Capital Markets Day June 2019 - Countryside Properties plc · 7 CAPITAL MARKETS DAY JUNE 2019...

Countryside Properties PLCCapital Markets Day – June 2019

Modular Panel Factory, Warrington

HousebuildingPhillip Lyons, CEO Housebuilding

St Mary’s Island, Chatham

2 CAPITAL MARKETS DAY JUNE 2019

331

427

552 595 609

2015 2016 2017 2018 2019 E

Strong Housebuilding growth and improving returns

51.6

68.1

91.4

109.6 113.2

2015 2016 2017 2018 2019 E

16.6%18.0%

21.0%

25.0% 26.0%

2015 2016 2017 2018 2019 E

653783

1,197 1,276 1,312

2015 2016 2017 2018 2019 E

Completions

19% CAGR

22%CAGR

+940bps

Note: Group financials are shown on an adjusted basis to include the proportional contribution of the joint ventures and associate and exclude non-underlying items; 2019 figures based on consensus; 2019 ROCE company estimate

17% CAGR

Adjusted revenue (£m)

Operating profit (£m) Return on Capital Employed


Highly experienced executive team

Phillip

Lyons

David

Everett

Chris

Bladon

Tom

Sherriff

Paul

Beaney

Andrew

Carrington

Rebecca

Cowan

MD Central

• Cambridgeshire

• Bedfordshire

• Hertfordshire

• Buckinghamshire

44 years’ experience

MD East

• Essex

• South East London

MD South

• Kent

• Sussex

• Surrey

MD Millgate

• Buckinghamshire

• Berkshire

• Surrey

• Oxfordshire

• Sussex

FD Housebuilding

• All geographies

MD Strategic Land

• All geographies







Chief Executive

Housebuilding


South East based business without London exposure

Current active site

Future active site


Key sites in Housebuilding

Active site

Future active site

St Michael’s Hurst405 units£163m GDV

Newhall962 units£343m GDV

Beaulieu Park1,300 units£452m GDV

Besselsleigh44 units£25m GDV

Tattenhoe Park309 units£101m GDV

GMV711 units£300m GDV

Burgess Hill

460 units£156m GDV

Langford

1,138 units£276m GDV

North Weald728 units£182m GDV

Whittington Way750 units£246m GDV

Langley800 units£217m GDV

Bourn Airfield3,500 units£720m GDV

Tangmere1,000 units

£207m GDV

Rawreth Road308 units£110m GDV

Royal Hill Park77 units£62m GDV

Springhead183 units£64m GDV


86% of Housebuilding land sourced strategically

Over 15 years visibility of supply

Planning promotion of larger sites

Strategic land held on options

Option costs written off each year

10% discount to open market value

Placemaking expertise to enhance value

Strategic 86%

18,439 plotsOpen Market 14%

2,845 plots

21,284Plots

As at 31 March 2019


Flexibility and embedded value of the strategic land

Short term land bank1 (on balance sheet)

Owned and controlled

GDV of £2.2bn

TNAV of £582m at 31 March 2019

Strategic land2 (off balance sheet)

