Results presentation Six months ended 28 February 2017 5 April 2017 - - PowerPoint PPT Presentation

Results presentation

Six months ended 28 February 2017

Coppice Gate, Southampton

5 April 2017

2

• Overview and current trading

Clive Fenton

• Financial results

Rowan Baker

• Review of operations

John Tonkiss

• Outlook for growth

Clive Fenton

3

• Solid progress during H1 despite constraints of lower forward order book brought into the year and

delays to workflow post-Brexit

• Trading conditions remained stable in the period with lead sales indicators running well ahead of prior

year

• Good underlying sales performance. Reservations year-to-date held back by fewer sales releases
• Weaker secondary market leading to increased levels of PX transactions and discounts and incentive

costs

• Robust balance sheet with cash discipline maintained
• Strong period for planning, with detailed planning consents achieved on 34 sites (2016:19)
• Achieved HBF Five Star customer satisfaction award for a record 12th consecutive year - the only

housebuilder of any size or type to achieve this

• February’s Housing White Paper underlines the Government's commitment to increase the supply of

retirement housing

4

Enquirers Sales leads Visitors Sales releases* Net reservations Completions & Forward Sales (£m)

£496m £418m £503m £440m

CY PY CY PY

31 March 2017

28 February 2017

Note: *35 sales releases as at end of March (2016:46) All comparative data as at week 30 FY16 unless otherwise stated

5

• Strong workflow momentum recovery following

EU Referendum in June

• All build programmes on track for sites

expected to first occupy in H2 FY17

• Higher margins and ASPs expected in H2 FY17

driven by improved age mix of legal completions and the quality and location of developments being brought to market

• Announcing an interim dividend of 1.8p to be

paid on 9 June 2017 (2016: 1.0p pro-rata*)

• Full year guidance remains in line with market

expectations

Horizons, Poole

* Non pro-rata dividend for prior year would have been 1.75p per share

6 River View Court, West Bridgford

7

• Half year revenue of £238m (2016: £250m)
• Total legal completions of 866* units (2016: 923 units) at an improved gross average selling

price1 of £260k (2016: £257k)

• Statutory profit before tax of £21.8m (2016: £29.0m) and underlying profit before tax2 of £22.8m

(2016: £39.1m) with decrease driven by sales mix, increase in discount and incentive usage, additional land renegotiation costs and continued investment in regional operational infrastructure

• Discounts and incentives averaged 7% of list price (2016 full year: 6%) due to age mix of legal

completions and higher level of part exchange transactions

• Continued financial discipline with net debt of £30.4m (2016: £23.9m) and low gearing at 4%

(2016: 4%)

• 1. Gross average selling price is calculated as average list price less cash discounts and PX top ups
• 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 and exceptional administrative expenses to operating profit and profit before tax respectively * Includes two commercial units

8

• 6% legal completions reduction due to

lower forward order book brought into FY17 and higher weighting of volumes into H2

• Volumes decline partially offset by small

pricing improvements resulting in revenue decrease of 5%

• Margin percentage reduction mainly driven

by profitability mix, increased discounts and incentives and land renegotiation costs

• Lower ROCE driven by lower operating

profit together with increased land and construction spend to support future growth

• Robust balance sheet and low gearing

Key financial metrics H1 FY17 H1 FY16 Change

Revenue £238.2m £250.2m (5%) Legal completions 866* 923 (6%) Gross average selling price1 £260k £257k 1% Net average selling price1 £254k £253k 0% Underlying operating profit2 £24.1m £40.2m (£16.1m) Underlying operating profit margin2 10% 16% (6ppt) Underlying profit before tax2 £22.8m £39.1m (£16.3m) Return on capital employed3 (ROCE) 14% 18% (4ppt) Net (debt)/cash (£30.4m) (£23.9m) (£6.5m) Gearing4 4% 4% 0ppt Tangible gross asset value (TGAV) £657m £602m £55m Interim dividend per share 1.8p 1.0p5 0.8p5

