Earnings Call: H2 2013

Sep 11, 2013

Well, good morning, ladies and gentlemen, and welcome to our results presentation. Delighted to see so many of you here. In a moment, David will take you through the numbers in detail. Steven will then talk about the operational performance of the business before Mark updates you on our priorities and targets going forward. He will also bring you right up to date with our very strong current trading performance. Before that, I just want to say a few words by way of introduction. This has been, and I say this with absolute sincerity, this has been a really important year for us, and I think we have all enjoyed it actually. With net debt substantially reduced, we have refinanced the business ahead of schedule and for a five-year term. We have seen our underlying operational performance continue to improve. We continue to drive up efficiency, underpinned by robust systems and the highest quality product in our industry. This improved efficiency is now being combined with a recovering housing market. For us, that really started to accelerate in the final quarter of our last financial year and has continued into the first 10 weeks of this year. Better economic news, improvements in lending, and the government's Help to Buy scheme have all played their part. It is not just a trend in London and the Southeast, but in all other parts of the country as well. Today, we are reporting a very strong set of results, and the board is delighted to be able to propose a dividend for the first time in five and a half years. In fact, it is the first dividend in my tenure as chairman. Going forward, we will progressively increase the dividend, and Mark will say a little more about that. I believe we are in an excellent position to benefit from the market recovery. We have organizational strength and, very importantly, the discipline to capitalize on it. With that, over to David to begin our presentation. Thanks, Bob. Thank you, Bob. Good morning, everyone. We have delivered a strong performance across all key metrics. Private ASP was up 6% at GBP 214,000. Operating margin up by 150 basis points at 9.7%. Pre-tax profits at GBP 192.3 million, an increase of 74%. Land approvals up by 81% at over GBP 1 billion. Our net debt was also significantly lower than target at only GBP 26 million. Starting with the summary revenue drivers. Total completions, including joint ventures, were up 6% to 13,663. Affordable accounted for 17%. On guidance going forward, we expect affordable content to be between 18% and 20% of completions. Total ASP increased to GBP 194,800. This is driven by changes in mix, less flatted content, and more large homes. There is a detailed slide on product mix in the appendix. Overall, revenue was up 12% to GBP 2.6 billion. Looking down the P&L, we delivered gross profit of GBP 359.2 million and a gross margin of 13.8%. Gross margin in the second half was 15%. Total administration expenses were GBP 106.5 million. On guidance, we expect administration expenses to be GBP 115 million in the current year. Operating profit before exceptional items increased by 32% to GBP 252.7 million, with an operating margin of 9.7%. As this chart shows, completions from old impaired land are decreasing, and we are down to 16% in the second half. In the year, land bought since 2009 made up close to half of our completions. This is a new slide. It is important that you are able to look at our performance compared to our peers on a like-for-like basis. This slide shows the pro forma profitability for the group, adjusting for the impact of JVs and one-off write downs. The write down of GBP 12.3 million is for one-off charges on sites acquired pre-2009, where we are adjusting land values by charging normal operating profits. As you can see, the reported house build operating margin in FY13 of 9.7% increases to 10.4% on this pro forma basis. As JV profits increase over the next couple of years, the JV adjustment will become greater. Turning now to JVs. Here is the growing list in London. The first four were operational at the end of June. Since the year-end, we have entered into a JV with Morgan Stanley Real Estate at Enderby Wharf in Greenwich. The Nine Elms and Hendon Waterside have been approved. Combined, the London JVs have a GDV of more than GBP 2.25 billion. Turning to the delivery profile of these JVs, on this slide, the numbers on the left tell you the completions still to come from the sites. The bars on the right show you the delivery profile. The key takeaway is that we have a strong pipeline of completions from our JVs over the next few years. JVs are held separately on the balance sheet and appear as a one-line entry on the income statement. A share of profit from JVs, which is operating profit net of interest. JV profits are rising. In FY13, we reported our share of house building JV profits at GBP 7.8 million. On guidance in FY14, we expect around 650 completions, with our share of profits at around GBP 25 million. Now looking at the cash flow. As ever, there are lots of numbers, and I will highlight a few. The profit from operations after exceptional items was GBP 249.9 million, an increase of GBP 58.8 million on the prior year. The cash inflow from land, mainly from plot completions, was GBP 584.2 million. A GBP 63.6 million decrease in WIP reflects ongoing build control coupled with a strong sales performance in the final quarter. Other working capital decreased by GBP 46.2 million, which reflects the build payment schedule in London and also a desire to ensure that suppliers are paid promptly to avoid pressures on the supply chain. The total cash inflow pre land purchases and disposals was GBP 851.2 million, up by GBP 275.3 million. By any measure, this is strong cash generation. Moving on through the cash flow. Land spend totaled GBP 678 million, up from GBP 397 million in the prior year. This includes GBP 374 million of land creditor payments. On guidance, I expect that the total cash spend on land in FY 2014 will be around GBP 800 million, of which GBP 370 million will be on land creditors and the balance on other land expenditure. We generated GBP 35.4 million cash from land sales. We continue to review land sales on a limited number of sites. The exceptional finance costs of GBP 33.5 million include GBP 14.7 million of refinancing fees and GBP 18.5 million of swap cancellation costs. The group has remaining swaps with a nominal contracted value of GBP 137 million. The cancellation cost of these swaps at the 30th of June was around GBP 30 million, and we will keep this position under review. We also completed a joint venture on part of our shared equity portfolio, which resulted in a GBP 33.7 million net cash inflow. Turning now to the balance sheet. Again, I will pick out certain numbers. On deferred tax, our deferred tax asset is a reminder that we have a shelter, so there will be no cash tax payable on around GBP 400 million of future taxable profit. The gross land bank value is GBP 2.1 billion, which net of land creditors of GBP 744 million gives a net land bank value of GBP 1.38 billion. Land creditors equates to 35% of the owned land bank. On guidance, we expect to maintain land creditors at around 35% going forward. Stock and WIP decreased by GBP 63.6 million. There is more detail on this in the appendix. Looking at equity share in more detail. Here is a breakdown of GBP 128.4 million book value of equity share. Net additions totaled GBP 11.2 million, significantly down from the prior year, as we saw a shift initially to NewBuy and then to Help to Buy during the year. Cash received from redemptions increased to GBP 12.8 million from GBP 4.7 million. We also received cash of GBP 33.7 million and Barratt invested GBP 25.5 million of assets into our joint venture with Anchorage. Finally, the remaining portfolio is split 44% government-backed schemes and 56% from Barratt schemes, which we will continue to actively manage. Moving to joint venture investments. Our London investments total GBP 56.2 million, up from GBP 31.5 million in the prior year. Our investments outside London total GBP 36.4 million. These are detailed in the appendix. On guidance, I expect our balance sheet investment in joint ventures to increase by around GBP 50 million in the year. Finally, the shared equity joint venture now sits within this category on the balance sheet. Moving on to the land bank, you can see that the impaired land has again decreased and now represents only 7% of the owned and controlled land bank, down from 12% last year. Non-impaired is also down to 20% from 31% last year. New plots contracted since 2009 now make up 73% of the land bank, up from 57% last year. The ASP on the owned and conditional