First of all, morning everybody. Good to see you all, and isn't this a lovely environment? I can't see better on the front. Thank you very much for hosting us, Numis. Yeah? Thank you. Lovely environment and nice to see some faces, especially some good-looking ones. Adrian. Gonna go to the agenda. It's the normal running order. I'm gonna basically cover some operational highlights. I'll also give you a brief overview of our progress against strategic objectives. Darren's then gonna go on to give a financial review and also talk about land promotion. You've heard of all this before. I'll finish off with development, construction and outlook. As usual, as I've got you all here, we're gonna go through the investment case.
We're focused on three long-term markets, and I'm pleased to say that there's been no sign of occupier demand diminishing in those markets and the favorable structural trends that we've talked about before still persist. We've continued our long record of managing our balance sheet effectively. Our gearing, as Darren will talk about, is at 11%, and you can see from the bar chart that our NAV keeps on growing.
Also, because our gearing is low, we've got the resources to make the most of any opportunities that we think will come maybe over the next six months or so. We've got 93,000 plots under control, and now our development pipeline is GBP 1.2 billion, and all of that is held at cost, and therefore we've got ample opportunity within our portfolio to grow and achieve all our strategic targets. We are aware of the economic uncertainty and in particular inflation. As you're going to hear through this presentation, we're adjusting and managing that well.
All of that means we're confident enough to increase the dividend by 10% and our TSR remains attractive. As I often do, I look at the TSR. If you want to look at it over one, three, 10, 20 years and I don't know, name a number, good old Henry Boot has outperformed. First of all, we've had one of our best half ones ever. Gonna go through the operational performance, starting with land promotion. We've sold nearly 3,500 plots in a buoyant land market, and we've averaged gross profit per plot of GBP 6,000.
This is lower than normal, and that's because on Didcot it was a big sale, so we gave a discount for volume in agreeing the transaction. Despite that high number of plots sold, we've grown our land portfolio. You can see it's at 93,000 plots. Already we've exchanged contracts on nearly 1,300 plots, and that's going to help us with our P&L in 2023 and 2024. Turning to development.
We've completed on GBP 37 million of developments, our share, which have all been pre-let or pre-sold. We've maintained the level of our committed development program. Again, our share GBP 262 million. Our investment portfolio has generated a total return of 4.6% over six months. Stonebridge, our JV house builder, has experienced strong levels of sales, including over the summer.
There's been no letup in recent weeks, bar of course, people being sensitive to the Queen's funeral. Finally, on construction, again, we've had a good first half. That all means if you get to the bottom of the slide, after deducting GBP 4 million of central operating costs, group operating profit is at GBP 39.1 million. It also means that we're delivering on our medium-term objectives. Going down the slide, capital employed is nearly at GBP 400 million. ROCE is at 10% and over the full year we expect it to be at the top of our 10%-15% range. Hallam is on track to grow average plots sold per annum to 3,500 and to achieve development completions of GBP 200 million a year. Guess what you've got to do?
First of all, you've got to increase your committed development program. We've done that very effectively. We're now at GBP 262 million. At GBP 134 million, our investment portfolio is also on its way to achieving its target of GBP 150 million. What we know through the results is we've done a post half one sale in the investment portfolio, the Kitwave unit, and we've identified others. I believe that we will end the year with a marginally smaller investment portfolio and I think that is tactically the right place for us to be. We will look to continue to grow. Demand for Stonebridge's premium homes is strong. We expect to complete 200 units this year and 250 next.
Construction on the order book, 2022, 100% secured and 2023 is 52% secured. I'm pleased to say that this good strategic progress is led by GBP 130 million worth of sales, including forward fundings, taking advantages of strong markets. Gonna go through this slide left to right. First of all, Hallam have exchanged on GBP 63 million of land sales in what we would describe as a buoyant land market. HBD have also achieved GBP 16 million worth of land sales.
Hallam and HBD have, however, been very selective on purchases, only GBP 10 million. As I've already alluded to, we have purposefully kept our powder dry as we expect there to be buying opportunities over the coming months. We have, however, continued to buy for Stonebridge because it's of great and strategic import that we grow that business.
We think that it can be scaled up. There we've bought around GBP 14 million worth of land for the land bank. On the investment portfolio post H1, we're pleased to have sold Wakefield Hub at just over GBP 11 million, and that reflects a very strong yield of 3.3%. On developments, we've forward funded GBP 21 million of development and invested GBP 80 million of our capital into the committed program.
On construction, Banner Plant, Road Link, all is going well. Just one slide before I hand you over to Darren. Many of you will know, because you've been following us for a long time, that we've got a good reputation of engaging with our people, our stakeholders, and being thoughtful about the community and the environment.