• 1. Gross average selling price is calculated as average list price less cash discounts and PX top-ups. Net average selling price is the average list price less cash discounts, PX top-ups and other incentives. These measures exclude commercial units.
• 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 and exceptional administrative expenses to operating profit and

profit before tax respectively

• 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)/cash

• 4. Gearing is calculated by dividing net (debt)/cash by net assets
• 5. Pro-rated from the IPO in November 2015 to February 2016. Had we applied our policy of paying a 1/3 first half and 2/3 second half dividend in the prior year, H1 FY16 dividend would have been 1.75p per share

* Includes two commercial units

9

• Margin impact of sales mix driven by the

age profile and regional mix of legal completions

• Average gross selling price increase from

£257k to £260k

• Average discounts and incentive costs

increase from 5% to 7% as a result of age mix of sales and increased use of PX to support weaker secondary market

• Build cost increases offset by pricing

improvement

• Additional 10 sites aborted in H1 FY17 in
• rder to protect future profitability of land

bank

• Other costs mainly relate to continued

investment in regional operational infrastructure to support growth activity

H1 FY16

• perating

margin Volume Sales mix Build cost increase Pricing improvement Additional discounts and incentive cost Land renegotiation costs Other H1 FY17

• perating

margin

10

Discounts and incentives

• FY13

FY14 FY15 FY16 H1 FY16 H1 FY17

H1 FY16 H1 FY17

CY first occupation PY & earlier first occupations

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H1 FY17 H2 FY17 E

Margin* <20% 20%-25% Margin* Margin* >25%

• H1 first occupations

H2 first occupations

• Margin calculated at a

site level before allocation

• f variable costs
• ASP = gross average

selling price

12

• 50

50 100 150 200 250 300

H1 opening net cash Net revenue Land spend Build spend Operating costs & overheads Tax & interest Promissory note debt reduction Dividends paid H1 closing net debt

13

• FY17 out-turn guidance remains in line with market expectations
• Flat to modest growth in legal completions (0-2%)
• Improved ASP to exceed £270k for full year
• Build activity on track to deliver H2 first occupations
• Margins slightly lower than prior year with significant margin recovery in H2 due to more favourable

regional mix and increased weighting of completions from newer, higher margin sites in H2

• Robust balance sheet with continued focus on careful cash management leading to sustained low

gearing

14 Viewpoint, Gosport

15

Sales initiative

• New Relationship Management team in place in all regions to

develop early relationships with enquirers prior to site sales launch

• New website redesigned to support customer journey and search

functionality

• New digital agency appointed to support search engine
• ptimisation, pay per click and online display activity to improve
• nline efficiency
• New core creative style for national advertising implemented to

deliver stronger customer response to media

• Outsourced call handling is driving improved conversion rates to

visits while being supplemented by outbound call campaigns

• Improvements to the consistent look and feel of our Sales Offices
• High impact training delivered to area sales managers who are

critical to sales performance

16

Development initiative

• The development initiative (Project FUSION) is the backbone of

improving and streamlining our end to end development process

• DATUM is our industry leading product management platform

containing specification, project and commercial libraries

• This initiative, assisted by DATUM, is supporting a major focus on:
• Design standardisation (apartment, kitchen, bathroom

layouts)

• Consistent adoption internally and externally
• Value Engineering practices at a product and project level

(heating, ventilation, M&E services and commercial kitchens)

• Improved cost management using automated estimating tool

17

Build initiative

• Supply chain management introduced to drive supplier performance

and rebate compliance

• New subcontract agreement introduced to support Group framework

compliance

• Procurement initiatives continuing e.g. flooring, electrical appliances,

sales offices and interior designs

• Alternative Methods of Construction conference held with leading

potential suppliers – AMC 2020 strategy

Cost environment

• Modest inflationary pressures continue on material costs
• Currency risk minimised via fixed term supplier agreements fixed for

the next 12 months

• Minimal currency exposure risk across top 30 spend categories
• Expect build cost inflation of c.3-4% to continue in H2 FY17 and FY18

