Earnings Call: H1 2019

Feb 6, 2019

Hi. Good morning, everyone, and welcome. You'll not be surprised that we're going to follow a similar format to our previous presentations. And what I'll do is I'll start with an overview in terms of our first half performance And then I'll give you a short update with regard to our progress against the targets that we set last year. Before Stephen and Jessica will then talk you through the operational and then the financial performance. I'll then 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. And then finally to touch on current trading and outlook. First of all, in terms of highlights, I mean, 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, and 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 and we're clearly making good progress against those targets. Our balance sheet is in great shape, and we have good strong cash generation. And that's reflected this morning in terms of us extending our capital return plan. And 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 5 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 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 and we must embrace modern methods of construction. And 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 So if we follow the vision and these priorities, it means that we can deliver an excellent financial and operational performance but we can If we move on and 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 1 of the shortest land banks in the industry. This improves our return on capital employed and reduces the longer term risk. And this is time when the land market is very attractive, and 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. But 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 selling across the country. And then 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% to 5% per annum, to acquire land at a minimum 23% gross margin and to achieve a minimum of percent return on capital employed. We delivered strong completion growth for the 1st half, at 7 1622 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 tonnes per annum. We continue to buy land at a minimum gross margin of 23%. The 1st half group gross margin was 22.6%, up two hundred 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%. And additionally, we continue to be very focused on return on capital employed, where we delivered a strong 29.5%. So 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. So starting with completions. We are continuing to grow volumes and have delivered strong completion growth for the first half. At 7622 units, including JVs, up 4.1%. Our regional completions were at the highest level in 11 years, up over 5%. We've 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 9 elms. We have delivered a similar completion profile for last year. Helped to buy remains an important support for the industry and 38% of our total group completions utilized the scheme. 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 percent for FY2019 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 bill to sales. The London sales rate includes reservations from 2 bespoke design and build arrangements, namely New World Quarter Hackbridge and Nestle Hays. Whilst our second quarter was more subdued, January trading has been encouraging. Now looking at land supply. The chart shows impact due to NPPF on increasing the amount of consented land into the market. This is currently circa 362000 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 proved over 9500 plots across 43 sites. This is a good run rate, but lower than last year, which reflected some large sites, including 2000 units at Northgate Near Bristol. There is no change in our medium term targets. We are targeting to approve between 18,000 to 22,000 plots per annum. We've actively repositioned our land bank in London over the past 5 years. The chart shows in December 2013, 34 percent 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 as a selling price below 600 k, 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. So 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 2159 compared to 2 69 for last half year. So there's been a substantial increase over the year. We have now identified 2 ninety eight sites for our new ranges, and that's up 31% from this point last year. And we're currently building on 2 30 of those sites, up 53%. We expect to complete on over 6000 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 3 to 4 weeks. The new Barrick products is more suitable for modern methods of construction, where we've seen a step up in usage. And David will go through this in more detail later on. We actively managed our supply chain to support delivery and quality of our product. We have a centralized procurement team responsible for the 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 1,000,000. 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 comes friend when we're able to secure sufficient materials to maintain our build. We purchased very little that is completely manufactured out side the UK. 90% of what we spend with group suppliers is manufactured or assembled in the UK, although some elements of offshore components can be used in these products. We promoted an approach of purchasing from UK Businesses where possible as this reduces supply risk and currency exposure. It also simplifies logistics and benefits the UK economy. We've been planning for some time for the UK's exit from the EU. 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 UK 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 product seen higher than average increases. We anticipate similar inflationary pressure to continue through FY2020. 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 is 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 off-site manufacturing. The overall build costs are expected to increase in total by 3% to 4% in FY 'nineteen as previously guided. So 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, and I'll now hand over to Jessica. Thank you, Steven, and good morning, everyone. We've delivered a strong set of results this half year. Revenue was up 7.2% to 1,000,000,000. Gross profit was up 17.6 percent to 1,000,000 at a margin of 22.6 percent after net administrative expenses of 1,000,000 and profit on part exchange properties of GBP 1,500,000, we delivered an operating profit of GBP 409,700,000. 