Cairn Homes plc (CRN) Earnings Call Transcript & Summary

Welcome to Cairn Homes 2025 Interim Results Analyst and Investor Call, which will be hosted by Michael Stanley, Chief Executive Officer; and Richard Ball, Chief Financial Officer. [Operator Instructions] Please note that today's call is being recorded. I would now like to hand the call over to your first speaker today, Michael Stanley, Chief Executive Officer. Please go ahead, sir.

Thanks, Nadia. Good morning, everybody. Joined this morning by Richard Ball, our CFO; Ailbhe Molloy, our Senior Investor Relations Manager; and Deca Murray, our Head of Finance, who will no doubt chip in later on Q&A and help us out. Thanks, everyone, for joining. Since we last presented to you, Cairn has celebrated 10 years in business. I'd just like to start by saying my colleagues and I are proud of what we have built, built the business to a market leadership position, where today, over 30,000 people live in a Cairn home. That's only half the story. As you'll see from today's presentation, hopefully, the momentum of the business has increased. Our strategy is working well. We have doubled down on work in progress investment, which, as it unwinds, will lead to a strong second half for this year and certainly bodes very well for 2026. Most importantly, I suppose, Cairn continues to play an influential role in addressing the acute housing shortage in Ireland. So we go straight to Slide 4 in our H1 operational highlights. Today, we have recorded a closed and forward order book valued at EUR 1.54 billion, which comprises over 4,000 new homes. This has grown by, as you can see, EUR 625 million and about 1,700 new homes in the year-to-date. Our private weekly sales rate of 4.1 new homes sold per active site is just one strong indicator of the consistent and realizable demand for the homes that we are building, particularly from our first-time buyers. We delivered 708 units in the first half of this year, generating revenue of EUR 284.5 million. This is expected to grow to approximately EUR 660 million in what would be a very strong H2. This heavier weighting towards H2 is a reflection of the number of new projects we commenced in the second half of last year and in H1 of this year and that is in support of our increased output, including which I'll chat a little bit about, our regional expansion. Our gross margin is slightly higher at 22.2% with build cost inflation of approximately 1% to 1.5% now expected for full year 2025. This is a reduction from our initial outlook earlier in the year of approximately 2%. We delivered an operating profit of EUR 42.7 million, which we now expect to grow to between EUR 160 million and EUR 165 million for the full year, following our upgraded guidance announced this morning. Today, we are also declaring an interim dividend per share of EUR 0.041, an 8% increase from our 2024 interim dividend per share. And we are pleased to say that our dividends to shareholders will continue to increase as we continue to grow our profits. And moving on to Slide 5. I believe the strong sales performance is reflective of the quality and location of our new homes and most importantly, our competitive pricing. As you can see from the slide, our average sales price of EUR 387,000 is almost identical to our H1 2024 average. We invested EUR 381.5 million in WIP in H1, which is 2.9x covered by the value of our forward order book at EUR 1.26 billion. The combined value of our WIP and land is circa EUR 1 billion, which will continue to support our growth ambitions. On our land bank, we have a current land bank that will deliver just shy of 17,000 new homes. Our land acquisition strategy has evolved. We have chatted about that before. However, we do see and continue to see value in direct off-market land purchases and we now have a growing strategic land bank. The more capital-light strategy has been achieved through option agreements that we have contracted and joint venture agreements we have entered into with large landowners who certainly see Cairn as a preferred partner. And as I mentioned, due to the momentum of our business, we are today upgrading our 2025 guidance and providing strong 2026 guidance for the first time. I'll pass you over to Richard who'll bring you through our half year performance and maybe more detail on that upgraded guidance. Thanks, Richard.

