Earnings Call: H1 2021

Sep 7, 2021

Welcome to the Vistra Group Results Q and A. Today, we're joined by Greg Fitzgerald, Graham Prothero and Elle Sibley. As most of you are aware, we will be inviting people to ask questions over video today. Which can be found in the control panel below. Greg, over to you for opening remarks. Okay. Welcome, everyone. Thanks, Scott, and let's get straight on with it. So if you could take the first question, Scott, that would be great. Thank you, Greg. Well, we've got our first question from Glynis Johnson. Good morning, everybody. Thank you very much. Let me go first. I have 3, if I may. The first one, just in terms of The Homes England partnership that you talked about in your recorded presentation. I wonder if you can just give us a bit of color of what that means For Vistory, does it mean access to land? Does it mean that the grant just gives you that better or more deferred in price? If you can just tell us what that means for you. 2nd of all, you've tempted us with this as special dividend excess cash. If you can maybe talk us through how we should think about that. Is there a certain level of net cash, average net cash, however you think about it, a certain level that you need in your business, above that you will return? And then lastly, just in terms of that sales rate. Bovis always had a slightly slower sales rate than some of the peers. Then it was about making sure you got the product right and not necessarily pushing things. But that selling rate now does differ from the peers' skill. I'm just wondering if there are any ambitions to maybe turn up that build rate to drive that selling rate more in order to get up to, well, the 8,000 completions in terms of house building, but also Elle. Okay. I'll take the Homes England one, where we've got Grant direct from or secured grant direct from the government for just under 1500 units over the next 5 years. I think that basically We'll make us more competitive in the land market because we have visibility of the funds direct. And when you're out there talking to housing associations about Section 106 plots, The level of grant that they come in with depends on what grant they've got available from the government themselves. Now we can actually and will be asking a number of housing Elle. On each site to actually bid without grant because we've got the grant, which will make them more competitive because more will bid. So we do see it as giving us visibility. That's both partnerships and Homes, of course, going forward. I think it underlines our standing with Homes England as well, the fact Elle. We are the only house builder, privately listed house builder to get that grant, but I think it will make slightly more competitive in the land market. On the capital allocation strategy, so we've said moving to a 2 times dividend cover. So accelerating from what you would have expected at 2.5 times, but then excess capital Elle. To be returned and you should expect some excess capital in due course. In terms of how we're looking at it, look, We're running an average net month end net debt of £125,000,000 this year. We're not uncomfortable with that level. And therefore, we are comfortable to run with some form of and Elle. Our average month end net debt. Looking further forward in terms of the parameters around that capital allocation strategy, We'll be looking more to total gearing level. So if I take one extreme, if you look at last year, We were 40% to 50% geared at one point with our land creditors, look, not looking to get anywhere to that level, but we weren't uncomfortable at that level through last year. But actually, in terms of looking at excess capital, we'll be looking more like a 10% total gearing of that cash Lland Creditors' position. And clearly, we'll be looking at our forward forecast at that point, and we will signpost when we feel we've got And then on the actual sales rate, do you want to take that, Graham? Yes. So I mean, As we've said, Glynis, I think we've got a we've seen a stepped increase. So you're quite right that both Bovis and Lyndon Wirtz at a significantly lower build rate. So the rate clearly buoyed by a strong market, as I said, And we're very pleased. So I think that is that we feel that's a good new normal for Vistri. And so And I think that's improved by our product ranges, which we're really pleased with. We've refined both of those Phoenix and the Linden collection. And also, we're definitely seeing an improvement from our hub method of selling, which the teams really seem to be relishing and that's working well for us. So Yes. The 0.76, it's a blend of both housebuilding and partnerships. We certainly wouldn't see that as a ceiling. We're happy with the increase. And yes, I would think we could push that further, Glynis. But we're delighted with 0 point El. 7.5 in the year to date, week 34 is a dramatic improvement on where we were. For the last 4 weeks 8 weeks, We are in line with the sales rate that we achieved this time last year, which had the bounce back from the lockdown. So we're pleased with that. We're still predominantly houses, not apartments. We're still predominantly outside of city centers, and we are at the moment turning down bulk deals because we feel happy not to give away discount and sell units in a straightforward manner to individual purchasers. So and we can do that because frankly, we haven't got hardly any stock around wherever you are in the country. So but I think we should concentrate on the positive. That sales rate is dramatically above Anything that Bovis or for that matter, Linda, managed to achieve. And can I just clarify that your selling rate, when you have a dual branded sites, You're treating those as 2 different outlets or you're treating that as one outlet combined? We treat it as 2 different outlets. And that is working. The dual branding, as per our strategy at the time of the acquisition, as per all the strategy ambitions that we had Elle. At the time of the acquisition, it's all absolutely going according to plan, if not better. Thanks. Scott, we'll take the next question. Elle. Our next question is from Will Jones from Redburn. Will, we're promoting you to panelists. Elle. O'Neill. Hi, there. 