Highlights
· The Group has made significant operational improvements in the year resulting in
– 4 star HBF Customer Satisfaction level in 2018
– another controlled period end with total completions of 3,759 units
– record year of profits slightly ahead of market consensus
– substantial step-up in operating margin
– strong land acquisition and strategic conversion in the second half
· Further good progress towards our medium term targets and on track to deliver in excess of our targeted £180m additional net cash from balance sheet optimisation
Greg Fitzgerald, Chief Executive commented:
“The significant improvement in operational performance across all areas of the business is expected to deliver a record year of profits for the Group. Customer satisfaction is a key priority and the Group's return to 4 star housebuilder status along with another controlled and disciplined period end reflect this. We are looking forward to delivering the first homes from our new housing range in 2019 and continuing to make further operational and financial progress.”
Trading update
The Group delivered a total of 3,759 (2017: 3,645) new homes in the year, an increase of 3% on the prior year and in-line with expectations. Private homes totalled 2,567 (2017: 2,573) units with 1,192 (2017: 1,072) affordable housing units.
Total average selling price on completions in the year was c. £273k (2017: £272.4k) with private average selling price of c. £338k (2017: £334.5k). Underlying pricing remains robust and in-line with our expectations.
Following the successful implementation of operational improvements across all areas of the business during the past 18 months, the Group expects to deliver a significant step-up in operating margin for 2018, with profits for the year expected to be slightly ahead of market consensus.
The Group's sales rate per outlet per week for the year was 0.5 (2017: 0.48). We start the year with a strong forward sales position totalling 2,681 units (2017: 2,656) with a value of £521m (2017: £518m). The prior year level of forward sales reflected the inclusion of a bulk deal at the end of that year for 275 private homes with Heylo Housing. The Group operated from an average of 87 (2017: 92) active sites in the year.
Customer satisfaction
Customer satisfaction remains a key priority for the Group and we are very pleased to be on track to achieve our target of a 4 star HBF Customer satisfaction rating for 2018, a significant improvement from the 2 star HBF customer satisfaction rating in the prior year. In 2019, we will be delivering the first homes from our exciting new housing range which has been designed to best meet our customers' needs today.
Balance sheet optimisation
In aggregate, our specific actions over the past two years including land sales and the formation of our first two major joint ventures are anticipated to deliver in excess of the targeted £180m from our balance sheet.
We have made further progress with our 50:50 JV agreement at Wellingborough and having exchanged conditional contracts, expect to conclude the partnership, subject to third party approval, in early 2019 realising an additional c. £65 million net cash benefit.
The joint ventures with housing associations at Sherford and Wellingborough, support the Group's plans to develop its fledgling partnership business, with further opportunities identified for 2019.
We continue to utilise part exchange in a disciplined and well-controlled manner, with our year-end balance sheet value at c. £16m (2017: £19.7m) and no units owned and unsold for more than three months.
The group is expected to have a year end net cash balance of c. £127m (2017: £145m) reflecting our ongoing capital management, an increased net investment at Wellingborough of c. £17.5m, payment of our first special dividend and our joint venture at Wellingborough now expected to complete in early 2019.
Land
We increased our land activity during 2018 to ensure we maintain a good supply of high quality developments, securing 4,164 plots (2017: 2,550) across 19 (2017: 11) developments. Our strategic land bank remains a valuable source of land for the Group, and we converted 1,958 plots (2017: 1,850) from it during the year. On average the land acquired is expected to deliver at least a 26% gross margin and 25% ROCE.
We have excellent forward visibility with all of our land for 2019 having detailed planning consent and 91% of our land for 2020 already secured. As at 31 December 2018 the Group had an owned land bank, including joint ventures, of c. 17,200 plots (2017: 17,096).
Outlook
The Group has made excellent operational and financial progress in 2018 and we expect to build upon this further in 2019.
The industry fundamentals remain strong with customer demand for new homes supported by attractive mortgage finance and government initiatives, in particular Help to Buy.
Whilst it is too early in the year to comment on 2019 trading, early signs are encouraging. As reported in November, we saw Brexit uncertainty driving a slowdown in discretionary buyers of our larger homes. Building on our much improved relationships with housing associations, we have increased our level of private sales to housing associations and see further opportunities in this area. In addition, our stronger operating model and margin initiatives will support the business.
The Board intends to recommend a final Ordinary dividend of 38.0 pence per share (2017: 32.5) bringing Ordinary dividends in respect of the 2018 financial year to 57.0 pence per share (2017: 47.5) and total dividends including the special dividend of 45.0 pence per share paid in November 2018, to 102.0 pence per share (2017: 47.5).