2020 15 July 2020 Retirement living to the full IR Contact: - - PowerPoint PPT Presentation

Half year results presentation for six months ended 30 April 2020

Retirement living to the full

15 July 2020

IR Contact: marina.calero@mccarthyandstone.co.uk

2

Agenda

Rowan Baker, CFO

Financial performance Summary and Outlook

John Tonkiss, CEO

Operational update: Customers and Services

Mike Lloyd, COO, Services & Customers John Tonkiss, CEO

Overview and strategic update

3

John Tonkiss, CEO

Overview

4

Overview

• Emerging from extraordinary period
• Responded early to Covid-19 with absolute focus on our customers and our people
• Acting decisively to protect the financial health of our business
• Gradual remobilisation reflecting the nature of our customer base
• Covid-19 backdrop has illustrated the unique benefits of independent retirement

living - the ‘Third Way’

• Reaffirmed that we have the right long term strategy in place
• Beyond Covid-19, we see exciting opportunities ahead due to
• Our unique proposition and strong brand
• Expected new land market opportunities
• Recent policy announcements around stamp duty, planning and adult social

care reform

• Emergence of a new and attractive retirement living property asset class

(Financial Times, 2 June 2020) (Daily Telegraph, 29 June 2020) (Daily Mail, 3 July 2020) (The Times, 13 June 2020)

5

Emerging from extraordinary period - HY20 review

• Three discrete phases:
• Good progress in both stages of the transformation strategy
• Continued focus on ‘optimising financial performance’ and cash generation
• Build Cost Reduction – £30m in construction budget or delivered
• Multi-tenure performing well across all developments delivering attractive yields
• Awarded 5* HBF customer satisfaction rating – 15th consecutive year
• Five site managers won coveted Pride in the Job Quality Award from the National House

Builders’ Council (NHBC)

• AIIR* significantly improved to 100 from 532 in HY19 and vs 268 industry benchmark
• Financial metrics impacted by Covid-19
• 1. The Group recognises a legal completion at the point of completion of a sale of an apartment to a purchaser or a tenancy

• 2. Underlying operating (loss)/profit (including underlying operating (loss)/profit margin and underlying basic earnings per share) and

471

HY19: 845

Legal Completions1

£(25)m

HY19: £21m

Underlying Operating (Loss)/Profit3

18

HY19: 10

Land exchanges

Nov Dec Jan Feb March April General Election ‘Boris bounce’ Covid-19 lockdown

6

Safety and wellbeing of customers and employees has been our absolute priority

Customers:

• On site help, support & guidance
• Strict hygiene practices
• Range of wellbeing activities
• Low infection rates vs general over 65s and over 85s UK population

Employees:

• Excellent employee engagement through group wide survey:
• 84% felt well informed
• 75% feel recognised for their contribution to the business
• Ensured PPE provision for on-site staff
• Buddying schemes and redeployment of staff to support customers
• Regular communication, video blogs and online courses etc.

UK population UK population 65+ UK population 85+ McCarthy & Stone

Covid-19 infection rates (total cases per 1000 people) 4.5 6.14 4.7 18.15

‘Thank you’ to our employees and homeowners

7

Acting decisively to protect the financial health of our business

• Cancelled dividend
• Stopped discretionary spend
• Voluntary 20% salary reduction by all Board members and wider leadership team
• Paused all sales, marketing and build activity
• Stopped land spend and minimised land liabilities
• Payments to suppliers honoured and good relationships maintained
• Employees from build and sales furloughed at 80% of salary
• Monthly cash burn rate reduced from c.£10m to c.£7m during lockdown
• Secured access to £300m CCFF funding & relaxation of RCF covenants
• Further steps to align resources to workflow – annualised cash saving of c.£4m

Excellent liquidity with strong cash controls in place Image to be added

8

• Our customers remain our absolute priority
• Full range of services resumed in compliance with social distancing guidelines
• Processes for local lockdowns in place. No confirmed cases as of 14 July.
• Measured build remobilisation
• 17 out of 44 sites now re-mobilised. c.10 First Occupations expected in FY20
• Low impact on build rates and 1-2% potential margin impact on sites currently in build
• No materials or resource issues with supply chain. Close collaboration continues
• Gradual and systematic remobilisation of sales and marketing
• Processes and pace of remobilisation reflects vulnerability of customer base
• Sales leads and gross reservation rates increasing in line with gradual ramp up plan
• Proactive land buying now fully reinstated
• Phased return of furloughed staff in line with ramp up of activity

