Half year results presentation for six months ended 28 February 2019 Wednesday 10 April 2019 Retirement living to the full
Agenda Highlights & current trading John Tonkiss, CEO Financial performance & Rowan Baker, CFO outlook Progress update on the new John Tonkiss, CEO strategy 2
John Tonkiss, CEO Highlights & current trading 3
Key highlights EXTERNAL MARKET FACTORS Significant progress in delivering new strategy with key milestones achieved in UK Consumer Confidence index, GfK Index accordance with plan Strategy • Two new COO appointments in January 2019 to focus on our core activities: announcement Nigel Turner - Build & Production Mike Lloyd - Sales & Services • Margin improvement initiatives well underway with right-sizing activity and streamlined staffing of sales substantially complete, delivering annualised cash saving of c.£12m • Dedicated teams in place to leverage our strategic opportunities: affordability, flexibility and choice with incubator hubs now live 845 legal completions (HY18: 760), with revenue at £281m (HY18: £240m) ASP 1 £319k (HY18: £298k), a 7% increase, reflecting improvements in quality and locations together with change in geographic and product mix National Average Sales Per Surveyor, RICs Feb19 £21.3m underlying operating profit 2 (HY18: £14.5m) Increased use of discounts and incentives , particularly part-exchange, to counteract a more challenging secondary market 10 high quality development sites added to land bank (HY18: 22 sites) and 21 planning consents achieved (HY18: 21) 5 Star customer satisfaction awarded for the 14 th consecutive year Proposing an interim dividend of 1.9p per share , to be paid on 11 June 2019 (HY18 1.9p) 1. Average selling price is calculated as average list price less cash discounts and part-exchange top-ups and fair value adjustments (2019 only due to IFRS 15 changes) 4 2. Underlying operating profit (including underlying operating profit margin and underlying basic earnings per share) and underlying profit before tax are calculated by adding amortisation of brand of £1.0m (2018: £1.0m) and exceptional items of £14.3m (2018: £nil) to operating profit and profit before tax respectively.
Current trading Forward order book (including legal completions) Completion volumes remain ahead of prior year , despite increasingly challenging market conditions with continued use of part- £141m 1 September exchange £174m £277m FY18 Sales leads and enquirers in line with prior year despite the 9 November £267m FY19 planned lower level of sales releases (2019: 28, 2018: 54) reflecting strategic focus on rebalancing workflow £581m 5 April £485m Forward order book as at 5 April 2019 (week 31) currently c.17% behind prior year at c. £485m (6 April 2018: £581m) with higher quality reservations now being held due to improved controls Sales releases Shortfall due to: • organisational design changes within Sales function (now 5th April 9th November completed) 60 60 54 • planned lower level of sales releases 50 50 Sales release sites Sales release sites 26 40 40 28 FY19 volume out-turn (14m to 31 October) remains in line with 30 30 Board’s expectations with increased use of discounts and 17 20 20 13 incentives, particularly part-exchange, now expected to continue 10 10 4 into H2 to counteract more challenging secondary market 0 0 FY18 FY19 FY18 FY19 5
Rowan Baker, CFO Financial performance & outlook 6
Headline HY19 results Total legal completions of 845 units (HY18: 760) HY 19 HY 18 Change Key financial metrics positive momentum in legal completions driven by higher Legal completions 845 760 11% opening stock levels and increased use of part exchange Average selling price 1 £319k £298k 7% Half year revenue of £281m (HY18: £240m) Revenue £280.5m £239.6m 17% Gross profit £39.0m £32.0m 22% supported by 7% improvement in average selling price to £319k (HY18: £298k) reflecting improvement in quality and Gross profit margin 13.9% 13.4% 0.5ppt location of developments and change in geographic and Underlying operating profit 2 £21.3m £14.5m 47% product mix Underlying operating profit margin 2 7.6% 6.0% 1.6ppt Underlying operating profit margin of 7.6% (HY18: 6.0%) Underlying profit before tax 2 £18.9m £11.5m 64% driven by volume increase, ASP profile, planned margin Statutory profit before tax £3.6m £10.5m (66%) improvement activity in line with new strategy partially offset by increased usage of part-exchange and incentives to Underlying basic earnings per share 2 2.9p 1.7p 1.2p counteract more challenging market conditions Exceptional items of £14m (HY18: £0m) represents restructuring and redundancy costs, realignment of land bank to deliver steady state volumes and consultancy fees (£5.6m cash impact in H1) 1. Average selling price is calculated as average list price less cash discounts and part-exchange top-ups and fair value adjustments (2019 only due to IFRS 15 changes) 7 2. Underlying operating profit (including underlying operating profit margin and underlying basic earnings per share) and underlying profit before tax are calculated by adding amortisation of brand of £1.0m (2018: £1.0m) and exceptional items of £14.3m (2018: £nil) to operating profit and profit before tax respectively.
