analyst update -...

1 ANALYST UPDATE JUNE 2016

Countryside Properties plcAnalyst Update


Balanced business with two differentiated models

Housebuilding Division

South-East focused place making

Excellent visibility of outlet growth

Industry leading strategic land bank (15 years)

Operating margin growth from increased scale

Partnerships Division

Capital light and low risk model

Relationship led, with 30 year track record

Political support and barriers to entry

Significant visibility of work and growing pipeline

REVENUE

44% £312.8m

Housebuilding

56%

Partnerships

OPERATING PROFIT

£50.8m

Housebuilding Partnerships

H1 16 business split

LAND BANK


30%70%

Plots

26,000

45%55%

TNAV


24%76% £487m

NOTE: Group financials are shown on an adjusted basis to include the proportional contribution of the joint ventures and associate and exclude non-underlying items


Housebuilding – Performance and guidance

Medium term

COMPLETIONS

338 406

456 151

212 192

FY13 FY14 FY15

66

78 5555

696 653

Private Affordable D&B

153.8

257.4

330.7

FY13 FY14 FY15

REVENUE (£m) AND GROSS MARGIN

9.8%

18.1%

23.3%

Medium term

4.9

25.4

51.6

FY13 FY14 FY15

UNDERLYING OPERATING PROFIT (£m)

& MARGIN

Medium term

3.2%

9.9%

15.6%

2.1%

9.7%

16.6%

FY13 FY14 FY15

ROCE

Medium term


1,200+

24%+

20%+

18%+


Housebuilding – well located for growth

31Active sites

54Future land bank sites

Average site size

214 units

CAMBRIDGE

READING

MAIDSTONE

AMERSHAM

HORSHAM

CHELMSFORD

50 MILES

FROM LONDON

LONDON


Housebuilding – land bank

87% strategically sourced

− Average 10% discount to OMV

− Long term options give flexibility

− Legacy land fair valued to 15% GM

− 24% target margin, 25% target ROCE

15 years’ visibility at target volumes

− Only 27% owned (c. 4 years)

− Low land creditors

− Shadow value in controlled plots

− 8,600 plots with planning

27%

9%

64%

Land bank ownership

Owned

Controlled (conditional contracts)

Controlled (option agreements)

