Earnings Call: H1 2019

Mar 27, 2019

Good morning, and welcome to our half year results. A brief introduction from me, Keith will present the results in the balance sheet, and then I'll provide an update. Good morning, Alastair, an update on operational matters. Firstly, the highlights for the half year. Just to give you some numbers, record volumes at 5007 units, operating profit up to 320,000,000. Our interim dividends up by 5% to 50.4p and our return on capital employed also remained higher at 24.2%. Other key points to note, we're pleased to report that we've maintained our HBF 5 star rating for 2018. All of our land is in place for FY 'twenty. And we're making excellent progress with our artisan house types having been plotted across some 53 developments. And most importantly, we can still deliver further growth from our existing operational structure. Of 22 divisions. Turning to the market. Demand remains robust despite the ongoing political uncertainty. The market is still very much a first time buyer or second mover focus, and that's That's probably a product of the incentives at that end of the market. And by that, I mean, help to buy and SGLT benefits. London still remains a key part of our business, but the London market to us is very much focused on the Greater London Barras or the Affordable commuter belt. And notably, house price inflation is no longer a margin enhancer. To the business. Now we've opened 9 new businesses since 2013. Creating a structure of 22 operating divisions, generating a capacity of around 13,000 homes. 3 of our competitors are all delivering 15,000 homes or more, demonstrating the potential for further increase volumes, assuming of course, the market remains favorable. Our strong customer and operational abilities coupled with our experience of opening new divisions puts us in a good place to exploit any growth opportunities. However, I would hasten to add that we would never pursue growth to the detriment of our operational ability or in fact to our return on capital employed. In addition to our growth strategy, our strategic priorities are designed to create value through both capital and dividend growth for our shareholders But just to remind you of those key objectives, driving down costs, strengthening the brand, appointing the right people, and maintaining a flexible capital structure. Now both Keith and I will return to those themes throughout the presentation but first for our results, Keith. Yeah. Thanks, Jason. Good morning, everybody. So I'll take you through the results, balance sheet and cash flow in the in the usual manner a 5.6% increase in volume, together with a 6.5% rise in the average selling price. Which rose to just under £294,000, resulted in housing revenue, rising by almost 13% to £1,500,000,000. This is 2.6 times higher than the level achieved in the pre recession peak of January 2008, which evidences the rapid rate of growth we've achieved. Other revenue remained broadly flat at 1,000,000 and mainly comprises the usual receipt from the disposal of freehold diversionary interests on apartment schemes and that was £14,000,000 in the period. Given the evolving legislative outlook, there's no certainty as to whether there'll be a further ground rent portfolio disposal beyond FY20. Gross profit rose by £33,000,000 to £378,000,000, and the prior half year figure has been restated to exclude losses arising on part exchange properties as required by IFRS 15, and you can see that they're now showing separately on the line below. Operating profit rose by 8.7 percent to £320,000,000, and the operating margin was 21 point 5%. The strong trade and performance resulted in PBT rising by 8.7% to £314,000,000, with earnings per share rising by 8.3 percent to 207.5p. The growth in volume was driven by both private and social completions, but for the full year, I expect that all of the growth achieved will arise from additional social units which reflects build progress on sites. This should then be followed by strong growth in private completions in H1 of FY20. And just as a reminder, there was particularly strong growth in private completions in the prior financial year, due in which the number of social homes also fell by 1.6%. We sold 253 homes using our Asbury brand, which now accounts for 5% of output, and is equivalent to a mature divisions worth of additional units that we were able to sell with no real change in the overhead. In in addition, the competitions on fully owned sites, our share of output from joint ventures was 25 units, and depending upon build programs, this should increase further in summer 2020. Naturally, how to buy continues to be an important sell in and that accounted for 36 percent of completions in the period. The private average selling price rose by 5.9 percent or almost £19,000 to £334,000. And 9 ohms, which I'll analyze separately on the next slide, accounted for £13,000 of this increase. In addition, the rise has been influenced by investment in desirable, yet affordable locations across the country where demand is strongest in sales proceeds are therefore a little higher. That said, our exposure at the upper end of the market is limited and only 5% of homes sold were over the current health buy threshold of £600,000. And this is likely to reduce going forward, reflect in the current composition of the land bank, which I'll outline later, but also our current land buying criteria. Overall, the average selling price rose by 6 that increase in the proportion of social homes, I still expect that the full year average selling price will be just over £290,000. London is still important to Belway, but it represented only 10% of completions. And our average selling price in the capital, if you take out 9 elms, was £396,000. This is affordable in the context of the London market and still seeing that consumer demand is robust at this price point. 