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 1,000,000, a record 1st half profit for the group, We closed the half year with net cash of GBP 387,000,002 122,000,000 higher than the prior year. Reflecting higher volumes and margins and a lower increase in net land as we manage our business to our operating framework of around 4.5 years land supply. Our hockey was strong at 29.5 percent, up 120 basis points on the prior year. Wholly owned completions were 7402, up 6.6%. Total completions, including joint ventures, was 7600 and 22. Private average selling price increased by almost 1% to GBP317,300, 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 £275,000. Our regional business delivered 5850 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 1600. Of these, 106 were in Central London with an average selling price of well over 1,000,000 with a significant delivery from both Blackfriars and Landmark Place. At the 31st 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, and this slide shows our continued progress. Our gross margin improved by points on the first half last year to 22.6 percent. We continue to acquire land at a minimum 23% gross margin hurdle rate facilitated by our new product range acquiring land at higher margins and the 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 leaseback. We also saw a 10 basis point improvement from Central London due to incremental additional revenue of GBP 68,000,000 and GBP 15,000,000 additional profit, as our high value sites trade out. There was a small negative from mix and 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 1000000 for the full year. These changes resulted in an underlying operating margin of 18.4%, up 50 basis points on last year. We had 1 off benefits from both the delivery of a 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 point 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 1,000,000 for the financial year. In November, we extended our 1,000,000 revolving credit facility through to 2023 on the same terms. Now turning to our balance sheet, our gross land bank decreased by 1000000 to 1000000. 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% to 35% of the owned land bank to 25% to 30% over the medium term, We continue to expect land crisis at 30th June to be 30% to 35% of the Emblem Bank. Other working capital moved by 1,000,000, driven by various factors, including a 1,000,000 increase in other inventories. Other liabilities increased by 1000000 to 1000000, reflecting a 1,000,000 increase in tax liabilities offset by an 1,000,000 increase in the retirement benefit asset. Net assets at the 31st December were 1,000,000,000 On 31st 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 5 years. To 16.9% of the average selling price. Now turning to work in progress. WIP is reduced by 1,000,000 from last year. This reflects the progress we've made in trading through our High Value London sites, partly offset by additional investment as we have more field active sites this year and the increase in our own show home holding to 254 units at a value of 1,000,000. Turning to the cash flow. We delivered 1,000,000 operating profit in the last year, We made net cash interest and tax payments of 1,000,000. We invested 1,000,000 in net land, and in line with our normal build profile of 1,000,000 with and part exchange. After noncash and other working capital movement, our net operating cash outflow for the half year was 1,000,000. We made 1,000,000 of dividend payments, resulting in a net cash outflow of 1,000,000 and a year half year end net cash position of 1,000,000 As a point of guidance, we continue to expect the total cash spend on land for FY 'nineteen will be around GBP 1,000,000,000. Of that, around half will relate to the payment of land creditors held at June 2018. We now expect net cash to be around 1000000 to 1000000 at June 2019, with the changes from prior guidance, reflecting changes in working capital requirements. Our business is stronger cash generative. We had average net cash during the half year and expect average net cash to be around across this financial year. We're 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 was reduced substantially to 15.7%. At December 2018. Let's 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 as 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 a to target a level of ordinary dividend cover of 2.5x. When market conditions allow, or new dividends will be supplemented by special returns. The board has decided to further extend our special returns with an additional GBP 175,000,000 payment in November 2020. It remains the board's preference to make special returns through special dividend. During the 5 years to November 2020, total capital returns are expected to be around 1,000,000,000 based on current analyst estimates. Now turning to a few areas of specific guidance for this financial year. We now expect completion growth will be at the lower end of our 3% to 5% range and around 700 joint venture completions and million of profit. We're reducing our interest guidance and now expect this to be around 1,000,000 with cash interest at around 1,000,000. So in summary, we've 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've delivered a strong Rocky at 29.5 percent, up 120 basis points on the prior year. We've almost halved our total gearing over the last year to 15.7% at December 2018, with net cash of 1,000,000 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 market fundamentals, current trading and outlook. Thanks, Jessica, and thanks, Stephen. It never fails to be amazed me how much more informative that presentation is now than what I used to do. So, yeah, look 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 in built to our model. And I think we've demonstrated that we are progressing well in terms of our medium term targets. But 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. So 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. And 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. And finally, as Steven