Good afternoon, everyone, and thanks for joining us for this fireside chat with Glenveagh Properties. I'm delighted to be joined by Glenveagh's CEO, Stephen Garvey. Over the next 30 minutes, we're planning to cover most important themes in the market, and some of the more important topics for Glenveagh as well. Just for your own reference as well, if you're looking to add a question to the list here, you can still do so. If you could email me the email address in the top right-hand corner of the screen, and I'll try to get to that towards the end, if we have time. So, we've got about 30 minutes here, so we're limited on time. We'll kick off straight away. Stephen, thanks very much for being here.
Thank you for having me.
Just starting with the market, maybe, looking at your order book, the progress over the last couple of months, the nice uptick that you've seen there. Probably no surprise that we're in a strong market right now, but maybe you can give us a little bit of a feel for how things are progressing in different tenures and maybe across price points as well.
Sure. As we called it in our statement last week, we, we've seen our order book increase by about 20% in the just over two months, which is phenomenal progress, particularly as you're moving in through the summer. We're seeing a sales market that's definitely evolving to different dynamics. You're seeing house price inflation today come out, talking about 6%-7%, and we're seeing that particularly on our new homes market, that we're seeing really robust demand out there. And the majority of our developments are now selling on digital format, so the requirement of show houses are not required. We're seeing a really strong uptick, particularly in the Dublin market at this moment in time. We've really shifted a lot of our product towards the Dublin market, and we're seeing really robust demand out there.
Leads are holding really strong, and I think there's a number of dynamics. I think people feel more positive towards the interest rate cycle is probably moving in a downward spiral. Obviously, the macro- prudential rules got amended over a period of time. That's playing into the system as well. General confidence out there, and customers, they just want to get on with it, and they're looking for the best available product that's out there for them. So that's really robust. You're also seeing then the demand on the on the government side. So state agencies from probably the Approved Housing Bodies are at the front at the moment in the sense of particularly on suburban sites.
Then you've got the LDA playing a much bigger role, and then you've got the municipalities, the local authorities as well, starting to look for their tenure product and that. So on the tenure of affordable purchase, cost rental, social housing, really robust demand from a number of angles there. And the key thing is they're just looking for the supply as quickly as possible to come into the system, and you're seeing that come through. So yeah, good, good, and that pretty positive in the sense of where we have left to fill the order book for the back end of the year is quite limited at this stage. You know, we don't have a lot of product out there.
We're trying to manage as best as possible, trying to line customers up with completions as well into the back end of the year. And obviously, we're filling some of the order book into 2025. So yeah, pretty happy where things are.
You referred to the sort of 6%, 6%-7% inflation rate. Are there any particular pockets you're seeing now in areas where maybe there's headroom on the first home limits, or is it in different kind of categories?
Well, obviously, last week, I don't know if everyone's aware, but the First Home Scheme was amended again. So there were 13 regions that were amended, price movement up, kind of around EUR 25,000. Didn't affect many of our areas at this moment in time, but to give an example, in Dublin 15, where we would see the greatest demand at this moment in time, our core product is a two-bedroom house, three-bedroom house. You're priced there at around EUR 410,000 to about EUR 445,000 to EUR 465,000, depending on the product, and the pricing there is about EUR 475,000. So you're seeing that real demand now. We're seeing a shift. Interesting, we're starting to see single people come into the market, where the First Home Scheme is starting to make a difference to them.
So if you take a two-bedroom home, EUR 410,000, if you're availing at 30%, you probably need a salary of EUR 70,000 now to get that on a single person. So the stride to get to that is becoming greater. There's just more demand on the ground. We're really seeing the Dublin market. And I suppose we've had a big shift. A lot of our schemes this year and into next year are now Dublin-focused, and we're seeing that really strong, particularly where we have our standardized product, where we have our one, two, three, and an element of four beds. Real strong demand across that, and people are just looking to get access as quickly as possible. So really happy where things are at this moment.
I suppose some of the indicators are showing that there's been a reasonable supply response at this point in time, but the backdrop still seems to be a huge excess of demand, ultimately.
