Morning, everyone, welcome to Bovis Homes half year results to June 2018. Normal agenda, we will try and make it as interesting and even funny in places as we can. I say we, I will. Obviously, I'm not sure Earl's actually learned how to tell a joke yet. Although there is a story going around that he said something half funny back in March, it's yet to be verified. I will do the Wait for your turn, Earl. I'll do the highlights, Earl will do the financial review, and then I'll come back in and give an operational update, medium term outlook, and, sorry, medium term targets update, as well as an outlook. It's been a great period for Bovis Homes, which has transformed itself into coming up with a strong performance, with a 41% increase in PBT, well ahead of our expectations.
We've had another controlled and disciplined period end, so that's the third on the trot, and that will definitely be how it is going forward. The group is consistently delivering high levels of customer service, which has been brought on predominantly by a step change in build quality. Much more on that later. We've moved to an average net cash position in the period. We've got excellent visibility on land, future profits, with 99% of land required for 2019 already in place, and 78%, which is an astonishing figure in my experience, for 2020. The Sherford JV has exchanged contracts, and we've agreed heads of terms with the Housing Association for our large scheme in Wellingborough, which we would hope to contract by the end of October.
We're well on track to deliver at least GBP 180 million worth of cash from our balance sheet initiatives by the year end, and all of that adds up to the interim dividend, up 27%, and the special dividend of GBP 0.45, which we paid in November alongside the interim dividend. Earl.
Thank you, Greg, and good morning. There will be no disappointment, no intentional jokes during this section. Following the step change in our business last year, I'll take you through that significant increase in profit, more importantly, the increase in the margin, as well as the progress on our balance sheet and the average net cash position we had through the first half. Our income statement shows that 41% in profit before tax, just over GBP 60 million, and that was ahead of our expectations, driven by the increase in the margin during the period. Revenue up 1% to GBP 432 million, driven by a 4% increase in volume, a 4% increase in our private price per sq ft, but offset by an increased proportion of affordable in our mix in the period.
Gross profit up 17% to GBP 90 million, and lower admin costs, reflecting a stable business following the changes we made last year, but our ongoing investment in IT, training, throughout the business. Operating profit of GBP 63.1 and a profit before tax of GBP 60.2 million. Our finance costs reflect the lower interest charge from having an average net cash in the first half. We've got a lower imputed interest charge from deferred payments on land acquisition. That is offset. We used to get an interest credit for holding our shared equity. That's gone since we disposed of it last year. Tax rate, in line with the underlying tax rate. There were no exceptional items in this year. There was, of course, last year, GBP 2.8 million of cost relating to the bid approaches and a one-off GBP three and a half million of customer care in the gross profit.
In terms of the selling prices and volume, we are seeing firm underlying prices. Our private average selling price was flat year-on-year at around GBP 335,000. That reflects improvements in pricing offset by a lower proportion of higher valued product in the mix. For those of you that are here, you would have heard me talk last year. At the same period last year, you could have bought a GBP 1 million house off five sites from Bovis. We've sold out of all of those in terms of the top-end product. That was in just last year. Overall, our total ASP is down 5%, driven by that larger proportion of affordable housing, so about 35% of the mix in the first half.
We expect that to come back to about 30% for the full year. That will be aligned with where we were last year and our expectations going forwards. Overall, total volume up 4%. Got a bit of other income, GBP 3 million, from the disposal of some minor commercial assets. We recognize GBP 7.9 million of turnover from our sales of our PRS units. Strategy to exit our PRS joint ventures, we're now recognizing the revenue we deferred when we originally sold homes into those joint ventures. Profit, split housing, and the one land sale that we did in the first half of the year. You can see the gross margin at 20.9%, a faster step up than maybe we expected. We expect to hold that level of gross margin through the full year.
Taking the housing itself, a 290 basis points increase in the gross margin coming from the value that is embedded in our land bank, the controlled delivery we continue to do, so getting it right first time, reduced customer care costs, and the initial impact of those margin initiatives, so pricing and an underutilization of contingency in our cost base. In terms of land sales, as I say, we did one land sale in the first half, still managing the balance sheet. We will receive GBP 6.3 million of cash during the year. We have, in fact, done a further land sale since the end of June, which is our first land sale at Wellingborough. We still look for the one or two opportunities in our land bank going forwards. Overall, coming through with a 20.9% gross margin with stable admin overheads and operating margin of 14.6%.
Sales prices and construction costs, usual slide. I'll just talk about the two numbers that are circled. Private sales price per square foot, as I said, is up 4%, driven by market, our initiatives, as well as mix. Difficult to isolate the individual impacts of those, but certainly we see the market moving about one, possibly 2% in some of the places we operate, and that is supported by house price indices you would see for those areas that we operate in. We are getting some momentum behind pricing, controlled delivery, and focusing on that pricing. Sales advisors incentivized to deliver against headline prices, reducing daily margins, having an impact. In terms of costs, 7% movement on cost per square foot. We continue to see inflation across both labor and materials around 4%. Expect that to continue in the current market.
