Good morning or good afternoon, and welcome to the Crest Nicholson preliminary results for the year ending 31st of October, 2023. My name is Adam, and I'll be your operator for today. If you'd like to ask a question via the telephone during the Q&A portion of today's call, you may do so by pressing Star followed by One on your telephone keypad. It's now my pleasure to hand the call to Iain Ferguson, chairman of Crest Nicholson, for some opening comments. Iain, please go ahead when you are ready.
Well, good morning, everybody, and welcome to the Crest Nicholson’s results session. As you will have seen, we issued two separate RNS announcements this morning. And I want to deal with the first of those, which is about Peter’s decision to retire from the company. Peter was appointed as CEO to Crest Nicholson in 2019. I think we can all agree he’s chosen one of the toughest five-year periods to be the CEO of our company. Just thinking about it, you think about COVID, you think about cladding and combustibles, you think about conflict in Ukraine, you think about a CMA inquiry, you think about changing Conservative governments and their policies, to name just a few of the bigger issues.
All of that goes together to create a very complex and challenging environment for any business, especially one where consumer confidence is hugely important and critical. Throughout this period, Peter has led Crest Nicholson with huge commitment, great fortitude, and the intuition about the industry and that ability that comes from, well, from a lifetime of experience. Peter will leave the business in very good shape. We've made progress in many ways, despite the tough conditions, and he leaves the business well positioned to grow and to prosper into the future. So, Peter, a big thank you for all that you have done, and we'll have many future chances to say that, opportunities to say that. I'm also very pleased to be able to announce that Martyn Clark will be joining us as Chief Executive later in the year. We've gone through an open recruitment process.
We used Russell Reynolds for that. Martyn is currently Chief Commercial Officer at Persimmon PLC, where he's been for around 9 years. 28 years, the 28 years before that, he was at Bloor Homes, right across the business there. So Martyn will bring great industry experience to us, and this will be of huge importance to Crest Nicholson at this very important time for the group. We look forward to welcoming Martyn when he joins us later this year, and Peter will be around to make sure that there's a smooth handover, and in a very orderly way, Martyn will take over. Now, for what I guess will be the final time, I'd like to hand over to our Chief Executive, Peter Truscott. He will take us through the results presentation.
Peter is joined this morning by Bill Floydd, who, as you know, joined us towards the end of last year. As you will see, as we go through, through the presentation, Bill has already settled in very well, and we're very, very pleased to have you with us, Bill. So, Peter, if I may, over to you.
Thank you very much, Iain, and thank you so much for those kind words. Obviously, my own focus will continue to be on operating the business until the day that I finally leave. Just a few words, actually, on Martyn, because I don't think everyone in the room will know Martyn, but he's very well known and very respected in the industry, and I think the company is very lucky to be able to have recruited Martyn. I think that his skill set is absolutely perfect and well aligned with what we need to take this business forward, and I very much look forward to Martyn joining the business and handing over the reins to him later in the year. So on to the more formal events for today. If I could start with the agenda.
These, of course, are our full year results for the period ending thirty-first of October, 2023. As introduced by Iain, I'm, of course, Peter Truscott, Chief Executive. These are the areas we're going to cover. I'll begin the session by setting out a brief overview of the year before handing over to Bill, who'll provide a comprehensive financial review, in which, among other topics, he'll provide some color on the Farnham project. When Bill is finished, I'll then provide an overview, an overview of the market, update you on the progress against our strategy, and give you an outlook for the year ahead. And finally, as always, there'll be plenty of time at the end for Q&A, and we'll try to answer those as fully and candidly as you would expect us to. Starting with the introduction.
As you're all aware, 2023 was a challenging environment in which to operate at a macro level, a sector level, and indeed, for Crest Nicholson. We came into the year on the back of the ill-fated Truss-Kwarteng mini budget in the autumn, and sales were pretty tough in that period. We then saw a period of improvement in the spring, followed by a particularly tough summer when interest rates rose sharply, and then we saw a return to some stability again in the autumn. Overall, we expected a tough year, and we got one. Even against this backdrop, however, we are disappointed with a poor profit outcome, with PBT pre-exceptional GBP 41.4 million. A result driven by both the external market factors, as I've already mentioned, and also cost overruns. As already mentioned, the market was volatile, and our SPO rate reflected this.
We had two quarters of acceptable sales rates and two of poor sales rates. Our strategy from the outset was to prioritize protection of sales price over volume. We believed that price falls across the market would be quite limited, as they were, and we understood that the land market would only get tighter over time, and this was also the case. Cost inflation was more persistent than we expected and impacted us to a greater degree, albeit this had moderated towards the period end. Similarly, we suffered from cost overruns, particularly at Farnham, and this impacted our performance. Given the tougher market conditions and constraints to growth brought about by the planning system, we've chosen to streamline our operations. We've reassessed our geographical expansion, moderated staff levels and resources in all of our divisions, and wherever possible, we have sought to reduce costs.
During the year, we did invest in land. We believe that land supply in the medium term will be severely restricted by the planning system, and for a limited period in 2023, high quality sites became available on attractive terms. As I'll set out later when I talk about progress against our strategy, you will see that we're well positioned for future growth when better market conditions return. Let me now hand over to Bill.