In order for us to coordinate our efforts and frankly to do more, we recently launched our responsible business strategy, and it focuses, you can see, on our people, our places, our planet, our partners. The good news is, I'm not gonna go through all these targets, but you can have a good look at them, and we are on track. The one that I think is most important is the initiative wrapped around our NZC framework with a target to reach net zero carbon for directly controlled emissions by 2030. I'm pleased to say that our direct emissions are down 18% against our 2021 baseline. With that, I'm gonna hand over the floor to Darren.
Thank you, Tim, and good morning, everyone. If we can move on to the financial highlights. I'm pleased to report that activity levels and transactions have been strong across all of our operations, and this has resulted in one of our best ever first half year financial results as we took advantage of the strength in our markets during this period with revenues up 12%.
Overall, the group achieved an operating profit of GBP 39.1 million, up 70% on the previous half year and already ahead of our 2021 full year result. With profit before tax of GBP 38.8 million, we have a significant underpin for the full year, although we will be heavily weighted to this first half, and we do expect to be in line with full year expectations.
The residential market performed particularly well with our strategic land business contributing GBP 17 million to our operating profit and property development land disposals in this market also contributed GBP 9 million. While our house builder customers' appetite for land continues, contracts being negotiated now are unlikely to complete until next year.
Tim will elaborate on the industrial and logistics market later, but increased activity from our committed development pipeline, predominantly in this market, has also contributed around GBP 8 million to our operating profit. Higher operating profit has allowed us to achieve a return on capital employed of just over 10% already at the bottom of our medium-term strategic target of attaining 10%-15%.
While we expect activity to be slower in the second half as our focus turns to 2023, we expect to be within the upper half of this range for the full year, as Tim said earlier. Finally, we have increased the interim dividend by 10% as we retain earnings to fund the opportunities we are now delivering from which we can look to achieve our target return on capital employed. Moving over to the balance sheet, our plan to focus on delivering existing opportunities in our key markets with a careful eye on new opportunities this year has played out in the balance sheet.
Within the investment property portfolio, we constructed and retained an industrial asset at Luton valued at GBP 5.4 million, along with valuation gains on the portfolio broadly neutral across asset classes other than from an industrial unit in Wakefield that Tim referred to. It's held for sale at the half year and completed in August, where the disposal price was 23% ahead of this December year-end valuation.
We invested broadly equal amounts in our growing house builders land bank and work in progress, adding some GBP 18 million and the majority of the movement in inventories. Net debt reduced slightly from the year-end to GBP 42.8 million, with gearing at 11% towards the lower end of our optimal range of about 10%-20%. That's supported by secured borrowing facilities through to January 2025.
Our defined benefit pension scheme has finally moved to surplus, although we will look to remove this from our operational KPIs as we work towards buyout of the scheme, and as such, don't expect any real surplus to arise. Following this strong set of interim results and gains on the defined benefit pension scheme, our net asset value per share increased 11% to GBP 2.97 , or 9% to GBP 2.91 excluding the pension surplus.
Capital employed has also increased to GBP 407 million or GBP 399 million removing the surplus, either way being very much in line with our medium-term growth aspirations. If we move on to cash generation, cash inflows from operations, the kind of first bar in the top left there amounted to GBP 19.8 million. That's made up from operating profit of GBP 39.1 million, adjusted for non-cash items amounting to GBP 11.3 million, interest costs of GBP 200,000, GBP 1 million paid in corporation tax, and GBP 6.8 million in dividends. As you can see, our interest costs remain low.
With our facility having a 1.4% margin over SONIA, a 1% increase in interest rates will give rise to an increase of around GBP 400,000 per annum on our current average debt levels. We then made investments of GBP 17 million across the investment property portfolio, inventories, plant hire, and joint ventures. The most significant movement among these relating to the land bank and work in progress within Stonebridge Homes, as mentioned previously. With working capital broadly unchanged, we ended the period with net debt of GBP 42.8 million.
We can now move on to the operational review and starting with land promotion. Hallam Land sold just short of 3,500 plots in the period at an average gross profit of GBP 6,000 per plot, resulting in an operating profit of just over GBP 17 million. That included the significant disposal at Didcot for 2,170 units, which allowed for a discount due to the volume for our house builder customers. Savills continue to report rising land values with an increase of 3.6% in the period, and we've now started to build our sales book for 2023 and 2024 with just shy of 1,300 plots exchanged as we continue to receive bids and secure deals.
We continued to add new opportunities to the portfolio, investing around GBP 5 million in new sites with the potential to deliver some 4,000 plots. After making disposals from six sites in the period, we ended with nearly 93,000 potential plots within the portfolio. Our portfolio is all held at cost, so no valuation gain on securing planning permission is recognized until the land is sold. While current period sales have reduced plots in the portfolio already having permission to around 9,500, this still equates to almost three years worth of sales in stock actively working towards disposal based on our medium-term strategic sales target of 3,500 plots per annum.
Furthermore, while planning decisions continue to be slow, impacted by biodiversity net gain and nutrient neutrality, we have over 11,500 plots currently working through the planning system, and we expect 30% of those to reach a decision before the year-end. Although given the current state of the planning environment, we shall see.