9 albums, as I've just mentioned, performed well. It achieved a 125 completions, at an average selling price of £829,000, with units from that site generating 7% of housing revenue, Overall, the remains a balanced fifty-fifty split between homes sold in the north and the south of the country and not only does this avoid a concentration of risk in any particular locality, but our national structure also provides good opportunity for further incremental expansion in areas of strong demand. Moving on to the operating profit bridge. And you can see that the rise in average selling price has been the main driver for growth, but the increase in volume was also important and that added a further £19,000,000, and the chart shows that 14,000,000 of this was from growth in our 7 newer divisions, which we've opened since August 2013. The profit arising on the disposal of ground grants was £10,000,000 and added over 40 basis points to the H1 gross margin. And as just mentioned, 9elms a significant contribution to revenue in the half year. And whilst London as a whole, achieved similar returns to elsewhere in the group, 9 elms has an expected gross margin in excess of 30%. There'll therefore be a reducing benefit to the overall gross margin as this site trades out in the first half of FY twenty. Looking at the Halifax House Price Index and BCIS cost index over the past few years, it's easy to see how's how how house price inflation has benefited the results of all house builders. However, as long as the extra revenue from house price gains continues to offset increases in build costs. The longer term prospect is for the gross margin to moderate to around 24% I e, the level at which we're contracting land. Bellway is operationally strong. However, we are focusing on a number of cost control initiatives in order to help protect the margin in the future. And in relation to the administrative overhead, Cost increases reflect investment in new staff and new divisions in order to achieve future growth. The demand and, hence, cost of employing skilled staff remains high, but the absorption rate remains unchanged at 3.7%. The ability to absorb increases in overhead effectively is in part due to the improvement in average selling price. But it also reflects the growing maturity of some of our newer divisions. We will be investing again in the year ahead in a cautious and disciplined manner. Overall, operating profit rose by 8.7 percent to £320,000,000 and the operating margin, as I said, was 21.5%. For the full year, we expect achieve an operating margin at around a similar level. And thereafter, we expect further gradual moderation as the benefits of HPI continued to diminish. I've included the balance sheet for reference in the investment in joint ventures, includes our sites at Fradley And Ponton Road in battersea. But moving on to more material items, and you can see that the total amount invested in land has risen to 1,000,000,000 with some 1,700,000,000 of this relating to the near 28,000 plots, which have the benefit of an implementable detailed plan and permission. The additions to the top tier of the land bank have a plot cost of almost £60,000 on an average selling price of around £275,000. The overall average plot cost of this section of the land bank is just under £62,000. And the average selling price is approaching £290,000. And this is a reasonable guide as to the expected average selling price in FY 20. Our exposure to particularly high value units is low and reducing. Only 4% of plots with DPP have an average selling price above the help to buy threshold of £600,000. And similarly, only 8% of plots are priced over £500,000. Our pipeline of owned and controlled land while DPP is generally expected within the next three years has risen to 14,700 plots. And taken together with the DPP land, this provides alarm bank length of 4.2 years. In addition, our strategic land holdings have risen to 8100 plots, and as usual, I stress that this includes only those that are allocated in emerge are allocated in local plans or the subject of current planning applications. The investment in construction based work in progress has been a major driver for growth, and it has risen to over £1,200,000,000 But as a proportion of annualized housing revenue, it remains very similar at 42%. Is a generalization construction stages are slightly more progressed than they were this time last year commensurate with the growth plans for the business, which are, of course, subject to continuing market demand. The amount invested in part exchange properties is closely monitored, but has risen to £42,000,000. And whilst this is an increase year on year, the balance has reduced from the £47,000,000 we reported at July 2018. The group's financed by retained earnings, bank debt, and land creditors, and were significantly cash generative, we produced £270,000,000 from operations before incremental investment into land and construction based width. And it's this continued investment that's allowed us to increase housing revenue by a multiple of two 0.6 times since the previous session peak, which I mentioned earlier. After paying down land creditors by £71,000,000, and investing in land and site based construction to achieve growth, the cash generated from operations was £57,000,000. Overall, after paying the dividend, tax, interest, and other minor items, we ended the period with modest net bank debt of £27,000,000. And this represented gearing of under 1%. Inclusive of land creditors, which have reduced to just 290 £5,000,000, gearing was just 12%. Should the rate of revenue growth, reduce over a sustained period, there will be less requirement to invest in land and work in progress and, hence, inevitably, more capital would be available for return to shareholders. And on that, the interim dividend will rise by 5 percent to £50..4 per share, which is slightly lower than the rate of growth in earnings, which, but I'll be, but I know that this year earnings growth is going to be skewed towards H1. And without inferring anything too precise mathematically, I still expect that the group will declare roughly 1 third of the total dividend at the half year. For the full year, I expect we'll broadly maintain a dividend cover of around 3 times earnings, but this decision will be made in October when assessing the future capital requirements to achieve ongoing growth. Our approach to growth requires an ongoing focus on return on capital employed, and this has remained high at 24.2%. Post tax return on equity was also high at 19.4%, not withstanding our lowly geared balance sheet. Over the past 3 years, revenue has risen by over 30% and earnings have increased by over 40%. In addition, the growth in NAV and dividend over the same period represents an annualized accounting return of 23 percent per annum. Going forward, we still see long term potential for ongoing volume growth, but as a company, Bowway also remains agile. We're able to respond to changes in market conditions or to new land opportunities, but always with the overriding objective of making the right long term decisions for shareholders. Jason? Thank you, Keith. I mentioned earlier in my introduction that we'd opened 9 new offices since 2013, with the newest divisions being Eastern Counties based in Huntington, which opened for business on the 1st February, and will deliver completions for this year, this financial year, And this is very much a traditional house building business, delivering affordable family homes. And secondly, London Partnerships which also opened for business on the 1st February and will deliver completions for