Hi, good morning, everyone. I think we will make a start. I'm going to start with an overview. Then I'm going to hand over to Steven, and Steven will take you through our operational performance. Jessica will then take you through our financial performance. I'll then review the market and industry fundamentals. Also look at current trading and outlook. I think it's clear that we've delivered another very strong year in terms of both our financial and also our operational performance. The market backdrop remains supportive. There are clearly strong fundamentals in terms of demand, mortgages, and land availability. We are the U.K.'s largest house builder by volume, and in our 60th year, we have delivered the highest number of completions in a decade. We remain absolutely committed to growing our business, but we're going to do this in a disciplined way.
As you know, we've been focused on driving operational efficiencies throughout the business. I'm very pleased that we have begun to see the early effects of this coming through in our operating margin improvement. We continue to deliver attractive cash returns through our capital return plan. We've reported good progress in FY 2018. However, we are going to push on from here. Reflecting the board's confidence in the business going forward, we have today announced new medium-term operational targets. If we just pause to look at our investment proposition, I've shown this before, but I do believe that we continue to have clear differentiators that define a strong investment case. We run one of the shortest land banks in the industry, which improves our return on capital and reduces our risk profile.
Equally, with the land market remaining very attractive, we believe that there are limited benefits to having a longer land bank. We remain industry leading in terms of quality and service, with highly experienced build and sales teams. We see that maintaining our high levels of quality and service are absolutely key. Not only is it the right thing to do, we also believe that it is fundamental to our sustainable success. Finally, we have a broad geographic spread. Therefore, we have a diversified business that represents a broad market exposure. These differentiators clearly place us well to deliver for our shareholders. We believe that we can not only grow volumes, but also continue to deliver on our margin improvement and cash returns. Today, we've announced some new medium-term targets.
As I've said, we want to continue to grow the business. We believe that we can grow volumes at 3%-5% per annum over the medium term. Given that we are already the U.K.'s largest house builder, this volume growth is significant. We believe that we can do this in a disciplined manner and maintain our high standards of quality and service. The current operational structure of the business, including the Cambridgeshire division, which we launched this year, can support volumes of up to 20,000 per annum. As the business grows, we will keep this operational structure under review. In line with our drive to improve margin, we are also announcing a new minimum gross margin hurdle rate of 23% for all new land acquisitions. This has been effective in the business since July 2017 and replaces our previous minimum of 20%.
Additionally, we continue to focus on driving return on capital employed, so we are maintaining our minimum 25% return on capital hurdle rate for the medium term. We have demonstrated in FY 2018 that we are delivering, but we are certainly not complacent, and we continue to challenge ourselves to find further improvement. Thank you, and I'll now hand 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 sales. We have delivered a strong and consistent performance year-on-year. As a group, we achieved a private sales rate of 0.72 per active outlet per week. This is a good rate, and as I've said before, this is one we are very comfortable with, and at a level where we can match build to sales. The London sales rates have been consistent year-on-year and still remain well above the regional business. JV sales rates have normalized with the previous year's sales rate benefiting from some bulk sale agreements at Nine Elms and Fulham. Moving on to completions. We are continuing to grow volumes. Completions were at their highest level in a decade, and we remain the U.K.'s largest house builder.
Whilst wholly owned London completions were down nearly 30%, in line with the expected build profile, these completions were slightly better than expected in the final quarter for central London trading. JVs were up 20% with particularly strong trading on some outer London sites, including Enderby Wharf, Greenwich, and West Hendon. We have delivered a similar completion profile to the previous year. Help to Buy is a very attractive customer proposition, and 36% of our total completions utilize the scheme. Affordable completions at 19% are in line with our historical norm. Now turning to pricing. The group's private average selling price on completions was GBP 329,000, up 5%. This benefited from changes in mix and some underlying inflation. We have seen good pricing trends across the regional business, where the private average selling price was GBP 302,000, up 3.7%. In London, private ASP was up significantly by over 30% to GBP 810,000.
This reflects site mix changes towards higher price point sites and in particular, a number of completions at high-end sites such as Landmark Place in the City of London and Hampstead Reach. Now looking at land supply. Land prices remain broadly flat, and we continue to see excellent high-quality opportunities across the country. The chart on the right shows the effect of the NPPF on increasing the amount of consented units in the land market and the moderating effect of that on land prices. Despite strong competition for land, inflation has been relatively minimal over the last 10 years. Revisions to the NPPF were published in July and reinforce the government's commitment to seeing more land coming through the planning process. We see a very good future supply of consented land available for purchase.
Additionally, with an increased industry focus on strategic land, the supply-demand pressures of the operational land market have not returned to pre-downturn levels. We are focused on securing standard product sites for the regional businesses with improved layout coverage using our new house type ranges. Nearly 100% of our regional land approved in FY 2018 was for standard product. Supporting the excellent opportunities we've seen, along with our growth aspirations, we approved nearly 21,000 plots across 96 sites in FY 2018. Looking forward, to support increased volumes, we expect to approve between 18,000-22,000 plots per annum over the next three years. We continue to operate a diversified business with a broad market exposure. Looking at the chart on the left, you can see our wholly owned land bank reflects our national coverage with 94% of our private plots within the regional business and is representative of our divisional structure.
The chart on the right shows that 97% of our private wholly owned land bank in England has a selling price below GBP 600,000, leaving us very well placed to continue to benefit from Help to Buy. Now looking more closely at our London land bank, excluding JVs. We continue to make progress on widening our spread across the capital with just 4% of wholly owned plots in central London, down from 23% just two years ago. Currently, we have 118 wholly owned plots left in central London, with 77 of these reserved. We continue to expect to trade out of all of these wholly owned plots in calendar year 2019. The chart on the right shows that just 3% of plots in our London land bank are priced above GBP 1 million, down from 12% two years ago.
