Vistry Group Plc · LSE:VTY
Vistry — Bovis Homes Group — H1 2017 Earnings Presentation
54 slides from Vistry's earnings presentation, Sep 7, 2017
Slide 1: Half year results 2017 Strategic review update
Bovis Homes Group PLC Half year results 2017 Strategic review update 7 September 2017 St Marys, Biddenham www.bovishomesgroup.co.uk
Slide 2: Agenda
Agenda • Half year performance -- Financial review • CEO review -- Initial impressions -- Where are we now • Strategic review update • Outlook and guidance • Summary • Q&A Boorley Park, Boorley slide 1
Slide 3: Half year performance
Half year performance • Half year performance in-line with expectations • Priority focus on customer service and build standards with improving quality -- Disciplined period end • First half profitability impacted by: -- Legacy costs including additional £3.5m customer care provision -- Overweight o
Slide 4: Financial review
Financial review Earl Sibley Group Finance Director Saxons Plain, West Durrington www.bovishomesgroup.co.uk slide 3
Slide 5: Income statement
Income statement Six months ended 30 June (£m) 2016 2017 Change (restated) Revenue 412.8 427.8 +4% Gross profit (1) 87.7 77.4 -12% Administrative expenses (1) (23.8) (28.8) +21% Operating profit before exceptional items 63.9 48.6 -24% Exceptional items (2) - (2.8) Share of profit of Joint Ventures 0
Slide 6: Housing revenue analysis
Housing revenue analysis Six months ended 30 June 2016 2017 Change Average sales price (£k) Private 296.8 334.7 +13% PRS 151.1 - Affordable 121.4 101.9 -16% Total 254.5 277.4 +9% Volume Private 1,212 1,140 -6% PRS 19 - Affordable 370 372 0% Total 1,601 1,512 -6% Housing revenue (£m) Private 359.7 38
Slide 7: Analysis of profit
Analysis of profit Six months ended 30 June (£m) 2016 (restated) 2017 Housing Land Total Housing Land Total sales sales Revenue 412.8 - 412.8 420.9 6.9 427.8 Gross profit (1) 87.7 - 87.7 77.2 0.2 77.4 Administrative expenses (1) (23.8) (28.8) Operating profit pre exceptional items 63.9 48.6 Gross ma
Slide 8: One-off and exceptional costs in 2017
One-off and exceptional costs in 2017 H1 H2 (£m) Estimated Customer care provision 3.5 - Advisory fees 2.8 - Restructuring costs - 4.0 Total 6.3 4.0 • Additional one-off £3.5m customer care provision taken through gross profit in H1 17 • £2.8m advisory fees taken as exceptional item in H1 17 • Restr
Slide 9: Sales prices and construction costs
Sales prices and construction costs Six months ended 30 June 2016 2017 Change Sales price per home (£000’s) 254.5 277.4 9% Sales price per sq ft (£’s) 243.0 250.1 3% Private sales price (£000’s) 296.8 334.7 13% Private sales price per sq ft (£’s) 263.6 276.6 5% Construction cost per home (£000’s) 13
Slide 10: Cash flow
Cash flow Six months ended 30 June (£m) 2016 2017 (restated) Housing receipts 446.7 454.6 Construction expenditure (287.2) (327.0) Overheads (24.3) (27.2) Operating cash flow 135.2 100.4 Cash expenditure on land (120.0) (131.1) Land sales receipts - 11.0 Dividend payment (35.3) (40.3) Non-trading it
Slide 11: Land acquisition in the first half
Land acquisition in the first half • Continue to see good opportunities in the land market • With reduced land requirement for FY17, able to be even more selective • 2,337 plots acquired in the first half -- Includes 821 plots representing final tranche at Stanton Cross Wellington (Wellingborough) L
Slide 12: Net assets
Net assets (£m) 30 June 2016 31 Dec 2016 30 June 2017 Land 1,027.1 1,020.6 1,022.0 Land creditors (311.6) (343.3) (324.7) Land net of creditors 715.5 677.3 697.3 Work in progress 301.4 380.0 427.7 Other assets 170.8 191.1 177.9 Other liabilities (215.1) (271.1) (256.4) Net (debt)/cash (7.6) 38.6 (32
Slide 13: CEO review
CEO review Greg Fitzgerald Chief Executive Officer Northfields, Somerton www.bovishomesgroup.co.uk slide 12
Slide 14: CEO review - first five months in the business
