Good morning, everyone. We'll make a start. Welcome to the Vistry Group full year results for 2019. Agenda today, I'll run through a couple of slides of our full year highlights. I struggle to get it onto two slides, of course, there's so many of them. Financial review will be Earl, and different this year than we've had in the past, the strategy and operational priorities, I will share between, or we will share between myself and Graham. Talking about that, welcome to Graham. Great to have you here. When I look over at Graham and Earl, and think back on my career, between them, they've been the butt of most of my great jokes over the last eight years, so good to have a choice today. I'll run through the outlook. Great photo to start there.
Earl and myself have been, and Graham, have been together all week, board meetings, et c, et c, but we did have time to nip out to one of our, morning, everyone, one of our London developments. We met these couple of young apprentices. The three of us had a long chat with them and got on well with them, asked them what they're all about. They asked us what we were up here for this week and told them we're coming to do our results today. At the end of the session, which was a good half an hour, I wrote down on a bit of paper, which is what they're studying now, who do you think will come over the most energetic, enthusiastic, et c, et c, between Earl and Graham. As you can see there, they're struggling with the concept of the question.
Moving on to the Bovis full year highlights. It's another year. First of all, to say we're really, really proud of the people that produce these results and the results themselves, of course. It was another year of record profits, with profit before tax increasing by 12% to GBP 188.2 million. A record. Operating margin, maybe against the trend of our peer group, progressed again to 17% against a backdrop of market uncertainty. Just putting that into context, just as a reminder, if you take 2019 in its entirety, the first six months, to June of 2019, we saw no sales inflation, but we saw build inflation of between 3% and 5%. Then in the six months to December, we saw no build inflation, but we saw sales deflation of 1.5%-2%.
Both those factors together, I think, really underline how well we've done improving that margin to 17%. We've seen a sustained step up in our average sales rate to 0.58 sales per week per outlet from 0.5. It was a controlled and disciplined period end, that's the third one that Bovis have had, with unit numbers, completions up 3% to 3,867 units. Delighted to be able to say that Bovis now are officially a five-star house builder. Great result. Massive amount of work done to get there, that follows obviously all the trials and tribulations of where we were at the end of 2016, beginning of 2017. One doesn't come without the other. Further improvement in build quality metrics with our reportable items, that's from the NHBC, down 28% to 0.23, which is significantly ahead of the build benchmark.
We've talked a lot about the Bovis Phoenix range, which was introduced in the last 18 months, and last year we delivered 358 completions, which is 14% of the overall. Improvement in health and safety scores in every single region within the business. There was another year of strong land acquisition, including conversion of our very valuable strategic land bank. Overall, the land, Earl will go into in more detail, that we acquired in 2019, was bought at an average margin of a very good 27%. Moving on to, probably more interesting for most of you, the Vistry Group. With the acquisition which we completed, or merger as I'm calling it, on the 3rd of January, we undoubtedly became a top five U.K. house builder. It's a transformational acquisition. We should look at it, this is three times. It's closer to three times than twice.
We were seven business units. We were 27, we're now 23 because we've already closed four, three times. It's a huge, huge undertaking by us. As I say, it does firmly position us as a top five house builder with a market leading position in the attractive, very high growth partnership sector. For 2020, the focus is on the successful integration, and most of the integration work is within the housing businesses, and continued growth in the exciting partnerships area, Vistry Partnerships. We've already established the best operating platform to maximize future growth and returns. We have made, Graham will talk about it, Earl will talk about it, a lot of hard work in the last couple of months, we have made excellent progress to date.
Whatever I said in the acquisition leading up to Christmas, I'm even happier two months in than I was at the time. It's going really, really well. We are confident, very confident that we will deliver the significant benefits that we talked about, including a minimum of GBP 35 million per annum cost savings. On that, I'll hand you over to Earl.
Thank you, Greg. Good morning. A lot going on forward looking that Greg's touched on. Graham will talk more, but I will take a brief moment to talk about the very good performance in old Bovis, if you like, in terms of the financial review. Income statement showing a significant step up in profit and the operating margin, driven by a 7% increase in our revenue and a 3% increase in volume. Gross profit up 10% to GBP 253.4 million. Our admin expenses do reflect the optimum structure that we've got, the further enhancement in systems supporting that, but also the growth in the business and the increase in employee costs. Overall, operating profit before exceptional items up to GBP 192.6 million. Finance costs were flat year -on -year, and that does include the small impact of implementing IFRS 16 on leasing.
Got the first real contribution from our two development joint ventures at Sherford and Wellingborough. We entered into that Wellingborough joint venture during the year back in April 2019. Overall, 12% increase in profit before tax to GBP 188.2 million. We did have some exceptional costs in the year, so GBP 13.5 million going through the income statement. If you add to that, the cost of refinancing and the cost for the placing, very much in line with the guidance we gave at the time of the acquisition. I would say, "Did you enjoy your trip?" Tax rate, 20.7%, reflects the underlying tax rate, plus the fact that some of the exceptionals are not deductible and an adjustment for the prior year. Should say we will have some more exceptional costs this year coming through as we restructure the business.