3 as well for me, if I could, please. The first was just coming back to the issue of build and just to what extent Elle. How you're managing the challenges there and when you think about production, how you measure it and whether you can just provide us with how you Elle. How you see equivalent units, anything that would assist us there and just generally whether you're building in line with sales rates. The second was around materials. When you think about the I guess, you've made a reference to the fixed price deals that you've had In the business that was many were struck at the time, I think, of the acquisition, is there a risk I suppose when we look at the second half of next year that they roll off and There's some catch up that lies ahead of you to market prices. Just how we think about that, Arrington, that's obviously protected you so far. And the last one was just around JVs, really, the fact that I was intrigued by the comment in the release that you're becoming you expect to become less reliant on those, I guess, as the balance Elle. Is that just house building or is it partnerships as well? And just again, any numbers around that and I guess why it's happening. Thank you. Okay. On the third one, the JVs, that's predominantly come from Lyndon, because Lyndon Galliford didn't have a balance sheet and had to do an awful lot of schemes, including quite small ones, in a JV to enable funding to take place. So we will be stopping that. So that doesn't mean we won't be doing JVs with certain partners. We absolutely will. But our reliance on doing them, it will be on our terms when we want to do them or I. E, somebody introduces the site to us and that's the way of doing business that will go forward as opposed to a necessity. And I would say, when we get to 8,000 units, it actually will probably add on 400 or 500 units on top of that, because of that 8,000, a good proportion of them would have been in a JV where we're only taking 50% of the revenue, 50% of the profit. So you've kind of got, when we get to 8,000, help me if I'm wrong, an additional business unit just coming from our nonreliance on JVs, which is helpful. Secondly, on build, it is and I've been around a long time, it's the hardest time I've ever known to build a house. So in 30, 40 years, it's incredibly difficult. That said, I think we're a very good builder. We've had to change our practices. We're having to order materials way in advance of when we normally would do it. Labour is an issue on some sites, particularly in and around London with the Eastern European Labour not around at this present moment in time, but we are finding ways around it. As you go further outside of London, it is becoming materials. Materials are also an issue in and around London as well. But again, another advantage which we didn't appreciate at the time of doing the acquisition. Today, our unit numbers were the 4th largest, and position. Today, our unit numbers, we're the 4th largest house builder in the country. And how we're getting over it is I'm ringing up, Graham's ringing up, Earl's ringing up, Our Chief Exec from the peer group from the suppliers and saying and banging the table, frankly, saying, Elle. Do you want to upset me or do you want to upset Jim and Smith, the local builder down the road? And unfortunately, they would rather not accept us upset us, sorry. It's It's the smaller builders that are going to suffer. If we were just bulbous at this precise moment in time, we would be struggling a great deal lot more than we are at this moment in time. Even this morning, the DUSEN announcement that's come out about shortages in materials, that's because the major suppliers are diverting more to Elle. People like Vistory, no doubt Barrett, Taylor, Wimpey, Persimmon and going through the merchants. So this is a major issue for smaller contractors and House Builders. It's, of course, a big issue for us, but it's an issue that we are thanks to our fantastic commercial procurement and site teams, We're getting over it. We are, technical term, ducking and diving, finding different ways of doing it. We're getting around it. So we are building in accordance with our sales programs, And I'm not hearing anything from partnerships where we are building to contract with housing associations that we're not building in line with that contract because we're not seeing any liquidated damages come through. So we're getting there, but I wouldn't want that to hide. It is bloody difficult. On inflation, we've seen I'd today. We, as in this year, have seen inflation of about 5% build inflation so far this year. That's materials and labor. I'll come back to, I think, underlying, that's probably more like 7%, but we as you said earlier, we'll protected ourselves At the time of the acquisition, with some large bulk deals being put in place for up to a couple of years, those deals come to an end at the end of this year, start of next year. So there is a risk around what happens there. Personally