Good morning, ladies and gentlemen. Welcome to the Cairn Homes 2024 Interim Results Analyst and Investor Call, which will be hosted by Michael Stanley, Chief Executive Officer, and Richard Ball, Chief Financial Officer. Afterwards, there will be a moderated Q&A session, where we welcome questions from anybody on the line. I will now hand you over to Cairn CEO, Michael Stanley.
Good morning, everybody, and thank you for joining us as we bring you through our 2024 interim results. I'm joined this morning by our new CFO, Richard Ball. I'd like to welcome him to his first results presentation, and we are also joined by Stephen Kane, our Director of Corporate Finance and Investor Relations, and Tara Grimley, our Co-Sec and Director of Sustainability. The success of our strategy is most clearly demonstrated by momentum in our business, and we have been consistent in delivering on our commitments. Ours is a differentiated strategy that is clearly working, delivering quality houses at a profit, pace, scale, and value for money as we continue to make a significant contribution to Ireland's housing needs. We have a talented team, supported by a mature subcontractor base and supply chain. We are delivering for our home buyers and for our shareholders.
If you could please go to slide four of our investor presentation, I will take you through some of the key highlights for the first half of 2024. We now have a closed and forward order book valued at over EUR 1.3 billion, comprising 3,450 new homes, clearly highlighting the demand for our new homes. We continue to scale our mature delivery platform in tandem with executing our growth strategy. We delivered 894 closed units in H1, representing a 67% year-on-year growth, and will deliver a further 1,300 units in H2. Our margins are consistent with a gross margin of 22% and an operating margin of 16.8%.
Our operating profit was EUR 61.4 million for the period, and this will increase to circa EUR 145 million for the full year. We will see continued momentum in the business for 2024 and beyond and remain on track to achieve our 15% ROE target. Might move you on to slide five. Our core first-time buyer market is our biggest and most important addressable market. There's a lot of commentary about house price inflation, particularly in the illiquid secondhand market. Our objective remains to deliver competitively priced homes at price points where customers of ours can get access to mortgage finance. Our starter home ASP for the period was EUR 346,000, net of VAT, and this is comparable to our ASP in 2023. Our continued growth is supported by reinvestment in our business.
Our EUR 319 million WIP investment is over three times covered by our EUR 970-odd million forward order book. We will commence eight new sites in the second half of 2024 across our core starter home market and our scale, social, and affordable apartments. We are proud to have more than 4,000 people in full employment across our developments today. We are disciplined in our capital and are delivering for shareholders. We carefully balance reinvestment in our business with shareholder returns. Richard will bring you through more detail on our capital allocation strategy later, in particular, how we strike the balance between supporting our growth ambitions and delivering for you, our shareholders. We have a land bank that will deliver over 7,000 homes, and our 2024 land investment is weighted towards our core first-time buyer market.
In the first half of 2024, we signed our first land option deal. We see optioning land as one of the strategies that will support the medium-term reduction of our land bank size. We have a proven track record of delivering for shareholders. We have a clear, progressive dividend policy, and today are announcing a EUR 0.038 ordinary dividend. This is our fourth consecutive interim dividend. In addition, we have an ongoing EUR 45 million share buyback program. Projected shareholder returns are forecast to be greater than EUR 115 million in 2024. On slide six, you can see the significant growth this year in our closed and forward order book. Our pipeline has increased by 1,100 new homes since the start of the year, and by over 2,350 homes since the start of 2023.
I have spoken about our intention to grow our longer-term sales pipeline, and we now have a multi-year order book. We see real potential for this to continue. Our low-cost land bank and construction efficiency means we can retain attractive margins at competitive price points. The average selling price in our order book is EUR 383,000, net of VAT. We are also now seeing significant momentum in new partnerships and joint ventures for scale delivery, particularly in urban areas. Moving to slide seven. Our H1 2024 average selling price was EUR 388,000, net of VAT. We had a higher trade up, trade down, pricing, but that's purely reflective of mix impacts, probably mainly emanating from healthy sales in our high-value apartment developments in prime locations.
