Hello, and welcome to the Vistry Group Partnerships update. My name is George. I'll be your coordinator for today's event. Please note, this conference is being recorded and for the duration of the call, your lines will be in listen-only mode. However, you have the opportunity to ask questions at the end of the presentation. This can be done by pressing star one on your telephone keypad to register your question. If you require assistance at any point, please press star zero and you will be connected to an operator. I'd like to hand the call over to your host today, Mr. Tim Lawlor, CFO, to lead today's conference. Please go ahead, sir.
Thanks, George. Morning, everybody, and, thanks for joining at relatively short notice this morning. I'm joined on the call by Stephen Teagle, who most of you will know. He is the CEO, CEO of our Countryside Partnerships business, and, Stephen will provide more details on the deal, in a moment. So you'll have seen that we've issued an RNS this morning. We, after a huge amount of work over the last few weeks, and into the early hours, we closed the deal overnight, and we felt that it was important to announce, as soon as possible. But of course, there's only so much information and detail we can put into an RNS itself.
So we thought it'd be helpful to have a call this morning to enable you to see a bit more detail and also to ask us some questions directly to ensure that you completely understand what it is that we signed up. And you know, we're very excited about the details of the deal and the progress that this demonstrates we've made. So Stephen in a minute will give some more details on the deal, the grants, and the appetite of the investors for future work. But before we go there, maybe I'll just say a couple of words of overview, first of all. I think there are three points that I emphasize. The first is that this deal demonstrates significant strategic progress rapidly and in materiality.
This is a big deal to have done in a relatively short space of time. When we announced our strategy back in September, we talked about migrating 8,500 units from our housebuilding land bank into the partnerships model. And while that number actually, we said circa 8,500, we might conclude that we'll transfer more, but we've already, with this deal, completed 30%, so actually over 30% of those units into the partnerships model. So, so rapid progress. And the second point is around our counterparties. So one of the main challenges we got with our strategy was, are there people on the other side who are going to be able to make the investments, to support the build-out of these affordable and PRS homes?
And we hope that this deal and the size of the deal demonstrates that there are counterparties out there with the financial clout to back the strategy and to work with us to build out homes in difficult market conditions. And, and the third point is that this deal underpins our numbers. It, it underpins our FY 2023 profit and cash guidance and de-risks the remaining delivery. The cash that's coming in is significant. GBP 160 million coming in before the end of the year for this deal. It supports our capital allocation proposal. It strengthens our balance sheet and starts us on our path for the shareholder distributions. And finally, it gives us a momentum into FY 2024.
By securing a significant amount of revenue for 2024, it enables us to keep building at a time where others are having to put the brakes on their building program. So really important for us, as a group, and maybe I'll hand over to Stephen there to give a bit more detail and color on the deal itself.
Thank you very much, Tim. Good morning, everyone, thanks for finding the time. So, I'm going to reiterate some of the points Tim has made and amplify in some areas, and then we'll move on to some questions. So, the first thing to say is this is a portfolio partnership agreement, and it absolutely exemplifies our affordable and mixed tenure model. And the first thing to say is the sheer scale of it. So we think it's one of the largest residential investment transactions on record. If you take out M&As and large-scale stock portfolio transfers between housing associations, it's extremely significant. It's extremely significant in terms of its scale of affordable delivery.
But it's also significant for the single family element that is being delivered through Leaf Living, where we think it's one of the largest single family transactions on record, by value and unit quantum. Now, it's, it's not the only, portfolio deal that is out there, and I'll come on to that in a moment, but it is a very significant one in terms of scale. And that leads us. That scale is what gives us four key elements, and I think it's worth reflecting on, as specific to this transaction. First is, demonstrates our early success of our strategy. I'll come back to that. Captures efficiencies and synergies, which you wouldn't get from, a series of independent transactions, but you do get from one of this scale. Absolutely, as Tim said, underlines the appetite and strengths of the purchasing...
the financial strength of the purchasing sector, and we can explore that. Then it uses our strategic assets to deliver, including our relationship with Homes England. So four really key aspects to that. So just deal with that first and that, early success of our strategy. So we, we're working with Sage and Leaf, who are established partners, so that gives us a really, a good footing to go forward with. We've already got significant percentage of work with Sage and Leaf, constitutes about 10% of our existing output as an organization. So we're delivering PRS, and we're delivering affordability with Sage as well. So we have an established relationship, and that really helps us, deliver our strategy quickly. This is sites that we own.
