Ben, are we ready to start? Morning everybody. Good. Yeah, thumbs up. Good to see you all. Can I just say, Chris Spearing is looking particularly dapper today in his suit. Look, looks as though he's just got it out to his dry cleaning. Well done, Chris. More serious now. Normal running order with me covering operational highlights, plus a brief overview of our strategic targets. Darren's going to take you through the financial and land promotion, and then I'll come back and go through development, construction, and finish off with outlook. First of all, for your sins, you got to listen to the investment case. I know you're all familiar with this, so I'll try to be brief. We're focused on three long-term markets with positive structural tailwinds.
I've gotta say, there is nothing that we have seen in the last six months that shakes us in our belief that these are good long-term markets. We've continued our long record of managing our balance sheet effectively, and you can see from the bar chart that the NAV per share just keeps on continuing to grow. I'm pleased that we took action in the spring of last year to manage our gearing as we anticipated that we were gonna enter into yet another period of economic uncertainty. This included making significant well-timed accretive sales, primarily in the first half of last year, and also being selective on purchases. That's the driver of our best ever underlying profit before tax of GBP 56.1 million.
With just under 96,000 plots and development pipeline of GBP 1.25 billion, all held at cost, we've also got ample opportunity as our markets improve to hit our growth targets and unlock significant value. We're aware of the economic slowdown, caused, as everybody knows, by interest rates and inflation. Although our markets adjusted quickly in Q4 of 2022, I think we did well to manage those challenges. Also, as we stand here today, there are signs that demand is recovering. All of this, what does it mean? It means we're confident enough to increase the dividend by 10%. As you can see, the TSR is still very respectable. Going to operational performance. After adjusting for GBP 10.5 million for market valuation movements as all U.K. commercial property markets fell, operating profit was GBP 46.5 million.
Going through our operational performance. First of all, land promotion recorded 3,869 plots sold, primarily in half 1, when there was a buoyant land market, and it averaged GBP 6,100 gross profit per plot. Despite the high number of plots sold, we've grown our land portfolio to nearly 96,000 plots. Turning to development, we've completed on GBP 83 million of development, our share, and 92% of that has been let or sold. We've also maintained a high level of committed development, again, our share, at GBP 240 million. The investment portfolio has reduced to GBP 106 million, primarily through some well-timed accretive sales, and it's also generated a strong relative total return. Stonebridge, our JV house builder, has experienced encouraging levels of demand throughout the year.
Finally, on construction, had a good year last year, and we start 2023 with a spring in our step with 68% of the order book already secured. What does that mean? After you've deducted GBP 8.6 of central operating costs, our group operating profit is GBP 46.5 million. As usual, I'm gonna go through our medium-term targets. The good results mean that we've made progress on all of these. Capital employed is nearly at GBP 400 million and is on track to grow to our target of GBP 500 million. ROCE at 12% is in the middle of our range. With a record year of plot sales, Hallam's five-year average is now nearly at 3,200 plots per annum, close to the 3,500 target we set. To achieve development completions of circa GBP 200 million, guess what?
First of all, you've got to increase your committed development program and keep it high. HBD has done this very effectively. As I've said, it's at GBP 240 million now, and we've got a big pipeline that we can draw down further developments as time, when it's appropriate in time. Whilst the investment portfolio is reduced to GBP 106 million, primarily due to well-timed accretive sales, there'll be opportunities to build the portfolio back up to the GBP 150 million strategic target, we'll be patient in doing that. It might take us two-three years. The demand for Stonebridge's premium homes endures. We completed 175 in 2022, you can see that our goal for this year is 250. Just a minute on the ESG and our responsible business strategy.
Basically, we want to bed this into the commercial decision-making of the business. You can see it's focused on four areas, our people, our places, our planet, and our partners. I'm showing you the 2025 target. The good news is I'm not gonna read through all of that. Just to say, progress on all of those areas has been good. For me, the absolute key initiative is our NZC framework, where we want to be net zero carbon for the emissions that we control by 2030. I'm pleased to say that our direct emissions are 19% down. Sorry, 12% down against our 2019 baseline. With that, I'm gonna pass you over to Darren.
Thank you, Tim. Good morning, everyone. If I can take you through the financial highlights now. I am pleased to report that activity levels and transactions have been strong across all of our operations. As Tim has said, this has resulted in our best ever financial performance on an underlying basis as we capitalized on the strength in our markets prior to the turbulence seen in Q4. This resulted in an increase in revenue of 48% to GBP 341 million for the full year. Overall, the group achieved an underlying profit before tax of GBP 56.1 million.