As previously stated, we are delivering starter homes at competitive price points despite the inflationary backdrop witnessed in recent years. Our lower apartment ASP is a function of our competitive pricing and focus on providing value for money, particularly for our state partners. Slide 8 covers a number of key operational highlights, each of which are important for the progression of our business. In the full year of 2024, we will commence 10 new sites and move on to 10 new phases of our larger existing sites. Our procurement spend will grow considerably over the coming year, reflecting the continued scaling and momentum of our business. We are over 95% procured on active sites for 2024, and over 65% procured for 2025, ensuring visibility over our costs and delivering certainty for our supply chain partners and subcontractors.
We have continued to make progress on planning, and in H1, we obtained seven new grants of planning for a further 1,500 homes. Moving on to slide 9. This slide outlines the progress that we're making in supporting that supply chain and the broader industry. The current apprenticeship program launching this month will help to attract and retain graduates in the construction sector in Ireland through various innovative initiatives. It will see us invest EUR 10 million over five years, including providing monetary supports and professional and graduate scholarships across the residential sector in Ireland. This is an extremely important program to help us, and allows us to contribute to the sustainability of our industry into future years. Moving to slide 10.
As you can see, the current completions of new homes relative to structural demand in Ireland. This structural demand is more than twice the current industry output. The macro environment remains very positive for our business. We have a near record level of net migration, with a population increase of nearly 100,000 in the last 12 months. Ireland is operating at effectively full employment. Exchequer returns are forecast to remain robust, and household savings continue to increase. Disposable income in our economy has increased by 6%, while inflation is holding at 1%. The mortgage market, importantly, continues to improve, particularly for our first-time buyer customers. And moving to slide 11. This outlines the progress we continue to make in our EUR 2 billion development at Seven Mills.
Scale and pace is very evident from the photos, which show how construction has progressed significantly in the 20 months that we have been on site. To call out some of the highlights: within a 3-year period, we will have commenced construction of nearly 3,000 new homes at Seven Mills. We have invested over EUR 285 million so far, and this will increase to over EUR 500 million of investment by 2025. Sales have been exceptionally strong across all tenures. In 2024, we had over 813 employees working on this development, including 80 apprenticeships. Just 20 months since we broke ground, we are proud that there are now over 300 families calling Seven Mills their home, and this will grow to over 500 families by year-end.
I will now pass you over to Richard to bring you through our half-year financial performance. Thank you, Richard.
Thank you for the warm welcome, Michael, and good morning, everyone. Having worked in the business since the middle of April, it gives me great pleasure to walk you through our impressive first half financial performance in detail in my capacity as your new CFO. Before I do, I have to say I am delighted to have joined Cairn at such an exciting time in our journey. This is a business which I believe has been one of Ireland's great success stories of the past decade, and one which has strong ambitions to continue to grow and execute on the market opportunity. I'm presenting a strong set of financial results across all key financial metrics to you this morning.
As Michael mentioned earlier, our strong position within the marketplace, plus the opportunities that are being presented to the business, gives the management team great confidence in the outlook of the company. Moving now to slide 13. We delivered a record first half year performance in terms of unit closings, revenue, and profitability. EUR 366 million revenue was delivered from 894 unit closings, representing a 67% increase from H1 2023. Gross margin was maintained at 22%, some 10 basis points below FY 2023. We continue to mitigate the effects of build cost inflation by concentrating on our supply chain, procurement strategies, and driving our innovation agenda through our operating platform. Our OpEx investment increased to EUR 19 million in the period.
This 2.2 net increase reflects the investment we are making in our business to support our continued operational growth across systems, people, and processes. This resulted in operating profits of EUR 61.4 million, a significant 107% increase year on year, and an operating margin of 16.8%. This 330 basis points improvement in operating margin is reflective of the higher level of revenue generation in the period compared to prior years. Finance costs were at EUR 6.8 million from EUR 5.4 million in H1 2023, reflecting the increase in working capital investment throughout the period. With profit after tax of EUR 46.9 million, growing 126%, we delivered impressive earnings per share growth of EUR 0.042 - EUR 0.072.
We maintain a balance sheet size of EUR 758.4 million, with a net asset value of EUR 1.18 per share, which is fully asset-backed with an investment in land and WIP of EUR 922 million at the period end. On to Slide 14. We have closed on forward sold 3,450 units with a net sales value of EUR 1.32 billion, which significantly de-risks our 2024 forecast. We also have 1,300 forward sales in our 2025 and 2026 pipeline, with more opportunities being actively pursued. As ever, we look to manage our WIP investment risk through our sales strategy.