Early days, certainly we guided at the acquisition that that could be up to GBP 32 million. We will obviously be looking to come in lower than that. In terms of volume and pricing, the 3% increase in volume, led by a 2% increase in our private volume. The affordable largely flat, that reflects a 31% of our mix, pretty much the same as last year, and very typical of the average affordable on our sites of somewhere between 30%-35%. Again, that first contribution from our two development joint ventures with 58 completions. 23% of our completions came from Help to Buy and 7% from part exchange, which is still a relatively low number, still well controlled. No part exchange at the end of the year held unsold for more than three months.
Actually, we'd be happy in this market to do a little bit more of that represents an opportunity going forwards. We had about 88 active sites throughout last year. That's changed quite a bit now, we are on about 175 housing sites at the moment, 19 partnership sites, and I expect that level to say broadly the same during the year. We are on over 50 of those sites in some form of joint arrangement. Overall ASP up 3%, led by actually the location and tenure of the affordable in the mix. In terms of other income, GBP 14 million, half of that coming from near enough the final sales of our PRS properties. We've literally got a handful of those left. There's a couple of commercial sales in there as well.
Also during the year, we did six partnership land transactions, so selling land to housing associations on which we will then develop those houses, and that brought in just over another GBP 40 million of turnover. In terms of the profit, just splitting out that one land sale we did externally. Gross margin up 22.4%. As Greg touched on, that is reflecting the market we had. Flat sales inflation in the first half and a decrease in the second half, cost inflation in the first half and flat in the second half. Also importantly, does reflect the improving embedded margin in our land bank and the operational improvement, including our margin initiatives, and I'll come back to that in a moment. Take the overhead percentage of 5.4%, and you got the 60 basis points increase in operating profit to 17%.
Sales prices, construction costs, just touch on the two numbers in the circles. Private sales price per square foot up 1%, broadly flat out there, but that does reflect the location of where we've been building. Really pleasing number is the other one circled, which is finally the construction cost per square foot showing a 2% decline. That's despite inflation in the first half of last year and absolutely does reflect the changes we've been putting through the business. The lower cost of the Phoenix house type range, all the work we've been doing on specification, as well as I would say, giving our commercial teams the tools to do the job in terms of new systems. Cash generation, strong operating cash generation. We also spent a bit more on land during 2019 than the previous year, GBP 185 million, both settling land creditors and new land.
The dividend payment looks down from 2018, that actually reflects we paid the special dividend from 2019 as a special bonus share. Cash flows from joint ventures reflects the formation of the Wellingborough joint venture and the loan from Homes England going into that joint venture. Non-trading items, the usual things in terms of tax, interest and pension. We had the successful placing in November, raising over GBP 150 million. Closing net cash, GBP 362 million. That position did change quite quickly at the beginning of this year. As Greg said, very successful year again in terms of land activity. The dots on the map show you where we have been purchasing land. The gray dots are where we've been acquiring land out in the open market.
The darker dots, pleased to say, are those that we have pulled through from our strategic land bank. We continue to feed that strategic land bank. The red dots are the new strategic options. Over 4,500 plots bought across 18 developments. Again, following our strategy of looking to buy more sites with two and three-bedroom houses, only seven of those plots we bought do we expect to sell for more than GBP 600,000 in due course. That conversion of strategic land, 2,146 plots, including conversions at [Combe Trotton] Camborne. They have been a number of years in the making, very good margins on those sites coming through. We have got further planning on 1,131 plots in the strategic land bank. That will continue to flow through. All that land, as Greg said, bought on average at a 27% margin.
I'm pleased to say we are very active in the land market as we start this year, already secured another seven sites across the business. Finally, in terms of the balance sheet, looking at our optimized balance sheet at the end of last year. Land creditors at 36% of gross land. Still happy to buy land. If we can buy now, pay later, and in the mid-30%, that's okay. Within that, we've actually got a number of pretty long-term sites with creditors out a little bit further. The work in progress does reflect investment in some of our larger sites, where we're already operating on a number of outlets. The investment at JVs reflects the increase from Wellingborough going in there, we entered into a further joint venture at the end of the year with Metropolitan Thames Valley at Camborne.
Overall, net assets per share at GBP 8.57. Just a bit more guidance or just reiterating what we said at the acquisition, that we're looking to get that gearing, including land creditors, down to just under 30% by the end of this year, then decrease it again to the end of 2021. With that, I'll hand you back to Greg.
Great. Thanks, Earl. If you're not funny, use the old joke, have someone walk in late and get him to trip up on the stairs. Fantastic. With my improved IT skills, and I've been struggling to sleep lately, I have just ordered a copy of IFRS 16 on leasing, so I can read that through to help my sleep pattern. We're uniquely positioned, as I say, as a top five house builder. Vistry Group. Two areas. House building. High quality housing provider. Two leading house building brands, Bovis and Linden. National scale and coverage. Valuable land bank. Very good strategic land bank and capability, and controlled volume growth and margin opportunities. On the partnership side, I think we are the leading provider of partnership housing in the country.
Excellent reputation. Stephen would have said that at the time of the acquisition, Stephen Teagle. I've obviously done my due diligence, and I would underline that, and firmly established relationships. National scale and coverage. High growth. Counter-cyclical revenue model. I've been bowled over already in the two months that we've owned the business of how many opportunities are coming through the door, and some of the scale of those opportunities. Supported by, of course, two leading housebuilding brands, Bovis and Linden. Significant revenue growth and margin expansion expected. If you see at the bottom there, you've got our three customer-facing brands, Bovis, Linden, and Vistry. It's important to note, having had a discussion and meeting with the HBF, that the cumulative of the HBF customer satisfaction scores for those three businesses put the Vistry Group as a five-star housebuilder.
