Earnings Call: H2 2014

Sep 10, 2014

Well, good morning, ladies and gentlemen, and a very warm welcome to the FY 2014 results. This has been an outstanding year of progress for us. The market recovery has continued, and the business is in great shape. We are building and selling the highest quality homes in the business, and we are getting great value for them. We are doing so efficiently with a robust supply chain that has coped well with the stresses and strains of rapidly increasing production. And we are continuing to secure outstanding land opportunities. Fortunately, the operational performance is coming through to the financial performance. Profit before tax has more than doubled. We have hit our return on capital two years early, and for the first time in eight years, we have ended the year with cash on the balance sheet. Now we are looking to the future, setting new targets for our business and detailing how we are going to achieve them. We are now looking to achieve at least 25% return on capital employed by 2017. And importantly, we are introducing a capital return plan comprising the ordinary dividend that you know about at three times cover and a new special cash payment program. Over three years, based on consensus earnings, we expect the combined plan will pay out almost GBP 1 billion, or approximately 96 pence per share. But we are also looking to the future in another way. Today is my last presentation to you as Chairman of Barratt. It has been a privilege to serve as Chairman and to see the group's transformation. An executive team that is best in class, operational excellence, and solid financial strength. I am going to be succeeded by John Allan, who is sitting here in the front row. Hi, John. Who I think he met many of you through the coffee. And John, I know, will continue our focus on financial discipline and operational excellence. It served us well over the last six years and will do so in the next stage of our development. And on that note, I would now like to hand over to David to take us through the financial presentation. Thank you. Thank you, Bob. Good morning, everyone. It has been another good financial year with a strong performance across all key metrics. Private ASP was up 13% at GBP 242,000. Operating margin was up 330 basis points at 13%. Pre-tax profits at GBP 391 million, an increase of 103%. Earnings per share of 31.2 pence, up from 7.7 pence. And land approvals up by 14% at GBP 1.2 billion. And ROCE was 19.5%, showing a very strong improvement. Moving to the summary revenue drivers, total completions including joint ventures were up 8.6% at 14,838. Affordable accounted for 16%. On guidance, we expect affordable to be around 17% of completions for FY 2015. Total ASP increased by 13% to GBP 219,900. This has been driven by changes in mix, fewer flats outside of London and more family homes, and some underlying price increases. There is a slide on product mix in the appendix. Overall, revenue was up 21% at GBP 3.16 billion. Looking down the P&L, we delivered gross profit of GBP 529.4 million and a gross margin of 16.8%. Administration expenses were GBP 119.6 million. The increase on prior year reflects increased employee numbers, higher incentive payments, and some inflation. On guidance, we expect administration expenses to be around GBP 135 million for FY 2015. Operating profit increased by 62.2% to GBP 409.8 million, with an operating margin of 13%. Completions by land type in the year were in line with our expectations. Completions for new land were 65% of the total for the full year and 68% in the second half. As you will see from Mark's presentation, the proportion of completions from new land will step up again significantly in FY 2015. Turning to the joint ventures, they are held separately on the balance sheet and appear as a one-line entry on the income statement as a share of profit from joint ventures. Joint venture profits have risen significantly, and in the year, we reported our share of JV profits at GBP 40.8 million. On guidance for FY 2015, we expect around 700 completions from our joint ventures, with our share of joint venture profits to be at a similar level to FY 2014. Looking at the joint venture portfolio as at the 30th of June, there are a total of 7,200 plots, with the majority for delivery over the next six years. The delivery profile is included in the appendices. This represents a future GDV of GBP 3 billion. Taking Barratt's share, you can see that this will be a significant profit stream for the group over that period. This slide shows the pro forma profitability for the group, adjusting for the impact of joint ventures. With the step up in contribution from joint ventures, the differential is increasing. Taking our share of joint venture revenues and operating profits, the pro forma operating margin would be 13.8% compared to the reported 13.1% house build operating margin. Now, looking at the cash flow, as ever, lots of numbers, and I will highlight a few. The cash inflow from land, mainly from plot completions, was GBP 652.4 million. There was an increase in WIP outflow from last year, reflecting the increased build program. The decrease in part exchange and other inventories reflects the lower dependency on PX due to the popularity of Help to Buy, which cannot be combined with PX. The equity share portfolio decreased as we continued to see redemptions. On other working capital items, we have seen an inflow due to an increase in advance payments from affordable housing deals and increased completion development provisions as our completion volumes have risen. The total cash inflow from operations, pre-land purchases and disposals was GBP 1.1 billion, up by GBP 197 million. By any measure, that is strong cash generation. Moving on through the cash flow, land spend totaled GBP 814 million, up from GBP 677.5 million in the prior year. This includes GBP 454 million of land creditor payments. On guidance, we would expect the total cash spend on land for FY 2015 to be around GBP 1 billion, of which GBP 412 million will relate to land creditors at June 2014, and the balance on other land expenditure. On the 2nd of July 2013, we paid the make-whole payments of GBP 53 million in respect of the private placement notes that we canceled in FY 2013, which you can see as an exceptional finance cost. The dividend payment totaled GBP 55.9 million. Turning now to the balance sheet, again, I will pick out the key numbers. Our deferred tax asset has reduced to GBP 19.6 million as we have offset taxable profits. The equity share balance is down by GBP 6 million at GBP 122 million. Investments in joint ventures and associates increased to GBP 200 million. The gross land bank is GBP 2.35 billion, which net of land creditors of GBP 779 million gives a net land bank value of GBP 1.6 billion. Land creditors equate to 33% of the owned land bank. On guidance, we expect land creditors to be around one-third of the gross land bank going forward. Stock and work in progress increased by GBP 116 million to GBP 1.1 billion. There is more information on stock and work in progress in the appendix. Here you can see the breakdown of our owned and conditional land bank by land type. Impaired plots are 2,554 and now represent just 3.8% of the controlled land bank. Across the top of the slide, you can see the progression in ASP with the total ASP in the owned land bank at GBP 227,000 at the 30th of June, moving up to GBP 263,000 on the conditional land bank. Moving to joint venture investments. Our London joint ventures total GBP 110.9 million, up from GBP 56.2 million at the prior year-end, largely reflecting the inclusion of Nine Elms and Enderby Wharf, which have a combined total of GBP 35 million. Our joint ventures outside London total GBP 58.7 million. These are detailed in the appendix. On guidance, I expect our balance sheet investment in joint ventures to increase by a further GBP 50 million in FY 2015. Following the transaction in May 2013, our shared equity joint venture sits within investments in joint ventures at GBP 25.6 million. Moving on to the liability side of the balance sheet. Last year it was net debt, but this year it is net cash as at the 30th of June of GBP 73.1 million. On guidance in line with our target capital structure, we expect to have a small cash balance as at the 30th of June 2015. Other payables have increased primarily because of the advanced payments and completed development provisions that I mentioned on the cash flow slide. We have a small current tax position of GBP 9.7 million. The net swaps balance reduced to GBP 19.7 million, reflecting the 12-month charge and the movement in future interest rate forecasts. For the year, we had a cash interest cost of GBP 26.7 million, significantly lower than the prior year. I have broken down the cash interest into its major components. The reduction reflects the reduction in the interest on the private placement notes and the reduction in the swap interest. The remaining interest swaps are being kept under review. On guidance, the total finance charge for FY 2015 will be around GBP 55 million, of which we expect the cash interest cost to be around GBP 25 million. Finally, here is a summary of key points for guidance for FY 2015. I will