Headline HY19 results HY19 HY18 Change Key financial metrics ROCE decrease by 2ppt driven by a lower 12 month operating profit to Feb-19 (2019: £74m, 2018: £87m) Return on capital employed 3 (ROCE) 10% 12% (2ppt) Net debt of £57m (HY18: £76m) reflecting ongoing focus Capital turn 1.0x 0.9x (0.1x) on disciplined cash management and reduced land buying Net debt £57.2m £75.9m £18.7m activity Tangible gross asset value (TGAV) £738m £743m (£5m) TGAV decreased to £738m (HY17: £743m) driven by £12m Interim dividend per share 1.9p 1.9p - increase in net stock offset by £19m improvement in net debt position Proposing an interim dividend of 1.9p per share (HY18: 1.9p) 3. Return on capital employed (‘ROCE’) is calculated by dividing underlying operating profit for the previous 12 months by the a verage tangible gross asset value of £740.7m (2018: £700.1m) at the beginning and end of the 12 month period. Tangible gross asset value is calculated as net assets excluding goodwill of £41.7m (2018: £41.7m) and intangible assets of £25.2m (2018: £26.7m), excluding net debt of £57.2m (2018: £75.9m) 8
Operating profit margin bridge Impact from Margin improvements driven by strategic initiatives Increase in legal completions volumes of 85 units Pricing increase reflecting continued 2.2% 2.9% improvements in quality and locations, geographic and product mix 1.3% 0.1% 1.0% 1.5% 1.1% This has been offset by: 1.5% 0.8% ▪ Land and build cost increases (reflecting location & specification improvements) 7.6% 6.0% ▪ Build cost inflation c.3-4% p.a. ▪ Increased usage of discounts and incentives, particularly part-exchange, to H1 FY18 Op. Profit Volume List price Land & Build cost Build cost Total incentive Stock holding Sales & marketing Operating costs Other FY19 H1 Op. Profit counteract a more challenging secondary margin increase (location inflation at costs costs margin and specification estimate of 3% market improvement) Positive impact from planned margin improvement activities in line with new strategy ▪ Rightsizing of the business ▪ Sales and marketing efficiencies 9
Balance sheet 31 August 28 February 28 February £m Total land bank of c.8,372 plots (HY18: 2018 2019 2018 c.10,021) £m £m £m Lower land value reflects decreased Goodwill and intangible assets 67.8 66.9 68.4 level of land buying as a result of move away from growth to steady state Fixed assets & investments 2.7 2.5 2.8 workflow delivery ▪ 10 land exchanges (HY18: 22) Land 99.6 90.2 112.0 -19% ▪ 13 land completions in HY19 Land creditors (56.9) (30.1) (50.4) +40% (HY18: 25) Sites in the course of construction 290.3 299.2 451.1 -34% Lower level of first occupations expected in H2 resulted in 34% Finished stock 385.9 381.4 239.0 +60% decrease in sites under construction, in Total net stock (excl. PX properties) 718.9 740.7 751.7 -1% line with the new strategy PX properties 41.7 55.8 32.5 +72% Finished stock levels reduced to 1,579 (31 Aug 18: 1,779). 641 units of opening Total net stock 760.6 796.5 784.2 +2% stock sold in H1 partially offset by 441 units of new stock added during period Net cash/debt 4.0 (57.2) (75.9) Increased value of part-exchange properties held on balance sheet in Other net assets / liabilities (71.7) (60.6) (44.1) response to more challenging Net assets 763.4 748.1 735.4 secondary market 10
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