Morning, everybody, welcome to the 2018 final results presentation. I am joined by Jason, our Chief Exec, and Keith Adey, the Finance Director, I think both of whom you know already. Today, I will highlight the key financial and operational achievements in what has been another great year for the group. Jason will then give you an update on strategy before Keith takes you through the results and the balance sheet. Jason will then round off with an operational review before we go on to take any questions you may have. Turning to just the key highlights. We have broken 10,000 homes barrier for the first time in our history, increasing volume by 6.9% to 10,307 homes. Return on capital remains high at 27.2%, and taken together, this has helped drive up earnings per share by a further 14.2% to GBP 4.234.
This has facilitated a 17.2% rise in the proposed total dividend, which is increased to GBP 1.43 per share. In terms of capital growth, the NAV per share has risen by 16.5% and now stands at GBP 20.79. Operationally, I'm delighted to say that we've maintained our status as a five-star home builder for the second year. The land bank is solid, and we have contracted to acquire nearly 13,000 plots, helping to ensure that we have all the land in place with the benefit of a detailed planning permission for this current year. Lastly, the order book is strong, and with new divisions planned and coming on stream, I believe we are well-placed to continue our disciplined and sustainable growth strategy. Jason?
Thank you, John. Before I talk about the results, I thought it would be useful to provide a brief overview of the market, set out our long-term approach to delivering value, and then explain how both of these have influenced our strategic priorities. Starting with the market, firstly, there is still a good demand for affordably priced homes in many parts of the country. Excuse me. Industry output in England is still substantially below the government's ambition of 300,000 homes per annum. I'm also encouraged that there remains cross-party support for the supply of new homes across all tenures. Brexit clearly poses considerable uncertainty in the wider economy, and we're yet to see whether the March leaving date will have an impact on our busy spring selling season. At the moment, however, with unemployment at a generational low, customer confidence is still holding up well.
Access to low-cost mortgage finance is good, and not only is this supported by a responsible lending environment, but we expect interest rates to remain low in the medium term. Help to Buy is providing a necessary boost to the sector, particularly for first-time buyers, who represented two-thirds of our customers using the scheme last year. Help to Buy is also providing access to competitive mortgage finance and critically helps people get on the housing ladder who would be otherwise unable to do so owing to the substantial deposit required to secure a competitive mortgage deal. Land availability is still good, supported by a generally positive planning environment. Our only frustration with planning is the time taken to convert an outline planning permission into an implementable consent and the period of time taken to discharge the many repetitive planning conditions that inevitably lead to delays in starting new developments.
Lastly, access to certain labor and materials remains a challenge, which whilst is probably frustrating the rate of growth in the industry, it's not insurmountable, so long as we continue to manage the business with a strong operational focus. At Bellway, we're adopting a long-term and sustainable approach to our business, and this requires a strategy that is flexible, which is particularly important when managing a business in what has traditionally been a cyclical market. We believe a long-term focus requires a quality product, a strong brand reputation, and critically, a strong focus on customer service. Our strategic priorities have been designed to provide a platform for further growth, yet also afford us the flexibility should there be a change in the market.
Conditions still offer the opportunity to deliver further value, principally through volume growth and return on capital employed, and this should lead to further value creation through capital and dividend growth. In seeking to achieve these objectives, we have four key strategic priorities, driving down costs, appointing the right people, strengthening the brand, and maintaining a flexible capital structure. Both Keith and I will return to these throughout the presentation, but first, Keith will give you an overview of the results and the balance sheet.
Okay, thanks, Jason. Good morning, everybody. I just plan to take you through the results, balance sheet and cash flow in the usual manner.
Starting with the results, you'll see that the 6.9% increase in volume, together with a 9.4% increase in the average selling price, which rose to GBP 285,000, resulted in housing revenue rising by 17% to over GBP 2.9 billion. This is 2.2 times higher than the level achieved in the pre-recession peak of July 2007, evidenced in the rapid rate of growth achieved by Bellway. Other revenue reduced to GBP 21 million and mainly includes the usual receipt from the disposal of freehold reversionary interests on apartment schemes, which was GBP 11 million in the year under review. As a reminder, the prior financial year included an unusually high ground rent sale receipt of GBP 33 million.