outlined, the land market remains incredibly attractive. So moving on to previously. On the left hand side, you have rates for standard 85% mortgage product, and also help to buy. And 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 skills. I mean, 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 skill shortage is an absolutely key constraint, and one which as we grow volumes will clearly deteriorate if we don't address it. So 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. But 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. And 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 skill shortage is to increase the use 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%. But 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 brick layers with regard to the build on garages We aim to use modern methods of construction in 20 percent of the homes we build by 2020. Plus, 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 5 star 9 years in a row and we fully expect that to be 10 years in a row. Whilst we're industry leading in this regard, we see it as being an absolutely key focus going forward. If we look at our chart we're giving, since we began in 1958, Barrett 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 wanted 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 Barra and David Wilson Community Fund, which will see 1,000,000 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. So 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 which coupled with average outlet numbers of 385, results in a private net reservation for average week of 2 84. Meanwhile, our overall forward sales position is up 7.3%. So we see that we're in very good shape for FY2019 and beyond. So 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 our medium term targets. And these will continue to be a priority for us in the medium term. So we're very confident in our business going forward. Thank you, and we'll now be happy to take questions. Morning. Glynis Johnson, Jefferies. I'm not going to say how many. I'm just going to roll them off and just go over the flow. First of all, we've seen the number of your peers talk about both deals to registered providers, PRS, design and build, where does that fit in the Barrett strategy? Are we going to see more of that as we go through the next 12, 24 months? Number 2, 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 'nineteen? And next in terms of the capital return, 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 sales price in 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. And lastly, given the rollout of the new product range, and it's now on, you'll be built on 53% of the sites. Can you give us a little bit of color about how that is 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 kind of given us real time, but I'm just wondering if there's a bit more detail you can give on how that's actually rolling out relative to expectations. Right, if I if this pick my way through that one, I saw, that was 5 questions. The cost of plots, in terms of intake margin, I mean, I think you understand we're not going to provide intake margin. I mean, 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. And clearly, that improved margin will flow through in the medium term. Jessica will pick up the point regarding admin expenses, and I'll start on product range in a minute and then pass over to Steven. So I think in terms of bulk deals, I mean, we probably, to some extent, more than any company in the last 4 or 5 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 has got a place in our, sales delivery mechanism. So we've probably undertaken 4 or 5 bulk deals historically in our London business. Steven touched on in terms of rate of sale that we had 2 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 deal going forward. I think what we've perhaps seen is 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 2 years ago, that wasn't really a feature of the market. In terms of the capital return plan, I mean, I think we're very confident regarding the capital return plan at the levels we've outlined I mean, the board would also consider that in some detail. And we feel it's appropriate to extend our, the special element of the return plan for the GBP 175,000,000 in November 20. And that's something that we just consider on an ongoing basis. Mean, the only 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, which 2.5x cover and an increasing profit level. So I think it's an overall strong capital return plan. I'll pass to Steven in a minute, but just to start on, product range that 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 probably tend to underestimate some of the cost savings in some of the original calculations, but Stephen, do you want to make sure? Yes, that's good. Yes, Ed. Yes, but Royal Arts going well. I think, FY18 got about 1500 units and For the full year, half year, we're about 2 150, as we say, and full year, we're expecting about 6000 contribution from the new ranges. We estimated that the savings would be around 2 to £3 a square foot on the Barratt range, a bit less on the David Wilson range. And we've seen that come through, into our bill cost. And so 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 purchase and canopies we use over the front doors, we really reduced the number of those. So for example, we recently retendered our GRP components that alone has saved us 1,000,000 a year, just on that one item. So the savings we thought would come through because of rationalization and repeatability are coming through. The trays like them because they are quicker and easier to build because there's less projections, less up and down time is scaffolding. Importantly, we're getting very, very positive feedback from the customers, and that's key to us that the units were planned with a lot of customer focus groups, and that has now started coming back through the surveys. So we're very pleased with that. And coverage Again, we expected to see an improved coverage on our sites in terms of square footage per acre. And again, those have come through. So we're very, very pleased with the way the new product has impacted the business. So we carefully control our underlying admin costs guided to GBP 170,000,000 costs in terms of the full year. Think if you look at last year, you'll see that net admin costs were 1,000,000. Within that, there was 1,000,000 of sundry income. Now this year, obviously, we're guiding to a 1,000,000 increase And over GBP 20,000,000 of that increase is coming from a reduction in terms of sundry income. So 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. To see where the mic goes. Okay. Thanks. Good morning. Thank you, Chris. 