Thank you, Michael and good morning, everyone. I'm delighted to be presenting a strong set of results for the first half of 2025 to you this morning. As Michael mentioned earlier, the management team has great confidence and ambitions for the outlook of the business. This confidence is reflected in the upgraded market guidance for 2025 and the new market guidance we are providing for 2026 for the first time today. Moving now to Slide 7. Our first half trading performance was in line with expectations, reflecting our historically normalized H2 weighted trading, transaction timing and mix. EUR 285 million in revenue was delivered in the period, including 708 unit sales. We delivered a strong gross margin of 22.2%, some 20 basis points higher than the same period in 2024, highlighting our scaled platform efficiencies. Our OpEx investment was EUR 20.5 million, resulting in operating profit of EUR 42.7 million, delivering an operating margin of 15%. With our improved FY '25 operating profit guidance, we're expecting a year-end operating margin of circa 17%, which is strong relative to our peer group. Finance costs were at EUR 6.1 million and profit after tax was EUR 31.7 million. Net assets remained relatively flat with NAV growth of EUR 0.04 per ordinary share to EUR 1.22. We announced an interim dividend of EUR 0.041 per ordinary share today, which is an 8% increase on the same period last year. On Slide 8, you will see that we have closed and forward sold 4,092 units with a net sales value of EUR 1.54 billion, of which nearly 83% relates to H2 2025, 2026, 2027 pipeline, as we continue to actively pursue other opportunities. We always seek to derisk our WIP investment through our sales strategy. And as you can see in the lower table on the slide, our half year 2025 closing WIP of EUR 435 million is 2.9x covered by forward sales in our order book, back within the normalized ratio -- cover ratio of 2 to 3x. On Slide 9 now. We completed the refinancing of our syndicate facility in February, increasing it by EUR 75 million to EUR 402.5 million and extending duration to 2029 with an option to extend for a further year. We also refinanced our private placement in July, meaning we now have access to EUR 500 million of committed facilities to support our continued growth with an average maturity of 4.5 years. When I last spoke to you in February, I advised that we will be making a significant investment in WIP across a number of our recent new site commencements, which will increase our H1 2025 net debt. We subsequently invested a net EUR 188.6 million in WIP, growing the investment to EUR 435 million at period end, which resulted in debt to gross asset value of 27.7%. This net debt position will reduce in the second half of the year. On to Slide 10. We used EUR 118.6 million in operational cash flow in the first half of 2025. Following shareholder returns of EUR 29.4 million in the period and our investments in WIP, our closing net debt was EUR 307.4 million, meaning we had available liquidity of over EUR 150 million as we started the second half of the year. Now I'm going to take you through our capital allocation priorities on Slide 11. We are a long-term ambitious sustainable business, which has consistently delivered multiyear growth in volumes, revenue and profits. Our approach to capital allocation supports and underpins this growth strategy. We prioritize a strong resilient balance sheet efficiency as demonstrated by our 16% return on average equity target for 2025, a new committed and flexible EUR 500 million debt facility and monetizing our land bank and quick asset turn of acquisition sites to drive significant cash generation. We invest significantly in our 2 main raw materials, WIP and land, a focus on investment to support and drive our long-term sustainable growth. We are actively implementing our land acquisition and partnership strategy, as Michael referred to earlier, which is underpinned by our disciplined capital deployment approach at the start of any transaction, with additional consideration linked to value-enhancing milestones like [indiscernible]. This strategy allows us to leverage our platform capability by influencing the design and planning results while enhancing our returns and growing our strategic land bank. We deliver shareholder returns. We make progressive ordinary dividend payments underpinned by our policy and we distribute surplus capital to shareholders after investing in our business and paying dividends. In total, we have returned over EUR 450 million to shareholders since the start of 2019, including the interim dividend declared today. Our share buyback program since 2019 have acquired over 23% of the issued share capital of the company at an average share price of [ EUR 1.29 ], which has been significantly accretive to earnings per share and equity enhancing when compared with the closing share price of EUR 2.16 last night, a 67% difference. Next, on Slide 12 and our upgraded guidance for 2025 and our new guidance for 2026. 2025 will be another year of growth in volumes, revenue and profitability of our business. And we are upgrading our operating profit guidance to circa EUR 160 million to EUR 165 million, up from EUR 160 million released during the year. As you've heard from both Michael and myself, we remain very confident about the outlook for the business as evidenced by the issuing of guidance for FY '26 as follows: revenue of circa EUR 1.02 billion to EUR 1.05 billion and operating profit of circa EUR 175 million to EUR 180 million and a return on average equity of circa 16.5%. As you can see from our release, we're quoting 2 ROE numbers as we're transitioning to an average ROE calculation from FY '26 onwards, which we feel is a better measure as to how our equity return should be calculated going forward and is in line with our peer group. Finally, I'd like you to bring through some of our sustainability progress on Slide 13. Sustainability remains a high priority for the leadership team here at Cairn and we continue to demonstrate progress within our multifaceted ESG program. There are a few key highlights on the slide but the one that jumps out at me is the 202 apprentices now registered on the Cairn Apprenticeship Programmme of Learning and Bursary Support and building and securing a pipeline of future talent into our industry. We also released our first building sustainable community paper, which documents several case studies and stories from our partners, employees and demonstrates our commitments to our customers, communities and planet. I will now hand you back over to Michael, who will bring you through some operational highlights of the business.

