Henry Boot PLC (BOOT) Earnings Call Transcript & Summary

I think we're ready. Okay. So good morning, everybody. So it's going to be the normal running order. I'm going to start off with a brief introduction and then review of our performance. And then Darren is going to go through the financials and land promotion, then I'm going to finish off on development, construction, and Stonebridge and also outlook. So first of all, an introduction. Our focus on high-quality land, prime development, and premium homes helped us to achieve total land and property sales of nearly GBP 350 million, or our share GBP 224 million. This is broadly in line with the sales over the last 3 years and shows at a time when the market has been pretty challenging that demand for our property remains resilient. We also continue to make good strategic progress, and we've done 3 things. We've agreed terms to take full ownership of Stonebridge Homes. Following a strategic workforce plan at Hallam, we're increasing head count and also in-house specialism to enable us to submit more planning consents and then ultimately to grow the sales of the business. And then we've also entered into the Origin joint venture, and I believe that that's going to help us to accelerate industrial development. And throughout this period, as you have grown to expect, guess what, our balance sheet has remained rock solid. And our NAV, it keeps on growing. It's just over GBP 3 per share and as you all know, again, very conservatively valued because the land and the developments are held at cost. The decision to increase our full-year dividend by 5% is a sign that we continue to have conviction on our 3 key markets, and we're confident in hitting our medium-term targets. And we also believe we're not only well positioned as our markets recover, but also we think that we can take full advantage of the freeing up in the planning system that we've seen. So just going through the operational performance. And as flagged at the interim results, we expected our performance to be half 2 weighted. And I'm pleased to say that we've had a very good second half. And as a result, we've delivered results in line with market expectations. And going through the slide, first of all, land promotion. Sold just over 2,660 plots and 97 acres of employment land, translating to GBP 183 million of land sales or our share, GBP 78 million. And that meant that Hallam performed ahead of budget. Our land portfolio has also increased to 105,000 plots and as I said last time, our aim is to place more emphasis on winning, planning, and realizing sales and less on growing the portfolio. And the reason why is that we think that the portfolio already has scale and balance. Changes to the NPPF have opened up a window of opportunity for us to win more consents. Even at the end of last year, we saw the inspectorate and the local planning authorities changing their approach to planning and it is freeing up the planning system. And our ambition is to submit applications for 10,000 plots over the next 12 months. And to give you an idea, our normal run rate is about 2,500 plots per annum, so fourfold. Turning to developments, including Stonebridge. We, again, were marginally ahead of budget. HBD completed on GBP 188 million of developments and 72% of that is pre-let or presold. The investment portfolio generated a total return of 9.9%. So again, it's well ahead of the index. And then Stonebridge continued to grow by completing 270 homes, that's 8% growth and we carry on scaling up this business. On Construction, operating profit was nearly GBP 5 million, and that was in a challenging environment and was below budget as in particular, HBC's turnover fell. A new management team has been installed in HBC, and I'm pleased to say they've made an encouraging start. And all this means once you deduct GBP 11.7 million worth of central operating costs, group operating profit was GBP 34.2 million. So quickly going through the medium-term targets. Capital employed increased to GBP 439 million and is on track to grow to GBP 500 million. ROCE was at 8%, but we maintain our target through the cycle of 10% to 15% return on capital employed. Plots sold in 2024 are in line with the 5-year rolling average of nearly 2,700, and we expect to sell 3,000 plots this year. And again, that's going to mean that we will step closer to the target of 3,500. On HBD, GBP 188 million of completed developments was the second-highest total ever at a time when markets have been subdued. And then on Stonebridge, we've increased completions in a difficult year, and we keep on buying up land to hit that target of 600 units per annum. And then HBC, the construction order book this year started in a much better position with 55% contracted and 16% secured. So handing you over to Darren.