land bank is GBP 208,000, with an average gross margin of 16% and gross profit of over GBP 2 billion. We continue to make good progress in transitioning our land bank from lower margin to higher margin land. Moving on to the liability side of the balance sheet, there are a few points to highlight. Net debt, as I mentioned, at the 30th of June, was GBP 25.9 million. This reflects the beneficial timing of land payments and a higher level of completions at the year-end. On guidance, in line with the normal cycle, we expect net debt to increase as at 12/31, as we invest in WIP for full-year completions, in particular in London. As normal, we would expect this increase to reverse in the second half. Mark will talk more about maintaining an appropriate capital structure with minimal year-end net debt. We will continue to target a reduction in our average net debt. Our pension obligations remain both small and manageable. For the year, we had a cash interest cost of GBP 47.5 million. I have broken down the cash interest into its major components. We announced our refinancing in May. This gives us appropriate facilities for five years, and we also retired our historic private placement notes. On guidance, we expect the cash interest cost in FY 2014 to be around GBP 35 million. Total non-cash interest was GBP 20.5 million. A full breakdown is included in the appendix. On guidance, we expect non-cash interest cost to be around GBP 25 million, and therefore total interest cost for FY 2014 to be around GBP 60 million. To summarize some of the key points for guidance, we would expect completion volumes, excluding joint ventures, to increase by at least 5%, with joint venture volumes of around 650 units. We will drive further ASP improvements due to changes in mix. A good point of guidance is the ASP in the land bank of around GBP 200,000. Administration costs will be GBP 115 million, and our share of joint venture income will be around GBP 25 million. Thank you, and I will now hand over to Steven. Thank you, David, and good morning, everyone. I will now take you through the operational aspects of the business. The business made good progress in the year with an improved performance across all regions. Market conditions have strengthened, and the launch of the Help to Buy scheme is accelerating this recovery. We continue to see excellent land opportunities across all regions, and we have significantly increased our rate of land acquisition. We are maintaining a very disciplined approach and remain focused on driving operational efficiency. The current financial year has got off to a strong start, and we expect to deliver another significant improvement in performance in full year 2014. Looking at our performance by region. Overall, private completions, excluding joint ventures, were up 11.7%. In the second half, private completions were up 16% year on year. All regions delivered increased volumes in the year, but there were variations. London completions, which include JVs, were up strongly, reflecting both a stronger market and the phasing on our London developments. In our Northern region, the modest volume growth reflects more challenging market conditions in the year. Help to Buy is also yet to launch in Scotland. Our private average selling price, again excluding joint ventures, increased by 6% to GBP 214,000. There was a 9% increase in the second half. Whilst we saw some improvement in underlying prices in London and the Southeast, programmatic conditions prevailed in other areas of the country, in particular West of Scotland, Northeast England, and South Wales. Overall, underlying pricing on completions remained stable for the year. Increases in ASP in the year therefore reflect changes in mix. As David said, less flatted content and more larger family homes. Turning to sales rates. The group's overall private sales rate was up 11.5% to 0.58 per week per active site. In the second half, this rose to 0.66 sales per week, up 18%. Sales rates improved across every region, but were strongest in Southern and London, up 37% and 34% respectively. The lower year-on-year rate of improvement in Northern and Central reflects a slower recovery in these areas. We did, however, see a pickup in these areas in the second half, with the market improving from the start of the calendar year and with the launch of Help to Buy in England in April. This slide looks at completions by type. Affordable housing, the pink band across the top, has declined to 17% of total. This reflects new site starts and the phasing of delivery of affordable housing. Part exchange, the light purple segment, was 16%. We expect this to decline given it cannot be used in conjunction with Help to Buy. The next segments down cover shared equity and NewBuy. In the second half of FY 2013, the dark purple band shows the rapid take-up of Help to Buy, which made up 7% of total completions. The transition to Help to Buy has been quick and take-up strong. It is a very attractive product for our customers and incurs no cost to the business. Investor completions in the green segment picked up significantly in the year, from 9% in the first half to 15% in the second. This, in part, reflects the greater second half weighting of our London region, but also the increase in buy-to-let lending. Turning to site numbers. The column on the right shows the average number of active sites was 392 in the second half, including 8 JVs. We expect average site numbers to increase going forward as our continued land investment flows through. In the year, we opened 143 new sites. We expect to open more than 70 new sites in the first half of this year, and nearly 100 in the second half. It is also important to understand the variation in average revenue site by site by region, and the table on the right highlights this. In London, on average, a site delivered 77 private completions in the year with average revenue of GBP 25 million. In Southern, sites averaged 41 private completions with revenue around GBP 13 million. Across the rest of our regions, the figures were 25 private completions with revenue of GBP 5 million. So our London developments can deliver the same revenue as 5 sites in other regions outside of Southern. Site numbers will increase, but the regional mix of sites is also an important factor. Looking at the land market. Our hurdle rates remain at 20% gross margin and 25% return on capital employed, and all new land meets these requirements as a minimum without assuming any future house price inflation. In Central London, we see a strong demand for less complex sites. Land price increases in Central London have been site specific, driven by competition and house price inflation in that area. Barratt London's experience and capability in delivering complex and technically challenging sites has become an increasingly important competitive advantage. This has helped us secure some great land opportunities in the capital. Our JV partners have also been a positive for us in sourcing new developments. In the Southeast, the land market is very competitive, with strong demand for conventional housing sites. Some of this increased demand reflects major house builders opening new divisions in the region. We also consider that some of our competitors are bidding at a gross margin below 20% or assuming house price inflation. Our strength in securing public sector land gives us a real competitive advantage in the region and is a key area of focus. We have also focused on more complex sites where we have the expertise and capability to deliver such projects. Turning to the rest of the U.K., we have secured some first-class opportunities over the last 12 months and continue to do so. We have not seen any land price inflation and deferred terms remain widely available. In summary, there is good availability of high-quality land across all regions. Here you can see the significant step-up in the rate of land acquisition over the past 12 months. For the full year, we approved just over GBP 1 billion of new land, an 80% increase on the prior year. The average plot cost in the second half of GBP 65,000 was skewed upwards by the acquisition of some prime London sites, including Westminster East. Excluding these sites, the average plot cost would be around GBP 50,000, which is in line with the prior periods. Turning to public land. The release of public land is a key element of the government's strategy for driving economic growth and addressing the housing shortage. It is calculated that 40% of housing land is in public ownership. The government's plan is to release land for 100,000 new homes by 2015. This is also targeting at least GBP 5 billion of asset sales from land and property between 2015 and 2020. Our