Good morning, all, and thank you for joining us for the Vistry Trading update conference call. My name is Carly, and I'll be coordinating the call today. During the presentation, you can register a question by pressing Star, followed by 1, on your telephone keypad. And to remove yourself from that line of questioning, please press Star, followed by 2. I will now hand over to our host, Greg Fitzgerald, Chief Executive, to begin the conference. Please go ahead, Greg.
Thanks, Carly. Okay, good morning, and thank you for joining us. With me today, I've got Tim Lawlor, Stephen Teagle, and Susie Bell. What I'd like to do is just do a quick, brief introduction, and then we'll obviously open up to Q&A. The group has delivered a strong first-half performance, significantly outperforming the broader house-building market. Completions were up 8% to 7,750 units. Total sales rate increased to 1.21, the step-up reflecting both strong demand and the transition to a 100% partnership model. Forward sales increased to GBP 5.1 billion at the end of June, and that's up a great 21% on the prior year and ahead of the GBP 4.9 billion position reported in May. An Adjusted operating profit is up 10% on prior year to around GBP 227 million, and Adjusted profit before tax up 7% to around GBP 186 million.
Overall, we've seen good demand for partner-funded units, both for affordable and PRS, and we entered into new agreements with 45 different partners in the half. There continues to be some near-term short-term pressures amongst the traditional housing associations as they invest in their existing stock, but the business, the teams around the group, have done exceptionally well to ensure that Vistry remains their partnership's partner of choice for new housing investment. On the open market, we've seen an improvement in demand compared to half 2023. The market remains relatively constrained as customers are taking their time, waiting for greater macro and political certainty for the expected rate cuts. Open market sales prices have remained firm, with incentives running at around 4%. In the half, 75% of our units were partner-funded, 25% open market, and we expect a similar mix for the full year.
As the open market recovers, the business will be balanced towards the 65%-35% strategy that we announced last September. We've remained active in the land market and have secured around 8,000 new plots of land and development opportunities for the house. 65% of land plots secured are from the private land market, with 35% from public land sources. Our scale and cost efficiency are definitely driving our competitiveness, and we have seen more activity in the land market, I'm pleased to say, over the last couple of months. We are looking forward to working closely with the new government and supporting, and very supportive of their plans. They have ambitious targets for housing delivery, in particular affordable housing delivery, and there is no doubt we are uniquely placed to support them.
We are encouraged that they are seeking to move quickly, and we are in a very strong position to support this. We've maintained investment in land and development opportunities. We've extended our relationships with a broad range of affordable housing partners. We've increased our timber frame capability and ensured we have capacity for significant growth within our existing operational structure. We also have the benefit of already having grown momentum. House builders can be somewhat like an oil tanker taking time to change direction, and it's definitely, take it from me, a lot easier to accelerate growth when you're already moving forwards. Turning to the outlook, the group is well positioned to deliver more than 18,000 units, and that's up from 16,118 last year completions, underpinned by our strong first-half performance and forward sales position.
We are focused on continuing to drive operational and capital efficiency and expect to release capital in the full year 2024. We remain confident in achieving our medium-term targets of 40% return on capital employed and GBP 800 million adjusted operating profit. We've returned over GBP 100 million to shareholders in the first half of the year. We've bought back GBP 50 million of shares in January and February. We have completed a little over a half of the GBP 100 million buyback program commenced in April and hope to complete this before our results at the start of September. And we are absolutely committed to returning GBP 1 billion of capital to shareholders within three years through a combination of ordinary and special distributions. So all in all, very, very strong there. And Carly, on that, we're happy to take questions.
Thank you very much, Greg. If you'd like to raise a question, please press Star, followed by 1, on your telephone keypad now. To remove yourself from the question queue, please press Star, followed by 2. So our first question comes from Aynsley Lammin of Investec. Ainsley, your line is now open.
Thanks very much. Yeah, good morning, Greg.
Good morning.
Good morning. Just two from me. Just wonder if you could give a bit more color around the partnerships, which areas particularly strong, where you're seeing the demand from? I know you mentioned some areas a little bit weaker, but obviously, on balance, quite good. Just a bit more color there. And then secondly, just on the average net debt, a little bit higher than I was expecting. And just looking into tying that into your comment about release of more capital in FY 2024, do-does that kind of release of capital imply over and above the two-times dividend cover target? And how does that kind of tie in and balance with the slightly higher average net debt? What's driving that net debt in the first half? Thanks.