Thank you, Tim, and good morning, everyone. If I can take you through our financial review for the year. So turning to our financial summary. As anticipated, we delivered a strong performance in the second half of 2024 with a number of significant transactions within both our land promotion and property development businesses completing in the final quarter, along with the usual flurry of house sales. Whilst land and property sales were broadly in line with the prior year, the lower revenue largely reflected a reduction in turnover within the construction segment. Gross profit decreased slightly by 3% to GBP 74.5 million, with the gross profit margin improving to 22.7% from 21.4%. With operating profit of GBP 34.2 million and an underlying profit before tax of GBP 29.4 million, our return on capital employed reduced to 8%. Through the cycle, we continue to believe our target range of 10% to 15% remains appropriate. Earnings per share reduced to 17.4p in the period. We have increased the dividend by 5%, reflecting our progressive dividend policy and the continued growth of the business. Whilst many housebuilders have returned to taking larger sites, these typically take longer to agree terms and progress through legals. We, therefore, expect our 2025 performance to once again be second-half weighted. Moving to the balance sheet. Following more than GBP 10 million of sales during the year, investment property has increased to GBP 111 million as we've seen further rental growth for our industrial assets and added GBP 6 million through Origin, our new I&L JV, which Tim will tell you more about shortly. We have invested over GBP 35 million into inventories, growing Stonebridge Homes with investment in their land and work in progress as well as adding to our strategic land portfolio and building out our committed development program. Following land and property sales, net debt reduced to GBP 63 million, with gearing well within our optimal range at 15%. We expect gearing to be towards the top of our 10% to 20% range during 2025 as we face into improving markets. Since the year-end, we've completed on the first tranche of our purchase of our JV partner stake in Stonebridge Homes, and we are also increasing our number of new planning applications. I'm happy to report that during the year, we completed our bank refinancing with a facility of GBP 125 million. That now runs through to 2027 and is extendable by 2 years to 2029. It also includes an accordion allowing us to increase the facility by GBP 60 million over the period. Terms are broadly in line with the previous arrangements and are based on a margin of 1.6% above SONIA. Finally, our net asset value per share increased by 3.6% to 317p or 312p, excluding the pension surplus. And including dividends paid during the year, our total accounting return was 6.1%. Looking at the cash flow, this largely demonstrates how strong forward sales and cash collections on past sales from housebuilders on deferred terms has allowed us to continue to invest in land and property. Operating cash inflows totaled GBP 9 million being returns in the period, largely offset by payments for interest, tax and dividends. Investment of GBP 35 million into inventories relates to growing the land bank and work in progress in Stonebridge, delivering our committed development program and infrastructure works in Hallam to bring forward sites for sale. Given the lower level of land sales to housebuilders in the period, our continued investment has been supported by cash collections on those previous disposals and deferred payments on land acquisitions of almost GBP 46 million seen here in other working capital, leaving us ending the period with net debt of GBP 63 million. If I can move on now to the operational review and starting with land promotion. Hallam sold 2,661 plots in the period, along with 97 acres of employment land, generating an average ungeared IRR of 26% per annum, which we're clearly pleased with. It was also delivered on average over 17 years. Pleasingly, land values stabilized during the year, and we continue to see good demand for our sites in prime locations with the housebuilders actively returning to the market for schemes of a larger size, evidenced by our scheme in Coventry, which I'll run you through in more detail shortly. Having received planning on almost 3,000 plots in the year, this compares to the 3-year prior average of around only 600 plots a year and reflects the positive changes to the NPPF. 2,000 of these were actually achieved in only the final quarter of the year. We therefore ended the year with planning on nearly 9,000 plots in total, and this positive trend has continued with permission on nearly 900 plots already in 2025. As Tim said, with the portfolio all held at cost, we don't take any valuation gain on securing planning permission until the land is actually sold, reflecting a significant uplift in value currently not recognized within our balance sheet. And finally, we've started 2025 well with over 2,000 plots either sold, exchanged, or currently under offer. Over the long term, our land promotion business has delivered significant returns with return on capital employed averaging almost 17% over the last 10 years. The scale of the portfolio allows us to mitigate the site-specific risks. And whilst we're clearly highly correlated to demand in the housing market, this can be mitigated to some extent through forward sales. As we move forward, our focus is continuing to increase sales and secure planning permissions whilst continuing to grow the portfolio at a modest level. We've continued to add to the portfolio, securing sites with the potential to deliver over 6,000 plots and growing the portfolio to nearly 106,000 total potential plots in the year. Given the positive changes we're seeing to the planning environment, we anticipate the planning system will continue to unlock. And with this in mind, we now have 5 active appeals running on around 2,500 plots out of the 13,000 plots we currently have in the system awaiting determination. And following 2,660 plots submitted for planning in 2024, we've now identified around 10,000 plots, which we believe can be advanced into planning over the next 12 months with more to follow that demonstrating the scale of our current ambition as we lean into this positive trend. We continue to manage one of the largest strategic land banks in the country with 77% of the portfolio in the Midlands and South where values tend to be higher. With the balance of freehold and promotion agreements, we're able to manage capital investment appropriately between risk and reward, taking advantage of our market at the right time in the cycle when acquiring freehold land. Our tendency to use planning promotion agreements provides a capital-light investment structure and gives us our USP against housebuilders by marketing the sites to drive best value for our landowners. Our 5-year average plot sales are nearly 2,700 plots per annum, and we continue to target sales of 3,500 plots being our medium-term target. We believe this target remains achievable from the scale of our portfolio with plot sales expected to be over 3,000 this year. Based on our current portfolio, our average of GBP 9,200 gross profit per plot, we've estimated that the whole portfolio could generate nearly GBP 900 million of gross profit at today's prices. And here at Pickford Gate in Coventry, this is a prime example of the large-scale complex schemes Hallam is capable of delivering. In '21, we secured a permission for 2,400 plots, including 25% affordable homes, 1.6 million square feet of employment space, and accompanying community infrastructure. The scheme required a new junction of the A45, which Hallam having secured partial funding through Homes England successfully delivered in April of last year. Following this, GBP 102 million worth of sales were completed last year, which included 491 plots to Barratts, 632 plots to Vistry, and 52 acres of employment land to Royal London. Including the Phase 1 sale, the scheme has delivered total sales to date of GBP 120 million, equating to an ungeared IRR of 33% per annum, and still leaves Hallam with around 1,000 plots remaining for sale in future phases. And on that note, I shall hand you back over to Tim.

