Barratt Redrow Plc · LSE:BTRW
Barratt Redrow — Barratt Developments — H1 FY21 Earnings Presentation
53 slides from Barratt Redrow's earnings presentation, Feb 4, 2021
Slide 1: Results Presentation – Half year ended 31 December 2020
RESULTS PRESENTATION Half year ended 31 December 2020 4 February 2021 Fairfield Croft, York 1
Slide 2: David Thomas, Chief Executive Officer
David Thomas Chief Executive Officer 2 Stanneylands, Wilmslow
Slide 3: Key Highlights
KEY HIGHLIGHTS • Health and safety is our first priority • Economic backdrop is uncertain but attractive housing market fundamentals unchanged • Excellent recovery in completions with continued leadership in quality and customer service • Disciplined operating framework delivered through an unpreced
Slide 4: Operational Targets
OPERATIONAL TARGETS H1 FY21 Medium term targets Progress in the half year Disciplined growth in wholly owned home completions Wholly owned towards 20,000 over the medium term, initially reversing On track to deliver between 15,250 and 15,750 wholly 8,699 • home homes COVID-19 disruption through sale
Slide 5: Steven Boyes, Chief Operating Officer
Steven Boyes Chief Operating Officer 5 High Elms Park, Hockley
Slide 6: Sales Performance – Sales Rates and Selling Outlets
SALES PERFORMANCE – SALES RATES AND SELLING OUTLETS H1 FY21 H1 FY20 Change Average net private reservations per active outlet per week Wholly owned 0.77 0.69 11.6% • Excellent recovery JV 1.38 1.11 24.3% • Sales outlets down due to initial COVID-19 lockdown Total 0.78 0.70 11.4% Average active sales
Slide 7: Completions – Volumes and Pricing
COMPLETIONS – VOLUMES AND PRICING H1 FY21 H1 FY20 Change Home completions (units) • Completion growth supported by: Private 6,903 6,301 9.6% - Elevated WIP and forward sales Affordable 1,796 1,699 5.7% - Strong market demand Total home completions 8,699 8,000 8.7% - Rebuild of site construction acti
Slide 8: Completions Analysis – Buyer Type
COMPLETIONS ANALYSIS – BUYER TYPE 3% 4% Investor 6% • Buyer profile changes 12% • Part-exchange decline reflects strength of the second-hand 21% Part-exchange market 21% • HTB increase reflects: Affordable 26% - Existing homeowner demand ahead of scheme tapering 29% Other private - Increased first t
Slide 9: Construction Activity – On Track and Building Momentum
CONSTRUCTION ACTIVITY – ON TRACK AND BUILDING MOMENTUM Completions vs construction 10,000 equivalent units (CE's) built • 298 construction equivalent units built per week in H1 21 818 CE excess 1,319 • Completions in a normal H1 are typically below 8,000 construction activity, as seen in H1 20 • H1
Slide 10: Driving Operating Margin – Continuous Improvement Cycle
DRIVING OPERATING MARGIN – CONTINUOUS IMPROVEMENT CYCLE • 2020 created a unique opportunity to: - Further refine our house types - Optimise our site layouts and designs House type Site layout • The results: - More large site dual branding - Additional site layout optimisation - Further house type re
Slide 11: Driving Operating Margin – House Type Design – The Kingsley
DRIVING OPERATING MARGIN – HOUSE TYPE DESIGN – THE ‘KINGSLEY’ Previous design: Improved design: • Single bedroom to double bedroom 5,945mm 5,945mm • No increase in footprint, meaning no impact on layout efficiency • Additional bed space creates c. £7,000-£10,000 of additional revenue 8,995mm 8,995mm
Slide 12: Managing Change
MANAGING CHANGE • HTB tapering has been incorporated in our land buying assumptions since August 2017 +19% • Land buying has included HTB changes around: - House type mix and plotting - Sales rates and incentives • Margin and ROCE hurdles unchanged Goitre Fach, Cardiff 12
Slide 13: Land Bank
LAND BANK Land bank plots 31 December 2020 31 December 2019 With detailed planning consent 54,079 51,929 • Land bank remains strong With outline planning consent 9,846 13,462 • 84% of owned land bank now with detailed With resolution to grant and other 235 337 planning consent Owned 64,160 65,728 •
Slide 14: Managing the Cost Environment
