Barratt Redrow Plc · LSE:BTRW
Barratt Redrow — Barratt Developments — H1 FY2020 Earnings Presentation
61 slides from Barratt Redrow's earnings presentation, Feb 5, 2020
Slide 1: Results Presentation – Half year ended 31 December 2019
RESULTS PRESENTATION Half year ended 31 December 2019 5 February 2020 The Spires, St Ives, Cambridgeshire 1
Slide 2: David Thomas, Chief Executive
David Thomas Chief Executive Redwood Heights, Plympton 2
Slide 3: Key Highlights
KEY HIGHLIGHTS • Strong first half of the year with 9.1% growth in total home completions(1) • Attractive housing market fundamentals • Progressing well on our medium term targets, good progress on margin initiatives • Leadership in quality and customer service • Resilient business model with good c
Slide 4: Our Vision – Delivering for the Long Term
OUR VISION – DELIVERING FOR THE LONG TERM • We aim to be the leading national sustainable housebuilder and create long term value for stakeholders 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 annum i
Slide 6: Operational Targets – Progress Update
OPERATIONAL TARGETS – PROGRESS UPDATE Medium term targets Progress in the half year 3-5% growth per annum in wholly owned Highest half year completions in 12 years home completions Completions Present business capacity of 20,000 homes per On track to deliver 3-5% growth in wholly annum owned complet
Slide 7: Steven Boyes, Chief Operating Officer
Steven Boyes Chief Operating Officer Patch Meadows, Somerton 7
Slide 8: Strong Sales Performance
STRONG SALES PERFORMANCE Average net private reservations per active outlet per week • Strong sales rate of 0.69 H1 FY20 H1 FY19 Change • Significant growth of 7.8% Regional 0.67 0.62 8.1% • Good demand across the country London 1.50 1.56 (3.8%) • Strong end to the half year Group 0.69 0.64 7.8% JV
Slide 9: Completion Growth
COMPLETION GROWTH Completions • Highest half year completions for 12 years H1 FY20 H1 FY19 Change • Delivering a smoother completions profile Regional 7,588 7,138 6.3% • On track to deliver 3-5% growth in wholly London 412 264 56.1% owned completions in FY20 Group 8,000 7,402 8.1% JV 314 220 42.7% T
Slide 10: Future Drivers of Completion Growth
FUTURE DRIVERS OF COMPLETION GROWTH(1) Regional(2) Outer London Cambridgeshire 4.9% 102.4% (new) 116.7% 7,552 homes 500 homes 143 homes Delivery(3) (H1 FY19: 7,196 homes) (H1 FY19: 247 homes) (H1 FY19: 66 homes) Land bank(4) 75,755 plots 8,401 plots 2,185 plots Present business 24 divisions @ 725 ho
Slide 11: Completions Analysis – Buyer Type
COMPLETIONS ANALYSIS - BUYER TYPE • Similar profile to prior year 4% 4% Investor 12% 10% Part exchange 18% Affordable • Help to Buy remains an important customer 21% proposition 30% Other private 29% • Affordable completions in line with FY19; expect to be c. 21% for FY20 34% 38% Help to Buy • Part
Slide 12: Pricing Trends
PRICING TRENDS Private completions average selling price (£’000) • Change of regional and product mix H1 FY20 H1 FY19 Change • Trading through high value central London site, increasing London ASP Regional 303.9 296.2 2.6% • Greater delivery from London JV schemes London 1,028.1 860.6 19.5% Group 31
Slide 13: Land Market
LAND MARKET • Continue to acquire land at hurdle rates Savills UK Residential Land Index versus HBF planning consents 120 450 • High quality opportunities available across the 400 Savills UK Residential Development Land Index 100 country 350 Planning consents pa (‘000s) 80 300 • Larger sites are mor