That said, our portfolio approach reduces any reliance on individual sites and allows us to manage any delays more effectively. Here we can see the geographic spread of our portfolio, which continues to be the fourth largest strategic land portfolio in the country amongst the listed house builders, and we see no sign of markets weakening in any of our regions.
This is no real surprise given the number of consents approved in England during the year has fallen materially leading to what our well-capitalized long-term house builders requiring more short to medium term of ready land. The chart of plots sold shows we are now very close to achieving our medium-term target of selling 3,500 plots per annum on average, and the five-year average is now just over 3,000. The average gross profit per plot has reduced in the period on the back of the disposal at Didcot, which allowed for that volume discount on the significant number of plots sold. This metric will continue to vary with volume sales, land price inflation, and location of sales within the U.K.
We continue to make a significant contribution to the U.K. residential housing market, providing land for much needed housing and affordable homes, along with community amenities, including schools, healthcare, and public accessible open space. Here we demonstrate this with a case study on the significant disposal at Didcot. Work commenced on the 440-acre site in Oxfordshire nine years ago with the planning permission achieved in February of this year and disposal following shortly thereafter in May.
Despite a number of planning challenges along the way, the site will now go on to deliver significant community benefits, including new schools, leisure facilities, community centers, and extensive open space. With the volume discount offered to our customers, Taylor Wimpey and Persimmon, the scheme has still delivered a significant return in the period, achieving a very impressive internal rate of return at 34% per annum. Now if I can hand you back to Tim, who will continue with property investment and development. Thank you.
Right. Thanks, Darren. Turning to development, HBD made an operating profit of GBP 19.6 million, and we completed on GBP 37 million worth of development, our share all pre-let, pre-sold. Our share of commitments, as I said, is at GBP 262 million, with 73% of that already pre-let or pre-funded. Significantly, 97% of the construction costs are fixed. We have got high levels of protection against cost inflation. We've also grown the GDV of our pipeline by GBP 100 million to GBP 1.2 billion, and included that is the first phase of our mixed-use campus scheme called Golden Valley, which is next door to GCHQ in Cheltenham. On the investment portfolio, that increased in value by 2.5%, and it generated a total return over six months of 4.6%.
That is lower than the index at 9.4%, and we believe that is because our value has started to see the yields on industrial moving out in June when the outlook for interest rates was moving up, and they moved their yields before the CBRE index moved theirs. We don't believe it's a reflection of the quality of our investment portfolio. It's a timing issue. In terms of the portfolio, the WALT is a very healthy 15 years. Our occupancy is now up to 92%, and you can see that rent collection at 98% is excellent. Turning to the committed pipeline, you can see we're committed to six schemes comprising nearly 1 million sq ft of industrial in the first part of the table.
This includes only 75,000 sq ft of spec development at Southend, and about half of that is already let. We're pretty well fully let or fully funded on the industrial developments. We're aware that the investment funding market, the investment market for industrial is cooling, but there is no sign that occupier demand is cooling off. It is still strong. We expect to commit to more industrial development over the next few months, and I'll talk about a project that we're gonna do shortly. Next down is urban, residential, and commercial. We're progressing well with construction at Setl, developing premium apartments right in the center of Birmingham. Completion will be in H2 of 2023. While we're not going to look to do meaningful sales until we achieve completion, we are still expecting there to be healthy demand.
Going down, Island is our prime net zero carbon office development right in the center of Manchester. Our share of GDV is GBP 33 million. Again, you can see completion is in the second half of 2024. With limited supply coming through, and we expect also to see good occupier demand because, companies are increasingly aware of their ESG targets. We think we'll get good demand for this building because its ESG credentials are one of the best in the country. The interesting figure that I know you'll want to know is what is the profit on cost on the program. We believe that profit is GBP 39 million or 18%. We've taken GBP 6 million of it to date, so there's GBP 33 million still to take.
We believe that that is gonna be a driver of profits for the development business over the next two years. Just going to the pipeline, you can see we've still got the potential of 7 million sq ft of industrial + 800 urban units and 200,000 sq ft of offices. Our target profit on this development pipeline will be between 10%-15% depending on the level of risk that we're taking. 68% of the pipeline is industrial, centered around the major networks, the motorway networks, as you can see, and the urban development sites are all located in the main regional centers, again, shown on the map.
Now, I mentioned that we wanted to commit to more industrial, and we're close to committing to 380,000 sq ft on a scheme in Rainham near Junction 30 of the M25. Planning has been secured for 4 units, and significantly the scheme will target NZC and BREEAM Excellent. We purchased the site only a year ago. It's held in an 80/20 JV with Barings.
