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Edited Transcript of GLV.I earnings conference call or presentation 23-Aug-19 8:30am GMT

Half Year 2019 Glenveagh Properties PLC Earnings Call

Sep 3, 2019 (Thomson StreetEvents) -- Edited Transcript of Glenveagh Properties PLC earnings conference call or presentation Friday, August 23, 2019 at 8:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* John F. Mulcahy

Glenveagh Properties PLC - Co-Founder & Executive Chairman

* Michael Rice

Glenveagh Properties PLC - CFO

* Stephen Garvey

Glenveagh Properties PLC - Co-Founder, CEO & Executive Director

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Conference Call Participants

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* Colin Sheridan

Davy, Research Division - Industrials Analyst

* Mathias Peters;Crédit Suisse;Analyst

* Robert Eason

Goodbody Stockbrokers, Research Division - Head of Research

* Samuel Berkeley Cullen

Joh. Berenberg, Gossler & Co. KG, Research Division - Senior Analyst

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Presentation

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Operator [1]

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Good morning, and welcome to the Glenveagh Properties PLC Interim Results Call for period ending 30th of June 2019. My name is Rosie, and I'll be your coordinator for today's conference. (Operator Instructions)

I will now hand you over to the Chairman of Glenveagh Properties, John Mulcahy, to begin today's conference. Thank you.

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John F. Mulcahy, Glenveagh Properties PLC - Co-Founder & Executive Chairman [2]

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Good morning, everyone, and thank you for joining us to discuss the Glenveagh Properties PLC for the half year results for the half year ended June 2019. I'm John Mulcahy, Chairman of Glenveagh, and I'm joined this morning by Stephen Garvey, our Chief Executive; by Michael Rice, our Chief Financial Officer; and by Conor Murtagh, our Director of Strategy and Investor Relations.

You have seen this morning that we have made 2 stock exchange disclosures today, one on our results, which we'll go through momentarily; and one on the appointment of Stephen as our Chief Executive and also of Pat McCann and Cara Ryan as our 2 nonexecutive directors. Stephen's appointment comes as Justin has informed the Board that he would step down as Chief Executive with immediate effect. Justin has decided to return to the U.K. after spending much of the past decade living and working in Dublin and indeed the past 5 years in establishing and building up this business. Glad to say that Justin will continue to work with us over the coming months to facilitate a smooth transition. And I'm grateful to him, obviously, for the great contribution he's made over the past number of years, and we wish him every success and wish him well into the future.

Now the Board has appointed Stephen, who you will be aware was an existing Board member and has been an excellent Chief Operating Officer since inception. The Board is extremely confident that Stephen will be very successful in leading the company to the next stages of its growth and development. As I said in this morning's announcement, Stephen has a very strong secular experience, operational expertise and a deep understanding of our business, and we're fortunate to have somebody of his caliber to lead us. And a very strong management team will be working with Stephen.

So I'd now hand over, if I may, to Stephen and Michael Rice to go through our results in detail.

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Stephen Garvey, Glenveagh Properties PLC - Co-Founder, CEO & Executive Director [3]

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Thank you, John. Good morning, everyone, and welcome to the call. If you can turn to Page 4 to begin with, please.

And on Page 4 where we have our operational highlights which demonstrate Glenveagh's progress in the period. The group are selling from 13 sites with 800 units sold, signed or reserved, including Herbert Hill in Dundrum, which is an exclusivity. Of the 800 units sold, not -- 490 units are contracted or closed. We are effectively sold out for 2019, and construction as well progressed with good visibility on closings in the second half of the year.

The group are currently constructing on 17 sites. In excess of 455 units, which are due for delivery in 2019 are now through practical completion and are handed over to sales for closing, which substantially derisks the group's delivery tariffs. Importantly, existing open sites are capable of delivering in excess of 4,000 units, highlighting the runway in front of the business. Furthermore, 3 new sites will open in the second half of the current year, including one of the acquisitions announced today.