While at the moment we are not seeing any significant impact of Brexit on our supply chain, we are working with both material suppliers and subcontractors closely to see how things are emerging. A 3% movement from the mix of product. Strong cash coming through in terms of the operations. Housing receipts, was impacted by the timing of cash flow from our housing association partners and the circa GBP 8 million of deferred revenue from PRS. The vast majority of that cash goes to repay debt in the first instance, for the bank debt that is in those vehicles. Our construction expenditure, similar to last year. Continued investment, certainly at Wellingborough, and then investment in order to deliver the higher level of completions we expect in the second half.
GBP 81 million out on land, reflecting the unwind of our land creditor and a modest expenditure on new land in the first half. We expect that to tick up in the second half, and I'll talk a little bit about that in a couple of slides' time. Higher dividend payment comes through for 2017. Non-trading items, got the usual tax and interest, but we did pay GBP 5.5 million into the group's defined benefit pension scheme in the period, and that follows the conclusion of the latest valuation and the closure of that scheme to new accrual. Overall, a net cash outflow of GBP 102 million, leaving net cash at June GBP 42.8, compared to the debt of GBP 32.4 last year. More importantly, is that movement in average net cash.
We had average net cash of GBP 6 million through the first half, versus average net debt through the first half of last year of GBP 96 million. In terms of land, the map shows the sites secured so far to date, and we have increased our activity. We've been investing in our land teams. We've appointed two new land directors so far this year, and that's already showing in terms of an uptick in acquisitions. Five developments secured in the first half, all of which we expect to deliver at least a gross margin of 26%, and we have secured a further two sites since June. Those seven are all shown by the blue dots that are on the map. The dark blue dots at Ebrington and Staplehurst show that we're still pulling through good sites from our strategic land.
Even more pleasing, a further eight sites with terms agreed to come through this year. Again, three more sites from our strategic land bank, including the significant investment we've got at North Whiteley. Also investing in the longer term. Six new strategic options for 944 plots, and that strategic land bank still coming through, so 678 plots got planning within our strategic land bank. Overall, we expect that land coming through to deliver at least a 26% gross margin and a 25% return on capital. Balance sheet. Our land is showing the impact of optimizing our balance sheet as we head towards a three-and-a-half to four-year land bank by the end of the current year. Land creditors reducing, with our land activity going up, very happy to see those land creditors as a proportion of land increase again in time.
Work in progress, funded, as I said earlier, Wellingborough investment going in, and the investment required to deliver the homes we're looking for in the second half. Pleased to say most of that increase in work in progress is our housing work in progress and not roads and sewers. It is about having all our roofs on by the end of September, all of those homes even further progressed in order to deliver another controlled period end. Finally, in terms of our balance sheet optimization, just a little update. I've mentioned the two land sales we've done already this year. A couple of commercial disposals. We disposed of an out-of-area site. The Sherford joint venture will bring in GBP 13 million of cash over this year and next year, and we are looking for that JV from Wellingborough to come through, by the end of October.
Around work in progress, really pleased. Reduced our usage of part exchange significantly in the business. Also reflected in a further GBP 10 million reduction on the holding balance at the end of June, that partial disposal of properties in the PRS helping. Further opportunities follow. One or two areas of land we're looking at optimizing that work in progress position, looking at the timing of our HA cash flows coming in, and finishing the exit from the PRS. With that, I'll hand you back to Greg for an operational update.
Thanks very much, Earl. That was really exhilarating.
Thank you.
Right, onto the operational update. We're in a very strong sales position. We're focusing on price optimization, whilst maintaining our sales rate. The sales incentive scheme, which was rolled out to our great sales advisors in March, April of this year, is really taking off, and this gives our sales advisors a chance to add an additional, not in place of, an additional commission if they can achieve the advertised price or close to it, which was never in any of our packages for sales advisors previously. That's the big thing, driving our price optimization. We've launched the one-size-does-not-fit-all specifications. We still have the old Bovis specification, which is probably best described as all-in, particularly on some consortium sites where we think we need a USP compared to our competitors.
On the vast majority of sites, we have reset our specification, and we are still achieving the same prices. Customers can upgrade their specification through the select brochure there. We still have a very good base specification compared to our peer group, particularly the likes of Persimmon, whereas we know, a roof is an optional extra. Only joking, of course. We significantly, and this has been a huge transformation in the business, reduced our exposure to part exchange. In half one 2018, we only had 8% usage of part exchange compared to 28% in 2017, which was over 30% in 2015 and 2016. That's come right down, which was a move because I didn't think it was under control. Strategically, it's turned out to be a good move because obviously there was a difference between the second-hand market and the new market.
