Good morning, everyone. Great to be back here two or three days after the last one. It's been an incredibly busy week with obviously announcing the acquisition, we'll crack straight on. Delighted, I'm joined today by Earl Sibley, Group Finance Director, and Stephen Teagle, who runs CEO Partnerships. Also on the front row there is all the other senior members of the team. From an agenda perspective, I'll run through one page of the half year performance. Earl will obviously run through the financials. Stephen and I will share the operational review. I'll do housebuilding, and Stephen will do partnerships. Then finish things off with an outlook plus a few slides just reminding everyone about the proposed combination between Vistry and Countryside. The results, without further ado.
We are, as an executive team, incredibly proud of these results. They are excellent across all areas. Housebuilding completions up to 3,219. Gross margin ahead of schedule, improved to 23%. Return on capital, again ahead of schedule, increased to 21.7% from 17.4%. Partnerships continues because it is an incredibly strong market, continues to deliver rapid growth, with mixed tenure revenues up 35%. Operating margin increased to 10.2%. That's, at the time of the acquisition, we've done what we said we would do.
We said we would get it to 10%, this year, and we've done it six months earlier, and it's now up to 10.2%, while maintaining in excess of 40% return on capital, which I'll come back to when we're talking about the combination. Delighted to see further improvement in our Peakon scores, the body we use for external staff surveys, as it were. We're currently at 8.6, which would put us in the top 10% of all companies within the manufacturing sector. Success in the land market, 5,526 plots acquired, all at a gross margin on housebuilding at 25% or above, and at the upper end of our target range for partnerships.
I would say, in the last month, if we've had one site come back to us, there's been four or five where we were the second or third bidder. The land market is absolutely regulating and coming back 'cause all of a sudden, that company, whether it be a PLC or more often than not a small private company, have pulled out. The land market is regulating just as we thought it would. From a cash perspective, Earl's very, very pleased. Net cash up to GBP 115 million from GBP 31.6 million a year ago. Importantly, month-end average net debt for the 12 months to 30th of June reduced to GBP 73 million from GBP 239 million. From a cash perspective, this business is in great shape.
Group return on capital increased to 24%. Against that, as a background, of course, we're delighted to announce an interim dividend up to 23p from 20p, and that'll be paid in November. Short and brief, over to Earl, who's clearly doing more than one slide, today.
Thank you, Greg, and thank you for that one slide you've done so far. I will take you through the detail of those excellent results. I'll go a bit quicker because you've heard from us already this week. There are a couple of slides we dropped to an appendix, but everything is in the pack that you would expect to see normally. Results on an adjusted basis, so our share of joint venture's in there. Overall scale of the business, so growth 5.5% of revenue up to GBP 1,328 million, translated into an operating profit of GBP 198 million. Adjusted profit before tax up 14% period on period. Remember, last year was a particularly strong first half with stamp duty holiday, et cetera.
Up about 14% to 190. We have taken a charge as expected for fire safety of GBP 71 million, plus the amortization of 7 million, which is still the run rate going forwards. Reported profit was GBP 111 million. Greg's already mentioned the cash. 115 was a very strong performance. Come back to that in a minute. That profitability and balance sheet pushing the return on capital up nearly 5%. Housebuilding financials absolutely on strategy, controlled growth in volume. 3% growth in volume, translating into around about 4% growth in revenue. Greg's already mentioned it. Really important, hit the gross margin target we set for the full year already by the half year, and we expect to see that move forward by the time we get to the full year results.
Further improvement in the second half. The return on capital up to 21.7. In terms of that gross margin, a number of things driving it, and Greg will talk more about house building, but particularly in that margin, our embedded land bank margin is now over 25%, so it's now over that medium-term target for house building. We continue to get a good contribution from strategic land and higher margins from there. Yes, house pricing has been offsetting the cost increases that we've seen. All coming through in that margin. Just a few headline stats on house building. I'll pick out a few. Private ASP is up 5%. Strong demand right across all our geographies. 24% is the proportion of affordable. Still a good guide going forwards. Then the other two numbers at the bottom.
At the minute, PX running at 2%, which is, let's be honest, next to nothing. Not a tool we need to use at the minute, but, you know, is absolutely there and available going forward. You know, should there be any slowing up in terms of the market, that is still a tool we would be happy to use. Help to Buy down to 16%, so very much a decreasing part of our business. Partnerships also ahead of targets, so driven by the mixed tenure growth as planned, so 24% up, and for the first time represents more than 50% of the partnerships revenue. Operating profit up 23%, and as Greg's mentioned, really important that margin now over 10%. 10% was the target for the full year, so we are ahead and expect further progression in margin.
Continue to invest in mixed tenure. The TNAV is going up in partnerships, but return on capital still well over 40%. While it will come down over the coming periods, we still expect it to be well over 40%. That absolutely key metric for partnerships. Again, just some headline numbers. You can see the split of mixed tenure and partner delivery revenue, so mixed tenure over 50%. Partner delivery, though still a really important part of the business, cash generative, driving the return on capital. Outlets, a little lower, a handful lower than we would have liked. Some good and bad news in there. The good news, we have sold out of a number of outlets, faster than we expected, driven by the market, and we've got a handful of sites coming through planning.
