Henry Boot H2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
March 25, 2025

There are 6 speakers on the call.

Operator

So good morning, everybody. So it's going to be the normal running order.

Operator

I'm going to start off with a brief introduction and then review of our performance. And then Darren is going to go through the financials and land promotion. Then I'm going to finish off on development, construction and Stonebridge and also outlook. So first of all, an introduction. Our focus on high quality land, prime development and premium homes helped us to achieve total land and property sales of nearly GBP $350,000,000 or our share GBP $224,000,000.

Operator

This is broadly in line with the sales over the last three years and shows at a time when the market's been pretty challenging that demand for our property remains resilient. We also continue to make good strategic progress. And we've done three things. We've agreed terms to take full ownership of Stonebridge Homes. Following a strategic workforce plan at Hallam, we're increasing headcount and also in house specialism to enable us to submit more planning consents and then ultimately to grow the sales of the business.

Operator

And then we've also entered into the Origin joint venture, and I believe that that's going to help us to accelerate industrial development. And throughout this period, as you have grown to expect, guess what, our balance sheet has remained rock solid. And our NAV, it keeps on growing. It's just over per share. And as you all know, again, very conservatively valued because the land and the developments are held at cost.

Operator

The decision to increase our full year dividend by 5% is a sign that we continue to have conviction on our three key markets and we're confident in hitting our medium term targets. And we also believe we're not only well positioned as our markets recover, but also we think that we can take full advantage of the freeing up in the planning system that we've seen. So just going through the operational performance and this flagged the interim results, We expected our performance to be half two weighted. And I'm pleased to say that we've had a very good second half. And as a result, we've delivered results in line with market expectations.

Operator

And going through the slide. First of all, Land Promotion sold just over 2,660 plots and 97 acres of employment land, translating to million of land sales or our share million. And that meant that Hallam formed ahead of budget. Our land portfolio has also increased to 105,000 plots. And as I said last time, our aim is to place more emphasis on winning planning and realizing sales and less on growing the portfolio.

Operator

And the reason why is that we think that the portfolio already has scale and balance. Changes to the have opened up a window of opportunity for us to win more consents. Even at the end of last year, we saw the inspectorate and the local planning authorities changing their approach to planning and it is freeing up the planning system. And our ambition is to submit applications for 10,000 plots over the next twelve months. And to give you an idea, our normal run rate is about 2,500 plots per annum, so fourfold.

Operator

Turning to developments, including Stonebridge. We again were marginally ahead of budget. HBD completed on GBP 188,000,000 of developments and 72% of that is pre let or presold. The investment portfolio generated a total return of 9.9%. So again, it's well ahead of the index.

Operator

And then Stonebridge continued to grow by completing two seventy homes, that's 8% growth and we carry on scaling up this business. On construction, operating profit was nearly million and that was in a challenging environment and was below budget as in particular HBC's turnover fell. A new management team has been installed in HBC and I'm pleased to say they've made an encouraging start. And all this means once you deduct million worth of central operating costs, group operating profit was million. So quickly going through the medium term targets.

Operator

Capital employed increased to million and is on track to grow to million. Rocky was at 8%, but we maintain a target through the cycle of 10% to 15% return on capital employed. Plots sold in 2024 are in line with the five year rolling average of nearly 2,700 and we expect to sell 3,000 plots this year. And again, that's going to mean that we will step closer to the target of 3,500. On HBD, GBP 188,000,000 of completed developments was the second highest total ever at a time when markets have been subdued.

Operator

And then on Stonebridge, we've increased completions in a difficult year and we keep on buying up land to hit that target of 600 units per annum. And then HBC, the construction order book this year started in a much better position with 55% contracted and 16% secured. So handing you over to Darren.

Speaker 1

Thank you, Tim, and good morning, everyone. If I can take you through our financial review for the year. So turning to our financial summary. As anticipated, we delivered a strong performance in the second half of twenty twenty four with a number of significant transactions within both our land promotion and property development businesses completing in the final quarter along with the usual flurry of house sales. Whilst land and property sales were broadly in line with the prior year, the lower revenue largely reflected a reduction in turnover within the Construction segment.

