Countryside – not just another housebuilder

A partnership is an arrangement between the housebuilder and a local authority or housing association to build affordable homes. Working in conjunction with a local authority means that the planning process is that much smoother, although not entirely smooth because planning departments remain badly under-resourced. But, significantly, Countryside's the partnerships division has so far had no application refused. The business model also confers several key financial benefits. The affordable housing programmes are conducted on a 'forward funded' basis, whereby cash is received during the building process. This creates considerable visibility and also means that Countryside has less of its own funds tied up in projects. This capital-light model helped support a very attractive return on capital employed for the group of 30.5 per cent last year, up from 26.8 per cent the year before.

Social housing construction is also less cyclical than private homes, and Countryside now has 21,684 partnership plots, which represents over nine years of future work. On top of this there is a bid pipeline, which now stands at more than 50,000 plots. In addition to affordable homes, these schemes also include some private units. This is useful for the local authority because some council tenants don’t pay council tax, whereas all private apartments and house owners do.

There is also a vibrant private homes division, accounting for 1,662 of the 3,389 homes completed in the year to September 2017. Demand is such that completions were up by nearly 50 per cent from the previous year. The mix has been changed to reduce the company’s exposure to the higher end of the market, so that the average selling price on private homes has come down from £665,000 in 2016 to £531,000 in the six months to March 2018. However, the fall was more than offset by a double-digit rise in affordable average selling prices as well as an increase in volumes. This also more than offset average build-cost inflation, which moderated from 4 per cent last year to 3 per cent.

Countryside has recently bought Westleigh Group for £135m using cash and existing banking facilities. Operating in the Midlands and South Yorkshire, Westleigh delivered 1,159 mainly affordable homes in the year to March 2018, and brings with it 4,981 partnership plots in areas that Countryside has not been operating in. And in the first year of ownership Westleigh is forecast to contribute cash profits of around £20.8m. There is also a new business pipeline of 13,000 plots and Countryside believes that the business can deliver up to 3,000 units a year by 2023.

Trading for Countryside so far in 2018 has been strong, with total completions up by 15 per cent to 1,655 in the six months to March. Net reservations per open sales outlet per week are holding up well at 0.87, while the number of sales outlets has increased by 8 per cent to 52. The private forward order book is also strong, standing at £328m at March 2018. Compared with many other housebuilders, the dividend yield is relatively modest, but the payout is growing fast.

There is always a risk that economic or political events will interfere with the supply of skilled labour where shortages remain significant. The biggest risk is that Brexit will result in some form of constraint on the number of skilled worker coming into the UK from Europe. To mitigate this risk, Countryside has embarked on recruiting a record number of apprentices, while offsite timber frame construction now accounts for around 40 per cent of output.