While we are past the peak of the crisis, the financial impact will be weighted towards H2

Gradual remobilisation reflecting the nature of our customer base

Nov Dec Jan Feb March April May June

New Leads Gross Reservations (incl. rentals)

Nov Dec Jan Feb March April May June 500 1000 1500 2000 2500 10 20 30 40 50 60 70

Sales restarted

• n 8th June

Lead Generation Marketing Turned-Off

9

Unique benefits of independent retirement living - the ‘Third Way’

• Unique nature of independent retirement living
• Purpose built retirement communities
• Private apartment and own front door
• Tailored on-site assistance and support from our 1,600 strong

Services team

• Rapid response
• Clear and frequent homeowner guidance, strict hygiene measures,

restricted access to communal areas and 500 volunteers through our Buddy scheme

• Low Covid-19 infection rates across our developments
• Supported 20,000 homeowners across the UK through the pandemic
• High customer satisfaction during the outbreak
• 93% feel safe or extremely safe in their apartment
• 88% very happy with the support they’ve received during the pandemic

Our customers felt safe, secure and supported throughout the outbreak

10

John Tonkiss, CEO

Strategic update

11

Short term priorities remain in place

Progress pre-Covid-19 Implications post Covid-19

• £10m p/a cash saving achieved
• Further restructuring with additional c.£4m

saving p/a

• Centralised teams
• Tight discount control
• Salesforce rollout
• Covid secure sales journey
• New processes and a hub sales operating

model

• £48m savings identified (c.£30m savings

secured)

• BCR practices embedded
• Phasing of savings affected
• Managing impact of additional Covid-19

compliance costs

• Increased land buying
• Even flow of land exchanges
• Finished stock reduction
• Covid-19 pause enabled re-set of workflow
• n fully optimised basis

Continued focus on margin improvement with timing of delivery impacted Stage 1: Optimising financial performance

4

Workflow realignment

3

Build cost reduction (BCR)

2

Efficient sales & marketing tools Rightsizing the business

1

12

Q1 FY22 Q2 FY22 Q3 FY22 Q4 FY22 Q1 FY23 Q2 FY23 Q3 FY23 Q4 FY23

Smooth workflow expected in FY22 & FY23

Workflow trajectory

• Priority is to sell down finished stock (1,373 units, £323.4m)
• 44 sites under construction paused in March.
• 37 scheduled to restart by year end
• f which c.7 are expected to first occupy in H2 FY20
• Targeting return to c.2,000 first occupation unit delivery from FY22 on a smoothed basis
• 87% of FY22 units already have planning consent
• 80% of FY23 units are already under our control

Reduction in new build starts in FY20 impacting FY21 first occupation delivery

94% 87% 20% 13% 75%

c.2,000 >2,000 c.1,250

FY19 FY20E FY21E FY22E FY23E

Scheduled first occupation (units)

First Occupied Build Started Planning achieved but not Build Started Subject to Planning New Land Exchanges Required

1,817 FY19 FY20E FY21E

Scheduled build starts (units)

13

Right long term strategy in place

Progress pre-Covid-19 Implications post Covid-19

• New services pilots completed
• Specific initiatives being implemented
• Team strengthened
• New charging model in development
• Build on lessons learnt during Covid-19
• Adapting service offering around ‘softer’ services
• Phased implementation of alternative charging models
• Solid levels of rental take up
• c.£50m rental portfolio on balance sheet
• High yielding assets
• Pension backed income
• Low gross to net leakage
• Multi-tenure will form increased proportion of volumes
• Even more attractive investment proposition post Covid-19

with the emergence of a new retirement living property asset class

• Opportunity for BTR, shared ownership models and

development partnerships

• MMC strategy agreed
• Strategic partner identified
• First panelised scheme approved for FY20
• MMC strategy is sound; implementation delayed
• Potential to increase addressable market via targeted £50k

reduction in ASP driven by product re-engineering

Stage 2: Strategic Opportunities

Right long-term strategy focused on improving customer experience

14

Opportunities beyond Covid-19

• Strong fundamentals remain
• Rapidly ageing population
• Chronic undersupply of appropriate housing with an estimated shortfall of c.30,000 units
• Unrivalled capabilities as UK’s leading manager and developer of retirement communities
• Changing landscape
• Positive ongoing engagement with policy makers (firmly on their radar now)
• Heightened focus on addressing adult social care
• Economic importance of ‘Build, build, build’
• Significant planning reforms proposed

