Earnings Call: H2 2016

Sep 7, 2016

Hi, good morning, everyone. If I kick off, we have delivered a really excellent performance for the year. We saw good uplift in completions reflecting our strong sales and also our robust build program. We improved our operating margin to 15.8%, and we increased our pre-tax profits by 21% to GBP 682 million. This is a record profit for the group. Our return on capital employed for the 12 months end of the 30th of June increased by 3.2 percentage points to 27.1%, our highest return on capital employed for 10 years. As we outlined in July, our net cash position is very strong at GBP 592 million. We continue to drive value through the business, focusing our operating model on delivering strong returns and disciplined volume growth. Our fast asset turn model and shorter land bank can deliver strong financial metrics, as we have shown for FY 2016. We take great pride in our customer service and our build excellence. In the year, we have underlined our credentials while still driving a very strong financial performance. We have demonstrated financial discipline, and our return on capital and gross margin targets for FY 2017 remain. At least a 25% return on capital employed and at least a 20% gross margin. We have finished the year in a good position with net cash on the balance sheet and a very strong forward order book. I have said before that we are not complacent. We are always driving very hard to improve our financial and our operational performance. We have had a good start in the new financial year, and we are very much on a business as usual footing. However, we do recognize that there is some uncertainty following the EU referendum, and we will continue to monitor the market closely. Thank you, and I will now hand over to Neil. Thank you, David, and good morning to you all. Let me start with the income statement. Standing back from the detail, we have seen a very strong performance in the year, with good year-over-year growth across a range of key financial metrics. Revenue increased by 13% to GBP 4.235 billion, and gross profit grew by GBP 86 million, or 12%, at a margin of 18.9%. The gross margin movement largely reflects a positive impact from a reduction in the mix of our legacy sites, offset partly by adverse mix factors and also by other net factors. Legacy mix sites made up 14% of our completions in FY 2016 versus 24% in the prior year. Total administrative expenses were GBP 132 million, a GBP 5.5 million or 4% reduction. The administrative expenses line nets administrative overheads and sundry income, and the reduction arises primarily from higher levels of sundry income with strong growth from the sale of freehold reversions. We improved operating profit by 16% or GBP 92 million to GBP 668 million at a margin of 15.8%. The half a point percentage improvement in this latter margin reflects favorable overhead leverage and the absolute reduction in total administrative costs. Benefiting from increased output from our JV sites, our share of profit from JVs increased by 58% or GBP 26 million to GBP 72 million. Net finance costs were up slightly on the comparable period by GBP 1 million or 2%, and profit before tax grew by GBP 117 million or 21% to GBP 682 million. Overall reported revenues grew 13% or by GBP 476 million. Total completions excluding joint ventures were up 2% to 15,905. Average selling price increased by 10.5% or GBP 25K to GBP 260K. Other revenue growth was driven primarily by a higher number of commercial development deals. Turning to the key components of housing revenue, wholly owned completions grew by 306 units, within which affordable fell by 146 and private grew by 452. Affordable housing fell slightly in the mix as a result to 17%. Total completions including joint ventures were up 5.3% to 17,319. With 1,414 JV completions versus 848 in the comparable period, which reflects the strength in our JV operations in FY16. Overall ASP on wholly owned completions was GBP 260K, and in the second half was GBP 264K. This is as compared to the average pricing in the closing land bank at December 2015 of GBP 258K. Private ASP increased by 10% to circa GBP 290K, predominantly driven by mix. We saw average private unit growth of around 4.7%, from 1,064 sq ft to 1,114 sq ft. The balance came from growth in price per square foot, benefiting both from higher value site locations and some underlying inflation. The ASP movement in the JV category was largely driven by mix, with an increased contribution from our London JVs. Turning now to look at the JVs in a little more detail. Completions increased, as I've said, to 1,414 units, and our share of JV profits from house building increased to GBP 72.2 million in FY16. On guidance for FY17, with a step down in JV outlet numbers, we expect to see JV completions fall to around 700 units, and our share of profits from JVs to be around GBP 45 million. This chart outlines the movement on our operating profit margin. In total, to remind you, this grew from 15.3% in the prior year to 15.8% in FY16. As outlined previously, we saw a gross margin benefit from the reduction in the mix of older legacy land, but this was partly offset in the year by other adverse mix changes, including location and site mix. Increased revenues drove a leverage benefit, as did the absolute reduction in administrative expenses. There were a number of other changes grouped together in the net inflation and others line. Turning to the cash flow, we've seen a strong year of net cash generation. The group delivered GBP 550 million of profit from continued operations for the period. We saw relatively minimal timing differences on profit and loss items such as tax interest and joint ventures, when taken together. We also benefited from an GBP 83 million cash inflow following the sale of the bulk of our wholly owned equity share portfolio, as well as from a favorable swing in payables. Our increase in WIP land and JV investments was GBP 174 million, which was offset by an GBP 88 million increase in land creditors. Given our revenue growth, this relative movement reflected good capital discipline, which was a factor in our strong growth in return on capital. Another factor being the decline in the legacy asset base, which I will touch on in a moment. We paid GBP 263 million of dividends versus GBP 118 million dividend in the comparable period. Total net cash movement, therefore, in the period was GBP 406 million, and that drove a year-end net cash position of GBP 592 million, versus GBP 187 million of net cash at the prior year-end. WIP at the balance sheet date increased by 8% on the prior year closing position. Effective units under construction were broadly in line with the prior year, with the increase coming from increased infrastructure in a number of larger sites such as, for example, our Landmark Place site by the Tower of London and Cane Hill in Croydon. There is a more detailed slide on work in progress in the appendix. On guidance and assuming a normalized year of activity, we expect the total cash spend for FY 2017 to be around GBP 1 billion. Of that, around half will relate to land creditors as held at June, and the balance will relate to other land expenditure. Moving to the balance sheet, the strong cash flow in the year has helped our average net debt decrease from GBP 358 million on average in FY 2015 to GBP 170 million this year. Our overall year-end gearing position, as calculated on a bank covenant basis using effective borrowings, is 16% compared to 