Yeah, I look at it this way. There is absolutely. We've probably commenced in the last 12 months, 50,000 units. Obviously, this is the incentive there with the levy, a lot of commencements in the month of April. When you look under the data, I think that's the key thing, is what exactly is being started? So you've seen absolutely apartments, a large portion of that, a lot of that is going towards the state. But the actual own-door housing, the amount of that, that's developed is actually quite limited. So yes, we've seen an uptick, but as a percentage, it's probably been the apartments that that's been doing the biggest lift. When you look on the ground, the availability of suburban product, there hasn't been a massive uptick because the availability is quite limited.
There's certainly been a sea change in apartments, but the problem, they're predominantly going back to the state through various tenures.
With that uptick in activity, any changes on the build cost inflation outlook?
... It's been pretty steady for the year. Labor is pretty good. We're not struggling at all to fill any contracts out there. The availability of labor, we probably accelerated a lot of programs last year to start on sites, and we're seeing the benefits of that. We're not seeing ourselves struggle with any subcontractors or contractors out there, so happy where that is. Probably a little bit of volatility in the commodity side still, and it's just working its way through, but overall in a pretty good place that, you know, the labor side seems really good. And obviously, the, there's going to be a little bit of volatility in the- but that's things that are outside of our control, can be due to external markets. But no, we're pretty happy.
We're obviously seeing the benefits of the commercial market unwind a bit, so the availability of labor, supply chains, and that, that's freeing up a bit of bit of capacity in there.
Understood you. I think one of the interesting points from, from last week's, you flagged that you're kind of changing gears on, on land investments at this point in time. Can you talk a bit about what opportunities have actually arisen?
Yeah. I suppose just to give a bit of clarity, the business consistently brings land into the system. The normal way we would bring land in is we're trying to do deals subject to planning or options agreements, and we're still doing that, and we're still bringing land in that way. And some of the schemes that have started this year are working their way through the system. What we kind of wanted to call out was, what we're seeing at this moment in time is some strategic assets for us. So where we might be looking at 1,000 units, and we're looking at a few locations, particularly now where we know where policy is now going. And we've identified a number of them, and the normal investment might be somewhere between EUR 40- EUR 60 million in a year.
We might just step that up in this period of time. To give clarity to people, we might go up in spend, but we will come down over the medium term. So, you know, we were kind of saying we'd be at EUR 400 million by the end of this year. We might go up a little bit, but we'll come down over the, over the medium term. So it's, it's not a sea change in that. The strategic view of where we see things and how things are playing out is, there's a number of these assets that are in play at this moment in time. You've the unwind of NAMA, which is now happening. NAMA is to be done and dusted, and closed doors by probably June 2025, it's to be fully.
So you're gonna see a lot of activity on that side by the back end of the year. You're seeing people who, having the capacity and the capability to develop sites as well, family businesses that are probably winding down due to various things. And what we've looked at is, we're looking at maybe, say, a 1,000-unit site that's strategic for us, that has suburban outdoor product, but adjoining it is a partnership site. And what we're looking at is, as we've kind of always called this out, you're maybe paying 10% of GDV, so say EUR 35,000-EUR 36,000 a unit. But adjoining the site is a partnership site that when you amalgamate it, you're getting access to 1,500 units or about 23,000.
The thing that we have really seen as the year has evolved and with the ways policy is going, is the land investment is important. But the bigger aspect is the business, as we really scale up here, is the actual working capital. And the role the state can play in bringing the working capital to play is actually the thing that I'm more focused on because that's a game changer. You know, you're looking at 3,000 or 4,000 units a year, that's coming up to EUR 600 million, EUR 700 million, or EUR 800 million, depending on the product. But if the state can play a bigger role, that's where the capital efficiency could really accelerate for the business, and we're just seeing those opportunities. So I would say it's a medium-term thing to maybe look at one or two of these strategic assets.
I suppose what we wanted to do was flag it to the market that, you know, if we came out with something, that it was a surprise. We always have to invest in land, but we're seeing those opportunities, and I think really what it's going to do for the business is if we can take one or two of these down, it's the returns of the medium term could be ginormous out of these, and that's why we're attracted to them.
I mean, there's two angles on it. One is that the actual opportunity set, the amount of land that is coming to the market is larger, but it also plays directly into some of the your parts for business, like suburban and partnerships-
Yeah
... and maybe those operating as a more synergy type of house.
