11 September 2023

Vistry Group PLC - Half year results and strategy update

Robust financial performance, in line with expectations

Revised strategy to fully focus on high return Partnerships model

Vistry Group PLC (the "Group") is issuing its results for the six-month period from 1 January 2023 to 30 June 2023 (the "period") and providing an update on Group strategy.

Performance and outlook

·    Robust financial performance in H1, in line with expectations, despite challenging market conditions

·    Performance underlines strength of Vistry's unique business model and Partnerships market resilience

·    The Board re-iterates guidance of in excess of £450m adjusted profit before tax for FY23

Strategy update

·    Vistry has firmly established itself as the leading provider of affordable mixed tenure housing

·    Revised strategy to focus operations fully on high return Partnerships

·    Addressing the country's chronic shortage of affordable mixed tenure housing is at the core of Vistry being a responsible developer

·    The Board expects a significant release of capital as assets from the Housebuilding division are redeployed into Partnerships and the Group adopts a model of pre-selling c. 65% of plots on future schemes

·    In the medium term, the Group will be targeting a return on capital employed of 40%, revenue growth of 5 to 8 per cent. p.a., operating profit of £800m with a 12%+ operating margin

Capital allocation

·    The Board intends to pursue a two times adjusted earnings ordinary distribution cover in respect of a full financial year, with such distributions made through either dividends or share buybacks

·    Targeting returning £1bn to shareholders over next three years from ordinary and special distributions, alongside the elimination of net debt

·    Intention to launch an initial share buyback programme of up to £55m in November 2023

Greg Fitzgerald, Chief Executive commented:

"The integration of Countryside has progressed well in the first half, firmly establishing Vistry as the leading provider of affordable mixed tenure housing in the UK.  The Group delivered a robust half year performance despite the challenging macro-economic conditions with Partnerships continuing to see good demand, demonstrating its market resilience.

"The scale of the social need for affordable mixed tenure housing across the country continues to increase and it is clear that Vistry is uniquely positioned as the leader in partnerships housing.

"In this context and following our annual review of the Group's strategy, the Board has concluded that focusing the Group's operations fully on partnerships by merging our Housebuilding operations with our Partnerships business, best enables sustained growth in housing output, provides greater benefits to our partners, while maximising value and long term returns for shareholders with the Group targeting a 40% ROCE and the distribution of £1bn to shareholder over the next three years.

"Delivering on the acute social need for housing across the country and increasing the availability of affordable, sustainable homes is at the core of the Group's social purpose and vision, and I look forward to delivering upon this exciting and unique opportunity for Vistry."

 

Half year summary financials

£m unless otherwise stated	H1 23	H1 22	Change
Adjusted basis1
Total completions	7,143	5,409	+32.1%
Revenue	£1,777.1m	£1,352.5m	+31.4%
Operating profit	£206.7m	£198.2m	+4.3%
Operating profit margin	11.6%	14.7%	-3.1ppts
Profit before tax	£174.0m	£189.9m	-8.4%
Basic earnings per share	38.3p	67.4p	-43.2%
Return on capital employed2	21.9%	24.5%	-2.6ppts

¹Completions include 100% of JV.  All other financials are shown on an adjusted basis to include the proportional contribution of the joint ventures and exclude exceptional expenses of £35.6m (H1 22: £71.4m), amortisation of acquired intangibles of £23.1m (H1 22: £7.1m) and tax on joint ventures of £1.1m (H1 22: nil)

²Return on capital employed is calculated as 12 month rolling adjusted operating profit divided by average capital employed for the same 12 month period.  Average capital employed is calculated as opening plus closing total equity less goodwill, intangible assets, net cash/debt, retirement benefit asset/liabilities and fire safety provision, divided by two.  H1 22 restated to exclude fire safety provision.

 

£m unless otherwise stated	H1 23	H1 22	Change
Statutory basis
Revenue	£1,575.3m	£1,187.2m	+32.7%
Operating profit	£121.2m	£89.3m	+35.7%
Profit before tax	£114.2m	£111.3m	+2.6%
Basic earnings per share	24.1p	39.1p	-38.4%
Net (debt)/cash	(£328.7m)	£115.0m	>-100%

Half year performance - in-line with expectations

·    Partnerships saw good levels of demand in the first half, demonstrating its market resilience, with adjusted revenues increasing by 7.1% to £953.6m compared to pro forma³ H1 22 (£890.4m) and adjusted operating margin increasing to 11.5% (H1 22: 10.2%)

·    Housebuilding operated well against more challenging market conditions, delivering adjusted revenues of £823.5m, down 28.3% on pro forma H1 22 (£1,149.2m) and gross margin of 19.8% (H1 22: 22.4%)

·    The Group's average weekly sales rate for the period was 0.86 (H1 22: 0.84), with Housebuilding leveraging the Group's relationships with Registered Providers ("RPs") and Local Authorities to increase its delivery and support the sales rate

·    The enlarged Group made strong progress on renegotiating its supply chain arrangements and expects to fully offset inflationary build cost increases in FY 23 post synergy benefits

·    The integration of Countryside is expected to deliver synergy benefits of at least £35m in FY 23, ahead of targeted £25m, with the full run rate of £60m to be delivered by the end of FY 24

·    Net debt of £328.7m as at 30 June 2023, with net debt expected to reduce to c. £100m as at 31 December 2023

³Pro forma represents the combination of Vistry and Countryside for the 6 month period to 30 June 2022 and reflects Countryside legacy assets and site transfers to Housebuilding from 1 January 2022, as though the Combination completed on 1 January 2022.  The numbers provided are unaudited

 

Strategy update - Group to focus operations fully on high return Partnerships model

·    There is an acute shortage of housing in the UK with the greatest need being for affordable mixed tenure homes

·    Following the successful combination with Countryside, Vistry has firmly established itself as the leading provider of affordable mixed tenure housing

·    The Group intends to focus its operations on its high return, capital light, resilient partnerships model by fully merging its Housebuilding operations with its Partnerships business before the end of FY23

·    Addressing the country's acute need for affordable mixed tenure housing is at the core of Vistry being a responsible developer

·    In the medium term, the Group will be targeting a return on capital employed of 40%, revenue growth of 5 to 8 per cent. p.a., operating profit of £800m with a 12%+ operating margin

·    The benefits arising from the acquisition of Countryside, including synergies, will be maintained and the more simplified operating structure is expected to give rise to a further c. £25m of cost savings

Capital allocation - targeting £1bn of total shareholder distributions over the next three years

·    The revised strategy and sole focus on partnerships is expected to result in a significant release of capital as assets from the Housebuilding division are redeployed into Partnerships and the Group adopts a model of pre-selling an average of c. 65% of plots across the business

·    Maintaining a strong balance sheet with the return to a year end net cash position in FY24 and the elimination of average net debt in the medium term is a key priority

·    The Group will invest in the Partnership land bank to deliver growth in line with its strategy and medium-term targets

·    The Board intends to pursue a two times adjusted earnings ordinary distribution cover in respect of a full financial year, with such distributions made through either dividends or share buybacks (the "ordinary distribution")

·    Recognising that the current share price significantly undervalues the Group, it is intended that the ordinary distribution in respect of the 2023 financial year will be made through share buybacks in lieu of any dividend, and the Group is today announcing its intention to launch an initial ordinary share buyback programme of up to £55m which is expected to commence in November 2023 and be completed ahead of the announcement of the Group's Full Year results in March 2024