The less reliance we have on it, the better. Although I'm quite happy to see 8% move up a little bit, and I'm sure it will. Most importantly, it's no longer loss-making. We're actually making money, or at least breaking even, on our part exchange. 42% of private completions used Help to Buy at an average selling price of GBP 321,000. We've seen the first completions from our Heylo Home Reach scheme, and 21 new developments were launched in the first half, with four new developments to launch in the second half, all of which are imminent. Again, as we were last year, we're in a great position for 2018, with 96% of sales already secured, and that's a great position to be in.
On the photographs there, I don't know if you can make it out there, but that's Earl visiting the Wellingborough show home in his normal weekend attire with one of his accountant friends there, dressed up as well. Doing the right thing for customers, which is what it's all about. The group is consistently delivering high levels of customer service. We've had our third on the trot, controlled and disciplined period end. We have rigorous inspection procedures now before our purchasers move in, and that's translated itself into some great scores. Since the 1st of October, which is the HBF year, which finishes at the end of this year, we are currently trending at 86.7%, and that's from 1,230 responses. I'm pretty sure we're going to end the year as a four-star house builder, which is a great performance.
That's consistent and great credit to our seven managing directors who are all in the room here. That's consistent across the piece. We currently have three of our seven house business units on five-star and four on four-star. None of our business units are operating at less than four-star, which I suspect not many other people could say. That's a huge transformation. Go back a year, Bovis's two of our seven business units were one-star, four were two-star, and one was three-star. That's a huge transformation in a little over 12 months. It remains a key priority across the group. We've agreed an investment of a CRM management solution for our customer care teams, again, where there's been a lack of investment in IT, and we've also joined the Institute of Customer Service.
All of that adds up to happy customers, and that photograph gives you a good demonstration of some happy customers. We're even making the dogs happy these days. It's great to see. The other big takeaway from that photograph there is we seem to be employing an awful lot of short site managers, which we're also working on. The new housing range, the Phoenix Collection, it's great. Launched in April, 28 leading house types. We've replanned 61 of our sites, which are going through planning. Six have already got planning, the rest will follow on, I'm sure. It really has uplifted the whole group, having a brand-new housing range coming through.
We're expecting the first legal completions to come through in spring 2019, and we are very confident, because they were involved in the design, that it will deliver added value to our customers, optimize pricing, reduce production costs, and take away a lot of risk by the fact that we won't be building too many, if any, double story bay windows, with improved build efficiency. It will also enable us to be more competitive in the land market than we've been in the past. I would suggest that in [round for terms], what we're looking, per developer acre, we will be looking to putting an additional three-bedroom house for every additional acre that we build on new landage, which will give us a bit more of an edge there.
The photograph on the right, the first house that will actually be completed from our new Phoenix range is at Stadhampton, near Oxford, and that will be a show home, and that should be finished in November/December. Step change in build quality. All construction for 2018 is well progressed. We've had a huge investment in high quality site managers and site teams. I kid you not, there is the word on the street, and this is a true story with the NHBC and our peer group, is that Greg Fitzgerald is having a loving with the site manager fraternity and is sending all the Bovis Homes site managers fresh flowers every single morning, so much is his affinity with them. It's reduced, and it's working. We're attracting some great site managers. When you get the best site managers, the subcontractors follow.
Best site managers, the best subcontractors follow, because that's where they know they can earn their money. It's very straightforward. The site manager headcount churn is reduced to 19.5% from 42.6% in 2017, and it was over 60% in 2016. Best practice is being shared amongst the group. Our five new construction directors, that's five out of seven business units, construction directors are now well embedded and making a real difference. We've moved away from the NHBC on health and safety and we're now doing that in-house, which is much more proactive, and the feedback, again, is tremendous. The NHBC reportable items, this is where the NHBC inspector goes around and finds, hopefully, not too many, but things wrong with the houses, is down 66% since the beginning of December. You can read that quote at the end, which is from the NHBC.
The NHBC, the chief exec downwards, are openly saying to our peer group that the changes in build quality in Bovis are outstanding over the last 18 months. That's resulted in us winning six Pride in the Job awards. Here's a photograph there, or photographs of our six great winners. The last time Bovis won more than six was back in 2004 when we won seven. That really does show how far the organization has moved on. The other thing I would say from the photographs there, I'm not sure how it's happened, but Bovis have got some great young site managers around about the place, and they really are showing and coming through. Oliver Cookson there is only 28. Last year, this is his second award, last year he made it all the way to the final in London.
Great achievement, particularly for someone who's 28. Jack Allen here is only 23. To win a Pride in the Job award at 23 is absolutely incredible for a 23-year-old. Let's hope by the time he's 24, he learns how to do his tie up, but he's a great builder. Commercial and IT. Huge investment following a lack of investment over the last 20 years in IT. It's the biggest investment, I think, ever, Earl would say, in a scheme. We've invested in COINS, which is well used throughout the whole sector for commercial and finance. Phase 1 is pretty much complete, and all of our commercial teams are now starting to see the benefits of that implementation.