specialist public land team supports our divisions in bidding for these opportunities. These bids are often complex and award on many criteria, including design and environmental credentials, not just on price alone. Barratt is a member of all four HCA delivery partner panels, as well as the GLA panel. in FY13, the group secured over 4,300 plots from public land with a GDV of around GBP 1 billion. In the year, circa 30% of our completions were on publicly sourced land. It is an important land source for the group. We have a strong track record and are extremely well-positioned to optimize the opportunity that the increase in supply of public land presents. Turning to strategic land, our portfolio is one of scale and increased significantly with the acquisition of David Wilson. Here you can see the split of strategic land by region. Overall, across the U.K., we have 11,400 acres, which we expect to deliver circa 60,000 plots on 233 sites. Last year, more than 2,500 strategic plots were delivered into our consented land bank, and we expect this to increase to around 6,000 plots this financial year. We are placing an increasing priority on strategic lands throughout the U.K. In FY13, we agreed the purchase of more than 1,600 acres, totaling around 11,800 plots on 61 sites. We look to acquire options with an expected start on site within five years, and we do not generally purchase freehold sites. We expect these options to deliver projects with a gross margin of around 23%, as compared to our minimum hurdle rate of 20% on land purchase subject to planning. In FY13, 7% of our total completions were from strategic land, and we expect this to increase to around 15% over the next two years. Looking at our land bank, as a national house builder, we target a regionally balanced land portfolio. Here you can see the owned and conditionally contracted land, the JV plots, and the land supply by region. We are in line with our group target of around 4.5 years' land supply. The approved plots are those where terms are agreed and the acquisition has been approved by the Land Committee. Finally, in the far right column, the strategic plots. All in all, the group has a strong pipeline of new land. Turning to costs for land, as I've said, we are seeing some price increases, in particular in the Southeast and London, driven by increased competition and house price inflation. When bidding for land, we calculate the price using a residual valuation method. We continue to secure good opportunities at our hurdle rates across all regions. Moving down to infrastructure costs, these are stable. We are achieving some reductions on Section 106 costs through renegotiation, but this is modest. Looking at labor and materials, we are seeing some inflationary pressure on labor costs. This tends to be trade and location specific and is driven by increased activity in the area. In particular, we are seeing some upward pressure on bricklayer costs. On materials, we negotiate centrally on around 85% of the group's house build materials. The majority of these are fixed-term contracts that are agreed until June 2014 or beyond. This gives us clear visibility on pricing and protects us from increased prices in the short term. An uplift in developer activity has led to some supply chain hotspots, and there's been some recent market commentary about shortages of bricks and blocks. However, our long-standing supply arrangements have been beneficial to us, and to date, we have not seen any detrimental impact on our build programs. Going forward, we expect to see some cost inflation when these supply arrangements are renegotiated. In terms of selling and admin costs, given a proportion is relatively fixed, as volumes increase, we would expect these to decline as a percentage of total revenue. Overall, for FY 2014, we expect our cost base to remain broadly stable. The group continues to deliver the highest quality product and customer service. I was delighted to see 102 of our site managers receiving NHBC Pride in the Job awards. This is the most ever won by any house builder and 26 more than we achieved last year. Customer satisfaction remains very high, with over 90% of our customers saying they would recommend us to a friend. For the fourth consecutive year, we were awarded HBF 5-star status, a stronger track record than any other national house builder. Thank you. I'll now hand over to Mark. Well, thanks very much, Steven, and good morning to you all. I am going to start with an update on the market. I will remind you of the group objectives and tell you what progress we have made, and then finally, I will bring you right up to date on our most recent trading performance. Starting with the market update, we have seen a material improvement in overall conditions during the calendar year. The pickup started late in 2012, when a combination of better consumer confidence, Funding for Lending, and NewBuy were driving improvements. Mortgage availability was increasing and mortgage rates reducing. Help to Buy, which was launched in April 2013, has accelerated this improvement, and we have seen a significant step up in consumer demand as a result. Mortgage availability has continued to increase, and rates have come down even further. As a result, we and others across the industry have been increasing build rates substantially, but there remains a critical shortage of housing in the U.K. This slide shows the monthly mortgage approvals and the house price indices from before the downturn. If you look at the last 10 years, there is a direct correlation between the two. As mortgage approvals move, house prices follow. In terms of what we are seeing, pricing has been stronger in London and the Southeast, certainly in FY 2013, driven by the widening gap between supply and demand. Across the rest of the country, certainly up until the end of June, the pricing environment remained flat. More recently, however, we are seeing improvements across other parts of the U.K. At the moment, this is coming through in lower incentive costs required to achieve the sale, as the weight of demand has increased. In terms of magnitude, it is about 150 to 200 basis points for the financial year to date. This is now driving an improvement in the group's net pricing performance. Here is an update on mortgage rates available today. It shows the maximum loan-to-value for both secondhand and new build, and the associated lending rates. New build retains a material advantage, something it has not enjoyed for most of the downturn. With Help to Buy, new-build customers can secure a 95% loan-to-value mortgage versus 90% in the secondhand market. Rates have reduced significantly, with a Nationwide two-year fixed now at 2.84%, and Halifax reducing their rate last week to just 3%. When you consider that a customer is also getting the benefit of a 20% interest-free loan for the first five years, these really are very attractive rates. And importantly, they are around 200 basis points lower than they were a year ago under NewBuy. The launch of Help to Buy 2 in January for the secondhand market will change the loan-to-value differential between new and secondhand. But I suspect that there will still be a considerable rate advantage in buying new for the foreseeable future. Moving on to the group's key objectives. We have been very clear on our priorities and continue to make very good progress in delivering them. We are building profitability fast, and combined with a very clear focus on reducing the balance sheet, this has driven up our return on capital. We have made excellent progress in reducing indebtedness, with year-end net debt significantly below expectations at just GBP 26 million. As such, we are now focused on maintaining an appropriate capital structure going forward rather than just a low year-end net debt target. I will cover this in more detail later. We have a clear set of medium-term targets to be achieved for FY 2016. Most of you are familiar with these, but today we are adding a return on capital employed target of 18% for FY 2016, which assumes no house price inflation. We have already set comprehensive plans in place within the business to deliver these targets, and as usual, the challenge for the management team is to deliver them earlier if possible. Let me now take a look at each objective in a little more detail. Starting with building profitability. This is an update of the slide you are all very familiar with. As I have said many times, the building of profitability is hardwired into the business as the percentage of completions from new land increases. In the current year, we expect two-thirds of completions to be from new land, increasing to 90% by FY 2016. This excludes joint