Thank you, Peter, and good morning, everyone. My name is Bill Floydd, and I joined the group in November. By way of background, I trained as a chartered accountant with PricewaterhouseCoopers in the nineties. Spent a substantial part of my career in IT services, where I became very familiar with long-term contract accounting and more recently was CFO for Experian in the UK and Group CFO at the Rank Group and Watches of Switzerland. I joined the group despite the market conditions and challenges for the sector, because in the medium term, I expect the supply-demand imbalance in the UK housing market to continue to drive opportunity for house builders and Crest is well-placed to benefit from this dynamic.
Clearly, the business has some short-term challenges, but I haven't seen anything in the last two months to change my view of the medium-term prospects for the group. This morning, I'll take you through a financial summary of the year, give you some more detailed insight into Farnham, and take you through the guidance for FY 2024. Here you can see the key lines on the income statement. At the back of the presentation is a full income statement, as well as a balance sheet and a cash flow. Revenue for the year was GBP 657.5 million, down by 28% on FY 2022 due to the housing weakness. Completions were 2,020, down 26%. I'll have more sales metrics for you on the next slide.
Gross margin fell from 21.2% to 15.3%, emphasizing the challenging conditions with build cost inflation, project overruns, and flat sales prices. As a result, adjusted profit before tax fell to GBP 41.4 million, down by 70% from FY 2022. Exceptional items were GBP 18.3 million, and I'll take you through these on a separate slide. Adjusted basic earnings per share was GBP 0.123, down by 71%. On the dividend, the board is committed to the proposed final dividend of GBP 0.115 per share, bringing the total to, for the year, GBP 0.17 per share. Having deviated from policy in FY 2023 to maintain the same level of distribution of FY 2022, the board now expects to return to its stated policy of dividend cover of 2.5 times adjusted earnings.
On sales metrics, average outlets were 57.47, down from 54 in FY 2022, with the pace of new outlets being impacted by challenges of obtaining planning, and we'd expect the average number of outlets in FY 2024 to be between 46 and 50. The open market SPO rate was 0.52, which was weighted towards H1 in FY 2023. Our planning assumption for FY 2024 is an SPO rate of 0.45, which we expect to be lower in H1 and to improve through the year. On completions, we achieved 2,020, of which 215 were at the joint venture sites. Our expected range for FY 2024 is between 1,800 and 2,000, again, including JVs, and in a broadly similar mix to FY 2023 between open market and affordable.
After the seasonal lull in reservations around Christmas and the New Year, we've been encouraged by the volume of inquiries and appointments in recent weeks. Forward sales as of last week were 1,732, with a GDV of just under GBP 435 million. This is around 15% lower than at the same time last year. The details on the exceptional items are as follows: The main changes on the combustible materials provision are an increase of GBP 11.3 million as a result of build cost inflation and scope changes, offset by recoveries of GBP 10 million from third parties in respect of defective design workmanship. There's also an imputed cost of interest of GBP 4.6 million and a tax credit of GBP 5 million.
The group recently received a legal claim in respect of an apartment block built by the group that was damaged by fire in 2021. The building was one of five of a low-rise bespoke design. The claim is wide-ranging and includes an element of alleged defects in the other four buildings. We've made an estimate of our exposure of GBP 13 million based on an early assessment of the claim. This assessment does not include any recovery that the group may make from insurance, subcontractors, or subcontractors' insurance, but does include an assessment of areas where we believe the claim is overstated. From a cash flow perspective, if the case goes to court, I would expect a verdict in FY 2025, and the timing of a mediated outcome would more likely be in H2 of FY 2024.
Over the next few slides, I'll give you some more detailed insight into the Brightwells Yard site at Farnham. Peter and I visited the site in my second week, and it's fair to say that neither of us were pleased with what we found. Subsequently, we've re-reviewed progress with the team on a weekly basis, and will continue to do so. Here I've set out the scope of works we are undertaking. In terms of our progress, 9 buildings have been completed internally and externally. Of the remaining 4, 2 are apartment blocks, with the bulk of the works remaining being internal fit out. A third building requires modest external completion only, and the last one is a Grade I listed commercial building that requires internal fit out. Externally, there is landscaping to complete and a pedestrian bridge to install when we exit the site.
Over the next few slides, I'll show you some pictures of the site which were taken 10 days ago. The picture here gives you a view of the area, and we've put a dotted line around our development. As you can see, this somewhat differs from our stated house building strategy. The pictures on this slide show you some of the completed areas of the site. These pictures also give you an idea of some of the complexity in the build, particularly on the roofline in the top left and the center bottom photos, and the complexity of the exteriors, again, in the top left picture and on the right-hand side. 165 of the 239 apartments on the site have already been sold, and the vast majority of those are occupied.
In terms of external works complete, there is still a lot of scaffolding in place to complete rendering that has been missed in previous work packages, effectively a scope gap. These are relatively small and are straightforward to complete, and so we should have this done and scaffolding removed by February. You can also see here the temporary bridge that we use to access the site, which will be removed and replaced with a pedestrian bridge, which is not part of our core skill set and so is an area of modest risk. Moving to the internals of the apartment blocks to complete, these are three-story buildings, which we complete a floor at a time, with the ground floor on this block completed on the left and internal works progressing on the floor above.
