Barratt Redrow Plc · LSE:BTRW
Barratt Redrow — Barratt Developments — H1 FY2019 Earnings Presentation
55 slides from Barratt Redrow's earnings presentation, February 2019
Slide 1: Results Presentation: Half year ended 31 December 2018
RESULTS PRESENTATION Half year ended 31 December 2018 Sandridge Place, Melksham 1
Slide 2: David Thomas, Chief Executive
David Thomas Chief Executive Lloyd Mews, Stoke-on-Trent 2
Slide 3: Key Highlights
KEY HIGHLIGHTS • Strong first half of the year • Resilient business model with strong financial and operational performance • Strong housing market fundamentals • Good progress on medium term targets • Strong cash generation - attractive cash returns • Encouraging current trading 3
Slide 4: Our Vision
OUR VISION OUR VISION To lead the future of housebuilding by putting customers at the heart of everything we do 4
Slide 5: 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 3-5% volume growth per 2.5x di
Slide 6: Operational Targets – Progress Update
OPERATIONAL TARGETS – PROGRESS UPDATE Medium term targets Progress in the half year 3-5% growth per annum 4.1% increase in half year total completions(1) Completions Present business capacity of 20,000 per annum to 7,622 200 bps increase in gross margin to 22.6%, New land acquisitions at minimum 23%
Slide 7: Steven Boyes, Chief Operating Officer
Steven Boyes Chief Operating Officer Riverside View, Lancaster 7
Slide 8: Completion Growth
COMPLETION GROWTH Completions • Strong completion growth in H1 FY19 H1 FY19 H1 FY18 Change • Regional completions at highest level for 11 years Regional 7,138 6,782 5.2% • London and JV completions in line with build programmes London 264 162 63.0% Group 7,402 6,944 6.6% JV 220 380 (42.1%) Total 7,6
Slide 9: Completions Analysis - Buyer Type
COMPLETIONS ANALYSIS - BUYER TYPE 4% 4% 10% 9% • Similar profile to prior year 18% 18% • Help to Buy remains an important customer proposition Investor Part exchange • Affordable in line; now expect to be c. 20% for FY19 30% 33% Affordable Other private Help to Buy 38% 36% H1 FY19 H1 FY18 9
Slide 10: Solid Sales Performance
SOLID SALES PERFORMANCE Average net private reservations per active outlet per week • Solid performance H1 FY19 H1 FY18 Change • London reservations include bespoke design and build arrangements Regional 0.62 0.67 (7.5%) • Second quarter more subdued but January trading encouraging London 1.56 0.86
Slide 11: Land Market
LAND MARKET Savills UK Residential Land Index versus HBF planning consents 120 HOLDING PICTURE – CB 400 SPEAKING TO PHIL BARNES • Favourable land market with good supply of consents Savills UK Residential Development Land Index 350 100 • Excellent opportunities available nationally 300 Planning cons
Slide 12: Land Bank – London Sites Evolution
LAND BANK(1) – LONDON SITES EVOLUTION Central and Outer London exposure - % of plots 3,927 plots 3,605 plots 100% • Repositioned London land bank 90% 80% • Outer London has strong land bank 70% 66% • 92% of London plots priced below £600k 60% 50% 99% 40% 30% 20% 34% 10% 1% 0% Dec 13 Dec 18 Central L
Slide 13: Driving Operating Margin – Strategic Land
DRIVING OPERATING MARGIN – STRATEGIC LAND H1 FY19 H1 FY18 • Enhanced margin of c. 300 basis points(1) • Strong strategic land bank with good geographic Completions from strategic 26% 28% spread land • Targeting 30% of completions from strategic land in the medium term Acres held 12,192 11,806 Number
Slide 14: Driving Operating Margin – New Product Roll Out
DRIVING OPERATING MARGIN – NEW PRODUCT ROLL OUT Sites identified Sites in build 440 240 230 398 • Increased delivery momentum from new ranges 400 220 360 200 • Completions in H1 FY19: 2,159 (H1 FY18: 269) 320 +19% 304 180 +31% 160 +53% 150 280 • Roll out supports margin growth 140 Number of sites 24
Slide 15: Managing the Supply Chain
