Glenveagh Properties PLC (GVR) Earnings Call Transcript & Summary

Hello, and welcome to the Glenveagh 2021 Interim Results Call. My name is Molly, and I'll be your coordinator for today's events. Please note that this call is being recorded. [Operator Instructions] I would now like to hand the call over to your host, Stephen Garvey, to begin today's conference. Thank you.

Thank you, Molly, and welcome, everyone, to Glenveagh's Interim Results Call. Joining me here in Minute is my colleague, Michael Rice, our CFO. We are pleased to report on the continued progress made by Glenveagh's team to create Ireland's leading volume homebuilder with a focus on starter homes, affordable rental product and partnerships. To begin, please turn to Page 4, where we set out our operational highlights, which demonstrate Glenveagh's strong progress in the period. During the first half of 2021, the group completed the sale of 322 units which represents 162% increase from last year. Our attractive customer offering is further evidenced from a 58% year-on-year increase in the average weekly private reservation rate that has resulted in 1,000 units being closed or signed, which translates into 87% of our 2021 target. From an institutional and state partnerships perspective, the group has also made important progress and further strengthened its position as the preferred partner of choice. Having completed a forward fund transaction for the Premier Inn Hotel, we have now progressed negotiations to forward fund a 320-unit development and agreed Heads of Terms with an institutional counterparty, with completion expected within 6 months. Alongside the sale of the Premier Inn element of the Docklands sites, Glenveagh have made significant progress in monetizing this key urban development during the financial period, which reduces the group's risk in the Docklands, while allowing the business to redeploy the proceeds elsewhere in the business to maximize return on capital. The group has exchanged contracts on the sale of the residential and second hotel sites at Castleforbes in Dublin Docklands for a cash consideration of EUR 78.5 million. In the meantime, our overall construction progress has been substantial. Our 1,150-unit guidance has been maintained despite COVID lockdowns. In addition to the 15 existing sites delivering units in 2021, the group has recently opened 5 new suburban sites as well as construction on the commercial element of Castleforbes, all of which will deliver units from early 2022. To enhance our construction capabilities, we are investing further in our supply chain, starting with EUR 16 million investments in an additional timber frame and soil recovery facility. Lastly, the group has -- the group continues to take a disciplined approach to capital management. Over the past 2 years, we have received over EUR 90 million from noncore disposals. By year-end, we anticipate that our land value will be below EUR 600 million. And our share buyback program that was initiated has over 25 million shares repurchased to date. This operational progress gives the team confidence that the business is well-positioned to continue to meet our output targets beyond 2021. Turning to Page 5. We highlight the financials for the period, which Michael will cover in more detail later. Our revenue of EUR 127 million is related to the sale of 322 units and the forward from land sale of the Premier Inn at Castleforbes. The disposal of the residential component of Castleforbes will be reflected in our full year results. Underlying gross margin of 23% compares favorably to the 13.8% achieved in H1 2020 and is expected to moderate to approximately 19.5% by year-end. Reflecting the maturity of our operational profile of the business, we are now profitable at half year on a net basis for the first time since IPO. Land and work in progress on our balance sheet has increased in the first half of the year as a result of site acquisitions and further investment, principally suburban WIP and continued growth -- with continued growth in mind. Reflecting the greater weighting for H2 from a completion perspective and the disposal of Castleforbes, both land and construction will reduce materially by year-end, leaving the balance sheet exceptionally well funded. Now let's turn to the market overview on section on Page 7, where we would like to outline what we've seen in our operational environment more broadly. As you can see from the chart on the left, Ireland has now emerged from one of the strictest and long-lasting periods of lockdown across the major global economies. As a result, construction sites were disrupted for the first 13 weeks of the year due to government-imposed lockdowns. Looking at the right-hand chart, you can see that the economy started to reopen as Ireland made significant progress under the vaccine rollout, which will also hopefully minimize the possibility of future lockdowns. Now let's look at Page 8. As you can see that the successful vaccine rollout with easing of restrictions has led the OECD to forecast Ireland's 2022 domestic demand growth rate to be one of the highest across the globe. Ireland's global outperformance in the first quarter of 2021 and the rapid sentiment rebound in the construction industry gives no reason to believe that this won't be achieved. Turning to Page 9. We would like to discuss the recent trends in the levels of savings and deposits by Irish households. A pandemic-driven reduction in consumer spending, combined with earnings growth, has led to a strong household savings rate, which has continued into 2021. Irish household saving levels continue to surpass household borrowings and are now amongst the highest in the EU. Looking next at Page 10. The general consensus of farms that Ireland needs over 35,000 homes a year or more than 400,000 in the next decade. As you can see on the left-hand chart, housing availability continues to decline with the number of properties available for sale on one of Ireland's most popular property search websites currently at all-time lows. Nevertheless, demand from customers is increasing as evidenced by strong mortgage data approval on the right-hand chart, which is further supported by the high levels of Irish household savings discussed in the previous slide. In conclusion to the market overview section, let's look at Page 11, where we outlined recent policy developments from the Irish government that are aimed at supporting much-needed housing supply. Some of these measures have been announced in detail and are moving into implementation stage, while others have been reported in the media in the context of the government for all housing strategy due to be published in September. Broadly speaking, we believe that many of these policies announced by government will be helpful in terms of delivering additional supply into the market within a shorter time frame. Of note is the expansion of Help-to-Buy to EUR 30,000, which removes the requirement of a deposit at the group's average suburban ASP of approximately EUR 300,000. The expansion of cost rental and the introduction of shared equity scheme, where the state will come on board and take a stake of an average of 20% in any new build home subject to regional price caps. This scheme is capable of being used in conjunction with the existing Hub-to-Buy scheme. The remainder of the initiatives are generally positive overall from a supply perspective, however, we await the publication of the housing for our strategy in September, and we'll work through the detail when it's available. The main question we will be asking is whether the policies will help more supply into the market as opposed to simply reallocating existing viable units across the electric. Lastly, it is important to understand that housing delivery has a long lead in, and it will take time for these measures to make a substantial impact on housing delivery. The new housing strategy should set a long-term strategy ambition for this government and make sure that the policy environment moving forward is stable and aligned. This will ensure that we can plan for the future with confidence. Let's