# Redrow plc Delivers robust first-half performance

- Link: https://www.directorstalkinterviews.com/redrow-plc-delivers-robust-first-half-performance/412804866
- Published: 2020-02-05T07:42:30+00:00
- Author: Giles Arbor

**Redrow plc** (LON: RDW) has today provided interim results for the six months 
to 31 December 2019.

**Financial Results**

|   | H1 2020 | H1 2019 | % Change | 
| Private Net Reservations | £936m | £795m | 18 | 
| Total Order Book | £1.2bn | £1.2bn | – | 
| Revenue | £870m | £970m | (10) | 
| Legal Completions | 2,554 | 2,970 | (14) | 
| Profit Before Tax | £157m | £185m | (15) | 
| EPS | 37.2p | 41.5p | (10) | 
| ROCE | 25% | 28% | (11) | 
| Interim Dividend per share | 10.5p | 10p | 5 |

**Operational Summary**

· Balance of Homes Turnover weighted to second half with 40:60 split (2019: 46:54)

· Average number of outlets expected to rise to 131 for the year (2019: 126)

· First half Private Net Reservations up 18% to £936m

· Second half Private Net Reservations to date up 15% at £180m (2019: £156m)

**Financial Summary**

· Group revenue of £870m (2019: £970m) due to the second half weighting of Homes
Turnover

· First half pre-tax profit of £157m (2019: £185m)

· Earnings per share (EPS) of 37.2p (2019: 41.5p)

· Return on capital employed of 25% (2019: 28%)

· Net cash of £14m (Dec 2018: £101m)

· Interim dividend of 10.5p per share (2019: 10p), up 5%

**Board Changes**

· John Tutte to step-down to non-executive Chairman from July 2020 and retire ahead
of the AGM in 2021

· Search for an independent non-executive Chairman to commence towards end of 2020

· Matthew Pratt to be appointed Group Chief Executive from 1st July 2020

> **John Tutte, Executive Chairman of Redrow, said**
> “Redrow has once again delivered a robust operational and financial first-half
> performance consistent with our expectation that revenue will be considerably 
> more weighted than usual to the second half.
> The Group delivered a record value of first half reservations at £936m (2019: 
> £795m), a pre-tax profit of £157m (2019: £185m) and ended the period with net 
> cash of £14m (2019: £101m). Given our confidence in the full year performance 
> we have declared an interim dividend of 10.5p, up 5% on the previous year.
> The market in the first five weeks of the second half has been resilient with 
> the value of reservations up 15% at £180m (2019: £156m).
> Current market conditions, combined with our very strong order book give me confidence
> this will be yet another year of progress for Redrow and our expectations for 
> the full year remain unchanged.”

**Chairman’s Statement**

Redrow has once again delivered a robust operational and financial set of results
for the first-half of the financial year and traded strongly despite an uncertain
political and economic background.

The results are consistent with our expectations highlighted in September, that 
returns will be considerably more weighted than usual to the second-half due to 
constrained outlet growth last year and the timing of apartment block completions.

We secured a record number of private reservations in the six months to the end 
of December and the value of our total forward order book was maintained at December
2018’s record level and closed 15% ahead of the opening position at the beginning
of July.

**Our Financial Performance**

Group revenue was £870m in the first half compared to £970m last year due to legal
completions reducing from 2,970 to 2,554. Private completions were down by 99 and
social completions were 317 lower and accounted for 19% (2019: 27%) of total completions.
The private average selling price was similar to last year at £387,000 (2019: £391,000).

The gross margin was 23.9% (2019: 24%) as the impact of build cost inflation was
largely offset by the change in tenure mix.

Overheads increased from £46m to £49m following the opening our new Thames Valley
division in July. Operating profit reduced from £187m to £159m, mainly due to the
reduced turnover, and pre-tax profit was £157m (2019: £185m). Earnings per share
were 37.2p (2019: 41.5p).

Net cash at the end of December 2019 was £14m (2019: £101m) despite paying out £
149m in dividends and tax in the first-half (2019: £105m).

Return on Capital Employed reduced to 25% (2019: 28%) in the first-half due to the
lower profits.

Given the Group’s ongoing strong earnings and cash position, the Board has declared
an interim dividend of 10.5p (2019: 10p), a 5% increase on the prior year. The interim
dividend will be paid on 9 April 2020 to holders of ordinary shares on the register
at the close of business on 6 March 2020.