In the current financial year, we're hoping to dispose of a further ground rent portfolio, but beyond FY 2019, the legislative outlook is more uncertain and hence ground rent sales may no longer be a recurring source of other income. Gross profit rose by GBP 92 million to GBP 753 million. Operating profit rose by over 14% to GBP 653 million, with an operating margin of 22.1%. The strong trading performance resulted in PBT rising by over 14% to GBP 641 million, and earnings per share rose by a similar percentage to GBP 4.234. The growth in volume was mainly driven by an increase in the number of private completions, which rose by over 9% to 8,263. A total of 348 homes were sold using our Ashberry brand, which accounted for 3.4% of output.
This may be relatively small, but it's equivalent to a small division's worth of additional units that we were able to sell with no real change in the overhead. We use that brand only on those larger sites where there is scope to have dual outlets. Whilst there's still potential for Ashberry to grow, we won't use it as a tool to justify buying larger sites. In addition to completions on fully owned sites, our share of output from joint ventures was 42 units and dependent upon build programs, this should increase further in summer 2020. The private average selling price rose by over 9% to GBP 323,000, with the rise mainly influenced by investment in desirable but still affordable locations across the country where demand is strongest and sales proceeds therefore tend to be a little bit higher.
Notwithstanding this increase in selling price, our core focus remains on affordably priced middle market family housing. This has influenced our strategy on both land buying and standard house types, as Jason will outline later. Affordability is location specific, but our exposure at the upper end of the market is limited. As a generalization, outside of London, the market can be slower for homes priced over GBP 500,000. This represented only 9% of completions in the period. Within London, the market is slower for homes priced above the Help to Buy threshold of GBP 600,000. Again, homes in this price band constitute a small part of overall output, representing only 4% of total completions. Naturally, Help to Buy continues to be an important selling incentive, and it accounted for 39% of completions.
In addition to Ashberry, it's our six most recently opened divisions which are making the greatest contribution to growth. Their output grew by almost 25% in the year, and in total, they accounted for 22% of homes sold. Adding further new divisions to the structure will be key to delivering future growth. Out of our 13 more mature divisions, seven are now delivering output in excess of 600 homes per annum, a reflection of the strong market which has helped augment returns. Our Scotland West division is a good example, completing the sale of 794 homes, thereby enabling it to spearhead the opening of our 20th division, Scotland East, on the 1st of August 2018. London is still really important to Bellway, but it represented only 11% of completions. Our average selling price in the capital, if you take out Nine Elms, was only GBP 376,000.
Not only is that price point affordable in the context of the London market, but we're still seeing demand robust at that sort of pricing. Nine Elms is still performing well, and it contributed 132 completions in the year. Those, together with prior year completions and exchanged reservations, mean that we had only 62 apartments left to sell at the 31st of July. We expect Nine Elms to be build complete in winter 2019 and still anticipate that the final site margin will be better than our acquisition assumption. Looking at the operating profit bridge. As I guided last October, the rise in average selling price was the major driver for growth. The increase in volume was also important, adding a further GBP 45 million. The chart shows that GBP 31 million of this was from growth in our six newer divisions.
The profit contribution from the disposal of freehold reversionary interests was GBP 17 million less than the prior financial year. As a result, the ground rent disposal contributed 20 basis points to the gross margin, a reduction of 50 basis points compared to FY 2017. Following the events at Grenfell, we have, as you would expect, undertaken a detailed review. We've identified a small number of high-rise buildings where ACM was used. All of these obtained the appropriate building regulation sign-off at the time. Nevertheless, as a large responsible developer, we believe we've got more than just a legal obligation to our customers. We're therefore working with others to design replacement solutions where it is appropriate to do so, and we believe the net cost to Bellway of any remedial works is less than GBP 6 million. This is fully reflected in the reported gross margin.
I'm drawing this out not because I see it as a material sum, but to give you some comfort that we believe the expected costs of remediation are fully reflected in the balance sheet. Adjusting for these non-trading items, the underlying housing gross margin remained very similar to the prior financial year. However, the benefit of house price inflation, which affects the margin in the future, is less pronounced than it was previously. You may recall we used to talk about achieving price rises of 10%-15% when new sites in London were first released to the market. This is simply no longer the case. Hence the challenge going forward will be to offset some of the reducing benefit of house price inflation with improved land buying hurdle rates and a reinvigorated focus on cost control.
In relation to the administrative overhead, cost increases reflect investment in new staff and new divisions in order to achieve growth. The demand, and hence cost of employing skilled staff remains high. The absorption rate has again improved as the newer divisions gain critical mass. We will be investing again in the year ahead in a cautious and disciplined manner. Overall, the operating profit rose by over 14% to GBP 653 million, and the operating margin was 22.1%. In the current financial year, the operating margin achieved will depend upon site mix and the extent to which we capture future house price gains. There will inevitably be some moderation in the future, reflecting the lower inflationary environment. Jason will therefore explain some of the positive cost control initiatives that will help to protect the margin over the longer term.
