Cairn Homes plc (CRN) Earnings Call Transcript & Summary

Welcome to the Cairn Homes 2026 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 conference over to your speaker today, Michael Stanley, Chief Executive Officer. Please go ahead.

Thank you. Good morning, everybody. Thank you for joining us for our 2026 interim results and outlook. I'm delighted to be here with Richard Ball, our CFO; and Ailbhe Molloy, our Head of Investor Relations. We've spent over 10 years building Cairn Homes to our current position. The results today show the fruits of our investments and reflect the hard work and ambition of the current team. We are delivering new homes more efficiently. We're better utilizing our own resources, and this is clearly reflected in today's upgraded ROE guidance. H1 revenues have grown by 60% year-on-year, while operating expense growth was just 7%. In our presentation today, Rich and I will outline the reducing capital intensity of our business and how this will deliver strong cash flows and increasing returns for this year and beyond. So let's turn to our interim results. We'll start on Slide 4, where we've highlighted some of our key trading KPIs from the first half of 2026. Revenue for the first half came in at EUR 455 million, up 60% from H1 last year. 1,139 homes were sold, also 60% -- circa 60% more than last year. We sell new homes to our widening range of customers across 19 developments in the urban and suburban areas of Dublin, the Greater Dublin Area, [indiscernible]. Looking forward, our current order book has grown to over 5,000 new homes, an increase of over 900 units year-on-year with a value of nearly EUR 1.9 billion. We have very strong visibility for our future growth. Our ASP for the period, as you can see, remained stable at EUR 393,000, up just 1.6%. This is despite build cost inflation, which is currently running at about 2.5%. In an inflationary environment, we have controlled ASP growth while increasing sales and improving our operating profit by 75% to just under EUR 75 million. Our operating margin for the first half grew to 16.4%. Cairn is trusted brand, and more homebuyers are choosing are well-located competitively priced homes. This is clearly evidenced in our weekly private sales rate of 3.7 new homes for active sales development. EPS was EUR 0.93, up 82% year-on-year, reflecting strong earnings growth and improved operational leverage. Moving to Slide 5, which covers some additional financial highlights, shareholder returns and our improved guidance for 2026. Net debt has reduced significantly year-on-year falling from EUR 307 million to EUR 194 million, and operating cash flow was EUR 22.4 million, which is an improvement of over EUR 140 million year-on-year. This is a material shift. The increased net investment in WIP and land that we have made over the past number of years, particularly in 2025 is now unwinding as Cairn scales. [indiscernible] our forward-looking land replacement strategy, including more detail on our increasingly low cost or increasing low-cost strategic land bank and our improving WIP turn. Our net assets have grown by close to EUR 100 million to EUR 863 million. We are also today increasing our interim dividend by 10% to EUR 0.045 per share. And we are announcing a new EUR 50 million share buyback program starting today. These both signaled a strong cash generation and financial flexibility we have to reward our shareholders. And as outlined on this slide, we are also today upgrading our full year 2026 guidance. Moving to Slide 6 now on our sales pricing and product mix. The table on the left clearly illustrate the consistency of our ASP since 2024. While our house prices have grown by a little over 4%, our apartment and Duplex pricing has remained flat. We are now also delivering homes across a much broader land bank with 30 selling sites in the full year 2026 as well as launching new phases of our existing large developments during the year, we are also bringing 13 brand-new schemes to the market in 2026. Overall, the number of houses we are delivering is growing and we will continue to do so over the next 12 months as we prioritize increased delivery of owner-occupier homes, the majority of which will be for our first-time buyers. Moving on to Slide 7. We've outlined our growing realizable market. More buyers are choosing our homes and our market share is increasing. We do deliver industry standing -- industry-leading quality and affordability with a growing brand affinity. We are unique in our delivery of large, well-located mixed tenure developments situated near multi-motor transport links. A wide range of unit typologies together with the multiple tenures or homes are designed for significantly broadens our realizable market. We are a committed partner of the housing agency in Ireland in making the recently introduced, Croi Conaithe scheme a success. This is a targeted initiative, which is unique to the IRS market. And along with recent VAT reductions on apartments and changes to design guidelines to improve density, this clearly illustrates the government's intent in ensuring that apartments play an increasingly important role in meeting future housing needs. Combined with this significant buyer support, our own low-cost apartment delivery model opens up the possibility of ownership in our cities to an expanding cohort of new customers. We include some feedback in the central slide from one of our recent Croi Conaithe launches on the edge of Dublin City. And this highlights some of the benefits of apartment ownership in urban locations, including that 70% of our new apartment owners