29% in the prior year. This improvement largely reflects our increased net cash position, with our land creditor balance grew in the year by GBP 88 million or 9%. Here you can see the payment profile of our land creditor position. We expect to pay off around 50% of this within FY 2017, with another 25% paid the year after, and we expect the balance to be paid in FY 2019 and beyond. We have made good progress in FY 2016, reducing the absolute value of the legacy assets. Just to remind you, those assets are low and zero margin land we contracted pre-2009, their associated work in progress, our equity share assets, and commercial assets. Together, they totaled GBP 367 million as at 30th of June 2016, which was down by almost GBP 270 million since June 2015, a 42% decline in legacy assets year-over-year. In February this year, we sold circa GBP 85 million of available-for-sale assets at fair value, which represent the vast majority of our directly owned equity share portfolio. For a cash consideration of GBP 83 million. This leaves around GBP 5 million of directly owned equity share assets at current balance sheet values and a GBP 23 million investment in our equity share joint venture. Going forward, we expect the rate of reduction in our legacy land and WIP assets to slow, given the large and long-term nature of the remaining land assets. Moving to focus on the land bank. This chart reflects the breakdown of the land bank as at June 30, with 93% of the owned and conditional land bank now new higher margin land. During the year, 86% of our completions were from this new land, with 14% from old land. Over the next 2 years, we anticipate old land working down to below 5% of annual completions, which will obviously reduce the gross margin dilution impact from this category of completions. The total average ASP in the owned land bank is GBP 261K, which is a good reference point for the ASP coming through the P&L in the near term. Now to round up on other finance matters. Firstly, the group has seen its retirement benefit assets increase marginally from GBP 5 million to GBP 8 million, predominantly as a result of actuarial gains. The group's effective tax rate in the period was 19.3% versus 20.4% in the comparable period. The reduction largely reflects the drop in standard corporation tax rates from 20.75% to 20% in the year. Finally, I mentioned previously that interest costs were up GBP 1.2 million. We saw a GBP 1.7 million reduction in non-cash imputed finance income, which arises from the discount unwind on our wholly owned equity share assets. That reduction arose because we have now sold the majority of those equity share assets. Imputed interest costs on deferred terms, land payables also grew by GBP 2.9 million. These two negatives being partly offset by a GBP 3.3 million reduction in cash interest costs. I will now wrap up by reiterating some key points of guidance for FY 2017, highlighting points that have not already been covered. On volume, we expect very modest growth in completions, excluding joint ventures, with an 18% affordable mix, given the balance of site starts. We expect JV completions, as I have said, to be around 700. Our expectations do reflect a degree of caution on top-end London sales rates. For FY 2017, we expect total administrative expenses to be around GBP 160 million, with year-over-year progression against this year being impacted by an expected level of swing in levels of sundry income. Again, primarily driven by reductions, in this case, in freehold reversion sales, which can be lumpy. Finally, interest cost for the year is now expected to be around GBP 65 million, reflecting the full-year rollover of the available-for-sale asset changes I have outlined, plus expected movements in the imputed land credit at interest cost. That is all I wanted to cover, so I will hand over to Steven now. Thank you, Neil, and good morning, everyone. Now for the operational aspects of the business. Starting with our sales performance. The group delivered a private sales rate of 0.69 per outlet per week for the year, up 8% on last year. Our Southern region sales rate was broadly in line with the previous year at a strong sales rate of 0.83. Within London, we are seeing a two-tier marketplace, and I will talk more on the London market later. All of our other regions performed very well during the year, with sales rates above 0.6. Help to Buy overall remains an important support for the industry, and 32% of our group completions utilized the scheme in the year. We saw a reduction in investor sales down to 8% of completions from 11% last year, partially reflecting the stamp duty changes to buy-to-let purchases. Turning to pricing. The group private ASP on legal completions, excluding joint ventures, was up 10.4% to just under GBP 290,000, benefiting predominantly from changes in mix. All regions saw good improvement, particularly in West and Central, driven by product mix and the quality of locations. Given some negative sentiment on London following the EU referendum, we thought it would be useful to provide some further detail on our London business. Barratt London is a strong business with a diverse and balanced portfolio in terms of product and locations. In London, we continue to see good demand across our developments. In particular, demand at price points below GBP 600,000 has remained very strong, reflecting the increased equity value of 40% Help to Buy in London since February. As we have said before, at price points above GBP 600,000, sales rates have slowed. However, performance is very much product and site specific. For example, at Landmark Place near the Tower of London, which we launched in February, we have had a private sales rate of 1.43 per week since launch with an ASP on reservations to date of GBP 1.4 million. On the left, you can see our private reservations for the 12 months to June by price bands. 77% had a selling price of GBP 600,000 or less, 5% were priced between GBP 1 million and GBP 2 million, with just 2% above that. On the right, you can see the number and percentage of our private reservations in London that used Help to Buy. As the line on the graph shows, in the second half of FY16, we had 40% of private reservations in London use the scheme, compared to 26% in the prior year equivalent period. A significant increase reflecting the boost to demand we have seen since the increase in the Help to Buy equity value. As we said in our July trading update, 95% of our group-wide private completions, including JVs in FY16, had a selling price of GBP 600,000 or below. In FY17, we expect this to be around 93%, reflecting an expected increase in our London selling mix at prices above GBP 600,000. As you can see from the pie chart on the left, 69% of our private London land bank, including JVs, is priced at GBP 600,000 or below and is well-placed to benefit from the boost in demand that we have seen following the increase in Help to Buy in London. However, the near-term selling mix in London FY17 and FY18 is more weighted to higher price points, as we trade through some sites we bought some time ago. In terms of our delivery in FY19 and beyond, we expect a significant proportion of our completions to be priced at GBP 600,000 or below, with a focus on outer London. Of the last four sites we have exchanged contracts on in London, which represents over 2,000 plots, over 90% of the units are priced at GBP 600,000 or below. Moving on to build costs. On materials, we are expecting modest inflationary pressure