·    Any surplus capital following investment in the business to support the Partnerships growth strategy and the ordinary distribution, would be expected to be returned to shareholders through either a further share buyback or special dividend, with the method of capital return to be determined by the Board considering all relevant factors at the time

·    The Group is targeting £1bn of shareholder distributions over the next three years including the ordinary distribution alongside the elimination of net debt

 

Current trading and outlook

·    We continue to see good demand for mixed tenure affordable housing from Local Authorities, RPs and PRS providers

·    Open market private sales have slowed further since June, in part reflecting the traditional quieter summer period but also further increases in mortgage costs

·    Strong demand from first time buyers for shared ownership delivered with our partner RP and using direct grant funding from Homes England

·    Continue to expect to fully offset cost increases for the full year after the benefit of synergies, and reflecting the decline in overall industry output, see opportunity to work with our supply chain partners, to deliver an overall reduction in build costs going forward

·    Partnerships has a strong forward order book totalling £3.0bn with 90% of forecasts mixed tenure units and all of partner delivery revenues for FY23 secured

·    Housebuilding's forward order book totals £1.3bn, with 87% of forecast FY23 units secured

·    Housebuilding and Partnerships continue to secure transactions with RPs and Local Authorities to deliver on FY23 forecasts and mitigate the impact of the slowdown in the open market, utilising Homes England funding award to enable these transactions and increase the supply of affordable mixed tenure homes

·    The Group remains selective in the land market, taking the opportunity to secure attractive development opportunities that support the targets for the Partnerships growth strategy

·    The Board re-iterates guidance of in excess of £450m adjusted profit before tax for FY23

Forward sales

(£m)	03 September 2023	30 June 2023
Housebuilding
-      Private	670	564
-      Private - Vistry share of JVs	107	105
-      Affordable	444	472
-      Affordable - Vistry share of JVs	74	77
Total Housebuilding	1,295	1,218
Partnerships
-      Mixed tenure	1,482	1,462
-      Mixed tenure - Vistry share of JVs	401	422
Total mixed tenure	1,883	1,884
Total partner delivery	1,106	1,088
Total Partnerships	2,989	2,972
Total Group	4,284	4,190

 

 

There will be an investor and analyst presentation at 8:30 a.m. today, 11 September 2023 at Numis, 45 Gresham St, London EC2V 7BF. There will also be a live webcast of this event available on our corporate website at www.vistrygroup.co.uk or via the following link https://brrmedia.news/VTY_HY23

Certain statements in this press release are, or may be deemed to be, forward looking statements. Forward looking statements involve evaluating a number of risks, uncertainties or assumptions, many of which are beyond the Group's control, that could cause actual results to differ materially from those expressed or implied by those statements. Forward looking statements regarding past trends, results or activities should not be taken as representation that such trends, results or activities will continue in the future. Undue reliance should not be placed on forward looking statements. Forward looking statements speak only as at the date of this document and the Group and its directors and officers expressly disclaim any obligation or undertaking to release any update of, or revisions to, any forward looking statement herein.

 

For further information please contact:

Vistry Group PLC Tim Lawlor, Chief Financial Officer Susie Bell, Group Investor Relations Director FTI Consulting Richard Mountain / Susanne Yule

07469 287335     020 3727 1340

 

 

Chief Executive's Review

The Group has established itself as one of the country's foremost homebuilders following the transformative combination with Countryside Partnerships PLC in November 2022.  The businesses have come together extremely well and the Group's strong management team has demonstrated the quality of its leadership through this period of integration.  Combined with the more challenging market conditions it has been an intense period of activity for the Group which has been reflected in the hard work and commitment demonstrated by our people in driving Vistry forward and delivering success.

Countryside Partnerships, our enlarged Partnerships business, is a leading provider of affordable mixed tenure housing.  Working in close partnership with Local Authorities, Registered Providers and the private rented sector ("PRS"), the business has seen good levels of demand in the period and is demonstrating its market resilience.  This capital light business is making good progress with its strategy of delivering strong revenue growth and driving a minimum return on capital employed of 40%.

Our Housebuilding business has faced more challenging market conditions with the higher mortgage rate environment and broader macro-economic challenges, particularly impacting first time buyers.  The business has focused on operational excellence, tight cost control and the delivery of the highest quality homes.  It has leveraged the Group's strong relationships with RPs, Local Authorities and PRS providers and pursued a number of multi-unit transactions, supporting the sales rate and private sales prices, and the transition to the Group's new strategy.

Reflecting its increased scale, the enlarged Group has made excellent progress on renegotiating its arrangements with supply chain partners in the first half and continues to expect to offset inflationary build cost increases in the full year after the benefit of synergies.

Strategy update

I am pleased to be announcing our updated strategy.  The Group's focus and vision is to increase the delivery of mixed tenure, affordable homes across the country, fulfilling unmet demand and helping to address the acute need for social housing.  The Group's operations will concentrate solely on partnerships by merging our Housebuilding operations with our Partnerships business, enabling sustained growth in housing output, providing greater benefits to our partners, and will deliver maximum value and long term returns for shareholders with the Group targeting a 40% ROCE and the distribution of £1bn to shareholder over the next three years.

Market opportunity

The market fundamentals of the UK housing sector support the creation of a national, large-scale partnerships business to deliver sustainable, profitable growth.  Increasing the delivery of quality affordable homes and home ownership is a key priority for the Government, Homes England, Local Authorities and RPs.  The need for affordable housing in the UK remains acute and there is widespread acknowledgement of an increasing demand-supply deficit for quality new homes across all tenures.

In the ten months since completing the acquisition of Countryside, the increased scope of our Partnerships business has made the considerable scale of this affordable housing need even more apparent.  It is equally apparent that the Group is uniquely positioned as the leading provider of partnerships housing, to significantly increase the delivery of affordable mixed tenure homes.  Increasing the availability of affordable, sustainable homes is at the core of the Group's social purpose and vision and the Group is committed to rapidly growing its mixed tenure output, confident there is market demand to support this.  The enlarged Partnerships business, led by a highly experienced management team, has an excellent track record of delivery and resilience, and has strong relationships across the affordable housing sector.

The Group is to merge its Housebuilding operations with its Partnerships business, with a simplified operating structure under a single business.  Vistry's Housebuilding business has been successful in increasing its delivery to RPs and PRS providers over the past year, utilising the relationships and experience within the Partnerships business.  In the year to date, Housebuilding has exchanged on multi-unit transactions (in excess of s106 commitments) in respect of 23 developments and 1,172 homes.  Over 90% of the transactions have been with Registered Providers.

