Good morning, everyone, and welcome to our half year results to June 2019 presentation. Before we start, I will do an intro script, which will be the only thing I actually read. This is all being done at the last minute, as it were. 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 Galliford Try re the potential combination of our housing businesses. A combination of Bovis Homes with Linden Homes and Galliford Try Partnerships and Regeneration business. This would leave Galliford Try 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 a valuation of GT's housing businesses at GBP 1,075,000,000.
This is expected to be funding through, the issue of Bovis shares in Galliford Try shareholders to the value of GBP 675 million, the payment of GBP 300 million in cash, and the transfer of Galliford Try's 10-year debt private placement of GBP 100 million. Discussions, I would say, are at an early stage and we still have a lot of work to do, completing our due diligence, finalizing the potential synergies, which we think will be substantial, and raising the required equity. Any equity we raise, as I always do, I will fully partake in, 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 U.K. 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. Galliford Try Partnerships business is a fantastic brand. If you spoke to Homes England today and said, "Who was the market leader of affordable housing in the country?" They would say Galliford Try Partnerships. I'm pretty confident of that. Fantastic brand and holds a very strong position in the U.K. market. Combining it with our newly launched partnerships 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 am hopeful that we will get there in the not too distant future. As I'm sure you understand, we won't be giving any more specific details today beyond what is already in the statement. That said, I'm sure we'll take some questions at the end of the presentation. With that, we'll put away the script and we'll get on with our half year results. All of the photos are from our new Phoenix housing range, which we've now got plenty of show homes 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 ever have anticipated. 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, finish off with our outlook. We'll take questions, which will be no doubt sod all to do with the presentation and all to do with Galliford Try. I'm wasting my time for the next half an hour. Anyway, we'll carry on. We've had an excellent first half performance. Record profits. A journalist this morning said to me on the phone, "Is that a record in the last few years?" I said, "A record's a record, isn't it?" It's a record. We've never made as much money as we've just done in the six months. Increasing profit by 20% to GBP 72.4 million. That includes a step up in profitability, which is 140 basis points up to 16%, impressive.
A 15% increase in private sales rate to 0.6 per week in an uncertain market. We've managed to keep 0.6 all the way through the summer period. I would say now, three weeks ago, after Boris Johnson came into power, all the uncertainty around about the place, Bovis 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, one obviously follows the other. The first completions, as I've said, in June from our new exciting Phoenix housing range.
We've made excellent progress because we got it over the line with our site at Wellingborough, and we've managed to now put that into a JV with Riverside Housing Association, and that improved the balance sheet by about GBP 67 million. Strong position for the full year. We continue to acquire land. We acquired just over 2,000 plots in the six months, over 12 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 dividends of that are starting to come through. Although it's still at an early stage.
We achieved a staggering GBP 250 million of net cash from our balance sheet optimization initiatives. Well done to the team. Well ahead of our original, I thought stretch target of GBP 180 million. We further strengthened the balance sheet with an increase of net cash of GBP 102.4 million, at the end of June. If you like, although that's massively up GBP 42.8 million a year ago on that number, that 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 GBP 120 million. Nevertheless, a great performance. Against all of that, the interim dividend has been increased by 8% to GBP 0.205. 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. Earl.
Thank you, Greg. Morning. Plenty going on, I will swiftly go through these, following Greg's lead. On the screen is houses at Wellingborough. As Greg said, that's our joint venture that completed in April. As expected, the contribution from Wellingborough in the first half was largely a share of interest costs. We did get our first three completions on the site. I know a number of you will be pleased that those disclosures are starting to flow through this presentation, and there'll be more on joint ventures as we go forward. We'll try and be as clear as we can on the subject. As Greg said, excellent set of results, in terms of the absolute profit and the improved operating margin. Our revenue up 9% to GBP 472 million.
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 GBP 101.8. Our admin expenses down slightly, reflecting our now optimized structure and the changes in processing systems more than offsetting what are increased employee costs. Giving operating profit of GBP 75.8 and a profit before tax of GBP 72.4, up 20%, as Greg mentioned. A bit of detail within the finance costs, we have implemented IFRS 16 for leases from the beginning of the year, so from the 1st of January. It's an immaterial impact in the finance costs. There's the share of JVs, which is largely a share of interest costs at both Sherford and Wellingborough. Tax charge at 18.9%, largely in line with the underlying tax rate.
