21 March 2023
HENRY BOOT PLC
(‘Henry Boot’, the ‘Company’ or the ‘Group’)
Ticker: BOOT.L: Main market premium listing: FTSE: Real Estate Investment and Services.
Unaudited results for the year ended 31 December 2022
Strong operational performance and sales drive 10% dividend increase
Henry Boot PLC, a Company engaged in land promotion, property investment and development, and construction, announces its unaudited results for the year ended 31 December 2022.
Tim Roberts, Chief Executive Officer, commented:
“During what ended up being a turbulent year in which rising interest rates led to a rerating of the UK property market, Henry Boot delivered our best ever underlying profit and grew our NAV, which has allowed us to carry on increasing the dividend by 10%. The main driver of this performance has been strong sales activity across our three key markets of Industrial & Logistics, Urban Development and, most notably, Residential where we successfully sold a record number of plots of land. Management actions, through nearly £30m of well timed and accretive investment property sales, have led to a material outperformance of the investment portfolio against the CBRE index. Total property sales of £279m, combined with selective acquisitions, means gearing remains firmly at the bottom of our target range.
Whilst we remain cautious about the near term trading climate, expecting 2023 to be a tougher year, our rock solid balance sheet offers resilience to both weather any further economic uncertainty and to take advantage of any opportunities that arise from it. With early encouraging indicators already evident across certain markets we have the capacity to buy land, maintain and potentially expand our committed development programme as well as to continue to grow our JV housebuilder as soon as we feel economic recovery is on the way. We therefore have confidence in our ability to achieve our medium-term growth and return targets.”
Financial Highlights
· Record underlying profit1 of £56.1m (2021: £29.3m) driven by residential land and property development sales
· Revenue of £341.4m (2021: £230.6m), up 48.0%, driven by delivery of committed development programme
· Profit before tax increased to £45.6m (2021: £35.1m) up 29.7%, after deducting £10.5m for revaluation movements on completed investment property as UK commercial property values fell
· Increased ROCE2 of 12.0% (2021: 9.6%), up 240 bps, within our medium-term strategic target of 10-15%
· EPS grew to 25.0p (2021: 21.2p), up 17.9%
· NAV3 per share grew to 295p (December 2021: 267p), an increase of 10.5%, due to strong operational performance. Excluding the defined benefit pension scheme surplus, an underlying increase of 5.3% to 290p (December 2021: 276p)
· Robust balance sheet, with Net Debt4 of £48.6m (2021: £40.5m) following strategic investments made during the year, gearing remains prudent at 12.3% (2021: 11.4%)
· Proposed final dividend of 4.00p (2021: 3.63p), an increase of 10.2%, reflecting the Group’s strong operational performance and in line with our progressive dividend policy, bringing the total dividend for the year to 6.66p (2021: 6.05p)
· Performance reflects effective management of capital and risk in our three key markets: Industrial & Logistics, Residential and Urban Development
Operational Highlights
· £279m of sales led by our land promotion, property development and housebuilding businesses making the most of strong markets in the first half of the year
· Selective approach to acquisitions throughout the year, totalling £28.4m, including £27m of strategic investment to grow Hallam Land Management and Stonebridge Homes’ land holdings
· Continued investment in our £240m high-quality committed development programme where costs are 97% fixed
· Land Promotion
o A record of 3,869 plots sold (2021: 3,008), driven by a major disposal at Didcot of 2,170 plots
o 9,431 plots with planning permission (2021: 12,865), leaving HLM well positioned against a backdrop of an increasingly constrained planning system
· Property Investment & Development
o Significant committed development programme of £240m, with 63% pre-sold or pre-let
o Over 1m sq ft of Industrial & Logistics development underway (HBD Share: £150m GDV)
o £1.5bn development pipeline (Henry Boot share £1.25bn), 64% of which is focused on supply-constrained Industrial & Logistics markets, where occupier demand remains robust
o Well timed sales within the investment portfolio of £29.6m, at an average 17% premium to the last reported book value, contributed to total return outperformance of -1.5% versus CBRE Index of -9.1%
o Stonebridge Homes completed 175 homes (124 private/51 social) (2021: 120), at an average selling price for private homes of £503k (2021: £509k). Total owned and controlled land bank is now 1,094 plots (2021: 1,157) with detailed or outline planning permission on 872 plots (2021: 912)
· Construction
o The construction business performed ahead of budget with turnover of £100.5m (52% from public sector) out of £128.6m segment total and has secured 68% of 2023 order book
o Banner Plant has seen record levels of trading activity after experiencing strong demand from its customers and Road Link (A69) has performed well as a result of increasing traffic volumes
· Responsible Business
o Continuing to make good progress against our Responsible Business Strategy targets and objectives, launched in January 2022
CEO’s Review
Henry Boot had a good 2022, delivering our best ever underlying profit of £56.1m. Even after allowing for downward valuation movements of £10.5m in our completed investment property portfolio as UK commercial property values declined, our statutory profit before tax still increased by 30% to £45.6m (2021: £35.1m). This is a highly satisfactory result amidst the macro economic headwinds faced in the second half.