now turn to Page 13, where I would like to reiterate our strategic focus, which has not changed despite COVID. Firstly, we continue to make disciplined investments across the 3 targeted segments of suburban, urban and partnerships. Secondly, we continue to deliver for our customers in places they want to live and at prices that they can afford, as evidenced by our strong reservation rates. Third, we continue to scale and standardize our operations and construction capabilities, which we'll discuss in detail later. Fourthly, we continue to optimize our capital employed in land and work in progress. All the while we are pursuing our environmental and social agenda and focusing on scaling the business to deliver strong returns for our shareholders. Looking at Page 14, we would like to highlight the attractions of our complementary business units. Our suburban segment, which delivers suburban housing is highly attractive as it targets the part of the market with the deepest demand. As we continue to successfully execute on our strategy of delivering affordable high-quality homes in locations of choice, the group is well-positioned to maximize sales in this segment. Moreover, the nature of the product allows for easier optimization of construction process, which allows Glenveagh benefit from economies of scale, as we continue to ramp up our deliveries. Our urban segment, which delivers urban apartment for institutional investors in the private rental sector represents a substantial opportunity for the group. As Ireland has the lowest proportion of apartments in the EU, the structured occupied shift to rental and the increasing urbanization rates have led to the substantial mismatch between supply and demand of urban accommodation. This environment has attracted a considerable number of institutional investors that are committed to forward fund or forward commit the vast majority of our PRS units. Our partnership segment is another highly attractive segment, whereby the group enters into an agreement with a government agency or local authority to build on state land at a reduced upfront outlay. Over time, this will derisk Glenveagh's market exposure and provide access to both land and deliveries for suburban and urban segments, facilitating a strong return on capital profile and increase business resilience with reduced risk. With considerable undersupply of social affordable and cost rental housing in Ireland, we believe the opportunity for partnerships is significant. Overall, we believe that targeting these 3 business segments represent the best use of capital and operational resources going forward. And we are confident that the business is well-positioned to capitalize on these opportunities. Turning to Page 15. We outlined our key priorities for this year, which are aimed at enhancing our strategy to continue to align the business and the land portfolio with support of government policy. This means we are focusing on land acquisitions of affordable suburban sites with planning permission. We are aiming to create a more active land portfolio and improve capital efficiency. To achieve this, we are acquiring sites with planning permission, whilst maximizing planning as well as delivering services and utility to our existing land portfolio. We are focusing on improving and increasing Glenveagh's manufacturing capabilities. This will be achieved through a combination of maximizing benefits and efficiencies from our existing facilities as well as acquiring further manufacturing facilities to support growth. Again, I would like to discuss this in more detail later. Our fourth priority is to further enhance our construction capabilities and reputation. This means maximizing delivery capabilities on the existing sites, while increasing construction team and opening new sites. Our fifth priority is to further cement our status as a delivery partner of choice. To achieve this, we are aiming to build on our relationships with approved housing bodies, make demonstrable progress on our forward funds of our core urban developments. Our final priority is related to advancing our partnership segment. To date, we have made significant progress on each priority, which I would like to discuss in the 2 following sections. Let's now turn to Page 17, where I would like to provide an update on our land portfolio and discuss several features of its strategic appeal. Over the course of the past 4 years, we've assembled an excellent land portfolio, which falls within the 3 core segments. Our portfolio is centric -- is Dublin-centric with approximately 77% located in the Greater Dublin Area, combined with a particular focus on the deepest segment of the residential market, being homes under EUR 350,000. We have a true starter home focus suburban land bank with no site concentration risk. In addition to affordability, we have placed an emphasis upon transport links, particularly train lines and local employment. Attraction of our assets is further highlighted to the multiple exit options with 40% of our portfolio having an institutional or state-supported exit option. Turning to Page 18. We discussed the government's recent shared equity scheme initiative in light of our current portfolio. Under shared equity scheme, the state takes up to 20% in the homes of first-time buyers, who will take out a mortgage with the bank for the remainder of the cost. The scheme is capable of being used in conjunction with the existing Hub-to-Buy scheme. The scheme has been introduced with several recent price caps for our suburban housing ranging from EUR 450,000 to EUR 225,000 depending on location. As you can see from the chart below, Glenveagh has established a suburban land portfolio aimed at the most affordable end of the market with 77% of the units in regions 1 to 3 falling within the shared equity price caps. As a result, 73% of our overall portfolio qualifies for shared equity scheme. Turning to Page 19. We outlined another substantial government initiative aligned with Glenveagh's land bank. Cost rental schemes are a proven model across Europe, whereby approved housing bodies purchased cost rental units from the private market to be rented out at 25% below market rent rates. To date, Glenveagh has already delivered 2 of the state's first ever cost rental transactions in Taylor Hill and Barnhall Meadows. The group intends to continue to provide units to the cost rental scheme and a decent amount of our land bank can be dedicated to social affordable or cost rental housing. Concluding the review of our land portfolio, let's now turn to Page 20, where we would like to highlight the deliverability from a planning and infrastructure perspective. Guided by our experienced in-house planning team, we have made significant planning progress during the period with over 2,000 units granted permission across 10 sites. Combining this with sites acquired with planning commission in the period, the group now has over 6,700 available planned units, which translates to approximately 40% of our overall land bank. As a result, we do not have any planning concerns for delivery of our target of 1,400 homes in 2022. On the other hand, our dedicated services department has continued delivering utility connections earlier to the business. As you can see on the chart on the right-hand side, the number of sites with utility connections secured in advance of construction has increased from 3% in 2018 to over 85% in 2021. Reducing connection delays has significantly improved delivery time lines and facilitate a leaner construction. Moving to Slide 22, which is the opening slide of the operational review section, which I would like to provide an update on our operational sales activity as well as some recent initiatives within the business. To date, the group has made significant -- the group has seen significant one-off cost increases in the period in a variety of commodity and trades, the most significant of which were timber and resin-based products. To partially mitigate these price increases, the business was able to leverage its purchasing power and scale. But more importantly, the supply chain initiatives