Speaker 1

Gross profit decreased slightly by 3% to million with the gross profit margin improving to 22.7% from 21.4%. With operating profit of million and an underlying profit before tax of million, our return on capital employed reduced to 8%. Through the cycle, we continue to believe our target range of 10% to 15% remains appropriate. Earnings per share reduced to 17.4p in the period. We have increased the dividend by 5%, reflecting our progressive dividend policy and the continued growth of the business.

Speaker 1

Whilst many housebuilders have returned to taking larger sites, these typically take longer to agree terms and progress through legals. We therefore expect our 2025 performance to once again be second half weighted. Moving to the balance sheet. Following more than million of sales during the year, investment property has increased to million as we've seen further rental growth for our industrial assets and added million through Origin, our new INL JV, which Tim will tell you more about shortly. We have invested over million into inventories, growing Stonebridge Homes with investment in their land and work in progress as well as adding to our strategic land portfolio and building out our committed development program.

Speaker 1

Following land and property sales, net debt reduced to million with Gearing well within our optimal range at 15%. We expect Gearing to be towards the top of our 10% to 20% range during 2025 as we face into improving markets. Since the year end, we've completed on the first tranche of our purchase of our JV Partners stake in Stonebridge Homes, and we are also increasing our number of new planning applications. I'm happy to report that during the year, we completed our bank refinancing with a facility of million that now runs through to 2027 and is extendable by two years to 2029. It also includes an accordion allowing us to increase the facility by million over the period.

Speaker 1

Terms are broadly in line with the previous arrangements and are based on a margin of 1.6% above SONIA. Finally, our net asset value per share increased by 3.6% to $3.17 pence or $3.12 pence excluding the pension surplus. And including dividends paid during the year, our total accounting return was 6.1%. Looking at the cash flow, this largely demonstrates how strong forward sales and cash collections on past sales from housebuilders on deferred terms has allowed us to continue to invest in land and property. Operating cash inflows totaled GBP 9,000,000 being returns in the period, largely offset by payments for interest tax and dividends.

Speaker 1

Investment of million into inventories relates to growing the land bank and work in progress in Stonebridge, delivering our committed development program and infrastructure works in Hallam to bring forward sites for sale. Given the lower level of land sales to housebuilders in the period, our continued investment has been supported by cash collections on those previous disposals and deferred payments on land acquisitions of almost million seen here in other working capital, leaving us ending the period with net debt of million. If I can move on now to the operational review and starting with land promotion. Hallum sold 2,661 plots in the period along with 97 acres of employment land, generating an average ungeared IRR of 26% per annum, which we're clearly pleased with. It was also delivered on average over seventeen years.

Speaker 1

Pleasingly, land value stabilized during the year and we continue to see good demand for our sites in prime locations with the house builders actively returning to the market for schemes of a larger size, evidenced by our scheme in Coventry, which I'll run you through in more detail shortly. Having received planning on almost 3,000 plots in the year, this compares to the three year prior average of around only 600 plots a year and reflects the positive changes to the 2,000 of these were actually achieved in only the final quarter of the year. We therefore ended the year with planning on nearly 9,000 plots in total and this positive trend has continued with permission on nearly 900 plots already in 2025. As Tim said, with the portfolio all held at cost, we don't take any valuation gain on securing planning permission until the land is actually sold, reflecting a significant uplift in value currently not recognized within our balance sheet. And finally, we've started 2025 well with over 2,000 plots either sold, exchanged or currently under offer.

Speaker 1

Over the long term, our Land Promotion business has delivered significant returns with the return on capital employed averaging almost 17% over the last ten years. The scale of the portfolio allows us to mitigate the site specific risks. And whilst we're clearly highly correlated to demand in the housing market, this can be mitigated to some extent through forward sales. As we move forward, our focus is continuing to increase sales and secure planning permissions, whilst continuing to grow the portfolio at a modest level. We've continued to add to the portfolio, securing sites with the potential to deliver over 6,000 plots and growing the portfolio to nearly 106,000 total potential plots in the year.

