Full year results 2017

Transcription

1 Bovis Homes Group PLC Full year results March

2 Agenda Full year performance Financial review CEO review Operational update Medium term targets Outlook Q&A Furlong Rise, Cheltenham slide 1

3 Full year performance Profit before tax, exceptional and one-off items in-line with expectations Strong increase in average selling price, with robust underlying prices Year end completions delivered in a controlled and disciplined manner Restructuring initiatives complete - business well positioned for FY18 Investment in people, product and systems Launch of four major margin initiatives Excellent progress with balance sheet optimisation Strong forward sales position Step change in customer satisfaction - HBF score trending at well above 80% slide 2

4 Good progress with medium term targets 2020 Target Progress to date 4 star HBF customer satisfaction rating - HBF score since 1 October 2017 trending at 4 star 4,000 completions 3.5 to 4.0 year owned land bank 23.5% gross margin with further opportunity beyond 2020 from new land 5% admin expense as a % of revenue Min 180m additional cash delivered 25% ROCE - Contolled delivery in FY17 - Expect to deliver increase in completions in FY18 in a controlled and disciplined manner - Slowed rate of land acquisition - Progress made with divestment of sites outside our core operating area - Ongoing focus on reducing our investment on larger sites - Operational issues addressed - Embedded land bank margin strong - Four new major margin initiatives launched - Restructuring initiatives complete - On track to deliver 5% overhead in FY18 - Significant progress with land disposals, reduction in part exchange stock, and completed disposal of shared equity - Focus on WIP levels and reduction of investment on larger sites in FY18 - Increase in FY18 profitability and balance sheet optimisation expected to drive significant improvement in ROCE in FY18 slide 3

5 Financial review Earl Sibley Group Finance Director Burfield Grange, Hailsham slide 4

6 Income statement ( m) FY16 (restated) FY17 Change Revenue 1, , % Gross profit (1) % Administrative expenses (1) (49.0) (56.6) +16% Operating profit before exceptional items % Exceptional items - (6.8) Share of profit of Joint Ventures Profit before interest and tax % Finance cost (5.6) (7.2) Profit before tax % Taxation charge (33.9) (22.7) Profit after tax % Note: (1) The Group has reclassified certain costs from administrative expenses to cost of sales - see appendix slide 40 for details slide 5

7 Housing revenue analysis FY16 FY17 Change Average sales price ( k) Private % PRS Affordable % Total % Volume Private 2,884 2,573-11% PRS 19 - Affordable 1,074 1,072 0% Total 3,977 3,645-8% Housing revenue ( m) Private % PRS Affordable % Net housing revenue 1, % Other income Total housing revenue 1, % slide 6

8 Analysis of profit m unless otherwise stated Housing Land sales FY16 (restated) FY17 Total Housing Land sales Revenue 1, , ,028.2 Gross profit Administrative expenses (49.0) (56.6) Operating profit pre exceptional items Gross margin (%) (1) (2) Operating margin pre exceptional (%) Gross margin impacted by reclassification of certain project specific costs from administrative expenses to cost of sales ( 28.6m in FY17 (FY16: 26.7m)) and additional 3.5m customer care provision High overheads driven by overweight operating structure and increased investment On track to deliver 5% overhead for FY18 Total slide 7

9 One-off and exceptional costs in FY17 ( m) FY16 FY17 Customer care provision Advisory fees Restructuring costs Total Additional one-off 3.5m customer care provision taken through gross profit in H m advisory fees taken as an exceptional item in H1 17 Restructuring of regional business, planning, design, engineering and other functions taken as an exceptional item of 4.0m in H2 17 slide 8

10 Sales prices and construction costs FY16 (restated) FY17 Change Sales price per home ( 000 s) % Sales price per sq ft ( s) % Private sales price ( 000 s) % Private sales price per sq ft ( s) % Construction cost per home ( 000 s) (1) % Construction cost per sq ft ( s) (1) % Market sales price inflation estimated at c.1-2% Product mix and higher value locations increased sales prices by c.2-3% Construction cost inflation estimated at c.4% over the last 12 months, with c.3% increase from mix Remaining c.2% from additional costs including customer care provision ( 3.5m) Note: (1) After reclassification of certain costs from administrative expenses to cost of sales - see appendix slide 40 for details slide 9