that the business invested in over the last number of years have paid dividends. Our timber frame factory facility set up in 2020 and our soil recovery facility opened early in 2021, allowed the business to shield itself from the full impact of the increases that the wider market experienced generating significant competitive advantage. As a result of the initial reaction to the reopening of residential construction and the global commodity price increases, the business saw a cross price inflation of approximately 5% on tenders in the period, which will largely impact deliveries for 2022. Looking to future periods, the group's continued investment in its supply chain will be the main driver in managing CPI. Turning to Page 23, we would like to provide a further update on our manufacturing strategy. Given the evident benefits of the existing supply chain integration, we have initiated further expansion opportunities resulting in a EUR 16 million investment in an additional timber frame and soil recovery facility. The timber frame facility is strategically located within our suburban south region to better service our expanding network of construction sites throughout the country. The purchase of the vacant facility will complete in the coming weeks and will be operational from 2023 following the delivery of new manufacturing lines. When combined with our existing Dundalk facilities, the group now intends to manufacture approximately 2,000 timber frame per annum by 2024. Our site recovery capabilities have been augmented with the addition of our new facility in suburban south region, which will complement our existing facility at Bay Lane in our suburban North region. These investments will allow the substantial growth -- the sustainable growth of the business to 3,000 units per year and beyond, while also controlling the cost in a manner that improves the return on capital in the medium term. Turning to Page 24. We summarize our construction progress to date. Having opened 5 construction sites in the period, the group are currently constructing on 20 sites with additional site openings planned for the second half of the year. Our experienced on-site construction teams are assisted by recognized construction support teams, which allowed us to maintain our 1,100 units guidance for 2021. As a result of the progress made today, we have assembled a high-caliber team capable of ramping up to volumes of 3,000 units. Turning to Page 25. I would like to provide a further overview of transactions that strengthened Glenveagh's status as a partner of choice for institutional investors. Having completed the sale of 134 units in Marina Village to Real IS, we have also delivered another 132 units to an institutional investor across 2 other developments. As mentioned in one of the previous slides, we have successfully delivered units under the cost rental scheme to an approved housing body Clúid Housing, who also purchased a further 81 units from 2 of our other sites. We have also made a significant progress on our Docklands portfolio, which we would like to cover on the next slide. During 2017 and 2018, the group made 2 attractive acquisitions at a strategic, but one-off Dublin Docklands location. Significant value has been added in the interim via a series of successful planning applications and the forward fund of the Premier Inn hotel. Having received an unsolicited off-market approach and an attractive valuation, the company has decided to sell the remaining site at Castleforbes. This brings forward profits from the development and freeze up capital and resources to invest in our core urban or suburban business. The group plans to forward fund the 554 units East Road development. From a business perspective, this transaction delivers a strong financial outcome, accelerates return on capital and reduces the risk, while increasing our ability to capitalize on our urban deliveries. Let's now turn to Page 27, where I would like to discuss our first landmark deal in our partnership segment. During the period, we were selected by County Council as its partner for the proposed development of 1,200 new homes at Ballymastone, Donabate and North County Dublin. This is a significant win for the business. And the project will deliver much needed housing units in the area, across a mix of private social, affordable and cost rental homes. We will now move forward with a formal planning application and would hope to begin development in 2022. We continue to be very supportive of the partnership's delivery model and are actively engaged in 2 separate schemes, which if awarded could deliver additional 1,400 units. Given the group's construction capabilities, private market experience and reputation and strong balance sheet, Glenveagh remains strongly placed to be the supplier of choice for much-needed housing across a range of tenures. In conclusion to our operational review section, now let's turn to Page 28, where we would discuss the attractiveness of our well-established network of suburban sites, the benefits of Glenveagh's suburban land strategy -- suburban land assembly strategy, which has been exclusively start or home focus, continue to produce positive results from a sales perspective with 1,000 units for 2021 now sold or with a binding contract in place underpinning our target of 1,150 units for 2021. Currently, there are 15 active selling sites in 2021, 3 of which are new sites opened this year. Lastly, I would like to note that of our 1,400 unit target for 2022, we've come from our currently active construction sites with 6 new sales outputs to deliver units for 2022. Let's now turn to Page 30, where I would like to give you a quick recap on our sustainability strategy. Determined to play a role in creating a sustainable future, we've assessed a wide range of issues across our value chain to identify those that present the most significant risks and opportunities. As a result, we have set out clear targets against them, we can be found -- which can be found in our 2020 sustainability report. These material issues are grouped in our 6 sustainability pillars, and they address the most relevant issues to our stakeholders while supporting our strategic priorities. We considered how important each issue is to our key stakeholders, including investors, customers, employees and communities as well as government and to the extent, which each issue could have a negative or positive impact on people, society or the environment. We look forward to reporting on the progress against these targets as part of our 2021 full year results announcement. Yet we would like to share some of our preliminary progress to date on the next page. The group continues to make incremental and meaningful progress on the material areas of focus identified in our 2020 sustainability report. During the first half, Glenveagh achieved 2 certifications from the National Standards Authority of Ireland, ISO 14001 Environmental Management and ISO 45001 occupational health and safety. The ISO 14001 certification will help ensure our business is focused on reducing our environmental impact, supported by effective management process. ISO 45001 demonstrates that we are committed to improving employee safety, reducing workplace risks and creating a better and safe working conditions. We have also built on our disclosures in the period measuring scope-free emissions for the first time and reporting these via Climate Disclosure Project, CDP 2021, as part of demonstrating our wider approach to managing climate and environmental issues. Recognizing the importance of the Group 6 sustainability pillar to our strategy, the Board has established an environmental and social responsibility committee to lead our ambitious plans in this area, ensuring we deliver homes for our people alongside the highest standards of environmental stewardship and responsible business. A further detailed progress report on the sustainability agenda progress in each material area of focus will be provided at the time of full year results. Now I'd like to pass you over to Michael, who will discuss the financials for the period.

