Earnings Call: H2 2012

Sep 12, 2012

Good morning, ladies and gentlemen, and welcome to the Barratt preliminary announcement. Today's a great day for me because these are the best results that Barratt's produced since I became chair. You can imagine how sweet today is for me, standing up here before you. Today, given our reorganization in July, we've got three presentations for you. Mark's going to cover the strategy in the market. Steve will then take over and give you an operational overview. David will sweep up the pieces with the financial review at the end. Then we'll be delighted to take your questions. Mark, over to you. Thanks very much, Bob. Good afternoon, gentlemen. Thanks very much, Bob. Good morning, everyone. I'm going to start by looking at last year's performance. I'll cover market trends, lending, government initiatives, and progress against our key objectives. I'll then talk about the overall structure of our business going forward, including, I'm pleased to say, our proposed dividend policy. Finally, I'll bring you right up to date. Looking back at 2012, I would describe it as another year of good progress. Private ASP continues to increase and is now over GBP 200,000, reflecting our strategy to change the mix of what we build. Operating profits, pre-exceptional, were up over 40% in the year, with margins improving to 9.5% in the second half. Pre-tax profits were up 159% to GBP 111 million. We took advantage of a slightly stronger market and lifted production. Importantly, we've increased the rate at which we're making new land commitments. Last, but by no means least, our debt almost halved to GBP 167.7 million. This was achieved against a backdrop of greater stability in market conditions despite macroeconomic factors. We had the strongest spring selling season we've seen for the last five years. Underlying selling prices remained broadly stable, with the Southeast and London the most robust. The most significant factor that continues to hold back greater recovery is the lack of mortgage lending, a situation we've now lived with for four years. That said, the relative position of new build against our main competitor, second-hand, has changed dramatically. Comparing loan to values in early 2010 with today shows the scale of the change. 95% mortgages using HomeBuy are universally available for new build against the previous levels of 80%-85%, whilst the second-hand market has stayed the same, with rates that are materially better, although we'd like to see the gap widen further given the level of indemnity provided. Of course, until the absolute level of lending increases, I don't expect sales rates, and therefore volumes, will change significantly. Whilst it's fair to say that government policy is still evolving, everything to date has been supportive. FirstBuy has been a great success. We're now seeing the growth in the use of NewBuy as we predicted. More FirstBuy will be helpful, particularly where we want to accelerate sales on older sites where affordability is more challenged. We do support Adrian Montague's report on private rental. We're pleased to see government moving to implement the key recommendations. Anything that helps unlock a new source of demand that doesn't rely on mortgage lending is positive, especially for the London market. The additional measures announced on planning and affordable housing are sensible and helpful. The one thing that was missing from last week's announcement was any detail of the proposed funding for lending program, that could be used to deliver incremental wholesale funding for bank mortgage lending. Moving on to our key objectives. We've made good progress in the year, but there's still some way to go. As we covered this in detail at the interim, I'm only going to provide a short update on sales and land, leaving Steven to talk about operational efficiency. in June 2012, we launched our new websites. These were developed following extensive customer research. They give consumers significantly more information about individual properties in the local area, as well as additional services such as mortgage calculators and school finders. Last year, more than 8 million people visited our sites, up 36% on the prior year. Looking at the share of web traffic by house builder, we consistently punch well above our weight, with around 30% of total volumes each week. We're now rolling out our new sales offices that will provide an enhanced retail experience supported by the latest technology. When you look at the uplift in our sales rates, the results speak for themselves. Looking ahead, we will continue to focus on how we drive conversion rates up to ensure demand remains strong for the homes that we build. In terms of land delivery over the next few years, we're continuing to make good progress. In this financial year, we expect delivery from newer, high margin land to increase to just over 50%, and completions from impaired land to reduce to less than 20. By 2015, higher margin land is expected to make up more than 80% of completions, with impaired land less than 5%. Where the market opportunity exists, we will continue to look at ways to speed up this transition through asset sales or by increasing sales rates on older sites. Turning to our second objective, reducing overall indebtedness. In the same way that growth in margin is hardwired into our plans as new land comes through, so is the reduction in debt. We continue to make good progress, reflected in the halving of our year-end debt. I'd now like to talk about some other aspects of our business going forward, bringing together the various statements that we've made in the past, starting with size. We've carried out a substantial piece of work that helped us understand what the business might look like in the future. We took account of geography, specific markets like London, the different products we deliver, and years of experience about what can be delivered efficiently from strong local management teams. Our conclusion was that we believe our operating structure is right for the national market, but we are currently running at about 85% of capacity. This assumes current sales rates and affordable content, so given that could change, it isn't fixed in stone. Whilst growth in the business will be a function of market recovery, this model does define our land investment needs, and ultimately, our longer-term margins and returns to shareholders. The next piece I want to cover is land supply. Here, our objective is clear: to ensure we have the land necessary to support the optimally sized business, and to deliver it in a way that maximizes the return on capital. Given our track record of organic growth, we have since May 2009, focused on growing the pipeline of opportunities. As at the end of June, we had own land of 45,000 plots, including JVs. We also had 10,000 plots of contracted but conditional land, and around 8,000 plots where terms have been agreed and where we expect to enter into contract shortly. In addition, we have the equivalent of around 61,000 plots in our strategic land bank, where delivery will be further