We're the minority partner, but we are the development manager. We've got planning. We're promoting the build and doing the letting. The GDV is GBP 130 million, and our target profit on cost will be over 20%. Generally, just to be clear, as usual, Henry Boot will be very selective on what developments it commits to, and we'll keep on managing the risk in terms of pre-letting, pre-funding, and fixing costs.
I think you will agree we've got a great record in doing that. Turning to Stonebridge Homes, it's been an excellent period with average sales price over half a million pounds. I always joke that you get a lot of real estate in Yorkshire for half a million pounds. Price improvement against budget has averaged 11%, and this has been partially offset by cost inflation at 9%.
As you know, I'm very keen to get scale in this business. Our priority has been to grow our land bank, which is at 4.6 times one year forward sales. We are in good position there. Output this year has grown to 200 units, and current forward sales are very healthy at 96%. There has been no slowdown in buyer interest over the summer or recent weeks. We've also now started selling our houses for 2023.
We've opened our first site in the Northeast. Our aim is to sell 250 homes next year. In this respect, I am pleased to say that we've already agreed to sell 52 of those, which again, another indication of the sort of demand for our product. Gonna go on to Construction. Construction division has done well, with all three businesses contributing to the operating profit of GBP 6.3 million. Construction is running in line with our expectations and our major urban development schemes in Sheffield and York, despite actually, pretty strong supply challenges and some cost inflation are progressing on track.
Our construction order book, as I've already said, is secured for 2022, and we are selectively building up our 2023 one, which is currently at 52%. Then 96% of our 2022 order book has fixed price orders in place or inflation clauses, so we are in good shape. Banner are trading ahead of pre-pandemic levels with an asset utilization rate of 75%, which is higher than last year's. Just to break up and show you some pictures because I'd like, you know, you all like to see some pictures, don't you? We are on 11 public frameworks which help us to win regular work from public sector clients.
We've just chosen a couple of schemes, both where we're building or refurbishing schools for the Leeds LEP. The contracts are worth about GBP 7 million-GBP 8 million, and on average, the projects last for about a year. These are just good examples of the bread and butter work that we get from our public sector clients, which complement well the very big urban projects like Kangaroo Works, Cocoa Works, in Sheffield and York.
Nice touch to Darren's earlier point about Hallam, they're also improving the country's educational infrastructure. I'm gonna finish off on Outlook. H1 has been very good and tactically I think that we've done very well to sell strong into markets and be selective on acquisitions. There is no doubt that we are entering a period of economic uncertainty and inflation remains a challenge. Whilst we've seen delays and cost pressures, you can see from these results that we continue to manage those pressures and challenges effectively.
As set out in the slide in the minor bullet points, you can also see that already we're thinking and are in a very good position for 2023. Our committed development program, as I've described, is mainly pre-let and most of the costs are fixed, but there are also opportunities within our pipeline for us to commit to more industrial and build to rent, and we expect to be doing that over coming months. There are also parts of the market where occupier interest remains strong.
Stonebridge remains on track to hit its 600-unit medium target, and next year we expect to build 250 houses. Our confidence in us achieving our targets this year means that we've been very pleased to increase the dividend yet again, Darren, by 10%, the interim dividend. With a strong balance sheet, low gearing, and a portfolio rich with opportunity, we've got the resources to grow and achieve attractive shareholder returns. Thank you. I'm gonna walk over here. I think we're gonna take questions from the room first of all.
Christen Hjorth from Numis. Thanks for taking my questions. Three from me, if that's okay. Just the first one, looking at that medium-term target of GBP 500 million of capital employed, just, you know, an update around timing for that, you know, and the ability to accelerate that through debt obviously, within the gearing targets that you've set out. Then I think, you know, touching on those medium-term targets, again, it sort of feels like, you know, the land in Hallam, you're basically there on the 3,500.
The other big one would be property development GDV, and it's quite a pickup from, I suppose, where it is at the moment to GBP 200 million. Just the drivers of that and the extent to which it's in your control now. Just the final one on land. Obviously, the land with planning has sort of run down. Didcot clearly part of that. Given the planning environment, is there some concern in terms of replenishing it? I know you touched on what's in the pipeline, but you know, could you run out of land, for example?
Right. I'll have a go at the first two.
Yeah.
Darren can answer the final one. I think in terms of the capital employed, we're at around GBP 400 million. When we did our five-year business plan at the end of 2020 and then announced it to the market at the beginning of 2021, we didn't think we would be at GBP 400 million at this stage. We're ahead of where we thought we would be. Christen, a lot will, as is always the case, depend on the environment that we're working in and the markets that we're working in. Again, I think that what we've shown you today is that we're in a very strong position.
We've got low gearing, we've got high levels of forward sales, and we've got high levels of visibility on cost and a lot of our cost is fixed. I think that enables us to carry on doing what we're doing. We've reacted, haven't we, to a potential slowdown. There will be a slower market, but we're in a good shape, so I think that again, next year, it is likely that we will continue to make progress and grow our capital employed. Now, will we get to GBP 500 million? Yeah, we'll get to GBP 500 million. Then the $64,000 question which you almost are asked on your second question is, can we advance our medium-term strategic targets? I'd like to think that we can.