More importantly, we expect to see that number of outlets grow through the second half towards 40 by the end of the year in terms of driving the growth in that business. Procurement remains absolutely critical in our relationships with all our supply chain partners. Material supply is better this year than it was last year. There are still challenges that our central team as well as our local buying teams are managing very, very well. We've reported previously, cost inflation for the year to the end of June was around 6% in total. We are seeing it run a little higher than that at the minute, so say around 8%. In terms of labor, while the market is tight for labor, it is not as bad maybe as we expected.
We are dealing with cost of living challenges, but across the sector as a whole, there are less outlets than we expected, so slightly better than we anticipated at the beginning of the year. Land, as Greg said, another good period in terms of acquisition. As usual, you can see the dots on the map, so well spread acquisitions. The purple are the house building sites, the green, the partnerships mixed tenure. Well spread and really pleased. Really good pull-through from our strategic land. Over 2,000 plots come through from our strategic land bank. Even more important, we've replenished that opportunity, so 2,900 new plots acquired under option and our strategic land bank still sits at over 40,000 potential plots to come through.
Greg mentioned early signs that the land market is, you know, more normal at the minute and we absolutely retain the Vistry advantage in terms of buying larger sites, house building partnerships working together, and buying certainly in house building above those 25% hurdle rates. A few more detailed numbers on the land bank. Just pick out a few. In terms of house building, still got a land bank around 31,000 plots, ahead of the three and a half, four-year target, so a good position. Average land cost per plot, I'll point out, GBP 49,000 a plot, implies we are still buying land very well in terms of feeding that land bank.
As I've mentioned, on the bottom row, the average gross margin we see in that land bank now over our medium-term target of 25% at 25.3%. Partnerships, again, strong land bank, 12,000 plots, really there to drive the growth in the mixed tenure that's coming. Similarly, down the bottom right, 19.5% gross margin now in that land bank. It will drive forward the margin for mixed tenure. Therefore, it will drive forward the 10% beyond. Of course, with mixed tenure becoming a bigger proportion of the whole, that's all gonna help the margin in partnerships. Balance sheet. Really strong balance sheet still. Have to remember, joint ventures and amounts due from joint ventures are really work in progress and land, so you can put those together.
WIP and land has moved forward since the beginning of the year, which is certainly good in respect to work in progress. We came into the year with a little less than we would have liked, so that increase in WIP is good. Land moved on a little bit. Land creditors, 33% of land, so a little bit lower than where they were at the end of December and still very comfortable at that level. The only other movement really on the page, other liabilities is where the fire safety cladding has gone in. So that's in the GBP 913 million. Overall, GBP 1.7 billion of tangible net assets. Cash. Cash was a good period for the six months, so cash outflow of a little over GBP 100 million. Just put that in context, as Bovis.
Prior to the formation of Vistry, we used to have about GBP 100 million going out just in that business, so a much better cash flow position for the combined group. Within that, it does include the impact of the share buyback we were doing around the half year. GBP 22 million of that was completed by June, the remainder completed through July. As Greg mentioned, average month-end net debt for the rolling twelve months to the end of June, GBP 73 million. A very good position. Gearing, including our land credits, is about 18% at June. Looking forward, we are now targeting to have a cash balance beyond where we started the year, so above the GBP 235 million. Finally from me on sustainability, a quick update. Huge amount of progress going on.
We're still focusing on our three key priority areas. People, operations, homes and communities. The colors of the icons on the screen should help you attribute the actions to each area. Just a couple of highlights from me. Firstly, our skills academy. People really from a standing start after COVID, we now have five of our skills academies open. Over 100 people already through those academies this year, and we plan to double the number of academies we have through next year. In terms of our operations focus on carbon reduction. We will be publishing our carbon reduction plan later this year. A lot of initiatives going on site, whether it be eco cabins, hydrotreated vegetable oil, hybrid generators, et cetera. Lots of activity.
In terms of homes and communities, we are well on track to deliver a higher number of additional affordable homes this year as planned. We currently now have eight of our largest sites reporting on our Social Value Portal with another seven about to go live. A lot of progress, I'm pleased to say. I'll hand you back to Greg.
Thanks, Earl. A new set of green tie doesn't go with a blue suit. On house building then. Operationally in absolutely great shape. Five-star, but how many housebuilders do you know that all of their business units are five-star within it? This is across the board and a consistent performance. Nine-month customer satisfaction, 79.6, virtually 80%, which will be four-star, which is well ahead of the industry benchmark. Build quality scores ahead of our targets and really good. Peakon survey, even higher than the group average of 8.6, up to 8.7. Voluntary staff turnover, and I'll come back to people when we talk about the combination in a minute, but moved slightly, but still in the bounds of where we're happy with.
The land bank continues to be a key focus and strategic land bank, as Earl's just touched, our strategic land bank is excellent and we're targeting getting all completion or 30% of completions going forward from that strategic land bank. 25 by 25 by 25. That's 25% gross margin, 25% return on capital by 2025. That remains the target, and we are ahead of the target. The 23% is at least six-seven months ahead of where we expected. Well done to Housebuilding. We are still aiming to get to 8,000 units per annum from Housebuilding, which is a moderate growth. That can be done from the existing 13 business unit infrastructure. We don't need any new offices there.