on build materials overall. The majority of our materials are produced in the U.K., so whilst there is currency risk post-referendum, we see it as quite limited. Looking ahead, circa 75% of our materials are fixed for the year. The remaining 25% are all agreements that expire in December 2016, by which point we will renegotiate it or gone to market. Our material price control is strengthened by our centralized procurement function and our standard product. About 90% of our house build materials for our regional businesses are sourced through our centralized procurement function, and in London, we have more direct procurement. On labor, we continue to see some pressure on skilled labor supply, with shortages remaining which are location and trade specific. Labor cost increases are starting to moderate, and we're currently well-placed with the necessary labor to meet our operational and quality requirements. Whilst we see some pressure on build costs, the areas of greatest pressure remain a relatively small percentage of our total cost base. Overall, for FY 2017, we expect a circa 2%-3% increase in total build costs. Now on to land. Our strategy is to run a fast asset turn model with a relatively short-term land bank, driving returns and minimizing risk. We continue to target a 4.5 year owned and conditional land bank. At the end of June, we had 3.4 years of owned land and 1.1 year of conditional land, in line with our target. All of the land in our own land bank has outlined our detailed consent and we're either on site or getting it into production as quickly as possible. In the year, we approved the purchase of over GBP 1 billion worth of land, which we expect to equate to over 24,000 plots. We're also focused on securing our longer term land pipeline, and our strategic land bank sits at just under 70,000 plots across 277 locations. We favor strategic options in order to minimize risk and capital lockup. All must meet the group's hurdle rates and have an expectation of gaining full planning consent. We continue to see good availability of excellent land opportunities across all of our operating divisions, stemming from the increased amount of planning consents nationally. Turning to strategic land, during the year, 22% of our total completions came from strategically sourced land, up from 17% in the prior year. Our previous target was to deliver 20% of completions from strategically sourced land by FY 2017, and we now see 25% as being achievable in the medium term, which has been helped by the NPPF. In the year, we approved around 11,000 new strategic plots across 45 locations, and we converted over 4,500 strategic plots on 28 locations into our owned land bank. Overall, we've seen a circa 2%-3% percentage margin uplift on completions sourced from strategic land acquired since 2009. To conclude, we've made excellent progress in terms of operational performance in the year. We continue to maximize our sales opportunities whilst retaining a good balance between value and volume. We delivered a strong sales rate and also saw positive pricing trends across all regions. We remain focused on our fast asset turn model, maintaining a shorter operational land bank and increasing the contribution from strategic land. As a result, our operational model continues to drive higher returns. Thank you, and I'll now hand over to David. Thank you, Steven. Let me continue by giving you an update on the market where the fundamentals remain very attractive. There is strong demand for homes across the country, yet there is still a very limited supply of new housing. The government's housing policy continues to be very supportive. Particular highlights are the land release program, the focus on improving planning, the extension of the Help to Buy equity share scheme through until 2021, and the recent increase of Help to Buy to 40% in London. The lending environment remains very positive, especially for new build. We have seen ongoing increased competition between lenders, and that has resulted in the rates on offer to our customers being at very low levels. As you heard from Steven, the land market remains very attractive. There is a good supply of really excellent opportunities. Clearly, this represents a very good operating environment for both the industry and for Barratt. Turning now to our investment proposition. I believe that there are clear differentiators that define a strong investment case for Barratt. We run one of the shortest land banks in the industry, which improves our return on capital employed. We have underlined this with a 27% return on capital employed. Yet we still had an average of around GBP 500 million of legacy assets on the balance sheet during the year. Equally, with the land market remaining very attractive, we believe that there are limited benefits to having a longer land bank. We have a strong balance sheet with substantial net cash at the year end. As Neil outlined, we have reduced our average gearing levels, de-risking our position, and that offers flexibility. We remain industry leading in terms of quality and service, with experienced sales and build teams. We build the highest quality homes with an emphasis on design, which not only ensures that we build excellent homes, but it also drives efficiency. Last year, our site managers won more NHBC Pride in the Job awards than any other house builder for the 12th consecutive year. We have the highest level of customer service demonstrated by our HBF five-star rating, which we have received for the seventh year in a row. Sometimes people ask us why quality and service are so important. Simply in our business, it is non-negotiable. It is the way that we do business. Our sales and marketing is industry leading with our sales rates at the higher end, which supports our fast asset turn model. Finally, due to our national portfolio and our London business, we have a diversified business and that represents a broad market exposure. These differentiators allow us to deliver disciplined completion growth with volumes up over 50% in the past five years and over 15% in the past two years. It also allows us to improve our financial metrics, particularly return on capital and operating margin. Finally, we have strong cash generation and attractive dividend payments. If we look at what we are focused on now, we are identifying opportunities for the business in areas such as product design and specification. To support this, we have recently launched a new Barratt housing range, which will simplify the build process and reduce the build costs whilst continuing to offer the great design of a Barratt home. We believe that we can increase our operating margin, and we have a number of focused initiatives to drive this, varying from upgrading our commercial systems to reducing waste on site. Our known financial metrics or non-financial metrics, the award of the five-star rating and the NHBC award demonstrates our strength in these areas. We have a balanced focus on both our financial and our operational performance to ensure that we achieve the best long term outcome for all of our stakeholders. We are committed to ensuring that the capital structure of the business is appropriate and supports our strategy, and this will enable us to deliver strong cash returns for our shareholder. This page sets out our operating framework going forward. In line with the last few years, we continue to have minimum hurdle rates on land acquisition of a 20% gross margin and 25% return on capital