After adjusting for the downward revaluation movement on completed investment properties of GBP 10 .5 million, we still achieved an impressive operating profit of GBP 46.5 million, up 31% on the previous year, finishing the year with a profit before tax of GBP 45.6 million. Property development activities, including Stonebridge Homes, performed particularly well, contributing GBP 26 million to our operating profit, along with Strategic Land, who contributed GBP 17 million. Higher operating profit has allowed us to achieve a return on capital employed of 12%, firmly back within our medium-term strategic target of 10%-15%. Although we expect the outlook for 2023 to push this back towards the lower end of that range at present.
Finally, with earnings per share increasing 18% to GBP 0.25, we've increased the final dividend by 10% to GBP 0.04, making a total for the year of GBP 0.0666, in line with our progressive dividend policy and retaining earnings on which we believe we can achieve good capital returns as we go forward. Turning to the balance sheet. In 2022, we concentrated on delivering existing opportunities in our key markets with selective investments in new opportunities and tactical disposals from our investment property portfolio. Within the portfolio, including investment properties held in joint ventures, we disposed of 3 properties for almost GBP 30 million at an average 17% premium to book value, whilst adding an industrial asset from our development at Luton, valued at GBP 4.8 million.
Downward valuation movements towards the end of the year reduced final values, resulting in an overall portfolio value of GBP 106 million. We invested GBP 28 million in growing our housebuilders landbank and work in progress whilst adding a similar amount to strategic land and speculative developments, all of which are held in inventories. Net debt increased slightly to GBP 48.6 million, with gearing at 12% towards the lower end of our target range of 10%-20% and supported by secured borrowing facilities of GBP 105 million, which run to 2025. Our defined benefit pension scheme moved to surplus during the year, although we will remove this from our operational KPIs as we work towards buyout of the scheme, and as such, expect no real surplus to eventually arise.
Following this strong result and gains on the defined benefit pension scheme, our net asset value per share increased 10% to GBP 2.95, or 5% and GBP 2.90 excluding the pension surplus. Capital employed has increased 6% to GBP 399 million after removing the pension surplus and is slightly ahead of our medium-term growth aspirations. Just looking at the cash flow now. This saw us recycle retained profits and funds from investment property disposals into investments in inventory activities.
We started the year with net debt of GBP 40.5 million, having then achieved an operating profit of GBP 46.5 million and adjusting for non-cash items of GBP 0.2 million, paying interest costs of GBP 0.7 million, corporation tax of GBP 2.9 million, and finally, dividends of GBP 12.4 million, we ended with a cash inflow from operations of GBP 30.3 million overall. Our interest costs remained low, with our facility having a 1.4% margin over SONIA. Each 1% of interest gives rise to a charge of around GBP 500,000 at our current average debt levels. We then made overall investments of GBP 38.4 million, recycling investment property returns, including those from joint ventures into inventories relating to the landbank and work in progress within Stonebridge Homes, an investment in strategic land and speculative developments.
With working capital and other items reducing by GBP 5 million, we ended the period with net debt of GBP 48.6 million. Just moving on now to the operational review and starting with land promotion. At 3,869 plots, Hallam Land sold its highest number of plots ever above our strategic target of 3,500 at an average of GBP 6,000 gross profit per plot, resulting in an operating profit of GBP 17.3 million, and included a significant disposal at Didcot for 2,170 plots, which allowed for a discount due to volume for our house builder customers. Savills continued to report rising land values although these pulled back towards the end of the year, ending 2% up overall.
We continued to replenish the portfolio after investing around GBP 5 million adding sites with the potential to deliver almost 7,000 plots, we ended with nearly 96,000 potential plots within the portfolio. Whilst current period sales have reduced plots in the portfolio with planning permission, having around 9,400 plots in stock equates to almost 2.5 years worth of sales, we anticipate demand for these plots will increase as the planning system continues to stall. Our portfolio is all held at cost, there's no valuation gain on securing planning permission recognized until the land is actually sold. We've also got around 12,000 plots currently working through the planning system having achieved determinations on only 435 plots in the full year, this really does demonstrate how difficult the system has begun.
Lichfields undertook a study last year which suggested some 70,000 new homes are now stalled in the planning system as the government consider changes to the planning regime. Having a portfolio approach and plots in stock increases our resilience in the short term, whilst our specialist skill set in this area should allow us to navigate current difficulties better than most. Our forward sales for 2023 and 2024 amount to 992 plots, of which 61% are held freehold. A higher proportion than normal and therefore delivering a higher average gross profit per plot, providing a good start to 2023 as we wait to see how active the major house builders are during the year ahead.
Just turning to this slide, 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 expect demand for quality sites in prime locations to continue. Albeit we anticipate smaller 100-200 unit sites will be in highest demand in the current climate. The chart of plots sold shows we are now getting closer to achieving our medium-term target of selling 3,500 plots per annum, with a five-year average now at nearly 3,200. The average gross profit per plot has reduced in the period on the back of the disposal at Didcot.