out. So contracted land of around 4.3 years, but a pipeline that is significantly longer. We believe this is the right operating structure for us as we minimize the paid-for land whilst maximizing the pipeline. Of course, strategic land is very different, and the key measure is not about absolute size, but the pace at which it comes through to completions. In FY12, around 5% of completions came from previous strategic land. By FY15, we forecast that will increase to around 15%. While there is always a lot of focus on the length of land banks, a more important measure is the number of outlets, as this is what actually drives completions and returns. With an average operational site size of around 100 units, this enables us to drive a much higher output from our shorter operational land bank than a number of our competitors. In terms of our target funding structure in today's environment, our aim is to deliver zero year-end net debt by FY15 or sooner if market conditions allow. The own land bank and long-term work in progress will be funded by our shareholders and land vendors in the form of land creditors, and our working capital requirements by our banking partners. In terms of land creditors, currently they equate to around 35% of our own land bank. As the land market becomes more competitive, we expect this to reduce to around 25%. Turning to dividend policy. The board recognizes the importance of both capital growth and dividend income to our shareholders and is committed to reintroducing the payment of dividends. Assuming a stable market, we expect to propose the payment of a final dividend for the year 2013. Initially, you should expect a very conservative dividend cover. As indebtedness falls to target levels, we would aim to reduce cover over time to around three times. A combination of growing profits and our progressive policy should see a material rise in the level of dividend going forward. To finish, let me give you an update on current trading and outlook. Overall, the market has remained stable, and there has certainly been no negative impact from the Olympics or the continuing transition away from FirstBuy. In the last nine weeks, the average net private reservation rate was 0.5, in line with the strong performance of the previous year. The small decline in site numbers is due to the timing of site openings. For the full year, we're expecting average sites to be similar to last year. The forward order book remains strong, with the value of private forward sales up 15.3% from the same time last year. Looking ahead, we are expecting a continuation of the stable but constrained market we've seen for the last four years. Government initiatives have and will continue to provide positive support to the industry. In the longer term, market fundamentals are very strong, and the need for more housing is recognized by all political parties. Without any further benefits from these factors, shareholders will continue to see strong growth in returns as the full impact of our land investments come through, with a balance sheet that will continue to strengthen. I'd now like to hand over to Steven. As you know, he was appointed Group COO in July of this year. Steven is one of the most respected operators in this industry and has a wealth of house-building experience. The revised operating structure is already working well, and it will allow us to drive even more standardization, cost efficiency, and quality improvements across the group. Steven will now report on operational progress over the last year. Good morning, and thank you, Mark. This morning, I'd like to look at the operational aspects of the business and give some existing and new performance data. I'll cover three broad areas: revenue drivers, operational efficiency, and land supply. Firstly, revenue drivers. We're a national house builder. This map shows our six regions. Our geographic coverage is an important strength. The five regions outside of London all delivered broadly 2,000 to 2,500 completions in the past year. We're committed to maintaining a regionally balanced portfolio, optimizing the growth opportunities across the country. In terms of market conditions, we continue to see variations, with the Southern and London regions being more robust, particularly in terms of pricing. But there are strong markets in every region. Places such as Aberdeen, York, Warrington, Milton Keynes, Bristol, and Plymouth, where we've sold very well over the past 12 months. We've seen a good improvement in private sales rates across the group, especially this spring. On this slide, there's some new data for you, sales rates by region. As you'd expect, there are some variations, with higher rates in London and Southern. Historically, this has always been the case. But importantly, it shows that we've seen an improvement in rates across every region compared to the previous year. London rate is up 32%, and outside of London, it's good to see our Northern and East regions showing the strongest increases, up 27% and 21% respectively. Key to our sales success is targeting potential purchasers with the right product. And over the past three years, we've made a significant shift in our product mix. Here for comparison are breakdowns of completions by product type. On the left are the figures from 3 years ago, and on the right is the breakdown for the year ended June 2012. The key movement is the dark blue segment, flats outside London, which have reduced from 45% to 23%. Looking ahead, we would expect to see a further shift. Our new land, excluding London, has an average 15% flatted content. Looking at the green and brown segments, these are 1, 2, and 3-bedroomed houses, the first and second move-up categories. Combined, these have increased from 29% to 44%. Overall, these changes in mix reflect the dynamics of the lending market, constrained mortgage availability for first-time buyers, and more resilient demand from existing homeowners trading up to larger family houses. We have also been using our 2 leading brands to maximize market opportunities, with each starting to form a more distinct market segment. Last year, 59% of private completions were from Barratt, excluding London, and 33% from David Wilson. Barratt delivers high-quality homes with a private ASP outside London of GBP 174,000. David Wilson is our more upmarket brand and targeted towards larger family homes with a private ASP of GBP 228,000. Because the Barratt and David Wilson brands offer buyers clear differences, we often have both at the same location, enabling us to target a much larger potential customer base. We currently have 94 outlets on 40 dual-branded locations across the country, and I would expect this to increase going forward. Both brands produce the highest quality product. Personally, I would say the quality today, in terms of build and customer service, is the highest I have seen in my 34 years with Barratt. We are very proud to have achieved five-star status from the HBF for the third consecutive year, with 94% of our customers satisfied with the quality of their home and 95% saying they would recommend