That will be done after 2025. Saying 25, 25, and 27 doesn't quite have the same ring to it, of course. Just picking out a few of the points. On land buying, the bids now that between house building and partnerships, we're really getting this right and the success rate where partnerships and house building bid together is really starting to come through, and that'll be another important thing with the combination if we get there. With regards to Countryside, I've talked about strategic land. Exits, I would just say, it's starting to actually come onto the radar of profit now, and I think it will start to come onto the margin.
The improved offering of customer extras is now really starting to actually help, and it's becoming the icing on the cake between both partnerships and house building, and that's only gonna go one way. Our forecasts don't assume any green premium. So we are starting to talk to banks, the likes of Savills and the like, and the 2025 houses will be so well insulated, you would start to think that the banks will start to give some sort of differential with their mortgage offering for those houses. We might even be starting to see the start of it now, particularly with the cost of energy as it is. I'll give you an example there.
We would say that a standard three-bedroom house, new today, let alone in 2025, compared to a 1940s, 1950s, 1960s, similar sized three-bedroom house with the October price cap will probably save 3,000 GBP per annum with new. You've got to earn 5,500 GBP to pay that. Sooner or later, I would have thought mortgage companies would start taking that into some sort of consideration. We said at the time of buying the Galliford Try housing businesses, we were gonna try and multi-brand our sites. It's really nice when a plan comes together.
I can tell you that the bringing together of Bovis and Linden and having them appropriately, you know, differentiated, they are different products as it were, both high quality, good customer service, et cetera, has worked phenomenally for us. So much so, we're starting to develop a third brand. Currently, 20% of our sites are dual branded, and we're looking for that to go to 40%. On fire safety, Earl touched on it. The provision, we're one of the peer group. Our provision is in line with what we've said all the way through. There's nothing to see there. It's the same as what we've said all the way through. Negotiations with the government, we've got a new housing minister now.
Hopefully, these will get done in the next two or three weeks before there's another housing minister, but we'll see. We think we're getting close to an agreement, final agreement, and that might, our best estimate at the moment is another GBP 10 million- GBP 15 million on the numbers. Not a disaster in any shape or form, and that's GBP 10 million- GBP 15 million over five-six years. Tax will come off that, of course. Stephen?
Right. Thank you, Greg. Good morning, everyone. Good to see you. As Earl has outlined, the last six months have been an excellent example of us delivering on our partnerships growth plan. I just want to spend a moment just putting that into context and hopefully some of the information in this slide will help with that. This year is a watershed year when we reach the target of GBP 1 billion revenue as a partnerships business. Of course, it's about a lot more than just hitting that revenue. It's about delivering margin progression, additional profitability, while maintaining that very disciplined approach to returns. That's something that we've been able to do. We've also, in growing a business, been able to demonstrate that growth is baked in to the partnerships DNA.
If you look back to 2019, when we were a Galliford Try platform, you can see 13% CAGR growth over those three years. That's during COVID, that's during the transition to Vistry, been done very effectively indeed. Part of that is an indicator of what an excellent number of people we have within the business. We have a very successful platform as a partnerships business, really focused on growth at every level within the business, which is excellent. You can see that growth in operating margin driven by two things, a transition towards a nice balance at the moment, 50/50 in terms of partner delivery and mixed tenure, but also on our partner delivery, increasingly a disciplined approach to the schemes that we take on.
We've actually turned away opportunities where we've been preferred partner in the last 12 months because we weren't happy with the risk transfer. We're being very disciplined with the growth in that business which of course is predominantly cash generative. Looking forward to our medium-term targets, it's great to announce that we're well on our way this morning at 10.2% as an operating margin. Along with our five-star status, focused on delivering a 12% margin. Internally, we call this growth project, Project Pace, because it's all about running at speed, it's all about velocity, but it's doing it in a sustainable way. A bit like when I did the marathon last year, and that's the focus of the business. It's about delivering on a consistent basis.
You can imagine that I think it's both exciting and compelling that we can give that growth plan an acceleration, through the combination of the businesses that was announced earlier this week. You can only achieve that growth if you've got good quality opportunities. Looking around this slide, you can see where we're the partner of choice. It's over GBP 1 billion of GDV of work on this slide. It really does emphasize a couple of things. Firstly, what characterizes these schemes, and you can see there, is the minimum 40% return on capital and rigorous approach to our hurdle rates. Where you can see the margins vary, that's because the percentage of presale varies. If you look at the scheme there at Meridian Water, London, we've presold 75% of that scheme, and the margin reflects that.
This slide also shows the geographical distribution and the range of clients that we work with. Three of these schemes highlight our work with local authorities, one in the top left corner there with Kenilworth. Excellent scheme where the local authority are also providing the finance. Great way for the local authority to deliver housing, the right balance of tenure mix, but also for it to work with ourselves in joint venture, so they get access to our supply chain efficiencies and our expertise as a joint venture partner. In return, they're providing additional finance. Two great examples of our regeneration credentials up in Sunderland and also at Meridian Water in London, as I mentioned. You can also see from that slide our work with a diverse range of clients.
There's three PRS providers there, L&G, Sigma, and Gresham House, and that's both high-rise and low-rise dispersed housing. That market is growing, so we're seeing increased PRS, which is great. Our work with existing housing associations continues, where it's very much the partner of choice. That breadth of activity helps us when we face into the current operating environment. I've picked out five things here which have come up actually during the course of this week when we've been talking to people, which I think is very helpful to just highlight this morning. Firstly, that issue of build cost inflation. Working with our clients, we're able to agree the balance of risk in terms of looking at cost inflation, input cost inflation.
