Final Results 2019

RNS Number : 4250E

Glenveagh Properties PLC

28 February 2020

 

 28 February 2020

Glenveagh Properties plc

Final Results 2019

Glenveagh Properties plc ("Glenveagh" or the "Group") a leading Irish homebuilder announces its Final Results for the year ended 31 December 2019.

Financial Highlights

	Year ended  31 December  2019	Year ended 31 December 2018	Change
Units	844	275	207%
Revenue €'m[1]	284.6	84.2	238%
ASP €'k[2]	332	287	16%
Gross profit €'m	51.5	15.3	237%
Gross margin[3]	18.1%	18.2%	(10 bps)
Net profit/(loss) €'m[4]	23.9	(3.5)	n.a.
Land €'m	668	618	8%
Work-in-progress €'m	173	101	71%
Net cash €'m	53	131	(59%)

Operational Highlights

· 844 units delivered from 14 selling sites (2018: 275 units from seven selling sites);  

· Actively constructing on 17 sites in the period, consistent with the Group's strategy of maximising the number of open outlets;

· Existing open sites are capable of delivering in excess of 4,800 units[5];

· In excess of 475[6] units which are due for delivery in 2020 are now sold, signed or reserved substantially underpinning the Group's delivery target for 2020 of 1,000 units;

· In exclusivity in respect of 448 units at East Road development to be delivered under a forward funding arrangement; and

· Completion of long-term timber frame open book supply agreement.

Glenveagh's Chief Executive Stephen Garvey commented:

"It's been another strong performance for the Group both operationally and financially as we continue to exceed our targets, delivering three times the number of unit completions from one year ago. The Group's completed investment in attractive residential development land and focus on operational excellence continues to drive reservations, signings and completions. As we grow our operations, consistent with our business plan, tripling medium term output to 3,000 units, we continue to drive efficiencies and improve ties with our suppliers to further drive return on capital for the Group. As our market has evolved since IPO, we also see additional opportunities to capture strong demand from our retail and institutional customers.

I believe that our core product of starter homes for sale, building quality PRS product in sustainable rental locations and placemaking with local authorities through partnership schemes, holds the best potential proposition for the Irish residential market.  I want to thank all of our employees, shareholders and industry partners for supporting our business."

Outlook

Positive momentum has been maintained during the first two months of the current year where customer demand has been solid. The Group has substantially de-risked its 2020 delivery targets with costs largely fixed and strong forward sales in place. The market backdrop remains favourable with significant institutional and private demand for housing. The Company is well-positioned to deliver a successful outcome for 2020 and the Board remains confident that the results will be in line with its expectations.

Results Presentation

A conference call for analysts and investors will take place at 8.30am this morning to present the finasncial and operational results followed by a Q&A session. Please pre-register at the link below to ensure your attendance is confirmed ahead of the commencement of the call:
 

· Click this link to register for the conference

·     Ireland [phone] / UK [phone] / USA [phone]

· Conference PIN 2830915 followed by *0;

For further information please contact:

Investors:	Media:
Glenveagh Properties plc Michael Rice (CFO) Conor Murtagh (Director, Strategy & IR) [e-mail]	Gordon MRM Ray Gordon 087 241 7373 David Clerkin 087 830 1779 [e-mail]

Note to Editors

Glenveagh Properties plc, listed on Euronext Dublin and the London Stock Exchange, is a leading Irish homebuilder with a focus on strategically located developments in the Greater Dublin Area, Cork, Limerick and Galway.

Glenveagh delivers across three distinct business segments - Suburban, Urban and Partnerships - as a single business, capitalising on scale advantages and investing to optimise return on capital.

www.glenveagh.ie

 

GLENVEAGH PROPERTIES PLC: STRATEGY, BUSINESS AND FINANCIAL REVIEW

1.  STRATEGY

i.  Overview

Glenveagh is focussed on strategically located residential developments in the Greater Dublin Area, Cork, Limerick and Galway. The Group delivers to its customers across three distinct business segments - Suburban, Urban and Partnerships - from a single platform, capitalising on scale advantages and investing to optimise return on capital.