Thanks, Richard. I'm going to bring you to Slide 15 on our operational highlights. As I mentioned earlier, we have seen very significant growth, as you can see from the slide in our order book year-to-date, an increase of 1,700 new homes. We've expanded our regional footprint. As you can see from the right-hand side, which shows our geographical sales analysis and we will commence new developments in Cork and Galway this year, further developments. This strategy and our very strong spring sales rates across our numerous private launches have contributed to this increase. First-time buyers are a core market for us and we have experienced very strong absorption rates, as you can see, of between 3.1 and 4.9 sales per week per active site. The addition of first-time buyer sales of apartments through the new Croí Cónaithe city support is very welcome and certainly adds to our customers' buying options. And I'll speak a little bit more about this important government initiative later in the presentation. I'm going to bring you to another slide, which is a photograph on the next page. This is Seven Mills, which we are very proud to say is fast becoming Ireland's largest new town. And I think the photograph here illustrates what we've achieved in just 2.5 years since we commenced that development in January 2023. The scheme has also contributed over 300 individual sales this year. And most importantly, 3,500 people will be living in homes here by the end of this year. Moving on to Slide 17. This is really all about our ASPs and how competitive we can keep our attractive ASPs, while generating consistent margin. Certainly, our low-cost land bank, our scaled operating platform, the productivity, which we'll chat a little bit more about and our procurement efficiencies, all enable us to keep our sales pricing consistent year-on-year. Our apartments, of which a growing number are being delivered to passive house standards, are being delivered at a price point that is, we believe, significantly lower than other delivery options open to our state partners. Apartments for private ownership will also play a bigger role in our future output with construction commenced on our large site in Montrose and with our increasing focus on providing apartments for our first-time buyers, as I mentioned previously. As you can see from the pie chart, we do expect our mix to transition to approximately 50% apartments and 50% houses and duplexes in the medium term as we continue to grow our low-density housing output in Dublin and the regions that I've outlined. Turning on to Slide 18. The challenge remains and in order to achieve the estimated annual requirement of houses in Ireland of 60,000 homes a year, apartment completions must increase. Just to talk a little bit about the impact of land and available land in Ireland to achieve this target. As you can see from the right-hand side, 88% of unbuilt residentially zoned land in Ireland today has a density target of between 35 to 100 units per hectare. This is set by local authorities. And permission -- and it's set really to encourage sustainable land use. And permission, what this means is that planning permission will not be granted unless applicants and their designs hit these targets. And that means that developments must include some or in the case of the upper end of that density range, all apartments. As a result, we believe the growth in low-density housing output could be stymied in the years ahead. And it's likely that the only viable route to achieving higher output in Ireland will be achieved by increasing apartment completions from the current rate of 8,000 per year to as much as 25,000 to 30,000 per year. The government's Croí Cónaithe scheme, which supports private ownership of apartments will certainly help as will other government initiatives, many of which are designed to crowd in more private capital, which is definitely needed to achieve these numbers. Supported by Croí Cónaithe, we expect to deliver 860 apartments across 6 developments in the near term. In June, we launched our first development in Douglas, County Cork and sold over 70 apartments in 1 weekend. The average gross selling price of those apartments net of that Croí Cónaithe support or subvention was EUR 316,000. Moving on to Slide 19. On the top left-hand side of the page, you can see that Ireland's -- the Irish state lags behind many of its European peers in its ownership of occupied dwellings and it only stands at 10% ownership. What does this mean? What it means really is many large economies in Europe have grown state provided affordable key worker accommodation to augment their social housing stock. Considering the strength of our economy and near full employment, it is imperative that the