employed. To illustrate our commitment to this framework, our land bought since we re-entered the land market in 2009, has performed above our minimum gross margin and return on capital levels. For sites that we have started and finished since 2009, which is now 232 sites and nearly 20,000 plots, we have delivered a 21% gross margin and a 37% return on capital employed. We aim to have a land bank of 3.5 years owned, and around one year conditional contracts. Steven has outlined our increased aspirations on strategic land at 25% of completions in the medium term. Neil has outlined our reduced average net debt and our commitment to have net cash at each year-end. We believe that we have very clear parameters and targets within which we are operating. On our cash returns, we have seen our total level of dividend cover reduce over the past few years. On the ordinary dividend, we have a three times cover policy. We have proposed a final dividend of GBP 12.3 pence. That will total GBP 123 million. Our next special dividend of GBP 125 million will be made in November 2016, with a further payment of GBP 175 million in November 2017. Going forward, we continue to see three times cover on the ordinary dividend as the right level. Our special dividend program was designed to return cash that is surplus to the strategic needs of the business. We will continue to review our cash returns on an ongoing basis. Let me now bring you right up to date in terms of current trading. It's been a very strong start to our new financial year. I think we all need to bear in mind that the prior year comparatives are very strong. Our private sales rate per outlet per week since the 1st of July was 0.75, 5.6% ahead of a strong performance in the prior year. Coupled with outlet numbers, that results in net private reservations per week running at 267, up around 1% on the prior year comparatives. Our forward sales position remains very strong. Including our joint ventures, it stands at GBP 2.4 billion, up 4% on the same point last year. In summary, we are very positive in terms of outlook. We have a very robust balance sheet that we have built over the last few years. We believe that the fundamentals of the market remain very attractive, with focused government support, great mortgage availability, and an undersupply of new homes. We recognize the uncertainty created by the EU referendum, but we are operating on a business as usual basis. We believe that our investment proposition leaves the group very well-placed, and our current trading shows a very healthy start to the year. Thank you, and we will now be happy to take questions. Thanks. It is Will Jones at Redburn. Three, if I could please. The first, just coming back to your margin bridge for last year, the net inflation and other line, which I think was about half a percentage point negative. Can you just walk us through the moving parts that got to that, please? I guess linked to gross margin, obviously flat overall at the group level last year, give or take. What gives you the confidence that you can move that up by one percentage point or so in FY 2017 to the 20% target? Secondly, the simplified Barratt product you talked about, David. Can you just give us more flavor as to exactly what that simplification entails? Do you still think it is consistent with being a five-star builder a couple of years down the track? Then the last one, just around land. I think the plot costs of your additions or approvals in the year finish was at mid-40s versus mid-50s in the previous year. Is that just mix or is it underlying cost deflation there? When we think about modeling, how would you guide us in terms of the intake plot cost as best you see it going forward? Thanks. Okay. I count that as four, actually, Will. I think Neil touched on the margin bridge, then I can talk about the overall gross margin position. Steven will pick up in terms of the Barratt business model, then I am happy to talk about the plot cost. Neil, do you want to start on the margin bridge? Sure. There were a number of components in there. Just to position this, 0.1% on that margin is GBP 4 million, just to give you a sense of scale. It doesn't take an enormous amount of extra cost to move it that way. Net inflation was a very small negative. That's house price inflation, that's build cost inflation. That is one component. The movement in the commercial property margin also goes into that bucket. If you look at the table in the prelims, we were actually at 19.1% for house building gross margin, and it got diluted back down by commercial property. There were a couple of other cost movements of the order of 0.1%, 0.2%, which in isolation of our cost base, it's over GBP 3 billion, are not material in themselves. As I said, it only takes a fairly small amount of cost to move that by 0.1%, 0.2%. Thanks, Neil. Just in terms of the overall group margin, I think the starting point is that the 20% gross margin for the year to June 2017 is the target. We never said that that was an easy target. We recognized that a 20% gross margin would be in line with the highest gross margin that the group has ever reported. Neil's touched on the margin bridge, and we think that there is still forward momentum in FY16 in terms of the house building gross margin, and we believe that we can move the gross margin back to 20% or above 20% in FY17. That's in line with the land intake that we've undertaken over the last few years. We'll also have an ongoing mix effect as we have less legacy land coming through the P&L, which we'll see a benefit from in FY17. In terms of land, the plot cost, I think just simply that there clearly is a mix effect, and there is also some underlying inflation. Obviously, that varies by region. If you look at the stats that come from Knight Frank or from Savills, you're still seeing land price inflation, but land prices are perhaps inflating more slowly than you would expect relative to house prices, which is obviously good from our perspective. The best place to look at in terms of the guidance is more about the balance sheet plot cost. The balance sheet plot cost is quite static on a year-on-year basis. Just in terms of the Barratt product, Steven will talk specifically about that. Just to say that it's obviously early days. We've launched it. We see the product coming into the business in a meaningful way until FY18 and FY19. Steven? Yeah. In terms of the Barratt product, we have evolved the 2010 range. Essentially, we have simplified it. So for example, we have taken down some of the roof pitches in terms of degrees. We have taken off some of the lower level projections which had cost and complication. So we have made it a lot simpler to build, a lot quicker to build. And because of that, it is also more suitable to build in, say, timber frame or other modern methods of construction. So the ultimate aim is to make it quicker to build, cheaper to build, but it still maintains the kerb appeal of the previous range. It still stands out as a good quality product. In terms of progress on that, we have the product planned on 77 sites. We are about 11,000 units into it at the moment. So it is just going through the planning process, and we will be phasing it onto the existing sites and new sites as David says in FY 2018. Okay. Gregor. Thank you. From UBS, I have got three questions. The first one is on your debt position. So I think you said 150 of average debt and 600 of cash. So I just want to understand whether that difference of GBP 800 million