Looking at FY 2019 and beyond, we continue to expect a significant proportion of our completions to be priced at GBP 600,000 or below with a focus on outer London areas. As you can see from the previous slide, we are transforming our London business and focusing on outer London sites with lower ASPs. Western Circus is a typical example of the sort of site we are now focusing on. This is a 2.4 acre site located in East Acton in the London Borough of Ealing. The site is close to East Acton underground station and will benefit from the new Crossrail. It is currently occupied by a Homebase store, and we expect to commence on site later this month. The site was acquired on an unconditional basis in June 2017.
We have progressed quickly through planning, securing a consent for a much larger scheme than we originally envisaged, which will enable us to drive further margin improvement. The scheme comprises 333 new homes, 34% of which are affordable, with a 22,000 sq ft food store located on the ground floor. With a private ASP of around GBP 540,000, the vast majority of private homes will qualify for the London Help to Buy scheme and will enable a healthy sales rate. This site is typical of our current land buying strategy in London, where we are looking to buy underutilized sites at the right price in affordable locations, where we can work closely with London boroughs, the GLA, and local communities to maximize development opportunities.
Having shown you a typical London site, I thought I would also show you an example of the sort of regional sites we are looking at, which, after all, is the vast majority of our business. Romans Quarter is located on the north side of the popular market town of Bingham, 12 miles east of Nottingham. The site is open farmland and was purchased from the Crown Estate. The development has an outlined planning consent for 1,050 units, of which 19% are affordable. This is one of our largest sites, with an average site typically around 200 plots. The site will be dual branded to optimize sales rates with our new standard ranges. Detailed planning has been approved for phase 1, and work commenced on site in June. Sales will launch in November, with first legal completions due in May 2019.
We've had strong interest prior to the sales launch, and we anticipate a good proportion of purchasers will benefit from Help to Buy, given the private ASP of GBP 300,000. The development will cater for all sectors of the market and is ideally located for the Nottingham commuter and family markets. As you know, improving margin is a key priority for us. We are achieving this in a number of ways, with two of the key components being strategic land and our new product ranges. Firstly, looking at strategic land. We've made good progress towards our 30% medium-term target, with 27% of completions coming from strategic land in FY 2018, and this is up from 25% in FY 2017. Strategic land continues to trade at an enhanced margin of circa 300 basis points compared with instantly acquired sites.
Our closing position is very strong at 12,435 acres, with a good geographic spread across 268 locations. Our focus remains on sites below 1,000 units, with less complexity in terms of infrastructure, ownership, and planning timescales. The strategic land bank is well placed to support further growth and margin performance. Another key driver to improving margin is product. As you know, in 2016 we launched our new product ranges. We've received positive feedback from our customers, sales, and build teams. Customers like the new product layouts which feature more open plan designs, whilst build teams are finding them much easier and quicker to build. Whilst they are simpler to build, and on average improving build speed by three to four weeks, they remain architecturally strong. To date, there's been minimal improvement of margin, given we only completed on around 1,200 new Barratt units in FY 2018.
The continued rollout of the product will therefore have a greater impact and will increasingly benefit margin in FY 2019 and beyond. We expect to complete on around 3,250 new Barratt range houses in England in FY 2019, and close to 6,000 across all new ranges, which includes David Wilson and our Scottish ranges. Additionally, we have now identified 187 sites for our new Barratt range. That is up 42% from this time last year. We're currently building on 101 of those sites, twice as many as we were in September 2017. All new land for standard product is expected to incorporate our new product ranges. As I mentioned on the previous slide, we've had good customer feedback. When designing the new range, we undertook a number of customer focus groups to ensure we were designing a range that our customers would find appealing and would want to buy.
Additionally, we've introduced core and occasional house types. We target 80% of products on a site to be from the core range, with the occasional only used where needed. For example, turning corners in the street and to take advantage of constrained plots. This ensures we maintain architecturally strong street scenes and also optimize land utilization. We continue to ask our customers for feedback on an ongoing basis. This has allowed us to further rationalize the range since we introduced it in 2016. The chart on the right shows you how in 2016 we significantly reduced the range, but in 2018 have been able to further reduce the number of house types. This means we are more efficient, but still have a very good range of house types covering a full market mix for our customers. All right. Turning to build costs.
In FY 2018, we saw build cost inflation of circa 3%, in line with our guidance. Looking to 2019, on materials, we are expecting some modest inflationary pressure. We continue to see cost pressures on some specific materials, such as timber and plastic drainage products. 96% of our material pricing is fixed to December 2018, with 75% fixed until June 2019. The remainder are not due for renegotiation until later in the year. On labor, we continue to see some regional pockets of cost pressures influenced by the availability of labor in those areas. We continue to address labor issues with the introduction of our new house types, which are simpler to build, and with the increased utilization of offsite construction methods. We continue to provide more labor to the industry via our apprenticeships and training programs.
Overall, for FY 2019, we expect to see inflation of circa 3%-4% of total build costs. In previous presentations, I have given you more detail on our supply chain and our customer-first approach. Today, I just wanted to touch on affordable housing, a critical area of the business that represents almost one-fifth of our volumes. Affordable housing content is set by the local planning authority when granting planning consent. We therefore have a wide range of affordable content across the business, and sites can range from 0% up to 50% content depending on local needs. The planning authorities determine individual volume and tenure requirement depending on housing needs surveys, which can differ by site and location. Local planning authorities require a spectrum of tenures that includes social rent, affordable rent, and shared ownership.
The affordable housing requirement is factored into our land acquisition and reflected into the scheme from the very first discussion with the land vendor and local authority. This means our affordable housing is at the same margin as our private homes. Our approach with affordable housing is the same as other aspects of the business, in that we look to optimize value, minimize avoidable costs, and simplify processes. We have a standard range of affordable homes and a standard finishing specification. All our affordable homes sit comfortably alongside private ranges, reflecting similar architectural characteristics, as they are built on a tenure-blind basis. All materials are delivered through the same supply agreements we use for our private units, which drives further economies of scale. In addition, we have a standard suite of contract documentation. Importantly, there is no compromise to build quality and customer service.
In summary, a strong performance over the year. We have achieved some strong sales rates along with positive pricing trends. We continue to focus on operating margin improvements and are making good progress with rolling out our new products across the business. We continue to successfully manage our cost base. We have increased our delivery from strategic land and are securing excellent operational land opportunities. We are driving margin improvements throughout the business with no compromise to health and safety or our industry-leading quality and customer service. Thank you, and I'll hand over to Jessica.