10%

87%

3%

Land bank source

Legacy land

OMV

Strategic

639

1,746

15,889

Total plots

18,273

Plots

Owned

4,914


Housebuilding legacy sitesOnly 2 sites remain, fair valued to 15%

Sept

2015

317

369

765

233

247

154

180

80

103

Sept

2016

Sept

2017

Sept

2018

Sept

2019

Sept

2020

767

480

183

334

8

Cliveden

Sittingbourne

Harold Wood

Horsted Park


155 24%

163 23%

33 20%

41 16%

Housebuilding – margin growth from strategic land

2016 2017 2018 2019 2020

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

FY

Q

Plots GM

2021onwards

Sites/Phases On site

Owned / Controlled

Pipeline

27 30%

61 17%

213 26%

226 36%

354 17%

1,823 28%

778 25%

64 20%

48 25%

110 24%

266 15%

375 15%

213 21%

245 27%

575 21%

52 23%

332 23%

77 23%

62 23%

103 29%

1,070 24%

329 25%

87 23%

174 21%

150 22%

500 22%

110 23%

49 23%

124 23%

144 22%

251 28%

400 23%

280 22%

1,750 22%

500 23%

750 24%

242 30%

75 23%

192 23%

69 23%

165 23%

120 23%

NOTE: As at 31 March 2016


Housebuilding case study: Beaulieu, Chelmsford

Long-term strategic site of 700 acres being assembled and promoted over 20 years

50/50 JV with London & Quadrant to deliver 3,660 homes

Potential for 5 sales outlets with differing product ranges and price points

3 phases under construction, 2 currently selling

Strong sales and price growth since launch in FY15

£84mPeak funds

40.0%ROCE

27%Affordable

1,830 Units

£673mGDV

28.0%Gross margin


Housebuilding – Excellent medium term visibility

100% of medium term plan either owned or controlled

− Pull through of strategic land improving margins

− No requirement to chase new land, selective acquisitions

94% of medium term plan with planning

− NPPF and 5 year supply requirement

− Increased supply impacting land prices

− Reduction in pre-start conditions anticipated

Over 90% forward sold for FY16e as at 31 March 2016

− Private order book of £205.3m

− Private ASP of £426k

HOUSEBUILDING PLANNING STATUS

OF ANTICIPATED COMPLETIONS

HOUSEBUILDING OWNED/CONTROLLED

STATUS OF LAND BANK

Owned

FY17e

FY16e

FY18e

100%

5%95%

Controlled

With planning

FY17e

FY16e

FY18e

100%

2%

86%

98%

Without planning

14%

83% 17%


PLACES PEOPLE LOVE

PartnershipsRichard Cherry


COMPLETIONS

409 479 634 201

468

969

426

401

FY13 FY14 FY15

108

1,036

1,348

1,711

Private Affordable D&B

153.8

211.3

285.1

FY13 FY14 FY15

REVENUE (£m) AND GROSS MARGIN

20.4%

16.9%

19.7%

Medium term

21.2 21.7

39.6

FY13 FY14 FY15

UNDERLYING OPERATING PROFIT (£m)

& MARGIN

Medium term

13.8% 10.3%

13.9%

100.5%

53.5%

69.4%

FY13 FY14 FY15

ROCE

Medium term

Partnerships – Performance and guidance


Medium term

2,400+

20%+

50%+

15%+


Partnerships – Proven low capital model

SOURCE: Company information 1 Target Gross margin figures

Public procurement or direct negotiation

Source Land secured via public procurement or negotiation

Awarded on design quality, reputation and value

Delivery track record essential

Target gross margin > 15%

Target ROCE > 50%

Target return Blended margin target prioritised for each phase

Low capital employed drives ROCE

Upside benefit from shared sales overage

Low land cost

Land Attractive sites at low cost and low planning risk

Residual land value after priority profit

Low land value underpins strong ROCE

Phase viability + priority profit+ project management fee

Build Resilient earnings underpinned by deal structure

12-18 month phased viability on larger sites

Priority profit and project fees protect downside

Sell Agreed mix with local authority

Benefit from private price growth

Affordable and PRS pre sold and cash positive

PrivateGM 20%

1PRSGM 10%

1AffordableGM 5-10%

1


High Medium Low or unidentified

Long standing relationships with local authorities

Strong reputation of delivery throughout the cycle

High quality product and project execution

− Provides partners with a share of upside

Building trust with partners and council officers

− Allows early traction with key decision makers

− Enhances access to opportunities in new areas

Early engagement to identify future projects

− Allows time to carry out suitable preparation

− Able to showcase expertise through feasibility and benefits studies ahead of bid

Local Authority DevelopmentsNo. of years

known

Pipeline of

opportunities

Barking and Dagenham 4 25

Hackney 4 20

Southwark 3 20

Tower Hamlets 11 20

Islington 1 20

Barnet 2 15

Brent 1 10

Newham 1 10

Croydon 1 8

Lambeth 1 8

Ealing 1 5

Havering 1 5

Enfield 3 4

Greenwich 1 3

Waltham Forest 1 3

Bromley 1 2

Westminster 1 -

Hammersmith and Fulham 1 -

Outer London 12 -

Total 51


Partnerships competitive landscape remains fragmented

VolumeHousebuilders

Social HousingBuilders

GeneralContractors

HousingAssociations


Key success factors in winning new work

Few competitors meet all requirements, and clients prefer a single interface

Reputation and relationships essential for long term developments

Limited and fragmented competition

Over 50 completed sites with a further 38 active sites

1

1 As at 31 March 2016

Key successfactors Countryside

VolumeHouse

buildersHousing

AssociationsConstructionContractors

Design and Place Making

Specification, Sales and Marketing

Construction Management

Community Engagement and Management

Delivery Track Record & Established Relationships


Partnerships – Land bank and bid pipeline

Strong visibility of future work (c. 6.5 years)

Rapidly increasing opportunity to bid

Selective bidding maintains historic win rate (40%)

Savills report identifies one million plot potential on London Local Authority Estates