I've included the balance sheet for reference, the investment in joint ventures includes our site at Fradley and our longer term site at Pontoon Road. It may be small and meaningless to all but a handful of people, but it would be remiss of me not to point out that at last, after 12 years of IAS 19, we're able to report a modest pension surplus, albeit it is just over GBP 1 million. Perhaps more meaningful in the context of the balance sheet is our investment in inventories, which I will come on to next. The total amount invested in land has risen to GBP 2 billion, with some GBP 1.7 billion of this relating to the 27,000 plots which have the benefit of an implementable detailed planning permission.
The additions to the top tier of the land bank have a plot cost of GBP 64,000 and an expected average selling price of over GBP 270,000. The overall average plot cost in this section of the land bank is just over GBP 62,000, and the average selling price is around GBP 290,000. As a result, there should be further, yet more moderate growth in the average selling price, which in the year ahead I expect to be slightly in excess of GBP 290,000. Whilst the average selling price should rise, our exposure to particularly high-value units is low, with only 5% of plots with a detailed planning permission above the Help to Buy threshold of GBP 600,000. Our pipeline of owned and controlled land, where DPP is expected within the next three years, has risen to 14,200 plots. Taken together with the DPP land, this provides a land bank length of four years.
In addition, our strategic land holdings have risen to 8,500 plots, I stress this includes only those that are allocated in local plans or are the subject of current planning applications. The investment in construction-based work in progress has been a major driver for growth, it has risen slightly to GBP 1.1 billion, but as a percentage of housing revenue, it's fallen slightly to 38%. As 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. As always, we're careful about build releases. We seek to optimize investment to achieve growth whilst ensuring the balance sheet is not exposed to undue risk. Our proportion of units released to build but not yet sold is the same as it was this time last year.
The amount invested in part exchange properties is closely monitored, but it's risen to GBP 47 million, reflecting a slower secondhand market. The group is financed by retained earnings, bank debt, and land creditors. We're significantly cash generative, producing GBP 648 million from operations before additional investment in the land and construction-based WIP. It's this continued investment that has allowed us to more than double revenue since the pre-recession peak. After investing in land and site construction to achieve growth, the cash generated from operations was GBP 376 million, representing almost 58% of operating profit, compared to 45% in the prior year. Overall, after paying the dividend, tax, interest, and other minor items, we ended the year with net cash of GBP 99 million, representing an ungeared balance sheet. Even inclusive of land creditors of GBP 365 million, gearing was low at only 10%.
Should the rate of growth reduce over a sustained period, there will be less requirement to invest in land and WIP, hence, there will be more capital for return to shareholders. In terms of the dividend, I'm pleased to confirm that the proposed final dividend will rise by 12.4% to GBP 0.95 per share. If approved, this will mean that the total dividend will rise by 17.2% to GBP 1.43 per share, representing a cover of three times. The compounding effect of reinvested earnings back into the business means that this dividend is now 3.3 times higher than the pre-recession peak of GBP 0.431 per share. Notwithstanding the future growth potential in the business, the total dividend yield based on yesterday's closing share price of just over GBP 28 was over 5%, demonstrating the inherent value in the group.
We retain the ability to be flexible with regards to dividend payments, for the foreseeable future, I expect that we will maintain a cover of around three times earnings. Our approach to growth requires an ongoing focus on return on capital employed, this has remained high at 27.2%. Post-tax return on equity was also high at 22.1%, even with a lowly geared balance sheet. Over the past three years, revenue has risen by almost 68%, earnings have increased by 84%. In addition, the growth in NAV and dividend over the same period represents an annualized accounting return of 23.3% per annum. Going forward, we see further potential for growth, Bellway remains agile. We're able to respond to new opportunities or to changes in market conditions, but always with the overriding objective of making the right long-term decisions for shareholders.
Thank you, Keith. I'm going to provide an update on operations, then trading. Starting with growth from new divisions, we have opened seven new offices since 2013, over the same time, we've increased volumes from 5,600 to over 10,300 units in FY 2018, representing an increase of over 80%. As Keith mentioned, Scotland East is our newest division, opened on the 1st of August, combined with our Scotland West division, has the capacity to deliver 1,200 units over the next two years. Further expansion is planned with two new divisions, Eastern Counties and London Partnerships, these will both commence construction in this financial year and contribute to completions in FY 2020. Eastern Counties is based in Huntingdon and will focus on good value family homes between the cities of Peterborough and Cambridge.