CEO review - first five months in the business • Visited more than 90 of our developments • Spent time in each region -- Met with virtually all Bovis Homes employees and a proportion of the supply chain • Interim Chief Executive and the team had successfully commenced the turnaround • Key issues lin
Slide 15: CEO review - initial impressions
CEO review - initial impressions • Limited benefit to date from recent investment in people and infrastructure • Greater ‘hands on’ approach commenced • Continued priority in relation to customer satisfaction and handover process • Impact on build quality standards most significant on sites remote f
Slide 16: CEO review - initial impressions
CEO review - initial impressions • Good people with plenty of passion • Valuable land bank with great future visibility • Site set-up and four man site team structure - all very positive • Bovis Homes brand definitely not broken • High quality, resilient sales teams “Fundamentals are strong. Every c
Slide 17: Where we are now
Where we are now Sales position is strong • Building on most disciplined period end for more than 3 years • Renewed focus on stock property disposals • Part exchange managed centrally as a profit centre • Good pick up in sales in July and August • 96% of sales secured for FY17 Kingsmere, Bicester sl
Slide 18: Where we are now
Where we are now Customer satisfaction - step change being delivered • HBF rating trending at 74% since 1 February • Good progress made towards concluding legacy issues before end of 2017 • Customer Experience Director in place • 94% of staff received customer service training • Silver award in the
Slide 19: Where we are now
Where we are now Investing in people • Starting to see an increase in ‘hands on’ leadership • Quicker decision making • More operational focus • Investment in training and development -- RMDs -- Site managers • Increased focus on succession planning • Latest staff survey showing improved level of em
Slide 20: Where we are now
Where we are now Build procedures and controls enhanced • Improved procedures established and targeting reduction in site manager churn • Four new construction directors appointed -- Construction directors control start on site • More robust and formalised inspection and handover processes -- Qualit
Slide 21: Where we are now
Where we are now Commercial – addressing root causes and improving processes • Strengthening relationships with our supply chain • New IT systems implementation commenced with commercial systems to be delivered in 2018 • Initial review of specification completed • Frequency and robustness of cost re
Slide 22: Where we are now
Where we are now Restructuring to be more agile and address overweight cost base • Concluded the merger of Southern and Eastern taking the Group from eight to seven regions • Re-locating the Southern Counties regional office to Basingstoke as better located for sites • Reviewed in-house functions ve
Slide 23: Strategic review update
Strategic review update Greg Fitzgerald Chief Executive Officer Emmbrook Place, Wokingham www.bovishomesgroup.co.uk slide 22
Slide 24: Strategic priorities
Strategic priorities To deliver: Measurement of success: 1. People satisfaction - Employee engagement - Headcount churn 2. Customer satisfaction - HBF Customer Satisfaction rating - NHBC reportable items 3. A healthy and safe - Accident frequency rate working environment - Build programme delivery 4
Slide 25: Executive Leadership Team
Executive Leadership Team 1 Greg Fitzgerald Chief Executive Officer 1 2 2 Earl Sibley Group Finance Director 3 Keith Carnegie Executive Director 4 James Watson Managing Director 6 3 East Division 5 Darrell White Managing Director West Division 6 Martin Palmer Group Company Secretary 5 4 slide 24
Slide 26: Group's medium term targets by 2020
Group’s medium term targets by 2020 2020 H1 2017 • 4* HBF Customer • 2* HBF Customer Satisfaction rating Satisfaction rating • 4,000 completions • Completions down • 3.5 to 4.0 years owned 10% to 15% land bank • c.5.5 years owned • 23.5% gross margin (1) land bank with further opportunity beyond 202
Slide 27: Optimal output – why 4,000 units p.a.?
