Half Year Results to 31 December 2011 Greg Fitzgerald, Chief Executive and Frank Nelson, Finance Director 1 St. Half Year Results – 22 February 2012 Michael’s Reach, Marazion, Cornwall
Agenda • • • 2 Overview and Highlights Strategy Financial Review Operating Review Outlook Appendices Half Year Results – 22 February 2012
Overview Strong market outperformance in H 1 • • • 3 Excellent financial results Housing market resilient Confident of delivering housebuilding strategy Construction performing well in difficult markets Strong balance sheet Half Year Results – 22 February 2012
Highlights Excellent half year results Housebuilding margin 1 up 69% Construction margin in line with forecasts 11. 0% 2. 5% 6. 5% H 1 11 H 1 12 Profit Before Tax up 89% 2. 2% H 1 11 H 1 12 Dividend up 100% £ 32. 2 m £ 17. 0 m H 1 11 9. 0 p 4. 5 p H 1 12 H 1 11 H 1 12 1 Excluding significant land sale 4 Half Year Results – 22 February 2012
Strategy Growth beyond 2013 supports enhanced dividend policy • • 5 Confident of delivering three year transformational expansion plan in housebuilding Housebuilding strategy and outputs beyond 2013 • • • Disciplined growth strategy based on maximising returns, not volume Retain strong southern bias Focus on increasing margins Construction strategy unchanged • • • Maintain top quartile performance Focus on margins and cash rather than size of order book Positioned for growth when markets allow New enhanced and sustainable dividend policy • • • Higher cash generation Dividend twice covered by earnings Progressive growth thereafter Half Year Results – 22 February 2012
Financial Review 6 Half Year Results – 22 February 2012 Thornbury Park, Isleworth, London
Financial Review Strong growth in EBIT, PBT & EPS Income Statement, Half Year to 31 December £m 2010 % Increase Group revenue 746. 8 575. 9 30% Profit from operations 38. 6 17. 9 116% EBIT 35. 6 17. 1 108% Net finance costs (3. 4) (0. 1) Profit before tax 32. 2 17. 0 Taxation (7. 1) Profit after tax 25. 1 12. 1 107% Earnings Per Share: basic 31. 1 p 14. 8 p 110% diluted 7 2011 30. 4 p 14. 8 p 105% 22% (4. 9) 89% 29% Half Year Results – 22 February 2012
Financial Review 75% of Group profits from housebuilding 1 Segmental Analysis, Half Year to 31 December Housebuilding completions 2011 2010 Gross units 1, 352 851 Net of JV partners’ share 1, 216 779 2011 Profit/(Loss) from Operations Margin 35. 0 12. 6%3 2010 £m Housebuilding Revenue 2 277. 0 Margin 6. 5% Construction 499. 9 10. 9 2. 2% 2. 5% PPP Investments 7. 7 1. 1 NA NA Group 0. 3 (8. 4)4 NA NA TOTAL 784. 9 38. 6 4. 9% 3. 0% 1. Operating profit excluding Group 2. Revenue includes share of joint ventures 3. Includes significant land sale. Underlying margin 11. 0% 4. Group includes £ 3. 6 m additional LTIP charge 8 Half Year Results – 22 February 2012
Financial Review Movement in net debt – reflects investment in housebuilding £m • Net debt in line with expectations • • Investment in land • £ 325 m bank facility in place until 2015 60 Average debt of £ 86 m over 12 months to 31 December 2011 (38) (18) (31) (10) (5) (13) (15) Opening net debt 1 Jan 11 9 Cash from operating activities Working capital movts housebuilding Working capital movts construction Interest Tax Dividend Other (70) Closing net debt 31 Dec 11 Half Year Results – 22 February 2012
Financial Review Strength maintained Balance Sheet Highlights, Half Year to 31 December £m 2011 2010 Total equity 468. 6 435. 1 Tangible Net Assets 342. 5 313. 7 Net debt (69. 8) (30. 7) Amounts invested in joint ventures 63. 3 53. 4 Land 436. 4 392. 1 Work in progress 250. 9 193. 1 (138. 4) (74. 2) 612. 2 564. 4 Land creditors Total invested in housebuilding developments and JVs See Appendix 3 for balance sheet sector analysis 10 Half Year Results – 22 February 2012
Financial Review Dividend – new enhanced policy • • • Interim dividend doubled 16. 0 p Twice covered by earnings Enhanced, sustainable and progressive 12. 5 p 10. 9 p 11. 5 p 9. 2 p 7. 6 p 9. 0 p 3. 3 p 4. 5 p FY 09 FY 10 FY 11 H 1 12 § § 11 Final Interim Half Year Results – 22 February 2012