Okay. I'll pass to Stephen for the affordable question, and Tim will obviously take the average net debt. But on your point about capital release, when we originally announced the GBP 1 billion back in September, we thought over the next three years, broadly, GBP 650 million of that billion would come from our straightforward capital policy, relief policy, which is about GBP 650 million. The remainder GBP 350 million would be specials as we go through the legacy land bank within house building and release that money. We're well on with that, and more will be announced on that when we do our full half-year results announcement in September. So, see how we go on that. But Tim, do you want to first of all take the debt question? Average net debt.
Sure, sure. Hi, Aynsley. Yeah, so first of all, the average net debt for the first half of the year, around GBP 490 million, was about GBP 50 million lower than the second half of last year. So we saw net debt trending up during the course of last year, as we discussed at the results. We said, last year's full-year average net debt was about GBP 460 million, and we're expecting that this year's numbers will be a similar level to, last year. So the debt is, debt is coming down from the start of the year with, opening debt GBP 200 million higher than we started last year's, last year's period. So that's moving in the right direction, but for, yeah, full year will be about GBP 450 million.
And Stephen on the affordable?
Yeah, morning, Aynsley. Yes, you're quite right. The capacity among partners is more variable than it used to be because of the pressures particularly weighing on traditional housing associations' balance sheets in order to reinvest in their stock. So it's really pleasing that we've managed to work with a platform of 45 partners over this six months that does include a significant number of those traditional housing associations, and that is the key to this. It's about being selective. And also the fact that if you're a housing association and your capacity has been cut by 25%, in terms of new investment in the housing, that doesn't all weigh on Vistry. That's far more likely to result in a reduction in some opportunistic schemes that come through from other partners. So that's allowed us to sustain our approach.
In fact, we've worked with four new traditional housing associations over that period. We've worked with new PRS, for-profits, and local authorities. So it's been a good mix in terms of the demand that we've seen in during the six months. But there is no doubt we have worked harder with our conversations with our partners in order to work with those partners who have investment programs and an ongoing delivery momentum.
And just before we move on, Aynsley, if I could just maybe add a bit more color to the debt situation. So, don't forget, in September, we announced the new strategy to grow partnerships, so the world changed for our house-building business. And what we've seen since September to the end of last year, and indeed, particularly in the first four or five months of this year, is that integration and house-building haven't got it right completely all of the time. More often than not, they have, but sometimes there's been a little bit of slippage with cash. We've got, but that said, at the end of the period, i.e., June 30, our debt was lower than we forecast at the start of the year. It was lower than this time last year.
Also, that's off the back of starting the year with, I think it's GBP 207 million worth of debt higher than it was at the start of the first half of 2023. So we are delighted where we are with cash, or debt at the end of the period. But nevertheless, it's been a hard slog through January, February, March, April, and May, particularly, as you would expect, with uncertain market conditions, uncertain political activity, plus an integration job, and that's been huge off the back of the integration of Countryside as well. But as we ended the year going into end of the half year, sorry, going into the first second half of this year, we're in a great position.
The GBP 323 million of debt also isn't a direct comparable to this time last year because we have a circa GBP 40 million debtor from a housing association to pay us, and they will pay us in August, and we didn't have that last year. So last year's number 329 compares to 323, although the 323 includes a debtor, which wasn't around this time last year. So we're in great shape as we go into the second half, but there have been some difficulties, as you'd expect, with an integration in January, February, March, April, and May.
Great. Next question.
Thanks.
Thanks, Aynsley.
Thank you. Thanks very much, Aynsley. Our next question comes from Charlie Campbell of Stifel. Charlie, your line is now open.
Yeah, thanks for taking my question.
Stifel.
Morning. Yeah, a couple of questions, really. One, sort of, detail and one, sort of, bigger picture. The, the detail question is just wondering if you could share the revenue for the first half just to help our models? And then secondly, you know, you talked about integration and moving from a, you know, pure house building to partnership model. Just wonder how the, how the site managers are sort of, coping with a change in, sort of, I suppose, pace of build would be the biggest change that the site managers have to cope with? We're all aware of how important those people are to house-building operations, and just wondering, yeah, how they move from a, a slow build to a fast build sort of model and how they cope with that? Thank you very much.