ventures, almost all of which would sit in the new land category. The percentage from impaired land continues to decline, reducing to just 2% by FY 2016. The table on the right details the average selling prices and the average gross margin for each type of land as of June 30, 2013. New land with a minimum gross margin of 20%, old non-impaired land with an average gross margin of around 8%, and of course, impaired land running at zero. It is worth recognizing that an improving market will accelerate the transition from old to new, and that our margin figure, once again, assumes no house price inflation. Return on capital employed has always been a key focus for the group. Our objective is to drive it back up to where it was before the downturn and provide sector-leading returns for our shareholders. We made good progress in FY 2013, with ROCE increasing to 11.5%. Today, we set ourselves a target of 18% by FY 2016. The hurdle on new land is set at 25% as a minimum, and on average, we are achieving returns substantially in excess of this, as you will see a little later. To deliver, we must maintain the discipline and keep to our optimized operating model, which has served us well through the recovery. We will continue to focus on a fast asset to turn that minimizes capital employed. So far on our new sites, it is about one-third lower than it would have been on our old sites. This slide highlights the key drivers that we are using to improve returns. On land acquisition, we continue to target smaller sites outside of London. We operate a relatively short-owned and controlled land bank with a target of four and a half years supply. We buy land conditional on planning, which mitigates the risk and defers payment to a point where we can use the land in production, matching revenues with cash outflows wherever we can. We minimize our exposure to upfront infrastructure requirements, and our use of standard product ensures faster and more efficient build. We control our work in progress through our nine stages of production, which are tested against demanding metrics for every one of our developments. On sales and marketing, we will accelerate the delivery of any payments for affordable housing where we can. Where possible, we will use our two brands to deliver two distinct outlets on larger sites, providing customers with more choice and driving up sales performance. We will continue to use our class-leading sales and marketing capability and the industry's strongest brands to achieve better sales rates at prices that are often ahead of our competition, reflecting the quality of what we build and the service that we deliver. Beyond the operating model, we continue to focus on cashing in our low returning assets, which are effectively a drag on returns. Our commercial assets reduced by GBP 19 million to GBP 60 million in a year, and we expect further progress over the next two years. In May, we announced the monetization of part of our shared equity portfolio, and we will continue to look at options for the balance whilst proactively accelerating its redemption by engaging with our customers. I mentioned the performance of new land earlier, and I wanted to provide you with an insight into what it has delivered so far. As you all know, it can be misleading to give returns partway through a site's development. So for this analysis, we've looked at developments on land approved for acquisition and completed since 2009. So far, that amounts to nearly 1,900 plots across 41 sites. The average site size is only 46 units. As you would expect, the analysis is weighted towards smaller sites as they are the ones that would be completed first. On average, the site development time was 27 months, and the average selling price GBP 214,000. The gross margin achieved was 21%, with a return on capital employed of 39%. Whilst we are achieving a ROCE significantly above our minimum hurdle rate of 25%, the skew towards smaller sites will also have driven that number up. This data really does give us confidence that we can return the business to an industry-leading ROCE as the newer sites are delivered. The group has been very focused on the reduction of year-end indebtedness and has performed very well against this target. As I say, with our year-end debt at just GBP 26 million, we're now focused on maintaining an appropriate capital structure and not just low year-end debt figures. We see the own land bank and long-term work in progress being funded by shareholders and of course, land vendors in terms of land creditors. We expect to maintain land creditors at around 35% of the own land bank. Short and medium-term WIP will be financed by the lending syndicate. In May, we were pleased to announce our refinancing, which was ahead of schedule, and provides us with the right lending facilities going forward. Everything I've talked about is being delivered to drive total shareholder returns, and the board recognizes the importance of both capital growth and, of course, income. We are proposing a final dividend of two and a half P per share for the year to June 2013, representing a cover of around six times. Going forward, we expect a phase reduction in cover, targeting three times by the year ending June 2016. As a result, with strong earnings momentum of the group, we expect to see a rapid increase in the absolute level of dividend paid over the next few years. Let me bring you right up to date on current trading. We have seen a very strong start to the current financial year. Importantly, for the first time since the downturn, we are seeing much greater strength right across the market, with overall reservation rates in the last 10 weeks at 0.66 per outlet, up 29% on last year. In London, sales rates were up 41%. In Southern, they were up by 49%. In the rest of the U.K., they also increased by 29%. We believe this has been driven by a combination of increased consumer confidence, a significant increase in mortgage availability, and the benefit to mortgage rates from both Funding for Lending and Help to Buy. We kicked off our autumn sales and marketing campaign earlier this year to take advantage of that stronger market. Since its launch in April, our reservations using shared equity and indemnity offers, including Help to Buy and NewBuy, have been around 28% of total activity. This compares with 21% of reservations in the prior year. Private forward sales stood at GBP 880 million, a 44% increase on the prior year. Total forward sales were GBP 1.23 billion, up 60%. JV forward sales at GBP 164 million were up 279%. The increase in JV forward orders reflects the delivery profile that you saw earlier from David at Altitude, Queensland Terrace, and Fulham Riverside. We are very positive about the outlook for the group. Market conditions are strong, and this is starting to affect the whole market, not just the Southeast. Discounts have reduced, which will flow through into improved net pricing. We are maximizing the opportunity this brings to drive the group's objectives of building profitability and delivering an industry-leading return on capital employed, whilst maintaining an appropriate capital structure even harder. We are confident we will deliver a substantially improved performance for FY 2014. Thank you, and we will now be happy to take your questions. Thanks, Mark. Gentlemen, in asking your questions, could you just give your name and firm, please? Should we start at the front and work our way back? Chris, do you want to kick off and then we will move to another? Yeah. Chris Millington at Numis. Just a few for Mark first. You've given us the feel that you're targeting 16,000 units by 2016. I'm just wondering, do you see that as a peak to your volumes, or should we expect further growth thereafter? Clearly, if it is a peak to the volumes, should we be thinking about potential cash distributions thereof? The second one's just on return on capital employed. Again, you've got this 18% target. I presume the gap between the 18% and the 25% you buy on is just the residual old land and how that drags down the average. Then just the final ones, really just a point of clarification. You talked about shared equity being used on 28% of sales. Is that total sales or just private sales? Thanks, Chris. Do you want to take one and three, Mark, and then pass residual over to- Yeah, fine. I'll do three first because it's very easy. It's on total sales, 28%. One of the big changes we've seen in the market is the move away from part exchange. So what you're actually seeing is a lower part exchange figure, as you saw in Steven's numbers, and people are then opting for Help to Buy. So, that's part of the change, but it's 21% to 28%, and they're both total sales. In terms