highlight those that I have not already covered. We expect completion volumes, excluding joint ventures, to be around 15,000. Joint venture volumes are expected to be around 700. Volume increases in FY 2015 will be driven by higher site numbers and not higher sales rates. We expect to open around 180 new sites in the year, with average site numbers for the year up around 4%-5%. On ASP, a good point of guidance is the total ASP in the owned landbank at GBP 227,000. For land creditors, we will target around one-third of the owned landbank. On capital returns, Mark will cover this later in the presentation. I will now hand over to Steven. Thank you. Thank you, David, and good morning, everyone. I will now take you through the operational aspects of the business. We have delivered a very strong operating performance, with the group benefiting from the underlying improvements we have embedded in the business over the last few years. Today, I want to look at the strength of performance across our six regions; pricing trends and the positive momentum we have seen during the year; our cost control and supply chain management; and the land market; and finally, how we are securing our future land supply, and in particular, our increased emphasis on strategic land. Turning to our performance by region, we saw strong uplifting sales rates across all six regions. As the table shows, Melbourne delivered the strongest growth, up 36% to 0.64 net private reservations per active site per week. London continued to sell well through the year, with sales rates up 10.5%. The market remains positive in the capital, and our diverse portfolio of developments in terms of product and geographic reach is a key strength. As a group, we reported a sales rate of 0.69, a 19% increase. This is a particularly strong rate and reflects the significant increase in activity following the launch of Help to Buy. Maintaining the right balance between volume and value continues to be a key priority. For FY 2015, we would expect this sales rate to moderate slightly. Here you see our private completions for the year. The numbers include joint ventures. Overall, they rose by 11.5% to just over 12,500. Again, we saw the strongest uplift in our Northern region, up 25.2%. In Southern and London, the increase was more muted, reflecting the build delivery in London and the earlier timing of the market recovery in both of these regions. For East, the lower rate of increase reflects that the region, which has a smaller demographic reach and fewer divisions, is now nearing optimal capacity. Turning to private average selling prices. Overall, the group private ASP on legal completions, excluding joint ventures, was up 12.9% to nearly GBP 242,000. This reflects changes in mix, both geographic and product. We have also seen underlying selling prices strengthen across all of our regions, with house price inflation of around 5% in the year. The private ASP for London, at nearly GBP 480,000, includes our joint venture completions and also the completion of 117 apartments at The Courthouse in Westminster, where the private ASP was around GBP 1.4 million. Excluding The Courthouse, the London ASP would have been around GBP 400,000. Here you can see the completions by type. The gray band across the top shows affordable housing down slightly to 16%. Part exchange dependencies reduced significantly from 16% to just 8%. Completions using Help to Buy were 31% of total completions. Other shared equity completions have dropped to zero as compared to 10% in the prior year, which was largely completions using the FirstBuy scheme. Completions using the NewBuy scheme and My New Home, its equivalent in Scotland, total 2%. With Help to Buy now available across Great Britain, we would expect this number to remain at a low level. Investor completions were 12%, a similar level to prior year. Other private completions, that is non-scheme related transactions, were 31%, down from 34%, reflecting the attractiveness of Help to Buy. High production volumes across the industry placed a number of well-publicized pressures on the supply chain. Increased costs and the shortage of materials were experienced in parts of the sector. On build materials, we saw particular hot spots around bricks, blocks, and timber. The U.K. manufactured output of bricks was insufficient to meet total demand, and imports were used to supplement it. Our operating model of building a high proportion of standardized products, strong and long-term relationships with suppliers, and centralized and fixed price contracts has performed well. A shortage of skilled labor increased costs, with bricklaying the most affected. Bricklaying rates are now on average above 2007 levels. However, these costs are a lower proportion of our total cost base. Overall for the year, our build costs were up around 2%. Looking forward, brick and block supply issues are easing with additional U.K. capacity now installed, and we don't expect to import bricks going forward. In addition, we have increased the use of alternative building methods such as timber frame. We seek to offset cost pressures through efficiency gains with an ongoing focus on centralized procurement and standardization. For FY 2015, we expect the increase in build costs to be at a similar level. Turning to land, we continue to see good availability of first-class land opportunities across all regions. London and the Southeast are the more competitive, with land prices increasing against a backdrop of strong house price inflation. Outside of these regions, there remains a good supply. Whilst there has been no significant change in prices to date, the trend is moving upwards, and we've started to see some house price inflation flowing through. In the year, we secured our requirements with high-quality land that meets or exceeds our minimum hurdle rates, assuming no house price inflation going forward. We approved almost 21,500 plots, equating to GBP 1.2 billion. Our land buying targets remain the same, a 4.5-year land supply excluding JVs, regionally balanced land portfolio, to defer payments where appropriate, and minimum hurdle rates for gross margin and ROCE. In the short term, we are looking to acquire land well above our minimum hurdle rates, reflecting the success of our land buying in FY 2014. Looking at our land bank as at 30th of June, including joint ventures, we had around 74,000 plots. The chart shows our land supply in years. The group figure on the right shows a 4.7-year supply excluding JVs, or five years including them, so just above the group target. Region by region, there are some variations. Central and West, which have both seen a significant step up in completions in the last 12 months, will be targeting to increase their land supply in the current year. The increase in East reflects the acquisition of a large JV site, Brooklands in Milton Keynes. Despite more competitive market conditions in our Southern and London regions, we have significantly increased the land supply in both regions during the year. In Southern, we had a good flow from strategic land coming through and continued success with public land deals. In London, our strong relationships and partnerships have served us well in securing excellent new land opportunities. With our operational land bank in good shape, we are very focused on securing our future pipeline. Public sector land remains an important land source, and we have an excellent track record in securing it. This gives us a real advantage, especially in the competitive southern marketplace. In the year, we secured over 6,500 plots from public sector land deals with a GDV of around GBP 1.5 billion. The land meets our gross margin hurdle requirements and typically far exceeds our return on capital hurdles. Strategic land has become the more important land source for the group. Not only has our acquisition rate stepped up significantly over the past year, the conversion of strategic land from our existing portfolio to our own land bank has also significantly increased. NPPF places a presumption in favor of sustainable development. This has helped our land buying team secure and promote an increasing number of new sustainable sites through to a planning permission or local plan allocation. Here you can see an update of our current portfolio by region. We have just over 69,000 plots across 239 sites, a net increase of nearly 10,000 plots in the year. The vast majority of our strategic portfolio is optioned. Looking at the deliverability of our strategic portfolio, there are a couple of points to highlight. Site size is a key factor in determining the rate of strategic conversion. As you can see from the chart on the left, half of our strategic sites have fewer than 150 plots. Larger sites are more complicated to acquire, promote, and deliver, and are therefore typically higher risk and take longer to pull through. Of course, the average number of plots per site is a key measure of the efficiency and flexibility of a land bank. A land bank with a smaller average site size is more deliverable and should drive higher returns. On the right, the chart details the land status of our strategic plots. 