As you can see in the bottom table on the slide, our H1 closing WIP investment of EUR 319 million is over three times covered by the forward sales element of our order book. The table also highlights how we've continued to grow our forward order book as we've grown our business in recent years. Now, moving on to slide 15. I referenced our asset-backed balance sheet earlier. Our WIP balance of EUR 319 million includes our investment in self-funded apartment schemes and our core starter home market. The benefit of forward funds creates additional capacity within our balance sheet for growth into the longer term. We closed the period with a net debt of EUR 157 million, a significant improvement on the EUR 228.6 million net debt position at the end of H1 2023.
Our balance sheet is conservatively leveraged, with net debt to inventory of just 17%. We were delighted to welcome HBFI into our facility in May, and we have committed debt facilities of EUR 385 million, with an average maturity of 2.8 years, following a EUR 15 million private placement maturity since the period end. We returned EUR 48.1 million to our shareholders in the period. We expect to grow this to in excess of EUR 115 million by year-end, with the payment of a EUR 0.038 interim dividend in October and the completion of our EUR 45 million share buyback program, and now to cash flow highlights on slide 16. You will see that we generated EUR 49.5 million in operational cash, cash flow during H1.
This represented a positive cash swing of EUR 80.2 million in the period, which was a direct result of our investment in WIP to support our continued growth and the strength of our forward sales. Our net debt was EUR 157 million, meaning we had available liquidity of EUR 242 million at the start of H2. Other key working capital movements of EUR 37 million, as illustrated on the left-hand side of the table, included balances of EUR 64.8 million, reflecting funds due from customers which were received post period end, and finally, to slide 17. As we approach our tenth year in 2025, Cairn is a sustainable business which is delivering value for all of our stakeholders. We are a long-term business which has consistently delivered multi-year growth in volumes, revenue, and profits.
Michael referenced our balanced approach to capital allocation earlier, and the table on the slide demonstrates our consistent returns that have been delivered to our shareholders, with EUR 220 million returned in the preceding three years to FY 2023, and a commitment to return in excess of EUR 115 million in this calendar year. At the same time, we have invested over EUR 200 million in land and WIP, which is enabling the business to double our output over a four-year period. Our shareholder returns are underpinned by our progressive dividend policy, and today we are announcing a EUR 0.038 interim dividend, which is a 23% increase from last year. We are focused on balance sheet discipline, and our ROE will grow to 15% for the full year 2024.
In doing this, we will continue to focus on maintaining liquidity and driving shareholder returns, as I've just discussed. As you've heard from both Michael and myself, we remain very confident about our future outlook and are reaffirming our 2024 market guidance of circa 2,200 unit closings, an operating profit of circa EUR 145 million, and an ROE of 15%, from 11.2% in 2023. I will now hand you back over to Michael, who will bring you through our sustainability update and the outlook for the business. Before I do, I would like to thank you for your time this morning, and I'm really looking forward to meeting many of you in person over the coming days.
Thank you, Richard. So I'm gonna move you on to slide 19, our sustainability update. Here we've laid out, in some detail, our progress against the commitments and targets we have made over the past few years under each pillar of environmental, social, and governance. I alluded earlier to a key initiative we launched last year to continue our support for the broader industry through Cairn's Apprenticeship Program, which we will formally launch in Q4. We are also now the title sponsor for Cairn Community Games, investing EUR 3 million over four years. I'm sure many of you have been watching the Olympics and Paralympics. We've been really proud to have witnessed some of the 160,000 young adults taking part in community events all over Ireland. In fact, in 430 towns across our country.
It's something that has been an incredible kickoff for us, and we're really proud of our association with the Community Games in Ireland. Today, we published our climate transition plan, which details our targets, actions, and resources that are committing to addressing the climate mitigation and risk management, ensuring our business model is fully adapted and aligned to our low carbon economy. Moving you on to slide 20 now. At Cairn, we've always been committed to building high quality, energy efficient homes for our customers, and we're now pushing this commitment further. As you may be aware, Passivhaus is the world's leading energy performance-based building standard. It combines five basic principles, including improved airtightness and high levels of insulation, to ensure high performance and critically low energy use for the lifetime of the building.