us to a friend. For the eighth consecutive year, our site managers have been awarded more NHBC Pride in the Job Awards than any other house builder. These are outstanding independent endorsements of our quality. This consistent quality not only drives a price premium but lowers our cost to build, 2 distinct advantages we have over our competition. We have seen a steady increase in private ASP over the past 3 years, reflecting the shift in product mix and our focus on quality. The increase includes very little underlying price inflation, and there is still some way to go on pricing. As you will see in David's presentation, the ASP in the conditional land bank is GBP 224,000. I will now turn to operational efficiency. We have a firm focus on maximizing efficiency across the group and reducing the cost base. The key driver is standardization, and I will address this in the next slide. We are constantly looking to refine our sites to improve profitability and have replanned well over 50 sites in the year. We use the size of group to procure materials as efficiently as possible. Today, around 85% of materials are sourced centrally under group supply arrangements, which benefit from highly competitive commercial terms. We have also significantly reduced the cost of building homes to code levels 3 and 4, down more than 50% from our original assumptions on which much of the land was bought. We will continue to drive low carbon solutions more effectively in the future. As I mentioned, standardization has been central to our efforts to deliver cost savings and efficiency. Today, around 65% of our completions use our standard house type ranges, compared to less than 50% before the market downturn. We expect this percentage to increase going forward. In late 2010, we relaunched both the Barratt and David Wilson standard house ranges. It's a far better-looking product, in line with the aspirations of today's purchasers. They feature open plan layouts to maximize space and natural light with the designs based on feedback from our customer focus groups. We have strict controls to ensure they are used. Any non-standard product must be authorized by our central design and technical department, who assess it for both good design and build efficiency. During the year, we created a commercial action group to identify and share best practice across the group. Already the group has identified almost 90 different ways to reduce costs and improve efficiencies. The majority of these have been implemented, and we've delivered over GBP 15 million worth of savings to date. These savings are made up of small but important improvements, which together make a significant difference. For example, a review of site security will help save about GBP 3 million. Using a newly developed alternative foundation system will save GBP 1.2 million. Introducing a group procurement arrangement for radiator valves will save around GBP 1.1 million. Every site now goes through a formal review process consisting of a 400-point checklist that challenges every aspect of cost and design. In addition, we expect to deliver approximately GBP 45 million savings over the next four to five years. The savings are in our numbers, which David will go through shortly. Moving to land supply. Mark highlighted the shape of our land bank. It's a fast turn asset model, maximizing return on capital employed, something Barratt has done very successfully in the past. A key to success is the efficiency of our land acquisition process. I believe our proven track record is our key competitive advantage. Our in-house planning capability is industry leading. A recent analysis showed that out of 336 planning applications we made, covering nearly 35,000 units, only 6% were refused, and most of these have now resulted in a successful outcome by appeal. So we have a high success rate. The issue is the length of time it takes to get there. Landowners come to us as they know we can deliver and deal with issues in the right way. So what are we buying? We have a targeted approach area by area. Our criteria takes into account factors such as economic prospects, household formation levels, and potential for future price growth. Out of 380 local authorities, we are prioritizing around 120. In general, we buy land subject to planning. We maintain a regionally balanced portfolio across the country. Every piece of land must meet our hurdle rates, a return on capital of at least 25% and a gross margin of at least 20%. The forecast assumes no house price inflation. We look to secure deferred payment terms, and this has also been a key part of the Barratt strategy. Public sector land is an important source, and I'll come back to that in a moment, and we continue to look at JV opportunities, particularly for our London region. These allow us an access to a broader range of projects that may not otherwise be available, reduce the investment required, and improve the return on capital. On this slide, in the right-hand column, you can see the total approved land since we reentered the land market in mid 2009, a total of just over 34,000 plots. Of that, nearly 22,000 plots now sit within the owned land bank, over 8,000 plots within the conditional land bank, which is mainly subject to planning, and over 4,000 have approved status and are proceeding to contract. Of this new land, production has commenced on 174 sites, 87% of the total owned sites. In the full year, sites with completions achieved a gross margin of 20%. Now to public sector land. This is an area where we have been particularly successful. We continue to bid for sites through the three HCA delivery partner panel. Since 2009, our specialist Barratt partnership team has secured more than 9,000 plots on 33 sites of public sector land with a gross GDV of GBP 1.7 billion. Of those sites, 26 are contracted and 18 already in production. The government's intention to increase the release of public land to build up to 100,000 new homes by 2015 is a positive step. Barratt is very well positioned to capitalize on this given our strong track record. Furthermore, the buy now, pay later approach is financially advantageous to us. I trust this has given you a greater insight into the operational aspects of the business. We are in good shape despite what has been a very challenging market. Thank you, and I will now hand over to David to run through the numbers. Thank you, Steven. Good morning, everyone. Starting with the summary revenue drivers, total completions were up 14% at 12,637. From 11,078 in the prior year. Social accounted for 22%. On guidance, we expect social content to be the norm going forward at 20%. On average selling prices, total ASP increased to 180,500, with private ASP up 1.5% to 201,800. As Steven outlined, this increase is being driven by changes in mix, more houses and more large family homes. Looking down the P&L, we delivered gross profit of GBP 296.2 million and a gross margin of 12.7%. Gross margin in the second half was 14.4%. Administration expenses were GBP 105.1 million. On guidance, we expect administration expenses to be GBP 110 million in the current year. Operating profit before exceptional items increased by 42% to GBP 191.1 million, with an operating margin of 8.2%, up from 6.6% in the prior year. On guidance, an important point is that the first half, second half trends on margin for FY 2013 will be similar to FY 2012, reflecting the higher percentage of completions we deliver in our second half and the weighting of London private completions to the second half. The group incurred exceptional costs of GBP 10.7 million in the year. As previously announced, this resulted from the acquisition of our partner's interest in a joint venture development. Mark has given you the land delivery profile for the next three years. Here you can see the outcome for the year and also the splits for the first and second half. In the second half, due to an improving market, we delivered a higher percentage of completions from impaired land than we had previously forecast. 