Hi, good morning everyone, and welcome. You will not be surprised that we're going to follow a similar format to our previous presentations. What I'll do is I'll start with an overview in terms of our first half performance. Then I'll give you a short update with regard to our progress against the targets that we set last year, before Steven and Jessica will then talk you through the operational and then the financial performance.
I'll return. We'll spend a little bit of time on industry fundamentals to look at the challenges around skills and also around modern methods of construction. Finally, to touch on current trading and outlook. First of all, in terms of highlights, I'm very pleased to say that our team has delivered another very strong performance in the first half of the year.
If you look over the last few years, I believe that we've really transformed our business, we're delivering now a much stronger financial and operational performance. The housing market backdrop clearly still has very strong fundamentals in terms of demand, mortgages, and land availability. We announced our new medium-term targets back in September, we're clearly making good progress against those targets.
Our balance sheet is in great shape, we have good, strong cash generation, that's reflected this morning in terms of us extending our capital return plan. I think very encouragingly, we've seen a good start to the second half of the year in terms of current trading. I just want to take a little bit of time to touch on our vision and our priorities, which we first published five years ago. We remain very focused on this vision.
We set out that we wanted to lead the future of house building by putting the customer at the heart of everything we do. I think for us at Barratt and David Wilson, it's very much in our DNA. We passionately believe that we need to put the customer first. We need to build a responsive and a resilient business, looking at customer needs for the long term.
We also have to build great places, communities where people are truly proud to live. We also aim to lead construction. We need to continually strive for excellence, we must embrace modern methods of construction. Last, but certainly not least, investing in our people is absolutely vital. We have to have successful strategies for recruitment and retention to ensure that we can meet the skills challenge.
If we follow the vision and these priorities, it means that we can deliver an excellent financial and operational performance, but we can also build a strong and sustainable business. If we move on, as I've done before in the presentation, we look at our investment proposition. We believe that we have clear differentiators which define a strong investment case.
We run one of the shortest land banks in the industry. This improves our return on capital employed and reduces the longer term risk. This is at a time when the land market is very attractive, there seems to be very limited benefits in holding a longer land bank. We remain industry leading in terms of quality and service.
In the last 12 months, it's been very good to see that many of our competitors have raised their game, and the standards of customer service have improved across the industry. However, we should point out that our delivery has been very consistent. We've provided excellent customer service throughout the last decade. We have a strong and highly experienced build and sales teams, and they are rightly very proud of the standards that they meet.
Nonetheless, we are striving to improve. We recognize that quality and service is key to the strength of our business, also our reputation, and it clearly gives us a license to operate in all of the communities that we build and sell in across the country. Lastly, our geographic spread gives us a diversified business which reflects a balanced market exposure. These differentiators mean that our business is well-placed for our shareholders.
We believe that we can carry on growing volumes, we can deliver margin improvements, and we can deliver strong cash returns. Just to look at the medium-term targets. I think we've demonstrated this morning that we are making very good progress against these targets. We set targets to grow volumes by 3%-5% per annum, to acquire land at a minimum 23% gross margin, and to achieve a minimum of 25% return on capital employed.
We delivered strong completion growth for the first half at 7,622 homes, up 4.1% on the same period last year. We will continue to grow volumes in a disciplined manner, and we will always ensure that we are maintaining our high standards of quality and service. We believe that the current operational structure of the business gives us capacity to grow to up to 20,000 homes per annum.
We continue to buy land at a minimum gross margin of 23%. The first half group gross margin was 22.6%, up 200 basis points from the first half last year, and Jessica will give you a little more color around that in her presentation. We delivered 130 basis point operating margin improvement for the half year to 19.2%. Additionally, we continue to be very focused on return on capital employed, where we delivered a strong 29.5%. Thank you, and I'll now pass over to Steven.
Thank you, David, and good morning, everyone. I'd now like to take you through the operational aspects of the business. Starting with completions, we are continuing to grow volumes and have delivered strong completion growth for the first half at 7,622 units, including JVs, up 4.1%.
Our regional completions were at the highest level in 11 years, up over 5%. We have seen good, consistent growth across our regional business. London completions were up 63%, reflecting our build profile, while JVs were down 42%, driven by planned completion delivery at Nine Elms. We have delivered a similar completion profile to last year. Help to Buy remains an important support for the industry, and 38% of our total group completions utilized the scheme.
The increased usage of Help to Buy is mainly driven by London and southern regions, where we have repositioned our product offering, resulting in a greater proportion of product being available within the Help to Buy price range. Affordable completions at 18% were in line with last year. Although we now expect this to be around 20% for FY 2019 as a result of timing of delivery on sites.
Investor sales remained at 4% as the market has adjusted to the stamp duty changes and reduced tax relief available to landlords, as mentioned in previous years. Now, moving on to sales. We have delivered a solid performance for the first half. As a group, we achieved a private sales rate of 0.64 per outlet per week. This is a good rate, and one we are very comfortable with, and at a level where we can match build to sales.
The London sales rate includes reservations from two bespoke design and build arrangements, namely New Mill Quarter Hackbridge and Nestlé Hayes. Whilst our second quarter was more subdued, January trading has been encouraging. Now, looking at land supply. The chart shows the impact due to NPPF on increasing the amount of consented land into the market.
This is currently circa 362,000 annual consents. It also shows that greenfield land price growth remains modest and prices are still well below the pre-downturn levels. Land prices remain stable. There continues to be a good flow of excellent opportunities across the country. We remain focused on securing standard product sites for our regional businesses, whilst in London, we are targeting Zone 3 and outwards. In the first half, we approved over 9,500 plots across 43 sites.
This is a good run rate, but lower than last year, which reflected some large sites, including 2,000 units at Northgate near Bristol. There is no change in our medium-term targets. We are targeting to approve between 18,000 - 22,000 plots per annum. We've actively repositioned our land bank in London over the past five years. The chart shows in December 2013, 34% of plots were in Central London, with 66% in Outer London.
At December 2018, only 1% of plots were in Central London. Our land bank in Outer London is now strong. 92% of our private-owned and controlled land bank in London has a selling price below GBP 600,000, leaving us well placed within the Help to Buy cap for this region. Improving operating margin continues to be a key priority for us.