FY 'twenty. And this is very much a different model. This is based on joint ventures, regeneration and housing association type sites. And our first two sites commence or we anticipate they'll commence construction in the summer of this year We've got an additional site with Peabody Housing Group where we expect to receive planning permission in the autumn of this year. And in addition, we have a further 3 sites with heads of terms agreed. Now my intention with partnerships is to maintain a London focus. That's where I see greater opportunity, a higher ASP. And most importantly, it's where I have the skill set the people to manage such such schemes. Our growth as a company is being driven from these new businesses, and I still see opportunity to grow the structure beyond 22 offices. I still believe there are a couple of areas in the UK where we don't have a strong presence. That said, I'm ever mindful of the change in political winds. I'm also mindful of the change of rules of the Help to Buy scheme in 20 21. But despite this this caution, I still believe we've got a strong model to open new divisions. We've done it nine times already, We're bloody good at it. We can do it on an efficient basis. And critically, it enables me to increase the number of outlets throughout the business. Across the summer, Keith and I will give further thought to divisional expansion as, after we've seen how the market is performing. In addition to growth through divisional expansion, we're also growing through continued land investment And our strategy on landing land acquisition is centered around 4 or 5 key areas. It's based on affordable locations is based on medium sized outlets, artisan house types, an average unit size of around a 1000 square feet and a gross intake margin of 24%. And we believe with this approach, we'll be best placed to mitigate any impact on sales rates following the introduction of the new sales of the introduction of the new rules we've helped to buy in 2021. In the first half, we've contracted on 6000 plots, which is slightly less than this period last year, and this reflects a period of caution early in the New Year where we pause to see the strength of the spring selling season. Notably, we've got a further 6400 plots agreed with heads of terms. Our Stratland department is also continuing to make making good progress with 10 options already contracted and a further 15 sites agreed with heads of terms. In addition, during the first half, we have secured planning permission on 579 plots in the strategic land bank, which are now converted into our owned and controlled land bank. Our land position is strong with all plots in place to meet next year's forecast. Turning now to our second strategic objective, driving down costs. In the past 6 months, there's little to suggest that the pricing environment has changed, and we still experienced price inflation of around 3%. We're driving down costs in the business through a number of key initiatives. Our new group head of procurement is making excellent progress in rationalizing group deals. And to give you an example, through standardization of our product, and commitment to volume, we have renegotiated terms of our suppliers for drainage, radiators, and boilers and those alone have generated savings of £750,000 per year. And our savings are not just focused on materials, We've also renegotiated our electricity supply contracts for temporary buildings and offices throughout the UK. And this has generated savings of around 1,000,000. And together these two items, total 1,000,000 of procurement savings per annum. The introduction of our standard house type range the Artisan Collection has given us the platform to improve our buying power and is fundamental to making the group more efficient. To just give you a few numbers, 53 sites are in the planning system. Our first units are already under construction. 500 units are completions are expected in FY20. Over 2000 completions are expected in FY 'twenty one. Our range has been extended to 43 individual house types and we anticipate savings of £2000 per plot for each artisan home. In addition, The coins accounting and valuation system that we've implemented is now in 6 of our divisions and is now gathering momentum. In May of this year, we also plan to roll out a new group wide cost initiative not based on bill cost savings, but also based on site based overheads. And I'll give you a little bit more detail of our ambitions and targets in the autumn. All of these measures, procurement, artisan, coins, and standardization in aggregate will help mitigate margin pressure. In the years ahead. Moving on to people, for me, recruitment and retention of people still represents the biggest challenge and continues to be the biggest impediment of driving volumes across the industry. We are acutely aware of the importance of developing people of training people. And delivering succession through our organization. From our existing 22 Managing Directors, 14 of those have been promoted from within. We have a strong record and culture of bringing people through our business and not just at MD level. Our new site manager training scheme will be launched in the early summer and will help to develop up to 50 site managers across the UK each year. And we also have a record number of apprentices and trainees across the group now totaling 187. Our final strategic objective is strengthening the brand. And the key to improving the reputation of house builders is strengthening the customer journey and delivering a consistently high quality of home. At Bellway, we're proud to report we've maintained our 5 star rating for the 3rd year in succession as measured by our purchases with over 92% of those so they would recommend Bellway. We still have room for improvement. We collectively work as a group to share bet practice, particularly in our young divisions, to to educate them in the importance of being a customer focused business. A new website is also providing a much improved platform and is generating increased traffic of around 15%. And finally, the Bellway London brand is also now adopted across all London divisions and is working well to create a uniform corporate identity. Turning now to trading. As mentioned previously, HPI is at modest levels and just about offsetting cost inflation. In the period, reservations were up 2.8% with average outlets up also to 262, albeit they were skewed to the latter half of H1. Cancellations rates nudged up to 13% principally due to customer sentiment around Brexit. Our strongest performing divisions in the group were Scotland, Liverpool, Manchester, Milton Keynes And Essex, demonstrating quite a wide geographical spread. We've made a strong start to the second half. Our