We expect to have one of the remaining apartment blocks completed by May and the second by July. And finally, this is the Grade I listed building, looking splendid on the outside, but as you can see, a substantial amount of work to be completed internally, for which we are appointing specialist contractors. This is the riskiest element left to complete, but we believe we have sensible estimates to complete the work. Financially, the site is 94% complete, with just over GBP 7 million left to spend, representing our best estimate of the cost to go, with the main areas being the roof, risk being the fit out to the Grade I listed building and the replacement of the bridge. From a sales perspective, all the commercial units have been pre-sold.
165 apartments have been sold, with 74 open market sales remaining across FY 2024 to FY 2026. We expect to be on site for the duration of FY 2024. Here I've set out for you the detail of the cost overruns from our year-end review, split between Farnham and the other sites, where a further 10 sites had additional costs to be recognized. For context, we reviewed all active sites in December and early January, focusing on the more complex and those with a low margin and those that are loss-making. Where a site is loss-making, the entire overrun is accounted for in FY 2023. Where the site is profitable, then the cost is spread over the remaining life of the site. The main areas where we found problems is being over optimistic in how we've provided for commercial negotiation.
There have been scope gaps on the more complex sites, where work has been undertaken and the contractor then needs to return to undertake further works that were not in their original work package. Timing delays reflect where the team will need to be on site longer than previously anticipated. The largest component of the other category is rework to damaged areas and replacement of broken items. On the balance sheet now, the key points to note are the WIP increase in FY 2023 of GBP 175 million, reflecting the low level of in-inventory at the beginning of FY 2023 and the need to rebuild to more normal levels. I expect a further increase in WIP and readiness for better market conditions in FY 2025, if we have confidence later in the year that the market will return.
The group's land creditors at the end of the year are GBP 205.5 million, of which approximately 80% will be spent in FY 2024. As a result, for the majority of FY 2024, the group will move into a net debt position, and I expect the year-end net debt to be between GBP 75 million and GBP 125 million. As a reminder, the group's committed debt facilities are an RCF of GBP 250 million that matures in 2026, and a GBP 100 million private placement, with GBP 15 million being repaid in FY 2024, and the balance in tranches out to FY 2028. As such, I am comfortable with the group's balance sheets and the available liquidity.
At the beginning of the year, net cash was GBP 276.5 million, which allowed the group to remain active in the land market during FY 2023, with GBP 252 million being spent on land when the group was able to acquire high quality at competitive prices. As outlined on the previous slide, the group invested in WIP to restore a more normal level of inventory to meet demand. Dividends in the year were GBP 43.6 million. The cash interest cost was GBP 5.6 million, and the cash outflow on taxation was GBP 14.3 million. Finally, turning to our guidance for FY 2024, and here I've given you our high level planning assumptions. We expect sales volumes to continue to be impacted by the , but with some modest improvement in demand as the year progresses.
I do not expect to have much benefit from sales prices, but build costs are now stable and with some areas of opportunity to drive better deals with subcontractors. On profitability, the key moving parts will be that the mix of site margins will be in line with or slightly better than FY 2023, and we should get a benefit in gross margin from reducing the level of project overruns. I would also expect a circa GBP 3 million reduction in overheads from the restructuring activity undertaken at the tail end of FY 2023. The benefits to EBIT will, however, be offset by higher interest charges as we move into a net debt position in the financial year.
The phasing of profitability will be weighted towards the second half of the year, given that market conditions in FY 2023 result in a weaker entry point to FY 2024, and that we anticipate a gradual recovery in the market during the year. On cash, as I said previously, I'm expecting net debt position in the range of GBP 75 million-GBP 125 million, with the key assumptions being committed land creditor payments of around GBP 160 million and some modest allowance for uncommitted land spend. Investment in WIP so that we are ready for a potential return to better market conditions in FY 2025. Good progress on delivering the combustibles remediation program, and a higher level of interest payments being offset by lower tax payments, and a return to the group's stated dividend cover of 2.5 times adjusted earnings.
With that, I'll hand you back to Peter.
Right. Thank you very much, Bill. Let me now turn to the overall operating environment. It has been, as I mentioned, a difficult year for us to have navigated. Broadly speaking, though, our assumption that there would not be a significant price correction has been well founded. Buyers and sellers have largely exited the market and sat on the sidelines. Volumes, therefore, have been weak. There have been times in the financial year that were particularly unnerving. For example, in the autumn of 2022, and the summer of 2023, when rapidly rising interest rates, together with seasonal factors, had a severe impact on sales rates. More stable times were with us in the spring of 2023 and the autumn, when the political environment was more benign. It has been a case of holding our nerve in 2023.
As we move into 2024, there are reasons to be more positive. The economy is set for a soft landing. Inflation is falling, and with it, mortgage rates. The narrative from the market and the press has been encouraging. Government are discussing support for first time buyers. This is a more positive environment, and it's manifested itself in a lot more buyer interest. All of our lead indicators are up on a year ago. It's too early to call the market, though, just yet, but we are encouraged. Certainly, if, as expected, the base rate starts to come down, then we would expect a continuation of this improving background. We do remain cognizant of external risk factors, however, and these can impact inflation data and slow any reduction in the Bank of England rate, and these risks are real and cannot be entirely discounted.
