Henry Boot PLC

And just before I start the formal parts of the proceedings, just have a look at the image of that. That, believe it or not, is an industrial unit, and that's our development at Raynham. And it overlooks the Thames. You can see how it's a computer-generated image, but it will look like this. You can see how green it is. It almost looks like an R&D technology part, doesn't it? that was being built in the 1990s, and that is net zero carbon. So that's the sort of quality of development that we're developing, even on the industrial market. Nice to see a picture of what we do, isn't it? so morning everybody so we're going to do the normal running order with me covering our operational highlights i'll then give a brief overview of our strategic targets then darren's going to update on financials and land promotion and then i'll go through development construction and finish off with outlook So you can guess what I'm going to do. First of all, I'm going to talk you through our investment case. And I know you're all familiar with this, but... Again, I think that it's useful. We're focused on three long-term markets with positive structural long-term trends. And whilst our markets have slowed, I think that these results show that due to the quality of our sites, the quality of the schemes that we promote, and the premium homes that we build, that you can maintain encouraging levels of demand. It gives you resilience. More importantly, nothing that we've seen over the last 12 months shakes our belief in our three markets. We've continued our long record of managing our balance sheet effectively, and you can see from the bar graph that the NAV just continues to remorselessly grow. With 97,000 plots and a development pipeline of 1.26 billion all held at cost, we've also got ample opportunity as markets improve to hit our growth and return targets. And all this means we're confident enough to increase our dividend by 10%, which is 4.8 times covered. And our TSR in the long term remains attractive. Over half one, we made an operating profit of £25.7 million. And I'm going to go through it by subsidiary. On land promotion, the business sold 1,900 plots at an increased profit per plot of £11,400, driven by a very profitable sale, a freehold sale at Tunbridge. Darren's going to go through that in more detail in a minute. But just to say, for the right sites, there continues to be demand, and we currently have nine sites under offer. We're also growing our land portfolio. It's now at 97,000 plots. And as planning gets tighter, we believe these plots will be in demand. Turning to property and development, we completed on £70 million worth of development our share. 100% of that has been profitably pre-sold. and we've maintained a high level of committed developments, again our share at £186 million. Nearly half of that is in industrial. Our investment portfolio has grown to £112 million through retaining completed developments. It's again outperformed the CBRE index. Stanbridge iJunk Venture House Builder has achieved sales rates close to our target, including over July and August, at just under 0.5 houses per week per outlet and is on track to hit its target of 250 homes this year. And that's showing an increase in volume of 40% from last year. On construction, operating profit of 4.4 million is below budget, but that follows and is in line with a general slowdown in the industry. And all this means, once you've deducted £4.2 million of central operating costs, group operating profits, as I say, is £25.7 million. And before leaving this slide, we also sold Banner Cross 4 at a premium to Book, and we'll be moving to our new head office in November, and that's in Sheffield City Centre. And these resilient results mean we still deliver on our medium term objectives. Excuse me. Capital employed is nearly at £413 million and is on track to grow to our £500 million target. Rocky at 6.3% is expected to finish the year within our stated range. Hanham's five-year running average is now at 3,175 plots, so it's getting close to the 3,500 average. plots medium-term target. To achieve development completions of circa 200 million, you need to maintain a development programme. And in a slowing market, I think HBD has done well to maintain a committed programme of 186 million. And as markets improve, we'll be able to scale the business up by drawing down on its £1.26 billion pipeline. In terms of investment portfolio, we made £42 million of accretive sales over the last couple of years, and there will be opportunities to grow the portfolio back up to the £150 million target by retaining completed developments, but we're going to be patient in doing that. The demand for Stonebridge's premium homes endures. We expect to complete 250 homes in 2023 and we're planning for more in 2024. Therefore, we're on track to scale the business up to 600. We continue to make good progress against our responsible business strategy, including our NZC equality, diversity and inclusion targets. And what I will do at the full year is I'll give you a more detailed presentation on that. And in the interim, there are details in the appendices of your pack. But what I wanted to do today is just to show you a quick image. of our new head office. And the move from a large listed hall to a modern, efficient, open plan building with great ESG credentials, that's helping us in our ambition to be more progressive, more open, more diverse and a more environmentally responsible business. And with that, I'm going to hand you over to Darren.