11 Significant cash generation ( m) FY16 (restated) Cash expenditure on land related to the settlement of creditors in the 12 months of 189.1m (FY16: 144m) and new land investment of 36.7m (FY16: 84m) FY17 Housing receipts 1, ,086.9 Construction expenditure (703.0) (681.6) Overheads (51.4) (54.7) Operating cash flow Cash expenditure on land (227.6) (225.8) Land sales receipts Dividend payment (55.4) (60.4) Non-trading items (37.9) 5.0 Net cash flow Opening net cash Closing net cash Non-trading items includes proceeds from disposals of shared equity and fixed assets in FY17 (see slide 14 for details) slide 10

12 Land acquisition in the year Continue to see good opportunities in the land market With reduced land requirement for FY17, able to be even more selective 2,550 plots acquired Wellington Includes 821 plots representing final tranche at Stanton Cross (Wellingborough) Lichfield Bishops Itchington Wellingborough Drakes Broughton Bishop s Stortford Witney High quality pull through from Wantage strategic land bank FY17 land acquired at over 26% Didcot Petersfield gross margin and average ROCE exceeding min 25% hurdle rate Horam Strategically sourced slide 11

13 Net assets ( m) 31 Dec June Dec 2017 Land 1, , Land creditors (343.3) (324.7) (246.7) Land net of creditors Work in progress Other assets Other liabilities (271.1) (256.4) (255.7) Net (debt)/cash 38.6 (32.4) Net assets 1, , ,056.6 Net assets per share 757p 756p 787p Valuable land bank supports business fundamentals and long term prospects Significant improvement in working capital through reduction in other assets Further opportunity to reduce work in progress slide 12

14 Balance sheet optimisation Progress in FY18 Opportunity for FY18 Land c. 80m - 100m - Five land disposals ( 30.5m) - Reduction of investment on larger sites Work in progress c m - Significant reduction in part exchange ( 28.9m) - Reduction in stock ( 10m) - Show homes sale and leaseback ( 3.5m) - Optimising site by site WIP (foundations, roads etc) Non returning assets c m - Disposal of shared equity portfolio ( 28.8m cash receipts) - Disposal of three owned offices ( 8.4m) - Reduction in Help to Buy debtor ( 11.5m) - Further opportunities including HA cash flow and PRS JVs slide 13

15 Operating metrics FY16 FY17 Sales outlets Average active sales outlets Reservations Private reservations in year 2,960 2,274 Affordable reservations in year 1,022 1,730 Year end forward sales Private units PRS 19 - Affordable units 1,072 1,730 Total forward sales (units) 2,008 2,656 Total forward sales ( m) slide 14

16 Operational Update Greg Fitzgerald Chief Executive Officer Mildenhall, Sherborne slide 15

17 Very significant improvements across all areas Key operational issues identified Excellent progress in every area in H2 17 Group started FY18 from a position of strength CEO review - initial impressions Limited benefit to date from recent investment in people and infrastructure Greater hands on approach commenced Continued priority in relation to customer satisfaction and handover process Impact on build quality standards most significant on sites remote from regional offices Processes need to be simplified with focus on root causes Further improvement in forecasting Standard house types - some good ones with opportunities to improve Significant opportunity from increased focus on affordable housing Management of capital employed has been influenced by drive for growth Issues identified with progress already made slide 16

18 Transformed our Customer Service HBF score trending well above 80% (4 star) since 1 October regions 5 star 4 regions 4 star 1 region 3 star Step change in the way we are doing things and mindset within the business Controlled and disciplined period ends in June and December 2017 Invested in customer service function Customer Experience Director appointed 94% of our staff received customer service training in FY17 Customer satisfaction remains a key performance indicator and bonus target for all levels of management slide 17