speaking, I think labor issues will become more prevalent In the next 12 months, I think material issues will sort themselves out and come back as the material issues sort themselves out. I think that Piping the prices will come back a bit, so I wouldn't be at all surprised in the next 12 months we didn't see some deflation, not back to where prices Elle. We're in January, but some deflation from where they are at this precise moment in time because we are paying a premium and glad to be paying a premium to get those materials. With regards to sales inflation, we've seen, as we said in May, about 3.5% sales inflation. Of course, that's El. The gross figure as opposed to Bill, inflation is on pretty much half of that, if you like. We've also to give everyone comfort because these numbers that we put out today are quite comfortable. We've also put our prices up by a further around 2% to 2.5 Elle. Across the country, we've done that in July. Those prices seem to be holding, but we haven't included them in our forecast as yet. So we do have a fair bit of protection for any further hikes that may or not Elle. But we believe and are predicting we're not predicting in our forecast, but believe that material prices could well come back a bit as these Elle. But to be offset, I think, by labor probably going up a little bit. Thank you, Gabriel. Great. Thanks. Elle. We now have our next question from Dean Grant from Bank of America. Dean, we're promoting each panelist. Please unmute yourself and turn on your video. Elle. Great. Thank you very much. Good morning, gents, and obviously, congrats on the results. Just two questions from my side. The first one is just Can you share me properly? We've just had a follow-up. Are we is that all right or not? Okay. Dean, please, if you just repeat your question. I'm sorry, we just said at the fire alarm went off. So Dean, if you could please repeat your questions. Sure. So, Graham? We feel so we're about to get a difficult question. So we're now Well, exactly. Perfect timing. Elle. So my first question is just on partnerships and obviously, very strong delivery In H1, and obviously, you outlined your revenue target of SEK 1,600,000,000 over the next 5 years and your medium term operating margin target getting to 12%. Just a question about timing here Elle. Beyond 2022 and that above 10% operating margin target, how should we look at 2023, 2024? And then maybe just a clarification on the 5 year outlook for the SEK 1,600,000,000. Is that taking January 2020 as a baseline or so how to just to understand how we should be looking at that? And then the second question is just about how to buy. I know that was Elle. 25% of your sales and obviously with the scheme coming to an end in 2023, just to maybe understand what sort of steps And precautions you're putting in place at the moment, just an anticipation of that and then maybe just any thoughts around that at the moment would be great. O'Neill. Okay. Well, on Help. To buy coming to an end in 2023, we're quite Relaxed. We'd like it to carry on, and of course, it may very well, but we're quite relaxed. HALO, the HomeReach scheme, is out there, not just for first time buyers. That is definitely an alternative. The mortgage indemnity scheme, Newcastle Building Society, which we're trialing, is and definitely one out there that could possibly help fill the gap. First homes that we are trialing at the present moment in time with the government You may very well help. So we think there's a number of schemes out there. We think the mortgage market is probably as good as I've known it, up to an 85% Loan to value basis, of course, it gets not so good as you go above 85%. In fact, Newbill is pretty much the only place you can get a 95% loan to value mortgage through Help to Buy as it stands and HALO, the Home REACH scheme. So we think more Schemes will come through, and we've still got up to March April 2023. So I think we're pretty relaxed, And we haven't seen any real impact on our sales or sales rates since the change in Help to Buy going from 6 Duthazound and the first time buyers in March, April of this year. So sat here today, we're quite relaxed about that. On the partnerships, GBP 1,600,000,000 revenue over the next 5 years. We just I think you should just take it as a kind of 12% compound growth year on year to get to that kind of number. I would be very disappointed if we didn't get to at least 10% margins operating margin in 2022. I think we'll be knocking the door in the second half of the year. We're currently in 2021. So that should be very, very achievable, and that was the target we Elle. Put out there at the time of the acquisition. I think the 12% operating margin will come ahead of getting to the EUR 1 point €6,000,000,000. So the 12% operating margin as we get into more and more mixed tenure development where, of course, we are way ahead Elle of 12% operating margins that will come through. So I don't know if you want to come off the fence, but I would say the 12% plus Operating margin, probably 2014, 2015 ahead of 2016 for 2026, sorry, Elle. Yes, euros 24,000,000, euros 25,000,000 for the 12% and the €1,600,000,000 kind of 12% compound growth from now 2026. I think the key there is that the market is there for us, Dean, and this is about us controlling and managing our own growth. As we said yesterday, we're happy with the progress of our newest business unit in Thames Valley. We've got we're well on with plans to open 2 further business units, And this is about us growing in a controlled way, but as fast as we can to meet this burgeoning market. And