Yeah. Great question, Charlie. Tim will come back to your, your revenue question, but on the site managers, you know, and I refer to them as king of the castle. So they are the most important constituent in the industry, because they have the toughest job controlling a lot of subcontractors, who don't work for us directly. So if I ask somebody to do something, they work for me, they probably do it. Sometimes they don't, but mostly they do. But of course, if a site manager asks for something to be done, generally, you know, they want to build the wall over there, and the site manager wants to build the wall over here, and it's a, it's a completely different skill. Now, how have they coped? Well, we've got, first of all, we've got absolutely great site managers, and we've had that for a long period of time.
But what I can tell you is a site manager, and I've spoken to pretty much all of them, would much rather build quickly than slowly. What they hate is what's going on in the house-building world at the present moment in time, and that is start, stop, start. And what you get with stop, start is they've got a great bunch of subcontractors on their site that those companies will remain on that site, but quite often, if you stop, you know, your really good dry liner or your good painter that you've worked with for years leaves to go to another site because you've put the site on hold, and you never get them back. So our site managers are coping well, and they like to build, and they like to build quickly, and it takes away all that uncertainty.
Once they get a good team on site, that good team on site will stay there, and that makes their job dramatically more straightforward. So our model, if you speak to site managers, is absolutely what they want to do. What they don't want is stop, start, stop, start. So they enjoy building quickly. Tim, on the revenue point?
Yeah, hi, Charlie. My answer's a bit shorter. Revenue's a bit shy of GBP 2 billion, so that's growth of a little over 10%.
Great. Thanks very much.
Of course, the other thing I want to say on build is, we're obviously moving to timber frame as well, which makes life a fair bit easier for site managers and really helps with the speed. And we've dramatically increased the capability of our timber frame manufacturing facilities.
Thank you.
All right. A long answer there from me, Charlie, and quite a short one from Tim.
Sorry. Thank you very much, Charlie. Our next question is from Will Jones of Redburn Atlantic. Will, your line is now open.
Thanks. Morning. Just a couple for me, please. Just wondering maybe if you could reflect on what we've learned, you know, in and around the election? To what extent do you think that the event impacted demand or not ahead of it, and what scope is there for some degree of rebound after? And perhaps to sort of the policy news we've had around it, you know, what would your kind of summary view be of that? And do you have an expectation or not that there's any assistance coming on the demand side, particularly re affordable housing? And then our second one, really just coming back to cash and debt, and I think it's roughly GBP 400 million of free cash flow that's needed in the second half to get to year-end spot cash.
Just could you maybe broadly talk about the levers that help you get there? And I think back to the full year, there was a suggestion that the buyback might be up to GBP 1 billion in September, but just wondering maybe if the cash slippage of the first half perhaps pushed that back somewhat or not. Thanks.
Okay. Tim will take your latter question. I'll do the first one, maybe with some help from Stephen though. So when we first announced the strategy back in September, I was very hopeful at that particular time that we would get a Labour government, because I think that will absolutely, in hindsight, make the timing of that announcement unbelievably good. That obviously became stronger when you looked at the polls going through January, February, March, right up to the landslide win they've had. So overall, a Labour victory is very good news, I would suggest, for house building, and it's incredibly good news for Vistry with our new strategy. And the main bit of good news for house building is, of course, on the planning side.
But there's more to it, and a real desire to build houses quickly and more, a bigger proportion affordable from the Labour Party. On the actual market itself, when the announcement in May came that the election end and May was going to be in July, you looked around at the exec team, and first of all, we all thought, well, that's great news for the full year, and great news in the medium term, but that's going to make our lives really difficult for June and getting to where we need to get to for the half year with PERDA and everything else. We completed on three or four deals last week, and there's a couple more to come in this week. So the half year was very difficult because of the election.
I would actually say that, what normally happens in the private housing market, so the affordable market was difficult in the month because everyone was waiting to see what actually happens. Hence, we've had a few completions in the first week or two of the second half of the year. On the private market, I think we've been selling units broadly in line with the other house builders. And in my 42 years' experience, what normally happens, I've either had a year-end or a half year in June, and what normally happens is June is the market comes back a bit in June from April and May, one because people start going on holiday. So it's not a bad market June, but not as strong as it was in as it is in the spring.