Passivhaus is the gold standard, and it is a significant step up from NZEB, which we adopted here in Ireland in 2019. To put this into perspective, U.K. home builders are only now working towards achieving NZEB. As you can see from the table on the left-hand side of the slide, we are leading the charge once again in Ireland by delivering the most energy efficient apartment schemes for our customers. We think about Passivhaus delivery through the lens of these customers. With reduced energy demand, the 3,000 units we are targeting by the end of next year can deliver lifetime energy savings of up to EUR 110 million for our customers. We are future-proofing the long-term value of these apartments, a significant portion of which will be state-owned.
We are absorbing the majority of the cost of this initiative to provide more value for our customers. So in summary, Passivhaus is an investment in innovation in our customers and in Ireland's future. This investment is aligned to the commitments we have made and the targets we have set to reduce our own carbon footprint. I'm pleased to advise you that we will be launching our Passivhaus position paper, titled Sustainable Living Spaces, next week, which will be available on our website. And finally, to slide 22, our outlook and full year guidance recap. We are extremely confident about our future. We are an established and sustainable business platform. The exceptional demand for our new homes is illustrated by our record growing closed and forward order book, evidencing our strong position in our market.
We will reward our shareholders by continuing to leverage our competitive advantages, to deliver business growth, combined with progressive dividends and share buybacks. We are operating in a country with strong macroeconomic growth and supportive government housing policies. 2025 will be our tenth year in business, and it will be another year of strong volume, revenue, and profit growth as Cairn continues its journey. We will update the market on our full year, on our 2025 guidance in January. Thank you to all my colleagues in Cairn for their consistent performance and passion for our business. Thank all of you for your continued support and your time this morning, and we look forward to seeing you during the roadshow over the coming weeks. I'll now hand back to the moderator to take some Q&A.
Thank you. If you would like to ask a question, please press star one on your telephone keypad. If you would like to withdraw your question, please press star two. Our first question today comes from Shane Carberry at Goodbody. Please go ahead.
Thank you very much. Thanks, Michael, and welcome, Richard, as well. A couple from me, if I can. I guess, firstly, just on the land piece of the jigsaw, and if you could just give me a little bit more color on the land market, generally, a little bit more color on the six deals that you entered, and in particular, thinking about the fact, Michael, that you talked about getting the first option deal over the line. Is that a one-off? Is that something we should expect to see more of in the future? A bit more color around that would be helpful.
And then secondly, was just in terms of the with balance and how we should be thinking about that into year-end and 2025, in the context of, you know, you talk about the forward sales coverage, a WIP of three times now, thinking about growing into 2025, yet doing a little bit more in terms of forward fund transactions as well. So just a little bit more color in terms of the building blocks there would be helpful.
Thanks, Shane. Yeah, to which I can share the view on the land market. But the land market in Ireland was probably pretty benign for a number of years. We've been a bit more active over the last 12 months. We see a lot of good opportunity, but how we're buying land is evolving. The majority of the deals that you talked about were in the first instance subject to planning. We signed our first option deal, and we will sign probably at least one more in the second half of this year, and you know, obviously, our capital structure, how our balance sheet is improving, the support of forward funds has allowed us to be more ambitious and think about future growth over the coming years, and we'll guide that in January.
And also, as a business, we have built a substantial portion of low-density homes for first-time buyers over the last number of years. And it's important for us to replenish this portion of our land bank. We believe those customers are well supported by government initiatives today, and we can deliver more and more homes for young people in Ireland. So that's the main reason why we believe that it's appropriate for us to reinvest in our business in land and increase WIP investment. Do you wanna talk about the WIP balance, Richie, and how that's going as well?
Yes. Hi, Shane, how are you? Look, obviously we saw a WIP balance of EUR 319 million for the end of the period. Obviously, we've said to the market that we're looking at one or two other transactions in the forward fund space. So we would see that balance reducing in the second half of the year. In relation to obviously the forward fun d transaction, I suppose the big benefit that it gives business is, it allows us to recycle our capital more efficiently and gives us additional capacity to execute on those opportunities that Michael just referenced there, including our self-funded high-density developments and the larger Starter Home scheme.