Optimal output – why 4,000 units p.a.? Organic growth in completions from FY17 volume • Optimum volume for current operational structure -- 500 to 625 units per region • Maximise economies of scale from current structure • Minimise risk on new site openings • Minimise execution risk - consented land
Slide 28: Regional structure and focused geographic coverage
Regional structure and focused geographic coverage West division East division Stafford Coleshill Cheltenham Milton Keynes Stansted Reading New Ash Green Basingstoke Exeter slide 27
Slide 29: Optimal land bank structure
Optimal land bank structure Consented land bank structure Site size Total sites Total plots • June 2017 - 19,341 plots 0 - 50 19 538 - 1 5,956 plots excluding Wellingborough 50 -100 35 2,468 (1,747) and Sherford (1,638) 100 -150 29 3,437 • 4.9 year land bank assuming 4,000 units optimal output 150 -
Slide 30: Strong land bank fundamentals
Strong land bank fundamentals • Continue to build family homes in prime locations • Predominantly lower risk greenfield sites • Traditional housing focus with limited apartments • High proportion of standard housing • Introduction of some bespoke housing on new phases where appropriate to maximise d
Slide 31: Value in our land bank
Value in our land bank Total • Complete review of land bank Total sites 123 • Low plot cost /ASP ratio at 18.9% Total plots 19,341 • Potential upside to margin from site re-planning and new product range Average plots per site 157(1) • Additional known costs built in with Average sales price £276k i
Slide 32: Strategic land opportunity
Strategic land opportunity • Complete review of existing contracts leading As at 30 June 2017 Total sites Total plots to 16 sites being exited 0 – 150 plots 17 1,541 150 – 300 plots 15 3,206 • Expect to deliver c.10,000 plots over next 5 years meeting our hurdle rates 300 – 500 plots 11 3,920 500 –
Slide 33: Affordable housing strategy
Affordable housing strategy • Focus on strengthening relationships and building Bovis Homes reputation -- Develop closer relationship with housing associations to establish preferred partner status -- Regional teams to take greater ownership at a local level -- Work with HCA and housing associations
Slide 34: Land acquisition criteria
Land acquisition criteria • All opportunities to meet Group minimum hurdle rate (>25% gross margin,(1) >25% ROCE) • Targeted locations -- Within Group’s core geographic area -- Distance from regional office fundamental • Maximise deferred land payments • Minimise initial infrastructure and WIP spend
Slide 35: Delivering our gross margin target
Delivering our gross margin target Ongoing • Embedded improvement in land bank -- Land bank gross margin - 23.0% (1) -- Land acquired in H2 16 at gross margin of 26.2%(1), H1 17 at 26.4% (1) • Cost base increased to allow for improved build processes with higher levels of contingencies • Treating te
Slide 36: Delivering additional cash
Delivering additional cash • Land -- 3.5 - 4.0 year land bank -- JVs Land c.£80-100m -- Out of area review -- Land sales not impacting forecast Optimise WIP c.£40-80m in medium term Non-returning assets c.£50-60m • Optimise work-in-progress -- Progressive build Total min £180m -- Reduced stock -- Sh
Slide 37: Enhanced cash returns to shareholders
Enhanced cash returns to shareholders Medium term FY17 FY18 FY19 FY20 • Recovery in profitability Ordinary dividend 47.5p c.57p Trend to 2x cover • Strong cash generation Special dividend nil £180m • Optimal 4,000 unit output • Ordinary dividend - strategy of maximising sustainable dividends to shar
Slide 38: Market environment
Market environment • Fundamentals remain strong -- High level of consumer demand -- Strong support for the sector -- Low interest rate environment -- Competitive mortgage market -- Supportive planning environment -- High employment levels • Pricing remains robust • Attractive land market • Governmen
Slide 39: Outlook and guidance
Outlook and guidance • Strong sales position for full year -- 96% of FY17 secured • Significant pick up in sales rate in the generally quiet summer months of July and August -- 0.5 average net private reservations per active site per week for last 9 weeks • Initiatives taken in 2017 to ‘clean up’ th