We use a range of devices, fixed price allowances, indexation, phased delivery, so we reprice during the longer schemes and work with those clients to make sure that we've got the right balance of risk as we deal with this inflationary environment. Of course, that's an opportunity as inflation goes back and we've got fixed prices going forward. I hope that that will come through on a positive basis. Housing market demand, absolutely strong demand across PRS and affordable housing.
You will have read during the recent commentating in the press about the rent cap that is being proposed by the government, which is out for consultation coming back in October, which is suggesting that instead of having CPI plus 1%, which would be around 11% for housing associations, depending upon the September figure, they're only able to increase their rents at a proposal of 3%, 5%, or 7%. Most housing associations are baked in 5%. Bear in mind, they're looking at 45- and 60-year business plans. These are not short term three and five-year business plans. That pricing impact is not going to deter their ongoing investment into new supply. They're not gonna say that because they'd like more grant, but it isn't gonna deter their investment into new supply. Supply chain capacity.
Partnerships in a great position because of those forward sale positions to talk to the supply chain, as Earl has mentioned earlier, to get those procurement efficiencies to show the forward visibility of what we can achieve. That's great. That's very attractive to supply chain, as is investment in some of our social value initiatives around academies and bringing apprentices and the use of MMC, which is really important to us going forward. When we approach local authorities to get planning consents, we are the same as the rest of the sector. There's a challenge. There's a challenge about capacity. There's a challenge about delivery within local authorities. We are in a much more positive place as a partnerships business, where we can present a more benign developer face because we're delivering more affordable housing and we're focused on creating place.
That counts for something when you're talking to local authorities. Finally, enhanced sustainability regulations. The beauty of our work with housing associations is that they are wanting to trial new technologies, and local authorities are wanting to trial new technologies. They're wanting to see how they can decarbonize their stock by investing in the new builds that are coming into that stock. We've got a great platform which allows us to lead the way in our Future Homes Standard. We're getting the experience. We're learning from these schemes on this slide as examples, all different technologies, different approaches. We're learning about the production issues, and we're learning about the costs and the commercial issues around delivering those new technologies, which is incredibly helpful. You could look at it another way.
Our R&D is being subsidized by others, and that's a great place to be. That expertise isn't just coming into partnerships. It's coming into Vistry, which we can then migrate across and support Keith's house building business with the knowledge that we've gained with those partners. Greg.
Very good, Stephen. As Stephen said there, it's all about consistency, and he threw in that he did the marathon, which I didn't know he was gonna talk about, and I can confirm he was absolutely consistent doing the marathon. He did three miles per hour for the nine hours it took him to do it. Well done, Stephen. A market update. Demand across the sector has come back, which is no bad thing. It was an unsustainable market in our view towards the end of 2021, first four or five months of 2022. We're now running at 10% above reservation levels or sales rate, 2019, which is a good market. Prices are firm, slightly up on our forecast.
We continue to see robust mortgage availability, and as Earl said in his presentation, Help to Buy is coming to an end. 16%, we don't even talk about that. Three or four years ago, that was a big thing. What will happen to the housing industry when Help to Buy comes to an end? It's coming to an end. I don't really think it's gonna make too much of a difference. Halo, other schemes that we have got, and we're talking to them about substantial other deals, will probably make up the shortfall there. Customers are facing increased concerns, a surge in inflation, high energy costs, and I talked about the benefits of new build on that and increasing interest rates up to 4%.
Still a long way to go to the 16% that I can remember and still historically low levels. The market for affordable housing at PRS continues, as Stephen has said, unabated, an incredibly strong demand and huge levels of funding. Industry cost pressures were up to about 8%. We're still covering that off at the present moment in time. Wage inflation and labor constraints have been lower than anticipated. I'll have a bet with anyone I suspect that bricklayers over the next 12 months and carpenters whose rates have gone up dramatically over the last two years, as the market slows down a little bit, will come back. I can see some deflation. We'll see about energy, but I can see some deflation from the labor element of things.
Planning is the single biggest constraint to housing supply in the country. That continues unabated, increasing political and regulatory environment. It'd be very interesting to see what happens with the new government now with nutrient neutrality, which is causing us one or two issues, which is, again, a Brussels initiative. It'll be interesting to see if that goes away because the new housing minister, his patch is absolutely nutrient you know right in the middle of it. It's a huge amount of delay in his constituency. The market, it's 2019. It's a good market. It just isn't. We've just lost the fizz, and we needed to lose the fizz. If you're a house builder, at the present moment in time, I could tell you this is no bad thing.
The salespeople have to sell houses now rather than just take reservations, which they've done in the last 12 months. The land market are finding it more straightforward. The builders are finding it more straightforward. Customer care is finding it more straightforward. The biggest part of house building is actually quite pleased that the market has come off a little bit. Right. We've got a very, very strong outlook as an organization. Weekly sales remain ahead of last year, 0.78, and that's way ahead of what we used to achieve, remember, at Bovis. We continue to see a good level of prospects right up to the weekend just gone. We're ahead of where we were in 2019 again. Our partnerships business extremely well-placed to meet the high level that is there.