And we see that, like, if you look at our scheme in Balmoston, in Donabate, we have tenure there of cost rental, social, affordable, and private. People question whether it work together. It's working really, really well. We've seen robust demand on the private side. We've seen all the state tenure coming into play together. And I suppose the strategic view for the business, well, if we can amalgamate suburban and partnerships to work closer together, the economies of scale are just more greater. You know, you can run a site now at, instead of 100 units a year, you can run a site at 400 units a year. That has massive efficiencies, where land banks are adjoining, you can amalgamate them. You can do the master planning in one.
You'll have different tenures, but those economies of scale really come into play, and that's where we're probably seeing those opportunities. The other big benefit, and something we've... You know, partnerships has been a long way as gestation to get to where it is. It's now at full flight. As we call out the statement, ideally, we think we're probably on target to get 2 more partnerships by the end of the year, bring the business to about 3,000 units. The thing that we've really seen is, where land adjoins us and the state are players in it, the opportunities to fast-track that delivery become greater when you're the adjoining landowner, and I suppose that's the other opportunity that's at play as well.
That's something you've seen examples of where you've had suburban land and then had, I, I don't know, does it give you a foot in the door? Does it put you in a pole position? How would you-
It gives you the advantage to talk quicker. And as you know, we called out that we're now on the panel with the Land Development Agency. That opens opportunities to joint ventures automatically. Once you've passed the procurement process, which we have, and I suppose it expedites those conversations, whereas in Oscar Traynor Road, it probably took us three to four years to get to the end line. This can do this in maybe six to 12 months. That's a game changer. And I suppose we've called this out where we think the partnership business can go. We see it as a huge opportunity. The state are gonna play a pivotal role in housing going forward. Partnerships is going to be key to that.
If we can get our partnership business to something of a similar scale of where suburban is today, that's the opportunity that we see in front of us, and, and trying to expedite that goal.
I mean, you commented in the statement that the transactions will underpin long-term operational growth and optimal returns for shareholders. Clearly, there's uncertainty around whether or not these deals go ahead, but if you were to get a sort of satisfactory amount of that land, I know you commented on returns already, but how would you like to see the investment impact on those two metrics?
I think that, look, the main focus for us is driving. Obviously, gross margins is an element of it, but driving return on equity is the big thing for the business. I think we've tried to give a clear indication where we think the trajectory is now for the rest of the year, and we're very happy with that. I think there's a balance in the sense of two things. You can look at gross margin, but you can also look on return on capital employed or IRRs. We're certainly seeing the IRR model now tick up with it's particularly with the quantum of capital you can put into these deals. So that's giving us more optimism about pulling some of these deals down, what we can do. Very happy where our gross margins are.
As we've said, suburban margins ticking along, now expected to be well in excess of 20% in that trajectory. A lot of things have come into play with that in the sense of standardization, the optimizing and planning, all of that's at play. But then the flywheel is spinning much faster now, and we're getting those efficiencies or those economies of scale. When you blend that into the suburban with a partnership site, you know, it's getting that return on capital employed. If you could get that for both sites into a... And I'm kind of looking at it somewhere between 35% and 45%, because blending the both sites, there's added efficiencies. That really drives the business on, and that's where we're kind of focused, particularly where you can bring the working capital in with you.
Understood. And I suppose with the, with the potential of an increased investment of land, what's, what's the likely outlook now for shareholder returns for, for the rest of this year and maybe into, into next year?
So as we've said, the priority is obviously first, as with the capital allocation policy, very simple: land, work in progress, or WIP, and then obviously manufacturing. Ticking the last one, manufacturing, pretty happy where that is. Don't really need to do anything on that front at this moment in time. We're doing about 50 units out of the factory a week. Very happy with where that is. We may make small incremental investments down in the future. WIP, this comes into play with partnerships. The WIP is only starting to come through, and the cash flows of the partnerships now is starting to come through. It's been a bit slower than we would've liked. We would've liked to have been faster, but we know they're progressing really well, and we're happy where that is.
And then land, we've kind of said there might be one or two strategic assets that we do. I still think the business is well able to throw off a lot of cash flow into the H2 of the year, particularly what we've still to monetize. We haven't closed the door on it at all, and I think we were clear in the statement. We're just being prudent with what we want to do and how we want to do it, but the minute there's excess cash there, we will return to shareholders.