25% versus our 21% expectation. We have made very good progress on clearing our old and impaired land. Now looking at the cash flow. As ever, lots of numbers and I will highlight a few. The profit from operations after exceptionals was 191.1 million, an increase of 63.8 million on the prior year. The cash inflow for land, mainly from plot completions, was 505.9 million. A 35.9 million increase in WIP reflects WIP build in our London division, where we have commenced the construction of four high-rise buildings in the past 12 months. Shared equity increased by 19.8 million. We will have a closer look at this shortly. The total cash inflow pre-land purchases and disposals was 572.4 million, up by 172 million. Moving on through the cash flow. Land spend totaled 397.4 million, up from 261 million in the prior year. This included 289 million of land creditor payments. On guidance, we would expect that the total cash spend on land in FY13 will be around GBP 650 million, of which GBP 370 million will be on land creditors and the balance on other land expenditure. We generated GBP 39 million of cash from land sales. We continue to review land sales on a limited number of sites. Turning now to the balance sheet, I will pick out the headline numbers. Our deferred tax asset is a reminder that we have a shelter, so there will be no cash tax payable on around GBP 500 million of taxable profit. The gross land bank value is just over GBP 2 billion, which net of land creditors of GBP 726 million gives a net land bank value of GBP 1.35 billion. As Mark said, land creditors equate to 35% of the owned land bank. Stock and WIP increased by 42.3 million to GBP 1.07 billion. I have analyzed this further in the appendices. So now looking at shared equity in more detail. Here is a breakdown of GBP 189.2 million book value of shared equity. Net additions totaled GBP 29.7 million, down from GBP 40.4 million in the prior year. This reflects the use of more of the government FirstBuy scheme, with our share at 10%, and less of our own scheme with our share at 15%. Redemptions increased to GBP 9.9 million from GBP 7.3 million. You can see that the value of the portfolio is split broadly one third government backed and two thirds Barratt. With effect from July this year, the Barratt scheme is a 10-year 15% shared equity product with a 3.5% interest charge from month seven. This will sit comfortably with both the FirstBuy and NewBuy schemes. Turning now to joint ventures. They are held separately on the balance sheet and appear as a one-line entry on the income statement as share of profits from joint ventures. This is operating profit net of interest. Here I have split the joint ventures between London and non-London. As at the 30th of June, we had three significant joint ventures in London, as detailed on the slide. Since the year-end, we have entered into our third joint venture agreement with London and Quadrant at Fulham Wharf, an 8.5 acre site with planning for 463 riverside apartments. In our business out of London, we have four sites in the southeast with the Wates group. Here you can see the balance sheet investment split as at the 30th of June. Our London joint ventures total GBP 31.5 million, up from GBP 20 million in the prior year. Our joint ventures outside London total GBP 43.1 million. The decrease from GBP 71.8 million in the prior year reflects the additions, less the transfer to wholly owned land of the joint venture interest we acquired in the year. Below, you can see that in FY12, our joint ventures delivered a total of 220 completions, significantly up from the prior year. This delivered half a million pounds as our share of profits. We expect the contribution from our joint ventures to increase significantly as our three joint ventures with London and Quadrant begin to deliver completions. In the current year, joint venture profits will be around GBP 4 million, but we would expect that to grow very substantially in FY14 and FY15. Moving on to the land bank. The total number of owned and conditional plots is 54,209. The average cost of plots acquired in the period was GBP 48,000. The average cost of plots charged to the income statement, GBP 43,100. Finally, the average carrying value of plots on the balance sheet now stands at GBP 45,000. Here's the chart with which you're familiar, detailing our land bank by category with the associated ASP and gross margin. On the left-hand side, you can see that impaired plots now stand at 6,666 and represents 15% of our total owned land bank, down from 10,292 plots and 21% a year ago. Average gross margin on impaired land has remained at zero, and average selling price at GBP 163,000. Non-impaired all plots now stands at 16,476, both of the green segments on the chart, down from 22,690 last year. An arrangement over the next 12 months. On guidance, we expect the cash interest cost in FY13 to be around GBP 55 million. Total non-cash interest was GBP 23.2 million. A full breakdown is included in the appendix. On guidance, we expect non-cash interest to be around GBP 20 million, and therefore the total cash interest cost for FY13 to be around GBP 75 million. Moving on to land creditors. Land creditors at June were GBP 726 million. On the slide, I've cut the land creditor balance by various categories to give you some more color. The bar on the left shows that around one third of our land creditors are with government bodies. 