You also know that we don't tell people we can do things until we're pretty sure that we can do them. They are medium-term targets. They've only been out for a year and a half. I think that for me to kind of like declare victory on them now wouldn't be right. Give us another year or so. Let's see how we're doing. Then if we are still making good progress, we can think about whether we wanna refresh them. To be clear, if we're refreshing medium-term targets two and a half years into it, I think that the business has done exceptionally well. I'll be really, really quick on your second one 'cause I feel as though I've answered a lot of it, unless you've got a follow-up question.
Yeah, sure. That's great.
I think that Hallam has got the scale, hasn't it, to kind of like almost sort itself out on its average. Not being flippant. Darren talked about the five-year average being 3,000, and we're at 3,500 this year. You can imagine that we're gonna quite quickly get up to 3,500 average. It's not easy to do, but we will do it. On development, in really simple terms, we've probably got to sustain GBP 300 million of committed development to complete GBP 200 million a year. Because again, it all will vary, Christen, but the weighted average of time, bearing in mind industrials probably takes a year and urban development takes over two years.
Probably the weighted average of time to complete these developments will be a year and a half. If we've gotta get up to GBP 300 million, we've been knocking on the door on that for the last year. I think that we will commit to some more development, and then it's a matter of time, isn't it? If you're doing GBP 300 million, you would hope in a year or two's time that you are beginning to complete GBP 200 million. I think that the visibility for management is good, but when we kind of like give you a stat, well, we've completed on GBP 37 million in six months and you double that, you're gonna think that there's a bit of a shortfall. The shortfall will fix itself. Now give me lots of time. You're gonna be able to give a wonderful answer.
Just in terms of land with planning within the portfolio and the fact that that is currently clearly coming down given some of the significant sales that we've achieved. I think from our perspective, the kind of underpin is the way we operate the portfolio approach to it. Kind of as I'd said, we've still got 9,000 plots with permission, so roughly three years kind of stock in the bag to work through. With 11,500 plots going through the planning process, we'd like to think that that will start feeding into that shorter term pipeline as well. Clearly, there are challenges in the planning system at the moment. We mentioned biodiversity net gain and nutrient neutrality. All of these things are, I would say, slowing us down.
It ultimately doesn't mean that we won't get permission, however, and we're working through those challenges. We should start to see that coming forward and feeding back into that pipeline as we go. In terms of the overall opportunity landscape, again, as I said, we'd added 4,000 units into the portfolio in six months, and we've been doing that for the last five or six years in terms of growing that portfolio and adding in more than we are taking out. It's a long-term game.
Excellent. Thank you.
Yeah. I think just one thing to what Darren said. In terms of our planning capability, if you think about how much land we're promoting for Hallam, where often we're promoting it on behalf of our house builder partners, so they just let us get on with it. Then you look at some of the schemes that HBD do. We don't buy oven-ready sites to develop. We go and promote sites through the planning. And in Stonebridge actually, we must be as skilled as anybody, and I mean anybody, to deal with the complexities of planning. I think that puts us in a very good position because there is no doubt, as Darren has just said, planning is getting more complicated.
Excellent. Thank you.
Thank you.
Morning. Adrian Kearsey, Panmure Gordon. Two questions from me, one on construction and the other on lending partners. On the construction side, we've had a relatively recent change in an MD there. What sort of changes has Tony Shaw put into the business? For example, has that changed what kind of projects the teams are pursuing? Within developments, have you seen with your partners any change in appetite with their ability or any change in their ability to secure funding on the other side of the equation?
Okay. So I'll have a go on the first part, and then Darren can talk about yours, is really a broader question on funding, isn't it?
Yeah.
In terms of construction, many of you know that Simon Carr, who ran the business for a long time, retired about a year ago, and Tony Shaw became MD. Now, Tony has worked a wonderful apprenticeship, and I'm probably gonna do him an injustice. Is it 36 years?
I think so, yeah.
37? At Henry Boot. He has in effect been running the day-to-day operations of Henry Boot Construction for some time. He is absolutely well-versed in running it. As you can imagine with the Henry Boot way, this is all planned meticulously. Actually the strategy that I promoted, that I talked to you about in 2021, that was Tony's strategy. Yep. He was doing that before he was the MD. Strategically, the strategy is not gonna change. I think you all know the strategy is, let's just keep on growing it sensibly, because I think that you want to grow into a market, don't you?
Let's not go for growth because we would rather just grow by 3%-4% per annum, but be really selective on the work and the projects that we take so that we keep on making a reasonable margin. That's the strategy and it stays in the same region. I think that if Tony was here, what he would say to you is he's doing what I'm doing. I found a really successful commercially committed business, but it just needs to be modernized a bit. It needs to become a bit more progressive. It needs to have more strategic targets. All of that's a nice evolution. All of that can be done, which is why we're managing, I think, and Darren is definitely my partner in crime.
