Earnings Call: H1 2019

Sep 10, 2019

Good morning, everyone. And welcome to our half year results to June 2019 presentation. But before we start, I will do an intro script, which would be the only thing I actually read. So this is all being done at the last minute as it were. So before we go on to the half year results, let me briefly comment on the other announcement that we made this morning. We have re engaged in discussions with Gala for Try, read the potential combination of our housing businesses, So a combination of Bubba's homes with Linden Homes And Gallifertrive Partnerships And Regeneration Business. This would leave Gallifertrive Construction Business as a standalone entity. In the statement, we have outlined the agreed high level terms on which the potential transaction would be implemented with evaluation of GT's housing businesses at 1,000,000,000. This is expected to be funding through the issue of Bova shares in Gallipa Try shareholders to the value of 1,000,000. The payment of 1,000,000 in cash and the transfer of Gallifah tries 10 year debt, private placement of £100,000,000. Discussions I would say are at an early stage and we still have a lot of work to do, completing our due diligence, finding finalizing the potential synergies, which we think will be substantial and raising the required equity and any equity we raise as I always do, I will fully partake because this is a great deal and debt funding. Of course, I am very familiar with both businesses and I see this as an exciting and transformational opportunity for both to create a leading UK house builder with enhanced scale we will be better positioned to make the most of the current market opportunities and risks and drive forward on our commitment to deliver high quality homes and excellent customer satisfaction Gallagher tried Partnerships, business is a fantastic brand. If you spoke to Holmes, England, today and said who was the market leader of affordable housing in the country. They would say Gallipa tried partnerships. I'm pretty confident of that. Fantastic brand and holds a very strong position in the UK market. Combining it with our newly launched partnerships and housing division would enable us to be the partner of choice for delivering more affordable homes at a time when affordable homes are needed the most. Both as CEO and a substantial shareholder in Bovis, I see this as a massive opportunity for the group We have some work to do to get to a formal offer, but I'm hopeful that we will get there in the not too distant future. So as I'm sure you understand, we won't be getting any more submit details today beyond what is already in the statement. But I'm at that said, I'm sure we'll take some questions at the end of the presentation. So with that, we'll put away the script and we'll get on with our, half year results. So all of the, the photos, are from our new Phoenix Housing range, which, which we've now got plenty of showrooms around about the place. We've had our first completions in June. And customer feedback and visitor feedback has been excellent and better than we, could have originally anticipated. So the agenda highlights that'll be me. Earl will obviously talk through all of the financials. I'll come back and do a CEO review, an operational update, strategy update, and our medium term targets, and finish off with our outlook. And then we'll take questions, which will be no doubt, subtle to do with the presentation and all to do with Gallagher. So I'm wasting my time for the next half an hour. But anyway, we will, we'll carry on. So we've had an excellent first half performance. Black or profits, a journalist this morning said to me on the phone, you know, is that a record in the last few years? And I said a record to record, isn't it? It's it's a record. We've never made as much money as we've just done in the 6 months, increasing profit by 20 percent to £72,400,000. That includes a step up in profitability, is 140 basis points up to 16% impressive, a 15% increase in private sales rate to 0.6 per week in an uncertain market, and we've managed to keep point 6 all the way through the summer period. And I would say now 3 weeks ago after Boris Johnson came into power, all the uncertainty around about a place, Beaufort Homes sold more houses in a weekend than we've ever sold in the entire history again of the group. Explain that. 5 star customer satisfaction score. I'll come back to that later on. Further improvement in build quality matrix and one obviously follows the other, and the first completions, as I've said, in June from our new exciting Phoenix Housing range. And we've made excellent progress because we've got it over the line with our joint venture up with our site at Wellingborough, and we've managed to now put that into JV with Riverside Housing Association, and that improved the balance sheet by about 1,000,000. Strong position for the full year. So we continue to acquire land. We acquired just over 2000 plots in the 6 months over twelve sites at a margin of in excess of 26%. We've got excellent visibility on land with all the land we need for 2020 in place. And 80% of what we need for 2021 in place. Our investment, which has been substantial over the last couple of years in our people, which is what it's all about, processes and systems is now turning into profit as it were because the the dividends of that are starting to come through, although it's still at an early stage. We achieved a staggering £250,000,000 of net cash from our balance sheet optimization initiatives, well done to the team, well ahead of our original, I thought stretch target of 1,000,000. We further strengthened the balance sheet with an increase of net cash of 1,000,000 at the end of June. And if you like, although that's massively at 40,421,800,000 a year ago, on that number, was the only disappointment for me from a personal perspective in the whole results I was hoping that could have been and should have been probably over a £120,000,000, but nevertheless a great performance. Against all of that, the interim dividend has been increased by 8% to 20.5p, and we are in a very strong position for sales for this year and in fact going into 2020 and are very confident of achieving our result in line with expectations. Al. Thank you, Greg. Good morning. Plenty going on, so I will swiftly go through these following Greg's lead. On the screen is houses at Wellingborough. So as Greg said, that our joint venture that completed in April. As expected, the contribution from Wellingbrook in the first half was largely a share of interest cost but we did get our first three completions on the site. So I know a number of you would be pleased that those disclosures are starting to flow through the presentation, and there'll be more on joint ventures as we go forward, and we'll try and be as clear as we can on the subject. So as Greg said, excellent set of results in terms of the absolute profit and the improved operating margin And so our revenue up 9% to 1,000,000, that came from a 4% increase in volume and 2% up in terms of ASP, and I'll come back to that. Gross profit up 13% to 101.8%. Our admin expenses down slightly reflecting our now optimize structure and the changes in process and systems more than offsetting what our increased employee costs So giving operating profit of 75.8 percent and a profit before tax of 72.4 percent, up 20% as Greg mentioned. Bit of detail. Within the finance costs, we have implemented IFRS 16 for leases from the beginning of the year, so from the 1st January, It's an immaterial impact in the finance costs and there's the share of JVs, which is largely a share of interest costs at both Sherford and Wellingborough. Tax charge at 18.9 percent, largely in line with the underlying tax rate. So in terms of that volume and pricing. So our private completions broadly flat with a significant step up in our affordable completions, so 12% up That represented 37% of the mix in the first half. And typically our sites are 30% or 40% affordable, so that does reflect the natural construction across those sites. That said, we expect that proportion to be a little bit lower for the full year, so more like 34% for the full year. We did do 25 percent of our total completions on Help to Buy, and that's a similar number to last year. And whilst it's nudging up 9% on part exchange, it's still a very low number, and we're doing it in a very controlled way. So as at the end of June and as at today, we don't own any properties that are over 3 months old unsold. In fact, as of today, we only own 2 properties that are unsold at all, and we are trading that part exchange at no profit, no loss. So in reality, be happy to do more in the second half in terms of Average sites 88 for the half year has been broadly consistent for a while, but the increased sales rate that Greg mentioned means we are confident in terms of the expected growth for the year. On pricing, underlying pricing, we've seen broadly flat in terms of market pricing, but we have seen a 2% increase on that private ASP and a 15% increase on the affordable, largely reflecting the geography and certainly the tenure of that affordable product coming through. In terms of other income, about 1,000,000 of other income, the largest part of that was the continued disposal of our PRS properties out of the 2 PRS JVs. So 1,000,000 of that came from there. And then during the period, we did do calling Partnership Land Transactions. So these are transactions we have done with housing associations to effectively transfer land across Bovis has now entered into a development agreement with those housing associations to develop both private and affordable homes on those sites. And we are already in discussion on further transactions of the same nature that may welcome through in the second half or certainly into next year as well. So this just splits out the one land sale that we did in the period. So that was our last out of area site. Site up at Pem Wirthen, which is Preston. And then really the focus here is the 70% sorry, 70 basis point improvement in the gross margin year on year, driven by the ongoing margin initiatives that we have talked to you about in the past. We also have a program of cost initiatives running at the moment, right the way it costs, all our build costs, and that definitely reflects the more efficient construction model that we've got on each of our sites, as well as we have seen a lessening in build inflation in recent weeks So very much working with our supply chain in terms of reducing those costs and of course, the improvement in the embedded land bank margin again I will come back to. Worth noting, there are still costs in our profit and loss do actually spread themselves evenly over the years. So site specific sales costs and our admin costs are spread evenly first half, second half. Rather than being weighted with either volume or turnover. So that does have an impact on the margins in the first half. So therefore, you're looking at the trend from full year 2018 and on to 2019, that'll have an impact. And as Greg will come back to, we are still aiming for a 23.5 percent gross margin to 2020. Our overhead is more efficient first half this year, so 5.5% of revenue combining that with the increase in gross margin, the 140 basis point increase on operating margin to 16%. So the prices and construction costs, usual slides just touch on the 2 circled numbers. So I've already said underlying pricing broadly flat. So the 4% increase on private sales price per square foot is really about product mix and the geography of where we are building. We might then have expected our construction cost per square foot to actually move more like 7% or 8% because might expect it to have moved the same 4% as the sales prices, plus we have been reporting 3% to 4% of bill cost inflation during the period In reality, with our cost initiatives and our margin improvements, we've actually mitigated that. So we've seen a 6% increase per square foot in our build costs. Strong cash generation in the period, so 64,700,000 operating cash flow was impacted by the timing of some housing association receipts, which are expected to unwind in the full represents the unwind of both the creditors and new land spend. The dividend payment reflects the higher final dividend paid back in May And importantly, as Greg mentioned earlier, the cash flow from JVs reflects the Wellingborough transaction, both the reduction of 1,000,000 in terms of the Holmes England loan that is effectively transferred into the JV and a million proceeds from Riverside Housing Association. The non trading items include the usual tax, interest and pension contributions. So overall, a net cash outflow of 1,000,000 but a really strong cash position of 1,000,000 at the end of 6 months. Another good period for land as you can see on the map, so this is actually the year to date position. So you can see the 12 additions to the land bank over 2000 plots. They are, in fact, the gray and the red dots. While I'm on the map, the blue dots are new strategic op that we entered into during the period as well. And in particular, the red dots are those that are sourced from our strategic land bank. So strong period, as I put there, only 6 of the plots we bought do we anticipate selling for more than 1,000,000 at any time. Continuing our strategy of, on average, lower, lower size units, 2 and 3 Bed Homes and a lower ASP. All of that land port on average actually over a 26% gross margin and giving that excellent visibility So we've secured all our land for 2020 79 percent of the land for 2021. A little bit more in the land bank. We now own 13,161 plots, but there are just over 3000 in the 2 major JVs at Shearford and Wellingborough. So if I take our own plots and then our 50% share of those 2 JVs and take the targeted 4000 completions, I would get a 3.7 year landbank as shown. Also important on that slide, so our current expectation of the gross margin in our land bank now up to 24.9% giving us confidence on margin growth going forwards in addition to those land acquisitions coming in with an expected margin in excess of 26%. Still a low risk land bank. So the pie chart on the right gives us a spread of pricing to 96% of our land bank We expect to sell for below 600,000. I can tell you actually, 90% or below 500,000. And actually the other numbers are then given to you there. But also only 4% now apartments and our greenfield is up to 92%. Finally, looking at or finally from me at least, looking at our balance sheet, to see our land creditors as a proportion of our net land has decreased. So that's around 32% happy at that level. And in fact, as I've said before, we'll be happy with the deferred terms that are available for that to be a little higher as well. The work in progress reflects ongoing investment in a number of new sites and some of our largest strategically sourced sites that are feeding development for both our normal housing and our partnership business as well as feeding the higher weighting of completions in the second half. And then our other assets and other liabilities do include the impact again of implementing IFRS 16 in the period. That's about the 1,000,000 impact There's much more detail in the appendix for those of you that are interested. Net assets per share, ability driven the significant improvement in return on capital to 19.8%. And with that, I'll hand you back to Greg. Okay. Thanks, thanks very much, Earl. I made a note. So for me, the key takeaway there is that we've implemented IFRS 16 in relation to leasehold. So that's really interesting. So on to the operational side of things, more focus there of the Phoenix range. And what's really interesting is we're just about to start on that site in Wales. The first house, which is actually going to have a thatch roof. So another first full run bonus. So I would hope that 6 months' time we'll show you a thatch roof which again is so unlike Bovis from the past. So excellent levels action, customer satisfaction, and doubly remains our number one priority. The group is now trending as a 5 star HBF customer satisfaction score. That's above 90%. In actual fact, as of this morning, we're at 91.6 percent. So well over the 90% and right up there with the top in the industry now. The majority of responses, that's from over 1350 responses. So we don't expect to get a lot more, and I'll eat my hat if we don't end the year as a 5 star. Hasper, not that I've got a hat, and it's consistent across all of our operating regions. So of our 7 businesses, 4 or 5 star, 2 are just under 5 star, and 1 is at 84%. So there's no real laggard. Both of our divisions, the west and the east, our 5 star. So Daryl, who runs the West division, is currently 2nd, 90.5, or you could say he's last. Depending on how you want to, how you want to look at it. We've launched our keys, customer relation management system in May. And that is enhancing the customer experience or customer interactions can take place in one place, and we are nearly there with a portal that will enable our purchases to actually log their own defects. Building high quality homes, as I've said before, a couple of times, delighted quality of our site managers, around about the group, really, really pleased with some of the young ones that we've got who are raising the standards yet again. All construction for 2019 is very well progressed. We've seen improvements across all of our construction metrics NHBC reportable items are for 2019 are down 33% and are about 0.22. Industry average is about 0.28. We're well under there. NXBC, in the half year 2019 CQRs improved by 8% and we're now 1% better than the industry benchmark And all of that has led to site manager head turn or head churn, sorry, below 15%. When I joined the business, it was 66 percent. So no wonder we couldn't build anything as as we would like to. We won 6 NHBC pride in the job awards, and we've made great progress on health and safety. With the rollout of our new procedures and the group monthly score has improved over the last period by 8%. 1st Phoenix completes, as I said, so it was launched in April, 28 new house types. 1st completions in June as I said earlier, excellent customer feedback. 880 Phoenix units currently under construction, 15% of this year's completions will come from Phoenix, and about 50% of 2020. And we're confident that the new range delivers enhanced sales propositions for our customers. It's gotta be one of the reasons why our sales rate has gone from an historic 0.5to0.6, a 20% improvement, improved build efficiency. If you speak to our site managers, they'd much rather build these new house types, which leads to a reduction in build costs and an increased, competitiveness in the land market. So we have been much more successful since April 2018 in the land market than we were before. Why? Because we're more compact because the house types that we're now, designing in and our building give us a bit of an edge we think on the land market. That actual, that's the inside of the maple at Bishop Cityton, which is West Midlands. I would actually say been around for a long time, and I'm not being biased. That might be the best show home I've ever been in. So huge investment in the business from a brand perspective, you would have seen the new the new bird up here. So that was a lot of effort went into that. But it was cheap, and so I'm pleased that we, we we didn't spend too much money on it. Customer relationship system, keys is up and running, and that will soon go on to our sales teams as we go to the end of this year. People, employee management, learning development, payroll. People, you know, get their expenses now. We don't less on paper more on that through email. Sales and commercial website, which was a bit outdated has been modernized again, but is still a bit more to go. And coins, basically, the last one, we're now on to implementing phase 2 with regards to things like bill of quantities, etcetera. So huge investment, but as I said at the start of the presentation, that investment is starting to just pay dividends now. Again, as I've said for a while, we've got a great strategic land bank at Bubba's Homes and got a great team dealing with it, and they've been dealing with it for a number of times. And we quite often say within bolvers, we're in a golden period at the moment for, strategic land, which I I agree with. We've made major progress on a number of significant land projects in 2019, delivering high quality developments in the near future. If you look here on the right hand side where we've got, planning agreed, 6178, planning application, 2690 All of those have got some sort of designation designation from a planning front. I think most of those plots, if not all, will come through over the next 5 years. And they will come through at a margin will be being prudent in excess of 27%. We converted 372 plots in the year to date and planning was granted over a further 1131 plots. And it's not just, you know, rape in the past for now, we are continuing to invest heavily in in strategic land, and we entered into options on 4 new strategic bits of land in the period, totaling 865 plot but a real success story there. Progress with our partnerships division and their Keith Carnegie, so we launched it back in February. We're working alongside our operating regions to start with, and we have significantly improved relationships over the last couple of years with our housing associations. The land led strategy has allowed us to optimize returns from our land investment, enable us to acquire larger sites because we can do things in joint ventures, larger sites over 500 units facilitates much better working capital, hence, or reported improvements in return on capital. And it's, you know, develops a much, much less cyclical business and pure house building in isolation, which again isn't one of the other benefits that comes from, Gallifah Trime. And we've made excellent progress in the year to date and have entered into JVs with 5 different housing associations around about the country. People, as I've said, all along remain the key priority. Today, people want to come and work for, for Bovis. It's not unusual that, you know, our construction direct for instance, in Mercia hasn't used the headhunter for the last 2 years. He's inundated by people wanting to come site manager want him to come and work for the business. We get consistent high scores in our Pecon engagement, surveys, which we do every 3 months. And we've seen a further overall reduction, not just in site manager head head turn, but in across the whole group. We're investing in full training and development programs 18 70 training days in the year, leadership development program and frameworks, etcetera, etcetera, nearly 200 attended that program during the year. 20 assistant site managers going through the books at the moment at Bovis. We've currently got 48 apprentices and 20 more will join towards the end of the year. And that the gate, another lovely photograph there, that's our Scott Curtis who runs internal commerce for us, looks a little bit like Roger Whittaker and a lot of you in the room will remember, Roger Whittaker. I don't know what this is, but this is, the question that Roger is asking there. Right. So the background is, everybody in the room was English and Roger, sorry, Scott was asking the question do you think whales will win the rugby will cut? And, it looks as though everyone thinks they will. High quality is being recognized across the business. So we were awarded the Gold Armed Forces Covenant Employer Recognition scheme and we're the only house builder, to achieve that. To date, and that's massively helped by our learning and development director, called Roger Morton, who up until recently was in the, army. He was a colonel or Sergeant Major or something. But he is now fully acclimatized to civilian life. I just wish he wouldn't bring his rifle to all of the, the meetings. We won 6 NHBC prior to the job awards. NHBC, a Health And Safety Award. We've been shortlisted for the big award, which is the Building Awards as House Builder of the Year, shortlisted for House Building Awards best customer satisfaction initiative, and, House Builder Star Award. And we've also in construction news in the talent awards, apprentice of the year, equality, diversity, and inclusion, which just covers everything. I think leader of the year and excellence in learning and development. So quite rightly for our people, we're being recognized, at externally about the achievements that we've done over the last couple of years, which is great. So do the right thing you see there, which is the company, Ethos, which is all the way through the, organization. We're increasing the proportion of smaller products as we move into a world in the not too distant future where Help to buy drops down to first time buys, we think there is a stronger demand for smaller product and it will drive even higher sales rates. We fully expect to maintain our strategy of 3.5 to 4 years land supply. It's controlled volume growth. We're more interested in margin but we can go to above 4000 units by 2020, and the growth of our partnerships business will will deliver incremental value on top of that. And with the increased investment in our partnerships business, which has really just started to take off now, the return on capital target of 25% is now not expected until 2022. As I've said, we're continuing to focus on margin as opposed to volume. The cost savings around about the group, I think we've picked up all the low hanging fruit. We're up to savings, you know, at, you know, shoulder level, but there's still plenty of savings out there. We haven't seen, I haven't seen any build inflation I would add over the last 3 or 4 months. We did at the start of the year, but as the markets got tougher, we're finding it very easy to back back subcontractors and suppliers. So we're not seeing any inflation, and there's still plenty of work that gallifert as a gallifert. Christ. Bovis can do, for self help, with things like the new he's Phoenix Housing range, which is definitely coming through, and I'll select extra range, which is only just about getting off the ground, which gives our purchases the opportunity to bespoke their houses. And as Earl said earlier, the embedded margin in the land bank has risen to 24.9% and we have bought land in the period at over 26% and the strategic land that is gonna come through is over 27%. So we're in very, very good shape on land. Progress with medium term targets, I won't dwell on these. 4 star That's done, and we're trending as a 5 star. We will end the year as a 5 star house builder. 4000 completions, a 4% increase in completions in the half year just gone. 3.5 to 4 year land bank done, 23.5 percent margin, by 2020, still very much on target for that. And it increased the margin increased by 70 basis points in the half year, 5% overhead nearly there, but have no doubt we'll get there for 2020. Sorry, 2019 this year, minimum 180,000,000 of cash managed to do 250,000,000 and 25% return on capital We increased it to 19.8% in the half year and are still confident we'll get to the 25%. Enhanced cash returns to shareholders, again, being a cornerstone of our strategy. So we have a strategy of maximizing sustainable dividends to our shareholders. And the half year 2019 dividend has been increased by 8% to 20.5p and special cash returns we paid the 1st payment of 1,000,000 back in November 2018, and shareholders will receive a further 1,000,000 of capital, which returned in the second half of this year, probably November again. Market environment. Earl's touched a little bit on this. So supportive, market fundamentals, low interest rate environment, no signs of that changing at the moment, competitive, very competitive mortgage market with appetite to lend. Government support for the sector going out to 2023 and high levels of employment that does, however, we have the Brexit overhang but I have to say whether it's to do with our new brand, with with the new Phoenix range, we have sold surprisingly well through the summer, even through the last weekend. So sales rates are proven robust. Our forward order book is very strong. We've probably already sold 10% of what we need to sell going into 20 20 because of some deals we've done with housing associations, and we have no problems with the increased use of part exchange because we are running it very, very well. And we are seeing an increased appetite from housing associations, with their large cash resources to buy properties and we are, obviously, fully partaking in that, which, of course, is something we couldn't do a couple of years ago because our reputation in the housing association for eternity was pretty poor. As I said, we're not seeing any build inflation over the last 3 or 4 months, and the land market remains very attractive. So we're very well positioned with a strong outlook for the full year. Our group turnaround I would say is nearly complete. We can always get of course, are trending as a 5 star house builder, high quality build with all the metrics coming through from the NHBC 1st class people, excellent land supply, including strategic land. Investment in systems and processes is starting to come through. We've launched excitedly our partnerships business. Strong sales position, 96% of 2019 total completions now secured, So we're only we we we have a cutoff at week 39, so we're very, very prudent. So week 39 is, you know, if it's not sold by the end in, well, two and a half weeks time from now, we won't be including it in this year. So we're very confident that we're going to get to where we need to get to this year. We are having to work hard in the current market So sales are coming through, but we're, you know, dealing a bit here and there, duck in and diving, but we are getting the sales through. So we're well positioned to deliver a very strong performance to 2019, and we're confident going into 2020 with already 10% forward sales booked and we're not even into the sales period where those sales will come through generally in your forward order book, which is October, November, December. So all in all, great set results and we're in great shape for the full year and great shape going into 2020. So on that, we'll take any questions, Dennis. Sorry. Oh, sorry. Start at the back, Gavin Jacob. 1, 3 of the could, please. First one, Greg, just to clarify on that build costs, for the statement, just given what your peers have been saying. What are you doing differently? What are you seeing? I mean, is it just is it literally the last couple of months? Or is it in certain regions that you're seeing as flat? No. I mean, we're we're we're we're actually seeing plenty of examples at the present moment in time where we've got sites around the country where for the first time we've got bricklaying Barron's actually having, you know, Dutch auctions because they're looking for work. So you can't have those initiatives out there, and all house builders should be doing it. And I'm not sure where they're all coming from, but if you read the stats on construction, the construction market generally outside of house building hasn't just gone along like that. It's gone that in the last, 6 months. So the last time I look, bricklayers carpenters, roofers worked for contractors, as well as house builders. So if they are working for contractors as well as Harrisburgers, 1, there isn't any work or there's not as much work as there was. And, all my mates are subcontractors, and most of them don't wanna contractors anyway for fear of being paid because of their financial position. So they all wanna come and work for house builders. If they all wanna come and work for house builders, we need to make hay while the sun shines and that's where we are and I'm very, very surprised if other house builders aren't doing that as well. Thanks. The second one was just around competition in the partnership side kind of I guess, what you've seen trending over the last 12, 18 months or so, are you seeing other high schoolers wanting to get in and how comfortable do you feel with your position in it? We were encouraged to to go in check by housing associations because they're saying there is a lack of competition in there. So they've only got 1 or 2 people that they they feel they can go to. So that's why we're being encouraged in. Go back to the Gallifer Tribe thing. I think it's, you know, that's huge part of what we're looking to do there. It's a great it's a great business. It's in a great sector, and I know that too well. And, you know, I I can't see any downside. And, you know, who who are the big competitors? You know, they're they're having financial issues, you know, whether it's Kia, as well, aren't they? So I think the housing associations are actually looking at their supply chain. And more often than not, they're looking at a supply chain and they're actually concerned about And so they would welcome any new entrants or probably welcome from the limited feedback I've had to date. Galla for Troy coming over to partnerships coming over to us. Last one is just around incentives. Just maybe just give an example of what you've seen maybe outside the use of Partex, what you've been seeing in terms of a tick up anywhere. I I would say if I was being brutally honest, we are seeing over the last, 5 months, probably around about a 1% discount. So I think it's it's pricing. So it's manageable. It's all it's all in it's all in the range, but with Bovis, that's not saying Bovis are the best because I'm certainly not saying that. I'm saying that we started from such a low base. We're still, you know, making those improvements and we can basically cover off a 1% discount to to forecast price better than other house builders who were and are maybe still better than, better than we are. Good morning, John Bell from my Deutsche. Got 3, I think. Just on customer satisfaction, I just wonder what to what extent you're looking at the 9 month scores now in addition to the I like that. So the 9 month score is currently 67%. Again, that was down in the thirties, early forties and the industry average is just under 70. So we're within 2% of the industry average, and we focus not quite as much on the the 9 month as the 8 month, but I can tell you it gets brought up every week, at a detail meeting we have. So a lot. And the second question was when we look at the existing split or mix of partnerships in Gallifah try, would you expect to be rolling out the mix to 10 year element of that more aggressively than they currently do? So so we we would have pretty much on day 1, we would have some sites that we would put into into that vehicle. So, you know, at a very strong headline. I think Gallagher Tri Partnership have done remarkably well with the uncertainty around funding, etcetera, etcetera caused by, construction. They won't have that, if and when it comes part of the new vehicle. So we will be looking for a tweak, if you like, to the strategy to go more land led and I think their margins are around 6%. We would be looking for that to be double digit. I see no reason why that can't happen and we would have obviously the balance sheet and ability to do that. Thank you. And just a final question, keen for your thoughts on the new Help to Buy price caps and and whether you envisage that they might get tweaked at some point? Well, we're lobbying, for the Dimitri. So we have 7 business units. 6 of the business units were actually quite happy. With the, I'm looking at James and Daryl. We're we're happy with and Keith, we're happy with the range. In the West Midlands, we think it's a little bit low. But we think it's a bit high in other areas. So we're so we're lobbying, but over overall, we feel we can, we can work within them. And and the main thing is we've got plenty of time. To make sure our land buying and, our pricing strategy is correct. Just one follow-up. Do you feel there's any traction being gained so far on that lobbying process, or is it just too early to tell? I I I think, yeah, I I think, no, I think there is some traction. I think I think the government, when they get a minute, are are are kind of are kind of listening. So, you know, even if you go back to Help to Buy, you know, when Help to Buy was extended to 2023, that's it. That's the end of it there. You know, I'll have a tenor that they won't stop it in 2023 for first time buyers, but, you know, that's just my personal view. We're planning that it will be, but, you know, that's already kind of or maybe we'll look at this. So it's gone from end of story to you are getting an audience here and there. Do you want to go to Glynis as she was actually first? Glynis Johnson, Jefferies. 3, if I may. The first one is in terms of your margins. How should we think about the margins that Bovis can achieve putting Gallagher to one try, to one side. I'll try. He tries even. If your gross margin in land bank is 24.6 percent, your admin costs 5%, should we assume that industry averages where you will top out at? Or should we still be thinking about those other margin initiatives? I noticed we don't have those percentage upside from margin initiatives specifically lay down anymore. So just if you can give us a bit of color, given the context of what others in the industry are achieving, what babies can get to, The second one is in terms of customer service. You talk about allowing your customers to log their own defects. For how long would you allow them to log their defects? Is it a week? Is it a day? You know, would it go on for 6 months post moving in? How do you does Bovis look at customer service in Africa? I'm learning our customer experience director at the back. What what did you say, Debbie, to answer? Full period of their warranty. Full period of their warranty for 2 years. 2 years. Thank you. And then the last one just in terms of the strategic sites where you have planning agreed, what is making those not move into the consented land bank? Is it negotiations on price? Is it conditions? No, it'll be predominantly negotiations on price. And, when we want to take them, take them off, we wouldn't we wouldn't bring it into the land bank until we've actually contracted it. And and, you know, there's a couple of sites there and maybe we don't want to contract this week, we might want to leave it till next week. So price. And some of them are draw downs on existing sites. So we've already got land. So we will draw that down in future. So, you know, if we've got a thousand blocks, we don't need the other thousand. So we'll we'll keep that back, although it's it's nothing as big as that. To go back to the first question, Elan, on the margin? So the margin going to the embedded margin was 24.9. And therefore, you know, gives you a confidence in terms of the trajectory. As I said earlier, you know, confident in terms of delivering the 23.5 percent 2020 we are buying in excess of 26. And as Greg mentioned, the strategic land is still coming through stronger than that, 27 plus And so over time, you know, that is the trajectory of where we are heading. The margin initiatives ongoing build cost program that Greg's described as well. Some of that is mitigating a bit of pressure on the revenue line at the moment. But there's plenty of opportunity in those build costs we're going at. So the target margin is above industry average? And and of course, if the GT thing comes to comes to pass, you you go from 4000 units or less than 4000 units of Bulkers to over 10,000 units if you add the 3 together. So the synergy savings come from procurement. You should be buying a brick and a block cheaper at over 10,000 than than than 4000, of course. Plus there is, you know, some other synergies in and around Bovis and Linden, but you would overall, with that kind of revenue numbers, those kind of offices, you would expect that overhead for want of a better word at 5% to be much closer to 4. Thanks, Paul Jones. Redburn, I think through as well, if I could, please. The first just when you reflect on London Homes within the Gallifood housing business, which is still, I guess, the vast majority of the profits, do you look at that today and think there's improvement potential in it or do you think actually it's been run pretty well since you left and therefore actually the deal benefits are outside necessarily improving Linden per se. The second was just if we can come up the balance sheet in terms of where you expect to drop at the year end, assuming you don't pay the 60,000,000 special because of the deal in terms of Why did you assume that? Because the the Galliford deal you wouldn't pay them. Is that not right? I wouldn't let down our private shareholders like that. Okay. I thought that was the structure. Yeah. To pay the bonus dividends. Yeah. Ah, okay. So this, so the shareholders will get. Yes. So that's been a big discussion. Our pricing now the shareholder was wanting £500 to go on holiday. They can just sell the shares. Yes. But they will they will get the benefit of it. Assuming that happens, I guess, where is the cash position going to be at year end? Where will you be on an average basis? And just with regard to the extra investments in partnerships, I guess, your flagging, is there a number you can put around that that delays slightly or the rocky target for the group? And then I guess we can all work the numbers on the deal, but where are you happy for the balance sheet to sit when all that kind of comes together, maybe 12, 18 months down the track And the last one, just conceptually, why if the growth for landbank gross margin is 25 today and you reported circa 22 in the first half, the gap of the 3 percentage points, is that just about the Phoenix penetration? No, that's just this, we've still have some historic sites rather than parking them, we're building through them. So we still have some legacy sites, which are we're just planning through, which are a much less we've got a couple of sites of 10% for instance. So they are bringing the margin down, but they are nearly gone. So that will automatically end the margin will just get better as as the older land flows through. You want to cover? Yes, I'll cover a couple of those. So, cash balance sheets towards the end of the year, look, There's a range out there of expectations, but consensus is roughly around 170 at the moment, and we'll be looking to drive the cash as always, but then you would add 1,000,000 on top of that, certainly because you're right, if the transaction would to go ahead, we would pay the return the capital far away of a bonus dividend. So, you know, not uncomfortable with that, but obviously we'll be driving to do better than that, but that's what's out there. In terms of the Rocky, and moving the target out to 2022, in reality, and Greg alluded to it, Bovis stand alone, if we were to move forward on that basis, we are signaling that we would go beyond 4000 new homes from the existing structure. So there's investment in order to drive that growth that is not in there, but we we have got plans potentially even for an 8th region that would need feeding in terms of land investment. And then also the partnership business, we are investing in that some of those strategic sites are feeding both the partnership business and our existing housing business. So that's what's driving the investment in short term and moving that target further out. And then talking about in terms of where we're looking to get the balance sheet essentially, with the transaction look very important and comes through hopefully in the structure that having a robust balance sheet for the combined entity is very important. Important for the growth of that group, but clearly there is a market political backdrop at the moment as well. So the gearing will be highest when we first do it. We think that will come down very quickly. We're very focused on both the cash flow deck and land creditors. But look, you know, we're looking to get that down to 25% or below the combined debt and creditors as quickly as possible, and take it from there and we would not expect, you know, you know, our period ends to hold net debt for, you know, more than 2 years. One of the other ways we can drive that down is both companies, but particularly, Bovis have got some very, very large sites. And one of the big opportunities we've got is dual branding. So what we can say is we'll still be selling houses, if the deal goes forward under the Linden banner and the Bowvis banner. So whereas you know if you've got a site of 300 houses, we'd like to think that we could nearly go through that twice as quickly with Bulkers and Linden. Selling on the same site, which we don't have that opportunity at the moment. And then your your your first question, you know, what where where is Linden? I think I think Linden Homes have done from a put people perspective, fabulously well to be, where they are against the back a backdrop is it must be very difficult for them. Can we buy this site? Can we take this person on? First of all, if you're in the in the market at the moment to leave, particularly over the last 9 months, do you join a company where you're not sure sure, you know, overall group, what's going to happen? There's a lot of uncertainty around Galavi. Maybe, maybe not. Do you, are you able to take people on from Linden? So they are loo you know, do they lose people? Yeah. Pro probably they are because of that uncertainty, not because of their performance. It's just the uncertainty levels. And then, of course, the land. So, can we can we buy this site? I'm not sure. I'm not quite sure how this claim or this whatever do. So when you take all of that into consideration, I think 1, they've turned really, really well to produce the results that they're producing. But with some stability and a bigger balance sheet, and, you know, the momentum behind what would happen, there's there's surely gotta be some improvements. But that's not criticizing at all. The first question, what I'll ask this links to something you were saying there, Greg and Earl, about it taking both some 4 to 10,000 units and also the sort of focus on cash generation in the first instance of the deal. I mean do you think there'll be a period of integration where volumes aren't probably the combination of the 2 as we've seen in previous deals in the sector and there's some sort of integration in the 1st year before you kind of the combined businesses give that full output. Yeah, this is this is, you know, best way to look at it. This is 7 business units at Bovis go into something like 22 units when we've done some integration as a combined. So it's a huge, integration and not want to be underestimated. So you know, our plan is that, you know, Bovis numbers for 2019 and probably Linden numbers to June 2019 to be carried forward going into 2020, I. E. Any growth that Linden had, any growth that Bob has had in that 1st year, let's just, carmanship and and do the integration absolutely properly. So then that's not going backwards. But maybe and maybe the market says that's a sensible thing to do as well. What we will carry on with, so that will enable us to carry on with the growth And that goes back to a world question as well in the partnerships business. So the growth that partnerships are aspiring to Galafar Partnerships are aspiring to at the moment will continue. So we think we can let them carry on growing the cash that they need, particularly on a previous question, I think John asked that about mixed tenure and the like we've built into our forecast including coming back to 25% or thereabouts after 12 months. So they will carry on. The big integration is is between Linden and Bervous and I think it would be wrong in year 1 to try and do something for short term for for not for long term games. So I would say 1 and 1 will equal 2 as long as you take 1 equals Bovers' number 2019, not necessarily what we're saying, which will have a little bit of growth for 2020 and Linden for the 12 months to June 2019, I. E. Just add those 2 together, and then we can move on after that. But that will enable the partnerships business to carry on with their exciting and ambitious growth trajectory. Clearly I understand this is all at an early stage but the synergies have been outlined as procurement savings and the operational footprint really of the organization I mean, historically we kind of see synergies range between 1% 2% of combined revenue. I mean, is it likely to kind of fall within that sort of range? I mean, I'm not asking for a firm figure, but it sounds like they could be pretty significant from the deal. We'll we'll we'll go as far as I say, we think they are substantial and we're still, and we're still working through them. And and I and I think they're higher than than where we were back in May. Okay. That's helpful. Final one is bulk sales in the period. I just wonder if you could give us some detail on that and whether or not it's been a tailwind or a headwind relative to the first half of last year. On bulk sales, I would say, pretty consistent, through the year, in terms of deals that we're doing with housing associations, modest discount, but we save selling overhead. I would actually compare last year we did, and we've disclosed over four hundred plots with halo housing. We haven't done any more deals with them this year, but what we have done is largely replace those through the year with a number of deals with about a dozen different housing associations. So much happier to have spread that business across many of our housing association partners. Those bulk deals, so it's more and they're it's across a broader financially stronger set of customers. Greg O'Kulich from UBS. I've got a few questions. I'm just going to just come back to the volume target. Can you just explain the 4000 where the JVs and the partnerships sort of flow into that? Is that kind of included Is it on top? The JVs are included. Right. The, partnerships isn't. So any any growth from partnerships will be incremental to the 4000. And then on the partnerships, can you just perhaps explain a little bit economics and how that impacts the returns in the short term. And then perhaps related to that, how it differs to the Galaford Tri Business and what extent when you, I presume you will combine the 2, you kind of get a blend of a asset light business model. We would combine we would combine the 2. I mean, ours is at, a relative infancy, that theirs isn't. So, all of what, Beauver has done at the moment is is land So we control or run the land. Do you want to do a deal? This is the price. Are you happy to do it? So we're not doing any and don't intend to you know, give us a job. Can we can we tender for some for some work, or negotiating for some work? I think that's fine where we are at the moment. Obviously, with with GT, they do some of that, but they also do a lot of straightforward tendering for work around about the place. And that will carry on, but as I said earlier, we would just like that, maybe not carry on as much as it is at the moment and shift it more to, the land led scenario, and we can give them at Vovis a huge kick start with our land bank. We were talking earlier about, you know, the strategic land, we can bring some strategic land forward quicker with with a different customer base. And the returns of this isn't isn't it supposed to be much higher in return on capital? What would be would would be far greater. And what a pure house builder is, but the margins would be, would would be lower. So, you know, so just as Bovis, we would have been looking at a margin probably of somewhere, on a on a small scale, keep 16, 15, 16%, and return on capital low of 30? Yeah. 30, 40%. 30, 40%. With with a combination of of GT. Because, you know, in an ideal world, you do a £1,000,000,000 of purely land led, but it it just won't work like that that though, you know, I think we should be looking at aiming and I'll definitely be aiming to take the 6% margin within partnership to 10% while still carrying on trying to grow quite quickly to the GBP 1,000,000,000 revenue. And then just on the dividend. So I think in the statement is also the final becomes kind of the interim level, which I think is 20p rounded roughly. And then there's still another installment of the special next year. So you're committed to that one in cash. Is that right? So we've announced the interim of 20.5. What we've actually said is that if the deal goes ahead, there would effectively be a second interim, which is a technical readers, that's the final. No reason why you're you're you should have a different number for that interim than you would have as the final at the moment, but what we are saying is we'd effectively go ex dividend prior to the transaction happening So that would attribute to just the existing Bovis shareholders at the time and not the enlarged shareholder group if the transaction goes forward. 2019 final dividend paid in or used to get paid in May and we'll going forward. With Go's activity in February, we'll go activity in December and because of that, we have to call it a second interim. Yeah. And it will be paid in in in in in February or or March, but it will only be 2, obviously, because it goes active before the deal happens. Over shareholders. Okay. And then there's another special next year? No. The special next year, we will probably, we're still looking at it. Deferred of 2021. Sorry, one final one. Sorry, if there's a total hog in my equity. What's the book value I guess we'll see it tomorrow, but what's the actual book value you're acquiring against the 1,000,000,000? I think you have to see that tomorrow in fairness. Okay. Fine. We're we're happy. We're happy with the deal, obviously. John Fraser Andrews HSBC. Yeah. 3 for me as well, please. The first one the robust sales rate, Greg, that you alluded to. Does that mean you've you've maintained the step change in the first half in the business or are you referring to a year on year comparison No. We we we've we've we've managed to sell at Point 6 through over the last, then, or July, August 1st week of September. And you'd put that purely down to the Phoenix? No, I put it down to, actively looking for sales. I put it down to Phoenix and I put it down to our improved, reputation in the marketplace being a 4 or 5 star house builder depending on them. What you're saying at that particular time. Thank you. I can't put my finger on it totally, but we are every every week that comes through surprise with everything going on at the present moment in time with the number of sales that are that aren't coming through. To be fair, that the peers, even the larger ones have been seeing year on year similar rates. So they haven't seen that decline they had in the first half. Maybe because we're starting lower base against, but but, yeah, so maybe if you if you were at point 9, maybe maybe it would, but point 6, I mean, let's let's be honest, it was probably about the only way we are in the game of under under promising over over deliver. So it might have been a bit better than 0.6. But it's 0.6. During the last two and a half months. 2nd one is the land market. Clearly, you've been meeting your own gross margin targets. Some of the competitors have been saying the small sites have become a bit more competitive. I don't know if you've seen any any difference. I would say a site of 100 units is is more competitive in the sight of 600 units, but I would still say it's a soft market for, a 100 and the soft market for 600. So it it but But yeah, I'll concede it's more competitive, the smaller it is. And is there anything to read into sort of larger sites that you're you're picking up is that because the business is maturing the recovery plan is enabling that. Yes, our cash position allows us to to take that on. And that would be another great benefit, with the, with the GT acquisition slash merger, we would be able to buy bigger sites, and we feel with dual branding that we would be able to, to maximize a sales rate in a return better than we can if we were just bogus. So we've got 8 or 9 sites at the present moment in time that we've got now in the bonus plan that we know as we go into 2020. We would do that different if and when this deal happens. And the final question, the substantial synergies Just thinking about the overlap with on geography, it's clearly substantial. What does the the Linden Homes business give you in terms of geography? What what extra, what extra I can think of Yorkshire and perhaps more now to London. Yorkshire, Peterborough, and, that would be the main area, Bristol, and would be quite strong and maybe a bit stronger on the South Coast. There are some overlaps, but yeah. There are some extensions as well. It's a very nice fit. Clyde Lewis at Peel Hunt 3 years as well, if I may, Greg. Just coming back to to, I suppose, your thoughts on optimum size for a regional unit. I mean, you've you flagged the sort of 7 that you've currently got, you know, obviously, ideas and talks about an 8th and obviously the the Linden ones, I mean, put partnership to one side. But, you know, for a optimum housing region, what are your current thoughts? Because obviously it does vary across the industry. And 5.50 to 65. Okay. Thank you very much. Very clear. Secondly, Help to Buy, have you seen any change at all in, in the take up of Help to Buy either regionally or sort of price point over the last 3 years. If anything, it's slightly gone back a little bit over the last, over the last 6 months where and product change has gone up a little bit over the last, over the last 6 months. So but nothing, but, Daryl, James, I don't I haven't seen nothing nothing. No. And the last one I had was on on sort of, I suppose, build programs versus sales rates. I mean, your sales rates, you know, as as as John just flagged, you know, the industry sales rates have held up pretty well. Have your build rates continued to max those sales rates or have you doff a little bit in terms of sort of build programs given the uncertainty that we've got, whether it's the end of October or the end of January or god knows what year, but We have we we haven't backed off because we're thinking about Brexit. We we backed off on a few sites where the sales rate has been, you know, quick, slower than than than what we'll currently build. So we haven't accelerated at all any sites, but we have brought a couple back. We're looking at a couple of deals, with housing associations at the moment where we might actually between now and Christmas accelerate the build. So going back to John's point about the housing associations and the private sales they've been doing, we are looking at, quite, you know, again, spread over a number of different housing associations to some great opportunities, to to to take forward with housing associations, which would make our position going into 2020, very, very strong, abnormally strong, I would say. But also we might wanna maximize that from a cash position leaning up to Christmas so I could probably more likely see us accelerating on 10 to 15 sites leading up to Christmas. And on the 4th May, just in terms of, I mean, you've had planning and land being still very attractive. Have you noticed any sort of deterioration in terms of local councils' attitude to planning? I, e, have they started to dig their heels in a little bit in terms sort of that those final stages of planning because that's something that's been flagged elsewhere? Yes, we would you get the high level planning permission, it is still taking for straightingly too long a time to actually get the, permission because I wouldn't say they're digging their heels in. I I would say that it's a lack of resource more than anything. We just haven't got anybody there to actually take that 106 or take that condition forward again. Yeah. Yeah. So it's not a dig in the hills and it's just a lack of resource, and they're trying to find ways of, you know, not being found out by coming up with a, you know, something that comes in and at the last minute of the deadline that they're supposed respond by, which is what the hell's that all about, but but in theory, it gives them that extra month, 2 months to sort themselves out. But it is a severe in some places lack of resource I would say. Brilliant. Okay. Thank you very much.