The transition to a fully partnerships-focused model will:

·    Establish Vistry as a clear and differentiated leader in the listed UK housebuilding sector

·    Allow the Group to maximise its exposure to the high demand and more defensive mixed tenure offering whilst better addressing the significant long-term demand for affordable mixed tenure housing

·    Realise additional cost-savings through a simplified corporate structure

·    Maximise return on capital from the existing land bank

·    Release additional capital from the balance sheet to maximise flexibility for capital allocation

Developing the Housebuilding landbank under the Partnerships model

Our strategy is to transition the Housebuilding land bank totalling 30,200 owned and controlled plots to our Partnerships model of a minimum 50% pre-sold, trending towards an average of 65% pre-sold.  Of these plots, 8,000 are already designated affordable by planning consent, 1,000 have been pre-sold to date through existing multi-unit transactions with our key partners, and we are targeting the further pre-sale of c. 8,500 plots over the next two to three years.  We see a number of pre-sale opportunities to transition the Housebuilding land bank: 

·    Multi-unit deals with our key partners - a number completed in year to date and in the pipeline

·    A small number of broader and longer-term scale partnerships with our key RP partners

·    The potential to capitalise on our own RP, Linden First, to deliver scale with a provider of capital

·    Opportunities with Homes England and Local Authorities across the country and the ability to replicate innovative structures for new Local Authority partners

·    Existing and new PRS providers looking at frameworks for long term scale

·    Establishing closer relationships with SME housebuilding partners to support delivering larger sites

·    Some opportunities with competitors for land swaps which are better aligned to our Partnerships model and some selective, modest scale land disposals

Organisational changes

The Group will continue to be overseen by a highly experienced managed team.  The Executive Leadership Team is aligned to the new strategy and a less complex business structure, and the Group's  organisational structure is to be simplified and delayered.  Subject to employee consultation, the Group expects to reduce the total number of its regional business units from 32 to 27 through the removal of overlapping geographies, while retaining capacity within the business units for continued growth.  These 27 business units will sit within 6 newly defined operating regions, each with a Divisional Chair.  The Group expects to deliver c. £25m of cost savings from the integration of the two businesses, in addition to the expected £60m of annualised synergies driven by the Group's increased scale through the acquisition of Countryside.  The Group will retain all three of its leading brands, Bovis Homes, Linden Homes and Countryside Homes for open market sales whilst continuing to utilise Countryside Partnerships with its partners.  The Group's leading timber frame capability, Vistry Works will help to underpin the growth and sustainability strategy.

Group medium term targets

We expect this strategy to create a business capable of delivering a 40% return on capital employed, 5 to 8 per cent. revenue growth p.a., £800m of operating profit and 12%+ operating margin in the medium term.  All new developments across the Group will require a minimum of 50% units to be pre-sold, with the expected average pre-sold across the portfolio expected to be c. 65%.

The new Partnerships model is expected to deliver significant cash returns to shareholders in addition to our ordinary distribution policy of distributing 50% of annual adjusted net earnings, and in total we are targeting £1bn of shareholder distributions over the next three years including the ordinary distribution, with the method of distribution to be determined by the Board considering all relevant factors at the time.  Maintaining a strong balance sheet is a key priority and we are targeting a return to a year end net cash position in FY24, with average net debt eliminated in the medium term.  As such, the Group is expected to benefit from reduced interest expenses from FY24.

First half review

The Group's average weekly sales rate for the period was 0.86 (H1 22: 0.84) and excluding multi-unit transactions in Housebuilding was 0.67 (H1 22: 0.82).

The Group achieved adjusted revenues of £1,777.1m in the first half, 12.9% down on proforma H1 22 (£2,039.6m). Group reported revenues totalled £1,575.3m, 32.7% higher than last year (H1 22: £1,187.2m), driven by a 39.9% increase in legal unit completions compared to the prior year.  Partnerships delivered a 7.1% increase in H1 adjusted revenues to £953.6m on pro forma H1 22 (£890.4m), whilst Housebuilding adjusted revenues decreased by 28.3% to £823.5m on pro forma H1 22 (£1,149.2m).

Overall, the Group delivered adjusted operating profit of £206.7m (H1 22: £198.2m) with an adjusted operating margin of 11.6% (H1 22: 14.7%). Group adjusted profit before tax in H1 23 was £174.0m (H1 22: £189.9m) in line with management's expectations.  In the period the Group recognised an exceptional expense of £35.6m (H1 22: £71.4m) primarily related to integration and further restructuring costs and an incremental fire safety provision recognised in relation to second staircase regulation.  On a reported basis, the Group delivered profit before tax of £114.2m (H1 22: £111.3m).

Partnerships

Countryside Partnerships had a good first half, delivering revenue growth, margin improvement and a return of capital of 34.8% for the six-month period to 30 June 2023.  The integration of Countryside has moved at pace with our focus on building the best from each of our businesses and is now substantially complete.  All of our Partnerships operations have rebranded under the Countryside Partnerships name with the business utilising the Group's three leading brands and housing ranges, Countryside, Bovis Homes and Linden Homes, to best meet the requirements and demographics on each development, and maximise the social value delivered.  Our partners welcomed and supported the combination with Countryside, and during the period the business consolidated and strengthened its relationships with Local Authorities, RPs and PRS providers.

Partnerships delivered 3,203 (H1 22: 1,106) mixed tenure completions in the first half, up 5.7% on pro forma H1 22 (3,031) and operated from an average of 83 sites in the period (H1 22: 29).  Adjusted operating margin improved by 130bps in H1 to 11.5% (H1 22: 10.2%).

Partnerships continued to invest in its land bank to support the ambitious growth strategy of mixed tenure revenues.  In the period, the business secured 3,848 (H1 22: 2,166) plots on 11 sites (H1 22: 12) for mixed tenure development.

Housebuilding

Housebuilding operated well in more challenging market conditions with the business focused on delivering high quality homes, tight cost control and cashflow management.

Customer interest in our new homes remained robust.  The step-up in mortgage costs and increased macroeconomic uncertainty however led to a drop off in completions to the open market.  In particular, we saw a significant decline in completions to first time buyers whose ability to purchase have been most affected by the rate increases, combined with the end of the Government's Help to Buy programme in Q4 2022.  Open market pricing remained relatively stable in the first half supported by an increased level of incentives of c. 3% to 5%.

Housebuilding leveraged the Group's strong relationships and track record of delivery with RPs, Local Authorities and PRS providers to maximise the opportunity for multi-unit transactions in the period.  Prices on multi-unit transactions were typically in the range of 5% to 15% below Housebuilding's forecast open market price, with the size of the discount largely influenced by the cash receipts profile of the transaction.  This strategy helped Housebuilding to hold firm on open market private sales prices, whilst the increased revenue visibility from the multi-unit transactions helped manage preliminary costs and deliver subcontract savings.

Housebuilding delivered 2,847 (H1 22: 3,219) completions in the period, down 22.4% on pro forma H1 22 (3,667).  The business operated from an average of 137 active sites in the first half (H1 22: 143).

Housebuilding adjusted gross margin declined to 19.8% (H1 22: 22.4%) reflecting the increased levels of multi-unit sales, compounded by the sell through from the lower margin of Countryside's Legacy Operations which transferred to Housebuilding at the start of the period.

Housebuilding maintained a highly selective approach to land acquisition in the first half securing 2,713 (H1 22: 3,360) plots across 12 (H1 22: 16) sites.

Group

The integration of Countryside into the enlarged Group made excellent progress in the first half and has been substantially completed.  With the organisational structure of Countryside Partnerships in place from 1 January, our focus has been on delivering a timely integration with minimal operational disruption.  We continue to make progress on the unification of our systems with the final phases of this on track to be completed by the end of the year.  We expect to deliver at least £35m of synergies from the Combination in FY 23, an increase from the previous target of £25m, with the full run rate of £60m unchanged and to be achieved by the end of FY 24.

The Group was pleased to have secured a further £67m of grant funding from Homes England under its current Affordable Homes Programme running to 2026, bringing the total Strategic Partnerships affordable housing grants funding to £150m.  This will enable Vistry to deliver c. 2,400 affordable homes in partnership with RPs and Local Authorities across England.

