Investor presentation Creating retirement communities to enrich the quality of life for our customers and their families 2019 Based on full year results ended 31 August 2018 Retirement living to the full IR Contact: marina.calero@mccarthyandstone.co.uk
We have a great underlying business with strong fundamentals… Undisputed market leader with high market share Projected UK population growth 1 , million ▪ Built and sold more than 56,000 properties across more than 1,200 retirement 2017 developments since 1977 11.8 1.6 ▪ Transitioning from UK’s leading retirement housebuilder to become the UK’s leading developer, owner and manager of retirement communities through 17.3 3.0 2037 two-stage transformation strategy Aged 65+ Aged 85+ Operating in a market with significant growth opportunity Projected supply gap 2 , thousand ▪ Rapidly ageing population ▪ Structural undersupply of retirement housing People 579 Retirement housing demand, 2018-28 Offering a unique customer proposition ▪ Existing stock 162 Lifestyle built around retirement community and wellbeing Units ▪ c.17,000 homeowners across c.400 managed developments 72% shortfall ▪ Two key products: Retirement Living (RL) and Retirement Living Plus (RLP) Highly experienced management team with deep sector expertise Strong operational capabilities ▪ Recognised, well-respected brand ▪ High-quality housebuilder ▪ Strong landbank ▪ Best customer satisfaction ratings – consistently 5 star rating Nigel Turner Mike Lloyd – Rowan Baker John Tonkiss 93% of our customers would recommend us to a friend Paul Lester COO, Build COO, Services & CEO CFO Chairman ▪ Appointed Jan 2019 Customers High-quality services – 100% of our registered RLP Appointed Jan 2017 Appointed Sep 2018 Appointed Jan 2018 Formerly Appointed Jan 2019 Joined in 2012 and Joined in 2014 and Currently Chairman developments achieved “Good” or “Outstanding” CQC ratings Developments Formerly Commercial was previously was previously of Essentra plc and Property Services Director responsible ▪ Group Financial Group Chief Great people – committed and talented employees Forterra plc. Formerly Director and for Group Marketing Operating Officer Controller CEO of VT Group plc ▪ Executive Director at at The AA. Two new COO appointments in January 2019 and Group Managing Kier Group plc Director of Balfour Beatty plc 2 (1)Office for National Statistics population projections (2017) (2)Note: Analysis based on the assumption that 25% of the over-65 population would consider retirement housing. SOURCE: ONS, Knight Frank Research; team analysis
We are positioning the business to succeed in this challenging market environment Key operational highlights of transformation Shift in business mindset from growth to increasing ROCE and margins Realigning the workflow and rightsizing the operational cost base to deliver steady state volumes of c.2,100 units p.a. Change of year end to 31 October 2019 to decouple from peak holiday season Focus on two core offerings, Retirement Living and Retirement Living Plus (formerly Assisted Living) Improved product offering through increasing affordability, flexibility and choice for our customers – Buy, rent, shared ownership – Broadening market appeal via – Gym, local events, clubs, technology – Part – exchange – Doctors’ surgeries, pharmacies, increased affordability – Streamlined, contemporary and – Let customer’s property (Rent to convenience stores compact designs – Variety of payment options rent) >15% ROCE by >15% operating >£90m additional FY21 margin by FY21 cash generated Transforming the business from a retirement housebuilder to a developer, manager and owner of retirement communities 3
Two stages of our business transformation FY21 FY19: Housebuilder Focus on ROCE and margins Cost saving >£40m in FY21 Optimising our operations for strong financial FY21 Operating margin >15% performance… FY21 ROCE >15% Cash saving >£90m FY19 to FY21 FY23: Developer, Manager, Owner ROCE >20% by FY23 …leveraging strategic opportunities Increased market penetration New revenue streams Reduced cyclicality 4