of 2016, we've always said that what we want to get to is maximum productivity from the existing structure that we have, and that's what the 16,000 units is. So it's based on how we use the brands, the different geographies we operate, but keeping the existing structure pretty much in place and driving full volumes through that. We think that provides the optimum levels of output as we currently see it. I think questions about what happens post-2016, we need to understand where the economy and the market is. Obviously, you've got choices. You can redistribute cash if everything's flat-lining, or you can grow the business. But I think that's a decision we take much closer to the time when we have all the information we would need. But today, the focus is on getting back to maximum output as quickly as we can. David? In terms of return on capital employed, I think the short answer is yes. The main impact is in terms of residual assets on the balance sheet being we have at June 2013 round about GBP 900 million of assets that are either in the land that has been impaired or land that has not been impaired but was purchased pre-2009, per the presentation this morning. We think that those numbers will drop down to round about GBP 250 million by June 2016. The return on capital is obviously looking at the average asset position from June 2015 to June 2016. There's a drag effect. I think the second point that's important is that if you just take a typical site, the site won't be hitting hurdle returns within the first 12 to 18 months because initially you've got to invest in the site and you clearly don't have any sales coming through. Therefore, there's always going to be a delay effect in terms of achieving the average return on capital employed for the site. That's great. Can we just take your neighbor, and then we'll come across to you, Vernon. Thanks. It's Will Jones from Redburn. Firstly, just around the volume guidance for the year of +5%. Obviously, we can see in the order book, you're +50 at the moment. I take the point that's got London and affordable and stuff that has timing issues, but still, it looks like you've more than delivered that already. Could you just place that, what looks like a low guidance in the context, obviously, the strong order book position you've got, please. The second, just around gross pricing. Have you made any attempt yet at the gross line on pricing, or is it just net benefits? Just when we tie in the 18% return on capital target, I assume that you said it doesn't account for HPI, but does it assume that the benefits you've made to date on incentives holds from here forward, or is that kind of additive? I guess just tying it together in terms of gross margin guidance for this year. I think on the update call you talked about +200 bps. Obviously, you are talking today about the order book being better than that. Is there any guidance you would update us with around thoughts at the moment for this year's gross? Can you kick off, David? Yes, certainly. Okay. Just in terms of the volume guidance, we said in July that private volumes, we were sort of pitching at a number of about 14,250. Joint venture volumes, we have said this morning around 650. I think it is important just to look at the way that the numbers evolved in FY 2013. In the first half of the financial year, FY 2013, we were trading round about +2 on a year-on-year basis. In the third quarter of FY 2013, we were trading at about +8, and then in the fourth quarter, we traded above +30. I think when you look at the comps that we are up against, we will annualize Help to Buy in April. Therefore, we are not expecting much growth against that annualized position on a year-on-year basis. Equally, in the third quarter, we are expecting a reduced level of growth. I think we are comfortable with guidance that seem to be conservative, and we will obviously update as we progress through the year. Just in terms of the sort of net and gross and our guidance there, in terms of looking forward on return on capital employed, we are not really factoring in what we are seeing presently. Mark outlined this morning that for FY 2013, as you know, in July, we made little comment about pricing. We have seen a 10-week period where we have seen very encouraging signs on pricing, but it does not seem that we should be factoring that in on a go-forward basis. We are not bringing that in terms of the position on guidance. In terms of margin. Sorry. Put differently, to not hit, say, 19% or 20%, you'd have to lose You said you've made 150 to 200 basis points of gain on incentives. That's not in the 18%, is that right? No, because we're obviously looking forward into FY 2016 in terms of the 18%. I think our guidance in terms of gross margin is very much in line with the cylinders that Mark presented, where we're seeing impaired lands at zero, old but not impaired is at 8%, and new land is at 20%. I think our guidance is generally in line with those cylinders. In terms of the forward order book position and margin, generally, when you look at the cylinder and you project the cylinder forward, the gross margin expansion you'd anticipate would be something like 150, 180 basis points. We've said that the gross margin improvement in the forward order book, we've said at around 250 basis points. Clearly, we're seeing more than simply the impact in relation to new land. But it is relatively early days, and I think our guidance generally would be fairly conservative after 10 weeks. Okay. We'll go to Gregor, and then we'll come to you, Harry. Hi, it's Gregor Kuglitsch from UBS. I've got two questions. One is really just following up on the gross margin point. Obviously, the order book is a snapshot of things. I guess what I'm trying to figure out is, over the last 10 weeks compared to the 28 and zero, how much are you tracking ahead in terms of what you're actually reserving? You obviously give us 200 basis, 250 in the order book, but is that an accelerating trend? In other words, are you actually booking, say, 3%, 4% ahead of that budget that you give us on the balance sheet? Clearly, one thought would be the Help to Buy incentive cost that's dropping out, but there may be other factors, of course, as well. The second point is really on land buying, and you always tell us that you're buying on current pricing, and now the pricing is starting to pick up, which is clearly impacted by Help to Buy. How are you thinking about your business three, four years down the line? Because Help to Buy is now giving that impetus to the market, but it has a finite life. Some of your sites will probably surpass that. How do you think about when you purchase land? Do you buy it on the basis that Help to Buy will drop out eventually? Second question. Right. Can we start with David on the order book, and then we'll move across to Steven on the land buying. Okay. I feel we might run around this a few times. Let's try and get it in one. No surprise. Go on. Right. Yeah. Kill it, David. Would you stake your turf? I don't think we're really going to say much more than we've said. I really sort of emphasize it's a 10-week trading period. We have introduced some new information in that we have said that the gross margin in the forward order book is up by 250 basis points, and we've generally tended to steer away from gross margin in the forward order book. But I think the reason why we've given that guidance is because the forward order book for the regional business is of a meaningful size. Whereas previously, it's been disproportionately weighted by London. So on a year-on-year basis, we're seeing 250 basis points expansion. Then, as Mark said, in terms of the incentives, we're seeing this improvement of 150 to 200 basis points. There is a number of moving parts. Help to Buy is a factor, but as Mark indicated, the reduction in part exchange is also a factor. You can't combine Help to Buy and part exchange. Our part exchange incentive cost typically would be reasonably high, perhaps 6% or 7%. So the part exchange business has dropped from around about 19%, 20% down to 10%. That has a big impact as well. So in terms of the market we've seen, I don't think it's particularly strengthened in the last 10 weeks. But we certainly don't see any signs that the market's tailing. Steven, land buying. On land buying, as I mentioned in my presentation, we work on a residual valuation method. We're working on current selling prices and obviously current build costs. We aren't factoring anything in for Help to Buy. So that's the current position. Your sales rate. The sales rate is our standard sales rate, which we are achieving about 0.55. We lag the valuations and, as I say, the current selling prices and