private reservations in the 1st 6 weeks since the 1st February are up by 4.4%. Our order book as at 10th March is slightly lower at 1,500,000,000 but reflects strong housing growth of almost 13% in H1. We are now now 90% sold for the current financial but our performance is largely limited to the number of homes we can build. We currently have capacity to build up to 500 extra homes for FY 'nineteen. Needless to say, the rate of growth will be dependent upon the strength of the spring selling season, but so far, I'm encouraged by performance in H2. Beyond this year, we're well positioned as a business. We're mindful of the uncertainty surrounding Brexit, the impending changes to help Dubai, but I still think there's opportunity to deliver further managed and sustainable growth. Our partnerships division has already made a promising start, and should be a strong performer in the years ahead. And our 22 operating divisions across the country have capacity to deliver further growth. And I would remind you for 10 consecutive years, we have grown the business without any impact on the quality of our homes. Demand is robust at our price point, with our product largely aimed at the first time buyer and second mover market. In summary, the business is in good shape. Our co with our cost mitigation measures, our land buying program, and our capacity for growth, we have a strong platform for the years ahead. Thank you. Keith and I are happy to take some questions if we could start off with some financial ones, if you give me a chance to Yes. Good morning. It's Gavin Jay at Peel Hunt. I will start with a couple of financial ones then. A couple of you, Keith, please. Bit of clarity on the grain rent. Sorry. Did I you say it's gonna probably end in FY 20? So so on on on grounds run runs, we're hopeful of getting a deal away next year. But there's no certainty. Beyond fy20, I think the likelihood of those continuing continues to reduce So hopefully 1 next year, but then thereafter, who knows? There's a question mark. Second one's just around PX. We'll see it came down versus the full year. What do you expect it to kind of move or which direction you expect it to move by the full year this year? It's really hard to predict the balance, but I suppose I'd say it running at around 7% of completions, which is what it was last year. Our holding time is probably fairly consistent with what it was at the year end at around about 15 weeks or so. So I'm expecting a similar sort of balance between the 40 to 50,000,000 at the year end, but, you know, it's hard to be more precise. Final is just around kind of the focus on driving down costs. Obviously, one of your bigger peers has had a strong track record of that, but more recently, it's probably come back to bite them a bit and I'm just wondering how confident you are that this kind of focus isn't going to impact your build quality and and customer satisfaction. Well, that's a good question, Gavin, but the For from my notes, I'm I'm not changing specification. I'm not making our materials cheaper. I'm standardizing it, and I'm I'm I'm getting savings from our commitment to volume, the standardization of our, specification are just making us more efficient with the standard house type range. So if I'm building the same product, I've got the work drawings from, you know, from Reading that will be the same in in Yorkshire. So I've got design savings I've got build time savings, but nothing none of it will impact our build quality. I promise you. Thanks, Will Jones from Redburn. 3, if I could, please, but I think 2 have a couple of parts. But first one, just, I guess, exploring the recent trading picture. Clearly, the political headlines are swinging from week to week, but when you look at particularly February March, are you noticing any kind of differences on a week by week basis or is it actually that plus 4 or so you referenced? Is it fairly consistent? And then again, linked to that, I suppose, how are you seeing sequential pricing? I guess benchmark it against, say, auto movie pretty flat would you say across the across the piece or still slightly rising, maybe? The second one was just coming back to, again, one of your larger peers who, literally, last week, announced they would be doing a form of retention on on completion with regard to snagging issues? Is that something you've ever thought of or you think you need to consider? Are they leading where the industry will follow, do you think, on that point? And then the last one was just around, you hinted that clearly the net cash is building this year and in all probability beyond Is there a level of net cash at which the decision around capital returns becomes too great to ignore? And at that point, do you think your favor if you do something extra, will it be just a changing of the ordinary cover, or would you consider it more in, say, a special form a bit like one of your more mid sized peers did recently in the form of a B shirt. You get all the good ones out first, Will, don't you? Can I I do you do the 2 hard ones? I do the easy ones, but I'll I'll do sales rates and the retention. So in terms of sales sales rates this year, whilst we're up 4 a half percent, Will, I'm not suggesting for a moment that the market's better this year than last year. I think it's just a product. Our sales performance has improved principally due to I've got more selling tools. I've got more outlets, and we're working harder at it. So my feeling is We're working hard to deliver the same. But I've got more sales outlets to sell on, hence, my, improvement in sales rates. And that will continue as a theme through the business, whether I drive outlets through the divisions or I open more divisions. And in terms of your 3rd question on retention, you know, Persimmon have got their own problems and this is the way they're dealing with it, but similar dealing with the government about the quality issues designed stand and about the use of Help to Buy. We don't have any dialogue in that regard, with Belway. I've got no intention of you know, certainly our approach to moving someone in the home is to get it right first time, not move someone in and fix it later. So our approach will be know, maintain a 5 star rating. What can we do to, to get those processes even better? We want the purchases to be happy with their home on day 1. In terms of pricing, it it's being fairly consistent, where we are able to achieve price increases, it's it's led locally. So it's about the site in a strong area where you've got good affordable product on it, and that hasn't really changed even though the market was up a little slower in December time, the pricing dynamics remain fairly consistent. So we're not we're not seeing a gathering momentum