Henry Boot PLC

You two giggling at the back. So I think we're on. Now, just before we start the formal bit, just look at this. This is an image of what we've been building in Raynham. And I know when I say this that Clyde's thinking I need to get out more. But what a wonderful – that's an industrial unit, yeah? You can see the solar panels on the roof. You've got the Thames there, walkway. We'll green a lot of it, so it will be pretty biodiversified. And that's an example of what Henry Boot's building. That's just an aside, just to get you all warmed up. So let's get to the agenda. So it's going to be the normal running order. I'll talk you through operational highlights, then I'll go through the medium-term objectives. Then Darren's going to come on and do financial and land promotion. Then I'll finish off with development, construction and outlook. And as you can imagine, I'm going to start off on investment case, but this time it's a refreshed investment slide. So we're focused on delivering high-quality projects, prime commercial developments and premium houses with strong ESG credentials in three key markets. Whilst our markets have slowed, I think that the results this morning show that this emphasis on quality means that we've been able to maintain demand and actually increase sales. As shown by the bar chart at the top on your right, we've continued our long record of delivering attractive returns with a 10-year through the cycle rocky, averaging nearly 13% per annum. What's helped us to achieve this, I think, is effective management of the balance sheet, but also conservative gearing. There's a clear strategy to grow the business and we've got a wealth of opportunity within the portfolio to achieve that. And I believe we manage our assets smartly. We've actively recycled £490 million of capital alone over the last two years, building up a first-class portfolio in both land and development. And our investment portfolio has also outperformed in the short and medium term. This feeds through to the bottom graph, where you can see that we continue to show strong NAV growth. And if you add in a progressive dividend policy, it produces a total accounting return of nearly 11% per annum. And finally, also, you can see that our NAV at £3 a share is materially understated as both our land and developments are held at cost. So in terms of operating profit at 40 million versus 46 million last year, we think that bearing in mind the market that we've been operating in, we're pleased with that result. Going through the operational highlights, first of all, land promotion sold 1,900 plots at an increased profit per plot of 15,000, and you'll remember that that was boosted by a profitable freehold sale at Tunbridge. For our prime strategically located sites, there continues to be demand, and we currently have 1,500 plots under offer. We continue to grow our land portfolio to 100,000 plots, but going forward there's going to be more emphasis on winning planning consents and then getting sales and less focus on growth. And that's just because we think that the existing portfolio already has scale and is well balanced. Turning to development, we completed on £111 million of development, our share, and 100% of that has all been sold and let. Not surprisingly in the current economic environment, our share of the committed programme has reduced to £159 million. In the investment portfolio, that's increased in value to £113 million with a total return of 6.7%. Stonebridge has increased annual sales by 43% to 251 homes and is on track to carry on its growth record. And on construction, operating profit was below budget. And like many in the industry, we have had two projects that have suffered through delay and price increases. And what does all that mean? After you've deducted £9.9 million of central operating costs and they've risen marginally through increased investment in our people and IT, we produce an operating profit of £40 million. So I said I'd run through the medium term objectives. I'll try and do this pretty quickly because you're familiar with it. First of all, capital employed, £417 million, so we remain on track to getting £500 million. Rocky at 9.9% with the benefit of rounding is just within our target range. Hannam's five-year running average now. is 2,850 plots sold per annum, so we're getting up to that 3,500 mark. To achieve development of 200 million, you need to step up your committed pipeline. In a slowing market, as I said, it's no surprise that our committed programme has reduced, but we can draw down from our development pipeline, and I'll talk more about that in terms of replenishing the developments committed. On the investment portfolio, over the last two years, we've made £42 million worth of sales at an average premium of 19% and have been selective on acquisitions. And all of that in this market has been really good for performance. And there's going to be opportunities for us to grow the portfolio up to the £150 million over the next two to three years. On Stonebridge we expect to complete 275 homes this year and more in 2025 and then on construction as I've said we've fallen short of our target in a tough market where the award of projects has been delayed and finally on this slide we continue to be a responsible business and more details of our targets in the appendices of your pack and then What this slide is showing, I believe, is that we have maintained demand for our high-quality products, with nearly £250 million worth of land, property and homes sold, and that is up 17%. And there aren't many businesses that are coming to you and saying that they have sold more property over the last year. And at the same time, we continue to smartly invest in opportunities for future growth. So if you look at it, first of all, Hallam, we've completed on £65 million worth of residential land sales. But we've also grown the portfolio by acquiring 7,000 plots at a cost of £7 million. Then the next one, property. HBD sold £96 million of property. They've also grown their development pipeline to 1.3 billion by adding 150 million through the first phase of Golden Valley. We've brought out our joint venture partner and also secured both local and national funding for phase one. And on phase one, we're negotiating with GCHQ to anchor a new National Cyber Innovation Centre. And then Stonebridge, we've sold 87 million pounds of new homes and we've also invested 10 million pounds in acquiring a further 670 plots. And with that, I'll pass you over to Darren.