**Operating Highlights**

The wider housing market continued to be affected by political uncertainty around
Brexit and during the run-up to the general election. This had an impact on the 
time taken to close new homes’ sales, particularly where extended chains were involved.
Notwithstanding this, the Group achieved a record number of private reservations
in the six months to the end of December with the value of reservations up 18% at
£936m (2019: £795m). Excluding the Colindale PRS deal we announced in September,
the value of reservations was 3% ahead.

At the end of December 2019, we had a total order book of £1.2bn, in line with last
year’s record level.

Outlets averaged the same as last year at 129 and the weekly sales rate was 0.73(
2019: 0.61) and 0.62 excluding the Colindale PRS sale.

The market was fairly consistent across all of our operating areas with London showing
some early signs of improvement. Pricing was stable throughout the period and 36%(
2019: 39%) of private buyers utilised Help to Buy.

Our new Thames Valley division made a positive contribution to Group profits in 
the first-half.

Our long-standing supplier and sub-contractor relationships and cost saving initiatives
are helping to ease cost pressures. We anticipate underlying build cost inflation
will reduce in calendar year 2020 to around 3% and will be largely offset by modest
house price gains.

During 2019 we rolled-out our bespoke tablet-based quality management system. We
are now able to better track and measure standards and deal more efficiently with
workmanship issues during the build process. Our industry-leading online reservation
system is now operating across nearly all of our developments and is proving very
popular with our customers. Our customer recommendation score is currently running
at 91.8%.

We continue to invest in creating great places to live that respond to our customers’
growing awareness of the environment and the need to address climate change and 
the threat to biodiversity. As part of this commitment, today we have published 
our social impact review: Creating Communities – Giving Our Customers a Better Way
to Live. The review, which is available on our website, sets out how our business
makes a meaningful social impact and strives to leave a positive environmental legacy.

**Land and Planning**

We remained active but cautious in the land market in the first-half. The Group 
acquired 1,946 plots with planning and the owned and contracted land holdings with
planning closed at 28,125 plots (June 2019: 28,566 plots). The Group is processing
a sizeable pipeline of sites with terms agreed and we therefore expect acquisitions
to accelerate in the second-half.

Although our cautious approach to land acquisition during a prolonged period of 
political and economic uncertainty impacted the rate of outlet growth, our strategy
to acquire larger sites has reduced the rate at which outlets are now closing. As
a result, we are expecting outlet growth to be strong in the second-half despite
ongoing delays in the planning system.

**Board Changes**

My appointment as Executive Chairman and Matthew Pratt’s promotion to Chief Operating
Officer earlier last year were integral to a smooth transition to a more conventional
board structure following Steve Morgan’s retirement. The transition has gone well,
and it is therefore my intention to step back to a non-executive Chairman role from
1st July 2020 and to retire from the board ahead of the AGM in 2021. Matthew Pratt
will take up the position of Group Chief Executive with effect from 1st July 2020
and the search for an independent non-executive Chairman to replace me will start
towards the end of this calendar year.

I am confident that under Matthew’s leadership, supported by Barbara Richmond and
the wider executive team, Redrow will continue to go from strength to strength. 
Barbara recently celebrated ten exceptional years as Group Finance Director.

During the first half we further strengthened the board with the appointment of 
Nicky Dulieu as a non-executive Director: Nicky’s extensive knowledge of retailing
and customer service complements the existing Board’s wealth of experience.

**Current Trading and Outlook**

The market in the first five weeks of the second-half has been resilient. Private
reservations in terms of value are 15% ahead at £180m (2019: £156m). We are currently
operating from 134 outlets (2019: 128) and continue to expect to operate from an
average of 131 outlets for the full year (2019: 126).

Planned changes to Help to Buy next year will limit the scheme to first-time buyers
and introduce regional price caps. Whilst we expect this will see demand increase
in the short-term from buyers that will not qualify for the scheme in 2021, we continue
to urge government to review the caps that, as they stand, will disadvantage buyers
in the North and Midlands.

Due to constrained outlet growth last year and the timing of apartment block completions,
we budgeted to deliver significantly more completions than usual in the second-half.
We are on-track to do so and our expectations for the full year remain unchanged.

With our very strong order book, a promising start to the second-half and a more
stable political outlook, prospects are encouraging and I am confident this will
be another year of progress for Redrow.

John Tutte
Executive Chairman

Share on: