Barratt Redrow Plc · LSE:BTRW
Barratt Redrow — Barratt Developments — FY2017 Earnings Presentation
52 slides from Barratt Redrow's earnings presentation, Sep 6, 2017
Slide 1: Results Presentation – Year ended 30 June 2017
RESULTS PRESENTATION Year ended 30 June 2017 6 September 2017 St Wilfrid's Walk, Selby – new Barratt range 1
Slide 2: David Thomas, Chief Executive
The Wickets, Bottesford David Thomas Chief Executive 2
Slide 3: Strong financially and operationally
STRONG FINANCIALLY AND OPERATIONALLY £765.1m £723.7m 29.8% £2,749.9m (1) Strong forward order Record PBT Net cash ROCE book Improved and extended Capital Experienced build 74 NHBC Pride in the Job Awards & HBF 5 20.0% and sales teams Star housebuilder Gross margin Return Plan (1) As at 3 September 2
Slide 4: Improving key financial metrics – driving operating margin
IMPROVING KEY FINANCIAL METRICS – DRIVING OPERATING MARGIN Achieved FY17 17.2%, +190bps since FY15 FY18 FY19 FY20 FY21 FY22 Strategic land New Barratt housetypes New David Wilson housetypes Five year warranty Show home lease back Zero P&L impact Full P&L impact 4
Slide 5: Steven Boyes, Chief Operating Officer
Steven Boyes Chief Operating Officer Beecham Place, Midsomer Norton 5
Slide 6: Strong sales performance
STRONG SALES PERFORMANCE Average net private reservations per active outlet per week • Strong performance for the year FY17 FY16 Change • Group private sales rate of 0.72 Regional 0.70 0.67 4.5% • London sales rate impacted by - challenging central London market - reduced availability of <£600k prod
Slide 7: Completion growth
COMPLETION GROWTH Completions • Group completions at highest level for nine years FY17 FY16 Change • Significant growth in regional business Regional 15,500 14,778 4.9% • JV volumes in-line with guidance London 1,145 1,127 1.6% Group 16,645 15,905 4.7% JV 750 1,414 (47.0%) 7
Slide 8: Completions analysis – buyer type
COMPLETIONS ANALYSIS – BUYER TYPE 6% 8% 8% 8% • Slight increase in Help to Buy influenced by 40% level in London 20% 17% • Affordable increase due to timing of delivery 31% 35% • Investor sales impacted by tax changes 35% 32% FY17 FY16 Help to Buy Other private Affordable Part exchange Investor 8
Slide 9: Pricing trends remain positive
PRICING TRENDS REMAIN POSITIVE Private completions average selling price (£’000) • Good pricing trends across the regional FY17 FY16 Change business • Target a full market mix and optimise use of Regional 291.5 275.0 6.0% brands • London up significantly due to roll out of London 621.2 483.7 28.4% h
Slide 10: Land market holding picture
Cane Hill Park, Coulsdon LAND MARKET HOLDING PICTURE – CB SPEAKING TO PHIL BARNES • Excellent opportunities available nationally that exceed our hurdle rates • Standard product in regional business • Focus on Zones 3+ in London • Land approvals - FY17: 18,497 - FY18e: 20,000+ 1010
Slide 11: Land bank
LAND BANK 9% 7% 93% (2) National of plots coverage (1) positioned to benefit from HtB 91% 93% Regional London up to £600k £600k+ (1) Private owned land bank plots including JVs as at 30 June 2017 (2) Private owned land bank plots including JVs, in England only with selling price under £600k 11
Slide 12: Barratt London – land bank
BARRATT LONDON – LAND BANK(1) 12% 7% 4% 93% 21% 84% of the London of the land bank is land bank is below now in Zones 3+ £1m 72% 84% Zones 3+ Zone 2 Zone 1 up to £600k £600k to £1m £1m+ (1) Private owned and controlled land bank plots including JVs as at 30 June 2017 12
Slide 13: Driving operating margin – strategic land
DRIVING OPERATING MARGIN - STRATEGIC LAND FY17 FY16 • Delivered medium term target: 25% completions from strategic land Completions from strategic land 25% 22% • Targeting further growth in completions in the medium term Conversions to owned land bank 6,757 4,558 (1) (plots) • Enhanced margin of c.
