Morning, everyone, and welcome to, I won't say an exciting presentation 'cause I'm not sure it's an exciting presentation. There's 21 pages to go through. That's the bad news. They're all detailed. The good news is Earl's only doing one of them, so he's already nicely prepared, as is normally the case. A special thank you to the Sunday Telegraph that's brought this forward by two days. Happened to come up on the train last night from the lovely Devon. Joking apart, this is a fantastic, and I mean that, absolutely fantastic potential here of a recommended combination of Vistry and Countryside. I'll talk through, in fact, I'm gonna talk through everything probably.
Transaction highlights, the land assets, Countryside's issues and integration plan, current trading of both organizations, gearing and capital allocation policies, which Earl will come in on, and then some concluding remarks. The transaction highlights. Recommended cash and share offer comprising GBP 0.60 in cash and GBP 0.255 of new Vistry share for each Countryside share, which implies a value of GBP 2.49 per Countryside share, representing a premium to Friday's price, I think, of 9.1%. We're offering a mix and match facility, allowing Countryside shareholders to vary proportion of cash versus shares received. Total consideration of GBP 1.25 billion financed by GBP 950 million of Vistry shares issued to Countryside shareholders and circa GBP 300 million of new bank debt. We've got some great support for the deal.
Shareholders representing approximately 39% of Countryside's issued capital have indicated their irrevocable support for the combination. Hard irrevocable undertakings from Browning West, David Capital Partners, Anson Advisors, Abrams Capital Management, as well as Inclusive Capital Partners have also given and confirmed that they will not participate in any formal sales process. With all of that, lots of negotiators there, I now speak fluent American. "Hey, man. Cool," and all the rest of it. The implementation. Both companies have engaged in reciprocal due diligence as part of the collaborative process to de-risk integration. I think everyone should know that, we have gone into this very much with our eyes opened, and I've heard our advisors, I think I've heard Countryside's advisors say they've never seen so much sharing of information and detailed due diligence on a PLC to PLC.
The amount of work we've done on this due diligence is at least the same as what we did on the Galliford Try acquisition, which is why I'm standing here today and incredibly confident that this will work and it will be an incredible combination. It constitutes a transaction to be effective by means of a scheme of arrangement between Countryside and its shareholders and requires U.K. court and Countryside shareholder approval. It constitutes a Class 1 transaction for Vistry, requiring shareholder approval. The completion is also subject to certain conditions, mainly, approval from the CMA. The key dates, fifth of September, today, 2.7 announcement. October to November, Vistry circular and prospectus published and Countryside scheme document posted with shareholder meetings.
By the end of Q1 2023, hopefully a lot earlier, the anticipated completion, as I say, subject to the satisfaction of conditions. It's a transformational transition. It strengthens Vistry's position to deliver sector-leading returns. Capital light, high return on capital, 40%+ Partnerships business becomes a significantly larger part of the Vistry Group, and by far and away, the largest player in the, you know, huge market of affordable housing, where there's an acute shortage in this country. Increased Partnerships exposure offers greater resilience to the cyclicality of the housing market. Significant benefits from cost synergies of at least GBP 50 million, which I'm confident we'll beat, and potentially from Countryside's timber frame capability, which, I'm really excited about. Brand strength is enhanced with the addition of the highly regarded Countryside Partnerships brand.
Just there, straight away on the branding and on the integration, the Vistry Partnerships business will be merged into Countryside Partnerships and renamed Countryside Partnerships on day one of the integration, which we also think will help with the people coming over from Countryside to try and treat this more as a merger than an acquisition. Extensive management capability with strong proven track record, supplemented by a number of great senior executives, more on this later, coming over from Countryside. Strengthens Vistry's position to deliver sector-leading returns. Let's start with Vistry is in great shape, as our trading update released this morning demonstrates before our results announcement on Thursday. Just as an aside, we were gonna do our results on Wednesday and this at the same time, but there we go.
The combination dramatically changes the shape of the group, with revenues from Partnerships expected to increase to over GBP 3 billion in the medium term, while maintaining our financial metrics of +40% return on capital and 12% operating margin. Sorry to our friends at Barratt, but I do think this will just about make us the largest house builder by volume in the country, which also, I think, means something. Housing current targets, which is a 25% margin, 25% return on capital by 2025 remaining in place, and then in the medium term, we expect housing to moderately grow to 8,000 units per annum. There is no change to that.
Finally, if the market doesn't recognize the value of the combined group by 2025, both parts of our organization will be big enough to stand on their own two feet, which they're not at the present moment in time. The board will take a view at that time as to whether or not to separate the largest, most successful player in the affordable housing market, which is huge from the housing market. We'll do that at the time if the board decides and if the share price doesn't follow our performance. Capital light, high returning, Vistry Partnerships business or Partnerships business, I should say. Partnerships currently is 32% of Vistry's revenue.
On day one it will go to, in the enlarged group, 45%, and we don't think it'll be too long before it's in excess of 50% of the group's revenue, i.e. it will be the bigger part of the group. We're expecting the acquisition to be return on capital enhancing for 2024 with only single digit earnings dilution, which you'd expect. Partnerships makes lesser money than housing in normal markets in the first full year of 2024. We, Vistry, firmly believe this short term dilution is more than outweighed by the relative value of the combined group's expected Partnerships earnings, the medium term earnings accretion, and the strategic merits of the combination. Increased Partnerships exposure offers, as I say, greater resilience to the cyclicality of the housing market.
The Partnerships model provides increased earnings visibility with a consistently strong order book. Very high sustained level of demand for affordable housing across England. There is an acute shortage, embarrassing in some places, shortage of affordable housing in the country. We've got significant cross-party political support for affordable housing and continued public investment for schemes that accelerate the delivery of future homes using modern methods of construction. Again, we're gonna have some interesting conversations with Homes England and our housing association partners regarding the timber frame manufacturing, capability. I'll say it now, and I'll say it a number of times through the presentation, timber frame excites me. Why is that? Because in Countryside, at the present moment in time, 6,500 units, non-standard house types, very difficult.