You add the whole three together, and we are a five-star house builder, not just Bovis. The group's strategic aims are exactly the same as we put in place at Bovis three years ago, which has put us in very, very good stead. Number one, front and center, no doubt about it, people satisfaction, all built around do the right thing. We take health and safety of our people very seriously, as we do of our supply chain. On customer satisfaction, if you don't look after your customers, and Bovis Homes really do know this, you will not go forward, let alone make a profit, even more so today than maybe in 2016, 2017.
I think it's a great testament to the people of the company that if you look at the last three or four months leading up to Christmas 2019, when the acquisition was really going into it, really into the due diligence, and then even more so the first two months of the acquisition, January and February, when there's been absolutely all hell on, closing four offices, redundancies, lots and lots going on, our customer satisfaction score since the 1st October has actually risen. As a group now, we're at 92%, well, well in the five-star. If I really had to describe how culturally the customer is front and center of everything we do, in spite of everything that's been going on in the four or five months leading up to Christmas, and the two months since Christmas, the customer satisfaction scores are rising.
If you get all three of those right, enhanced shareholder returns will follow. We've got a highly experienced operational management team. On the house building side, Darrell White, Bovis, Andrew Hammond, Linden, Michael Stirrup, Bovis, Darren Maddox, Linden. It's pretty well spread. The whole thing I'm treating as a merger. On partnerships, Stephen Teagle, CEO, Stuart Brody, Stuart Monroe, James Warrington, everybody on that list has been around for at least five years, some of them even more. My script says, "It's a great balance between young, enthusiastic leaders and more mature, older, dour even, leaders." I'm not sure who wrote the script, but looking around, and they're all in the room, I'm not sure where the young ones are. I'm sure they're there somewhere. On house building, our strategic priorities, we're looking to maximize output through controlled volume growth.
There'll be no growth, it's a standstill in housebuilding in 2020, exactly as we said at the time of the acquisition, because that is where most of the integration issues, things to deal with are. We are looking for steady, incremental volume growth from 2021, and we would look to get to 8,000 units as soon as practical. We are really excited, and it's one of the main strategic aims, benefits of the deal, of the dual branding. The dual branding will enable us to sell quicker on our existing sites and make us even more competitive, I think, in the land market. We're continuing to invest in our people, and going forward, it's still all about hands-on leadership, not leadership from computer screens, hands-on leadership, getting out there, and the focus remains on having quality site managers and quality site teams.
Linden and Bovis want to be the partner of choice for our supply chain, as well as local authorities and housing associations. Vistry Partnerships, there's less integration issues in Vistry Partnerships. It's pretty much as it was. We are looking to continue the aggressive growth in 2020. No real growth in housing on unit numbers, but there will be growth in the Vistry Partnerships side on day one, because there's less integration going on. The 6,000 units, that can be achieved in the medium term, and that's from 4,000 units today. Importantly, though, we are looking to increase the growth is going to come from what I would call housebuilding as opposed to contracting.
We are looking to increase the amount of house building that the Partnerships side of things does, but retain the very important contracting revenues or maybe grow them slightly, but not at the same rate as the house building side. We are looking to expand into new geographies, and Graham will touch on that in a minute or two. We do expect, and are confident to see, a step up in the margin from around 5.6% to 10% in the not too distant future. That will come from the house building side, which will be generating operating margins of between 14% and 18%. Exciting times for Vistry Partnerships. We've got a very good land bank. Pro forma, we're 40,135 plots. We're continuing to target a three and a half to four year owned supply.
We are seeing an increase in land supply for Vistry Partnerships to get them up to that 10% margin that we are expecting, demanding even. Increased competitiveness. This has all given us increased competitiveness in the open market, on land. We were already, as we've said, we bought land at 27%. We bought a lot of land last year. Bringing together Linden and Bovis and the two current house type ranges that they've got, the Phoenix range and the Linden Collection, which Graham is currently leading the charge on tweaking slightly to bring in the best practice of both. I've already seen evidence in the first two months of the year where our land bids are even more competitive than they were. I think we're even more competitive going forward than we were in that important area.
Significant opportunities from strategic land. I've been around for a long time. I do think the strategic land team that Bovis have got is exemplary. I haven't really worked with too many better. There are some great people. That strategic land team has, nothing to do with me, been a very, very good bedrock for Bovis over the years and continues to be. We continue to go through a golden period within Bovis and now the Vistry Group, with strategic land coming through.
Nearly 32,000 plots within the strategic land bank. Nearly 9,000 of those already have some form of consent. We made good progress in 2019. There were just under 2,150 conversions. We would expect that to continue this year and next year with a strong pipeline of high quality developments coming through. Collingtree already done in the first two months, Salisbury, Macclesfield, Coggeshall, and Bideford. Strategic land will continue to be a focus and we're continuing to invest in it this year and going forward. Graham.