Financial Review Housebuilding margin progression, construction cash in line with forecast Housebuilding - gross margin %1 16. 1 17. 1 11. 0 12. 7 8. 1 9. 9 Construction - cash as % of revenue 20 21 23 22 19 15 5. 6 3. 7 6. 2 7. 1 8. 0 6. 1 FY 09 FY 10 FY 11 H 1 12 § § FY 09 H 1 10 FY 10 H 1 11 FY 11 H 1 12 Operating margin Overhead 1 Before significant land sale and after sales costs of circa 2% 12 Half Year Results – 22 February 2012
Financial Review Return on net assets growing strongly Group 1 Housebuilding 2 15. 6 14. 1 10. 9 8. 6 8. 2 8. 6 4. 2 FY 09 FY 10 H 1 11 FY 11 H 1 12 4. 3 4. 5 6. 2 FY 09 FY 10 H 1 11 FY 11 H 1 12 1 Group RONA is calculated as EBITA divided by average net assets including goodwill 2 Housebuilding RONA is calculated as housebuilding EBITA divided by average net assets including goodwill 13 Half Year Results – 22 February 2012
Operating Review Housebuilding 14 Half Year Results – 22 February 2012 Kingston Mills, Bradford-on-Avon, Gloucestershire
Operating Review - Housebuilding Record completions with margin significantly up COMPLETIONS up 59% 1, 352 (H 1 11: 851) SALES IN HAND 1 up 34% £ 605 m (H 1 11: £ 450 m) MARGIN up 69% 11. 0%2 (H 1 11: 6. 5%) AVGE SALES PRICE 3 up 17% LAND BANK 1 up 7% £ 239 k (H 1 11: £ 204 k) 10, 700 (H 1 11: 10, 000) 1 Current at 19 February 2 12. 6% after significant land sale 3 Excludes affordable 15 Half Year Results – 22 February 2012
Operating Review - Housebuilding Completions Analysis – strong southern focus By area of operation By sector By land bank 72% 63% 80% § § South 1, 081 Midlands/East 271 1, 352 16 § § Private 974 Affordable 378 1, 352 § § Post July 2008 846 Legacy 506 1, 352 Half Year Results – 22 February 2012
Operating Review - Housebuilding Land Bank Analysis – 76% of land bank acquired at current market prices By acquisition period Geographical split 76% § § Post July 2008 8, 150 Legacy 2, 550 10, 700 72% By sector 80% Product mix 1 65% § § South 7, 700 § Private 8, 600 § Houses 5, 600 Midlands/East 3, 000 § Affordable 2, 100 § Apartments 3, 000 10, 700 8, 600 Current at 19 February 1 Excludes affordable 17 Half Year Results – 22 February 2012
Operating Review - Housebuilding Land Bank Delivery – over 20% gross margin on post July 2008 land Development Revenue £m Average Margin 1 £ 0. 6 bn £ 1. 8 bn £ 2. 4 bn 10% 21% 18% 10, 700 8, 150 10, 000 8, 000 6, 000 4, 000 2, 000 0 2, 550 Legacy Post July 2008 TOTAL Current at 19 February 1 Blended private/affordable – after sales costs of circa 2% 18 Half Year Results – 22 February 2012
Operating Review - Housebuilding Forecast Land Bank/Completions – disciplined growth strategy from 2013 Number of sales outlets 78 86 95 100 Land bank by acquisition period Revenue by period % 100 FY 11 HY 12 FY 12 FY 13 FY 14 FY 11 HY 121 FY 12 FY 13 FY 14 § § Acquired post July 2008 Legacy FY 11 HY 12 FY 13 FY 14 § § § Not yet acquired Acquired post July 2008 Legacy 1 Current at 19 February 19 Half Year Results – 22 February 2012
Operating Review - Housebuilding Affordable Housing – expertise optimising margins • • • 20 Affordable rent delivering enhanced revenues Secured one of highest awards (£ 17 m) to private developers under Affordable Homes Programme Acquired further public land releases under Delivery Partner Panel Established joint venture arrangements for partnering with key Registered Providers Increased presence within frameworks Half Year Results – 22 February 2012
Operating Review Construction 21 Half Year Results – 22 Cricket Ground Edgbaston February 2012
Operating Review - Construction Performing well in difficult markets MARGIN upper quartile CASH upper quartile 2. 2% (H 1 11: 2. 5%) £ 149 m (H 1 11: £ 174 m) ORDER BOOK 1 in line WORK SECURED 1 maintained £ 1. 6 bn (H 1 11: £ 1. 75 bn) 67% (for 2013) (H 1 11: 61%) 1 Current at 19 February 22 Half Year Results – 22 February 2012
Operating Review - Construction Order Book – good visibility of revenues By Division By Client Type 12 Infrastructure 877 Building 534 14 37 40 42 56 § § § 18 32 £m 11 52 42 44 § § § Private Regulated Public Partnerships 165 Current at 19 February 23 Half Year Results – 22 February 2012
Operating Review - Construction Order Book – strength in selected sectors Building £m Commercial 152 Education 86 FM 111 Health 59 Other Public & 126 Regulated § § § Infrastructure £m Water 431 Transport 245 Other Civil Engineering 120 Renewables 42 Communications 33 Energy from Waste 6 § § § Current at 19 February 24 Half Year Results – 22 February 2012