Thank you, Steven, and good morning, everyone. We delivered a strong set of results in the year. Revenue was up 4.8% to GBP 4.87 billion. Gross profit was up 8.3% to GBP 1 billion at a margin of 20.7%. After net administrative expenses of GBP 146 million, we delivered an operating profit of GBP 863 million. We made further good progress on operating margin, which improved by 50 basis points to 17.7%. Our profit before tax was GBP 835.5 million, a record profit for the group. We closed the year with net cash of GBP 791 million, GBP 68 million higher than the prior year, reflecting overall strong trading into the year-end and, in particular, better than expected central London trading. Our ROCE was 29.6%, down 20 basis points on the prior year. Increased profits contributed 190 basis point improvement.
This was offset by a number of items, including increased net land investment, which reduced ROCE by 140 basis points, reflecting the land that we've acquired to support our disciplined growth, and some increase in working capital, including government debtors from Help to Buy. Wholly owned completions were 16,680, up 0.2%. Total completions, including joint ventures, were 17,579. Private average selling price increased by 5% to GBP 328,800, benefiting from mix changes and some underlying price inflation. Overall average selling price also increased 5% to GBP 288,900, which compares to a closing land bank of GBP 270,000. Our regional business delivered 12,740 private completions in the year at an average selling price of GBP 302,400, up 3.7% on the prior year due to some underlying inflation and geographic mix. In London, we delivered 699 private completions in the year at an average selling price of GBP 809,800.
Of these, 357 were in central London with an average selling price of over GBP 1 million. At 30th of June, we had only 145 wholly owned private units remaining in central London. Therefore, in FY 2019, we expect our group private ASP to reduce slightly due to a lower number of central London completions. We remain focused on delivering margin improvement, and this slide shows the progress that we've made over the last few years. Our gross margin improved by 70 basis points in the year to 20.7%, despite the headwinds in the central London market. We are now acquiring land at a minimum 23% gross margin, facilitated by our new product range and the other efficiencies we have driven. Acquiring land at higher margins and the usage of new product range on our existing sites where possible is delivering margin improvement.
There has been little impact on margin in the year from net inflation. Breaking down the components of our 50 basis point improvement in operating margin to 17.7%. We've seen good progress on delivery from our new site starts, new product range, and other changes, which contributed a margin improvement of 110 basis points in the year. Our runoff of legacy land also contributed 10 basis points. Against this, we've seen margin dilution come from continued headwinds in the high-end central London market, which has an impact of 30 basis points and a 30 basis point dilution, primarily due to increased administration costs due to inflation and employee costs. We would continue to expect that central London trading will have some dilutive impact on margin as we trade through the remaining units.
Administrative expenses in FY 2019 are expected to be around GBP 165 million, reflecting a reduction in the expected level of JV management fees and sundry income, and some cost inflation. Turning to the balance sheet. Our gross land bank increased by GBP 68 million to GBP 3 billion. Land creditors were 33.6% of the owned land bank, a reduction of 310 basis points in the year, and within our operating framework of 30%-35%. We expect land creditors in FY 2019 to be 30%-35% of the owned land bank. In the medium term, we will reduce our usage of land creditors to 25%-30% of the owned land bank to continue to de-gear and further strengthen our balance sheet.
Other working capital moved by GBP 63.4 million, driven by various factors, including an increase in other receivables due to there being more government Help to Buy debtors at the end of the year. Other net assets and liabilities improved by GBP 18.9 million. There was a GBP 45.1 million increase in retirement benefit assets, offset by a GBP 32 million increase in deferred and current tax liabilities. Net assets at 30th of June were GBP 4.6 billion. At 30th June, we had a 4.8-year supply of owned and controlled land. This is slightly higher than our operating framework of around four and a half years, which remains in place. This increase reflects the quality of land opportunities we've seen, our volume growth aspirations, and supports our new Cambridgeshire division.
The graph on the left-hand side demonstrates the progress that we've made in terms of reducing the proportional cost of land in our land bank over the last four years to 17.4% of average selling price. As we said previously, during FY 2018, we've consistently been purchasing land in excess of our old hurdle rate. Today, we have set out our medium-term target of land approvals at a minimum 23% gross margin, a rate at which we've been approving land throughout FY 2018. The land approved at these higher margins will come through to the profit loss account as these sites are developed over the next few years. At June, we had GBP 233 million invested in our housebuilding joint ventures across nine owned joint ventures. There is a strong land bank position with 3,999 plots, of which only 588 are in central London.
Within outer London is our new joint venture at Harrow, purchased in the second half, with over 1,000 units planned for delivery. We are focused on realizing our central London joint venture investments, which are currently 46% reserved. This includes our recent sale of 162 units at Fulham, with anticipated completion in FY 2021 and cash inflows as build progresses. Our total share of profits from joint ventures in FY 2019 is expected to be similar to FY 2018 at around GBP 20 million, of which around GBP 7 million will come from London joint ventures. Turning to work in progress WIP reduced by GBP 46 million from last year, reflecting the progress made in trading through some of our high-value London sites.
We ensure that we match build speeds to sales rates and control the level of unsold stock on our sites, with unsold stock remaining stable at 1.1 units per active outlets. Turning to the cash flow. The group delivered a profit of GBP 863 million operating in the year. We made net cash interest and tax payments of GBP 146 million. We invested net cash of GBP 138 million in land and land credits to a reduction, and has an inflow of GBP 26 million from reduced WIP and part exchange. After non-cash and other working capital movements, our net operating cash inflow for the year was GBP 512 million. We made GBP 335 million of dividend payments, resulting in a net cash inflow of GBP 68 million and a year-end net cash position of GBP 791 million.