Not forgetting, do you want to mention the larger sites that you touched on yesterday as well? Yes. I mean, very importantly, obviously and this is the strength of the combination coming through, we really are now Highly competitive on these large site acquisitions. I mentioned Great Haddon, 1500 units Kenilworth that we We closed on just 10 days ago another 620 units. So we are because of the model and the ability to combine the different traditional model of house building with the high return model of partnerships. And we are Fiercely competitive at those levels and that obviously underpins that growth as well as the performance of our own strategic land team, who are now delighted not just to have traditional housebuilding business to supply, but also this fast growth, high return partnerships business, which really adds just a whole another string to our Boeing strategic land. And just another thing on that, on the larger sites like the Kenilworth one, for instance, that Graham was just talking about. Would you to say what how is that being funded, Graham? And what's the return on capital? So it's actually being We're in joint venture with Warwick District Council, and they are providing the vast majority of the funding for that development. So they're lending into the joint venture? Pretty much all of it. Pretty much all of the funding coming through Warwick District Council. So It won't surprise you that our return on capital on that site is very high indeed. So just going on a bit further, that is a prime, prime, prime site that Bovis Linden would no way have even bothered bidding for. So we bid for it with Bovis and led it with partnerships and 620 units in a great, great location, Royalty Street Council, who are funding the whole of the acquisition, over £60,000,000 But we were able to pay that very strong with not very much deferred because we were Elle. We have a facility to be able to do that, which is another edge we've got. And the return on capital is very good, as Graham said, Elva 90%. Fantastic. Very helpful. Thank you very much. Elle. Our next question is going to be from Gregor Kirglitch from UBS. Gregor, promoting you to panelists. Ossorio. Can you hear and see me? O'Neill. A few questions maybe and just sort of follow ups. On the volumes, can you just Maybe elaborate a little bit perhaps on this year and then the sort of 8,000 unit target for the housing business, sort of O. Perhaps the trajectory towards that path and how much of that is JVs? I think you hinted that It's 500 less than before, but I'm not sure I know what you thought the prior year number was. So perhaps some absolute figures would be nice. El. And sort of on a similar vein, I noted your sites did drop pretty considerably, I think, in the first half. So I guess the question is, in order to get to that 8,000 unit number, what kind of site levels would you have to L. Grow Back to, I guess, to support that kind of growth. Maybe one second question, which is a simple one. In terms of the guidance upgrade, can you just Tell us what changed and maybe there's bits to it everywhere, maybe it's sort of margin volumes and then perhaps some other stuff. But if you could just El. Perhaps break out what sort of changed compared to a few months ago. And then Elvira. Finally, on the gross margin in the land bank. I think you said in your response to a question a minute ago that El. The further price increases have not been baked in. I think the 2%, 2.5% you put through. Can you just confirm what your El. Assumptions are and that gross margin of land bank, which I think is a bit shy of 20%, 25% And perhaps also how the sort of new build standards on Pardell and so on feed into that. So what essentially what's assumed Elle in that appraisal margin. Okay. I'll take the last one first. And so the margin in the land bank, that includes for all and Price increases to date that we've seen during the course of this year. It doesn't include for the 2%, 2.5 price increases that we put through across the board pretty much in July, which are holding. So that gives us some comfort. It does include our detailed assessment of what Part L will cost, which comes in from June 2022 with a 12 month transitional period to June in 2023. So we have covered what we believe are the costs for 2, 3, 4 and 5 bedroom house for Part L. We've covered build cost right up to date. We've covered sales inflation up until July. We haven't put in as yet because we want to see how things pan out, give it another month or 2, any further price increases that seem to be holding up Elle. Well, I'm not seeing today are holding up very, very well at this precise moment in time, but we're only 2 months into that. And if I then go back to The third question, and then I'll hand over to Earl. Profit changed in the last few months. We're always pretty what the first big thing is, we're always pretty cautious. So under promise, over deliver is where we all are. We're 3 or 4 months further on. We're pretty much well, we're 96% sold. That didn't include the weekend. I would suspect if we didn't sell another house, we would get to the numbers for this year. So we're virtually we are virtually there. So it's just seeing how the market has gone, seeing how materials, labor shortages have gone. The risk Els. For the year, which we've built in, would be the odd unit going back into the following year because of build issues, not sale issues, but we don't think We're really going to see too much of that. So it's just further on in the year and more confident. With regards to the volumes and the JVs 8,000, Yes. So