Vistry Group PLC (VTY) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Vistry Group's Half Year Results Presentation. A bit surreal doing this on a screen. So hopefully, it will come over pretty well. We had a huge debate, I'm joined by Graham Prothero, our Chief Operating Officer, on my left; and Earl Sibley, the Group Finance Director, on my right; as to whether to do this live or to do it pre recorded. Obviously, both Earl and Graham are worried about how they would come over and how they look. So -- but I've overruled them and said they'd be fine. So we're doing this live, watching all. And the other thing is we can't rely on any props to make you all laugh during the presentation. And some of you will remember a very young, Rob Johnson, turning up late to the March presentation, bold as brass rather than just filtering into the audience, walked straight into the auditorium, straight at the middle stairs, and of course, promptly fell out of it, which caused a tremendous giggle. But none of that now. So welcome. And my clicker isn't working. Right. So I've done the first slide. Moving on to the second slide. Right. So the agenda. Key highlights I'll run through along with the group strategy, hand over to Earl for the financial review, Graham will take up the operational update and then I'll finish things off with an outlook and then give the analysts on the call the chance to answer a Q&A. Four great photographs there showing what we at Vistry do. With Bovis' problems, which were well documented from 3 or 4 years ago, our build quality has now reached the stage where we are confident enough, as you can see on the photograph there on the bottom left, Blackmore Meadows in Stalbridge to now actually be building a number of properties with fach roofs. And an interesting story there. Obviously, if you use a fach roof, you're using a local tradesmen, a local facture. And that property there was only finished in the last week or so, and we had a last-minute hitch that the fach, he under-ordered and then we had to reorder. Now you would think, as I did, that the fach was a local product, but in actual fact, the fach comes from Portugal. So we had to fly in on a cargo plane the last bit of the fach. The first available flight was to Cardiff Rhoose airport. But of course, if it landed there, the fach would have had to go into quarantine from Portugal. The second available flight was at Edinburgh airport in Scotland. And of course, if it had gone there, it would have also had to have been quarantined. So we ended up on the third available flight, flying it into Bristol in England, where there was no quarantine, and we move on and the fach is finished. So on to the key highlights. So transformational acquisition of Linden Homes and Vistry Partnerships completed in January. It's been a successful integration with synergies ahead of initial target. So we're looking at annualized savings of GBP 44 million against GBP 35 million at the time of the acquisition. And the cost of achieving those savings where we originally said GBP 35 million will now be GBP 30 million maximum. So that's great. And I honestly look at the screen now and say, 9 months into the acquisition, I've not been as happy with the acquisition as I am today at any time over the last 9 months. We've had no major surprises from the acquisition 9 months on and that includes, as we'll talk about during the presentation, the transfer of 87 different sites to different business units and to different divisions, and in actual fact, to different businesses altogether. So it's all very well. I'm saying it's going well, but there are 1 or 2 external KPIs out there that we can point to. So at the time of the acquisition, Bovis had just become a 5-star housebuilder. Great move by Bovis, and thank you very much again to all the people that were involved in that huge transformational and customer focus orientated work over the 3 or 4 years. So in March, Bovis became a 5-star housebuilder. But at the time of the acquisition, Linden, were a 4-star housebuilder. You added the 2 together, and we were probably just about a very, very high 4-star housebuilder. Delighted to say in this inaugural year of Vistry, we're currently trending at 91.3%, which is about in line where Bovis were a year ago, and we will end the year, I'd be staggered if we don't, as a 5-star housebuilder. Brilliant when you take into account all the reorganization, all the office closures and in fact, COVID-19 and the lockdown from the end of March. The next external KPI is we haven't carried out any staff surveys through Peakon, which are an external organization since the acquisition, until the beginning of August. And even on the night before, we actually sent out the circular to all staff, I thought, do we really want to do a staff engagement survey at this point when we've closed 4 offices, we've made numerous redundancies. We've had pay cuts. We've had furlough. We've had sites being transferred. It's the equivalent of me inviting every member of staff into my office, starting the meeting off by giving them a good clip around the head, then giving them a bollocking and then saying, that's it, giving them another clip around the head and saying, on your way out, you can just fill in the survey and tell me how you found that meeting. So we were staggered with our engagement score coming in at 7.6. Those of you who follow Peakon surveys, anything over 7 is thought of as good. The benchmark -- national benchmark is 7.2. So we were absolutely delighted with that score. And one of the reasons that score was so high is on the question, how do you think the company have dealt with the corona pandemic crisis, we scored a massive 8.6%, which is unheard of. So we had a rapid and coordinated response to COVID-19. We closed our sites in a very orderly fashion at the end of March, and that impacted massively Housebuilding's first half output and performance. Partnerships demonstrated very much its market resilience and led the group's return to site, and we were the first and acknowledged as the first housebuilder to start back on-site by a number of our subcontractors. Our half year net debt was significantly lower than we thought at the time of the lockdown. Production capacity has returned to near-normal levels. And is it 85%? Is it 90%? Is it 95%? I think we should all move on from that debate. We are now successfully building in partnerships to the contract program, and we are easily being able to build to the sales rate, which we'll come on to later on. So we've moved on from what the coronavirus is impacting on building efficiencies. And we're that confident with our position at the present moment in time, we've agreed, and we will be paying back the furlough monies to the government, which totaled about GBP 7.5 million. So outlook, strong pickup in customer interest and sales. Prospects are at the highest level for many years. The sales rate since the 1st of July is 20% up on the prior year and is currently at 0.73. Now if you look at that 0.73, those of you who follow Bovis for a long time, in my just under 3.5 years at Bovis, we've never achieved a sales rate anywhere near 0.73, let alone during the summer period, which is notoriously slow, but we've gone back over 10 years at Bovis and Bovis have still never had a sales rate of 0.73. That's how strong the market is. Pricing remains firm against that sales rate. We're probably about 0.5% up on forecast. We've got a record order book with total sales around GBP 2.7 billion. We're expecting a stronger second half performance, obviously, and we're expecting to deliver a profit before tax in the range of GBP 130 million to GBP 140 million, excluding exceptionals. The group also has the ability to deliver at least GBP 310 million profit before tax in 2021 based on the current sales rate and productivity levels. We've got a clear approach on capital allocation. Our primary focus is deleveraging, and we're targeting gearing, including land creditors, of 35% at the 31st of December 2021. And our debt levels at the end of 2020 should give us a gearing of about 16% with scope to improve on that. Investment to support land -- sorry, investment in land to support growth, that's relatively aggressive growth in Partnerships and much more modest and controlled in Housebuilding, and we're targeting a dividend payment in respect of 2021 with a progressive dividend thereafter. So moving on to the Vistry Group strategy. So we are a top 5 housebuilder, and we think we're uniquely placed. On the Housebuilding side, we are a 5-star housebuilder. We've got 2 leading Housebuilding brands, national scale and coverage, a valuable land bank, which Earl will pick up on, a very, very strong strategic land bank with a very, very strong team there and controlled growth and margin opportunities in Housebuilding. On Partnerships, we are a leading provider of partnerships housing in the country. We have an excellent reputation and firmly