Thanks, Tim, and good morning, everyone. I can now take you through our financial highlights. Despite challenging market conditions, revenue still grew 25% to £180 million in the period, reflecting the continued completion of strategic land transactions, delivery of our committed development programme, and growth of our house builder, Stonebridge Homes. On the back of this, gross profit remained resilient at £40.8 million, only marginally down on that of the prior year. With the prior year having had the benefit of a significant one-off joint venture residential land disposal, the group achieved an underlying profit before tax of 23.3 million. And whilst earnings per share has decreased 42% to 14 pence, we have increased the interim dividend by 10% to 2.93 pence, in line with our progressive dividend policy, and still almost five times covered. With operating profit down 34%, our return on capital employed for the six months of 6.3% sees us on track to achieve the lower end of our medium-term strategic target of 10% to 15% this year. In 2023, we've continued to focus on delivering existing opportunities in our key markets with selective investments in new opportunities and tactical disposals from our investment property portfolio occurring since the half year. Within the portfolio, including investment properties held in joint ventures, values remain stable following the downward valuation movement seen towards the end of 2022. The increase of £9 million in the period therefore being derived from the retention of an industrial asset from our development at Luton. Following the half year, we've since disposed of three properties for just over £11 million at an average 19% premium to their December book value. We've continued to invest in our growing house builders land bank and work in progress, adding some £11 million to inventory, and having invested £4 million to deliver in speculative developments, inventory has increased around £6 million overall, following disposals of £9 million from strategic land. Net debt increased to £70.8 million from these investments and also due to increased working capital requirements resulting from land sales on deferred payment terms to the major house builders. With gearing at 17.5%, we remain within our target range of 10-20%. We've got a secured borrowing facility of £105 million, and we will look to commence refinancing activities towards the end of this year, with a view to having a revised facility in place early next year, well ahead of the facility renewal date in January 2025. Early discussions with all of our banking partners, one of which we've banked with for over 100 years now, have all been very positive. Finally, our net asset value per share increased 3% to 303 pence, or 298 pence, excluding the pension surplus. In terms of cash generation and the movement in net debt, the cash flow sees us recycle retained profits and funds from operating activities into continued investment for the future. We started the year with net debt of £48.6 million, having then achieved an operating profit of £25.7 million. adjusting for non-cash items of £2.1 million and paying interest costs of £0.7 million, corporation tax of £0.9 million and dividends of £8 million, we ended with a cash inflow from operations of £14 million overall. Our interest costs have remained low, with our facility having a 1.4% margin over Sonia. Each 1% of interest gives rise to a charge of around £700,000 at current average debt levels. However, overall, our net interest cost benefits from funding returns on investments in joint ventures. We then made overall investments of £30.4 million across all areas of our business, including adding to our investment property portfolio, growing inventories relating to the land bank and work in progress within Stonebridge Homes and delivering our committed development programme. With working capital and other items increasing by £15.8 million, again reflecting land disposals on deferred payment terms, we ended the period with net debt of £70.8 million. If I can move on now to the operational review and start with land promotion. At 1,900 plots, low volumes in Hallam have been offset by a significant increase in gross profit per plot to £11,400, allowing them to maintain their level of operating profit at £17 million, aided by a significant freehold disposal of land at Tunbridge, mentioned by Tim, which I'll give you more of an insight into shortly. Whilst land values are reportedly softening, down almost 3% in the year, we continue to see good demand for smaller sites in prime locations. Having taken three such sites to market in recent months, we've seen demand from up to 16 interested parties, and despite the larger players now appearing some way down the list, values remain very sensible. We've continued to add to the portfolio, securing sites with the potential to deliver over 3,000 plots and ending with over 97,000 potential plots within the portfolio. Whilst current period sales have reduced plots in the portfolio with planning permission, having 8,335 plots still in stock equates to almost two and a half years' worth of sales, and over 2,000 of those plots are currently under offer on nine sites, as Tim mentioned. With our portfolio all held at cost, no valuation gain on securing the planning permission on those plots is recognised until the land is sold. We anticipate demand for these plots will continue to increase as we see minimal relaxation in the planning system. Evidenced by recent announcements to tackle nutrient neutrality through the levelling up bill, which would have been good news, again the politics seems to have got in the way. We also have over 12,000 plots currently working through the planning system. Having achieved determination on 804 plots, this is already almost twice that achieved in the prior year, but remains lower than expected, also demonstrating the continued difficulties in the planning system. Looking at this slide, we can see the geographic spread of our portfolio, which continues to be one of the largest strategic land portfolios in the country amongst the listed house builders. 