We look to achieve this in a number of ways, including delivery from strategic land and the use of our new product ranges. Firstly, looking at strategic land. During the first half year, 26% of completions came from strategic land. Strategic land generally traded at an enhanced margin of circa 300 basis points compared with instantly acquired sites. Our closing position is strong at 12,192 acres, with a good geographic spread across 271 locations to support future growth and margin performance.
We continue to target 30% of completions from strategic land in the medium term. As you know, in 2016, we launched new product ranges for both of our brands to support margin growth. We're making good progress on rolling these out. Completions in the first half were 2,159 compared to 269 for last half year. There's been a substantial increase over the year.
We have now identified 398 sites for our new ranges, that's up 31% from this point last year. We're currently building on 230 of those sites, up 53%. We expect to complete on over 6,000 homes across all the new ranges in FY 2019. The rollout of the product will support margin growth in FY 2019 and beyond. We continuously review our product designs and refine them to drive further efficiencies.
We have received positive feedback from customers as well as sales and build teams. On average, we are improving our build speed by between three to four weeks. The new Barratt product is more suitable for modern methods of construction, where we've seen a step up in usage, David will go through this in more detail later on. We actively manage our supply chain to support delivery and quality of our product.
We have a centralized procurement team responsible for build materials, who build and manage 95% of our build material costs from foundation level for our standard product. We have around 190 group supply agreements with 142 suppliers, with an annual spend of circa GBP 435 million. Our central procurement function and arrangements enable us to gain best commercial leverage and manage supplier relationships effectively.
These ensure material quality is delivered and operational performance is not disrupted. The value of these relationships is seen in times of supply constraint when we're able to secure sufficient materials to maintain our build. We purchase very little that is completely manufactured outside the U.K. 90% of what we spend with group suppliers is manufactured or assembled in the U.K., although some elements of offshore components can be used in these products.
We promote an approach of purchasing from U.K. businesses where possible as this reduces supply risk and currency exposure. It also simplifies logistics and benefits the U.K. economy. We've been planning for some time for the U.K.'s exit from the E.U. We've been working with our supplier partners who use offshore content to seek to ensure continuity of our supply. This includes product specification review, additional materials located in the U.K., and review of logistic routes.
Turning now to build costs. On materials, we've experienced modest inflationary pressure in line with our expectations with timber, bricks, and plastic drainage products seeing higher than average increases. We anticipate similar inflationary pressure to continue through FY 2020. 98% of pricing for our material spend is fixed until June 2019, with 40% of spend already fixed to December 2019.
On labor, some pressure still remains on availability of specific skilled trades in certain areas. However, generally, this has eased. We continue to attract resource due to the quality of our award-winning site management with trades preferring to work on well-managed and organized sites. We have helped mitigate labor shortages and inflation by simplifying our designs, training apprentices, and through the increased use of offsite manufacturing.
Overall, build costs are expected to increase in total by 3%-4% in FY 2019 as previously guided. In summary, a strong performance over the first half. We have achieved strong completion growth and solid sales rates. We continue to make good progress in improving operating margins through continued delivery from strategic land, increased delivery from our new product ranges, and tightly managing our cost base.
We continue to drive other operational improvements throughout the business, while at the same time delivering industry-leading quality, customer service, and maintaining a focus on health and safety. Thank you, I'll now hand over to Jessica.
Thank you, Steven. Good morning, everyone. We've delivered a strong set of results this half year. Revenue was up 7.2% to GBP 2.13 billion. Gross profit was up 17.6% to GBP 482 million at a margin of 22.6%. After net administrative expenses of GBP 74 million and profit on part exchange properties of GBP one and a half million, we delivered an operating profit of GBP 409.7 million.
We made further good progress on operating margin, which improved by 130 basis points on the first half last year to 19.2%. Our profit before tax was GBP 408 million, a record first half profit for the group. We closed the half year with net cash of GBP 387 million, GBP 222 million higher than the prior year, reflecting higher volumes and margins, a lower increase in net land as we manage our business to our operating framework of around four and a half years' land supply.
Our ROCE was strong at 29.5%, up 120 basis points on the prior year. Wholly owned completions were 7,402, up 6.6%. Total completions including joint ventures was 7,622. Private average selling price increased by almost 1% to GBP 317,300, reflecting mix changes and some underlying inflation.
Overall, average selling price was similar to last year at GBP 282,200, which compares to a closing land bank of GBP 275,000. Our regional business delivered 5,850 private completions in the half year at an average selling price of GBP 296,200, down slightly on the prior year due to changes in product mix as we delivered a greater proportion of smaller properties, partly offset by some underlying house price inflation. In London, we delivered 228 private completions in the half year at an average selling price of GBP 860,600.
Of these, 106 were in central London with an average selling price of well over GBP 1 million with a significant delivery from both Blackfriars and Landmark Place. At the 31st of December, we had only 39 wholly owned private units remaining in central London. Therefore, we continue to expect our group private ASP to reduce in the second half due to a lower number of central London completions.
We remain focused on delivering margin improvement. This slide shows our continued progress. Our growth margin improved by 200 basis points on the first half last year to 22.6%. We continue to acquire land at a minimum 23% growth margin hurdle rate facilitated by our new product range. Acquiring land at higher margins, usage of our new product range on existing sites where possible continues to deliver margin improvement.
There has been minimal impact on margin in the half year from net inflation. Let's break down the components of our 130 basis point improvement in operating margin. We've seen good progress on delivery from our new site starts and product range, which contributed a margin improvement of 120 basis points. We had small positive benefits from the runoff of legacy land and the cessation of show home lease back.
We also saw a 10 basis point improvement from central London due to incremental additional revenue of GBP 68 million and GBP 15 million additional profit as our high-value sites trade out. There was a small negative from mix in ongoing sites, commercial, and other changes. Administrative costs decreased margin by 70 basis points due to reduced joint venture management fee income and sundry income and the timing of certain expenditure.
We now expect that administrative costs will be GBP 170 million for the full year. These changes resulted in an underlying operating margin of 18.4%, up 50 basis points on last year. We had one-off benefit from both the delivery of the sale of a legacy commercial asset, which contributed 30 basis points, and the reversal of an inventory impairment provision contributing 50 basis points.