current build costs. I suppose the question is, do you feel selling prices right now, net selling prices are a little bit inflated by the fact that you have Help to Buy? Therefore, do you exit out or not? We are not factoring that into our land buying. Okay. We are just not assuming selling prices increase. So we are using current selling prices on the ground. I mean, Help to Buy is still very much in its infancy, so it hasn't really affected the market substantially. Certainly not the secondhand market at all, which, of course, is actually the price setter for our business. So we are still using current prices without any real long-term effect of Help to Buy. I think the issue of 2016, clearly, we are aware of it. It's something that we are talking to the politicians about now, of both parties. I think it's absolutely clear that the government of the day will want to see housing numbers increasing, not suddenly falling back again. But we will continue to run our business very conservatively, and with the discipline that we've had. So we are not going to make any big assumptions about a stimulus post-2016. We will be running the business on the basis of current state. And obviously, as things improve, as we get more visibility of the market, then we can start to change that. But I think we will continue to be conservative in the way we operate the business. And one final one, sorry. It's just for the reservations over the last 10 weeks, can you tell us how much of the private were actually using Help to Buy? I don't know if that's a data point that you've provided. I mean, the only data point we've given is the 28%, which is up from 21. Oh, you mean helped? That's a good point. Well, obviously, most of the 28% is now Help to Buy. There's some residual shared equity in there in Scotland where there isn't Help to Buy, and there's a little bit of NewBuy on particular developments where we can't use Help to Buy because of the nature of the product we're selling. But almost all of the shared equity product is now Help to Buy. Okay. Thank you. You need to move on, Harry. Behind you, please. Thank you. Thanks. Harry Goad, Credit Suisse. Can you talk a little bit about the JV business? I guess strategically thinking, what's the rationale behind the JV business? Is it for financing reasons? Is it for development expertise? Then the supplementary is, should we expect to see this being a growing piece of the overall business? Just broadly, what's the thinking around the strategic direction here? Go to Mark. I think it started off really at a time when the market was quite difficult. We had limited access to finance, so I think it was really about firepower. We needed to continue to compete in the London market. For that, we needed strong joint venture partners, and obviously, London & Quadrant were there, and that's been a great partnership. Clearly, what we've done is really expand from that. But if you look at the other partners we have, obviously Morgan Stanley brought the land. That makes them a great partner, and they obviously do have other land assets. British Land have a particular capability in London on mixed-use developments, which is what Aldgate Place is. Again, that gives us an opportunity to work with a partner who has expertise we just don't have. So I think we've moved on. The transition has occurred. We are still very keen on using joint ventures, certainly where we can access expertise or land. Not so much financing, but obviously, it's still a feature. We're very confident and very comfortable with the relationships we have put in place. So I would hope there are more of them. Not necessarily more partners. I think we've got a blue-chip set of partners. But I would expect more opportunities to work with those partners on other opportunities, land opportunities going forward. Thanks. Glynis. We've got a piece of paper ready, so. Go slow, Glynis, for God's sake. We'll never write them down. Glynis Johnson from Deutsche Bank. 17 questions, if I may. Excellent. All right. You have planned it down then. Good. I have. Four, actually. The first one actually directed at David. You gave the details of your swaps, the make-whole payments. You said they are under review. Can you elaborate what you are looking for, in terms of what will make you cancel those swaps out? Second of all, a follow-up from Will's question, another question to keep beating around the head with. 5% increase in completions. If you are talking about increasing your site numbers this year on last year, if you keep your selling rate consistent with the second half of the year, that implies up 13% year-on-year. Again, seems to say that 5% is a very conservative number. So again, can you just try and put it in that context as well? Thirdly, in terms of return on capital employed, you have a few large sites which are making quite low returns on capital employed that I think trade out in the near term. Can you just give us an update on that timetable? Lastly, just in your appendix, I see the average selling price on the conditional land up at GBP 245,000. I am just wondering, is that skewed because it happens to be more weighted towards London, or are we actually likely to see a further increase in the selling price in the land bank come through? Thanks, Glynis. Wide-ranging, as always. We will Dave on the swaps, ROCE, and ASP, and then Mark will come back on the completions. Yes. Okay. Yeah, just in terms of the swaps, really there, I think we are just looking at what we see as being the trajectory in terms of average net debt and the extent to which, in line with our treasury policy, we need coverage from the swaps. The decision that we made at the time of the refinancing was that it was not appropriate to cancel further swaps at that point in time, and so I think it is just something that we are keeping under review. Clearly, we would update the market if we are going to cancel swaps in the future. In terms of the return on capital employed, I think the general statement is that the progress is good. The example that we give would be GWQ. We have a plan to be out of there by the middle of 2014, calendar 2014. I think the London management and ourselves are reasonably confident that we can hit that plan. The asset rundown, as I mentioned earlier, total assets, shared equity, historic land holdings, around about GBP 900 million at June 2013. We see that running down to about GBP 250 million by June 2016. I think we're still in line with that plan. ASP? ASP unconditional. The ASP unconditional is, I think this only start reflect through Steven's slide in terms of land acquisition. Steven outlined the step-up in the average cost per plot on land acquisition. There are some London sites that are coming in there. The 242 is not a number to put in models. The number in the land bank, we are saying that the total is blending on the owned land bank at about 200. That is the number I guided to this morning. I think if you look back over the last 2 or 3 years, we have consistently guided to that number. It is the best indicator of what will come through the P&L. We would expect the ASP in FY 2014 to be stepping up to around about that 200 level, but not 242. I think on the completions, in terms of average outlets, I am not sure there is going to be a big difference between the 2. What you have got is the weight of the investment that we have committed to last year, starting to drive the outlet numbers in the second half, and Steven has already given you a first half, second half split, which suggests that it is going to go down and then come back up again, as I guess as it always does. I am not sure the average is going to move dramatically. In terms of selling rates, we have not immediately factored in the last 10 weeks for all the reasons David said. It is not representative. A like-for-like comparison will only really come to light when we actually get into April next year and we are seeing what is happening. As you might imagine, we are setting reasonably conservative targets in terms of volumes. We do not want to be in a position where we have gone over the top on the volume target, and then we are chasing it. It is the wrong answer. I would rather come in slightly lower on volumes and slightly better on overall profitability. That is a discipline that is really sort of baked into those numbers. I think just to add to that, just to emphasize this point on volume guidance. There are genuine constraints in terms of build. Particularly in London, where clearly we cannot just build another tower pre-June 2014. Therefore, to a large extent, London, the completion numbers are already set pretty much regardless of how the market is. Once we get to March 2014, there