Whilst this metric will continue to vary with volume sales, land price inflation and location of sales in the U.K., we anticipate a larger proportion of freehold sales in the current year, returning us towards the upper end of this historic range. Finally here, we demonstrate the resilience of our operating model with a case study on a recent disposal at Milton Keynes, securing exchange of sales contract in 2021. Subject to planning, we partnered with Taylor Wimpey to provide our expertise and secure permission over the whole site for 1,855 plots, of which our share amounted to 680.
Having secure planning permission in December of last year and clearing the judicial review period in February of this year, we were able to dispose of this site in March, delivering an ungeared IRR of 14% over some 25 years, an unusually long time for a scheme, but clearly delivering significant end results. A scheme of such size also provides significant benefits to the local community, including employment, schools, amenities, and open leisure space. If I can hand you back to Tim now who will continue with property investment and development.
Thank you, Darren. Thank you. Property and development, and that includes Stonebridge. You can see it made an operating profit of GBP 25.7 million. HBD completed on GBP 83 million, our share of developments, 92% let or sold. We've maintained a high level of committed development at GBP 240 million, and I'm gonna go through that in more detail on the next slide, and 97% of the development costs are fixed. We've grown the GDV of our pipeline to GBP 1.25 billion, and that now includes the first phase of our Golden Valley scheme, and that's the scheme that we're promoting that's next door to GCHQ at Cheltenham. The investment portfolio, as I said, has performed very well, relatively speaking, and it's shown a capital return of -5.4%.
Our total property return of - 1.5% was materially better than the index, which showed - 9.1%. The portfolio is made up mainly of high-quality retained developments, but there are some investments we've acquired which we think have got clear development potential. Despite this mix, we've got a healthy weighted average lease length of 10.7 years. As I said, just running you through the committed program in just a bit more detail. Starting at the top, you can see that we've got four schemes in industrial comprising 1 million sq ft. The only speculative scheme is at Rainham, which serves greater London, and where whilst formal marketing hasn't yet started, we are already getting good occupier demand. You can see our share of the GDV is GBP 24 million. It's a JV with Barings.
On industrial generally, whilst the investment market has cooled off, occupier demand is still strong, and there are signs that the investment market is now more stabilized. I'll talk about it a bit in a minute, but I suspect we will do more industrial development this year. Next, urban, residential and commercial. We're progressing well with construction at Setl. You remember we're developing 100 premium apartments in the center of Birmingham with a GDV of GBP 32 million. Completion will be towards the early part of 2024. Whilst we're not going to look to make meaningful sales until we're closer to completion, we anticipate that there will be encouraging demand there. Next, on that is Manchester Island, and this is our prime net zero carbon office spec development in the center of Manchester. Our share of GDV is GBP 33 million.
Completion is in H 2 of 2024. With limited office supply coming through in Manchester, we expect to see good occupier demand for the development, especially bearing in mind the great ESG credentials that the scheme has. Total estimated profit on all of these schemes is GBP 34 million, and that is equivalent to an average profit on cost of 16%. GBP 10 million has been taken to date. Guess what? We've got another GBP 24 million to come. The vast majority of the profit taken relates to New Horizon, where we fully funded it. All of the schemes in the committed program are expected to complete by the end of 2024, so it's gonna be an important source of profit for the group over the next couple of years.
Now, just in terms of the pipeline, if you look at the right-hand column headed Total Pipeline, it shows that we've got nearly 7 million sq ft of industrial plus 710 residential units and 300,000 sq ft of offices. Depending on how much risk we take on the developments, we underwrite the developments showing a profit of between 10%-15% on cost. 65% of the GBP 1.25 billion is industrial. You can see on the map of the country that most of it is centered on the major motorways. Our urban development sites are all located in the big regional city centers. During this year, as I've said, we anticipate making progress on pre-sales or pre-lettings of the committed program. As we do that, we will look to replenish our committed developments.
Probably we're going to do more industrial where, as I said, the occupier demand, and we think the investment market is pretty good. The other area that is a good market, both from customers and investors, is build to rent. You remember, excuse me, a couple of years ago, we bought a site in Birmingham's Jewellery Quarter. The design of the scheme has progressed at pace, and I'm very pleased to say that we got planning consent last week for a 414 unit build to rent scheme. You can see some images of it there. The scheme's going to create some great public space. It'll offer high quality community facilities, and we've really learned from the development that we did in Kampus to Manchester.