*Expected average build time of developments currently under construction

18

• Product branding refreshed to:
• Capitalise on existing strong

brand recognition

• Optimise marketing spend
• Create consistency across

product names

• New evolution of product

branding look & feel

• Ortus brought into McCarthy &

Stone as Lifestyle Living

• Assisted Living renamed

Retirement Living Plus

• Phased rollout beginning in May

2017

19 Walmsley Place, Bishops Waltham

20

FY16 FY17 E FY18 E FY19 E FY16 FY17 E FY18 E FY19 E FY16 FY17 E FY18 E FY19 E FY16 FY17 E FY18 E FY19 E

21

• More than 80 sales releases are expected in FY18

(expected FY17: >40)

• 76 sites have achieved planning consent
• 53 sales releases are in build today
• All sites expected to be in build by the end of June 2017

22

• Sufficient land under control to deliver the

strategic growth objective of building and selling 3,000 legal completions per annum

• More than 70 first occupations are expected in

FY19

• Almost half of these have planning consent

today

• We expect c.75% of these sites to have

achieved planning consent by the year end and all planning applications to be submitted

• Planning consent

achieved Planning application submitted Planning application in progress

23

• 30 new sites (2016: 40) acquired during H1 at

attractive margins.

• Strong period for planning with detailed planning

consents achieved on 34 sites (FY16: 19 sites)

• Quality land bank in place to support growth in both

average selling price and site margin in FY18 and FY19

• High proportion of legal completions expected from

new sites in both FY18 and FY19

• Improved average selling price in excess of £300k

and average site margin in excess of 25% embedded within the new sites expected in both FY18 and FY19

Note: Average site margin stated at development level excluding any allocation of variable costs ASP represents development gross average selling price

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% FY17 legal completions FY18 legal completions FY19 legal completions Pre FY17 first occupations FY17 first occupations FY18 first occupations FY19 first occupations

24

• Solid progress in H1 but trading constrained by lower forward order book brought into the

year and delays to workflow post-Brexit

• Build programmes on track and pricing/margin improvements expected in H2 providing

confidence of profit out-turn in line with market expectations

• Continued drive to improve efficiency via our strategic initiatives
• Demand and demographic opportunity remains strong – McCarthy & Stone uniquely

placed to capitalise on this over longer term

• Quality land bank in place and workflow well advanced providing confidence in

shareholder returns over medium term

• Operational capability in place to deliver 3,000 to 4,000 units per annum supported by

robust capital structure

25 Waverley House, New Milton, 1977 Horizons, Poole, 2017

26

27

28

– Trading update – Financial year end – Full year trading update announcement – Full year results announcement

29

H1 2017 £m H1 2016 £m FY 2016 £m Continuing operations Revenue 238.2 250.2 635.9 Cost of sales (198.5) (193.9) (499.5) Gross profit 39.7 56.3 136.4 Other operating income 4.1 4.0 8.5 Administrative expenses (17.5) (27.7) (44.7) Other operating expenses (3.2) (2.5) (5.1) Operating profit 23.1 30.1 95.1 Amortisation (1.0) (1.1) (2.1) Exceptional administrative expenses

• (9.0)

(10.0) Underlying operating profit1 24.1 40.2 107.2 Finance income 0.3 1.5 2.7 Finance expense (1.6) (2.6) (4.9) Profit before tax 21.8 29.0 92.9 Underlying profit before tax1 22.8 39.1 105.0 Income tax expense (4.2) (7.2) (19.4) Profit for the year from continuing operations and total comprehensive income 17.6 21.8 73.5 Profit attributable to: Owners of the Company 17.6 21.6 73.1 Non-controlling interest