In the enlarged group, 18,000-19,000 units, the majority of which will be standard house types. If we do no better, no worse job than Countryside in bringing this business or part of the business to the fore, we will have a better opportunity to do so because of the standard nature of our housing and just the pure size of the number of units that we will be delivering. We're very confident that we can make that work. Large, well-funded, diverse client base reliant on private sector for supply and private rental units. Stephen Teagle, Keith Carnegie, have contacted the majority of those big names at the bottom of the list there, which is the housing association, the Partnerships world, and unanimously they think it's great. That would be an understatement.
This is something that those partners, Homes England, the housing associations, absolutely are crying out for. Significant benefits from increased scale. Synergies at least of GBP 50 million. There's a breakdown of the synergy savings of at least GBP 50 million, which I'm very confident that we will beat. It's been done importantly from a bottom up basis. This isn't just something, this is everybody within the Vistry organization absolutely owns these numbers. You've got. It's also been signed off by reporting accountants. How that works is we do all the work, we pass it to these reporting accountants, we pay them an exorbitant fee, and then they say, "It's all okay." That's pretty much how it works to me. On a serious point, 33% of the savings are coming from procurement.
The main thing from that is basically if you look at it, originally we didn't think we would get that number of savings. In during the due diligence, we found that the Countryside businesses have a lot of autonomy. Whereas we were thinking, "We're buying bricks for 12,000 houses, units a year, and Countryside are buying bricks for 6-6.5 thousand units," what we actually found is they're buying bricks, we think, for a lot smaller than that because the individual business units aren't necessarily talking to each other. That was one of the things that we will pick up during the, well, it's a big thing we picked up during the due diligence and one of the things that we will look to address straight away within the, integration.
33% biggest part of the procurement coming from synergies coming from procurement. 32% from the consolidation of central services, IT, and the like. 21% of the optimization of the enlarged huge Partnerships business. 14% from PLC costs. Brand strength. We've got three, and I'll highlight it again, five-star national brands going forward, Bovis, Linden, and in fairness to the guys from Countryside, I think Countryside has done a fantastic job in maintaining their five-star branding across their business, which is no mean achievement. I go back to Bovis back in 2016, 2017, and Bovis didn't, through their travails, manage to maintain their five-star status, and that's where all their issues came from. As of right now, Countryside are comfortably a five-star house builder. There you go.
Photographs of the team should the acquisition proceed. Welcome. First of all, congratulations to Earl Sibley being promoted to Chief Operating Officer, and a welcome to a very hip-looking Tim Lawlor there. No, no tie, so, that's all very good. He has got a tie on this morning, I can see. When I rang Tim Lawlor to offer him this absolute dream job, which was an absolute no-brainer, like most good accountants, he still wanted 24 hours to think things through. Get used to that, Tim.
One other thing on this slide is that if you look at our record since 2017, and we can provide lots of examples of that, we have been very, very good at underpromising and over-delivering, and that's what I think we are doing with the numbers that we've put out here today. Aligned One Vistry strategy. Maximizing the strengths, opportunities from our combination of housing and partnerships asset, facets. Strong market position and capability across all housing tenures, the strongest in the important area of partnerships. A leading provider of high demand, high growth, affordable housing. Strategic land capability, maximizing returns on larger multi-tenure developments. I would highlight, there's a slide later on, but I think Countryside's strategic land bank is vastly underrated, estimated.
It's about half the size of Vistry's, and there's a huge amount of opportunities that we can already see in there, not necessarily in the price. Multiple brands giving broad market reach and higher absorption rates. Utilization of modern methods of construction to access Countryside's timber frame capability, which again, Homes England and the housing associations are very pleased with. A quick important point, which I will make again on Thursday, when we announce our results, importantly, the land market is definitely showing early signs of returning back to a more normal regulated market now that the fizz has come out of the selling market. The land bank. This, I think, I'm only gonna say a little thing on this, but this really does demonstrate, I believe, the size of the organization that you're looking at now.
Over 81,000 plots in the short-term land bank and over 67,000 plots in the combined strategic land bank. We've done a fair amount of work on the strategic land bank, and we're pretty enthused about it. I think it demonstrates the size of the organization that we will be. Countryside's issues and remedies. Countryside's assessment of the issues it has faced and its priorities for resolving these are set out below. From our due diligence, which has been extensive and greater than we did at Galliford Try, we believe that aligning Countryside's cladding provision methodology with Vistry's own will lead to the former increase.
We think, you know, we might be right, we might be wrong, but if you follow our logic on how much the cladding is going to cost and put that into Countryside, we think a modest GBP 25 million under provision, which we'll look at as and when, if this all happens. Plus, we think there will be a 10%-20% increase on both our provision and Countryside's provision, which is our best read of the long-form negotiations that are currently going on with the government over the agreement between government and house builders, which is nearing a conclusion. The issues, as I see it within Countryside, too much autonomy for the business units, no standard house types, negative momentum caused by issues not necessarily at its exact level, poor and ill-advised growth strategy.
A lot of this has already been said. Poor acquisition, and even more importantly, integration of Westleigh. Poor management of timber frame businesses, not helped by non-standard house product and just the size scale of the Countryside business itself. That said, the detailed due diligence process that we've done, we're actually surprised on the upside at how much progress Countryside have made over the last 12 months. I think the press doesn't equal the business. We think the business is looking in pretty good shape as it stands at the present moment in time. I've had numerous conversations with members of the Countryside senior team who will be coming over, and they are looking forward to being within a people-thinking culture backed up by strong operational leadership.