Of course, that's countercyclical. If the market comes off, our partnerships will do better than they're currently forecasting. That's the way it works, having gone through three or four different cycles. Forward sales, again, very, very strong, 10% up to GBP 2.287 billion. 96% of this year's units are sold. If we took out some contingencies, I suspect we're already done. I can stand here now very confidently and say I've never, ever in my 40 years in the industry been in such a comfortable place for our year-end in December. Cost pressures, as we said, running at about 8%. We expect to deliver a significant improvement in year-on-year profitability in both housebuilding and partnerships for this year, ahead of our expectations at the start of the year.
While mindful of the wider economic uncertainties, we remain confident of the numbers that are out there and GBP 417 million PBT this year. Moving on to the recommended combination of Vistry and Countryside, which obviously we announced on Monday. Strengthens Vistry's position in the to deliver sector-leading returns. Capital light, high return on capital, 40%+, and we're aiming to get to 40%+ as a combined business very, very quickly. Partnerships becomes a significantly bigger part of the overall group. On day one, it'll be 45% of revenues, and it will only be a year or two before it's over 50% of revenues. Increased partnerships exposure offers greater resilience to the cyclicality of the housing market. We've seen significant benefit, or we'll see significant benefits from increased scale.
Synergies of at least GBP 50 million, which I think we would beat, and potentially from Countryside's timber frame capability, which we're really excited about. Brand strength, Bovis, Linden, don't underestimate the power of Countryside's brand. It is still a five-star house builder. Very good reputations. Stephen has now spoken to Homes England. He's spoken to all of the major clients, and Countryside is still a very well thought of organization. Hence, we're keeping the brand Countryside. Delighted that we've got some great leaders coming over from Countryside to join the business, not least Tim Lawlor, the new group finance director, if the deal goes forward. A summary of the financial targets. We're expecting to achieve at least GBP 50 million per annum, on a run rate, synergies.
With increased scale, we are seeking to achieve adjusted operating profit for each of the two divisions in excess of GBP 400 million. We are confident that the rebalancing of our business, creating an even more distribution of profits between housebuilding partnerships, will improve our resilience and returns. As we said on Monday, if the market doesn't recognize the value of the combined group by 2025, the board will review the situation, and we will have two businesses that can stand on its own two feet, and we may very well separate them. Hopefully not. I do believe in the model. I think partnerships and housebuilding works very, very well together.
The combination is very much aligned to the One Vistry strategy, so that maximizes the strengths and opportunities from the combination of housebuilding and partnership assets. Strong market position and capability across all housing tenures. Not neck and neck with Barratt as to who's the largest house builder by volume in the country. A leading provider of high demand, high growth, affordable housing. The leading provider, I would say on that. Strategic land capability. We are delighted with the quality of the strategic land bank within Countryside, and it's about half the size of the Vistry one. Multiple brands, and as you heard me say, in the six months, the two brands of Bovis and Linden on all of our dual branded sites is going really, really well.
We're looking at a third brand, but that should go up to 40% dual branded sites as we go forward. Utilization of MMC and access to Countryside's timber frame capability, we've become more and more excited about that as we've gone through the extensive due diligence that we've done. Before we go on to Q&A, we put an RNS out just before we started this presentation. I didn't want to. I was thinking yesterday, do I really? I've bought a lot of shares in Vistry over time. Do I really wanna do any more?
I seriously wasn't even thinking about it, doing it up until yesterday, and I thought, "It's gotta be a no-brainer, isn't it?" I've bought another about GBP 200,000 worth of shares this morning. Why have I done that? This combination is gonna be absolutely terrific. It's gonna absolutely fly. It's gonna be just like the Galliford Try one. It's gonna be great because of the great people we've got. Vistry is in an absolute fantastic position as it is at the present moment in time. Call me sick if you like, GBP 8? It was GBP 6 when we were in the middle of a pandemic with a lockdown. We're all gonna die. No one's on a building site, no one's working, and here we are at GBP 8. It seemed incredibly good value to me.
That's why I've done it. On that little rant, we'll take questions. Chris?
Morning everyone. Chris Millington at Numis. First one, just a little bit more detail on the market, if you could. Maybe comment on incentive, down valuations, cancellations, what you've been seeing on prices just over the summer months, if possible. That's the first one. Second one's just over land visibility. You know, obviously planning's been an issue. Maybe you could just talk about how you are for the second half, but probably more importantly, 2023. The final one may be for Stephen, but the plot cost acquired in partnerships has jumped quite a bit. I think it's up about 50% year-over-year, something like that, from GBP 23 to GBP 35, roughly. I assume there's just some specifics there, but could you comment on that as well?
Can you just pass the mic, Keith? Do you wanna take the first two questions?
Swap.
You going to turn it on, Keith.
I think it's on now. First question, which I think was about cancellation rates. Was that right?
Yeah, the general indicators on the market.
Cancellation rates actually in the last couple of months have come back off where they were in the first half. Mortgage valuations and down valuations, we're not seeing anything happening in that respect. As Greg has already pointed out, in terms of home exchange. 2% in the first half. We're not seeing any particular increase in the number of home exchange inquiries coming through, so it looks like the market is actually quite sustainable in terms of the supply. The chains seem to be holding out. The potential restriction, of course, is what's happening with the length of mortgage offers, 'cause we're so well sold, we haven't got a lot of product availability at the moment. The market is fine. No problems. I'm relaxed.