Stage 1 - optimising our operations for strong financial performance 1. Workflow realignment Uneven workflow in pursuit of previous growth strategy Stable monthly flow of build starts and first occupations Stable monthly flow of impacted results – planning mindset focused on first time land exchanges, build consents, tendency to accelerate activity to deliver volumes starts, sales releases and first occupations – Expected rate of first occupations Average rate of first occupations fundamental to FY21, % FY16 – FY18, % operational efficiency Steady volume at c. 2,100 units 53 29 3,000 unit sales target 25 23 23 23 17 7 Q3 FY21 Q1 Q1 FY21 Q2 FY21 Q4 FY21 Q2 Q3 Q4 Optimise balance sheet and reduce finished stock Progress: levels - >£70m reduction in inventory FY18 to FY21 Planning actions completed Finished stock , units Incentive scheme launched Landbank optionality maintained 1,779 1,100 FY18 Actual FY21 Target 5
Stage 1 - optimising our operations for strong financial performance … Cont 2. Rightsizing the business Progress: Share of expected >£40m savings FY21 Rightsizing operational cost • Footprint reduction from nine to seven base to reflect steady state Formal collective consultation process for reducing regions – focus on more densely populated 20-30% volumes while remaining footprint from nine to seven regions now completed. areas positioned to scale for Regions now resourced in line with steady state • Optimally resourcing each region growth volumes. • Aligning support functions to adjusted volume Total headcount reduction resulting in c.£10m of and footprint annualised cash saving • Strengthening group oversight and control Group oversight and control strengthened 3. Efficient sales and marketing model Share of expected >£40m savings FY21 • Optimised sales operating model and Reorganisation of sales Progress: centralised marketing function - streamlined teams and centralisation of Optimised sales operating model and centralised staffing, standardised sales processes and marketing marketing function now implemented. improved marketing effectiveness Salesforce CRM system – phased roll out now • Roll out of Salesforce CRM platform – commenced enhanced customer insight and analytics 10-20% • Improved website and content management system 4. Build cost reduction Share of expected >£40m savings FY21 Progress: • Design efficiency through standard designs and Deliver more standardised spec guidelines and efficient designs, deploy Design efficiency reviews currently being undertaken more cost effective building on all FY20 developments • Value engineering – prelim standardisation and 50-60% solutions and streamline optimising of technical specifications procurement practices • Procurement initiatives – framework agreements and stronger competitive tendering processes 6
Build cost reduction – Cambourne case study 4 Design efficiency review Cambourne plans, before and after Methodology ▪ 15 schemes were reviewed and identified three key design parameters: – Quantity of building articulation to primary and secondary frontages – Net to gross floor area ratio Ground Floor – Apartment area over group standard ▪ These parameters highlighted clear areas of inefficiency First Floor Estimated impact of Cambourne Application: Cambourne development redesign, £000 Design changes (spatial efficiency only): Build cost savings 230 ▪ Floor area was reduced by 375msq Second Floor ▪ Additional revenue 610 Increased efficiency of the communal areas resulted in additional 3 apartments 840 Additional profit ▪ Primary façade articulation was reduced by 5%, and secondary façade articulation Third Floor 4.4% Site margin increase was reduced by 8% Redesign subject to local authority consultation and detailed design work 7
Stage 2 - leveraging our strategic opportunities Progress update: Strategic objective: Strategic opportunity: Flexible, future proofed and evolving Incubator hub locations identified with needs products Flexibility 1 Growth in Management Services Customer focus groups set up revenues (management and care fees) Working with potential partners in order Opportunity = >5% of group revenue to further develop proposition Variety of payment options Choice On balance sheet trial up to £50m 2 Incubator approach in progress to Multi – tenure: Opportunity = transfer to separate develop operation platform and refine Build to sell and rent/shared rental fund with potential positive customer proposition ownership ROCE impact and regular asset Location for incubator pilots identified management income streams Approach to compact, affordable Affordability 3 Opportunity = increased market Streamlined, contemporary and product defined penetration by introducing lower cost compact designs at mass market Full consideration given to design product offering average prices parameters and MMC Target = c.15% of land bank Potential volumetric schemes identified Limited capital investment requirement 8
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