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, but 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 1st 2 weeks and then a broadly stable level the last 3 weeks. So I just wonder if you could kind of comment on that and any regional variations. And the final one's just about strategic land pull for it. I noticed in the chart you talk about kind of the post-twenty 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 kind of where the opportunity is. I know it's quite detailed, but I'll ask you anyway. Yes, no, okay. Fine. All right, well, if I pick up the first 2 and then Steven can talk a little bit about strategic land, but put me a bit of a challenge on that one for Steven. But yes, in terms of the private order book, well, I mean, the value I absolutely wouldn't focus on. I mean, 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 probably both positive and negative. So as we're coming towards the end of our wholly owned business in Central London, then Chloe that has an impact in terms of value. So I think it's more about looking at plots in relation to the forward order book than value. Does that feel like, I mean, I know you've only got 36 units, but that impact feels like is kind of fed through in the main. Yes. So I mean, I think that in terms of the Central London business, the, 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, I mean, average selling price on those 39 units will clearly be relatively high. So rate of sales when we'd expect to be relatively low. In terms of early 2019 trading, I'm not going to despite pressure from our competitors, I'm not going to disaggregate 1 month of trading. So look, I mean, 0.74, I mean, we look back over the last 5 years. So that is down on last year, and down on the year prior to that, but it's up on the other 2 years. So 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. Stephen, you want to touch base? Yes, on strategic on Chris, yes, I don't know the precise number on, pre 2009, but the vast majority of what we're pulling through is sort of 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 in the last few years. I think something like 14,000 plus have been pulled through. This year is looking pretty positive, although I think we'd say policy is 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, but generally it's coming through pretty well. Thank you. Chris just passed the mic there last time. Good morning. Mine, you said John Bell from Barclays. I think I've too. 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. And then 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 done any hard data points on sales rates, how they compare against existing products? Okay. Fine. Well, if I am, I mean, I think I can really just cover those 2 briefly. I mean, in terms of the regional price cuts, I mean, 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 4 or 5 year plus basis. And 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 1st time matters, so that's clearly a first focus point. And I think the second focus point is then 2023 where there's no help to buy. Now 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 cessation of Help to Buy, we would expect to see a lower rate of sale and some step up in terms of incentives. So we've had that factored in to our landline. So the extension to 2023 for the vast majority of scheme is clearly a net positive from our perspective and gives us good visibility. Post-twenty 23, 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, I mean, 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, Stephen touched on the customer feedback. And 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. 2 for me, please. The first one, no, 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 plus 3% volume growth, obviously, with the affordable content. You haven't got much to do given where you are in half 1, but just so I can get a feel there, please. And the second question is on the marginal increase in thing price, that's been reported. Are there any regional differences in that, please? Okay. Well, I mean, I think that we've 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, we 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 you would see coming through from nationwide stats or from Halifax or from home track, 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 for quite a few very different reasons. Nonetheless, those have been 2 areas of weakness. And I think you've seen that come through strongly in the national stats. Areas are very substantial strength for us. We'd be markets like Millton Keynes, Bedford, Bristol, which again, I think you've seen come through in the national stats. So don't 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% to 5% range. We're pleased delivered more completions in the first half of the year proportionately and that's good. We're also expecting to deliver more affordable completion So we've said that for the full year, we expect affordable completions to be around 20% of the total, and we're expecting to deliver a few more completions from our joint venture business or around 700 completions. Mike up here, if that's alright. Will Jones from Redburn. 3, if I could, please, 2 with a couple of parts. 