In terms of that volume and pricing, our private completions broadly flat, but a significant step up in our affordable completions, 12% up. That represented 37% of the mix in the first half. Typically, our sites are 30% or 40% affordable, 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, more like 34% for the full year. We did do 25% of our total completions on Help to Buy, and that's a similar number to last year. Whilst it's nudging up 9% on part-exchanges, still a very low number, and we're doing it in a very controlled way. As at the end of June, and as at today, we don't own any properties that are over three months old unsold.
In fact, as of today, we only own two properties that are unsold at all. We are trading that part exchange at no profit, no loss. In reality, be happy to do more in the second half in terms of supporting our sales rate, but only on that very controlled basis. Average sites, 88 for the half year. It's been broadly consistent for a while, 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. 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 GBP 8 million of other income.
The largest part of that was the continued disposal of our PRS properties out of the two PRS JVs, so GBP 4.1 million of that came from there. During the period, we did do three, what we're calling partnership land transactions. 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. We are already in discussion on further transactions of the same nature that may well come through in the second half or certainly into next year as well. This just splits out the one land sale that we did in the period. That was our last out-of-area site, a site up at Penwortham, which is Preston.
Really the focus here is the 70 basis point improvement in the gross margin year-over-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 across all our build costs. 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. Very much working with our supply chain in terms of reducing those costs. 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 that do actually spread themselves evenly over the year.
Site specific sales costs and our admin costs are spread evenly first half, second half, rather than being weighted with either volume or turnover. That does have an impact on the margins in the first half. Therefore, if you're looking at the trend from full year 2018 and on to 2019, that'll have an impact. As Greg will come back to, we are still aiming for a 23.5% gross margin to 2020. Our overhead's more efficient first half this year, so 5.5% of revenue, and combining that with the increase in gross margin, the 140 basis point increase on operating margin to 16%. The prices and construction costs. Usual slide, just touch on the two circled numbers. I've already said underlying pricing broadly flat.
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 have expected our construction cost per square foot to actually move more like 7% or 8%, because you might expect it to have moved the same 4% as the sales prices. We have been reporting 3%-4% of build cost inflation during the period. In reality, with our cost initiatives and our margin improvements, we've actually mitigated that. We've seen a 6% increase per square foot in our build costs. Strong cash generation in the period. GBP 64.7 million of operating cash flow was impacted by the timing of some housing association receipts, which are expected to unwind in the full year as they did last year.
The expenditure on land represents the unwind of both the creditors and new land spend. The dividend payment reflects the higher final dividend paid back in May. Importantly, as Greg mentioned earlier, the cash flow from JVs reflects the Wellingborough transaction, both the reduction of GBP 36 million in terms of the Homes England loan that has effectively transferred into the JV and a GBP 33 million proceeds from Riverside Housing Association. The non-trading items include the usual tax interest and pension contributions. Overall, a net cash outflow GBP 24 million, but a really strong cash position of GBP 102 million at the end of six months. Another good period for land, as you can see on the map. This is actually the year-to-date position. You can see the 12 additions to the land bank, over 2,000 plots. They are, in fact, the gray and the red dots.
While I'm on the map, the blue dots are new strategic options that we entered into during the period as well. In particular, the red dots are those that are sourced from our strategic land bank. Strong period, as I've put there. Only six of the plots we bought do we anticipate selling for more than GBP 600,000 at any time. Continuing our strategy of on average, lower size units, two- and three-bed homes and a lower ASP. All of that land bought on average, actually at over a 26% gross margin and giving that excellent visibility. We've secured all our land for 2020 and 79% of the land for 2021. Little bit more on the land bank. We now own 13,161 plots, but there are just over 3,000 in the two major JVs at Sherford and Wellingborough.
If I take our own plots and then our 50% share of those two JVs and take the targeted 4,000 completions, I would get a 3.7 year land bank as shown. Also important on that slide. 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. The pie chart on the right gives a spread of pricing. 96% of our land bank we expect to sell for below GBP 600,000. I can tell you actually, 90% are below GBP half a million. Actually the other numbers are then given to you there. Also only 4% now apartments and our greenfield is up to 92%.
Finally from me at least, looking at our balance sheet. You see our land creditors as a proportion of our net land has decreased. That's around 32%. Happy at that level. 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 larger 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. Our other assets and other liabilities do include the impact, again, of implementing IFRS 16 in the period. That's about a GBP 22 million impact. There's much more detail in the appendix for those of you that are interested.
Net assets per share, GBP 7.96. That along with the improved profitability driven the significant improvement in return on capital to 19.8%. With that, I'll hand you back to Greg.
