McCarthy & Stone plc Half year results to 29 February 2016 - - PowerPoint PPT Presentation

Liberty House, Raynes Park, Assisted Living

McCarthy & Stone plc Half year results to 29 February 2016

Strong growth delivers increased profits

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• bligation to update or revise any information or opinions in this document.

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• whatsoever. Nor does this document purport to give legal, tax or financial advice.

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Horizons, Poole, Assisted Living

Clive Fenton, Chief Executive Officer

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The UK’s leading retirement housebuilder

1 Based on 3,453 registrations of cross-tenure properties specifically designed for the elderly with the NHBC during calendar year 2015, of which 2,672 were registered by McCarthy and Stone plc 2 Based on financial year ended 31 August 2015 legal completions of 1,923 units

Only national retirement housebuilder with c.70% market share of the

• wner-occupied market1

Experienced management team with deep sector and financial expertise Structural under-supply of retirement housing Uniquely placed to serve the fastest growing demographic in the UK Strategic objective to build and sell more than 3,000 units per annum by 2019 Differentiated business processes provide competitive advantage in an industry marked by real barriers to entry Strong financial track record with robust balance sheet Land bank of c.10,800 units equivalent to 5.6 years' supply2 for future development at attractive margins Targeting ROCE of at least 25% over the medium turn Over 38 years, the Company has sold almost 51,000 apartments across more than 1,100 developments

The UK's leading retirement housebuilder Exceptional growth market with positive demographics Experienced housebuilder with proven business model Strong financial position with high-quality land bank

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Medium-term financial outlook

Legal completions Net ASP Gross profit margin ROCE Gearing Dividend

Strategic objectives

3,000 by 2019 £300k by 2019 Margin embedded in land bank comparable with 2015 At least 25% ROCE in medium term Maintain strong balance sheet Initial 30% pay-out ratio (pro rata interim 2016)

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H1 Performance highlights

Legal completions increased to 923 units (+19%); net average selling price of £253k (+12%); revenue £250.2m (+33%) Underlying profit before tax £39.1m (+23%) despite first half investment in new regional offices and

• perational infrastructure

Strong balance sheet; gearing reduced substantially to 4% (2015: 16%) Further improvements in capital turn to 1.0x (2015: 0.9x) as a result of strategic initiatives HBF 5 Star satisfaction award for an industry-record eleventh consecutive year Successful IPO on the London Stock Exchange, entered the FTSE 250 on 21 March 2016

Nick Maddock, Chief Financial Officer

Ocean House, Carlyon Bay, Ortus Homes

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Financial performance: Overview

Key financial metrics H1-16 H1-15 Change Revenue £250.2m £188.5m 33% Legal completions 923 776 19% Net average selling price £253k £226k 12% Underlying profit before tax1 £39.1m £31.8m 23% Profit before tax £29.0m £29.1m 0% Underlying basic earnings per share1 6.0p 5.3p 13% Underlying operating profit1 £40.2m £36.5m 10% Underlying operating profit margin1 16% 19% (3ppt) Operating profit £30.1m £33.8m (11%) Gearing2 4% 16% (12ppt) Return on capital employed3 (ROCE) 18% 18% 0ppt Interim dividend per share 1.0p

• 1

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 and exceptional administrative expenses to operating profit and profit before tax respectively 2 Gearing is calculated by dividing net debt by net assets 3 Return on capital employed (ROCE) is calculated by dividing underlying operating profit for the previous 12 months by the average tangible gross asset value at the beginning and end of the 12 month period. Tangible gross asset value is calculated as net assets excluding goodwill and intangible assets, excluding net debt

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Financial performance: Revenue

Source: FY14 unaudited management information prepared in accordance with UKGAAP, FY15 and FY16 unaudited management information prepared in accordance with IFRS

150 188 250 H1-14 H1-15 H1-16

Legal completions (units) Revenue (£m) Net average selling price (£k)

205 226 253 H1-14 H1-15 H1-16

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+19%

659 776 923 H1-14 H1-15 H1-16 Full year completions (units) Full year revenue (£m) 388 486 1,677 1,923 214 239

New outlets and improved reservation rates Quality, location and incentive discipline Strong top-line growth

Full year Net ASP (£k)