Thanks, Stephen, and good morning, everyone. As Stephen mentioned, the first 6 months have been a very positive period for Glenveagh, and this is reflected in the financial performance of the business. These results are the stronger Page 1 results that we've had to date, and we're profitable in H1 for the first time, demonstrating the maturing nature of the business. We hope that we have now seen the worst of the pandemic, and we have certainly made good progress across the various areas of the business in the 6-month period, and I'll touch on many of these as I walk you through the financial results. Starting on Slide 33, our income statement for the 6-month period to 30 June. Total revenue for the period was EUR 127.5 million, a significant increase from the EUR 37 million generated in H1 2020. There are 3 main components to revenue in the period. EUR 59 million from the 197 core suburban units, EUR 53 million from the 125 noncore units in Marina Village,, Greystones and EUR 16 million from the Premier Inn hotel site sale, which is the first part of the wider EUR 70 million forward fund transaction with Union Investment. As anticipated, the waiting towards closings in H1 has improved with nearly 30% of our full year unit target closing in H1. This compares very favorably to the 18% and 19% in 2020 and 2019, respectively. Looking out to the full year revenue forecast, we have announced the signing of the residential and second hotel site sales in Castleforbes for EUR 78.5 million this morning, and we expect this transaction to close before year-end. As you may remember from this time last year, we took the decision to accelerate the sale of our noncore units to maximize cash generation. But due to this decision, an asset impairment of EUR 20.3 million was required. Fast forward 12 months and the sales in Marina Village have progressed very well with the business having generated close to EUR 90 million of revenue to date, and we're also in a position to reverse EUR 4.2 million of the impairment due to stronger-than-expected selling prices. This partial reversal feeds into the overall gross profit for the business of EUR 21.4 million versus a gross loss of EUR 15.2 million in the prior period. This provides the business with an overall gross margin of 16.8%. Again, there are a number of components within margin due to the noncore disposals. Excluding the noncore sales in Marina Village, the overall core gross margin for the business is 23%. This is obviously a very strong number for the period, but this will get diluted over the rest of the year as the remaining suburban units complete. On that basis, we expect the full year overall core gross margin to be in excess of 19.5%, including the residential and second hotel sites in Castleforbes. The core of urban housing gross margin for the full year is expected to be approximately 17.5%. Our central costs, including depreciation of 14.8% for the first 6 months of the year, but includes a one-off cost of EUR 1.6 million relating to the disposal of our previous head office in Merrion Square in Dublin. Post pandemic, this office is surplus to requirements, and we made the call to sell the building and bring the cash back into the business to reinvest elsewhere. Overall, the income statement shows a healthy position for the group with EUR 4.3 million of profit before tax versus a loss of EUR 27.2 million for the same period last year. Slide 34 shows our balance sheet at 30 June. I won't go through the full slides, but as usual, there are a couple of areas that I want to draw your attention to. The property, plant and equipment has decreased due to disposal of our office in Merrion Square, as I mentioned. The additions of the new timber frame and soil recovery facilities that Stephen mentioned earlier, will only hit the balance sheet in the second half of the year. As in previous years, our inventory number of EUR 881 million is the most significant line item to discuss. The overall number is split between land of EUR 642 million and work in progress of EUR 239 million. The increase in land predominantly relates to our investment in 9 new suburban sites for a total of EUR 52 million, the majority of which are planning with construction starting this year. Getting on site early post acquisition has been a key part of the business' drive to improve capital efficiency over the last number of years. With this capital efficiency in mind, the current trajectory is to reduce our land value below EUR 600 million by year-end, while at the same time continuing to invest in new suburban sites to grow the business to 3,000 units per year and beyond. We have continued to invest in work in progress in line with the growth strategy for the business with the balance of EUR 239 million, an increase of EUR 37 million from the year-end position. Having a higher WIP balance at half year is the current norm for the business, and we expect the WIP position per site to unwind by year-end as we close the remaining units from our 1,150 targets. Moving over to Slide 35, our cash flow statement, which mirrors a lot of the movements we've just seen in the balance sheet. Our continued investment in inventory is coming through with the EUR 54.8 million cash outflow in the period. The cash inflows and outflows for our -- from our new EUR 250 million commission debt facility agreed in the period can be seen in the financing activity section. We made a total repayments of EUR 102.5 million in the period, including EUR 100 million from our existing RCF ending and replacing us with the EUR 100 million term element of the new facility. The 150 RCF component of the new facility was not utilized at 30 June. Also in the financing activity section, you will see the cash outflows for our EUR 75 million share buyback program, which we announced at our AGM in May. We purchased 20.5 million shares in the period at a cost of EUR 19.8 million with 4.1 million sitting in payables on 30 June, giving you the 15.7 million that you see in the cash flow. Currently, we have purchased 26 million shares. So we're making decent progress on the buyback. To give you a better sense for the level and scale of cash flowing through the business, Slide 36 shows the cash movements in the 12-month period from 30 June 2020 to 30 June 2021. Even though they're not the largest numbers on the slide, I want to highlight the cash flows from the noncore units in Marina Village and also the forward fund in Castleforbes, the total cash inflows from these are EUR 93 million from what could be regarded as nontraditional or noncore activities. These funds have allowed us to invest in land of EUR 67 million and initiate a share buyback of EUR 16 million and allow the funds from the core business to fund our working capital requirements. We finished the period with a net debt position of EUR 33.5 million, which is a strong position given the level of growth we are currently delivering. We've included the next slide, Slide 37, and to summarize and conclude on what has been a very busy and productive period for the business from a financial perspective. For a couple of years, we've talked about reducing our net investment in land. Even though our land investment has increased at 30 June, we now have good visibility on reducing our land investment below EUR 600 million by year-end with a big driver of that being the site sale and Castleforbes. Our gross margin has progressed well in the period, and we now have greater clarity post COVID. As mentioned, we are guiding to a full year core gross margin in excess of 19.5%, when the expectation, certainly at the start of the year was a few hundred basis points below that. This time last year, we made a commitment to accelerate the disposal of our noncore units and generate EUR 100 million for the business in a 12-month period. To date, we have over EUR 90 million back into the business, which, as I showed you on the previous slide, has allowed us to invest in land and initiate our share buyback program. We continue to invest in our work in progress, and that mainly came in the form of opening new sites in the period. The investment in these new sites is consistent with our infrastructure-led approach, and they will deliver sales in 2022. As we talked about before, we agreed our new EUR 250 million committed debt facility in the period, which will give us the necessary financial resources to grow the business to 3,000 units per year and beyond. It was also the final cog in the wheel to allow us to come out with a number of new policies and targets. With our new 5-year debt facility in place, we set out our capital allocation and leverage policies at our AGM in late May to give clarity on the level of debt and the level of net debt that we'll maintain as a business and also what our capital allocation priorities are. Very simply, we'll prioritize growth through investment in work in progress, followed by our investment in our supply chain, which you've seen this morning from our investment in 2 additional facilities with the final element being our investment in land. With balance sheet efficiency in mind and to give clear direction to external stakeholders, we set out a capital -- a return on equity target of 15% by 2024. We believe that this is a challenging but achievable target and requires us to continue to optimize our investment in land and work in progress, while managing our cash and debt levels appropriately. Finally, and as part of the capital allocation policy, we said that if we had excess cash in the business, we'd return it to shareholders. This was simply honoring a commitment we made at the Capital Markets Day in January 2020. To be honest, we didn't think it would take us nearly 16 months to deliver, but obviously, we didn't expect COVID. We needed to sensibly manage our way through the pandemic, but we were delighted to initiate the EUR 75 million share buyback program in May. Overall, I hope you'll agree that financially, we've had a successful year-to-date and that the business is maturing nicely as we grow to 3,000 units and beyond. Thanks, everyone, for joining this morning, and I look forward to speaking to most of you over the coming weeks, and I'll pass you back to Stephen for his concluding remarks.