Okay, thanks. Thanks very much, Earl. I made a note. For me, the key takeaway there is that we've implemented IFRS 16 in relation to leasehold. That's really interesting. Onto the operational side of things. More photos there of the Phoenix range. What's really interesting is we're just about to start on that site in Wells, the first house, which is actually going to have a thatched roof. Another first for Bovis. I would hope in six months time, we'll show you a thatched roof, which again, is so unlike Bovis from the past. Excellent levels of customer satisfaction. Customer satisfaction undoubtedly remains our number one priority. The group is now trending as a five-star HBF customer satisfaction score. That's above 90%.
In actual fact, as of this morning, we're at 91.6%, well over the 90% and right up there with the top in the industry now. The majority of responses, that's from over 1,350 responses. We don't expect to get a lot more, and I'll eat my hat if we don't end the year as a five-star house builder. Not that I've got a hat. It's consistent across all of our operating regions. Of our seven businesses, four are five-star, two are just under five-star, and one is at 84%, there's no real laggard. Both of our divisions, the West and the East, are five-star. Darrell, who runs the West Division, is currently second at 90.5. Or you could say he's last, depending on how you want to look at it.
We've launched our Keys customer relation management system in May. That is enhancing the customer experience. All customer interactions can take place in one place. We are nearly there with a portal that will enable our purchasers to actually log their own defects. Building high quality homes, as I've said before a couple of times, delighted with the quality of our site managers around about the group. 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, for 2019, are down 33% and are about 0.22. The industry average is about 0.28. We're well under there.
NHBC 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%. No wonder we couldn't build anything as we would like to. We won six 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%. First Phoenix completions, as I said. It was launched in April, 28 new house types. First 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.
We're confident that the new range delivers enhanced sales propositions for our customers. It's got to be one of the reasons why our sales rate has gone from an historic 0.5 to 0.6 at 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. We have been much more successful since April 2018 in the land market than we were before. Why? Because the house types that we're now designing in and now building give us a bit of an edge, we think, on the land market. That's the inside of the Maple at Bishops Itchington, 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. Huge investment in the business. From a brand perspective, you would have seen the new bird up here. A lot of effort went into that, but it was cheap. I'm pleased that 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 get their expenses now. Less on paper, more on through email. Sales and commercial website, which was a bit outdated, has been modernized again, but there's still a bit more to go.
COINS, basically the last one, we're now on to implementing phase 2 with regards to things like bill of quantities, et cetera. 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 Bovis Homes and got a great team dealing with it, and they've been dealing with it for a number of times. We quite often say within Bovis, we're in a golden period at the moment for strategic land, which 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 6,178, planning application 2,690.
All of those have got some sort of designation from a planning front. I think most of those plots, if not all, will come through over the next 5 years. They will come through at a margin, we're being prudent, in excess of 27%. We converted 372 plots in the year to date. Planning was granted over a further 1,131 plots. It's not just rate in the past for now. We are continuing to invest heavily in strategic land. We entered into options on 4 new strategic bits of land in the period, totaling 865 plots. A real success story there. Progress with our Partnerships Division under Keith Carnegie. We launched it back in February. We're working alongside our operating regions to start with. 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 our reported improvements in return on capital, and it's developed a much less cyclical business than pure house building in isolation, which again, is one of the other benefits that comes from Galliford Try. We've made excellent progress in the year to date and have entered into JVs with five 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 Bovis. It's not unusual that our construction director, for instance, in Mercia, hasn't used a headhunter for the last two years.
He's inundated by people wanting to come, site managers wanting to come and work for the business. We get consistent high scores in our Peakon engagement surveys, which we do every three months. We've seen a further overall reduction, not just in site manager head turn, but across the whole group. We're investing in full training and development programs, 1,870 training days in the year. Leadership development program and frameworks, et cetera. 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. Again, another lovely photograph there. That's our Scott Curtis, who runs internal comms for us. Looks a little bit like Roger Whittaker. 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. The background is, everybody in the room was English and Scott was asking the question, "Do you think Wales will win the Rugby World Cup?" It looks as though everyone thinks they will. High quality is being recognized across the business. We were awarded the gold Armed Forces Covenant Employer Recognition Scheme, and we're the only house builder to have achieved that to date. 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 a sergeant major or something. He is now fully acclimatized to civilian life. I just wish he wouldn't bring his rifle to all of the meetings.
We won six NHBC Pride in the Job Awards, NHBC 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 Housebuilder Awards' Best Customer Satisfaction Initiative, and House Builder Star Award. We've also, in Construction News, in the Talent Awards, Apprentice of the Year, Equality, Diversity, and Inclusion, which just about covers everything, I think, Leader of the Year, and Excellence in Learning and Development. Quite rightly for our people, we are being recognized externally about the achievements that we've done over the last couple of years, which is great. Do the right thing, you see there, which is the company ethos, which is all the way through the organization. Land acquisition.