Brilliant. That's really helpful, guys. Thank you very much.
Thanks, Shane.
Our next question is from Kristen Joff at Deutsche Bank. Please go ahead.
Brilliant. Thanks. Morning, both. A couple of questions from me, if that's okay. First of all, just looking in the medium term, just, I suppose, how the decision is evolving between, you know, looking at organic investment for growth, net debt reduction, and obviously saw that come back in the first half, and share buybacks looking forward. And then just secondly, just more on the shorter term, just to touch on build cost inflation and maybe comparing that to what you're seeing in terms of underlying house price inflation. And I know you mentioned procurement savings as well. So just how those three dynamics are working together. Thank you.
Yeah, I'll let Richie just chat about the medium-term outlook. On build cost, I mean, thankfully, we're seeing a stable environment. We're probably operating at kind of in around 2% BCI, which is probably a little bit better than what we might have thought about at the beginning of the year. We do expect, you know, early next year, that certain commodities may again move up a little bit. I think what we're proving is that our scale and procurement advantage is, you know, has started to, you know, really come home for us, and we can largely and have probably beaten the broader BCI in the market consistently over the last few years. It's allowed us to continue to offer homes at pretty competitive price points.
So we don't see any significant medium-term risk on margin, risk on build cost. We think it's fairly stable with the watch out on some of those raw material commodities that may see some increases in the early part of next year. We're very well procured, though. You know, as I said during the presentation, 95% procured for this year, 60-odd% for next year. One of the advantages of us having such a substantial forward order book is it doesn't just suit us, it suits our supply chain. It suits the manufacturers of our raw materials, it suits our subcontractors. They can enter into longer-term commitments, and we can, through our direct procurement, enter into longer term commitments for material manufacturers in Ireland and in mainland Europe as well.
Maybe I'll take some of the points you raised there, Christian, principally around capital allocation. So I suppose we've been very consistent in our messaging to the market, that after investing in our business, if there's surplus capital, we will distribute this to shareholders. You would have seen in the presentation this morning, a reference that we delivered EUR 220 million to shareholders in the prior three years, with a further commitment to deliver EUR 115 million this year. Just, and also, on the backdrop of that is with a conservative leverage balance sheet, of our net debt, we're obviously currently at 17% of leverage on a gross asset basis.
I think also I'd add, you know, that, and we said this in the presentation, our medium-term commitment, probably through option deals and how we think about the land market, will allow us to think about a reducing land balance over the years ahead, which should support cash generation. And, you know, as Richard said, our job is to balance that together with the support we get from funding on some of our sites, where our customers fund the development and pay our monthly WIP, and indeed, in most cases, acquire the site upfront. They're all supportive of cash generation, but we've got to balance our growth objectives with how we think about shareholder returns. We like where we are for as we look ahead for the next couple of years.
Yeah.
Brilliant. Thanks very much.
Our next question comes from Colin Sheridan at Davy. Please go ahead.
Thank you, and good morning, guys. Thanks for the presentation.
Good morning.
Just a couple from me. First, just to follow up on Shane's question on land. I just wonder, too, at what point are you likely to exercise an option? I know you've only done one, but I assume that there's a couple. You said there's one more in the offer, and I'm sure you're looking at them more generally. Is it done around planning? Is it likely to be exercised around planning, or is there other flexibility about drawing out the actual capital payment on the land itself? Then, just on prefunds, just a couple on those. If you'd maybe give us an idea of what the pipeline feels like that for those, it seems like it's in a good place, and there could potentially be more of those.
I wonder how that feeds into your return on equity trajectory now that you've sort of nailed down the 15% in 2024, what it might look like in the future. I assume that there's some pressure to the upside if you're doing more prefunds. On those prefunds, as a sort of separate question, the passive standard that you've been talking about for a while now and laid out again today, how's, in what way is that helpful in dealing with the types of customers, as you call them, business to government customers that are likely to be buying say apartments in particular in the future as part of these prefunds?
Yeah. I'll deal with the last one first, Colin. I suppose the way we think about it, the government brought in a very important initiative around affordable. We all know that, and this is mainly affordable rental. We all know that the biggest challenge for Ireland is probably that kind of stuck middle, that we've spoken about many times. You know, the hundreds of thousands of people that are above the salary for social housing, which is around mid-forties in Ireland, but may struggle to own their own home and therefore, you know, because they're not bluntly earning salaries of maybe upwards of single combined salaries of EUR 80,000-EUR 90,000.