65% of our plots are either on allocated sites or in local authorities that need additional allocations to meet their five-year land supply targets. Our strategy is to focus on the acquisition of sites with shorter delivery timescales and in high-quality locations. This next slide shows how the rate of strategic land conversion has increased dramatically. For FY 2014, we converted 5,200 strategic plots into our owned land bank. The rate will increase, and we expect to convert around 20,000 strategic plots over the next three years. In terms of completions, in the year, 10% of our completions were from strategically sourced land. We expect this to increase to around 20% by FY 2017. In terms of margin, we are seeing on average a 300 basis points uplift across our strategic portfolio. Let me now highlight a few of the excellent land opportunities we've secured over the past year. Catford Green was owned by the GLA and brought to the market through the developer partner panel. The site forms part of a wider regeneration of Catford Town Center and will provide nearly 600 new homes, including 170 affordable. It has excellent transport links and is just 11 minutes into London Bridge. Wotton Street, Milton Keynes, is a greenfield site we secured through off-market discussions with the vendors, JJ Gallagher. It is a good example of how our strong, established relationships with key landowners can help secure first-class land opportunities. It is a large site in a prime location within Milton Keynes, which has excellent commuter links into London and the Midlands. It will be released in phases and dual branded, maximizing this sales opportunity. The development at Nottingham Business Park was pulled through from our strategic land bank. It has excellent transport links and is surrounded by attractive countryside. Originally, a strategic land opportunity owned by Wilson Bowden Developments, the land was allocated for employment use in the local plan. Our North Midlands division, working with Wilson Bowden, obtained full planning approval for residential development in May of this year. The site is 290 units and will be dual branded. Manor Heath, Copmanthorpe is a recently secured strategic option. It is a key site on the edge of the city of York, and it is a good example of how quickly we are securing and converting strategic options. It now has a draft allocation for 225 housing units in a plan which we expect to see adopted early next year. We are working with the council to increase the allocation from 18.5 acres to 25 acres and generating a further 100 units. The option is priced at a discount to open market value, and all planning and promoting costs are deductible. With deferred payment terms, the site is expected to deliver returns well in excess of group hurdle rates. It has been a very positive year for the group. We have seen a real improvement in the operating and financial performance across all of our regions, with the recovery spreading out from London and the Southeast. We have worked hard to control costs and manage our supply chain, and the outcome for the year was good. For FY 2015, as I have mentioned, we expect there will be some modest increase in build costs. The land market remains positive, and we continue to secure first-rate opportunities. We have a clear land strategy. Our control land bank is in a good position, and strategic land is playing a more important role. The business is in good shape, and we are looking forward to delivering another strong performance in FY 2015. Thank you. I will now hand over to Mark. Well, thanks, Steven, and good morning, everyone. I'm going to start with an update on the market, including mortgage availability. I will then run through the group's targets going out to 2017 and our capital return plan, which we announced this morning. I will finish with a view of current trading and the outlook for 2015. Starting with the market update, we've seen a continued recovery during the year across all regions. Consumer demand remains strong, supported by a positive economic outlook. Following the launch of Help to Buy in April 2013, we saw exceptionally high levels of activity. With the scheme now in place for over a year, we are seeing the market settle into what we consider to be more normal seasonal trends. Mortgage availability continues to improve, and we are proactively managing relationships with the key lenders. On mortgage availability, as the chart shows, we've seen an improving trend in the total number of mortgage approvals for house purchases over the last two years. There was a dip during the first quarter of 2014, which was in part due to the banks preparing for the introduction of the Mortgage Market Review in April. In terms of sales, we've seen limited impact from MMR, and lenders seem to have managed the process well. As you can see, we've seen some recovery in lending in June and July. Projections for 2014 total lending from the CML have gone from GBP 195 billion to GBP 208 billion since December last year. They're projecting a further increase to GBP 220 billion for 2015. The new build market has been very reliant on a limited number of lenders since the downturn. In January of this year, we became aware that Lloyds wanted to reduce the market share of lending to the sector, at least in the short term. As a result, we took active steps to work with the IFAs to promote additional lenders and have made significant progress. As you can see from the chart, there has been a big fall in the concentration of mortgage lending to our customers since January, where the two largest lenders accounted for 79%. This is now reduced to 43%, and we see this potentially falling further, providing us and our customers with a much more resilient lending market. A great example of the sort of impact we have made is where we've grown our relationship with the Leeds Building Society. We've seen their lending increase from zero in January to 8% now. From discussions with other lenders, we consider that there is a real appetite from a number to increase their offer to the sector. Importantly, we are already in discussions with new entrants, including Virgin Money, about the position they wish to take in the new build market. As you are all aware, the Bank of England has introduced a variety of measures to ensure that appropriate controls are in place around mortgage lending. We are supportive of these and believe these actions will provide a more sustainable and stable market in the longer term, which is of course good for us, the industry, and our customers. We know that base rates will go up at some point in the near future, but as mortgage lending rates continue to run well below historic norms, we believe the effect will be limited. It must also be seen as helpful that the Bank of England is providing clear guidance that long-term base rates will run below previous levels. Now moving on to our business performance and targets. Through the downturn, we worked hard to strengthen our operational model, focusing on three key areas. Targeted land buying, design, quality, and construction efficiency, and strengthening our industry-leading sales and marketing capability. We have made significant changes right across our business, and we are now really seeing the benefits through higher margins, better sales rates, and an enhanced reputation with landowners and planning authorities. The business is in a very robust position. Although there is, of course, more that we can and will do, our intent is to continue to operate to this model. All of this will be delivered through our current organizational structure of six regions and 27 divisions, which we believe is the right structure for the business going forward. Now I know you are very familiar with the targets we set out 12 months ago for FY 2016. With a strong business performance and accelerated market recovery, we have delivered on these substantially ahead of schedule. On the two that are remaining, we are very much on track to deliver. From today, we have set out our revised medium-term targets, which will take us through to FY 2017. A gross margin of at least 20%, consistent with our hurdle rates for new land. A return on capital employed of at least 25%, which importantly has been linked to remuneration. On capital structure, we will continue to target zero year-end net debt and a land creditor position of about one-third of our own land bank. We have been clear on our ordinary dividend policy, and that will remain at three times cover. Of course, today, we have announced our intention to pay special cash payments totaling GBP 400 million over the next three years. So let me take a look at these in a little more detail. In terms of margin growth, this is a chart you will all be very familiar with. Sadly, this is the last time we will be using it, as the element of old land is now so small. Over the next few years, we will still see the benefit from the final transition from old land to new, which will come through as growth in margin, as well as higher average selling prices. In addition, we expect that the growth in volumes, and therefore the top line, will continue at a controlled pace, adding to absolute margin levels. As Steven has said, we have made very strong progress in securing land over the last few years, and especially in FY 2014. We continue