+12% +19% +33%

10 16% 19% 16% H1-14 H1-15 H1-16

Financial performance: Profit

Source: FY14 unaudited management information prepared in accordance with UKGAAP, FY15 and FY16 unaudited management information prepared in accordance with IFRS 1 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 and exceptional administrative expenses to operating profit and profit before tax respectively

24 36 40 H1-14 H1-15 H1-16 18 32 39 H1-14 H1-15 H1-16

Underlying

• perating

profit (£m)¹ Underlying profit before tax (£m)1

75 95 Full year (£m) 63 88 Full year (£m)

Underlying

• perating

profit margin (%)1 First half investment New regional

• ffices and

additional

• perational

infrastructure Before exceptional items and amortisation

Full year (%) 19% 20%

(3ppt) +10% +23%

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Financial performance: Capital

Source: FY14 unaudited management information prepared in accordance with UKGAAP, FY15 and FY16 unaudited management information prepared in accordance with IFRS 1 Return on capital employed is calculated by dividing underlying operating profit for the previous 12 months by the average tangible gross asset value at the beginning and end

• f the 12 month period. Tangible gross asset value is calculated as net assets excluding goodwill and intangible assets, excluding net debt

2 Tangible net asset value is defined as net asset value excluding goodwill and intangible assets 3 Gearing is calculated by dividing net debt by net assets

21% 16% 4% H1-14 H1-15 H1-16 374 427 579 H1-14 H1-15 H1-16

Gearing (%)3 TNAV (£m)2

13% 18% 18% H1-14 H1-15 H1-16

ROCE (%)1

17% 20%

c.100bps improvement expected for full year £79m net IPO proceeds Strong balance sheet and robust financial position

Full year ROCE (%) Year end Gearing (%) Year end TNAV (£m) 407 469 10% 8%

+36% +0ppt (12ppt)

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Financial performance: workflow

Source: FY14 unaudited management information prepared in accordance with UKGAAP, FY15 and FY16 unaudited management information prepared in accordance with IFRS 1 Based on financial year ended 31 August 2015 legal completions of 1,923 units

132 160 233 H1-14 H1-15 H1-16 1,109 1,654 c.1,700 H1-14 H1-15 H1-16

Investment in land and build (£m) Land exchanges (units)

8,457 9,459 c.10,800 H1-14 H1-15 H1-16

Land bank (units) Increased to 5.61 years supply Addition of 40 further high-quality sites Progress with £2.5bn investment plan

Year end land bank (units) Full year investment (£m) Full year land exchanges (units) 8,701 10,087 2,539 3,522 273 351

+46 units +14% +46%

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Land bank growth starting to show in workflow

Land exchanges (units) Build starts (units) Legal completions (units)

1,474 1,784 2,595 2013 2014 2015 659 776 923 1,527 1,677 1,923 2013 2014 2015 2016 1,776 2,539 3,522 2013 2014 2015

Land bank growth drives completions growth

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Interim dividend

First pro rata interim dividend of 1.0p per share announced, in line with IPO guidance To be paid on 31 May 2016 to holders of ordinary shares on the register at the close of business on 29 April 2016 Board is guiding towards a final dividend for the year of not less than 3.5p per share This would give a total dividend for the year of not less than 4.5p per share

Kings Place, Fleet, Assisted Living

Heritage Place, Ickenham, Assisted Living

Clive Fenton, Chief Executive Officer

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Our growth opportunity

UK population: 64.6m people Of which: 14.9m > 60 years old Of which: 4.4m with total household wealth between £250k and £500k Of which: 3.7m living alone / with spouse Which is equivalent to 2.6m households Of which: 0.9m households are in the ‘sweet spot’ aged over 75

Only 141k1 owner occupied retirement properties built to date across the UK

0.9m 2.6m

A growing need for specialist retirement housing

Source: ONS, YouGov, Knight Frank 1 Independent data provided by EAC, April 2016

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Increased investment Sales growth Continued product innovation Operational efficiency Focus on performance

Our growth strategy

McCarthy & Stone’s strategy is to create an efficient and scalable business, capable of building and selling more than 3,000 units per annum over the medium term