Options and conditional contracts

GDV of £4.3bn

TNAV of £0m

Embedded gross profit of c. £1bn

Implied TNAV of over £200m3

Conditional Contracts 4%951 plots

Option 66%

13,947 plots

Owned 22%4,681 plots

21,284Plots

1 Short term land bank includes sites owned or controlled through unconditional contracts

2 Strategic land includes sites controlled through conditional contracts and options

3 Calculated as the present value of estimated retained profits

Controlled 8%1,705 plots

Land bank by ownership status

As at 31 March 2019


Strategic land pull through

Strategically sourced land underpins future growth and margin

Limited short term land buying requirement

Balance between strategic and short term land gives flexibility

Strategic plots Other plots

FY19 FY20 FY21 FY23+FY22 FY23

Phasing of land by source

68% 64%

79%87% 89% 93%

0%

20%

40%

60%

80%

100%

Note: Estimates for future years are based on company estimates


Strategic land case study – Bourn Airfield, Cambridge

660 acre site located 7 miles from Cambridge

Allocation secured in Local Plan for 3,500

homes. Outline planning application submitted

Private average selling price £420k

Controlled under Option with 15% discount to

open market value

Option allows for phased drawdown of land

Start on site Q4 2020

12-15 year development pipeline

Insert picture to

support Bourn

3,500Plots

£720mGDV

60%Private

40%Affordable


Developing large strategic sites

Management of margin and ROCE

Infrastructure joint ventures with land owners

or Housing Associations

Land sale strategy principally to Housing

Associations and for alternate uses

Avoid land sales to direct competitors

Enhanced returns through fees and capital

efficiency

Maintain control of the masterplan and design

code

0

10

20

30

40

50

60

70

80

90

FY18 FY19E FY20E FY21E FY22E

£m Revenue Profit

Land sales strategy

Note: Estimates for future years are based on company estimates


515 512 509496

487

Product positioning in Housebuilding

Private Affordable

70% 67% 68% 69%

32%32%33%30%

FY20E FY21EFY19EFY18FY17

HTB region Price cap

up to

April 2021

Price cap

up to

April 2023

East of England £600,000 £407,400

London £600,000 £600,000

South East £600,000 £437,600

1 Estimates for future years are based on consensus 2 Private HPI compares net sales price achieved to budgeted sales price. Bars on the chart represent proportion of H1 delivery by price point.

Private ASP £’0001

Tenure mix1Help to Buy

FY20E FY21EFY19EFY18FY17

68%

31%

55%

31%

12%2%

(2.2%)

1.0%

(3.5%)

(4.4%)

HPI

£601k-

£1m

£1m+£251k-

£600k

<£250k

Private HPI by price point2


Build cost inflation running at 3-4%

for FY19

– Materials

– Labour

– Regulations

Offset by

– Removal of legacy land

– Standard house types

– Standard details

– On site efficiency

Build costs & operational efficiency

The Chaffinch (3 bed detached)

Benefits of standardisation

Reduced time on site

Mitigate labour supply issues

Enhance quality and customer experience

Procurement benefits


Tattenhoe, Milton Keynes

First Housebuilding modular panel

construction in the South of England

Site comprises 309 homes with outline

planning

Secured through Homes England Delivery

Partner Panel selection

Tenure split: 70% private; 30% affordable

Average selling price of £414k

Delivery of 96 homes p.a.

Start on site March 2020

22%Gross Margin

309Units

£100mGDV

35%ROCE


Now at scale and performing well

Excellent visibility from strategic land

Value and flexibility from options

Implied TNAV benefit from strategic land

Geographic footprint expanded around

M25

Managing product to meet areas of

strongest demand

Increased standardisation offsetting

build cost inflation

Housebuilding key takeaways

St Luke’s Park, Runwell

Partnerships opportunitiesIain McPherson, CEO Partnerships South

Beam Park, Rainham


`

69.4%72.1%

77.4%

84.0%

75.4%

30%

40%

50%

60%

70%

80%

90%

2015 2016 2017 2018 2019 E

Outstanding growth and returns in Partnerships

39.6

56.7

79.4

110.6

128.4

2015 2016 2017 2018 2019 E

1,711 1,8742,192

3,019

4,544

2015 2016 2017 2018 2019 E

TARGET

28%CAGR

34%CAGR

Note: Group financials are shown on an adjusted basis to include the proportional contribution of the joint ventures and associate andexclude non-underlying items; 2019 figures based on consensus

285.1 349.9

476.7

634.8

850.4

2015 2016 2017 2018 2019 E

31%CAGR

Completions Revenue (£m)

Operating profit (£m) Return on Capital Employed


Excellent visibility of future Partnerships earnings

Note: As at 31 March 2019

9 years’ supply at current volumes Significant ongoing opportunity

South 41%14,916 plots£3,715m GDV

North 38%

13,809 plots

£2,320m GDV

36,132

plots

Midlands 21%7,407 plots£1,231m GDV

Controlled Land Bank

South 63%52,675 plots

North 13%10,971 plots

Midlands 24%20,558 plots

84,204

plots

Bid Pipeline


Ways in which we procure Partnerships work

Land Bank by source

Other 3%1,173 plots£258m GDV

Direct Negotiation 49%17,710 plots£3,023m GDV

Housing Association 7%2,315 plots£425m GDV

36,132

OJEU 41%14,934 plots£3,560m GDV

OJEU 49%41,149 plots

Direct Negotiation 37%30,858 plots

Housing Association 13%11,092 plots

Other 1%1,105 plots

84,204

Bid Pipeline by source

Note: As at 31 March 2019


Track record in public procurement

Bid structure results in long lead time

Typically 3 to 4 years for larger developments

Timeline not improving on estate regeneration

– Local authority resource constraints

– Resident ballots in London

Competitive landscape largely unchanged

– Housing Associations and contractors still main competition

Strong track record of delivery gives us a competitive advantage

Information

gathering

+12months

+3months

-3months

-12months

-24months

+30months

-9months

-18months

Soft

market

testing

Invitation

to tender

Selectionquestionnaire

Bid submission

Selection ofpreferred bidder

Contract

Planning, S106,

vacant possession

Starton site

Bipartite

negotiations


Clear visibility of medium-term earningsActive site

Future active site

Beam Park1,474 plots£518m GDV

Fresh Wharf421 plots£169m GDV

Rochester Riverside542 plots£221m GDV

Trinity Place96 plots£28m GDV

New Avenue440 plots£174m GDV Elements

868 plots£273m GDV

Dash54 plots£40m GDV

Acton1,187 plots£547m GDV

Tower Court131 plots£68m GDV

Brook Valley Gardens361 plots£134m GDV

Feature 17294 plots£111m GDV

South Oxhey174 plots£72m GDV

Hounslow204 plots£70m GDV

Atelier95 plots£26m GDV

Churchill Gardens407 plots£172m GDV

Peel Centre308 plots£161m GDV

Eastern Quarry

York Road

205 plots

£85m GDV

Cambridge Road

Pike Close

Calverley Gardens


Increased geographic coverageActive site

Future site

Houghton Regis255 units£72m GDV

Bilston Urban Village420 units£72m GDV

Belmont Place82 units£16m GDV

North Leigh Park1,762 units£328m GDV

Abbotsfield283 units£55m GDV

Baberton Grange295 units£61m GDV

The Airfields274 units£49m GDV

Maghull407 units£79m GDV

Sherburn-in-Elmet270 units£35m GDV

Bombardier269 units£43m GDV


16 new sites in ex Westleigh geography

Watnall Road108 units

Eye Green67 units

Grantham, Barrowby Road300 units

Derby, Brook Farm275 units

Annesley60 units

Worksop, Turner Road111 units

Derwent St, Belper80 units

Delves Farm65 units

Lavendar Farm135 units

Houghton Regis336 units

Sherburn-in-Elmet270 units

Bombardier Works800 units

Goldthorpe138 units

Barugh Green125 units

Halfpenny Lane85 units

Spen View Lane122 units

New wins

3,077new plots in H1 19


Increased private mix drives margin improvement

Note: Group financials are shown on an adjusted basis to include the proportional contribution of the joint ventures and associate andexclude non-underlying items; 2019 & 2020 figures based on consensus

PRS

Affordable

Private

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2019 E 2020 E 2021 E 2022 E


Partnerships FY19 Active Sites

0%

20%

40%

60%

80%

100%

0% 5% 10% 15% 20% 25% 30%

50% ROCEROCE

18% Margin

Bilston Urban Village

Eaton Works

Airfields, Deeside

Tower CourtPeel

Alma EstateDollis Valley

ChurchillGardens

Marlowe Road

New Avenue

Rochester Riverside

Fresh Wharf

Acton

Gardens

Maghull

Gateacre Park

Newhaven

Reginald Road

Beam Park

= £100m total site revenue

Note: Size of bubble represents CP share of future revenue, Gross margin is on a to go basis, ROCE is that of the overall development

Note: Developments included are either currently active at H119 or becoming active during FY19