We're increasing the proportion of smaller product as we move into a world in the not too distant future where Help to Buy drops down to first-time buyers. We think there is a stronger demand for smaller product, 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. We can go to above 4,000 units by 2020. The growth of our partnerships business will deliver incremental value on top of that. With the increased investment in our partnerships business, which is really just starting to take off now, the ROCE 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 at 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 three or four months. We did at the start of the year. As the market's got tougher, we're finding it very easy to bat back subcontractors and suppliers. We're not seeing any inflation, and there's still plenty of work that Galliford, I said Galliford. Christ. Bovis can do for self-help. With things like the new Phoenix Housing range, which is definitely coming through, and our Select Extras range, which is only just about getting off the ground, which gives our purchasers the opportunity to bespoke their houses.
As Earl said earlier, the embedded margin in the land bank has risen to 24.9%. We have bought land in the period at over 26%, and the strategic land that is going to come through is over 27%. 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, and we will end the year as a 5-star house builder. 4,000 completions, a 4% increase in completions in the half year just gone. Three and a half to four year land bank, done. 23.5% margin by 2020, still very much on target for that. 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 GBP 180 million of cash, managed to do GBP 250 million. 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. 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. Special cash returns, we paid the first payment of GBP 60 million back in November 2018, and shareholders will receive a further GBP 60 million of capital, which will be returned in the second half of this year, probably November again. Market environment, Earl's touched a little bit on this. Supportive market fundamentals, low interest rate environment, no signs of that changing at the moment. Competitive, very competitive mortgage market with an appetite to lend.
Government support for the sector going out to 2023, and high levels of employment. There does, however, we have the Brexit overhang. I have to say, whether it's to do with our new brand, with the new Phoenix range, we have sold surprisingly well through the summer, even to the last weekend. Sales rates are proving robust. Our forward order book is very strong. We've probably already sold 10% of what we need to sell going into 2020 because of some deals we've done with housing associations, we have no problems with the increased use of part exchange because we are running it very well. We are seeing an increased appetite from housing associations, with their large cash resources, to buy properties.
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 fraternity was pretty poor. As I said, we're not seeing any build inflation over the last three or four months, and the land market remains very attractive. We're very well positioned, with a strong outlook for the full year. Group turnaround, I would say, is nearly complete. We can always get better, of course. Trending as a five-star house builder. High quality build with all the metrics coming through from the NHBC. First-class people, excellent land supply, including strategic land. Investment in systems and processes is starting to come through, and we've launched excitedly our partnerships business. Strong sales position, 96% of 2019 total completions now secured. We have a cutoff at week 39, so we're very prudent.
Week 39 is, if it's not sold by the end, well, two and a half weeks' time from now, we won't be including it in this year. 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. Sales are coming through, but we're dealing a bit here and there, ducking and diving, but we are getting the sales through. We're well positioned to deliver a very strong performance for 2019, and we're confident going into 2020 with already 10% forward sales booked. We're not even into the sales period where those sales will come through generally in your forward order book, which is October, November and December.
All in all, great set of results, and we're in great shape for the full year and great shape going into 2020. On that, we'll take any questions. Dennis. Sorry. Sorry.
Start at the back. Gavin Jacobs at Peel Hunt. Three if I could, please. The first one, Greg, just to clarify on that build cost, kind of statement. Just given what your peers have been saying.
Yeah
What are you doing differently? What are you seeing? I mean, is it literally the last couple of months or is it kind of certain regions that you're seeing it as flat?
No. 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 barons actually having Dutch auctions because they're looking for work. There are initiatives out there, all house builders should be doing it. I'm not sure where they're all coming from. 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 like that in the last six months. The last time I looked, bricklayers, carpenters, roofers work for contractors as well as house builders. If they are working for contractors as well as house builders, one, there isn't any work or there's not as much work as there was.
All my mates are subcontractors, and most of them don't want to work for contractors anyway for fear of being paid because of their financial position. They all want to come and work for house builders. If they all want to come and work for house builders, we need to make hay while the sun shines. That's where we are, and I'd be 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 what you've seen trending over the last 12, 18 months or so. Are you seeing other house builders wanting to get in, and how comfortable do you feel with your position in it?