£2.5bn investment in land and build over 4 years1 Build and sell more than 3,000 units per annum Meet our customers’ changing needs and expand our customer base Create an even more efficient and scalable business Target top-quartile2 sector margins and deliver a 25%+ return

• n capital in 2019

1 Projected investment in land and build over four financial years to 31 August 2019, financed from business operations 2 Top quartile amongst generalist housebuilder peer group comprising Barratt, Bellway, Bovis, Crest Nicholson, Persimmon, Redrow and Taylor Wimpey

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H1 progress – Investment and growth strategy

40 high-quality sites added to the land bank, equivalent to c.1,700 plots (2015: 1,654) Land bank now at c.10,800 units, equivalent to 5.61 years supply,

• f which 2.91 years has full planning consent

− Sufficient land under control to deliver all targeted sales to 2019

Achieved 19 further full planning consents

− Sufficient full planning consents to deliver all targeted sales to 2017

First developments opened in new North London region

− Southend reserved out (opened November 2015) and only one unit left at Maldon (February 2016) − Now selling from a further five developments including Bourne End (100% reserved off-plan)

New regional offices in the South West, East Midlands and North West now fully operational in own premises, with senior management teams in place

− All regions already contributing land and profit

1 Based on financial year ended 31 August 2015 legal completions of 1,923 units

Walmsley Place, Bishops Waltham, Ortus Homes

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H1 progress – Investment and growth strategy

NORTH EAST SCOTLAND EAST MIDLANDS NORTH LONDON SOUTH EAST SOUTH WEST NORTH WEST WEST MIDLANDS SOUTHERN

Legal completions 83 units Land exchanges 8 sites Land bank 1208 units Legal completions 113 units Land exchanges 2 sites Land bank 960 units Legal completions 41 units Land exchanges 7 sites Land bank 1397 units

New Regional Offices

Legal completions 83 Units Land exchanges 8 sites Land bank 1,208 units Legal completions 41 Units Land exchanges 7 sites Land bank 1,397 units Legal completions 61 Units Land exchanges 1 site Land bank 955 units Legal completions 113 Units Land exchanges 2 sites Land bank 960 units

Platform in place to deliver operational growth to more than 3,000 units per annum

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H1 progress - Investment and growth strategy

Ortus Homes product was launched in October 2014 for

• ver 55s seeking to downsize

28 Ortus Homes developments in the pipeline, representing c.6% of the land bank First development: Scarlet Oak, Solihull − Reserved out within a year of opening in February 2015 − Won best Retirement Scheme at annual Housebuilder Awards Second development: Shore House, Swanage − First completion in August 2015, only 5 units left 44 legal completions in H1 2016 Currently selling from a further 7 sites across UK, including 4 sales released in H1 2016 Targeting to grow to 10% of completions over medium term

Azaleas, Compton Acres, Ortus Homes

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H1 progress – Shortening the working capital cycle

Significant management effort continues to be placed on accelerating the working capital cycle through 3 strategic initiatives 1) Sales initiative: increase in proportion of units sold off-plan to 51%

• n new developments in H1 2016 (2015: 44%)

− Two developments sold 100% of units off-plan 2) Development initiative: reduced for H1 2016 build starts to 19.7 months (2015: 23.0 months / 2014: 25.2 months for standard sites) 3) Build initiative: accelerating timescales and reducing build costs − Targeting margin improvements through value engineering procurement and supplier partnerships − c.£12m of cost reductions already identified which will benefit the Group over the next four years

Blyton House, Bourne End, Retirement Living

Improved capital turn in H1 2016 to 1.0x (2015: 0.9x)

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H1 progress - Customers

Achieved the full 5 star rating in the HBF survey for Customer Satisfaction for an eleventh consecutive year

− 90%+ of customers have said that they would be prepared to recommend us to a friend

One of only 3 major housebuilders to retain the rating McCarthy & Stone are the only housebuilder to achieve the top rating in this survey since its inception in 2006

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Outlook

Strong start to second half with forward order book up 26% to c.£306m at 15 April 2016 (c.£243m at 17 April 2015)1 Full year expectations remain in line with previous guidance of 20% volume growth and a c.100bp improvement in ROCE from 2015 level of 20% Group remains on track to sell more than 3,000 units per annum by 2019 at a ROCE of at least 25%

Elizabeth Court, Bournville, Retirement Living

1 Forward order book includes legal completions between 1 March 2016 and 15 April 2016 and reservations as at 15 April 2016

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Questions?