As a result, we delivered an operating margin of 19.2%. We've made good progress against the revised operating framework we put in place in September. Our balance sheet is strong. We have 4.7 years owned and controlled land and have appropriately reduced our land creditors to 32% of the owned land bank. We're operating with average net cash and expect average net cash of around GBP 200 million for the financial year.
In November, we extended our GBP 700 million revolving credit facility through to 2023 on the same terms. Now turning to our balance sheet. Our gross land bank decreased by GBP 235 million to GBP 2.99 billion. Land creditors were 32% of the owned land bank, a reduction of 460 basis points on the prior half year, in line with our intention to move from 30%-35% of the owned land bank to 25%-30% over the medium term.
We continue to expect land creditors at 30th of June to be 30%-35% of the owned land bank. Other working capital moved by GBP 61 million, driven by various factors, including a GBP 33 million increase in other inventories. Other liabilities increased by GBP 5.6 million to GBP 52.7 million, reflecting a GBP 24 million increase in tax liabilities, offset by an GBP 18 million increase in the retirement benefit asset.
Net assets at the 31st of December were GBP 4.55 billion. At the 31st of December, we had a 4.7 year supply of owned and controlled land. In total, including our joint ventures, we have 86,056 plots in our owned and controlled land bank. The graph on the left-hand side demonstrates the progress we've made in terms of reducing the proportional cost of land in our land bank over the last five years to 16.9% of the average selling price.
Now turning to work in progress. WIP has reduced by GBP 32 million from last year. This reflects the progress we've made in trading through our high value land and sites, partly offset by additional investment as we have more build active sites this year, and the increase in our own show home holding to 254 units at a value of GBP 47 million. Turning to the cash flow.
We delivered GBP 409.7 million operating profit in the last year. We made net cash interest and tax payments of GBP 82 million. We invested GBP 59 million in net land, and in line with our normal build profile, GBP 214 million WIP and part exchange. After non-cash and other working capital movements, our net operating cash outflow for the half-year was GBP 29 million. We made GBP 355 million of dividend payments, resulting in a net cash outflow of GBP 404 million and a half-year end net cash position of GBP 387 million. As a point of guidance, we continue to expect the total cash spend on land for FY 2019 will be around GBP 1 billion. Of that, around half will relate to the payment of land credits as held at June 2018.
We now expect net cash to be around GBP 600 million-GBP 650 million at June 2019, with the changes from prior guidance reflecting changes in working capital requirements. Our business is strongly cash generative. We had average net cash during the half-year and expect average net cash to be around GBP 200 million across this financial year. We are focused on ensuring that we manage our total gearing across the cycle and against our operating framework.
Since December 2013, total gearing as a percentage of net assets has reduced substantially to 15.7% at December 2018. Let us move on to our capital return plan. The board recognizes that an ongoing dividend stream is an important part of total shareholder return. Given the significant operational and financial improvements the group has made over the last few years, we have today extended the capital return plan originally put in place in September 2014.
The board continues to propose to target a level of ordinary dividend cover of 2.5x . When market conditions allow, ordinary dividends will be supplemented by special returns. The board has decided to further extend our special returns with an additional GBP 175 million payment in November 2020. It remains the board's preference to make special returns through special dividends.
During the five years to November 2020, total capital returns are expected to be around GBP 2.1 billion, based on current analyst estimates. Turning to a few areas of specific guidance for this financial year. We now expect that completion growth will be at the lower end of our 3%-5% range on around 700 joint venture completions and GBP 25 million of profit. We are reducing our interest guidance and now expect this to be around GBP 40 million, with cash interest at around GBP 8 million.
In summary, we have delivered a strong performance in our first half across our key financial metrics. Margin improvement has come through strongly with 130 basis point improvement in operating margin to 19.2%. We have delivered a strong ROCE at 29.5%, up 120 basis points on the prior year.
We have almost halved our total gearing over the last year to 15.7% at December 2018, with net cash of GBP 387 million. We have a strong balance sheet and have delivered well against our operating framework. The strength of our business and our cash generation supports our extended capital return plan. I will now hand over to David for the market fundamentals, current trading and outlook.
Thanks, Jessica. Thanks, Jessica, and thanks, Steven. It never fails to amaze me how much more informative that presentation is now than when I used to do it. Yeah. Steven and Jessica hopefully have just underlined what I said at the beginning, that I really do believe that we've got a strong investment proposition. We can grow the top line, we can continue to grow operating margin, and quality and service are inbuilt to our model a nd I think we've demonstrated that we are progressing well in terms of our medium term targets.
Now if we just move on and have a brief look at the market, the fundamentals. When you look at the fundamentals, it is a very, very supportive backdrop. The lending environment is very positive, and I'll demonstrate shortly where rates are, but it's an incredibly attractive backdrop for buyers.
The government's housing policy is clearly very supportive. We welcome the extension of the Help to Buy scheme through until 2023, and clearly that's given us more visibility regarding the future, a nd there is a very strong demand for new homes across the country. Whether you look at the first half of the year or you look at January, you can still see strong demand. And the number of homes that we're building is way behind the requirement, given years of historic undersupply.
F inally, as Steven outlined, the land market remains incredibly attractive. Moving on to the mortgage market and the two charts that I presented previously. On the left-hand side, you have rates for a standard 85% mortgage product and also Help to Buy, a nd you can clearly see that those rates are incredibly low compared to any historical norms.
It is a competitive mortgage environment, and this is enabling our customers to take advantage of very attractive rates. The chart on the right shows the proportion of average income spent on monthly mortgage interest and repayments. This Halifax data shows that affordability of mortgages remains well below the long run average, and that's due to the low borrowing rates, some wage inflation, and more recently, tempering house price inflation.
I think additionally, as I touched on, when you look at the mortgage market, there's more and more offers coming in from different lenders, and that's helping to keep rates low. Moving on to skills. I've outlined a very supportive market backdrop, but there's a number of areas that the industry is clearly facing up to challenges on.
The skills shortage is an absolutely key constraint, and one which, as we grow volumes, will clearly deteriorate if we don't address it. For us as a business, it's clearly in our interest to ensure that we're doing as much as we can to tackle the skills shortage, but there's clearly no overnight solution. We offer apprenticeships, trainees, and graduate schemes across the business.
