• Issue 34

  • Mar 2018

The Source

Housebuilder News

Target Reboot at Bovis

The new Chief Executive at Bovis, Greg Fitzgerald, reports a good beginning in 2018: “We started the year with a strong forward sales position representing about 40% of the consensus FY18 forecast revenue for the group.  Sales in the first eight weeks of this year have been good with our average private sales rate per site per week up 14% to 0.5.  Pricing has been running slightly ahead of our expectations.”

Group revenue slipped 3% to £1.028 billion, with profit before tax down 26% to £114 million. Similarly, completions in 2017 totalled 3,645 homes, down from 3,977 the year before; though this was because the firm reduced its rate of production to reset the business following the quality and customer service issues that hampered operations in 2016.  The adjustment has been made to improve the processes and customer service at the business ahead of achieving new medium term targets – including hitting 4,000 units by 2020.

“I am very pleased with the level of operational progress the group has made during the year,” said Fitzgerald.  “We have significantly improved our customer satisfaction through a series of initiatives and controlled period ends.  In addition, we have completed our restructuring, invested in our people, systems and processes, and comprehensively reviewed our land bank.  The group fundamentals are strong, and with the business turning around I am excited about future years.  In 2018, we will deliver a controlled increase in volume, continue to build upon our high level of customer service, drive profitability, and complete our balance sheet optimisation. We will also continue to invest in our people and systems, and I’m particularly looking forward to launching our new housing range in April.” The firm says the new housing range will deliver added value to customers while reducing production costs.

Avant Announces Strategy

Whilst issuing an update on trading ahead of its year end, Avant Homes has also launched a strategy to more than double its output to 4,000 homes per year.  CEO, Colin Lewis, said: “We have made exceptional progress in growing our business over the past few years thanks to our relentless focus on offering aspirational, customer-led homes in prime locations across the Midlands, the north of England and central belt of Scotland.”

During their financial year, the mid-market housebuilder achieved “significant growth” and was on track to deliver around 25% revenue growth for FY18. They also added that they expected to increase outlets by 40% by the end of FY18 to 70 outlets. Reservation rates since the start of 2018 were 0.85 sales per site per week, level with last year’s.

The rate of sale during the last year was slightly down at 0.74 sales per site per week against 2017’s 0.81. However, this was across an average of 44 selling sites, against 35 last year.

Avant said that it was set to achieve its existing strategic growth target of 2,000 units per annum a year ahead of schedule, at the end of 2018, and has set a new 5 year target of more than doubling its volume to 4,000 homes per year; this growth would be delivered through further development of its product range and “continued geographic expansion”.

The company also noted a call for a reform to the Help to Buy scheme, claiming that the availability of the equity loan initiative should be linked to housebuilders increasing output: “If a housebuilder does not increase its output by a given percentage in one year, access to Help to Buy subsidies the following year should be reduced accordingly”.

Kier Keeping Ahead

A “robust performance” from Kier Living, Kier’s housing division, has strengthened the group’s half year results, according to a recent statement.

“The division continues to perform well. The mixed tenure activities are becoming more land-led with a greater proportion of output as private units, reflecting the positive UK housing market. This backdrop, coupled with a growing business with a strong forward sales position, will see the business improve ROCE this year and to 2020.”

During the six months to end December 2017, Kier Living, which includes private housebuilding and affordable mixed tenure housing partnerships, saw their operating profit increase 7% to £8.7 million against the equivalent period in 2016. Completions in this same period totalled 965 units, with revenue at £166 million (a slight decrease on 2016’s £169 million).

Similarly, reservations and pricing levels were “tracking well,” with sales at approximately 0.7 units per week per trading site.

The division aims to deliver around 2,200 units over the full financial year and has a future pipeline, providing visibility over more than five years, of approximately £2 billion.

Change of Control at Cala

Legal & General has taken full control of CALA Homes, having paid £315 million for the 52.1% of the firm. In a deal that values the firm at £605 million, L&G has bought out its fellow major shareholder, Patron Capital, and CALA’s management team.

Kerrigan Procter, CEO of Legal & General Capital, said: “Legal & General is delighted to assume full ownership of CALA, a growing business which we know and understand well. It has a strong management team with proven experience of managing a housebuilding business across business cycles, and has delivered great returns for shareholders since its acquisition in 2013, having tripled in revenue during this time.  I am excited to be working with the team as CALA continues to develop and grow under our continued ownership.”

Alan Brown, CALA Group CEO, added: “Today’s investment by Legal & General marks the start of another exciting new chapter for CALA and is a fantastic endorsement of our growth potential from one of the most highly-respected, blue chip investors in the UK, who shares our long term vision. Over the past five years, we have become one of the UK’s fastest growing housebuilders and this is testament to the strength and ambition of our team, the quality of our homes and our approach to customer service. We look forward to working together with Legal & General to build on the strong momentum we have generated in recent years while further strengthening our position as the UK’s most upmarket major homebuilder.”