This grant funding was instrumental to our partnership with Sage Homes where, through Sage's Home Stepper shared ownership model, we will deliver an initial portfolio of around 800 shared ownership homes nationally with a market value of over £250m.  The scheme has had an encouraging start since launching in June, with strong customer interest and more than 170 reservations to date.

Our sites are operating well with good labour availability.  The enlarged Group is benefiting from its revised arrangements with its supply chain partners.  The greater level of visibility on forward sales, build programmes and revenues within Partnerships is also delivering a competitive advantage, in particular with subcontractors.  In the first half, the Group offset increases in build costs of c. 5% with the benefit of synergies delivered from the Combination.  We are targeting to fully offset cost increases for the full year, and reflecting the decline in overall industry output, see opportunity to work with our supply chain partners, to deliver an overall reduction in build costs going forward.

This year the Group celebrated 40 NHBC Pride in the Job Quality Awards with a significant step up in the number of awards achieved by the Housebuilding business.  Congratulations to all winners and thank you for your hard work and dedication.  This fantastic achievement highlights the Group's ongoing commitment to delivering the highest quality new homes for our customers and clients.  Our NHBC reportable items in the year to date remain below industry benchmark at 0.20 (H1 22: 0.20).

The planning environment remains challenging and continues to result in longer timescales to achieve an implementable planning consent than we saw a few years ago, driven by additional regulations, as well as changes to planning policy.  Whilst we may anticipate the longer timescales and factor this into our forecasting and land buying processes, the added complications lead to additional costs and delays.

We welcome the Government amendments to the Levelling Up and Regeneration Bill which seek to address the nutrient neutrality rules and allow blocked development to come forward. This will allow us to bring forward stalled development. We will work with the Home Builders Federation to consider and respond to Governments suggestions for a voluntary scheme for larger developments to contribute to the mitigation schemes.

Vistry Works

The Group is pleased to have re-opened the newly branded Vistry Works East Midlands timber frame manufacturing plant earlier this month, following the completion of a strategic review of Countryside's timber frame manufacturing operations after completing the Combination.  Combined with Vistry's existing two factories in Warrington and Leicester, the Group has the capacity to deliver 5,000 new timber frame homes in FY24, increasing to c. 8,000 units for 2025 and beyond.

Significantly increasing the use of timber frame construction is a key pillar of our sustainability strategy discussed below.  There is a clear environmental benefit to using timber frame over a traditional brick and block build construction method, with the embodied carbon associated with the timber frame construction of a typical low-rise house over a 60-year life shown to be 30% lower than that from a traditionally constructed equivalent house.

The factories have commenced the production of standard product across all three brands which will deliver greater manufacturing efficiencies and drive build efficiencies across the business units.  The product line predominantly delivers an open panel solution, with the ability to deliver both closed panel and intermediary panel solutions. More recently,  the capabilities have been expanded to include roof trusses and floor joists.

Sustainability

During the first half and as part of the integration we have focused on updating our Group sustainability strategy.  This has included an extensive double materiality assessment which has looked at both dimensions of impact and financial value, recognising that Vistry can both impact society and the environment, and be impacted by sustainability topics.  As part of the assessment, we have received c. 300 stakeholder survey responses, and completed numerous internal and external interviews.  Initial findings reflect a time of housing and climate crisis and we acknowledge our responsibility to do more to help and reinforce the unique position of Vistry within the industry and how sustainability is core to our purpose.  This includes the scale at which we can deliver affordable homes and the associated social value return on investment, our industry leading position in delivering homes with energy and carbon performance beyond building regulations, as well as the potential of our timber frame factories to significantly reduce embodied carbon and support our net zero carbon pathway.

To support the effective implementation of our sustainability strategy and performance against targets across the Group, we have established a sustainability committee.  The committee is chaired by our Group COO and attended by our Group CEO and a Non-executive Director.

Our operations

In the half, we recalculated our greenhouse gas emissions baseline to account for being an enlarged group and reset our near-term (2030) reduction targets and a net zero carbon target (2040), which have been submitted to the SBTi for approval. Our targets are:

·    42% reduction in absolute Scope 1 and 2 GHG emissions by 2030 from a 2022 base year

·    51.6% reduction in Scope 3 GHG emissions per m2 of completed housing by 2030 from a 2022 base year

·    Achieving Net Zero by 2040

We continue to build above and beyond building regulations and learn lessons through post occupancy evaluations.  For example, at a scheme in Tolgus in the Southwest we have completed show homes and we continue to build 185 "zero carbon ready" homes.  We are about to hand over the last of 54 AECB (Passivhaus lite) homes in North Whiteley, near Southampton, to the local council.  At a development in Kenilworth, we are well on our way with building 310 net zero carbon (regulated energy) homes and there are many more examples.  In addition, low carbon heating systems such as air source heat pumps are being utilised across selected developments right across the Group.

Our homes and communities

Social value is a priority for Vistry and an inherent part of our purpose to deliver sustainable homes and communities across all sectors of the UK housing market.  As a large developer of affordable homes in the UK we deliver significant social value return on investment through providing safe, warm and efficient homes at scale, for our partners and customers.  By doing this we embody UN Sustainable Development Goal 17, Partnerships for the Goals.

We measure social value at a project level and to date have quantified the social value return on investment on 55 projects, demonstrating a social and local economic benefit from these projects of >£133m.  This figure considers the economic (e.g. job creation and increased economic activity), social (e.g. improved health and well-being, improved social cohesion and reduced crime) and environmental benefits (such as reduced pollution and enhanced biodiversity) of our work within communities.  We intend to begin quantifying social value on all projects during 2024 as part of our revised strategy, following the output of our revised materiality assessment.  Creating high quality homes and providing the best experience for our customers through excellent service are at the heart of what we do.  This is evident through our awards, in particular our consecutive 5-Star rating from the Home Builders Federation (HBF), home building industry's Customer Satisfaction Survey.

In the first half we rolled out our customer relationship management platform and customer portal, 'Keys', across the Countryside business.  This is nearing completion with training for all employees new to the system happening this month.  We recently launched the Group's vulnerable customer policy to ensure that customers in vulnerable circumstances are treated not only fairly, but with empathy and sensitivity to their circumstances.

Our People

Our people are key to the Group's success and at the centre of the Group's people strategy is to 'Attract, Develop, Retain' the best people.  The successful integration of the enlarged Group has been our key priority in the first half with a strong focus on keeping our people well informed and effectively utilising employee feedback.

In January 2023 we were delighted to have achieved certification as a 'Top Employer' with the Top Employers Institute which recognises our people strategy and workplace environment, with Vistry being the only accredited homebuilder in the UK.  We have also been recognised for supporting the wellbeing and mental health of our people with a WM Top Employer Award for Best in Mental Health.

We continue to strengthen our partnerships with third party organisations including Women into Construction and the Armed Forces to diversify talent pools.  We are encouraged to have seen a significant increase in the diversity of job applicants to the Group, in particular increased applications from people from different ethnic backgrounds, females and those who have or are currently in the Armed Forces.

The Leadership Development Programme has been relaunched across the enlarged Group and c. 320 employees have completed the programme in the year to date.  To support development of our female succession pipeline we have piloted an external Women in Leadership Programme with further developments planned in the next twelve months.  The new Vistry Graduate and Trainee schemes have been launched across the enlarged group with the first intake taking place in September 2023.