Additional opportunity in North West and West Midlands

LAND BANK BY CONTRACT

PLUS PREFERRED BIDDER

DevelopmentAgreements

Total plots

9,345

Mar 16

5,646Sept 15

PreferredBidder

OwnedLand

5,296 7,188

2,157 1,542

Total plots

14,914

FUTURE OPPORTUNITIES

Bids in progress

Total plots

15,487

Mar 16

Sept 15

Futurebids

Total plots

30,559

2,430

5,173 25,386

7,000 8,487


912 25%

343 15%

75 23%

631 20%

2,781 23%

Strong visibility of future profitabilityPartnerships South

2016 2017 2018 2019 2020

118 16%

143 15%1

487 11%1

364 36%

338 19%

1,440 20%

21 35%

514 15%

993 18%

436 21%

250 26%

412 21%

1,262 23%

141 17%

On site

Development Agreement

Preferred bidder

2021onwards

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

1 D&B sites

NOTE: As at 31 March 2016

Sites/Phases

FY

Q

Plots GM


664 17%

498 22%

200 19%

106 12%1

238 23%

Strong visibility of future profitabilityPartnerships North

62 10%1

1,624 17%

66 20%

79 23%

236 17%

120 10%1

144 20%

592 19%

28 12%

40 24%

200 26%

107 23%

288 12%2

286 22%

50 22%

On site

Development Agreement

Preferred bidder

Plots GM2021onwards

Sites/Phases

264 19%

114 22%

166 23%

2016 2017 2018 2019 2020

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

1 D&B sitesNOTE: As at 31 March 2016

FY

Q

652 11%2

50 23%

2 Sigma PRS sites


Significant further opportunity in bid pipeline

Significant future pipeline of 30,559 plots

16 sites (5,173 plots) currently under bid

Further 35 sites (25,386 plots) in pre-bid evaluation

Opportunity being led by South East Estate Regeneration (25,729 plots)

Brown field regeneration in the North (4,830 plots)

Growing PRS opportunity

SOUTHEND

-ON-SEA

LETCHWORTH

WATFORD

CROYDON

OXFORD

LIVERPOOL

PRESTON

ROCHDALE

MANCHESTER

WIGAN


Opportunity to double production rates on larger sites

Partnerships – Private Rented Sector Model

Accelerates development Increases absorption

Increases pace of place making

Optimises supply chain and prelims

Units are forward sold and paid on monthly valuation

Improves asset turn

Improves cash flow

Increases ROCE

Mixed tenure delivery reduces reliance on private sales

Resilient earnings underpinned by deal structure

Margins set by phase

Lower time based costs

Improves returns

Increases resilience


Partnerships North case study: Norris Green Village, Liverpool

Regeneration of poor quality local authority estate

8 year development programme of mixed tenure units

221 PRS units delivered to date with Sigma/Gatehouse

100% timber frame 2 and 3 standard house types

Fast build times delivering up to 160 units p.a.

Additional 200 units recently secured to extend the site

£3mPeak funds

>100%ROCE

27%PRS

829 Units

£93mGDV

17.1%Gross margin


Partnerships North case study:

Brownfield 12 acre former Queen Mary School site

Purchased in Jan 2015 from Liverpool City Council

Developed in partnership with Sigma/Gatehouse to deliver Private Rented Units

64 PRS units completed in 2015 with 136 private sale units under construction

100% standard house types

Timber frame construction with 10-12 week unit build times

Queen Mary Place, Liverpool

£4mPeak funds

>100%ROCE

32%PRS

200 Units

£28mGDV

18.7%Gross margin


Further opportunity in the West Midlands

New office located in Wolverhampton

Expansion of North West model using standard house types

Utilising existing staff and supply chain to grow scale

Brownfield regeneration led with significant PRS opportunity

25 potential sites identified (4,300 plots)

First site now secured at Rowley Regis

KIDDERMINSTER

WOLVERHAMPTONWALSALL

BIRMINGHAM

TELFORD


West Midlands case study:

Promoted by Black Country Local Enterprise Partnership

Large scale regeneration to deliver 45,000 new homes over 10 years

Over 500 sites identified over 3,700 acres

Funding available to provide remediation and infrastructure

Four initial areas identified as opportunities

DUDLEY

WEST

BROMWICH

WALSALLM6 JUNC 10

WOLVERHAMPTON

CITY CENTRE

i54 (BLACK COUNTRY

ENTERPRISE ZONE)

Dudley Point

The Lye

WillenhallWolverhampton

Canal Quarter

Black Country Garden City


Partnerships structure in place for growth

Partnerships Division

Partnerships South

1,100 units1 (1,800 capacity)

Partnerships North

1,300 units1 (1,800 capacity)

East Central West North West West Midlands

1 Medium-term target production


PLACES PEOPLE LOVE

Enablers of growthRebecca Worthington


Bank debt and interest cost

Bank Debt Facility

£300m facility with Accordion for up to additional £100m

Maturity of five years with two one year extensions

Other key changes

− c. 100bps improvement in margin

− Removal of fixed charges replaced by floating security

− Increased flexibility

Interest Cost

Expected adjusted interest cost of c. £12m for 2016

Land discount interest is the unwind of discounted land creditor payments under IFRS

