Vistry Group PLC (VTY) Earnings Call Transcript & Summary

Good day, and welcome to Vistry PLC Trading Update Conference Call. My name is Priscilla, and I will be your coordinator for today's event. Please note this call is being recorded. [Operator Instructions] I will now hand you over you to your host, Mr. Gregory Fitzgerald, to the -- the CEO, to begin today's conference. Please go ahead, sir. Thank you.

Okay. Thank you, Priscilla. Good morning, everyone, and thanks for joining us. I'm here today with Earl Sibley, Chief Operating Officer; and Timothy Lawlor, Chief Finance Officer. So this morning, we've issued a trading update for the 6 months to 30th of June. And we will, of course, publish our half-year results on September, the 11. So let me give you the key highlights and then we'll be happy to take any questions you might have. So starting with, it was a good first half performance, with the group trading in line with our expectations. The integration of Countryside, creating the leading partnerships business in the country, under the Countryside Partnerships name has gone extremely well, better than planned. We quickly established the new operational structure for the group, allowing us to focus on increasing the supply of affordable mixed tenure homes to the market and driving industry-leading return on capital employed. Culturally, the businesses have come together very well. We've taken the best of both, really treated it as a merger and continue to drive best practice, shared learning and cost efficiencies across the group. As a result, we are on track to at least deliver our synergy target of GBP 25 million for this year with a full run rate of at least GBP 60 million by the end of the 2024. Partnerships is demonstrating its resilience. Mixed tenure completions were up 6% in the period on pro forma half 1 '22. Partnerships adjusted half 1 revenue is expected to be circa GBP 930 million, and we are well on track to deliver revenue growth in the full year against the GBP 2 billion pro forma 2022, again, proving the resilience of the Partnerships business, which is why we bought Countryside. Our partnership model, pre-sales a minimum of 50% of units on each development and it is significantly less reliant on the open market. Demand from housing associations and local authorities for affordable mixed tenure homes remains strong. Given the more challenging private sales market, our Partnerships business is looking to increase the percentage of presale beyond the minimum of 50%. It is very well placed to do given the strength of relationships and track record of delivery with housing associations and local authorities. Partnerships has a strong forward order book with 80% of forecast mixed tenure units secured and all partner delivery revenue secured, and 80% is a strong place to be in my experience of 40 years in Housebuilding. Housebuilding has faced more challenging market conditions in the period with the higher mortgage rate environment and broader macroeconomic challenges particularly impacting on first-time buyers. The business delivered 2,847 completions in the first half, down 22% on pro forma half 1 '22. Housebuilding has and continues to mitigate the fall in open market demand with both transactions as part of the Vistry Group, it is well positioned to do this with our relationships through the Partnerships business. These bulk transactions have supported the sales rate and helped hold firm on private sales prices whilst assisting with subcontract savings and managing -- our management of preliminary costs. Housebuilding's forward order book totals GBP 1.2 billion, with again an encouraging 76% of forecast 2023 units secured. The business has put in place tight working controls environment and is expected year-on-year a reduction in completions for housebuilding and that's reflected in our build rate. The group recently secured a further GBP 67 million of grant funding from Homes England under their affordable homes program that runs through to 2026. And in addition to the initial GBP 83 million allocated, so that's about GBP 150 million -- GBP 140-odd million in grant, and we're the only Housebuilder in the country, getting grant direct from Homes England. In total, this will enable Vistry to deliver around 2,400 affordable housing partnerships with housing associations and local authorities, a USP for us. This funding was instrumental to the formation of our Partnerships with Sage Homes, where through Sage's new home Stepper shared ownership model, this [ street ] will deliver an initial portfolio of 800 shared ownership homes. The scheme, which has only been going for the last couple of months, has had a very encouraging start with strong customer interest and over 60 vetted reservations since its launched last month, and that's through Housebuilding and Partnerships. On costs, as an enlarged group, we are benefiting from our revised arrangement with our supply chain partners. The greater visibility of revenues within partnerships and through these bulk deals gives us a competitive advantage, in particular with subcontractors. We offset cost increases in the first half and expect to be -- and expect that to be the case for the full year with some opportunity to improve on this. I honestly feel there will be deflation in the second half of this year as all major housebuilders cut back on land, planning issues, small housebuilders are cutting back dramatically on work in progress levels. And at some point, I believe in the next 2 months, there will be a stream of subcontractors knocking on the door for where we can do better deals than we have done over the last 2.5 years and the subcontractors and suppliers start off at a higher level. So there's plenty to go for there. Net debt was circa GBP 330 million as at 30th of June, and we expect this to decrease to around GBP 150 million at December. The Board is committed to retaining a strong balance sheet, and we will update on capital allocation, as we said for a number of months now, with our half year results in September as the Board concludes their review, which is going well. So finishing off then on outlook, we have seen a slowdown in open market private sales over the last 4 weeks following the rise in the bank rate and mortgage costs. That said, this week, which is the first week where we've just now had an announcement that inflation is lower than expected, looks to be encouraging. And we had a weekend that was as good as we had at any time during the year. So only a week, but encouraging. Housebuilding Partnerships are both mitigating any slowdown in sales through bulk transactions. Both businesses have historically strong forward sale positions for the year. We are on -- we have a very firm focus on cost and the synergy benefits are at least on track to what we've been stating. As such, the Board continues to expect the group to deliver at least GBP 450 million adjusted profit tax for the year. So on that upbeat note, we'll take any questions, Priscilla?

[Operator Instructions] We will now take our first question from Aynsley Lammin from Investec.