As a point of guidance, we expect the total cash spend on land for FY 2019 to be around GBP 1 billion. Of that, around half will relate to the payment of land creditors held at June 2018. As a result, we expect net cash to be around GBP 550 million at June 2019. Our business is strongly cash generative. We had average net cash during the year, we now expect that going forward, we will continue to have modest average net cash and continue to hold net cash at the year end. We're focused on ensuring that we manage our total gearing across the cycle. Since June 2013, total gearing reduced from 35% of tangible net assets to slightly over 5% at June 2018.
Our new operating framework, with land creditors reducing to 25%-30% of the owned land bank over the medium term, demonstrates our continued focus on maintaining an appropriate level of gearing for the business. Let's move on to our capital return plan. The board recognized that an ongoing dividend stream is an important part of total shareholder return. As we announced in February, given the significant operational financial improvements the group has made over the last few years, we've improved and extended the capital return plan originally put in place in September 2014. The board continues to propose to target an ordinary dividend cover of two and a half times. When market conditions allow, ordinary dividends will be supplemented by special returns.
The board has reviewed the dividend policy and considers it is in the best interest of shareholders to introduce flexibility as the mechanism of payment of the November 29, GBP 175 million special return through special dividends and/or share buybacks. It remains the board's preference to make special returns through special dividends. During the five years to November 29, total capital returns are expected to be close to GBP 1.9 billion, based on current analyst estimates. Turning to a few areas of specific guidance for our FY 2019 not covered previously. We expect a 3%-5% growth in wholly owned completions, with affordable completions at around 19% of the total and around 650 joint venture completions. We expect that interest costs will be around GBP 45 million, with cash interest at around GBP 12 million.
It is now the appropriate time to further strengthen the operating framework that we've applied for a number of years. The slide summarizes the framework that is now in place and that I've outlined this morning. To conclude, it's been another year of good performance for the group, and we've delivered a strong set of results. Our balance sheet is in good shape, and our cash generation supports our capital return plan. I will now hand over to David for market fundamentals, current trading, and outlook.
Thanks, Jessica. As I covered up front, and I think Jessica and Steven have both underlined, we do have a very strong investment proposition. We're clearly going to be growing the top line, growing operating margin, and we see that quality and service are embedded as part of our DNA. If we move on to look at the market. We have continued to see a very supportive market backdrop. The lending environment remains positive, especially for new build, and I will outline that in more detail shortly. The government's housing policy remains very supportive. Despite increasing the supply of new housing coming mainly from the house builder, there remains strong demand for homes across the country. The government estimates that over the next 20 years, household formation will continue to grow by 210,000 homes per annum.
We need to provide for that, as well as years of historical undersupply. As Steven outlined, the land market remains very attractive. Moving on to the mortgage environment and the two charts which I have shown you before, but I do believe that they are very important indicators. On the left-hand chart, you can see that the average mortgage rates remain very low compared to historical levels. Additionally, new build offer is often a significant advantage for customers with a 5% deposit. Under the equity, the Help to Buy equity loan, rates are up to 160 basis points lower than the equivalent 95% mortgage rate for a secondhand home. The chart on the right shows the proportion of average income spent on monthly mortgage interest and capital repayments.
This Halifax data shows that affordability of mortgages remains well below the long-run average due to low borrowing rates, some wage inflation, and tempering house price inflation. If we look specifically at the new build mortgage market, the competition in the market has clearly increased, and this is helping our customers find competitive mortgages. Looking at the left-hand chart, five years ago, Lloyds and Nationwide dominated the market, providing nearly two-thirds of all mortgages to the new build market. As the secondhand market has slowed, mortgage lenders have looked to the new build market as an additional source of lending. As a result, over the last five years, smaller lenders have increased their offering to the new build market, and new entrants have also emerged. Overall, this means that there is a much broader spread of lenders supporting the industry with improved products, selection criteria, and streamlined processes in place.
We continue to see strong government support for the new build industry and for helping people on the housing ladder in general. This was evidenced by last year's budget, which included a stamp duty cut for first-time buyers, which has now benefited over 120,000 purchasers. Also the GBP 5 billion housing infrastructure fund to unlock new sites for development. We also have Help to Buy in place until 2021. The statistics that were released last month on the left hand of this slide show that the scheme is doing exactly what the government intended. It is helping first-time buyers get on the housing ladder. It's been used by families with lower household income, allowing them to buy homes priced on average at GBP 250,000. It is driving GDP and employment due to the strong economic stimulus. This is all in addition to a very significant increase in housing numbers.
Since Help to Buy's inception, there's been a 55% increase in new build completions. The government continues to be very focused on increasing housing numbers and has set longer term targets of 300,000 homes by the middle of the next decade. The government are intent on closing the supply-demand imbalance and ensuring that we provide houses to meet the historical backlog. For this reason, whilst there may be changes to the structure of Help to Buy post 2021, we would certainly not expect there to be any cliff edge. I have outlined the support of market backdrop, but it should be noted that there are a number of key issues for the industry, particularly if we are continuing to increase growing volumes. Skills shortages remain a key constraint for the industry, and one which if it is not addressed, it will restrict our ability to grow volumes.
One way to help with this is increasing usage of alternative methods of production. However, this is not something that will replace traditional methods in the short to medium term. Finally, with the increased levels of volumes, it is ever more important that quality and service do not suffer as a result. Now, let's have a look at each of these factors in turn and what we at Barratt are doing to help address them. It is clearly in our interest for self-help measures to address the skills shortage, but we recognize that it is not an overnight solution. We offer apprenticeships, we employ trainees and graduates across our business, and we now have around 7% of our workforce on these schemes. In 2013, we created the U.K.'s first ever degree program in house building in partnership with Sheffield Hallam University.
The first students graduated from this program this year. Additionally, for the last three years, we've been running a very successful transition program for ex-armed forces personnel moving into site management. Whilst we are bringing new talent into the industry, we are also very focused on retaining our current employees and providing training and benefits that will help to develop them and their careers. Moving on to alternative methods of construction. We continue to look to develop, trial, and implement new methods of construction. This is also going to help to address the issues to do with skills. Clearly, alternative methods of production will allow us to use less skills on site. We have increased the number of homes built with alternative methods of construction by around 40% this year. These alternative methods significantly reduce our reliance on some of the traditional skills, such as bricklayers.