to see a positive land market, and we are investing in first-rate land opportunities. We have a strong, regionally balanced operational land bank and finished the year with a five-year supply, including JVs. Our focus over the last 12 months has been on building our longer-term land position. As you can see, we have clarity on where our land will be sourced out to FY 2017, with strategic land making up at least 20% of our land supply. This ensures that we are managing the cost of land effectively, with our reliance on short-term operational land decreasing. The focus now is on securing our land out further to 2020, and I expect strategic to play an even bigger role going forward. As you can see, we have made excellent progress on return on capital employed, delivering substantially ahead of our target of 18% by FY 2016. Today, we set a new target of a return on capital employed of at least 25% by FY 2017. This really does support the disciplined approach we have to running the business. To ensure that it is in everybody's mind going forward, it is now a critical element of our senior manager long-term incentive scheme. To give you comfort that our targets are achievable, on the 88 sites completed since May 2009, we have achieved a 21% gross margin and a 39% return on capital employed. It is worth noting that given this only includes completed sites, the analysis is weighted towards smaller ones, which on average would be expected to deliver a higher return on capital employed. On dividend, in February, we announced an acceleration of our ordinary dividend policy, moving to a 3 times cover with immediate effect. The board intends to maintain this policy for ordinary dividends going forward and see this as a sustainable position throughout the cycle. In line with this policy, the board has proposed a final ordinary dividend of 7.1 pence per share for FY 2014, giving a total dividend for the year of 10.3 pence. In addition, the board has agreed to return GBP 400 million as special cash payments over the next 3 years. In total, based on consensus forecast, that will mean that we will be returning nearly GBP 1 billion of cash to shareholders or 96 pence per share over the next 3 years, which for those of you that have left your calculators in the office, is 26% of the total market capitalization of the company as at last night's close. Let me bring you right up to date on current trading. Market conditions remain strong. As a result of the launch of Help to Buy last April, sales activity was unusually high in July and August last year. Our sales performance over the last 10 weeks reflects a return to normal seasonal trends. A sales rate of 0.62 for July and August is strong. Importantly, the rate being achieved is in line with what we require to hit our FY 2015 guidance on volumes. Our priority continues to be getting the best price for the product that we sell. As such, we remain focused on continuing to reduce incentives, thereby maximizing value and not just volume. Our forward sales position remains very strong at a total of around GBP 1.5 billion. This will help us rebalance our first and second-half completions for FY 2015. On outlook, economic conditions are continuing to improve, and the performance of the business remains very strong. We have clear priorities and expect our operational model to deliver sustainable returns for the long term. For FY 2015, we look forward to delivering another significant improvement in performance. The addition of return on capital targets and the special cash payment program will ensure that the business remains tightly controlled while still being able to grow at sensible rates. Thank you, and we will now be pleased to take your questions. Thanks, Mark. Before you ask your question, could you just give your name and your firm, please? The mic's on its way. Yeah, morning, gents. It's Gavin Jago from Peel Hunt. Just got a few. The first one's on volume growth and site numbers and what you're expecting in terms of sales rate bedded into your expectations over the next few years. What volumes would be expecting for FY 2017? Second one is on your average debt you're expecting over the next three years. Then finally, I think in a couple of the last presentations, given an idea on the swing in the mortgage rates through the Help to Buy scheme. What have you seen in terms of bps movement over the last maybe nine months since the lows at the start of the year? Thank you. Thanks, Gavin. I think Mark will take one and three, and Dave will deal with the debt. Yeah. In terms of sales rates, we've seen the performance over the last 10 weeks at 0.62. We think that if we carry on with that sort of market, then we will probably outturn at about 0.65, which we consider to be a good, strong sales rate for our business. I think as we said last year, we expected sales rates then to just come back a little post Help to Buy. I think that's what we're targeting for FY 2015, and that will deliver the guidance that David suggested. To be honest, going beyond that is very difficult because it very much depends on the market. What we've said is that we will continue to grow the business at a sensible rate, and that is really our target, depending on the environment that we're in. That's going to be down to lending Help to Buy programs, planning and being able to continue to acquire land at or above our hurdle rates. On mortgage rates, I think we have started to see them drift up as you will see. Part of that is because of the continual re-forecasts about what's going to happen to lending rates going forward. I think we've seen that increase. But on the other side of it, we are seeing more mortgage lenders coming into the market and wanting to take a bigger share of the new build market, which is not something we have seen for some considerable time. I'm hoping there'll be some competitive tensions going the other way. But clearly, we are going to see mortgage rates trending up as we finally see the Bank of England announce at some stage in the future that base rates are moving up. Can you put a figure on what you see in terms of maybe, I was thinking of 25 bps, 50 bps or so? Yeah, that sort of order. Yes. So relatively modest. It's certainly not affecting customers' ability to buy. And obviously, Help to Buy continues to be a very strong program in that respect. David? Yeah. On average net debt, clearly for FY 2015, we have given specific guidance in terms of what we expect on the interest cost. We said probably going back 18 months, two years ago, that we expected the average net debt for FY 2015 to be around GBP 300 million. I think we are still in that sort of area. Given that we are going to return the balance sheet position to around zero, then we are not expecting any great change in terms of the averages going forward from 2015. Thank you. Last word there. We will just take Chris next here, then we will move on. Chris Millington to Numis. I just wonder if I could just touch on current trading on a slightly shorter timescale and just to hear what has been happening in the last few weeks, probably more importantly, the last week. Similarly as well, what trends you have seen in London, and has there been any kind of change to strategy in the way securing land at the moment? Okay. On current trading, focusing on one week is very dangerous, as you will imagine. What I will tell you, though, is it's the normal seasonal trend. We've seen the holiday season, I think, has been fairly substantial from what I've seen from the traffic on the roads in London anyway. But to hit the 0.62 through that 10-week period, we consider to be a good performance. Over the last few weeks, we have seen what we consider to be the normal trend, upward momentum. And of course, in September, you do expect to see those sales rates going up. And certainly, everything we've seen suggests that that is what is happening. So we're very, very comfortable with what we're seeing from a sales point of view. In terms of London, obviously, there's a lot of commentary on London. The bottom line is that the London business is doing very, very well. And we have a lot of new sites coming to market. We just launched Enderby Wharf in Greenwich where we've had a first-class launch in terms of sales there. We have a second site in Aldgate, site in Catford, all coming to the market very soon. And certainly, the initial indications are very, very strong. So we are seeing real strength in the London market. I think it's fair to say that if you look at the prime London, then you've seen a little bit of a slowdown from what has been quite a frantic market. But you'll appreciate our exposure to properties over GBP 2 million is incredibly small as a company. But our exposure to the, what I call the normal London market, the Catfords, the Lewishams, the Fulham Riversides, to an extent, I think there we're seeing very, very good strength in the market continuing. Shall we just take one on this side? Yeah, sorry. Do you want to- Okay, Harry, I'll come to you second. Jeff Davis from HSBC. Just coming back to Gavin's question on volume, I wonder if you could just highlight what controlled volume means and in particular, what that could mean for 2016, 2017. Going to slide 43, I just wonder how