78% of the portfolio is in the Midlands and south of the country, where values tend to be higher in general, and 25% of the portfolio is in the Golden Growth Triangle of London, Oxford and Cambridge. We continue to see demand for quality sites in these prime locations, albeit, as expected, smaller 100 to 200 unit sites are in the highest demand in the current climate. The chart of plots sold shows we are now getting closer to achieving our medium-term target of selling 3,500 plots per annum, with the five-year average now at 3,175, despite the low volume achieved in the year-to-date. The average gross profit per plot has increased in the period on the back of the freehold disposal at Tunbridge and demonstrates how this metric continues to vary with tenure, volume sales, land price inflation and location of sales within the UK. Finally, just looking here, we can see the benefits of having an element of freehold land within the portfolio. In 2021 at our site in Tunbridge, we managed to acquire the freehold of the site, which we'd held under option since 2004. Having secured planning in 2022, we've sold the site in two phases to Carla Homes, first phase being this year, the second phase to conclude early next year. On conclusion of that final sale next year, the site will have returned an impressive internal rate of return of 27% per annum, as well as delivering new ecological habitat areas and wider community benefits, including cycleways and a contribution to public transport infrastructure. And now I'll hand you back to Tim, who will continue with property investment and development.

Thanks, Darren. So property and development, which comprises HBD and Stonebridge, you can see it made an operating profit of 8.5 million. HBD completed on 70 million our share of developments, and that's all been successfully pre-sold. We maintained a high level of committed development at 186 million. 98% of the development costs are fixed. Included in our £1.26 billion pipeline is £50 million for the first phase of our mixed-use campus, Golden Valley, which is next door to GCHQ at Cheltenham. We expect to sign a funding agreement for this first phase with the council over the next half and then we expect to also put a planning application in and we hope to be on site in the summer of 2024 on the first phase. The investment portfolio has outperformed with a capital return of 0.8 of 1% as a result of growing rental values in industrial and also the investment markets stabilising. Our total property return over the six months of 3.3% was better than the index at 2.5%. The portfolio is made up primarily of high-quality retained developments, but with some investments which have clear development potential held on shorter leases. So despite that mix, we benefit from a healthy weighted average lease length of 10.6 years. Past half one, as Darren said and I mentioned, we sold three smaller assets plus Banner Crosshall for £11 million at an average premium of 19% to the December 2022 valuation. Now, looking at the committed programme in more detail, first of all, you can see that we've committed to three industrial schemes totalling 700,000 square feet, the majority of which has been pre-sold. The only speculative scheme is at Rainham, and I'm going to go through that on the next slide. On industrial generally, whilst occupier take-up has slowed from the record levels seen during the pandemic, demand does remain resilient due to structural drivers. Rental growth, for example, over half one at the index level has been 3.6%. So consequently, we do expect to commit to more industrial development over the second half. Next, we've got urban, residential and commercial. Post half one, we completed on TDT. And that is the fourth phase of our successful chocolate works development at York. And then you've got settle and island. And I'm going to update you again on those on the next slide. Total estimated profit on all of the schemes is £24 million, equivalent to an average profit on cost of 15%, of which only £4 million has been taken, and that's being taken on Walsall Spark, and it's being taken as we carry out the local authority-funded remediation works. And once those works are completed next year, we expect to exercise our option to buy that site, which is right in the heart of the UK's national motorway network. Now, I said I'd just talk to you a bit more detail on some of the schemes. And this also, I think, slide gives us an example of how we create value. And I think it also shows the quality of the development that we're promoting. So from left to right, I think I've got that right, Power Park Nottingham. I might not have got that right. First on Power Park Nottingham, we acquired the site, got planning and secured forward funding, completing it recently, and it crystallised a 22% profit on cost. On Raynham, that's a high-quality NZC scheme. It's the photograph that I started the presentation with, serving London, and it's made up of four units ranging in size from 40,000 to 170,000 square feet. It's in an 80-20 JV