But what the main reason it comes back is because pretty much, all house builders out there who have a June or December period end, which is the majority of them, all the sales teams, excuse my French, have their head at their ass trying to do conversions, i.e., going reservations to exchanges, and taking new reservations becomes a second part of their job. So we generally see a dip in private reservations in June. Add to that, the uncertainty then caused by a general election. I was actually delighted that our sales in the first week of July and June, private sales this is, actually held up to where they were in April and May. So no better, no worse, but I would generally see that as encouraging.
I think, I think the general mood of the country. We'll see how it all goes on the private market. We'll see some encouraging movements in private sales as we go into the second half of the year, with a stable government, with a large majority there. I think that's particularly helped by Rachel Reeves's speech yesterday. So, they seem to be, in early days, though, sticking to what they said during the election campaign, and we're encouraged by that. So I would say private market, I think, will improve during the second half of the year. Not, not great guns, but I think it, it will. I think the affordable market with the certainty and stability of a government will actually improve as well.
When you look at our sales rate, which was up to GBP 1.21 for the overall year, it actually increased to not a million miles off two per week in the last couple of months of May and June. So, the market seems to be moving in the right direction for us. On the second part of the question, Tim?
Yeah. Hi, Will. So, yeah, back to cash then. So our year-end expectations remain unchanged, that we're going to finish the year with a cash, net cash position. I would say on cash, there were no major surprises, really in the first half of the year. As Greg and I explained earlier on, the higher, slightly higher than expected average cash in the first half of the year, or average debt in the first half of the year, was largely due to some timing, some slippage as we're learning how to get deals done in, in the partnerships world. So there's a slight slippage in terms of the timing within the period, but that was caught up by the half year. So the half-year position was, ahead of where we expected to be at the half year, at the start of the year.
Then moving into the second half of the year, why does that net debt position of GBP 323 turn into net cash? Well, this is due to the ongoing profile of the business, where roughly somewhere between 40%-45% is done in the first half of the year and 55%-60% in the second half of the year. What that means is that you end up with quite a significant buildup of WIP at the half year as we build houses out for delivery in the second half. So that WIP profile will be, you know, similar to last year, and that's where the cash will come from in the second half as we turn that WIP into completions. There's also various capital release initiatives as we continue to look at accelerating the disbursement of the house building land bank.
So comment on our year-end net cash, what does that mean for distributions? Well, the first thing is that we need to complete our existing share buyback program, which is going well. We've completed GBP 51 million at the half year. I think we're over GBP 55 million as of last night, with a view to complete that GBP 100 million buyback, in time for the results on September 5th , at which point we will talk about the ordinary distribution, and there's, there's no reason, nothing to suggest that we should move away from the policy that we announced last year of two times cover. And we'll also look at the opportunity for special. And as we'll do consistently, we'll evaluate these at each board meeting, see where we are.
It'll be some combination of looking at alternative investment sources, you know, do we need to put more cash into land or any other, any other area of the business, looking at the timing and the cash flows for the remainder of the year, and our longer term, longer term view. So we'll come back with decisions that are made at the start of September's board with our results announcement on September the 5th.
Thanks very much.
Is that okay? Is that okay, Will?
Thank you. Yeah.
Yeah. Good.
Wonderful. Thank you very much, Will. Next question comes from Gregor Kuglitsch of UBS. Gregor, your line is now open.
Hi, good morning. I had three in my mail, so,
Yeah.
Good morning.
So I wanted to check on the sort of your point on the mix. You sort of said this year will be 75% partner funded, 25% private, and then obviously we'll revert. I mean, I guess you said you want to revert back to 65%, 35%. I want to understand to what extent there's a margin impact from that? In other words, if we go back to a more private skew, does that help your margin, or do you sort of equalize it anyways or the sort of life of the site?
We equalize it, Greg. I'll answer that one now. So that won't impact on margin.
Okay. So basically, what shouldn't matter for the margin?
Not margin. It might impact on ASP and revenue, but it won't impact on margin.