Those benefits being accurate, consistent cost reporting and forecasting, increased commercial visibility across the sites, and most importantly for me, it gives them more time and should enable them to spend more time on site than in the office. Phase two will kick off very shortly. With our people, as with IT, there was no investment at all really over the last 20 years, so we're playing catch up again. We've now got a learning and development director, comprehensive learning and development program across the entire business, including sales, customer service, build, health, safety, IT, and leadership. I've even had some training this year to help me through my GDPR test, which I managed to pass first time, I'll have you know.
What helped there was I decided to do it, I didn't want anything to go wrong with my computer, so I decided to do it in the group's IT hub at Bishops Cleeve. I turned up there at 9:00 A.M. with 25 of our IT people, walked into the room, and the excitement and the exhilaration in that room pulled me through. Let me put it this way. I didn't have to say, "Can you be quiet, please?" It was like being in a bloody ghost town. Anyway. The new trainee assistant site manager program's been launched. We've taken on, in the last 12 months, 36 apprentices, taking our total to 80. We're really pleased about that. The leadership program is ongoing.
The big takeaway from that slide is the bottom point there, we are now a very attractive company for people to come to work for. 12, 18 months ago, who wanted to come to work for Bovis? Not many people. Today, we are getting lots of requests for people wanting to move from our peer group to come and work for Bovis, such has been the change. It is really good. We can now attract the best people into the organization. For those of you concentrating on the photograph there, not to worry, Earl has promised and is actually now on a diet. He couldn't actually get his hands into his pockets there.
I'm sure this will either, Earl's made a huge school boy error by putting that photograph in, or there's going to be a massive witch hunt around who actually did put it in, but it wasn't me. Our land bank remains exceptionally strong. Bovis is all about family homes in prime locations. 87% of our plots are under GBP 500,000 within the land bank. No exposure whatsoever within the M25. 87% of our land bank is on greenfield sites. Much less risk than brownfield sites, of course. Only 5% of our land bank is apartments, and I don't really think we've got anything really over three storeys. Maybe the odd scheme here and there. It's very low risk. It's balanced. No business unit is short of land with a business unit having too much land. It's a pretty balanced portfolio.
As I said at the start of the presentation, we've got excellent forward visibility, with 99% of 2019 already secured, 78% of 2020 already secured. If you take into account the land we've currently got with terms agreed and solicitors instructed, the 99% turns into 100%, and the 78% turns to 86%. We're in great shape for 2020. The average gross margin of land that we've bought or currently are buying in this financial year is at least 26%. The other two points there I would point you out to are that 17.3% of the plot cost versus average selling price, in my experience in the house building sector, is very low. The average gross margin has moved up from 23% to 23.6%, reflecting some of the margin enhancements we've put through. It doesn't include the 1% that we're generating from Phoenix. Sherford and Wellingborough.
Some of our biggest individual aims over the last 12 months have been getting these two huge schemes, both very good schemes, but they're just too large for Bovis Homes' balance sheet, or probably most house builders' balance sheets. Sherford, we've managed to get over the line. We're delighted to say we've entered into a joint venture with Clarion Housing Group, who are a huge housing association. That's also a strategic aim to improve where we are with housing associations. On Wellingborough, we've now agreed heads of terms. Again, I won't name them, but with another large housing association. With a target date of entering into contract at the end of October. By the end of October, we would hope Sherford's done, Wellingborough will come in, and that's at least GBP 50 million generated as part of our balance sheet initiatives that Earl talked about earlier.
The other great thing about Wellingborough is the show home, which is the bottom photograph there, was opened in August, and it was one of the most successful sales launches Bovis or I've been involved in. 12 reservations taken over the weekend, and that's continued. Bovis, the Wellingborough scheme, seems to have been talking about for the last 50 years, or whatever it is. Today, it's up and running and is about to start generating profits. It's a great site, just too big. Strategic land, great strength and continues to be a great strength of Bovis. We expect to deliver circa 10,000 plots over the next five years from our strategic land bank at returns expected to be above the minimum 26% that we are setting.
That 10,000 is underpinned here with, sorry I keep doing that, with the 7,800 with planning agreed, or the 4,696 with planning applications in. When we put a planning application in, it's already got a form of planning approval. We basically have 12,500 plots within our strategic land bank with either detailed planning ready to go, but we haven't signed the 106 agreement, or with at least an allocation or probably an outline planning permission. You could easily say our land bank is 16,000 plus 12,500. Gives us great flexibility and visibility again. 167 plots converted in first half of 2018. Planning granted over a further 678 plots in 2018, and we've got a strong pipeline of land going through the motions at the moment, which will add 955 plots to our land bank by the year end.