Thank you, Darren. So I'm going to turn to Property and Development. I'm going to start off with HBD. First of all, HBD had a successful year with completions of GBP 188 million worth of developments. And as I've said, 72% of that is pre-let or presold. Last year, though, was a time to be thoughtful about committing to new schemes. Origin, our JV with Feldberg has helped us to maintain a good base of developments by committing to schemes with a combined GDV of GBP 100 million. I'll talk about that in a minute. And that takes our committed program to GBP 124 million, our share, GBP 33 million. 25% of that has been pre-let or presold and 98% of the development costs have been fixed. We have a strong GBP 1.2 billion pipeline, and this will give us optionality through this year to grow back our committed program. Just wanted to spend a minute just talking to you about 2 of the key developments that we've completed last year. First of all, Ireland, which is held in a joint venture, and it's a net zero carbon prime office building in the center of Manchester. And I'm pleased to say that we've pre-let 50% of the space to Virgin Media. We did that letting in October of last year. And also pleased to say that we set a new record office rent for Manchester at GBP 44 per square foot, not bad. The scheme achieved practical completion in November and the remaining space has generated a good level of occupier interest. Secondly, looking at Settle, where we've developed 102 premium apartments and again, that PC last year in May. And we've now secured 69% of the apartments at our target selling price, and we've achieved a sales rate of 1 unit or 1 apartment per week. Now there's no doubt in my mind that the reason why we've had good demand for these products is just because of the quality that we're offering. So let's say a bit more about Origin. We formed a 25-75 JV with Feldberg Capital, and I believe this is going to allow us to accelerate industrial development. It's been seeded with 3 prime sites. You can see them on the slide. They total about 450,000 square feet. We've brought them from our pipeline, and we sold them into the joint venture, and we made a profit in that sale of GBP 5.5 million. The JVs secured a loan to fund the development from BGO of GBP 54 million. And bearing in mind, we formed the joint venture in December. We're already on site on all 3 developments. Looking ahead, the joint venture intends to deliver around GBP 1 billion of high-quality industrial schemes with strong ESG credentials. And we're likely to put more of our sites into the joint venture. A, because it's a way that we can share risk, but B, we also take the development manager's fees, and we have a promote over a geared return of 8%. So looking at the committed program, you can see it's dominated by industrial. We've committed to 4 industrial schemes totaling nearly 600,000 square feet, of which our share is GBP 30 million. On Preston, which is at the top, that's the one current scheme that's not within the Origin JV, and we've presold that to an occupier. The total estimated profit on all of the committed schemes is GBP 9.1 million share, equivalent to a 38% profit on cost and 16% has been taken to date, and all that 16% is in relation to Preston. On the development pipeline, as you can see, 54% of it is in industrial with the rest in urban development. Most of the pipeline is controlled through development programs, so it's capital-light. And you can see that we hold it at a cost at GBP 54 million. And we've maintained a relatively high level of development over the last couple of years. And obviously, the key is to replenish that development, and we're going to do that from 2 main areas. First of all, in urban development, we've got Golden Valley, and that's got the potential to be a GBP 1 billion mixed-use urban project. It's held under a development agreement with the local planning authority. We only recognized the first phase, which amounts to GBP 117 million in our pipeline. And Phase 1 is going to be known as the National Cyber Innovation Center next door to GCHQ I've said this before, nothing has been formally signed, but you can guess who we're talking to, to anchor it. And the good news is that we've already got support from the government for this because as you can imagine, cybersecurity is of national importance. So our aim is to be on-site on either side at the year-end. And then on industrial, we've got 3.8 million square feet of schemes with outlined consents. Again, that leaves us with several options to draw down these schemes to start development this year. And just turning to the investment portfolio. During the year, the commercial property market stabilized with positive returns recorded at all property level and certain sectors very much including industrial showing valuation increases. And this is why I say that we will look to draw down industrial because if you look at industrial in terms of rental level, it produced the highest rental growth in the index at 5%.