A reminder to you, those going back to 2020, that Linden Homes, which under Keith Carnegie's leadership today are performing incredibly well, wasn't thought of as the best house builder in the country, that would be an understatement, and had two massively underperforming areas, with where their managing directors have gone. We've gone through all of that, and today it's looking absolutely fantastic. Nothing we have seen, you know, worries us whatsoever. The integration plan will be very much shaped by the detailed due diligence that we've done. Importantly, we've successfully completed the integration of the Galliford Try businesses. Fresh in our minds is what went well and what didn't go quite so well.
The most important lesson that I learned was that we had all the numbers at the time of completion on Galliford Try, but not necessarily all the teams within the organization owned those numbers. We were pretty much. The due diligence finished about 10 days ago on this, and I stopped the process of going forward with an early announcement because I wanted to get the Keiths, the Stephens, all the members of the group to sign up to, one, facility savings, so there's nowhere to go, nowhere to hide from a bottom-up approach, and have basically said to Keith and to Stephen, "These are the numbers that are within, your, existing forecast. This is the numbers that you're saying to me from your, due diligence. This is the numbers that you're signing up to." Everybody has signed up to them.
We've done that before we went into the actual committing ourselves to doing this deal. That's hugely important because for the first six months of the Galliford Try acquisition, there was an awful lot of squabbling, wasted time going on, saying, "I never actually said that. I know we said overall, but I didn't say that was part of my business." That has been successfully dealt with, and you should all take a huge amount of comfort that everybody in this room has signed up to these numbers from a bottom-up basis. What else did I want to say? I was putting the announcement back a week. Incredible amount of work. Yeah. The delay also gave the chance.
The delay of a week also gave the chance of the press to do their jobs right and come up with the story. Sunday Telegraph managed to do that over the weekend, as I've just said. Housing, I should also say, will benefit from 2020 sites being transferred from the landbank to them in this more competitive land market, which is not to be underestimated and will help underpin 2023 and 2024 onwards. Timber frame, as I say, we've got a much greater chance of success for timber frame because of the pure size of the business and the standard nature of our product. Current trading and outlook.
We put our trading update out this morning, which shows that Vistry is in absolutely great shape, which we've been saying for some time, and we continue to forecast a PBT of GBP 417 million for this year, which is well ahead of our expectations at the start of the year. Our cash is also in a great place. From a Countryside point of view, all we wanted to say was that we just wanted to make the point that there is an awful lot to do in September, and sometimes things do go sideways.
That said, in fairness, if Countryside, the boot was on the other foot, and they looked at us and what we had to do in June for our half year, they would've said what I've just said there in spades 'cause we had an awful lot to do as all house builders have to do. That's why house builders are commonly known as Christmas card companies. We only make money once or twice a year. From a Countryside point of view, I wanted to make the point that, yeah, that's done. Gearing. Oh, over to you, Earl. Christ alive.
There you are. Thanks, Greg. Morning, everyone. Yes, this will be brief. As Greg said, in terms of the transaction highlights, the transaction does need GBP 300 million of cash, along with the equity. We have got secured GBP 1 billion of facilities going forwards. We are looking to roll forward the existing facilities of GBP 600 million. Pricoa have already agreed to roll forward their placement, so the GBP 100 million. We are looking to roll forward the existing RCFs of GBP 500 million, and we will be looking for majority bank approval to do that. That is underwritten by HSBC at the moment. We're also looking for up to GBP 400 million of term debt, 300 of that to be the GBP 300 million in the deal, and then an additional GBP 100 million if required in terms of working capital needs.
Countryside will pay down its debt on completion. Going forward, we will look to have a strong balance sheet as we've got now. We will pay that debt within two years and maintain a strong balance sheet going forwards. We continue to be happy to run a relatively modest level of average month-end net debt, and we'll continue to do that. We will look for gearing under 10%. In terms of dividends, just to give absolute clarity, I'll say a little bit more about our interim dividend on Thursday, but the interim dividend will be paid to Vistry shareholders only. In respect to the final dividend for this year, that will be payable to all shareholders in the combined group.
In the very unlikely event that completion is after our record date, there is a mechanism that Countryside shareholders will get that value. Finally, just in terms of capital allocation, as I've said, just at the minute, so it's a 2x cover we are looking at this year. We'll continue our policy at the moment. That will be a strong balance sheet, investment in the business first, so in terms of partnerships and house building, before we've got dividends and any share buybacks or surplus capital. The board will look to review this post the combination in consultation with all our shareholders. I'll hand you back to Greg to conclude.
Thanks, Earl. I thought you did that very well. Concluding remarks then. We are expecting to achieve annual pre-tax synergies of GBP 50 million at least. With the increased scale, we are seeking to achieve adjusted operating profit from each of our two divisions of in excess of GBP 400 million. Hence, they can stand on their own two feet. We are confident that the rebalancing of our business will create an even more even distribution of profits between house building and partnerships, and that will improve our resilience and our returns. The numbers are all there. As I say, it's an unbelievable, we would say, transaction. Strengthens Vistry's position to deliver sector-leading returns.
Capital light, high return on capital 40%+ partnerships business becomes a significantly larger part of the Vistry Group, where we will be the largest house builder by volume or thereabouts. Increased partnerships exposure offers greater resilience to the cyclicality of any housing market. The housing market, I'll say it again now, continues to be good. Not sure what is all happening, but at the end of the day, including the weekend just gone, we are still selling houses very well, and we are still achieving our forecast prices despite negative media comment and higher interest rates, which are still, don't forget, historically low. Significant benefits from increased scale. Synergies of at least GBP 50 million and potential from Countryside's timber frame capability.
Brand strength enhanced by the addition of Countryside Partnerships, three five-star house builders and extensive management capability just off the back of doing this before in the last two years. It's all very fresh in our minds. Proven track record, under promise, over deliver. Hopefully the preceding slides have demonstrated what a great combination this is. I won't take full credit for this. I'll pass this on to Graham, who sent me basically Graham Prothero, the final two messages. Amidst all of the panic about the market, if you keep your sensible head on, we're combining the two largest and most successful players in the most defensive part of the market with the biggest shortages. The shortages are acute, of course.