I think that we're managing to do all these things. We're evolving the business. We're bringing all our people along with us. I mean, the people at Henry Boot are just phenomenally committed. But at the same time, the change isn't dragging us down. It's not hurting us operationally, so we can still do our day-to-day business of getting buildings built, getting planning, getting them let, getting them sold, but evolve the business, and I think that that's what Tony Shaw will be doing.
Okay. Moving on to your second point, just around kind of our development partners and ability to secure funding. A lot of our partners are actually bringing the opportunities to us. For example, local authorities with land that we then partner with to bring development forward. While they often have the ability to inject financing, it's
Probably more routine that we would either finance those kind of opportunities ourselves or go into the market to look for some kind of forward funding to bring those developments forward. There are another section of our partners where they are potentially institutions or pension funds who will offer financing. Where are we at the moment? I think in recent months, we've had a very good run in terms of financing capabilities and what we've been able to bring forward.
Undoubtedly, more recently, we're now starting to see a lot of the forward funding markets actually just pause and take stock of where things are at the moment. That is moving us more into a position where some of those partners are now perhaps looking to put their own finance to work, to bring the developments forward, and also potentially at a rate in the market that is more palatable than we're currently seeing at the moment.
Morning. Sam Cullen from Peel Hunt. I've got four, three of which are fairly straightforward, I think. On the first one, in terms of Hallam and the 9,000-odd plots that you've got with planning, are there any outlandishly large sites within that? Obviously, not another Didcot, but another one that would stick out relative to the median. Secondly, on Stonebridge and the targets to grow in the second half, it's clearly a big step up versus last year. How far forward sold are you for those targets that you're going for?
For next year, the 2023?
Yeah. Well, for the second half of this year in terms of the 200 and then the 250 for next year or so.
Yeah.
On construction, I think you said that 90-odd% of this year's order book is on fixed price contracts. What about next year in terms of the 50% or so I think you said you've got? The last one is how are you balancing kind of the interest rate headwinds that the market's seeing versus your willingness and ambition to grow Stonebridge Homes in terms of are you pushing your hurdle rates up? Are you happy to continue to purchase more land in those markets? How do you view affordability going forward in those markets?
Okay. Right. Good. Right, Sam. A few questions there are, and if we're not quite answering the question, just give us a prompt. We're cool about that. In terms of the 9,000 plots with planning, I have got some chunky sites in there. The obvious one is Swindon.
Swindon.
Yeah. Swindon is actually an option. With Swindon, we are going through the process of exercising the option, and we will obviously then be the owners of the land and we will work hard to try to sell that land on quickly just because that's the most efficient thing for us to do. We have got good interest in that site. That's a site where we've received offers. That will help us with our gross profit per plot, if that's perhaps what you're picking at. You know, Darren's the absolute expert on how the profit per plot materializes and if you've got 40- minutes, we could talk about it.
I think that again, just generally we understand that the profit per plot bounces around a bit, but the GBP 10,000 gross profit per plot over a long period of time with an average blend of promotions, freehold options, we still think that is good for you. We recognize that internally when we're looking at where we might be. What I'll do is, 'cause it's nice for us to share the questions. Stonebridge, we've already said, haven't we, really?
Yes.
99.6% of 2022 is fixed. Sam, we haven't really got many houses to sell to hit our target for 2022. In very good shape. Be clear, we're being awkward about the price that we sell the last 4% at. Then as I alluded to, in broad terms, we've got 25% of next year's target pre-sold. Then we're not being coy about that. It's just that we haven't actually fully fixed our target for 2023. We think it's gonna be 250, but at some stage we'll tell you it's 257 or whatever. Broadly speaking, about 25%. We could sell more. And then you talked about cost on construction order.
Construction. Yeah. 90% fixed on cost for this year's activity levels. I've not got the absolute answer for you, Sam, but I can come back with it in terms of the 52% we've got secured for next year. What I would say is that given that 52% has got an underpin from some rather large schemes we're currently delivering, Kangaroo Works, Block H in Sheffield, and then The Cocoa Works in York, I would expect the Quite a high majority of that 52% comes from those contracts, and therefore is in that position of having costs fixed on them.
Yeah. Then, in terms of a rising interest rate, I don't know, Sam, whether that implied a general question about interest rates, but you and I'm happy to answer that, but you went on to talk about hurdle rates in Stonebridge, so I'll answer that specifically. No, in short, that sounds a bit illogical, but I don't think it is. I think you've heard me say that. One of the reasons why we like house building is actually we think that house building makes a good operating margin. What we try and do is we target a 20% operating profit on a project. That'll be on that project, and we're still targeting that 20%.