` Transaction volumes remain low for most of the sectors with high interest rates weighing on activity. But as the outlook for rates has improved, we have seen encouraging signs in terms of investor demand and funding demand, especially in industrial and build-to-rent. Our total return in the investment portfolio was 9.9% for the year. Again, it's ahead of the index at 7.7%. And I show a line graph comparing our performance over the last 5 years. And you can see that we've achieved a return of 7.1%, significantly outperforming the index at 3.1%. 73% of the portfolio is in industrial. Most of the properties are modern buildings that we've developed. There are some investments that we've bought that we then intend to develop. A good example of that is Sclmersdale, where we've got an industrial unit and we've secured planning for 245,000 square feet, and that is a 66% increase in the size of the existing building. Going to Stonebridge. You know we exchanged contracts to acquire our partners' 50% share of Stonebridge just before Christmas. The transaction is structured to complete in 3 tranches over the next 5 years with the total purchase price linked to the performance of Stonebridge. We've got an integration plan, and we're going to be implementing that over the next 12 months. And as we integrate and scale up, there'll be opportunities to realize synergies and cost savings. Looking at Stonebridge's operational performance, which this slide is about. As I said, we've completed 270 homes, an 8% increase on last year. The average selling price is GBP 402,000, reflecting a reduction in the average size of homes sold, but also we've moved into the Northeast region where the price per house is smaller. The average sales rate during the year was 0.45, and that is unchanged on the prior year. And we expect to increase output this year by 10%, which in this market is no mean feat. Sourcing land is a fundamental strength of Henry Boot and is key to growing Stonebridge. So I'm particularly pleased to say that we've increased our total land bank to over 1,700 plots. This just gives you an idea on the number of outlets and land bank that we've got. In 2022, Stonebridge expanded its operation from Yorkshire into a second region, the Northeast. And very recently, we've secured our first site in a third region, the North Midlands, and that site is at Bracebridge Heath just outside of Lincoln. The business is operating from 9 outlets, and you can see from the graph in terms of the active outlets and the land bank that we've got a significant multiregional housebuilder in the making. And we're confident that each region can basically meet the demand for 200 units per annum and potentially up to 300 units per annum, and that's the power for us to grow the business to 600 homes. On Construction, the segment remained profitable last year but was impacted by HBC's fall in turnover and Banner Plants also traded a bit below budget. However, you know this is a small part of the group, accounting for just 2% of capital employed. HBC completed on 2 major city center schemes in Sheffield and York, and we're also pleased to have been awarded the GBP 36 million redevelopment of Rotherham Markets. As mentioned, last summer, we made senior management changes, and that included an appointment of a new MD, Lee Powell, who's got a great track record of winning work. And the immediate focus for that team is to restore and grow the order book. And as I've already said, they've had a good start to the year. In response to market challenges, Banner has adjusted its strategy by focusing more on cost and efficiencies, and Road Link as normal, just keeps on trading in line with expectations. But as you know, it is in the final year now of its contract. So going to finish off now on outlook. We continue to make good strategic progress and have conviction in our 3 key markets with a strong emphasis on quality projects. There's a clear focus on land promotion, land development, and premium homes. And that's where we want to basically keep our focus, create synergies, and build a simpler investment case around those 3 businesses. There's been a significant shift in planning policy. This is now apparent with the planning -- in our dealings with the planning system. And over the last 6 months to date, we've won planning for nearly 3,000 plots. And this more positive environment is going to help us make a difference to output in Hallam and also help us scale up Stonebridge. On top of this, sentiment across all our markets is gradually improving. And whilst this is good for the group, naturally, there is going to be a lag between us seeing this improved demand and our results, and also due to the timing of the key transactions, much like last year, we're going to be half 2 weighted. And in the meantime, I think as you can see from this morning's presentation, we remain very active. We're well-positioned for recovery. We've got a rock-solid balance sheet, and we're absolutely clear that we can hit our medium-term growth and return targets. So thank you.