established relationships, and I underestimated Partnerships at the time of the acquisition. I knew their reputation was strong, and I knew they had some great relationships. I underestimated that it's better than that. National scale and coverage, high growth, asset-light, countercyclical revenue model. And I was just saying to the press on a few calls a minute ago, I think the timing of the acquisition of Partnerships because of the coronavirus will actually be seen to be spot on. Supported by quarter 2 leading Housebuilding brands. So Partnerships also use the brands Bovis and Linden, and there is significant revenue growth and margin expansion over the next few years. I won't focus too much on this other than to say the important word is there are one Vistry Group. Linden and Partnerships at the time of the acquisition were 2 separate companies. So we didn't buy one company, the Galliford Try housing businesses. We bought 2 companies, Linden and Partnerships. More and more, we're just trying to have one Vistry Group. So it's one business with a Housebuilding and Partnerships brand. So Housebuilding led by Keith Carnegie, Partnerships led by Stephen Teagle. And what's helping that one Vistry approach is the joint services that group offers. So sales and marketing is joint, strategic land is joint, health and safety is joint, HR, learning and development, all joint. The revenue drivers within Housebuilding. So we've got 13 business units. They've all got the capacity to build 550 to 625 units, which when you do the math, comes to 8,000 units, which gives us growth for quite a few years to come working just from those 13 business units. It's always a big risk when you open a new business unit in a new area. So that's great. We are, and it's really helped us again during this pandemic, we do very little in the town centers. We're out of town, in the, if you like, suburbs. We have, as did Linden prior to the acquisition, dramatically looked at our land bank and wanted to derisk it. So I'm delighted to say today, if you look at our land bank, about -- just under 70% of our land bank is for 2 and 3-bedroom houses. Another 20-odd percent is for small 4-bedroom houses, with only 7% of the land bank being made up of 5-bedroom houses, which very much is a much less risky market, but it also plays to where Help to Buy is going from next March for first-time buyers, of course. We've done a lot of work, an incredible amount of work in the first 9 months on brand differentiation. Bovis Homes will, going forward, the larger distinct homes with more design features and Linden homes are well-designed homes, of course, but competitively priced. We have very low against our sector reliance on Help to Buy. Only 30% of total sales come from this area, and about 75% of those sales are to first-time buyers. So we don't actually -- we're not concerned at all about the change of first -- of Help to Buy to first-time buyers from April next year. And we do have further opportunities in part exchange, with only 10% of our sales coming from part exchange, and we do have a bigger facility to enable that to grow. Housebuilding gross margin. So our Housebuilding margin, which Earl will talk about is embedded at 24.2% as of the 30th of June, which is better. And I have to say, we've done more than kick the tires with 87 sites being transferred. We've carried out full diagnostics, if you were in the car industry. That is a very, very well worked out, embedded land margin. We've got a fantastic strategic land bank with a fantastic team. As I said that before, 32,000 strategic plots, where we would expect to get up to 3% higher-margin than buying on the open market. High-quality processes, standards and output. So as I said earlier, we're a 5-star housebuilder, we're going to continue to be a 5-star housebuilder this year and going forward. And our reportable items, which the NHBC issue, are at 0.28 which are lower than the industry standard, which is great. Specification and procurement. Base specification has been aligned across both brands. The Phoenix Range and Linden Collection have both been tweaked to optimize each range, and they both learn from each other as it were on that. And through our procurement team, we've renegotiated 200 supplier contracts to take into account the size of the organization now, which next year we'll be building around about 11,500 homes. Dual branding. So we've got clear brand propositions, as I've said. We have 36 active or pipeline dual-branded sites, which will help the group's return on capital and sales rate. And we've invested heavily, which Graham will talk about later on in a digital sales platform. Moving on to Partnerships, which differentiates us from our peer group, integrated contractor/developer skill set, end-to-end solutions, extensive track record, national footprint and 2 leading housebuilding brands. So if you go to the right-hand side of the slide there, all of that adds to long-term contracting projects, high percentage of presold mixed tenure development and very cash generative. High market demand, which I think is going to get higher as we come out of this pandemic. We're going to increase the demand out there for mixed tenure product and the growth of residential as an asset class is increasing our range of partners. And I'm confident over the next few weeks, we'll announce another couple of big contracts through an RNS of about GBP 250 million in the PRS sector with 2 blue-chip customers. Strong growth potential indefinitely. The higher-margin mixed tenure development, which should be supported by the balance sheet of Vistry, which Galliford Try, of course, didn't have. And supported by the valuable land bank, including our strategic land bank portfolio, which is operating between Partnerships and Housebuilding. Delta dependent on risk retained. So on the contracting side, we're looking at operating margins of 3% to 5%, low risk, cash generative, very cash generative. In fact, predominantly that's carried out in London. Then you've got land-led contracting. This is where, for one reason or other we control the land and can get better margins of 7% to 11% by offering an overall package to, particularly housing associations. And the growth is going to come from mixed tenure developments where we typically have margin -- operating margins of between 11% and 18%. So how are we going to get to our 10% margin target in 2022, we will continue to do the amount of contracting that we do, but we will increase the amount of land-led contracting and particularly mixed tenure development with increased investment to get to that 10%, all important margin by 2022. Great example here, Lea Castle, Kidderminster. Too much to go into, but I'm sure we'll take questions, but it's in due course. But this was a Homes England site. We bid and won it through the Development Partner Panel. We increased the affordable housing provision from 15% to 40%. And so we've got more money upfront. We entered into a joint venture with Citizen Housing Association. And basically, all of that means with the increase in affordable and having a partner with regards to doing the mixed tenure development, that the extensive works to get the site to happen is now probably costing us between 30p and 35p in the pound to get that initial infrastructure works to sign. We are being very aggressive with the growth in the Partnerships business. So we're targeting by 2022, 6,000-plus units, revenue of in excess of GBP 1 billion, but all importantly, we're expecting a margin of plus 10% from the 5.4% that was achieved in Partnerships in 2019. And that will come from additional investment, which is already happening within the business, which Graham and Earl will talk about. So the overall investment proposition that Vistry offers, high-quality land bank, valuable strategic land portfolio, broad geographic coverage, leading partnerships business, high-quality branded product, 5-star customer service. So in Housebuilding, the revenue growth, we can get to 8,000 units from our existing 13 business units. We're targeting very quickly Partnerships revenue of GBP 1 billion, and we're going to increase the percentage of our market resilient revenue, which will come from mixed tenure partnerships and more and more 2 and 3-bedroom houses from Housebuilding. Significant margin improvement will come from, obviously, the land bank embedded margin in Housebuilding at 24.2% and as I've said a couple of times now, we're targeting a 10% operating margin in Vistry by 2022, and cash generation will come from primary focus on deleveraging. We're targeting a 35% gearing, including land creditors as at December 2021, with debt levels at the end of this year with scope to improve on this number, giving us a 16% gearing. Investment in the land bank in Housebuilding, but particularly in mixed tenure development within Partnerships and the resumption of the dividend with a progressive dividend policy going forward from 2021.