Thank you, Michael. In conclusion, let's turn to Page 39, where I would like to summarize Glenveagh's progress against our strategic priorities. Firstly, we have strategically assembled an affordable land portfolio that is aligned with supportive government policy, which further derisks our yearly target deliveries going forward. Secondly, announcement of our ambition to go past 3,000 units per year is in line with our priority of creating a more active land portfolio. In line with our strategic priority to scale and standardize our construction capabilities, we're expanding our manufacturing operations with the EUR 16 million investment in 2 additional facilities. Furthermore, our construction capabilities and reputation has been reinforced as we maintain our 1,150 unit guidance for 2021 despite a 13-week lockdown. Our first forward fund agreement to deliver the Premier Inn hotel in Castleforbes is complete, and we are now currently working on other projects in line with our strategy to forward fund urban projects. Alongside this, we have also made significant progress within our partnership segment, having been selected by Fingal County Council as partnered to deliver 1,200 homes much-needed housing in the area. Lastly, we've commenced a EUR 75 million share buyback program using excess capital, which is in line with our objective of enhancing shareholder value. In conclusion, I would like to know that we have every confidence in our continuation of our successful ramp-up given the expertise, work ethic and experience of all the members of the growing Glenveagh team that have delivered for the company and our customers, and we'll continue to do so as we move through 2021 and beyond. With that, I'm happy to turn over the call to any questions. Thank you.