With London Partnerships based in East London, we'll focus on strong relationships with RSLs and local authorities, this new division will concentrate on lower cost homes in London, where the shortage is most pronounced. Partnerships is not a new initiative for Bellway. Our Thames Gateway and Essex division have previously carried out a number of regeneration schemes and joint ventures. This is the first time we've set up a bespoke division. In setting up the partnerships division, we've already placed our Barking Riverside project into the new team. This is where Bellway acts as a delivery partner to the GLA and the L&Q Housing Group. I'm also pleased to report that we have a further 800 plots with heads of terms agreed in pipeline, with other RSL partners, which we should start towards the summer of 2019.
In addition to the growth opportunity from partnerships, the pre-funding profile of such schemes will allow us to improve our return on capital employed in line with our strategic objectives. As Keith has already mentioned, it's the investment in these new divisions that is driving our growth. This new structure of 22 divisions generates a capacity of around 13,000 homes and gives us the platform to deliver growth in the future. Beyond that, our business remains scalable and there is scope for further expansion in years ahead. Turning now to growth from land acquisition. We've been active in the land market. Plots contracted in the year to date total around 13,000 across 100 sites, and they're expected to produce an average gross margin of around 24%.
Outside London, our land buying has been focused on Bellway's traditional market of good value family homes, and our land buyers are working hard to ensure that we have the right product mix and in locations that attract stronger selling rates. This means fewer larger homes and homes above the Help to Buy limit of GBP 600,000. Inside London, our appetite is generally concentrated on the greater London boroughs and the commuter areas with an ASP of around GBP 375,000, where we continue to find a robust selling market. Recent larger acquisitions include St George's Hospital in Hornchurch, a former Tesco site in Dartford, a former Waitrose site in Chelmsford, and some redundant retail land in Lakeside near Thurrock. All of our sites are still sourced locally in the divisions, but we continue to approve all land acquisitions through our head office land buying team.
This discipline allows us to strictly manage the level and size of investment, but also gives us a greater control over units mix and ASP. Strategic land has also been the subject of further investment. Our strategic land holdings continue to grow in size and our investment is now starting to bear fruit. During the year, we've promoted over 2,700 plots from our strategic land bank into our owned and controlled land bank, and we anticipate further successes in the short term. We've also signed up a further 27 options during the year, which could ultimately provide planning permission for over 7,000 plots, albeit only 2,700 are included in our land bank as a measure of caution.
By way of example, we recently exercised an option in Maidstone in Kent where we secured detailed planning permission for a scheme of 250 units, this was part of an emerging local plan and was acquired at a discount of 12.5% to market value. Overall, our strategic land bank of 8,500 plots is providing a useful source of supply as we continue to grow in size, and I anticipate further investment in this area. Turning now to costs. Bellway has a strong culture of cost control running through the group, but cost pressures still exist for labor and materials, and gaps still exist in the supply chain, albeit they are more manageable and appear to be abating in some parts of the country. Overall, we expect costs have increased by around 3% in the year.
As Keith points out earlier, the benefits of house price inflation are beginning to reduce, we need to mitigate the impact of these cost pressures and drive efficiencies through the group. Our approach to this is simple but effective. A new standard house type range, a new standard specification, and a new group head of procurement. These three drivers are there to simplify and modernize the build process, enable us to accelerate build times and buy materials in greater volumes at lower prices. We are also modernizing our IT structure. A new COINS valuation system is currently being installed across the group over the next 24 months. An improved visibility on costs will allow us to manage developments more efficiently, but also provide greater visibility when buying new land. Turning now to the new house type range. Central to our cost objectives is the Artisan Collection.
Initially comprising of 24 newly designed homes ranging from two to five bedrooms. 80% of the range is sized under 1,200 sq ft, which positions us firmly in the market for good value family homes. Since its launch in June 2018, the Artisan range has already proven to be very successful. We have plotted the house types on 44 developments across the country, totaling some 6,000 plots. The first plots are expected to receive planning permission in November of this year, with the first Artisan home being occupied in the summer of 2019. The key theme of this range is the flexibility of the elevational treatments. Each house type can be plotted with either a brick, weather boarding, tile cladding, or rendered elevation. This allows us to create a variety of street scenes and address particular design codes and character areas, yet still meet my ambition of standardization.