will be real build constraints on the business at that point in time in terms of delivery for June. So we will come. Yeah, please. Hi, morning. It's Jeff Davis from HSBC. Three from me. First, when we think about your 18% ROE target, I wonder if you could just split that up in terms of margin and turn in capital employed, please. That's right. The second one, sort of aligned with that, should we expect the LTIPs to move now to ROE based? The third one, you mentioned that land competition is heating up in the southeast. Could you just give us some color on what you're doing to mitigate that? Are you actually pulling back from the land market and perhaps shrinking that land bank? Thanks. Dave, first two. Steven, final. Jeff, I cannot really split that for you. I do not think. That is true. Even if I had my computer with me. I think one of the things that we would recognize is that the market is different to if you go back to, for example, 2005, 2006. I think in 2005, 2006, there was a characteristic in the market where house prices were rising rapidly, and land creditors were running at a much lower level. What we have seen over the last three or four years in the business is a relatively low level of pricing movement, and we have seen a high level of land creditors. We see the land creditor position, which clearly is part of the driver in terms of return on capital as being sustainable. Because the land market is still allowing us to achieve land creditors at relatively high levels. We are accessing a lot of government land where in essence, it's a buy now, pay later philosophy. We have coming into the owned land bank in FY 2014, some big deferred payment terms where we think the return on capital on the sites could be very, very high. In terms of our margin assumptions, we're just following the cylinders. We are assuming that we'll deliver at 20%, 8%, and 0% over the next three years, and those are the numbers we're assuming in terms of margin. On the LTIPs, as you'll see when you get the remuneration report, we're undertaking a complete review of our approach to incentives, given the new and strong position the company's in, and that will be reported on this time next year. Over to you, Steven, on- In terms of land market in the Southeast, yes, it is certainly heating up. We feel the competition is mainly coming from other house builders who are opening new divisions and business units in the Southeast. They're moving into the area, buying those sites. We've also maintained that we won't breach our hurdle rates, and that is our stance. In terms of land, we have adequate land in the Southeast. We have capability as well, particularly in the public sector land. I mentioned the delivery partner panel opportunities. We are very, very successful on those. The last three funds, we've got four major sites on that route, which are great opportunities. As I say, we want to reach our hurdle rates. We've got adequate land. We've got access to other sources of land in terms of public sector. That's our position on that. Right. Immediately behind, please. Yes, this gentleman. Thank you. Thanks. Aynsley Lammin from Citi. First of all, just wondered to hear your view, how much of a boost you expect the Help to Buy 2 scheme to be as that comes in next year, in terms of pricing and the overall market. Secondly, just London and the rest of the country. Obviously, you're seeing better trends ripple out from London now. Just interested to hear your view of how much scope you think there is for more house price inflation in London, are we nearing a bit of a cap on that versus the rest of the country? Then just a bit more color on the investor and first-time buyer trends you're seeing recently. Thanks. Okay. Probably give you a question or two. Help to Buy 2, difficult for us to say. We don't know what the product is. Clearly, it's a 95% product rather than a 90. There will be a cost to the indemnity. My expectation is that while interest rates will probably fall a little among Help to Buy 2, it's not going to make a dramatic effect that it has with Help to Buy 1. What we would say is anything that helps the overall market, has got to help us, because we're only 10% of the market. With the overall market, if it gets any momentum, and we start to see price improvements in the overall market, it does reflect back on the new build. I think it's an indirect effect rather than anything else. I would say it's positive, not negative for us, because it is about getting momentum in the whole market. Scope for house price inflation. Very, very difficult one to comment on. I think London, there is just not enough supply and an awful lot of buyers out there. We're seeing very, very strong demand for some of the flagship sites, the Fulham Wharf, the Horsburys. I think at the more affordable sites, the Lewisham sort of sites, where you're talking about GBP 280 for a two-bed apartment. Good solid demand, but I think there is a real limit in terms of affordability there. People will move out rather than necessarily pay more. I think at the top end, I suspect it's going to continue to be boosted to some extent by overseas buyers. I think the rest of the U.K., logically, you'd say that affordability is nowhere near as stretched. History would tell us that the rest of the U.K. tends to then start to creep up as London starts to hit its maximum. The only thing I would say is the economic recovery is right at the beginning, and there's an awful lot of people out there where affordability, I think, is still a very big issue for them. I would be more muted on overall house price inflation and what's possible. As I say, what we've seen to date is really about dropping discounts, reducing discounts. I know that effectively gives us a net house price increase, but I think that's where the focus is. On some of the new sites where it's very clear the demand is so strong, we can certainly adjust prices there. I don't think we should get carried away on house price inflation for those reasons. In terms of trends, first-time buyers, clearly they were pushed out of the market to a large extent. Or they just got older, I guess, is another way of describing it. An awful lot of them went into rented accommodation, or if they couldn't get help from parents. There's no doubt that all the shared equity schemes have helped. Certainly, NewBuy would have helped for them. Help to Buy, I think, has probably invigorated that part of the market. So we are seeing stronger numbers, larger numbers of first-time buyers coming in. But it's probably more in the new build than the whole market. So it comes back to Help to Buy, too. Is that really going to start to help there? On investors, we don't tend to sell bulk. We certainly don't discount today because you could sell it all to private buyers, by and large. But there are some sites. We have a site in Woking. It's a large flatted scheme. It's selling five a week. It is the fastest selling site in the group. It's mainly selling to investors because it's 38 minutes into central London, and actually people are seeing the capital cost as limited or reasonable. It's about GBP 260, GBP 270, don't quote me on that, for a two-bed. And demand is very, very strong from the rented market. But it's individuals making investments there, and I think that's the trend we're seeing. We're seeing more individuals who are saying, "Hmm, now is the time to get back into the property market." Still not getting very good returns elsewhere. And the hope that they can get a yield of 5%-6%, depending on the site, plus potential capital growth. Which, if you're buying in Bristol, for example, or Woking, I suspect, then there's some real evidence emerging that they're probably going to get that. Thank you. Next call. Thank you. Clyde Lewis at Peel Hunt. That was the old me talking. That was great. Go on. I've got three, if I may. Sure. One on shared equity. You've obviously sold a chunk through the year. Can you just update us as to whether you'd like to sell any more of that in the current year or whether you're seeing any bids for that? Secondly, in terms of the incentives, could you maybe give us a little bit of history? Are you now at the lowest rate you've been in terms of sales incentives? Or is there still scope to push that a little bit lower? The third question I had was probably a little bit more involved and listening to Steven's comments about London's Southeast land market. But ex there, is there a need to have 4.5 years of land supply? Could you maybe push that lower? Again, debate that asset turn margin debate, and is there scope to move up the GM in some of those other regions? I'm just supposed looking for a little bit of debate about your strategy