However, it is not an overnight solution, and it will take time to reduce that reliance. We're looking at systems such as the foundation system pictured, and we continue to roll out trials for alternative methods through our new product introduction process. Finally, as I mentioned, that whilst we are growing volumes, introducing new people to the industry, and trialing alternative methods of construction, it is critical that this is not at the expense of quality and service. We are industry leading in this regard, and it remains an absolutely key focus for our business. Our number one priority, of course, as Steven mentioned, always remains the health and safety of our employees, our subcontractors, and our customers. I'm proud to say that we performed exceptionally well at the NHBC Health and Safety Awards, including winning the overall national award in the large builder category.
Let me now bring you up to date on current trading. It's been a very strong start to our new financial year against a strong comparative. Our private sales rate per outlet per week since the 1st of July was 0.75, broadly in line with the prior year. Coupled with outlet numbers, that results in net private reservations per average week of 264, again in line with the prior year. Meanwhile, our forward sales position, including joint ventures, is up by 11% at over GBP 3 billion. We're clearly in good shape for FY 2019. In short, we are very positive on outlook. We see that there are strong market fundamentals, and we have set new, clearly defined medium-term targets demonstrating our confidence in the business. Going forward, these will be our priority, and we will continue to drive the business with a particular focus on margin improvement.
As I've outlined, we have a very strong forward order book, and we are going to deliver further good progress this year. Thank you. Steven, Jessica, and I will now be happy to take questions. Gregor, should we
Thanks. Can you hear me? Yeah. Gregor Kuglitsch from UBS. Can I come back to the margin and the London point? I guess doing the math on revenues, I think it looks like they're going to halve roughly or even more on a year-over-year basis in terms of London revenues. I'm surprised that you're not, or that you said, I think, in your speech that you think there's going to be another headwind from Central London, just by virtue of revenues coming down by a pretty significant amount. I want to understand. I would have thought it becomes a bit of a tailwind because it's a lower percentage in the mix. If you could elaborate on that, it would be helpful.
Can I ask on the special dividends, did I hear you correctly that you said that you have an option to buy back stock? I mean, clearly, I think your dividend yield is somewhere in the neighborhood of 9, which at some point obviously becomes a little bit pointless. Market and some of your peers as high as 11 in terms of dividend yield. Do you think there's a perhaps case for buyback? Thanks.
Okay. I think the first question sounded quite difficult, so I will get Jessica to answer that. Just on the dividend bit briefly. We said, and Jessica touched on it within our capital return plan. Our preferred method of distribution has been special dividend and continues to be special dividend. We've said this morning that we are going to also go forward with an option, post the November 18 special dividend, that we will consider share buybacks in relation to future special or future distributions. Again, just to emphasize, special dividend is the preferred option, but we will look at share buyback on a go-forward basis.
Okay.
In terms of margin, we've made very good progress in terms of margin improvement this year. As I set out in the margin bridge, we saw 110 basis point improvement come through from the regional business improvements and changes in sites. When we look forward to FY 2019, we've still got 145 units to trade through from Central London, which, as Steven said, we're expecting to trade through during 2019. We continue to expect that there will be a dilutive impact on our overall margin from the Central London as it trades through this year, against margin.
I suppose the point is the headwind is easing because it's becoming less relevant. Would you agree?
There are less completions to go this year than we've had in FY 2018, yes.
Okay. Thank you.
David, I think I've got the second mic. Clyde Lewis at Peel Hunt. Three, if I may. One on the sort of guidance on land creditor shrinkage. Is that very much sort of linked to the gross margin improvement? As you negotiate deals, obviously you're looking at less deferred terms and you're actually pushing up the GM on that. I mean, are they, again, two very separate issues and you think that the market is just good enough that you can achieve that GM without really changing the land creditor percentage and really the land creditor choice is yours rather than the drive to get that margin up. Second one was on outlets.
I think you are currently marginally down where you were last year, but can you just give us an idea as to the sort of profile you expect to see in terms of new outlets coming through over the balance of this year? The third one was on, in terms of sort of build cost pressures, are you seeing it, that 3%-4%, are you seeing it sort of increasing or slowing down in terms of that pace of change? Redrow yesterday sort of indicated there may be one or two signs that might be easing a little bit, but wanted to see whether you think it's going up or actually maybe slightly lower.
Fine. I think if Jessica will pick up with regard to outlets. If I pick up on the land creditor point, and Steven will pick up with regard to the sort of cost and the inflationary environment. Just on land creditors, briefly, that we have, for a period of time, if you go back over the last few years, run a land creditor position that has been between 35%-40% of the land bank. I think the highest level we've been at is 38%. We signaled previously that we want to get into a range of 30%-35%, and Jessica's guidance this morning for the current year is still within that 30%-35% range. In the medium term, so say on a 3-5 year basis, that we will look to get into a range of 25%-30%.
In terms of land acquisition, it's absolutely at our choice. I mean, I think it's a good land market. There's a lot of opportunities available, as Steven outlined, and we can structure deals in a way that we think is right. Overall, when you come back and look at the investment proposition, we recognize that our land creditors have been a little higher than some of our peers, although most of our peers have grown their land creditor positions. We just feel that if we're trending back in the medium term to 25%-30%, that will just put us back in line with the majority of the sort of industry averages.
Okay. In terms of outlet numbers, we closed the year with 358 outlets, excluding joint ventures. Last year, we opened 142 new sites. As we said this morning, we're expecting to see disciplined growth in terms of volume in 3%-5%. That volume growth, we don't expect it to come through from sales rates. As we've already said, we're selling at what we would consider to be an optimum level in terms of matching build and sales speed. Clearly, it's important to the customer proposition that build and sales speed remain matched. We would expect to be opening more outlets this year in order to be able to deliver the volume growth that we've guided to.