Each business segment benefits from the Group's attractive landbank, proven delivery platform and industry leading central resources covering the entire process outside of construction delivery. Our single underwriting team are complemented by centralised planning & design, manufacturing, procurement and PLC functions. 

ii.  Business Segments

Suburban product is primarily first-time buyer housing with some low-rise apartments with demand coming from private buyers and institutions. This means affordable, high quality homes in locations of choice at €325,000 or below. The Group has an overwhelming Greater Dublin Area focus in our portfolio however the product is required nationally. Suburban meets private and institutional demand for our product via traditional build-to-sell to first-time buyers and forward sale PRS structures to institutions. 

Urban product is all apartments to be delivered to institutions primarily in Dublin and Cork but also on sites adjacent to significant rail transportation hubs in the GDA. Demand in this segment is being driven by the shift to rental by millennials, changing lifestyles and the exodus of private landlords due to fiscal policy and regulation who are being replaced by institutional investors. 

Urban offers significant attractions from a risk and return on capital perspective given the opportunities that exist to forward fund these developments. This provides longer term earnings visibility due to early commitment from a forward sale or forward fund transaction. 

Partnerships are accretive to the business over the long-term. A partnership typically involves the Government, local authority or state agency contributing their land on a reduced cost or phased basis into a development agreement with Glenveagh. It has a reduced risk from a sales perspective where approx. 50% of the product will be delivered back to the government or local authority for social and affordable homes. Over time this will de-risk Glenveagh's market exposure and provide: 

· access to both land and deliveries for our Suburban and Urban segments;

· strong ROCE profile; and

· increased business resilience with reduced risk.

iii.  Strategic Priorities

The four strategic priorities of the Group underpinned by our sustainability agenda are as follows:

· Disciplined investment across our three target segments;

· Putting our private and institutional customers at the heart of what we do; 

· Scaling our construction capability across Suburban and Urban; and

· Optimisation of capital employed to drive returns for shareholders. 

During 2019 the Group made significant progress towards the achievement of our strategic objectives.

Reflecting confidence in where the delivery capability has evolved since IPO, the Group's medium-term output targets were increased for 2022, 2023 and 2024 to 2,350, 3,050 and 3,000 units respectively.

2.  BUSINESS REVIEW

i.  Group Sales

During 2019 the Group completed the sale of 844 units across fourteen selling sites where reservations and pricing remained strong throughout the year. In excess of 475 units which are due for delivery in 2020 are now sold, signed or reserved substantially underpinning the Group's delivery target for 2020 of 1,000. Furthermore, existing open sites are capable of delivering in excess of 4,800 units.

a.  Suburban Sales

Thirteen selling sites delivered the Group's Suburban units for 2019 with both existing and new selling sites performing well throughout the period.  New selling sites in 2019 included Blackrock Villas, Ledwill Park, Mountwoods, Semple Woods, and Knightsgate. These sites will each be delivering sales again in 2020 with Barnhall Meadows, Oldbridge Manor, Bellingsmore, Silver Banks, The Colleciton and The Hawthorns also coming onstream as selling sites.

On 25 March 2019 the Group announced that it had exchanged contracts with Irish Residential Properties REIT PLC ("I●RES") whereby Glenveagh agreed to forward sell 118 housing units to I●RES. The transaction comprised two, three and four bed homes at Taylor Hill, Balbriggan and Semple Woods, Donabate. The Gross Development Value ("GDV") was €38m^[7] and all units have since been delivered. This transaction is representative of the demand from institutions which the Group continues to see across our Suburban portfolio.

House Price Inflation ("HPI") in the Group's starter-home focused Suburban segment was 2.75%^[8].

b.  Urban Sales

In November the Group successfully completed the sale of its 90-unit Urban apartment development at Herbert Hill, Dundrum to Real I.S.. The depth of institutional demand to acquire this development reflects the quality of the product delivered and the attractiveness of Glenveagh as a counterparty. The success of this process gives the Group confidence in the deliverability of future Urban PRS sales.

The extent of the institutional demand for high quality residential product is such that the Group now expects to forward fund a series of Urban apartment developments. Once successfully forward funded these developments will deliver revenue, profits and cash for the Group in advance of the full delivery of the unit output targets.