[Operator Instructions] The first question today comes from the line of Colin Sheridan calling from Davy.

Congratulations on the results. Just a few for me, if possible. First, just on inflation, I suppose you pointed to 5% house price inflation in suburban and 5% build cost inflation. Just trying to get a feel more recently about where you feel the risk to those numbers is directionally as we go through the rest of the year? I mean, obviously, you've spoken to shared equity and obviously, that could play a part in us, but there's clearly a lot of concerns on things like the materials front as well, whether you think -- what way you think that could progress as I said, into the end of the year? And the second one then, just on your investments from a supply chain perspective this morning and the additional amounts going into timber frame and soil recovery. What way -- or maybe you explain your thinking what way we should think the future economic impacts on the business from those facilities? I mean, I think we all understand that the supply chain benefit that you get from the surety of supply, particularly on the timber frame side, but are there benefits that we should be thinking about in terms of in-housing, say, margin from the timber frame business or a benefit from a construction cost inflation perspective over a number of years? Just which way do you think about that? Which way do you think we should think about those investments? And then finally, I guess, on Castleforbes, I mean, very impressive amount of value being nailed down today by the transaction on the land in Castleforbes. I mean how do you think about the trade-off between realizing all of that value in 2021 versus the margin that could have been made in the future by, say, pre-funding that site, particularly with respect to any alternative investments that you can go after now that the Castleforbes prefund on the far side, I guess, won't go ahead. So I mean, just to give us a flavor of what your thinking was from a value standpoint on the site?

Sure. Thanks, Colin. I suppose I'll deal with house price inflation. First, I can pass over to Michael to cover anything. Yes. house price inflation, we've called it out that we've seen about 5% -- probably seeing greater than 5% in certain markets. And it is very robust out there, the demand. We all know the supply issues in the sense of the low amount of stock that's available for sale. But also, I suppose, call it, with the delays in opening up new schemes is obviously is forcing that as well. I suppose in our interim results of last year, we kind of called out that you could see the trend of household deposit saving and things like that was increasing dramatically. You've obviously had the Help-to-Buy expansion of EUR 20,000 to EUR 30,000 -- sorry, from EUR 20,000 to EUR 30,000. So all of that's feeding in. So we kind of said over the next 2 years from that point, we probably thought that there was potentially up to 10% house price inflation coming down the track. Obviously, shared equity hasn't impacted at all in the market, yes, that hasn't been rolled out. And that is expected to start to commence hopefully when the housing-for-all strategy is published. It is hoped to be enacted. And we expect further expansion on that, not just from this year, but next year, as it seems to be a key policy driver for government to help people bridge the gap between the macro prudential rules. So we're quite comfortable with what we're seeing, I suppose, what we've always indicated is we want to ramp up volumes. We want to deliver. We've seen really strong progress in, I suppose, the early part of or at the end of the summer, early autumn in our progress. We've already seen 300 units. They are progressing well, and the guys are achieving good sales prices on those. So it's quite robust, and there's good momentum out there. So we're very happy where things are going. But it's probably -- look, it's hard to gauge where it could end up. So calling at 5% today, we're seeing that and it's pretty robust. On the CPI front, absolutely, at the start of reopening, we've seen, obviously, the commodity issue. You've seen lumber prices in the states going from all the way to -- from 280 up to 1,700 and coming all the way back down to about 460 million, 470. We do think the lumber issue has probably resolved at this stage and prices have come down. And that hasn't fed into the system yet. It does take a number of weeks or months to probably come true. You've seen resin-based issues as well. There were supply chain issues there with factories in the U.S. that went down. And unfortunately, that fell true to a lot of PVC product, plastics, piping, et cetera, et cetera. But that is kind of settling down. Labor is probably -- it is -- there isn't an abundance of labor out there at this moment in time. But we would kind of hope what we're seeing is we're seeing a lot of commercial developments on the go that are trying to finish up. I suppose we're really wondering what happens after those commercial developments finish up, what will be the next phase of that because I suppose the office space will free up a lot of trades as well. So I suppose feeding into that, what we've tried to do is look forward. We've seen the benefits of the timber frame factory in Dundalk. We've seen the benefits of our soil recovery facility in Bay Lane. And as opposed to enhance on those, we've added 2 further facilities. And the way I would look upon that is you can see our product as we bring through standardization and standardization is something that we've been talking about is probably the best part of 3 years at this stage. It's now just coming into the system. So the product that Glenveagh has designed is now starting to feed in. That is bringing more efficiencies in the house size, the ways we delivered and I suppose the innovation we're trying to put in that. For me, I suppose the innovation that we can bring to the factory and how we can produce the product, we want to move more and more of our production off-site because we see this as the best way to ramp up particularly as we standardize the product that we're delivering. And just to give you an example, since the business has started, we've had to implement here. I think it's 439 different house-type designs. If you bring that down to 20 house-type designs, it makes the business a lot more streamlined and makes it more efficient, and that's the benefits of feeding into manufacturing. On the cost, I suppose what we would see is that the facilities that we have this year and how they really help the business was when we were able to reopen because we control the production facility ourselves, we were able to ramp up volumes quite quickly. Whereas using a third party, that would be a lot more difficult. We have seen the benefits of cost savings where the market was really to a degree, prices were being pushed on to the outside market, but our timber frame prices we were far better to control. So I suppose what we'd like to do is make sure we get the benefit that it can feed to the site and progress the gross margins on site. That's the way we're probably looking. I don't know, Michael, you have a view on that.

No, I think you're spot on, Stephen. It's partly due to margin and obviously return on capital and getting our initial investment back. But having that comfort that we control our own supply chain when we're trying to get to 3,000 units and being able to control that and not rely on third parties is as much of a benefit as the cost savings we'll see over the next couple of years.

