Vistry Group PLC (VTY) Earnings Call Transcript & Summary

[Presentation] Good afternoon, everyone, and welcome to today's Partnerships seminar. It's great that so many of you have been able to join us. We're really excited about the outlook and future for Vistry Partnerships and wanted to share this with you today. The market opportunity is very significant; and Vistry Partnerships is uniquely positioned [ within this ] attractive, fast-growing market. Many of you will have heard me say that I firmly believe we have the best Partnerships business out there, and indeed this was one of the key rationales for the acquisition. We are ambitious for this business and have set out a clear growth strategy targeting GBP 1 billion of revenue by full year '22, with an operating margin improvement to at least, and that's the important word there, 10%. And as you've just seen in the video, this strategy is embedded right across the business and its people. It's not just something we've rolled out for the city. The business is making excellent progress and is well on track to deliver against these targets, and it doesn't stop there. We see significant growth opportunity beyond these near-term targets. Medium term, we see the potential to grow this business to revenues of around GBP 3 billion, with further margin progression. Vistry Partnerships and Vistry Housebuilding are working more closely than ever. And this will continue as we seek to maximize the development opportunities and returns for the group as a whole, leveraging our 2 leading housebuilding brands Bovis and Linden and extensive capability. Stephen Teagle, CEO of Vistry Partnerships, will lead today's presentation and is joined by his senior leadership team and Earl Sibley. Stephen, of course, set up Galliford Try's partnerships business, which is now Vistry Partnerships, with me back in 2012. He is sector leading in terms of his knowledge and relationships across the industry and, as I am sure you will see today, is incredibly passionate about what he does, with that passion shared right across the business. There will be the opportunity to ask questions. Please do. I want you to come away from this session feeling like you really know and understand this business, the strategy and where we are heading. And hopefully, you will share my enthusiasm for it. So that's it from me. I'm delighted to hand over to Stephen and the Vistry Partnerships team. Thank you.

Thank you, Greg. And welcome, everyone. Thank you for finding time to join us today. I'm going to run through an overview of the Partnerships business and then give some insight and detail to how we operate the business and how it contributes value to the wider Vistry Group. Now the partnerships space can seem somewhat opaque to people who are unfamiliar with it, but I hope, by the end of this session, you will be really able to see the value that comes through from partnership and how it's contributing to the wider underlying Vistry value. On the way, I'm going to bring you up-to-date with our full year '22 forecasts, that's our short-term targets; and also highlight the prospects for the business in terms of its forward growth, particularly around its margin and volume going forward. Okay, so here's our agenda. It's very straightforward. We're going to take a look at the Partnerships model and how it operates; have a look at the market analysis, which is a great opportunity for us for growth, and the capacity to invest into that market; have a look at how we plan to implement a strategy to deliver that growth. And then we will have a look at some schemes that are actually being delivered. You can see Partnerships in action and we can get into some of the detail. And then I hope we can have some questions. My monologue can finish, and we can have a real dialogue through the questions about the business and its future trajectory. Okay, I'm going to be assisted with my questions by the Partnerships executive team who's here with me today. So on my right, hopefully, you can see James Warrington, who's divisional MD; Stuart Brodie, divisional MD; and Mark Farnham, who's divisional Finance Director; and on my left, Marc Thompson, our Strategy and Projects Director; and also on my left, some of you will know already, Earl, contributing significantly to the over 160 years of industry experience. So thank you. So Partnerships model, some key characteristics. So Partnerships, it's a returns-based business that turns assets quickly and has a very strong cash discipline. And it faces the market in a perfect way for our clients through 2 blends: firstly, mixed tenure, where we're developing homes for sale, often co-investing with our partners; and partner delivery, where we're using our partner's cash and our know-how to deliver and build homes. And when I say clients, it's worth spending a moment just to define what I mean by clients. So we work with local authorities and housing associations. And in the U.K., that's the regulated, and they are the commissioners and owners and managers of affordable homes. And we also work in a client base with institutional investors investing in the private rented sector. We deliver a complete service. So we're project managing the sourcing of land, the design and build and construction of those homes; the financing solution that we work with our partners with; and most importantly, the retail at the end in terms of selling those homes. So it's a complete cradle-to-grave service. We have 3 very clear differentiators between us and our competitors, and that's partly shown on the infographic where you can see our strategic assets on the right. Firstly, we've got experience and capacity across all tenures. The U.K. market has a considerably different number of tenures in it. We've got people in the business experts in all of those tenures to have delivered a good number of them. We've got a national footprint that goes all the way from Penzance and to the north of Newcastle, which allows us to engage with our national and regional clients. And we've got some great brands to sell with Bovis; and Linden; and as you can see there, and this was mentioned in the video, Drew Smith homes, which is a Southern-based brand that we use in Partnerships. And our clients invest across the cycle, so ours is both a pro- and counter-cycle business model, and that allows us to bring our unrivaled sector knowledge and the quality of our relationships to bear. Now our clients -- this is a really important point. Our clients want to work with people that they can trust. They look for clients that -- or people who can help them deliver who have got covenants, capability and share their culture. And that aligned value with our customer base and using the same language as them is absolutely key. So here's our business dimensions. So in the North and Central division, which is how we organize ourselves, into 3 divisions, is James. South East and London division is Stuart. And Southern and South West division