that slide would look if you were to restate it to land acquisition rather than completions. Third question, the 20,000 strategic plots to be converted over the next 3 years, I guess that implies about a third of all land coming from strategic sources. Is that a kind of target for volume looking beyond 2017? Final question, just on Scotland. Any sort of impact on trading moving into the referendum? Have you done any sort of scenario analysis as to what a yes vote could mean? Thanks. I'll pass it on. Control. Okay. Well, I'll do the volume again, shall I? I guess I'll comment on Scotland. I think David and Steven can then cover slide 43 because I still didn't work out what slide 43 was. Then obviously Steven on strategic. In terms of volume, look, we've given very, very clear guidance for FY 2015 because I think we've got enough confidence. We understand the market. We know where it is. We can see the sales rates. So we can absolutely nail that. Going beyond FY 2015, it is very dependent on all of the factors that you're just as aware of as I am. It is going to be about the economy. It is going to be about the market in general, customer sentiment, the planning environment, how that changes, and obviously the ability for us to continue to buy land at or above our hurdle rates. So we're not really going to be drawn on that. What we are saying, though, is that the program that we've put in place today does not constrain our ability to do sensible things in terms of taking advantage of a continually strong market. That's effectively how we're going to run the business from now on. We're not setting targets. We're not setting caps. We're going to effectively ensure that we optimize the position for the shareholders. But within the structure of return on capital employed targets, which are challenging for us to hit and the cash return program, which obviously restricts, to some extent, the amount of money we can invest. Just covering off on Scotland. It is 8% of our business, as you probably know, it is relatively small. We run it as a separate business already. Every region of the U.K. is different, as you might imagine. It has its own management team. Interestingly, it has its own regulatory environment, its own product types. It is a very different market. We are not sure that we would see any different if we saw a yes vote, and we think that the impact on the overall business is tiny, whatever the outcome of the vote. Just on strategic land, Steven has outlined that our target is to get to 20% for FY 2017. We will update on that. But I think as Mark touched on, we have got aspirations to increase beyond 20%, but clearly, that is beyond FY 2017, and we will update as we go along. Which slide was it, Gavin? Three? One and three. One and three. Yeah. Does that answer the question about 43? I answered both questions in one. Excellent. Yeah. Stephen, you can stand down. No, we will go to Harry. You can come, please. Thanks. Harry Goad from Credit Suisse. Another one on the strategic land. Steven, I think you were talking about the margin on typical strategic land, about 300 basis points above traditional hurdle rates. Given that you were saying the vast majority is held under option, I guess it has also got a pretty quick asset turn and thus high return on capital. I guess the question is, how are you able to access land that generates this sort of return relative to someone who is willing to pay cash up front? The second question with regard to strategic is, does this mean more cost needs to go into the business as you scale up the strategic operations? Yes. 300 basis points, that is obviously generated from the percentage of open market value. We are buying the land. We tend to buy our strategic land by option, anywhere between 85% of open market value to early 90%, depending on about whereabouts that is in the country. That would generate us a 3% improvement on margin. If you were to buy that land freehold, and some of the land promoters do buy freehold, then they are looking for a substantially greater discount, maybe 20%, but they have got a lot of cash at risk up front in terms of costs. Our preference is to buy by option and take it forward that way. Sorry, Steven. Just add to that. It does not impact in terms of ROCE calculation because we are not creating the land agreement until the option crystallizes. So there is no impact in terms of ROCE. The other part of your question was about the cost, the other parts of the cost. The costs are deductible from the eventual payment. We minimize our costs. Have we got the microphone sorted? Yeah, we got the microphone sorted. A lot of our costs are incurred within the division. We do not tend to use consultants. Every division has their own planners and land resource to promote those sites through. So it is generally pretty low cost promotion on strategic land. Can I just make one more point on the land market? I sort of alluded to it in what I said at the beginning. I think reputation is very important when you are buying land to landowners and, of course, to agents who are the intermediaries who advise the landowners which company to go with. I think over the last 4 or 5 years, our reputation has changed quite dramatically as a company. We are being seen now as the company to go to. There is always a big push from agents to try and get us interested in particular pieces of land. We are very choosy what we go for. But if an agent or a landowner can get us to that point, then they know that they have somebody who is, if we are prepared to commit, we will absolutely follow through and deliver. To a lot of landowners, the fact that we really focus on design and delivering a good legacy. If you are a local landowner, that becomes pretty important as well. We have used that advantage to great effect. I think the progress we have made in the last 2 years is heavily influenced by that. So, a lot of the stuff we have been doing behind the scenes is really starting to work. We are seeing that in examples where we are not the highest bidder anymore. Or where landowners actually come to us and say, "We have seen what you have done on this scheme. Actually, that is the sort of thing that we would like on our piece of land." That puts us in an incredibly strong position. We are going to continue leveraging that over the future because there is a lot of competitive advantage to be had from doing just that. Thanks, Frank. Now we will come to Jamie. Morning. It is Andy Murphy from Bank of America, Merrill Lynch. Two potentially quick questions. First one on the special dividend. With regards to that and your thinking around it, are you effectively saying to us that you are going to be paying away to shareholders effectively all the surplus cash that you are generating over the life of the program? Secondly, around the targets. You talked about a medium-term target. Does that imply that perhaps there is some long-term targets that you have not revealed to us? Yeah. Andy. Yeah, Andy. Our ability to go much beyond 2017, I think is Come on. Of course, we have our own longer term plans. But of course, you are much more exposed to what happens in the general market, the economy, and everything else, more than the short term. I think in 2017, given where we are as a business and the market we are in, we have high levels of confidence in those targets and delivering against them. I mean, to be honest, there is no point in setting targets at this stage beyond that. But obviously, as we get close to FY 2017, then we will almost certainly come up with new targets then. I think on special dividend, you will imagine that we have set this quite carefully, and we have tried to get the balance right. We are not going to constrain ourselves if there are opportunities to invest, and therefore, we have made sure that we have the headroom to do that. But equally, we have to make sure that we are delivering against our promise of returning surplus cash that we cannot use inside the business to shareholders. And we hope we have got the balance right. Certainly, a return of close on GBP 1 billion over a three-year period, to me, feels like a good, solid return, recognizing the support that we have had from shareholders over the last five or six years. But we have not put ourselves in a position where we have got an absolute straitjacket on investing, so hopefully we have got the balance about right. We are very cognizant of the GBP 790 million that the shareholders gave us and giving some benefit from that. Yes. So we will take it on the front. Thanks. Will Jones from Redburn. I think I've got four quick ones if I could, please. Firstly, just on the price, 5% inflation last year, can you give us an indication of how much you think benefited the P&L on the margin in the year? Secondly, just around the sales rate, the 0.65 broadly for this year, that will be a step down versus last. How much of that is your decision versus the market itself, please? Just around the conditional ASP and the land bank, the GBP 263. How indicative is that? Is there a mix effect in there that we shouldn't draw too much into? May you just talk more generally around where you think the right price point is for the business in terms of capturing demand and affordability