Overall, though, we feel that it's more likely than not that the market will be positive in 2024 and have good momentum going into 2025. Given the factors that influence underlying inflation, we're confident that the base rate has now peaked, and we'll see a more stable mortgage environment. Sub-4% rates on five-year fixed deals are available for lower loan-to-value buyers, and these are our target customers. Availability of these mortgage products is also plentiful. Certainly, lower borrowing costs and increasing real wages are bringing affordability back into focus gradually. The other factor is confidence. Buyers are understanding that a major price correction is unlikely. Provided that the economy remains benign and with a strong jobs market, confidence will return.
One of the main reasons for prioritizing price over volume in 2023 is that looking over the horizon, we could foresee a reduction in land coming forwards. This is mostly a result of the top-down targets being scrapped, but also the planning environment has become even more difficult. The land supply situation, of course, has been well rehearsed, and it's difficult to see any short-term measure that will make a difference from either of the main political parties. It is the classic turning of the oil tanker analogy. Other planning problems have crept up upon us: nutrients and environmental constraints, no short-term fixes available here. Increasing complexity in the system and a shortage of planning officers, too. Added to which, there are simply no consequences for poor performance or slow decision making. The supply situation will not improve anytime soon.
Industry outlets are likely to gradually decline just as demand picks up. Hence, our decision last year to continue with land investment, acquiring some high-quality assets. It was not just the availability of these assets that motivated us, but also the opportunity to get into the planning system earlier, to have more outlets open in 2025 and 2026, when we believe market conditions will be better. On a more positive point, in terms of market context, build costs are now stable. There's good availability of materials and labor in most areas. With a growing population in need of housing and pressure in the long term, with households forming, all at the same time as that weakening supply, the fundamental support for the sector is evident.
This has, of course, been demonstrated in recent years, both in the post-COVID environment and then during the cost of living crisis last year. There was an economic rationale for prices to fall in each case, but the supply and demand imbalance provided resilience to pricing, albeit at the expense of transaction volumes in the short term. Turning to the priorities for 2024, we have a number of these priorities for the financial year, which I'll take you through. I'll start with margins. These need to be rebuilt. Some of this comes through naturally as we transition out of older, lower-margin sites and into newer, higher-margin sites plotted with standard house types. But the pace of this will depend on our ability to get these sites fully operational. In other words, we need to get planning consent in some instances.
A further benefit comes from volume leverage. Even with the reductions that we've made in our overhead base, we do have the capacity to deliver more volume without significant further investment. Regrowing volumes will be prioritized over capturing price gain, at least initially. Although we were disappointed once again to attain four-star status in 2023 rather than five-star, which we aspired to, this was largely due to a poor start, with late completions in 2022 impacting our score. From February onwards, though, we were tracking over 90%, and in the early part of the new survey year, we were also well into the 90%s, and this turnaround is as a result of a renewed focus on processes. The introduction of the New Homes Quality Code also acted as lever for us to review our quality and customer service offerings.
Ever since joining the business in 2019, I've emphasized the need for a strong balance sheet. A strong balance sheet gives you time to make decisions and provide strategic options. We will have, and continue to have, a resilient balance sheet. The cash position at the end of 2022 did give us these options. We were underinvested in work in progress, and last year took the opportunity to get build back into a sensible place. This leaves us with some ability to deliver more volume if conditions improve this year. We were also able to commit to some high-quality land purchases last year. This will help us to grow in the years ahead and also, importantly, minimize the land acquisition needed in the period when we consider the competitive environment will be particularly strong, given the reduced supply.
While we expect the full year 2024 to show some debt as we pay down land creditors and continue to invest in the business, we expect our cash generation to grow as the market improves and our net and WIP spend more closely matches realizations going forward. Perhaps the biggest and toughest of our priorities this year is converting our land position into implementable planning consents with all technical approvals in place. This will, of course, be a challenge, but we started early, which, as I mentioned, was one rationale for remaining active in the land market. We have the expertise to manage this process well, and we'll be very tactical in our approach. Challenge and opportunity will be illustrated better when I come on to the slides covering our land portfolio shortly. The building safety and remediation process is once again an important priority.
The groundwork's been done. We've got a lot of visibility around the task, and the resources allocated. This work will be done professionally and in partnership with the building owners and occupiers, and of course, not just in the area of building safety, but all areas of our operations. Being safe and protecting the public and our workforce will remain, and always will, our number 1 priority. While quite rightly, there's been a lot of focus on our operating performance over the past 12 months, it's worth providing greater visibility around our land assets and demonstrate why we believe that in a more stable operating environment and utilizing our standard products and simplified processes, strong growth and quality returns can be provided for shareholders. I'll break out some detail in both the short-term and strategic land portfolios and provide some case studies by way of examples.
Our short-term land portfolio at the end of October 2023 comprised 14,922 plots. At the same time, 18,830 plots were in our strategic portfolio. The graph on the right gives more color around the embedded gross margin in the land portfolio as at full year 2023 year end.... You can see how the older, lower margin plots, i.e., those below 10% and below 15%, have become a much smaller part of the equation. Over 50% of the plots have an embedded margin in excess of 25%. Of course, a number of these were acquired in 2023, and 79% have a margin in excess of 20%. The overall gross margin in the portfolio is around 23%.