Understood. Ticking back to H1, there's probably a few fewer completions than you would've liked in H1 in terms of the mix and the overall. What was the driver of the any delays that might have been there, and how are you expecting that to unwind in H2?
So very simply, obviously, the urban product completed earlier during the H1 of the year, about 510 units in totality. Give or take, 300 units completed in the suburban. An element of the suburban just simply went to the right, that it was complete, but paperwork with government agencies, things like that, just didn't come through the system quick enough. So give or take, would've been much happier with about 100-150 units coming through. They're there. They're closing now. We're probably gonna close as much in the month of July as we did for the Q1 . So look, it's not a big issue for us to catch it up. Pretty happy where things are, and the machine is getting much better.
You, you've obviously flagged a really nice suburban margin increase as well in the statement. You did refer to a couple of different factors there, but what are the main drivers giving you that lift this year?
Obviously, there's an element of, I suppose we call this out probably 12 months ago, the ways we would manage our order book and how we would build our order book. I think we've managed that process way better in the last 12 months. So obviously, being able to catch an element of HPI, stock being much closer to being, you know, customer lined up with stock. We're much better at that. So happy with that. I think probably seeing our costs under more control, the manufacturing and standardization is playing a much bigger role. Economies of scale are coming into play. Where we're really seeing it is the big sites. The big sites are just outperforming and controlling costs now, so really happy with that.
Yeah, and I think, look, we're just in, we've been doing it for a number of years. We've got it fine-tuned. We're seeing land as a component, not shifting the dial like, so, you know, there, there's for what we're buying land at today, and obviously, what we can get out the door and what we can manufacture, but we're pretty happy where our margin progression can be. It has been a long time in the coming. I think the sea change you're seeing in the last 12 months is, the last number of years we've been dealing with sites where, in suburban site, where we bought planning permission and inherited the product. Now we're building our own product, and that's probably really been a big difference, I think.
Maybe following on from that, the manufacturing facility is obviously something that's really hitting in stride this year. How satisfied are you with the performance of those, and how much more is there to go?
Yeah, I, I think, you know, we're, we're the biggest timber frame manufacturer in the country at this point in time. We, we spent about somewhere EUR 40 million-EUR 45 million on, on getting it there. It's got it to a really good place. You know, the, the timber frame operation represents, give or take, 20-odd% of the superstructure, and we've that box ticked. We're happy with that. If we wanna go a bit faster, we can. It's not a huge job for us to add another 20-odd% to the system. We're, we're happy where things are. We might look at investing in new lines at point in time just to get more efficiencies. But to give an example, Dundalk this year is probably on track to produce, give or take, 1,000 units. In 2021 it was able to do 250.
Same team, same size. What they're really seeing in this thing that they call it is the standardized product going through the system. And we were looking at for a couple of weeks in production, where you'd have off standard product, they could do, say, 15-16 units. When standardized product goes into the system, it goes through the system at around 20-25, depending on the run of the week. So that's what we're seeing. So we're happy with that. Where we're looking at, and probably the focus is, go after the high-value items, the external clad, the roof system, the groundwork. They're the ones that we're kind of now high-value. You know, it's the 20% rule that remove 80% of the cost. They're probably the three or four items that we're probably now moving.
As you know, regulations are going to change now, so removing spoil off sites, there's a cost for that. That's gonna feed through. The whole thing now is how much can you control that you recycle and reuse on the site without removing it? And that's probably where we're focused at this moment in time.
Sure. Just coming back to the two partnership deals that you've now flagged over the last couple of months that have added so much to the pipeline on that business. Any chance you can give us a little bit more on maybe what the timeline is, whether to bring them into the business and maybe even to get into construction on those?
So we flagged, obviously, with the two Oscar Traynor Road, Balmoston, as it's named, give or take 2,000 units. We flagged one at AGM, and then we've obviously. One, the one at AGM is working its way through legals, and then obviously we're in advanced negotiations on, on a third one. Likely timing is, Q3 going into Q4. One of them already has permission on it, the other one has a phase of permission and pretty much not too far off our own stock. We'd like to be in a position, hopefully, maybe start construction probably very, very late in the year, but the thing is, they would feed into the system for 2025. So that's where we'll be.