Our on-site skills academies have been designed to combat the nationwide skills shortage affecting the construction industry. The academies are set up on site to deliver and provide entry routes to apprenticeships, employment, training and mentoring to local community members as well as engaging with job centres and schools. In the year to date we have opened four new on-site skills academies and have 196 learners signed up to the programme with a target of 275 for the full year.

Health and safety is a top priority and, following the acquisition of Countryside, we reviewed and updated our ISO compliant SHE Management system to capture best practice from our two current systems.  There is a clear focus on compliance with the new Building Safety Act 2022 and on leading key performance indictors including, safety observations and near miss reporting.  This has had a positive impact and reduced the Group's accident incident rate below the HSE industry benchmark.

Fire safety and requirement for second staircases

Vistry Group is committed to playing its part in delivering a lasting industry solution to fire safety and on 13 March 2023 signed the Department for Levelling Up, Housing and Communities' Developer Remediation Contract.

The Group's fire safety provision as at 30 June 2023 totalled £311.8m and we remain confident this will cover the cost of fire safety works in accordance with the Group's obligations.  We continue to make good progress with the remediation works and, of the 317 buildings identified, work has been completed on 75, works are ongoing on 41 sites and we are engaged in the remediation process with a further 201 buildings.  This remediation work is managed by our dedicated team which was further strengthened during the period.

The UK Government has confirmed its commitment to mandating a requirement for second staircases in high-rise residential schemes, lowering the proposed threshold from 30 metres to 18 metres, following a period of consultation.  A non-underlying charge of £18.4m has been taken in the first half in respect of the second staircase requirement, comprising a £6.1m inventory write-down and an £12.3m provision for additional costs to be incurred on sites we are committed to.

In addition, the Group has been contributing approximately 4% of profits through the Residential Property Developer Tax ("RPDT") since its introduction on 1 April 2022, with a total of c. £16m paid to date.  RPDT is intended to raise at least £2bn from the industry over a ten-year period.

Balance sheet

The Group had a net debt position of £328.7m as at 30 June 2023 (31 December 2022: £118.2m net cash).  The increase in debt reflects the working capital requirements of the enlarged group, investment for growth in the Partnerships business, and cash spend on integration and fire safety.  Average month end net debt during the half year period was £360.1m.

Land creditors increased to £694.8m at 30 June 2023 (31 December 2022: £667.4m).  This reflects the acquisition of £246.0m in land creditors on the combination with Countryside and the investment in land in the period where we have secured deferred payment terms where possible. Land creditor as a percentage of the owned land bank has fallen from 36% to 34% in the period.

Capital allocation and intention to launch share buyback programme

The Group has undertaken an extensive consultation with its shareholders on capital allocation over the past few months. Following a review of all shareholder feedback and the options available to the Group, as well as the appropriateness of the Group's capital allocation policy in the context of the Combined Group, the Board has formulated an updated capital allocation policy.

The revised strategy and sole focus on partnerships is expected to result in a significant release of capital as assets from the Housebuilding division are redeployed into Partnerships and the Group adopts a model of pre-selling an average of c. 65% of plots across the business

Maintaining a strong balance sheet with the return to a year end net cash position in FY24 and the elimination of average net debt in the medium term is a key priority.  The Board believes that investing in Partnerships which is targeting sector leading ROCE of at least 40%, is the most attractive use of capital.

The Group recognises the importance of capital distribution to shareholders, and therefore intends to sustain the pursuit of a two times adjusted earnings ordinary distribution cover in respect of a full financial year, with such distributions made though either share buybacks or dividends, the method to be determined by the Board considering all relevant factors at the time.

Reflecting the Board's view that Vistry is significantly undervalued, the Group announces that it is intending launch an initial ordinary share buyback programme of up to £55m, which is expected to commence in November 2023 and be completed ahead of the announcement of the Group's Full Year results in March 2024.  This buyback is an ordinary distribution to shareholders, and will be in lieu of an interim dividend payment, reflecting the Group's updated capital allocation policy. Further announcements will be made in due course.

Going forward, any surplus capital, following investment in the business to support the Partnerships growth strategy and the ordinary distribution, would be expected to be returned to the Group's shareholders through either an incremental share buyback or a special dividend, with the method being determined by the Board considering all relevant factors at the time.

The Group is targeting £1bn of total shareholder distributions over the next three years alongside the elimination of net debt.

Board changes

Jeff Ubben was appointed as a Non-Executive Director with effect from 23 March 2023.  Paul Whetsell was appointed as a Non-Executive Director, Chair of the Remuneration Committee and a member of the Nomination and Audit Committees with effect from 18 May 2023.  Helen Owers was appointed as a Non-Executive Director and a member of the Nomination, Audit and Remuneration Committees with effect from 18 May 2023.

Nigel Keen stepped down from the Board with effect from 23 March 2023.  Katherine Innes Kerr and Dr Ashley Steel each stepped down with effect from the conclusion of the Annual General Meeting on 18 May 2023.

Current trading and outlook

We continue to see good demand for mixed tenure housing from Local Authorities and RPs.  There is also good albeit more selective demand from PRS providers.  Open market private sales have slowed further since June, in part reflecting the traditional quieter summer period but also further increases in mortgage costs.  We have seen strong demand from first time buyers for shared ownership delivered with our partner RP and using direct grant funding from Homes England.

Partnerships has a strong forward order book totalling £3.0bn with 90% of forecasts mixed tenure units and all of partner delivery revenues for FY23 secured.  Housebuilding's forward order book totals £1.3bn, with 87% of forecast FY23 units secured.  Housebuilding and Partnerships continue to secure transactions with RPs and Local Authorities to deliver on FY23 forecasts and mitigate the impact of the slowdown in the open market.

The Group remains selective in the land market, taking the opportunity to secure attractive development opportunities that support the targets for the Partnerships growth strategy.

The Board re-iterates guidance of in excess of £450m adjusted profit before tax for FY23.

 

Rule 19.6(b) update to stated post-offer intention statements with regard to the Combination

As a result of the new strategy described above, a different course of action is being taken from some of the post-offer statements of intent made by Vistry pursuant to Rules 2.7I(viii) and 24.2 of the Code, as set out in its announcement made under Rule 2.7 of the Code on 5 September 2022 as well as in Vistry's circular and prospectus and Countryside's scheme document each dated 7 October 2022 (together, the "Offer Documents").