Construction price inflation remains in line with expectations with over 65% of costs associated with 2020 deliveries now agreed. CPI of housing schemes is approximately 3% on current tendering. The group has 16 applications at various stages of the planning process, totaling in excess of 6,500 units. We now have planning permission for all of our units through 2020.

Total site acquisition investment in the period was EUR 106 million, covering over 2,000 units, following 6 strategic additions to the group's development land portfolio. This operational progress gives the team confidence that the business is well positioned to continue to meet its output targets beyond 2019.

Financial highlights and turning to Page 5. I won't dwell on the financial highlights as Michael will cover them in detail shortly. Suffice to say, we have made significant progress in the area in the past 12 months.

If you turn to Page 6, having a little bit to our most recent acquisition already, Slide 6 highlights the development land investment of EUR 106 million spread over 2,000 units in the period. The group has strategically added to its development land portfolio via 6 acquisitions. The 3 discussed here are Drogheda, Killruddery and Howth, are reflective of the opportunities available in the market to drive shareholder returns. Acquiring development land with the group's existing capital resources continues to be accretive to returns. Smaller sites with the ability to deliver units quickly to drive return on capital employed are a key feature of our recent planned acquisitions.

Our recent acquisitions include Drogheda, a large urban center of a -- with a population of over 41,000; core first-time buyer product is up EUR 350,000; early unit deliveries and minimal capital tied up in the acquisition; delivering approximately 50 to 60 units per annum from 2020 onwards, which is in line with our business plan.

Killruddery, exceptional estate setting, first-time buyer and PRS product will be optimal here. Killruddery is located in Bray, which is close to a high-end climate area, and access to the city is quite easy through the DART line. Howth, well-established affluent coastal town, PRS opportunity to drive long-term return on capital.

Finally, to reiterate, while the group continues to see attractive land acquisitions, we are targeting a landbank of 5 years in duration when the business gets to full run-rate, which is currently 2,500 units in 2023.

If you turn to Page 7, the residential land market remains very favorable and represents an unrivaled opportunity for a scaled housebuilder like Glenveagh. The demographics are compelling, and this is driving housing need. Our strong and growing economy is supporting its sustainable demand. The macroprudential rules have delivered stable prices, and mortgages are available provided you target deeper segments of the market, which is first-time homes.

Finally, despite the positive fundamentals, the structural undersupply remains and will continue to remain for the foreseeable future. I believe we are well placed to capitalize on the positive fundamentals and the structural undersupply over the long term.

If you can turn to Page 8, please. We have highlighted what makes the Glenveagh offering different. We plan, design and build quality and modern environmentally friendly homes for customers where they want to be for what -- how they want to live at prices they can afford. We do this in locations of sustainable demand with sites located in strong urban centers. We are now a trusted bid developer in towns around Ireland and are valued for first-time buyers on their journey to their new home. This, combined with our well-constructed monetizable development land portfolio, delivers sales rates which drive return on capital employed.

The chart on the right-hand side illustrates our focus on the starter-home market and our strategy of opening as many sales outlets as possible. By focusing on the deeper segment of the market, we are very -- we have very limited concentration to derisk our output target for 2020 and beyond.

Now I would like to hand over to Michael who will go through the financials.

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Michael Rice, Glenveagh Properties PLC - CFO [4]

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Thanks, Stephen. Welcome, everyone, and thanks for taking the time to attend our half year results call. Overall, we've had a solid first 6 months to the year as we continue to deliver on the targets we originally set out at IPO. We continue to progress our unit completions with 158 units closed in the period and further progress shown with 490 units closed or contracted as of today. These 490 units, along with the additional 310 reservations totaling 800 units, demonstrates that our target of 725 is well within our reach. We continue to invest our cash on acquiring sites to further enhance our long-term land portfolio, while also utilizing our debt facility to finance our increased working capital requirements on our 17 active sites.