Very good. Many thanks, Greg. Morning, everybody. Those of you that know me know that I do believe passionately in the strategic and the operational potential of Vistry Group. The transaction was put together in the right spirit, in a kind of collegiate and constructive nature, the way that we constructed the negotiation. I'm really pleased to say that the integration has started in the same way, and indeed with many of the same jokes, which is nice. It's very, very funny. Seriously, there's a huge amount to do, obviously, with this integration. It's complex, it's demanding, and obviously in the area of people, it's very, very difficult as well. We are setting about it with energy and pace, and I'm really pleased with the progress that we've made to date. As Greg's mentioned, we reorganized housebuilding into two divisions, North and South.
I'll talk about that in a moment. We rebranded Vistry Partnerships on day one. We had to do that. It was a fantastic effort by the teams. We are really focusing hard on increasing the proportion of higher margin land led and mixed tenure work that we bring through that business. As Greg said, our divisional chairs and MDs are all in place and the majority of our business unit boards are confirmed as well. The difficult process of consultations, of the people consultations, we're well on with that, and we will be through quite early next month. We're making fantastic progress on the procurement renegotiations, and that's both in price alignment, in taking the best of both, who's got the best deal. Then, of course, seeking improved terms for the significantly increased size of the business that we now are.
As you know, we're targeting some GBP 15 million of savings in that area, and John Byrne and his team making great progress already. We've also refocused our land teams already on larger opportunities because, of course, the increased size means that we can really start to play in those larger sites where the competition is just slightly less. Of course, that represents a real opportunity for us. We've aligned our two strong health and safety systems. Keith's done a great job, and we're pretty much there in terms of a single group policy, which is important and very quick, which is great. On the Phoenix range and the Linden Collection, two excellent and quite new ranges, and we're working hard to compare and contrast and optimize both of those. It builds on the margin initiatives that have obviously been thriving at Bovis last year.
We're reviewing both the base specification to get the best of both, where one can learn from the other, and also revisiting and refreshing some of the finishing specs as well. In IT, obviously a huge exercise there. A huge amount of work already done and lots to do, but we've got that. We're well on with that. Significant work streams in bringing Linden onto the Bovis COINS platform. We'll have that done within the next two or three months. Bigger exercise to bring Partnerships into its own COINS platform. Of course, we need to rebrand and rationalize the whole network. It'll take us a few months, but the guys are doing a great job. Lots of pace and lots of progress. Just turning to house building specifically. As Greg said, we're going to 13 regions.
That does mean that we're closing some four offices. We're well on with that. Sadly, that means we will be losing something like just over 250 positions. That's where the redundancies is coming out. Importantly, as I've said, divisional chairs and MDs all in place, and the majority of the boards are confirmed. We've also taken the opportunity to have a good look at our business unit structures and our teams so that we can harmonize those and optimize our operating structure. Very importantly, where the restructure has meant that sites are changing, i.e. reporting into a different office, we've grabbed that very quickly because it's vital that we retain control of those sites, that we continue to pay our subcontractors, and that we continue to look after our customers. As I say, well on with that, and got that under control, which is very important.
Turning to Partnerships. Obviously, Partnerships significantly less affected by the whole integration process. No change to our experienced regional MDs, as Greg mentioned. The business unit teams are largely continuing as they were, although in some cases slightly expanded. Which is great because it's creating opportunities for some of the talented individuals that we might otherwise be losing from the Linden and Bovis businesses. That's very good news. As I've said, we're focusing hard on increasing that proportion of mixed tenure, and not forgetting the important process of growing that Partnerships business. We've been growing it aggressively for the last two years within Galliford's, it's important and exciting that we're already on with our next regional expansion. Those of you that would have heard me in September will realize that this represents a bit of a change of strategy.
I think we were gravitating towards East Anglia because it was the gap in the map. Actually, we had a good look at the market kind of during last summer, and Stephen and the team came up with the conclusion that actually it was Thames Valley that was pulling us. The market pull was coming from that part of the country. A number of our clients are offering us opportunities in the Thames Valley. We've said actually, that's where we're going to direct our focus for now. We're already on with that. Very pleasingly, we've got a great resource, a guy called Nick Lahan, who came out of Linden Chilton, who's going to take on setting up that Thames Valley region. The small team that is setting that up is already in the business and reporting to Stuart Monroe, the regional director in the south.
Customer service, clearly really important for all of our businesses, and all three, Bovis, Linden, and Partnerships have made fantastic progress, as you know, in the last couple of years. As Greg said, already trending on the eight weekly. We're at five star, which is fantastic. We're absolutely determined to go further. We're already focusing on the nine-month survey and stretching ourselves as to what we can continue to do to stay ahead of the game. The bar is raising externally. As you're aware, the announcement on the Ombudsman last week, we welcome that. We think we're in great shape to make the very best of that and work with that initiative going forward. An interesting aspect of this for me is the rolling out. Bovis has got a fantastic CRM system called Keys.
We'll roll that out across the whole business, but we'll actually enhance it with some features of Linden's sales and prospects tracking system, which was also superb. We'll take the best of both and optimize that. House types and branding, it's a fascinating area. It's a new proposition, really, for both. We both just had our own brands before. Now we have the opportunity to play with two. It's a complex area. We recognize that. We've created a new position of Group Brand and Marketing Director. Debbie Hume is in the room. Have a coffee with her afterwards. Fascinating area, and it's been a really interesting debate. We had a bit of luck in the two ranges, actually, in that both excellent ranges, but they set out from different places. Very much both focused on location, on quality, and on value.