medium-term. The last one, just around JVs, obviously quite a big land bank developing there, high margin the year finished. Is there any help you can give us, David, around how the numbers may evolve broadly beyond FY 2015? Thanks. Okay, first one. Let me start with the sales rate one. I think we all know that last year was exceptional. The Help to Buy launch created a real bubble of interest, and we saw very high levels of interest such that I think for most house builders, they were struggling to cope with the volumes of inquiries. That has settled down into what I'd call the normal pattern. We did provide some color last year that actually these sales rates really are at very much the top end, and we don't expect them to go any higher, which was code for actually we do expect them probably to move back a bit. I think 0.65 would be a very good, strong sales rate. This balance between getting value and volume I think is very important to us. We've obviously worked very hard over the last five or six years to try and keep that balance right. We were the first to come out and say we're not cutting prices anymore straight after the downturn. What we're saying is we're going to try and keep that balance now. So there's a lot of focus on reducing incentives further. They're already very low relative to where they were. We're really putting a lot of store in that. If we can hit a 0.65 sales rate with the right price for our product, we think that's the best possible outcome for the business, and we'll try and keep that balance. Do you want to price through the P&L, David? Yeah. In terms of the impact through the P&L, the short answer is no. The slightly longer answer is that we've obviously had an impact in terms of both sales price inflation and cost inflation, as Steven outlined. We've talked previously about the way in which we recognize margin, and it isn't our assumption at present that this very low incentive environment will continue indefinitely. Therefore, we're not taking all of that positive impact through the P&L. As I said, we're not going to quantify the number. It is clearly positive, and I think we're being fairly cautious about the way that we're recognizing margin when you look out over a 2, 3, 4-year basis, which is the typical life of a site. In terms of the conditional land bank, the GBP 263,000, we always guide on the average selling price that is actually in the land bank, so the GBP 227,000. Our guidance every 6 months is always on what's in the land bank. Clearly, the direction of travel is upwards. It only has a moderately positive impact during the next 6 months or the next 12 months. So you will see an increase in the underlying ASP as we move forward into FY 2015. Again, we're not going to quantify that. In terms of the JVs, I think what we're trying to do with the joint ventures is two things. One is we're trying to make sure that everyone is clear about the scale of the joint ventures. So we've said that the gross development value is GBP 3 billion. Clearly, our minimum gross margin is 20%. Broadly, 50% of the profit accrues to the Barratt group. The delivery of that clearly will vary on a year-to-year basis, but we've given guidance that we expect in FY 2015 it will be something a little above GBP 40 million. We're not guiding at present for FY 2016 or FY 2017. But we're not expecting it to materially increase or materially reduce from that level. Just going back on the issue of the price points, just more fundamentally in terms of demand, I guess by allowing the price in the business to improve from here, you're pretty confident there's not an issue around certain customer segments and where affordability may pinch or not if rates go up and- Well, I guess the challenge for the sector continues to be around those who require high loan-to-value mortgages. While the government's put a program in place, as David says, we're not making any long-term assumptions on that. It would be imprudent to do so. As we have over the last few years, we will continue to shift the business as we feel appropriate towards those with more equity, probably away from those with less. We've talked, for example, about downsizers. We've done a lot of work on the downsizing market. We think it's a big opportunity for the group. They see, interestingly, the attraction of the David Wilson-type houses, delivering specifically for that sector. We will push on with that. You will see, to an extent, perhaps slightly less focus on first-time buyers as we go forward, slightly more on the more mature buyer, who's active, equity rich, and wants a larger home, but with effectively less rooms, i.e., larger rooms. The new house type range is coming out for that product. We will start to roll that out, and we actually expect that to be a growing segment. This is going to happen over quite a long period of time, but that's where the trend is going. As you might imagine, we look to 2020, which sounds like a long time away, and we have to assume that first-time buyers are not going to benefit from the scheme that exists today. In that respect, we have to continue to change our business. Over the last 5 or 6 years, we've massively changed our business. If you look at the apartment levels that we were running to where we are now, the mix of products that comes through in the ASP. Our plans basically take us down that route and continue. So we've got a much broader base to the business than one that perhaps is so reliant on buy-to-let and first-time buyers. It happens quite slowly over time, but that's the direction of travel. Countess Glenis in the middle. Yes. Glynis Johnson, Deutsche Bank. Just three, if I may. The first two actually are slight reversals, to be honest. In terms of your joint ventures, the margins have gone from 17.8% up to 28.5%. Has that really been all the contribution of London and how well London has performed in terms of house price inflation? Is that 28% actually a realistic number going forward should we not see the same kind of market support? The second one is in terms of what are you seeing in terms of house price inflation today? You have already talked about what you see for the last year. A lot of what we are hearing coming through the press is house price inflation moderating. What are you actually seeing? Then lastly, in terms of the redemption shared equity. Just so we can put shared equity in perspective of how well it has worked over the cycle. Have those redemptions been done at a profit versus the written down value? Have they been done at a profit versus their original value? Where are they coming at? Right. You do the JV one. Sorry, house price inflation. Yeah. David, do you want to? Okay. On house price inflation today. It is strange, I do not have that information with me. But I think you have to divide it between sites that are already running and new sites. The big opportunity, I think, for us as a company is those new sites. We bought those, I guess, varying between 12, 18 months ago, perhaps on average. We have just under 118 new sites coming into production this year. That is a pretty material number when you look at our total site numbers. New sites is where we tend to see additional benefit from a launch in an area, perhaps where there has not been a lot of new build. These sites are very good sites. These are sites that we bought more recently, primarily, and therefore, we would expect some upside when we launch. Against what we have them in as a viability, we would say that we are probably expecting some upside there, and I think that is a pattern we have seen. When you look at the older sites, the tail that we still have, the reality is it is still quite difficult to move prices at all there. You have got very different parts to the business. I think that is where, if we are going to see house price inflation, it is going to come from those new sites. That is because we are launching new sites in areas that probably have not had new build for a while. They are new designs, they are new layouts, they are new everything. Those are the ones that are probably going to get the premium, and I think that is what we will probably see coming through this year. I cannot really comment on underlying price inflation, because obviously, I do not have a crystal ball. But if you look at the way house price inflation has come through, it is the new sites that really add to the mix rather than anything else. David? In terms of the joint venture margins, FY 2014 is the first year that we saw a significant contribution from the London joint ventures. There was only a small contribution from the tower at Alie Street in FY 2013, primarily from the affordable housing content. We do expect to see higher margins because it is primarily London delivery that we will see coming through FY 2015 and FY 2016. Nonetheless, we have guided in terms of the absolute levels of profitability. The absolute levels of profitability should still be similar to FY 2014 and FY 2015. That covers the joint ventures. The second point in terms of redemption of shared equity. The redemption experience has generally been that we are redeeming at above value and below original value. As you know, the structure of the shared equity, which is provided by house builders as