1st, around the margin, just when we go back to that bridge for the first half, 120 bps 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 And then when we look again to the second half, if you think back to the second half last year, you had a benefit from a lower London revenue position. Presume that comes back into play in the second half because that naturally would drop away. So does that add a positive incrementally second half or second half that wasn't there this first half? Then 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. And then just to be sure on Central London with regard 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? And then the last one was just I think since you last spoke, we've heard obviously initial conclusions from the letwin review, appreciate the formal recommendations are still to come, but do you envisage that changing your appetite either way for larger sites? Going forward. Okay. I saw that tactic there. We'll say it's 2 and then do 5. Okay. So Just first of all, I'll cover London and also cover Wetwan. And Jessica will talk to margin. So just in terms of London, I mean, I'd say that in Outer London, we've first of all, but we've been successful in acquiring sites now to London. I mean, Stephen put up, it's on the slide about the way in which the plots have shifted between where we were 5 years ago and where we are now. So 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 a Houndsville. I think if you look at it in the round over the last 6 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. So that is a big part of the Outer London market, but 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 calendar 2016. And from memory, we were something like 20 bids in zone 1 and zone 2 with no success. Now we published our hurdle rates and we were bidding on our hurdle rates and we simply weren't close to the the right numbers to acquire sites. So 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 'sixteen. I think we inevitably because we're based in London, our are based in London. They will continue to look at the market, but we're not seeing suitable opportunities for us to go back into the Central London market. And therefore, in calendar 'nineteen, we will be completely out of that central London market. Terms of the Letwin Review, and again, we touched on it in September, but with the Letwin Review, I mean, we were very positive about the Review. I mean, 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 conclusive that the house builders were not building significant land banks. So I think that was a positive to start with. Secondly, through the process that the Lightman Review undertook, it really became a review of sites of more than 1000 units. And that is set in the report. And it was about how more delivery could be achieved on sites of more than 1000 units. So when you look at our port portfolio, that would be a very limited number of our sites. So of, say, 400 sites that we might be engaged in at any given point in time, that would be no more than 10 or of our sites. We can absolutely see the alternative tenure is the key to that. But that can only be delivered through planning. If alternative tenure is not established at planning, then people who are bidding on the basis of will be successful in terms of their land bids. So it's fundamental for the success of that, more volume that it's determined at at the planning stage. Okay. So I'll start, well, with overall margin, and then I'll move on to Central London. So last year, we delivered a operating margin of 17.7% for the financial year. And 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 at 150 basis points in terms of half 1. 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. And we expect to trade out that during calendar 2019. So I wouldn't expect Central London to have any significant positive or negative impact on margin going forward because it's just too small. And just two from the 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, they're seeing more caution from kind of buyers as we head into Brexit mess Are they you haven't have you changed incentives or are you having to work harder for those sales? Just a bit more color if you could. And then secondly, on the, obviously, share buybacks, your preferences to return money as dividends, but I just wonder if you could help us a bit more how do you define kind of in shareholders best interest to make share buybacks Is there a particular price to book or is it very unlikely to happen basically? Thanks. Okay, fine. Well, if I just cover those, I mean, I think first of all, in terms of current trading, we've given the numbers globally for January, but 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 clear an important part of the market, if people are fixing their mortgage payments for a 2 year period or even a 5 year period, then that's a very positive response to uncertainty. And there's clearly a lot of mortgage offers are available that will allow customers to do that. So 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. And 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. So 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. And clearly net book value is going to be a consideration, but or not when 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 talk can talk a bit more about outlet growth in the business? I mean, I think you've mentioned that average outlets for the full year should be similar to last year's level. So in that context, when we think about your medium term targets for 3% to 5% volume growth, I'm wondering where would where is the missing gap in terms of FY 'twenty volumes. And are we really thinking of medium term targets on a 3 or 5 year view when you talk about Yes, okay. Thank you, Amy. I think the 3 different elements of volume growth that we've set out are First of all, growth within our London business. So if you went back to, say, for example, 2016, our London business would have been around 2000 completions, and our London business has come down to around 1200 completions. So the first area of growth is more growth from the London business. We have acquired, attractive sites in Outer London, and we would see that growth can come from there. And therefore, we can head back up from 1200 completions. So that's the first area. The second area is that last year, we opened a new office in Cambridge Surf, so our office close to Peterborough, Last year, the delivery from that was essentially 0. And this year, we would expect it to deliver around 225 completions and it will then go further up to 7 100, 7 50 completions. And then thirdly, just general growth from the business. Some of our divisions are still not at optimal