will be moving from private rent, will take public transport to work and 45% work in the Central Dublin City. On the right-hand side, we call out a very important underpin to realizable demand. Over the next 5 years, we are targeting that circa 60% of our own occupiers homes will be priced below the government price cap of the first home and health device schemes. These 2 critical supports for our first-time buyers have been extended, and we will continue to ensure that the majority of the increasing number of starter homes we deliver will qualify. Slide 8 illustrates art of strong economic performance. The macro backdrop for housing is certainly supportive. As you know, Ireland is one of the fastest-growing economies in Europe over a multiyear period. And we have transitioned to a leader in housing delivery investment. Domestic economic indicators remain supportive. Demand continues to be underpinned by a strong economy, population growth and changing demographics. Our government has the physical capacity to continue investing to continue to invest in housing delivery into the future. They have committed $36 billion in housing and investment infrastructure to 2030 alone. On a per capita basis, this level of investment is now the highest in Europe and approximately 3x the EU '27 average. Employment, income and mortgage availability continue to support housing need. Population growth and falling household size are also increasing long-term housing requirements, and these trends are informing our own design and delivery strategy. I now move to Slide 9, where Ireland's supported policy environment is unlocking supply. Key challenges remain, but there are clear signs that wider policy measures are beginning to address some of the key constraints on housing delivery. Planning reforms are helping reduce delays and improve certainty. And as I mentioned earlier, policy and funding interventions are improving apartment activation rates, as you can see on the slide. Infrastructure investment is increasingly unlocking housing delivery at scale. Over the past 2 years, government policy has evolved from planning lead housing policy to an increasingly infrastructure-led and aligned delivery model. Water, transport, energy, site servicing are now more widely recognized as prerequisites to achieving housing need. A really good example is it is illustrated on the map shown here on the right-hand side of the slide, the housing activation office recently formed allocated close to EUR 1 billion of new infrastructure funding to speed up the activation of 86 large housing developments across Ireland. Seven of our own planned developments will benefit from this funding and speed up our own delivery time lines. On slide 10, we would like to highlight some of our key sustainability highlights. We continue to be a leader in sustainable construction. Our commitment to sustainability is delivering clear results. Some highlights from H1 are outlined on the slide here. Nearly 5,500 people are now employed across Cairn sites. And this is supported by a growing [indiscernible] Academy of nearly 350 active or qualified apprentices. We recognize the importance of a diverse workforce and continue to prioritize our own diversity. We are immensely proud of our talented team. It's important to us that when we deliver homes we create thriving communities. Our focus on placemaking is evident in our homes together and Cairn community games initiatives. Now we look at our continued investment in innovation on Slide 11. Our investment in innovation is centered on improving affordability and access to housing for our customers. Along with our design and supply chain partners, we work to understand our customers and markets and how they will evolve. On the right-hand side, you see a selection of images or a newly opened innovation hub under training rig. Based in 7 mills, our Innovation Hub provides a home for collaborative innovation, allowing us to harness our subcontractors and partners and their know-how, the knowledge within our growing RS U.K. and expanding European supply chain. Our design partners and professionals and also to explore new ways to leverage AI and digital design technologies. Moving to Slide 12. I I'd like to spend a little bit of time here as we illustrate how capital intensity of our business is reducing, while still driving significant growth and ROE progression. We have built a differentiated land acquisition capability. We source large-scale sites, typically 500 locations with enabling infrastructure. We've built relations with landowners to see us as a partner of choice. Today, we now own a land bank of 18,000 units across 38 sites. And most importantly, these are at an average plot cost of EUR 37,000, now added a capital-light strategic land bank of circa 2,750 units. And we have an additional strategic pipeline of 6,500 units. Our deal structures within this strategic pipeline have evolved and include low-cost land options, deferred considerations, contracts, conditional on zoning and planning and joint ventures. Our return is also improving, and with investment is partially recovered through forward funds as we build some of our larger apartment developments for our state parts. Our brand scale and multiyear order book also derisks our capital investment. All of this contributes to our unique ability to recycle and replace our invested capital at pace. Returns accretive growth that we are delivering is demonstrated in our upgraded to full year '26 ROE guidance of circa 17%. I'm going to hand you over to Rich, who will bring you through our financials for the period.