There's over 70 sites, even more, about 82 different phases when we look at the phases across the sites. 81 phases, in fact, across those 70 sites. All of the sites have outline planning. 230 of the sites are in reserved matters, and we can see that being concluded fairly quickly. We can see the timeline on that. So this is a strategy that—this is an example of us implementing that strategy and starting to deliver quickly and with pace. And that pace is really important in terms of capturing the efficiencies and synergies within the business.
So having folded the house building land bank in with the partnerships land bank in the way that Tim has explained, and that you will be familiar with from the presentation in September, we've now got bringing together on a single operational platform the ability to build and to build in a way that is efficient. That efficiency, of course, is driving our input cost efficiency. So our conversations with our suppliers and our conversations with our subcontractors that have been headlined in the press as us seeking a 10% discount, all of that conversation is made much easier by us being able to point to absolutely, we're going to be building on that site. Here's evidence of delivery, and we're maintaining momentum across such a large spread of sites.
That gives us confidence, and it gives our supply chain confidence when we're negotiating prices with them. So that's a key area that's supporting our strategy and allows us to operate efficiently. We're also bringing together on a portfolio basis, the way that we approach land and the way that we approach planning through a single operational platform, gives us additional efficiency in terms of our overhead costs as well, and that's already being planned out. So that's important. The underlying strength of the sector in terms of appetite to invest, I think, is really endorsed by this deal, but there are others. It's interesting, this level and scale may be unique, but we are talking to three others at the moment around large portfolio deals, RPs, and for-profits and traditional, so we want to invest and get forward visibility of skylines.
I think that's the key thing here. Giving forward visibility to our partners is attractive to those partners, allows them to work with what they now recognize is the largest partnerships business in the country, with a significant land bank and resources to deliver. That is absolutely underlined by the approach that Sage and Leaf have taken and that we can see among others. So I think it says it shows that there is still very much a beating pulse within the sector looking to invest. There are a wide range of other deals that we're involved in, smaller deals at the moment. The confidence is out there to continue to invest, even though we have seen headwinds impacting on traditional housing associations, they're still very keen to take part in delivery.
And then the fourth area, about use of our strategic assets. So this deal is underpinned by our strategic partnering status with Homes England. So we're utilizing our grant within that program, and Sage are utilizing their grant within that program to get the first tranche of delivery underway. So that relationship with Homes England is very important. We've made, we've given them visibility of this deal, and so they're very aware of it. They can see the rate at which we're likely to deliver these homes, and they're very supportive of that. And indeed, the door is open for us to be bidding for additional grant, which we want to bring into this deal and into other deals as well. So that is a key strategic asset for us, as is the deep understanding of the market, which this deal also shows.
So our ability to take the land assets that we're in-house building, take our delivery, across all of our operational businesses out to the market is very much helped by us having that knowledge. So the deal contains lots of characteristics of our other land-led deals, so it's very much focused on cash discipline, so we're receiving stage payments as we go through. The payment profile is designed to meet our expectations and our WIP commitments. So we're expecting to get 20%-30% on exchange and coming through in the cash. The cash profile of this is very good. Our first completions, we expect in the early part of 2024, with the majority of delivery by the end of 2025, and the gross margin and the return on capital support our longer term financial targets.
So all of that is very positive. It all reflects the hurdle rates we apply on our smaller deals. And we just, in the last week, concluded four other deals in Warwickshire, Southport, Huntingdon, all evidence that there are, there is interest in participating in deals on that basis. So this is the first of what we think will be a handful of large portfolio deals, because that's, that's the way that we can be efficient in delivering our strategy. And it's one that I think really does underscore the transition of our strategy towards a partnerships model being both deliverable, there being clear demand for it, and us being in the, in the pole position in delivering into that marketplace. So I should pause there for questions, I suspect, because otherwise I'll keep going for another 10 minutes. So I'll pause for questions. Thank you.