Linden approached the exercise very much around starting with buildability and cost, of course, not forgetting the customer. Whereas Bovis started from the principle of kind of distinctive design, a sense of space and luxury, but not forgetting buildability and cost. What that means is that we start out with two highly complementary ranges. It's a real bonus for us because they could have obviously had much more of an overlap, but they don't. They make great stable mates. We're working on both of those ranges to extend the depth of the offer to our customers and to accommodate some types which partnerships need within the ranges. When we finish that work, what we're absolutely clear on is that we'll be absolutely rigorous in enforcing those brands around the business. Really important that we don't undermine our own efforts by messing around at the edges there.
The way that we'll operate is that each of the house building businesses can offer both of the brands, and Partnerships can offer both of the brands. As I say, once they deploy that brand, they stick to it religiously. The two ranges is exciting because it gives us flexibility in our location and our land buying. Indeed, the prospect of dual branding on our larger sites means that will help us to accelerate the pace of development and the returns that we can earn from those sites. Finally, just some of the key principles with which we're approaching this whole exercise. Absolutely, I think as Greg said right at the start, it's about the best of both businesses. We really are looking at both and optimizing, taking the best of each. It's not about smashing one business into the other.
We resolved early that we were going to make our decisions quickly and execute them efficiently. We fully recognize that in some areas we'll make the odd mistake. We might take the odd suboptimal decision. I'm convinced that the cost of those, hopefully, small mistakes would be far outweighed by dithering or delaying and not getting on with the integration and starting to realize the benefits. Absolutely, as I've mentioned in one or two places already, adherence to group principles is paramount. We're having the debate now, we're taking the views, we'll make the decision, and then we will stick to those group principles, be that in branding, as I've just mentioned, or in procurement. There'll be no grubby local deals to get an extra [Thornton's Hatley] discount and then undermine the whole integrity of the group deal. That's very much a key principle for us.
I think important to end on a real sense of one team. If we're going to make this opportunity work in the market, that's how we have to operate. We absolutely face our markets as clear and distinctive propositions. Internally, we work as a single operation. We're sharing our opportunities and best practice, developing our people, and absolutely leveraging our size. It's vital if we're going to deliver on this opportunity. I would say it's been really great. I think I can absolutely speak for all the Galliford team. We've received a great welcome within the group, and there's a real positivity right across the team for the fantastic potential in this combination. Thank you.
Thanks. Thanks, Graham. Not sure how much time we got left after that, but on the market environment then, you would have heard this before. There's definitely increased market certainty, political stability, progress on Brexit. Fundamentals, historic low interest rates are going to continue. Competitive mortgage market and getting more competitive by the day, I would say. Strengthening wage inflation, high employment levels, government support for the sector, all lead to a good housing market, which leads us onto strong demand in the year -to -date, which I'll touch on in a minute. Sustained demand from housing associations. During the course of last year, I think Bovis sold in excess of 500 houses outside of Section 106 agreements to housing associations, and that appetite from the housing associations continues to be there.
We've done very few deals so far in the first two months because of the strength of the actual market. There's a number of deals bubbling away. It's good to know that there is a sustained, that's a sustainable area for housebuilders to go to. The land market, of course, as we proved last year with the land we bought at 27%, remains attractive. Finishing things off then on the outlook. Graham said it, Earl said it, and I'll say it again. The integration, the first two months, we'd have done more than take where we are today. A huge amount of work, but we can already start seeing light at the end of the tunnel, and it's kind of been seamless, and it's been not every day. Sometimes you have gone home thinking, God.
More days than not, it's been a very, very good experience. We've had a great start to the year. Underlying average sales rate up 15%. Positive momentum on underlying pricing. For the first seven weeks, we're just under GBP 2 million up on forecast. All very good stuff. A strong forward sales position. This is interesting. We're 48% sold on private house building or on our house building business, exactly the same place as where Bovis were this time last year. If you'd have said to me what was the number on the 1st January, it would have been behind because obviously, it was a difficult time for any consumer-facing business, including house building, leading up to Christmas with the election and Brexit. In seven weeks, we've caught up that position, such has been the strength of the market since Christmas.
We've got an increase in mixed tenure forward sales from Vistry Partnerships, which is great, to GBP 244 million from GBP 159 million. That's exactly where we want Vistry Partnerships to go. That will be the higher margin stuff. On the contracting side, an incredibly strong, what we call work on the bench, which is contracts nearly signed in the last knockings of the negotiations of GBP 1.5 billion, and a contracting order book of GBP 890 million, down from GBP 960 million a year ago, but about the same. If you listen to what I said earlier, we're not looking to grow as aggressively the contracting side of the business as we are the housebuilding side of the business. You shouldn't expect that to go forward.
We are, on the contracting side of it, in great place this year with 88% of the work we need to achieve consensus already secure. We're in great shape, and we're in a pretty good market. We're delighted with how things are going. On that, we'll take any questions.
Thank you.
Thank you.