I'm no economist, but with a 2 million housing shortage in this country, and an even greater acute shortage of affordable housing, this has to be a no-brainer. Finally, plus, there won't be too many opportunities to pick up the leading partnerships business for GBP 2.49, which is circa 40% lower than the price one year ago. On that, we'll take any questions.
Just two or three from me, please. A couple of general ones, I suppose. Just coming back to that point on the cycle, how much have you thought about downturn possibilities? More specifically, how would a partnerships business, do you think, perform in a given downturn for the wider housing market? I guess it's really general thoughts there. The second one was on the partnerships business, when you compare Vistry and Countryside, how would you kind of educate us on the differences between those two businesses at the moment? Then the last one was just really around targets and synergies and whether you had dates in mind for both sides of the equation there. Thanks.
Okay. On the first one, which was the market and the hedge, as it were. We haven't done this acquisition on the back of we're worried about the private housing market. We're back at 2019 levels. Very happy with that. In fact, if the housing market continued as it was in 2021, first part of 2022, we definitely would have had a downturn 'cause it was unsustainable. We're now, we believe, in a sustainable housing market. If you look at house building in its entirety, over the last two years, selling has been pretty straightforward. Everything else has been an absolute nightmare, whether it's land, building, it's hard as I've ever known it.
The FIS coming out of the market will mean that the majority of house building will become more straightforward. Selling will now be, "Don't just sign here as a reservation." Our sales advisors will now actually do what it says on the label. They'll have to sell as opposed to just taking a reservation, which they're doing very, very well. The acquisition wasn't done on the back of a hedge for housing 'cause we're very, very confident with where we are. That said, a partnerships business in my 40 years experience is exactly what you need if the housing market does go backwards.
The contacts that you'll have with housing associations, Homes England, the friends you've got within those organizations very much pull you through any downturn because you will be able to sell houses on the open market, additionality as it's called, to housing associations who will be in the first in the queue to do that. Plus the cash that the partnerships in itself just generates. It's a very high returning business and just keeps everything ticking along. You've also got the scale of the organization. We've said we've got GBP 50 million at least, and I think it's a great deal more than that, of synergies. If we didn't do this deal, Vistry on its own wouldn't have those synergies to play with. That's point one.
Those synergies don't include anything to do with what may or may not happen with suppliers coming to us in the next two or three months for further energy increases. John Bowen, our Group Commercial Director, is very much looking forward to speaking to them on the basis of being, we're 19,000 units now, not 12. Do you wanna have another think about what you're doing? We think it also will offer some price caps on future increases. Partnerships, you know, the diversification of the two together is absolutely fantastic. We've been very prudent. Earl's been very prudent, quite rightly, from a debt perspective, getting the extra GBP 300 million pounds, billion pounds worth of agreement, which is far greater than what we've got now, on pretty good terms, I would suggest.
Our cash position and possibly where Countryside might end up at the end of September, I think is will show that maybe we don't need anything like that and we're very, very comfortable with the cash position. As always, what was the second question?
Just the differences between their partnership business and yours.
Do you wanna take that, Stephen?
Yes, can do.
Take the mic.
I think the first thing to say is rather like Greg and his American, we speak the same language, so that's incredibly helpful. We operate in the sector side by side. We've got common partners. We understand the markets in which we operate. I think our strengths in are complementary. I think we are more in Vistry Partnerships focused on return on capital and partner delivery as a key metric, and we have a discipline around the implementation of that metric that isn't always apparent when we look at what Countryside have achieved. Conversely, Countryside have a presence in regeneration and place-making markets and a shop window that is far better than ours, and they've got a track record of delivering those regeneration schemes very successfully. They have people in the business who understand the language and how to engage with clients in that particular sub-market very successfully.
Definitely applaud that, and that's very visible throughout the business. I think we both operate with Homes England across a platform. The platform of Homes England work is more extensive with Vistry, where we have the benefit of being the only developer who's a strategic partner with Homes England, and that allows us to access funds which supports our land buying and supports our return on capital in a way that's not available. I think that's a key benefit. Conversely, Countryside have a bigger platform with the GLA than we do, so they have engagement with GLA and through their London operations, which is complementary.
They also, obviously, as Greg has mentioned, they have an MMC factory, they have a timber framing factory, which is a really important factor when you're talking to partners around increased absorption rates, increased rates of production, and an ability to engage with the government policy around that. I think those are some interesting contrasts and strengths between the two businesses.
On top of that, we already have some direct grant from Homes England, which will increase if we use modern methods of construction, of which timber frame is a modern method of construction. That will help us get our hands on increased levels of grant. The only other thing, difference, and it's an operational difference, I mentioned in the integration about the autonomy of the business units. At Vistry, I sign off every single land acquisition and certain contracting bids that we do, full stop. That will still be the case when we have a combined operation. At the present moment in time, that isn't necessarily, or it wasn't up until 12 months ago, some of the business units could go and win work as and when they thought they needed to win work.
That will not be the case with us, but we are a very, very people organization. Sorry.
Around the timelines for targets and synergies. Thanks.
Yeah. I can do a few of those. Well, first thing, there is some uncertainty around completion date. You know, first full year, we're talking is 2024. ROCE enhancing in the short term. In terms of the Partnerships business, absolutely fundamental target in terms of the 40% return on capital. Looking to get there, in short order, and look, Countryside have been reporting lower than that, more recently, but we can see a way in short order to get to that 40%. We will be single-digit dilutive in 2024, but certainly Greg and I have the ambition to be accretive thereafter. Synergies, we've said exit rate at the end of 2024 will be the run rate of GBP 50 million, and of course, we will be looking to do better than that.
We've got about GBP 19 million in 2023, which is conservative again. A promise over delivered. Sorry.