I think this is going to be high quality scheme. We will look to forward fund this year. Turning to Stonebridge, this is our Yorkshire premium house builder, and I'm pleased to say it's also started to sell homes in the Northeast, its second region. It's had a good period with average sales price at just over GBP 500,000. Price improvements against budget has averaged 10%, and that has been partially offset by cost inflation at 9%. We missed our target of 200 and completed 175 homes in 2022, but this was purely down to supply constraints. We literally couldn't finish some buildings and did not represent any decrease in demand. Indeed, the majority of the remaining 25 homes we will be selling this year. They've either been reserved or sold.
The 10% price improvement that we achieved during the year also meant that the business at an operating profit level marginally exceeded our expectations. 56% of this year's target of 250 have been forward sold. Our required sales rate for 2023 is 0.5. In the first two months of this year, we're marginally below that figure at 0.45, but we are seeing encouraging numbers of people coming to the site and also visiting our website. Also, this year prices have remained firm. We remain on track to scale up Stonebridge, and we believe that we will reach our medium target of completing 600 homes per annum. Turning to construction, the division has done well with all three businesses contributing to the operating profit of GBP 12.1 million.
This part of the group, just to remind you, represents just 2% of capital employed. The construction part is running in line with our expectations, despite facing supply challenges on two of its largest urban developments in Sheffield, Kangaroo Works and Block H. Our other large urban development, GBP 47 million residential refurbishment at The Cocoa Works in York, is progressing well and is on track for completion in early 2024. There's a surprising amount of work around, and although we remain selective, I'm pleased to say that we started the year with a healthy 68% of our order book secured. 94% of the costs relating to work for 2023 have either fixed price orders placed or contractual inflation clauses in place. Banner Plant and Road Link are both trading ahead of pre-pandemic levels.
To conclude on outlook, our best ever underlying profit has positioned the business well to face both the pressures and the opportunities in what remains an uncertain environment. There's no doubt that the economy has slowed and that our activity in 2023 will be affected. There are early signs of our markets picking up and supply restraints and cost pressures are easing. As set out on the slide, you can see that there are encouraging levels of sales both in Hallam Land and HBD. Stonebridge also with 56% of the units pre-sold and construction with 68% secured for 2023. Whilst house builders are selective on buying sites, there is no doubt in my mind that as a country, we need more houses and that also the planning environment is becoming very difficult.
Ultimately, I believe that there's going to be demand for the plots in Hallam. Our committed development program is mainly pre-let or forward sold and costs are fixed. As I've explained, there are opportunities within our pipeline, especially in the more buoyant markets of industrial and build to rent, and we expect to bring those forward. This year, we expect also to complete on 250 homes for Stonebridge, so we are picking up the scale. As I've said, we feel good about hitting our 600 unit medium-term target. All of this means we feel confident about our prospects, and we've increased the dividend by 10%. With a strong balance sheet, low gearing and a portfolio rich with opportunity, we've got the resources to grow and to also generate good total shareholder returns. Thank you.
What do we want to do? Take questions. I don't know, we normally do the ones in the room first, do we?
Morning. Andy Edmond, Equity Development. Well done, gentlemen.
Thank you.
A couple of questions. you know, a feature all the way through is your control of costs going forward. I wonder if Darren could say a little bit more about whether he's managed to lock in the absolute peak of inflation prices or a little bit more about the sort of negotiating process and how easy or how difficult it's been to get the definite advantage of certainty.
Yeah, I think it's clearly been challenging over the last year with inflation where it's at. Not only that, but material supply shortages and labor as well. Therefore, on all of our schemes throughout most of our businesses, actually having that cost certainty is pretty important to us. As Tim said, you know, we've got kind of 98% on the construction side of things that is secured. A significant proportion, again, in property development. So from that aspect, we've been able to make work both stack up profitably but get that security over the cost side as well. We are now coming to the peak of that, we think. So we are starting to see contract prices within the development space turn a corner and slightly come off.
Stonebridge Homes has seen a lot of its challenges around material supply, starting to ease and same with the labor. Some of that might actually be born out of what we've all been hearing about major house builders in terms of activity levels falling. To a great extent, that's actually become our friend in a lot of things as we move through this year now.
Tim, you mentioned encouraging signs of demand picking up. Now, at the same time, you've got your rock solid balance sheet. You have the capability to act swiftly on opportunities. How is the balance looking for opportunities? Are you in discussions and seeing pricings starting to move up, or is it still a market where you think this year will yield opportunities for you?
Yeah, I think that fundamentally, there will be opportunities for us to buy. The track record of Henry Boot is that it is remarkably good at finding opportunities, so I expect us to buy something this year. I think more importantly, we've got this rich portfolio of opportunity already. I think that we will draw down on the GBP 1.25 billion development pipeline, and as I said, commit to industrial and build to rent, where actually the occupier markets are higher in terms of pricing than they were last year. The funding market is strong. I think that will be an important focus for us.