government increase both its ownership share and influence, particularly, we believe, in affordable rental through AHBs and the LDA. On the slide, you will see some examples of the large apartment schemes we are currently delivering for our state partners. These are being delivered at pace and at competitive pricing. The average net of price -- the average net of that price of EUR 376,000 has remained stable since 2022 and that's despite build cost inflation and our switch to passive house standards on many of these projects. Moving on to Slide 20. Our WIP investment, as Richie talked about, this year, has grown substantially to EUR 381.5 million. The unwind of this -- much of this investment will deliver a very strong H2 performance. As I mentioned in the highlights, we reduced our BCI forecast from 2% to between 1% and 1.5%. We have fixed our cost on circa EUR 1 billion of our future procurement. And with over 95% procured across all current live sites for 2025 and 70% across all current live projects for 2026, we're in a strong position. Moving on to Slide 21. This slide outlines how the knowledge we have gained over a 10-year period, as I mentioned earlier and lean construction methods are driving our industry-leading productivity. One measure of this productivity is the ratio of homes built per 100 employees. Cairn builds 36 homes for every 100 direct employees and subcontractor employees. And this compares very favorably to an industry average of 29 homes per 100 employees. I think this is a good indicator of how we are relentless in our drive for continued improvement. We've achieved this leading position through our ways of working, leveraging our approach to key areas, including post-planning optimization, digital technology, off-site manufacturing and our newly implemented DataScope system, which allows us to measure and improve our workforce productivity. What this delivers is an average completion rate of 3.3 apartments and 2.5 homes per week across each of our sites currently. Moving on, the government introduced a suite of impactful policies and initiatives since we last spoke to you. I want to now touch on some of these key policies and how we are ideally positioned to support these as well as outlining the strong macro environment we're operating in. On this slide, you can see the increased committed capital funding allocated to the Department of Housing, Local Government and Heritage under the revised National Development Plan. The revised plan outlines a total capital investment in Ireland of EUR 275 billion over the period 2026 to 2035. EUR 36 billion of this has been allocated to Department of Housing for the period '26 to '30. The department's annual capital budget will increase to EUR 7.3 billion in 2026 and thereafter to EUR 7.4 billion. The macro environment continues to be very positive for us. Economic growth is forecast to continue. Exchequer returns remain strong. Ireland is operating at near full employment. Importantly for our customers, the mortgage market conditions remain strong with a backdrop, we hope of continued falling interest rates. Household savings continue to increase at a pretty phenomenal rate and our population growth remains at historically high levels, driven largely by [ emerging ] migration. I'll move on to Slide 23. This outlines some of the key policies and legislative initiatives that are being introduced and have been introduced in 2025 by government. And we believe we're strategically aligned and ideally positioned to support these policies. We are Ireland's largest self-build apartment developer with industry-leading efficiency and output and we embraced the new design guidelines that have been introduced. And this will lead to building lower-cost apartments and delivering better value for money for our state partners and for our private customers. We have a strong planning record and enable -- that will enable us to respond quickly to the new regulations and legislative changes with the additional headroom for density providing an opportunity for us to increase our output further. Most importantly, we have the balance sheet and permanent capital base to respond to government changes and deliver volume growth in the medium term. So moving on to the last slide, I suppose, is really, for us, a reflection. We are 10 years in business. We've included some of the highlights that we see and some of our achievements. As I said earlier, on behalf of my colleagues and I, we are very proud of what we've achieved. And we want to thank you, our shareholders, for your continued support during that 10-year period and we look forward to seeing many of you over the next few days. Thank you for joining us this morning, and we'll move over to Q&A, Nadia. Thank you.