And that coming back to the point you had made and previously made about the size of the partnerships business and how big it could be, clearly, any increased pipeline plays very much into what you can do on a volume basis going forward. So you still have conviction that that's the part of the business that's gonna provide the most incremental growth, maybe into the medium term?
Yeah, like, like I'd look at this very simply. We're nailed on, on the 2,000 suburban units, give or take, and, and we know we can do that. As I said, it's quite limited what you can add on in suburban, because the structure of the National Planning Framework and things like that. Where the real growth phase can be is obviously in the partnership side. I've kind of said that my view is that these are obviously big sites. They're, they're not small. So, you know, a site, in the partnership site could be the same as 2 or 3 ordinary sites. If we could get to a position, ideally, that we could have 8-10 of these on the go at any point in time, you obviously need to have a pipeline as well to feed into the system.
So you're very conscious of how to find the balance in that. But my view is, obviously, the returns are slightly different in the sense that there's more return on capital employed with a partnership site, but there's more gross margin with the suburban site. But try and get the best of both worlds, and if you can amalgamate these together, you know, I don't see why the business can't have 8, maybe 10 of these on the go at any point in time. They're a 300-400 unit site a year. They're gonna be a mix of, you're gonna have an element of suburban housing, but you're gonna have an element of urban housing.
I think your urban business is going to amalgamate into your partnership site, because if you logically think about it, the state has the best part of 150, I would say coming on 200,000 plots of land, because they're very active in the market themselves, identifying new locations. And I think the state are now very much wedded to the point that they're gonna put their capital in, they're gonna put their land in. And I think you're gonna see them play that role of they're, they're gonna be of the view that we're gonna do 10,000-15,000 of the 50,000 that has to be done a year, and we'll do that through those vehicles. So I think it's a, it's a big growth area for us, and I think we're best placed to do it.
Sticking with that urban side and maybe the amalgamation of it, you've obviously spoken about the two pre-funds. To what extent are you confident they will close before the end of this year? And I, I assume that they are state bodies of some sort as well.
Yeah, I know the state are playing the biggest role in the urban at this moment in time. I think that's when you see the commencement data, you see what's on the go with the state. I think, yeah, we're very confident that they will definitely be done. Ideally, we're trying to bring them in around September of this year. Obviously, getting on the panel with the LDA, fast forward to the likes of the Cork Docklands. We've always been crystal clear. I think the minister has come out and announced that before we were even talking about it, so that's progressing really well. And then, obviously, the other one is with one of the privatizing bodies. So yeah, happy where things are. I think they'll both be done for Q3, maybe start of Q4. I think that's where we think they'll be.
The net debt level at half year, probably higher than it has been in previous years. You've already spoken a little bit about the cash flow opportunities that there is in H2. Is there anything really that sticks out that's going to change that in the next few months?
Yeah, I think you have to look at what the business is doing this year versus last year, and okay, completions are pretty similar to what we were for last year. But remember, the business is just much bigger, and we're doubling the size of EPS here two times. It's a much bigger business. So I wouldn't be too worried about that. Obviously, massive cash flows into the H2 of the year. I think the business, as it evolves, and particularly the way the order book will go, how much will it be in state, private, et cetera, et cetera, you know, we can probably run an element of a higher level of debt at points in time. The business certainly can support that. So yeah, it's not a major concern for me.
Great. And, there's actually a couple of questions that have come in, so, I don't think any responsibility for these, but I'll go through them anyway. The first is, where would you like to provide return on equity, return on capital in the coming years? With a follow-up about what, where you'd like EPS to be as well. That's a good one.
I suppose I'll give you my best sense of where I think things are. Return on a deal with return on equity in the broader context of it. Return on equity, 15% was never a ceiling, but it was a big milestone to get to, particularly where the business was. We're thereabouts now, so really happy with that. And obviously, if you get the efficiencies into the business, there's two ways to go: make the business efficient, and we've shown how we can do that. We strategically might invest now for this moment in time to grow returns profiles, which obviously will feed into profitability as well. So I kind of think we've been crystal clear where we think the business can go.