To deal with some of the specifics in today's announcement, I'd like you to turn to Slide 10 where I'll highlight some of the key items from our income statement. Overall, revenue came in at EUR 45.5 million for the period, but specific housing revenue was EUR 45.3 million, which represents the 158 units closed in the period across 7 sites. Our ASP for the period was EUR 287,000, which is in line with our 2018 full year ASP and significantly better than last year's H1 ASP.

Our gross profit for the period was EUR 7.5 million with a corresponding margin of 16.5%, but an underlying margin of 17.6% once marketing costs related to future selling sites are excluded. We expect to see further margin progression in the second half of the year. This underlying margin disclosure is a one-off and it won't be necessary in future periods and we have simply included it to give greater clarity. Our central costs for the 6-month period were EUR 9.7 million with the expected full year cost to be circa EUR 21 million. The overall loss for the period was EUR 3.5 million and is in line with our expectation given the weighting of unit closings to the second half of the year.

Looking forward to the rest of the year, 800 units reserved, signed or closed at this stage of the year is a fantastic achievement and is predominantly being driven by units in the -- at the more affordable end of the market. Our ASP for the full year is now likely to come in at the lower end of our range, circa EUR 340,000 with closings in excess of 725 units, one of the options available to us to protect the overall revenue number.

Slide 7 (sic) [Slide 11] sets out our balance sheet at 30 June, and there are 2 items that I'd like to specifically highlight. We continue to invest in both our land and work in progress with net increases of EUR 92 million in each since year-end. The work in progress number reflects the significant construction activity across our 17 live sites. We expect this number to moderate as we close a significant number of units in the second half of the year.

Related to our increased investment in work in progress is our net debt position of EUR 42 million at 30 June. We have drawn EUR 80 million from our revolving credit facility and similar to our work in progress, I expect our debt figure to reduce in the second half of the year as our cash levels increase from unit closings.

Okay. Our cash flow statement for the period on Slide 12 simply shows the main cash movements, which, as you would expect, mirror those already mentioned in the balance sheet. The primary cash outflow is our investment in operating activities of EUR 173 million, which we have financed through a combination of drawing EUR 80 million from the RCF and existing cash balances.

As we now have greater clarity on the sites delivering our 1,000 units in 2020, the components required to achieve a 20% margin have been set out on Slide 13. At IPO, we spoke about requiring 5% HPI and 4% CPI to reach our 20% target. Nearly 2 years on, our acquired inflation in both house prices and construction prices have moderated somewhat to 4% HPI and 3% CPI. With circa 65% of our costs already locked in for 2020, variances to our gross margin target are largely limited to HPI.

It is worth noting that we're not guiding the market away from the 20% target at this point but simply providing the basic components needed to get there and also that any impact from a change in site mix and potential operational efficiencies have not been taken into consideration.

In recent announcements, we have spoken about HPI in the context of wage inflation. And we continue to believe that in a normalized housing market, with our current macroprudential rules, HPI should track closely to wage inflation in the coming years. We have seen 3% HPI in the last 12 months across our reservations, but our first preview of HPI for 2020 will be following the autumn selling season as we begin to reserve units for next year.

Moving over to Slide 15. With EUR 710 million of development land at half year, Slide 15 highlights the important advantages of our current land portfolio across several different metrics. We continue to invest in large urban areas near rail transportation, with 90% of our lands being GDA-focused with a further 8% in Cork. Our land remains focused on ASPs which are accessible to the largest number of homebuyers. This is demonstrated by having 95% of our land delivering homes for less than EUR 425,000 and 84% of our land in homes capable of delivering units for less than EUR 350,000.

We continue to focus on the housing market with a minority of euro exposure to apartment developments in certain strategic locations. Our Glenveagh Homes' land portfolio is 77% focused on housing by capital allocation.