The year started off buoyantly with encouraging levels of demand across our three key markets, which offset cost pressures and supply constraints, but with energy prices fuelling inflation and rising interest rates, we saw a marked slowdown in Q4 22. However, as we enter 2023 there are encouraging signs that the economy is proving slightly more resilient than expected, and demand is recovering with a resumption of activity in our markets.
The Group’s results for the year were driven primarily by residential land sales at Hallam Land Management (HLM), a mix of land sales and development profits at HBD and house sales at Stonebridge Homes (SBH). We profitably sold £279m of land, buildings and houses during the year making the most of strong markets in H1 22 and took a very selective approach to acquisitions totalling £28.4m, which included growing HLM and SBH’s land holdings.
On a statutory basis NAV increased by 11% to £395m, where we benefited from an increased pension scheme surplus, or on an underlying basis, NAV was up by 5% to £388m. Capital employed increased by 6.2% over the year to £399m, consistent with our medium-term target of £500m. Profitable sales also helped us to effectively manage our gearing, which at 12.3%, remains at the bottom of our 10-20% target range. The strength of our balance sheet, plus recently refreshed banking facilities of £105m, which are secured to 2025, means we are well positioned for a period of continued uncertainty ahead. As was the case when we came out of COVID, we have the capacity to buy land, maintain and potentially expand the committed development programme, and continue to grow our JV housebuilder, which puts us in a competitive position to act opportunistically.
With the disposal of 3,869 plots, HLM had its best ever year in terms of volume, making the most of a buoyant land market in H1 22, primarily due to a major disposal of 2,170 plots at Didcot. This project is a great example of HLM’s depth of expertise in dealing with increasingly complex planning matters, and not only will it deliver much needed housing supply, but it also includes 80 acres of open space alongside extensive green infrastructure and cycle networks.
HLM grew its land bank to c.96,000 plots (2021: c.93,000) during the period, of which 9,431 plots have planning permission. I am increasingly convinced that the UK planning system is in need of urgent reform. The delays and complexities can no longer be blamed on COVID. Whilst we would derive greatest satisfaction from a more efficient system on account of the benefits this would bring local communities, the challenges of the current situation mean that the land we successfully promote and the expertise we bring in navigating the planning system remain increasingly in demand.
Towards the end of 2022, our major land customers, the national housebuilders, saw a well reported slowdown in house sales and consequently became more selective on land acquisitions. Early signs are that confidence is returning and, together with 992 plots (2021: 1,880 plots) unconditionally exchanged at year-end, we anticipate a reasonable year ahead in terms of land sales.
HBD continues to grow completed development activities with a Gross Development Value (GDV) of £117m (HBD share: £83m) (2021: £303m GDV, HBD share: £68m) of which 92% has been let or sold. The committed programme now totals £395m (HBD share: £240m GDV), 63% of which is currently pre-let or pre-sold. Whilst there are signs that construction cost inflation is slowing, we continue to actively manage risk with 97% of the development costs fixed.
Although investment markets have adjusted rapidly, our underlying occupational markets remain in fundamentally good shape. Structural demand persists for Industrial & Logistics (I&L) space, with national take up in 2022 a very healthy 65.8m sq ft (according to Gerald Eve), which, whilst down on the record high in 2021, was still the second most active year on record with rents increasing by 10.3% during the year. The build to rent (BtR) occupational market remains very buoyant with residential rents growing by 12.1% according to Zoopla in 2022. On offices there is a clear trend of people returning to our major cities and the workplace, with particularly strong demand for buildings that offer strong environmental credentials that assist occupiers in achieving their own NZC goals.
The part of the committed programme not pre-let or pre-sold is primarily in three high-quality schemes where we remain confident of demand:
· In Rainham, we have recently committed along with our JV partner, Barings, (HBD share: £24m GDV) to a 380,000 sq ft speculative I&L scheme. Whilst marketing has not yet begun, this NZC urban logistics development serving Greater London is already experiencing strong occupier interest.
· In the centre of Birmingham, we are part way through construction of 101 premium apartments (HBD share: £32m GDV) which we expect to launch successfully for sale in the summer of this year.
· Finally, in Manchester city centre in partnership with the Greater Manchester Pension Fund, we are building 91,000 sq ft of prime, NZC offices (HBD share: £33m). With the scheme responding to several identified office requirements, we expect good occupier interest.
As we make progress on letting or pre-selling these schemes, we have a number of high-quality I&L and BtR projects within our £1.25bn development pipeline that we can bring forward at the appropriate time.