19 Strong sales position Strong forward sales Started the year with more than 40% of FY18 consensus forecast revenue secured Good start to FY18 across all regions New commission structure for sales advisors Additional incentivisation on price Significant reduction in levels of stock and part-exchange properties Part exchange managed centrally as a profit centre Investor sale of min 275 homes across our operating regions Returns at least in-line with forecast expectations slide 18

20 Restructuring successfully completed Implemented initiatives to simplify and streamline operating structure Merger of Eastern and Southern regions Proximity of developments to regional office key to supporting hands-on management Re-located Southern Counties and Northern Home Counties regional offices South East regional office relocating to Kings Hill, Maidstone Outsourced a number of business areas to drive greater efficiency Legal, planning, design, engineering All completed within the 4.0m restructuring provision On track to deliver target of overheads at maximum 5% of revenue in FY18 cond Floor Office New Basingstoke office New Milton Keynes office slide 19

21 High quality, motivated people Far greater hands on management with strong operational focus Regional MD s completed leadership training programme Increased investment in development and training Learning and Development team Bovis Homes Training Centre firmly established Focus on ensuring we have the best quality site managers Attractive new remuneration package Increased specific training and development Full training programme underway for FY18 Leadership training for all senior managers Investment in and development of Commercial teams Employee incentives closely aligned to Group s medium term targets Increased levels of employee satisfaction Reduction in headcount turn slide 20

22 High quality build Focus on setting our sites up correctly from the start and getting it right first time Appointment of five new regional construction directors Investment in site managers and site teams Strengthened sub-contractor relationships New Bovis Homes is a partner of choice Progressive, controlled build across our sites Build programmes WIP controls Robust and formalised inspection and handover processes NHBC reportable items down by 20% Highest standards of health and safety Health and safety inspections brought in-house supporting more hands on, proactive approach slide 21

23 Progress with commercial COINS to be launched next month Drive efficiencies, standardised processes and best practice Provide enhanced management information enabling better decision making Gives surveyors greater ability to pro-actively manage costs Significant improvement in frequency and robustness of cost reviews Rationalised our sub-contractors base and developing stronger working partnerships Strengthening our materials supply base and providing greater forward visibility of our production plans Investment in training and development of commercial teams a priority for FY18 slide 22

24 Medium term targets Greg Fitzgerald Chief Executive Officer Marbury Meadows, Wrenbury slide 23

25 Growth in completions Expect to deliver a c.10% increase in completions to 4,000 units by FY20 Controlled and disciplined manner Maximise economies of scale from current operating structure 7 balanced operating regions Shortage of skilled labour remains a constraint to organic growth beyond 4,000 units slide 24

26 Optimising our land bank structure Targeting 3.5 to 4.0 years owned land bank Dec 2017: 17,096 plots equivalent to 4.3 year land bank assuming 4,000 completions Reducing level of land investment without impacting output to FY20 5 land sales in FY17 Focus for FY18 on reducing our investment on our larger sites Site size Total sites Total plots , , , ,937 Total ,096 Note: Land bank as at 31 December 2017 (excluding strategic land bank) slide 25

27 Land bank fundamentals remain strong Family homes in prime locations Southern location bias with no London exposure Predominantly lower risk greenfield sites Traditional standard housing with limited apartments Balanced portfolio across all regions Excellent forward visibility 93% of FY19 and 70% of FY20 land already secured 31 Dec Average plots per site 141 (1) 146 (1) Average sales price 271k 293k Average land cost 52k 53k Plot cost/asp 19% 18% Average gross margin 22.9% 23.2% Note: (1) Average plots per site excluding plots at Wellingbourgh and Sherford 32% 15% 27% 68% 85% 6% 67% Standard Non standard Greenfield Brownfield Houses Apartments Affordable Note: Land bank as at 31 December 2017, excluding Wellingborough and Sherford slide 26

28 Stanton Cross - Wellingborough Targetting reduction in level of investment Discussions re joint venture opportunities ongoing Main access road including railway and river bridges progressing well Completion end 2018 Northern Home Counties commenced residential building Show homes opening Q First completions Q Dec 2017 Owned plots 1,747 Total balance sheet investment 81.6m Expect to sell serviced parcels of land to third party developers during 2018 Site gross margin well in excess of minimum hurdle rate slide 27