Christen Hjorth from Deutsche Numis. Three questions for me, please. Two on ROCE actually, just to start. Just maybe a point of clarification. When you talk about the ROCE target being through the cycle, that means when things are better, we could be potentially above the 15%, so it should average over that period is the first one. And the second one, just sort of the ROCE by division because you obviously set out the really attractive ROCE generated in Hallam. There's not a huge amount of capital tied up in the property development, uncommitted portfolio. Construction is relatively capital-light. So are the drags really there in the committed property development and Stonebridge? And what is the route to returning returns in both of those? And then just finally, on the H2 phasing this year, should we think a similar level of phasing to '24 as in H1, H2 splits? Or is it just a bit too early in the year to tell?

Right. So I'll have a go at answering the first one and maybe you can start thinking about Eli answer to the second. So in terms of ROCE, yes, we get that the returns are below our range of 10% to 15%. But obviously, we've suffered because our cost base has gone up like nearly all businesses. But what we believe through the cycle is that the 10% to 15% range is still appropriate for our business. And as I've talked to you before, Christen, we model what returns we think that we can get. Certainly, over the next 5 years, a lot of the returns that we model our existing opportunities within the site. So there's nothing that we see structurally that suggests that our medium-term target of 10% to 15% isn't still appropriate for this business. And yes, that is -- although that's the target, there are going to be times where we might be a bit below. And then we are working very, very hard so that there are times when we're a bit above as well. In terms of the ROCE, that's really talking about the returns on the different divisions and whether you think Stonebridge is?

I think Stonebridge is a growing business, as we've always said in doing so, it's carrying cost for the future growth effectively. So until we get that to a size where we're looking to stabilize it, I don't think we'll truly see its full potential. And then within the Property Development segment, you're absolutely right. Clearly, we've got the investment portfolio in there, which is a significant proportion, yields about 6%. So the property company is going to have to work very hard to get the ROCE up to the range we require of it, that coming through the development activity, which we've seen the market at the moment, clearly, it's not the right time to be pulling developments forward. That said, I think the Feb joint venture that we're doing that allows us to advance delivery, we will have relatively low levels of capital employed in that given the structure of it, which should hopefully help them achieve returns without using the capital in the short term. But I think we just need to see interest rates coming down a bit more such that commercial activity unlocks and they can get back committing to that up towards the kind of GBP 200 million delivery target per annum that we're hoping to get to.