Yes, on build costs. If you split it into 2 elements, materials and labor. What we are seeing, we're happy with the sort of 3%-4% we're indicating for 2019. That's on the back of a 3% increase we saw in 2018. We've seen some deals come to an end which have maybe been fixed for 2 or 3 years, so they've had a pretty substantial increase to take into account that period. What we are seeing, we are starting to see longer fixed-price periods starting to come through on certain materials. We've had some big increases on structural timber due to world market and plastics. We are starting to see, instead of 6, 9, 12-month periods, we are seeing certain materials getting fixed for 12 and 18 months. But in that sort of 3%-4% price range overall.
In terms of labor, the industry awarded a 3.2% increase to trades in July. That's sort of gone across the board. We've had sort of pressure is on bricklayer trades in certain pockets around the country. Bricklayers were sort of increasing rapidly at one period in time over the last few years, but we do see that sort of demand for bricklayers has sort of leveled off. That is also reflected in the rate we're paying to bricklayers. There's a situation where materials and brickwork in that 3%-4% category are starting to sort of level off and agree longer fixed-price periods.
David, I think I have the microphone. Even though lots of hands are going up, I'm going to sneak in. Glynis Johnson, Deutsche Bank. Three, if I may. You've talked about plot cost average selling price. You've given us a lovely chart that shows that. Obviously, some of your land bank would have had some benefit of previous house price inflation. So I wonder if you could just tie all that together. What is the gross margin on your land bank as it sits today? Second of all, in terms of your mix of product, your appendix at the back shows you have about 37% of completions in four-bedroom, five-bedroom, six-bedroom properties. Given the discussions around Help to Buy and what may happen to the price cap, are we going to see a change in your product mix?
Are we going to see some of those larger properties perhaps become less of a focus? If so, how should we think about your average selling price on land bank? Will it change through replans, potentially, going forward? Lastly, in terms of your core ranges, you've previously given us lots of data about standardization and the cost savings that can bring. One of your large peers talks about particularly the benefits of repetition of build, building the same properties time and time and time again. I wonder if there's any kind of quantification of the benefits that you could maybe give us of what that is for Barratt. Working on that basis, you've given us the core numbers for 2016, 2018. How many homes were you building on a very core basis in the previous set of numbers?
You've given us total, you haven't given us core. Trying to get an idea of how many homes you're building on a very regular basis where those gains could come through.
Yes. Okay. That's all quite tricky, Glynis. Plus, I've lost control of the mic. Okay. I think Steven is best placed to pick up in terms of the ranges and what's happening in terms of core and the point of repetition. I do think, and Steven will touch on it, I do think the point of repetition is a very important point. Clearly by reducing the range, we are going to have more repetition, I think it's quite difficult to quantify. Steven picks up about core range and those points. In terms of plot cost to ASP, we're not going to give the gross margin in the land bank. We've never given the gross margin in the land bank, and we're not going to give that now.
I think that the reality is that we have seen coming through the P&L this year a gross margin improvement, Jessica's outlined that, and the gross margin is at 20.7%. We've said that we are acquiring at a minimum hurdle of 23% gross since the beginning of 2018. I think what we've demonstrated over the last few years is that setting aside the subject of legacy assets, which have largely gone, I think we're down to about 6%, that our land intake rate will fall through the P&L given time. Roughly, we're turning the land bank every three or four years, therefore we would expect to deliver 23% through the P&L on a go-forward basis. In terms of product, I think that's, as you know, our, again, typical site that we're acquiring.
We're acquiring sites that probably on average have a three and a half to four-year lifespan. We obviously set the site up, we look at the product range in terms of what we think the demand will be in the local market. Clearly around the country, we see good demand for one bedroom through to five bedroom. In the event that there is any change, in the same way as Help to Buy came in in 2013 and was maybe an unexpected change when it came in in 2013, we would look at the product mix at that time. I think you can only buy sites based on the prevailing environment, and the prevailing backdrop at the point in time. If there's a change, we'll look at product mix then.
Yeah. In terms of product place, repetition is very important. I agree. That there's always a balance between having a repetitive site layout, which looks pretty boring. You have to develop good street scenes, good architectural interest, variety along the street scene. There's that balance, where you perhaps get a better price for your product because it's got more appeal. In terms of repetition, one of the reasons we introduced our core range, and we didn't have a core range in 2010, so that's why it's not shown on the slide. We used to have 118 house types, and divisions used to sort of pick and choose from those what they used. We've directed them over the last few years to be sort of every site we see, generally, we expect 80% of the product on that site to be from the core range.
Part of the benefit of the core range is that there is elements of repetition in the designs. They may not be the same design, but there's a lot of similar detailing on the windows, the bathrooms, the layouts internally. It's simpler and quicker for the guys to build on site. Hence, I mentioned we've seen some build speed improvements, typically sort of three to four weeks with the new range. That is part of it, is due to repetition and improvements in that area.
Cutting the core range from 22 down to 13
Does that further speed that build process? Are you going to save another two weeks if you put that onto return on capital employed in the asset term?
Too early at this stage to say that, I'm afraid. What we've gone through, we're constantly revisiting the range and taking into account customer feedback, and we've looked at the types of units, the divisions they're plotting, so we found an opportunity to sort of trim it back even further. You have to bear in mind, as I say, going back to this 80% rule, that 80% would be from the 13 types. To make sure we've got attractive street scenes, we use the occasional, and we put a sort of a sprinkling of the occasional ones in to make sure the entrances and cul-de-sacs, we can turn corners correctly. We can turn bends in the road down the street scenes. I think it's too early to say whether we'll get any further improvements, but it's all about improving efficiencies as we go on.
I'm sure we'll see further efficiency improvements from doing that.
I can guess what ask the next one. Aynsley.
Get another one the mic, just ask the question.
I'll ask you, who I give it to after. Just two questions. First, trying to explore the kind of linkages in your targets between the gross margin and the return on capital employed. Obviously, gross margin is 300 basis points higher. Is it right to assume that that means the business will be delivering 300 basis points higher, structurally higher return on equity or return on capital? You've spoken about less land creditors. Is there anything that changes in the asset turn where you don't get all that margin benefit flow through to the return on capital? Secondly, just on the autumn kind of expectation for the autumn selling season, what your views are there. You're changing incentives. Obviously, you've got the imminent kind of Brexit negotiations and deal coming up. Does that change your view on where you think the autumn might end up? Thanks.