29 Strategic land opportunity Strategic land remains an important land supply Expect to deliver c.10,000 plots from our strategic land bank over next 5 years Returns expected to exceed our minimum hurdle rates 1,850 plots over 6 sites converted in FY17 Excellent locations including Witney, Petersfield, Bishop s Stortford and Didcot Will continue to pursue new strategic land opportunities that are within our core operating area 2,338 new strategic land plots optioned in FY17 including 1,800 plots at Stanton Cross As at 30 Dec 2017 Total sites Total plots plots 11 1, plots 18 3, plots 9 3, ,000 plots 9 5,741 1,000+ plots (1) 5 6,983 Total 52 20,756 Planning agreed 10 7,980 Planning application On-going promotion 27 7,940 Total 52 20,756 Note: (1) Includes 1,800 plots at extension site at Stanton Cross held under separate option arrangements slide 28

30 Progress with affordable housing Earlier exchange of contracts -Reducing - risk Improved cash management Stronger negotiating position 43 contracts exchanged in FY17 82% of FY18 affordable delivery contracted Establishing strong relationships with registered providers Bovis Homes to be Partner of choice Opportunities for JVs and other broader partnerships New housing range for affordable homes The last phase was a smooth handover process due to your attention to detail and presentation of the homes. Hope to work with you again in the future Paradigm Housing Group The management team has always been quick to respond to our needs, they strive to maintain the highest possible standards and have been an absolute pleasure to work with Arcadis (employers agent) slide 29

31 Margin initiatives Underlying margin embedded in land bank coming through Four major margin initiatives 1. Price optimisation Focused on driving prices across all product and developments New commission structure introduced for sales advisors Reflects priority focus on controlled volume growth, high levels of customer satisfaction, and increased profitability 2. Specification review Amendments to build specification improving build quality with a lower cost base Reviewing scope of fixtures and fittings that are delivered as standard Further opportunities to optimise both pricing and reduce costs through specification changes 3. Cost reduction Increased cost contingency on all developments to 4% in FY17 With significant improvement in our operations, targeting release of a proportion of this 4. New housing range Complete review of the sales and construction specifications Developed industry leading housing range Further price optimisation and reduction in production costs slide 30

32 New housing range Introduction of industry leading housing range Private and affordable house types Ready for launch in April 18 First completions in FY19 Phoenix No.7 - new range New homes designed to meet today s customers needs Input direct from architects, customers and all business areas Complete review of sales and construction specification Deliver added value to our customers Optimise prices Drive a reduction in production costs and improve build efficiency P303 Sheringham - current range slide 31

33 New housing range Phoenix No.7 - new range P303 Sheringham - current range First floor First floor Ground floor Ground floor slide 32

34 Market environment Fundamentals are strong High level of consumer demand Strong support for the sector Low interest rate environment Competitive mortgage market Supportive planning environment High employment levels Pricing remains robust Attractive land market Stamp Duty Land Tax relief for most first time buyers Government consultation on Help to Buy beyond 2021 Leasehold - Group has minimal exposure Public focus on the quality of new build homes slide 33

35 Enhanced cash returns to shareholders On track to deliver min 180m additional cash from specific initiatives Group will continue to be strongly cash generative Ordinary dividend Strategy of maximising sustainable dividends to shareholders FY17: 6% increase to 47.5p demonstrating confidence in business FY18: 20% increase to c.57p reflecting strong outlook Ordinary dividend cover to move to 2 times by FY20 Special dividend Payments totalling 180m (c.134 pence per share) in three years to FY20 First payment of 60m (c.45 pence per share) towards end of 2018 Board committed to reviewing further capacity for returns over time slide 34