The land market?
Oh, the land market. Well, as Greg said, it does appear to be some of the urgency is ameliorating. Some of the froth that's in there appears to be dialing back as well. In fact, actually, we signed off on a deal yesterday where we had one come back to us above our current hurdle rates that we hadn't expected. We thought we'd lost, but it's come back to us.
What are the plans for delivery over planning for the remainder of this before, of course, in 2023?
The planning side of things, I did get a question on that on Monday as well. I said it appears to be getting better. Stephen referenced how the quality of the engagement that we have with local authorities is really important. It's exactly the same, I think, in my presentation that I did at the beginning of the year, or actually, no, at the Capital Markets Day last year, I referenced we really have to build relationships with the people in the supply chain, and that's our local authority partners as well. It's patchy. It really depends on where the resources are in the local authorities.
My concern, speaking personally, is where we have got very good people in local authorities genuinely engaged, trying to get things through, and then they get to a planning committee, and they get knocked back. That cannot go on for too long. I think that's something that the government has got to address in terms of how planning local authorities are recommending planning permissions for approval, gets to committee, and gets knocked back. I imagine that's something that they're gonna have to think about.
From a gross profit shortfall perspective, as we say, for 2023 and 2024, no land. We don't need to buy any land for 2023. We have a number of planning permissions outstanding, but no different from normal. We've been affected by nutrients, but not as much as our peer group. As I said in an interview first thing this morning, I think that's more luck than judgment. We've just had a bit of luck with regards to nutrients. Yes, it's affected us, but not as bad as I'm picking up from some of our peer group. The gross profit shortfall for 2024, yes, we need to buy land.
I'm really pleased that we didn't rush in and buy too much land over the last three months to get there. As we're saying, some of that land is now starting to come through. Again, with the combination, I think it's 10 sites, something like that, coming in from Countryside that you don't have to go out onto the open market and buy. We will come into housing. Yes, it's a Partnerships acquisition, as it were, but there are benefits to housing from some land they still have to sell, which we'll pass on to housebuilding and particularly from their very good strategic land bank.
And-
Judgment point. Can't hear you, Keith. Sorry.
Just on the local judgment point, the dual branding piece does give us the ability to, if we get a knockback in one particular area, we can turn up the gas in other areas. It is working.
Yeah. Sorry, Stephen.
On the partnerships points, Chris's observation that we focus, of course, on the margin rather than the average plot cost. The good news is the margin's not going back. The margin's stable or going forward. I think it really is a function of a couple of things. Firstly, a more southern bias to some of our land acquisitions, as we've grown the nascent business in Thames Valley, in the South East, in Eastern, which has always been part of our strategy. Pleased to see them forecast to contribute this year as well, which is great. That land average plot value is obviously higher. Without the figures to hand, but a higher level of greenfield opportunities in those areas than brownfield. I think those two have contributed to the plot value being slightly higher.
Aynsley, I think was next.
Thanks. Just two questions actually. On the net cash, obviously did better there, and I think you're kind of signaling that it'll be good in the second half as well. When we look at that GBP 73 million 12-month rolling average debt, should we think as we go in, particularly on the merger front, but, you know, standalone Vistry, GBP 30 million-40 million average net debt? Is that the type of figure we should be thinking about, going forward? Then secondly, just coming back to Chris' a bit more on the sales. I think you've given the sales rate year to date. Just wondered if you had the kind of second half to date, effectively July, August, and how that compares with previous year, on that front. Thanks.
Going now, yeah.
On the cash, I think that's probably a fair if you're looking at Vistry standalone going forward. That's kind of where we are. Obviously there's in terms of the combined. I mean, there's GBP 300 million going into the transaction, and therefore, as I said on Monday, you know, if you were looking at GBP 200 million to even GBP 300 million of average monthly net debt on the combined, that wouldn't be out of the way. We will still have a working capital cycle, particularly driven by our house building business of spending more money in Q1 and Q3, with big cash inflows in Q2 and Q4, as we've always had. You will see still a swing in that working capital cycle through the year.
You should not expect to see too much debt at period ends, particularly, you know, the December period end and gearing of less than 10% as an overall target.
The sales rate since, say, July 1st, has been 10% higher than it was even in this last eight-nine weeks than it was in 2019, at least, probably 11, and the rate is about 0.6 what?
6.61. You can work it out from what we gave you in July to now.
We are definitely now back into 0.61. Good. We're definitely back into a normal seasonal market. What we've seen over the last 12 months is a catch-up in COVID. You know, July, we sold as many houses as September, and that's not normal, so we're back to where we were. July, August, first week of September, 0.61, 10% or 11% higher ahead of where we were in 2019. That's right up to the weekend just gone.
At this point, you're expecting the usual autumn bounce?
We're expecting it, but we're not necessarily forecasting it. We're in a very comfortable position.
Ami Galla from Citi. Just three questions from me. The first one was on house building and the gross margin for the business next year. In terms of the moving parts, does the higher intake margin start benefiting the business next year, if you kind of consider that house price inflation starts easing from here and you still have build cost inflation? Do you still benefit from that, and can we see that moving, going up? The second question was really on overheads. I think the first half definitely saw a relatively better performance. Do we expect that even in the second half, or were there any one-offs that we should be aware of? Third one was on house building again. If you can give us some color on how the outlets move in that business by the year-end and forward.