Also, we are investing money into Stonebridge, because part of what we've got to do is make sure that there's a good land bank going forward. If you think about it, the growth in the business, in 2020, we want to say we finished 120 plots, and we're hoping in not many years' time, that we'll be up to 600. We've got to have a land bank that's fit for that. What we don't want to do is peak at 600 and then find that the business hasn't got the capacity to maintain that or indeed grow. I think that this year, we will have a reasonably good year.
Don't forget, Andy, the opportunities that we find this year or the opportunities that we start to mine this year, and we will, they will really be profits back end of 2024 and 2025.
Thank you very much.
Hello. Christen Hjorth from Numis. Three questions, please, from me. First of all, you talked, Tim, about pulling down for on property development from the pipeline. What is the key constraint around that? Is it concerns around the macro? Is it funding, in terms of accelerating that potentially? Secondly, just on Stonebridge, and how you sort of think about getting to the 600 units. Is that all organic? Would you consider, you know, M&A if they're small regional house builders? You know, is, you know, 600 is a lot of growth from here, but does it end there? Or do you sort of have longer term plans of expanding further in that business?
The third one, can you just remind us when the PFI in construction runs to the level of profit generated from that, just so we can think about that coming up?
I'm gonna let Darren, Christen, Darren's gonna answer the third one 'cause everybody knows my attention span won't last to three questions. Yeah. But I've got a reasonable note that prompt me, and you do Christen as well, prompt me on the first two. I think in terms of what we think about when we draw down from the pipeline, it's a few things and you've mentioned some of them. One, we obviously think about the macroeconomic climate, because as we draw things down, we invest money. We're thinking about very, very high level where our gearing is. I believe that we were very thoughtful last year because we really, and it was more Darren, started to control the gearing in the spring of last year.
We made a conscious decision that we were gonna end up the year pretty well at the level of gearing that we started. We started at 11%.
Yeah.
You know, 12%, that's pretty good. We have to keep on thinking about that, 'cause there's no point us declaring victory on a specific project, but then having our gearing at an uncomfortable level. One, big macro. Two, what are the other opportunities within the portfolio? Have Hallam got some good deals? Have Stonebridge got some good deals? We want there to be strong discipline within the businesses, but equally, all the businesses have got some sort of strategic objective, and I think that growth is our friend. We wanna grow these businesses. Finally, we're thinking about the actual returns and the risks on those specific projects.
We are very, very likely to start some industrial development because actually at the moment we've got three occupiers, two of whom want buy build to occupy 'cause they'll end up buying it, and one of which will do a pre-let. Now, they're not done deals, but it's hard to imagine in this market that if we've got three people saying they want to do something with us, we will do one or two of them, and hopefully all three. They're the main thoughts in terms of the development side. I think that answers the question. In terms of Stonebridge, we've been very open with people. We think that the ambitions to grow Stonebridge are Ambitious targets. We do believe we can do it.
We believe that as an organization, we are highly skilled at creating a land bank because I believe we've got the best land bank in the country now. We think that we can grow Stonebridge, and the demand seems to be robust for premium houses. There'll be ups and downs, won't there? Medium-term, the demand we think is robust for our product, so we think that we can grow that organically. I wouldn't close my mind to any M&A activity, especially if it was a regional business next door to existing two regions. I think that the main focus is on organic growth. You at PFI.
Yes. Just finally, on Road Link, the end date for that contract is March 2026. We've been in discussions with National Highways about the potential to extend that. There's no plan to extend that. They are now working up towards taking the contract back at that end date. We've agreed all the hand back works that we've got to do with them, so we've got a fair degree of cost certainty. Clearly we've had a pretty good year. This year in terms of their return on sales at 57%, they actually benefit from high levels of inflation feeding into the tolls revenue and also a recovery in traffic levels using the road post-COVID.
Adrian.
Morning. Adrian Kearsey, Panmure. Two from me. Want to go back to Stonebridge. How much of the growth to get to that 600 do you think will come from the Northeast over the next few years? In terms of the investment portfolio, you talked about getting the value of the portfolio up to your medium-term targets within the next few years. How much of that do you think will be coming from internally generated projects, and how much would be bought in? Yeah. Thank you.
Yeah. We've talked about Stonebridge before. Primarily, we think that a sustainable level of output per annum per region is 200 homes. Obviously, Yorkshire is our kinda like main patch, so we're confident that we can get to 200 in Yorkshire. Actually, because the business is so orientated towards North Yorkshire, we feel as though we know the Northeast well, and we could quite quickly get up to 200 units there. Then we think that we've got to expand into another region, and it will probably be the North Midlands. We'll end up, Adrian, it won't be perfect like this, will it? It's our strategic thinking. We think that we'll end up in three regions, with each region contributing roughly 200.