in pricing information if that's what you were alluding to. And on the cash position, you know, whilst we a guide into a positive net cash balance at the end of this year, probably in excess of 150,000,000 there are still working capital requirements throughout the year, and I still expect this to have an average debt provision of the order of 190,000,000 throughout this current financial year. Which is very similar to what it was in in the previous financial year. So you have to look at the peaks and troughs, throughout throughout the reporting period before you make those sorts of decisions. Future ideas on dividend, look, as long as we kind of continue to grow, we still see that as a really good use of our capital, and you can see the compounding effect that has on Navan dividend year in year out. So that's 1st and foremost what we'd like to do. If if we see the rate of growth is likely to moderate, then of course, we'd come back and have a look at dividend options, and we'll report then once we've had a proper discussion internally on that. By week trading point, is it all fairly consistent, would you say at the moment or other ups and downs? I'll and nothing's changed in the weeks since so we're we're still up 4 a half percent. So, you know, it wasn't, a flash in the pan where was that site? It's what you're asking. It's it's continued as a thing. Thank you. Gregor Kugich from UBS. Few questions. So the first one is just to come back on on the margins. You're obviously saying gross is anticipated to kind of gravitate back towards 24, which is what you're procuring at. I guess overhead is close to 3.5, 4. The ground rents may drop away. Maybe that's 50 bps plus So are you suggesting that kind of as we think about the next few years, you kind of land towards 20% operating margin is that the kind of battle plan? Obviously, assuming the markets are kind of stable. So that's question 1. Question 2, could you just remind us how much is left in 9 alms so we could model out in terms of gross development value because, obviously, that'll be a distorted picture, both on on top line and and profits. And then finally, on the partnership, could you just give us the sort of broad economics of that? Is it different to the existing business from a margin perspective and perhaps it's offsetting on a return perspective, just to get a sense how the economics work and how they will flow through into the business over time. So so in terms of the the the margin, Look, I think you're you're right over it over a period of time. I don't particularly want to commit to what that period of time is, but but it it would be makes sense to us that the gross moderates are around 24 and that the operating moderates to around 20% ish and you're always going to have a plus or minus depending on site mix and trading conditions and and all those sorts of things. That's entirely consistent with what we've said for a number of years, and it and it doesn't compromise our ability to invest, and still make pretty good returns from those investments. In the next financial year, just to give you a flavor in terms of what we think the rate of moderation could be, it might be something similar to what's already happened in H1 this year, but it is very early stages, but just to give you a feel for for the speed of which that might happen. On 9 ohms, we're in a very strong position. We've got around a 120 left to complete on that scheme at a similar average selling price to to what I reported in H1. But of those 120 left to complete, as we sit today, there's less than 20 to sell. And those completions will happen in H2 and towards the start of H1 in the next financial year. Should I do the partnerships? I think the simple answer to your question is yes. The returns will be less, but it's always difficult to be specific, purely simply because every site is different. And of the schemes we've got so so far running through that particular P and L, One of them is just a build contract with an RSL, which will attract a lower margin. Another one is a site that we jointly acquired with an RSL on the open market. So that will attract what we perceive to be a normal margin around 24%. So it's very much a mixed bag. And we look at every site individually, in terms of location, sales risk, build risk, what the division are capable of doing. I think in the main, yes, I'd expect them to have lower returns because they're going to have a few more bill contra turning gross margins of teens as opposed to in the 20s. Morning. Glynis Johnson, Jefferies. 3 if I may, the first one hopefully is very straightforward. Just in terms of the, the current trading, I wonder if you can just put a per site basis. You talk about the number of outlets you're selling from. I'm just wondering if it's flat, if you look at the actual number of outlets. In terms of London, I'm just wondering if you can put some color on the London Land market. Are you seeing the viability of London land coming to levels, which is more interesting now, or is it really that you see the future being within partnerships because that's the only place where the numbers will necessarily work. And then lastly, just in terms of the artisan housing types, you talked about, you've moved the number of housing types up. And I'm just wondering what was the basis of that because we're seeing standardization being talked about a lot. Was it the customer push that they wanted more variety? Was it in terms of the economics of build? Was it in terms of the planning? Just a little bit more detail. Okay. Should I do the sites? Yeah. So in the in the 1st 6 weeks of of H2, overall resi is around 4 a half percent up average sites in that period are probably around 8% up goodness, and that's consistent with with elsewhere in the market. There's perhaps a lower per site sales rate, but I think our point is you've got the ability to open those sites and grow the gross reservations at the top line, which is what you're seeing coming through. And I would just also add on to that as as we suggested at the trade and update, those new site openings are also seeing an increased private availability, and you're seeing consistent increase in the private reservations and the start of H2 as well, which should bode well as we go into the next financial year. If I do, London Land Market First, I'm I'm still a big fan of London, Glynis, but where I don't see value or opportunities where you've got a high London land cost high density scheme, which attracts quite a big whip commitment. And then at the end of it, I'm getting an ordinary sales rate. So for me to commit, 50, 60, 70, 80,000,000 into a site, and then sell 1 a week is not very appealing for me at the moment. So my my appetite for London is very much in