levels, and therefore, we believe that we can grow those businesses. Some of which will be more completions off existing sites and some of which should be more sites. Mean, clearly, we want to grow our site numbers. There's inevitably challenges around that, sites closing to the new expect sites taking longer to open. But it is our intention to go site numbers, and we believe that we're buying sufficient land to grow site numbers as we move forward. Good morning. It's Gavin Jay with Peel Hunt. 3 of the good, please. Well, we are friends, I think. Yes. All right. Thanks, Clive. Alright. The first one, just a quick one on JV guide. Given the guidance for this year. I'm wondering if you could give us the guidance for a couple of years out, particularly given your comments on London. Recent trading, I think it's pushed on this a bit, but any trends around valuations from mortgage lenders or cancellation rates would be useful, please? And finally one for you, David, just around Help to Buy, and you've referred to it as a very at all, we'll see the government with its 300,000 target. Do you think that 2023 is really a close book from the government's point of view or has it just left options open? And do you think that actually it could be extended from there on in? Yes. Okay. Well, Gescu will pick up in terms of joint venture guidance. I mean, just on trends in terms of trading cancellation rates and down valuations. Well, I mean, our reservation rate that we're giving is obviously net of cancellations. I mean, when you look cancellation rates on a year on year basis, it's 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. And again, that's a no change position. We're monitoring that by site, by lender, and it's a very flat position year on year. In terms of Helped Buy, I mean, there's 2 sides to the answer. I mean, 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. And we will run our business according to that. But 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. So 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. So 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 9l's and good performance from our regional joint venture. We've got few joint ventures coming through in terms of Outer London, so those will clearly come through in terms of future years and obviously recognize that a difficult area to model, so we'll continue to provide specific guidance in terms of completions and profit as we move forward. I wouldn't expect it to be materially different actually. Okay. Hi. I'll take it now back to Mike. Clyde Lewis at Peel Hunt. I think apologies if I've got 4. One generally on land prices, have you seen any land sellers blink at all at the end of the year given the sort of quite a December period and sort of 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, can you just give us a little bit more detail as to what that was for? And the last one, really, I suppose, was a more general one. I mean, you rightly flagged the 5 star HBFs at a rating the government's obviously looking to get, I think, harder in terms of underperforming businesses. I mean, 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, Clive. Right. So if Steven will talk about land and just what we're seeing in terms of land market generally, I mean, he's obviously on that in the presentation. And then I'll pick up the position in terms of London and the mayor's approach in London. And also the government's attitude and Jessica will pick up the provisional lease. So I mean, if I just kick off in terms of London. So I'll just walk my way through this one carefully. I mean, the reality is that the draft plan in terms of London has got very substantial housing numbers, so in excess of 70,000 at per annum. And you can clearly see in terms of the delivery and the consents that we're nowhere near that type of number. And James Wilkinson, our Secretary of State made some comments about it last week. And 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% So you will not get a consent unless you're delivering 35% affordable. If you went back on the previous mayor, I think the average affordable, over the 8 year period was running at about 17% or 18% So 35% is clearly a very substantial step up in terms of affordable. So that is a challenge, I think, is trade off between the affordable delivery and the overall delivery. For us, we are buying our sites on a subject planning basis, So 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 100,000 homes per annum by the middle of the next decade. So let's say by 2025, Last year, the delivery was just over 220,000. I think it was the 2nd highest number in 30 years. So I think there is a good base for the industry to move towards 300,000 completions. A housing ombudsman to deal with all aspects of housing, so including rental, including new build. That will be a statutory ombudsman And in the meantime, the house building industry have agreed to put in place a voluntary ombudsman practical, I think the voluntary ombudsman will not come in until one would assume partway through 'twenty. 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, would expect it to have a negligible impact. I mean, we are very, very focused on resolving any issues that we have with our customers internally and really an ombudsman only comes into play if you don't resolve any issues internally. Okay. So, Stephen, do you want to talk online? Yes. In terms of land, very similar situation, we're seeing excellent land opportunities coming through. Generally sort of meeting or above our hurdle rates. So we're able to achieve our minimum hurdle rates. Really bidding for the prime, high quality locations and there's good interest in those type of locations. Our strike rate is roundabout 1 in 4 success rate. So it gives us assurance that we're paying the right price. And as I say, a good level of interest in those, tagul 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 spent a lot of time with the major land owners, the key promoters and the major agents and we've got good forward visibility of some really excellent opportunities coming through into the sector in the next 12, 18 months. So we're pretty positive. Okay. Let me just add one point that Steven had on his