Okay. If Jessica picks up with just in terms of return on capital employed and the margin improvement. In terms of Brexit, Steven and I obviously talk with the operational management on a weekly basis, and we were talking yesterday. I think we just continually try to deliver a message to them is that they've really just got to ignore that. There isn't anything we can do, and the reality is that if the customers are still coming and mortgages are still available, then it will be straightforward in terms of us selling properties. I think we're reassured that we're seeing attractive rates of sale coming through the business in July and August. We obviously monitor it on a week-to-week basis. I think the practical, the tangible impacts of Brexit at this stage must be limited.
We've seen rates of sale that have really been fairly consistent through calendar 2016, 2017 and 2018. No real signs that if you look at the overall market, that there is any slowing in terms of the overall market.
In terms of return on capital employed, we've kept that minimum target of 25%, the same as we had previously. Clearly, we're always focused in terms of achieving the best return on capital employed. Obviously, we did that this year in terms of a 29.6% ROCE. We've set out the minimum land acquisition hurdle rate in terms of 23% gross margin. If we look at what we've been achieving in terms of sites that we've acquired and completed since 2009, we've been achieving around a 35%, 34% ROCE on those. Margin improvement is clearly one part of the equation in terms of driving ROCE. Clearly, as we set out, it is the right time for us to start to reduce our level of land creditors. We recognize that will have some ROCE improvement.
It is absolutely the right thing for us to do in terms of the business to continue to strengthen our balance sheet and to de-gear. We also recognize that we do have some legacy assets remaining on the balance sheet, so we have got some investment remaining in terms of the central London joint ventures, and we are working on realizing that investment as quick as we can. What I would say is we continue to be very focused in terms of ROCE and driving the best possible ROCE that we can for the business.
Thanks. Next with the mic. Will Jones from Redburn. Three if I could as well, please. First of all, just checking in on the 23% land buying gross margin target. Is that inclusive of everything you are doing with the business in terms of the various initiatives? In the past, you gave us that diagram where benefits phase in over three to four years. There is a few of those kick in the later years. Do they add to 23, or is that the all-in number? Second one, on the guidance for net cash, I think you came to the year guiding to about half, about GBP 500 million of net cash. Ended up at GBP 790. You are guiding to GBP 1 billion of cash land spend this year. It is very hard with that and likely profits to get down to GBP 550.
Can we assume that there is a dose of conservatism in the guidance for cash at June 2019? Then I guess just double checking on pricing. If you just were to zero in on sales trends for the last, say, three, six months, are they still consistent with getting a couple of % of underlying house price inflation for, say, the current financial year? When you throw it all together, it is not in the guidance for 2019, but is it fair to say you are hoping and assuming you make some margin progress in the P&L this year again?
Okay. Fine. Jessica will pick up on the net cash guidance at GBP 550 million. In terms of the gross margin, we have identified the sort of headline changes that we have made in the business. Clearly, the changes to the house type ranges, particularly on the Barratt range, is quite a fundamental change in terms of what is driving gross margin. I think other changes where we were able to enact them very easily, they came into effect very quickly, would be, for example, really doing standard-only developments. I think we typically found that on non-standard developments, whilst we might deliver a high ASP, the percentage margin tended to be lower than average, and they are dropping out the P&L rapidly and therefore just arithmetically will improve the result. That is clearly not to do with our land buying. That is just an arithmetic translation to the P&L.
Other changes like the five-year warranty and the cessation of the five-year warranty in 2015 is something out with the land buying process. When we look at the land buying, and present the targets of 23%, I think that's a fair reflection of what we're buying in the market at this point in time, and then those other changes would clearly be in addition to that. In terms of pricing, well, two sides to it. Steven's talked about build cost and what we expect for build cost, and we said on build cost we were 3% for FY 2018 and we're expecting 3%-4% for FY 2019. In terms of ASP, certainly we are still achieving pricing improvements. Clearly, that varies by geography, but we are tasking our management teams to achieve pricing improvements and we also expect them to deliver pricing improvements.
Okay. In terms of cash, obviously, we're 10 months from our year end, there will be a little bit of conservatism in terms of the cash forecasting. In terms of land spend, we are expecting land spend to be around GBP 1 billion. Land creditors as we came into the year were 34%. As I said, land creditors, we're expecting land creditors to be within that 30%-35% range. Obviously I would expect land creditors to reduce a little bit, that's part of the cash equation. As we've set out that we're growing our volume, and we've set out the 3%-5%, clearly in order to deliver the volume uplift, we do need to put some WIP in the ground. Again, that's part of the cash equation.
If you take all those things together, that's how you get to the GBP 550 million.
Right. Oh, sorry, John. On you go.
Yeah. John Messenger from Barclays. I think I've got two, actually. If I'm reading slide 61 correctly, it looks like the private element of your forward order book is down a touch. I just wonder whether there's anything unusual in this year or last year's numbers. Secondly, more broadly, does the Letwin Review influence your land buying or product range in any way at this stage?
Okay. Well, surprisingly, I'm going to answer both of those questions. This is a good reason as to why we shouldn't put appendices in the presentation. No, just to say that on slide 61, in terms of the private forward order book. The private forward order book is down year on year in value terms, but is up circa 4% in plot terms, which is clearly the key thing for us. The reason why it's down in value terms is that in the prior year, we had sites like Landmark Place in central London and Blackfriars in central London, which clearly have very high average selling prices, so average selling prices beyond GBP 1 million. In terms of the Letwin Review, we said in July on the call that very encouraged by the preliminary findings in terms of the Letwin Review.
Sir Oliver Letwin and his team have taken a lot of time to go out and visit sites, so visiting in excess of 20 sites. Certainly on the two visits they did to our sites, spending a lot of time talking to the site teams and really trying to get under the skin of what are the challenges regarding delivery. I think the fact that in a very macro government report, that they detail the fact that they can see that brick layers is a major challenge is obviously a big positive. The Letwin report, I think, was indicating that to produce more volume from large sites, one of the keys was having multiple tenures on site. Possibly more private rental, for example, possibly more private shared ownership, which is something that we've seen come into the market in the last 12, 18 months.