And just to add before we answer your third one, because if you look at development, and we talk about the fact that the cost of holding a GBP 1.2 billion development program is GBP 54 million. That's just phenomenal. So what we're not doing is we're not sitting on big bits of land where we've got to kind of wait for the market to fully recover before we can develop. Most of our land is on drawdown, and we're drawing down at market levels. So we're fully adjusted already, if you think about it, to market levels. But what we've got to be is we've got to be confident that there's either demand there or we're confident that we've got the right level of security in developing it either through a funding, a joint venture, or a pre-let. And what you know is that we're good at doing all those things. I mean, last year, we were very active in the year before. So we've got all those skills in our bag and because of that, I do believe that we will scale up the development program. And then in terms of phasing the second half?

It is very early in the year. We are clearly very deal-driven and the timing of a deal between the 30th of June and 1st of July, as you know, can make a significant difference. I think for now, assuming it will be similar to last year is a reasonable expectation. I think from our perspective, we would like to try and do more deals in the first half if we possibly can.

Yes, yes. And Christen, again, you know we do reasonably chunky transactions. And the good news is that we have got a good number of those reasonably chunky transactions under offer. But when you are dealing with big bits of land or development, you can't say, well, whatever happens, we're going to do this by the 30th of June. So that's our dilemma.

Adrian Kearsey, Panmure Liberum. I've got 3 questions, if I may. I sort of do them one by one. You talked about the 10,000 plots taking to planning within Hallam. Would you perhaps be able to give a sort of an indication of within that 10,000, are there any big schemes that you're looking at? Or is it a large number of smaller? Or is it sort of a mixture of the 2? The other one is in terms of Stonebridge, you've got 9 sites currently active. The range seems to be on the presentation, 70 plots to 225 or 223 to be precise. Is that a typical range of scheme size that you're going to be looking at going forward? And then on Road Link, fine year for Road Link. Is there anything in there that we should be thinking of in terms of revenue margin and cash flow that's different from previous years?

Okay. All right. So I'll have a go at the first 2, and then Darren can answer Road Link. In terms of the 10,000 plots, typically, they would be a size between 250 and maybe up to 1,000, and it's probably going to average about 500. So I think maybe what your question is picking at, do we have any specific risks on certain schemes? Or is it the typical Hallam blend of where we've got quite a few different applications that we can make? It's definitely we've got quite a few different applications that we can make, and we think that the spread is a good spread. And we're giving you a figure of 10,000, but there is more there. So we think that we'll get 10,000. And if we find that 500 of the plots, it's not the right time to put the planning application in. What we will do is we'll look to draw another 500 around. So it's not a target that I'm going to drive the business to get at all cost, but it is a target that we think we can achieve. In terms of Stonebridge, Yes. The 9 sites where you tell us the range of plots on the site, that is pretty typical of Stonebridge. And I think there's just one thing to add. As we scale up, we're also going to buy some bigger sites. Now for us, a big site would be 350, 400 plots. And Bracebridge in Lincoln was about 300 plots. And we've got another site under offer at the moment that's 360 plots. So I think that what you will find is that over the next 3 or 4 years, the average size will grow because we're like most housebuilders if we can get on-site, invest in opening up that site, and then manage to get an income stream of 5, 6 years, we like that. But then we've also got to balance the fact that it's a young business, and we don't want to be really, really land heavy. So we want that Goldilocks. We want to have some small and medium-sized sites, which aren't too capital intensive, but then some things that are right for the medium-term growth of the business. And then Darren?

Yes, if I could just add to your Hallam question before I move on to Road Link, which is we're gearing up to put 10,000 plots into the process and submit for planning. Our historic run rate, probably about 2,500, 3,000 in a good year. So we're running 4x faster this year. And one of the constraining factors, therefore, actually becomes the capacity of the team. And I think we spotted the change in planning really early such that the team were very active in the last quarter of last year, recruiting additional resource to be able to actually make sure we've got resource to put this into plan. And then on Road Link, final year, sadly, business as usual should be similar revenues, rates of return. In terms of cash, the only one slightly unusual thing is they've got a retention of about GBP 1.5 million that will be released 3 months, 6 months after the contract ends.