We have grown these over the last few years, and we now have around 7% of our workforce on these schemes. This year, we will recruit around 250 people into these future talent schemes. We also recognize it's not just about recruitment, it's also about retention. We need to be really focused on retaining our existing employees a nd over the last few years, we have substantially enhanced our employment proposition, and this has helped us to reduce our own employee turnover.
Another way for us to address the skills shortage is to increase the use of modern methods of construction. We continue to develop, trial, and implement alternative construction methods across the country. We've increased the number of homes that we're building with timber frame, also with light gauge steel frame and large format block. Overall, on the half year, we've increased this by around 23%.
We also continue to trial other alternate methods. We've outlined previously about developing precast concrete garages, something that we are now bringing into production, and other house builders are using that solution as well, which will clearly alleviate some of the pressure in terms of bricklayers with regard to the build on garages. We aim to use modern methods of construction in 20% of the homes we build by 2020.
Whilst we're growing volumes and we're introducing new skills, new people to the business, and also trialing modern methods of construction, it is absolutely critical that we don't lose sight of quality and service. Our site managers have, for the 14th consecutive year, won more NHBC Pride in the Job awards than any other house builder.
Our HBF customer survey has placed us five star nine years in a row, and we fully expect that to be 10 years in a row. Whilst we are industry leading in this regard, we see it as being an absolutely key focus going forward. If we look at our charitable giving, since we began in 1958, Barratt has built an industry leading reputation reflecting our focus on putting the customer first, building great places, and working in partnership with local people and communities.
We want to continue building that positive legacy for the business, balancing the delivery of excellent financial and operational performance with our responsibility to the communities in which we work across the country. In the first half, we made our largest ever charitable donation to Royal British Legion Industries. RBLI is a national charity doing hugely valuable work to support ex-armed forces personnel to find work, housing, and to lead independent lives.
In January, we also launched the Barratt and David Wilson Community Fund, which will see GBP 1 million given to local charities and community groups across England, Scotland, and Wales. In 2018, our divisions increased their own fundraising by 40% year-on-year. Let me now bring you up to date on current trading. We've seen good customer demand across the business, and it has been an encouraging start to the second half.
Our private sales rate is 0.74, which coupled with average outlet numbers of 385, results in a private net reservation for average week of 284. Meanwhile, our overall forward sales position is up 7.3%, we see that we're in very good shape for FY 2019 and beyond. In conclusion, it's been a strong first half. Our current trading and forward order book are encouraging and help for us to be very positive in terms of outlook.
The industry fundamentals are clearly good, and we will continue to monitor the market closely. We're making a lot of progress in terms of delivering our medium-term targets, and these will continue to be a priority for us in the medium-term. We're very confident in our business going forward. Thank you. I will now be happy to take questions.
Good morning. Glynis Johnson from Jefferies. I'm not going to say how many. I'm just going to roll them off and just go with the flow. First of all, we've seen a number of your peers talk about bulk deals to registered providers, PRS design and build. Where does that fit in the Barratt strategy? Are we going to see more of that as we go through the next 12, 24 months?
Number two, admin expenses. Jessica, if you can just explain why it's stepping up to such a degree, and is that the rate going forward beyond 2019? In terms of the capital return, can you give us a little bit of color about why you picked that level for the November 2020 special return? What are the assumptions that you've made that allow you to have confidence to be able to pay that?
The cost of plots have come down. I noticed in the half year the average selling price in the land bank has gone up. I assume your gross margin, your intake margin, has stepped up quite markedly. Given it is one of your targets to exceed to the 23%, I wonder if you can tell us what your intake gross margin actually is, given we haven't had it before.
Lastly, given the rollout of the new product range, and it's now on, it'll be built on 53% of the sites, can you give us a little bit of color about how that has actually been performing relative to your expectations? You've given us lots of data on potential savings that you thought it would bring and all sorts of things such as density, build costs, and so on. You've very kindly given us build time. I'm just wondering if there's a bit more detail you can give on how that's actually rolling out relative to expectations.
Okay. Thank you, Glynis. Welcome back. Right. If I just pick my way through that, Glynis. That was five questions. The cost of plots in terms of intake margin, I think you understand we're not going to provide intake margin. We've said historically that we reset the target at a minimum of 23%, and we're comfortable that we are achieving that 23% margin.
Clearly that improved margin will flow through in the medium term. Jessica will pick up the point regarding admin expenses. I'll start on product range in a minute. Then pass over to Steven. I think in terms of bulk deals, we probably, to some extent more than any company in the last four or five years, have undertaken bulk deals, particularly focused in relation to our London business.
We see that selling a large number of units to an individual investor, whether it be on a build and sales basis or simply a sales basis, has got a place in our sales delivery mechanism. We've probably undertaken four or five bulk deals historically in our London business. Steven touched on, in terms of rate of sale, that we had two relatively small bulk deals in the first half of the year, and we discussed that back in September.
We'll continue to review the position in terms of bulk deals going forward. I think what we've perhaps seen as a slight change in the market over the last 12 months is more people who are looking at bulk deals in the regional marketplace, which if you went back 18 months or two years ago, that wasn't really a feature of the market.
In terms of the capital return plan, I think we're very confident regarding the capital return plan at the levels we've outlined. The board would obviously consider that in some detail, and we feel it's appropriate to extend the special element of the return plan for the GBP 175 million in November 2020. That's something that we just consider on an ongoing basis.
The other point I would make on the capital return plan is, whilst we're extending that, there's clearly a substantial payout coming through in terms of the ordinary dividend as well, with two and a half times cover and an increasing profit level. I think it's, overall, a strong capital return plan.
I'll pass to Steven in a minute, but just to start on product range, I would say, and I appreciate I'm biased, but I would say that we found the delivery to be better than expected, simply because I think people, Paul, we tended to underestimate some of the cost savings in some of the original calculations. Steven, do you want to talk through?
That's good. Steven. Roll-out's going well. I think FY 2018, we had about 1,500 units for the full year. Half year, about 250, as we say. Full year, we're expecting about 6,000 contribution from the new ranges. We estimated that the savings would be around GBP 2 - GBP 3 a square foot on the Barratt range, a bit less on the David Wilson range, and we've seen that come through in total build cost, those savings have been achieved.
A good example of that, I think I remember saying at the time, we'd rationalized a lot of the components. For example, the GRP porches and canopies we use over the front doors. We really reduced the number of those. For example, we recently retendered our GRP components. That alone has saved us GBP 1 million a year, just on that one item.