We are continuing, so there's still a huge investment in our strategic land bank. We're not just taking from the past and not reinvesting. We got a big team there, and there's six strategic options that have been entered into in the half year, totaling around 944 plots. A real positive story for Bovis. Affordable housing. We're enhancing our relationships with our affordable housing providers. Again, we've made great progress. I'd still say there's a fair bit to do on this, but how our housing association partners will perceive Bovis going forward will be greatly changed when we actually complete the deal at Sherford with Clarion Housing Group and the large housing group that we are about to enter into contracts with at Wellingborough. They will see we're a true friend, a true partner with long-term relationships, which we've not been in the past. Market environment.
Fundamentals remain strong. Our sales rate so far this year is 0.51 compared to 0.49 last year. The summer period's been broadly the same, and that's despite all the talk on Brexit, which I take some comfort in. There's a huge level of consumer demand, strong support for the sector from the government, of course, low interest rate environment, a very competitive mortgage market, and high employment levels. There are alternative routes to the market, which we are already dealing with Heylo and their Home Reach scheme, and I would hope through the housing association movement, particularly with our new relationships with Clarion and others going forward, they are starting to look at shared equity schemes, shared ownership schemes as well, which might be a long-term replacement for Help to Buy.
On Help to Buy, we await in anticipation for the government to say what's going to happen with Help to Buy beyond 2021, and we're firm believers that they should do that sooner rather than later. That would give us some encouragement in buying long-term land. We do believe at Bovis that the government will take Help to Buy on, but we also believe, and probably agree with, that it should be tweaked somewhat. We're not in the camp that, why should someone who can afford a GBP 600,000 house outside of London get government help? It seems too high. We're in favor and believe they will extend Help to Buy, but tweak it to make it more affordable maybe.
The Letwin Review has obviously caused some stirs, but bottom line is the Letwin Review has basically said it doesn't really agree with house builders are land banking to push up profits. We continue to see the ongoing uncertainty from Brexit. Again, I keep things very, very simple. I can't really believe that at some point between now and March, it's going to become less uncertain. It might be good, it might be bad, depending on where you are, but the uncertainty is going to ebb away, and we've still sold houses with probably, when we look back at it, the most uncertain period that there's been over the last three or four months, because no one really knows where we're going, and we're still selling. Medium-term targets. This is what we said back in September last year. Four-star customer satisfaction.
We were looking to do that by 2020. I'll eat my hat if we're not a four-star housebuilder when it gets announced next March. 4,000 completions per annum, we're still saying 2020. The restructuring is complete. We're maximizing economies from our current structure, and we will see between now and 2020 a very much controlled volume growth. Three and a half to four-year land bank. We expect to get there by the end of this year. A 23.5% gross margin. Again, we're very confident of that by 2020. We've seen a significant increase in our margin in the first half, and there's still a potential, probably better than a potential, of that 23.5% increasing, particularly from the likes of Phoenix, where we're openly saying we're happy that Phoenix is going to increase our overall land bank by at least 1%.
By that, just clarify that a little bit, our land bank, don't forget, has got some very large sites in it. Sherford, for instance, has got a very difficult design code, and that's 1,500 plots. We don't think we can bring Phoenix into Sherford. We've also got lots of foundations and houses ongoing, and sometimes it's just not practical to do. Where we are implementing a phase with Phoenix, we are probably increasing the margin from what we had before, somewhere between 2% and 4.5%. But when you add that all together and go back to our 16,000 plots within the land bank, it equates to a 1% average. 5% overhead, we're very happy that we'll get there by the end of this year. A minimum of GBP 180 million of balance sheet improvement by the end of this year. Again, we're confident we're going to achieve that.
The 25% return on capital. With the disciplines that are now in the business, the cash management, we had a cash position on average, let alone at the period end in June, and that will only get better as we go through in the second half. I'm confident that 25% by 2020 is very doable. The major margin initiatives, pretty much exactly as we said to most of you in the room at the Capital Markets Day at Wootton in May. So price optimization, we think that's adding 1% to our margin. Specification review, as I touched on earlier, again, we think 1%. Cost reduction, this is basically employing better quality site managers who get it right first time without too many things having to be done twice, is adding about 0.3% to our overall margin.
The new housing range, circa 3% margin to where we can put it on. But overall, taking into account the 61 planning applications we've got running or have already got approved, we think it will add about 1% to our overall margin. Enhanced returns to shareholders. So we have a strategy of maximizing sustainable dividends to our shareholders. The interim dividend for the half year, up 27% to GBP 0.19. For the full year, 2018, we expect a 20% increase to around GBP 0.57, reflecting improved profitability and a great outlook. And we expect the ordinary dividend cover to drift to two times by 2020. On the special dividend front, capital returns totaling a minimum of GBP 180 million, which is GBP 1.34 per share in the three years to 2020.