John Fraser-Andrews, HSBC. First question is on the sales rate, the step up from Bovis Homes to 0.64. Can you say where you see that heading? Is that the natural rate for the sort of old Bovis Homes? Linden Homes, from recollection, was sort of half a tick higher. Where's that sales rate going? Is there more structural growth in it that Bovis has achieved over the last couple of years? That's the first one.
Well, let me do it. I won't remember otherwise. What I would say is last year was 0.57, 0.58, and that was up from 0.5. That's probably because of our build quality, our customer satisfaction scores, our reputation being better. Both Bovis and Linden have said now for about 18 months that on our land going forward, we are looking to do more, bring our ASP down, i.e. do more two, three, and small four-bedroom houses than the five and six-bedroom houses.
As that comes through, and it started to come through last year and will come through again during the course of this year, you would expect to see the sales rates increase. Somewhere between 0.6 and 0.7 is where we would aim to go with our new mix. Linden and Bovis, all I can say is in the first seven weeks of the year have been selling at approximately the same sort of rate because their mix isn't too dissimilar.
Thank you. Second question, partnerships, mixed tenure margins, the 14%-18%. Can you just sort of flex where the variations in the types of developments are in those margins, and is the strength of demand, has there been any underlying increase in that margin, in the last year or so?
Stephen, do you want to take that one?
The margin that we achieve on sites is a reflection of the extent to which we pre-sell. If some of our sites have 2/3 pre-sold as PRS or affordable housing, then that contributes to the overall site margins. Our margin that we aim for on the mixed tenure outright sale is exactly the same margin on, as you'll see in the house building business, and Greg mentioned 27%. That's the sort of threshold that we look for for our outright sale. Obviously, if 2/3 of a site is affordable, then you're looking at a lower margin on that percentage.
Just the last one, current trading, any regional mix in the sales reservation rate rise and the pricing increase that you've seen?
Yeah. On the pricing increase, it's interesting. On the pricing increase, I would say, the south is slightly stronger than the north. On the sales rate, it's the other way around. The sales rate has been more encouraging in the north than the south. Both up, the north has been better. I would put that more down to the integration within the business. The north, led by Darrell, has got a lot to do with integration, but not as much as the south. That must be impacting the sales rate, or at least that's what Andrew Hammond's telling me. We're encouraged with the sales rate in both areas, but there is a slight difference in the rate between north and south, north being ahead. South are ahead on prices. Chris?
Cheers. Morning. Chris Millington at Numis. I'd just like to firstly ask just on synergies, it sounds like you're making pretty good progress on the integration. I'm just wondering kind of what line of sight you've got and kind of maybe just give us a bit of feel as to kind of the exact split there. That's the first one. Second one is just about the embedded land bank margin between the two groups. I don't know if there's been any distortion there. Really just how you're feeling about the Help to Buy price caps?
Help to Buy price caps, I'll do that. Earl will take your first two questions. The Help to Buy price caps are exactly as the government said when they initially announced the scheme. We're pretty happy with them. If we try to get any of them changed through the HBF, it was the West Midlands. We think the West Midlands is a bit low. We think other areas are quite generous. Overall, we're not really concerned, but if you push me, the West Midlands is a bit tighter than the other areas. Earl, first two questions?
In terms of synergies, obviously at the time of the acquisition, we talked about a minimum of GBP 35 million, GBP 15 million as was mentioned for around the procurement, which as Graham touched on, we are progressing very well with, and John's doing a great job who's with us today as well. Then in terms of the site on the operating costs, savings of GBP 20 million in terms of the difficult process of restructuring, we can see good sight on how we will achieve those synergies as well. On target, as Greg said, we are ahead of where we might have hoped to have been with the integration in terms of delivering those through this year.
We're definitely ahead of where we expected to be, and because we're ahead, we're very confident of the overall number.
Okay. In terms of the embedded land margin, in terms of Bovis, which we've given you, holding that steady at 24.8%, same as June, really pleased with that, in fact, given, as we've said, pricing pressure in the second half of last year, which is all that reflects because we did that in land bank margin at the end of December. We've been able to counter that with some of the cost savings and, I think the natural increase. Pleased with that. We haven't quoted a Linden margin at the moment, but it was similar when we put it out at the time of the acquisition. Look, we're going to have to do some work and the accountants will make me look at each of the sites as part of the acquisition accounting. We'll come back and actually give the numbers in due course. They were similar land bank margins.
I think it will compensate it.
Exactly.
Thanks. Will Jones from Redburn. A few as well if I could, please. The first, can you just help us maybe establish what the pro forma base is on various metrics? We've got different year ends at the two businesses, JVs, lack of JVs. I'm thinking particularly the base house building volumes, say for calendar 2019, if possible, against the 8,000 long-term target. Then just obviously one thing is land bank gross margin, but in terms of the P&L gross margin, I think roughly Linden reported 24% gross in their last financial year, and you guys, or Bovis, was circa 22%. Is 23% roughly the kind of carry forward into calendar 2020 on P&L gross margin?
Just on that point, I'll pass it back to Earl. On margin, we are happy to go out there and say we're looking at an operating margin as a combined business for 2021 of 18.5%-19%. Add your overhead onto that, and that will get you your gross margin. For 2020, we're very much in the camp of put aside the margin. We're happy with consensus, which is in line with what we said at the time of the acquisition, which will be against consensus at the time of the announcement about 10% EPS growth against consensus of where Bovis were for 2020.