However…

• Our proposition is misunderstood
• Unique benefits of retirement living
• Viable ‘Third Way’ – independence with support on hand
• We are renewing our brand purpose and further embedding ESG thinking

We are uniquely placed to capitalise on this long term opportunity

Our customers & their families Society Employees Environment

Strong fundamentals Unrivalled capabilities Changing landscape

Making a real difference

Projected UK population growth1, million

11.8 17.3 1.6 3.0

Aged 65+ Aged 85+

Renewed brand 2037 2017

15

Mike Lloyd, COO Operational update: Customers & Services

16

Focus on a safe and positive environment for 20,000 homeowners and staff

Safer

• Gold/Silver/Bronze incident teams managing COVID cases
• New Services operating model introduced within 48 hours
• Focus on minimising risk of infection and its spread
• Ensured PPE provisions for on-site staff early on
• 50+ sales people redeployed as area supports

Happier

• c.500 volunteered as Buddies for isolation support
• National and local activities: exercise tips; pen pals; poetry…
• Digital homeowners hub in developments

Large mailbag of Thank Yous for our staff and the organisation’s efforts Covid-19 infection rates 27% lower than the

• ver 65s UK population and four times lower

than the over 85s

17

Priorities for H2: Sales and Services

Sales:

• Traditionally a visit and event-based model with 50% off-plan
• Visits a concern to some existing and potential homeowners
• Lead marketing key in creating demand for us
• Planned a systematic step-wise remobilisation, starting with…
• Substantially altered sales model in June:
• do as much online or over the phone from “home hubs”
• sales offices fully reconfigured on appointment only basis
• Initial focus on core stock and completing on older reservations

Services:

• 14th July: one confirmed case of Covid-19 on our sites
• Re-opened a majority of services but with adaptations
• Additional cover and Buddy scheme remain in place
• Building on new support services for long-term

Low levels of COVID now Continuing to operate to minimise risk Building on well received support services Sales and Marketing activity mid ramping up In step with our demographic becoming more mobile New reservations on core stock 50%+ pre-Covid levels

18

The concept of Retirement Living is less well understood in the UK than in other countries such as New Zealand and Australia Substantial opportunity to build familiarity with our brand, our product, and its benefits

Priorities for H2: Brand review and repositioning

Issues

• Lack of familiarity
• Perceived stigma of an institution
• Association with care homes – exacerbated by Covid-19

Opportunity

• Invest to build our “category” and brand
• Clear we are for people who are not done yet
• A new way of life - so you can be happier and healthier as you get older

Brand relaunch coming later this year

19

Rowan Baker, CFO

Financial performance

Six months to 30 April 2020

(comparative: 6 months to 28 February 2019)

20

Underlying Operating (Loss)/Profit3

£(25)m

HY19: £21m

• Focus continued on optimising financial performance in line with our strategy
• Rental performing well, delivering attractive yields
• Solid PX performance
• Strong cash control in response to Covid-19 lockdown
• Additional liquidity secured and covenants amended
• Limited visibility of expected out-turn due to gradual remobilisation and cautious customer-base
• Guidance suspended until impact of Covid-19 on the market is better understood

Financial Overview

• Challenging H1, impacted by 2019 General Election and Covid-19

471

HY19: 845 Legal Completions1

£297k

HY19: £319k ASP2

£54m

HY19: £57m Net Debt4

18

HY19: 10 Land exchanges

21

Consolidated Statement of Comprehensive Income

HY20 HY19 £m £m Revenue 101.0 280.5 Land, build & incentives (78.0) (210.6) Site Profit 23.0 69.9 Site Profit Margin % 22.8% 24.9% Divisional costs incl. sales & marketing & build repairs (23.7) (25.4) Empty property costs (7.3) (5.6) Gross (loss)/profit (7.9) 39.0 Net operating income 3.3 1.8 Administrative expenses (20.2) (19.5) Underlying operating (loss)/profit (24.8) 21.3 Finance income 0.5 0.3 Finance expense (2.6) (2.7) Underlying (loss)/profit before tax (26.9) 18.9 Amortisation of brand (1.0) (1.0) Exceptional items (63.4) (14.3) Statutory (loss)/profit before tax (91.3) 3.6

• Revenue affected by lower legal completions due to General

Election and Covid-19:

• 3 first occupations in H1 FY20 (H1 FY19: 15)
• Site profit margin of c.25-26% excluding bulk sale and rental

income – consistent YOY

• Gross margin impacted by:
• Fixed costs within divisional costs and sales & marketing
• Increased empty property costs
• Net operating income includes revaluation of rental assets at 21%

margin*, PX loss and management services profit

• Exceptional costs of £63m (FY19: £14m) - £60m one-off non-cash

impairment of goodwill and brand, plus £3m of Covid-19 and restructuring costs

*see explanation in appx for rental accounting

22

30 April 2020 28 February 2019

£m £m 4.3 66.9 9.0 2.3 51.2 0.2 89.3 90.2 (28.5) (30.1) 252.2 299.2 323.4 381.4 636.4 740.7 44.1 55.8 680.5 796.5 (53.5) (57.2) 3.6 (60.6) 695.1 748.1

Balance sheet

£m Goodwill and intangible assets Fixed assets & investments Investment properties Land Land creditors Sites in the course of construction Finished stock Total net stock (excl. PX properties) PX properties Total net stock Net debt Other net assets / liabilities

Net assets

• 1%
• 16%
• 5%
• 15%
• 14%
• 15%
• Goodwill and brand exceptional impairment

charge of £60m following Covid-19 impairment review

• Fixed assets & investments
• Recognition of £8m ‘right of use’ assets under

IFRS 16.

• Total net stock 15% lower than prior year partially

due to Covid-19 pause in activity and in line with strategy

• Finished stock levels progressing towards 1,100

target, at 1,373 units (FY19: 1,628)

• Finished stock value ‘stress tested’ – future

prices can fall by up to c.13% before adjustment required

• TNAV broadly equivalent to prior year
• 21%

TNAV1

690.8 681.2

• 1. Tangible net asset value, calculated as net assets excluding goodwill and intangible assets. Represents total amount of physical assets owned

23

51% 49%

Choice: Rental portfolio performance

Strong rental performance delivering attractive yields Portfolio overview as at June 2020

• Attractive yields and strong, resilient performance -

low level of voids and negligible bad debts.

• c.40% of H1 reservations were Rental or Rent to Buy
• Strong value potential once concept fully proven and

portfolio reaches scale

• Clear path to grow to >£300m by end FY22
• Attractive pipeline with potential to develop into full

Build to Rent strategy

Average rental price (excl. service charge and ground rent) Retirement Living (RL) Retirement Living PLUS (RP) One-bed £1,069 Two-bed £1,748 One-bed £1,792 Two-bed £2,580 68% 32%

Bed Mix 1 Bed 2 Bed

83% 17%

Occupancies Single Double

Rent / Rent to Buy

Volume

List | NBV £M

Annual Gross rents*

Gross Yield Gross to Net

Ungeared / geared** Returns

192

£59.2m

£53.2m

c.£3.8m

6.5% 21%

(incl. 2% void)

>7%/>10%

*Excluding service charge and ground rent **40% LTV

YTD Reservations & Completions

175

RL RP

192

56% 44%

RL

£53.2m

RP RL RP 6% 7%

24

37% 62%

HY20

34% 15% 51%

FY19

Part-exchange performance as at 30 April 2020

Part-exchange (PX) – valuable and cost effective tool

• Average resale period of 14.2 weeks (12.3 weeks FY19)
• Only 28 of the 130 properties on the balance sheet at 30 April remain

unsold

• Strong performance since Covid-19 lockdown, with 85 properties sold

since 23 March.

• Balance sheet value of £44m at 30 April, reflects current view of

secondary market

• Robust controls remain in place

1) Profit or loss on sale of PX properties is calculated as the PX resale price less selling costs and the buy in price

783 145 5 (1%) 347

PX metrics 6 months to 30 April 14 months to 31 October 2019 Purchased (units) 145 783 Sold (units) 297 648 Average purchase price / % market value £344k/ 97% £346k / 97% Balance sheet value £44.1m £93.8m Loss on sale £15.6k £9.1k Average resale period (weeks) 14.2 12.3 OBPX (units) held at 30 April 130 282

43 Completed 59 Exchanged or SSTC 28 For Sale

130 properties / £44 m Current status of 30 April PX balance

25

£24.7m £138.1m £53.5m £62.2m £4.5m £2.7m £47.6m £99.3m

• 100
• 50

50 100 150 200 250

Opening net cash Net revenue Land spend Build spend Operating costs &

• verheads

Tax & interest Dividends paid Exceptional items Closing net debt

Cashflow – net cash

Total land & build spend £147m (HY19: £227m)