Ansley. We can hear you.

Just two questions from me, please. First, just on the kind of recent trade in the sales rate, if you could give a bit more color and indication of where you've seen them slow to over the last 4 weeks. And on the pricing front, how resilient that's been, have you used more incentives, just your feel for the market given the higher interest rate environment. And then just on net debt, I think that was a bit higher than what I had -- kind of had in the model, any thoughts around why that was higher in the end of June? And what's driving that for the full year as well as the outcome?

So Tim will answer the question on net debt. But what I would say is that's lower than our expectations at the half year, that number. With regards to sales over the last 4 or 5 weeks, I would say, private sales, as I say, we're making it up with bulk have been around 20% back down on where they were in April and May, although part of that, there's always a slowdown in June. June is not as good as April and May, and a lot of our sales teams are obviously concentrating as they will be in the entire sector on either a half year with us or a full year with somebody like Barratt. So about 20% down. Encouragingly, pricing still they're are thereabouts in line with our expectations. So a reduction in sales, I think that will -- it's a forecast. And it's only until tomorrow for this week come through that this will be the first week where we're back on track, and I'm encouraged by the inflation details that came through. So 20%-ish down made up by bulk, but pricing, no real change, we're holding firm. And in fact, the fact that we're doing some bulk, I would rather give some discount on a bulk deal and offer it to Mr. and Mrs. Smith. And so -- because that then impacts mortgage valuations. And that we had all the way through the year and included in the last 4 weeks, no issues with down valuations, I'm pleased to say. So with regards to the debt, I'll hand over to Tim, but I'll just say again, the GBP 330 million was a lot less than we were forecasting.

It's in line with the average debt that we talked about at the year-end results. And I think there's 3 components to the first half. So in the first half, that's all we've got the payment around dividends going out in the first half year, which is about GBP 110 million, and we also had the fire safety and the integration cost, the integration costs more front-end limited. The second piece is that there has been net land investment in the first half of the year as we've opportunistically secured good land sites in the first half of the year. And the third piece is work in progress, where there's been increased work in progress investment, partly catching up on the end of last year, where there was a slowdown at the end of Q4 last year and partly just the seasonal split, we always say a work in progress, outflow in the first or bigger outflow in the first half of the year than the second linked with the fact that we do more profits and more [indiscernible] in the second half of the year. So that's what takes it down from the half year position to the full year position.

And I still think we came into the year, let's not forget off the back of a disappointing following the disastrous budget last September. October, November, December, the sales cancellation rates were incredibly high. So we entered into the year and had to build up some work in progress over and above where the sales were because it's a little disappointing last quarter. What else would we say on debt? No, I think I said, isn't it?

And just one follow-up on land creditors at the end of June?

Bank credits will be slightly higher than they were at year-end, at the end of June.

But slightly, no great shakes. So we, again, I think, have been a little bit different. My experience in times of uncertainty, which we definitely got at the present moment in time. There are more land opportunities out there. We're not buying any land. Land that we agreed 3 months ago, we're not actually buying it unless we actually renegotiate the terms, but some of the best sites that we've dealt with over the last 20, 30 years have all come from buying in a market like we are at present moment in time. Where an awful lot of people leave or calm down on the land market. So land market at the moment. Fair enough, you've got to make the call. It is a pretty good one to be in, and we are doing some pretty good deals.

We'll move on to our next participant, Clyde Lewis from Peel Hunt.

Gregory and Tim. I'm just -- just going to have one from my end, please. Just around the bulk sale. Just sort of -- I think you've sort of flagged sort of all 3 categories in terms of [ HAs ] , [ loan ] authorities and sort of [indiscernible] been part of the sort of customer base, if you like, of the extra bulk sales. How -- can you give us an idea is -- as which one is bigger, which one is sort of becoming more aggressive or are they all the same? I mean be also useful to sort of understand on the bulk payments around the cash flow, just in terms of sort of -- is it very similar to sort of private reservations? Or are you actually getting some upfront payments in terms of completion?

Yes. We're getting them. In financing the deal, we're getting where we basically are with the -- so if we haven't started the plot, we will get the land if we're halfway through, we'll get the land and half of the cost and then the money come through kind of on-stage completions, even in some cases, mostly valuations. So from a cash perspective, it's much better. And that will give equivalent sales, which is one of the reasons why we're pushing up housebuilding sales numbers this year. From an aggressive perspective, I would say probably local authorities and housing associations, not really noticed too much of a difference, maybe PRS maybe slightly, but it's in the margin of a bit more aggressive. And over the first 6 months, I would suggest that the discount has been -- against asking price has been, on average, less just a bit less than 10%. And against the asking price, we've got around 3% as a buffer between asking a forecast. Then you take off the sales and marketing costs, which is typically anywhere between 1.5% and 2.25% which you obviously don't need if you're selling a bulk deal, let's say, over 100 units. We're also noticing that we are also getting subcontractors prepared to sharpen their pens on a site where they were looking at it and sales were not gone as quick as they like. Therefore, we were closing -- not closing, obviously, really controlling, tightly work in progress. If you then speak to the commons in the [indiscernible], the groundworker and say, actually, we're just going to do a deal of 100 units that's guaranteed. That means we'll be cracking on. We're getting some money from them as well to offset it. All I would say is probably the trend of discounts. But interesting to see how things move over the next few weeks with maybe a turnaround on thoughts on where interest rates are going and people sitting on the fence, hence the weekend was very good. But without that, the trend of discounts was moving up as opposed to moving down.

We will move on to our next participant, Chris Millington from Numis.