Yes. And I suppose just on the last point to Castleforbes, Colin, yes, we've obviously made substantial progress on that development. It's a substantial development for us. We have over 1,250 odd units in the -- through the planning system. We have 2 hotel sites. We got through the planning system and obviously, the office space as well. Obviously, the forward fund with Union earlier in the year in getting that in was a great success in a forward fund. And then obviously, doing this deal and announcing this today just enhances that return on capital to the business. And what I would say is we have a lot of substantial assets that are through the planning system. So this gives us greater flexibility to reallocate those resources and capital to enhance further returns to the business. And we've been quite successful. If you look, we've obviously East Road through the planning system. We have Castleknock through the planning system, City West through the planning system, the Docklands and Cork. So we have almost another 3,000 urban units, so we can. I suppose what we have now today is the ability to enhance those and deliver them as quickly as possible.

The next question comes from the line of Emily Biddulph calling from Crédit Suisse.

I've got 3, please. The first one is just on your underlying suburban margin. I think Michael said in his presentation for this year, you're expecting to be about 17.5% now. So I think first is what you're saying at the start of the year at sort of 100 or 150 basis points better than where you were sort of commenting then. What are the moving parts in that? Is this just about sort of COVID disruption not being quite as bad sheet expected? Or are there rather sort of -- are you getting any sort of positive price cost through this year already? Or sort of what else should we be thinking about? And then secondly, sort of tied into that. Obviously, you're sort of talking and you commented before about has price inflation currently being about 5% and seeing scope to push that on in the second half. Is there also a scope for price for you guys to be sort of incrementally a bit better just because of the number of new sites that you have launching in the second half. And presumably, that gives you a chance to sort of both benefit from pent-up demand in an area and sort of basically go out without a like-for-like comp on price. So therefore, you sort of have a chance to step up. So as we think about sort of price cost as those things feed into next year, is it possible that, that sort of meaningfully sort of positive in the margin bridge for 2022? And then thirdly, just on the timber frame factory, the logic of that new factory, is that just about where it's located or are there any sort of other things that we should bear in mind? Are there capacity constraints to come on the existing factory? Or sort of what's the logic for the incremental one?

Emily, thanks for that. Michael, do you want to take first one and second one?

Yes. Yes, you're right, Emily. I mentioned the 17.5% has been the expected underlying suburban housing margin for the full year. A couple of things feeding into us, I suppose, during COVID we were a little bit uncertain as to the eventual cost of dealing with COVID and I suppose what the world and what our sites look like post COVID. So we were probably a little bit cautious to kind of push margin guidance on too much until we get greater clarity and I use that phrase greater clarity in my narrative. So that there is an element of that of just being [indiscernible] being post COVID now and kind of releasing that little bit of contingency that we had in our guidance. The other element, and you touched on it as well, is we have seen that little bit of HPI movement in the first half of the year that will feed into the full year. But again, as we mentioned in the statement, I think the real benefit or the real kind of HPI that we've seen in the last 6 months and probably in the last 3 months, will only really hit into our 2022 deliveries given we had such a strong reservation number earlier in the year. Just I suppose moving on to your second point, I think that kind of HPI number of 5% is kind of encapsulates everything. I think what we kind of say in opening our new developments. And I get your point, and I appreciate your point on you don't have a direct comparable from the previous phase, so the prices aren't directly side by side. But I think when we look at our product type and it comes back to Stephen's point on standardization, when we look at our product type in 2 similar developments, we'd be looking to kind of push the house pricing on that 5% when you compare a current house type in site A, with what we're going to launch at in site B. So I think that 5% is a comfortable number, even taking in those new sites, the 6 new sites that we'll open in the second half of the year into account. So I think if we stick to that 5% as an overarching number, we're in a good place.

Yes. And just on the timber frame, Emily, I would say everything is strategic, in the sense, I suppose for us, the benefits we've really seen the benefits in Dundalk. It's a great facility. We only got it operational really in 2021 in a pandemic. We, obviously, in factory, practicing social distancing was difficult. And we've ramped up volumes there quickly like that facility will deliver somewhere between 650 and 700 timber frame units that this year. So it's a great result there. I suppose the second asset that we bought and where we're locating that, we've talked about this in the sense to disperse our sites as we spread. And this facility is located which, as I said, cover suburban south. So that's strategic case for those reasons. It also, I suppose, gives us flexibility not over line in one factory, either because not that we're coming up with constraints, but just if issues come out, God forbid, there was a breakout of COVID or anything like that, having 2 operations not having been too reliant on one would be a risk for the business. So strategically, that's why we've done this.

The next question comes from the line of Dudley Shanley calling from Goodbody.

I just have 2, please. First of all, in the context of 20 active sites and further site openings in H2, how should we think about the evolution of WIP over the next, I guess, 12 to 24 months? And then the second question is, obviously, you've spent EUR 52 million on land in the first half. What are you seeing in the land market at present?

You deal with the WIP and I'll deal with the land.

Yes. You see evolution of WIP, I suppose, again, and I referenced it in the narrative half year is always kind of peak WIP for us. we talk about kind of WIP unwinding on a per site basis over the rest of the year as we close units. The other factor that's still in there is there's a little bit of completed stock from our noncore units. We called it out more specifically in previous periods because it was larger numbers back then, but there still is some bit of noncore in there that again will unwind by year-end. So I suppose the rule that we would always have is it's probably -- per suburban site is probably a WIP of around EUR 8 million to EUR 10 million per site. If you extrapolate that over to 20 sites, that gives you a good indication of where our core suburban WIP is at the moment. I suppose the evolution of the forward funds and being able to announce the hotel and the heads of terms for a second forward fund is certainly move in the right direction, and that will manage our WIP even tighter. So you might get a position where we're on 23, 24, 25 sites but actually 2 or 3 of them are forward funded. So you only need to worry on the WIP up to 22. But I think on the core suburban units, which, let's be honest, is going to be the vast majority of our deliveries, that EUR 8 million to EUR 10 million per active site is always a good gauge, and that's where we've been kind of pointing people towards for the last probably 18, 20 months and it still kind of holds true.