Thank you, Michael, and good morning, everyone. Our business today is in a strong financial position, and we have great confidence in our future. This underpins our increased guidance for 2026, an increase in our interim dividend by 10% to EUR 0.45 and the announcement of a new EUR 50 million share buyback, which will commence today. As you can see on Slide 14, we delivered a record first half with growth across every major earnings measure. Revenue increased 6% to EUR 455.5 million driven by a 1,139 closings, up 61% year-on-year. Gross profit rose 54% to EUR 96.9 million with gross margin of 21.3%. We have built the platform to support a much larger business with overheads up only 7% in H1, operating profit grew 75% to EUR 74.8 million. And operating margin increased to 16.4%, highlighting our operational leverage. Profit after tax rose 84% to EUR 58.4 million, driving an 82% increase in our earnings per share to EUR 0.093. Net asset value increased 13% to EUR 860.3 million or EUR 1.37 per share. We also declared an interim dividend of EUR 4.5 per share, which will be payable on the second of November. Moving to Slide 15 and our revenue and sales performance KPIs. Our [indiscernible] pipeline provides strong visibility over both near-term delivery and the recovery of co-invested and work in progress. The total close to forward sales pipeline stands at 5,020 units, with net revenue of EUR 1.9 billion, up 23% year-on-year. Of these, 3,881 units worth EUR 1.44 billion in net revenue are in the order book for the remainder of 2026 through to 2028. That depth of demand is important as we scale output. Over the last 12 months, closing with increased EUR 48 million to EUR 483 million, while the value of forward sales increased EUR 174 million to EUR 1.44 billion, giving 3x coverage. We have exceptional visibility. Our investment is supported by a strong and growing forward order book, giving us confidence in the timing and quality of future cash conversion. Next to our balance sheet on Slide 16. The key point is that our balance sheet remains asset backed and a conservatively leveraged. At the same time, it gives us the capacity to support our growth ambitions into 2027 and beyond. At 30th of June, land held for development was EUR 693.3 million and construction work in progress was EUR 482.9 million. Net assets increased EUR 24 million to EUR 860.3 million as we continue to strengthen our equity base. At the end of H1 and given our strong H1 cash flow performance, debt to gross asset value was 18.6%, tracking below our year-end target of circa 20%. We continue to have significant funding capacity with EUR 500 million of committed debt facilities and no maturities until June 2029, following our recent EUR 42.5 million loan note refinancing. Overall, the balance sheet gives us the capacity to fund disciplined growth while also allowing us to accelerate returning capital to shareholders. Moving to Slide 17. This slide shows the investment in scale. It's translating to a stronger cash generation as expected. EBITDA increased 68% year-over-year to EUR 78.6 million. After a net EUR 69.1 million investment in work in progress, we generated EUR 22.4 million of operating cash flow in the first half. That compares to net flow of EUR 118.6 million last year, an improvement of EUR 141 million. We returned EUR 36.8 million to shareholders through dividends during the period. Even after returning significant capital to shareholders, net debt reduced by $112.9 million year-on-year to EUR 194.5 million, highlighting our improved capital efficiency. On Slide 18, we outline how we deploy capital with a clear objective: Grow the business, preserve financial strength and increase shareholder value. To fund our future growth, we are recycling our capital with greater efficiency. More than 90% of additional WIP spend is targeted to be recovered within 12 months. While our target recovery period per net land investment is 3 to 4 years. Our track record of value creation is clear. ROE has increased from 5.7% in FY '21 to a targeted 17% FY '26. delivery returns that are roughly 3x higher than FY '21. We have a strong balance sheet that provides resilience. We intend to maintain low leverage with year-end debt to gross asset value of approximately 20%. That is consistent with the 17.8% at the end of 2025. Lastly, we are returning surplus capital. We remain committed to progressive ordinary dividends as evidenced by our 10% growth in our interim dividend announced today, supplemented by additional returns through share buybacks after funding growth. Our priorities are clear: grow efficiently through disciplined capital allocation and operational leverage, maintain resilience with a strong balance sheet and financial flexibility and increase shareholder value through value creation and capital returns. I will now hand you back over to Michael to bring you through our raised guidance.

Thank you, Richie. Let's finish up on Slide 20 and talk about our outlook. Demand is real and sustained. Our platform is built to deliver whilst maintaining the quality and placemaking that we've earned a reputation for. We have great visibility through our record order book into 2028. We're investing in our platform, our people, our systems, our innovation and our communities. And we want to make ourselves even more efficient and drive long-term sustainable growth. We are generating increased cash flow, as Richie talked about, to fund this growth and reward shareholders simultaneously. And we are strategically positioned in our market to service the housing needs Ireland faces. And finally, to wrap up, we are pleased today to be upgrading full year 2026 guidance on key financial metrics. Revenue to circa EUR 1.08 billion, operating profit of circa EUR 185 million and ROE from 16.5% to 17%. Thank you for your time today. And I'm now going to hand you back to Ailbhe Molloy for questions from people on the call. Thank you.