The final recommendations from the report are due to be published on an October timeframe. It's not affecting our land buying at this point in time. I think that, again, a key point of the recommendation is that Sir Oliver recognizes that something different needs to be in place for future sites, i.e. he can potentially influence future sites more easily, whereas sites that are already in production and already have a planning consent, it's very difficult to come along and say, "Okay, you need to change your product mix," or, "You need to change your tenure." I think he recognized that within his June report.
Morning, guys. I think I've got it next. Emily Biddulph from JPMorgan. I just wanted to come back on this London margin dilution point. Firstly, just to be absolutely clear, when you're saying that London will still be margin diluted in 2019, can it really be incrementally diluted in 2019 versus 2018? Is that actually what you're saying? Then secondly, you obviously didn't give us a margin bridge in 2017, but I remember you talking through 2017 about London being a margin headwind at that point as well. Is it fair to assume that the London sort of tailwind, when this aligns, is more than the 40 basis points, just because it was also diluted in 2017 as well? Thanks.
Right. Okay, then. Jessica?
Okay. As I said earlier, we've seen a good progress in terms of the regional business coming through. We've seen the 110 basis points uplift come through in terms of the regional margin uplift. London obviously contributed 40 basis points, reduction against that in the year. London will continue to be a negative to margin in the current year if you're looking at the fact that we improved 110 basis points this year in terms of the regional business. There's 145 London units still to go through the P&L. You can't just take the regional margin uplift and apply that.
Chris. Strangely has no microphone. Yeah.
Just two quick ones from me really. Firstly, just on the volume target. By memory, it used to be three to four, I'm thinking, and now it's been moved on to three to five. Just what's given you the confidence of that? Because I think arguably the market is probably less buoyant than maybe it was this time last year. Not materially different, but it's clearly moved on. The second one's really just about the relative cost of alternative methods of construction versus traditional, and whether it's closed at all.
Well, if I pick up on the volume and Steven will pick up in terms of the alternate method of construction. I think first of all on volume, just to give a little bit of context. As you know, running through the period up to, say 2016, we were delivering compound growth that was above the 5% level. Clearly growing from a lower base, but nonetheless, we were delivering significant percentage growth. What we saw coming through FY 2017 and FY 2018 was really the regional business continuing to grow, but we saw some reduction in terms of London volumes, and therefore net a 1% growth rate in FY 2018 and something similar in FY 2017. When you look forward in terms of growth, I think there's two key drivers of the growth.
One is London, growing through zone 3 to 6, and that will be a driver of growth over the next few years as these new sites come on stream, as Steven talked about Acton as an example where that will come on stream. The second driver will be the new Cambridgeshire division. Cambridgeshire division is something new this year, and that will clearly deliver growth as a standalone office over the next few years. As Jessica touched on, to set that office up, we clearly needed to buy the land in advance. That office has a good portfolio of land and will start to deliver units through FY 2019 and FY 2020. Those are probably two of the main changes.
In terms of AMC, you'll have seen that in the last year, we increased our AMC production by about 25%-30% year-on-year, and we're expecting a similar sort of increase going forward. One of the reasons we've seen the increase is partly due to the new Barratt range. We designed that range in mind to use more alternative methods of construction. We're using timber frame, large format block, and steel. Because it's been designed to be much simpler and quicker and easier to build traditionally, it's also much simpler to build in alternative methods of construction. That also means it's more cost effective as well, to build in alternative methods of construction. Going forward, we are seeing the gap close between traditional and alternative methods of construction in terms of cost.
Particularly when you can see a reduction in build times, which are much quicker than the traditional methods, albeit even with a four-week improvement. It is starting to close the gap more and using more to do that.
Okay. Charlie.
Thank you. Yes, it's Charlie Campbell at Liberum. I've got two if I can, probably both quite quick. We've talked quite a lot about Central London as being an area of difficulty. How confident are you that Outer London will hold up and be supportive? Also sort of broadening that a bit maybe to the Home Counties, same sort of question there. Then on strategic land, you very kindly have told us that that's helping margins by 300 basis points. Do you think that's sustainable as strategic land gets bigger for you? Also maybe as land market develops over time, do you think 300 is something that we should continue to think about, or will that perhaps moderate over time?
Okay. I think I'll just pick up both of those. If I take strategic land, first of all, I think implicit in what we're saying, I think there can be some moderation of margin improvement on strategic land. Clearly one of the drivers of that moderation is the way in which we're pushing the operational land margins. Future strategic land we sign today, we can continue to see some improvement, but there's obviously going to be some overlap between what we're doing in terms of driving operational land and historic strategic land agreements that come through. Strategic land for us has always been two things. First and foremost, we are securing land supply, that secure of land supply, I think, is key.
We've come from a position, albeit over a decade, we've come from a position where we have having a very limited strategic land portfolio to now having a fairly substantial portfolio, as Steven outlines, in 12,500 acres of strategic land. When we look at Central London, I think to me, the key starting point with Central London is that the fact that we are not going to be participating in Central London post 2019 was really a function of us being unable to buy land in calendar 2014, 2015, 2016, and then deciding in 2017 that we would just stop bidding. I don't think for us it was necessarily a particular call on the market, other than we simply couldn't buy land at our stated hurdle rates. When we look at the performance of the outer London market, we're seeing strong demand within zone 3 to 6.
The developments that we have that are up and running and selling, we're seeing good demand. It's always going to vary by site, but generally good demand. I think when you look at the market in the outer London, or you look at the market in the southern region, then we can see that at higher price points, where you're moving into maybe four and five-bedroom homes, that in a lot of cases you're then dealing more with chains that are in the secondhand market. The secondhand market is clearly moving a little bit more slowly, and therefore, that can mean that chains break down more often, and that is a factor that we have to deal with.
The reality for us is our response to that historically, and certainly for higher priced product, has been to use more part exchange, because we can deal with the market effectively with part exchange. Therefore, that's something that we've been doing more of as appropriate around the country