATORY CHANGE • Climate Change Momentum – COP26 UN Climate Change Conference – UK target of net zero by 2050 • Consumer protection and building safety • Strong regulatory environment in homebuilding: – Future Homes Standard – Building Regulations – Building
Slide 53: Strong ESG Foundations in Place
ADAPTING TO A NEW WORLD STRONG ESG FOUNDATIONS IN PLACE • ESG fully integrated into business processes • Challenging short-term environmental targets – Driving immediate action – Linked to Executive remuneration • Good progress in preparing for TCFD and Future Homes Standard • Widespread recognition
Slide 54: Preparing for the Future Homes Standard
ADAPTING TO A NEW WORLD PREPARING FOR THE FUTURE HOMES STANDARD The Future Homes Taskforce has recommended an ambitious delivery plan to reduce the impact our industry has on the climate and environment. It covers: • Homes that are zero carbon ready, healthy, water efficient and designed for sustain
Slide 55: The Future Home
ADAPTING TO A NEW WORLD THE FUTURE HOME 2022/23 Changes to the homes we build will be delivered in two stages: FUTURE HOMES STAGE 1 31% improvement in energy efficiency (from current regs) implemented for plots started after June 2023 FUTURE HOMES STAGE 2 75% reduction in carbon emissions by 2025 an
Slide 56: Future Homes Impact
ADAPTING TO A NEW WORLD FUTURE HOMES IMPACT • Both risks and rewards • Influencing industry standards • R&D programme in place • Range of estimated cost outcomes: – Phase 1 from June 2023 – c.£5k per plot – Phase 2 from 2025 – c.£10k per plot • Costs factored into business plan • Off Site Manufactur
Slide 57: Climate Action Targets on Track
ADAPTING TO A NEW WORLD CLIMATE ACTION TARGETS ON TRACK 2025 targets Carbon emissions reduction target Renewable electricity target Waste reduction target 25% 100% 15% Expected to be in excess of Expected to be in excess of Expected to be in excess of 10% this year 55% this year 10% this year up fro
Slide 58: Accelerating Climate Action
ADAPTING TO A NEW WORLD Value Chain Emissions ACCELERATING The climate change impact we report now is a relatively small part of our overall emissions CLIMATE ACTION Scope 1 emissions Operational • Company owned vehicles Scope 3 emissions Building on our success in reducing emissions we are • Diesel
Slide 59: Adapting to a New World Summary
ADAPTING TO A NEW WORLD SUMMARY • ESG and climate change leader • Unprecedented regulatory change on the way • Well placed to influence change and manage risks and opportunities • Future Homes impacts accounted for in our plan Elmsbrook, Bicester • Good platform and strong performance against curren
Slide 60: Wrap Up
09 WRAP UP PETER TRUSCOTT Chief Executive Fernhurst, Camberley 60 CREST NICHOLSON CAPITAL MARKETS DAY October 2021
Slide 61: Maldon Site Overview
10 MALDON SITE OVERVIEW ALEX STARK Managing Director, Eastern Wycke Place, Maldon 61 CREST NICHOLSON CAPITAL MARKETS DAY October 2021
Slide 62: Wycke Place, Maldon
MALDON SITE OVERVIEW WYCKE PLACE, MALDON • Overall masterplan for 1,000 homes including other housebuilders • Crest Nicholson consent for 394 homes • Strong GM (after S&M) credentials – Purchased at 25.7% – Pre-commencement target at 27.2% – Current run rate at 29.8% • Further optimisation possible
Slide 63: Wycke Place, Maldon: Phase 1
MALDON SITE OVERVIEW WYCKE PLACE, MALDON • Phase 1: 106 homes, 74 private and 32 affordable • Sales launch April 2021 • 41 sales achieved to date • 14 properties completed • Construction commenced November 2020 • First completions June 2021 • NHBC Customer Satisfaction Score at 100% • Reportable Ite
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