The two fronts is the land bank will hover over the medium term, around the 400. We might go up slightly, but come back. But if we can get the working capital and the forward funding with the partnership side, really excel that and amalgamate some sites, you know, obviously, we can be more efficient on that side, and obviously, that drives the ROE. As we said, EPS, we're very happy with the EUR 0.17 for this year. I'd say a lot of the models probably had a buyback earlier in the year. Obviously, we're very comfortable we can get there without a buyback because of the difference it'll make at this stage of the year. So, you know, we've seen the progression of the profitability of the business. Long term, we think there's ability to grow.
As I say, that's why we're kind of our focus now is opening up those opportunities, particularly where we've seen the business excel, that can ultimately drive profitability for shareholder value over the long term.
The other question that came in, I think maybe picked up on the example of a site that you were talking about. Roughly, what's the ticket price for a 1,000-unit site, is the question, and then just asking whether the sites you're looking at are top planning.
'Cause they want all the answers for this one. I call out, and I'm just using it as an example. And strategic assets, as I said, they're big. They're big sites. They're not small, but we've seen that we'd see the benefits of it. To give an example of just one site that we're seeing on the ground in our own portfolio. We've a site in Dublin 15 where we're selling an average of about 10 units a week. We also have demand then from the state coming in with the tenure mix. On that site at the moment, at this point in time, we're... And it's not a state secret. I think, like Frank has been out about, vocal about this site. We're doing about 15-16 units a week, and that's it.
So these things make real, you know, they make a real difference, and that's probably running faster than, than should be expected. But if you were buying 1,000 units as the round number, give or take, 10% of NDV is around EUR 35,000 a site. But that's what people shouldn't focus on. It's actually bringing the partnership site to joining it with you and then bringing the working capital. That makes the huge difference. And that's why I say land is the irrelevant equation to this anymore. It's actually the working capital that's gonna move the dial from here on out, we think.
Yeah, understood. And maybe to finish off then, planning has been tricky in Ireland for a long time, and it's clearly something that you've been exposed to as well. Must be very pleasing to be able to come out and have most, almost all of next year's target already with planning in place. Where have you seen the improvements there, and what should we be looking for next on the planning side?
I think, you know, 2022 was a dismal year for us. We got not a single decision through An Bord Pleanála. It was the remnants of the SHD period that came in in 2016 or 2017, and obviously, the SHD process collapsed. In fairness to the government, they replaced it with LRD. I think the difference was we decided, you know, how frustrated we were in 2022, that we would go with LRD quickly, and we lodged into the system. You know, we got 4,000, 5,000, 6,000 units through last year. We've seen the momentum carry through, and I think An Bord Pleanála, the local authority has been crystal clear. LRD is the new process. Adapt to it, get on with it, and you'll get through the system.
You mightn't like every decision out of it, but the timelines are crystal clear now. We're also seeing, you know, where SHD was consistently exposed to judicial review, LRD is, is not. There is one or two that are obviously going through, but because it gets its airing through local authority process first, maybe FI or further information, then to the board, I think representation is much fairer, and I think the public accept, while there's been three bodies or two bodies, have now reviewed it and much happier with it. I mightn't fully agree with it, but I'm not gonna challenge it to the court. That's been a sea change. Obviously, the planning bill is going to come in probably to the back end of the year, potentially, whatever elements that will get enacted. The planning bill is going to obviously give more certainty.
It's going to control costs for traditional reviews. But I think the process, in fairness to what they've implemented, has taken the worst parts of SHD, thrown it in the bin, taken the best parts of the old system, amalgamated together, being very clear about it. The one thing, and we've encouraged the government to do, is resource the system. They have, in fairness, resourced the system, and if you have the people there to deal with applications in a timely manner, and time's the critical thing here. If you do the right thing, you'll come out with the other side, and I think that's where we've seen it. And so that gives us positivity. If we buy a site today, and we know all the goods, the bads, and, and the uglies about it, to bring it through the system, we have a certain timeframe.
That allows you to plan much better into the future, so happy with it.
Great. Well, I think that's all we have time for at this stage, so thanks, everybody, for joining us. Thanks very much, Stephen, for coming in. If you want to follow up with any questions, again, my email address on the top right-hand side. You can let me know, and we can pass on any further questions you might have to the company as well. So thanks, everyone, for joining us, and have a good rest of the day.