roughly is a norm or whether there is anything special in there that means- The difference between? The average debt position and the year-end cash. The average debt and the year-end. Right, which I think is GBP 850 or something like that. First question. Second question, I think in your appendix, you used to disclose the ASPs of your London joint ventures, which I think is no longer there. Can we get a little bit of color as to, A, why that is, and B, if that perhaps reflected to some deflation happening there? Then the third question is on sites which are down 6%. If you could give us a guide as to the outlook there and whether you see a rebuild and what sort of the target is in terms of getting sites back up, perhaps. Thank you. Okay, fine. Neil will obviously cover the question regarding the debt and also the site numbers. In terms of the ASP on joint ventures, Gregor, I think the reality is that we've just cut down some of the information. I think we recognized that we were putting out an enormous amount of information, and I think it's something that Neil's looked at in terms of just the sheer volume of information that's going out there. If you look at ASPs in terms of London, the principal joint ventures that we have coming through the London business are such as Nine Elms, Fulham Riverside, and NW Wharf, and I suppose Aldgate Place. I think what we're seeing in terms of our ASP trends are typically that incentive levels are, we would see as being the norm. The difference between gross and net, we would see as being fairly normal. We don't see a lot of discounting price cutting as such. But what we are seeing, and has been well trailed over the last 6 to 12 months, is a slowing in terms of the rate of sale. I think that will be consistent across all of our joint venture sites. Do you want to- Sure. Just to cover off the debt. The difference between the sort of the year-end and the average was about 816. It was around 550 in 2015. So we do see a pronounced difference between the average run rate across the year and then the year-end peak on the other side, as we get all of the completions coming in quite late in the year with the cash bringing in. Now, if you recall, we were guiding to a slightly lower figure than we actually achieved at the end of last year, and that came from a number of areas, including doing slightly better than we thought on completions, but also some working capital timing. So I think the year-end position is slightly ahead of where we would A couple of hundred million ahead of last year's. So it is slightly ahead through timing factors. Perhaps a little bit better than you might expect to see in a normal year. Want to comment on outlets? Sure. In terms of outlets, we did around 318 in 2015 on average, and around 365 in 2016. We are expecting to see modest growth in outlet in 2017 versus 2016. This is on a wholly owned basis. That hasn't started to come through yet. If you look at our current trading slide, I think our average for the trading period July, August last year was 390 versus 367 this year. But we do expect to be opening new sites, and we have been opening new sites as normal, and we do expect to be opening new sites this year. So that with a fair wind, we expect to do better than the 365 number over the full year. Sorry, that's wholly owned. I should just flag JV sites. I alluded to it in the presentation. We entered last year at 16, and we exited at 11. We're not expecting a material shift in that absolute number this year. Okay. We can move on to Glynis. Glynis Johnson, Deutsche Bank. Three, if I may. You may end up rounding it up. Firstly, just in terms of your own production profile post-Brexit, have you made any changes in terms of the number of sites that you pushed the button in terms of build start? Also, in terms of your land approval since Brexit, have you upped hurdle rates? Have you seen deals fall away as land vendors haven't revised expectations? Just in terms of London, you obviously broke down your land, in terms of the selling prices, but then you indicated the higher price units are coming, the larger proportion in 2017 and 2018. I'm assuming those actually are largely forward sold. I'm wondering if you just give us a bit of color in terms of the number of higher price units which aren't actually currently reserved. Just a clarification. You talked in terms of selling rates in London slowing down. Is that year-on-year, or is that relative to where you were 18 months, 2 years ago? You talked about it being well documented. I just want to make sure I have the timeline right. Thank you. Wow. Okay. Steven, do you want to start off maybe just in terms of the production profile, and then I'll. Yeah. The production profile is very much business as usual after Brexit. Obviously, we've reviewed every site as we've started to make sure it's the right product and the right type of mix, and level of work in progress has been controlled. We've continued to open sites on the same basis as we were opening pre-Brexit. In terms of the land approval position, first of all, I'll put it in context. As we said in the announcement, we approved more land last year, 24,000 plots last year. I think that's our highest approval level. What we said in July is we just wanted to have a look at some of those contracts. We've not canceled anything in terms of land contracts. In certain cases, we've gone back and had some discussions. I think we're really very much now back on a business as usual footing, just bidding in the market as normal. In terms of London, the selling rates, we would have flagged going back over the last 12 months. We've talked about Horseferry and Great Minster as examples of where, if you go back to calendar 2014, at price points at maybe GBP 1,600, GBP 1,700 a square foot, we had sites that were selling two or three a week. I think it was accepted that those were unusually high rates of sale, and we've seen those rates of sale slow over the last 12 to 18 months. I think it's very difficult for us to disaggregate, has there been any further changes to that since the referendum? I don't think we see any particularly noticeable since the referendum, but sales rates are definitely slower on a year-on-year basis. In terms of unreserved, we have more unreserved in London at higher price points because we have more product availability. Therefore, there is more stock at higher price points on a year-on-year basis. That's obviously something that we're continuing to manage. Does that cover it? Sure. Yeah, I couldn't give that number, Glynis. I think that's just too granular. Steven touched on the fact that as you go through FY 2017 and FY 2018, we have a higher proportion of high-value units coming through FY 2017 and FY 2018. But we wouldn't then further split it in terms of what's reserved and what's not reserved. Good morning. Scott Fulton at Whitman Howard. Three, if I may. First of which is on the forward sales position you have shown in the presentation. Is it possible to give that number ex JVs, and also to give some guidance on what the level of average selling price is within that? Further to average selling price and just on the guidance, could you give some guidance between the split between private and affordable in terms of the land bank of 261K? Finally, on admin expenses, what was the gross expense in 2016, i.e. gross of the positives? What level do you expect in 2016 on this, sorry, 2017, on the same basis? Okay. Well, I think if Neil picks up the forward sales position