One of the challenges for those people has been the significant challenge in our rental market and the lack of new rental supply. CREL, which is an initiative which supports both the LDA and AHBs in Ireland, is really a cost rental project. And what those apartments do is they're offered to customers at a significant discount to the market rent in secure tenancies. I suppose the way we look at Passivhaus is, the monthly cost to those tenants is their rent and their energy costs. So by providing lower energy homes, those customers who need as much support as they can on affordability, many of them trying to save to own a home, their cost combining their energy cost is critically important to them.
And we've seen that over the last couple of years, what can happen when you see severe energy spikes and energy cost spikes. So that's why we believe passive is really important. And the customers, and if we're providing homes for the state, that the state are gonna own for decades, well, then the long-term value of those assets is critically important to them. Not just the quality of the homes and what we build, but also the long-term energy use of those homes. So that's why we've probably over-indexed today or indexed heavily on passive, but we think it's a really important initiative and kind of illustrates how we think about our customers, Colin.
I mean, the forward funding element, you know, again, if we think about that from a customer lens, and if we think about the state, the state has other routes to building homes, and in fact, they are where, you know, you may have direct state-owned land, and they go through the traditional EU procurement methodology of appointing a contractor and delivering homes. I think that they will continue to do that. The benefit of dealing with Cairn on forward funding is it gives them bluntly, faster delivery at a lower fixed cost, because we take the cost risk. That's the win for the state.
Unlike, to be, you know, to be very honest, contracted work that could be revised during construction and lead to a much higher exit price, whether that's for housing, a bike shed or a children's hospital. So that's the reality. There's real value for the state, and that, and our forward funding model allows us to give them real security over cost because we own that, and bluntly allows us to deliver more homes.
I think the last question you have, I think, was on the ROE piece, Colin. I said, look, we're hugely focusing on delivering this 15% ROE this year. Michael spoke about the various opportunities and future cash generation, this combined with the positive outlook. I think we'll be, we can obviously give more guidance in January, because as I say, as we referenced in the RNS this morning, we talked about a couple of few opportunities we're obviously hoping to be able to complete before year-end.
Yeah.
So it's probably more appropriate to talk about the ROE then in January.
Yeah, and on you asked the land option, Colin. Sorry, were you gonna say something?
Nope. No, go ahead.
Yeah, on the land optioning, I mean, I suppose just to expand a little bit on that, you know, there are, you know, Ireland, and hopefully with the review of the National Planning Framework, there will be a realization that in order to hit higher targets, we need more zoned land. And local authorities will have to look at their housing needs assessments and establish where, you know, new settlements or expanding settlements in Ireland will be positioned. So I suppose optioning allows us to speak to and deal with, you know, individuals who may not understand very well or be expert in the planning process, or indeed positioning land for rezoning, dealing with all of the complex issues around that. So what we do is we basically, you know...
pay an option fee to start that journey on behalf of the landowner, and bring that land maybe through rezoning and also through planning. You know, ultimately, if we're successful, we are certainly buying that land at that point at a discount to what that land would be worth in the open market. But we have contributed to that value creation on behalf of the landowner. So in that sense, the landowner is happy because they've got their option fee, and we put our shoulder to the wheel and try and use that land and get residential development on it. A lot of times, like our first option, it could be an adjoining site to an existing very successful scheme.
So I suppose, Colin, if we've, in that instance, if we've worked hard on that site to build and sell 500 homes, which we have in that location, and created real demand in that area, but it makes perfect sense for us to option the adjoining land and try and expand the success or evolve the success of that development. So a lot of it can be adjoining existing schemes. It can be areas where we see high demand, be it a land acquisition strategy that we're taking and we'll do at least one more transaction in H2.
It's very clear. Thanks, guys. We have no further questions on the call at this time, so I'll hand the floor back to the team at Cairn Homes to wrap up.
Okay, thank you all. Really appreciate your time this morning, and as Richie said, we look forward to seeing many of you on the road show over the next number of days. Appreciate your time. Thank you.
This concludes today's conference call. Thank you all very much for joining.