Sam Cullen from Peel Hunt LLP. I've got 3 as well, please. Just first, I guess, I'll follow up on the Hallam point. Is there a kind of maturity curve we need to think about with the additional head count that's come in? Or are they sort of -- Maturity curve in terms of their efficiency or--

Capability--

Yes. They kind of fully motoring now 6 months. Secondly, on Hallam, you talked about kind of housebuilder demand coming back. Are the payment terms improving at all from the housebuilders pushed out over the last couple of years? And then the second one -- or the final one rather is on Stonebridge and really whether you'd ever explore bolting on an additional kind of smaller regional housebuilder to accelerate that growth perhaps in a more sly region that you could then help to further accelerate with some land by Hallam?

Well you know what, I'm really, really pleased to see that all the analysts asked 3 questions. Is that pre-agreed?

We share them out.

So I'll answer the first and the third one. And then perhaps Darren will talk about housebuilder payment terms and maybe also demand because we are seeing encouraging signs of demand. So I think that in terms of Hallam, you know it's a very good quality business, and it's gone through a big growth phase of its portfolio. And although the planning system is definitely easier than it was, planning is still complicated, and it's got more complicated. And the good thing is that Hallam -- and I think I can say this because I've been around for a bit as Chris is smiling at me now. Hallam is as good at planning as anybody in the country. So it can deal with that complexity. But we have to accept that the planning system is complicated and that the business has got bigger. And then also, you've heard me over the last year or so saying, yes, but we've got to actually harvest that size by selling more land. So we're going to have more land in the market as well. And for me, all of that means that the business has got to get bigger. And look, we're talking about growing the business from rounded 40 people to rounded 50 people. But also, we're going to have more specialisms. So it's not just going to be normally I'd guess and say of the 40 people would normally be 36 of them would be planners, qualified planners. But we want more specialism. Why can't we have a highways engineer? Why can't we have an environmental officer? And I think that specialism, and I've talked to the housebuilders will help us sell land. So I think, Sam, what will happen is that we will grow this and probably 80% of the people that we're after because we started this to Darren's point, we started doing this in October of last year, so we'll kick off the mark because we knew if we're doing it today, we wouldn't be able to put the 10,000 planning applications in. And also, everybody else will twig that the planning system is getting better. And then the pick of the crop has gone. So I think that what we will do is we will probably have about 50 people employed in Hallam for the medium term. And then the other thing that we're doing, which we never really talk about in these presentations. And if anybody wants to talk to me about it afterwards they're welcome, we're putting more systems in across the business, not just in Hallam, but Hallam is trialing those businesses along those systems along with HBD because like every business, we've got to be slicker in terms of using data, slicker in terms of using processes and got to be more efficient. And I think that all of those things, Sam, will make Hallam and the rest of Henry Boot, but we're talking about Hallam at the moment. I think that it will make it a real Rolls-Royce business. In terms of housebuilders, we've seen some encouraging signs on demand, haven't we, and that might be feeding through to payment terms.

Definitely. I think there's a slight nuance to that in terms of whether you're on the smaller sweet spot sites or the larger, more strategic sites. We've said that we've seen the housebuilders returning for those larger sites now. Coventry was a prime example. We put 500 units in the market thinking that might be the one we got away and actually proceeded with Barret's then as the underbidder on another 500 units. We put a large scheme in the market recently, which is over 1,000 units. We've had 8 bids on it, which is pretty good. And I think once you get that competitive tension in the bidding process, certainly, one of the angles that they can use is the payment terms to try and make any deal look that bit better for us. I think if I switch that to Stonebridge and what we've seen on the site that Tim just mentioned that's 360 plots, which we're taking in partnership, the terms are definitely getting stronger. The landowner is definitely in a stronger place, and we're requiring that on deferred terms of 24 months. I would have much preferred it to be on 36 months. And the converse of that in Hallam is, we're hopefully seeing the same. I think as you go down the size of site, however, we've just put a site into the market north of Leicester. Now the last time I was talking about a good land market, I was talking about 12 bids. The site in Leicester has just picked up 13 bids and once you've got that kind of level of competition, you can really start driving kind of some of the deal structure in your favor. So particularly down that end, I think we'll start seeing payment terms almost coming back to payment on the nose. And that, again, by comparison into Stonebridge is why they're moving up to larger sites because the competition down at those smaller site ends is really still quite competitive.