• 0.2

0.4 17.6 21.8 73.5

For the six months ended 28th February 2017

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As at 28th February 2017

H1 2017 £m H1 2016 £m FY 2016 £m

Assets Non-current assets Goodwill 41.7 41.7 41.7 Intangible assets 28.5 30.5 29.6 Property, plant & equipment 2.6 2.9 2.9 Investments in joint ventures 0.4 0.4 0.4 Investment in properties 0.2 0.5 0.2 Trade and other receivables 31.7 32.0 32.7 Total non-current assets 105.1 108.0 107.5 Current assets Inventories 737.7 654.8 685.8 Trade and other receivables 9.6 12.4 7.5 Cash and cash equivalents 24.6 86.4 119.0 Total current assets 771.9 753.6 812.3 Total assets 877.0 861.6 919.8 Equity and liabilities Capital and reserves Share capital 43.0 43.0 43.0 Share premium 100.8 100.8 100.8 Retained earnings 552.5 506.4 553.5 Equity attributable to owners of the Company 696.3 650.2 697.3 Non-controlling interests 0.8 0.6 0.8 Total equity 697.1 650.8 698.1 Current liabilities Trade and other payables 80.9 71.1 107.1 Short-term payables

• 11.3

11.3 Land payables 44.7 30.1 49.3 Total current liabilities 125.6 112.5 167.7 Non-current liabilities Long-term borrowings 52.7 97.2 52.5 Deferred tax liability 1.6 1.1 1.5 Total liabilities 179.9 210.8 221.7 Total equity and liabilities 877.0 861.6 919.8

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H1 2017 £m H1 2016 £m FY 2016 £m Net cash inflow from operating activities (64.0) (64.8) 18.3 Investing activities Purchases of property, plant and equipment (0.2) (0.8) (1.5) Purchases of intangible assets (0.1)

• (0.4)

Proceeds from sales of property, plant and equipment

• 0.1

0.1 Net cash used in investing activities (0.3) (0.7) (1.8) Financing activities Proceeds from issue of share capital

• 86.0

86.0 Proceeds from long-term borrowings

• 9.0
• Repayment of short-term borrowings

(11.3)

• Repayment of long-term borrowings
• (35.0)

Dividend paid (18.8)

• (5.4)

Net cash from/(used in) financing activities (30.1) 95.0 45.6 Net increase/(decrease) in cash and cash equivalents (94.4) 29.5 62.1 Cash and cash equivalents at beginning of period 119.0 56.9 56.9 Cash and cash equivalents at end of period 24.6 86.4 119.0

For the six months ended 28th February 2017

32

Quality Land bank at attractive margins Operational capability in place Robust capital structure Market-leading brand Delivering 3,000 completions Demand & demographic

• pportunity

Quality Land bank at attractive margins Operational capability in place Robust capital structure Market-leading brand Delivering 3,000 completions Demand & demographic

• pportunity

33

• 1. Independent data provided by EAC, April 2016

Source: ONS, YouGov, Knight Frank

34

• 2,000

4,000 6,000 8,000 10,000 12,000

Low margin stock <25%* Finished stock >25%* Work in progress >25%* Owned >25%* Total owned Exchanged with Planning >25%* Exchanged >25%* Total

*Average site margin stated at a development level prior to variable costs allocation

35

1. Glasgow (Scotland) 2. Altrincham (North West) (New) 3. York (North East) 4. Coventry (West Midlands) 5. Kettering (East Midlands) (New) 6. Hatfield (North London) 7. Woking (South East) 8. Ringwood (Southern) 9. Bournemouth (Corporate centre)

• 10. Taunton (South West) (New)

35

36 36

Target: investment over four years from FY16 invested in FY16 Similar levels of investment expected in FY17 Financed through sales revenue with seasonal working capital supported by revolving credit facility

William Page Court, Bristol, Retirement Living

37

• Only national retirement housebuilder
• Focused entirely on retirement housing
• Clear market leader with c.70% market share of

the owner-occupied market1

• Three products spanning the full retirement age

range

• Brand strength supported by in-house

management services

• 5 star HBF customer satisfaction rating for 12

consecutive years

• Two successes at annual Housebuilder Awards

2016 (Best Retirement Scheme and Customer Satisfaction Initiative)

• 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

37

38 This pioneering concept provides luxurious homes in stunning locations for active over-55s All the benefits of Retirement Living plus support and on-site catering for those wanting a little more help Minimum age 70 Average age 83 Typical number of apartments per site 40-60 FY16 completions 697 FY16 % Land Bank 30% Minimum age 55 Average age 73 Typical number of apartments per site 20-40 FY16 completions 88 FY16 % Land Bank 8%