87% are land creditors in respect of new land acquired since 2009. The column on the right splits out the land creditor on land overages and plot by plot payment deals. In the appendices, I've included the land creditor future payment profile, GBP 368 million is due in the next 12 months and the balance thereafter. On guidance, we expect land creditors to be at similar levels at June 2013, at around 35% of the gross land bank. Finally, to summarize some of the key points for guidance. We expect to see very modest volume growth in FY13, driven by some growth in outlets and a minimal increase in sales rates. We will drive further ASP improvements as we move from flats to houses. Our completion volumes from new higher margin land will increase to more than 50% in the current year and nearly 70% in FY14. Administration costs will be around GBP 110 million, and interest costs around GBP 75 million. Net cash spend on land will be around GBP 650 million, and net debt at December 12 will be around GBP 475 million, with net debt at June 13 at similar levels to June 12. Land creditors will be at a similar level at around 35% of the total land bank. Thank you, and I will now pass back to the chairman. Thank you. Before we begin the questions, I would just like to make a couple of points in conclusion. Firstly, despite the somewhat difficult trading conditions, our progress throughout this year has been strong. We have increased profitability, we have substantially reduced our level of indebtedness, and operationally, we have improved further with advances in both efficiency and quality. Importantly, with a stable market, increasing returns are hardwired into the business. As a result of our strong flow of new high margin land coming into production, it helps the prospects going forward. Going forward, we will maintain our disciplined approach, and that has served us well throughout this year and will continue going forward. Given our progress, as I think you have been able to deduce from today, we feel more confident about the future, and we have also outlined a little more about the size of the business going forward, the capital structure, and our approach to dividends. I am sure you have got a lot of questions, but before you ask your question, could you just give us your name and firm, please? We open up. Sorry. Please, Gregor. It is on its way. It is to your left. Thank you. It is Gregor Kuglitsch from- Is it working? I think so. Speak to it. Yes. It's Gregor Kuglitsch from UBS. First one is just on the debt. Can you maybe outline where you see average debt sort of moving over the next three years? Maybe a second sort of follow-up question to that and how quickly can you reduce the interest bill? Because obviously right now you've got quite a lot of fixed components within that interest bill. I'm just interested where you see that, say, in three years time, versus the sort of GBP 50 million-GBP 55 million where you are today. Secondly, on the sort of driving that debt reduction, which is really, I suppose what you're telling us is the land bank is at 3.5 years, i.e., pretty much optimal. The question I have is really how quickly and where do you see the work in progress falling to, say, as a multiple of sales over the next 3 years to release the cash? I think you had some slides in the past on this, so just wanted to have an update on that. Thank you. All right, David, are you going to kick off and? Yeah, that's fine. I can cover those. Yeah. Okay. In terms of average net debt, I mean, for FY 2012, the average net debt would be around about GBP 650 million. We're not guiding to anything particularly different from that for FY 2013. We've given the cash interest cost for FY 2013 at around GBP 55 million, and implicitly, the cost of funding is around 8% to 8.5%. We're not going to give average guidance beyond that, but clearly, as Mark said, we are expecting the average trend to be downwards as we move towards zero net debt at the balance sheet date. We believe that there are strategies that we can enact to reduce the effect of cost of funding, and we've outlined this morning that we have canceled one of our revolving credit facilities which will help to reduce the cost of funding. We will continue to look at strategies in that light. Overall, our revolving credit facilities are due to mature in May 2015. Therefore, the group will need to go through a refinancing process pre-June 2014, and that will clearly allow us to bring down the overall cost. Finally, in terms of work in progress, we outlined the position with regard to the average site size, and Mark gave some details in February regarding the average investment. We were looking at historic averages at GBP 6 million and current averages at around GBP 4 million. We have some particularly large sites. For example, GWQ, which we gave as an example in February, and we are targeting to be clear of that by June 2014. Again, we are not going to give targets on work in progress, but as we move through June 2014, in particular, we would expect to see a step change in terms of the work investment in the business. Thank you. Chris up front, and then we will go back. Chris Millington, Numis. Just two from me, both unrelated. Firstly, just on strategic land. You've given us that plot figure. Just wondering really how you calculate it and perhaps just a little bit more detail behind the acreage and where it lies in the country. The second one's really just about the comparisons you've been up against over the last nine weeks and how you see these panning out over the remainder of the year. I recall we had quite a good start to the 2012 year, so if you can just kind of put it in context for us. Dave and then Mark. Yeah. Well, in terms of the strategic land, we have a larger portfolio of strategic land than the acreage and the plots that we've given you this morning. Clearly, we don't expect that all of that will crystallize. So the figures that we're disclosing this morning in terms of acreage and plots are where we believe that there is a good probability that it will crystallize as an opportunity. In terms of the geographic spread of the strategic land, we did provide some information in February, which gave some more background in terms of the geographic spread. Clearly, there's been very little change since then. Mark. Yeah, in terms of current trading, I guess there's three elements, as you say. The first part of 2012 was particularly strong. To achieve a 0.5 sales rate in July and August, suggests that we were really performing well. We've had the switch away from FirstBuy to NewBuy, so we have been limiting the amount of shared equity we've used, and therefore we've seen NewBuy increase as a result of that. Of course, we're all concerned about the Olympic effect, which to be honest, has been pretty much zero, I think, on the business. So we see it as a good start to 2013 year, and we're pleased with progress so far. Cool. Sorry, please. Thanks. It's Will Jones from Redburn. I think a couple if I could, please. The first just around, looking at the two numbers you've given today, the 15,000 around volume and the zero net debt. I'm just thinking about how the two interact. Firstly, is the 15,000 an absolute cap you're setting on the business or more just what you could get to based on where you are today? Just in terms of understanding the nuance of that number, please. Could you, if we went to FY15 and you were at zero net debt, could you also be at 15,000 volumes in that year? Or is it that you need to be more like, say, 14 to be at zero net debt? Because obviously volume growth is generally cash consumptive. Just any further detail around those two metrics, please, would be great. The second, just around the government incentive scheme or the announcements made last week. One of the more interesting ones around social housing and potential exemptions on