You would guess, because we know our Yorkshire onions so well, that Yorkshire would always be the main region whilst we're a 600 unit business. I might be confusing questions now. I don't know whether Christen also asked whether we would have ambitions to grow it above 600. We might or might not, we've gotta get to 600, first of all, haven't we? I think that you all understand that 600's ambitious. On the investment portfolio, I think it'll be a mixture as we complete development. To give you an idea, on the GBP 106 million of investments that we've got at the moment, GBP 70 million of them are in industrial, and the vast majority of those GBP 70 million are completed developments. They're high quality.
That's the reason why the weighted average lease length's a good lease length. We've got a big committed program, and there is no doubt there will be some developments that we think will still benefit because we're placemaking around them, or we feel that the rent at the time offered good value, and we will retain them for a period of time because we think that the investment values will keep on going up. Increasingly is becoming an important source for us, especially in urban development, to have some investments where we've got some income. We can go through the ups and downs of the planning system whilst we're collecting that income, and then we can develop the site and create development profits.
We talked in the past, we've got a site in Manchester, and it's literally, and Darren and I have done it, a five-minute walk from the city center. It's industrial. At the moment the industrial units are being rented out to people who are preparing food, e-commerce, and the rents are going ballistic. Really the money to make is to get the units back and put a big block of flats on there, whether that's build to rent or build to sell. We'll keep on doing that. I would guess that we will find lots of opportunity to grow the portfolio by rounded GBP 50 million, and half of it will be retaining developments and half will be buying new ones.
Thank you. Clyde Lewis at Peel Hunt.
Two, if I may, Tim, might be for Darren, probably more on land pricing. Obviously, you referred to a little bit of a tailing off at the end of the year, in terms of land pricing. How has that evolved over the first three months, 2 .5 months of 2022? The follow-up to that is house builder interest levels.
Yeah.
Is that starting to properly build? Probably one for Tim. I think you talked about the planning system being in, yeah.
Yeah.
Of a mess. Again, are you seeing any improving signs that, you know, if nutrient neutrality gets knocked on the head and, you know, we may well get a change in government. If all of that starts to come through, what do you want to do with that sort of.
Mm
97,000, 98,000 plots that you've got sitting in.
Yeah
In Hallam? Do you want to continue to grow that, or is it more about optimization?
Okay. Well, I'm gonna be a bit mischievous. I'm gonna answer the first question, and I'm gonna let Darren answer the second one. I think that in Q4, the market for land was very subdued. Clyde, you know this 'cause you obviously follow the house builders. The national house builders definitely, less so the regional ones, but the national ones really did put their foot on the ball. I think that what they have seen since Q4, and we've seen this in Stonebridge as well, is that actually some degree of confidence has been restored in their customers and that actual sales rates typically would be running at, say, 0.5. It's not a bad market. It's not as good as it was last year generally, but better than it was in Q4.
Because they've seen that, there is definitely interest in land, and I think that one, headline prices have rounded down, but also kinda like the net price has also reduced because what they are looking to do is they're looking to defer their payments for a longer period of time. That's now, what I'd also do, and you're aware we've announced two sales in the last two weeks. One in Milton Keynes where it was a completion, the house builder completed absolutely within the timetable. It's so complicated getting completion together. If you want to just slow things down, you can do it, they didn't. That is a sign that they want that land.
More importantly, we've also sold a plot for 250 units to Vistry or Countryside, and that's in Coventry, and that was a fresh exchange. Now, for whatever reason, we can't release the figure at the moment, but it was a significant land transaction, and the pricing was agreed in the early autumn of last year, and we exchanged at the price that we agreed. Again, there's a suggestion that the land market is there, but what I do believe is that at the moment, house builders are being very selective over what they want, and they are being very thoughtful about when they actually pay the lump sum of the money going forward.
That's today, and I won't answer Darren's question, but fundamentally, the planning system needs reform in this country, and this isn't about Henry Boot, is it? Right? We should all be knocking on the door of government and saying, "This is doing a disservice to the country." It's getting so hard to get planning consents that the house builders are gonna have to buy land from people like us, because otherwise, they won't have enough land in their land banks. I'm absolutely convinced that housing demand because of households growing, population growing, Demand for housing is gonna endure, isn't it? We still remain confident that the 96,000 plots that we've got in Hallam, the 9,600 plots with planning, we just think there's gonna be a lot of demand there for them.