And this one comes from the line of Shane Carberry from Goodbody.

And Shane, before we start, I just want to say we're joined here today by our new Director of Finance and Treasury, Elaine O'Brien, help us out for the first time on our results. And the great Deck Murray, who needs no introduction, who told me yesterday, this is his 21st results with Cairn. So welcome, Elaine and Deck.

Thanks, Michael.

Go ahead, Shane.

First question, I guess, just in terms of the capital allocation story and Slide 12 is really helpful in that facet. Just, I guess, digging a bit deeper into kind of capital allocation priorities from here. Obviously, there's this drive to reduce the capital intensity. How should we think about priorities in '27 when I think about excess capital returns versus investment in the land bank? Is it more land bank investment being through these kind of capital-light strategic land bank sort of models is how I should be thinking about and that will help us frame the kind of capital allocation story for the business through the next 18 months or so? And then the second one, I guess, look, there's going to be a lot of policy discussion in the lead up to the budget. In particular, I wanted to dig a little bit deeper on [indiscernible] seems to be working pretty well. Is it genuinely unlocking kind of new apartment schemes that might not have otherwise been viable? And do you think it becomes a bigger function of the market going forward?

Yes. I suppose starting there, it has to be. If you look at the government's target in the sort of 50,000 units a year to achieve that, we have to be delivering about 25,000 apartments a year. We're kind of hovering around a run rate of between 90 and 120. So the number of apartments has to more than double over the next number of years, Shane. A lot of those apartments are for affordable rental supported by increased delivery through the affordable housing associations, the Land Development Agency. And they have a very important role. But think this government is really intent on increasing homeownership across the full spectrum of housing typologies and particularly apartments. So [indiscernible] is unique to Ireland. It's an incredibly impactful initiative, we believe, and it is working because it moves people from homes that they rent, apartments that they rent, often costing EUR 2,000 to EUR 2, per month, and you'll see some information in the appendix of our presentation today, which show that with support and at the price points we're delivering these apartments at chain, people can own apartments for as little as EUR 800, EUR 900 a month mortgage. So incredibly impactful. We're massively supportive of it. The scheme that we talked about and the customer feedback is the largest so far delivered under [indiscernible] . We're delivering well in excess of 200 units, actually in 7 mills. And our first launch off plan of those apartments we had inquiries from over 4,000 people. So young people in Ireland are really keen on this initiative and they're really keen to live close to where they work and close to city center. Rich, anything to add on the capital allocation piece around that sort of growth of our capital-light strategy. It's just really for us a sensible way for us to think about increasing our capacity in land bank.

Yes. I think -- and obviously, look, Shane, you would have known our last of share buyback was actually back in 2024, and then we made a material net investment into our WIP in '25, about EUR 167 million, which is obviously translating into a very strong cash generation profile for the business. Combined with that, and obviously, our reduced capital intensity, which has been driven by our land strategy, which we continue to focus on and which we have communicated consistently over the last 12 months. and also just that more efficient WIP turn. But the big focus for us is our ROE returns and making sure that our capital investment decisions are accretive to returns to shareholders.

Yes. The only thing I would add is, look, it's -- the land market is probably more active in the last 6 to 12 months than it's been for a number of years. That's really positive. That's reflecting on the level of demand that's out there and how smaller to midsized builders are starting to expand and scale. That's really, really positive. All of our land is bought off market. Our ability to pivot to strategic land buying is because we're recognized as a very credible partner. And we're probably one of the few people that can go after those really larger sites in urban areas and on those multimodal transport things. and continue to drive value. But we're really happy with our position. Today is the time to have a large land bank, particularly at an average cost of 37,000 per unit.

We are now going to take our next question. And this one comes from Jonathan Coubrough from Deutsche Numis.

Welcome, Elaine, and it's great to have Deck on, hope he is doing well. First question for me would be on the -- a follow-up question on the land buying. And you've told us today how your land sourcing is becoming much more capital efficient. How will working capital evolve as the land under option increases? And when you think about your net debt target at 20% of GAV, would that change much if payables increased with your land options? And then the second question would be on the order book of over 5,000 units. Are there any large schemes within that to call out? And does that include units for delivery beyond 2027 at this stage?