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Nov 20, 2019

Tough times, a new strategy and changing perceptions about retirement communities: Inside IR at McCarthy & Stone

UK property developer details its response to tough 12 months

McCarthy & Stone, the UK developer and manager of retirement communities, has experienced some of the most challenging changes a public company can go through. In less than a year, the company witnessed regulatory headwinds, changes in senior management, a profit warning and the launch of a new strategy. And that’s not to mention the ongoing saga of Brexit, which continues to depress house prices across the UK. 

The company had the chance to reset its relationship with the investment community in September 2018 through the announcement of its new ‘transformational’ strategy, which focused on improving margins while exploring new business opportunities, such as letting homes to retirees as well as selling.

To help draw up the plan, it brought in Marina Zakharova de Calero, the IR director at communications consultancy Powerscourt. She ended up taking on the role of IR director at McCarthy & Stone in a part-time capacity, a role she balances alongside her ongoing Powerscourt responsibilities. 

Can you tell us a bit about yourself? What’s your background and how did you get into the IR industry?

I am a business graduate who trained at Marks and Spencer (M&S) on a management trainee scheme straight out of university, which was a big deal at the time. I was introduced to the concept of investor relations at that stage given that M&S was a big listed brand. 

Later I started working for Psion, which was on the smaller side but a few years ahead of its time in terms of technology. The company was developing and selling personal digital assistants before the age of highly sophisticated smartphones, as well as B2B wireless technology.

I started in the chairman’s office and IR, and spent nearly three years in the deep end of annual report preparation, rights issues, reverse takeovers and product launches. There was also the tech boom and the company went into the FTSE 100 for a short period of time, and then quickly went out again. So it was a very intense period in terms of IR.

From there, I moved into advisory with Citigate Dewe Rogerson. I spent 14 years there advising companies globally, particularly around capital market transactions, including more than 30 IPOs. That work included developing the equity story and IR program, and then being with the company throughout the listing and post-listing period where it establishes a track record as a listed entity. 

Following that, I ran my own consultancy with two other colleagues before joining Powerscourt in summer 2018, with the main purpose of developing the IR offering in light of Mifid II. My first assignment was to help McCarthy & Stone draft a new strategy, and that’s how the relationship started. 

What’s your role at McCarthy & Stone, and how does that fit with your other responsibilities?

My initial engagement was around delivering the strategy piece, so I worked with a very talented group of people internally, as well as a large advisory team, to drive the crafting of the strategy. Afterwards, the work evolved into a new role at McCarthy & Stone, which had never had a specific IR position: the new management and chairman have seen the value IR brings. 

My time is split roughly equally between McCarthy & Stone and Powerscourt. It’s an unusual set-up where, with my in-house role, I’m able to bring in the advisory element but, with my advisory hat on, I’m able to keep the advice very real because I am executing the job.

When working with McCarthy & Stone, what does your typical day look like?

As probably everybody else will tell you, there isn’t really a typical day. It all depends where you are within the financial calendar, and also where you are within the broader IR program. If you are not within a reporting period, you are looking more at direct engagement with investors. After the introduction of Mifid II, we saw an increase in direct approaches for meetings. We also have a very active shareholder base, so we keep those investors fully abreast of all the developments. 

During your time with McCarthy & Stone, what has been the biggest highlight?

In terms of a particular highlight, it has to be the creation of the new strategy. It was a huge piece of work that was done within around two months by a big team of professionals. So that was a very, very intense piece of work, but also the piece of work that allowed me to understand the business and get exposed to all the different divisional, operational and sales levels. Also, on the day of the announcement of the strategy, seeing the market rerate the stock upwards – that was a pat on the back for the whole team. 

And the biggest challenge?

The challenge was the following financial year, because we had to deliver on a clear set of targets in a very, very challenging economic environment. One of the key issues we needed to explain was our differentiation from the rest of the housebuilding sector, which impacts our performance. Our business model is extended beyond construction and sales, as we stay on-site and manage our communities as well as provide care. 

In addition, the business is very sensitive to consumer confidence and secondary property market dynamics, as our customers typically have a family home to sell. This is in contrast to traditional housebuilders that typically leave sites when sold and also receive a boost from the government Help to Buy scheme, which supports first-time buyers. We had to take investors with us – not just the top investors that would spend the time and effort to understand the drivers behind the strategy, but also the rest of the shareholder base.

What IR lessons have you taken away from the last 18 months?

While you are on the advisory side, you probably don’t have enough time for this. But you really do need to truly understand the business, from the ground up, in order to be able to see how all the pieces fit together. For example, how your land buying today will affect your sales price in four years’ time. How your design for a particular development will impact the margins in 18 months’ time when you start selling it. Understanding the operations and makeup of your business is very, very important. 

Also, investors need constant attention. You have to continually communicate and ensure consistency of the message and delivery of targets and openness. For every release we put out, I will write to all active shareholders, to offer them a call with management and a call with me. I will have a quick summary of what we announced, what’s the impact, which strand of the complex strategy it will impact, and offer them that conversation to make sure there is a dialogue. 

What are some of the top issues investors and analysts are asking at the moment?

I think questions can be put into two categories. Investors are trying to quantify uncertainty because there is a lot of geopolitical and economic uncertainty in the market. Regarding Brexit, we are asked about the effect the continued uncertainty has on the secondary housing market and whether we see any signs of improvement in consumer confidence.

The other question relates to the excitement of the rental opportunity. Our CEO formerly worked for Unite Students and has extensive experience in creating a completely new asset class of rented student accommodation, which, a decade on, is doing extremely well. So investors can draw similarities with the retirement segment and see the potential of this new initiative. 

If resources or time were no object, what would you like to do better or more of with McCarthy & Stone?

What I would really like is for all of our shareholders to visit our developments. Every time we do a site visit, this is where the eyes really open. It’s very difficult to communicate that offering because the preconceptions of people when they think about retirement communities are very, very different – they tend to think about care homes. We took a few investors last week to one of our new developments and one of them said, ‘Where do you sign up?’

I would also like to dig deeper into our shareholder base and understand the composition better. Not just the existing base, but also where the opportunity lies, considering the change in our business model driven by the transformational strategy we’re currently executing.