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Vistry eyes recovery after baptism of fire

8 Sep 20 The Covid-19 lockdown coupled with the initial costs of integrating Linden Homes pushed Vistry Group into a loss for its first six months of trading.

Vistry was created by Bovis' acquisition of Linden Homes and Galliford Try Partnerships
Vistry was created by Bovis' acquisition of Linden Homes and Galliford Try Partnerships

Vistry Group was created from the merger of Bovis Homes and the house-building activities of Galliford Try. Bovis paid Galliford Try £1,253.7m including £398.3m in cash and £855.4m in shares. The deal completed on 3rd January 2020.

For the six months to 30th June 2020, Vistry Group made an operating loss of £9.7m and a pre-tax loss of £12.2m on revenue of £606.4m

Exceptional costs of £15.4m have been recognised in the income statement relating to the acquisition, primarily driven by redundancy costs, lease costs on closed offices and rebranding.

There were also £10.2m of costs directly related to Covid-19. (Vistry received £6.3m in relation to furlough claims from the government's coronavirus job retention scheme but is paying it back in the second half of the year so this income in H1 will be reversed in the H2 accounts.)

However, the company is now motoring again and expects to make nore than £130m pre-tax profit for the full year.

While the acquisition of Galliford Try Partnerships (now Vistry Partnerships) and Linden Homes was costly, it is also proving transformative and integration is ahead of plan. The synergy benefits from the combination are expected to total £44m, £9m ahead of the initial £35m target; £20m of this is expected in 2020.

In the first half of 2020 Vistry’s Housebuilding division delivered 1,235 units, which because of Covid-19 is a lot less than the two companies previously managed last year (2019 H1 proforma: 3,371 units). Revenue from Housebuilding activities in the period was £349m (2019 H1 proforma: £854m).

Vistry Partnerships, which builds for third party clients primarily in the public sector, was much more insulated however. It returned to site after lockdown earlier, underpinned by the certainty of pre-sold developments and contracting revenues.

Half-year revenue from Vistry Partnerships totalled £311m (2019 H1 proforma: £338m), a more modest decline.

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Vistry Partnerships delivered a total of 489 units (2019 H1 proforma: 574), resulting in revenue from mixed tenure housing of £88m (2019 H1 proforma: £94m).

Contracting revenue totalled £223m (2019 H1 proforma: £244m) with equivalent units of 1,3101 (2019 H1 proforma: 1,140). 

Vistry Partnerships is targeting annual revenues of more than £1bn and a margin in excess of 10% by 2022, driven by a rapid increase in higher margin mixed tenure revenues to 50% of total Partnerships revenues.  The operating margin for mixed tenure development ranges from 11% to 18%.

The group started 2020, just before the Galliford Try deal, with £362m net cash. Group net debt at 30th June was £357m. However, this was more than £100m lower than the board’s expectations at the start of the pandemic, reflecting the earlier return to site for the Partnerships business. There is also plenty of headroom. Vistry has committed banking facilities totalling £770m.

Business is beginning to get back to normal; production capacity is near to normal levels and sales rate are 20% higher than this time last year. As a result, full year profit before tax for 2020 is expected to be in the range of £130m to £140m, rising to ‘at least’ £310m in 2021, assuming stable pricing and current sales rates and productivity levels.

Chief executive Greg Fitzgerald said: "We moved quickly to integrate Linden Homes and Vistry Partnerships at the start of the year.  It has been a successful process bringing together the best from each business, with the benefits from the combination expected to be ahead of our initial target.  We have achieved this whilst maintaining our focus on delivering excellent service to our customers.

"Housebuilding's first half performance was significantly impacted by the lockdown and resultant site closures.  Vistry Partnerships demonstrated its market resilience and robust revenue model and led the group to an early successful return to site, with production levels across the group now back at near normal levels.

"We have seen positive sales trends since early May, with consumer interest higher than at any time in recent years.  Our sales rate in the second half to date is running 20% ahead of last year at 0.73, and pricing remains robust.  The group is well positioned to capitalise on the opportunities available in the second half and into 2021 when we expect to deliver a step-up in completions and profitability, a reduction in gearing and a return to dividend payments."

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