We were encouraged to go into it by housing associations because they're saying there is a lack of competition in there. They've only got one or two people that they feel they can go to. That's why we're being encouraged in. Go back to the Galliford Try thing. I think that's a huge part of what we're looking to do there. It's a great business, it's in a great sector, and I know that too well. I can't see any downside, who are the big competitors? They're having financial issues, whether it's Kier as well, aren't they? I think the housing associations are actually looking at their supply chain, and more often than not, they're looking at their supply chain and they're actually concerned about it.
They would welcome any new entrants or probably welcome, from the limited feedback I've had to date, Galliford Try Partnerships coming over to us.
Last one's just around incentives. Just maybe just give an example of what you've seen maybe outside the use of part-ex, what you've been seeing in terms of a tick-up anywhere.
I would say if I was being brutally honest, we are seeing over the last five months, probably around about a 1% discount. I think it's pricing. It's manageable, it's all in the range. 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 making those improvements, and we can basically cover off a 1% discount to forecast price better than other house builders who were and are maybe still better than we are. Might as well give it to you.
Yeah, morning. John Bell from Deutsche.
Hi.
I've got three, I think. Just on customer satisfaction, I just wonder to what extent you're looking at the nine-month scores now?
Yeah
in addition to the eight-week score.
I'll answer that. The nine-month score is currently 67%. Again, that was down in the 30s, early 40s, and the industry average is just under 70. We're within 2% of the industry average. We focus not quite as much on the nine-month as the eight-month, but I can tell you it gets brought up every week at a detail meeting we have. A lot.
The second question was, when we look at the existing split or mix of partnerships in Galliford Try, would you expect to be rolling out the mixed tenure element of that more aggressively than they currently do?
Yeah. We would have pretty much on day one, we would have some sites that we would put into that vehicle. At a very strong headline, I think Galliford Try Partnerships have done remarkably well with the uncertainty around funding, et cetera, et cetera, caused by construction. They won't have that, if and when it becomes part of the new vehicle. 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. We would have, obviously, the balance sheet and ability to do that.
Thank you. Just a final question. I'm keen for your thoughts on the new Help to Buy price caps and whether you envisage that they might get tweaked at some point.
We're lobbying for them to be tweaked. We have 7 business units. 6 of the business units I'm looking at James and Daryl, 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. We're lobbying. Overall, we feel we can work within them. 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 think there is some traction. I think the government, when they get a minute, are kind of listening. Even if you go back to Help to Buy, when Help to Buy was extended to 2023, that's it. That's the end of it. I'll have GBP 10 that they won't stop it in 2023 for first-time buyers. That's just my personal view. We're planning that it will be. That's already kind of, "Oh, maybe we'll look at this." It's gone from end of story to you are getting an audience here and there. Thanks, John. Do you want to go to Glynis, as she was actually first?
Thank you. Glynis Johnson, Jefferies. Three, if I may. The first one is in terms of your margins. How should we think about the margins that Bovis can achieve, putting Galliford to one side? One Try. Two Tries even. If your gross margin in the land bank is 24.6%, your admin cost 5%, should we assume the industry average is where you will top out at? Or should we still be thinking about those other margin initiatives? I notice we don't have those percentage upside from margin initiatives specifically laid out anymore. Just if you can give us a bit of color. Given the context of what others in the industry are achieving, what Bovis 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 will you allow them to log their defects?
Is it a week? Is it a day? Would it go on for six months post moving in? How do you, as Bovis, look at customer service in aftercare?
I'm looking at our Group Customer Experience Director at the back. What did you say, Debbie, to answer? For the full period of their warranty. Full period of their warranty. For two years.
Two years. Thank you. 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?
It'll be-
Is it conditions?
No, it'll be predominantly negotiations on price, when we want to take them on. We wouldn't bring it into the land bank until we've actually contracted it. There's a couple of sites there that maybe we don't want to contract this week, we might want to leave it till next week. Price.
Some of them are drawdowns on existing sites. We've already got land, so we will draw that down in future.
If we've got 1,000 plots, we don't need the other 1,000, so we'll keep that back. Although it's nothing as big as that. To go back to the first question, Earl, on the margin?
The margin, Glynis, the embedded margin was 24.9%, and therefore, gives you confidence in terms of the trajectory. As I said earlier, confident in terms of delivering the 23.5% 2020. We are buying in excess of 26%. As Greg mentioned, the strategic land still coming through stronger than that, 27% plus. Over time, that is the trajectory of where we are heading. Look, 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. There's plenty of opportunity in those build costs we're going at.
The target margin is above industry average?
Yes. Of course, if the GT thing comes to pass, you go from 4,000 units, or less than 4,000 units of Bovis, to over 10,000 units if you add the three together. The synergy savings come from procurement. You should be buying a brick and a block cheaper at over 10,000 than 4,000, of course. Plus there is some other synergies in and around Bovis and Linden. 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%. I will.
Thanks. Will Jones, Redburn. I think three as well, if I could, please. The first, just when you reflect on Linden Homes within the Galliford 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 one was just if we come at the balance sheet, Earl, in terms of where you expect to drop at the year-end, assuming you don't pay the GBP 60 million special because of the deal.
Why would you assume that?
Because of the Galliford deal.
No.
Is that not right?
No. I wouldn't let down our private shareholders like that.
Okay. I thought that was the structure.
Yeah. To pay it as a bonus dividend. Yeah.
Okay.
The shareholders will get.
Yes.
That's been a big discussion. If a shareholder was wanting £500 to go on holiday, they can just sell the shares.
Yes.
They will get the benefit of it.
Yeah. Assuming that happens, I guess, where is the cash position going to be at year-end? Where will you be on an average basis? Just with regards to the extra investments in partnerships, I guess, that you're flagging, is there a number you can put around that delays slightly or the ROCE target for the group? 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? The last one is just conceptually why, if the land bank gross margin is 25 today and you reported circa 22 in the first half, the gap of three percentage points, is that just about the Phoenix penetration or is?
No. We still have some historic sites. Rather than parking them, we're building through them. We still have some legacy sites, which is plowing through. We've got a couple of sites at 10%, for instance. They are bringing the margin down. They are nearly gone, and the margin will just get better as that older land flows through. Do you want to go, Will?
Yeah, I'll cover a couple of those. Cash balance sheet towards the end of the year. Look, there's a range out there of expectations, but consensus is roughly around GBP 170 at the moment. We'll be looking to drive the cash as always, you would add GBP 60 million on top of that, certainly because you're right. If the transaction were to go ahead, we would pay the, or return the capital via way of a bonus dividend. Not uncomfortable with that, obviously we will be driving to do better than that. That's what's out there. In terms of the ROCE, moving the target out to 2022. In reality, Greg alluded to it, Bovis standalone, if we were to move forward on that basis, we are signaling that we would go beyond 4,000 new homes from the existing structure.
There's investment in order to drive that growth that is not in there. We have got plans potentially even for an eighth region that would need feeding in terms of land investment. The partnership business. We are investing in that. Some of those strategic sites are feeding both the partnership business and our existing housing business. That's what's driving the investment in the shorter term and moving that target further out. Talking about in terms of where we're looking to get the balance sheet potentially, with a 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. Clearly, there is a market, political backdrop at the moment as well. 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/debt and land creditors. Look, we're looking to get that down to 25% or below the combined debt and creditors-
Including land creditors.
as quickly as possible, and take it from there. We would not expect our period ends to hold net debt for more than two years. We still have.
One of the other ways we can drive that down is, both companies, but particularly Bovis, have got some very large sites. One of the big opportunities we've got is dual branding. What we can say is we'll still be selling houses, if the deal goes forward, under the Linden banner and the Bovis banner. Whereas, 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 Bovis and Linden selling on the same site, which we don't have that opportunity at the moment. Then your first question, where is Linden? I think Linden Homes have done, from a people perspective, fabulously well to be where they are against a backdrop, as 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 market at the moment to leave, particularly over the last nine months, do you join a company where you're not sure, overall group, what's going to happen? There's a lot of uncertainty around Galliford Try. Maybe, maybe not. Are you able to take people on from Linden? Do they lose people? Yeah, probably they are because of that uncertainty. Not because of their performance, it's just the uncertainty levels. Then, of course, the land. Can we buy this site? I'm not sure. I'm not quite sure how this claim or this, whatever do. When you take all of that into consideration, I think, one, they've done really well to produce the results that they're producing. With some stability and a bigger balance sheet, and the momentum behind what would happen, there's surely got to be some improvements.
That's not criticizing at all. Sorry.
Thank you. Morning, Chris Millington at Numis. The first question what I'll ask just links to something you were saying there, Greg and Earl, about it taking Bovis from 4 to 10,000 units, and also the sort of focus on cash generation in the first instance of the deal. Do you think there'll be a period of integration where, volumes aren't probably the combination of the two as we've seen in previous deals in the sector, and there's some sort of integration in the first year before the combined businesses give their full output?
Yeah. The best way to look at it, this is 7 business units at Bovis, going to something like 22 units, when we've done some integration as a combined. It's a huge integration and not one to be underestimated. Our plan is that 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 Bovis had in that first year, let's just calm the ship and do the integration absolutely properly. That's not going backwards. 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. That goes back to a Will question as well in the partnerships business.