Thank you. On the house building points, which Keith will take. We are looking next year, we'll get the benefit, if the combination happens, of procurement savings, which aren't built into the current forecast. We would be looking for a 24% gross margin in next year, which is ahead of schedule on its own. The house building would also benefit, of course, from the GBP 50+ million worth of synergies, of which, kind of 30 of that is coming from procurement, going from a 12,000 per annum unit house builder to 18,000-19,000. Keith's team will benefit from that as well as Stephen's team. The other question on house building, Keith?
Outlet numbers.
Yeah.
They're looking to be relatively flat year-over-year. As I said earlier, in the context of usability, the ability to dual brand and sweat. Don't be concerned about the fact that our outlet numbers are flat.
We've got a third being worked on at the present moment in time, which might be the third brand that we're working on, or we might use the Countryside brand. We've got a couple of options there, depending on what happens in the next couple of months. Then was there a finance question?
A couple of things I'll just pick up. Gross margin, yes, you should see that continue to improve as more of the 25.3% that's in the embedded land bank comes through very naturally in terms of the flow. In terms of overhead, yes, we will continue to be more efficient with scale in terms of the overhead base. In fact, the first half probably suffers a little more overhead 'cause we're, if you take the profit number, we're probably 46% of, you know, the 417 we've guided, and there are some fixed overheads. The only thing that may swing it, if we have a good year, there'll be a bit more incentive costs, bonus costs in the second half.
Clyde?
Thank you. Clyde Lewis at Peel Hunt. I think I've got three, possibly four,
What, you're gonna see how it goes on the first three, eh?
Probably one for Steven. Housing associations, local authorities, it'd be really useful to get an update on their ability to fund schemes given obviously sort of what's happening to interest rates. On the local authorities, again, it'd be interesting to hear about how their appetite, I suppose, for schemes is evolving.
Sorry, Clyde. Go on then, Stephen. Do you want to take that straightaway?
Okay. Yeah. In terms of the ability of housing associations to fund, some of their finance is there for them to grow their business plans. It's already been arranged. They've got, some of them have issued bonds, and they've got finance that way. Some of them have gone to the normal capital markets in a different way, and they've gone to, they're working with the banks. The ambition for delivery is in parallel with the grant funding that they've committed to through their relationship with Homes England. They are within a five-year plans for strategic growth, and they've got all of the funding available in order to deliver against those five-year plans, the big strategic partners.
There's no impediment in terms of the availability of finance for those large associations to continue to deliver against their business trajectory. That's not an issue. I think I touched on the issue of rents and how that might impact. In terms of local authorities, there is an increasing number of local authorities who are looking to directly commission housing. Some local authorities have access to grant. One of the advantages we have is we're the only private sector developer who has a strategic partnering program direct with Homes England. Therefore, when we talk to local authorities, if we're buying a site with 25% policy compliant affordable
If we go from 25%-40% or even 50%, we can use grant to achieve that. We work with the local authority and Homes England on delivery in that way. I expect local authorities to play a bigger role going forward in terms of housing delivery, and it's a key area for our individual businesses to focus on expanding that relationship from 22 local authorities to 30 or 40.
Second one was on incentives. Just if you could just update us to what's happening in terms of incentives. Are you seeing a little bit of upward pressure, you know?
The answer to that is definitely. You would go back to May and a sales advisor would say to a purchaser, "The price is the price. Do you want to buy or not?" Today, we are dealing, as all house builders are. Whether it's carpets, curtains, and even price. Don't forget, all of our asking prices are above our forecast prices, and there hasn't been a week yet, going back to your point, Aynsley, from first of July, where we haven't been up on forecast prices, albeit a lot less than it was in January, February, March, April. There, we are still overall up a little bit on forecast.
Thank you. The last one was the comment you made about. Sorry.
Yeah.
The last one was on the GBP 3,000 saving that you flagged for the new-build properties, obviously before we get to 2025. How do you think the valuers are thinking about that, given obviously the pressures that are there in terms of the energy savings or energy costs?
Definitely saying to them now, how can you look at affordability as you are, and you're giving someone a mortgage over here? Now, if it's a few hundred GBP, really, what difference does it make? If you look at GBP 3,000 , which we can justifiably prove to have GBP 3,000 in your back pocket means you must have. You need to earn GBP 5,000 to actually, you know, get that after tax. You are starting to get into the realms of, that's got to be coming into your thinking.
I really do think it's not gonna be a million miles off before mortgage valuers, mortgage companies, green mortgages, et cetera, et cetera, will start to differentiate and say, "We'll give you a better mortgage, because you're gonna save money, and it's a greener category." All the banks are under pressure for green lending to actually give better mortgages for new houses, which we've not had before. Therefore, to do that, the mortgage valuer is gonna have to actually increase his valuation of the new build house compared to the second-hand. Don't forget, everyone, you know, the mortgage valuer, if he's got 100 other examples before he actually says what the price is, 90 of those are gonna be the second-hand market. It's not the new build market.
Obviously, we don't really get a premium for our product. It's pretty much based on the second-hand value. I think the days of that are starting to come to an end.
I'm gonna go for the fourth one, if I can.
Honestly, yeah.