So thank you, Tim, and good morning, everyone. If I can take you now through our financial highlights. Revenue in the year grew 5% to almost 360 million, reflecting the continued demand for prime high quality assets, despite continued challenges in our markets. This growth was delivered from our strategic land portfolio, delivery of our committed development program, and growth of our house builder, Stonebridge Homes. Gross profit remained resilient on the back of this at 76.8 million. A gross margin of 21% remains healthy and only marginally down on that of 24% in the prior year as we continue to manage material cost and labour inflation. With the prior year having the benefit of a significant one-off joint venture residential land disposal at £9 million, the group achieved a very good underlying profit before tax of £36.7 million given current market conditions. With operating profit down 14%, our return on capital employed of rounded 10% sees us at the lower end of our medium term strategic target of 10 to 15%. And whilst earnings per share has reduced 21% to 19.7 pence, we have increased the full year dividend by 10% to 7.33 pence, in line with our progressive dividend policy. We'll continue to support a progressive dividend policy, but as we've signalled previously, we will look to raise the dividend at a more sustainable level going forwards. In 2023, we've continued to focus on delivering existing opportunities in our key markets with selective investments in new opportunities and accretive disposals from our investment property portfolio. Tim will give you a bit more detail on the portfolio later, where values have increased 1.1% on a like-for-like basis. The overall increase of around £4 million in the period also includes the retention of three industrial assets from our own developments at Luton, Poole and Markham Vale, offset by those accretive disposals. We've continued to invest in our strategic land portfolio, growing Stonebridge Homes as land bank and work in progress, as well as recycling property returns into our committed development programme, resulting in inventories increasing by 6 million overall. Following these investments, and also due to increased working capital requirements resulting from land sales on deferred payment terms, net debt increased to £77.8 million. With gearing at 19%, we remain within our target range of 10% to 20%. We have a secured borrowing facility of 105 million which runs to January 2025. Terms have now been agreed for a new facility with our existing banking partners and are moving through legals with an expectation of being concluded in the second quarter of this year. Finally, our net asset value per share increased 4% to 306 pence or 300 pence excluding the pension scheme surplus. Just looking at cash generation now, 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 40.2 million, adjusting for non-cash items of 1.1 million and paying interest costs of 3.7 million, tax of 3.8 million. and dividends of £12.7 million, we ended with a cash inflow from operations of £18.9 million. Whilst our interest costs have increased, with our facility having a 1.4% margin over Sonia, each 1% movement in the base rate gives rise to a charge of around £750,000 at our current average debt levels. Overall, our net interest cost also benefits from funding returns on investments made in joint ventures. We then made net investments of £48 million across all areas of our business, including adding to our investment property portfolio, including those which are held in joint ventures, growing inventories relating to the land bank and working progress within Stonebridge Homes and delivering our committed development programme. With other working capital increasing by £23.6 million, largely due to those land disposals on deferred payment terms, we ended the period with net debt of £77.8 million. We can now move on to the operational review and starting with land promotion. At 1,944 plots sold, low volumes in Hallam have been offset by a significant increase in gross profit per plot to £15,500. Aided by the significant freehold land disposal mentioned by Tim at Tunbridge, but allowing them to increase their level of operating profit to £21.4 million, up £4 million on the previous year. Whilst land values have softened down to almost 6.5% according to Savills, we continue to see good demand for our sites in prime locations. We continued to add to the portfolio last year, securing sites with the potential to deliver over 7,200 plots and ending with almost 101,000 potential plots in the portfolio. While sales have continued to reduce plots in the portfolio with planning, having 8,500 plots in stock still equates to almost two and a half years worth of sales and continues to reflect the delays in the planning system. We anticipate demand for these plots will continue to increase as we see minimal relaxation in the planning system. With over 13,000 plots awaiting planning determination and applications being prepared ready for submission on over 8,000 plots, all of which have an allocation for residential development in local plans, we fully expect our stock with planning will start to increase. With our portfolio all held at cost, no valuation gain on securing planning is recognised until the land is sold. This continues to reflect a significant uplift of value not recognised within our balance sheet. Finally, having sold 276 plots in 2024 already, we've got a further