Given that we're probably in the trough of the evolution of the market, this is encouraging when looking ahead. As I mentioned, we have around 15,000 plots in our short-term portfolio, including new land added in 2023. We were active in the year just gone, approving over 3,800 plots in total. Good land and quality locations, such as in the Windsor and Oxford markets, among others. But the main takeaway from this slide is the graph on the right, which shows an outline of our growth potential over the next four years, with the status of land colored. First thing to look at is the red. This shows the relatively small amount of land that is not yet controlled, that needs to be identified and acquired. Very modest levels overall, and most of what is needed is towards the back end of the period.
At least half of this is linked to growing our Yorkshire division. This means that in most areas, we will avoid having to compete in what will be a highly competitive spot market for land in the next few years. Of course, you'll see our sites in production, these start to tail off and are replaced by and augmented by the amber and pale blue sites. The amber are owned without detailed planning consent, generally speaking, and most of these are at outline stage, and these come through over time. The pale blue, these are largely allocated strategic sites, controlled but not yet consented, and these are also larger sites that are unpriced, will be bought at a discount, and will also go into years beyond 2027. What is also helpful is that our portfolio has good spread geographically.
I don't underestimate the challenge around getting planning consent, so as I outlined earlier, but a strong pipeline of land is there and is clearly visible, and this gives us confidence around volume and outlet growth potential. For 2024, with most of the land consented, with some affordable golden brick sites to achieve planning, even if these are delayed, we do have some volume on existing sites, on operational sites, that can act as cover if needed and if sales conditions allow. Now let me focus on our strategic land. This comprises just under 19,000 potential plots, and it's a huge source of future value for the business that is misunderstood by commentators. I'll start by pointing to the graph. This is important. It not just underlines the scale, but its planning provenance.
Almost 40% of the near 19,000 plots are already subject to an allocation for housing. This land has substance and is making its way through the planning system, managed by our specialist team, who are among the best in the sector. If you cast your minds back to the previous graph, this is largely the pale blue land that comes through to production in the next 3-4 years and then beyond. The benefits of strategic land are twofold. Firstly, it's very light on the balance sheet. These near 19,000 plots are mostly held under option, and the total book cost on our balance sheet is very modest. The allocated land shown from the pale blue segment of the graph has an average discount of 16.8%. Of course, when these sites are acquired, they're negotiated on a one-to-one basis.
They are not competitively tendered. In the past, our bespoke model has not always enabled us to maximize the value and returns on our strategic portfolio, but a more efficient, standardized business will do so. So turning to the case studies, and I'll start with Longcross, and this is a site, of course, that you'll know, but I think it reinforces the strength of our assets. Longcross is a new garden suburb, 1,700 dwellings, which is allocated in the adopted Runnymede Local Plan . Location is close to Virginia Water at the junction of the M25 and the M3. It's amongst the best sites in England. We hold the land outright in our partnership with our joint venture partner, a financial institution, with Crest having a 50% equity share.
Importantly, we have the rights to draw down all of the land, with half in effect at our input cost, discount, and half at open market value. We, we are in discussions with our partner around acquiring their share. A planning application is currently under consideration, with a committee date targeted for this spring, and this should enable a site start in 2025. And given the scale of the project, there is an opportunity for us to work here with multi-tenures. The second case study relates to a site at Harpenden, Hertfordshire, held under option. Itself a highly desirable location, but also close to St Albans, the M25, and the M1. It has a draft allocation for housing with a capacity of around 1,000 dwellings. This site has a discount to open market value, 23.7%, and once again, has scope, for development with multi-tenures.
It's not as advanced as Longcross, but its value to the group is obvious, and we would be hoping to start on this one in 2026. Now let me turn to product. Sadly, in our sector, we don't have complete control over what we offer to our customers. It's highly regulated... and in this vein, the 2021 Part L first stage of Future Homes Standards have been fully embedded with the costs in line with our initial assumptions. The second phase of the Future Homes Standard is beyond 2025, when heating must be off the carbon grid, and must utilize heat pumps instead. These requirements are well understood, and the industry as a whole, Crest Nicholson included, is fully up to speed with events.
It, of course, remains to be seen as to whether the regulatory processes and the electricity networks will be as advanced, but as a sector, we can only do what is asked of us. When fully implemented, these standards will ensure that high quality, sustainable, energy efficient homes are available for our customers, and this will provide a clear differentiation between the new homes providers and the second-hand market. To respond to these changes, our new 2023 range has been rolled out across new sites, providing attractive enhancements to our buyers, such as EV chargers and solar panels. Our future progress as we move to the next stage of Future Homes and beyond, will involve significant collaboration across the industry and the wider supply chain.
We will be designing a new generation of house types to ensure that the technology enhancements and living spaces are fully compatible and do not involve compromise. As highlighted in June last year, the growth trajectory would need to be revised in line with the wider land availability position and market dynamics. Accordingly, we're continuing to grow into Yorkshire via our new division, which is fully operational. We're now seeking to grow into East Anglia via our existing divisional network, the boundaries of our Eastern division being revised to reflect this change. In effect, we moved Kent, which was part of the Eastern division, into our South division, pushing Eastern north into East Anglia. Our overheads have been reviewed and are now both lean for the current trading environment, but do retain scope for leverage as we grow. Our leadership team has been simplified, too.