presentation was when you look at land approval numbers and you look at land approvals last year, slightly down in the most recent approval number, but nonetheless, you're up at 350,000 dollars, $360,000 against our 2007, 2008 position, where we struggled to get more than 200,000 approvals. So 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 that is available for Procter. Just picking up in terms of the provision release. So the total quantum of the provision release was GBP 7,000,000 in terms of the half year P and L. And that related to a few long term legacy sites that were purchased a very long time ago now. And the trading performance on those sites was better than expected, so under accounting rules, if we had to release the provision. Don't know the front line. The microphone coming shortly or you could just show Charlie? Yes, it's Charlie Cameron, Liberum. Couple of questions. I think they're both quite quick actually, but 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 brackets. Has that process now finished? And so when we look at the ASP in the land bank, we that process is finished, that drops still further as you still replan around Help to Buy brackets? And then secondly, in the mortgage market, I mean, typically, the mortgage market for new build has been dominated by the big lenders, but 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? Okay. So I mean both of them I think I mean, 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. So I think that that's very much looking at it on a site by site base But when you look at a group level, it's not going to impact in terms of ASP. With the mortgage market, then yes, definitely, I mean, market share trends have changed substantially. If you look at it on a 3 year basis or a 5 year basis, there are far more participants in the new build market And that's clearly a positive thing. I mean, 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 we've seen lenders historically running market share levels north of 2% in the new build market. So the reality is I think more, 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? Just one question actually. It's quite interesting. If you go back in 2 years where you set a 175 return. And you look at today where you've set a 175,000,000 for 2020. The business today is you're talking about having 200,000,000 of average cash this year you're even with the mid range of your volume expectation, the gross investment in land hasn't really stepped up massively nor is the requirement for that, yet your profitability and retention of profits is measurably different to where it was 2 years ago. I'm just wondering what it would what needs to change any further for that 175,000,000 to be 1,000,000, for example. What is there something that you're holding back for something that you feel you need protection against or indeed looking out the other way, do you you know, do you see something on the horizon, which will actually re require you or want you to invest significantly more than you are now because compared to where you started that journey, of giving GBP 175,000,000 of that. The business today in cash terms is significantly richer. Yes. Okay. Understand. But I think I would just probably try to set it in context, Kevin, that it I think it has been an iterative process for us in terms of dividend and capital return plan. So if you go back say 5 years ago, we were talking about ordinary dividend being on a 1 6th distribution. And we're now talking about 2.5x cover. We, we started the capital return plan with an initial return of 1,000,000. And we then built that up to 1,000,000, which we're now repeating. So 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 175,000,000 for FY2019 and FY2020 is appropriate. But the board, clearly, are reviewing this on a 6 monthly basis. Our preference is to buy land. I mean, that's our number one priority. We've said that growth aspirations at 3% to 5%. We would clearly rather deliver growth at 5% and deliver growth at 3%. So there is a significant investment that we need to continue to make in land. We've averaged around 1,000,000,000 over the last few years, But if we have more land opportunities, then 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 sort of counterintuitive if we're putting the 1,000,000 on the table. We're not hedging between 1,000,000 and 1,000,000 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, is there when the board came to that decision, was it take against a prospect in the next 3 years, for example, where your land spend could increase to, let's say, 1,500,000,000. I think probably 2 factors. I mean, one is obviously over a 2 or 3 year period in terms of land investment, there is a big difference between investing for 3% growth and investing 5% growth. Secondly, as Jessica's touched on, we are committing committed to reducing our land creditor position. And clearly, there's a substantial outflow, which we've seen some of which taking place in the first half as we move land creditors down to 32%. So I would just sort of look at all of that and around in terms of how we arrive at the special dividend element. And clearly, 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. Really boring one as well. Jessica, just to push you a little bit more on the admin expenses, the sundry income. Is there a mountain there for Crane, Randy? And given the government's rebound on leaseholds, would you expect kind of that to fall away further? And FY 2020, I'm just looking at how admin expenses on basis could step up next year in 2021? Yes. So just, expanding what I said earlier. So I said earlier that there's a GBP 24,000,000 effectively underlying increase, which is related reductions in sundry income. So that sundry income comes from both joint venture income and comes from other other sundry income. And a proportion of that other sundry income relates to ground rents. So is that expected to fall away next year given still got some assets on the ground rent side to sell into FY 'twenty. Obviously, I'll provide guidance in terms of admin expenses and FY 'twenty. Time. Okay. There's no further hands up. So thank you very much for all your questions, and we'll see you again next time. Thank you.