almost 800 exchange for completion across 2024 to 2026. And as Tim had said, over 1,500 plots currently under offer. Over the long term, our land promotion business has delivered significant returns, with a return on capital employed averaging 16.7% over the last 10 years. The scale of the portfolio allows us to mitigate site-specific risks, although we are clearly highly correlated to demand in the housing market, which we can somewhat mitigate through forward sales. With seven regions, we acknowledge the importance of having a local presence, both in terms of working closely with landowners and local authorities and planners, especially on the larger sites. And with a balance of freehold and promotion agreements, we're able to manage capital investment appropriately between risk and reward, taking advantage of our market at the right time in the cycle when acquiring freehold land. Sites sold in 2023 generated an average internal rate of return of 21%, which we're clearly very pleased with. But they also did take 20 years to deliver from start to finish. As we move forward, our focus is on continuing to increase sales and the output of sites with planning permissions whilst continuing to grow the portfolio at a modest level. Based on the current portfolio, we've estimated that the risk-adjusted gross profit at today's prices of the whole portfolio is around £700 million, which equates to a gross profit per plot of around £7,000. Here we can see the geographic spread, which continues to be biased towards the Midland and South. The portfolio overall continues to be one of the largest strategic land portfolios in the country amongst the listed house builders. And we continue to see demand for quality sites in prime locations, with demand now returning for larger sites of 400 to 500 units, evidenced by one such scheme we have in Coventry, where having taken 500 units... Of the 2,000 we've got remaining there to the market, we're now looking to sell two parcels of 500 units each to two different buyers on that site. Our five-year average plots disposed of has reduced slightly, just below 3,000 per annum. We continue to target 3,500 plots per annum, and we continue to believe that this is achievable from the scale of the portfolio that we have established. Likewise, 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. Now I hand you back to Tim who will continue with property investment.

So, on development, despite rapidly rising interest rates, uncertain markets and slowing volumes, we've made a relatively strong operating profit of £22.2 million compared with £25.7 million last year. HBD completed on £111 million of development, the vast majority in industrial, all pre-sold and pre-let. Relative to the market backdrop, we've maintained a high level of committed developments at £159 million. 98% of the development costs are fixed, and I'll go through that programme in detail on the next slide. The majority of our £1.3 billion pipeline is in industrial, and there's nearly £200 million of near-term occupier-led schemes which could be started over the next year. The investment portfolio has shown capital growth of positive 1.1% to £113 million and has outperformed again. And I'll go through that on another slide as well. So I said I'd look at the committed programme. This is it. You can see we've committed to three industrial schemes totaling 565,000 square feet, and the majority by value has been pre-sold. On industrial generally, whilst Occupy take-up has slowed from the record levels that we saw during the pandemic, Demand remains resilient due to structural drivers and rental growth last year was 6.9%. Consequently, we expect to do more industrial development over the next 12 months. Then we go on to urban, residential and commercial, which comprises settle and island. And I'll talk you through those two schemes in a minute. Plus, I'll also give you more explanation on Raynham Momentum. And finally, land another, where our main commitment is the grant-funded remediation works at Walsall Spark. And their works are set to complete in Q2. And when we draw down the land, we've got the opportunity to develop over 600,000 square feet in seven units. And they're prime units, and they're literally overlooking the M6. and that was going to be pre-let led, and we're already in negotiations with more than one occupier. And if you look at the committed programme, we estimate that total profit on those schemes is £23 million. That's an equivalent to a profit on cost of about 16%, and only £7 million of that is being taken, and the majority of the £7 million is in Walsall. So I said I'd go through some of the schemes. Just to start off with on a scheme that we completed recently, that's Power Park Nottingham Prime Development, which we funded with Oxenwood. It completed in quarter to 23, resulting in a total profit on cost of 22%. Next is Momentum Rainham. where, as you know, we're building in an 8020JV with bearings for industrial units, which will offer prime NZC logistics serving Greater London. Completion there is due in Q2 of 24. We expect to do lettings either side of PC, and the scheme is appraised off sensible rents at £17 a square foot and shows a yield on cost of around 5.5%. Then there's Ireland, where we're developing in a 50-50 JV with the Greater Manchester Pension Fund, an NZC prime office building right smack bang in the city centre of Manchester. We've got encouraging interest from