It might not all materialize this year. We're not saying that we're all gonna do it this year. Over the next three, four years, we think there'll be a lot of demand for those. Now this is a moment where Darren's gonna get something off his chest. He's gonna talk about the planning system.
Leading absolutely into what Tim's just picked up on there, I know you mentioned nutrient neutrality, and then there's biodiversity net gain, and water neutrality, and all those things were incredible challenges through last year. We get on and solve the problems, and whilst some of the rules weren't necessarily clear to define a solution, our teams have done tremendously well at actually finding a way through those problems, coming up with credible solutions that we can then present to local authorities as reasons for why development works and actually abides by those things that they're wanting to do. To Tim's point, what has really kind of made things far more challenging now, though, is the government's look at potential planning reform. Certainly the move away now from specific housing numbers and targets.
What that has really done is put a lot of doubt in local authorities around what they're doing and where they're going. That goes to the Lichfields report that I mentioned earlier. They did a review last year that looked at what was then eight local authorities that have stalled, paused, stopped local plans coming forward because of the uncertainty. That amounted then to 70,000 new homes that are now on hold. Last count, there were now 21 local authorities which have paused their plans coming forward. That number will be significantly higher. All of the house builders will be feeling the pain of trying to get through planning, just as we've demonstrated with only 400 and nearly 500 plots achieved in the year.
I think, again, to Tim's point, what is really our friend is the 9,600 we got with planning that give us two or three years worth of stock at current sales rates to continue navigating those challenges in planning. As it frees up, given we've got 12,000 in for planning, we should start seeing some of those come through, particularly with us solving some of the problems, nutrient neutrality, et cetera, for the local authorities. In terms of the portfolio growth as we go forward, I think it's having that portfolio approach as well that really is our friend. Already this year, we've had probably another 400 plots come through planning, quite a bias to option land and freehold land, so the more valuable end of what we do.
It's therefore about having enough plates spinning at any given time that we can manage to land enough to get through what we want to deliver. To that extent, we'll continue to seek out new land. In the current climate, that will probably be more akin to the planning promotion agreements, where the initial investment is much lower than perhaps freehold land, as we put into the portfolio, and perhaps not growing it as aggressively as we have done previously. Absolutely, we'll still be looking for good opportunities to add.
Perfect. Thank you.
Yeah. Sam.
Morning, everyone. Sam Cullen from Peel Hunt. I've got three, also, one on each division. First one on Hallam. Medium term, if you do that 3,500 plots a year, is it sustainable to look at gross profit numbers where they were kind of three or four years ago, or would we be looking at sort of the level they are now going forward if you did that in the medium term?
Yeah.
Secondly, on to Stonebridge. Do you have the sites in place for the 250 units you were hoping to do this year? Longer term, do you have any land in the North Midlands, or is that kind of in the North Mids, do you have land in the North Midlands?
Yeah.
Is that on the to-do list?
Yeah.
The last one is, Tim, your crystal ball, I guess. You've indicated that things are kind of thawing, I guess, from the nadir of the autumn. What's the catalyst to get the kind of development market, kind of occupying market coming back again?
Okay. Right. Do you fancy having a go at the Hallam one?
Yeah, I think so.
As, as we said, Sam, look, we've got a huge portfolio of opportunities. As we get to that 3,500 target per annum in terms of delivery, I think that will be sustainable. As we've seen historically, it can be up and down in any given year, which is why we look to say we're trying to achieve an average over a five-year period of 3,500. I absolutely think that we can get to that and we can sustain that. In terms of that gross profit per plot, again, as we've seen last year, was down at GBP 6 thousand, really driven by the large scale disposal at Didcot, which tracks that volume discount. We've got other large scale sites that undoubtedly will do the same in the future.
By comparison, we've also got probably 10% of the portfolio that's freehold. To the extent we bring that through, as we are looking to do this year, we'll see that gross profit per plot back up at that higher level. Ultimately, does it sustain going forward? I think all of the challenges that we've seen, all the additional costs of planning and all the additional work we've got to do now on the things that Clyde was mentioning there all come at a cost. Whether the forward-looking average is akin to the historic, which we'd always said around GBP 10,000 per plot, we may see that coming under a little bit of strain. Certainly for the next few years, actually, I think what we're bringing forward will probably be knocking on the door of that number.
Good. Yeah. so on Stonebridge, first of all, you asked about whether we'd secured sites in the North-East. Yes, we have. Again, we've got pretty sophisticated approach to site acquisition. We've got some people who are just looking at the moment, for example, in the North-East, they all have targets to put so many bids in each month. We'll also have targets to grow the land bank as well. Darren and I get involved in that. That might sound as though we're in the weeds, but we're not because we think that if the land bank is a good land bank, then usually you got a good business. The existing land bank is 1,100. Around just under 900 of those already got planning consent.