ex-London, the Southeast. As always, you cover the waterfront. Well done. Yes. David will kick off on the shared equity, Mark on incentives, and Steven on land. On shared equity, the transaction we did, we felt for us and for Anchorage was a good transaction. Essentially, we were taking the cash and investing it in land where we can get higher returns, and Anchorage are obviously comfortable with the returns that they can see coming through the portfolio. So in principle, we would do more. The portfolio obviously is smaller, having undertaken that transaction. I think the caveat is that we are starting to get close to the backstop dates. The Barratt schemes were typically 10-year schemes. Shared equity loans went out six, seven, eight, and thereafter. So I think we are unlikely to do anything with the shared equity assets that are coming up to the 10-year anniversaries. I highlighted in the presentation that we are seeing from our own portfolio a significant take-up in cash redemptions, and I would expect that to continue, particularly as assets start moving towards the backstop dates. On incentives. Well, it's certainly the lowest that I've seen in my time with Barratt. It's probably running at half the rate that we probably would've experienced previously. Incentives ticked up in 2008, as you might imagine, because the first thing we did was increase incentives, not drop prices. Then they fell back again to, I guess, around 6% in early 2009, and they're running at just above half that now. So we've seen some improvement, but then a step change in improvement more recently. Part of that, of course, is we don't have to pay for Help to Buy, as you would imagine, because that was a cost to us using the previous equity schemes. And part of it is just we're having to give less away, and we're not using part exchange. But it's all a very positive movement. For us, to be honest, the focus is to keep driving those down, because as far as we're concerned and as far as our people are concerned, we're building really good houses. The prices are largely set by the external market, and therefore, we shouldn't have to provide incentives. And with the stronger demand we've seen, that's absolutely what's happening. Stephen. In terms of land bank, where we are today for a half year, land bank seems about right. It's down to the quality of land bank, of course. Our land bank isn't too lumpy. There aren't many, sort of, 5,000, 6,000-unit sites in there. As you can see, we've got 380, 390 outputs consistently coming out of that land bank. There's plenty of land opportunities out in the market. Last year, we agreed over 18,000 units. We could have agreed much more if we'd wanted to do so. I think another function of a land bank is the planning system. For the last 20 years, we've operated with a very difficult planning system. Moves by the current government have certainly started to improve that. We are seeing some genuine efficiencies coming out through the planning system, quicker appeals, quicker planning decisions. A lot of the red tape's been abandoned. So going forward, we'd hope to see a much quicker planning system. And in that case, the land bank could be reduced. But as I say, it's adequate for where we are. There's lots of opportunities out there. We could increase it if we wanted to do so. We've got the strategic flow coming in. We've got the public sector land, which is a key part of our business also. The other point, of course, is we are still growing the business. The 4.5 effectively always looks backwards. By definition, we are actually looking at delivering more. But Steven's absolutely right. If we can squeeze it down again, the biggest benefit would be the planning system. I am not going to bet on that improving dramatically. Then we will clearly do that. That is the business model we would push for. I am quite aware of the timing, so we will take a couple more to finish up with. Kevin. Thank you. Kevin Cammack, Cenkos. Sorry, I have got three as well. You alluded in the statement to the fact that you felt you may have brought forward some autumn sales by launching, effectively, the autumn program early. Could I just check, this is just timing? You have not done anything additional in terms of the campaign to drive sales. It is just simply 2 or 3 weeks earlier that you have set the advertising, et cetera. That is all that has happened, yeah? Do you want me to answer them one at a time? No, of course. Well, okay. Sorry. No, you want to hear all three, so give us a challenge. Go on. Second and third are apologies around the return on capital, but more general points. From the explanations that David has given, I would take it that there is no embedded allowance for the increase that you've sort of speculated will happen on the strategic conversions. From what you've said, it is simply going back to your sort of cylinder equation. Would it be fair to assume that if you had those success rates in terms of the pull-through in the next 2-3 years on strategic, that would actually help a bit as well? And the last point. On your slide, I cannot remember the number, but where you outlined the performance of the sites completed to date, which I have to say is extremely helpful. Just for my own peace of mind, to be clear, the average return on capital that you are reporting there is over the life of the site. That is the whole scheme, as it were. That 39%, if you are referring to, is average over the whole lifetime. The fact that you have got a much higher affordable content, as it so happens, in those sites, would that make much difference to the return you are getting? Okay. Mark can kick off, and then David will pick up the other points. In terms of the autumn sales campaign, what we have done for some time, to be honest, is we do a lot of analysis of activities in the market. Not just in new build, but the whole market. What we found is the historic convention of you start marketing in September, and you stop in November, and then you start again sometime towards the end of January and finish in April, was at fault. Because actually, the interest in new houses actually is different. What we tend to do now is we actually target the marketing to when there is interest. If we look at our website activity, we are up something like 80% year on year in terms of lead generation over what is conventionally a very, very quiet period. Normally, July, August, everybody shuts down. You do not really get many sales. Well, 0.66 through that period is probably a sales rate we haven't seen for, well, certainly for 5 years. What we've done is basically start our campaigns on the 1st of July. We start our new year campaign on Boxing Day. It's more about we are spending our money in a different way to really hit the market at the appropriate time. When we watch our competitors spend, actually, there's just been a big pickup over the last 2 weeks. A lot of our competitors are still doing what they always did. Obviously, it helps the overall market, interestingly, because it pushes activity levels up. I would say that we now are a lot more sophisticated with all the data we use from external sources on our own. Therefore, we've kicked off the campaign earlier, and that must have given us some modest advantage. Of course, what we're doing is we're playing into a very strong market. That's the key point, to be honest, that we were trying to make. David, you want to embed it in rocky? Yeah. I think Steven outlined the 23% gross margin hurdle in terms of option strategic land. No, that's not really built in because we're just saying that we'll assume 20% gross margin. As you know, our minimum hurdle is 20, so we should be achieving above 20. To some extent, the information that Mark gave helped to support that, where we're saying that on completed sites, the gross margin was slightly above 21%. I think the slightly higher affordable percentage, maybe 26 rather than 20, probably helps a bit. Then when you look at sites, very often the affordable content is pepper-potted, so the cash flows are not all upfront. It probably has some benefit to it. Thank you. Okay. Thank you. Any final questions? Well, thank you very much indeed. I think there is three big takeaways from today's presentation. The first is that when Mark arrived in the company, he began to impose a series of disciplines. I think the key message is those disciplines were not just for the downturn, they are the way we run the business and will continue to run the business. The second is the focus on profitability, and the third is the area we spent such a lot of time on, ROCE. Those are the three things we are focusing on going forward. Thanks very much indeed, particularly for the questions.