MANAGING THE COST ENVIRONMENT Materials Labour • Limited material inflation • Limited signs of cost • Timber products only pressures area with significant cost escalation • 473 apprentices, graduates and trainees on • Almost all of pricing fixed programmes as at 31st to June 2021 December 2020 • 37%
Slide 15: Summary
SUMMARY • Health and safety is our first priority • Excellent sales and site based construction recovery • Build programmes on track • Industry leading quality and customer service • Land bank optimised and house types refined Bowland Meadow, Preston 15
Slide 16: Jessica White, Chief Financial Officer
Jessica White Chief Financial Officer 16 Letcombe Gardens, Wantage
Slide 17: Summarised Performance
SUMMARISED PERFORMANCE £m (unless otherwise stated) H1 FY21 H1 FY20 Change Revenue 2,494.7 2,266.2 10.1% Adjusted gross profit 593.0 521.5 13.7% Adjusted gross margin % 23.8 23.0 80 bps Gross profit 513.9 503.7 2.0% Gross margin % 20.6 22.2 (160 bps) Adjusted operating profit 505.2 439.5 14.9% Adjus
Slide 18: Understanding the Cost Structure
UNDERSTANDING THE COST STRUCTURE 35% 33% 32% 32% 32% 32% 32% 30% 30% 25% 23.8% 23.1% 22.8% 23.0% • Each home delivers a contribution of c. 32% 22.4% 20% 18.5% • H1 benefited from incremental fixed cost efficiency • H2 FY21 will see some cost efficiency reversal given 15% the lower home completion vo
Slide 19: Operating Margin Bridge
OPERATING MARGIN BRIDGE Non-recurring items Trading items Non-recurring items 80 bps 90 bps (330 bps) 21.0% Increase 40 bps 50 bps Decrease 20.0% 60 bps 100 bps 80 bps 230 bps 80 bps 19.0% 20.3% 18.0% 100 bps 19.4% 17.0% 18.6% 16.0% 17.0% 120 bps 14.8% 15.0% 14.0% H1 20 Remove H1 20 Regional Site Ne
Slide 20: Adjusted Items
ADJUSTED ITEMS £m H1 FY21 H1 FY20 FY20 Operating adjusting items: CJRS grant - repayment / (income) recognised in cost of sales 22.8 - (22.8) CJRS grant - repayment / (income) recognised in administrative expenses 3.2 - (3.2) Total CJRS grant – repayment / (income) 26.0 - (26.0) Costs associated wit
Slide 21: Operating Framework – Progress Update
OPERATING FRAMEWORK – PROGRESS UPDATE Operating framework Position at 31 December 2020 v 30 June 2020 Position at 31 December 2019 5.0 years owned / 0.9 years controlled Land bank(1) c. 3.5 years owned / c. 1.0 year controlled 3.7 years owned / 0.9 years controlled (2020: 5.7 years owned / 1.0 year
Slide 22: Balance Sheet
BALANCE SHEET £m 31 December 2020 31 December 2019 Goodwill and intangible assets 906.5 907.6 Investment in joint ventures and associates 165.7 159.7 Gross land bank 2,836.7 3,036.3 Land creditors (601.1) (830.8) Net land bank 2,235.6 2,205.5 Land creditor % 21.2% 27.4% WIP 1,599.6 1,800.3 Net cash
Slide 23: Cash Flow
CASH FLOW Includes land spend of c.£320m Inflow Outflow 1,000 900 (190.8) 276.5 (5.4) 8.5 800 700 600 272.4 £m 500 400 803.9 798.5 (77.4) 91.8 300 200 422.9 100 0 Profit from Net cash Other non-cash WIP / PX Land Land creditors JV investment Operating cash Other Net operations interest & tax and wor
Slide 24: Guidance for FY21
GUIDANCE FOR FY21 15,250 – 15,750 wholly owned home completions Completions c. 20% affordable c. 650 JV Total administrative expenses c. £200m c. £30m Interest cost (c. £10m cash, c. £20m non-cash) Land cash spend c. £850m Land creditors 15 – 25% owned land bank Average net cash c. £700m Year end ne
Slide 25: Financial Summary
FINANCIAL SUMMARY • Improved financial performance • Balance sheet further strengthened • Performance recovery and balance sheet strength underpin dividend resumption • Well positioned for the future Chilmington, Kent 25
Slide 26: David Thomas, Chief Executive Officer
David Thomas Chief Executive Officer 26 J One Seven, Sandbach
Slide 27: Investment Proposition
INVESTMENT PROPOSITION Strong Highly Shorter balance sheet experienced Quality and Nationally Leading owned land and cash build and service diversified sustainability bank generation sales teams Rebuilding Delivering margin Attractive volumes improvement returns Disciplined growth in wholly owned La