Our land portfolio has been assembled in a strategic manner, giving importance to unit numbers and limiting the capital deployed in each site to ensure focus is maintained on our return on capital. Our average site size is now 260 units, which positions the business well for maximizing the number of open sales outlets that Stephen alluded to earlier. We continue to advocate that at scale, our target landbank duration should be 5 years or less, with average velocities of 50 to 70 units per annum.

Having optionality for most of the land across our sites is very important to the business and better enables us to continue our significant growth sites. Our land portfolio gives us that optionality, with both private and institutional buyers, significant customers and our developments. 21% of our current land can produce units for both the private and institutional market, and we hope to increase that optionality with future acquisitions.

Turning briefly to Slide 16. The Help-to-Buy scheme is due to finish at the end of this year, and there has been some speculation over the last week as to its potential renewal and, if so, on what terms. The table on Slide 16 shows our land portfolio split by price point, and you can see that 97% of our ability to sell lands currently qualifies for the scheme of below EUR 500,000. Even with the reduction to the scheme to, say, EUR 350,000, 84% of forecast deliveries would still qualify for the scheme at today's pricing. Overall, if the government were to reduce the capital which one can qualify for the scheme, we believe that Glenveagh is well positioned. Thank you for your time.

And I'd now like -- now hand you back to Stephen to bring you through the rest of the presentation, and I look forward to seeing you all on the road in the coming weeks.

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Stephen Garvey, Glenveagh Properties PLC - Co-Founder, CEO & Executive Director [5]

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Thank you, Michael. Moving to Page 18. We have outlined the scale of planning permissions which we currently have in the planning process. Firstly, it's important to note that 98% of our total land are zoned residential. We have all the necessary Full Planning Permission in place to deliver all our units out to 2020. To further underpin our near-term unit delivery targets and ensure we have shovel-ready sites available in the medium term, we have highlighted -- are highlighted -- how active we are in the fast-track planning process. We currently have over 16 applications at various stages of the planning process, totaling over 6,500 units.

Turning to Page 19. We have highlighted that Glenveagh are now actively constructing on 17 sites. 455 units due for delivery in 2019 are now through practical completion and handed over to sales for closing. Works commenced earlier in 2019 of this year at Maryborough Ridge, Kilcock and Eden, all of which are delivering units in 2019 and early 2020. Site openings for '19 have included Stamullen, Leixlip and Bray. A further 3 construction sites are scheduled to open in 2019. CPI remains in line with our expectations, and our visibility on 2020 costs has now increased to over 65%.

Turning to Page 20, supply chain. Brexit is something that we have looked at and the view we have prepare -- Brexit is something we have looked at and took a view that we've prepared for early. But we wanted to ensure that was -- that we have continuity of supply in the event of a hard Brexit and the longer -- and long term will reduce the impact of increased tariffs on our costs. Having undertaken an assessment of our entire supplier chain in order to identify potential risk to that supply chain, we are comfortable that given the quantum of material source directly on Ireland limits risks to supply exist and workable alternatives is in place and where we have identified an issue. Our key findings were that less than 10% of our product originates in or travels through the U.K. For almost all of these, Glenveagh have alternative on-island European suppliers. The U.K. land bridge is utilized for some apartment materials. However, alternative sources of supply exist. So as far as supply chain is concerned, we are very comfortable where we now exist.

Turning to Page 22 and PRS. On the market environment, PRS is clearly recognized as an attractive asset class given Dublin's rapid population growth. Low vacancy and rental growth has -- this has resulted in significant PRS yield compression, as we have highlighted here. The strong market backdrop has attracted significant interest from institutional investors. We have seen the depth and quality of this interest first hand with our Herbert Hill office, which is currently in exclusivity. Demand for PRS in that location is underpinned by the growth in city center employment driven by significant office development and the take-up primarily in Dublin and the exit of individual private landlord from this sector. PRS is also benefiting from the feature of suburban and commuter belt locations, evidenced by our recent transaction with I.RES and Project Coastline. PRS made up 41% of investments in the Irish market in the first half of 2019.

Turning to Page 23 (sic) [Page 24] where we look at our Dublin Docklands PRS portfolio, which is progressing well through the planning. And we have largely SHD on East Road with the decision due in Q4 '19, while our adjoining Castleforbes site is now in the SHD application process and is due to be commenced in Q4 '19. We have also an application in on the commercial element of the Castleforbes site, and Glenveagh has entered into a pre-let transaction with Whitbread PLC for the proposed 250-bedroom hotel at the site. The commercial element of the Castleforbes site will deliver additional embedded value in the overall Docklands Campus.

If you can turn to Page 24 (sic) [Page 25], please. The housing shortage in Ireland is not just restricted to the private sector. The public sector housing crisis in Ireland is acute, with over 70,000 people on the waiting list for appropriate accommodation. The largest landowner in the Irish market is the State, either through government agencies or via local authorities. Our view is that, increasingly, housing provision in Ireland in the coming years will represent a huge opportunity for Glenveagh with our developed infrastructure and operational network.

Glenveagh has already engaged with local authorities who are currently active in this sector through public tender process to select development partners for their residential lands. We are actively tendering on over 2,000 units with decisions on active processes due in early 2020. And our Mixed-Tenure -- our Mixed-Tenure pipeline is significant, and this vertical will continue to be our core focus under my management.

In conclusion on Page 27, please. We have a good 6 months and are confident of meeting our 2019 target and as we move towards delivering 2020 and beyond. We have shown that our business model is working as sales and construction numbers continue to progress well, as our operational infrastructure continues to build momentum. As we outlined earlier, the demand/supply imbalance continues to exist for prospective house buyers, and this is the opportunity Glenveagh intends to capitalize on with our advanced and infrastructure and operational expertise.

Our focus will remain on our complementary verticals of delivering starter homes, PRS across our portfolio and Mixed-Tenure projects in collaboration with local authorities and the land development agency in order to see the scale and opportunity underserved in the Irish market. I have every confidence in the continuation of our successful ramp-up given the expertise, the work ethic and the experience by all members of the growing Glenveagh team that has delivered for the company and the customer and will continue to do so as we move into 2020 and beyond.

As the proceeds from our IPO and follow-on placing have now substantially been invested in the growth of our business, and our full operational infrastructure is now in place, management intends to present an updated business plan to shareholders as part of the capital day -- Capital Markets Day to be held during the first quarter of 2020. We are confident that the group will achieve its current volume guidance. The timing of the capital days will -- Capital Markets Day will ensure that the business plan has the benefit of increased visibility on both the impact of Brexit and the forthcoming Irish Government Budget and the potential implications for the Help-to-Buy scheme.

Furthermore, to ensure all options are available to the group, to make capital distributions in the future, we intend to commence a process of increasing the group's distributable reserves. This process is purely for flexibility purposes only and will take place over the coming months in conjunction with the establishment of the first half of the returns policy aligned to the business plan.

To finish, I would like to -- I am thankful to all the employees for what the company has achieved to date, and I am excited to continue the growth of our business by focusing on the 3 verticals of starter home, PRS and Mixed-Tenure into the future.

With that, I am happy to turn the call over to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And the first question comes from the line of Colin Sheridan from Davy.

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Colin Sheridan, Davy, Research Division - Industrials Analyst [2]

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Just a few for me, if I can. I mean first is just on house price inflation. I mean you've pointed towards a rate of kind of 3% in your comments. I know that there isn't much exposure at higher price points in the operations, but would you make distinctions around maybe Dublin versus ex-Dublin and higher ASP versus lower ASP within that?

And then just on build cost. Again, you've guided just below 3% on that. I mean clearly, you're outperforming the market there with your scale advantages, but the underlying rate is quoted as being quite a bit higher. I mean with evidence that construction output in residential appears to be that the growth and it appears to be slowing, are you now starting to see any pressure coming off in either labor or materials on the back of that?