Thank you very much, Mr. Teagle. Ladies and gentlemen, as a reminder, if you have any questions, please press star one on your telephone keypad. Also, you'll be getting a prompt saying your line is open, and please introduce yourself and the name of your company before asking a question. Please go ahead.
Hi, good morning. It's Marcus Cole from UBS. Three questions, please. Just on the margin, you talking about in excess of 12%, I was wondering if this includes the proportional overheads? The second one is just what does this mean for the 2024 profit outlook? And the third one is what's been booked in terms of PBT for this year. Thank you.
I'll take all those three. The first one, yes, it does include a share of proportional overheads. We are now moving away from needing to do this sort of overhead allocation for partnerships as well, because everything is, everything's a partnerships business, and we'll be reporting a single segment at the end of the year. In terms of guidance for 2024, it is still too many moving parts for us to be definitive about guidance for 2024. But it doesn't change our overall outlook that we gave in September. This is part of the migration that we, that we expected, and it's just a bigger deal being concluded slightly earlier than expected, but no change to our FY 2024 position that we previously guided to back in September.
And in terms of the profitability of, of this, I think, Stephen's given a guide that roughly 20%-30% is payable on exchange and the commencement of construction. So there'll be revenue recognition of around 20% of the deal in FY 2023.
Thank you very much.
Thank you very much, sir. We'll now move to our next question, and once again, please, announce yourself before asking your question. Thank you very much.
Thanks. It's Will Jones from Redburn Atlantic. Just on the margin, would you be willing to give an equivalent gross? I obviously you say that 12%+ operating, it's in line with that, but perhaps you'd give a bit more detail around the gross. And then just to what extent, I guess, the delivery of either the growth or the operating relies on the build cost reductions that you're targeting from the suppliers at the moment? The second one was just in terms of how we should think about this with regard to its effect on the sales rate for the full year. Is it the 1,522 PRS that you'd count as private sales rate, so to speak?
If so, I think it might add 0.1-0.15 to your full year sales rate, back-of-the-envelope numbers. Then the last one was just whether it had any influence on when you begin the buyback. Thanks.
Okay. So the first question, so, first question about margins. So I think what we're guiding to is targeting overheads of 5%. So, or so it is in gross margin, operating margin 5%, but maybe 5%-6% as we generate the economies of scale and the synergies. So somewhere between 5% and 6%, you're down to the operating margin. Then, in terms of the second piece, what was the second piece, the first part of the question?
Yeah, just I guess the delivery of that margin, to what extent it relies on the achievement of the, I guess, up to 10% that you're targeting from suppliers?
Yeah. So we're assuming that and that we made really good progress with that, as you talked about in the trading update a couple of, a couple of weeks ago. So all the guidance that we give prospectively is assuming those deals are banked. So it forms part of this as it would if we delivered it under housebuilding as well. And as Stephen said, though, these sort of deals are crucial, have been crucial in securing those discounts, because effectively what we're doing is providing a discount in order to secure revenue and get capital upfront. Some of the discussion with the supply chain has been that they're prepared to offer a greater discount to officially do deals with us because of the security of service or security of demand that we're offering to them.
And Will, you're right in respect to the contribution to sales rate, so we will take that. That does all work, delineated and disaggregated, you will see that showing and coming through in our overall sales rates.
Okay. And then that's the second question. And I was dealing with squabbling the questions one and two, and so I didn't cover down number three. So go on, Will.
It's just about whether it influences the timing of the buyback commencement, you talked about. I think pre-year-end was the latest.
... No, no, it doesn't just provide even more, just provides even more security for our year-end cash position, but, you know, it doesn't change our position that we're going to start before the end of the year.
Great. Thank you. Thank you much, sir. We'll now move to our next question.