The savings we thought would come through because of rationalization and repeatability are coming through. The trades like them because they are quicker and easier to build because there's less projections, less up and down time with scaffolding. Importantly, we're getting very positive feedback from the customers, and that's key to us.
The units were planned with a lot of customer focus groups, that has now started coming back through the surveys. We're very pleased with that. Coverage, again, we expected to see an improved coverage on our sites in terms of square footage per acre. Again, those have come through. We're very pleased with the way the new product has impacted the business.
Great.
On to admin costs?
Yes.
We carefully control our underlying admin costs. Guided to GBP 170 million costs in terms of the full year. I think if you look at last year, you'll see that net admin costs were GBP 146 million. Within that, there was GBP 55 million of sundry income. This year, obviously, we're guiding to a GBP 24 million increase, Over GBP 20 million of that increase is coming from a reduction in terms of sundry income. A combination of reduced joint venture fees, we've got less active joint ventures this year, and a reduction in terms of other sundry income.
Just see where the mic goes. Okay. Chris.
Morning. Thank you. Chris Millington at Numis. Three if I can, please. Firstly, I just wanted you to comment on the private order book. I understand you've had a good run on completion so far this year, it's quite a big move down in value. I presume London's been at play there, but just a bit more detail around that, first of all. Second one is just really just a bit more profile around early 2019 trading.
One of your competitors this morning mentioned quite a slow ramp-up in the first two weeks, then a broadly stable level the last three weeks. I just wondered if you could comment on that and also any regional variations. The final one's just about strategic land pool. I notice in the chart you talk about kind of the post-2009 vintage. Is it possible just to give us a feel of how much of the strategic land is post-2009, just to get a handle on where the opportunity is there? I know it's quite detailed, but I'll ask anyway.
Yeah. No, okay. Fine. All right. Well, if I pick up the first two, then Steven can talk a little about strategic land. Probably a bit of a challenge on that one for Steven. Yeah, in terms of the private order book, well, the value I absolutely wouldn't focus on. I think we've always said that the value in the forward order book does tend to be skewed by London, and that can be clearly both positive and negative.
As we're coming towards the end of our wholly owned business in Central London, then clearly that has an impact in terms of value. I think it's more about looking at plots in relation to the forward order group than the value.
Does that feel like, I know you've only got 36 units, but that impact feels like it's kind of fed through within the main now.
Yeah. I think that in terms of the Central London business, as Jessica touched on, we have 39 units effectively as at December, and therefore, those will be delivered through the business in practice through the second half of the financial year and the first half of next financial year. Average selling price on those 39 units will clearly be relatively high, rate of sales we would expect to be relatively low.
In terms of early 2019 trading, despite pressure from our competitors, I'm not going to disaggregate out one month of trading. Look, 0.74, and we look back over the last five years. That is down on last year and down on the year prior to that, but it's up on the other two years. I think 0.74 is a strong rate of sale, which we're very, very pleased with. I think it sets us in good stead for going into the full selling season. Steven, do you want to talk to the strategic.
Yeah, on strategic, Chris, yeah. I don't know the precise number on pre-2009, but the vast majority of what we're pulling through is post-2009. The main thing, it's a percentage discount to open market value, which is flowing through to a 300 basis points improvement on margin, generally.
We've had a pretty good pull through the last few years. I think something like 14,000 + have been pulled through. This year's looking pretty positive. Although I think we'd say policy's great, but process in planning is poor, so it's variable in terms of time delays getting the planning through on these large strategic sites. Generally, it's coming through pretty good.
Thank you. Chris, just pass the mic there. That's fine.
Good morning. Morning. It's Jon Bell from Barclays. I think I've got two. I just wonder whether you could comment briefly on the new Help to Buy regional price caps that will apply from 2021 and whether that influences strategy in any way. Secondly, on the new product range, I know you've talked quite a bit about build speed, and we can see the operating margin benefits starting to flow through. I just wonder whether you've got any hard data points on sales rates, how they compare against existing product. Thank you.
Okay, fine. I think I can really just cover those two briefly. In terms of the regional price caps, I don't think there's any big strategic play on the regional price caps. I think as everyone recognizes, we are making decisions on a four or five-year plus basis. I think the two points for us to really focus on are, first of all, the step down at 2021, when the scheme is only available for first-time buyers. That's clearly a first focus point. I think the second focus point is then 2023, where there's no Help to Buy.
We've said previously that we have been making assumptions within our land acquisition that Help to Buy would cease, and therefore, we recognize that with the cessation of Help to Buy, we would expect to see a lower rate of sale and some step up in terms of incentives. We've had that factored in to our land buying.
The extension to 2023 for the vast majority of the scheme is clearly a net positive from our perspective and gives us good visibility. Post 2023, I think it's very much looking at having a broad product range that has a wide market appeal. I think that's the key for ourselves.
In terms of the new product range, really the best endorsement of the new product range has been, if you look at our rate of sale from when we started to launch the product range in calendar 2017, we've seen very consistent rates of sale. Steven touched on the customer feedback.
I think the feedback from customers and the feedback from our sales teams has been very positive. Clearly, the feedback from the build teams was always going to be positive because it's a much simpler build for the construction teams. But I think given the market that we're in, that's a good place for us to be positioned so that we can deliver units faster.
It's John Fraser-Andrews, HSBC. Two for me, please. The first one, can I encourage you to say what the forward sales volume growth is in that book, please? Just so I can get a sense of how much work there is still to be done to meet the +3% volume growth, obviously with the affordable content. You haven't got much to do given where you are in half one, but just so I can get a feel there, please. The second question is on the marginal increase in selling price that's been reported. Are there any regional differences in that, please?
Okay. Well, I think Jessica talks to kind of completion volume and the guidance in terms of the second half of the year, looking at private and looking at affordable. In terms of selling prices, I think we're sort of a reasonable proxy for the national market. So when you look at the trends that we're seeing on a regional basis, I don't think they would be different to the trends that you would see coming through from Nationwide stats or from Halifax or from Hometrack.
I won't run around the whole country, but areas that we've seen a weakness in pricing over the last couple of years have been Central Aberdeen and Central London. Clearly for very different reasons, but nonetheless, those have been two areas of weakness. I think you've seen that come through strongly in the national stats.