Horizons, Poole, Assisted Living

Appendices

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Appendix A: Exceptional items

The Group charged total exceptional costs of £9.0m to the consolidated statement of comprehensive income during the period H1 2016: − £7.5m transaction related costs − £1.5m relating to other costs Across 2015 and 2016, the total transaction related costs incurred were £13.3m (of which £11.5m was directly related to the November 2015 IPO): − £1.8m of exceptional costs were reflected in the consolidated statement

• f comprehensive income in 2015

− £7.5m of exceptional costs were reflected in the consolidated statement

• f comprehensive income in H1 2016

− £4.0m of transaction costs have been capitalised into share premium

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Capitalisation and indebtedness (£m)

Appendix B: IPO impact on balance sheet

Primary issue raised £90m gross proceeds

− Provides significant flexibility to support investment in land and build and pay transaction expenses − Net £79m proceeds to Company after IPO costs

Seek to maintain a long-term, sustainable capital structure

− £200m RCF with appropriate headroom − Peak intra-year gearing of 15-20%

Half year gearing of 4%, with similarly low level of gearing expected at financial year end

1 Updated for final IPO proceeds 2 Gearing is calculated by dividing net debt by net assets

Feb-15 Aug-15 Net IPO proceeds Pro-Forma Aug-151 Feb-16

Long term borrowings: RCF 125 88 (79) 9 97 Add back: Debt issuance costs 2 2 2 2 Land-related promissory notes 11 11 11 Total borrowings 127 101 (79) 22 110 Cash and cash equivalents (45) (57) (57) (86) Net debt 82 44 (79) (35) 24 Net assets 501 542 79 621 651 Goodwill & Intangible assets (74) (73) (73) (72) Tangible net assets 427 469 79 548 579 Gearing2 16% 8% (6%) 4%

28 Aug-15 historical performance Near-term expectations Strategic objectives Land and build spend

Land £102m Over £200m of land spend in 2016 Investment of £1.0bn by 2019 in land Build £249m Over £300m of build spend in 2016 Investment of £1.5bn by 2019 in build

Top line growth

Legal completions 1,923 c.20% growth in completions in 2016; another c.15% in 2017 We are targeting to deliver 3,000 units per annum by 2019 Net ASP £239k Net ASP of £255k in 2016 Target Net ASP of £300k by 2019

Profitability and returns

Gross profit margin 25% 2016 gross profit margin in line with 2015 Gross profit margin embedded in land bank consistent with current Underlying operating profit margin 20% Continuing to target top quartile1 operating margins Continuing to target top quartile1 operating margins

Balance sheet

ROCE 20% Improving by 100bps in 2016 25%+ ROCE in medium term (2019) Leverage Pro forma: net cash Pro forma year-end tangible gearing reduced to c.(6%) post the £90m gross primary issuance Significant investment in the growth of the Company, and tangible gearing expected to peak intra-year at 15-20%

Appendix C: IPO guidance - financial performance

Source: Audited management information, prepared in accordance with IFRS 1 Top quartile amongst a peer group comprising Barratt, Bellway, Bovis, Crest Nicholson, Persimmon, Redrow and Taylor Wimpey

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Appendix D: IPO guidance – dividend policy

Progressive dividend policy targeting an initial payout of c.30% of profit after tax excluding certain exceptional items Company expects to pay an interim dividend and a final dividend in respect of each financial year in the approximate proportions of one-third and two-thirds, respectively, of the total annual dividend It is expected that the first interim dividend will be pro rata from Admission to 29 February 2016 and will be paid in Q3 FY16

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Appendix E: Illustrative cashflow for typical site

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Appendix F: Investor relations calendar

Date Event

01 Feb 2016 Trading update 29 Feb 2016 Half year close 03 Mar 2016 Half year trading update 19 Apr 2016 Half year results announcement 09 May 2016 Expiry of shareholder lock up 29 Jun 2016 Trading update 31 Aug 2016 Financial year end 05 Sep 2016 Full year trading update 15 Nov 2016 Full year results announcement Jan 2017 Trading update and AGM