places like Horn Church or Bexley Heath where I can get medium density schemes that are more affordable, for within the help to buy a bracket more often than not. And there's a bigger pool of people trying to buy them so my sales rates are higher. So I think London to me just moved really. We're we're we're gone from the central points and moved out to the fringes, really. It's a very good question on, house types because I asked the same question when we're doing the design. I the bloody hell did it get to 43. Because I wanted it neat and tidy and keep it around 30 or early thirties, but the reason it's extended to 40 3 is purely and simply because of building regulations across the across the country and us ensuring that Some of their house types are disabled compliant, lifetime, home compliant, and meet various standards across the group. We've had to introduce 2.5 story and some three story units into it. So I would say that the majority of the use of our standard house type range will probably be in 30 odd house types, but we've had to bolt on some extra ones. So we can do the odd bungalow that we can do a disabled compliant unit, and someone hasn't got to keep designing up those units. So that that's the reason for it. Chris Wellington from Numis. I just wanted to ask my first question just really on the quantum of incentives. And if you can just roll in Is there been any change in that slightly higher cancellation rate you saw in the first half? So that's the first one. Next one's really just on again, on the new house type, is there going to be any plotting benefit? This is something we hear from a lot of other people as they bring out new house types. And the final one really is just with this £2000 saving you're looking to make off the new house type, are you gonna try and roll that into a higher gross margin on your land intake, or is it just gonna stick with 24 and this just made you a bit more competitive in the market. Yeah. So incentives, are running probably at around 3% of our gross release prices, but I just caveat that in that it's it's a soft figure because every division will have slightly different release prices and what counts as an incentive. That's cute. And that and that was probably around 2a half, 2 to 2a half percent if you went back 12 months. So a slight nudge up, but that's within, you know, any net inflation figures we report. We take that into consideration. And the cancellation rate, that we reported that because there was a little bit more uncertainty in the wider economy, our cancellation rates had nudged up from 11 to 13%. If anything, we've seen that moderate a little now, and it's probably running on it yet if they had figured it around 12%. Now whether it continues, who knows, but it's certainly not getting any worse, and it doesn't feel like it's likely to get worse given on based on current trading and start of H2? In terms of the plotting benefit, if I was to be honest with you, Chris, I mean, Simon sits on the land meetings with me when we buy all the land. And sometimes I'm getting divisions saying, yes, we're getting more plots in high density, and sometimes we're getting divisions saying it's about flat. Because they were already efficient in the first place. So I think it's the newer divisions, or the divisions that are not used of, building houses, some of the London type, divisions that get more benefit than a traditional house builder and say, Lester. So I can't give you a specific answer, but some are getting benefit and some are saying it's just the same as what we was doing in the in the first place. And in terms of your intake margin, that's, that's a fair point. And Keith and I have labored over the answer. To this in terms of do you up to, you know, 24 or 25% so you get the embedded benefits of it, or do we charge them for using, house type range. And I think where we are today, we're going to do a bit of both because we don't want to make to make them uncompetitive. And you must understand I haven't got all the cost data yet because I've only put the foundations in. So I think what we're going to do is charge them for my design surface into the group. So when you use the Artisan range, you pay me for the design as opposed to paying an external consultant. And then we might nudge up, the headline operating margin, a fraction. It's an or and science. And I suppose intention is, look, we want to buy a line of better margins and these sorts of efforts we're putting towards efficiency should help contribute towards that, but it's not a precise figure where we can say it will do this. It's just a direction of problem. It's easy for me to say, yeah, this is better plotting, and it's gonna make more money. And I know that's probably the stock answer you get for many, but the truth is when you've got a lot of divisions across the UK, you know, some are going to get a big benefit and some are going to say, well, it's it's the same, but it looks different. You know, it's too early to put a percent on on your models just yet. John John Fraser Andrews, HSBC. 2 for me, please, the comment, Jason, about the caution on the larger sites on on land purchase, does that extend to, the 6400 plots agreed. So are you sort of sitting out at the moment and watching the market in these Brexit weeks if we can call them that before you commit to this land purchase. And secondly, can you talk about the land market generally? Pricing I think availability is very strong, but has there been any pricing movement in the year so far? And and if you can put some regional flavor on that, that would be great. Thank you. In terms of larger sites, John, we've It'll be easy for me to blame Brexit for everything, but the reason we paused in terms of buying land earlier on in the year was to see the strength of the spring selling market because as you know, that's the busy part of our whole year. And if volumes were flat, they that may have, affected our land investment. We're, we're pleasantly surprised of the strength of the selling market. So with carried on investing. And I do want to buy larger sites, and I will do, but There are going to be a handful of big sites per year as opposed to lots of them. I need big sites to grow the volume. But my ambition is to drive the number of outlets through the group for 2 reasons: 1, it delivers me more sales. And secondly, I think it will be a good insulator for when the new Help to Buy rules come in in in 'twenty one because I want more selling tools and more selling outlets. I hope that answers your question. In terms of any changes in the land market, there's a little bit of opportunistic land buying and prices being changed into the back end of last year, 2018. Where people, were still keen to sell. And developers like