commercially unviable sites. Do you have any further detail on that? In particular, what might be deemed a commercially unviable site in the eyes of government? Thanks. I think that says yours, Mark. Yeah. When we did the modeling of the group earlier this year, we were actually trying to achieve a situation where we drove the debt down, we grew the business to its optimum size, and obviously we reintroduced the dividend, so it was can we deliver all three. What we're not setting out today is what's the timing of 15,000 units, because to be honest, that's really a function of the market. We'd have to grow at 5%, 6% a year to get there, but we're not giving that guidance at this time because I think it's very clear that we continue to focus on value. If we start to see the market improving, which will largely be a function of the lending side of things, then we would start to increase volumes. The 15,000, this is the hard cap, what it can't be, because obviously to some extent it's predicated on today's sales rates. If sales rates change, then you could see slightly higher volumes. What we are saying is the operational structure we have for the business we think is absolutely fit for purpose. We've looked in great detail, and we think it works. Where we're based, how we are organized, and therefore that we're intending to stay with. Obviously what we want to do is put the maximum volume through that. 15,000 is just an approximation of what that might look like in terms of providing guidance. But timing could be three years, could be five years. To be honest, it depends on the market. The zero net debt is something where we've got a harder target, if you like, in that we're saying we will achieve that by the end of 2015 or June '15. But we've also made the point that actually if the market goes faster, there are still other levers we can pull, as you know. Things like shared equity, for example. Then maybe we could get there faster, and we recognize that has to be an ambition for the management team. So hopefully, that gives you enough of the parameters around it. In terms of the government announcements. Interestingly for us, there were two major pieces and an awful lot of minor pieces. The major piece was FirstBuy, of course, which, given we're working so fast to wean ourselves off, was an interesting move by government. But as we've said, we can really, I think, use that on some of these older sites and increase the sales rate on those sites by using FirstBuy. So I think that will be very, very helpful for us when we talk about reducing the older impaired land percentage. The second piece that's important for us is private rental. It's something we have been very keen on, of course, because of our London presence. Actually, when you look at Adrian Montague's report and you look at what governments have said they're going to do, there's a lot of opportunity. I think since the announcement was made, there's already discussions going on. So we are looking at that very, very clearly. The social housing piece at one stage we thought was going to be a nightmare, i.e., they were going to change affordable housing and how it was done, and that felt like a real disaster waiting to happen. The good news is that what they actually said was where a site was not viable, we could effectively challenge a local authority that refused to reduce the social housing content, and go straight to the planning inspectorate. As I say, I think that's a very helpful move by central government. Reality is, on most of those sites where we've run into viability issues, the local authorities will negotiate, but it's very nice to be able to say, "And if you don't, actually we do have the right to go to the planning inspectorate." We've got to wait to see what the details are of how this works. Nevertheless, I think that's quite helpful. Just to push a little bit further, what would you deem as a commercially I know it will vary on a site-by-site basis, but would an impaired site be unviable because it's not delivering hurdle rate returns, or because it's a cash positive site? I suppose it'll all be a bit of toing and froing, but. Yes, the debate as to what the local authority thinks is not viable and what we think is not viable will clearly be different, but certainly an impaired site is not viable because it's making no money. So would we carry on? We can clearly stop building on that site and say, "Well, look, it's underwater." I think that's where the debate with local authorities is. But we have had a very sensible debate in a lot of cases. I think it's more when the local authority says, "That's what you signed up, you're stuck with it," that's when you go, "Well, to be honest, we're not accepting that anymore, and we now believe we have the right to appeal that." I think that's very helpful. Thank you. Anyhow. Glynis over here, please. Hello, yes. Glynis Johnson, Deutsche Bank. I have a number of questions, if that could be cheeky enough. No surprises there at all. In case you were hoping to hear any. Yeah, exactly. The first one is in terms of margin on new land. You gave a margin of 20%. You previously said that actually you are achieving slightly better prices on some of that new land than you thought you might be. So I am wondering if you can just talk about that margin. Is there a variation within there? Secondly, in terms of banks' willingness to lend on NewBuy, we have had some of your peers talk about the Herculean task is to actually get your customers through the process. Are you seeing any changes? Is funding for lending making any difference? Thirdly, in terms of FirstBuy, you talk about using it to accelerate sales on older sites. Is that above and beyond what you are showing us in the cylinders? Can we expect actually that in FY 2013, we may see a greater proportion of older sites, impaired sites, and actually in future years, we will see a great proportion of newer sites? In terms of your financing, your private placements, you indicate some are actually maturing in April 2013. I wonder if you can just give us a bit of detail, because clearly that is the biggest portion of your cash costs. Then just in terms of your joint ventures, apologies I am going on too long, you gave us the profit on those joint ventures, but you do not tell us the ASP. Can you talk about the margin that you make on those joint ventures? Also longevity of it. You indicate that you will get a profit through that affiliates line, but how long can we expect that to last? Thank you. Your usual performance, madam. Thank you. Right. David, can you take new land margin banks and JV ASPs? Mark, come back on FirstBuy. Mark will take some FirstBuy. David, can you take margin financing and JVs? Okay. Who do you want to go first? Well, you go first. Okay. Fine. Just thinking. Okay. Banks' willingness to lend. I think, the whole piece on NewBuy, like all of these schemes, it takes a while to take off. What we're seeing is more and more banks coming into the process, which is helpful. In my discussions with the banks, I can honestly say they are keen to lend under NewBuy. I think the