[Operator Instructions] And now we're going to take our first question, and it comes from the line of Shane Carberry from Goodbody Stockbrokers.

Just 2 for me, if I could. The first one, just in terms of the land market and just to get a bit more color generally there and how the type of opportunities that are coming across your desk now have evolved? And then just the second one, just with regards to the planning environment and kind of any update you can give us there, Michael, in terms of how things have evolved since you last spoke to us, would be really helpful.

Thanks, Shane. Yes, the land market, it has been interesting over the last 6 or 12 months, Shane. Look, I suppose the challenge remains for the industry, the -- I suppose, outside of the 2 PLCs and a couple of very large private companies, it's very, very hard for the broader market, the sort of the rest of the housebuilding market to acquire large strategic sites. So if sites are smaller infill sites for anything from 30 to 75 to 100 units, they're massively competitive. Those lot sizes might, Shane, be EUR 5 million to EUR 10 million and lots and lots of smaller builders are in that bracket. And I think what we're seeing is where there's larger and more strategic land opportunities, if you take, Donabate, last year, we bought off market for EUR 50-odd million on a subject to planning deal. Those sites don't go to market, Shane. They, by and large, come directly to us. That's really due to, I suppose, landowners knowing that we are a genuine buyer of those larger strategic sites. We can get good value at those sort of price points and we have very little competition. And we've probably built a credible track record in -- and reputation and some of it comes through historical relationships as well, including, for example, this year with the Cosgrave family, a brilliant housebuilding company over many, many decades. And we were very fortunate to do some land acquisitions with the Cosgrave family. So there -- that's a big part of how we get there, Shane. But also -- and both Richie and I and working with our Chief Investment Officer, Ger Hoare, over the last 12 to 18 months have appreciated that. We don't always just want to write the check upfront for development land. If land needs to be brought through rezoning or through the planning process or derisked through infrastructure, there is good opportunities for us to either joint venture that land with a large landowner that maybe doesn't have that skill set, rarely does. There's still a lot of unnatural owners, as we call it, of large residential land in Ireland. And they see us as a partner of choice with a track record and scale. And we can also do something similar on what we call option deals on strategic land, Shane. So it's an interesting market but we have a much more diverse and I suppose we have different ways to acquire land. And we believe that will give us a strong medium- to long-term underpin for the margins we're generating. We're still building on many schemes on land that we bought in 2016 and '17. That certainly helps when it comes to our margin. The planning environment, Shane, is improving. The LRD process is working pretty well. Obviously, it's taken time and -- but we are seeing really good engagement from local authorities. Most importantly, local authorities have been asked to look at significant headroom now on their own targets within each local authority and they've been asked to go out and zone more land and create more headroom. And this, we believe, will create more good land opportunities for us in the years ahead. When you look at Cairn's performance, I think we've had about 2,600 units this year granted full planning permission across 8 grants, I think, this year, Shane. So it's been a great year for us on planning and we're very pleased the system is working better.

And the question comes from the line of Colin Sheridan Colin from Davy.

Congratulations on the 10 years. Just a couple from me, if I can. Maybe just talk a little bit about house price inflation. Obviously, it's at least enough to be covering the modest build cost inflation that's going on given the margin moves. Just wonder how you're seeing that in different segments at the moment? And what's your strategy for pricing when it comes to the most recent launches, what kind of opportunities are there? And I guess, secondly, one of the themes that's coming across is the reemergence or increase certainly in first-time buyer exposure from the company. Just wondering where -- what's driving that? Is it just down to policy changes? Is it the nature of the land opportunities that are coming? It's just more first-time buyer oriented? Just trying to get a feel for what's driving that trend.