Thanks. Gregor Kuglitsch from UBS. I've got a few questions. The first one is just on the price and the premium. I think, I don't have my spreadsheet in front of me, but it's somewhere in the neighborhood of, I think, GBP 400 million odd premium over of a tangible book, if you look at Countryside. Can you just sort of explain to us how that, you know, how you're gonna get your return on, I guess, the goodwill that you're gonna be taking on? Or maybe putting the question differently, I think looking at the slide, the final one, which has now disappeared, but the 400 of each, I don't know if that's already inclusive of the GBP 50 million or not, but let's say it isn't.
How much of that would be sort of Countryside? Appreciating then the line. We'll never see that, but, you know, I wanna understand, of the 800 in combination, would it be 300 that Countryside is sort of incremental to what you would have done anyways from the standalone business? So that's the first question.
Sorry, Gregor. That's quite.
Maybe let's start that.
Do you wanna take that one and then we go after that, Phil?
Gregor, I mean, in terms of timescales, just talked about the ambition for 2025 in terms of where we want to get to. Sorry, going back to your first question. We are not focused on the tangible net asset and the multiple to that in terms of a Partnerships business, in terms of how, you know, we feel it should be valued. Clearly, we are looking at the EBIT that this business can deliver and the multiple of that EBIT that this can deliver. Clearly, at the minute, Countryside are in a dip in their earnings, and that is gonna grow strongly from here in terms of those combined numbers going forwards.
Greg's already described in terms of the Countryside business, there is an element of it that will be in our housebuilding business going forward. Those earnings will come through in there. It will be the majority of that Partnerships number will obviously be Countryside. It is the bigger part of the Countryside, the Partnerships business when we put it together.
If I told you GBP 300?
I would say that's too high.
I'd say that's too high, yeah.
Combined with the housebuilding bit.
Of, of the four hundred?
Of the 800.
You're looking at 25. That.
Of the 800-
I think.
Total would 300
Well, look. No. Of the GBP 400 million, the way we're looking at it is that's all Vistry. So the whole point-
Okay.
The reason I put together the GBP 300 million of cash was that Countryside are going down a share buyback route. They are selling off some land, and they are building out and selling houses in the housing market at the present moment in time. The GBP 300 million, I'm not an accountant, keep it simple, is basically just our house building business is buying lots of land as we go forward. They don't need to buy somewhere between 10 and 20 sites going forward because they're gonna be taking that land. So it's GBP 300 million, if you like, ahead of 18-month schedule, and we will be selling houses on which we will be terming legacy from Countryside over the next 18 months. So that GBP 300 million-
Mm.
It will basically disappear over the next 18 months, one, from building and selling legacy houses, and two, taking it out of the cash flow in housing, which is currently there, to buy 10-20 sites because they'll already have them from the land bank of Countryside. It works very, very neatly. It's just bringing it forward. Of the GBP 400 million, I would just like to say that's in housing, that's Bovis Homes house building. Of the GBP 400 million pounds partnerships by 2025, I would be kind of saying that's 250 Countryside, 150.
Yeah. I mean, if you wanna work it the other way, Greg, we've said, you know, we're gonna do GBP 100 million in our business this year. We're looking to grow that at 12% per annum. There's some of, you know, the synergies will flow both into house building and partnerships. You can. You'll get to a similar number to Greg said.
Okay. The way we should read, 'cause you were saying you're valuing this on an earnings multiple. You're paying GBP 1 billion-GBP 5 billion. The GBP 300 million, I guess, is sort of what you deduct from that because that's sort of a land sale if you want, the legacy business, and GBP 950 million for partnerships on GBP 250 million of EBIT. Is that how you're looking at it?
Yeah.
Just so I understand.
Plus the synergies.
Plus the synergies, yeah.
Yeah, what they're kind of in there, in the 400 each.
Yeah.
Yeah. Okay. The second question is on the debt facilities. The whole, you're refinancing everything, I think.
Yeah.
I think you're talking about issuing a future term loan, which hasn't happened yet. You're gonna refinance the HSBC facility, is that right?
We're gonna keep the existing facilities, the GBP 100 million Pricoa, GBP 500 RCF
Mm-hmm.
existing facilities, and take on definitely the GBP 300 but up to GBP 400 of term, all to be repaid within 2 years. So the 300 does represent the 300 that's in the deal, but the cash flows, we can, you know, we will be able to pay that back over the next 2 years. In truth, and we'll update more on Thursday, you know, we are running ahead on cash in the current year, as our Countryside. So it's in a strong-
We're in incredibly positive cash position. We have been quite rightly prudent with that facility.
Okay. Then the final question is on timber frame, which you made a big point of, and I think there's multiple factories within Countryside.
Right.
I think they shut one. Can you just, or maybe you're gonna keep it in the end. I don't know. Can you just maybe lay out for us what you're gonna do? I think those, when they disclosed last, are sort of loss-making right now. Appreciating you're gonna sort them out.
Yeah.
If you just give us an overview of how you're gonna
Well, they have three factories, and Countryside have announced they're closing the Bardon factory at this precise moment in time, and I believe that will be taken care of in Countryside's September year-end numbers. The losses associated with closing that part of the business down. I'm considering whether or not we don't close that business down if and this deal happens. We will be discussing that with Homes England. Homes England are all about accelerating delivery of houses. We will be Homes England biggest partner, with a manufacturing facility, and I think Homes England will find that very, very interesting. We'll be discussing it with them, and we'll be taking that forward.
We already get higher levels of grant for use of modern methods of construction, so we're already going out on a number of partnership schemes and using modern methods of construction, to gain that extra grant. We will be able to do it, internally ourselves. The numbers out there that we've gone through with Countryside and ourselves already include losses for next year from that timber frame 'cause I think we will have to, put it through. I use the word strong operational leadership. I will be absolutely saying at the present moment in time, unless I'm mistaken, it's about 2000 units that come out of timber frame, and they're virtually all in the north of the country. The rest of the country don't use, timber frame, and that's because the business units have got autonomy, and they don't use it.