*

• Continuing to exercise careful cash

management and maintain a strong balance sheet

• Relaxation of RCF covenants agreed with

lenders up to Oct 2021

• Secured access to £300m Covid Corporate

Financing Facility (‘CCFF’), undrawn Scaled back during lockdown (PY: £71m)

26

Impact of cash preservation measures

Business well positioned to navigate through continued uncertainty with excellent liquidity and strong cash controls in place

PX sales, bulk sale and controlled land and build spend Job Retention Scheme, 20% senior salary adjustment and discretionary spend reduction Continued low level completions & bulk sale

£127m

Excellent bank engagement and support throughout crisis CCFF now in place

Cash Finished stock PX on balance sheet Monthly cash burn Covenants Total liquidity

£355m £59m c.£10m Covenants too restrictive £200m RCF

Feb/March Current position

Actions £146m (30 April) £122m (30 June) £317m (30 June) £39m (30 June) c.£7m during lockdown Covenant relaxation FY20, FY21 £200m RCF + £300m CCFF

Strong performance since lockdown – net £20m cash released

Net debt

£73m £54m (30 April) £78m (30 June)

27

John Tonkiss, CEO Summary & Outlook

28

Summary & Outlook

Business is in good financial health and is uniquely placed to capitalise on future opportunities

• Responded early to Covid-19 with absolute focus on our customers and our people
• Acting decisively to protect the financial health of our business
• Gradual remobilisation reflecting the nature of our customer base
• Peak of the crisis passed, the financial effect will be weighted towards H2
• Covid-19 backdrop has illustrated the unique benefits of independent retirement living - the ‘Third Way’
• Reaffirmed that we have the right long term strategy in place
• Beyond Covid-19, we see exciting opportunities ahead due to
• ur unique proposition and strong brand
• expected new land market opportunities
• recent policy announcements around stamp duty, planning and adult social care reform
• emergence of a new and attractive retirement living property asset class

29

Q&A

Created by Bob Gridley, a homeowner at Walmsley Place development, Bishops Waltham

30

Appendix:

31

Build cost reduction efficiencies (BCR): HY20 progress

• Re-set the business with focus on build cost control imbedded

from the outset

• Good progress made in stage progression of savings pre-Covid

lockdown

• c.£30m savings now in construction budget or delivered
• 1-2% potential margin impact on sites currently in build due to

additional Covid-19 compliance costs Next steps:

• Continuing refinement of standardisation
• Subcontract and supply chain tendering
• Component optimisation
• Maintain savings post-Covid-19

£48m BCR savings delivery stages

£7m

Secured on FY19 & FY20 first

• ccupations

Approved construction budgets for sites in build Subject to planning

£16m £25m

FY19 June 2020

£9m £21m £18m

BCR principles continue to be applied, but timing and quantum impacted by Covid-19

32

14 month Half year Half year Year end 30 Apr 20 28 Feb 19 31 Oct 19 £m £m £m Revenue 101.1 280.5 725.0 Cost of sales (109.0) (241.5) (620.1) Gross (loss)/profit (7.9) 39.0 104.9 Other operating income 106.8 64.5 238.1 Administrative expenses (84.6) (34.8) (64.1) Other operating expenses (103.5) (62.7) (230.5) Operating (loss)/profit (89.2) 6.0 48.4 Amortisation of brand (1.0) (1.0) (2.4) Exceptional expenses (63.4) (14.3) (17.3) Underlying operating (loss)/profit (24.8) 21.3 68.1 Underlying operating profit margin (24.5%) 7.6% 9.4% Finance income 0.5 0.3 1.0 Finance expense (2.6) (2.7) (6.0) Loss/profit before tax (91.3) 3.6 43.4 Income tax expense 16.8 (0.8) (8.5) (Loss)/profit for the year from continuing operations and total comprehensive income (74.5) 2.8 34.9 (Loss)/Profit attributable to: Owners of the Company (74.5) 2.7 35.1 Non-controlling interest