Slide 40: Semele Park, Radford Semele
Semele Park, Radford Semele slide 39
Slide 41: Summary
Summary • Fundamentally strong business • Operational issues very fixable with good progress already made • Clear set of medium term targets to 2020 -- 4* HBF Customer Satisfaction rating -- 4,000 completions -- 23.5% gross margin (1) with further opportunity from new land beyond 2020 -- 5% admin ex
Slide 42: Q&A
Q&A Furlong Rise, Cheltenham www.bovishomesgroup.co.uk slide 41
Slide 43: Disclaimer - important notice
Disclaimer - important notice Certain statements in this presentation are forward looking statements. Forward looking statements involve evaluating a number of risks, uncertainties or assumptions that could cause actual results to differ materially from those expressed or implied by those statements
Slide 44: Appendices
Bovis Homes Group PLC Half year results 2017 Appendices Williams Gate, Bovey Tracey www.bovishomesgroup.co.uk slide 43
Slide 45: Key metrics
Key metrics Revenue (£m) Operating profit margin (%) Profit before tax (£m) 427.8m 11.4% 45.5m 427.80 15.900 60 61.7 427.8 15.9 15.5 412.8 15.5 53.8 342.24 11.925 45 49.4 350.7 322.1 45.5 11.1 11.4 256.68 7.950 30 171.12 184.4 3.975 15 18.6 85.56 0.00 0.000 0 2013 2014 2015 2016 2017 2013 2014 2015
Slide 46: Operating metrics
Operating metrics Six months ended 30 June (£m) 2016 2017 Land investment Consented plots added 1,267 2,337 Sites added 11 7 Period end owned sites 138 123 Sales outlets Average active sales outlets 100 96 Active sales outlets at period end 100 99 Reservations Private reservations in period 1,577 1,
Slide 47: Gross profit and admin expenses reconciliation
Gross profit and admin expenses reconciliation £m (unless stated) H1 2016 H2 2016 FY 2016 H1 2017 (1) Housing gross profit pre re-statement 100.3 127.7 228.0 92.0 Re-stated direct costs (12.6) (14.1) (26.7) (14.8) Housing gross profit re-stated 87.7 113.6 201.3 77.2 Non-housing gross profit 0.0 7.7
Slide 48: Strength of land bank across the regions
Strength of land bank across the regions • Strength of land bank across our West East operating regions 4315 4,215 • Proximity to regional office is a 3452 3,341 key criteria for land acquisition Owned plots 2589 2,876 going forward 2,419 2,294 2,111 2,085 1726 • Focus on further tightening geograph
Slide 49: Stanton Cross - Wellingborough
Stanton Cross - Wellingborough 30 June 2017 Owned plots 1,747 Total balance sheet investment £70m • Infrastructure progressing to deliver serviced parcels of residential land later in 2017 • Process to divest share of development commenced • Additional development East of Wellingborough with 1,800 p
Slide 50: Work in progress and other assets
Work in progress and other assets (£m) 30 June 2016 31 Dec 2016 30 June 2017 Stock 24.2 28.8 24.1 Show homes 7.6 7.8 7.8 Roads and sewers 157.3 188.5 205.2 Housing and other WIP 105.6 142.6 169.7 Wellingborough WIP 6.7 12.3 20.9 Total work in progress 301.4 380.0 427.7 Part exchange 33.5 48.6 42.5 S
Slide 51: Imputed interest on land creditors drives the financial charge
Imputed interest on land creditors drives the financial charge Six months ended 30 June (£m) 2016 2017 Bank interest and commitment fees (1.1) (1.1) Issue cost amortisation (0.3) (0.3) Imputed interest on land (2.5) (2.8) Pension financing 0.1 (0.1) Imputed interest on available for sale assets 1.4
Slide 52: Land creditor payments
Land creditor payments 350 300 250 £199m 200 £m £332m 150 100 £68m 50 £65m 0 <1 year 1-2 year 2 year+ Note: The above figures are on an absolute cash basis. Balance sheet land creditors figure of £324.7 as at 30 June 2017 is on as IFRS accounting basis slide 51
Slide 53: Other liabilities
Other liabilities As at 30 June (£m) 2016 2017 Creditors 196.3 237.0 Corporation tax liability 14.4 12.2 Retirement benefit obligations 2.3 - Provisions - Customer care provision - 3.2 - Other 2.1 4.0 Other liabilities 215.1 256.4 slide 52
Slide 54: What does the fix look like?
What does the fix look like? What does the fix look like? Focused roadmap to 2020 and beyond 2020 Actions 2017 2018 2019 Outcomes onwards • Focus on customer service • 4* HBF rating • Investing in people • 4,000 completions • Optimise the scale of Operational the business • 7 operating regions focus