Kieran Dyer has been promoted to Chief Operating Officer, with responsibility for managing the divisions while forming part of a multi-skilled executive team. The new structure, reintroducing the COO role, will help us address some of the cost control issues experienced in 2023. Of course, later in the year, our new Chief Executive, Martyn Clark, will lead this team. We remain fully focused upon our multi-channel approach to selling homes and acquiring land. It's a key part of our strategy. As I've already outlined, we have a strong and well-managed strategic land portfolio, which last year we continued to invest in for the future, adding further quality assets. Additionally, the team supported the division in establishing new joint venture land opportunities, such as Brackley in Northamptonshire.
We sold 273 units to the PRS market in the year, with further sales delivering across future years. It's important to stress, though, that we only select the very best deals that are put to us, which provide the right value and the right returns for the group. This is not about volume for its own sake. It's about sensible, value-driven deals with established partners. The average discount to open market value in the year just gone was around 10%. As you would imagine, our dedicated specialist team continues to work on the future pipeline of sales. As I've highlighted, returning to five-star customer service status is a strategic priority.
We made a significant investment in people and processes in 2023, and this is now bearing fruit with a strong trajectory of returns, over 90% since February and into the new customer service year, into 2024. The New Homes Quality Code has been fully implemented, and this initiative, we've, we've always supported, will drive further quality to our product and service as we go forwards. Our next focus is on our database. The implementation of the COINS industry standard ERP system across the business over the past 2 years has now also been enabled in the customer service arena. We continue to make good progress against our sustainability targets that we set out for 2025. We're well ahead in relation to Scope 1 and 2 emissions.
We'll be able to achieve our targets around renewable electricity usage in advance of the target and have initiatives in progress to ensure that we also meet our waste target by 2025. Also, in the area of sustainability, we've introduced a toolkit to support the move to biodiversity net gain, and governance around sustainability and ESG in general is strong in the organization and is widely supported by our board, our colleagues, and our customers. So to summarise and to set out our future recommendations. 2023 was, of course, a challenging year. I think that we all came into the year expecting just that. The market did perform as expected, with pricing holding up and volumes taking the strain.
It did look as if perhaps conditions might be better than we hoped for during the spring, but the interest rate hikes in the summer reintroduced the difficulties that we saw in the previous autumn. However, as inflation started to reduce in a meaningful way towards the end of the year, the prospect of a soft landing has returned. We remained profitable in the year, albeit at a level that was lower than had hoped for, and we ended the year with a good cash balance, notwithstanding the significantly reduced revenue and our continued investment in the business, and by the year end, our operating platform was sufficiently streamlined to align with lower volumes in the short term, whilst retaining capacity for future growth.
We can look to 2024 and beyond with a clear plan and focus, and with growing confidence that the worst is behind us. Our balance sheet provides resilience. Much of the heavy lifting has been done in terms of investment, and we expect to once again be cash generative beyond 2024. And most importantly, as I highlighted earlier, our high-quality land portfolio provides a very visible and attractive platform for growth as market conditions improve in 2024 and beyond. As I've outlined, as I've already outlined, we have a team of experienced and dedicated housebuilding professionals in place to execute our strategy, and with clear and defined structures and responsibilities. Of course, I'll deliver in the first half of this year, and beyond that, we'll be handing over to Martyn Clark, who will lead this team and deliver the remaining part of our strategy.
Finally, with good levels of buyer interest and a more positive narrative around the market in general, we can look forward with great confidence to our prospects in 2024. Thank you. So, I think we'll now take questions from the floor. Thank you, Keith.
Thank you. Hi, Glynis Johnson, Jefferies . And the first one to you. I wonder if you could just talk about what the board was looking for when you were searching for a new CEO. What were the priorities that you were really, you know, trying to pin down? And should I go over the other questions? Question two, just in terms of the WIP to sales, you obviously talked about the increase in the work in progress, but that's land and it's build inventories. I wonder if you could split that out, because if you talk about the need to put more work in progress on the ground in 2024, it'd be useful to understand where you've got 6-12 and 6 good years.
Thirdly, the 10 sites that you've taken the charges on, how many plots are we talking? Is it the 8% of the portfolio, which is below 15%, or should we be thinking about 10 sites rather than 40%, and then it's 20%? And then just lastly, in terms of the just color around the land buy. You did a lot of land buys or land approvals in the second half of the year, where perhaps you were less exuberant about the opportunities. I think there was the strategic fall through, but maybe, maybe it was a couple of big sites that came through, and that's why the numbers are big. But just any color around that would be very helpful.
Okay, so a number of questions. Perhaps, Iain, if you'd kindly answer the first?
Yes. Thank you for the question, Glynis. Yes, I think Peter told us that he was thinking about retiring, so he gave us good time to conduct a proper search. And you're right, the first thing we as a board did was to consider what were the characteristics we were really looking for. So we want someone who really understands the industry and who understands excellence and execution. Who's really good at getting the business performing, will get us back to five-star rating, as Peter has described, and will be in a good position to make the most of that land bank. Very strong on execution, good geographic experience across the country, and good connections within the industry.