Slide 14: Land – High Quality Opportunities Across the Country
LAND – HIGH QUALITY OPPORTUNITIES ACROSS THE COUNTRY Wembley Park, London - joint venture partnership with Penistone, near Sheffield – dual branded, wide product Transport for London range • Redevelopment of a car park • Greenfield site near Sheffield • 446 homes, 12,000 sqft commercial space • 459
Slide 15: Driving Operating Margin – Strategic Land
DRIVING OPERATING MARGIN – STRATEGIC LAND • Enhanced margin of c. 300 basis points(1) H1 FY20 H1 FY19 • Strong strategic land bank with good Home completions from strategic land 1,942 1,894 geographic spread Conversion to owned and controlled 2,421 2,472 land bank (plots) • Continue to target 30% of
Slide 16: Driving Operating Margin – New Product Roll Out
DRIVING OPERATING MARGIN – NEW PRODUCT ROLL OUT Completions using new product ranges(1) • Increased delivery momentum from new ranges 5,000 4,500 +19% • Completions in H1 FY20: 4,491 (H1 FY19: 2,159)(1) +31% 4,000 +53% 3,500 3,000 Homes • More suitable for MMC 2,500 2,000 1,500 • Suitable for c. 85%
Slide 17: Driving Operating Margin – Continued Product Refinements
DRIVING OPERATING MARGIN – CONTINUED PRODUCT REFINEMENTS • Continued process to review and enhance • Hipped roofs introduced on a number of house types - reduce brickwork +31% - quicker and safer build Gabled roof • Optimised internal floor plans - improve living spaces - increase profitability Hipp
Slide 18: Managing the Cost Environment
MANAGING THE COST ENVIRONMENT Materials Labour • Modest material pressures • Pockets of cost pressure • All pricing fixed to June 2020 moderating • Half of pricing fixed to • Simplified, faster build December 2020 and over a • Increased use of offsite third fixed to June 2021 manufacturing and MMC •
Slide 19: Quality and Customer Focus
QUALITY AND CUSTOMER FOCUS • Long term commitment in quality and customer service • Comprehensive internal processes • Lowest reportable items level of Large Builder Group • More NHBC Pride in the Job Awards than any Mark Summersgill, Site Manager at Grey Towers Village and Supreme Winner in the Lar
Slide 20: Strong Performance
STRONG PERFORMANCE • Strong completion growth and sales rate • Good progress on operating margin initiatives • Delivering industry leading quality and customer service • Focus on Health & Safety Filwood Park, Bristol 20
Slide 21: Jessica White, Chief Financial Officer
Jessica White Chief Financial Officer Kingsbrook, Aylesbury 21
Slide 22: Key Highlights
KEY HIGHLIGHTS £m (unless otherwise stated) H1 FY20 H1 FY19 Change Revenue 2,266.2 2,132.0 6.3% Gross profit 503.7 482.2 4.5% Adjusted gross margin % 23.0 22.4 60 bps Gross margin % 22.2 22.6 (40 bps) Operating profit 421.7 409.7 2.9% Adjusted operating margin % 19.4 19.0 40 bps Operating margin % 1
Slide 23: Revenue Summary
REVENUE SUMMARY H1 FY20 H1 FY19 Change Completions (units) Private 6,301 6,078 3.7% Affordable 1,699 1,324 28.3% Total completions 8,000 7,402 8.1% % Affordable 21% 18% 300 bps JV 314 220 42.7% Total completions (inc JVs) 8,314 7,622 9.1% ASP (£’000) Private 312.0 317.3 (1.7%) Affordable 160.0 120.9
Slide 24: Delivering Margin Improvement
DELIVERING MARGIN IMPROVEMENT Adjusted gross and operating margin improvement 24% • Significant margin progress 23.0% 23% 22.4% • New sites delivering gross margin 22% improvement Adjusted gross 21% 20.7% margin • Adjusted operating margin of 19.4% 20% 20.8% before £17.8m of adjusted items costs 18.