The growth that partnerships are aspiring to, Galliford Try Partnerships are aspiring to at the moment, will continue. 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 forecasts, including coming back to 25% or thereabouts after 12 months. They will carry on. The big integration is between Linden and Bovis, and I think it would be wrong in year one to try and do something for short-term, for not for long-term gain. I would say one and one will equal two, as long as you take one equals Bovis' numbers to 2019, not necessarily what we're saying, which will be a little bit of growth for 2020, and Linden for the 12 months to June 2019, i.e., just done.
Add those two together, and then we can move on after that. That will enable the Partnerships business to carry on with their exciting and ambitious growth trajectory.
Now, 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. Historically, we've kind of seen synergies range between 1% and 2% of combined revenue. Is it likely to kind of fall within that sort of range? I'm not asking for a firm figure.
No
It sounds like it could be pretty significant from the deal.
We'll go as far as say we think they are substantial, and we're still working through them.
Okay. Understood.
I think they're higher than where we were back in May.
Okay. That's helpful. Final one's just bulk sales in the period. I just wonder if you'd 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 disclosed over 400 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. Much happier to have spread that business across many of our housing association partners.
Those bulk deals, so it's more, and it's across a broader.
Yeah
financially stronger, set of customers.
Thank you.
Sorry.
Thanks. Gregor Kuglitsch from UBS. I've got a few questions. Can I just come back to the volume targets? Can you just explain the 4,000, 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. Any growth from partnerships will be incremental to the 4,000.
On the partnerships, can you just perhaps explain a little bit the economics and how that impacts the returns in the short term, and then perhaps related to that, how it differs to the Galliford Try business and to what extent when you, I presume you will combine the two, you kind of get a blend of an asset light business model?
Yeah. We would combine the two. Ours is at a relative infancy. Theirs isn't. All of what Bovis has done at the moment is land led. We control or own the land. Do you want to do a deal? This is the price. Are you happy to do it? We're not doing any, and don't intend to. Give us a job, can we tender for some work? Negotiate even for some work. I think that's fine where we are at the moment. Obviously, with GT, they do some of that, but they also do a lot of straightforward tendering for work around about the place. That will carry on. 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.
We can give them, at Bovis, a huge kickstart with our land bank. We were talking earlier about the strategic land. We can bring some of that strategic land forward quicker with a different customer base.
The returns of this, isn't it supposed to be much higher in return on capital?
Return on capital would be far greater than what a pure house builder is. The margins would be lower. Just as Bovis, we would've been looking at a margin probably of somewhere, on a small scale, 15%-16%, and return on capital Earl of.
Oh.
30?
Yeah, 30, 40%.
30, 40%. With a combination of GT, in an ideal world, you do GBP 1 billion of purely land led, but it just won't work like that. I think we should be looking and aiming, I'll definitely be aiming to take the 6% margin within partnerships to 10% while still carrying on trying to grow quite quickly to the GBP 1 billion revenue.
Okay.
Just on the dividend, so I think in the statement is also the final becomes kind of the interim level, which I think is GBP 0.20 rounded, roughly. There's still another installment of the special next year, so you're committed to that one in cash.
Absolutely.
Is that right?
Go on.
So-
Might have made a mistake there.
We've announced the interim of 20 and a half. What we've actually said is that, if the deal goes ahead, there would effectively be a second interim, which is a technical, but readers, that's the final. No reason why you should have a different number for that interim than you would have as the final at the moment. What we are saying is we'll effectively go ex-dividend prior to the transaction happening. That would attribute to just the existing Bovis shareholders at the time, and not the enlarged shareholder group if the transaction goes forward.
The 2019 final dividend gets paid in, or used to get paid in May, and will going forward, with goes ex-dividend in February, will go ex-dividend in December. Because of that, we have to call it a second interim.
Yeah.
It'll be paid in February or March. It will only be to, obviously, because it goes ex-dividend before the deal happens, to Bovis shareholders.
Okay, there's another special next year?
No, the special next year we're still looking at it.
Right
defer to 2021.
Sorry, one final one. Sorry, don't want to hog the mic. What's the book value? I guess we'll see it tomorrow, but what's the actual book value you're acquiring against the GBP 1.075 billion?
I think you'll have to see that tomorrow, in fairness.
Okay, fine.
We're-
Should have never said that, right?
No, we're happy with the deal, obviously.
Yeah, sure. Thanks.
Thank you.
Do you want to go to John?