This approach maximizes the usage across the country, which explains why I have been able to plot some 6,000 homes in such a short space of time. Our internal layouts have been based on customer feedback and represent the way people want to live today. Similarly, our new standard specification is developed for living in 2020 and beyond. Some of the new features include hard wiring for broadband, USB points, LED downlights, and notably, electric car charging points on some of our new developments. Aside from the new designs and features, our house types are more efficient and easier to build. Early prototypes and detailed program have indicated we are able to accelerate build times by up to two weeks per house. Cost benefits are also significant. Initial estimates project build cost savings of around GBP 2,000 per plot, driven from design, marketing, prelims, and build costs.
Our second strategic priority is about appointing the right people. We invest in people. We put people first, and everyone is encouraged to make a difference and develop and progress in their own careers. This creates a very successful and positive working environment, and it's this operational strength that has afforded us the opportunity to grow volumes, yet still improve our standards of quality and customer service. We are members of The 5% Club. This is a young person's initiative designed to ensure that 5% of our staff are either graduates or apprentices across the group. We are also developing a site agent training scheme for managers at every level, the purpose of this is to design a set of training courses for site managers at all levels of experience, but all focused on quality, customer service, and health and safety.
We hope to have this training program in place for the summer of 2019. I also want to focus on stronger brand recognition, and we are committed to maintaining our five-star status as a house builder. This year, we achieved a record score of 92.1% for customers who would recommend Bellway to a friend. We are only one of two major national house builders to achieve this accolade. Last year, our site managers won 49 NHBC quality awards. Relative to our volume output, this is the strongest performance in the sector. Our website has also been revamped to improve the customer experience when buying a new home, and also better capture potential sales leads. We recognize customers' approach to buying a new home is evolving, and the internet is now the primary lead from all of our sales inquiries.
Our new website offers a fresh new look, a much improved search and functionality. We've also introduced a Bellway London logo to complement our existing corporate identity, with the intention of improving our visibility in London, but also in a more consistent and cost-effective manner. Turning now to trading. During the year, the group benefited from modest house price gains, perhaps 1 or 2%, with these being more pronounced on affordable homes in good residential locations. Our reservations were up 7% at a rate of 200 homes per week. Notable performances were delivered in Scotland, East Midlands, and Essex, demonstrating a strong performance in a wide range of geographical locations. Average outlets have also increased by over 7% in the year to 247, and importantly, we expect them to rise again in FY 2019 to 264, a further increase of 7%.
Our cancellation rate has also remained static at around 11%. Now for current trading. Sales in the first nine weeks since the 1st of August are up by almost 3% at 176 homes per week. Our order book at the 30th of September is also up by nearly 8% to almost GBP 1.5 billion, which albeit this reflects a lower number of completions in the year to date. 68% of our order book is also contracted. Finally, outlook. Scotland East is now opened. As mentioned earlier, further divisions come on stream from the 1st of February and will deliver completions in FY 2020. We are mindful of the uncertainty surrounding Brexit, and we will wait to see whether customer sentiment is affected during the busy spring selling season. That said, we are well-positioned as a business and I have three key messages.
Firstly, standardization of our product will drive down costs and help mitigate margin pressure in the future. Secondly, our London partnerships business provides an excellent opportunity to deliver more homes in London and already has a pipeline of some 1,300 units. Finally, with 22 divisions, we have the platform to deliver further growth both this year and beyond. Thank you. Well, thank you for listening. I don't suppose anybody has any questions, but just on the off chance. Yeah, fire away. We've got a microphone, I think.
Yeah. Sorry, it's Charlie Campbell at Liberum. Just a couple of questions, please. Just on, in terms of volumes, you've typically tended to give volume guidance for the year ahead. I note this year you've declined to that. Is that a change of style, and we should expect that we won't see volume guidance again? Just there's too much uncertainty and therefore you've decided not to? A second question. You gave a gross margin on land acquired at 24%. Just wanted to check, I presume that's before the benefit of standardization, but just wanted to be clear on that.
If I do the first one, you do-
Yeah
the second one, do you mind? Charlie, it's not an indication that we're not going to give volume guidance in the future. I think we're in a strong position for the autumn. We're in a position where we have an increased number of outlets this year. We've got the WIP in place. We've got the staff in place to deliver, and we expect to deliver growth of around 500 units this year. We just want to make the point that it's probably less pronounced than last year because we're a little unsure around the uncertainty surrounding Brexit. I think it's important to note that you'll be aware that in FY 2018, all or most of our volume growth was delivered by private sales, and it often swings with the pendulum. This year, we can deliver volume growth through HA.