Okay. And then, sorry to dwell on the debt trajectory, and maybe you could just share with us what the land creditor situation is, where we are, and then perhaps as we kind of cycle this year, you're sort of saying you'll be net cash by the year-end. I guess the question is, how quickly does that average debt fall into next year? I mean, I know it's sort of crystal ball at this stage, but how quickly, what would you be sort of your best guess how quickly that can fall into 25% versus the GBP 450, GBP 460?
Do you want to take that one?
For this year?
Do you want to take that, Tim?
Yeah, sure. So in terms of land creditors, very similar profile to the mix that we've had before. We're continuing to use land creditors as part of our business model, but no significant change in terms of the proportion of land creditors at half year. In terms of the average debt, I think it is a bit crystal ball at the moment to say how's that going to come down next year or the rate at which it comes down. Clearly, it will be coming down. That's part of the direction, but we need to go through a full budgeting exercise and look at that monthly profile in a bit more detail before we declare the numbers for next year.
Okay. In terms of the capital returns of the specials, I can't quite recall, but what kind of level of debt are you happy with? I can't remember how you sort of define the level of gearing that sort of leads you to, you know, distribute additional capital over and above the sort of ordinary payouts.
So, I think three parts of that. The first is that we will continue to run a year-end net cash position. The second is that we will continue to use debt. It's, you know, an efficient thing to do during the course of the year to manage our seasonality and to, rather than just having unproductive cash sitting on a balance sheet. In terms of average month-end net debt, we've said before that we expect to eliminate that in the medium term, so over the next three to five years. But of course, we're continually looking at our profile and seeing the extent of testing those targets with each year. We've got some strategy sessions with the board over the course of the summer.
So, no intention to move away from that target at this stage, but it's one that we're going to continue to look at to ensure that our balance sheet is efficient.
Makes sense. Thank you. Thank you very much.
Thanks, Gregor. Thank you.
Thank you very much, Gregor. Our next question comes from Chris Nettleton, of Deutsche Bank. Chris, your line is now open.
Thank you. Good morning, everyone. A few, if I could, please. Good morning, Greg. Firstly, can you just comment around pricing? You know, the commentary around strong demand in the partner side of the business, but also that improving momentum on private. Are we seeing any change in discount levels, incentives? That's number one. Next one's just really around the land market. I mean, you, you've been one of, well, the few active players in the land market over the last six months or so, obviously, given you're pushing quite good volumes. What are we seeing on price and availability there? And the last one, I don't know if you could just comment on kind of what the move on outlet numbers has been, year-over-year and how you expect that to play out going forward? Thank you.
Okay. On the sales outlets, Chris, we're around about GBP 210, slightly down on where we were this time last year, but we expect that to increase slightly as we go into the second half of the year. On land, we've seen definitely seen more opportunities come through over the last couple of months. But as you say, we've been active over the last 12 months on land. But I would suggest that land prices have dropped slightly in the last couple of months because we continue to get calls from agents and landowners where the initial highest bidder has pulled out for whatever reason. So we're seeing a lot of land come back onto the market where we were second or third, with the highest bidder coming out.
So at worst, the land market is stable from a price perspective, but we're actually seeing it coming back a little bit as the number of players who are actually out there in the marketplace comes back, because we're very rarely coming across SMEs now buying land. They seem to be in a different situation than the PLCs, and the PLCs are all acting and behaving as you would expect in a regulated kind of market. With regards to pricing on the affordable, Stephen, you're more.
I mean, it remains a truism that the right, right site in the right place commands a good, a good price. So we spend a lot of time thinking about where we buy land and the product, the house types that we put on it, and match those to what we know works for partners and partner yields. So that does help us. In terms of Section 106 standalone plots, the pricing has definitely been more difficult across the sector. So the demand for standalone Section 106 plots is more, is not as strong as it used to be amongst RPs. And we'll have heard that from others. The advantage we have is, in terms of our business model, we're looking at additionality. And so when we're selling our homes into the affordable sector, we're going beyond the minimum Section 106.
That captures grant, and that's certainly helped us sustain some decent pricing amongst RPs. If we're looking at the portfolio deals and PRS deals, then you're looking at a circa 15% sort of discount from our asking price. That's the general area of pricing that we experience in the PRS market. But it is all about, Chris, matching the appetite of key partners in certain areas to the opportunities that we bring.