The first site in Glenveagh's portfolio to be delivered under a forward funding arrangement will be East Road where the Group are now in exclusivity in respect of 448 units and corresponding land portion of the site. The transaction once completed will result in land and construction revenues for the Group from 2020. The Group expects to be in a position to provide a further update in this regard later in 2020.

ii.  Partnerships

Glenveagh has identified a pipeline of over 5,000 units which are likely to be tendered by local authorities in the coming years. Of that pipeline, Glenveagh is actively tendering on schemes which, if awarded, could deliver up to 2,000 units across the three tenure types (Private (owner occupiers and PRS), Social and Affordable). These processes are likely to reach a conclusion (with contracts awarded) in 2020.

iii.  Group Construction Progress

2019 was another strong year on the construction front where the Group opened six construction sites assisted by the formation of dedicated site opening teams. Allowing for completed developments at Proby Place and Holsteiner Park, the Group were actively constructing on 17 sites during 2019 with a further four sites scheduled to open in H1 2020.

Group CPI remains in line with expectations and visibility on 2020 costs has increased with in excess of 85% of costs associated with 2020 deliveries now agreed. Construction price inflation on our housing developments continues to be muted.

c.  Suburban Construction

The pace of site openings in 2019 was most evident on our Suburban sites with five openings during the period. Construction is progressing well on each of the sites with all active Suburban sites expected to deliver completed units in 2020.

A further two Suburban sites at are due to commence construction in Q1 2020.

d.  Urban Construction

Following the successfully completed construction works at Herbert Hill in 2019 the Group has continued to add to its strong Urban delivery capability by expanding the team via a number of experienced hires who have a strong track record of large-scale apartment delivery in both the London and Dublin markets.

Works have commenced on our 71 unit development on our Bray site opposite the train station with that development expected to deliver units from 2021. Enabling works are on-going at the Group's first Docklands site (East Road) where construction is due to commence in H1 2020 upon the successful completion of a forward-funding arrangement with an institutional counterparty.

e.  Supply Chain Integration

The Group continues to invest in more efficient and cost-effective construction techniques. Early initiatives have included the optimisation of our processes and finished product, in addition to adopting modern building practices, including utilising off site timber-frame and modular manufacturing systems.

In order to further enhance the Group's timber-frame construction solutions and guarantee long-term supply, Glenveagh has entered into an exclusive multi-year open book supply agreement with one of its existing timber-frame suppliers based in Ireland, Keenan Timber Frame Limited ("KTF").

In conjunction with the agreement the Group has purchased a production facility in a strategic location close to its active construction sites for approximately €5 million. This manufacturing facility will be leased to KTF and once operational will allow KTF to supply timber frame product exclusively for Glenveagh.  

The open book supply agreement and the factory investment by Glenveagh will help underpin Glenveagh's medium and long-term housing delivery targets while also allowing the Group to benefit from any savings delivered as a result of the partnership. The factory is due to be operational by April and will initially have the capability to deliver approximately 800 timber frame units per annum with the option to expand this capacity in the future with limited investment.

Separately, the Group's quarry for the offsite disposal of inert material is due to be operational from Q2 further de-risking the costs associated with groundworks on site.

iv.  Planning

98% of our lands are zoned residential. To further de-risk our near-term unit delivery targets and ensure we have 'shovel ready' sites available in the medium-term, we are highly active in both the fast-track Strategic Housing Development ("SHD") planning process and local authority applications.

During the period the Group progressed its Dublin Docklands development portfolio in terms of master planning and design, and in October our East Road site in the Dublin Docklands received planning permission for 554 units. The balance of the Docklands portfolio will reach the formal application phase during H1 2020 with the Castleforbes residential SHD planning expected in H2 2020.

A planning application has already been granted on the non-residential elements of the Castleforbes site (hotel and office) and Glenveagh has entered into a pre-let transaction with Whitbread plc for a proposed 250-bedroom hotel on the site. Securing a strong counterparty like Whitbread with a robust institutionally accepted covenant will add value to the overall project and provide Glenveagh with flexibility in the context of future exit options for Castleforbes.

An additional eight schemes were granted permission during the period including 251 units at Eden in Cork.