and also the gross admin expenses. In terms of private and affordable, I think the straightforward answer on that is that I would use the affordable selling price in FY 2016. We are not expecting any significant change in square footage or any significant geographic changes. I think that would be a reasonable proxy for 2017. In terms of the forward order sales, actually, there is a slide in the appendix, you may not have got to there, 47, which breaks it down between affordable, private, and JV. So if our absolute value was 4% up, our wholly owned value is 22% up, and JV is 66% down. All right? In terms of the administrative overhead, we did in, just to give you the full picture, in 2016, our net admin expenses was GBP 132. But after adding back sundry income, it was GBP 184. I am expecting broadly, to be somewhere around the GBP 185-GBP 190 mark on admin expenses pre-sundry income. But I stress these are forecasts. Time will tell what the real number will be. Okay. Moving on to Chris. No microphone yet, Chris, but Morning. Chris Millington at Numis. Just two market-related ones from me. In the document you gave this morning, you talk about the North and Midlands being better than the South. I just wondered if you could expand upon that and whether that's the whole of the South, or you're just talking about the southeast. The other question I just wanted to ask is about buy-to-let and just what the current run rate is at the moment, because I presume you saw a bit of a pulled forward demand in your first half ahead of the change in the stamp duty trend. So should we be thinking about a further reduction in the percentage of sales going to buy-to-let investors in the current year? Okay. Thanks, Chris. Steven, do you want to just talk about North and Midlands and South? Yes. In terms of, as I said in the presentation, all regions are selling pretty well. Northern this year has come in with some very strong performance. You see the sales rate there at 0.63. On the basis of some good quality sites which we've acquired over the last few years, we've launched them. In terms of Southern, still a very strong sales rate at 0.83 per week per outlet, and that is in line, probably slightly ahead of historic norms. So it's a good sales rate across the U.K. Just strong. I think what we said in current trading was that it was the North and the Midlands or our Central region was running year-over-year relatively better than our southern regions were. Yeah. I think in the West region as well, when you say North. But in the West region, we have seen a big uptick in sales. I think it is 16% sales rate year-on-year. But again, that is down to the quality of sites we are bringing through and the product in that area. In some of these locations, there is very little competition, and we are achieving strong sales rates. Yeah. I think on buy-to-let. We have said on buy-to-let in terms of the numbers through FY 2016, that we are seeing the percentage participation reduced from 11 down to 8. When you look at the calendarization of that, there was a reduction in buy-to-let sales in the first nine months of the year. So it was down, but it was down markedly in the final quarter, which clearly is likely to have some connection to the stamp duty change in terms of the 3%. So I think when we look at buy-to-let going forward, starting with FY 2016 at 8% for the full year, investor sales at 8%, then that is probably trending more like 5% or 6% in terms of the full year position. Kevin, I think it is nearest to you. Just two quick ones, please, if I may. Could you just comment on the jump in forward order book on socials in the sense that your site numbers are not appear to be moving up rapidly and just be interested to know what that is? And just a bit more flavor of that year-to-date sales rate, which if I had not have read the numbers, I would be really, genuinely surprised. It is as high as 0.75 in the time of the year, which we do not normally associate with being particularly strong, and it is better than the whole of the second half for the year. Are you still suggesting that that rate will push higher as we run into the autumn selling season, if the market remains pretty much back to normal as it appears to be? I just, a bit surprised it is as high as that, in truth. Yes. Neil, do you want to cover the forward order book? Yeah, sure. For us, I think the timing of social is very much geared around the macro outlet count going up or going down. As you recall, we went from 380 in 2015 down to 365 in 2016. So in early 2016, then versus a position this year where we are expecting to see outlets rising over the year, from a position of around 367 at the moment. So this is about taking social reservations, as we are getting the site up and running. So it is just geared around site outlet count. Plus, presumably that is not all deliverable in the current financial year. No. We are not saying it is all for 2017. A high proportion will be, but it is not 100% 2017, no. I think on 2017, Neil's guidance is around about 18% in terms of the affordable content. There's going to be a delivery on the affordable through 2017 and through 2018. We appreciate overall in terms of site numbers, those of you that have come to the presentation over the last two or three years, we are planning to increase site numbers, but the reality is that because the rates of sale have been high, we've seen site numbers close more quickly than we would have anticipated. When you look at land buying last year with 24,000 plots and a big step up in the number of sites, then we would still expect to see some improvement in terms of site numbers. That is reflected within the affordable forward order book. In terms of sales mix, sorry, sales rate, just to touch on the sales rate. We are very pleased with the sales rate. Being at 0.75 and almost 6% up on a year-on-year basis is a big positive. I think we recognize that, as Chris touched on, we recognize that there are some regional variations, and we're obviously saying we understand that the high-end London market is a bit slower. Nonetheless, the overall business is up by 6%, so it's a good start to the year. I think that the seasonality has become less pronounced. I think that is borne out through all the house builders' numbers, that seasonality is a bit less pronounced. So we're probably doing more reservations through July and August, more reservations through January and February than we might have done five, 10 years ago. Nonetheless, I think we need to recognize that we've got to trade through September, October, and then we come back into the market in November and update everyone on reservation trends at that point. I suppose to be more blunt, is that a rate of sale that you would have in any sense in your budgets for this year? Yeah, no, absolutely. Yeah, because we're tracking against budget. Absolutely. Okay. Thank you. Right. I think we're just going one behind. Yes, on cue. Clyde Lewis at Peel Hunt. I think three, possibly four, if I may. Can you maybe update us with regards to where your discussions with government are? Obviously, there's been plenty of speculation about possible changes to Help to Buy, either extending it six to 12 months and possible stamp duty changes. Second one I had was on gross site openings. Can you maybe just give us an idea as to what the gross number of what you're expecting to open this year and the first half, second half bias of that? Probably one for Steven in terms of product range. Has the revamp