That's why we don't want to be too confident, but we're in a good place, but we've still got this Brexit smack back in the middle of the spring selling season.
In terms of those land buying rates, the 24% is before any cost benefits come through. The challenge in the future is then to make sure we capture those and nudge up or attempt to nudge up those hurdle rates as we go into the next few years.
Thanks. Will Jones from Redburn. Three, if I could, please. The first, just to double-check in terms of the new house types, the phasing of that in terms of the next three years or so, how do you expect it to come through in terms of their share of completions, please? Second one was just around, I guess, cash flow. The free cash last year stepped up quite significantly compared to the previous couple of years. Was that a conscious effort for the business, or was it just the way that, I guess, the timing of certain investments dropped? Perhaps you'd give us some feel as to where you think net cash might end July 2019, please. The last one was just around Help to Buy. You've highlighted that two-thirds of your Help to Buy users are first-time buyers, so a third are home movers.
It seems likely that component of Help to Buy properly will get taken out with the next government review. That's what we're led to believe. How confident are you that you can retain that portion of customers that aren't first-time buyers within your sales mix? Could they still transact, do you think? Do they contribute decent deposits anyway, or just any thoughts on that chunk of sales that, I guess, could be at risk?
You can do volumes then. Yeah.
Our design, if depending if we get the planning, we think a handful this year. In FY 2020, we're talking about 500 to 1,000 units. In FY 2021, I would be thinking of 1,500 to 2,000 units. That sort of rate of progression. Obviously as we progress those sites through planning, we'll give you more detailed guidance, Will, on that. On the cash, I think one of the reasons we're beginning to generate a bit more cash is, as I was saying in the speech, we've delivered, what, 68% revenue growth in three years, 17% last year. We're not going to do that this year. There's inevitably a little bit of a moderation in terms of the rate of revenue growth. That's made us a bit more cash generative.
In terms of investment in the year ahead, I would be thinking if we can convert, I don't know, 60% of operating profits into cash, that would be a good starting point for us. In terms of where we might end the year, I'm expecting a very similar trajectory of debt in the year ahead, so a similar peak of similar average, and we'll probably end with about GBP 100 million again, I would think at this stage.
Will, just on Help to Buy. I, like you, are expecting an extension in the fullness of time and hope we'll hear on the 29th of October. I don't know whether it's going to be capped on amount or salary or first-time buyers, as you suggest. You're right to point out there's a third that are non-first-time buyers. We genuinely don't know how many people in that third would have bought the house anyway. It just seems to us that where we are today is probably wrong when you're seeing customers on GBP 100,000 plus salaries buying homes for GBP 5 and GBP 600,000. They could probably afford to buy anyway. I can't answer your question specifically, I would guess a large proportion of those have the ability to buy anyway.
They're just taking advantage of these amazing commercial terms, it's probably going to be thinned out along the way.
You take some comfort. If you take London out of the mix, not necessarily directed at first-time buyers, but our average Help to Buy selling price is GBP 285,000, below the group private average selling price. It gives us some comfort that we haven't got a lot of exposure at the higher end of the Help to Buy market.
I mean, the important thing, Will, on Help to Buy for us is the deposit. It critically gives you a deposit, and it enables you to get a decent mortgage deal. The difference between non-Help to Buy mortgage offer and Help to Buy is significant in terms of coming out your monthly pay packet. I mean, that's the issue for young people today.
John Bell at Barclays. I think I've got three. The first one on the 2019 ground rent sale. Is that something that you've exchanged contracts on already, or you're hoping to do that in the near future? The second one is on the part exchange increase that we can see. I think you referred to a slower second-hand market. Which period specifically are you referring to? Has there been an intensification in that slowdown more recently that you've seen? Finally, just on those last nine weeks trading stats, what's the growth in open site numbers year-on-year?
Yeah. Okay. In the ground rents for FY 2019, we haven't exchanged, so there is obviously some, a degree of uncertainty there, but we are progressed with contracts. On the expected quantum of the receipt, it is sort of high single digits, sort of GBP 8 million, GBP 9 million, GBP 10 million, that sort of order. On part exchange, I'm probably comparing to, I mean, there's a generalization and a trend over the past couple of years, and you're probably talking about PX holding times now 3-4 months. If you asked me three years ago, I probably would have said 1-2 months. It's probably just edged out over that time period, fairly incrementally. That's what's driving that. Just to give you a little bit of comfort behind that balance as well, of that GBP 47 million, as at July, 60% of that was already sold on.