Shareholder Loan interest reflects structure of private equity ownership and ceased post IPO

Bank & other interest

Amortised fees

Unwind of land creditors discount

Finance income

Total interest incl. share of JV and associate interest¹

Shareholder Loan interest

Total interest

H1 2016

2.8

0.4

2.7

(1.5)

4.4

16.5

20.9

Interest summary (£m)

1 Group interest excluding shareholder loan interest


Net debt of £8.7m at 31 March 2016

59.5

8.7

(130)

16

23

(14)81

(22)(5)

At 1 Oct 15

At 31 Mar 16

IPOProceeds

IPOCosts

InvestmentIn JVs

Profitafter tax

Increasein

workingcapital

Non-cashitems Other

£m


Increased site numbers driving growth

SALES OUTLETS

H1 2015 FY 2015 H1 2016

27 29

sitesunder

construction

32

37

0.810.76

0.79

Private sales rate (average sales per outlet per week)

CAMBRIDGE

CHELMSFORD

MAIDSTONE

AMERSHAM

Housebuilding 31 Partnerships 38

LONDON

LIVERPOOL

MANCHESTER

ACTIVE SITES

HORSHAM


Average Selling Price growth

Like-for-like sales up 12% in HY 2016, driven by locations

Underlying growth a combination of HPI and regeneration effect

Acton has seen 20% CAGR over past 3 years suggests half due to regeneration

Strongest growth in the £400k-£600k price range

Actively manage planning to achieve this target range

Less than 5% of private completions over £1m for current year

ASP PROGRESSION (£’000)

0

100

200

300

400

500

600

700

800

2015 2016e 2017e 2018e 2019e 2020e

Housebuilding

Partnerships

Group


Growth delivered by robust supply chain

Long established relationships supported through the cycle

Build cost inflation environment easing

− Averaging around 4.5% p.a.

− Mainly driven by labour inflation

− Materials prices stable

90% compliance to group procurement

Partnering agreements with key sub-contractors secures build and reduces resources on larger sites