Hi, Tim. Hi, Stephen. It's Clyde Lewis at Peel Hunt. I've got, I think I've got three, I think. Just around the mix of what you've got within PRS versus affordable, is this the sort of likely split that we're gonna see, or is it just happens to be what Leaf wanted, what Sage wanted? So it'd just be interesting to, to hear about how you've come to that sort of mix and, or, you know, was it very much representative of what was gonna be available on, on those 70 sites in particular? And with regards to those 70 sites, does it change your thinking around the other private sales that, that you obviously will still have to do on those sites?
So that's sort of the first one, one aim, but I suppose, question two was, was around the, the funding side of it. Obviously, this is U.S. money out of Blackstone. Do you see particularly strong sort of, sort of funding levels out of the U.S.? And maybe if you can comment a little bit about the U.K., sort of outlook, I suppose, in terms of sort of funding. And maybe lastly, whilst we've got Stephen, sort of, do you see any sort of sizable deals that coming through with some of the bigger local authorities over the, you know, I suppose, the next couple of years?
Okay. Clyde, shall I jump in and try and unpack that and then Tim can come in? So on your first one, in terms of the mix, Clyde, that is, as you can see, it's broadly 50/50 between PRS, single family, and affordable, and that's not untypical for our sites. So we often talk about triple tenure sites, a third outright sale, a third being affordable, and a third being PRS. So obviously, affordable and PRS has been similar in scale, so that's not unusual. In terms of the context of this deal, we've tried to play pretty smart by putting the PRS homes on sites where we've already committed a significant amount of affordable, rather than putting more affordable on those sites. So there is a local approach to individual sites in terms of the mix.
But and obviously, that's also reflected in the yields that Leaf can achieve, so they're taking that into account. But generally speaking, that sort of balance works for us. So a 50/50 investment play in this way absolutely aligns with our triple tenure model, so it makes it work very well, and we can tweak that instantly onto individual sites in different ways. Second related point to that is what does that presage though, that mean for your private sales? Well, as I said, we're pretty familiar now with what's needed to make triple tenure work. We're, we think about the way that we lay out our sites. We've got an awful lot of blind tenure delivery, so don't forget, these units will be a blind tenure.
So you'll drive past them and not know whether it's outright sale, affordable, or PRS. And we're very conscious that when we select our PRS partners, the way in which they manage those homes and the public realm around them is really important. And I think you can see, whether you're, we're talking about Sigma or Leaf, you visit those schemes, you can see the quality of management is very good, and that helps and supports our sales strategy. So that is definitely part of the mix. In terms of American and U.K. investment, Tim might come back in on that, but all I can say is that, well, two of the three others that we're talking to about portfolio deals are using U.K.-based money.
So I think there is an appetite from investment from both U.K. asset matching institutional investment, and funds coming from across the States as well. And then in terms of local authorities, yes, we work with over 30 local authorities now. We're talking to them about doing more schemes. I was actually on a phone call with one on Friday, talking about three sites that they've got and how they're gonna get some grant funding into them to bring them forward with us. So I do expect to see more deals with local authorities. Sizable deals is a bit more questionable. They've obviously got scale in London. I think what we'd like to do is see more schemes that are on multiple sites owned by local authorities, and that would definitely give us scale.
And of course, we've got examples of that around the country, Cornwall, Gateshead, Warwickshire, that we point to, to try and encourage local authorities to go down that route. Tim, do you want to come in on?
No, I think you covered it. The only thing I'd say is that we are geographically agnostic about where the funding comes from, as we are geographically agnostic about where our investors come from. We are open for any country to invest in our business.
Perfect. Thank you both.
Thank you much, sir. Ladies and gentlemen, once again, if you have any questions or follow-up questions, please press star one at this time. Thank you. It appears we have no further questions at this time. Mr. Lawlor, I'd like to turn the call back over to you for any additional or closing remarks. Thank you.
Okay. Thanks, George. Well, well, thanks again for joining the call. Hopefully, that was helpful. If you have any further questions, Susie will be delighted to receive any follow-up questions after this, so please drop her a line. And hopefully the success of this deal has come through, and it's been a pleasure to be able to announce something as positive as this, given some of the gloom being announced elsewhere in our market. So, thanks again, and see you soon. Bye now.
Thank you very much. Ladies and gentlemen, that will conclude today's presentation for Vistry investors. You may now disconnect.