Speaker 1

Given the positive changes we're seeing to the planning environment, we anticipate the planning system will continue to unlock. And with this in mind, we now have five active appeals running on around 2,500 plots out of the 13,000 plots we currently have in the system awaiting determination. And following 2,660 plots submitted for planning in 2024, we've now identified around 10,000 plots, which we believe can be advanced into planning over the next twelve months with more to follow that, demonstrating the scale of our current ambition as we lean into this positive trend. We continue to manage one of the largest strategic land banks in the country with 77% of the portfolio in The Midlands and South where values tend to be higher. With the balance of freehold and promotion agreements, we're able to manage capital investment appropriately between risk and reward, taking advantage of our market at the right time in the cycle when acquiring freehold land.

Speaker 1

Our tendency to use planning promotion agreements provides a capital light investment structure and gives us our USP against housebuilders by marketing the sites to drive best value for our landowners. Our five year average plot sales are nearly 2,700 plots per annum, and we continue to target sales of 3,500 plots being our medium term target. We believe this target remains achievable from the scale of our portfolio, with pot sales expected to be over 3,000 this year. Based on our current portfolio, our average of GBP 9,200 gross profit profit per plot, we've estimated that the whole portfolio could generate nearly GBP 900,000,000 of gross profit at today's prices. And here at Pickford Gate in Coventry, this is a prime example of the large scale complex schemes Hallam is capable of delivering.

Speaker 1

In 2021, we secured a permission for 2,400 plots, including 25% affordable homes, 1,600,000 square feet of employment space and accompanying community infrastructure. The scheme required a new junction of the A45, which Hallam, having secured partial funding through Homes England, successfully delivered in April of last year. Following this, GBP 102,000,000 worth of sales were completed last year, which included four ninety one plots to Barretts, six thirty two plots to Vistry and 52 acres of employment land to Royal London. Including the Phase one sale, the scheme has delivered total sales to date of AUD 120,000,000, equating to an ungeared IRR of 33% per annum and still leaves Hallam with around a thousand plots remaining for sale in future phases. And on that note, I shall hand you back over to Tim.

Operator

Thank you, Darragh. So I'm going to turn to Property and Development. I'm going to start off with HBD. First of all, HBD had a successful year with completions of million worth of developments. And as I've said, 72% of that is pre let or presold.

Operator

Last year, though, was a time to be thoughtful about committing to new schemes. Origin, our JV with Fahlberg, has helped us to maintain a good base of developments by committing to schemes with a combined GDV of million. I'll talk about that in a minute. And that takes our committed program to million, ASHA million, twenty 5% of that has been pre let or presold and 98% of the development costs have been fixed. We have a strong billion pipeline, and this will give us optionality through this year to grow back our committed program.

Operator

Just wanted to spend a minute just talking to you about two of the key developments that we've completed last year. First of all, Ireland, which is held in a joint venture and it's a net zero carbon prime office building in the center of Manchester. And I'm pleased to say that we've pre let 50% of the space to Virgin Media. We did that letting in October of last year. And also pleased to say that we set a new record office rent for Manchester at £44 per square foot, not bad.

Operator

Scheme achieved practical completion in November and the remaining space has generated a good level of occupier interest. Secondly, looking at settle where we've developed 102 premium apartments and again that PC'd last year in May. And we've now secured 69% of the apartments at our target selling price and we've achieved a sales rate of one unit or one apartment per week. Now there's no doubt in my mind that the reason why we've had good demand for these products is just because of the quality that we're offering. So let's say a bit more about Origin.

Operator

We formed a twenty five-seventy '5 JV with Feldberg Capital, and I believe this is going to allow us to accelerate industrial development. It's been seeded with three prime sites. You can see them on the slide. They total about 450,000 square feet. We've brought them from our pipeline and we sold them into the joint venture and we made a profit in that sale of million.

Operator

The JVs secured a loan to fund the development from BGO of million. And bearing in mind, we formed the joint venture in December. We're already on-site on all three developments. Looking ahead, the joint venture intends to deliver around billion of high quality industrial schemes with strong ESG credentials. And we're likely to put more of our sites into the joint venture, A, because it's a way that we can share risk, but B, we also take development managers fees and we have a promote over a geared return of 8%.

Operator

So looking at the committed program, you can see it's dominated by industrial. We've committed to four industrial schemes totaling nearly 600,000 square feet of which our share is million. On Preston, which is the top, that's the one current scheme that's not within the Origin JV and we've pre sold that to an occupier. The total estimated profits on all of the committed schemes is 9,100,000.0 a share, equivalent to a 38% profit on cost and 16% has been taken to date and all that 16% is in relation to Preston. On the development pipeline, as you can see 54% of it is in industrial with the rest in urban development.