me were saying, well, you know, I'm not sure if I wanna buy, but I might do if you give me a decent price. That situation's changed a little bit in the new year when the market start to realize that the the selling rates are similar to last year. So the market, land market has settled down. So I see there's any material change in the land market at the moment. Couple of questions for me. Sorry. It's Kevin Kamack at Saint Carlos. One of your key priorities that you mentioned was the supporting the brand. And I just wonder if you can talk a little bit about the role of Ashbury within this and and does this have a sort of ceiling on how how how big it can be. Does Artisan cover that? Just the sense of of where you think that business going forward, you know, is it actually growing faster than the group, or will it only grow with the group? And secondly, in relation to the, you know, obviously pretty strong hint that there are still new divisions that the business can open. When we look at it today, are you currently buying land to, you know, with a view to supporting those new divisions, for the future. And and in the longer run or the sort of maybe the medium term, if you were to to, you know, for every new division you tack on from 22, is there any sense you feel that the average size of delivery of each site actually comes backwards. So in other words, if you're optimum site, optimum division was 700, let's say. If you had 28 divisions, would that optimum size be 650? Or or do you do you still see yourself in a position where divisional growth equals the same multiplier growth, if that makes sense? Well, I've I'm I thought you'd do Brandon Ashbury. Do you mind? Yeah. Yeah. Yeah. Look, as asprey is, almost out with the main Bellway brand, and, you know, we talk about strengthening the brand in London and improving our website in Five Star and although sorts of things is to give people confidence to buy. Asking is always going to be a small part of the business, and its purpose is entirely to increase output on some of our larger sites because it dawned upon us several years ago. Look, if you have a big site and you're sharing it with a Barrett or a Wimpby or whoever, those larger sites tend to justify a higher sales rate by having more outlets. So we thought, look, we don't want to increase our exposure to big sites, but where we do have them, let's try and maximize the returns and get the cash in a little bit more quickly, and it's proven very successful in doing that. But because of that, it's purpose, its natural limit is never going to be much more than where it currently is at around about 5% of output because you're never going to have that many sites that lend itself to it. Does that answer your question? What's the smallest site that you're currently producing the product on? Hard. Can we can we come back on that? Well, I'm only trying to put something wrapped something around. You only use it on the larger side. So I mean All all of ash of ash. Oh, sorry. So 500 plus. You'd be a good 20250 plus before we'd start thinking about using Okay. I think Kevin just answering your other questions and in many ways answering them both at the same time, but if you looked at a 600 unit model in our business, which is fair to say is a reasonably sort of optimal size We've got about 10 divisions out of 22 that deliver 600 units or more across the group. And they might deliver 6 anywhere between 60900. So there's clearly potential to grow in some of the younger guys. But, Kevin, I would caveat some of these younger divisions I wouldn't invest too much land until they grow up and mature. I'd keep them at 3 50 or 400 because they're more junior. The management teams are more junior. And similarly, you know, I talk about earlier, Kevin, the the Huntingdon division, I never see that growing to 650 units. So I think there'll be a saturation point between Peterborough and Cambridge, and it will run at around 4 or 450, you know, they're they're what I call small to medium sized divisions. And in terms of am I buying land for the 2 new divisions that I've alluded to. The the way I do it I don't wanna give all my secrets away, but when I've got a division that may be, at 750 units, and I wanna start another division somewhere near it. I'll I'll say to them, look, guys, I know I've kept your land investment, but I'm gonna let you run a little bit. Because I wanna pinch some of your land maybe in a year's time. I wanna pinch some of your staff. Yeah. And I'm gonna seed my new division with the fruits of your labor, and that will kick off my new division. So I'd probably just let the rains go a little bit and the bigger guys and get them buy some more land. And if I change my mind in the autumn and say, I don't wanna buy it anymore, or I don't wanna open those new divisions anymore. I'll just leave the land within those divisions. And is there an optimum size, Kevin, you know, it's probably in terms of the size of the com company. I I look at, you know, the bigger guys, if I opened up 2 more divisions, it takes me to 24. TW are at 25. Bharat are at 27. Persimmon are 31. You know, that gets to a point. Would I be brave enough to start opening up in the more peripheral areas? Probably not. You know, you're you're getting to capacity at that point once you've grown each division up to a a reasonable size. Just one sort of final question to that then. Do do you I mean, if you take the the the sort of above average output per division, majors. What what do you think what would you need to do to actually get towards those levels of output, or is it something deliberate that you don't demand of your divisions to achieve that. Because what in a sense, what you're saying is you could go to the same sort of number of divisions as Barrett or Taylor Wimpey or whatever, but almost by definition, you're still gonna be, you know, 2000 or something completions behind them. Is there do you run? Is there something about how Railway runs its division that he's he's never going to sort of push the boundaries of competitive. Yeah. I think what what I would say, it gives me the capacity and the platform to keep growing a business. So once I've got that divisional structure in place, I can still carry on growing a division per annum and maintaining the build quality. I I think an impediment that I referred to in the presentation is people. I've only got so many star MDs that can deliver 900 units out of an office. And I feel if I if I put that burden and pressure and said to a young management team, I want 650 units out of you. I'm gonna suffer in terms of quality, and I'm not prepared to make those sacrifices. So if and when we open up more offices, yes, you're right. We're we're gonna have quite a strong operational structure. But it's going to give me, you know, 4 or 5 years of growth through that operational structure. So I'm quite comfortable with that. John Bell at Barclays. I think I've got 3. You've mentioned a couple of areas of the UK, that might be available for you to go into. Could could you be a bit more specific? 