As we highlighted at the time of the interim results, we tactically identified several properties for sale and I am pleased to report we sold three properties for a total of £29.6m, a 17% premium to the last reported book value. As a result, against a backdrop of falling values, we have delivered relative out performance on our investment portfolio (current value including our share of JVs £106m) with a total return of -1.5 % versus the CBRE UK index of -9.1%. Over the next few years, through a combination of retaining completed developments and acquisitions, we will look to build the portfolio up to our strategic target of £150m.
We made further progress with our JV housebuilder Stonebridge Homes (SBH), with a 46% increase in the number of homes delivered to 175 completions (2021: 120). Whilst supply chain issues at the tail end of the year meant we did not reach our target of delivering 200 homes, we marginally beat our profit expectations. This was driven by our ability to achieve sales prices that were over 10% ahead of budget, which meant cost inflation running at 9% was absorbed. With a target of 250 completions in 2023, and 139 homes already forward sold, we remain firmly on track to continue scaling up and hit our ambitious medium-term strategic target of 600 completions per annum.
The Construction segment has done remarkably well to trade ahead of our expectations. Henry Boot Construction (HBC) has made progress on all its projects despite dealing with very challenging supply and labour restrictions, although there are some signs that these restrictions and cost inflation are easing. HBC begins the year with 68% of the 2023 order book secured and a healthy pipeline of opportunities. Banner Plant (BP) has seen record levels of trading activity and is successfully growing its customer base.
Against a challenging near-term backdrop, we expect 2023 profits to be more subdued than 2022, but we will remain active, pushing ahead with our strategic and growth ambitions from a position of strength, further details of which are covered in the strategy and outlook sections below.
Strategy
The Group set a medium-term strategy in 2021 to grow the size of the business by increasing capital employed by 40% focusing on its three key markets: I&L, Residential and Urban Development.
Notwithstanding slowing markets in Q4 22, we still made good progress against our medium-term strategic targets:
| Measure | Medium-term target | FY 22 Performance | Progress |
| Capital employed | To over £500m | £399m as at 31 Dec 2022 | On track to grow capital employed to over £500m |
| Return on average capital employed | 10%-15% per annum | 12.0% in FY 22 | We maintain our aim to be within the target range |
| Land promotion plot sales | c.3,500 per annum | 3,869 in FY 22 | Exceeded the strategic target of 3,500 per annum, forward sales of 992 plots |
| Development completions | Our share c.£200m per annum | Our share: £83m in FY 22, with committed programme of £240m in 2023 | Increased our future pipeline to £1.25bn, we are on course to complete on average £200m per annum |
| Grow investment portfolio | To around £150m | £106m as at 31 Dec 2022 | Value reduced primarily due to nearly £30m of accretive sales with scope to rebuild portfolio from retained developments |
| Stonebridge Homes sales | Up to 600 units per annum | 175 homes completed in 2022, out of a delivery target of 200 homes | Completions below our target of 200 but strong sales prices mean the business performed marginally ahead of budget. Our goal is to complete 250 homes in 2023 |
| Construction order book secured | Minimum of 65% for the following year | 68% for 2023 | Secured above target range for 2023 order book, with public sector work remaining a key focus |
Responsible Business Strategy
It has been just over a year since we launched our Responsible Business Strategy in January 2022, with our primary aim to be NZC by 2030 with respect to Scopes 1 & 2. I am pleased with the progress we have made so far against our objectives and targets. Our strategy is guided by three principal objectives:
· To further embed ESG factors into commercial decision making so that the business adapts, ensuring long-term sustainability and value creation for the Group’s stakeholders.
· To empower and engage our people to deliver long-term meaningful change and impact for the communities and environments Henry Boot works in.
· To focus on issues deemed to be most significant and material to the business and hold ourselves accountable by reporting regularly on progress.
12-month performance against our medium-term targets
| Our People | Performance | Our Places | Performance |
| Develop and deliver a Group-wide Healthand Wellbeing Strategy | The development of our strategy, in collaboration with our people, was launched in February 2023. | Contribute £1,000,000 of financial (andequivalent) value to our charitable partners | In 2022, we contributed (financial and equivalent value of) over £285,000 to our charitable and communitypartners. |
| Increasegender representation in managementpositions with 30% of our team andline managers being female | We have made strong progress, with female representation across our workforce increasing to 26%. | Contribute 7,500 volunteering hoursto a range of community, charityand education projects | More than 2,250 volunteering hours have been delivered in 2022. |
| Our Planet | Performance | Our Partners | Performance |
| Reduce Scope 1 and 2 GHG emissionsby over 20% tosupport reachingNZC by 2030 | Total direct GHG emissions (Scopes 1 and 2) in 2022 were 2,930 tonnes which equates to a 12% reduction from the 2019baseline. | Pay all of oursuppliers the realliving wage and secureaccreditation withthe Living WageFoundation | The Living Wage Foundation has been engaged and areview is currently being undertaken of the requirements tosecure membership. |
| Reduce consumptionof avoidableplastic by 50% | Sustainability audits completed and a reduction action plan in development. | Collaborate with allour partners toreduce ourenvironmental impact | We continue to engage with membership organisations (including Yorkshire Climate ActionCoalition) to share knowledge and best practice. In 2022 we became members of the UK GreenBuilding Council (UKGBC). |
Separate to our Responsible Business Strategy, I am proud of how Henry Boot has responded to the cost-of-living crisis. We have helped food banks across the locations in which we work by providing financial support, through the provision of food and other essential items, and by volunteering our time to provide aid. We also continued to offer financial assistance, time, and expertise to a wide range of charitable and community projects, creating meaningful and long-lasting social value for our charity partners. We made a one-off payment of £1,000 in September 2022 to over two-thirds of our people to support individuals and families during this challenging period and have introduced financial wellbeing coaching sessions to support our people in the longer term.