And then maybe one final one on the planning system. I mean you referred to some of the planning gains that you've made this year. I think generally in the market, we've probably seen a few more refusals coming from the SHD and local authorities more generally, and I wonder if you're seeing a tougher environment on the planning side, or has that been as easy or as it was over the last couple of years?

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Michael Rice, Glenveagh Properties PLC - CFO [3]

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Colin, I might take the HPI question, and then I might let Stephen do the other 2 if that works. So just on the HPI piece, I said that we're predominantly focused in the commuter belt as you know, so -- with very little exposure in kind of the main Dublin area and certainly at the higher price points. We've continually focused really since IPO on that kind of commuter belt and outside of the main Dublin City. So we're still seeing good inflation -- solid inflation at that price point and in those locations. So without the exposure to the main Dublin area, it's difficult for us to comment. So we've come out with the 3% on reservations from H1 last year to H1 this year to give some comfort that, that inflation is -- at our end of the market is still there. I don't necessarily -- within our portfolio, we don't necessarily see the differential between the main Dublin area and the commuter belt where we're predominantly focused.

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Stephen Garvey, Glenveagh Properties PLC - Co-Founder, CEO & Executive Director [4]

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Yes. On CPI, Colin, yes, we're very happy where we are, and I suppose we've made great progress through the year, especially the tendering on our housing schemes. I think what's starting to become attractive, and we spoke about this earlier in the year, is the Glenveagh opportunity with our employees and our subcontractors. That multiple year on sites, that's really starting to bed in now. And we are being very successful on tenders, and I suppose we've widened the pool.

The other vertical that we also see have in the business, infrastructure agreement, supply chain, et cetera, et cetera, so we've entered into a number of them, and we hope to expand this throughout the year. And I suppose that's benefiting the business as well by controlling as much of the supply chain as possible, like you look at the timber frame operation that we have, you also look at the quarry that we control in North Dublin. These things are going to benefit the business going forward.

But I am very happy where -- and obviously the business has endeavored on the process of standardization and delivering that product but we're also trying to standardize the processes, and they're starting to pay off. A lot of the systems we've introduced and the way we're now going out to tender our project, a lot of those things are starting to benefit the business. So yes, very comfortable at the 3% and on some projects, we could be doing slightly better at the moment.

On the planning process, yes, there's been a lot of talk about the refusals that have been in the system. I suppose there's a couple of things at play there. You've got the national framework plan, which has now been adopted, and the regional economic space and strategy as well. And the Board are implementing the guidelines from that between density and design and transport things, et cetera, et cetera. So I suppose, with all that taken into account, we're now embraced into it and we thought you understand this. And our product is evolving to go -- to work with the system. So I think we've probably taken the approach. We have a lot of applications in the system. There's another factor to it that the Board are under a lot of pressure in the first half of the year. That's eased back slightly, so they're taking more time to work their way through with us on the application that we're about to lodge.

So I would be confident that we can implement what we need. Obviously, we just need to keep in dialogue with the various planning authorities, but I'm comfortable enough that we will be successful on that front. I suppose the other thing, just to make it clear, we have our 2020 units now already in the system. We have a lot of '21s as well. So we have the time and the business to work that through. So I'm very confident on that front.

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Operator [5]

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The next question comes from the line of Robert Eason from Goodbody.

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Robert Eason, Goodbody Stockbrokers, Research Division - Head of Research [6]

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If I can press you a bit more on the HPI. If you look at your portfolio units that you have, did you change pricing points from the spring selling season to the current autumn selling season? Just give us a bit of a flavor on that and what you did strategically with your own prices on the same units.

And my second question is just around when you're bringing the customer along their journey from reserving the house to actually closing it out, given all the uncertainty out there, Brexit, Help-to-Buy, et cetera, is there -- has there been any notable shift in that journey that the customer has to take? Or is there stuff that you're doing now that you weren't doing 12 months ago to help with that journey?