2,517 2,607

3,463

2012 2016 2018

Site improvement over time - Acton Gardens

Note: represents whole site including JV partner share

Units with planning permission

`

£400

£450

£500

£550

£600

£650

£700

Sep 2014 Sep 2015 Sep 2016 Sep 2017 Sep 2018 Sep 2019

Average £psf

-

51

0

129

86117

29

54

231

152 200

137

0

50

100

150

200

250

300

FY14 FY15 FY16 FY17 FY18 FY19

Unit delivery per year

PRS & Affordable

Private


Eastern Quarry, Ebbsfleet Garden Village

Delivery of up to 2,600 units in 11 phases over the

next 12 years

£90m of infrastructure investment from Homes

England

Tenure split: 75% private; 25% affordable

Housing split: 70% houses; 30% apartments

Fastrack Bus Service Site linked to Ebbsfleet

International Rail Station

Site includes construction of a Primary and

Secondary school, two commercial centres and over

seven acres of open space and parks

Key partners:

– Homes England

– Clarion Housing Group

– Henley Camland

– Ebbsfleet Development Corporation

£20mPeak funds

2,600Units

£915mGDV

24%Gross Margin

Q1 20Start on site

Dec 19Phase 1 land

drawdown

Dec 18Site

masterplan approved

Mar 18Contract signed

Q4 20First

completions

Jun 19Area masterplan and design code

approval

Aug 19Phase 1 Planning

submission

2031:Final

completions


Partnerships opportunity continues to

grow

Source of new work expanding

Main challenge to start large

developments on time

Larger sites improve margin over time

Margin growth through tenure mix

change

Growth will come from geographic

expansion

Partnerships key takeaways

Rochester Riverside, Kent

COFFEE BREAK

Modular panel factory updateIan Kelley, CEO Partnerships North

Barrowcroft Green, Standish


Modular panel factory in Warrington now

operational

Total set up costs c.£6m

Anticipated pay back in 2-3 years

Reduces reliance on sub contract labour

Helps secure the supply chain

On site efficiencies

Plans for further innovation/next steps

Countryside Modular Housing

Blackberry Point, Stockport


Countryside Modular Housing: Timeline

128,000 sq ft warehouse and offices located under a mile from M62 and 3 miles from the

M62/M6 junction

Semi-automation to deliver Closed Panel Timber Frame wall units using Homag/Weinman

specialist carpentry machinery

CP

Board

Approval

Feb2018

Aug-Dec2018

Factory

Fit Out

139

Homes

Built

Start

Second

Shift

FY19E

c. 400

Homes

Equipment

Fit Out

Mar2019

Jun2019

2 Shifts

Fully

Operational

FY20E

up to 1500

Homes

Sept2019

Oct2019

Jan2020

Sept2020


Countryside Modular Housing: Manufacturing Process


Modular Panels: Preparation for Delivery

Factory runs all logistics in supply chain

including site delivery and erection

30 employees per shift currently 1 shift

per day

Targeting 4 houses per shift

Accredited to NHBC standards


Modular Housing: Panel Installation – Day 1

Modular panel with windows insulation,

plasterboard, first fix plumbing and

electrical voids

Significant waste reduction

Scaffolding and erection currently sub

contracted

We are moving to direct labour for erection

Day 1 Ground floor walls being installed

Day 1 First floor installation

Day 1 Ground floor complete


Modular Housing: Day 2 and 3

Roof currently delivered as loose

materials and manufactured onsite

Roof and floor components currently

developed at Westframe

Opportunity for roof to be manufactured

offsite including felt and tiles

Further opportunity to develop pod

bathrooms and kitchens

Day 2 Roof construction

Day 3 Roof cassette installation

Day 3 First floor panels installed


Modular Housing: Days 4, 5 and 6

Windows now included in structural

panels

Watertight within a week and ready for

internal trades

Site logistics; slab, scaffold and

finishing trades

Day 4 Soffits, Facias and Fire Socks

Day 6 Roof tiling

Day 5 Roof felted and battened


Countryside Modular Housing – Benefits on Site

Refined methodology - Faster build period -

improved productivity

Improved build quality - factory production

Mitigate against demand inflation of trades

Protect our supply chain

Internal business efficiency and culture change

Health and Safety benefit from less construction

operations on site

Reduced deliveries to site

More efficient Site Management

Automation to Deliver:


Countryside Modular Housing – Economics

Build costs c. 50% of GDV

Modular panels are 25% of

superstructure build cost

Estimated savings of c. 15% compared

with purchase from external supplier

Margin benefit of 1-2% once fully

operational

Mitigating other build cost inflation,

currently running at 3-5% in North and

Midlands

Target build time of 6-8 weeks from slab

to completion across all house types

20%Gross profit50%

Build costs

100%

GDV

Typical Partnerships North site

5%Fees

25%Serviced land


Strategically located factories will deliver future homes

Plans for three factories over time:

1. Warrington (current factory);

capacity of 1,500 units p.a.

2. Midlands (18-24 months);


3. Essex/Kent (3-4 years);


Existing Westframe factory supplying

components

Mature total capacity to be 80% of total

Group output

2

3

1

Westframe


Potential evolution

Brick Slips factory fitted, initially on PRS

/ affordable homes, single external wall

panel with inbuilt cavity including

insulation, windows, plasterboard

Significant time savings for build and

reduction in scaffold usage

Robotic brick slip manufacturing

solutions already exist

Roof Cassettes including felt and battens

so houses built in one sequence and

modular panel erectors capable of tiling

the roof

Inclusion of first fix electric and plumbing

within wall panels factory fitted


Modular panel key takeaways

First factory fully operational with clear

benefits emerging

– Security of supply chain

– Cost efficiency

– Reduced labour on site

– Faster build speed

Relatively low set up cost with payback

in 2-3 years

Opportunities to evolve product further

Second factory planned to service

Midlands geography in next 18-24

months

Tenure mix, margins and cashMike Scott, Group CFO

Belmont Place, Hindley Green


Note: Group financials are shown on an adjusted basis to include the proportional contribution of the Joint Ventures and associate

and exclude non-underlying items. 2019 figures are based on consensus.

Five years of continued growth

616777

1,029

1,230

1,460

FY15 FY16 FY17 FY18 FY19E

Adjusted revenue (£m)

24% CAGR

24.7%26.8%

30.6%

37.1% 37.5%


+1,280bps

Return on Capital Employed

91.2

122.5

165.3

211.4232.4


26%CAGR

Operating profit/margin (£m/%)

14.8%

15.8%

16.1%

17.2%15.9%

1,090 1,1271,662

1,995 2,187813 792 1,006

1,491

2,509

461 738

721

809

1,160


Completions (no. of homes)

25% CAGR

Private Affordable PRS


82.7% 84.8% 88.6% 84.6% 93.1%

FY15 FY16 FY17 FY18 HY19

With continuing focus on quality and safety

1 Defects reported per plot at NHBC inspections at key build stages2 The number of reportable incidents per 100,000 people at risk3 The percentage of customers returning an NHBC post-completion survey who would recommend us to a friend

Note: * 2019E data as per consensus

Recommend a Friend

0.22 0.230.21 0.22

0.19


Build quality0.19 (NHBC RIs per home1)

93.1% (NHBC RAF3)

4 4 45

4

2,3642,657

3,389

4,295

5,856


Total completions* (no. of homes)5,856

265

305

220

162186


Health & Safety186 (Accident Injury Incident Rate2)


FY19 tenure mix

Housebuilding GroupPartnerships

37%

Private

FY19E (units)

28%

Private

70%

Private

20%

PRS26%

PRS

30%

Affordable

43%

Affordable

46%

Affordable

Partnerships margin in FY19 impacted by:

– Westleigh acquisition

– Geographic mix

– Return to normal margins in Partnerships South

Housebuilding margin on track

Note: FY19E based on consensus


Target tenure mix for future delivery


37%

Private

FY19 (units)