Operator

Most of the pipeline is controlled through development programs, so it's capital light. And you can see that we hold it at cost of million. And we've maintained a relatively high level of development over the last couple of years. And obviously, the key is to replenish that development. And we're going to do that from two main areas.

Operator

First of all, in urban development, we've got Golden Valley, and that's got the potential to be a billion mixed use urban project. It's held under a development agreement with the local planning authority. We only recognize the first phase, which amounts to million in our pipeline. And Phase one is going to be known as the National Cyber Innovation Center. It's next door to GCHQ.

Operator

I've said this before, nothing has been formally signed, but you can guess who we're talking to, to anchor it. And the good news is that we've already got support from the government for this because as you can imagine cybersecurity is of national importance. So our aim is to be on-site either side at the year end. And then on industrial, we've got 3,800,000 square feet of schemes with outlined consent. So again, that leaves us with several options to draw down these schemes to start development this year.

Operator

And just turning to the investment portfolio. During the year, the commercial property market stabilized with positive returns recorded at an all property level and certain sectors very much including Industrial showing valuation increases. And this is why I say that we will look to draw down Industrial because if you look at Industrial in terms of rental level, it produced the highest rental growth in the index at 5%. Transaction volumes remain low for most of the sectors with high interest rates weighing on activity. But as the outlook for rates has improved, we have seen encouraging signs in terms of investor demand and funding demand, especially in industrial and build to rent.

Operator

Our total return in investment portfolio was 9.9% for the year. Again, it's ahead of the index at 7.7% and I show a line graph comparing our performance over the last five years. And you can see that we've achieved a return of 7.1% significantly outperforming the index at 3.1%. Seventy three % of the portfolio is in industrial. Most of the properties and modern buildings that we've developed, there are some investments that we've bought that we then intend to develop.

Operator

A good example of that is Skammersdale, where we've got an industrial unit and we've secured planning for 245,000 square feet and that is a 66% increase in the size of the existing building. Going to Stonebridge, you know we exchanged contracts to acquire our partners 50% share of Stonebridge just before Christmas. The transaction is structured to complete in three tranches over the next five years with the total purchase price linked to the performance of Stonebridge. We've got an integration plan and we're going to be implementing that over the next twelve months. And as we integrate and scale up, there'll be opportunities to realize synergies and cost savings.

Operator

Looking at Stanbridge's operational performance, which this slide is about. As I said, we've completed two seventy homes, an 8% increase on last year. The average selling price is £402,000 reflecting a reduction in the average size of homes sold, but also we've moved into the Northeast Region where the price per house is smaller. The average sales rate during the year was 0.45 and that is unchanged on the prior year. And we expect to increase output this year by 10%, which in this market is no mean feat.

Operator

Sourcing land is a fundamental strength of Henley Boot and is key to growing Stonebridge. So I'm particularly pleased to say that we've increased our total land bank to over 1,700 plots. This just gives you an idea on the number of outlets in land bank that we've got. In 2022, Stonebridge expanded its operation from Yorkshire into a second region, the Northeast. And very recently, we've secured our first site in a third region, the North Midlands, and that site is at Bracebridge Heath, just outside of Lincoln.

Operator

And the business is operating from nine outlets. And you can see from the graph in terms of the active outlets and the land bank that we've got a significant multi regional house builder in the making. And we're confident that each region can basically meet demand for 200 units per annum and potentially up to 300 units per annum. And that's the path for us to grow the business to 600 homes. On Construction, the segment remained profitable last year, but was impacted by HBC's fall in turnover and banner plants also traded a bit below budget.

Operator

However, you know this is a small part of the group, accounting for just 2% of capital employed. HBC completed on two major city centre schemes in Sheffield and York, and we're also pleased to have been awarded the million redevelopment of Rotherham markets. As mentioned, last summer we made senior management changes and that included an appointment of a new MD, Lee Powell, who's got a great track record of winning work. And the immediate focus for that team is to restore and grow the order book. And as I've already said, they've had a good start to the year.