There's a capital cost. The risk to the company is relatively moderate. In terms of outlets, I knew somebody would ask me that. Our outlets in the first nine weeks have followed the trend last year. They're about 7% up.
Alasdair down the front.
Alasdair Stewart from Stockdale Securities. Three questions, please. First of all, you talk about Brexit being a possible threat in the spring. Are your sales team seeing any change in buyer patterns, number of people coming to sites, how long they take to actually firm up, et cetera? Second question is, the average value of plots bought during the period was down from GBP 65.7 to GBP 64. Does that reflect a change in geographical mix, size of plots, strategic land coming through, or are you just driving a harder bargain with your land vendors? Finally, what exactly does GBP 376,000 buy you in London? Is it an apartment? Is it a flat, I should say? Is it in zones 6, 7 or wherever they go to? What's the average unit that you can buy in London at that price?
Okay. I'll do one and three, and you do two.
On Brexit, Alasdair, I'll just break it down and look at the facts for me, then we see where we're going. If you went back to June 16, I'll tell you what happened then, at the referendum, there was a certain amount of panic and armageddon and doom about. The reality, what materialized, that was only London was nervous, and the rest of the country got back to normal quite quickly. If you look at year to date on sales, we haven't been impacted year to date by Brexit. When I go around the country, I get a similar pattern. If I'm in Redcar or Rotherham or The Wirral or anywhere, I don't get asked about Brexit. There's less concern.
As soon as I come into London, I was in Greenwich last Friday on a development, and the sales advisors there were asking me about people are worried about Brexit. It's a very much a London-centric thing. London's nervous. London's a little bit more sensitive. The rest of the country, if I was to say they don't care, I don't mean it, but it's that sort of thing. We're selling homes to people who need to buy a home because they've got a growing family. It's that family market. I would guess, and it's a guess, that when we get to the spring next year, a similar pattern will materialize, unless a deal is done sooner, and the whole thing calms down. I'm not seeing it through sales rates at the moment.
Now, on the plot cost, I thought there's nothing behind that. It just moves about. To give you a spread geographically, half the plots were what we call the north of the company for these presentations, half were in the south. That's very similar to last year. Maybe a little bit more strategic land coming through, perhaps 15% of the additions to the top tier would have originated from a strategic allocation. Probably that was closer to 10% last year. I'm not sure that's driving the plot cost difference. I think the fundamental point is the margin which we're buying those land on is still around 24%, as it was in FY 2017.
In terms of, I don't know if you're registering a sales interest in some of my properties. If I just mention those I know it does sound modest, but in terms of where we are, if I mention them sites that we've acquired in the last sort of six to nine months. In Hornchurch, for GBP 375, you could buy an apartment off me or a two-bed house. You wouldn't quite make a three-bed at that level. When I'm in Dartford, it's all apartments, Alasdair. When I'm in Bexleyheath, it's all apartments and two beds are GBP 350-GBP 375. Where else was I? I was in, Barking. That's a market. Lakeside in Thurrock, you'll get a three-bed house at GBP 375, but you won't get beyond that, and you can get a one or two-bed flat. We're very much fringe, Alasdair. We're not into the sexy bits.
We're where there's still robust interest, as we call it.
Morning. It's Gavin Jago, Peel Hunt. Just one really. Just on the margin and the dynamic between house price inflation and your build cost. The 1%-2% that was mentioned in the trading review, what have you got in the forward order book at the moment? Is it kind of at the lower end of that?
Well, the way I would explain that is we've been seeing, as you've rightly said, price increases of 1%-2% in the costs around 3%, but the pricing gains are still offsetting the costs, so they're still adding to the profitability to the business. However, they're probably not enhancing the margin as they previously were. Over the past few years, though, we've managed to increase land buying hurdle rates from 22 to 24. One's partly offsetting the other, and embedded within the forward order book at the moment, I think we've probably got a gross margin of around 25%. There's still a little bit of an enhancement sitting with, at the moment. It's still I don't want this to be a negative message. Actually, the market is still producing additional profitability because of inflation.
It just doesn't mean that that margin is going to go up and up every year.
Morning. Yeah. Chris Millington at Numis. Just two, if I can. Firstly, just on partnerships. I think most people understand partnerships to be kind of a lower margin, higher ROCE sort of play. I just wonder if you could kind of talk around how you think it's going to influence the group margin and potentially, kind of where it could get to in a few years' time. The second one is just really a continuation from Gavin Jago's question there. Just really about expectations for kind of build cost inflation going forward, just areas of kind of note and just kind of how you see that directionally at the moment.