Slide 25: Delivering Margin Improvement – Key Drivers
DELIVERING MARGIN IMPROVEMENT – KEY DRIVERS Effect on margins Progress in H1 FY20 78% of owned land bank(1) purchased at 23% Land acquisition Gross margin hurdle rate minimum 23% minimum 76% of active outlets(1)(2) using new product New product range Operational efficiency ranges 1,942 home completi
Slide 26: Operating Margin Bridge
OPERATING MARGIN BRIDGE Non-recurring items Trading items Non-recurring items 80 bps 100 bps 80 bps 21.0% Increase 10 bps Decrease 20.5% 40 bps 20.0% 40 bps 40 bps 19.5% 210 bps 20 bps 80 bps 19.0% 60 bps 18.5% 20.0% 19.2% 19.0% 18.4% 19.4% 18.6% 18.0% 17.5% 17.0% H1 FY19 Remove H1 19 Remove H1 19 R
Slide 27: Operating Framework – Progress Update
OPERATING FRAMEWORK – PROGRESS UPDATE Operating framework Progress in the half year 3.7 years owned / 0.9 years controlled Land bank c. 3.5 years owned / c. 1.0 year controlled (31 Dec 2018: 3.7 years / 1.0 year) Reduce to 25 - 30% of the land bank Achieved target reduced to 27.4% (31 Dec 2018: Land
Slide 28: Balance Sheet
BALANCE SHEET £m 31 December 2019 31 December 2018 Goodwill and intangible assets 907.6 892.2 Investment in joint ventures and associates 159.7 246.4 Gross land bank 3,036.3 2,994.4 Land creditors (830.8) (961.8) Net land bank 2,205.5 2,032.6 Land creditor % 27.4% 32.1% WIP 1,800.3 1,672.3 Net cash
Slide 29: Strong Balance Sheet
STRONG BALANCE SHEET Improving business resilience 800 40% 700 35% • Reduced half year gearing to 10.1% 600 30% • Disciplined approach 500 25% • Average net cash of £458.3m in the half £m 400 year 20% 300 15% 200 10% 100 - 5% H1 FY16 H1 FY17 H1 FY18 H1 FY19 H1 FY20 Net cash (1) Gearing (inc land cre
Slide 30: Land Bank
LAND BANK • Shorter land bank model Land bank plots 31 Dec 2019 31 Dec 2018 • Aim for c. 3.5 years owned and c. 1.0 year Owned 65,728 63,125 conditional land in each division Controlled 15,118 17,505 • Owned land bank supports disciplined volume growth Total 80,846 80,630 Land bank years 4.6 4.7 JV
Slide 31: Work in Progress
WORK IN PROGRESS 2.0 18,000 • Appropriate WIP level 15,000 1.6 - Volume growth 12,000 - Increase in owned show homes 1.2 Units £bn 9,000 - Infrastructure requirements 0.8 6,000 • Closely controlled 0.4 3,000 - Matching build and sales rates - Efficient site execution plans 0.0 Dec-17 Dec-18 Dec-19 0
Slide 32: Cash Flow
CASH FLOW 500 Inflow Outflow 400 Includes land spend of (179.0) 300 c. £450m 13.8 200 421.7 (149.6) 33.5 100 (131.0) £m 44.6 54.0 0 (100) (373.2) (331.9) (200) (300) (12.7) (400) Profit from Net cash Other non- WIP / PX Land Land creditors JV investment Operating Dividends Other Net operations inter
Slide 33: Attractive Cash Returns
ATTRACTIVE CASH RETURNS Ordinary dividend policy 2.5 times dividend cover Special dividends Special dividends of £175m proposed for November 2020 and November 2021 Interim dividend 9.8 pence per share being one third of the profit for the 12 months to 31 December 2019 at 2.5 times cover 33
Slide 34: Financial Summary
FINANCIAL SUMMARY • Strong financial performance • Strong balance sheet • Disciplined approach to deliver operating framework • Achieved land creditor target • Capital return plan extended Cricket Field Grove, Crowthorne 34
Slide 35: David Thomas, Chief Executive
David Thomas Chief Executive The Avenue, Northampton 35
Slide 36: 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 annum i
Slide 37: Market Fundamentals Remain Attractive
MARKET FUNDAMENTALS REMAIN ATTRACTIVE 1.60% Government average 2 year target: Need new picture fixed rate at 85% 300,000 homes LTV(1) per annum Positive lending Clarity on Help to Demand continues Attractive land market environment Buy to exceed supply (1) Rates are from an average of five lenders.