The payment of the first special dividend, GBP 60 million, which is GBP 0.45 per share, will be in November alongside the interim dividend. The board is committed to reviewing these capacity for further returns over time. There it is. We are in a great position and have a strong outlook. Strong sales position, confident of delivering completions in line with our expectations. We are going to continue with continued volume growth, controlled volume growth, sorry, and maintain our high levels of customer satisfaction that we are currently witnessing. We expect to deliver record profits for 2018 at the top end of the board expectations. That follows a robust summer trading period and increased visibility on these margin initiatives starting to come through. We are in September, and we are on track to deliver a minimum of GBP 180 million of net cash from the balance sheet by December.
This, combined with increased profit, we expect to deliver a significant improvement in our return on capital. All of that will mean a significant increase in our dividend payouts, which already gives us an attractive yield. The main takeaways I would say for today are that we have got great visibility with our very, very good land bank for 2019 and 2020 and beyond. We are by no means a finished article yet, but we have made huge, huge improvements to everything we do over the last 12 months, and Bovis Homes should be seen now as very much back in the game within our peer group. On that note, we will take any questions.
Morning. Glynis Johnson, Deutsche Bank. Three, if I may. The first one, in terms of your strategic land, plots with planning agreed, the average size looks very large of the sites. The pure number comes out and seems to come at 867. Can we expect, as that planning comes through on those sites, if it comes through expected, that actually they may be put into further JVs, or you may look at land sales on those larger sites?
I think we should look at both. I would prefer to do joint ventures with strategic partners rather than land sales, but I expect it will be both. The reason I prefer to do joint ventures is it keeps the number of flags down on a particular site. If you can enter into a joint venture, particularly with a housing association, which keeps the cash under control, all the units on that site will be sold as Bovis, as opposed to as soon as you start selling the land, you are generating competition for yourself.
We can assume that Bovis won't necessarily look to run the entirety of those sites independently, i.e., they won't come onto the balance sheet in full necessarily.
Maybe one or two, but some of the big ones coming through, North Whiteley, for instance, which will be the next big one to come through, probably into a joint venture, and we're already having early and initial discussions with housing associations.
Okay.
Glynis, some of them will come through in phases anyway. They are much larger sites, but they'll come through in phases. Two coming through in the second half. One's North Whiteley. That should look around 500 plots coming through in the second half.
Out of 1,700 altogether.
There's about 400 at Tavistock we're likely to share in half, as an example.
Okay. The second question just was in terms of just clarification on the first half margin. There was obviously a larger proportion of social. Did that impact the gross margin that you reported in any shape or form?
No. In truth, we take a margin across the whole site, so it's just the same margin that will come through, hence we're happy that we think we can hold that margin through the full year.
Okay. Last one was just in terms of the cost per sq ft. I was quite surprised there was a mix that actually increased, given that you've reduced down the contingency costs, you're taking out some of the over-specification that you may have put into some of the homes.
If I can get the specification one, that was only really introduced in March, April, the impact of that would have been minimal. That will be a bigger impact in the second half of the year.
The mix impact going forward could be a reduction in terms of the cost inflation?
In theory, yeah. Overall, our average selling price is going up. In terms of where we are building homes, I suspect we will still see a mix that will follow the average selling price mix going with it.
Just to be clear, does that give you a cost inflation that sits roughly in line with market? Does one balance the other?
Yeah. We're seeing market inflation across labor and materials. In terms of other movements, as I say, we are building in more expensive places, both in terms of the average selling price of our homes, and that will have an impact on our cost base as well.
Thanks, Glynis. Yeah?
Just a couple of quick ones. Andy Murphy at Merrill.
Hi.
Hi. Just on the IT spend, I was quite interested in what you're doing there. Can you just talk a little bit about the lack of investment previously, and perhaps more importantly, what you're introducing and what cost, if that's actually relevant over the next couple of years.
COINS is, well, basically, the commercial and finance teams in Bovis are working on a bespoke scheme that was introduced in 2003, I think, Earl. Around about that sort of time.
It's been over 20 years.
It basically is defunct and doesn't really work. We really had to do it. The cost of COINS is about GBP 3.5 million on phase 1. It'll be a similar amount, GBP 3 million, in phase 2.
I think it's got a bit less than that.
Maybe a bit less than that. We're writing that off over a three-and-a-half, four-year period.
The initial license is four and a half years.
Four and a half years.
Thank you. The second question, just on sort of the shape of the group. Can you give us a flavor for the number of average sites that are expected to be open for this year and for next year?
We've got four to open in the second half of this year. As we go into next year, I would suggest that we'll be around about 20 sites will open during the course of next year, as 20 probably finish. It's going to be broadly a similar amount finishing as to open. There might be one or two more overall next year. What have we got now? 90?
We're currently selling on 90 sites.
We're about 90 now. We'll probably end the year with 90, and I think we'll probably go through 2019 and 2020 with no more than 95, 96. It's broadly going to, as they finish, they'll be replenished.
All right. Thank you.
Thanks. Hi, John.
John Bell from Barclays. Two from me. I think you've referred to expecting PBT at the top end of your expectations. I just wonder whether you could just quantify for us what those expectations are. The second question is, Greg, you've told us in the past that Bovis has never really got affordable housing right. In a former life, you always expressed a lot of love for partnerships.
Yeah.
Should we expect a partnerships division to be added on a medium-term view?
That is a very interesting question, and it's very close to the top of our strategic aims at the moment. We are really looking at that, John. We think it's a very good model. I thought it was a very good model. I still do. I think it's a growth sector. The first part of doing that is to actually have decent relationships with your housing association partners. We've made huge inroads in that over the last 12 months, but there's still some work to do. We're well on track to do that. The second part of doing that, which is exactly what happened at Galliford Try, is starting to do, become really friendly with the housing associations, joint ventures with them as partners. They're being encouraged by the government, in fact, they have to use their money to go into development.
We're finding more and more that the housing associations would rather do that in a JV, rather than doing it themselves. They are very good at renting houses, doing shared ownership, maybe not so good at being developers. We are on track, which is why I was very keen at Sherford and Wellingborough. We have had other offers that we were to do the joint ventures with housing associations, as opposed to other types of organizations. That in 12 months' time, we can very much look at, yes, we've now got very good relationships as opposed to good, I would say at the moment, with housing associations. Yes, housing associations can see we are bringing something to the party as far as they're concerned.
As Glyn has said earlier, who knows, on some of these other large schemes we've got, we will bring others into the pack. The next step could easily be, let's launch a partnerships business. Nothing decided yet, but it is well on, it's not far off the top of the list on the strategy. With regard to your other question, which is much trickier. Earl?
Not at all. John, I'll take you to as much consensus. There's a range out there. The top end of consensus as of this morning would have been about GBP 163. I think the key change we're flagging today is our margin has stepped up quicker than maybe we expected. That gross margin of 20.9%, we can see us holding that for the full year position as well.
That would mean that would take it to about GBP 165 then?
Something like that.
Something like that.
Thank you.
In English.
Thanks. Aynsley Lammin from Canaccord Genuity. You've obviously done a good job optimizing the balance sheet, generating the kind of GBP 180 million, you're saying the capacity to pay out more capital is under review. Should we expect that to mean the 180 goes up within the existing timeframe, or is it a further commitment in terms of time? Would you consider share buybacks? Just wonder what your thoughts are on that.
We'll consider anything. Where we are at the present moment in time is we've said that we would pay GBP 60 million over 3 years, with the first one now confirmed for November. That was on the basis of GBP 180 million being generated. We're confident we're going to generate a minimum of GBP 180 million. The board will sit down and look at that, but it wouldn't be daft to think if we raised more than that, if we did better than 180, those capital returns could be greater.
Ami Galla from Citi.
Hi.
Just two questions from me. The first one on the market, if you could give us some color on your private sales trade over the last nine weeks.
Yeah.
What the private order book looks like at this stage.
Yeah.
My second question was really a clarification on the gross margin new land investments. Is that your new hurdle rate that you're setting for the business? To what extent this is a reflection of the market and that is sustainable versus specific plots that you had bought in the first half?
On the land, we do have a hurdle rate of 26%. That doesn't mean to say I won't, at times, approve something less than that. If we approve it at less than that, it's in the middle of the best town in the area, and it's going to really sell well, and there's a reason for doing that. We wouldn't want to see the average drop to lower than 26%. In the first eight months of this year, with what we've bought, or what we have terms agreed, I'm not going to say what the number is, but it's in excess of the 26%. On top of that, the big thing that we have, and the MDs have to grapple with on land is that we are more competitive in the land market with Phoenix.
We're still currently assessing those sites on the old portfolio range. The big thing for us is do we increase our hurdle rate to allow for the Phoenix range, rather than giving the additional money to the landowners? That's in debate. We are right at the crux of doing that at the present moment in time. I think there's some scope to increase that hurdle rate with our new housing range. As if we don't, all that means is we're giving additional money to the landowners and maintaining the margin. We've eked out a 1% margin improvement in our overall land bank. Where we've got it on a particular phase, it's nearer to 2.5%-4%, that's what it's kind of adding. I don't particularly really want to give 2.5%-4% more to landowners than we currently do, and we're buying land.
Sorry, the first question, the trading in the nine weeks. The trading in the nine weeks has been 0.49, sorry, 0.48 per outlet, compared to 0.5. Per outlet, 0.02 down on 12 months ago. Do not forget that we did a deal with Heylo towards the end of last year, which was 275, two and three-bedroom units. You cannot sell houses twice. Although I am sure Bovis tried to do that as well back in 2015, 2016. Therefore, I would actually say slightly down, but once you take into account those 275 units on Heylo already being sold, and they were the kind of units that you would be very, very confident in selling, two and three-bedroom houses. I would actually say we have had a better summer than last year. Which kind of might be a little bit different from some of our peer group. Darrell?