As set out in the Offer Documents, the relevant stated intention provided that:

·    the Combined Group would be organised into two distinct businesses, each of significant scale: (i) a housebuilding business, to be known as "Vistry Housebuilding", consisting of the existing Vistry Group's housebuilding business, with the addition of certain sites form the existing Countryside Group; and (ii) a partnerships business, to be branded "Countryside Partnerships", consisting of Vistry's Partnerships and Countryside's core Partnerships business.  The changes to the Group's business and structure in this respect are set out above (see "strategy update")

·    Stephen Teagle would lead the Partnerships business of the Combined Group as Chief Executive - Partnerships Division and that Keith Carnegie would lead the Housebuilding business of the Combined Group as Chief Executive - Housebuilding Division.  As a result of the change in strategy, Stephen Teagle will be CEO of Countryside Partnerships with a client and customer focus.  It is also expected that Keith Carnegie will leave the Group from the end of 2023 and, and in the intervening period will assist with the merging of the Group's Housebuilding operations into its Partnerships business prior to his departure

·    As a result of the Combination, there would be a reduction in the total number of roles by approximately 4% of the Combined Group's total number of employees (on a full-time equivalent basis).  This headcount reduction has been implemented and is not affected by the change in strategy.  The change in strategy is however expected to result in a further reduction to the Group's overall headcount as a result of the expected reduction in the total number of its regional business units from 32 to 27 through the removal of overlapping geographies.  Vistry intends to look, where possible, to reallocate staff from discontinued roles arising from the change in strategy to other appropriate new roles or growth-related new opportunities as referred to above (including where there are existing vacancies).  Vistry also intends to retain the best talent of the Combined Group in connection with the further reduction in number of roles.  At this stage, Vistry has not conducted a detailed headcount review. However, a detailed headcount review is being initiated with immediate effect. Vistry will provide an update on headcount reduction in its next trading update that is scheduled for 9 November 2023; and

·    the Combined Group would initially maintain Vistry's existing policy of paying out a two times ordinary dividend cover in respect of a full financial year, however Vistry may, in due course following completion of the Combination and a period of integration, review the Combined Group's capital allocation policy to confirm whether it remains appropriate in the context of the Combined Group and in consultation with shareholders.  The result of that review and the Group's revised dividend and capital allocation policy is set out above (see "capital allocation")

The revisions above and change in strategy above does not impact Vistry's fundamental rationale for the Combination.

This announcement is required under Rule 19.6(b) of the Code. Capitalised terms used but not defined in this section of this announcement have the meanings set out in Countryside's scheme document dated 7 October 2022.

This announcement contains inside information. The person responsible for arranging the release of this announcement on behalf of Vistry is Clare Bates, General Counsel & Company Secretary.

Vistry's legal entity identifier is 2138001KOWN7CG9SLK53.

 

Financial review

Group performance

Despite the backdrop of challenging market conditions, the Group has delivered results in line with expectations in the first six months of the year.

 

Completions	H1 23	H1 22	Change
Housebuilding	2,847	3,219	-11.6%
Partnerships Mixed Tenure	3,203	1,106	+>100%
Total Group Completions	6,050	4,325	+39.9%
Partner Delivery Equivalent Units	1,093	1,084	+0.8%

 

During the year, the Group delivered 6,050 legal completions (H1 22: 4,325), including 100% of JV completions, down 9.7% on proforma⁴ H1 22 (6,698).

4 Proforma completions and revenue are calculated using published data for Vistry and management information for Countryside, and represent the Vistry Group period of 1 January 2022 to 30 June 2022.

Total adjusted revenue, including share of joint venture revenue, was £1,777.1m, 31.4% higher than prior year (H1 22: £1,352.5m).  Total adjusted revenue was down 12.9% when compared to proforma H1 22 (£2,039.6m).  The average selling price ("ASP") across the Group was £283,000, a decrease of 4% on the prior year, due to a change in mix towards lower ASP Partnership completions.  On a reported basis, revenue was £1,575.3m, 32.7% higher than last year (H1 22: £1,187.2m), driven by a 39.9% increase in legal unit completions compared to the prior year.

The Combination drove a step up in adjusted gross profit in H1 23 to £322.5m (adjusted gross margin: 18.1%) from £280.5m in H1 22 (adjusted gross margin: 20.7%), with the lower gross margin due to an increased proportion of multi-unit deals within Housebuilding and a greater contribution from Partnerships, which has a lower gross margin.

In early 2023, the Group has seen the availability of building materials return to pre-pandemic levels, accompanied by a softening in overall build cost inflation. The revised Group purchasing agreements have provided protection against material price increases, benefitting from the increased scale of the business following the Combination.

The Group delivered an adjusted operating profit for the period of £206.7m (H1 22: £198.2m).  The year-on-year increase in adjusted operating profit has been driven by the Combination with Countryside, largely offset by reduced volumes and margins within Housebuilding. Adjusted operating margin was 11.6% (H1 22: 14.7%).

Adjusted profit before tax was £174.0m (H1 22: £189.9m).  In the period, year-on-year finance costs are higher, reflecting increased discounting and lease interest following the Combination and higher bank interest costs due to higher debt and interest rates.  Adjusted profit after tax fell to £132.1m, impacted by an increase in the effective tax rate to 27.2% (H1 22: 22.2%).

On a reported basis the Group saw a profit after tax of £83.2m (H1 22: £86.6m), comprising operating profit of £121.2m (H1 22: £89.3m) after exceptional costs of £35.6m (H1 22: £71.4m), net financing expense of £27.7m (H1 22: net financing income £1.0m), share of joint venture profit of £20.8m (H1 22: £21.0m) and a tax charge of £31.0m (H1 22: £24.7m).

 

Partnerships performance

	H1 23	H1 22	Change
Mixed tenure	2,637	643	+>100%
Mixed tenure JVs (100%)	566	463	+22.2%
Total mixed tenure completions	3,203	1,106	+>100%
Partner delivery units	1,093	1,084	+0.8%
Adjusted revenue	£953.6m	£426.2m	+£527.4m
Adjusted operating profit	£109.3m	£43.6m	+£65.7m
Adjusted operating margin	11.5%	10.2%	+1.3ppts
TNAV2	£762.2m	£118.2m	+>100%

 

Partnerships completed a total of 3,203 units (H1 22: 1,106 units) from its mixed tenure operations (including 100% of JVs), with an average selling price of £253,000 (H1 22: £251,000).Partner delivery revenue generated equivalent units of 1,093 (H1 22: 1,084).  Mixed tenure completions were up 5.7% on proforma H1 22 (3,031), with adjusted revenues up 7.1% on proforma H1 22 (£890.4m).  The Partnerships business operated from an average of 83 active mixed tenure sites in H1 23 (H1 22: 30).

The mix of revenue has shifted towards mixed tenure developments following the Combination with Countryside.  Of the £953.6m total Partnerships revenue, 73.3% derived from mixed tenure (£698.9m) with 25.5% (£243.0m) from partner delivery projects, compared with 51.4% deriving from mixed tenure in H1 22 (H1 22: total £426.2m, partner delivery: £203.7m, mixed tenure: £219.1m, other: £3.4m).  The remaining 1.2% of turnover was delivered through other revenue streams, such as commercial activity and land sales.

The Partnerships business has experienced similar build cost movements to Housebuilding and has been able to mitigate pressures through strong supplier relationships, by matching cost arrangements to pre-sale pricing arrangements.

Housebuilding performance

	H1 23	H1 22	Change
Private	1,417	1,816	-22.0%
Affordable	751	643	+16.8%
JV's (100%) Private	550	639	-13.9%
JV's (100%) Affordable	129	121	+6.6%
Total completions	2,847	3,219	-11.6%
Adjusted revenue	£823.5m	£926.3m	-£102.8m
Adjusted gross profit	£163.3m	£207.7m	-£44.4m
Adjusted gross margin	19.8%	22.4%	-2.6ppts
Adjusted operating profit	£117.9m	£170.0m	-£52.1m
Adjusted operating margin	14.3%	18.4%	-4.1ppts
TNAV5	£1,787.4m	£1,467.5m	+21.8%

⁵ TNAV represents tangible net asset value and is calculated as net assets, less goodwill, intangible assets, cash and debt

 

Total completions in Housebuilding (including 100% of JVs) decreased by 11.6% to 2,847 units, impacted by a challenging market environment.  These included 880 affordable homes representing 31.0% of total completions (H1 22: 764 affordable homes, 24% of total completions).