Operator

In response to market challenges, Banner has adjusted its strategy by focusing more on cost and efficiencies. And RoadLink, as normal, just keeps on trading in line with expectations. But as you know, it is in the final year now of its contract. So going to finish off now on outlook. We continue to make good strategic progress and have conviction in our three key markets with a strong emphasis on quality projects.

Operator

There's a clear focus on land promotion, land development and premium homes. And that's where we want to basically keep our focus, create synergies and build a simpler investment case around those three businesses. There's been a significant shift in planning policy. This is now apparent with the planning in our dealings with the planning system. And over the last six months to date, we've run planning for nearly 3,000 plots.

Operator

And this more positive environment is going to help us make a difference to output in Hallum and also help us scale up Stonebridge. On top of this sentiment across all our markets is gradually improving. And whilst this is good for the group, naturally, there is going to be a lag between us seeing this improved demand and our results. And also due to the timing of the key transactions, much like last year, we're going to be half to weighted. And in the meantime, I think as you can see from this morning's presentation, we remain very active.

Operator

We're well positioned for recovery. We've got a rock solid balance sheet and we're absolutely clear that we can hit medium term growth and return targets. So thank you.

Speaker 2

Christian Yort from Deutsche and Numis. Three questions for me, please. Two on Rocky, actually, just to start. Just maybe a point of clarification, when you talk about the Rocky target being through the cycle, that means when things are better, we could be potentially above the 15%, so it should average over that period is the first one. And the second one, just sort of the Rocky by division because you obviously set out the really attractive Rocky generated in Hallum.

Speaker 2

There's not a huge amount of capital tied up in the property development uncommitted portfolio. Construction is relatively capital light. So are the drags really there in the committed property developments in Stonebridge? And what is the route to returning returns in both of those? And then just finally on the H2 phasing this year, should we think a similar level of phasing to 'twenty four as in H1, H2 splits?

Speaker 2

Or is it just a bit too early in the year to tell?

Operator

Thank you. Right. So I'll have a go at answering the first one and maybe you can start thinking about how we can answer the second. So in terms of Rocky, yes, we get that the returns are below our range of 10% to 15%. But obviously, we've suffered because our cost base has gone up like nearly all businesses.

Operator

But what we believe through the cycle is that the 10% to 15% range is still appropriate for our business. And as I've talked to you before, Kristin, we model what returns we think that we can get. Certainly, over the next five years, lots of the returns that we model are existing opportunities within the site. So there's nothing that we see structurally that suggests that our medium term target of 10% to 15% isn't still appropriate for this business. And yes, that is although that's the target, there are going to be times where we might be a bit below.

Operator

And then we're working very, very hard so that there are times when we're a bit above as well. In terms of the ROCE, that's really talking about the returns on the different divisions and whether you think Stonebridge is

Speaker 1

I think Stonebridge is a growing business, as we've already said. In doing so, it's carrying cost for the future growth effectively. So until we get that to a size where we're looking to stabilize it, I don't think we'll truly see its full potential. And then within the Property Development segment, you're absolutely right. Clearly, we've got the investment portfolio in there, which is a significant proportion, yields about 6%.

Speaker 1

So the property company is going to have to work very hard to get the Rocky up to the range we require of it, that coming through the development activity, which we've seen the market at the moment. Clearly, it's not the right time to be pulling developments forward. That said, I think the Felber joint venture that we're doing that allows us to advance delivery, we will have relatively low levels of capital employed in that given the structure of it, which should hopefully help them achieve returns without using the capital in the short term. But I think we just need to see interest rates coming down a bit more such that commercial activity unlocks and they can get back committing to that up towards kind of million delivery target per annum that we're hoping to get to.

Operator

And just to add before we answer your third one, because if you look at development and we talk about the fact that the cost of holding a billion development program is million. That's just phenomenal. So what we're not doing is we're not sitting on big bits of land where we've got to kind of like wait for the market to fully recover before we can develop. Most of our land is on drawdown and we're drawing down at market levels. So we're fully adjusted already, if you think about it, to market levels.

Operator

But what we've got to be is we've got to be confident that there's either demand there or we're confident that we've got the right level of security in developing it either through a funding, a joint venture or a pre let. And what you know is that we're good at doing all those things. I mean, last year, we were very active in the year before. So we've got all those skills in our bag. And because of that, I do believe that we will scale up the development program.