Slide 28: Market Fundamentals
MARKET FUNDAMENTALS Government 2.90% target: average 2 year 300,000 homes fixed rate at 85% per annum LTV(1) Demand continues Attractive land market Help to Buy Affordable rates to exceed supply tapering from 1 April 2021 (1) Rates are from an average of five lenders. Standard 85% product based on a
Slide 29: Mortgage Affordability
MORTGAGE AFFORDABILITY Halifax Mortgage Affordability Index (1) Halifax Affordability Index Average (1985-Q4 2020) 60% • Mortgage affordability supported by rates, low Mortgage costs as a proportion of earnings 55% relative to historical levels 50% • Mortgage availability at high LTV remains limited
Slide 30: Our Priorities and Principles – Delivering for the Long Term
OUR PRIORITIES AND PRINCIPLES – DELIVERING FOR THE LONG TERM Leading the future of housebuilding by putting customers at the heart of everything we do 30
Slide 31: Sustainability – The Leading National Sustainable Housebuilder
SUSTAINABILITY - THE LEADING NATIONAL SUSTAINABLE HOUSEBUILDER • Our ambition is clear, to be the leading national sustainable housebuilder • We deliver through our actions, performance and disclosure • We have an established and SBTi approved carbon reduction roadmap 100% renewable Net zero carbon
Slide 32: Sustainability – Working with Supply Chain Partners
SUSTAINABILITY – THE LEADING NATIONAL SUSTAINABLE HOUSEBUILDER Supply Chain Ecological Sustainability calculator for all Working with School colleagues Inspiring while working colleagues supply chain from home partners Supplier Leadership Maturity Matrix sustainability Tool events in 2021 Sponsoring
Slide 33: Current Trading
CURRENT TRADING H2 FY21 H2 FY20 H2 FY19 Change Change To date To date To date Net private reservations per active outlet per average week 0.77 0.83 (7.2%) 0.74 4.1% Average active outlets 343 355 (3.4%) 385 (10.9%) Net private reservations per average week 264 294 (10.2%) 284 (7.0%) Total forward sa
Slide 34: Conclusion
CONCLUSION • Excellent first half both operationally and financially • COVID-19 risk management continues • Uncertain economic backdrop remains but attractive housing market fundamentals unchanged • Committed to: - Building high quality, sustainable homes - Supporting and creating jobs, aiding econo
Slide 35: Q&A
Q&A 35 Canalside at Wichelstowe, Swindon
Slide 36: Appendices – Index
APPENDICES – INDEX Page Definitions 37 Average mortgage rate 38 Current trading - forward order book 39 Current trading – forward sales roll 40 Full income statement 41 Calendarised income statement 42 Private completions – volume and ASP 43 Site based construction activity – monthly construction ou
Slide 37: Definitions
DEFINITIONS • Active outlet is a site with at least one home for sale • APPG is All Party Parliamentary Group • ASP is average selling price • Average cash (debt) is calculated on average daily closing position in period • CJRS is Coronavirus Job Retention Scheme • Contribution is surplus of revenue
Slide 38: Average Mortgage Rate
AVERAGE MORTGAGE RATE Average mortgage rate (%) (1) 4.0% Help to Buy 75% mortgage product (20% equity loan) Standard 85% LTV mortgage product 3.5% 2.90% Mortgage rate (%) 3.0% 2.5% 2.29% 2.0% 1.5% 1.0% Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Dec-20 (1) Rates are from an average of five lenders. St
Slide 39: Current Trading – Forward Order Book
CURRENT TRADING – FORWARD ORDER BOOK 31 January 2021 2 February 2020 % change £m Homes £m Homes £m Homes Private 1,933.6 5,769 1,593.7 4,984 21.3% 15.8% Affordable 1,242.4 7,746 1,118.7 7,127 11.1% 8.7% Wholly owned 3,176.0 13,515 2,712.4 12,111 17.1% 11.6% JV 249.8 774 314.7 932 (20.6%) (17.0%) Tot
Slide 40: Current Trading – Forward Sales Roll
CURRENT TRADING – FORWARD SALES ROLL 31 January 2021 2 February 2020 % change Private Total(1) Private Total(1) Private Total(1) 31 December 5,104 13,588 3,997 11,885 27.7% 14.3% Reservations 1,169 1,330 1,385 1,641 (16.0%) (19.0%) Completions (504) (629) (398) (483) 26.6% 30.2% 31 Jan 2021 / 2 Feb