Housebuilding pricing remained firm with a 4.9% increase in average private sales price to £387,000 (H1 22: £369,000).  However, the total average sales price remained broadly flat at £316,000 (H1 22: £317,000) due to the increase in the proportion of affordable homes and multi-unit sales.  The average number of active sites in H1 23 was 137, which is broadly in line with the previous year and as expected.

Housebuilding adjusted gross profit of £163.3m and adjusted gross margin of 19.8% reduced from H1 22 (adjusted gross profit: £207.7m, adjusted gross margin: 22.4%), driven by increased levels of multi-unit sales, compounded by the sell through from the lower margin of Countryside's Legacy Operations which transferred to Housebuilding at the start of the period.

Housebuilding adjusted operating profit of £117.9m has reduced by 30.6% from the same period last year (H1 22: £170.0m) with adjusted operating margin also reducing to 14.3% (H1 22: 18.4%).

Finance costs

The Group's net financing expense during H1 23 was £27.7m, compared to a net finance income of £1.0m during H1 22. On an adjusted basis, excluding exceptional interest costs and including the Group's share of net joint venture interest, the net financing expense during H1 23 was £32.7m, compared to £8.3m in H1 22. The primary components of the net financing costs are:

 

	H1 23	H1 22	Change
Bank interest	(£18.5m)	(£6.3m)	-£12.2m
Other net finance costs	(£6.9m)	(£2.7m)	-£4.2m
Net JV interest	(£7.3m)	£0.7m	-£8.0m
Total adjusted finance costs	(£32.7m)	(£8.3m)	-£24.4m

 

Bank interest has increased as a result of increased average month end net debt during H1 23 of £360.1m compared to £129.2m in H1 22, which is as a result of the Combination and due to the rising interest rates on the Group's variable borrowing facilities.

Other net finance costs include imputed interest on land creditors of £5.2m (H1 22: £2.3m), as well as interest on lease liabilities of £2.5m (H1 22: £0.4m), offset by interest income on pension assets of £0.8m (H1 22: £nil).  The significant increase in interest on land creditors and lease liabilities is due to the acquisition of Countryside in H2 22 and therefore the recognition and interest on the acquired land creditor and lease liability balances.

Net JV interest represents the interest income earned on loans made to joint ventures, the Group's share of JV interest expense, net of any provisions against interest income. Net JV interest has increased year-on-year by £8.0m driven by an additional £3.0m from JVs acquired as part of the Combination and increases to interest rates on externally held debt within JVs.

Taxation

The Group's effective tax rate for FY 23 is expected to be 27.2%, up from 17.4% in FY 22, principally due to higher statutory rates. The effective rate includes nine months of the higher Corporation Tax rate of 25% being introduced in April 2023 (previously 19%) and a full year impact of the RPDT of 4%, introduced in February 2022.

The Group has recognised a tax charge of £31.0m for H1 23 (H1 22: £24.7m).

Adjusting items

The Group manages the business by focussing on non-GAAP measures, which we refer to as adjusted measures, as we believe they provide a better comparison of underlying performance measures from one period to the next. GAAP measures can include one-off, non-recurring items and recurring items.

The Group's share of revenue, gross profit and operating profit from joint ventures and associate is included within the respective adjusted measures in order to more accurately reflect the full scale of the Group's operations and performance.  At an adjusted revenue level, revenue recognised on transactions with joint ventures is eliminated. The impact of these transactions at a gross profit level is insignificant to the Group.

The adjustments made to performance measures include the following items:

- Exceptional costs of sale of £12.2m relating to fire safety, driven by a £18.4m expense for second staircase regulatory change, partially offset by a £6.2m release of unused provision (H1 22: £71.4m additional provision recognised)

- Exceptional administrative costs of £16.0m relating to the integration and restructuring of the Group following the Combination in November 2022 (H1 22: £nil)

- The amortisation of acquired intangible assets of £23.1m (H1 22: £7.1m)

- Interest expense on the fire safety provision of £7.4m (H1 22: £nil)

- Tax of £1.1m recognised on share of joint ventures' results within reported profit before tax (H1 22: £nil)

Fire safety provision

As part of the Group's commitment to fire safety, at 31 December 2022 the Group held a total provision of £309.2m on the balance sheet, having signed up to the Government's Developer Remediation Contract.

The Group has spent £10.9m during the period on fire safety remediation works on legacy properties (H1 22: £2.4m).  A combined portfolio of 317 buildings is provided for in respect of fire safety costs for multi-occupancy buildings, with remediation works complete on 75.  Works are currently continuing on 41 sites and engagement with building owners on the remaining 201.

Following the December 2022 Government announcement detailing the requirement of a second staircase on residential buildings over 30 metres tall, in March 2023 a number of key organisations within the construction industry, along with key stakeholders in the Government's fire safety consultation, submitted a joint letter to Michael Gove MP calling for the height threshold to be reduced to 18 metres, this was confirmed in July 2023.

Management conducted a full review that identified two schemes that were no longer viable, as a result of the significant costs and loss of revenue due to the regulatory change and has written off £6.1m of inventory relating to these sites.  An additional two schemes have now become loss making and due to the committed nature of these sites, the Group has recognised a £12.3m increase in the fire safety provision.  The impact of these has resulted in a £18.4m exceptional expense being recognised by the Group in H1 23.

After further movements of £1.2m for the unwind of discount netted off with the release of unutilised provisions, the Group's closing provision for fire safety works was £311.8m at 30 June 2023.

The expected spend for the second half of the year is £35m as the Group continues its preparation and mobilisation works ready to be on-site and actively remediating on another 40 additional sites in FY 24.  In FY 24 we expect to spend £60m, including £10-15m on Building Safety Fund ("BSF") payments.

Acquisition accounting

The acquisition accounting in relation to the Combination has been updated during the first half of 2023 and will be concluded by 11 November 2023.  This is in line with IFRS 3, which allows up to 12 months from the date of acquisition to complete the fair valuation exercise.  The final acquisition balance sheet will be disclosed in the FY 23 Annual Report and Accounts.

These fair values have been amended during H1 23 to reflect the impact of new information that became available in the period, which has resulted in a £22.8m increase to goodwill from £257.3m at 31 December 2022 to £280.1m at 30 June 2023.  This £22.8m increase to goodwill primarily arose due to a full write-down of inventory at one particular site which has now been deemed unviable due to a significant increase in cost estimates which were underestimated at the time of the Combination.  The corrected cost to complete resulted in a net cash outflow to complete the site as well as a significant capital lock-up, and this site would therefore not be progressed by a market participant.

The fair value exercise has allocated the purchase price of Countryside of £1,137.0m as follows: inventories of £768.8m, investments, right of use assets and PP&E of £139.7m, intangibles such as brands and relationships of £349.1m and goodwill of £280.1m, less £208.9m of provisions and £191.8m of net working capital and other items, including cash and deferred tax.  The total fair value adjustments, from the date of the Combination, which will unwind to underlying earnings is a credit of £129.9m, and this will unwind predominantly in cost of sales over the next 6 to 8 years.