Operator

And then in terms of phasing the second half?

Speaker 1

It is very early in the year. We are clearly very deal driven. And the timing of a deal between the June 30 and July 1, as you know, can make a significant difference. I think for now, assuming it will be similar to last year is a reasonable expectation. I think from our perspective, we would like to try and do more deals in the first half if we possibly can.

Operator

Yes, yes. Yes. And Christian, again, you know we do reasonably chunky transactions. And the good news is that we have got a good number of those reasonably chunky transactions under offer. But when you are dealing with big bits of land or development, you can't say, well, whatever happens, we're going to do this by the June 30.

Operator

So that's our dilemma.

Speaker 3

Adrian Kearsey, Panjolibram. I've got three questions, if I may. I should sort of do them one by one. You talk about the 10,000 plots taking to planning within Hallum. Would you perhaps be able to give us an indication of within that 10,000 are there any big schemes that you're looking at?

Speaker 3

Or is it a large number or smaller? Is it sort of a mixture of the two? The other ones in terms of Stonebridge, you've got nine sites currently active. The range seems to be on the presentation 70 plots to two twenty five or two twenty three to be precise. Is that a typical range of scheme size that you're going to be looking at going forward?

Speaker 3

And then on RoadLink, final year for RoadLink, is there anything in there that we should be thinking of in terms of revenue margin and cash flow that's different from previous years?

Operator

Okay. All right. So I'll have a go at the first two and then Darren can answer RoadLink. In terms of the 10,000 plots, typically, they would be of a size between two fifty and maybe up to 1,000, and it's probably going to average about 500. So I think maybe what your question is picking at, do we have any specific risks on certain schemes?

Operator

Or is it the typical Hallam blend of where we've got quite a few different applications that we can make? It's definitely we've got quite a few different applications that we can make, and we think that the spread is a good spread. And we're giving you a figure of 10,000, but there is more there. So we think that we'll get 10,000. And if we find 500 of the plots, it's not the right time to put the planning application in.

Operator

What we will do is we'll look to draw another 500 around. So it's not a target that I'm going to drive the business to get at all cost, but it is a target that we think we can achieve. In terms of Stonebridge, yes, the nine sites where you tell us the range of plots on the site, that is pretty typical of Stonebridge. And I think there's just one thing to add. As we scale up, we're also going to buy some bigger sites.

Operator

Now for us, a big site would be three fifty, four hundred plots. Bracebridge in Lincoln was about 300 plots. And we've got another site under offer at the moment that's three sixty plots. So I think that what you will find is that over the next three or four years, the average size will grow because we're like most house builders, if we can get on-site, invest in opening up that site and then manage to get an income stream of five, six years, we like that. But then we've also got to balance the fact that it's a young business and we don't want to be really, really land heavy.

Operator

So we want that Goldilocks. We want to have some smaller medium sized sites, which

Speaker 1

aren't too capital

Operator

intensive, but then some things that are

Speaker 1

RoadLink? Yes. If I could just add to your Hallum question before I move on to RoadLink, which is we're gearing up to put 10,000 plots into the process and submit for planning. Our historic run rate, probably about 2,500, three thousand in a good year. So we're running four times faster this year.

Speaker 1

And one of the constraining factors, therefore, actually becomes the capacity of the team. And I think we spotted the change in planning really early such that the team were very active in the last quarter of last year recruiting additional resource to be able to actually make sure we've got resource to put this into plan. And then on Modling, final year, sadly, business as usual should be similar revenues, rates of return. In terms of cash, the only one slightly unusual thing is they've got a retention pot of about 1,500,000.0 that will be released three months, six months after the contract ends.

Speaker 4

Sam Cullen from Peel Hunt. I've got three as well, please. Just first, I guess, I'll follow-up on the Hallum point. Is there a kind of maturity curve we need to think about with the additional headcount that's come in? Or are they sort of a maturity curve in terms of their efficiency or

Speaker 1

Capability and so on. Yeah. Yeah. Yeah. Yeah.

Speaker 1

Yeah.

