Interim Results for the Six Months Ended 30 June 2018

Continued strong financial performance combined with investment for future growth

Financial highlights

• 12% increase in core and joint venture completions to 1,493 homes (H1 2017: 1,336 homes)
• 6% increase in average selling price (ASP) to £248,000 (H1 2017: £235,000)
• 11% increase in operating profit to £70.5m (H1 2017: £63.5m)
• 80 basis point improvement in operating margin to 19.8% (H1 2017: 19.0%)
• Return on underlying capital employed (ROCE) of 31.7% with c4,500 plots acquired in last 12 months
• Forward sales at record levels of £345m and 23% ahead of last year 

Disciplined approach to land investment

• 10% increase in owned landbank to 9,238 plots (Dec 2017: 8,364 plots) further supported by 3,230 controlled plots (Dec 2017: 5,374 plots) resulting in an overall consented landbank of 4.5 years’ supply
• 5% increase in the strategic landbank to 17,467 plots (Dec 2017: 16,561 plots)

Operational initiatives to drive performance

• HBF National New Home Customer Satisfaction Survey 5 star rating awarded
• Online reservations launched – an industry first alongside an enhanced website for mobile users
• Product and specification review undertaken benefiting build costs from 2019 onwards
• Interim review by Investors in People commended our sales and construction pathways focused on training and developing our workforce across these disciplines

Strategy in place to continue UK geographic growth

• West Midlands region launched and is on track to deliver over 300 units in 2018 and in excess of 400 units in 2019
• On track to deliver our strategic target of 4,000 homes by 2021

Senior management appointments to drive future growth

• Scott Chamberlin appointed as Divisional Managing Director, Strategic Land – previously Managing Director of MJ Gleeson Strategic Land
• Stewart Lynes, Divisional Managing Director of Scotland given extended responsibility for the North of England Division

Chris Endsor, Chief Executive, said:

“I am delighted to report that Miller Homes has again achieved significant growth in the first half of 2018 with volumes up 12%. Our focus is on delivering on our strategic targets to increase our regional geographic penetration providing our customers with quality homes whilst improving margins and overall profitability.

Our regional proposition continues to provide favourable trading conditions both in relation to the sales market and land buying opportunities.  Whilst there are no signs that Brexit concerns are yet weighing on our customers’ minds, it would nonetheless be welcomed to receive clarity as March 2019 fast approaches. 

We continue to invest significantly in our landbank, our people and additionally in new initiatives, which will provide our customers with on line and mobile services, designed to enhance the home buying experience. With record forward sales numbers, we are well placed to deliver excellent full year results.”

Chief Executive’s Review

Overview

We are delighted to report that during the first six months of 2018, the Group continued to deliver growth and improvements across a number of our key metrics: operating profit increased by 11% to £70.5m (H1 2017: £63.5m), whilst our operating margins were improved by 80 basis points to 19.8% (H1 2017: 19.0%) and underlying ROCE was 31.7% (Dec 2017: 33.0%) which whilst down on last year reflects significant land investment in the period.  We continued to increase the average selling price (ASP) up from £235,000 to £248,000 and increased core and joint venture completions by 12% to 1,493 units (H1 2017: 1,336 units)

We have maintained our rigorous approach to land selection, whilst at the same time increasing our investment in new land which led to a 10% increase in the owned landbank with all sites which benefit from an implementable planning permission being developed.  We remain committed to growing the Group’s presence in strategic land and this has led to a 5% increase in the strategic landbank to 17,467 (Dec 2017: 16,561) as well as expanding the resources and talent within the strategic land team.

Our strategic aim, which we outlined last year, is to achieve a target of 4,000 units per annum, a 50% increase on 2017 levels.

Market conditions

There remains an underlying demand for good quality new housing throughout the UK, which continues to be stimulated by the Help to Buy government initiative and a low interest rate environment despite recent upward movements.   Across our regional markets we are experiencing modest rates of house price growth and cost inflation.

Financial results

Revenue for the half year to 30 June 2018 was 7% ahead of 2017 at £356.1m (H1 2017: £334.1m). This reflected a combination of a 7% increase in core completions to 1,393 units (H1 2017: 1,302 units) and a 6% increase in average selling price (“ASP”) to £248,000 (H1 2017: £235,000).

During the first six months of 2018, we have seen a 3% decrease in our private sales rate to 0.77 net reservations per site per week (H1 2017: 0.79) with the prior year figure being a record for the Group.

We continue to utilise the Help to Buy schemes in both England and Scotland, and combined they represented 35% (H1 2017: 35%) of private completions. Sales to first time buyers were 29% (H1 2017: 36%) of private completions and we continue to have a very low exposure to the investor market at 3% of overall completions (H1 2017: 4%).

Gross profit increased by 9% to £90.1m (H1 2017: £83.0m). Gross margin in the six months ended 30 June 2018 was 25.3% (H1 2017: 24.8%), a 50 basis point increase. Operating profit has increased by 11% to £70.5m (H1 2017: £63.5m). Operating margin stands at 19.8% (H1 2017: 19.0%).

Net financing costs in the six month period ended 30 June 2018 increased by £19.3m to £24.2m. The year on year movement reflects the change in the debt structure in October 2017. The interest charge includes £7.1m relating to the shareholder loan notes which is a non cash item in the period.  

Balance sheet

Capital employed increased to £638.4m (Dec 2017: £609.7m), of which £146.2m relates to intangible assets established following the acquisition by Bridgepoint. The increase in capital employed reflects higher net inventory which has risen by £38.0m to £554.1m (Dec 2017: £516.1m).

During the period, the Group acquired 14 sites adding 2,425 plots to the owned landbank. The owned landbank at 30 June 2018 has increased to 9,238 plots with a gross development value of £2.4bn.

The owned land bank has increased principally due to the pull through of land from the controlled land bank. This has in turn resulted in a reduction in the controlled landbank and the consented landbank which has decreased by 9% to 12,468 plots (Dec 2017: 13,738 plots). Based on the last 12 months’ completions of 2,789 units, this represents 4.5 years’ supply.

Net external debt has fallen by £16.0m during the six month period to £287.4m (Dec 2017: £303.4m).In June 2018, £20.0m of the secured notes were bought back and subsequently cancelled.

Operational management expansion

Late in 2017 John White joined as non-executive Chairman.  He has extensive experience in the housebuilding industry having been Chairman of Persimmon and McCarthy & Stone.

During the six month period, we have continued to strengthen the operational team and have recently appointed a divisional managing director for Strategic Land, Scott Chamberlin, who was previously managing director of MJ Gleeson Strategic Land.

We have also continued to focus on supporting our growth plans throughout the regions with Stewart Lynes, managing director of Scotland, now also assuming responsibility for the North of England. 

Current trading and outlook

We are entering the second half of 2018 with record forward sales for the following 12 months of £345m, which is 23% ahead of last year.

Although there is little clarity as regards the potential impact of Brexit, we are experiencing demand for high quality homes at good prices.  This is supported by the continued shortage of new homes and supportive Government stimulus which is providing growth in the new homes sector in contrast to the more subdued second hand market. 

We believe we are on track to deliver our strategic aim of building 4,000 homes per annum by 2021.