Net assets

		H1 23	FY 22	Change
Goodwill and intangibles		£1,260.9m	£1,260.7m	+£0.2m
Tangible net assets excluding investments in joint ventures and associate		£2,039.2m	£1,617.1m	+£422.1m
Investment in joint ventures		£253.1m	£253.7m	-£0.6m
Net (debt)/cash		(£328.7m)	£118.2m	-£446.9m
Net assets		£3,224.5m	£3,249.7m	-£25.2m

 

As at 30 June 2023, net assets of £3,224.5m were £25.2m lower than at the start of the year.  Net assets per share were 929p (FY 22: 937p).

Goodwill and intangibles totalled £1,260.9m at 30 June 2023 (FY 22: £1,260.7m) driven by two offsetting movements - the recognition of £22.8m of additional goodwill, offset by amortisation of intangibles in the period.  Goodwill has been reallocated in the period following the reorganisation of the Group's segments and integration of the former Countryside segment into Partnerships and Housebuilding. All of the former Countryside goodwill has been reallocated to Partnerships.

Tangible net assets, excluding investments in joint ventures, increased from £1,617.1m at 31 December 2022 to £2,039.2m at 30 June 2023, primarily driven by an increase in inventories of £354.0m.  The increase in inventories reflects the Group's movement towards mixed tenure developments in Partnerships, investment in new sites to support the Group's growth plans, as well as the expected half year peak due to the Group's completion profile across the year.

Current trade and other receivables increased by £113.5m to £563.0m, primarily driven by increased delivery of affordable and contracting revenues in the month of June 2023 compared to December 2022.  Trade and other payables increased by £25.9m to £1,793.1m during the same period.

Cash flow and financing

As at 30 June 2023, the Group's net debt balance was £328.7m (FY 22 net cash of £118.2m), representing an outflow of £446.9m.

Having delivered £174.0m of adjusted profit before tax, the Group invested a net £401.5m in work in progress, land and investment in joint ventures, as a result of the move towards mixed tenure sites in Partnership and to support the continued growth of the Group.

Other working capital items drove a £48.7m outflow predominantly driven by the receivables profile relating to affordable and contracting revenue which is greater in June 2023 than it was at 31 December 2022.

The Group spent a combined £60.3m on fire safety works, tax and costs relating to the Combination and ongoing integration.

As declared in March 2023, the Group paid out £110.4m in dividends.

The Group's borrowing facilities include a £400m Acquisition Term Loan, a £500m Revolving Credit Facility (RCF), £100m US Private Placement (USPP), an overdraft of £5m and a Homes England loan facility of £10.7m.  These external funding facilities total £1,015.7m (H1 22: £665.7m) at 30 June 2023.  In addition to the acquisition of Countryside, these facilities are used to fund intra-period working capital movements and land investments with average monthly debt for H1 23 of £360.1m. With the exception of the USPP, all of the Group's borrowing facilities have variable interest rates.

Shareholder distributions

The Group intends to sustain a 2.0 times adjusted earnings ordinary distribution cover in respect of a full financial year, with such distributions made though either share buybacks or dividends.

Reflecting the Board's view that Vistry is significantly undervalued, the Group has announced an initial share buyback of £55m to commence in November 2023 and to be completed ahead of the announcement of the Group's full year results in March 2024.  The buyback is an ordinary distribution to shareholders, in lieu of an interim dividend payment, reflecting the Group's updated capital allocation policy.

 

Land bank

Partnerships land bank

Land Activity	H1 23	H1 22
Owned plots acquired	1,968	552
Controlled plots added	1,880	1,614
Closing Land Bank	H1 23	FY 22
Owned and controlled	25,494	29,104
JV Owned and controlled	20,884	19,475
Total plots in land bank inc. joint ventures	46,378	48,579
Average selling price inc. share of joint ventures	£322,000	£325,000
Average consented land plot price	£37,000	£41,000

 

The Partnerships land bank including joint ventures as at 30 June 2023 consisted of 46,378 plots across 203 sites.

The 3,203 mixed tenure plots that legally completed in the period were partially offset by the acquisition of 1,968 owned plots on 5 sites.  In addition, 1,880 plots were secured on a controlled basis on 6 sites. Of the 1,968 owned plots, 245 were sourced strategically.  All sites acquired for Partnerships will support future returns on capital employed for the segment in excess of 40%.

The average selling price of all units within the consented land bank decreased over the period to £322,000 (FY 22: £325,000).  The estimated embedded gross margin in the land bank as at 30 June 2023, based on prevailing sales prices and build costs, is 18.4% (FY 22: 19.4%).

Housebuilding land bank

Land Activity	H1 23	H1 22
Owned plots acquired	1,781	2,852
Controlled plots added	932	508
Closing Land Bank	H1 23	FY 22
Owned and controlled	23,967	26,016
JV Owned and controlled	6,233	6,747
Total plots in land bank inc. joint ventures	30,200	32,763
Average selling price inc. share of joint ventures	£340,000	£346,000
Average consented land plot price	£60,000	£57,000

 

The Housebuilding land bank, including joint ventures of 30,200 plots as at 30 June 2023, represents c.3.9 years of supply based on proforma 12-month completion volumes to 31 December 2022 (FY 22: 32,763 plots and c4.1 years).

The 2,847 plots that legally completed in the period were replaced by a total of 2,713 plots from a combination of site acquisitions representing 1,781 owned plots and a further 932 plots secured on a conditional basis, across a total of 12 sites.  Of the 1,781 owned plots, 1,012 were sourced strategically.

The average selling price of all units within the consented land bank decreased in the half to £340,000 (FY 22: £346,000). The estimated embedded gross margin in the consented land bank as at 30 June 2023, based on prevailing sales prices and build costs, is 21.2% (FY 22: 23.6%).

Strategic land

As at 30 June 2023	Total sites	Total plots
By size
0 - 150 plots	73	6,362
150 - 300 plots	56	12,612
300 - 500 plots	25	10,245
500 - 1,000 plots	14	9,763
1,000+ plots	17	27,207
Total	185	66,189
By planning status
Planning agreed	17	9,372
Planning application	33	7,114
Ongoing application	135	49,703
Total	185	66,189
As at 31 December 2022	167	65,813

 

Strategic land refers to land which does not yet have planning consent and which the Group is or will progress through planning and promotional processes before development.  Once planning consent has been obtained, the land becomes consented. Strategic land continues to be an important source of supply and during the period 1,257 plots have been converted from the strategic land pipeline into the consented land bank.  Planning consent or Resolution to Grant gained on 1,169 plots during the period, with 5 further planning applications submitted over 1,133 plots and 2 planning appeals over 310 plots.

Risks and uncertainties

The Group is subject to a number of risks and uncertainties as part of its activities.  The Board regularly considers these and seeks to ensure that appropriate processes are in place to manage, monitor and mitigate these risks.

The Directors consider that the principal risks and uncertainties applicable to the Group at H1 23 are consistent with those disclosed in the Group's Annual Report and Accounts, page 58.  There have been no changes to these risks identified during H1 23.

The market conditions continue to be challenging in H1 23, heightening the risks associated with the economic and sales environment.  The announcement of the second staircase regulations have highlighted the potential impact of legislation, planning and building safety risks. In addition, we are mindful of an increased risk of insolvency amongst the supply chain, which as of now has not impacted our build programme but is being carefully monitored.  The Group's principal risks are reviewed and monitored regularly with any required mitigations being actioned where appropriate.