of what you're doing had any impact of where the David Wilson Homes range would sit within the group? Is there a broadening of the upper and lower bands at all? I suppose the last one I had was on the weekly pattern of activity. Still a bit early in terms of September, October, but can you maybe give us an idea as to how the website, the visitors have tracked over probably the last four to six weeks in particular? Okay. I think I will cover the government bit and maybe just talk about the reservation trends more recently. Steven, would you like to take it away in terms of gross site openings and the product, Barratt product? Yeah. In terms of gross site openings, what is in the system does not necessarily mean it comes through, because some of them are still waiting for planning consent. But, in the first half, we are expecting to open about 80 by December. So far, to last week, we have opened 31 of those. We are making good progress. For the full year, we are working on just over 180 new outlets. We would expect to deliver a high proportion of those 180. We would expect to be around 160 to 170, allowing a bit of planning delay on those sites. Hope that helps. In terms of the product range, in terms of where it sits with David Wilson. David Wilson range remains where it stands. Average square footage of the David Wilson range is around about 1,375, 1,400 square feet. The Barratt range essentially is a similar-sized product, a bit tighter, maybe a bit smaller and less average selling price, but it will be around about on average 1,050 square feet on average. That is where it sort of sits across the band. Yeah, in terms of reservation trends, I think, Clyde, I would just kind of fall behind the fact that we come to the market six times a year, and it is quite difficult for us to get more granular in terms of, well, last week we had a really, really good week. I think we just stick with the +6 in terms of reservation is good, and I do not think there is a lot of value for us to give more color on it. Then we have our AGM middle of November, so we will be able to give another tranche of trading. In terms of discussions with government, the discussions with government were really immediately post-referendum, and the Secretary of State asked for a meeting with the HBF, and a number of the Chief Executives attended the meeting. The Secretary of State issued a statement after that, and it would be no surprise that it was just simply wanting to gauge the position of the market. So as far as I can see, all of the housebuilders are really on a business as usual footing. The government will look at that and come back with what they consider to be appropriate in the Autumn Statement. John Bell from Barclays. Two from me, if I can. Firstly, affordable homes within your mix seem to be coming in around 17%-18% of your overall completions. I know you have got Scotland in the mix, but I just wonder how sustainable that number is, whether that is a good proxy for the medium term. Then secondly, on legacy land, any details you can give us here, the date you expect it to disappear completely, and where it is geographically in the country? Thanks. Okay. Well, if I just cover both those. Neil has given guidance in terms of affordable around 18%. Again, if you look over the last few years, as you touched on, I think that 17% or 18% is reasonable guidance. If you look at our geographic mix and the variance from presently probably around 40% is the highest that we see in geographies, down to zero. I think an overall blend at a shade under 20% is probably about the right kind of level. In terms of the legacy land, I actually was reflecting on the presentation when Neil was going through the numbers that we are now down to just 700 plots of legacy impaired. I can remember when we had a lot more than 700 plots. We have said, as a generalization, the legacy land tends to be further from London. Not simply in the north, but it tends to be further from London. For example, we have got a site in Wales that is still legacy impaired. We have got some sites in Scotland that are legacy impaired. But with 700 plots, it is really becoming very, very immaterial, even though some of it may run over the next 2 or 3 years. Yeah, morning. It is Gavin Jago from Peel Hunt. A couple of good, please. The first on the dividend and just the messaging in today's statement. Just given the guidance that you have got for FY 2017, we will see the forward order book where it is and your confidence in the margin that you have been talking about. Obviously, the consensus is partly driven by us in the room here, but there have been some pretty material moves post-Brexit, and the dividend guidance for the ordinary just feels a little bit light to where it could turn out, given the guidance you have given. So I am just wondering where you considered that messaging to be when you put the statement out today, just to give investors a little more confidence in where that may be. You may be thinking about the messaging for the dividend when you are thinking about FY 2018 and beyond. The second one is a slightly easier one. Neil, I wondered if you could give the average net debt expected for the current year. Okay. Fine. Do you want to bash through that? What, both? No, just the debt. Average net debt. Okay. I think when you look at the fact that we are guiding to net cash, but we haven't put a number on it, I'd hate to make it too easy for you guys to derive that number. I am expecting to be slightly higher than this year, but I wouldn't put a more detailed number on it today. In terms of dividend, I think our position on dividend is really clear. Our ordinary policy at one third, we see that as just being repeating, and we've obviously adjusted the estimated number based on consensus movement. In terms of the special dividend, we set in place a three-year program from 2015 through to 2017. We've made one payment. We are shortly going to make a second payment. I think the rationale for the special payment is simply that where we can see that there is surplus cash, over and above the requirements of the business, then the board would obviously consider that and make an announcement that's appropriate in terms of any special dividend payment. We'll go to Charlie, and then we'll come over to John in a minute. Charlie, just fire away. Yes. It's Charlie Campbell from Liberum. Just one question, please, from me. Just wondering what mortgage lenders are saying to you at the moment. I'm aware you talk to them a lot, an important part of the business. Clearly, it looks like business as usual mortgages may be a bit more available and a bit cheaper. What are they saying to you about their expectations, ambitions further into this year and maybe as we start to look into 2017? Okay. Well, as some of you will know, we have Adrian MacDiarmid, who works for the group as our mortgage lender relationship manager, so Adrian talks to the banks on a very regular basis. I think you really summarized that we see that the banks are very much on a business as usual footing, that they are able to lend either out under the Help to Buy program or out with the Help to Buy program. What we've seen over the last couple of years, and we highlighted that in February, is the way in which the lending rates have dropped with, at that point in time, no movement in the bank base rate. Clearly, we've seen a recent movement in the bank base rate, and we've seen some fantastic mortgage offers come into the marketplace. For