• 0.1

(0.2) (74.5) 2.8 34.9

For the period ended 30 April 2020

Financial statements: Statement of comprehensive income

1

33

As at 30 April 2020

Financial statements: Statement of financial position

• 41.7

• 0.4

• Other receivables

• Cash and cash equivalents

• 1.4
• Total equity

• 0.9

• Short-term borrowings
• 10.0
• Total current liabilities

• Deferred tax liability
• 2.3

34

For the period ended 30 April 2020

Financial statements: Consolidation cash flow statement

14 month Half year Half year Year end

30 Apr 20 28 Feb 19 31 Oct 19

£m £m £m Net cash flow from operating activities (55.1) (41.7) 81.4 Investing activities Purchases of property, plant and equipment (0.2) (0.3) (0.4) Purchases of intangible assets (0.2) (0.4) (1.4) Proceeds from sale of property, plant and equipment

• 0.1

Outflows in relation to investment properties (22.7)

• (28.3)

Net cash used in investing activities (23.1) (0.7) (30.0) Financing activities Issue of long-term borrowings 195.0 90.0 214.0 Repayment of long-term borrowings (7.0) (54.0) (255.0) Dividends paid

• (18.8)

(29.3) Acquisition of NCI

• (1.4)

Net cash from / (used in) financing activities 188.0 17.2 (71.7) Net increase / (decrease) in cash and cash equivalents 109.8 (25.2) (20.3) Cash and cash equivalents at beginning of perod 36.7 57.0 57.0 Cash and cash equivalents at end of period 146.5 31.8 36.7

35

Stock holding analysis

4,209 3,785 591 935 1,993 1,866 1,579 1,373 28 February 2019 Apr-20

Landbank - plots

Controlled land Owned land Sites under construction Finished stock Total 8,372 Total 7,959 4,800 4,720

Sites Units Sites Units Sites Units Owned sites Land held for development 14 591 10 384 21 935 With detailed planning consent 12 498 9 356 18 830 Awaiting detailed planning consent 2 93 1 28 3 105 Sites in the course of construction1 48 1,993 36 1,634 44 1,866 Pre sales releases 24 1,200 29 1,319 29 1,326 Post sales release 24 793 7 315 15 540 Finished stock 112 1,579 114 1,628 108 1,373 Total owned sites 174 4,163 160 3,646 173 4,174 Exchanged sites With detailed planning consent 28 1,326 21 963 11 538 Awaiting detailed planning consent 67 2,883 71 3,086 75 3,247 Total exchanged sites 95 4,209 92 4,049 86 3,785 Total land bank 269 8,372 252 7,695 259 7,959 Terms agreed, awaiting exchange 31 1,350 30 1,337 28 1,282 Total 300 9,722 282 9,032 287 9,241 Workflow milestones Sites Units Sites Units Sites Units Land exchanges 10 465 34 1,530 18 816 Planning consents 21 945 38 1,712 11 536 Land completions 13 532 35 1,544 21 941 Build starts 14 593 40 1,817 11 438 Sales releases 23 994 45 1,908 9 366 First occupations 15 640 53 2,249 3 140 Inventory holding (£m) H1 FY19 H2 FY19 H1 FY20 Land held for development 90.2 57.6 89.3 Sites in the course of construction 299.2 179.6 252.2 Finished stock 381.4 393.9 321.4

Part-exchange properties

55.8 93.8 44.1 Total 826.6 724.9 707.0 Legal completions (unit numbers) H1 FY19 H2 FY19 H1 FY20 Current year first occupations 204 1,098 84 Prior year first occupations and earlier 641 1,203 307 Rental completions 80 Total 845 2,301 471 * Does not include sites under construction at the pre-foundation stage. 2019 2020 H1 FY20 H1 FY19 H2 FY19 2020 H1 FY19 2019 H2 FY19 H1 FY20

36

Strategy - summary of Covid-19 implications

Stage 2:

Strategic Opportunities (FY19-FY23)

Stage 1:

Optimisation (FY19-FY21)

4

Workflow realignment

3

Build cost reduction

2

Efficient sales & marketing tools Rightsizing the business

1 Progress pre-Covid-19 Implications post Covid-19

• New services pilots

completed

• Specific initiatives being

implemented

• Team strengthened
• New charging model in

development

• Build on lessons learnt during Covid-

19

• Adapting service offering around

‘softer’ services

• Phased implementation of

alternative charging models

• Solid levels of rental take

up

• c.£50m rental portfolio on

balance sheet

• High yielding assets
• Pension backed income
• Low gross to net leakage
• Multi-tenure will form increased

proportion of volumes

• Even more attractive investment

proposition post Covid-19 with the emergence of a new retirement living property asset class