Speaker 4

Are they kind of fully motoring now six months in? Secondly, on Hallum, you talked about kind of house builder demand coming back. Are the payment terms improving at all from the house builders that pushed out over the last couple of years? And then the second or the final one rather is on Stonebridge and really whether you'd ever explore bolting on an additional kind of smaller regional house builder to accelerate that growth perhaps in a more southern region that you could then help to further accelerate with some land via Holland?

Operator

Well, do you know what? I'm really, really pleased to see that all the analysts asked three questions.

Speaker 1

Is that pre agreed? To share them out.

Operator

So I'll answer the first and the third one, and then perhaps Darren will talk about house builder payment terms and maybe also demand because we are seeing encouraging signs of demand. So I think that in terms of Hallam, you know it's a very good quality business, and it's gone through a big growth phase of its portfolio. And although the planning system is definitely easier than it was, Planning is still complicated and it's got more complicated. And the good thing is that Hallum, and I think I can say this because I've been around for a bit as Chris is smiling at me now, Hallam is as good at planning as anybody in the country, so it can deal with that complexity. But we have to accept that the planning system is complicated and that the business has got bigger.

Operator

And then also you've heard me over the last year or so saying, yes, but we've got to actually harvest that size by selling more land. So we're going to have more land in the market as well. And for me, all of that means that the business has got to get bigger. And look, we're talking about growing the business from rounded 40 people to rounded 50 people. But also, we're going to have more specialisms.

Operator

So it's not just going to be normally, I'd guess and say out of the 40 people, there would normally be 36 of them would be planners, qualified planners. But we want more specialists. And why can't we have a highways engineer? Why can't we have an environmental officer? And I think that specialism, and I've talked to the house builders, will help us sell land.

Operator

So I think, Sam, what will happen is that we'll grow this and probably 80% of the people that we're after, because we started this to Darren's point, We started doing this in October of last year, so we'll kick off the mark because we knew if we're doing it today, we wouldn't be able to put the 10,000 planning applications in. And also, everybody else will tweak that the planning system is getting better. And then the pick of the crop is gone. So I think that what we will do is we will probably have about 50 people employed in Hallam for the medium term. And then the other thing that we're doing, which we never really talk about in these presentations and if anybody wants to talk to me about it after, it's the welcome.

Operator

We're putting more systems in across the business, not just in Hallum, but Hallam is trialing those businesses along those systems along with HVD because like every business, we've got to be slicker in terms of using data, slicker in terms of using process and we've got to be more efficient. And I think that all of those things, Sam, will make Hallam and the rest of Hennebu, but we're talking about Hallam at the moment. I think that it will make it a real Rolls Royce business. In terms of house builders, we've seen so many encouraging signs on demand, haven't we? And that might be feeding through to payment terms.

Speaker 1

Definitely. I think there's a slight nuance to that in terms of whether you're on the smaller sweet spot sites or the larger, more strategic sites. We've said that we've seen the house builders returning for those larger sites now. Coventry was a prime example. We put 500 units in the market thinking that might be the one we got away and actually proceeded with Barracks then as the under bidder on another 500 units.

Speaker 1

We put a large scheme in the market recently, which is over 1,000 units. We've had eight bids on it, which is pretty good. And I think once you get that competitive tension in the bidding process, certainly one of the angles that they can use is the payment terms to try and make any deal look that bit better for us. I think if I switch that to Stonebridge and what we've seen on the site that Tim just mentioned, that's three sixty plots, which we're taking in partnership, the terms are definitely getting stronger. The landowner is definitely in a stronger place.

Speaker 1

And we're requiring that on deferred terms of twenty four months. I would have much preferred it to be on thirty six months. And the converse of that in Hallam is we're hopefully seeing the same. I think as you go down the size of site, however, we've just put a site into the market North Of Leicester. Now the last time I was talking about a good landmark, I was talking about 12 bids.

Speaker 1

The site in Leicester has just picked up 13 bids. And once you've got that kind of level of competition, you can really start driving kind of some of the deal structure in your favor. So particularly down that end, I think we'll start seeing payment terms almost coming back to payment on the nose. And that again, by comparison into Stonebridge, is why they're moving up to larger sites because the competition down at those smaller site ends is really still quite competitive.