If you just put that at EPS growth against the results we've just announced at GBP 188 million, it's probably nearer 14%-15% growth in 2020 from 2019. That will obviously do things to the margin, but we're going to keep quiet on the margin this year, but we are happy to put out there that 2021, 18.5%-19% operating margin. Earl?
In terms of volumes, talking about flat housebuilding volumes, you've obviously got 3,867 was the Bovis number. I think I'll probably take you back to a 12 months to June for the Linden number, assume that for the 12 months that we are in. You're going to be somewhere 6,500-7,000 in terms of housebuilding units. Remember, the quantum of JVs that are in there, they are gross numbers that are quoted, in terms of what you'll see coming through. That will step up in due course, not this year.
The partnerships are about four.
Thanks. Perhaps if you could just update us on the expected balance sheet evolution. Obviously GBP 360 million net cash, but then the money's gone out in January. I know you gave some indications at the time of the announcement, but has any of that changed? I guess at what point would you be happy to reduce that dividend cover back lower again, as you indicated to the 1.75 x kind of level? Thanks.
Okay. Yeah.
We've probably got different answers on that, Earl, but go on.
Healthy tension indeed. Guidance is exactly the same as at the acquisition. As I said earlier, you're looking to get the gearing, land creditors, and debt down to just below 30 by the end of this year. Looking to get that down to about 25% in the subsequent year. The exact mix of debt and land creditors will depend on the land market and how much we can, as I said, buy now, pay later. Yes, there's a period of integration and deleverage before we look to reduce the dividend cover to 1.75. I'll let Greg give you the slightly different answer.
No, I'm fine.
You're all right with that one?
I'm all right with that.
The final one was just around, you've indicated that you're potentially looking to move the mix down a bit of the business going forward. I think the old Bovis land bank ASP is GBP 299 or something. Is that becoming lower all else equal or?
No, happily, that is Graham, you chip in. Linden were on exactly the same path. Yes. Graham was right on that. He had the same strategic aim as we did.
Yeah. You're happy holding that circa GBP 300 mark?
Yeah, very much.
Hi, yeah. Sam Cullen from Berenberg. A couple from me. On dual branding, I think you said you've got 50 sites that are dual branded currently?
No, we've got 50 sites that are being transferred.
Transferred, okay.
We will have, within this next 12 months, I'm going to say we'll have 10 sites dual branded.
Yeah.
The 50 sites was a number that I think Earl put out there.
It's a number, actually, in one form or another, we are in some form of joint arrangement.
Transfer, yeah.
I was trying to give you, to be honest, give you some guidance on number of outlets we've got, but just remember, some of them, say only 50% actually attributable to us.
This year, we will dual brand. A great example is if you go down to Sherford in Plymouth, or just outside of Plymouth, 5,000 units. That was bought three, four years ago by Bovis, Linden and Taylor Wimpey. It's already dual branded, as it were. As of today, you can go onto the site and there's Linden there and there's Bovis there. There are a couple of other sites like that, but there are some other opportunities during the course of this year that we can actually accelerate our unit numbers, maybe push some other things back, by introducing a second outlet. This year, I would say 10.
The 50, as well as what Earl was talking about from a JV perspective, is just putting into context the amount of work we've got to do with the integration, because there are getting on towards 50 sites that are moving from business unit A to business unit B, to business unit B, to business unit C. Those of you that have been in the industry before and understand how these things work, when you transfer a site from one business to another, there are lots and lots of fun and games and shenanigans go on with the new business unit managing director not being quite as happy as the previous business unit managing director with what he's just inherited. I'm hoping we can keep that to a minimum. It's a big job.
Okay, thank you. Kind of a follow-up to that. As dual branding increases, what does that mean for average site sizes? You said you're kind of going up, the average site size.
Yeah, we-- I-
Where are you now? What are you looking?
Yeah. We will be looking, without any shadow of a doubt, the land market is soft. The land market for 400-500 unit plus sites is softer again. That is a land market that we will be buying more land from. However many sites we've got at the moment, I don't know if you know the answer to that, Earl, I don't off the top of my head, that are over 400 or 500 will rise over the next couple of years because of our ability to dual brand them. Most of our large sites that we've got now, in fact, all of our large sites we've got now have come from our strategic land bank, which generally means how competitive we've been in the past on bidding for large sites.
Not as competitive as smaller because we've had to put a margin and a return on capital, importantly, based on one sales outlet, Bovis. Going forward, we can already see when you talk to our land teams, the fact that we can have two and even bring on board partnerships means that we can get through those larger sites quicker than we could have done, which will mean we will equal our hurdle rate of 25% return on capital much easier. Yeah, we will be buying larger sites, more than we have in the past, which should be less competitive. Overall, when you're actually on the ground, it's easier to run a business with 10,000 unit schemes than 20 500 unit schemes. It is just more straightforward.
Thank you. Just the last thing. On the four offices that you've closed, is that kind of two of each? Is that four Bovis, four Linden? Is there anything to note there?