As of tomorrow morning, you and you will be using timber frame. You're gonna do that many units, and I won't have any issues with doing that, and we will make the timber frame operation work. Probably, hopefully, not closing the Bardon operation, which we will consider as and when the businesses become combined, if shareholders vote it so. Homes England, housing associations with their biggest partner are, I think, pretty excited about one, that combination, and two, what we can do to speed up delivery of affordable housing, which is much needed in this country.
The capacity of all of these.
The capacity of all of them, I wouldn't absolutely know, but I'll stick my neck out. If you said all three, I would say if we can get it up and running, we can do probably 5,000-6,000 units.
Yeah.
Per annum. That's what we'll be looking to do and using additional grant levels to help that.
Thank you.
Thank you. Yeah.
Thanks. Aynsley Lammin from Investec. I think I've got three as well, actually. First of all, just intrigued by your comment around it gives you the optionality to split the business in 25.
Yeah.
Is that something that you expect to have to do, and is that a big driver for this deal? You know, why do you think the stock market or what's the stock market missing?
I'll do one at a time again. At the present moment in time, we have a fantastic Partnerships business led by Stephen, which in our valuation at whatever the share price is at the moment, isn't valued at anything. You could argue, and we've spoken to some analysts about it, that might be because it's a small part of the organization 'cause you're going on the 2019 results. That's point one. Bringing this combination together, if we wanted to, if the board decided to, let's look at demerging, separating Partnerships and housebuilding today, we're not capable of doing it. Partnerships ain't big enough to stand on their own two feet. Tomorrow, bringing on board Countryside, doing a decent job of the integration, we will have an optionality, which we don't have now.
We will have the market-leading biggest partnerships business in the country by a country mile, and a very strong housebuilding business, both of which can stand on their own two feet. The board in 2025 will consider and look at the share price and say, "Has that been included within the valuation?" If it isn't, regrettably, 'cause it would be regrettably, we would have no hesitation, I'm sure, in separating the two businesses, which is an option that we don't have at the present moment in time. Cards on the table, I think partnerships and housing works brilliantly together. I wouldn't want that to happen, but I'm also a very large, probably the second largest private investor. I'll do whatever's right to get that share price in the right place.
Then just secondly, obviously the partnership business you've demonstrated in the past good resiliency, kind of de-risk up from a sales level. With the kind of high energy cost, materials cost volatility, how are you managing that kind of margin construction risk into next year? Just you know, general comment around that.
We are actually talking to a number of PRS providers as we speak about doing one or two deals, and we are able to factor into those deals some increased costs potential over and above what we haven't been able to do in the past. We are more and more speaking to our customers and saying, "That would be our normal profile for increased costs. We can look at some, you know, government, you know, stats about the cost of energy, et cetera, et cetera.
Are you prepared to cover us should these levels be exceeded?" More and more, because there is a shortage of affordable housing, acute shortage of housing in this country, we're finding that clients are more and more willing to do that with some negotiation, which will be helped even more by the scale of the operation we will be going forward. Of course, with housing, private housing, Mr. and Mrs. Smith aren't necessarily prepared to do that.
Just, I think, probably one for Earl, just the combined land creditor position of the combined group and kind of how you see that going forward with the 10% gearing time horizon.
Yeah. Aynsley, I think the simplest thing to do is take the current land creditor position of both organizations, and roughly, that's what you'd expect to go forward. We've got a few lumpy bits in there these days in terms of big schemes, and we've got more and more where we're actually paying on the drip, you know, as we develop, which are obviously quite different in terms of those creditors. You can just roll that forward, I would say.
In a more competitive, which I think is becoming less competitive by the day, don't underestimate the importance. This is a, you know, partnerships acquisition within, with Vistry, but there are some strong benefits on the land side and some pipeline on those sites, in housing as well. Nope. Sorry, Clyde. First one first. Sorry. Charlie.
Thanks very much. It's Charlie Campbell at Liberum. Sorry, just one from me, and hopefully quite a simple one. Just following on from Gregor's question. When we put Countryside into the models, should we think about profits recovering back to historic peak levels and then add the GBP 50 million synergies to that? Or are some of the GBP 50 million synergies required to bring it back to historic levels of profitability?
We're talking about 12%, which we would hopefully better again, operating margins. I think with that 12% operating margins, in fairness, you would have to put, you know, those synergy savings on top of that, because that's where we are at the precise moment in time. Yeah, 12% plus the synergy savings. Don't forget, the synergy savings aren't all, because there's all the group ones and everything else. Whether it's half and half in housing and partnerships, probably a bit more in partnerships than not. A proportion, a good proportion of those synergy savings will go to partnerships, but a smaller proportion will go to housebuilding.
Yep. Yeah, that's very clear. Thank you.
Charlie, you will see the profitability of part of Countryside come through predominantly in the partnerships number, but some of it in the housebuilding number.
Yeah.
The synergies on top.
Thank you.
Clyde.
Thank you. Clyde Lewis at Peel Hunt. Thankfully, Charlie didn't ask my question. Two I've got, and I'll do them one at a time. Just when you were thinking about the debt levels, the funding of the deal, I mean, you've clearly explained, I think, the reason for the GBP 300 million term loan. You know, when structuring the deal, what how did you get to that mix of debt versus cash versus equity? I suppose it'd be interesting to sort of understand your comments around there, because you know, you said this morning you're pretty comfortable with your current cash performance. If anything, it's probably a bit better than expected, and you've indicated that Countryside is probably the same. I'm just sort of wondering what the thought process was around that sort of debt.
300, basically, if I'm being brutally honest, which I always try to be, was me thinking, if you just do this purely on a share-by-share basis and you come to a split between Vistry and Partnerships, which I didn't think looked equitable. By bringing in the GBP 300 million, which I think we can easily afford, and it's basically bringing forward the GBP 450. The GBP 450 million, tell me if I go wrong, shareholder returns was all going to come from winding up the housing business, and they've probably done about a GBP 150 million of that as we sit here now. There was GBP 300 million to go.