Gregor, we're in house building, 6,500 homes is what we've said for the current year, and that's where we're at. We are And those will be JVs? It's roughly the same proportion as Last year, and we've had and we've given a bit more information on the JVs in the half year. So assume a similar proportion at the moment. We're looking at controlled growth, very much focused on margins, so looking to improve that margin into 2023. So we're looking at low single digit growth into next El. But then looking to move on, and you can take something like a 5% growth then out over a 4, 5 year period to get to the 8,000. And what, as Greg alluded to, what we can see is squeezing that number of JVs. So at the end of that 5 year period, We'd have the equivalent of a business unit, 600 extra units being 100% attributable to the Vistory Group rather than in joint venture. Greg, you also mentioned site numbers. I actually think if you're picking up the site numbers a year ago, that's probably the odd number to some extent. I think with COVID, we had some sites that were still open that we wouldn't normally expect to because of what was happening with sales. So Yes. We are comfortable with the current level of outlets. We do expect that to grow through the second half. And everything we talked Elle. Our dual branding driving the sales rate means that we can grow our outlets in a similar way to those volumes I've just given you and get the benefits of the larger group coming through to hit the 8,000 over time. And I think the only other thing to say on the 8,000 is that can be done from our Elle. Base of 13, 5 star, of course, business units. So we don't need to open Elle. Or go into any new regions to get to that 8,000. Okay. So just to be just to confirm then on the JV contribution of that, O'Neill. I guess perhaps we can leave that then broadly flat at whatever, I don't know, 800 to 1,000 units, and essentially the growth comes from the wholly owned business. Yes. But over a 4, 5 year period, Gregor, you should be declining in house building that contribution from JVs and assume more is 100 Elle Cent District. Our next O'Neill. John seems to have dropped off. So we'll go to our next question from Clyde Lewis from Peel Hunt. Elv. St. I think I've got 3, if I may. Although the first couple are probably around the 3rd brand that you flagged up and I suppose the implication for the larger sites, I mean, clearly, you're only going to run 3 brands on large sites. O'Neill. But I suppose I'm looking at trying to sort of understand how quickly you might shift to more larger sites coming through the sort of portfolio over time. That was the first one. The second I had was really around the demand profile in partnerships and how that's evolved with Local authorities, councils and I suppose the sort of PRS type model, have you seen any sort of Shifts as to where the demand is coming from. And I suppose particularly around VHAs, has there been Elle. A sort of shift away from some of those looking to build new houses as opposed to spending more time and effort going through refurns where obviously, politically, they've They've come in for a fair bit of flack in terms of the quality of the stock that they've got. Okay. I thought that was only 2, Clive, but that's close enough. Well done. Do you want to take both of those, Brad? Yes. Happy to do that. So yes, You're exactly right, Clyde. I mean, the real driver for that 3rd brand is where we've got the larger sites. And so naturally, the house building business will be operating on at least a couple of outlets and therefore using the Linden and the Bovis brands. And we want partnerships absolutely working on those sites. They continue to face their and local authority clients as Vistory Partnerships, but we want a third brand, which will probably be that Kind of value offering to sit alongside on those larger sites, such as Great Haddon, El, which I talked about in the presentation. A lot of work going into that right now, and we will be kind of finalizing our proposals for that and over the next 6 months. You asked about the pace at which we're moving to these larger sites, and we've really been pushing on that since day 1. So there are a number of sites already in the portfolio, which came largely from our excellent strategic land Sourcing. And we're actually sharing those already. So we've got sites down in Devon. We've got a significant one in Salisbury and indeed, North Whitely, where I think we might be taking you on the Capital Markets Day, where we've already got both of the businesses actually operating on those sites and really starting to accelerate the pace of which we're bringing those through. And then, as I've said, we're now out in the market and highly competitive on acquiring more of these larger sites. So I think It will be a very rapid progression onto those larger and complex developments, and that's as That comes back to that pressing need for that 3rd brand. It does make life easier doing more larger sites Elle. Overall for our business units and lots of smaller ones. Yes, exactly right. And then to answer about the demand profile in partnerships, it's a Good question. I mean, overall, we're seeing that demand increase from housing associations and from local authorities and massively in the PRS sector, which is just going gangbusters. You make a good point about the pressure on housing associations to address their stock. And undoubtedly, they're having to think very hard for that and divert some resourcing into the maintenance and improvement of their existing stock. But it's not really diminishing the