Future (units)41%

Private33%

Private

28%

Private

70%

Private

70%

Private

20%

PRS

26%

PRS

33%

PRS

26%

PRS

30%

Affordable

30%

Affordable

33%

Affordable

43%

Affordable

33%

Affordable

46%

Affordable


Implied margin from future tenure mix


Private Affordable PRS

18%

Gross Margin

24%

Gross

Margin

21%

Gross

Margin

Margin dynamics


Housebuilding margin dynamics

HPI

+£10k+2% 82%

Margin impactPrivate18%

Revenue

+£8.2k

-2% -£10k -£8.2k

+1.6%

-1.6%

£500kASP

Build

costs

Operational

efficiency

+£10k+2%

0% £0k

£500kASP

-£4.5k+3%

+5% -£7.5k

£150kBuild cost

80%Margin impact

20%

Procurement

-£3.6k

-£6.0k

-0.7%

-1.2%

76%

Total

costs24%Margin

+£7.6k

£0k

Margin impact

+2.4%

-2.8%

Best case

Worst case

+1.5%

0%

Affordable

Pre-

procured

To procure


Partnerships in-phase margin dynamics

HPI

+£6k+2% 50%

Margin impactPrivate

50%

Affordable/

PRS

+£1.5k*

-2% -£6k -£3k

+0.5%

-1.0%

£300kASP

Build

costs

Operational

efficiency

+£6k+2%

0% £0k

£300kASP

-£3.6k+3%

+5% -£6.0k

£120kBuild cost

80%Margin impact

20%

-£0.7k

-£1.2k

-0.2%

-0.4%

82%

Total

costs18%Margin

+£2.4k*

£0k

Margin impact

+0.8%

0%

*our share of surplus profit assuming 50/50 overage agreement

Pre-

procured

To procure

+1.1%

-1.4%

Best case

Worst case

Revenue

Procurement


Group margin dynamics illustration

HPI

Build

Costs

Operational

efficiency

Housebuilding Partnerships Group

-1.6%

+1.6%

-1.2%

-0.7%

0%

+1.5%

-1.0%

+0.5%

-0.4%

-0.2%

0%

+0.8%

-1.2%

0.9%

-0.7%

-0.4%

0%

+1.1%

+1.6%

-1.9%

+1.1%

-1.4%

+2.4%

-2.8%

Best case

Worst case

Best case

Worst case

Best case

Worst case

Best case

Worst case


HB Infrastructure HB Land

PS Infrastructure PS Land

£m

83

4262

4766

91 98

130

125 85

66

121

122

143

11 22 22 2237 43

1617

24 13

64

111 92 150

Balance of spend shifts due to Partnerships growth


Note: Company estimates; Excludes all work in progress

213 28

241

167 46

213

147 35

182

113 86

199

187 148

335

FY20E FY21E

213 135

348 241 167

408


Cash (£m)

(100)

0

100

200

300

FY17 FY18 FY19E FY20E FY21E

FY19 average net debt of c.£60m

Expected cash of £80-90m at year end

Assuming 10% p.a. EBIT growth, cash

grows by £60m+ p.a.

Debt-free through the year in FY21

Modest growth in land creditors

Adjusted gearing at peak 40% in FY19

Cash forecast

Note: Company estimates


Capital allocation

Organic growth

of Partnerships

Organic

growth of

Housebuilding

Acquisitions

and geographic

expansion

Increased

shareholder

returns

1 2 3 4

• South Midlands & Yorkshire grow to scale

• Deliver large estate regeneration projects won in South

• Potential South West London region

• Neighbouring geographies present opportunities

• Keep dividend policy under review

• Awaiting macro developments at the end of 2019

Wrap up & closeIan Sutcliffe, Group CEO

Blackberry Point, Stockport


Key takeaways from today

Trading in line with previous statements

Partnerships changing tenure mix over time and margin resilience

– Standardisation

– Modular build

Housebuilding business in good shape with embedded value in the land bank

Commitment to further offsite production with new timber frame factory

Continued strong ROCE and cash generation

Next news:

– Q3 trading statement 25 July 2019

– FY 2019 results 21 November 2019

Q&A

Rochester Riverside, Kent

Capital Markets Day June 2019 - Countryside Properties plc · 7 CAPITAL MARKETS DAY JUNE 2019...

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Transcript of Capital Markets Day June 2019 - Countryside Properties plc · 7 CAPITAL MARKETS DAY JUNE 2019...