Thank you, Greg. Good morning, everyone. I will briefly take you through the results for the 6 months, our first segmental analysis touch on debt and liquidity and then also our land bank and balance sheet. So in terms of the summary results presented on the slide are both on an adjusted and a reported basis. And when I talk about adjusted, that is pre the exceptional costs of restructuring and the amortization of the acquired intangibles, but it does include our proportional share of our joint ventures through to the operating profit level. So Greg alluded to, obviously, the results significantly impacted by the impact of COVID-19, but also show through in terms of the acquisition at the beginning of the year and the integration going on within the business, particularly the first 2 or 3 months with our housebuilding business. So overall, revenue actually up 40% year-on-year to GBP 661 million, and that is comparing obviously to the Bovis Homes equivalent period last year. Gross profit of GBP 84.7 million and operating profit of GBP 21.2 million, delivering a profit before tax before the exceptionals and amortization of GBP 10.3 million. Within those numbers, we have identified and recognized directly to the P&L, GBP 10.2 million worth of costs relating to the impact of COVID-19. And also recognized a credit of GBP 6.3 million of furlough income from the government's job retention scheme. Our intention is to pay that back in the second half. But we were not committed to do that as at the 30th of June. Hence, we have recognized it in the first half, and it will reverse in the full year. Also on the screen is our net debt at the end of June, so the GBP 357 million, much lower than we expected in the early weeks of lockdown reflecting the early return to site from Partnerships and the contracting cash flows that came from that as well as higher completion volumes from the housing business. We've also provided some pro forma results, which is the aggregation of Bovis plus the published numbers for Linden and Partnerships from June last year. So here, giving completions and revenue numbers, and obviously, in part, the 2019 numbers are more indicative of what the enlarged group will be able to deliver in future. And I would say following presentation, there's no more pro forma information as beyond revenue, the data is not a true comparable. So in terms of segmental, the Housebuilding financials, clearly significant impact on completions from the lockdown period. And that shows through in terms of the gross profit and the gross profit margin at 14.1%. A number of impacts going on there, and I will just mention 3 of them. Housebuilding did identify GBP 8.6 million of direct costs relating to COVID, and that had a 2.5% impact on that housing gross margin. There are further costs relating to COVID. So from elongated programs, longer working hours and some of the health and safety measures that we've taken, and we estimate a 0.9% impact of the margin from that. And then as a group, we recognize a full 6-month sales and marketing cost in the period. And based on the lower volumes, that has had a detrimental impact on the housing gross margin of around 2.8%. Hence, looking forward, we expect that gross margin to bounce back in the second half and be over 20%, and continue to progress during 2021 and then on beyond that to the embedded gross margin on our land bank, as Greg mentioned, of just over 24%. In terms of the tangible net assets within Housebuilding, just under GBP 1.7 billion, reflecting the acquisition of Linden Homes at the beginning of the year. So just a few Housebuilding metrics on this slide in terms of completions and ASP. I'll pull out just a couple. Private ASP is down year-on-year, and that does reflect the strategy of, on average, having smaller houses and a lower ASP in our land bank, and that will continue. Greg has already mentioned PX at 10%, still a relatively low level to which we could do more, but still being done very robustly. So as of now, we've got less than 10 homes that we have owned for over 3 months, so well controlled. The affordable at 21% is a little low, and that will be a little bit higher by the end of the year and a bit higher through 2021, so probably in the mid-20s percent for 2021 and at 30%, Help to Buy, still an important sales tool, but relatively low compared to some others in the sector, and we are well positioned for when that scheme changes next year. Partnerships, no comparables, as you would expect, but the numbers do show a very strong performance in the 6 months, reflecting that early return to site with the operating profit of GBP 12.4 million. And we do expect a strong performance to continue through the second half based on that early return to site and the level of presold contracted work that they are delivering. So in terms of cash and debt, you can see the big impact in the period was the acquisition at the beginning of the year, so GBP 400 million of cash going out and also the novation of the GBP 100 million of U.S. private placements coming in. The development receipts of GBP 763 million is a good performance given the activity levels in the period in terms of that cash inflow. The construction and overheads expenditure was in excess of those receipts. We're very actively investing at the beginning of the 6 months. Clearly shutdown due to lockdown and then early return to site and activity levels increasing to the end of June. And we currently have just over GBP 400 million of net debt. Looking across the year, I expect to have average month end debt of around GBP 360 million. And then at the end of the year, as Greg alluded to, we are targeting a net debt of between GBP 230 million and GBP 250 million with some opportunities within that in terms of some further contracting revenue and also possibly a little extra volume. And that would be, we estimate