appetite that we're seeing to join with us in new development. I mean, the need for new stock nationally and the Pressure on them to bring that forward is significant. And obviously, the benefit to their own financial models Elle. And of the development model is strong. So we're not seeing really a diminished appetite, Elle. Graham, can I follow-up and just sort of ask around, I I suppose the sort of percentage of large sites that you're currently at in terms of how you define them and how you see that shifting over a 3 or 4 year period, I suppose? And that 3rd brand, would it ever get to be 10% or 15% of Total volumes, or would it only ever be a very, very minimum number? No, I could see I could definitely see I mean, Clive, we're still in the early days of how we use that brand, and that's a science, which We've got some very clever people working on that. But so you don't want to hear me on that. I've been on this panel. I've been on this panel. But we need Debbie. But El. In reality, Clyde, I could easily see that pushing up to above 10% or 15%. Yes, I could. In terms of proportion of larger sites, I mean, it's so it's low at the moment. I could name list those sites. They're Probably 10 or 12 in the portfolio out of our total, but that's going to increase, I would I mean, O'Neill. Put a number on it, but I would say you could see treble that number over the next 2 to 3 years. And increasingly, that's our focus for our land acquisition because as Greg said, exaggerating to make a point, but we'll put as much Hard work and effort and time into acquiring a site for 75 units as we will one for 600 units. And therefore, it really makes sense for us to focus our efforts there. And because there's less people that can compete for those sites. That's the real excitement of something like larger sites continue to be less competitive. And where We have got the angle of partnerships coming in, and we can get a partner in that will forward fund it, as it were. It means we can offer better payment terms than we would on our own. So we can get to the levels of Price that we need to buy the site in the 1st place. But on something like Kenworth, we were able to trump everybody else by offering the majority Elle. The money for the land upfront because we had a partner who was prepared to do that. Okay. Thank you, gents. Elle. It's quite it's a pretty exciting time on the larger sites for us. Okay, Scott. Thanks, Clive. Thanks for your question, Clive. We're going to go back to John Fraser Andrews from HSBC. John, reporting you to panelist. Jonathan, can you please Unmute yourself and please turn on your camera. Many thanks, John. Hi, John. John, if you could just unmute yourself, please. Elle. Yes, good morning, Jack. Scott, the technology working finally. So I'll have 3 as well, please. So the first one, could you explain the economics Elle. For yourselves of the Deposit Unlock Newcastle scheme. The second is on housebuilding margin. The statement refers to some more optimization in those margins. You obviously had a good recovery in the first half. You set out that you can do 23% next year. El. So what's going to take it to the land bank gross margin, the near 25%? What's still to come from the merger possibly. What's still to come? What land are you using that you will be using in the future? And then the final one, please, on the land market. Perhaps you could set out, Greg, where that current market is. Are you able to push your gross margins ahead of what's in the land bank given these large sites? El. And your land portfolio currently, is the plan to keep up hold of all these large sites or to sort of trade them O'Neill. And get some more outlets to drive the volume. So last point, John. On the larger sites, We haven't sold a piece of land for a long time. We sold one piece of land, but it was a swap, and that's The way we're going in the first half. So I don't particularly want to sell any land outright. I'd rather swap and have an additional outlet, which will in turn drive Volume. What was the oh, the actual land market, I would say, it's the last 6 months have been in historic El. It's still a very good market for us, but I'd say the last 6 months have been more competitive than the previous 12. And I think the main reason for that As we've gone through a pandemic during 2020 with the lockdown, and I think a number of our competitors didn't buy any land. We continued to buy land through, rightly or wrongly, it's turned out to be rightly probably. But a number of our competitors or peer group didn't. That's fine if you come out of the lockdown, out of the pandemic with a market, And it's staying with materials as per previous questions that just trundling along. What's happened is the market has hit the ground absolutely running. So our peer group are under pressure to actually catch up and buy the land that they didn't buy in that 6 months. And I think that's the main thing that we've seen with regards The land market. So hopefully, that will settle down, but I wouldn't get carried away. I still think the land market has been pretty good. We've been able to Get in there. With regards to margins, our hurdle rate is 25%. The average margin we bought land, the just Elle. Just under 6,000 plots in that 6 months is just under 26%. I don't think we can push that on at the moment because don't forget, since March, we've included 4 Part Elle. Elle, costs in total within our land acquisition. So for instance, a 3 bedroom house, Elves. We've included an additional £3,000 worth of costs and upwards, less for 2 bed, more for a 5 bed within the land