Outlook 25 Half Year Results – 22 February 2012 M 74, Glasgow
Market Outlook Housebuilding resilient, construction difficult Housebuilding Construction • Mortgage availability continues to improve • Government initiatives supporting the market • Active land market • Planning environment remains uncertain • • • Build costs remain stable • Market strongest in south 26 Difficult market conditions Regulated sector strong London and South East most resilient Government support for infrastructure investment Half Year Results – 22 February 2012
Divisional Outlook Strong housebuilding momentum, visibility in construction Housebuilding Construction • • 27 Strong southern bias and focus on mainstream markets Legacy land bank significantly reduced Good land opportunities Focus on margin growth Strong start to second half • • Resilient performance maintained Strong foundations in client relationships and frameworks Robust risk management maintained Focus on workload with acceptable returns Half Year Results – 22 February 2012
Group Outlook Well positioned to deliver profitable growth • • 28 Confident in ability to further enhance value Housebuilding – disciplined growth strategy Construction – strategy unchanged Dividend policy – enhanced, sustainable and progressive Half Year Results – 22 February 2012
Half Year Results to 31 December 2011 Greg Fitzgerald, Chief Executive and Frank Nelson, Finance Director 29 Halley VI Research Station, Antarctica Half Year Results – 22 February 2012
Appendices 1. Investment proposition 2. Cash flow summary 3. Balance sheet/debt profile 4. Net finance costs 5. Housebuilding data 5. 1 5. 2 Sales, completions by buyer type 5. 3 Forecast land creditors’ payment profile 5. 4 Trading overview 5. 5 Analysis of sales reserved, contracted and completed 5. 6 Private sales, analysis of incentives on reservations 5. 7 30 Revenue analysis Land bank valuation Half Year Results – 22 February 2012
Appendices 1. Investment proposition ROBUST BUSINESS MODEL STRATEGIC CLARITY • Top 5 UK housebuilder, top 10 in UK construction • • Complementary economic cycles Successful execution of three year transformation plan in housebuilding • Competitive advantage in range of services offered to clients • Disciplined approach to capital allocation • Clear growth strategy for housebuilding beyond 2012/13 WELL POSITIONED IN ATTRACTIVE MARKETS DELIVERING GROWTH AND INCOME • • • Delivering strong momentum in margins, profits and returns Value creating strategy fit for market environment • • Higher than average visibility of revenues in construction through regulated exposure Enhanced, sustainable and progressive dividend policy – twice covered by earnings • Balance sheet strength retained • 31 Southern focused land bank where risk/return is most attractive Construction offers medium term potential Half Year Results – 22 February 2012
Appendices 2. Cash Flow Summary – Half Year to 31 December £m Cash from operating activities Working capital movements Net cash used in operations Interest, tax and dividends Other Net cash outflow Opening net cash Closing net debt 2010 9. 7 (105. 9) (96. 2) (10. 6) (0. 4) (107. 2) 76. 5 (30. 7) Cash Analysis Housebuilding (includes loans to JVs) Construction Group and Others TOTAL 32 2011 31. 1 (120. 3) (89. 2) (14. 3) (2. 6) (106. 1) 36. 3 (69. 8) (579. 3) 149. 4 360. 1 (69. 8) (517. 2) 174. 0 312. 5 (30. 7) Half Year Results – 22 February 2012
Appendices 3. Balance Sheet/debt profile by sector – illustrative only Tangible Net Assets Average Cash/(Debt) Construction (60) 160 Housebuilding and Group (NAV after deduction of debt) 403 (246) Net Tangible Assets 343 (86) £m Notes Total net assets per B/S 469 Less intangibles (126) Net tangible assets 33 £m 343 Half Year Results – 22 February 2012
Appendices 4. Net Finance Costs – Half Year to 31 December £m 2010 Net interest payable on borrowings (3. 9) (1. 4) Interest receivable from joint ventures 0. 5 0. 9 Fair value gains on financing activities - interest rate swaps 0. 3 0. 7 Unwind of discount on shared equity receivables 0. 8 0. 6 Unwind of discount on payables (1. 0) (0. 6) Net finance cost of pension fund - (0. 3) Other (0. 1) - TOTAL 34 2011 (3. 4) (0. 1) Half Year Results – 22 February 2012