Now, as Peter has described, Martyn's probably not so well known to the listed sector, but he's very well known in the industry. He's been around in the industry for 37 years. Anybody who knows Bloor Homes will know that's a pretty tough school to be brought up in. So he's there for 28 years, so he's well skilled in that, and nine years with Persimmon to see something of the listed environment. So that was our real remit, was to find excellence in execution from somebody who really knows the industry well.
Thank you, Glynis. So there's three other questions. I'll ask Bill to do the breakdown on the 10 sites. I think just on the land WIP, I'll talk philosophically about it, then Bill might add some numbers to it. So we came into 2023 with build, where we'd actually depleted an awful lot of the build from the previous year. We'd struggled to build. We talked about this at this time last year. We struggled to build in the summer of 2022, so we did need to rebuild inventories, start new sites, some of which were more WIP intensive, and get ourselves back into a sensible position to take advantage of the labor and materials that became available in the early part of 2023.
Costs, of course, were a little bit higher than we expected. It didn't quite unwind as quickly as we had thought. I mean, the land, I think we put the number up already in terms of what we spent, and that was land spend and unwind of creditors, right in here. So just in terms of land approval, some of that is just timing and some, as you suggested, was larger sites, Glynis. So the approval is when we technically sign that off as an agreed deal, not when we make the offer. So the gestation on a lot of these was many, many months before. So these were almost all the deals that we were looking at doing in the first half of the year, but actually came through to approval in the early part of H2.
Um, Bill?
Yeah, Glynis, on the final number 10 sites. Slide 17 gives you kind of the split by how it'll hit each of the years. The bulk of it is relating to the loss-making and low margin sites, that 8% you referred to. Some of it is further out, and that's why it impacts the PNL, you know, out to 2027, 2028. But the bulk of it is in the low margin sites.
Will Jones from Redburn Atlantic . I have three, please. First, just respect to your, sales rate assumption. I think in the past, you talked about uncertain for a, a weaker to stronger market. I'm not sure maybe if there's an issue with inclusion of affordable sales , but to assume, like, 4 or 5 for the year ahead, given the commentary you're making on, you know, is that potentially on the conservative side? Second is just around net debt and just if you can give us any best case thinking for the evolution of that beyond FY 2024, would it start to reduce? And then the last one, just around the land bank and there are two parts to it. Firstly, I think there's a near 10% increase in the land bank ASP this year versus last.
Do you understand that? And the land bank growth margin of 23% feels pretty robust compared to what I might have thought in light of the last 12 months. Can you maybe give us a bit more color around the assumption within that, how quickly you pin that late transition?
Yeah, sure. So if, Bill, you would kindly take the second one on net debt. Yeah.
I can on the 0.45, Will, that is, excluding bulk, so, but probably left way in. But on the net debt, yeah, past 2024, you know, our assumption is that we get improvement in the market as we go forward. And you know, the chart where we've shown you the gross margin evolution, the two things you've got to believe on that chart, one is that you get market improvement and the planning, we get the consensus we expect it to. So they're sensible assumptions, given what we know about the market. But clearly, if planning slows down even more or the market doesn't return, then that evolution comes more slowly. I think that's the key driver for us on where does net debt go after that, after the end of 2024.
If, you know, certainly in FY 2024, I think the more confident we are in FY 2025 and beyond would drive us towards the higher end of our net debt range for this year. If we're less confident, then we'll obviously rein things in and come in at the lower, you know, look to come in at the lower end of the range. But I would expect 2024, you know, as Pete said, 2025, we should be back to cash, cash generation. You know, unless we see, you know, a good robust market and we can go and get more land and we go that way. But, you know, we should start improving from the net debt position in 2025 onwards.
Okay, thank you. And in terms of landbank and the ASP, that plan is just of the evolution of mix. In terms of the 23%, all current sites are in the current imputed margins, and future sites are in the last available margin of land acquisition or in-
It's Aynsley from Investec. I think I've 3, please. Just on the SPO rate, I wonder if you could the year to date, SPO rate and what the trend's been since the end of November. And then secondly, on the interest charge of FY 2024, is that kind of obviously lower imputed, I guess, from the land creditor servicing, higher average share. Is it GBP 2-3 million higher than what you... It's GBP 5.5 million in FY 2023, a little more than we said. Appreciated. And then just on the, I guess, the cost, GBP 13 million, and how confident are you that's an isolated case? Was the design or method of construction specific to that site? Is the risk that there's other kind of, sites that may have similar issues?
Then related to it, again, on the cost, you've helped me, given the GBP 2.7 incremental cost overrun for FY 2024. I mean, are you able to give a bit more clarity around what the extra costs are in FY 2024 from the old designs? You know, just kind of how much of that could reverse if we were all work, I guess, I'm trying to work out, I think.
Okay. I'll let Bill take the point on the cost. I mean, in terms of the nature of the buildings, it was a low-rise design, for one off the start, on this site, with five buildings in total. There was a fire in one of the buildings, but defects have been identified by our client, and the claim includes the five buildings. But this was a one-off design for this particular site. Other buildings of this nature, if there are any, are already in scope in our wider. So 258 buildings in scope in our combustible materials exercise. I'll pick up the one on SPO year to date and trends, and then Bill will also pick up the question around interest.