I think that that's just a good margin for us to make. Okay, interest rates have gone up and might go up some more later on this week, but I think that the 20% operating margin on the projects is good. At the moment, that won't feed all the way down to operating margins in Stonebridge because we're investing in the business. I mean, it's a profitable business, but it's not making 15%, 16%. When it gets some scale, it should be making that sort of margin, and I think that that's attractive in this current interest rate environment.
Just to touch on your point about affordability as well. I think that's kind of covered by Tim's comment around the average selling price in Stonebridge being half a million, and his comment that you get a lot of house in Yorkshire for that kind of money. It means that we're not by and large selling to first time buyers at the smaller end where affordability might be more of a concern going forward.
Yeah.
Thanks.
Thanks, Sam. Clyde Lewis at Peel Hunt. I think I've got three all around, I suppose land as much as anything. Be interesting to hear at Hallam what the attitude of the typical land sellers that you're seeing, you know, is at the moment. Has that changed? Are you seeing different sorts of land sellers coming to the market?
Be interesting to hear about that and also sort of the split between big sites, little sites, that sort of mix. I mean, clearly the house builders are talking more and more bigger sites. How's that coming through at Hallam? And the other one I had on land, I suppose, was on the development side. You know, what's happening to competition there for sites? Is that easing at all in any way from that property perspective?
Okay. All right. I'll start. Clyde, as you can imagine, a lot of our sellers are farmers. We think that the market for selling land is healthy. It's kinda like healthy for both of us. We're getting enough supply and I've told you before, I am overwhelmed at how many land deals Hallam actually monitor. They have schedules and schedules on a region by region basis. Some of this you can imagine, you knock on a farmer's door and you get a relationship with them and you build up their trust over five or 10 years. You do have to have schedules and schedules. Their hit rate over a period of time, and sometimes you gotta be patient, is good.
If anything, over the last six months, we've just got the impression that some of the farmers are a bit keener to sell. I think that is a mixture of them thinking, "Well, governments are under pressure, fiscally, so they might put taxes up." I think that in over the summer, some of that might be that also people are thinking, "Well, we're going into uncertain times, so I'd rather sell now than later." The supply is generally good. Darren, I think Clyde is kinda like almost asking an earlier question, but demanding a bit more detail about different sizes and mixtures of
Yeah. We continue to, as Tim said, find a large number of opportunities out there that are still available to us. Hallam's sweet spot is definitely sites above 100 units. Below that, it's probably too small for their time and effort. The absolute pinnacle is probably around 500 units if we can get those away. Once you start moving into the much larger schemes, you're into land assembly, more complicated planning rules, et cetera. We do have a number of those large schemes, but they're probably a bit of a longer term play. It's kind of the selling side of those as well. Didcot was a very large single sale, very much driven by the landowner and their concern around where capital taxes might go.
On the other side of that, we'd got a landowner at Tonbridge who we acquired the freehold from, two, three years ago now, who was just war-weary, I think, from the whole planning challenges. We brought that scheme through this year, and we'll be selling it next year and the year after, but allowing us to make a much more significant return given that we were able to acquire the freehold of that site. I think on those larger sites, certainly what we prefer to be doing is selling in phases into the market over a period of time. A site, for example, we've got one at Coventry, 2,500 units. We'll be selling the first 250 units from that, hopefully late this year, early next. It then becomes much more manageable.
Clive, you talked about development land and competition. I think if you look at industrial, one of the reasons why we haven't bought much land over the last six months. Well, one of the reasons is we've got enough opportunities within our portfolio. The main reason is that we felt that the land prices were high. You know, we could have been wrong about that, couldn't we? If you look at our development pipeline on the industrial, in round terms, the cap rate that has been put to assess that land, and some of it's held under planning agreements. We don't own much of it, but we have control over it. We have the right to develop it. The average cap rate is around 5%.
What we weren't really up for was buying a shed load of land, excuse the pun, at a cap rate of, call it 3.5%-4%. We felt that that meant that the return on cost, the income return on cost was too skinny. Actually, it's self-selective. We stopped buying things because we weren't being competitive. Now, you can read this. The agents are already talking about the drop in land value for industrial land, and it doesn't harm us really because a lot of our land is on development agreements. It does mean that we will probably be buying more land again because it'll be more a reasonable return on cost, income return on cost.
I think that we will do that because what I do believe is that the industrial market, I think that it's a long-term market. There are all sorts of structural reasons, and I think you share that view as well, having spoken to you in the past. There are all sorts of structural reasons why over the long term and, you know, look at 1150, over the long term, that will be a good occupier market. If it's a good occupier market, you'll always get investment interest in it. We'll buy some more. I know I've said this already, but it is worth me saying it again, I think. We don't buy oven-ready industrial land. We're more thoughtful than that.
I think that we will have a good period of hunting over the next six to 12 months. In terms of the residential land, to be honest, it's still competitive. I think that the demand from house builders is strong, and they do get involved in some of the land that we get involved in on land promotion. They'll be selective on that, so there's still plenty of room for us to expand our portfolio. I think that we keep on showing that we're just growing that business steadily. It's a pretty mature business, so that appears to be the right approach. I think that the demand from the national house builders is still strong, and many of you cover the house builders.