Source: Annual Report

The perfect blend for many buyers – your

• wn apartment, maintenance taken care of

and the chance to socialise Minimum age 60 Average age 79 Typical number of apartments per site 30-50 FY16 completions 1,511 FY16 % Land Bank 62% Scarlet Oak, Solihull Queen Elizabeth Court, Kirkby Lonsdale Lyle Court, Edinburgh

39 Previously entered retirement housing market1 Currently operating in retirement housing market1

     1          

• 1. Previous entry or current entry refers to significant retirement housing operations

Sales process

40

Sites Units Sites Units Sites Units Owned sites Land held for development 33 1,314 45 1,948 43 1,782 With detailed planning consent 24 965 28 1,217 31 1,299 Awaiting detailed planning consent 9 349 17 731 12 483 Sites in the course of construction1 70 2,557 49 1,883 53 2,268 Pre sales releases 37 1,429 36 1,405 28 1,256 Post sales release 33 1,128 13 478 25 1,012 Finished stock 88 1,065 104 1,512 102 1,344 Total owned sites 191 4,936 198 5,343 198 5,394 Exchanged sites With detailed planning consent 24 1,023 28 1,109 35 1,286 Awaiting detailed planning consent 123 4,794 100 3,734 86 3,355 Total exchanged sites 147 5,817 128 4,843 121 4,641 Total land bank 338 10,753 326 10,186 319 10,035 Workflow milestones Sites Units Sites Units Sites Units Land exchanges 40 1,690 25 924 30 1,243 Planning consents 19 780 41 1,669 34 1,314 Land completions 30 1,156 33 1,423 26 1,081 Build starts 15 558 27 1,080 24 1,073 Sales releases 36 1,325 28 1,100 32 1,223 First occupations 21 814 48 1,777 19 691 Inventory holding (£m) H1 FY16 H2 FY16 H1 FY17 Land held for development 158.9 236.5 186.2 Sites in the course of construction 303.9 201.0 304.3 Finished stock 192.0 248.3 247.2 Total 654.8 685.8 737.7 Legal completions (unit numbers) H1 FY16 H2 FY16 H1 FY17 Current year first occupations 330 1,040 226 Prior year first occupations and earlier 593 333 638 Total 923 1,373 864

1 Does not include sites under construction at the pre-foundation stage.

2016 2017 H1 FY16 H2 FY16 H1 FY17 H2 FY16 H1 FY17 2016 2017 H1 FY16

* Does not include three commercial units ** Does not include two commercial units ** *

41

February’s Housing White Paper contained a number of positive proposals for our business:

• A general commitment to explore ways to stimulate the market to

deliver new homes for older people – recognising that this sector is worth supporting

• A new statutory duty on the DCLG Secretary of State to produce

guidance for local authorities on meeting the housing needs of older

• people. We expect this to be published by the summer
• For the first time, it is now official Government policy to look at

incentives to help older homeowners move. Other positive measures included:  Clear drive to support housebuilding  Strengthening the presumption in favour of developing brownfield land  Greater support for small ‘windfall’ sites  Support for higher density development in urban locations well-served by public transport  More pressure on local authorities to meet their housing targets.

Housing & Planning Minister, Gavin Barwell MP, visiting Heritage Place, Ickenham, the week the Housing White Paper was launched

42

Off-plan sales

Land purchase Cash breakeven point Land purchase deposit Build cost (Exchange contracts subject to planning / commercial viability)

Land under control Sales release

Development initiative aims to reduce time between land exchange and build start Sales initiative aims to deliver 50% off-plan sales and reduce time to sell out Build initiative objective is to drive margin enhancement and reduce build time

1 3 2

Build start First occupation

Reducing working capital leads to increased returns

Land completion subject to planning / commercial viability

43

• Progressive dividend policy targeting an initial payout of c.30% of profit after tax excluding

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

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• therwise duly qualified in your jurisdiction).