occupiers. And again, we expect to do lettings either side of PC. PC is in Q3 of this year. Rental levels there are at around £44 per square foot and yield on cost is just under 6%. Turning to Settle. We'll complete Settle, 102 premium apartments in quarter one of 2024. It's located in the trendy part of Birmingham city centre. You can see some good images here of the apartments. There's also a gym and also a residence lounge. In fact, you might not now have the photograph of the gym. We launched pre-sales just before Christmas and I'm pleased to say 30% of the apartments have been secured at our target price. We'll fully launch the sales campaign actually this week. That will include also a sales show apartment and we're on target to achieve a profit on cost of 15%. So I said I'd do a bit more on the investment portfolio. I think it's fair to say that the commercial property market has had a tough year with investment sales falling by volume and values down. However, with the improved outlook for interest rates, we do think that the market is picking up. The bar chart shows our total return compared with the CBRE index over the last three years. You can see with a return of 6.7% in 2023, we outperformed the index, which was at 1.7%. I'll also show the average over three years. Our average is 7.9% per annum. That compares to the index at 3.5% per annum. In the table below, you can see some of the characteristics of the portfolio. It's grown marginally to £113 million, and we've broadly balanced accretive sales with retained completed developments. In this respect, we completed on four sales this year, plus our head office, at a total of nearly £13 million, which showed on average a premium of 23%. The portfolio benefits from a relatively healthy topped up initial yield of 5.8% and a reversionary yield to ELV of 6.5%. And also the occupancy is improved from 88% to 93% and that's primarily due to lettings but we also sold to small vacant buildings. Turning to Stonebridge, as I said, we sold 251 units, an increase of 43% as we scale up this business. The average selling price has fallen to £460,000, but that's because we're building more homes in the North East where prices are lower. During the last year, the sales rate dropped marginally to 0.45, although that was last year's target. In January and February of this year, it's picked up marginally to 0.51. Against a slow market, again, we're pleased with this performance and demand for our premium homes is proving to be resilient. So we're looking to increase homes built this year to 275. 50% of this year's target is already secured. We've taken the opportunity to buy more sites with a total land bank increase to over 1,500 or an increase of 40%. Now, in relation to that, we have found that the market has been more balanced. Definitely people are... keener to treat with a good old Henry boot. But having said that, we haven't found that there are any cheap deals. If you still want to buy a prime site, you pay a reasonable amount of money for it. So on the operation review, I'm going to finish off with construction. The construction segment, like the rest of the industry, has been impacted by cost inflation and supply constraints, yet remain profitable at £6.5 million. Remember, this is a small part of the group. It only accounts for 2% of capital growth. HBC, as I said last time, has experienced supply challenges on two of our large urban development sites in Sheffield. Both schemes are now completed so we're expecting to be able to draw a line under them. Our £47 million residential refurbishment at Cocoa Works in York is on budget and on track for completion later this year following significant client additions and variations. Construction has started this year with a below-target order book of 49%, and this is primarily due to projects where we've entered into £50 million of pre-construction service agreements being delayed. Our aim is to convert these PCSAs during the year. In terms of Banner Plant, it traded marginally below expectations, but Roadlink, to coin a phrase, just keeps on trucking on. Both Banner and Roadlink have traded in January and February in line with budget. And with that, I'll finish with Outlook. Now, there's no doubt that the rapid rise in interest rates and reduced customer demand across our key markets has affected the business and, of course, the cost of funding our schemes has gone up. But it does feel like we've turned a corner with inflation coming down and interest rates expected to fall. In anticipation of this, Fixed rate mortgages have already adjusted and there are signs that the housing market is beginning to pick up. Bearing in mind the dysfunctional state of the planning system, this is likely to increase demand from house builders for our land. In a similar way, we sense that investors are beginning to again look at commercial and build-to-rent property. Whilst we start the year in the circumstances with a strong order book, and I set out the order book there, the year will be heavily half too weighted. Moreover, we've got conviction in our markets and also got conviction in our positioning in the prime premium part of those markets. This, together with our robust balance sheet and the portfolio, which is rich with opportunity, means we remain confident we can achieve our medium-term growth targets and also continue to generate attractive returns to our shareholders. Thank you. So... Questions? Morning, Sam.