It's John Fraser-Andrews, HSBC. Yeah, three for me as well, please. The first one, the robust sales rate, Greg, that you alluded to. Does that mean you've maintained the step change in the first half in the business, or are you referring to a year-over-year comparison?
No, we've managed to sell at 0.6 through over the last, well, July, August, and first week of September.
You'd put that purely down to the Phoenix?
No, I'd put it down to actively looking for sales. I'd put it down to Phoenix, and I'd put it down to our improved reputation in the marketplace, being a four or five star house builder, depending on what you're saying at that particular time.
Thank you.
I can't put my finger on it totally, but we are, every week that comes through, surprised with everything going on at the present moment in time with the number of sales that are coming through.
To be fair, the peers, even the larger ones, have been seeing year-on-year similar rates. They haven't seen that decline they had in the first half.
Yeah, maybe because we're starting at a lower base again. Yeah, maybe if you were at 0.9, maybe it would. 0.6, let's be honest, it was probably about We are in the game of under promising, over deliver. It might have been a bit better than 0.6. It's 0.6 during the last two and a half months.
Thank you. Second 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 difference.
I would say a site of 100 units is more competitive than a site of 600 units. I would still say it's a soft market for 100 and a soft market for 600. Yeah, I'll concede it's more competitive the smaller it is.
Is there anything to read into larger sites that you're picking up? Is that because the business is maturing, the recovery plan is enabling that larger scale?
Yeah, our cash position allows us to take that on. That would be another great benefit with the GT acquisition/merger. We would be able to buy bigger sites. We feel with dual branding that we would be able to maximize a sales rate and a return better than we can if we were just Bovis. We've got eight or nine sites at the present moment in time that we've got now in the Bovis plan, that we know as we go into 2020, we would do that different if and when this deal happens.
The final question, the substantial synergies.
Yes.
Just thinking about the overlap on geography, it is clearly substantial. What does the Linden Homes business give you in terms of geography? What extra territory? I can think of Yorkshire and perhaps more.
Yorkshire
in outer London.
Yorkshire, Peterborough. That would be the main area. Bristol would be quite strong, and maybe a bit stronger on the South Coast.
Thank you.
There are some overlaps, but yeah, there are some extensions as well. It's a very nice fit.
Thanks.
Clyde?
Clyde Lewis at Peel Hunt. Three as well from me, Greg. Just coming back to, I suppose, your thoughts on optimum size for a regional unit. You've flagged the sort of seven that you've currently got. Obviously, ideas and thoughts about an eighth and obviously the Linden ones, put partnership to one side.
Yeah.
For a optimum housing region, what are your current thoughts? Obviously it does vary across the industry and.
About 550 to 65.
Okay. Thank you. Well, that's very clear. Secondly, Help to Buy. Have you seen any change at all in the take-up of Help to Buy, either regionally or by price point over the last sort of three months?
If anything, it's slightly gone back a little bit over the last six months, and product change has gone up a little bit over the last six months. Daryl, James? I haven't seen Nothing. Nothing.
Nothing's really changed.
No.
The last one I had was on, I suppose, build programs versus sales rates. I mean, your sales rates, as John just flagged, the industry sales rates have held up pretty well. Have your build rates continued to match those sales rates, or have you backed off 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?
We haven't backed off because we're thinking about Brexit. We backed off on a few sites where the sales rate has been slower than what we're currently build. 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. Going back to John's point about the housing associations and the private sales they've been doing, we are looking at quite, again, spread over a number of different housing associations, some great opportunities to take forward with housing associations, which would make our position going into 2020 very, very strong, abnormally strong, I would say. Also, we might want to maximize that from a cash position leading up to Christmas.
I could probably more likely see us accelerating on 10-15 sites leading up to Christmas.
A fourth one may, just in terms of, you flag planning and land being still very attractive, have you noticed any sort of deterioration in terms of local council's attitude to planning, i.e., have they started to dig their heels in a little bit in terms of sort of those final stages of planning? That's something that's been flagged elsewhere.
Yeah. You get the high level planning permission, it is still taking frustratingly too long a time to actually get the permission. I wouldn't say they're digging their heels in. I would say that it's a lack of resource more than anything. They just haven't got anybody there to actually take that 106 or take that condition forward. Again? Yeah. It's not a dig in the heels, it's just a lack of resource, and they're trying to find ways of not being found out by coming up with something that comes in at the last minute of the deadline that they're supposed to respond by, which is what the hell is that all about? In theory, it gives them that extra month, two months to sort themselves out. It is a severe, in some places, lack of resource, I would say. Brilliant. Okay.
Thank you very much all.