Appendices 5. 1 Housebuilding - Revenue analysis, regional TOTAL § Units 1, 352 § Revenue £ 277 m EAST & NORTH § Units 271 (20%) § Revenue £ 42. 4 m (15%) WEST § Units 287 (21%) § Revenue £ 46. 1 m (17%) 35 SOUTH EAST § Units 794 (59%) § Revenue £ 188. 5 m (68%) Half Year Results – 22 February 2012
Appendices 5. 2 Housebuilding - Sales, completions by buyer type H 1 12 § § § H 1 11 FY 11 Private with Shared Equity Private with Part Exchange Private - Investor Affordable Based on 1, 352 completions 36 Half Year Results – 22 February 2012
Appendices 5. 3 Housebuilding - Forecast land creditors’ payment profile £m 150 18. 6 125 138. 4 77. 3 100 75 50 42. 5 25 0 FY 12 37 FY 13 FY 14 TOTAL Half Year Results – 22 February 2012
Appendices 5. 4 Housebuilding - Trading overview H 1 121 H 1 11 FY 11 256 153 388 Land cost 29. 7% 28. 0% 27. 4% Build cost 53. 2% 57. 7% 56. 5% Gross margin 17. 1% 14. 3% 16. 1% Admin expense 6. 1% 7. 8% 8. 0% Operating margin 11. 0% 6. 5% 8. 1% Revenue (£m) 1 Excludes significant land sale 38 Half Year Results – 22 February 2012
Appendices 5. 5 Housebuilding - Analysis of sales reserved, contracted, and completed Feb 12 Dec 11 Private 417. 3 339. 9 286. 4 Affordable 166. 4 161. 0 155. 7 Land Sales 21. 1 7. 9 Total 604. 8 522. 0 450. 0 For completion in FY 12 480. 2 416. 2 293. 9 For completion post FY 12 124. 6 105. 8 156. 1 Total 604. 8 522. 0 450. 0 % of projected FY revenue secured 78% 68% 76% Private 1, 655 1, 358 1, 243 Affordable 1, 480 1, 438 1, 444 Total 3, 135 2, 796 2, 687 £m Feb 11 Plots 39 Half Year Results – 22 February 2012
Appendices 5. 6 Housebuilding - Private sales, analysis of incentives on reservations H 1 12 H 2 11 H 1 11 52% 58% 50% Part exchange 12% 11% 10% Assisted move 5% 5% 4% Shared equity 11% 14% 27% Investor sales 20% 12% 9% TOTAL 100% None Incentives 40 Half Year Results – 22 February 2012
Appendices 5. 7 Housebuilding - Land bank valuation Cost per plot £ 000 H 1 12 H 1 11 FY 10 Opening land bank 51 51 51 45 Closing land bank 53 52 51 51 Weighted ASP in land bank 217 202 215 203 Plot cost as % of weighted ASP 24% 26% 24% 25% Strategic land bank of 6, 750 plots 41 Half Year Results – 22 February 2012
Disclaimer Sub- Heading This presentation is being made only to and is directed at persons who have professional experience in matters relating to investments falling within Article 19(1) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”) or any other persons to who it may otherwise lawfully be communicated (all such persons being referred to as “relevant persons”). Any person who is not a relevant person should not act or rely on this presentation or any comments made during the presentation. This presentation does not constitute or form part of, and should not be construed as, any offer or invitation to subscribe for, underwrite or otherwise acquire, any securities of the Company or any member of its group nor should it or any part of it form the basis of, or be relied on in connection with, any contract to purchase or subscribe for any securities in the Company or any member of its group or any commitment whatsoever. This presentation does not purport to contain all the information that may be required to evaluate any proposed transaction and should not be relied on in connection with any such potential transaction. Any recipient hereof should conduct its own independent analysis of the Company. Recipients should note that the Company will not update or otherwise revise this presentation. The financial information set out in this document does not constitute the Company’s statutory accounts. Statutory accounts for the financial year ended 30 June 2011, which received an auditors’ report that was unqualified and did not contain any statement concerning accounting records or failure to obtain necessary information and explanations, have been filed with the Registrar of Companies. 42 Half Year Results – 22 February 2012
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