MANAGING THE SUPPLY CHAIN • Active supplier management to support delivery and ensure quality Management • Centralised procurement team Integrity and performance • 90% of spend with Group suppliers manufactured or assembled in the UK Supply base Sustainability geography 15
Slide 16: Managing the Cost Environment
MANAGING THE COST ENVIRONMENT Materials Labour • Modest material pressures • Pockets of cost pressure • 98% of pricing fixed to June • Simplified, faster build 2019 • Increased use of offsite • 40% of pricing fixed to manufacturing December 2019 • Apprenticeship schemes Build costs expected to incre
Slide 17: Continue to Drive Operational Improvements
CONTINUE TO DRIVE OPERATIONAL IMPROVEMENTS • Strong completion growth and solid sales rates • Good progress in improving operating margin from strategic land, new products and cost discipline • Delivering industry-leading quality and customer service Ashmeade Park, Pontefract 17
Slide 18: Jessica White, Chief Financial Officer
Jessica White Chief Financial Officer Salter’s Brook, Cudworth 18
Slide 19: Key Highlights
KEY HIGHLIGHTS £m (unless otherwise stated) H1 FY19 H1 FY18 Change Revenue 2,132.0 1,988.0 7.2% Gross profit 482.2 410.2 17.6% Gross margin 22.6% 20.6% 200 bps Operating profit 409.7 355.2 15.3% Operating margin 19.2% 17.9% 130 bps PBT 408.0 342.7 19.1% Earnings per share 32.7p 27.1p 20.7% Net cash
Slide 20: Revenue Summary
REVENUE SUMMARY H1 FY19 H1 FY18 Change Completions (units) Private 6,078 5,715 6.4% Affordable 1,324 1,229 7.7% Total completions 7,402 6,944 6.6% % Affordable 18% 18% - JV 220 380 (42.1%) Total completions (inc JVs) 7,622 7,324 4.1% ASP (£’000) Private 317.3 314.6 0.9% Affordable 120.9 124.7 (3.0%)
Slide 21: Private Average Selling Price
PRIVATE AVERAGE SELLING PRICE H1 FY19 H1 FY18 Units ASP (£000) Units ASP (£000) Central London 106 1,306.7 107 820.2 Outer London 122 473.0 43 727.1 London total 228 860.6 150 793.6 Regional total 5,850 296.2 5,565 301.7 Total private 6,078 317.3 5,715 314.6 31 December 2018: 39 Central London priva
Slide 22: Delivering Margin Improvement
DELIVERING MARGIN IMPROVEMENT 23% 22.6% • Gross margin improvement from 22% 21% 20.7% 20.6% - Land 20% - increased hurdle rates last year 19.2% - benefits from new product range 19% 18.6% - strategic land enhances margin 17.9% 17.8% 18% 17.4% - Reduced costs 17% 16.1% - benefits from new product ran
Slide 23: Operating Margin Bridge
OPERATING MARGIN BRIDGE 20.0% Increase Decrease 19.5% 10 bps 10 bps 30 bps 10 bps 19.0% 50 bps 70 bps 30 bps 18.5% 120 bps 19.2% 18.0% 18.4% 17.5% 17.9% 17.0% H1 FY18 Regional new Regional Showhomes Central Mix / Admin Subtotal Disposal of Reversal of H1 FY19 sites starting legacy & London commercia
Slide 24: Operating Framework – Progress Update
OPERATING FRAMEWORK – PROGRESS UPDATE Operating framework Progress in the half year 31 Dec 2018: 3.7 years owned / 1.0 year controlled Land bank c. 3.5 years owned / c. 1.0 year controlled (31 Dec 2017: 3.8 years / 1.2 years) Reduce to 25-30% of the land bank Land creditors Reduced to 32.1% (31 Dec
Slide 25: Balance Sheet
BALANCE SHEET £m 31 December 2018 31 December 2017 Goodwill and intangible assets 892.2 892.2 Investment in joint ventures and associates 246.4 228.3 Gross land bank 2,994.4 3,229.0 Land creditors (961.8) (1,185.4) Net land bank 2,032.6 2,043.6 Land creditor % 32.1% 36.7% WIP 1,672.3 1,704.4 Net cas
Slide 26: Land Bank
LAND BANK 22% 21.7% Plot cost as % of ASP in land bank (1) 20.9% Land bank plots 31 Dec 2018 31 Dec 2017 21% 20.7% 20.4% 19.7% Owned 63,125 64,542 20% 20.4% Controlled 17,505 19,075 18.9% 19% 18.3% Total 80,630 83,617 18.0% 18% 17.4% Land bank years 4.7 5.0 16.9% JV – Owned and 17% 5,426 5,329 contr
Slide 27: Work in Progress
WORK IN PROGRESS 2.0 (1) 18,000 WIP Wholly owned completions • WIP is tightly controlled and reflects 1.6 - increase in build active sites 16,000 - reduction in Central London sites 1.2 Units £bn - increase in owned showhomes 14,000 0.8 12,000 0.4 0.0 10,000 Dec-16 Dec-17 Dec-18 (1) Wholly owned com
Slide 28: Cash Flow
CASH FLOW 500 Inflow Outflow 400 (82.3) 300 (85.2) 200 409.7 (213.7) 100 £m 0 ((24.1) (34.9) 1.1 (29.4) (100) (200) (355.2) (403.6) (300) (400) (19.0) (500) Profit from Net cash Other non- WIP / PX Land Land creditors JV investment Operating Dividends Other Net operations interest & tax cash and cas
Slide 29: Gearing
GEARING 50% • Focus on managing total gearing across the cycle 45% Net debt/cash and land creditors as % of tangible net assets • Expect FY19 average net cash of c. £200m 40% 35% • Total gearing reduced to 15.7% at December 2018 30% 25% 20% 15% 10% 5% 0% Dec 13 Dec 14 Dec 15 Dec 16 Dec 17 Dec 18 29
Slide 30: Attractive Cash Returns
ATTRACTIVE CASH RETURNS 500 Total: £2.1bn Capital Return Plan 450 • Ordinary dividend payable through the cycle: 400 - 2.5x dividend cover 350 • FY19 interim dividend: 9.6p 300 Special £m • When market conditions allow, excess cash will 250 be returned to shareholders in the form of special dividend
Slide 31: Guidance for FY19
GUIDANCE FOR FY19 3-5% growth in wholly owned completions Completions c. 20% affordable c. 700 JV ASP ASP reducing due to less Central London product Total admin expenses c. £170m JV share of profits c. £25m c. £40m Interest cost (£8m cash, £32m non-cash) Land cash spend c. £1.0bn Land creditors 30
Slide 32: Financial Summary
FINANCIAL SUMMARY • Strong margin improvement • Strong ROCE • Half year gearing substantially reduced • Strong balance sheet • Delivered well against operating framework • Capital return plan extended Minerva, Exeter32
Slide 33: David Thomas, Chief Executive
David Thomas Chief Executive Norton Farm, Bromsgrove 33
Slide 34: 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 3-5% volume growth per 2.5x di
Slide 35: Market Fundamentals Remain Attractive
MARKET FUNDAMENTALS REMAIN ATTRACTIVE 1.76% Government average 2 year target: Need new picture fixed rate at 85% 300k homes per LTV(1) annum Positive lending Clarity on Help to Demand continues Attractive land market environment Buy to exceed supply (1) Source: Bank of England monthly interest rate
Slide 36: Positive Lending Environment
POSITIVE LENDING ENVIRONMENT 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% Jan-14 Jan-15 J
Slide 37: Getting Ahead with Skills
GETTING AHEAD WITH SKILLS • Future talent 7% of employees • c.250 new apprentices, trainees, graduates and ex-Armed Forces • Award winning employment schemes • Recruitment to our programmes for the past 5 years = 1,162 37
Slide 38: Addressing the Skills Shortage - Modern Methods of Construction
ADDRESSING THE SKILLS SHORTAGE- MODERN METHODS OF CONSTRUCTION • Further methods to be rolled out via our new product introduction process • Aim to use MMC on 20% of homes by 2020 • Use offsite manufactured roof cassettes, ground floor solutions, timber frame, large format block and light gauge stee
Slide 39: Quality and Service
QUALITY AND SERVICE 83 NHBC Pride in the HBF 5 star customer Job Awards – more recommendation award - than any housebuilder 9th consecutive year for 14th year Henry Pateki, Pride in the Job winner, Supreme Kirk Raine, runner up in the Pride in the Job Award in Large Builder category, awarded in Supr
Slide 40: Our Charitable Giving
OUR CHARITABLE GIVING • Aim to be industry leading in charitable giving and social responsibility • Our largest ever charitable donation, £750,000 to RBLI to support the construction of Centenary Village to provide crucial housing support to ex- servicemen and women • Support local charities • New B
Slide 41: Current Trading
CURRENT TRADING H2 FY19 H2 FY18 Change to date to date Net private reservations per active 0.74 0.78 (5.1%) outlet per average week Average active outlets 385 378 1.9% Net private reservations per 284 294 (3.4%) average week Total forward sales (including £3,021.0m £2,816.2m 7.3% JVs)(1) (1) As at 3
Slide 42: Conclusion
CONCLUSION • Positive on outlook • Strong housing market fundamentals • Good progress on medium term targets • Confidence in the business going forward Aspect, Anlaby 42
Slide 43: Q&A
Q&A City Edge, Blakelaw 43
Slide 44: Appendices – Index
APPENDICES – INDEX Page Definitions 45 P&L 46 Balance sheet - land bank 47 Completions - product type 48 Investment in joint ventures and associates 49 Joint venture - housebuilding 50 Land prices versus house price inflation 51 Net interest charge analysis 52 Financing arrangements 53 Current tradi
Slide 45: Definitions
DEFINITIONS • Active outlet is a site with at least one home for sale • ASP is average selling price • Average cash (debt) is calculated on average daily closing position in period • Earnings per share (EPS) is calculated by dividing the profit for the year attributable to ordinary shareholders by t
Slide 46: P&L
P&L £m (unless otherwise stated) H1 FY19 H1 FY18(1) Change Revenue 2,132.0 1,988.0 7.2% Cost of sales (1,649.8) (1,577.8) (4.6%) Gross profit 482.2 410.2 17.6% Gross margin 22.6% 20.6% 200 bps Administrative expenses (74.0) (55.0) (34.5%) Part exchange(1) 1.5 n/a(1) n/a(1) Operating profit 409.7 355
Slide 47: Balance Sheet – Land Bank
BALANCE SHEET – LAND BANK Land bank plots 31 December 2018 31 December 2017 Owned / unconditional contracts 63,125 64,542 Conditional contracts 17,505 19,075 Total land bank plots 80,630 83,617 JV plots – owned / conditional 5,426 5,329 Total land bank plots (including JVs) 86,056 88,946 Land bank p
Slide 48: Completions Analysis – Product Type
COMPLETIONS ANALYSIS – PRODUCT TYPE 4% 5% 31% Flats (non-London) Flats (London) 34% 1 & 2 Bed 3 Bed 4 Bed 5 & 6 Bed 36% 35% 14% 10% 2% 4% 11% 14% H1 FY19 H1 FY18 48
Slide 49: Investment in Joint Ventures and Associates
INVESTMENT IN JOINT VENTURES AND ASSOCIATES 31 December 2018 31 December 2017 £m £m Housebuilding London 223.1 198.0 Non-London 22.0 28.4 Total housebuilding 245.1 226.4 Other Commercial 1.3 1.9 Total 246.4 228.3 49
Slide 50: Joint Ventures - Housebuilding
JOINT VENTURES - HOUSEBUILDING Balance sheet Number of JVs(1) Units(1) Reserved (%) ASP (£’000) investment (£m) Central London 3 562 56 830 98.9 Outer London 4 2,621 8 355 124.2 Regional 2 1,105 13 352 22.0 Total 9 4,288 16 427 245.1 700 completions FY19 guidance: Share of profit c. £25m (1) Owned J
Slide 51: Land Prices versus House Price Inflation
LAND PRICES VERSUS HOUSE PRICE INFLATION Greenfield land Prime London land 140 140 UK greenfield land London land UK house prices Savills UK Residential Development Land Index Savills UK Residential Development Land Index 120 120 House prices London 100 100 (100 = 2007 peak) (100 = 2007 peak) 80 80
Slide 52: Net Interest Charge Analysis
NET INTEREST CHARGE ANALYSIS £m H1 FY19 H1 FY18 Interest on term debt and overdrafts (1.5) (0.5) Interest on private placement notes 2.8 2.6 Utilisation / non-utilisation fees on RCF 2.1 1.9 Other interest (0.2) 0.7 Total cash interest 3.2 4.7 Land creditors / deferred payables 11.3 17.7 Financing f
Slide 53: Future Financing Arrangements
FUTURE FINANCING ARRANGEMENTS Loan Facility Amount Maturity Interest basis (1) RCF facility £700m November 2023 LIBOR +1.25-2.75% Private placement notes £200m August 2027 2.77% (1) Does not include utilisation and non-utilisation fees 53
Slide 54: Current Trading – Forward Order Book
CURRENT TRADING – FORWARD ORDER BOOK H2 FY19 H2 FY18 % change as at 3 Feb 2019 as at 4 Feb 2018 £m Units £m Units £m Units Private 1,473.8 4,874 1,790.3 5,302 (17.7%) (8.1%) Affordable 1,164.2 7,496 778.7 6,224 49.5% 20.4% Wholly owned 2,638.0 12,370 2,569.0 11,526 2.7% 7.3% JV 383.0 824 247.2 828 5
Slide 55: 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 Interim Results Announcement in respect of the half year ended 31 December 2018. For the purposes of this notice, the presentation (the “Presentati
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