circa 16% gearing. And if you include the land creditors within the gearing measure, that will be a little over 40% at the end of the year. So in terms of liquidity, we still retain GBP 770 million of banking facilities with maturity spread out to 2027, as detailed on the slide. And we are also eligible for the CCFF, although we have no intention to draw on this at the moment. Also, given there is the land creditor profile, so we continue to buy land on very good deferred terms, and we'll continue to do so. And we did look to defer certain payments in the first half of the year during lockdown. Overall, those land creditors represent 34% of our gross land, and that's actually a little bit lower than the Bovis position at the end of December, which was around 36%. So again, to be clear, in terms of capital allocation, absolute #1 priority is the deleveraging of the balance sheet, and we are targeting a gearing that includes land creditors by the end of December '21 of 35%. And you'll remember, I just said, we expect to be at just over 40% by the end of this year and then a commitment to continue that deleveraging through 2022 and beyond. Next priority, the investments that maintain the housing land bank to support that controlled growth and investment in Partnerships, mixed tenure in order to grow that business. And then third, as appropriate, looking to resume dividends in respect to 2021 and beyond. To put that -- sorry, just in round numbers in terms of the cash and debt. If you take the circa GBP 300 million of profit we've guided to next year, circa GBP 100 million, we will be looking to bring the debt down by investment in the business possibly to the same sort of number, and therefore, we can review the appropriateness of the dividend at that point. In terms of land, we were very active in the land market at the beginning of the year. And the dots on the map show the activity in the year-to-date, much of which was done prior to lockdown, but we have been back in the market on a disciplined basis more recently. So you can see the purple dots on the screen are for the Housebuilding sites that we've acquired. There are 3 additional Partnerships, mixed tenure sites that have come in, and we've also continued to invest in the strategic land with 6 new options. So overall, 3,406 plots acquired across 13 developments. So we've more than replenished the Housebuilding plots in the first half, strong investment into that Partnerships mixed tenure as well. And more recently, we've added 1,346 plots conditionally contracted. So we have been more disciplined, being able to get some more conditionality and some contracts subject to detailed planning post lockdown. Strategic land continues to be a strong source of land, including 1,000 plots from our development in Collingtree, and we have put that into a joint venture with Clarion Housing Association and recognized just over GBP 1 million of profit through that transaction. Overall, we continue within Housebuilding to buy sites, delivering at least an average gross margin and ROCE of 25%. So just a couple of slides on that land bank. Firstly, the consented land bank. So in Housebuilding, over 30,000 plots, representing 4 years worth of land. We do intend to maintain the 3.5 to 4-year land bank. And again, within the land bank, you can see the average sales price is dropping slightly, in line with the strategy of buying, on average, slightly smaller homes. In terms of partnerships, 7,700 plots, including the joint ventures, looks like 6 years based on current production levels, but that really indicates the growth that we intend to put through that business going forward. In terms of strategic land, still very strong to nearly 33,000 plots, and it will continue to be a short-term supply of land. So you can see on the bottom right of the table, still 20 sites coming through with either planning agreed or a planning application running, and they will be the next sites to contribute to our consented land bank, giving us an opportunity to feed the Partnerships' mixed tenure business, dual-branded opportunities and our strategic land bank does cover our increased geographic footprint. In terms of balance sheet, really does reflect the impact of the acquisition at the beginning of the year. So on the acquisition, we've recognized goodwill of around GBP 550 million and intangible assets of around GBP 150 million, predominantly the brands of Linden Homes and Drew Smith as well as the value of secured contracts and customer relationships. You will see a significant increase in the investment in joint ventures and the amounts due from joint ventures that, in reality, reflects the land and work-in-progress on the joint ventures we have acquired with Linden Homes and Partnerships. So effectively part of our inventories and land coming in. Overall, net assets of just over GBP 2.1 billion. And finally, for me, as Greg mentioned earlier, the synergies we now expect and are targeting GBP 44 million, so a GBP 9 million increase from the expectations at acquisition. They are coming from both overhead savings. So the closure of 4 Housebuilding offices at the beginning of the year, headcount reductions and the related cost of those as well as getting economies of scale from our central services functions. In addition, direct procurement, delivering in excess of our expectation, having reviewed all our contracts with our supply chain and reviewed our technical specification. So we are well on with all of that, and we expect to deliver GBP 20 million of synergies in 2020 and then be at the full run rate by the end of 2021. Again, as Greg mentioned, total exceptional costs, we expect of GBP 30 million. We recognized GBP 15 million in the first half, and a little bit of that may go into 2021. But that's below our initial expectation of GBP 35 million. And with that, I'll pass you on to Graham.