Achieving record financial results and tripling revenues, CALA has also increased volumes by 67% in the past ten years and claims the title of the UK’s fastest growing housebuilder. The firm says it is on track to deliver 2,500 units per annum and around £1 billion of revenue in 2020, and in subsequent years, has the capability to build in excess of 3,000 units each year from their existing regional network.

Regional Growth Reported by NHBC

NHBC has reported an increase of 1% on year ago levels, with 11,733 new homes (9,312 private sector, 2,421 affordable sector) registered during the month, compared to 11,607 (8,543 private sector, 3,064 affordable sector) in January 2017.

Figures for the quarter Nov 2017-Jan 2018 were also virtually identical with 38,181 new homes registered during this period, compared to 38,237 a year ago. 28,773 were registered within the private sector (28,670 last year), with the affordable sector down 2% (9,408 in 17/18; 9,567 in 16/17).

Over this three-month period however, there was strong growth in the East Midlands (+49%), the North West (+42%) and London (+40%).

Steve Wood, NHBC Chief Executive, said, “There are some impressive volumes being reported in a number of UK regions, which we hope will continue throughout the year in both the private and affordable sectors. This is needed to deliver the volumes of new, high-quality homes that the country needs.”

Industry Achievements Should be Recognised

At the recent annual HBF Policy conference, housebuilders have called on ministers to recognise the achievements of the industry in delivering the government’s housing commitments and meeting their challenges.

They declared the industry is on target to deliver the million homes in the period between 2015 and 2020 that the government challenged it to. There were 217,000 net additions in the year to April 2017, the third highest number since the early 1970s and up 74% in the past four years; ridiculed by many back in 2015 as a pipe dream, this goal now looks very attainable, depending upon, as always, the wider economic outlook.

But the risk of negative rhetoric about new housing supply was also highlighted, which they stated “provides cover for Nimby’s and energises anti-housebuilder campaigners” whilst also thwarting attempts to tackle the skills shortage.

Stewart Baseley, HBF Executive Chairman: “Government has quite rightly recognised the social and political need for them to address the chronic housing shortage we face. Housebuilders have risen to the challenge and delivered huge increases in supply, whilst providing increasing contributions to local infrastructure, amenities and affordable housing.

“At the same time the industry has invested hugely in training, recruitment and land to ensure it is geared up to deliver government promises. The industry has also reacted decisively to reverse the slight, but unacceptable falls in customer service and quality, something that takes commitment from board level down.

“The constant criticism of the industry often fails to recognise the huge progress being made. Negative perceptions also make further increases in supply more difficult by encouraging and providing excuses for the anti-development lobby and local authorities who don’t want to build. It also makes attracting the brightest and best your people more difficult. Housebuilders across the country face huge challenges getting sites agreed and recruiting skilled workers, issues made more difficult by negative perceptions of the industry.

“The big increases in supply we have seen in recent years are on the back of successful policy introductions and private sector investment. We are calling on government to continue to work with the industry constructively to deliver further mutually beneficial goals.”

Latest industry achievements include:-

  • The housebuilding industry contributed over £6 billion via Section 106 agreements and Community Infrastructure Levy payments in 2017; £4 billion went towards affordable housing provision and the industry is now delivering half of all affordable homes, something that was formerly paid for completely by the public purse.
  • Last year also saw approximately 350,000 planning permissions granted to housebuilders, clearly illustrating industry wide commitment to deliver increases in supply. Although some of the permissions will take the housebuilders months to process before they are allowed to start building them (and be falsely classed as ‘landbanking’), the analysis of previous year’s numbers confirms the connection between permissions and completions.
  • Latest industry customer satisfaction survey scores show increases across all sections including a 2% increase in the key ‘Would you recommend your builder to a friend?’ question to 86%. After four years of successive 1% falls as volumes increased, this reversal is evidence of the industry’s dedication to improving customer service and quality. (The questionnaire had an impressive 50% return rate.)
  • As per previous government demands, the industry is investing massively in skills and training to safeguard future capacity to meet housing targets and construct high quality homes, proved by the launch of The Home Building Skills Partnership two years ago.

Steve Morgan, CEO at Redrow, also called on the government, appealing for a focus in three key areas if it wants the industry to deliver the homes the country needs: “The government needs to play its part in increasing housing numbers,” he said. “We need a speedier and simplified planning system, we need a dramatic reduction in stamp duty tax and we need a commitment on Help to Buy beyond 2021.

“The prime minister said on March 5th ‘I expect developers to do their duty for Britain and build the homes our country needs’,” he said. “Well, prime minister, I assure you the industry is doing its duty for Britain.” He pointed out that output had increased by 74% over the past four years from 125,000 to 217,000, but looked back at a time – when Redrow first started building in the 1980s – when sites could be bought and be ready to build on in just six weeks. “I remember one difficult planning officer delaying a site and it took eight weeks – I was fuming!” he said.

Housing and Homelessness Minister, Heather Wheeler, replied by thanking the industry for increasing output but added: “We need more.” She highlighted planned changes to the NPPF to assist with the planning process and in regard to the Help to Buy scheme emphasized that: “We will ensure we give the industry the notice that it needs.”