We have got the sites in place for our profits and our output for 2023. You can ask me this question when I see you in September. I'd be disappointed if we don't have them in place for 2024. Don't forget, it becomes a bigger target every year, doesn't it? Next year, as long as there's demand there, and we believe that there will be demand there, we will be saying to you that we're gonna be building more than 250 homes, so we need an even bigger land bank. Was that hit on Stonebridge?
Just land in the North Midlands, yeah.
North Midlands.
Land in the North Midlands.
Yeah, we've just started looking for sites at the moment in the North Midlands.
Just started.
It's on our mind, but we're not there yet.
Yeah. Yeah. You would imagine in the North Midlands, probably that's a region that we'll try to build in in 2025. We'll have to have some sites acquired some time next year to start to get the sites ready and think about our branding and our presence in that region. I think that you also asked about what are the conditions that you think we will need to see in order for the development markets, and by implication, occupiers and investors just to settle down. Well, the two markets that we're obviously interested in are industrial and build to rent. I think in those markets, actually, the occupiers and the customers are already pretty settled. Both markets saw rental growth last year. The build to rent market saw steady investor interest.
Again, I think that if you wanted to fund a build to rent development in quarter four, the funds would have talked to you, but they'd have just kept you talking. I think that now they are actually bidding again. We've had a bid for one of our projects, haven't we? It's not quite ready to go. I think that in terms of build to rent and industrial on the investment side, there's a market there for good quality stuff. I think as long as something like interest rates or dare I raise the prospect banking gloom, as long as that doesn't spook the market, I think that we've got a market that we can deal in.
To be clear, if it does spook the market, I think the fundamentals of the markets are strong. All that'll happen is it means that good old Henry Boot won't be selling something or funding something this quarter. It will be doing it in the future. I think fundamentally, they are good markets. I think really what all business people want, and I'm sure you all want this as well, is just kinda like a period where there is a degree of certainty and calm, both in the economy and also the political environment. You know, let's hope we get that in 2023. Reasonable prospects of that, aren't there? No one's nodding. Okay. Any more for any more? No. Have we got any questions on the phone?
At the moment.
Okay.
Like to ask a question, line, please press star one.
No. Okay. All right.
One more question.
Questions on the webcast.
Oh, right. We've got questions on the webcast. Didn't even know we did that.
There are two questions from David O'Brien at Equity Development.
In terms of Stonebridge Homes, should we assume that unit sales volume increases should more than offset pressures on house prices and costs in terms of profit contribution? Rightmove has come out this morning suggesting that asking prices for homes have increased by GBP 2,906 during March, with average mortgage rates now at 4.65%, down from 5.89% in October. One suspects this augurs well for the outlook for plot sales with planning permission and Stonebridge Homes sales.
Okay. Right. Should I do the last one?
Yes.
The first one.
Yeah. In terms of sales volumes in Stonebridge, I don't think it's necessarily that those volumes will offset potential downsides coming through cost price inflation or sales price reductions. We've seen certainly over the course of last year that we'd handled the inflation pretty well, being more than offset by the pricing increases. As we go into this year, it appears that prices are currently holding up. As we'd said, in terms of the kind of cost inflation, that seems to be stabilizing now. Ultimately, as we move forward, I would expect that those increases in volumes to be adding to our bottom line as that business grows.
Yeah, in terms of the Rightmove, that was actually released the day before, and I read about that yesterday. Look, the sentiment in terms of their five-year fixed rate mortgages that they're quoting, I think the sentiment is encouraging, isn't it? It's a lot better than it was in September, when Truss stood up and shook Great Britain. Having said that, it is higher than it was two years ago. Two years ago, the equivalent mortgage rate was 2.6%. I think that all that does, it shows that there is a degree of confidence being restored to the housing market, and that's very, very important, isn't it? Because if people aren't confident, they aren't gonna go out and make the biggest purchase in their lives.
Certainly as we have already indicated, and I had a bit of a joke on some of the press calls beforehand because a lot of you London-based people don't realize what the weather is like up north. You know, in Sheffield, they've had some proper snow. For a couple of weekends, they've not even been able to get anybody on the site to buy houses. In January and February, despite the slings and arrows of outrageous fortune and weather, the sales rates weren't bad at 0.45. It's important that they pick up just a bit in spring, but that is a normal trend.
You all know that spring is a very important season for the house building. We hope that what Rightmove is saying will be good for the market and that we'll enjoy just a bit of a pickup in spring, and I think that's a reasonable prospect for us to think will happen.
That's everything from the webcast.
Yeah. Good. Okay. Nice to see you all. Thank you. Thank you.
Thank you.