In terms of Stonebridge, I think that the first thing we've got to absolutely focus on is integrating the business into Henry Boot. And although we are now a majority owner and will not be the full owner until the back end of 2029, we have got an arrangement with our partner where we will start to integrate it this year. So that's important. So our focus really, Sam, is scaling it up and integrating it. And it goes back to what Darren and I keep on saying, we're really, really good at buying sites. And we do it in a thoughtful way in terms of the planning. We do it in a thoughtful way in terms of how much capital is deployed. So we've got a clear route to growing Stonebridge. Would we close our mind to adding bolt-ons? No, we wouldn't. But I don't think it's something that we're going to be busting a gut to do over the next year or 2.

They do pass over our desk from time to time. We do cast our eye over them. I think we've not really seen anything that would be suitable or appropriate from our perspective to actually bolt on.

We've got quite a few here, so I'll just go through them until we run out of time basically.

We'd be doing it in your normal deadpan way.

I forgot my tap shoes this morning, Tim, so sorry. So central cost increase during FY '24, do you anticipate the pace of this trend continuing into '25?

Well, that's definitely a Darren one, isn't it?

As Tim said, look, we're doing a lot around the business, whether that's improving the technology and the systems. You'll have hopefully seen our refreshed branding and marketing that we're doing at the moment. We've certainly taken on additional head count to support all of that in the central function, which will be a continuing kind of rise. Clearly, over recent years, we've had wage inflation that has been much higher than the historic norm. It feels like now we are back at the historic norm for the time being. So hopefully, we won't see those kind of increases feeding through either as we move forward.

Yes. And we've been investing in systems as well, haven't we. And I've got to say as we invest in systems, our head count has gone down over the last 2 years quite a bit.

Great. Thank you. So there was a large swing in working capital with circa GBP 46 million of inflows last year. Moving forward, do you expect the increase in inventory to be broadly canceled out by higher land sales?

Increased inventory carried out canceled out by higher land sales, I'd hope so. Given the direction of travel, we said we're targeting kind of 3,000 plots this year for sales. So the increase there will hopefully balance off the investment that we continue to make, absolutely. There may be a timing difference on that. If we're advancing 10,000 plots as well into the planning system now there's going to be a lag until we get those through and see the higher rates of sales. So we might see the kind of working capital reverse a bit in the short term.

Okay. So on land sales year-to-date in 2025, are you witnessing profitability in line with the average profit of GBP 10,000 in FY '24 or otherwise?

Yes. I mean, broadly, yes, I'm not using wheezy words there. If you look at what we think that we will sell this year, and Darren gave a figure talking about 3,000 plots, we think that it's going to be in line with our long-term average, yes.

Okay. So if we look at FY '24 margins compared to historic levels, there remains scope for good improvement in land and construction. Does this fit with your expectations or has either market changed for the worst?

Well, I think that we probably answered that on Kristen's first question, didn't we? I hesitate to say this because everybody who works at Henry Boot is absolutely important. But construction isn't going to drive our margins. So the real markets that we're focusing on are land, development and Stonebridge. And on the land and the development, we're clear that the margins will be back to normal trends. We believe that and then on Stonebridge, we've got to grow the business. And as we grow the business, and we've been open about this as we grow the business, we think that our returns will be around the industrial or the housebuilders average. And we're on track to do that.

So final question then. Do you expect the ratio between executive home sales and straight affordable homes to change at Stonebridge as you move to larger sites within the expansion of the business?

Yes, broadly, because I think that what will happen is we will, over a period of time, expand the land bank and build homes on new land, and highly likely that, that new land will have a higher ratio of private to affordable. But the model is based on the existing ratio, not the historical one, which is better. So we're still confident of the model.

Great. That's it. Thank you.

Yes. Good. Okay. Everybody happy? Good. Thank you very much.

Thank you.