Chris?
Morning. Chris Millington, Numis. Just following on from your point about Heylo there. Just wondering if there is further opportunities. In the statement, you talk about alternate routes to market PRS. Just a bit more detail around that subject matter.
Earl could do the PRS. We are having, whether they will get anywhere, some initial discussions with Heylo as we speak, about a further very large deal. I do like a little bit of certainty around about the place. If we can do another deal with Heylo, we will, which would underpin and enhance massively our carry-forward position going into next year. Which is uncertain with Brexit and everything else, it might be a reasonable thing to do. We have a great relationship with them, and we will see. It might impact on the price a little bit, but we will see how we go on that. Price certainty, it is an interesting conundrum. We are having some discussions. That is correct, Darrell, is not it?
That is correct.
You're confident you're going to do it, aren't you? PRS, Earl.
On PRS, the two things I mentioned, we did two bulk disposals out of our PRS joint ventures. They've remained PRS with different companies, certainly those two companies are interested in doing more PRS of new build. I think there are opportunities, particularly on some of our larger sites, potentially, to carve out some phases to do in that way. Look, we're advancing those discussions and there's some funding advantages potentially from those in terms of funding the construction. Just about getting the commercial deal in the right place.
Next one I've got is on slide 11, you've broken down the balance sheet optimization, and you've got the non-returning asset category there of 50 to 60. Sorry, I'll let you get there.
Yeah.
I'm just wondering how far through that portion you are.
The vast majority through, in truth, because the shared equity was a big part of that. Some other elements last year. The one single opportunity left is the remaining investment in PRS, which is just over GBP 7 million. Then it is managing, I suppose, more of the day-to-day working capital, so those housing association cash flows.
Got you. The final one's just really kind of a checking query. Just about the ASP profile. Quite a lot of distortion caused by the timing of social in the period, and just kind of how you see it panning out for the year and maybe beyond. It looks like there's distortion in the half year.
There is, and when you look at the total ASP, the private's not a bad guide. ASP will come back, and we think it'll be a bit higher than last year overall.
Thanks, Chris. Clyde?
Clyde Lewis at Peel Hunt. Three for me. I'll get the geeky one out of the way for Earl. In terms of land creditors, is that percentage now as a percentage of the total land holding, is that the low point now, or do you think it actually goes a little bit lower over the next six to 12?
I think that's the low point.
Okay.
I think it will start going back up in the second half just as we step up our land acquisitions more. There's been, on average, an unwind for a period.
Okay. It probably tied in with that a little bit, but so the Sherford and Wellingborough now, in terms of the land holdings, I think Greg, you talked about the GBP 50 million of cash that you'd expect to come in from those two in the second half of the year.
Yeah.
What does that mean in terms of profitability? Also.
Will you just lose half of those plots from your land bank, or will you take them all out because they’re in JVs?
We’ll lose half. We basically lose half.
You’ll take half out.
Yeah.
Okay.
Because it's been a stated aim and an aim of ours for a long time, all of our forecasts going forward assumed we would do it. They all assume that 2019, end of 2018, if you like, for Wellingborough, 2019, 2020 and onwards already assume that those two schemes would get into a JV.
Okay. In terms of the, I mean,
That shouldn't interfere with any of our numbers that are out there in the marketplace.
Yeah, no, that's fine. In terms of sort of the average land cost, because again, they're big sites, and I suspect the land cost as a percentage, how much is that going to move the overall group average?
It will move. I mean, the 17% that Greg pointed out earlier, that will move up, excluding those completely out of the land bank. Look, we'll give completely clear disclosure on the JVs as well as the land bank because there'll be a one line coming back in as profit and loss, the 17% will tick up, on the back of both of those going.
You'd expect that. I mean, that 17% is very low.
Yeah.
Yeah.
The other one I had was, I mean, your Phoenix claim, market leading.
Lovely, isn't it?
Yeah. You haven't yet completed any yet, but it's market leading.
Leading statistically.
Well, on that basis, is it market leading in terms of margin, in terms of looks, in terms of?
Oh, good point.
speed?
Yeah, fair enough.
What makes it market leading?
Well, it's the most Basically, we've taken into consideration everyone else's layouts, what customers have said. It's market leading because it's the most up to date. Next year, when somebody brings out a further range, I'm sure they will take over as market leading. Let's hope they don't make the same error as we've done, without saying they're market leading until they've sold some. It's, yeah, just the fact that it is, and the feedback we've had from the organizations and people that we've spoken to, we're very confident that the product that we start selling as we go into 2019 is hugely better than the product that we're selling over the last few years and now. Just as importantly, much easier to construct. Maybe we'll have a chat afterwards, Clyde.