Morning, everybody. I think it's absolutely fair to say it's been a busy 8 months where we've achieved an awful lot. We moved very fast initially to implement the restructure which meant that happily, we were through the major reorganization before lockdown. Greg has touched on the structure. We also made a full review of both our ranges in order to optimize the product and refine the distinctive brands. We also very quickly rebranded Vistry Partnerships. And we looked hard at our specifications, both the technical specification and the finishing specs. We wanted to optimize the product. And of course, as Earl has alluded to, they maximize the economies of our new scale. We refocused our central services. And that's all gone very well, obviously. We're well -- we're ahead of where we expected to be. IT, of course, takes time, but the plan is clear, and we are ahead of where we expected. We've already got a single consistent COINS system across Housebuilding. We're well on with a new COINS system for Partnerships, which means that we'll be able to break free of the support services from Galliford Try earlier than we originally planned. And we are making improvements to our digital marketing, sales and customer relationship capabilities, which I'll touch on in a couple of moments. As I say, we -- having implemented the initial restructure very quickly, that meant that we were very happily well -- in a good place to respond when lockdown hit us in March. Housebuilding was off-site for, on average, 7 weeks, but the high -- the significant proportion of contracting and presold development work in Partnerships meant that, that business had a good proportion of certain revenue and was, therefore, able to return to sites very quickly, which was very helpful, obviously, to the group's cash flow. I was impressed with the very swift deployment and the effectiveness of our new operating protocols, which importantly gave confidence to our teams, to our subcontractors and in due course to our customers as well. We continue to sell houses throughout lockdown. And really importantly, and we're now making very good progress in catching up that inevitable backlog of snagging, et cetera, which is really important in maintaining the -- our excellent customer service scores. So we're very conscious as a leadership team that, I mean, with the integration and the redundancies that, that employed -- that implied and then the obviously lockdown, that our people have been through a hell of a period of significant change and real uncertainty. We've worked really hard to look after our people through this period. We've tried to be as fair as we possibly can in all the changes that we've made, and we've worked very hard to keep up a good level of communication. And it was really pleasing, therefore, as Greg's already touched on this, in our recent independent survey that came through and achieving that score of 7.6 was really heartening. We've concluded our efforts on harmonizing terms and conditions. We've also done a lot of work in the period on supporting mental health awareness. We recognize the importance of that. And that, I have to say, has been very well received by our teams throughout the organization. And also, we're looking hard at enhancing our learning and development, facilitating development and training in all disciplines and at all levels, and that's building on the strong proposition that Bovis already had. But enhancing that to exploit the real diversity and opportunity in the enlarged Vistry Group. During the height of the pandemic, we encouraged our people to support the huge national volunteering efforts. And I have to say it's been inspiring and humbling to see the fantastic and the diverse contributions that they made up and down the country. Again, against the backdrop of integration and lockdown -- can we just move on? We obviously recognize the real risk to maintaining our high customer service scores. And we focused across the organization very hard on catching that risk. At the outset, we knew that Linden's rating was reasonable across the organization but had -- was held back by 2 poorly performing business units. We divided those sites carefully, and we focused very hard on turning around the quality of product on those sites. And it's really pleasing that as a result of those efforts throughout the business, against this tough backdrop, our customer satisfaction scores have not only been maintained but have actually improved during that period, which is we're obviously really pleased with. The strength of sales demand, as Greg and Earl have said, has continued to surprise us on the positive side with both prospects and reservations at record levels. We haven't seen the feared spike in cancellations. The only cloud, and we would say is this -- we can see that it's taking longer to get -- to move from reservation to exchange. That period has elongated, seems to be a combination of slower mortgage approvals. Solicitor is generally taking longer. And in some parts of the country, there seems to be administrative issues with Help to Buy. But as I say, importantly, we're not seeing that, that potential spike in the cancellation rate. Partly led by the positive experience of selling houses during lockdown, we've challenged ourselves hard on our sales model. We're working hard now to modernize our marketing and sales and trying to exploit the huge opportunities that are available to us in digital. Basically, what we're looking to do is make it easier for our customers to do business with us, deploying multiple channels even to the convenience of allowing them to visit and view their home and place their reservation and pay for it all from their sofa, on their mobile phone. We think this has got significant potential to reach and retain a much wider potential customer base to communicate more frequently and more reliably and to enhance that customer experience. We're really pleased with our Keys customer relationship software, and which we've enhanced with some of the functionality from Linden's excellent system. And so that we now have a single, powerful tool, blending the best of both across our product offerings. It's all aimed to create a modern and user-friendly experience for our customers, and we're really pleased with the early signs of the response that we're seeing. Another interesting area or opportunity in the enlarged group is to review the way that we deal with large strategic projects. We already have 8 such projects in the group and several more in the pipeline. And to date, I would say we've developed -- tended to develop those on the traditional Housebuilding model which, as you can see, currently, those 8 projects translate to 8 outlets. And that's fine, but it does tend to mean that those sites suffer from a lower return on capital, particularly in the earlier years. So what we're looking to do is challenge and perhaps revise that approach obviously deploying both the brands, but also leveraging some of the Vistry Partnerships development model, looking at broader tenure mixes and the potential to deploy partner funding or indeed forward sales. We're focused basically on working those assets harder and maximizing the returns that we can generate. And obviously, we have more tools now in our kit bag, which is much better than simply selling chunks of land to a rival flag. And lastly from me, we are taking the opportunity of the merger to reinvigorate our approach to operating sustainably. We're developing a new ESG strategy for the Vistry Group, reviewing our performance and setting new specific and challenging targets. We're consulting widely with stakeholders, including our employees and our investors and to help us identify our -- and sort of determine our priorities in this. We're standardizing our data collection, and we've appointed champions in each of our business units to invigorate and oversee the collection of that data. I have to say, I've been really inspired actually by the real enthusiasm for this agenda throughout the organization. And it's exciting to see where we can take it, and we'll tell you a lot more about that at the full year. At that point, I'll hand back to Greg.

