Four announcements today ushered in a new era for housebuilder Countryside.
It started at 7am with a trio of updates on the stock exchange. First, in the company’s full-year results it revealed plans to offload its housebuilding business. Next, chairman David Howell announced he will step down after five years with the company. Then it released a public rebuttal of a high-profile criticism from activist investor Browning West.
Finally, in collaboration with Places for People, the company confirmed a new framework to deliver 10,000 mixed-tenure homes over the next decade.
“It has been a busy couple of weeks, actually,” says Iain McPherson, Countryside’s group chief executive. In fact, it’s fair to say it has been non-stop since he stepped into the position on 1 January.
“We have been working this year though a very difficult period with Covid-19,” he adds. “Any plans that we may have had as we came into the end of last year clearly wouldn’t have been able to have been dealt with in any meaningful way.”
Results for the year ended 30 September revealed plummeting profit, down 77% and operating margins squeezed to 5.5%, attributed to the impact of Covid-19. During this period the focus has been welfare, for staff, supply chains, partners and the general public. Add to that a £250m equity raise to repay debt and fuel partnerships growth and deals with Sigma Capital and Sweden’s EQT and, later, Goldman Sachs.
Investor pressure
Over the past three months Countryside has come under mounting pressure from Browning West, which has been growing a stake in the FSTE 250 company since July, currently at 9.4%. This intensified yesterday (2 December) with the investor launching a scathing attack on Countryside’s chairman David Howell, centred around the group’s need to focus on the partnerships business.
“We were slightly confused as to what that criticism might be, because we have always felt that the prioritisation of partnerships’ growth is absolutely in line with the feedback that we have received from the majority of shareholders,” says McPherson. So what do they not understand? “It’s difficult for me to answer that question. We’re not entirely clear about that.”
The business has had a dual-division structure since its IPO in 2016 and has slowly shifted focus to the partnerships business over the last two years, buoyed by strength in build-to-rent and affordable housing. With July’s fundraise it announced plans to grow this with new regions in south London, the Chilterns and the South West.
“These [decisions] aren’t taken overnight, this takes a lot of planning and consideration,” McPherson says. “Given that they are a very new shareholder to the group and we’ve been having these conversations for the last couple of years, it has not been a fundamental reason for us to change strategy at all.”
Business splits
To support a shift, Countryside has appointed Rothschild & Co to advise on the separation of the housebuilding business, the structure of which it says has restricted opportunity to grow. McPherson says: “What we have appointed Rothchild & Co to do is to advise the board on a strategy to look at options around separation and the timing associated with the separation. That may mean other things, other than just a sale.”
Countryside will also appoint advisers to help secure a new chairman following Howell’s decision to step down, which, McPherson adds, was of his own accord and unrelated to the demands of Browning West. “David informed the board over the last few days. He talked about that with us and only in the last 24 hours confirmed that was his absolute intention.”
As outlined in the letter to Browning West, Countryside is not inviting its founder, Usman Nabi, to join the board. “We regularly review the right mix and the skills to ensure that we’ve got the right experience on the board and we are confident that the board composition is absolutely correct at this moment in time,” says McPherson.
The board members currently own a 0.06% stake in the business. But they are on track to boost this shareholding over the next five year with a policy of two times the salary invested. McPherson will likely achieve this by the end of this year.
To crystallise its commitment to partnerships, Countryside has set targets for the next three years. It aims to boost the annual number of homes from around 3,000 to 8,000 – with plans to triple its margin and return on capital employed. By 2025, it wants to be at 10,000 homes in 12 regions. “It’s not something we would normally do, to that extent,” says McPherson. “But we wanted to be really clear about what our strategy is and how we have confidence in our ability to deliver for the long term.”
Not one to be silenced, Browning West quickly followed Countryside’s flurry of news with a statement in response to the overhaul.
Nabi said: “We are delighted that the board has implemented our recommendations regarding the need for a new chairman and separating Housebuilding from Partnerships. We look forward to the board moving with urgency and to a continued dialogue on these and other issues in order to let Partnerships prosper.”
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