reality is it's probably quite profitable given the level of indemnity provided. We're not really seeing anybody necessarily holding back there, and I think some of the banks that previously have not been lending at high loan-to-values have actually started to lend more. I'm reasonably content with where it's at. I think the issue is more the amount of lending being done rather than the schemes. We've got the schemes. We need to put more volume through it to make it work. That's where funding for lending comes in. You'll know from the government announcements last week, while they mentioned it, they didn't actually give any update. The problem is none of us know how it's going to work. We've got the basic sort of mechanisms in our heads, but whether that's what the Bank of England, because it's not government in this case, is actually thinking of doing, we're not sure. Obviously, if they do start to provide effectively wholesale fundings into the bank with an obligation that they have to lend it through and use the advantage of the lower rates, then actually we could either see a big kickstart of NewBuy, or we just could see more lending being done over the piece. Both of which I think would be very helpful. In terms of FirstBuy, those cylinders were basically done before the government announced more FirstBuy. That was the plan we had. What we're saying is, yes, we could, when we know the detail of the new FirstBuy allocation, actually grind through some of that old land faster. To be honest, our immediate reaction is that's what we'd use it for, rather than sort of opening up Pandora's box and saying we're going to use it right across the piece. I think be very focused on using it on those older sites to do just that. Let's cash them in more quickly by using that scheme. David. In terms of the gross margin on new land, Glen, we have said that the minimum hurdle we have is 20% on gross margin. As Steven outlined this morning, the land in production in FY 2012 for new land on average is giving us 20%. I think we are fully conservative in terms of the way that we are providing for contingencies in relation to both the acquisition of the land and also the way that we are looking at the viabilities on an ongoing basis and the valuations on ongoing basis. So I think we are very confident that we can achieve that minimum rate. We clearly have projects that are approved at levels above 20, given that 20 is the minimum, but I think our guidance remains at 20%. The second area in terms of the private placement notes, the cost of the private placement notes are high. We have two tranches on private placement notes. We have a historic tranche of GBP 160 million, where the effective cost of funding is around 12%. Then we have a more recent tranche, which came in as part of our refinancing last year, where we see that the funding rate is more in line with market at around 8%. The expiry in April 2013 is a relatively small amount, so it has little impact, and it is detailed in the announcement, the amount that expires. In terms of joint ventures, we have outlined the actual joint ventures on the slide. One of the joint venture arrangements that we have with Wates is a historic joint venture, and therefore it would be in the category of old but not impaired, and therefore would be, let us say, single-digit margin. The other joint ventures are new joint ventures and would all achieve at least the minimum hurdle rate of 20%. I think the key point really being that we have got these large joint ventures coming through in London, where they will achieve the hurdle rate of 20%, and there is a high percentage of private completions. For example, Queensland Road, which is the site that we have with London and Quadrant next to the Emirates Stadium, is entirely private. There is no social content on the development. Therefore, we have guided for GBP 4 million of joint venture profits in the current year for FY 2013, but we would expect a very significant step-up in that for FY 2014 and FY 2015. Thank you. Any other questions? Yes, please, Wendy. Yes, Kevin Cammack at Cenkos 2, please. Firstly, just looking at the land creditor position, can you just assure us in your bar that obviously you sectioned out overage and plot-by-plot deals or delivery deals, but if you take that substantial block of cash, is that entirely in your control? In other words, are there fixed timings on the payment of those sums of money which are actually set down or you control? That is the first thing. Secondly, in a sense, if you look at the overall land bank position, and I totally respect what you say about the pipeline being very important and your definition of what constitutes that pipeline. But when virtually all of your peers talk about their own bank, they might slightly mention that over a period of time, there is a chance to bring it down a little. But they are all still talking five years plus as a sensible operating ratio of forward land. And you are still telling us that you feel that you can achieve your goals of turnover, et cetera, on something more like 3.5. Is there one thing for us to focus on which actually makes you more agile in the market? Or is there something you think you are doing in relation to your supply pipeline, the speed of converting that, which in a sense sort of equates the two things? Or is it simply that you are, if you like, exposing yourself to having to deal in the market on a much more hand-to-mouth basis and then potentially having to grasp whatever land prices do? Do you want to take the first bit on creditors and then Mark on the land bank? David. The land creditor analysis, so there was part of the analysis in my presentation and then the timing of payment profile in the appendices. So I think with land creditors, the way to look at it is that that is a fixed timing, but we obviously have an opportunity to renegotiate with the landowner. But it is largely fixed timing and therefore not in our control unless it is renegotiated. Yeah. Strategy on the land bank. Yeah. I will probably just ask Steven to come in and give us a little color on the history, because what we used to do might be quite helpful here. Clearly, we have, to a large extent, rebuilt our land bank since May 2009. The strategy that we described today is the one we have been following for some time. Clearly, our average site size is probably lower than our competitors. We are dual branding these sites, I think much, much more effectively than others. Obviously, not all of our competitors run with two brands. It does mean on a 100-unit site with two brands on it, you can move through that site quite quickly. I think the number of outlets reflects on that. If you look at our outlets versus land bank, the ratios are completely different to what our competitors would see. Our sales rates are obviously at the top end of the range. Again, we can make the most of the land that we have. I think the last point, and probably the most important, is how can we really make this happen, is that it is our agility in buying land. It is the fact that we were always about organic growth. We