No, they're four Linden offices. If you take Exeter, for instance, as an industrial estate there called, or business park called Sowton Industrial Estate, and within 500 yards, you have Bovis, Partnerships and Linden. Although we've closed the Linden office, it's a game of chess. The Partnerships business is going to move to those Linden offices because they're better than their offices. The Vistry Homes team is the best of both worlds. Just because we closed the Linden office, unfortunately, we had to put everybody on notice in the Bovis office as well. It's been, yeah, it's that office that's closed, but there's a good mix of Linden and Bovis people in those particular offices. The other offices that are being closed, the two main ones are Abingdon and Harefield.
If you look at the customer care scores of Linden during the course of last year, they were the areas that were bringing the scores down. Easy to say, but if Linden didn't have Harefield and Abingdon, I would suggest that their customer care scores could have actually been the best in the industry. As I said to Graham, you've got to look at things properly. You make your own luck. Yeah. We've closed those two offices, which in a swoop will deal with some of the customer issues that were around about the place.
Okay, thanks.
Your two, which is merging two into one, just makes sense. It's not really a closure, it's a merger.
Want to come across?
Thanks, Greg Fitzgerald. Clyde Lewis at Peel Hunt. Three, if I may please, Greg. Firstly, on the contracting part within Partnerships, obviously you've flagged the mixed tenure and the increased mix that you're going to get from that part of the business, and that's obviously going to be a big driver to the margins. Within the contracting part, given how strong the demand profile is, have you got any hopes for pushing up the underlying margins within that part of the Partnerships business?
Yeah. I think so. The majority of the contracting bit is done in London. More than half? More than half. The team that we have in London on the contracting side. First of all, going forward, all but one of their clients, and I think that job's actually finished, are housing associations, or RPs or joint ventures with RPs. We're moving away from any private developers. Yeah, I can see margins on the contracting side of 8% gross. Yeah, we can, and I think housing associations more and more are looking for, one, deliverability, two, quality, and someone that they can trust. In London, I think we've absolutely nailed that down.
Because of the growth coming from the housebuilding side, those of you been in construction for some time, it gives us the ability to walk away from a scheme that we think is not quite right, more often than not. Delighted that in the last week, Stuart and his team in London have walked away from quite a big job with an RP that they've been working on for 12 months. It's with us, but it would've been the wrong thing to do. The opportunity levels that are out there now with a stronger balance sheet and the fact that we can do more things ourselves, give us the opportunity to do that.
I would hope the summary of that is we've pushed the margin up a little bit, but I would hope what drags construction margin down isn't necessarily those margins you're actually saying you're going to do. It's the number of jobs that go wrong, bringing that margin down. I think the ability to turn things away, I'm looking at the guys now, is greater than it was yesterday. That will be how we drive the margin up. Less jobs going wrong, a tweak to the margin.
The second one I had was on procurement and the GBP 15 million that you are talking about there. Presumably, you had an expectation of how much from labor and how much from materials, probably more materials than labor, but I am just wondering in terms of the initial discussions you are having with the suppliers and the work gangs out there, what is your sort of current feel for how that mix is evolving? Is it shifting in one way or the other in terms of sort of where the bigger savings might be coming through from?
Well, I think the procurement gains as a whole is the real area of opportunity. Discussions with our supply chain are going well in terms of what's really the materials element. I suspect the real opportunity is getting into the specification, taking the best of both the Linden Collection and the Phoenix collection, and putting that all together. That's the real opportunity that we are looking to expand as we get into it. I suspect we will do better on both elements, but the real opportunity in the second one to get after.
The procurement, the materials one, we would hope to be knocking that on the head in the next eight weeks. Already done a lot of work, and we're delighted with progress on that. There are some areas around the country where we are now particularly strong, stronger than anybody else. That is the areas we'll concentrate on the labor savings, because we're too big, from a subcontractor perspective, to ignore. Earl said earlier that we've actually dropped the cost of build in Bovis in that 12 months. That was done by a few initiatives out there, Request for a Quote being one of them, where we were out there looking at the specification. We had two or three goes at that.
In the next month, as Graham said, we are looking at the best practice, the specification, the base specifications of both Linden and Bovis, and I am pretty enthused. Do not know what the number is yet, but I think we have got a pretty good number coming through on a further specification bringing together that will, on top of the procurement gains, put us in good stead again.
The third one I had was on pricing, and you've touched on it a little bit, but are you worried that because there's so much going on in the group that the guys actually out on site are not as focused on trying to maximize the price rises as they possibly could do because there's so many other things going on, and the focus is maybe not as sharp as it might normally be.
I'm massively worried. It'll progressively get less, but for the first two months, you've got so many people on notice. HR is a great thing. Why worry three people when you can worry a thousand? That must impact on the overall performance somewhere or other. I'm delighted to say, the guys are really performing well, but there must be an impact. Whether it's on putting one brick on top of another, whether it's customer satisfaction, where the KPIs are saying it's actually gone up, which is great, but actually driving that best price by a sales advisor on site, there must be an impact that is going to go away as we get through March, and we're through that initial integration process. I think we pretty much can see light at the end of the tunnel now.
We have, to help with that, we have had discussions with all the division managing directors, and we have put prices up across the board, so that there is absolutely no loss of focus by 1% in the last two to three weeks. There will be some exceptions on plots which are sticking or on individual sites which are struggling, but overall, across the board, we've increased prices 5%.