appraisal. So the landowner is suffering that loss, but of course, gaining a little bit from the house price inflation that we've seen so far. So I think that answers that. Elle? Well, I'll just pick a bit more on margin. Yes. Greg has already mentioned, obviously, house building, 13 business units can deliver up to the 8,000 units. So certainly, our operating margin, there's still benefits to come through in terms of the structure of the group. And also, we've said this morning in terms of strategic land, Yes. We can see a pipeline of 4,000 plots a year to transfer into the consented land bank. That tends to be Higher margin also feeds. They all tend to be, on average, larger sites, so certainly, feeding the jewel or even 3 national brands in the future. You then asked about Project Unlock, which look a fairly simple mortgage indemnity scheme. There is a small charge, less than 3% initially, of which Half of that charge may come back in the future. In the first instance, we're going to assume that as a cost, and hopefully, some of that will come back down the line. El. Early days yet in terms of that trial with Newcastle Building Society. But it is being rolled out around the country a bit more now with nationwide, isn't it? It is M1DA. Some early signs are helpful with that. Greg, so just a quick one on land. You're above your target L. So what does the shape look like? Do you continue to invest to establish the So the stronger volumes you're looking for in the medium term? Or can you take your foot off the pedal now on land investment and we see more cash coming through? Elle. Now we won't take our foot off the pedal, but we're not under any pressure to go rushing into buying land in any particular area where you You quite often would make a mistake. So we're going to continue as we are. We're going to continue with the current profile, not take our foot off the pedal. But at the back of all of our minds. We have got a bit of breathing space. Thanks, Jeff. Elle. Thanks, John. Thanks, John. John, thanks for your questions. Our next is to Rajesh Patki from JPMorgan. Rajesh Elle, O'Neill. Yes. Hi. Can you hear me well? O'Neill. Great. I've got two questions, please. First one is on the house building business. You reported about €40,000,000 operating Elvira. And I think you touched upon this briefly earlier, but do you think the €90,000,000 from last year is a good level for the business this year and going forward? And secondly, on bill cost inflation, you mentioned an underlying level of 7%. I might have missed that, but can you clarify what has brought this down to the 5% level? Thank you. Okay. I'll take the second one, and we might need some clarification on the first one. So What's we think the underlying cost inflation over the 1st 8 months of this year is about 7%. We're at 5%, and that's because at the time of the acquisition in December, January 2020, We put in place 128 kind of volume deals with all of our major suppliers. Some of them were 12 months, but an awful lot of them were for 2 years. So we've been protected with the increases that have come through to the general marketplace. That's why we're at 5, but we could easily see that being 7. With regards to your first question, did you understand that? Well, I think, Rajesh, you're asking about the overheads in house building, which are That's right. That's correct. GBP 40,000,000 for the first half and we You had 19,000,000 ahead. Yes. So look, it's a reasonable guide in terms of those overheads. The one thing that I'd almost like to think might be a bit higher in the second half is if follow through with performance, there will be a bit of incentives to pay to our staff in terms of delivering it. So that will be the bit of flex in there. And then not too much growth in it going forwards because Elvira. We've already got the 13 business units to deliver the growth. Okay. Thank you. Okay. Bridges. Thank you for your questions. Our next question is going to be from Chris Millington, who's from Numis. Chris, I'll be promoting you to Els. O'Neill. Thank you. Good morning, gents. Well done on the results. Thank you. A few from me. I think most of mine have been taken. But can I just ask firstly on, are you seeing any pushback from valuers at the moment Elle on the price increases and what's the preponderance of down valuations? 2nd one is just really about any kind of regional or product variation Elle. As you've headed through the summer. And then the final one is just a point of clarification really, and I think this is for Graham. It's the new regions in partnership you spoke about, El. Graham, is that in addition to the Midlands and the Southeast region? And would that new regions be required to get to $1,600,000,000 or is that kind of over and above what you're doing already? Do you want to turn the glass over? I'll take that last one first, Chris. So we mentioned the new reasons we talked about. Obviously, Thames Valley already in operation, and that will contribute from next Elle. And then we're well on with looking at the regional opportunities, and that's what I mentioned in the presentation. So in particular, Southeast, which is in fact and we'll incubate that in our so we've got our London business, which is obviously split into 2 with development and contracting. But there's a huge pull for that business sort of to the east and in Kent and a bit in Essex and also pushing down into the Southeast as well. Great thing for us there, Chris, as well is we're able to work very closely with the house building businesses. So it's not like we're going out with the Huskies and