have very established land teams. They are very, very good at filling this pipeline, which is why we included that in the presentation today. We do believe we can operate this sort of fast asset turn model. The good news is we are going to deliver this year's output from what looks like quite a small land bank, and we have the land we need for this year. We have the planning we need for this year. It is not an issue. We are already well on with making sure that we have everything in place for 2014 as well. We are very confident we can do that. It does mean we have to operate fast, we have to be agile, and we have to be very focused on buying the right sort of sites. To be honest, if you are trying to drive return on capital, we think that is the right model. Of course, the reality is that we are demonstrating that both last year and we will demonstrate it again this year. Steven, just looking back in time. Yeah. From my perspective, that is where Barratt's always been. We have operated on a pretty tight land bank. I think the key for me is that it is a highly usable land bank. We do not have land sat in our ownership which does not have consent. The vast majority of the land has got planning permission, so we can develop it pretty quickly. We have got a lot of land in the pipeline as well. That is the other thing to take note of. There is a lot of land coming through. We do not have any real issues buying land. The business model is that we get on site and we are off site pretty quickly. So it is a high ROCE model we operate. Sorry, can I just come back on the land creditor position in relation to your comments about zero debt June '15? I take it there is no major assumption that the land creditor position changes dramatically between then and now in terms of either the percentage or the nominal sums. Equally, are you presumably excluding any debt funding attributable to the JVs within that number? That zero would not include any debt buildup in the JV. That is correct. First of all, in terms of the land creditor, through to June '13, the guidance is specific in that we expect the land creditor to be around 35% of the land bank value. Therefore, I would think in absolute terms, we are not going to be great different from where we are. Going forward, to achieve 35% land creditor on a go-forward basis will be entirely dependent on the land market. Clearly, if the market becomes more competitive, then achieving a 35% deferral is obviously more challenging. In terms of joint ventures, our standing assumption presently is that there is no debt funding in terms of third-party bank debt in the joint ventures. One of the joint venture arrangements with London and Quadrant has the ability for London and Quadrant themselves to provide funding to the joint venture. But in the overall scheme of things, that would be relatively small amounts. The joint ventures are being set up on a base of equity funding with our partners. Thank you. Thank you. Any other questions? Sorry. Yes. It's Charlie Campbell from Liberum. Just a couple of questions. First of all, just to ask a question on average net debt in a slightly different way. Zero year-end debt in 2015, should we think of that as being around GBP 400 million, GBP 450 million average, or with lower work in progress, could that be lower than that? Is that just the right sort of benchmark to be thinking of? The second question, just on the social. The social in the order book's down quite a long way. I presume that's just timing, or is there anything else in there that we should be aware of? Thanks, Charlie, and good luck with the bike ride, by the way. David, are you going to take that and then hand it over to Mark? Yeah, of course. I think the way you are thinking about it is right, in that there will be an average net debt number, even if we are at zero at the balance sheet date. But I think a delta between zero and, say, 400-450 at June 2015 sounds high. So I think we would expect the delta to be more than 400-450 from zero. Social. Yeah, it is just timing. We are sticking with the 20% is the likely social content of sites. Unless government changes policy, which the recent announcement does not really move that, then we are sticking with that. So it is just timing. Okay. Could I just add one point? Please Just in terms of the forward order book. We have disclosed separately, as we did in June, the forward order book in respect of our owned, 100% owned and joint ventures. So the information you are looking at in terms of private and social is excluding the joint ventures, but there is an appendix in the slides including with joint venture information. And clearly, you will see that the content on joint ventures is very substantially up year-on-year. Thank you. Thank you. Andy Murphy from Merrill Lynch. I have three, which seems to be pretty standard. Sorry. First of all, on the forward land sales, the growth for, at September was 15.3. Can you just give us a feel for what that figure was for last year so we can just get a feel perhaps for the seasonality? Secondly, on the cost savings, you gave us a figure for what you have achieved. Can you give us a flavor for how much of that was actually captured in the year finish, and therefore, how much is expected to come through, in 2013? Then finally, on the land sales, can you give us a feel for what losses occurred this year on those sales? Thank you. Okay. Thank you. Dave, you want to take the land sales issues and then hand over to Steven for the cost savings? Yeah, sure. Okay, in terms of land sales, we disclosed in the announcement that we had incurred losses on three particular land sales where we had previously impaired the land. The losses through the P&L in relation to those land sales was around about GBP 4.5 million, which is disclosed in the release. In terms of cost savings, we achieved a total of GBP 60 million cost savings across the land bank. GBP 15 million of those cost savings were achieved last year. The remainder, GBP 40, GBP 45 million, is over the next four or five years as the land bank runs out. Just on the forward order book, it's 15% up on last year on year. That's the percentage we're given, so obviously, I'm not sure I got the question because we're 15% up year on year. Yeah, just curious about what the growth was last year just as a kind of- Oh, what to the previous year? Yeah. Oh, blimey. Have you got that in your head, David? I can't- We'll come Andy, we'll get it to you. We'll, yeah. We will get it to you on email, Andy. Yeah. I suspect it was rather modest, relative to the I mean, the big step up in forward order book, to be honest, happened at the end of June, and it has continued into September. I think it is really off the back of a much stronger 2012. But we will come back to you with the percentage. We will get it to you, Andy, during the day. Any other questions, please? All done, as the auctioneer would say. Thank you very much indeed. The team are going to stay around if you have got any one-to-one questions. But a great presentation. Thank you again for your questions and interest in Barratt PLC. Thank you.