The Group currently has 29 applications at various stages of the planning and design process totalling over 6,000 units.

v.  Development Land Portfolio Management

Our 14,500 unit landbank has been assembled at attractive rates in the context of both cost per plot €43k[9] and site cost as a percentage of NDV 15%⁹ in locations with significant pent up demand for starter-home product and quality PRS accommodation. With our net euro investment in land now complete the Group is focused on refining our development land portfolio to position the Group to deliver its medium-term output targets. The Group strategically added to its development land portfolio via a number of attractive acquisitions in 2019 with total development land investment during the period of approximately €109m⁹ (2,600 units).

Our latest acquisitions have been focussed on smaller ticket sizes reflecting the Group's strategy for maximising the number of open sales outlets. Management's view remains that the appropriate landbank size is approximately five years in duration when the business is as at full run-rate.

Details of our primary land acquisitions during 2019 are as follows:

Location	Site	Business Unit	Size	Units	Cost9
Douglas, Co. Cork	Maryborough Ridge	Suburban	24 acres	504	€13 million
Castleknock, Co. Dublin	Castleknock	Urban	4acres	192	€9 million
Leixlip and Newbridge Co. Kildare	Project Arrow	Suburban	94 acres	873	€50 million
Drogheda, Co. Meath	Oldbridge Manor	Suburban	30 acres	274	€7 million
Howth, Co. Dublin	Howth	Urban	7 acres	200	€14 million
Kilruddery, Co. Wicklow	Bray	Suburban	11 acres	150	€10 million

vi.  Sustainability Agenda Progress

From the outset, the Group has had creating a sustainable business at the core of its strategic objectives. Our environmental and social agenda continues to gain pace along with the delivery of our strategic objectives.

Health and Safety

Health and Safety is at the heart of our operations. In 2019 the Group achieved a Highly Commended Award from NISO and a Grade A T Cert but there is always more that can be done in this area and as a market leader, it is incumbent upon us to continue to drive the health and safety agenda. Therefore, the Group is implementing ISO 45001:2018 Occupational Health & Safety Management. 

People

Key to scaling the business for the long term has been our people. Growing the business from 75 employees at IPO to over 330 today fostered a culture which has not only empowered talent but which also embraced equal opportunities, diversity and inclusion. We have a strong gender balance ratio compared to the industry average (Glenveagh 19%, Industry average 5.5%[10]. Glenveagh works closely with the Construction Industry Federation ("CIF") on initiatives to encourage female participation in the industry and sponsored the CIF's "International Women Day Conference in 2019 and will do so again in 2020.

At Glenveagh we encourage an inclusive culture of equal opportunities, where employees have a voice and feel valued and talent is nurtured.  Glenveagh held a Diversity day 2019 and provided diversity and inclusion workshops for all managers. We will be again carrying out Diversity and Inclusion training in 2020. We have signed up to the CIF Diversity Charter with a view to gaining bronze accreditation in 2020.

We are committed to providing a great place to work for our people. We carry out annual employee surveys to ensure engagement with employees and encourage frequent engagement through line management. We work on the lowest scoring areas to improve in these areas and also focus on our highest scoring areas to ensure we maintain these results.

During 2019 the Board announced the appointment of Pat McCann and Cara Ryan as non-executive directors. Pat is the CEO of Dalata Hotels Group plc and brings almost 50 years' experience in Irish business, real estate and consumer facing businesses to the Glenveagh Board. Cara is a seasoned non-executive director, with proven expertise in the real estate and finance sectors.

Customer

Exceeding customer expectations is central to the Group's strategy of creating the leading home building platform in Ireland. Built around the objectives of access, quality and innovation our customer service offering has brought a new professionalism to the industry. Customer satisfaction has been a KPI for the entire business since inception and drives an element of all staff's variable remuneration. Despite there being no published benchmarks in Ireland we engage an independent external firm to survey our customers. Full variable remuneration is not paid to employees unless the equivalent of five star status in the UK is achieved

Sustainable Communities

Contributing to sustainable communities is a key feature of our approach to planning and design. In 2020 the Group will commence works on our first urban brownfield regeneration project in Dublin's Docklands. This is the first project of its type to be delivered by the Group and forms part of a portfolio of over 2,000 urban brownfield units which will be delivered by the Group between now and 2024.

Glenveagh is pleased to confirm that the Group has been shortlisted as a finalist in Residential Category for the upcoming Irish Construction Excellence Awards.

Environmental and Quality

The environmental sustainability of our housing is at the forefront of business decisions. All houses and apartments delivered by the Group in 2019 had a BER rating of A3 or better. Glenveagh intend to replicate and improve on this in 2020 and future periods.