with bearings, so our share of GDV is £24 million. and we're currently following up 750,000 square feet of requirements. And typically we'd expect to do lettings on a scheme like this either side of PC, and PC is early next year. Our appraised rents are £15 per square foot. I think that that's great value for industrial within Greater London, and I'm encouraging the team to beat those rents. On settle, as originally planned, we'll be looking to sell around a quarter of the 102 apartments pre-Christmas, with the majority released when customers can inspect the completed building in April next year. This is a high-quality building with communal services situated in the trendy jewellery quarter in the centre of Birmingham. And our agents, Knight Frank, believe we will be able to sell those apartments in line with our £32 million GDV. And that's £475 per square foot. Potential profit, 15%. And then finally, Ireland. This is another prime NZC scheme in the centre of Manchester in a 50-50 JV, this time with the Greater Manchester Pension Fund. And our share is £33 million of GDV. It offers 91,000 square feet of Grade A office accommodation and it will complete in Q3 2020. And although we're already talking to occupiers, the real launch of the building was only in July of this year. And currently we're following up 400,000 square feet of requirements. And there is interest in buildings with good ESG credentials. So turning to Stonebridge, our premium house builder, it's achieved sales rates close to our target through half one and over the summer months. During half one, sales rates averaged 0.48 against a target of just over 0.5. And in July and August, it was actually running at 0.52. Sales price against budget in half one was plus 1.2%. Against a slowing market, we're pleased with this performance and I believe the demand is because of the premium quality of homes that we offer and the well-located sites that we're developing. Supply chain restraints and cost inflation at 8% is easing, although we do think that it will continue to eat into our margins. Up to the end of August, 97% of this year's target is effectively sold, so no surprise we believe we're going to hit our target of building 250 homes this year. Now, we're not insensitive to market conditions, but our plan based on the present level of demand is to increase volume again next year. We're therefore taking the opportunity to buy some more sites. And in this regard, the level of bidding in sites has become less aggressive. And vendors are definitely interested in dealing with people like Henry Boot with a great reputation. But we're finding sensible deals. We're not finding cheap deals. In terms of margins, our gross margins remain in the mid to high teens, although cost inflation, as I say, might eat into that as the year goes on. And in the medium term, as the slide shows, as we scale up the business, we expect our gross margins to be at 20%. The construction segment, like the rest of the industry, has been impacted by cost inflation and supply constraints, yet has remained profitable. Remember, this is just a small part of the group, accounting for just 2% of capital employed. As I reported last time, construction has experienced challenges on two of its large urban development sites in Sheffield. That's Kangaroo Works and Block H. Kangaroo Works completed in August and Block H should fully complete in the next month. So we will be able to draw a line under those challenging schemes. Our £47 million refurbishment, Cocoa Works, in York is on budget and on track for completion in early 2024. There is work around, but we remain selective on what work we will do, so we expect our turnover to be below our target for this year. Banner Plant is trading marginally below expectation, although it has had a pretty good summer, and Roadlink continues to perform well. And that gets me to Outlook. Now, there's no doubt that the rapid increase in short-term rates is reducing demand across all three of our markets. And there is more uncertainty around the timing of strategic land sales and, of course, the cost of funding all development schemes has risen. More positively, we're seeing cost pressures ease and science suggests this will continue at least for the rest of the year. Planning, I'm afraid to say, remains very difficult. Whilst we're not immune to these pressures and difficulties, I believe our focus on high-quality real estate affords us a degree of resilience. Hallam promotes high-quality, significant sites, the majority in the south of England, many of them around the Golden Growth Triangle. As planning gets tighter, these sites are going to be in demand. HBD delivers institutionally quality development with an increasing emphasis on strong ESG. The majority of our pipeline is industrial, where we believe demand will endure. And SBH builds premium homes in affluent locations. In a tough market, we're pleased that in effect 97% of this year's target has been sold. and we will increasingly turn our attention to carrying on the scaling up of the business in 2024. Our balance sheet offers the same quality and resilience, so this is going to allow us to continue to invest in land both for Hallam to promote and to scale up Stonebridge. It will also allow us to continue to commit to HBD's quality development programme. All of this means we have the confidence to increase the dividend by 10% and we also remain confident that we will hit our medium-term strategic growth objectives. Thank you. We're going to start off with any questions from the room, please. Kristen's first off.