I'm not surprised about that because if you look at the number of planning consents granted in England this year, they're about 40% of what they were pre-COVID. There is beginning to be a supply restriction on land. If you look at the house builders, they have to have a degree of volume. If you look at when they buy Didcot, as Darren's gone through, they're not building houses to sell tomorrow at a time where everybody's worried. A lot of the equity market is fixated on what is happening tomorrow. The house builders are buying Didcot to develop over the next six or seven years. They've got to build a community and a school, an infrastructure.
In total is it about 5,500 plots? That's a long-term project. The house builders will keep on buying land and you know better than me, they are well capitalized, and most of them have got cash on their balance sheet. I think the only area where probably there's a bit more hesitancy is if you are looking to buy smaller sized land where you're dealing with area and regional house builders.
They might be a bit more worried about the short term. They might be a bit more worried about getting debt from banks. It's still competitive and we've bid on a site in North Yorkshire with Stonebridge, and there must have been 10 bids for it. It's competitive, but it's not quite as hot as it was probably in January, February of this year.
Perfect. Thank you. Can I have a couple of follow-ups as well?
Of course you can.
Just on Darren's page on land promotion, just to sort of so I understand it properly. I think the last bullet there, expect to reach a decision relating to 30% of plots in planning H2 2022. Is that the 9,600 that you've got with planning, and you think how-
We've got 11,500 plots.
Right. Okay.
Going through the system.
Okay.
30% of those are timetabled for a decision before the year end.
Right. Okay.
If the answer's 30% when we come back next year and tell you the answer.
I think you'll be.
I'll be amazed.
You'll be happy with 15, I suspect. Yeah. The other one was on Gladman. Obviously a big competitor to Hallam, changed ownership. Has it changed the marketplace at all in the way that the other house builders are dealing with Gladman now that it's part of Barratt, and how landowners might be looking and thinking about Gladman as part of Barratt as well? Has that improved or sort of changed it for the worse?
I've got to be careful because he's a shareholder now, isn't he? God bless him. We competed with Gladman, but Gladman is a lot smaller than Hallam Land. Although they were our competitors, we didn't wake up every morning thinking, "What are Gladman doing?" They might have woken up every morning thinking, "What are Henry Boot doing?"
We weren't doing that. For us, it's kind of like still business as usual. I think that for me, what it does show is Barratt's need for strategic land. Barratt are a very, very good customer of ours, and there is absolutely no suggestion that Barratt aren't gonna remain a very good customer of ours. I think that's because their need is greater than what Gladman can provide them.
I believe they also think we're a class act in delivering the land, in promoting it. I don't think it's meaningfully changed it, but I do think strategically it shows that the house builders, they do need this pipeline of land. I think that's why we're well positioned 'cause we're as good as anybody at giving them that land.
At this time, there are currently no telephone questions. Let's do.
There's one question from the webcast from David O'Brien, Equity Development. You are moving ever closer to medium-term targets and in some cases have passed them. However, the area that stands out is your house building operation. You are targeting 250 unit completions next year, which remains some way short of your strategic goal for the business. While the recent increase in the land bank is very welcome and helps achieve your goals, how soon do you anticipate achieving the goal of 600 completions annually?
Well, David, good question. I think that the background of the 250 is if you think over two years, we've doubled the size of the business. Yeah? It is growing quickly, and we can all do compound growth, can't we? If you keep on doubling the business, and we won't, but if you keep on doubling it and occasionally you double it, then you achieve your growth rates. I think that if we go from 120- 250, and that will be over three years, I think that we've done remarkably well. We're a very long-term business, so already Darren and I are sitting down with Stonebridge, and we've got an idea of what they've got to achieve in order to grow their portfolio again in 2024, 2025, and 2026.
We are investing in the operational capability, we're investing in the land bank, and we believe we've got a market that is strong enough, especially when we get into two, maybe three regions. I've said this morning that we are now open, marketing our first site in the northeast, and we've bought other sites in the northeast, and we've got other sites under offer. I think that is the most stretching of our targets, but I do believe in the medium term. We've not put a date on the medium term, and I'm not gonna put a date on the medium term because the medium term is the medium term. It's not as one shareholder said, "Is that two years?" It's a bit longer than that.
I believe that over the medium term, we will hit 600 units. I think we give it quite a lot of attention, don't we, in our results? I think that's because it is an important strategic initiative, and I think that when we get to the right scale, and 600 is about right, it will be a pretty big business that will be really giving good shareholder returns for Henry Boot.
Thanks very much. There's no further questions from the webcast.
That's good. Thank you very much. Okay, so I think we're done. Nice to see you all. Right, we'll keep on coming and paying homage to the equity community in London.