Slide 38: Positive Lending Environment
POSITIVE LENDING ENVIRONMENT Average mortgage rates(1) Halifax Mortgage Affordability Index(2) 3.2% 70% Standard 85% product 3.0% Help to Buy (Equity Loan) Halifax affordability 60% Mortgage costs as proportion of earnings 2.8% Average 2.6% Mortgage rate 50% 2.4% 40% 2.2% 2.0% 30% 1.8% 20% 1.6% 1.4%
Slide 39: Our Priorities and Principles – Delivering for the Long Term
OUR PRIORITIES AND PRINCIPLES – DELIVERING FOR THE LONG TERM • Fully embedded across our business • Sustainability creates long term value for stakeholders • Focus on measurable targets to deliver value on what matters most for our stakeholders 39
Slide 40: Building a Sustainable Business
BUILDING A SUSTAINABLE BUSINESS Safeguarding Leading Investing in the construction our people environment Build high quality energy Innovation team plotting efficient homes Investing in future talent and path to achieve 2025 Future Focus on reducing carbon in retaining our people Homes Standard our
Slide 41: Safeguarding the Environment
SAFEGUARDING THE ENVIRONMENT • Aim to be the leading national sustainable housebuilder • New ambitious target set - to reduce carbon emissions in our operations by 29% from FY18 to FY25 • Targeting net gain for biodiversity on all new developments New Lubbesthorpe, Leicester 41
Slide 42: Leading Construction
LEADING CONSTRUCTION • Mitigate industry skill shortage • New target set to build 25% of completions using MMC by 2025 • Oregon integration proceeding well • Oregon expected to deliver over 800 units this year, including sites in England • 17.6% of completions using MMC in H1 FY20 (H1 FY19: 14.6%)(1
Slide 43: Investing in Our People
INVESTING IN OUR PEOPLE • Future talent c. 8% of our workforce • 272 new apprentices, trainees and graduates, • Award winning employment schemes • Reduced employee turnover to below 15% • Accredited Living Wage Employer 43
Slide 44: External Benchmarks
EXTERNAL BENCHMARKS • 5 Star award for 10 years • Only major national • 84 awards in 2019, more than any housebuilder to other housebuilder for 15 achieve this consecutive years • Large Housebuilder of the year • 23 Seals of Excellence, 3 Regional • Best community initiative Awards and Supreme Winne
Slide 45: Current Trading
CURRENT TRADING H2 FY20 H2 FY19 Change to date to date Net private reservations per active 0.83 0.74 12.2% outlet per average week Average active outlets 355 385 (7.8%) Net private reservations per 294 284 3.5% average week Total forward sales (including £3,027.1m £3,021.0m 0.2% JVs)(1) (1) As at 2
Slide 46: Summary
SUMMARY • Strong operationally and financially • Progressing well towards medium term targets • Attractive housing market fundamentals • Continue to lead on quality and customer service • Building a sustainable business Brackenhill View, Hamilton 46
Slide 47: Q&A
Q&A Grey Towers Village, Middlesbrough 47
Slide 48: Appendices – Index
APPENDICES – INDEX Page Definitions 49 Guidance for FY20 50 Current trading – forward order book 51 P&L 52 Balance sheet - land bank 53 Private completions – volume and ASP 54 Private average selling price 55 Completions analysis - product type 56 Joint ventures summary 57 Joint venture trading 58 L
Slide 49: 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 50: Guidance for FY20
GUIDANCE FOR FY20 3-5% growth in wholly owned completions Completions c. 21% affordable c. 750 JV ASP Total ASP in owned land bank of £277k as at December 2019 Total administrative expenses c. £195m JV share of profits c. £30m c. £30m Interest cost (£7m cash, £23m non-cash) Land cash spend c. £1.1bn