Why don't we give the GBP 300 million in housing benefit. Our housing business benefit from rather than going into the open market, those pieces of land. That's robbing Peter to pay Paul. We get that money back because we're not going to spend it. During the due diligence, there's probably somewhere between 600 and 700 homes programmed on-site to be sold during 2023, a lesser amount in 2024, and only two sites going into 2025 and onwards, which will repay that GBP 300 million. It's getting, it's GBP 300 million, 18 months in advance to get our hands on what is being sold or substituted. We wanted to absolutely cover ourselves with regards to a facility which
Well, not just that though.
Be in no doubt we may never need. I think you should also say, Earl, we can pay it back with no penalty.
Correct. We can. I'll just add to it. I mean, clearly, well aware of the dilution in the short term. You know, again, the split of shares was important in terms of getting back to that accretive position soon and also where the marketplace. No, absolutely not looking to put, you know, real debt on the balance sheet for any period of time. Being able to pay that back in two years, as Greg said, we can pay it back with no penalty. It could be earlier if we can do it, and we will have, you know, strong balance sheet, low gearing, going forward.
Hopefully Countryside will have a strong cash position themselves at the end of this month.
The second one I had was on partnerships, I suppose. I'm just trying to understand how you're putting the two businesses together now will change the growth prospects of Vistry Partnerships, I suppose, in terms of geographical expansion and obviously sort of that growth in revenue that you've been expecting. Presumably it's going to be more limited, but will you still be expecting to grow core Vistry Partnerships or old Vistry Partnerships by expanding?
I'll let Stephen answer, but I'll help steer him in the right direction. That is that Vistry Partnerships have got a compound growth of 12% and Countryside have got compound growth from where they are of around 20%. We are still looking to achieve both of those after a short period of integration. What I would say to you all is when you're doing your numbers, if you look at Countryside as, say, GBP 1.6-1.7 billion in revenues, don't forget a good proportion of that relates to getting out of house building.
You've got to strip that back, which kind of leaves you, I suspect, somewhere between 1.4 and 1.5 of true partnerships, which we will then take forward and grow following a very short period of integration at the same time as growing at about a 12% rate, the Vistry Partnerships business. Do you want to elaborate on that at all?
I think Greg's expressed it extremely well. Essentially, it's growth, deliver the growth plans of both halves of the partnerships business, existing Vistry and the Countryside part, and deliver the synergies on top of that. That's in summary what we're targeting. In terms of geographic growth, there are real advantages in it accelerating the Project Pace, which is what we call the Vistry growth pre this transformational transaction. It will allow us to deliver that slightly quicker because obviously you've got operational platforms in some of those areas. Countryside have mature operational platforms that will help us grow. There are situations such as in the northwest, where we essentially have three operating platforms, which gives us an obvious opportunity.
There, they have a bigger footprint than us in the eastern part of the country. Our Project Pace was delivering growth in the Southeast, in the Midlands, in Thames Valley and in the eastern areas initially, and contributing turnover for this year. This gives us an acceleration to that and helps us deliver it. It is an aggregation of both growth plans.
The geography wasn't, it's fair to say, perfect, but it was pretty good, wasn't it? The geography between the two organizations is good.
Can I ask a third?
Yes.
Just on, I suppose the move towards the bigger sites that obviously the group has sort of been pushing quite hard on. Will that speed up now?
Yeah
given that you've got more dots on the map?
We, you know, we've often used the Kenilworth, Great Haddon examples. Kenilworth, where the local authority have put all the money into the JV to enable, you know, a forward-funded land acquisition. There's two other ones like that as we sit going through the melting pot at the present moment in time. I really do think it makes sense on large sites, the combined Vistry Group offering with Countryside bordering on irresistible with three selling brands, because we'll use the Countryside as a selling brand as well, and particularly in certain areas of the country. In the east, the southeast, Countryside is a very, very strong brand.
I mean, I go back 20, 30 years, and I would have thought that if you own Countryside back at that time, you're still driving around Essex, the southeast of the country, going, "God, that looks great." They do look great. The problem was at the time, maybe it would cost too much money for the amount of money you got. From a legacy perspective, it's good. The Countryside legacy and the brand because of that, and the five-star nature still works very, very well. We're gonna have another selling brand within the organization. All we've got to do now is 'cause it's not as simple as that, we've got to have a definition or a defined difference between Bovis and Linden, which I think we've got.
We've got a Countryside brand which is very strong, but we just need to work on that a little bit to make sure we're not just cheating, and they're all basically the same. Bovis is a different proposition to Linden. Countryside is a strong brand, we just gotta make it a different proposition again to Bovis and Linden. Chris.
Thank you. Morning, yeah. Chris Millington at Numis. Earl, you mentioned earlier about having kind of line of sight, or you know what needed to be done to partnerships to get it from kind of roughly mid-20s% at the moment, Countryside to 40%. I just wonder if you could kind of talk us through some of those building blocks, first of all. I'll do it one at a time if you'd like as well.
Thank you. No, I mean, one of the first things that we've already described is actually getting house building and partnerships in partnerships. In terms of, you know, the transfer of those sites. You know, it is clearly, you've got the margin upside that will come through of combining the two together. You know, there is a piece of work to do on the capital management. You know, the Vistry Partnerships business is that blend of partner delivery and mixed tenure that we've always described to you. There's more mixed tenure currently within the Countryside business.
We're looking at that blend to absolutely hit that 40% return on capital as the most important measure for the partnerships business in order to get, you know, the valuation on a multiple basis of earnings.
A lot of it is just down to focus. Stephen and the team know it's a focus of 40% return on capital. Number one, I'm not sure that focus is entirely there. It will be. What will happen is, there will be more what I call Block E at Brunel Street Works happening, which is a huge development that Vistry have got in London. The block, Stephen, was how many?