Outlook
Whilst the immediate outlook is uncertain, a number of leading indicators suggest that the economic slowdown will not be as severe as forecasts in the final quarter of last year predicted. It looks increasingly like interest rates are close to the so called ‘pivot’, we are seeing early signs that supply restrictions are lifting and with that some prospect of cost pressures easing.
There are early signs that our markets are improving. Occupier demand for I&L has remained resilient, and whilst yields moved out quickly during the second half of 2022, there are investors already looking to buy, tempted by the strong fundamentals of the market. Likewise, whilst data is available only for the first two months, housebuilders generally and SBH specifically, have seen a partial recovery in home buyer interest this year from the lows experienced in the final quarter of 2022. The march of the BtR sector, both in terms of customer and investor demand, continues.
So, for Henry Boot, we remain focused on building out our high-quality development programme. As we increase forward sales and pre-lettings above the present 63%, we will selectively look to replenish, and potentially expand, committed development, primarily by drawing down schemes which are ready to go from our £1.25bn development pipeline. With an ever restrictive planning environment demand for our well located consented plots will come back as the UK remains critically short of housing. In the meantime, we are partially insulated by the 992 land promotion plots that are already unconditionally exchanged and we start the year with 56% of SBH’s 250 target completions for 2023 already forward sold.
We will continue to work towards a more progressive, diverse and responsible business by meeting targets outlined in our Responsible Business Strategy, and investing in key areas such as marketing, customer relations and business improvement processes, including technology. At the same time, we will continue to nurture the great culture within Henry Boot and engage with people who, despite the ups and downs of the last few years have remained energetic and fully committed. Moreover, we have confidence in the long-term fundamentals of our markets, business model and have the operational and financial resources to continue to meet our strategic growth and return objectives.
Tim Roberts
Chief Executive Officer
NOTES:
1 Underlying profit is an alternative performance measure (APM) and is defined as profit before tax excluding revaluation movements on completed investment properties. Revaluation movement on completed investment properties includes losses of £7.3m (2021: £4.6m gain) on wholly owned completed investment property and losses of £3.2m (2021: £1.2m gains) on completed investment property held in joint ventures. This APM has been introduced as it provides the users with a measure that excludes specific external factors beyond management’s controls and reflects the Group’s underlying results. This measure is used in the business in appraising senior management performance.
2 Return on Capital Employed is an APM and is defined as operating profit/capital employed where capital employed is the average of total assets less current liabilities and pension asset/obligation at the opening and closing balance sheet dates.
3 Net Asset Value (NAV) per share is an APM and is defined using the statutory measures net assets/ordinary share capital.
4 Net (debt)/cash is an APM and is reconciled to statutory measures in note 7.
5 Total Accounting Return is an APM and is defined as the growth in NAV per share plus dividends paid, expressed as a percentage of NAV per share at the beginning of the period.
For further information, please contact:
Enquiries:
Henry Boot PLC
Tim Roberts, Chief Executive Officer
Darren Littlewood, Chief Financial Officer
Daniel Boot, Group Communications Manager
Tel: 0114 255 5444
www.henryboot.co.uk
Numis Securities Limited
Joint Corporate Broker
Ben Stoop
Tel: 020 7260 1000
Peel Hunt LLP
Joint Corporate Broker
Harry Nicholas
Tel: 020 7418 8900
FTI Consulting
Financial PR
Giles Barrie/ Richard Sunderland
020 3727 1000
A webcast for analysts and investors will be held at 9.30am today and presentation slides will be available to download via www.henryboot.co.uk . Details for the live dial-in facility and webcast are as follows:
| Participants (UK): | Tel: 44 (0) 33 0551 0200 |
| Confirmation code: | Quote “Henry Boot FY Results” |
| Webcast link: | https://stream.brrmedia.co.uk/broadcast/63dce73852611c376881f9e8 |