Slide 14: Driving operating margin – product
DRIVING OPERATING MARGIN - PRODUCT • Footprint and external projections simplified • Reduced build cost • More efficient to build • Better suited to modern methods of construction • Identified for new range: - 132 sites / c. 19,000 plots • Currently building on: - 51 sites / c. 5,800 plots St Wilfri
Slide 15: Driving operating margin – layout
DRIVING OPERATING MARGIN – LAYOUT • Continue to drive layout optimisation • Training and plotting guides launched • High quality schemes maintained Liberty Green, Hull 15
Slide 16: Security of supply chain
SECURITY OF SUPPLY CHAIN • Central procurement for 95% of standard housebuild product material costs • High quality products and materials Management • Proven and reliable suppliers Integrity and Performance • 90% of spend manufactured/assembled in UK - less supply risk - less direct currency risk S
Slide 17: Managing the cost environment
MANAGING THE COST ENVIRONMENT Materials Currency Labour • 90% of materials • Labour cost increases • Modest inflationary pressure manufactured/assembled in have eased • 100% pricing fixed to Dec 2017 the UK • Simplifying build • 75% pricing fixed to June 2018 • Limited impact of currency • Increased
Slide 18: Strong performance
STRONG PERFORMANCE • Strong sales rate • Positive pricing trends • Actively manage our cost base • Focus on improving operating margin • No compromise on health and safety, customer service or quality South Fields, Morpeth 18
Slide 19: Jessica White, Chief Financial Officer
Jessica White Chief Financial Officer Cheshire Limes, Crewe 19
Slide 20: Key highlights
KEY HIGHLIGHTS £m (unless otherwise stated) FY17 FY16 Change Revenue 4,650.2 4,235.2 9.8% Gross profit 932.0 800.4 16.4% Gross margin % 20.0% 18.9% 1.1ppts Operating profit 799.2 668.4 19.6% Operating margin % 17.2% 15.8% 1.4ppts Share of JV/assoc profit 25.6 72.1 (64.5%) PBT 765.1 682.3 12.1% Earni
Slide 21: Revenue summary
REVENUE SUMMARY £m (unless otherwise stated) FY17 FY16 Change Completions Private 13,303 13,198 0.8% Affordable 3,342 2,707 23.5% Total completions 16,645 15,905 4.7% % Affordable 20% 17% 3ppts JV 750 1,414 (47.0%) Total completions (inc JV’s) 17,395 17,319 0.4% ASP (£’000) Private 313.1 289.8 8.0%
Slide 22: Delivering margin improvement
DELIVERING MARGIN IMPROVEMENT 21% Gross margin • Achieved target set in 2014 of 20% 20.0% 20% • Continued benefit from unwind in legacy land 19.0% 18.9% • Some underlying sales price inflation and build cost 19% inflation • Benefit from mix of new sites and product mix 18% 17% 16.8% 16% Jun-14 Jun-1
Slide 23: Driving operating margin – show homes
DRIVING OPERATING MARGIN – SHOW HOMES FY08 to FY17 Show homes sold and leased back to Barratt Aggregate current value c. £230m From 1 July 2017 Full benefit expected in FY22 Barratt sells show home at end of development Pros Cons Improves margin Decreases ROCE Improves profit In line with peers 23
Slide 24: Balance sheet
BALANCE SHEET £m 30 June 2017 30 June 2016 Goodwill and intangible assets 892.2 892.2 Investment in joint ventures and associates 213.1 255.9 Gross land bank 2,895.6 2,880.2 Land creditors (1,064.0) (1,086.8) Net land bank 1,831.6 1,793.4 Land creditor % 36.7% 37.7% WIP 1,509.1 1,386.3 Net cash 723.