Yes, Dudley, and on the land, I suppose we have been quite active. We probably said from around August last year, we've seen good opportunities in the land market. We've seen the market obviously turning. As we've covered today, we purchased 9 in the first half, but we've added further acquisitions, which we announced post period, so quite active. We're seeing really good opportunities out there. As we've kind of always talked about the capital management spending less on site acquisitions, we're buying some sites subject to planning. I suppose we're the buyer of choice now to a certain degree with land owners or institutions or whoever it may be, they see what we're trying to do. They understand our discipline. And I suppose they've also seen the success of being able to deliver on acquisitions. We've probably been one of the most active buyer in the market. When we do terms with people, we usually always follow true if nothing breaks the deal. So yes, competition-wise, smaller guys are active in the market. It's predominantly people with equity. Alternative finance has got a little trickier in the market. Unless the site has planned permission, it is quite difficult to finance that. So that is opportunities for us. And also the resources of getting planning are obviously -- is quite substantial now. And I suppose having the internal team has really helped us to get deals done as well because we can do the due diligence quicker, but we can also probably deliver on the other side. So landowners are quite comfortable doing business with us. So overall, quite subdued. We've added well. I suppose we've added -- we've extended the portfolio, but actually reduced the amount of capital we're investing in the portfolio.

The final question today comes from the line of Johnny Coubrough calling from Numis.

A few questions for me, please. Firstly, on overheads. Keen to hear what your expectations now are for the shape of overheads over the next few years as you scale to 3,000 units. Do you expect to need to directly employ a lot more labor over the period and clearly, the labor market has become a bit tighter over the past few months. And what are you seeing there? And then also keen to hear what your expectations are for the impact of the new manufacturing facilities on overheads? The second question would be if I can refer back to Slide 20 where you show the improvement of working with utility providers to streamline deliveries, what are your expectations here for the impact that has on what investment is for new sites going forward? Do you expect that you're getting a bit better in terms of the phasing of the WIP investment as you improve this process of the enabling works on new sites? And then the third question would just be on partnerships. Keen to hear what -- on this scheme, what the phasing of capital you expect will be? And in terms of what the payments will necessarily be on the land component and also if you've got an average agreement there and kind of what your exposure is to any further HPI on these sites?

Sure, Johnny. I'll deal with the partnerships first and then the site openings, Michael, you deal with that. On the partnerships deal, yes, we're delighted obviously to win the Ballymastone development. It's a significant development of over 1,200 units. It's a mixed tenure development of private, social, affordable and cost rental. And the prices for the social and affordable are the only units that are locked in. And obviously, we can set the pricing for the private market. And as we've always said with partnerships, the benefit is it's a very low land outlay upfront, which is -- and I think it's out there in the market that we have approximately EUR 12 million in land payments to make here, which will be phased over a number of phases. So this development will probably go on for something like 6 to 7 years. And as you hit in each phase an element of a proportion of that will be paid back to the local authority. So quite a low amount of capital upfront for the land element and obviously gives us access to deliveries -- sorry, for construction and gives us access to deliver units as we progress. And obviously, an element of it is derisked from the minute you commence, 40% of the scheme is already to a degree is going to be taken out by the local authority. So we see this obviously quite accretive to return on capital employed, and we see it as a real positive segment as a business going forward. And I suppose you've also seen the government talk about, they understand to deliver housing. They need to free up as much state land as quickly as possible. The formation of the land development agency will be key to that going forward. The other question was on how we're opening sites. And our philosophy and I suppose -- as I'd always say, never ways to go crisis and I suppose COVID to a certain degree, not for that reason, but in the sense that it gave us a little bit of breathing space and I suppose we stepped back and said, right, how are we doing things. We need to ramp up here. And I suppose the opportunity was to implement more infrastructure up front. So all our sites, and you'll see some of our sites that are on the gold today. There's a dedicated construction team that only go in and deliver the roles of services and the base of the units. They deliver that over a 6- to 9-month period and then they move off-site. I suppose the benefits we've really seen that is when the real construction of the superstructure team move on to site, what you really see is that they can erect the house in 16 weeks, and they can turn the key. So there's real benefits to that. And I suppose what we're trying to do there is -- yes, we have to invest the elements of infrastructure upfront. But the real benefit of that is when we're actually building the units, we're turning our WIP much quicker. And that's the real pros to that analogy. Sorry, I suppose what we've really done as well is we've -- as you see the waiting of deliveries this year, 322 units for the first half of the year is a phenomenal achievement in the restrictions that were out there. And it shows how the business and the profile of the business is maturing, where more and more units are going to come into the system in the first half of the year. So it's just making progress on all those fronts, which are huge benefits for the business.

And just on the overhead point, Johnny. I suppose we don't see a significant increase in overheads over the next kind of 3 to 4 years. It's certainly not going to track the revenue growth. Most of the new employees, new infrastructure costs in relation to timber frame, that will all be baked into our gross margin because effectively they are direct to site costs. So over the last number of years, we've talked about building a team early. So for the last couple of years, we've had a team looking at manufacturing design. And obviously, their kind of work is coming to a fruition now. So we have a target of around 4% of revenue by 2024. So I think we're certainly well on track to deliver that. So it's not going to increase significantly based on the new manufacturing capabilities.

We have no further questions coming through on the phone lines. So I'd like to hand the call back over to your host. Thank you.

Thank you, Molly, and thank you, everyone, for joining the call today, and we look forward to catching up with you over the next number of days.

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