496 approved active subcontractors at March 2016

Increasing use of standardised house types and design details

GROWTH IN APPROVED SUBCONTRACTORS

0

100

200

300

400

500

600

Mar 13 Mar 14 Mar 15 Mar 16


Organisational capacity for growth

Six regional businesses established

Significant expansion of the regional teams

Recruitment, retention and reward key issues

60 key staff in LTIP

70% participation in SAYE

Overhead efficiency for increased scale

EMPLOYEE NUMBERS

400

500

600

700

800

900

1,000

1,100

A

2014

J A O DM J S N

2015

A J A O DM J S NJ F M

2016

J F


Summary – Ian Sutcliffe


Outlook and current trading

Strong visitor levels and reservations continued into H2

No adverse impact from stamp duty changes or EU referendum seen to date

Underlying sales values continue to rise in line with H1

Use of Help to Buy increasing

Over 90% forward sold for FY16

Build cost increases mitigated by lower material costs

Partnerships bid opportunities continue to grow

Firmly on track for FY16 and medium term targets


Firmly on track to deliver our medium term targets

HOUSEBUILDING

Completions

Operating margin1

ROCE

FY15 Medium term targets

653 units

15.6%

16.6%

1,200+ units

18%+

20%+

Completions

Operating margin1

ROCE

1,711 units

13.9%

69.4%

2,400+ units

15%

50%+

Completions

Operating margin1

ROCE

2,364 units

14.8%

24.7%

3,600+ units

17%+

28%+

PARTNERSHIPS FY15 Medium term targets

GROUP FY15 Medium term targets

1 Underlying operating margin for 2015


Appendix


Housebuilding financials

Private completions

H1 2015: 126

193

Affordable completions

H1 2015: 102

99

Private ASP

H1 2015: £662k

£779k

Affordable ASP

H1 2015: £137k

£148k

+38%

+30%

-140bps

+46%

+80bps

+52%

+490bps

Revenue

Gross profit

Gross margin

Operating profit

Operating margin

TNAV1

ROCE

H1 2016 H1 2015 change

£174.0m

£40.2m

23.1%

£27.7m

15.9%

£372.2m

16.3%

£126.0m

£30.9m

24.5%

£19.0m

15.1%

£244.3m

11.4%

1 Assumes Group debt allocation to divisions in line with asset split


Partnerships financials

+10%

+36%

+420bps

+42%

+370bps

+155%

+840bps

Revenue

Gross profit

Gross margin

Operating profit

Operating margin

TNAV1

ROCE

change

£138.8m

£30.6m

22.0%

£23.1m

16.6%

£115.1m

50.6%

£126.2m

£22.5m

17.8%

£16.3m

12.9%

£45.0m

42.2%

H1 2016 H1 2015

1 Assumes Group debt allocation to divisions in line with asset split

Private completions

H1 2015: 293

251

Affordable completions

H1 2015: 325

512

Private ASP

H1 2015: £210k

£295k

Affordable ASP

H1 2015: £109k

£102k


Overage accounting

House price at agreed contract date

HPI moves expectedsales value up

£120k

£100k

£120k

£100k Revenue

£90k COGS

£10k Gross profit

P&L expected at contract

= 10% Gross margin

£120k

£120k Revenue

£100k COGS

£20k Gross profit

P&L recognised at completion

= 17% Gross margin

P&L movements Balance sheet movements

Balance sheet movement

Pay out £10k cash to local authority

and reduce overage to zero

Balance sheet movement at point of new valuation (assuming 50/50 share)

£10k Stock

£10k Overage

£0k Overage

Balance sheet at contract date


Partnerships case study: Beam Park, Dagenham

Secured via GLA bid process

71 acre site on former Ford plant

15 year development with L&Q

New railway station provided with TfL £9m grant

46,000 sq ft of commercial and retail space

First completions expected 2018

£35mPeak funds

34%Affordable

2,781Units

£900mGDV


Partnerships case study: Western Avenue, Huyton

£8mPeak funds

10%Affordable

286Units

£55mGDV

Selected by Knowsley Borough Council

A 6 year development

An extension to the existing partnering relationship with the council. We are already progressing 5 mixed-tenure sites.

20 acre former school site in established residential area

Accessible and popular market location 6 miles from Liverpool city centre

Low rise family housing product

First completions expected July 2017


Glossary / clarification of financial information

Active site / Current A site becomes active when construction costs of more than £50,000 have been incurred and remains active until the last plot on the site has been completed

Asset Turn is calculated as Revenue divided by the average TNOAV

Sites which are owned or controlled by the Group but where construction work has not yet started

These are plots that are not currently owned by the Group but which are controlled by conditional contracts or option agreements

Sites which have been identified for future development and where negotiations are underway but where the site is not yet owned or controlled

Sites which have been included in the medium term financial plan but where the site is yet to be identified

GDV is the Group’s estimate of the total revenue that could potentially be generated from development of a particular site

Group and segmental revenue, gross profit, overheads and underlying operating profit (unless otherwise stated) have been presented after applying the proportional contribution of the joint ventures and associates

Group and segmental underlying operating profit includes the Group’s share of joint ventures and associates operating profit and has been adjusted for those items which are either material or infrequent in nature and which management do not relate to the Group’s underlying performance such as those costs incurred in connection with business combinations, capital markets transactions, restructuring and the share based payment charges that have been incurred in connection with the Group current management incentive plan

These are sites that the Group owned or controlled at the time of the Oaktree acquisition where the potential returns were no longer in line with acceptable minimums. A fair value adjustment was made to these sites at the time of the acquisition commensurate with delivering a 15% gross margin.

Asset Turn

Awaiting start

Controlled plots

Future identified

Future unidentified

GDV

Group and segmental revenue,

gross profit, overheads and

underlying operating profit

Group and segmental

underlying operating profit

TERM DEFINITION

Legacy site


Glossary / clarification of financial information

Open Market Value

Sites where construction work has started and construction costs of more than £50,000 have been incurred

A site becomes an open sales site once a sales office is opened or from the first reservation being taken, whichever is the earlier. It remains an open sales site until the last plot on the site has been reserved.

For private sales this represents the number and value of future sales where reservations have already been taken at the date of the order book. For affordable sales this represents the balance of the units and value on the contract.

Group overheads is calculated as the difference between Underlying Operating Profit and Gross Profit and includes the share of joint venture and associate overheads; Segmental overheads and underlying operating profit include an allocation of central overheads costs on a proportion of Segmental revenue basis for the given year.

Private Rental Site

TNOAV is defined as ’Tangible Net Operating Asset Value’ and is calculated as Net Assets excluding intangible assets and borrowings

Sites where construction costs of more than £50,000 has been incurred but which have not yet opened as sales sites

Sites with planning include sites where detailed or outline planning has been achieved or there is a resolution to grant (RTG) planning permission

OMV

On site

Open Sales site

Order book

Overheads

With planning

PRS

TNOAV

Under construction site

TERM DEFINITION

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