Slide 25: Land bank
LAND BANK 24% (1) Plot cost as % of ASP in land bank Land bank plots 30 June 2017 30 June 2016 23% 22.8% Owned 58,965 53,849 22% Controlled 16,078 17,502 21% 20.7% Total 75,043 71,351 20% 20.4% 19.7% Land bank years 4.5 4.5 19% JV – Owned and 18.0% 5,709 5,309 controlled 18% Total including JV 80,75
Slide 26: Work in progress
WORK IN PROGRESS 2.0 18,000 • WIP growth is tightly controlled and WIP Wholly owned completions reflects 1.6 - growth in completions 16,000 - increased infrastructure on new site starts 1.2 Units £bn • Unsold stock per site remains stable 14,000 0.8 12,000 0.4 0.0 10,000 Jun-15 Jun-16 Jun-17 Unsold
Slide 27: Legacy asset reduction
LEGACY ASSET REDUCTION 1,000 £m (unless otherwise 30 June 2017 Legacy Ongoing stated) Equity share asset 3.9 3.9 - 800 Investment in JVs & 213.1 1.0 212.1 associates (1) Gross land bank 2,895.6 112.3 2,783.3 Legacy assets (£m) 600 Land creditors (1,064.0) (19.4) (1,044.6) Net land bank 1,831.6 92.9
Slide 28: Cash flow
CASH FLOW 800 Inflow Outflow 700 600 500 £m 400 300 200 100 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 cash tax working & financing inflow capital 28
Slide 29: Gearing
GEARING 40% • Highly cash generative business Net debt/cash and land creditors as % of tangible 35% net assets • Generated a net cash inflow over each of the last five years 30% • Focus on managing total gearing across the cycle 25% • Net cash at year end 20% 15% 10% 5% 0% Jun-13 Jun-14 Jun-15 Jun-1
Slide 30: Guidance for FY18
GUIDANCE FOR FY18 Modest growth in wholly owned completions Completions c. 20% affordable c. 750 JV ASP Total ASP in owned land bank of £265k Total admin expenses c. £150m JV share of profits c. £25m c. £50m Interest cost (£15m cash, £35m non-cash) Land cash spend c. £1bn Land creditors 30% to 35% o
Slide 31: David Thomas, Chief Executive
David Thomas Chief Executive Saxon Place, Maidstone 31
Slide 32: Investment proposition
INVESTMENT PROPOSITION Strong balance Industry leading Experienced Shorter owned National sheet and cash quality and build and sales land bank housebuilder generation service standards teams Disciplined Improving key Attractive growth financial metrics cash returns 32
Slide 33: Market fundamentals remain attractive
MARKET FUNDAMENTALS REMAIN ATTRACTIVE Household projections: 210k needed 1.58% per annum(2) average 2 year fixed rate at 85% New home net LTV(1) additions 2015/16: 190k(3) Positive lending Strong Government Demand continues Attractive land market environment support to exceed supply (1) Source: Bank
Slide 34: Positive lending environment
POSITIVE LENDING ENVIRONMENT Average mortgage rates(1) Halifax Mortgage Affordability Index(2) 3.9% 70% Halifax affordability Standard 85% product Average Help to Buy (Equity Loan) 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 Jul-14 J
Slide 35: Supporting increased supply of new houses
SUPPORTING INCREASED SUPPLY OF NEW HOUSES • Highest volumes in nine years • Investing in apprenticeships and traineeships nationally • Recruiting skilled workers from outside of building industry- e.g. armed forces • Modern methods of construction Greig Mills (centre) with fellow ex-forces colleague
Slide 36: Disciplined growth – quantity
DISCIPLINED GROWTH - QUANTITY 20,000 8% CAGR • Grown completions by more than 18,000 55% over the last six financial years 16,000 • Further growth ambitions 14,000 12,000 Units 10,000 8,000 6,000 4,000 2,000 0 FY11 FY12 FY13 FY14 FY15 FY16 FY17 Total completions (incl JV) 36
Slide 37: Disciplined growth – quality
DISCIPLINED GROWTH - QUALITY HBF 5 star 74 NHBC Pride in 56 Built for Life customer the Job Awards – accreditations – more recommendation more than any than all other award – eighth housebuilder for housebuilders consecutive year 13th year combined 37
Slide 38: Attractive cash returns
ATTRACTIVE CASH RETURNS 500 Total: £1.4bn Capital Return Plan 450 • Ordinary dividend payable through the cycle: 400 - 2.5x dividend cover 350 • When market conditions allow, excess cash will 300 be returned to shareholders in the form of £m 250 special dividends: - November 2017: £175m(1) 200 - Nov