Areas of very substantial strength for us would be markets like Milton Keynes, Bedford, Bristol, which again, I think you've seen come through in the national stats. So I don't think we tend to see anything greatly different from the national stats.
In terms of volume growth for the full year, we've said this morning that we're expecting to be at the lower end of our 3%-5% range. We're pleased to have delivered more completions in the first half of the year proportionately, and that's good. We're also expecting to deliver more affordable completions. We've said that for the full year, we expect affordable completions to be around 20% of the total. We're expecting to deliver a few more completions from our joint venture business, so around 700 completions.
Thanks, Fraser.
I've got the mic over here, if that's all right. It's Will Jones from Redburn. Three, if I could, please, but two with a couple of parts. The first around the margin, I just want to go back to that bridge for the first half, 120 basis points that came from, I think, the new sites and the new house range. Is there any reason to think that would be materially different in the second half as a benefit to the first?
When we look again to the second half, if you think back to the second half of last year, you had a benefit from a lower London revenue position. I presume that comes back into play in the second half because that naturally would drop away. Does that add a positive incrementally second half on second half that wasn't there this first half?
The second was really just a two-part question around London, just on, I guess, on Outer London, have you seen any difference in trading conditions above and beyond, I guess, what you've seen nationally in that Outer London area? Just to be sure on Central London with regards to land, are you actually looking at sites or bidding at all, or should we think that you've actually effectively exited in the near term from a land appraisal perspective?
The last one was just, I think since you last spoke, we've heard obviously the initial conclusions from the Letwin Review. Appreciate the formal recommendations are still to come, do you envisage that changing your appetite either way for larger sites going forward?
Okay. I saw that tactic there, Will. Say it's two and then do five. Okay. Just, first of all, I'll cover London and also cover Letwin Review, and Jessica will talk to margin. Just in terms of London, I'd say that in Outer London, first of all, we've been successful in acquiring sites in Outer London.
Steven put up, it's on the slide, about the way in which the plots have shifted between where we were five years ago and where we are now. I think we've built quite a significant land bank, which is focused on Outer London, and that's been led by sites, for example, in Harrow, where we've got a very large site that's coming through, also in Hayes, where we have a large site, and Hounslow.
I think if you look at it in the round over the last six months, I don't think there's been any significant change in that Outer London market. Help to Buy, clearly on new build, is a very powerful product with the customer receiving up to 40% in terms of the shared equity element from the government scheme. That is a big part of the Outer London market.
Overall, I don't think any significant changes in terms of that trend. In terms of Central London, we've said before that we were bidding actively in Central London in calendar 2015 and calendar 2016. From memory, we were something like 20 bids in Zone 1 and Zone 2 with no success. We published our hurdle rates, and we were bidding on our hurdle rates, and we simply weren't close to the right numbers to acquire sites.
We made a decision in calendar 2017 that we would no longer bid in Central London, and we haven't submitted Central London bids since calendar 2016. I think inevitably, because we're based in London, our businesses are based in London, they will continue to look at the market. We're not seeing suitable opportunities for us to go back into the Central London market.
Therefore, in calendar 2019, we will be completely out of that Central London market. In terms of the Letwin Review, again, we touched on it in September, with the Letwin Review, we were very positive about the review. Bear in mind that the original backdrop to the review was looking at whether the house builders were land banking or not, and the review was clearly very conclusive that the house builders were not building significant land banks. I think that was a positive to start with.
Secondly, through the process that the Letwin Review undertook, it really became a review of sites of more than 1,000 units, and that is set in the report. It was about how more delivery could be achieved on sites of more than 1,000 units. When you look at our portfolio, that would be a very limited number of our sites. Of, say, 400 sites that we might be engaged in at any given point in time, that would be no more than 10 or 15 of our sites. We can absolutely see that alternative tenure is the key to that can only be delivered through planning.
If alternative tenure is not established at planning, then people who are bidding on the basis of the current structure of private and affordable and not private rental will be successful in terms of their land bids. It's fundamental for the success of that more volume that it's determined at the planning stage.
Okay. I'll start, Will, with overall margin, and then I'll move on to Central London. Last year, we delivered an operating margin of 17.7% for the financial year. We've said very clearly that we are focused on margin improvement, and we would expect margin to be up on last year.
What I would highlight from the margin bridge is that our underlying margin is up by 50 basis points in terms of half one. Looking at Central London, Central London is now not a significant issue for us in terms of margin. We've had really good delivery in the first half of the year. We've delivered another 106 units, and we're just left with 39 units to go. We expect to trade out of that during calendar 2019. I wouldn't expect Central London to have any significant positive or negative impact on margin going forward, because it's just too small.
Just two from me. Aynsley Lammin from Canaccord. Just maybe a bit more information on recent trade. Obviously, you've had a good start to the year. Just wondered, when you talk to people on the ground, are they seeing more caution from buyers as we head into the Brexit mess? Have you changed incentives, or are you having to work harder for those sales? Just a bit more color, if you could.
Then secondly, on the obviously share buybacks, your preference is to return money as dividends. Just wonder if you could help us a bit more, how do you define in shareholders' best interests to make share buybacks? Is it price to book, or is it very unlikely to happen, basically? Thanks.
Okay, fine. Well, if I just cover those. I think first of all, in terms of current trading, we've given the numbers clearly for January. I would say that in terms of website inquiries, internet traffic, we've seen increases on a year-on-year basis. In terms of conversion, we've seen strong conversion at a site level.
I think if people are in market, so coming into our sales offices, almost implicitly, they're not coming in with Brexit concerns. I think if you have Brexit concerns, then maybe you're not coming in. What we do see is that there's more interest in fixed mortgages, and that is clearly an important part of the market. If people are fixing their mortgage payments for a two-year period or even a five-year period, that's a very positive response to uncertainty.
There's clearly a lot of mortgage offers are available that will allow customers to do that. That's probably the only perceptible thing that we're seeing from customer patterns. We clearly set out last year that we would give consideration to share buyback, that was a change in terms of the capital return plan. Previously, we said that the capital return plan would be as special dividend only.