Slide 41: Full Income Statement
FULL INCOME STATEMENT £m (unless otherwise stated) H1 FY21 H1 FY20 Change Revenue 2,494.7 2,266.2 10.1% Cost of Sales (1,980.8) (1,762.5) (12.4%) Gross profit 513.9 503.7 2.0% Gross margin % 20.6 22.2 (160 bps) Analysed as: Adjusted gross profit 593.0 521.5 13.7% Adjusted gross margin % 23.8 23.0 80
Slide 42: Calendarised Income Statement
CALENDARISED INCOME STATEMENT £m (unless otherwise stated) 12 months to December 20 12 months to Dececember 19 Change Revenue 3,647.7 4,897.3 (25.5%) Cost of sales (3,023.2) (3,791.6) 20.3% Gross profit 624.5 1,105.7 (43.5%) Gross margin % 17.1 22.6 (550 bps) (1) Administrative expenses / part-excha
Slide 43: Private Completions – Volume and ASP
PRIVATE COMPLETIONS - VOLUME AND ASP Homes: 1,367 (H1 FY20 : 1,311) ASP: £253.3k (H1 FY20 : £249.7k) Homes: 775 (H1 FY20: 767) ASP: £268.8k (H1 FY20: £257.5k) Homes: 1,301 (H1 FY20 : 1,275) ASP: £377.5k (H1 FY20 : £358.6k) Homes: 1,375 (H1 FY20: 1,254) ASP: £270.1k (H1 FY20 : £269.9k) London Homes:
Slide 44: Site Based Construction Activity – Monthly Construction Output
SITE BASED CONSTRUCTION ACTIVITY – MONTHLY CONSTRUCTION OUPUT Weekly build equivalent unit production (homes) 400 361 361 350 339 318 314 320 298 300 273 267 250 235 200 150 100 50 0 FY19 FY20 weeks FY20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 YTD 1-38 average Weekly build equivalent unit producti
Slide 45: Driving Operating Margin – New Product Range Roll Out
DRIVING OPERATING MARGIN - NEW PRODUCT RANGE ROLL OUT Proportion of regional completions using new product ranges (%) (1) 70% 65% 60% 58% 50% 40% 30% 30% 20% 10% 4% 0% H1 FY18 H1 FY19 H1 FY20 H1 FY21 32% 58% 76% 83% % of active outlets with new product range (1)(2) (1) Including JVs in which the Gro
Slide 46: Home Completions Analysis – Product Type
HOME COMPLETIONS ANALYSIS – PRODUCT TYPE 3% 3% 5 & 6 Beds 31% 33% 4 Beds 34% 3 Beds 36% 13% 1 & 2 Beds 12% 6% Flats (London) 5% 13% Flats (non-London) 11% H1 FY21 H1 FY20 46
Slide 47: Joint Venture Summary
JOINT VENTURE SUMMARY Balance sheet Number of JVs(1) Unsold plots(2) ASP (£’000) investment (£m) Central London 2 - 775 16.9 Outer London 3 2,183 343 128.6 Regional 3 507 283 19.5 Commercial - - - 0.7 Total 8 2,690 338 165.7 (1) Owned JVs as at 31 December 2020. Plots to legally complete as at 31 De
Slide 48: Net Interest Charge Analysis
NET INTEREST CHARGE ANALYSIS £m H1 FY21 H1 FY20 Interest on term debt and overdrafts 0.1 (2.0) Interest on private placement notes 2.8 2.8 Utilisation / non-utilisation fees on RCF 1.8 1.8 Other interest 0.2 0.5 Total cash interest 4.9 3.1 Land creditors / deferred payables 8.1 9.5 Financing fees 1.
Slide 49: Balance Sheet – Land Bank
BALANCE SHEET – LAND BANK Land bank plots 31 December 2020 31 December 2019 With detailed planning consent 54,079 51,929 With outline planning consent 9,846 13,462 With resolution to grant and other 235 337 Owned 64,160 65,728 Controlled 11,450 15,118 Total land bank plots 75,610 80,846 JV plots – o
Slide 50: English Planning Consents and Savills UK Greenfield Development Land Index
ENGLISH PLANNING CONSENTS AND SAVILLS UK GREENFIELD DEVELOPMENT LAND INDEX Savills UK Greenfield Development Land Index versus English Planning Consents (1) Savills UK Greenfield Development Land Price Index England - Planning consents ('000's) Savills UK Greenfield Development Land Index 120 450 En
Slide 51: Land Creditors Payment Profile by Calendar Year
LAND CREDITORS PAYMENT PROFILE BY CALENDAR YEAR £m 51
Slide 52: External Benchmarks
EXTERNAL BENCHMARKS • 5 Star award for 11 years EXTERNAL • Only major BENCHMA national RKS housebuilder to • 92 awards in 2020 achieve this • Large housebuilder of the year • More than any other housebuilder for 16 consecutive years • Second year in a row, three times in five years • 96 accreditatio
Slide 53: 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 2020. For the purposes of this notice, the presentation (the “Presentati