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Stephen Garvey, Glenveagh Properties PLC - Co-Founder, CEO & Executive Director [7]

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Yes. Thanks, Robert. Yes, the customer -- like I suppose, the business has ramped up and the focus has been more and more on the customer. We haven't seen any big change throughout the year. I suppose the customer is aware of the Help-to-Buy and where it is, true, it is expected. Well, sorry, we know that the program runs out at year-end, but we do expect it to be extended. But the customer is aware that and are working through the system.

The customer is quite proactive with us. I don't see our customer being really affected by Brexit in the sense of where it is in their head. We sell to school teachers, nurses, police force, people like that. They're not really concerned. In the end of the day, it's their job. It's permanent. They're not really concerned about Brexit in that context. So no.

And we're also seeing -- in fairness to the banks, we're seeing them being very proactive now and engaging well. And they're on a bit of a learning curve as well from where they were a number of years ago, and they're trying to do more on their front.

What we have noticed with the customer is, and I suppose if you can run a business like this is, there's a lot of steps you can help the customer with and this is something that we're going to try and roll out in the business, where from the day that they put the deposit down on the home to the day that they close the product, a certain way of bringing them through the system and guiding them and giving them advice, there's various aspects when you're buying a house, you need life insurance, house insurance, mortgage, et cetera, et cetera, and all those aspects coming down to signing the house when you're moving in. So as a business, and obviously for the volume that we intend to supply into the market, that's something that now we're starting to contrast and enhance it within the business overall.

On HPI, I suppose, yes, the thing I would say is that -- and where we are with the results today is we're in the 23rd of August. A lot of our launches are not starting until the 7th of September or mid-September. So we don't really have the view of what it's like yet. Then I suppose we're at the advantage that we're done and dusted for 2019, and it's really building that number into 2020, which will give us 4 months of this year to build that number and give us momentum into the back end of the year.

So it's probably early to call them pricing. The only thing I would say is when you look at it, because that's the point, our product is -- the majority of our product is at EUR 350,000 or below. It all comes down to what people can afford and how that product evolves through the system. I look at our Taylor Hill launch now if it's coming up shortly, it's the new product. We're now delivering -- in the first phase, we were delivering a two-bedroom house there. We started at EUR 245,000, it's moved up to EUR 265,000. But the house was 950-square foot, the house is now 850-square foot. And still, it's got a house, if not better. So there's things like that will start to come through the system into the second half of the year. So we're looking to it there.

The other aspect to take into account is, and obviously, this is not in your HPI numbers, is PRS, one aspect that has to play in your overall house price inflation. And that's hard to take into account because you don't know what base you're coming off. But as you put the PRS product to the -- into the market, it's not based on HPI, it's more based on the compression of the yield.

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Operator [8]

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The next question comes from the line of Sam Cullen from Berenberg.

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Samuel Berkeley Cullen, Joh. Berenberg, Gossler & Co. KG, Research Division - Senior Analyst [9]

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Just kind of a couple of questions again, kind of just coming back on HPI. I guess you've helpfully presented the kind of original, the upside and the downside cases on the slides that you gave today. If things were to move more towards the downside case, what can you do around kind of replanning sites that you sell in better price points looking out for kind of 2020 and 2021?

And then secondly, just coming back to the kind of gross margin in the first half, can you just give us a bit more color around that, that point with respect to the marketing spend and how much that will or will not repeat in the coming years as you continue to ramp up volumes?

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Michael Rice, Glenveagh Properties PLC - CFO [10]

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Yes. On the HPI piece, in terms of dealing with your specific points in terms of planning, obviously, the -- as Stephen alluded to, all the sites that are delivering 2020 units are already through the planning. So in terms of planning, we can obviously move things for future years, but obviously nothing in terms of planning for 2020. I think that we do have other levers that we alluded to in terms of -- there's no operational efficiencies in there, there's also the site mix that we have some flexibility on. So we've obviously talked since early in the year about buying sites at 20% spot margin. Some of those have come into the system, but it's certainly not the majority now. So there is some flexibility around site mix and operational efficiencies we can bring in. But we haven't specifically talked about those in the slides, but they are levers we can pull.