sticking a Bag in the Ground. We know the subcontract chain. We know the market, so that's really helpful. So that will be in that's we're looking at new business unit for the Southeast. And in the Midlands, we already you're quite right, we already have 2 successful business units there. But simply, the volume of demand that we're seeing and will justify us putting a 3rd business unit into the Midlands. In terms of the totals, those are not over and above The 1,600,000,000 that we've talked about, those will be an integral part of getting to those targets that we've talked about. Very clear. Thanks. In regards to down valuations, Chris, there was the odd talk of the odd down valuation in the first part of the year, January, February. And then there was the odd murmuring here and there when we put prices up across the board in July, but it was only the odd. In the last month, in all of the conversations I've had, which are weekly conversations with Managing Director of the business units, I can't remember the The last time someone mentioned any issues with down valuation. So and that's coming through because, as I said, we're being very cautious with the price Elle. In July, not including them, but that is cautious because we're 2 months more than 2 months in now, and they are holding. In actual fact, Elle. So I think, yes, down valuation very little, and I've forgotten the first question. Regional variations. Yes, regional variations. I would say it's pretty strong everywhere, but probably lucky for me personally. I think the strongest area is the South West. I think Devon and Cornwall, I don't know if either of you would disagree, have been the strongest market Because that's where everyone wants to live, of course. And any discernible difference between product type, whether it's large houses, Flats, maybe in terms of price inflation or just underlying demand? Without any shadow of a doubt, I mean, we set out, as did Linden, our strategy of building reducing our average square footage so that our average house becomes just over a 3 bedroom house and building less large 4 and 5 bedroom houses. I have to say, where we are at the moment, they're the ones that are selling particularly well, brought on by a different environment caused by COVID. So they're selling exceptionally well, But we I think that's a short term thing. We'll stick to our strategy. But any 4 or 5 bedroom house that We went into this year thinking, well, that'd be interesting to see how that goes, seem to be going very, very well and getting very, very good prices. Elle. And probably, they're the ones who are getting the biggest increases, I would actually suggest, at the moment. That's great. Thank you for that. Elle. Thanks, Chris. We'll be going back to Clyde Lewis from Peel Hunt. O'Neill. Clive, we're promoting you to panelists. Please could you unmute yourself and also turn on your video. Patrick, answer my 3rd. This one was around sort of part Elle. Greg, You flagged the £3,000 extra that you've added in, I think, for a 3 bedroom house. And Graham, I think you were talking about it in your presentation as well. In terms of the extra cost, where do you think the bulk of it will go? I mean, is it going on more insulation, bigger cavities? Is it the ground source heat pumps now? You think that's going to be the main driver? Is it going to be solar PV? Or is it going to be something else? I'm just intrigued as to The sort of research and the areas that you think A big part of it is the additional insulation. And of course, We're unsure as to what's going to happen. We're also including for electric charging points of somewhere between €500,000,000 7 So it's a huge additional cost, but nevertheless, before March, we were including in our appraisal. So we've actually It's been included in our appraisals for probably about a year now, but we took another look at it and increased our allowance for Part L in March. And that's obviously, as with all building regulation changes, ever since these things started, the landowner will have to pay and the burden of it. The only way the house builder gets caught is on the land bank on their land bank where it's a long land bank where they haven't bought the land with A change coming through, but at the end of the day, we're going to be able to manage this up until June 2023. So a lot of our land bank Elle. Isn't affected by anyway because we can bring units forward, we can put foundations, etcetera, etcetera in. But we've allowed that in the land bank. But yes, 2,300 Plus electric charging point for a 2 bed up to GBP 5,100 for a 5 bedroom house. So that which again, I think shows you a heat And our heat source pump is in our heat source pump, but the insulation, trying to get the standards right for a 5 bedroom house, which is generally going to be detached, are a lot harder to do than a 2 or 3 bedroomed Elle, Samuel Terrastass. Okay. Thank you. Thanks, Clive. Thank you. We have no further questions, so I'd like to pass back to Greg for closing remarks. Okay. Thank you very much. Hopefully, you all watched the video. We're really pleased and, in fact, proud Of those 1st year results, we're in great shape going into the second half of the year. And the strategy of the acquisition of Galaf Try's housing businesses It's absolutely coming through more than we originally anticipated, no doubt helped a little bit by the pandemic, which has definitely shown up and the acute shortage of affordable housing. And I do think going forward, the timing of the acquisition of the partnerships business particularly will be seen as very, very good.