In terms of partnerships, my ambition is simply to get it to one of our larger size divisions, Chris, 600, 700 units. I don't plan it to be a Countryside or a Galliford Try type model. It's in addition to what we're already doing London, and it's to complement our existing structure. You're right to suggest it will be a lower margin type product, but it won't just focus on longer term regen where we're doing 10-year projects. It's going to be just like we are on strategic land. We like the smaller stuff that we can get in and out, and we're happy to do build contracts, we're happy to put equity in and do joint ventures, we're happy to do regeneration schemes. Then you get a variety of margins, ranging from 15%-20%. It won't just be one type of model.
In terms of build cost inflation, the biggest spike we have just at the moment, and it changes every quarter, is bricks and blocks, and there's a pressure still on supply and there's a pressure on costs. I take the view that when Ibstock open in Leicester at Christmas, I take the view when Persimmon are fully on stream with their new concrete brick factory, that they'll ease the supply-demand issues and costs will come off a little bit. I'm less concerned on that. Chris, there are still hotspots and cost pressures in the country, but it's not all over. We're finding some developments in some areas now that the cost pressure's starting to calm down. We don't see the trajectory going up. We almost see it flat, ebbing downwards on cost pressure.
Thanks.
Thank you.
Morning. Andy Murphy from Bank of America Merrill Lynch. Got three. The first question, perhaps the most important. Just on the sales rates, if you stripped out the newer divisions and looked at your more mature divisions, I was wondering what you could tell us about the sales rates you're seeing there. I get the idea that you're adding divisions and therefore the overall sales are probably up. I was interested in on a like-for-like basis in the sort of more mature areas. Secondly, could you just talk us through what is happening on incentives across the range of purchase prices, if there's any change there. Finally, on the COINS IT system you're introducing, could you give us a feel for what that's costing, whether that's material or not?
Thank you.
I think what's more important to us which drives sales rates is new sites rather than divisions. Whether that site's in an existing division or a new division doesn't really make a difference. Broadly speaking, those six newer divisions are probably contributing around 25% to the overall group sales rate at the moment. They have opened in five years, since August 2013, but they will be about a quarter of the overall business now. Incentives, this isn't double the figures I've already given you. The inflationary figures I've talked about, I think, are net of incentives. I would say incentives have maybe crept up from 1.5%-2% across the group to maybe 2%-2.5%. Again, that's not on top of a reduced inflation figure. That's within those reduced house price inflation figures. You shouldn't add those two together.
In COINS, you remember COINS has got a very long life to it. Over a five-year period, we think the total cost, including all the people, some of which are people who already exist, but the allocated cost is of the order of GBP 6 million over five years. Just over GBP 1 million a year.
Ami Galla from Citi. I was wondering if you could give us some color in terms of mortgage lenders and how their behavior has changed over the last 1 year. Are you seeing more pushbacks on valuation? Is the availability become more tighter for your average customer? Any color here would be interesting.
I haven't seen any issues in terms of availability. Perversely, there are better mortgage deals out in some places, despite interest rates going up. The only detail I can give you on down valuations, because I've read the same things that you've read, Ami, is, I ask all the businesses, we have had a handful, 2 handfuls at the max, predominantly located in London and the Southeast. We think they're all on the back of the Mark Carney comments. It hasn't grown. It hasn't got bigger. It may disappear next week, but it's a thing we monitor on a weekly basis. It was just patchy, and it came all of a sudden. If I said I had 10, that's as much as it is across the group.
Sorry, I'm not asking another question.
You're going to sing a song, yeah.
I'm going to sing a quick song. No. All I wanted to say is, as many of you will know, it is John Watson's final outing.
Yeah.
I'm going to sing a song for you, John. No, he's clearly been 40 years at Bellway, a big chunk as CEO and Chairman. He's going to be replaced by Paul Hampden-Smith in December this year. I think you'll all know the company's clearly gone from strength to strength during his time period. I was going to actually mention some of the TSR stats, but Keith and Jason have given me a better stat to mention there. That stat is, in the year you joined us, or the year you took on the CEO role, I think Bellway was doing around 5,700 units. Roughly 10 years later, you took on the chairmanship and the business was doing around 5,700 units. That was them, not me.
Clearly, there was a little bit of an intervening period there where the GFC kind of hit things for six.
Everybody should make a difference. That's something.
Just to say, John, congratulations. I think everyone will thank you for your time at Bellway, and I hope you have a good and long retirement.
Thank you very much. Thank you.