2nd, planning regime in London, keen for your thoughts, on that. And then finally, any material shortages that are presenting at present? In terms of the locations, John, If I could just hold you to the autumn because it affects people in our business, so I'm I'm just not ready to an I think Keith and I want to get through the spring selling season. Otherwise, people think there's, you know, big plan for jobs that don't exist sort of thing. Planning in London, the only disappointment about planning in London is how fast the planning applications come through. You know, there's a dearth of a four door housing in London, but there doesn't seem to be there's lots of talk of delivering faster planning permissions, but the reality hasn't changed any. So I think that's a little bit of a disappointment And what was the 3rd? Material shortages. Not really. Not not on material shortages. We haven't really come across any, particular issues or one above what we've all complained about for probably 6, 7 years now. It's having strategies in place to make sure that you've got the right the right amount of stuff on-site and working with those in the supply chain, but nothing untoward, John. I think I think the good thing on materials is where we'd we'd have, brick supplier problems across a number of divisions. Now, Persimmon have opened up their factory and make their own, concrete bricks. You know, I'd probably say John, I've 2 divisions grumbling about brick supply. So it's less, you know, it's less of a problem for me operationally. Ami Galla from Citi. Just one question from me. On the London Partnership business, I was wondering if you could tell us how quickly is that business scalable? And in terms of your ambition from that business, do you a sort of target of how what percentage of your mix would that eventually represent on a mature level? The partnerships will take a little bit longer to bring together just because of the nature of the sorts of sites you look to require the longer term, the more complex agreements. So it will take a few years before it gets up to capacity. And as we said earlier, it will start to deliver comp completions in the back half of next financial year. It's not going to be a lot more than a couple of handfuls in the next financial year. In terms of the size, we we look at it as being another division it's one of our 22. And it's a bit like Kevin's question there, how many kind of division deliver. I don't see why the division in that region can't do 6700s, but but it is just one division out of 22. Thank you. Did you answer me whether it's scalable? How quickly? Yeah. I'm, I have to, yeah, I suppose I'm, I'm gonna keep it in London for the time being, so I wouldn't let it, drift any further than that. And and the reason for for that, you know, there's so much demand for affordable price homes down here, but it's worthwhile putting all that effort in because the price point justifies us. So we're very we all talk about having a fantastic return on capital, but if the price point is close to nothing, then to return on nothing. So you need to have that, you know, there's high value units coming through for it to be worthwhile to justify the extra effort. Thanks. It's, Charlie Campbell of Liberum. Just a couple of questions, and they're both quite short. Just notice in the appendix that the proportion of flats has crept up, it's nothing at the moment, but is that the beginning of a trend as sort of affordability has got more stretched across the country or just a mix issue and, therefore, nothing to think about. And secondly, just as far as the spring seasons matured, Is there anything to say about mortgage availability? We're a bit clear about what banks are doing this year and any material change to mortgage availability in this year compared to last year? So flat is just entirely mixed. I think it's about 25%. Remember, we worked 50% when we were building in city centers. We're never gonna go to that level again, I think sort of 30% below fields in the appropriate sort of balance, and it's nothing more than mixing the mortgage availability, no changes. For us, it's still the main lenders who are providing the vast majority of our mortgages. I know we all read about higher LTV products coming in, but it's the challenger banks. It's the small local banks, building societies, and it's a tiny proportion of anything in our business where we aligned on the likes of the, make sure I keep everyone how how the facts the park is and that, you know, and everybody else to to provide the vast majority of the product for our customers. Robert Eason from Goodbody. Just I have 1 or 2, in in your presentation or or an answer to a question, you indicated that cancellation rates are probably creeped down to 12% recently. Is there any regional differences in in terms of what you're seeing in terms of, that cancellation shifts down. I know it's only a a touchdown. And in the in the actual release, this morning, you talk about, you know, early indications of some subcontract trades, you know, rates coming down can just be a bit more specific of what areas you're seeing that on? Yeah. There's nothing of note on the cancellation rates in any particular region. It's just an aggregate figure, and there's no one reading which stands out of having a different trend. There's nothing to read into that. And on the, the subcontract trades, what we're finding, is that there's still upward pressure on subcontract costs, but if you time it right in a particular locality, if you tender for your groundworks order, at the same time, as Barrett and Wimpey and everybody else, you'll pay a little bit more. But if you time it right, and somebody's just closed the site down the road and perhaps not delivering as much output, then you can get a good price and prices aren't increasing. I think that's what we're trying to allude to is It's not necessarily up up up as it was a couple of years ago. There's some times when it'll be flat. Is that all done? So just just to close, thank you very much. We're here for a while after the meeting, if you wanna talk, just to introduce you a few people, if you haven't met met them, we've got our chairman here, Paul Hampton Smith, who's just sitting at the back next to Phil Hope, our group financial controller. And most of you know, Simon, whose job title so long, I I I won't attempt it. But we're all welcome to, have a chat with us after the meeting. Thank you