example, more 10-year fixed deals coming into the market, which I think for the first time buyer is an incredibly attractive proposition, that there is a relatively low cost 10-year mortgage or relatively low cost mortgages available is very attractive. Generally, without exception, very positive from the lenders. No warnings at all about future behavior, not warning you that things might change going forward if the economy does weaken as maybe some people expect? No, not at all. We have some lead indicators from our perspective. We are obviously able to monitor to the extent that there are trends in terms of people finding it more difficult to get mortgages. We are also able to monitor trends such as down valuations, which we look at on a week-to-week basis. We are not seeing any changes in those trends that would make us think that the banks have got a more cautious or a more concerned attitude. I think we will go into John on the far side of the room. Oh, there we are. John Messenger, Redburn. Three, if I could. One was just coming back to that slide 47, looking at the forward orders. Can I just understand when you look at the behavior of the private line there in terms of the step up in average selling price? You made the comments earlier in terms of how the North and the Midlands have actually been pretty resilient in terms of orders added since the end of the year. But actually, it is nearly a GBP 50,000 average step up in the ASP in terms of that order book. Could you just give us an idea of what is going on in there, and is that something that tails back? Was it a Help to Buy kind of initiative? Obviously, the annualizing of that in London, maybe that has been the step up. Just to understand why that 327 is going to slip back sharply to deliver that guidance on the ASP for the year. Second one was just, again, on London. With Help to Buy step up and with, we can argue one way or the other what might happen on overseas buyers, do you think your capital employed in London will need to lift to reflect a greater period of build towards completion before you can actually sign somebody up? Do you think actually terms of trading in London are going to change? Then finally, was just on the comment around the overhead, gross and net, and that GBP 52 million of credits last year. Can you just give us an idea of what either the freehold reversion, the bits that are not one-off that you do not expect to repeat, basically, Neil, in the year ahead? Thanks. Okay. Maybe if I start in terms of London, but if Neil maybe cover Neil, do you want to cover forward order books or on the overhead? Sure. Yeah. In terms of the forward order book, the first thing to say is that last year's private forward order book was lower than the year's average. We were around 278 in the forward order book at this point, and we ended up closing the year at 290. Last year's looks, not that I was here, but last year's looks structurally a little bit lower than the average we ended up delivering for the year as a whole. This year, conversely, looks higher than the 290 that we exited last year at. I do not think there is anything sinister in it. I genuinely just think it is about the mix of sites that are in the forward order book at any given point in time. I think it is going to be difficult to draw any firmer conclusions from it than that. To unravel that, to get back to kind of where you are guiding, obviously implies quite either a bigger share coming from some of the lower priced regions or London annualizing in terms of the extra 20% Help to Buy effect. I am just trying to understand what is, or it was just last year very abnormal, Neil, as you say, in terms of the way that order book looked versus what was delivered. What we have got, I mean, in terms of the London sites, because there is two elements to London. First of all, we have got joint venture, which is clearly held within the joint venture forward order book. Then we have the London wholly owned business. What we have got coming into the London wholly owned business, which is in the order book at the 4th of September, just as an illustration. Steven touched in his presentation on Landmark Place, next to the Tower of London. That site launched in February this year, and we have had quite a large number of reservations that have come through. The average price point is obviously very high. I think Steven touched about GBP 1.2 million in terms of the average price point. We then have a tower at Blackfriars. Again, relatively high selling prices not coming through the joint venture business. That will be one of the biggest mix changes. Whereas perhaps in the prior year, there would have been more coming through the joint venture forward order book. Do you want to just cover the overhead costs? Yeah, sure for that? Sure. I would just add, if you look at our London mix, nearly 80% of our London mix of completions this year was below GBP 600. But as Steven has already indicated, we expect that to be looking slightly different in 2017 and 2018. So there will be a London mix effect on price, and that may well be what's evident in there. In terms of the sundry income, the vast majority of the year-over-year swing comes from our current view on freehold reversions. But although it's typically every 2 or 3 years you'll do those- Yeah because you tend to bundle them up, don't you? I'm just thinking does that- We will bundle up. We will tend to bundle them up if we can. Partly because you just get a better deal. Rather than selling them on the drip, you will get a better deal by packaging them up. It is just a facet of when we have opportunities to package up and sell, and then you can only sell an asset once. Sorry, John, can you just go back over the second question? Because I know- No, it was just more on London, when you look at it and how you are operating. Clearly you have got the two ways of doing it, but with the change in Help to Buy and just thinking about, let us face it, London has been a very customer financed kind of build market. Less so for you than for some of the other models in the market. But when you think about Help to Buy and that step up and the whole issue of six months, whether that might be extended to 12. Clearly there is an issue there in terms of you potentially, or the industry, having to build more of it before you sell it, just to allow people to use Help to Buy. Is that something that you think is going to change your position in London or your capital employed, and the whole way that you are going to operate on hurdle rates, et cetera? Yeah, I understand. I think it is something that we just need to look at on a project by project basis. Steven is clearly looking at that with the London team. Typically, our build in London tends to be quite lumpy, so we are looking at it on a tower by tower basis. I think if you look at the last couple of months, because of where we are in terms of the build program on sites like Fulham or Nine Elms, I do not think we have really had to look at that from the point of view of do we vary any of the build plans. But that is something that we will just continue to keep under review. I would just flag, I mentioned in my comments on WIP that we are starting to see infrastructure building. Our effective units was broadly flat, but we saw an 8% increase in WIP as a result of a number of larger infrastructure commitments. We are starting to see some of that in the numbers in any event. Okay. I think that is all our questions. Thank you very much everyone.