36 Strong outlook for FY18 Strong sales position Started the year with 40% of consensus FY18 revenues secured Strong start to 2018 with the sales rate up 14% to 0.5 and pricing ahead Controlled increase in volumes Confident of delivering FY18 completions in-line with expectations Maintain high level of customer satisfaction Deliver a significant improvement in profit in FY18, with focus on four new margin initiatives Complete balance sheet optimisation and combined with increased profit, deliver a significant improvement in ROCE Board anticipates increasing Ordinary Dividend by 20% to c.57 pence per share and making payment of first special dividend towards the end of 2018 slide 35

37 Q&A Sherford, Plymouth slide 36

38 Disclaimer - important notice Certain statements in this presentation are forward looking statements. Forward looking statements involve evaluating a number of risks, uncertainties or assumptions that could cause actual results to differ materially from those expressed or implied by those statements. Forward looking statements regarding past trends, results or activities should not be taken as a representation that such trends, results or activities will continue in the future. Undue reliance should not be placed on forward looking statements. slide 37

39 Bovis Homes Group PLC Full year results 2017 Appendices Winchester Village, Winchester slide 38

40 Key metrics Revenue ( m) 1,028.2m Operating profit margin (%) 12.5% (1) Profit before tax ( m) 114.0m , , (1) Earnings per share (p) 68.0 Dividend 47.5p ROCE (%) 13.7% (1) p 35p 40p 45p 47.5p (1) Note: (1) Pre exceptional items totalling 6.8m related to advisory fees resulting from bid approaches and restructuring charges slide 39

41 Gross profit and admin expenses reconciliation m (unless stated) H H FY 2016 (1) H H (2) FY 2017 Housing gross profit pre re-statement Re-stated direct costs (12.6) (14.1) (26.7) (14.8) (13.8) (28.6) Housing gross profit re-stated Non-housing gross profit Administrative expenses re-stated (23.8) (25.2) (49.0) (28.8) (27.8) (56.6) Operating profit Housing gross margin pre re-statement 24.3% 20.7% 22.2% 21.9% 20.7% 21.2% Housing gross margin re-stated 21.2% 18.4% 19.6% 18.3% 18.3% 18.3% Note: (1) Pre exceptional items totalling 2.8m related to advisory fees resulting from bid approaches (2) Pre exceptional items totalling 6.8m related to advisory fees resulting from bid approaches and restructuring costs slide 40

42 Header operating structure Regional Regional head office Satellite office Mercia Stafford West division Coleshill East division West Midlands Northern Home Counties Milton Keynes Cheltenham Stansted Western South East Southern Counties Basingstoke South West Exeter slide 41 New Ash Green

43 Strength of land bank across the regions Strength of land bank across our operating regions Proximity to regional office is a key criteria for land acquisition going forward Focus on further tightening geographic range by divesting out of geography developments Stanton Cross, Wellingborough 1,747 plots included in Northern Home Counties and Sherford 1,604 plots within South West Owned plots Mercia 1,792 1,800 West Midlands West East 1,964 Western 3,056 South West 3,664 Northern Home Counties 2,061 Southern Counties 2,759 South East Note: Land bank plots as at 30 June 2017 exc. Wellingborough slide 42

44 Work in progress and other assets ( m) 31 Dec June Dec 2017 Stock Show homes Roads and sewers Housing and other WIP Wellingborough WIP Part exchange Total work in progress Shared equity Debtors - Help to Buy HA Other receivables Other assets Total other assets slide 43

45 Imputed interest on land creditors drives the financial charge 12 months ended 31 December ( m) Bank interest and commitment fees (2.7) (2.4) Issue cost amortisation (0.6) (0.6) Imputed interest on land (5.0) (5.1) Pension financing 0.3 (0.2) Imputed interest on available for sale assets Total (5.6) (7.2) slide 44

46 Land creditor payments m 150 m 252m m 40m 0 <1 year 1-2 year 2 year+ Note: The above figures are on an absolute cash basis. Balance sheet land creditors figure of 247m as at 31 December 2017 is on an IFRS accounting basis slide 45

47 Other liabilities As at 31 December ( m) Creditors Corporation tax liability Deferred tax liability Retirement benefit obligations Provisions - Customer care provision Other Other liabilities slide 46