opposed to the government schemes, is typically a 10-year interest-free loan. With a bullet redemption in year 10 or when the house was sold. Therefore, unless somebody sells the house, to encourage them to redeem, we need to offer a discount. We are seeing redemptions both from natural redemptions where the house is sold, and therefore we just take our share of the value, which could be above or below, depending on where we sold it. Then we will incentivize customers to redeem early. We will typically offer them a discount of maybe 15% or 20% to redeem early. On those JVs, it is important to recognize that things like Fulham Riverside, Nine Elms, Alie Street, or Aldgate Place, these are not low selling prices, so very few of them are benefiting from government support. These are the, this is a real performance on those JVs. It is not enhanced by the market. Of course, the market has improved anyway. It is not something that relies at all, I suspect, on schemes like Help to Buy. Go on, ever patient, yeah. John. Angus Lennahan from Citigroup. I know you do not want to be drawn too much on beyond 2017, but when you are thinking about your capital return, does that in any way reflect a change in your view on what you think the optimal scale of the business is? Is 16,000, you are thinking now more of a hard cap? Or have you still got scope to grow the business beyond 2017 if you want to, and you could still believe that in that way then? Secondly, just on the GBP 400 million, is there much cushion or flexibility within that? Will that be reviewed annually, or is that a pretty fixed figure? Okay. I think it was beyond 2017. We are not going to start setting targets beyond that. I have already said we are not putting hard caps out there on volume or even soft caps or targets. I think that very much depends on the market and our ability to continue to buy land. What we do expect is to see controlled growth over the next few years. Analyst consensus forecast for FY 2015, 2016, and 2017 have already assumed that. We are not uncomfortable with that sort of direction of travel. I think that is about the maximum guidance we can give you. In terms of the GBP 400 million, the board has considered carefully what the right level should be based on where we stand at the moment and our projections over the next three years. I have already said we have made sure that we have got the balance. We hope we have got the balance right between rewarding shareholders and making sure that the business has got sufficient funds to invest in those opportunities that are there. In that respect, we think we have set it at the right level. Any revision to those numbers is going to happen at some stage in the future if something changes. Obviously, those numbers are the ones that we are happy to commit to as of today. Kevin, we have got one. Yeah. Kevin Cammack, Cenkos. I am just interested to know, when the board made the decision on the cash return, was the subject of the JVs featuring anywhere on that agenda in the sense that I can understand three or four years ago why you went down that route. But the position today is you have clearly got cash churning out. Why would you not be better off if you had full control of those schemes? Or even going forward, would it not maximize the numbers for you in a better way? I would just be interested to know your view around that. Just on a technical point, when we are looking at your return on capital targets, I assume they are excluding the JVs in either element of the equation. The technical questions are for David, but I am happy to do the first one. The board decision was made at 4:31 last night, as you might imagine. Otherwise, we would have had to announce it previous to this morning. It is something the board has had in mind for some time now. We have been very clear that we will, and I intend to return money to shareholders over and above the ordinary dividend program. The decision the board has taken on the back of an FY 2014 performance, which we consider to be very strong, on the back of a market we are currently in that we consider to be strong. I think on the back of that land buying activity that Steven has described. We felt that the appropriate thing to do alongside our new FY 2017 targets is to talk about. To leave the cash bit out would have been odd. It's a package that comes together. I think that was well considered over time, but obviously the decision was made last night. In terms of the JVs, it's an interesting point you raise. The JVs originally were put in place for the obvious reason that if we wanted to continue operating in London, where we had real competitive advantage, we had to find another way of financing it. That problem, as you might imagine, has largely gone away. That said, there are still instances where we will use JVs. The new Places for People joint venture we talked about, it's their land. They wanted a partner to build it out for them. There's a good example where the only way to get access to what is a very lucrative site in Milton Keynes was to do it through a joint venture. We will still do those. There is still a point where the GDV of a London development goes beyond the point where we're saying, "Well, actually, we think it's better to do that in a joint venture relationship because of the size of an individual site." I think there will still be opportunities. Nine Elms is probably the most recent, which of course we've done with L&Q again. But if you look at the GDVs, they're very large. That said, there is no doubt that going forward, our threshold for putting large sites into JVs has increased because we have the ability to fund that. As you might imagine in our forward plans, we've made sure that we put the cash in to fund the London investments that we require into the future, with an assumption that far less of that will probably be done under JVs. But of course, it depends on the opportunities that arise. If there are some very big opportunities which we feel we can add substantial value to, and the only way sensibly to do that is through a JV, then we will continue to do so. But you're right, we have far more flexibility, and we've certainly taken that into account in our projections, which is the basis on which the board is then able to make the decision about returns. Yes. The return on capital calculation includes the joint venture profits and the joint venture investments. Equity in the JVs or the implied debt in that as well? No, the equity within the JVs. Okay. Thank you. If you look at the debt within the JVs, as at June 14, the gross debt in the JVs was around GBP 30 million. Effectively, our share of the debt was around GBP 15 million, so it is clearly very small numbers. Clyde, do you want to take this one? Yes. Go ahead. Clyde Lewis of Peel Hunt. Three, if I may. One probably for Steven. I think he referred to 2% build cost inflation this year. If you could maybe give us a little bit of a split between labor and materials and, again, a range of regional variations. Second one was on the owned and controlled land splits going forward. Would it be fair to assume, given that you are going to pull through more from strategic land, that the controlled element will grow as a percentage of your total land bank? The third one was on the mood music out of Whitehall and government, and we have not heard that from you today, Mark, and we normally get a bit of an update. Just wondering whether they are starting to look at results from the industry and thinking, well, maybe you are making too much money, time for a squeeze, balanced off with getting you to do more in terms of volume output. Just looking for an update there. Clyde, you've covered the CAR, so we're good. We'll go to Steven, then David, then Mark to finish off. Okay. Starting on the materials. As I said last year, yes, we incurred a 2% increase. That was basically about 1% or 1.5% increase on materials. The main increase on materials was bricks. Because of the brick shortage, we incurred an increase in the region of 17% on that element of bricks. The main cost of bricks was importing from Belgium, so that pushed the brick cost up. We imported about 20, 25 million bricks. Looking again at last year, labor increase is fairly flat except for bricklaying. In certain parts of Great Britain, the bricklaying costs went up by 17%, 18%, particularly the southeast part where the skill shortage was the greatest. As a result, our bricklaying rates are now above where they were in 2007. That was the only real increases we had last year. We had some decreases, particularly on steel-based products, lintels, garage doors, radiators, boilers. Going forward, we see a similar situation. Our materials for the next year, 75% of our material costs are now fixed right through to June 2015. The other 25% is not due for renegotiation until after December. They are fixed until December. So we are seeing minimal increase on materials generally. The brick problem has eased. Our target this next year is to not import any bricks. Production in the U.K. has increased substantially, so you see the brick problem flattening. In terms of labor for the following 12 months, the industry has recently awarded a 3% increase on labor, and there is another 3% increase