Last year we said that special dividend is still our preferred method of distribution. We just think it's easy to understand. It's much cleaner from the company and the shareholders' perspective. The board obviously will consider share buyback in certain circumstances, clearly net value is going to be a consideration. We're not going to publish prices. The board will just keep that position under review.
Ami Galla from Citi. Just one from me. I was wondering if you could talk a bit more about outlet growth in the business. I think you've mentioned that average outlets for the full year should be similar to last year's level. In that context, when we think about your medium-term targets for 3%-5% volume growth, I'm wondering where is the missing gap in terms of FY 2020 volumes, are we really thinking of medium-term targets on a three-year or five-year view when you talk about that?
Okay. Thank you. I think the three different elements of volume growth that we've set out are, first of all, growth within our London business. If you went back to, say, for example, 2016, our London business would have been around 2,000 completions, our London business has come down to around 1,200 completions.
The first area of growth is more growth from the London business. We have acquired attractive sites in outer London, we would see that growth can come from there, therefore we can head back up from 1,200 completions. That's the first area. The second area is that last year we opened a new office in Cambridgeshire, our office close to Peterborough.
Last year, the delivery from that was essentially zero. This year, we would expect it to deliver around 225 completions, and it will then grow further up to 700, 750 completions. Thirdly, just general growth from the business. Some of our divisions are still not at optimal levels.
Therefore, we believe that we can grow those businesses, some of which will be more completions off existing sites. Some of which should be more sites. Clearly, we want to grow our site numbers. There is inevitably challenges around that, sites closing faster than you expect, sites taking longer to open. It is our intention to grow site numbers, and we believe that we are buying sufficient land to grow site numbers as we move forward.
Morning, sir. Gavin Jago, Peel Hunt. Three if I could, please.
Yeah.
We are friends, I think. Thanks, Clyde. The first one is just a quick one on JV guidance. You have given the guidance for this year. Wonder if you could give us the guidance for a couple of years out, particularly given your comments on London. Recent trading, I know Aynsley's pushed on this a bit, but any trends around valuations from mortgage lenders or cancellation rates would be useful, please.
Final one for you, David, just around Help to Buy. You have referred to it as a very powerful tool. Obviously, the government with its 300,000 target. Do you think that 2023 is really a closed book from the government's point of view, or has it just left its options open, and do you think that actually it could be extended from there on in?
Okay. Jessica will pick up in terms of joint venture guidance. Just on trends in terms of trading, cancellation rates, and down valuations. Our reservation rate that we are giving is obviously net of cancellations. When you look at cancellation rates on a year-on-year basis, it is basically no change. The other area that we monitor very closely is down valuations and the extent to which there are any changes in terms of down valuation trends.
Again, that is a no change position. We are monitoring that by site, by lender, and it is a very flat position year- on- year. In terms of Help to Buy, there is two sides to the answer. From our perspective, we are assuming that it is a closed book. Government have been very clear about their intentions in terms of stepping the scheme down in 2021, and then the scheme stopping in 2023.
We will run our business according to that. Clearly government options are open because at any point in time, this government or another government can decide that they're going to go in a different direction. We've already seen that with Help to Buy on three occasions. The reality is we have to run it on the basis that it will step down in the way as intended, and not try to anticipate what happens next.
In terms of joint ventures, we're guiding to 700 completions from joint ventures this year. We've seen strong performance in terms of our Outer London joint ventures, better sales than we expected in terms of Nine Elms, and good performance from our regional joint venture. We've got a few joint ventures coming through in terms of Outer London.
Those will clearly come through in terms of future years, and obviously recognize that it's a difficult area to model, so we'll continue to provide specific guidance in terms of completions and profit as we move forward.
With GBP 25 million this year, would we be materially different next year?
I wouldn't expect it to be materially different next year.
Okay. Clyde.
I think I've now got the mic. Clyde Lewis at Peel Hunt. I think apologies if I overlap before. One generally on land prices. Have you seen any land sellers blink at all at the end of the year, given the sort of quieter December period and probably slightly quieter start this year?
Secondly, I suppose again on land related issues, but in London, do you think the mayor is changing his attitude to housing given the drop-off in starts that's coming through? Thirdly, one probably for Jessica, in terms of that provision release, could you just give us a little bit more detail as to what that was for?
The last one really, I suppose is a more general one. You rightly flagged the five-star HBF sort of rating. The government's obviously looking to get, I think, harder in terms of underperforming businesses. Do you think the sort of changes on customer satisfaction and quality will impact your business at all in any way, either positive or negative?
Okay. Thanks, Clyde. Right. Steven will talk about land and just what we're seeing in terms of land market generally. He's obviously touched on that in the presentation. Then I'll pick up the position in terms of London and the mayor's approach in London. Also the government's attitude, and Jessica will pick up the provision release.
If I just kick off in terms of London. I'll just work my way through this one carefully. The reality is that the draft plan in terms of London has got very substantial housing numbers, so in excess of 70,000 per annum. You can clearly see in terms of the delivery and the consents that we're nowhere near that type of number. James Brokenshire, our Secretary of State, made some comments about it last week.
The reality is, I think that central government want to work in conjunction with the mayor to try to deliver more numbers in London. What we've seen in practical terms is that now minimum delivery levels for affordable are 35%. You will not get a consent unless you're delivering 35% affordable.
If you went back under the previous mayor, I think the average affordable over the eight-year period was running at about 17% or 18%. 35% is clearly a very substantial step up in terms of affordable. That is a challenge, I think, is the trade-off between the affordable delivery and the overall delivery. For us, we are buying our sites on a subject to planning basis. Essentially, we're just negotiating the affordable on a site-by-site basis.
The government's approach in terms of, I suppose, quantity and quality is that the government have been very clear that they want us to move towards 300,000 homes per annum by the middle of the next decade. Let's say by 2025. Last year, the delivery was just over 220,000. I think it was the second highest number in 30 years.
I think there is a good base for the industry to move towards 300,000 completions. The other side of the coin is that the government has said that they are going to establish a housing ombudsman to deal with all aspects of housing. Including rental, including new build. That will be a statutory ombudsman.
In the meantime, the house building industry have agreed to put in place a voluntary ombudsman. Now practically, I think the voluntary ombudsman will not come in until, one would assume, partway through 2020. I don't think for the industry it will make an enormous difference, apart from for the outliers.