It's probably going back to Stephen. You flagged your ability to sort of, you know, go through phases, and I suppose in terms of sort of the inflationary impact from costs. Just maybe that Meridian example is a big scheme. I mean, it's, I think it's GBP 420 million. So you're obviously gonna be on there for more than a couple of years. Have you got sort of phase resets in there, in that one in particular, I suppose? Because obviously we're all conscious of what happened to Countryside, and we suspect that there's been a little bit of sort of lack of sort of inflationary incentives in there. Could you say a little bit more about that scheme in particular as to what we've done?
There are two interesting things about that scheme. One is some of the PRS element we have not yet contracted on. Part of the scheme is contracted as we go onwards. We'll contract at the right price at the right time, so we're not exposed. One of the other interesting things about this scheme is there's a particular kicker in that scheme in respect of additional growth in shared ownership values, which allows us to offset some of the inflationary increase against enhanced value, which the purchaser, the purchasing organization, purchasing housing association will get when they sell those shared ownership homes.
There's a couple of ways there that it is a very good illustrative example of what I was saying about using, in that case, a phased approach, but also there's a lift, there's a kicker, if you like, that's related to house price inflation. It's not just about input cost inflation.
On top of that, Stephen, you have allowed for increased costs in all of these schemes. We
We will have a fixed price allowance.
We all, you know, we absolutely put that in. Any job, if Meridian was one or two years ago, there would be a fixed price allowance. If it was one year ago, it's a greater fixed price allowance. If it was six months ago, a greater again. I would actually say the work we're winning at the present moment in time, my gut feel would be we would, you know, because we've really loaded it because of what's going on the basis that it will continue to go on at the same rate, and I very much doubt it will. Glynis?
Thank you. Glynis Johnson, Jefferies. I'm conscious of time. I'm gonna ask one. The intake margin on the partnerships, why is it going up? Is it going up on sites that you're buying with house building? Is it going up because of your reputation for build? What is it that's actually allowing you to drive that?
Partly will be to do with the house building bit. If you remember rightly, the whole ethos of when we bought Galliford Try was Galliford Try didn't have a balance sheet. Bovis did. It was moving Vistry Partnerships as it is, Galliford Try Partnerships as it was, more from partner delivery contracting, as it were, affordable housing into mixed tenure development. The percentage of mixed tenure development that Stephen and his team are doing today is a great deal more than they were in 2018, 2019. Probably some of the reputation stuff is in there, working with housebuilding is in there, but I would say 80% of that improvement is down to the mix of what partnerships are doing. More mixed tenure development, less.
Well, not less, a similar amount of partner delivery, a great amount of mixed tenure. All the growth has come from mixed tenure. Partner delivery is about the same as it was.
In theory, there's an uplift that should come. In theory, there's an uplift, further uplift that should come as you start to more leverage partnership across with your housebuilding.
Correct.
Good.
There's some great developments that are coming through which we've not seen any benefit yet, but we will in 2023, 2024 onwards.
Great. There's a couple of questions online that Jack will ask.
Okay.
Thank you. We've had a number of questions from the online audience, the first of which comes from Arnold Layman at Bank of America, and that's: What do you expect the new government to do about the implementation of the Building Safety Act, in particular the safety levy, and do you expect the Levelling-up and Regeneration Bill to go ahead, and what are the implications for Vistry?
Do you wanna take that, Graham?
Thank you. Well, Levelling Up, you've got to say we've now got, as Greg's already alluded to, another new housing minister and Levelling Up minister. The easiest answer would be don't know. I do think that the Levelling Up will go ahead. That can only be a good thing, as government encourages the kind of infrastructure improvements and the kind of regeneration schemes in particular, Stephen's business is very specialist. Very happy to see them proceed on the Levelling Up basis. You asked specifically about the levy. That hasn't gone away, but things have gone very quiet.
As you will be hearing from everybody, we're right in the eye of the storm on trying to nail down what's being referred to as the long form contract, which is the codification, the contract of the pledge that we've already signed. Again, without it wishing it to sound like a cop-out, we thought we were pretty close to agreeing things with Greg Clark, but of course, he chucked his homework in the bin when he realized that Madam was only gonna appoint her mates. She's now got a list of mates in the cabinet, and we wait to see what attitude the other Clark, Simon Clarke, will take.
It is very difficult, but no, Levy hasn't gone away, but I think that will sit behind the finalization of the long form contract. We'll hear what they want to do with the prospective levy.
Okay.
We have another question from Andy Murphy at Edison Investment Research, and that's: Given the combination of Vistry with Countryside, do you expect a further share buyback and/or changes to the dividend policy?
What we've said is that we will review, so should the combination happen, we will continue with the 2x cover. I think that's what we've said, Earl. We will review on an annual basis probably what is the right thing to do, and if the share price is GBP 8, you would think more about share buybacks than if the share price is GBP 14 or GBP 15. We will look at it on the basis of where we are at that particular amount of time and how much cash there is. I would expect the cash when we get into 2025 and onwards to start coming in because of the emergence of how strong the partnerships business is gonna be.
I can't see that we won't continue paying a dividend. All I could see is that maybe the balance between dividend and share buyback might, may change, and it might not. We're gonna stick with 2x cover, and we'll review on an annual basis.
Thank you. As there are no further questions from the online audience, I'd like to hand back for closing remarks.
No, that's it. Thanks very much, and hopefully I won't see you again, for another six months. All the best.