Thanks very much, Graham. So nice photo of the hedgehog by the way. But moving on to and finishing off with market review. So there is clearly a wider market uncertainty and increasing unemployment with the end of the furlough scheme could impact on consumer confidence. All I would say is the last 2 weeks of sales over the last 10 weeks have been the strongest. So it doesn't seem to be coming through if it's going to come through for us. So the housing fundamentals remain positive. Supply/demand imbalance persists, housing remains very high on the government's agenda. And I absolutely believe that this government absolutely gets the importance of not just housebuilding, but the wider housebuilding market to the general recovery coming out of the pandemic. There's a growing importance of mixed-use development. Demand has undoubtedly been strengthened by stamp duty exemption, but we were selling pretty well before that came in, I have to say and Help to Buy. The planning environment, I'm pleased to say, is set to improve, depending on how the government consultations go, and the market for affordable and PRS continues unabated with strong demand and funding. Sector, we believe -- our sector, the household sector can support nationwide economy throughout the COVID-19 pandemic. The photograph, if you can go back one, please. The photograph there on the bottom right-hand side is the biggest scheme that Partnerships have got nearly GBP 1 billion, nearly 1,000 flats, 26, 27 stories high. And just giving you an idea of where we've got to with regards to efficiency levels because clearly, it's a lot harder to deal with social distancing on a block of flats with lifts, et cetera, et cetera, than it is on a 2-story house. But that scheme there in March had over 900 people working on it. And as of last week, there were over 800 people working on it. So it just goes to show how the -- how Partnerships, Housebuilding and the sector in -- on the whole is coping very, very well with social distancing rules. So finishing things off. You'll have seen this slide before, current trading and outlook, but our advisers were not sure how many of you would still be listening in, having listened to Earl and Graham for 10 minutes. So we've decided to pick it up at the start and bring it up again now. So I'll finish with very strong pickup in customer interest and sales. Prospects at the highest levels for many years. Sales rates since the 1st of July, 20% up on the prior year at an unheard of from a Bovis perspective, 0.73. Pricing, 0% to 0.5% up on our forecast. Record forward order book at GBP 2.7 billion. Stronger half -- second half performance expected with full year profit before tax before exceptionals and amortization of between GBP 130 million and GBP 140 million, and we're pretty much sold out to get there. The group has the ability to deliver at least GBP 310 million worth of profit before tax in 2021 based on current sales and build rates. And we have a clear approach to capital allocation as Earl eloquently went through. So the primary focus is on deleveraging. And we're targeting gearing, including land creditors by December 2021 of 35%, with scope to bring that down. But in coming to those numbers, we are going to continue to invest modestly to allow some growth in Housebuilding, more aggressively, of course, in Housebuilding to meet our targets there, and that market is definitely growing. And we are targeting a dividend payment in respect to 2021 with a progressive policy thereafter. So on that, we will take any questions from the analysts. And I'm not sure how this works now. So just bear with us.