I think for Barratt as a business, I would expect it to have a negligible impact. We are very focused on resolving any issues that we have with our customers internally. Really, an ombudsman only comes into play if you don't resolve any issues internally. Okay. Steven, do you want to pick up on land?
In terms of land, very similar situation. We're seeing excellent land opportunities coming through. Generally meeting or above our hurdle rates, we're able to achieve our minimum hurdle rates. We're only bidding for the prime, high-quality locations, there's good interest in those type of locations.
Our strike rate is around about one in four success rate. It gives us assurance that we're paying the right price, that, as I say, a good level of interest in those type of opportunities going forward. Of course, we've been factoring in the end of Help to Buy for some time into our land appraisal model. David and I spend a lot of time with the major landowners, the key promoters, and the major agents, we've got good forward visibility of some really excellent opportunities coming through into the sector in the next 12, 18 months. We're pretty positive.
Okay. Maybe just to add one point that Steven had on his presentation, was when you look at the land approval numbers, and you look at land approvals last year, slightly down in the most recent approval number. Nonetheless, you're up at 350,000, 360,000 against our 2007, 2008 position, where we struggled to get more than 200,000 approvals. I think you can see that there is a huge amount of land either in the planning process or out of the planning process that is available for purchase.
Just picking up in terms of the provision release. The total quantum of the provision release was GBP 7 million in terms of the half year P&L. That related to a few long-term legacy sites that were purchased a very long time ago now. The trading performance on those sites was better than expected. Under accounting rules, we had to release the provisions.
Down at the front, I think. There's a microphone coming shortly, or you could just shout, Charlie.
Yes. Charlie Campbell, Liberum. A couple of questions. They're both quite quick, actually. The first one was on Help to Buy. You said you were still sort of replanning some sites to get them into the Help to Buy bracket. Has that process now finished? When we look at the ASP and the land bank, that process has finished. Might that drop still further as you still replan around Help to Buy brackets?
Secondly, in the mortgage market. Typically, the mortgage market for new build has been dominated by the big lenders. You're seeming to suggest that there might be more appetite from some of the non-traditional or smaller people. Is that coming through into practice? Are you seeing a sort of a broader range for people buying new build properties?
Both of them, I think in terms of anything that we're doing with regard to smaller product for the Help to Buy, it is not going to materially impact the ASP in the land bank. I think that that's very much looking at it on a site-by-site basis. When you look at it at a group level, it's not going to impact in terms of ASP.
With the mortgage market, yes, definitely. Market share trends have changed substantially. If you look at it on a three-year basis or a five-year basis, there are far more participants in the new build market. That's clearly a positive thing. I think it's positive for the lenders and positive for the customers, because for some of the lenders, they simply don't want the market share levels that they were running historically.
We've seen lenders historically running market share levels north of 30% in the new build market. The reality is, I think more lenders, albeit some of them are smaller, but lenders that are coming in and picking up 2%, 3% market share still have a significant influence on the overall market in terms of the customers that are in market. I think Kevin or Gavin.
One question, actually. It's quite interesting. If you go back two years, where you set a GBP 175 return, and you look at today, where you've set a GBP 175 million for 2020. The business today is you're talking about having GBP 200 million of average cash this year. Even with the mid-range of your volume expectation, the gross investment in land hasn't really stepped up massively, nor has the WIP requirement for that, yet your profitability and retention of profits is measurably different to where it was two years ago. What needs to change any further for that GBP 175 million to be GBP 275 million, for example.
Is there something that you're holding back for something that you feel you need protection against, or indeed, looking at it the other way, do you see something on the horizon which will actually require you or want you to invest significantly more than you are now? Compared to where you started that journey of giving GBP 175 million back, the business today, in cash terms, is significantly richer.
Yeah, okay. Understand. I think I would just probably try to set it in context, Kevin, that I think it has been an iterative process for us in terms of dividend and capital return plan. If you go back, say, five years ago, we were talking about ordinary dividend being on a one-sixth distribution. We're now talking about two and a half times cover. We started the capital return plan with an initial return of GBP 100 million. We then built that up to GBP 175 million, which we're now repeating.
I think the total returns for shareholders have increased substantially and faster than profits have increased. As the board looks forward, we feel that the GBP 175 million for FY 2019 and FY 2020 is appropriate. The board clearly are reviewing this on a six-monthly basis. Our preference is to buy land. That's our number one priority.
We've said that growth aspiration's at 3%-5%. We would clearly rather deliver growth at 5% than deliver growth at 3%. There is a significant investment that we need to continue to make in land. We've averaged around GBP 1 billion over the last few years. If we have more land opportunities, that would be our preference.
The reality is, I don't believe it's a hedge in terms of any downside. I think that's counterintuitive. If we're putting the GBP 175 million on the table, we're not hedging between GBP 175 and GBP 275 because of a downside. I think it's more of us just looking at the medium-term cash requirements for the business.
In that sense, if I can extend it slightly then, when the board came to that decision, was it taken against a prospect in the next three years, for example, where your land spend could increase to, let's say, one and a half billion?
I think there's probably two factors. One is, obviously over a two- or three-year period, in terms of land investment, there is a big difference between investing for 3% growth and investing for 5% growth. Secondly, as Jessica's touched on, we are committed to reducing our land creditor position.
Clearly, there's a substantial outflow, which we've seen some of which taking place in the first half as we've moved land creditors down to 32%. I think we've just got to look at all of that in the round in terms of how we arrive at the special dividend element. Including the ordinary dividend. As profits increase, the ordinary dividend is increasing substantially in any event.
Thank you.
Gavin. I'm sure you've been on already, Gavin.
It's a really boring one as well. Jessica, just to push you a little bit more on the admin expenses, the sundry income. Is there an amount in there for ground rent income? Given the government has come down on leaseholds, would we expect that to fall away further in FY 2020 and beyond? Just looking at how admin expenses on a net basis could step up next year and in 2021.
Just expanding on what I said earlier. I said earlier that there's a GBP 24 million effectively underlying increase, which is related to reductions in sundry income. That sundry income comes from both joint venture income and comes from other sundry income, and a proportion of that other sundry income relates to ground rents.
Is that expected to fall away next year, given or have you still got some assets on the ground rents by selling to FY 2020?
Obviously, I'll provide guidance in terms of admin expenses in FY 2020 at the appropriate time.