• Opportunity for BTR, shared
• wnership models and development

partnerships

• MMC strategy agreed
• Strategic partner identified
• First panelised scheme

approved for FY20

• MMC strategy is sound;

implementation delayed

• Potential to increase addressable

market via targeted £50k reduction in ASP driven by product re- engineering Progress pre-Covid-19 Implications post Covid-19

• £10m p/a cash saving
• Further restructuring with

additional c.£4m saving p/a

• Centralised teams
• Tight discount control
• Salesforce rollout
• Covid secure sales journey
• New processes and a hub sales
• perating model
• £48m savings identified

(c.£30m savings secured)

• BCR practices embedded
• Phasing of savings affected
• Managing impact of additional

Covid-19 compliance costs

• Increased land buying
• Even flow of land

exchanges

• Finished stock reduction
• Covid-19 pause enabled re-set

workflow on fully optimised basis

Right long-term strategy focused on improving customer experience Continued focus on margin improvement with timing of delivery impacted

37

Rental unit accounting - illustration

Balance sheet Inventory Finished unit

£219k

at cost

Unit rented Annual gross rent £26k1 Income statement

Reclassification £219k Uplift to fair value £58k (market value) Revenue (Rental revenue)

HY20 financial rental performance (m)

Balance sheet

Income statement HY20 Rental income 1.6 Service charge & ground rent costs (0.4) Variable costs2 (0.3) Gross Profit 0.9 Overheads3 (0.0) Operating profit 0.9

Group Income statement

Accounting for each rental apartment (m)

Revaluation uplift to fair value 21% margin Investment properties

• External valuation undertaken year end, resulting in a slightly lower margin recognition than ‘for sale’ properties.
• Profit recognised within ‘other operating income’ rather than gross profit

38

Covenant summary

Interest cover2 (times) HY20 Actual interest cover (12m) 11.8 x Covenant 4.5 x Headroom 7.3 x Gearing4 (%) HY20 Actual gearing 12 Covenant 60 Headroom 48 Net tangible assets3 (£m) HY20 Actual net tangible assets 677 Covenant 500 Headroom 177

• The RCF has three main financial covenants tested at the half year and full year – interest cover, net tangible assets and

gearing1

• At 30 April 2020 the Group had significant headroom against these financial covenants:
• The Group has put in place the following interest cover covenant waivers/amendments:
• FY20 (31 October 2020) – waiver
• HY21 (30 April 2021) – waiver
• FY21 (31 October 2021) – amended to reduce the test period from 12 to 6 months

ending on 31 October 2021 at the existing covenant level

1. The RCF imposes financial covenants which test the Groups interest cover, net tangible assets, gearing and restrictions on the value of rental, shared ownership and part-exchange properties held on the balance sheet; all of which the Group is compliant with. 2. Interest cover is cumulative 12 month operating profit before interest, tax, all exceptional items and amounts attributable to amortisation of intangible assets or depreciation of fixed assets divided by net finance charges 3. Net Tangible Assets is Group net assets excluding goodwill, intangible assets, any reserves attributable to minority interests and deferred tax 4. Gearing is Group net debt plus committed land creditors divided by net tangible assets

The gearing covenant will reduce from 60% to 55%

39

Focus on our core RL and RLP product offering

Retirement Living (RL) Retirement Living PLUS (RLP) Services

Offering type

▪

40 unit (on average) developments, with 1

• r 2 bed solutions

▪

Basic level of services offered

▪

On-site house manager

▪

Guest suite

▪

Landscaped grounds

▪

50-60 units per site

▪

Larger, more adapted apartments

▪

High proportion of communal spaces

▪

House manager and on-site team

▪

Wellbeing suite

▪

Mobility scooter store

▪

High level of services and care

▪

CQC registered 24h support Existing:

▪

Property management

▪

Care

▪

Wellbeing In development / piloting:

▪

Transportation

–

(car sharing / electric cars club)

▪

Technology backed care

–

MySense AI powered wellbeing system

▪

Pebble Bistro – new generation

–

Extended hours, barista coffee, licenced bar, new menu

▪

Fit For Life

–

Tailored exercise classes in partnership with Oomph Wellness and supported by Sport England

c.79 c.83 Average age 59%1 41% Share of total FY19 revenues Olivier Place, Wilton Liberty House, Raynes Park

40

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