Our efforts in providing sustainable energy efficient homes are replicated in reducing the environmental footprint of our operations. Initiatives to date have included the introduction of electric vehicles, the use of recycled materials on site and a minimisation of waste across the business. Glenveagh has also commenced the implementation of ISO 14001:2015 Environmental Management System.

3.  FINANCIAL REVIEW

i.  Group performance

Glenveagh had another strong year in 2019 both from an operational and financial perspective.  The total unit completions for the year was 844 units (2018: 275), a 207% increase on the prior year and 16% higher than our market guidance of 725 units. 

Group revenue was €284.6m (2018: €84.2m) for the year with €280m (€79m) relating to the 844 units. The continued strong demand for our first-time buyer product is evident from our Average Selling Price ('ASP') for the year of €332k (2018: €287k). Revenue included total consideration of €4.3m (2018: €5m) from a number of non-core site disposals.

The Group's gross profit for the year amounted to €51.5m (2018: €15.3m) with an overall gross margin of 18.1% (2018: 18.2%). The strong margin performance demonstrates continued margin progression in our underlying housing margin which was 17% in 2018. 

Our operating profit (pre-exceptional items) was €30.5m (2018: loss of €2.1m), which is a 10.7% operating margin and is in line with expectations. The Group's central costs for the year were €19.6m (2018: €17.2m), which along with €1.4m (2018: €0.2m) of depreciation and amortisation gives total administrative expenses (pre-exceptional items) of €21.0m (2018: €17.4m). 

The exceptional costs of €1.1m (2018: €0.4m) incurred in the year relate to redundancy and restructuring costs and costs associated with the cessation of the Hollystown Golf and Leisure Limited business in December 2019.

Net finance costs for the year were €2.7m (2018: €1.4m), primarily reflecting interest on the drawn portion of our Revolving Credit Facility, commitment fees on the undrawn element of the facility and arrangement fees, which are being amortised over the life of the facility. 

Overall, the Group delivered a profit after tax of €22.8m, which shows significant progression from the loss of €3.9m incurred in 2018, and current year earnings per share of 2.6 cent (2018: Loss per share of 0.5 cent). 

ii.  Statement of Financial Position

The Group's net asset value has increased to €867m at 31 December 2019 (2018: €843m). The Group has shown substantial growth during the year with the land portfolio increasing to €668m (2018: €618m). 

The Group has also made a significant investment in work in progress in line with the continued ramp-up of the business with a year-end balance of €173m (2018: €101m). The investment in the land portfolio and work in progress has been financed through the Group's net cash balances, which have decreased to €53m at 31 December 2019 (2018: €131m).

iii.  Cash Flow

The Group had a net cash outflow in the year of €37.5m, a significant reduction from €221m in the prior year. This reduction comes from a combination of improved cash generation from the business and a reduced spend on land. 

Given the strong landbank now in place, our net inventory spend for the year was €119m, with the vast majority of that related to work in progress, compared to a net inventory spend of €432m in 2018. 

The Group had a net cash position of €53m (2018: €131m) at year-end, with €93m of cash and approximately €40m of debt from our Revolving Credit Facility.

As expected, we utilised this debt facility to a greater extent in 2019 to fund our investment in work in progress. We drew down €120m (2018: €26m) and repaid €80m (2018: €26m) from the facility at various points during the year. The increased utilisation of the facility will continue in 2020 as we open more construction sites in line with our strategy.

ENDS

The financial statements for the year ended 31 December 2019 can be accessed by clicking on the link below:

http://www.rns-pdf.londonstockexchange.com/rns/4250E_1-2020-2-27.pdf 

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[1] Including non-core site disposals of €4.3 million in 2019 (2018: €5 million)

[2] Change due largely to mix effects

[3] Underlying unit sales margin for 2018 approximately 17%. 2019 unit sales gross margin +110bps

[4] Pre exceptional items of €1.1 million

[5] Subject to planning

[6] At 26 February

[7] Inclusive of VAT

[8] Based on reservations Q3 2019 vs Q3 2018

[9] Excluding Fees and Stamp Duty

[10] CIF Women in Construction Industry Report 2018

 

END

 

 

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