[Operator Instructions] We will now take our first question from Will Jones from Redburn.

Three from me, if I could, please. The first, just exploring that 0.73 recent sales rate piece. Could you give us any help with the split between Housebuilding and Partnership within that? And whether there's been any bulk deals or anything just to be aware of in that 2 month period? And I guess linked to that, just when we think about the remaining 4 months or so of the year, are you happy that there's sufficient availability in the business to carry on selling at a good sales rate? Obviously, just trying to work out whether there's any issues from the production shortfall over the last 3 to 6 months that might hit sales rate that we see or maybe not at all for the next few months? Second area was just around the land bank gross margin. I think 24.2% was the number in Housebuilding you gave with the presentation. I think if I look back to the stand-alone Bovis business 6 months ago, it was 20.8%. So it's dipped a little bit, not a lot in fairness. But just to understand, does that capture the build cost synergies you expect to get from the deal? And if so, I guess, why the dip? Is it maybe just that Linden's come in a bit lower average perhaps than the Bovis stand-alone? And then the final question was just around the balance sheet. And lots of helpful numbers throughout 2020 and '21, gearing, land creditor, et cetera. But I just wondered, big picture, to what extent you have or you might consider additional equity at some point just to support your medium-term growth ambitions?

Okay. Well, on the first point, then, the sales rate, the partnership sales rate is because they're obviously selling smaller, more affordable homes is slightly better than the Housebuilding sales rate, but because they're selling less, it doesn't have that much of a difference. So that's pretty much -- doesn't impact the numbers. We have sold some bulk during the last 8 or 9 weeks, but not a great deal. The sales rate would still be 0.6-ish if we didn't have those bulk. But last year, we did some bulk as well. So the 0.73 or in any period that we've had in the past would include a similar percentage of bulk included in that. So again, it's a true -- the point I'm trying to get over, Will, is it's a true number. 0.73 isn't impacted by a one-off spectacular 1,000 unit sale to any one individual. So that takes care of that. The second point, the embedded land bank margin, which was 24.9%, now 24.2%. I think we're being prudent. #1, I don't think all of the -- I'm looking at my colleagues here, all of the synergy savings and procurement gains have been fed through. So I would expect that to get better. But you also heard, the Linden one was a bit less. We have looked at 87 sites in a huge amount of detail because they've been transferred from one business unit to another. So whereas before, are you happy with this site? Mercia, Cotswolds and the rest of it are now saying, are you happy with your land bank as part of the overall group land bank, and you've had 4 or 5 sites transferred to you, which you're going to be bonused on going forward. They, of course, are looked at dramatically in more detail than it would be before. And of course, we've had at least 0.5% impact of COVID into those numbers. So we were, one, very, very pleased that the land bank margin has moved such a small amount. The final one on the balance sheet.

So I'll just add. Well, on the land bank margin, the other thing I would draw attention to is the JVs coming in from Linden are slightly lower, but we do actually get additional management fees for managing those joint ventures, which will also flow through the profits, not in -- that's not in the 24.2%. Well, I mean, in terms of the balance sheet, obviously, as you said, gave you a lot of detail, I think your question was in terms of equity, which, on the basis of the plans we've got and the numbers I've set out that, no, we have no intention of going to the equity market.

Great. I'm sorry, just coming back on the first one...

Sorry, Bill.

No, no. I'm sorry, it's just on that point, sorry, around availability of stock, I guess, in the last 4 months of the year, you're happy that this reduction, of course, something you could sell.

No. The build -- we're basically building. If you spoke to some people in Partnerships, we're building at 100%. If you speak to your average person in Housebuilding, we're somewhere between 85% and 95%. So we have no issues from a build perspective. And if I'm brutally honest, we're nearly sold for the year-end as we sit here today. So it's all quite prudent, Will.

We will now take our next question from Gavin Jago from Barclays.

Yes, a few if we could, please. The first one is just around the seasonality kind of expectations, your assumptions for FY '21, just looking at that sales rate, and obviously, just following on from Will's question whether there's any bulk sales plan for next year in those, I guess, predictions for '21.

So Gavin, just...

Graham talked of the synergies coming through -- go ahead.

So, Gavin, just on that because otherwise, we'll -- we're sure what to do. So on the seasonality, usually, you will see a kick up in September, October from sales in July and August. Last year, for instance, was the first year where we didn't witness that. We had reasonable sales in the summer, and we continued with that level through September and October. So the norm would be that sales would kick on. But last year, it didn't. So we are assuming -- we're not assuming a kick on from the summer. That's the first thing. The second point is the numbers that I've read out, the GBP 130 million to GBP 140 million PBT before exceptionals and amortization this year and the GBP 310 million at least for 2021 on the same basis, pre exceptionals and amortization, do not assume for any land sales or putting any schemes into joint ventures, which is the first time I've been able to say that ever. So generally, sitting somewhere -- sitting here in September, I would be expecting to sell and still have 1 or 2 nerves about selling a piece of land or 2 or putting a big deal into a joint venture. And next year's numbers would be predicated around 1 or 2 decent-sized deals. There is no -- there are deals available, and we may very well look at that, particularly as we go into next year, but we have our forecast of GBP 310 million at least and between GBP 130 million and GBP 140 million do not assume any large deals whatsoever. It's just selling individual houses to Mr & Mrs Smith. And then your other point then is going back to bulk. If you were to work on the underlying sales rate during the summer has been over 0.6 and taking it to 0.73 has been some deals with Halo and various housing associations, but nothing too dramatic. But in fact, if you were comparing the 0.73 with last year, we had more volume coming in from bulk deals than we've had during this summer. So it's a very, very prudent number. So that's your first question, Gavin?

Okay. Yes, that's very clear. The second one is just around build cost. Obviously, you've got the synergies coming through. But can you give us a feel for I think you had pretty early said that you were seeing build cost deflation for months ago. But what's the kind of current spot rate? And maybe a bit of granularity on kind of labor versus materials there, please?

Yes. So I would say that for the year, we're going to be able to say, I'm pretty confident now that we've seen 0 build inflation on the whole for the year, and we've seen 0 to very small sales inflation for the year. So if you go back to the start of the year, there was a bit of inflation on the build side in January, February and March, as we continue to cope with having enough subcontractors to deal with the number of houses we were building. That all obviously stopped as we went into lockdown. We, as an organization, took advantage in May, June, early part of July of going out to our subcontractors and saying, basically for the first time in 5 or 6 years, the boot's on the other foot now. There isn't -- we're calling the shots, not you, our valued supply chain. And we did make some relatively decent gains in those 3 or 4 months. Sat here today, we're all surprised at the strength of the market, including the subcontractors. We have done well to hold on to some of those gains that we've made. So where we might have made a 10% gain on a subcontract package to bricklayers/ground workers 5 or 6 weeks ago, I suspect we're now holding on to 3% of that because we'd had to give 7% back. So I think we'll end the year on a level playing field. With regards to materials, we've not seen any real increases in materials, but we have made because we were an organization at Bovis building 4,000 units a year and you heard me say earlier, we're going to be building 11,500 units a year, that the procurement gains we've made through Jon Bowen and our commercial team are higher than we thought at the time of the acquisition. I would again say that the procurement gains that we've made and are still making because of -- not because of where we -- the current market, but because of the size of Vistry as an organization now probably haven't been fed through in their entirety through to our embedded land bank margin of 24.2%.