Slide 51: Current Trading – Forward Order Book
CURRENT TRADING – FORWARD ORDER BOOK 2 Feb 2020 3 Feb 2019 % change £m Plots £m Plots £m Plots Private 1,593.7 4,984 1,473.8 4,874 8.1 2.3 Affordable 1,118.7 7,127 1,164.2 7,496 (3.9) (4.9) Wholly owned 2,712.4 12,111 2,638.0 12,370 2.8 (2.1) JV 314.7 932 383.0 824 (17.8) 13.1 Total 3,027.1 13,043 3
Slide 52: P&L
P&L £m (unless otherwise stated) H1 FY20 H1 FY19 Change Revenue 2,266.2 2,132.0 6.3% Cost of Sales (1,762.5) (1,649.8) (6.8%) Gross profit 503.7 482.2 4.5% Gross margin % 22.2 22.6 (40 bps) (Cost)/Credit associated with (17.8) 3.7 n/m legacy properties Adjusted gross profit 521.5 478.5 9.0% Adjusted
Slide 53: Balance Sheet – Land Bank
BALANCE SHEET – LAND BANK Land bank plots 31 December 2019 31 December 2018 Owned 65,728 63,125 Controlled 15,118 17,505 Total land bank plots 80,846 80,630 JV plots – owned 4,152 4,288 JV plots - controlled 1,504 1,138 Total land bank plots (including JVs) 86,502 86,056 Land bank pricing (£’000) Co
Slide 54: Private Completions – Volume and ASP
PRIVATE COMPLETIONS - VOLUME AND ASP Homes: 1,311 (H1 FY19: 1,243) ASP: £249.7k (H1 FY19: £242.8k) Homes: 767 (H1 FY19: 796) ASP: £257.5k (H1 FY19: £238.9k) Homes: 1,275 (H1 FY19: 1,151) ASP: £358.6k (H1 FY19: £362.1k) Homes: 1,254 (H1 FY19: 1,245) ASP: £269.9k (H1 FY19: £261.2k) London Homes: 71 (H
Slide 55: Private Average Selling Price
PRIVATE AVERAGE SELLING PRICE H1 FY20 H1 FY19 Units ASP (£000) Units ASP (£000) Regional total 6,230 303.9 5,850 296.2 Central London 16 2,744.2 106 1,306.7 Outer London 55 528.8 122 473.0 London total 71 1,028.1 228 860.6 Total private 6,301 312.0 6,078 317.3 31 December 2019: 2 Central London priv
Slide 56: Completions Analysis – Product Type
COMPLETIONS ANALYSIS – PRODUCT TYPE 3% 4% Flats (non-London) 33% 31% Flats (London) 1 & 2 Bed 3 Bed 36% 36% 4 Bed 5 & 6 Bed 12% 14% 5% 4% 11% 11% H1 FY20 H1 FY19 56
Slide 57: Joint Ventures Summary
JOINT VENTURES SUMMARY Number of Balance sheet Unsold plots(2) ASP (£’000) housebuild JVs(1) investment (£m) Central London 2 3 767 31.6 Outer London 3 2,472 326 113.5 Regional 4 842 296 13.9 Commercial - - - 0.7 Total 9 3,317 335 159.7 (1) Owned JVs as at 31 December 2019. Plots to legally complete
Slide 58: Joint Ventures Trading
JOINT VENTURES TRADING Housebuild JVs only FY20 f’cast FY19 FY18 Home completions - London c. 460 471 555 - Non-London c. 290 274 344 Total c. 750 745 899 (1) Share of profit £m - London c. 15 23.3 4.0 - Non-London c. 15 15.0 15.1 Total c. 30 38.3 19.1 (1) JV income is accounted for in the Group Con
Slide 59: Land Prices versus House Price Inflation
LAND PRICES VERSUS HOUSE PRICE INFLATION Greenfield land Prime London land 140 140 UK greenfield land Central London land UK house prices House prices prime London Savills UK Residential Development Land Index Savills UK Residential Development Land Index 120 120 100 100 (100 = 2007 peak) (100 = 200
Slide 60: Net Interest Charge Analysis and Financing Arrangements
NET INTEREST CHARGE ANALYSIS AND FINANCING ARRANGEMENTS £m H1 FY20 H1 FY19 Interest on term debt and overdrafts (2.0) (1.5) Interest on private placement notes 2.8 2.8 Utilisation / non-utilisation fees on RCF 1.8 2.1 Other interest 0.5 (0.2) Total cash interest 3.1 3.2 Land creditors / deferred pay
Slide 61: 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 2019. For the purposes of this notice, the presentation (the “Presentati
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