So we haven't given a specific number around SPO to date, but it's about 0.4. But of course, that includes the fact that there were two weeks leading up to Christmas and two weeks immediately afterwards when, you know, you have very low sales. In fact, there's probably a period of two weeks you have virtually no sales, as you're around Christmas. So that's quite a normal sales rate for the period. Why we're so encouraged is that all of the lead indicators are strong. 25% up in terms of website visits, somewhere between 10%-20% up on inquiries and visits. So, and also just the mood music from the nature of people visiting, positivity, faster decision making when compared to last year.
All the early signs are encouraging in that regard. Bill?
On the interest charge, yeah, your number or more, I would say, because we'll get into net debt and go to a decent number pretty quickly. But, you know, I would think 3-5 would be successful. On the cost overruns and, you know, what why we'd be confident that won't recur. The bulk of what we've taken is on low margin, complex sites, which are, you know, getting towards the end. So we should be through, you know, the three sites that have impacted us most, they should be through those at the end of FY 2024 or, you know, certainly in early FY 2025 until in terms of the build.
As you get closer to the end of these, it's just much easier to see what's left to do, and so your level of risk of scope gap reduces as you go. And so as we get closer to the end, we can be more confident of what we've got to do. I'm two months in, so I can't put my hand on my heart and say, "We're done." But we've put in what we think is our best view of it. And so, you know, my expectation is that we'll have lower cost overruns and lower hits to take in FY 2024.
And you know, we should be more confident as we go forward, but as these sites come out the portfolio and more straightforward ones come into the portfolio, but we should be on a more stable footing than we've previously been.
We have had a really good kick of the tires.
Morning, Chris, it's from Numis . Just to maybe a couple of follow-ups to the questions before. But firstly, average debt, can you give us any feel for FY 25? I know it's really difficult to call, but clearly it's going to be the driver there, and-
Sorry, Chris, could you just repeat that, sorry?
Uh, average-
Average.
Maybe for this year, just gone, and kind of how you see that evolving next year.
Yeah.
Do you want me to go one more time?
No, go, keep going.
All right. Next one, is there any bulk in that sales rate from details before it's?
No, there's no.
No. Okay, that's nice and easy. Then the final one's really just, are you able to divulge the size of the claim on this final possibility? 'Cause you did say it's somewhat marginally taken a few months.
Yes. Yeah, I think it's public record. It's in court, it's GBP 15 million or GBP 14.9 million. It's not massively different. On the average in there, I mean, look, it's kind of... If you take the average at the start of the beginning and go up a bit, you're not going to be far out.
Yeah.
Morning, guys. It's Emily Bills from Barclays. I've got three, please. The first one, obviously, you said that the expected profits for the H1 and H2 this year. I wondered if you could give us a bit more sort of specific split of volume you're expecting between H1 and H2. Secondly, keeping on the volumes on back, the 1,800-2,000 completions you guided for this year, can you tell us what you're seeing as a percentage of bulk in there, and a percentage of affordable? And then of the sort of remaining open market completions, would you possibly give us a sort of percentage of coverage by the order book at the start of the year?
Sorry, I didn't quite hear the third one again.
Sorry. On the completions, I was interested in both the splits of bulk and affordable in there.
Yeah, sorry.
And then of the private components, the sort of other open market components, how much is already covered by the work at the start of the year? And then finally, on, on completed stock and post-exchange, both obviously increased during the year. Just sort of wondered how you're thinking about those, and if you sort of comfortable with further increase from here, and sort of how PX is turning. Thank you.
So I'll pick up some of those, and then I'll get Bill to do the difficult ones. So the PX, we're entirely comfortable. We, in terms of the long-term average, it's around that level. In 2022, it was very low. Everything that we had on the balance sheet was very low, which helped drive that really strong cash position. We're very comfortable where we are on PX. We don't expect any really uptick on that going forward. The 1,800-2,000, what's bulk and affordable? Well, we don't split that out, but we've not assumed any additional bulk over and above what's already contracted in the pipeline. Certainly no new unidentified bulk assumed. If...
I don't think we break out; we're not going to break out the number on the private open market for what is covered, but it's easy to back work that by we; we've got a SPO rate of 0.4 for the year. And I think I said that it's about 0.4 year to date, so you probably solved that, but I won't give a specific number, partly because I haven't got it in front of us. And Bill, profit weight?
So look, I understand the normal profit weight you'd expect is 40-60. Because we're coming in at a lower starting point than normal, I think we're going to be below that. But there's also, you know, timing of bulk deals and potential land sales, which could give us a bit more into H1. So, you know, but I don't think we're going to be dramatically below, you know, 30-40 at this point, but early days, obviously. Yeah, and Emily, in the 1,800-2,000, what I said in the speech, which in the pack, was we'd expect broadly similar mix between open market and bulk and affordable.
I think that's it.
Thank you, and thank you.
Right. So that then concludes the presentation and Q&A.
So we'll now take questions from the phone line. So as a reminder, if you'd like to ask a question today, please press star followed by one on your telephone keypad now. When preparing to ask a question, please ensure you are muted locally. But star one on your telephone keypad. It appears we have no questions, so I'll hand it back to the management team.
Right. Thank you very much. That does now conclude not just events in the room, but also externally. So thank you very much for your time and for your attendance this morning.