Very clear. And just a final one, if we could, please, just around government support and Help to Buy. Just looking at Slide 10, and I guess the mix of pricing in your land bank. Have you got kind of any real areas of concern, I guess, regionally, just as we look towards those price caps coming in next year?

As I've said before, we think it's quite generous in some places like the Southwest. The only area I would have a concern with price cap, but we're working with it, but the only slight concern would be the West Midlands. Other than that, we're very happily working within those caps.

We'll take our next question from John Fraser-Andrews from HSBC.

I'll have 3, please. The first one is, in contracting, the revenue reduction was very small. And I wonder if that was -- you were advancing work and what the outlook is in contracting. I know the thrust of the expansion in partnerships is on the mixed tenure side, but perhaps you could just set out what happened in contracting and what the future lies? The second one, in the land markets, please. So I see that your -- you had a strong replacement ratio, you're back in the land market. Could you indicate how much land is in place for your target for '21? And what you're seeing on pricing? And then finally, your build rate -- your selling rate, rather the 0.73, just so you can sort of gauge your -- the volume growth that's planned next year. Could you give an indication as to where your production rate is versus that selling rate?

Okay. So Graham, do you want to take the first one on contracting?

Yes. I mean, I think the key to that -- sorry, John. The key to that is the point I was making about we were never, as an industry, prevented. At no point was construction stopped from operating actually during lockdown. We were, in fact, being encouraged to continue so the challenge that you had, particularly for Housebuilders was, would there be a market? And obviously, if you're building on risk, you're not going to rush out and carry on building. So that's where the joy of the model came in because Partnerships, as I said, has a significant proportion of contracting and also presold development revenues. So we had confidence. Once we sort of dusted ourselves off after the initial shock of lockdown, we were very quickly back to site. In fact, 1 or 2 of Partnership sites never actually stopped working. And that was -- that meant that the contracting revenue has pretty much stayed in line with where we would have budgeted it to be short of probably, on average, I'd say, 3 to 4 weeks across the piece. But we were really very quick back to site, and that's why that's held up.

Okay. On the -- John, on the land market, first thing I'd say is the -- I don't think the market has really moved. I think it's as soft as it was in January and February. So it's still a good market to operate in. It was and it continues to be. I don't think it's got any better or worse. With regards to where we are with land and planning for 2021. The numbers we put out there because we are cautious, cautiously optimistic. But by the time you take into account the contingencies we've got -- we own all the land for next year, and there's only 1 or 2 planning permissions outstanding for next year. So I feel very comfortable that, generally, when we are guiding the market for the following year, we would need to buy land in September, and we would have more planning outstanding than we've got now. So we're in -- that's a pretty prudent set of assumptions that we put out there. And with regards to what we have assumed with regards to sales rates going into next year, we've assumed a sales rate of 0.55 to 0.6 underlying without any bulk. And we haven't allowed for any bulk going into next year as you heard me or Graham or Earl talk earlier, there is certainly in next year's numbers, nothing in there other than selling individual houses to individual people. So there's no bulk deals, no putting land into JVs and making a bullet payment or selling land. We might do that, but that's not included in any of the numbers. And then from a build perspective, as I've said a couple of times now, I think we can move on. We can -- if we were pricing a job today in Partnerships in competition and we looked at the prelims for, let's say, for a 2-year contract, today, in the COVID arena, the amount of money we would add to our prelims to get to that program, and we would still be programming to be built in the same period of time, would be negligible. So Partnerships are very happy building up the speed. They're currently building at, which has got -- it's leveled off now, but week on week, it was getting better as we went through May, June, July, particularly as we learned new techniques. And in Housebuilding, similar picture, may be slightly behind, but we can easily build to the sales rates that are currently being achieved, and we believe will continue into next year. What I would say, from a strategy perspective of Vistry and the build side, and I'm sure other house builders are looking at it. But I've challenged each of the MDs in all of our business units and particularly the construction directors, where you've got build completions in April and May next year, I want them brought forward to March so that we absolutely capitalize on any houses that can be sold within the stamp duty holiday. That's how confident I feel we've build, I'll be bringing forward build from April and May into March. Okay, John?

Understood, Greg. Perhaps just a quick follow-up, if I may. Does that imply then that the number of sites is going to tick up next year, the 160 that you're currently building on in Housebuilding, is that going to increase the volumes?

No, our numbers. Next year, we're going to go to about 155 in Housebuildings, so it's going to come back a little bit, and we're going to sweat those assets a bit more, particularly with dual branding. The Partnership side will go up slightly. So if you like, overall, the outlook this year is about GBP 185 million. The outlook next year will be about GBP 185 million and in very broad figures, housing will be down by 5, Partnerships will be up by just over 5.

Our next question comes from Chris Millington from Numis.

A few from me, please. Greg, you mentioned earlier about PRS deals. I just wonder if you could kind of talk about what you're doing in that space? How we should think about the margins and kind of what your ultimate ambition is within the Partnership business? Second one for me is just about the dividend. When should we be thinking about a return? I do understand your capital allocation is about reducing debt in the first instance. And then just a checking query about what percentage of the order book is exchanged at the moment?

Thanks, Chris. Graham, do you want to take the PRS?