That's 15%, Chris, of asking price, not our forecast price. Of course, from that, we would also get the benefits of building quicker, with the visibility. There'll be some build discounts, and we obviously would save somewhere between 1%-2.5% sales costs on those units because we're obviously not going to be selling them on the open market.
That's PRS.
Yeah.
Understood. That, that's really clear, guys. Thanks so much. Perhaps just whilst you're on, Greg, can you give us comment on what's going on with build costs? Because there is reference in the statement to, to some savings there.
Well, I think we have to be careful here because from a sector perspective, it'll be different than from a builder perspective. So during the second half of last year, on the announcement of our strategy, we went and talked to our supply chain, we saw deflation in the second half of the year, which led to the fact that we saw deflation for the full year, helped by by far and away now the largest housebuilder by volume in the country. That has continued, I'm pleased to say. So from a lower base than what a housebuilder would have been saying, most of them were saying they saw inflation in 2023.
From that, we've seen a further 1%-2% deflation in the first half of the year, and I would expect that to level off and be flat as we go into the second half of the year. So, we are in a great place, and, what I can say is our supply chain has completely bought into, the partner model, and, the fact that you can give them visibility and a guarantee of work is definitely coming through in their prices to us, which wouldn't necessarily be the case to other house builders.
Got you. Thank you. Thanks very much, guys.
Thank you.
Fantastic. Thank you very much, Chris. Just as a reminder, if you'd like to ask a question, please press star followed by one on your telephone keypad now. And to take yourself out of that line of questioning, please press star followed by two. Our next question comes from Alastair Stewart of Progressive Equity Research. Alastair, your line is now open.
Yeah. Morning, all. A couple of questions.
Morning, Alastair.
Good morning, in fact, Greg. A couple of questions. First of all, is it possible to disaggregate the GBP 1.21 sales rate into open market and partner-funded sales, both for the period and the comparative periods? And then, you've obviously concentrated on completions, but can you give us a view on how many starts you're likely to go through during the full year and compare that year-on-year?
Do you want to take both those, Tim?
Sure. Sure. So in terms of, it surprised me, but I wasn't thinking into it. I'm very upset. Yeah, in terms of the sales rate, Alastair, no, we're not going to disaggregate because, our business now is a blended business, and it, if we start disaggregating, it starts creating a partnerships and house building model again. And we, you know, what we do with sales is we look at them interchangeably. Part of the, part of the benefit we have with our model is that if private, is boosted, we can switch out of partner-funded or the other way around. We switch from, we switch from private to partner-funded. So we need to look at sales rate on a blended basis, and we're not reporting on the open market sales rate separately.
The second piece, in terms of the starts, obviously that is growing, as we go through, but we're not, we don't report the starts and the build completions. We talk about unit completions. We know there's been a fair bit of noise in the last couple of weeks about how we report units and revenue compared to others where they have a different measure of units and revenues. Our units and revenues are quite aligned because we measure units on an equivalence basis. So we recognize units as we go through the partner-funded piece, which equates to how we recognize revenues. That's why we are sticking with that as our primary source and trying to avoid the confusion of having two or three different measures of units within our numbers.
I don't know, Greg, do you have anything to add to that?
Yeah. I mean, we have done a lot of deals in the last couple of months, so, our build rate will move upwards as we go through the summer, Alastair.
So, just simplistically, for the year, you know, we're actually going into the finer details. Do you expect while you go through this initial transformation stage to have higher starts than completions?
I would suggest yeah. And that will be the case while we're growing. So until we stop growing, Alastair, I think that will always be the case. I mean, I can't be precise, but that will always be the case. Definitely this year. So there'll be more starts than completions as we get to 18. And as we grow to our, whatever the number is going to be, 22,000, 23,000, 24,000 units in the medium term, that will continue to be the case.
Great.
All right. Thanks very much, Greg.
Thanks, Alastair.
Thank you so much, Alastair. So we currently have no further questions, so I will hand back to Greg Fitzgerald for any closing remarks.
Okay. Thanks, Carly. So yeah, thanks very much for your questions and, importantly, your time this morning. Hopefully, as you've heard and read from the statement, there's an incredible amount of positive momentum at Vistry. And we look forward to updating you again with our half-year results on the September 5th. And on that, we'll say, thanks very much.
This concludes today's call. Thank you to everyone for joining. You may now disconnect your lines.