In relation to gross margin, the likelihood of us repeating, as I said, is highly unlikely. And we're in a sort of unusual situation in that we're ramping up significantly. We had a large number of launches in the first half of the year in comparison to the overall unit number. So it's -- a size or a ticket of EUR 500,000 sticks out. So to give us more comfort to the market that the underlying margin is still strong, we called out 17.6%. But as you can appreciate, when the number of launches as a percentage of the overall number of sites dilutes somewhat, this isn't going to be such an impact or such a point to raise. But we just felt it was appropriate to show that continued margin progression in the first half. And so long story short, we don't see this being called out at all at our results.

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Operator [11]

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The next question comes from the line of Mathias Peters from Crédit Suisse.

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Mathias Peters;Crédit Suisse;Analyst, [12]

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Yes. Mathias Peters from Crédit Suisse. I would like to, first of all, ask on the Help-to-Buy scheme, whether they are base -- your base case assumption is still an extension of the existing terms and where maybe the sensitivities lie there?

And secondly, also similar to one of the questions earlier, if you could elaborate a little bit further on the marketing spend that you incurred in the first half that impacted and to what degree we should expect, maybe also some additional margin progression already in the second half of this year.

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Michael Rice, Glenveagh Properties PLC - CFO [13]

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Thanks. With --I'll take the second point first. The under-marketing spend, as I alluded to in Sam's question, we don't expect it to -- this to repeat. It's a function of our relatively small unit numbers within the first half of the year. We're always going to have launches. But as I said, it's -- there are a large proportion of our overall site numbers at the moment, so it's unlikely to repeat. If you look at our reservations versus our completions, we've -- obviously, all our units for the year are reserved, but only 20%, 21% or 22% have actually closed at this point. So it's that disconnect that's giving rise to the marketing spend. So we won't be calling it out unless it won't be a significant impact on future results as both the margin number and the revenue number increase over time.

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Stephen Garvey, Glenveagh Properties PLC - Co-Founder, CEO & Executive Director [14]

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Yes. I'll take that, the Help-to-Buy. I suppose if I was to look at it, it was introduced to stimulate new housing into the market. If you look at the delivery numbers, we delivered 18,000 units last year. This year, we're expected to deliver 24,000 units. That was the government projections. I think we will land somewhere between 20,500 and 21,500 is where I feel we actually will end up. So I think it would be countercyclical if they remove the Help-to-Buy. I would expect the government maybe to tweak it in the sense that they may bring it down to the lower band of circa around EUR 400,000 or EUR 375,000 is where I feel. I do know there was a couple of headlines last week reducing it to EUR 250,000, but I just don't see how that benefits the market at all as you would capture minimal and off-product over that.

So I think in -- my sense of it is that the government, in the end of the day, it was introduced to stimulate new housebuilding. It has worked to a degree but not to the degree that the government expected, so I think it will remain for the future. And you have to remember this, you're living in an environment where the macroprudential rules exist. So they already cap what people can spend, and I suppose, it is looked as this is helping people to get on the housing ladder and remove them to a certain degree, from the rental market, and that's what the government hoped.

So yes, look, in the end of the day, the government will make that decision. We can't -- we're not involved in that. And our business, I suppose, for the product that we supply, people will still need to buy homes. And I suppose our business model is this, we supply 50 to 60 units in every development. That's demand is out there, whether there is the Help-to-Buy or not, but we would hope that the government would keep it.

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Operator [15]

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We have no further questions coming through, so that concludes the conference call for today. Thank you for joining, and you may now disconnect your lines.