Slide 39: Operating framework
OPERATING FRAMEWORK Gross margin - minimum 20% Land acquisition ROCE - minimum 25% At least 3.5 years owned land and 1 year controlled Land bank Land creditors 30% to 35% of owned land bank Year end net cash Treasury Average annual net debt of £150m to £200m 2.5x ordinary dividend cover Capital Retu
Slide 40: Current trading – forward order book
CURRENT TRADING – FORWARD ORDER BOOK H1 18 H1 17 Change to date to date Net private reservations per active 0.74 0.75 (1.3%) outlet per average week Total forward sales (incl JVs)(1) £2,749.9m £2,416.5m 13.8% (1) As at 3 September 2017 and 4 September 2016 40
Slide 41: Positive on outlook
POSITIVE ON OUTLOOK • Strong market fundamentals • Attractive investment proposition • Focused on driving operating margin • Clearly defined operating framework • Attractive cash returns • Strong forward order book • Further progress expected in FY18 Kingswood Place, Bishop Stortford 41
Slide 42: Q&A
Q&A Northwalls Grange, Taunton 42
Slide 43: Appendices - Index
APPENDICES - INDEX Page Definitions 45 Balance sheet - land bank 46 Land creditors - payment profile 47 Completions - product type 48 Investment in joint ventures and associates 49 Joint ventures breakdown 50 Net interest charge analysis 51 Future financing arrangements 52 43
Slide 44: Definitions
DEFINITIONS • Active outlet is a site with at least one plot for sale • Average debt is calculated on annual average daily closing position • CAGR is compound annual growth rate • Earnings per share (EPS) is calculated by dividing the profit for the year attributable to ordinary shareholders by the
Slide 45: Balance sheet – land bank
BALANCE SHEET – LAND BANK Land bank plots 30 June 2017 30 June 2016 Owned / unconditional contracts 58,965 53,849 Conditional contracts 16,078 17,502 Total land bank plots 75,043 71,351 JV plots – owned / conditional 5,709 5,309 Total land bank plots (including JV’s) 80,752 76,660 Land bank pricing
Slide 46: Land creditors - payment profile
LAND CREDITORS - PAYMENT PROFILE 1,100 1,000 1,064.0 900 800 503.9 700 600 £m 500 273.7 400 300 118.2 200 100 168.2 0 30-Jun-17 FY18 FY19 FY20 FY21 & beyond 46
Slide 47: Completions analysis – product type
COMPLETIONS ANALYSIS – PRODUCT TYPE 4% 5% 32% 31% Flats (non-London) Flats (London) 1 & 2 Bed 3 Bed 4 Bed 5 & 6 Bed 32% 34% 12% 11% 6% 7% 14% 12% FY17 FY16 47
Slide 48: Investment in joint ventures and associates
INVESTMENT IN JOINT VENTURES AND ASSOCIATES £m 30 June 2017 30 June 2016 Housebuilding London 186.3 177.7 Non-London 24.2 52.0 Total housebuilding 210.5 229.7 Other Commercial 2.0 2.8 Equity share joint venture - 23.1 Associates 0.6 0.3 Total 213.1 255.9 48
Slide 49: Joint ventures breakdown
JOINT VENTURES BREAKDOWN Housebuild JV’s only FY18 (f’cast) FY17 FY16 Completions - London 450 409 927 - Non-London 300 341 487 Total 750 750 1,414 (1) Share of profit - London £15m £10.0m £54.9m - Non-London £10m £16.3m £17.3m Total £25m £26.3m £72.2m (1) JV income is accounted for in the Group Con
Slide 50: Net interest charge analysis
NET INTEREST CHARGE ANALYSIS £m FY17 FY16 Interest on term debt and overdrafts 3.3 5.1 Interest on private placement notes 3.9 3.9 Utilisation / non-utilisation fees on RCF’s 4.1 4.4 Swap interest 11.9 7.8 Other interest 1.1 2.9 Total cash interest 24.3 24.1 Land creditors / deferred payables 32.5 3
Slide 51: Future financing arrangements
FUTURE FINANCING ARRANGEMENTS Loan Facility Amount Maturity Interest basis (1) RCF facilities £700m December 2021 LIBOR +1.50% Private placement notes £200m August 2027 2.77% Get Britain Building £16.8m March 2018 EU ref rate +1% (1) Does not include utilisation and non-utilisation fees, based on ma
Slide 52: 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 2017. For the purposes of this notice, the presentation (the “Presentation”) sh