Operator

In terms of Stonebridge, I think the first thing we've got to absolutely focus on is integrating the business into Henry Boot. And although we are now a majority owner and will not be the full owner until the back end of twenty twenty nine, We have got an arrangement with our partner where we will start to integrate it this year. So that's important. So our focus really, Sam, is scaling it up and integrating it. And it goes back to what Darren and I keep on saying.

Operator

We're really, really good at buying sites. And we do it in a thoughtful way in terms of the planning. We do it in a thoughtful way in terms of how much capital is deployed. So we've got a clear route to growing Stonebridge. Would we close our mind to adding bolt ons?

Operator

No, we wouldn't. But I don't think it's something that we're going to be busting a gut to do over the next year or two.

Speaker 1

They do pass over our desk from time to time. We do cast our eye over them. I think we've not really seen anything that would be suitable or appropriate from our perspective to actually bolt on.

Speaker 5

We've got quite a few here, so I'll just go through them until we run out of time basically. Sorry.

Speaker 1

Will you be doing it

Operator

in your normal deadpan way?

Speaker 5

I forgot my tap shoes this morning, Tim,

Operator

so sorry.

Speaker 5

So central cost increase during FY 'twenty four. Do you anticipate the pace of this trend continuing into 'twenty five?

Operator

Well, that's definitely a Darren one, isn't it?

Speaker 1

As Tim said, look, we're doing a lot around the business, whether that's improving the technology and the systems. You'll have hopefully seen our refreshed branding and marketing that we're doing at the moment. We've certainly taken on additional headcount to support all of that in the central function, which will be a continuing kind of rise. Clearly, over recent years, we've had wage inflation that has been much higher than the historic norm. It feels like now we are back at the historic norm for the time being.

Speaker 1

So hopefully, we won't see those kind of increases feeding through either as we move forward.

Operator

Yes. And we've been investing in systems as well, haven't we? And I've got to say as we invest in systems, our headcount has gone down over the last two years quite a bit.

Speaker 5

Opinion. Great. Thank you. So there was a large swing in working capital with circa million of inflows last year. Moving forward, do you expect the increase in inventory to be broadly canceled out by higher land sales?

Speaker 1

The increase in inventory carried out, canceled out by higher land sales? I'd hope so. Given the direction of travel, we said we're targeting kind of 3,000 plots this year for sale. So the increase there will hopefully balance off the investment that we continue to make, absolutely. There may be a timing difference on that if we're advancing 10,000 plots as well into the planning system now.

Speaker 1

There's going to be a lag till we get those through and see the higher rates of sale. So we might see the kind of working capital that will reverse a bit in the short term.

Speaker 5

Okay. So on land sales year to date in 2025, are you witnessing profitability in line with the average profit of $10,000 in FY '24 or otherwise?

Operator

Yes. I mean, broadly, yes. I'm not using weaselly words there. If you look at what we think that we will sell this year, and Darren gave a figure talking about 3,000 plots, we think that it's going to be in line with our long term average, yes.

Speaker 5

Okay. So if we look at FY 2024 margins compared to historic levels, there remains scope for good improvement in land and construction. Does this fit with your expectations? Or has either market changed for the worse?

Speaker 4

Well, I

Operator

think that we probably answered that on Christen's first question, didn't we?

Speaker 1

I

Operator

hesitate to say this because everybody who works at Henry Blue is absolutely important, but construction isn't going to drive our margins. So the real markets that we're focusing on are land development and the Stonebridge. And on the land and the development, we're clear that the margins will be back to normal trends. We believe that. And then on Stonebridge, we've got to grow open about this as we grow the business, we think that our returns will be around the industrial or the housebuilders average.

Operator

And we're on track to do that.

Speaker 5

Great. So final question then. Do you expect the ratio between executive home salesstraight affordable homes to change at Stonebridge as you move to larger sites within the expansion of the business?

Operator

Yes, broadly, because I think that what will happen is we will, over a period of time, expand the land bank and build homes on new land. And highly likely that that new land will have a higher ratio of private to affordable. But the model is based on the existing ratio, not the historical one which is better. So we're still confident of the model. Great.

Speaker 5

That's it. Thank you.

Operator

Yes. Good.

Speaker 1

All done.

Operator

Okay. Everybody happy? Good. Thank you very much. Thank you.

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Earnings Conference Call
Henry Boot H2 2024
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