It's 140 units.
140 units with a high ASP, which the business looked at the return on capital some time ago and thought, "We're gonna have to do a deal on that." They went out and sold all 140 quite easily in this market and brought the money in because they know they've got a metric of a 40% return on capital. Countryside in London, I would suggest, is where they really struggle at this moment in time with the return on capital, and there will be a number of Block E sales, Brunel Street Works, I think in the first 12 months, within Countryside in London to get that return on capital right. Internally, we have an aim to be at 40% pretty much right away.
Very helpful. Thanks. Next one is just on planning issues. You know, it held Countryside back a little bit through 2021, and there's obviously a big pipeline of sites there. I mean, is that the kind of hump? Are you over that hump at Countryside? And how is the kind of combined group, you know, situated for planning next year and maybe the year after?
Yeah, Keith, do you wanna take that one? 'Cause you haven't said anything yet.
You're not gonna tell me what to say?
No.
This is dangerous. The planning situation has moderated ever so slightly, but it isn't that that's probably our big challenge in terms of what we've got to do in terms of going forward. That's ameliorated by the One Vistry approach to some of our big sites and where we can dual brand. There are ways in which operationally, and I think that's an opportunity available to us that's not available to some of our competitors to ameliorate some of those planning issues.
From a pure house building perspective, what we call gross profit shortfall for the years ahead, 2023, 2024, we split it into land and we split it into planning. From a land and planning perspective, the acquisition of Countryside will, from a gross profit shortfall, make housing in a much better place for 2023 and 2024 than they were yesterday.
Understood. Any change to central costs in light of combining the two businesses, any sort of material move there?
If you look at them, obviously a part of the synergies in terms of there'll only be one PLC, those costs will come out. There will be a moderate increase to the central services for a much larger group.
Mm-hmm.
Again, you've seen the quantum of synergies that will come from, you know, the overlap that is within there.
We think 32% of the savings will come from central services and then 14% from senior management slash PLC. Again, I'll reiterate, all of that has been. For instance, the HR person, the IT person, are you happy with the numbers that we've included there? Are you signed up to those numbers? Yes. Yes. It's all been done bottom up, the whole of that, including, "John Bowen, are you happy with those procurement savings?" All done bottom up, every member of the team owns it. That's what we've been doing in the last week, putting off this announcement.
Thank you.
Glynis.
Yeah. Glynis Johnson, Jefferies. I'll go one by one as well, and that will hide how many I'm actually gonna ask you. The first one is to you, Greg. This talk about maybe separating the businesses if they're not fully valued. You've talked, you know, a huge amount about the benefits of big sites, putting all the brands on there, that house building partnerships together is really synergistic. How do we tie that together with the willingness to split the two businesses apart?
I don't want to, and I'm sure the board wouldn't want to separate the two businesses. It just comes back to if the valuation doesn't follow, it's not done on a kind of sum of the parts basis as opposed to tangible net assets times 1.1 and nothing for partnerships, which is basically where we are, I believe, at the present moment in time. Maybe with some rationale behind it because it's not a large enough part of the group. I don't see that we'll have any option other than to generate the shareholder value that way, and it's an option that we haven't got at the moment, Glynis. I wouldn't want to.
The second one is actually in terms of competition. Vistry has a huge presence or huge, you know, links in with Homes England. Countryside has equally strong presence, maybe not quite but, you know, but it's still the combined entity would dominate Homes England. Have you had any feedback from Homes England? Have you had any feedback from your partners who may well have you and Countryside as-
Yeah.
Their only partners?
There's one or two people we've spoken to in there that may very well have us as their only partner, or a lot of eggs in their basket. You, Stephen, speak for yourself, but the feedback has been absolutely fantastic.
Yeah.
Save yourself the embarrassment, say what one chief exec said of an enormous housing association who works with both organizations at the moment. Quote what he said.
Um.
Go on, Stephen.
Right. Yeah, I've spoken to quite a few people this morning, including the chief executive of Homes England, three minutes before we came into the auditorium, so I had to stop, and I'm picking that up when I leave. That was a positive two minutes before we managed to have a full discussion. I wouldn't say that we have a dominant position, which I think was the word you used in terms of Homes England. We're certainly one of their leading partners, and even in aggregate, we wouldn't have a dominant position, but we would clearly have a very important delivery role in working with Homes England across multiple platforms. In terms of some of the comments this morning, it really was, as Greg said, unanimous support among clients for what we're trying to achieve.
One said they were absolutely delighted that Countryside. They said it was particularly good news for Countryside, and they were delighted they were going down a PLC route, not a hedge fund route. They said they're absolutely delighted that we would, to use the quote that Greg wants me to say, "Sprinkle our fairy dust in order to deliver successfully on a platform of new housing supply." I think very positive, very positive from a range of partners. That's right the way across the country as well. That's national housing associations as well as local. Spoken to chief executives and, in some cases, chairs of housing associations, and they've all been very positive.
The last one for Earl, just so he doesn't feel left out. When you acquired Linden, when you put the Bovis or Vistry filter on the land that was intake, the margin came down a little bit from what was previously reported from Linden. Those pieces of land that you're gonna take from Countryside, if you were to put the Vistry filter on those, do they match the intake margin that you're getting or you already have in your land bank?
If you look at certainly the legacy assets as reported, they are a lower margin, and we will probably, you know, identify them separately for you as we trade those out.
Which is where a lot of the GBP 300 million of cash is gonna come from.
They will be a lower margin coming through from them.
But the other-
Not on the new stuff that we can see coming through. As Greg described, there are a number of land sales in the plan further forward that we would not do as land sales, and we would be just looking to deliver those against the Vistry targets.
Without diminishing the margin.
Correct.
Thank you.
Good. Thank you. That's a marathon session. Thanks very much for your time, and interesting times ahead, at least for us. Thank you.