due at the end of June 2015. As ever, the problem tends to be bricklayers. But we have got to a situation now where we have adequate bricklayers to source our production requirements. They have gotten back to a level where they used to be, and I do not see much need to increase them any further. Going forward, we see a similar position, 2 percentage, 2% to 3% next year. Okay. In terms of land bank, I think implicitly the answer is yes. But if you look out over a number of years, as our intake from strategic rises, then our conditional contracts will fall as a percentage of the total. I think the key point being we don't anticipate any change in the owned land bank. If we're running currently at, say, 3.3 years of owned land bank, that's not something that we would expect to increase. Steven's flagged that the strategic contracts are typically relatively small size compared to a lot of strategic contracts. And even on the larger strategic sites, we'll tend to be signing agreements where there is a phased drawdown, so we're not taking 2,000 plots onto the balance sheet at one time. Just maybe a side effect of mood music is currently being played on multiple sets of bagpipes. I think the debate with the current administration is very much about that volume track record. They know what we've done. They've seen the 30% growth in three years. They know how much we've been investing in the market, GBP 4 billion invested over the period since May 2009. And a lot of that was done when the market was still going south, or certainly wasn't going north, without any support from government. I think they get that. And their real focus is on what more can we do. And I think they keep going on the planning system. They keep closing avenues of escape down, if you like. And I think that will continue to improve the position. And we've seen, to be honest, the help that it's already given us in terms of strategic land. I think more of that. And we continue to ask them for more government land. That's a debate and dialogue we have open. But I think that's a reasonably balanced debate. And I think the current administration is probably less focused on the sort of issues that you describe. I think you widen it out to the other political parties, the big issue is around social housing. And I think that's where the emphasis might change if we had a change of administration. But you've got to recognize that social housing is delivered by the much wider housing sector. It's going to be delivered by residential providers and local authorities. Section 106 is Section 106, but that's not going to solve the social housing problem. I think that's where the emphasis changes if you really want to drive the numbers back up again. And of course, if we look at the last time we did 200-plus thousand, it was when the public sector was doing an awful lot more. And there's a big challenge around how do you finance that. I think that's where that is going. There is clearly, and there has been some media focus on this whole thing about cash back to shareholders and growing the business. I think we're in a very strong position, and I've obviously spoken to all the parties and senior politicians about that, and they sort of get where we are. I think the key point about the announcement today is very simple. Our shareholders supported us, as you all know, in 2009. GBP 720 million. They gave us that money so we could get back into the land market. We did, and then we added a substantial amount to that. The GBP 400 million that we have announced today, over three years out of future profits, to me is a relatively small amount back, given the support we have had. I think you can have a very rational discussion, but then what happens in the media could be something different. As I say, I think our track record is very strong. It is something we have to be careful about, and obviously over their party conference season, I am sure housing will be one of those areas that gets kicked around between the parties. We are very cognizant of that. We will be playing our part in all the party conferences to try and make sure there is as much balance in this debate as there can be. I think we have just got time for one more. Here. Thanks. John Messenger, Redburn. Sorry to come back to JVs just once more. Like flogging a dead horse. Just when we look at the shape of last year's number just reported first, David, can I just understand, because obviously 46.7 becomes 40. The prior year, you can understand a bit of interest, take off the tax and you ended up at the 7.6. But how do we go from 47 to 40.5? Were there some one-offs in there or tax losses that meant it came tax-free? Then when we think about that balance sheet commitment going forward, I think you mentioned 50 incrementally this year. Is there incremental debt that is going to go in, and is there a maximum point on the JV kind of portfolio that sits there today in terms of debt that your share of going forward? Then just the other one was really to Steven. Just in terms of public land, so about 30% of your sales mix in 2014 obviously was coming from public. I think in the statement, obviously, there is the 6,500 number secured. But then purchases were about 3.9, so about 18% of purchases. Is that just about timing? What is the message overall in terms of public land? Because obviously in that mixed portfolio, you are saying 30 drops to 20 over time as strategic takes over. But is there a message here in terms of just access to speed with which you are going to get it, or the overall attractiveness of that public dimension? We need to have a separate meeting, John. Go into those. Okay, well, if I just do the first two, and then Steven will pick up the third one. First of all, in terms of debt within the joint ventures. We currently have one funding line in relation to the joint venture with London and Quadrant. That facility has a maximum capacity of GBP 120 million. As I said, at June 14, it was drawn about GBP 30 million. I wouldn't expect it to be drawn more than perhaps GBP 60 million or GBP 70 million during the year. These are relatively small amounts. But clearly ourselves and London and Quadrant are very keen on having that funding in place. If you look at the other substantial joint ventures, for example, Enderby Wharf with Morgan Stanley or Aldgate Place with British Land, presently there is no funding, no third-party funding in those joint ventures. They're all equity funded, and that's the plan at this point in time. In terms of the reconciliation between the numbers, I think there's a few things happening there. You've got Wilson Bowden, who are our commercial business. You've got associate income coming through, and as you say, you've got the tax and the interest. I'm happy to take that offline and we can run through that offline. Anyone else on public land, John? Yes. 28% of our completions last year were sourced from public land. In terms of secured, we secured 6,500, and it is purely a timing situation. The 3,900 was contracted, so those 6,500 will eventually flow through to contracts. In terms of going forward, we have factored in a slightly less percentage going forward on the basis that a lot of the public land we acquired was post-crisis level. A lot of that was plot-by-plot payments. Going forward, those same high return will no longer be available. We're assuming early 20% in our model. I think the other thing on that, just to add a bit of color, obviously the government's program ends at the end of 2015. The 100,000 units that they were trying to deliver. They've taken a lot of what I call the low-hanging fruit, stuff that was sitting in the HCA and central government departments. We continue to press, whichever party it is, a new government to set a bigger target for the next five years, which they're all considering, I suspect. But we have to recognize it's going to be a lot more difficult because we're talking about getting land out of places where they've perhaps not been particularly successful up till now. If that turns into a real commitment, then I think we can reconsider where we're at. But at the moment, I think we're taking a little more cautious approach, given we know that the current program comes to an end. We still think that certainly local authority land will continue to flow. I think that it's the central program that we need a reinvigorated program, to be honest, to put our commitments back up. Well, I think we have to draw it to a close there. So all I can say is thank you for your support over my six years. I really want to thank you in the dark days. We can all think when they were, but the people in this room, from this side of the table, whilst the questioning was often quite tough, and in fact you asked us about things we weren't particularly keen on talking about, we always felt that there was a level of support and understanding of where the company was and what we were trying to achieve. So I'd like to thank you for that. Thank you for the questions. I learned a lot from all of you. The boardroom questions around the Barratt table were improved no end by the way you questioned us. And all I would say is thanks for everything, all the best of health and happiness in the future, and continue to support-