is Stuart Munro, who is not with us today, unfortunately. And if we can press the button, we will move on and we will see how that also fills as we go along. There we are. And we sell through 11 businesses. So our operation is in 11 separate business units, and we're selling off of 120 sites. So we're working on operationally 120 sites. We're selling off about 40 of those sites at the moment. And we have over 1,000 employees within the business. That's been an area of particular growth, and people have wanted to join a business with a great reputation and a growth trajectory. And that's seen in this next slide, where we can really celebrate the progress that we're making towards our full year '22 targets. So you can see there, from 2006 (sic) [ 2016 ] to next year, the degree of growth, fantastic as we move towards a GBP 1 billion business and north of a 10% margin. And that growth has been achieved in the face of pandemic. I'm really proud of what's happened over the last 18 months with the business. It's transitioned brilliantly into joining the Vistry Group and we've coped with the pandemic, and that growth has been fantastic. And for those of you used to looking at the figures, you will see there on the full year '20 it's showing a 6.7% margin. Actually, in the second half of last year, we were 8.7% margin, giving us even more confidence achieving that 10% as we look forward further year. And that confidence also acts as a springboard for a longer-term potential, so we're looking at a business that, as Greg has said, is moving towards GBP 3 billion revenue and a margin, again, above 12%. So let's just reflect for a moment on those 2 strands of our business model. So our mixed tenure developments. This is where we're taking some sales risk. We're developing homes for sale, but one of the differentiators between our business and the Housebuilding model is that we look to target 50% presold positions on our sites. And we co-invest often with partners. They -- those partners share the build risk and the pursuit cost risks, which relates to identifying what the ground conditions are, securing planning, all the myriad consultancy services that go into acquiring sites. Our partners share those costs. And we focus on the lower- and mid-quartile product. That's the product where there's more diversity in terms of tenure types. That's the product that works for us. And then we sell through the 3 brands that I mentioned earlier. And we're capturing synergies by working with our Housebuilding colleagues and strategic land. On the right-hand side, you can see our partner delivery program. This is the cash engine of our business. This complements the mixed tenure development. We're working with our partners to deliver schemes which they have specified. They're paying us, often monthly. Most of those contracts are either on land that we've introduced or where we've negotiated the price with our clients, and we're delivering a product that we're familiar with. This is not another word for contracting where we're delivering an unknown product. We're delivering a unit, a type of product that we're very familiar with; and leveraging our own supply chains. And we've got a really diverse client base that allows us to deliver that across the country. So what does the model look like when you apply it? Well, it's a virtuous circle, so let's just look at that through the lens of operating margin, return on capital, capital requirements and risk. You can see how each sits. So in the mixed tenure, that delta, 11% to 18% operating margin, which incidentally you add 5%, Greg would say 4%, I suspect, but 5% to that to get to a gross margin, that delta reflects the degree to which the mixed tenure sites are presold. So a site that is only 50% presold, you'd be looking at going towards the top end of that delta. If you've presold up to 80%, in some cases, of the site, then that comes back towards the lower end. You get a great return on capital. So one of our hurdle rates is a 40% return on capital for land acquisition, and that corresponds obviously to low capital investment. And we're able to manage that sales risk. On the right-hand side. In terms of our partner delivery, you would expect we obtained a lesser margin, but again there's a delta. There's a delta reflecting the degree to which we've done prework on the site before we introduce land-led solutions. The cash is infinite and then -- and it's cash generative. And we are able to manage that build risk by being involved with the client and specifying what we build. I said it was a virtuous circle. It's virtuous in 2 ways. Firstly, we're obviously generating cash which is coming in to support our mixed tenure investment, getting ready for the next land acquisition, but it's also virtuous because our clients working with us in one part of our business often want to participate with us in the other half. So we've got clients who are making profits through co-investing with us in mixed tenure delivery reinvesting those profits in their own partner programs which we're on hand to deliver, and that's the approach that makes our business really work. It's not different -- and this is a clear example of our mixed tenure example. This is Kirkleatham at North East. This is a greenfield site for 375 homes. We actually acquired it from Homes England. It's a public sector site 50% presold. So we've sold part to Sigma as a PRS. Part has gone through a local housing association. And that allows us to achieve that high absorption rate. So we can deliver across -- it's less than 4 years but a 4-year program delivering 100 homes per annum. That's a great absorption rate. And when you're looking at public sector land, the speed with which you build it is really important. And look at the gross margin, 22%; and a greater return on -- ROCE above 50%. That really reflects that 50% presold example earlier, characteristic of it. And our partner delivery example. This is a site down in Southampton. Actually it's public sector brownfield site. We chose to sell it into a partner who had a gap in their delivery program. They were obviously keen to get a solution. We were keen to work with them on the solution. We offered this site, which started back in 2020. It's a back-to-back transaction. So we bought the land at midday. We sold it 10 seconds past midday, and it's cash generative from the off. The housing association underwrote all of the pursuit costs. And we're building a product we're familiar with. We're building our own standard house types. That means we're using our supply chain to deliver into their programs with all the efficiencies that brings. And it's at least a 16% gross margin. I've actually kept it to 16% for illustrative purposes for this slide but a great scheme. What both of those schemes have is an ESG-rich environment, and it's embedded within our Partnerships activity. So we call it social value rather than ESG. It's a bit less of a mouthful for us and we know what it means. And we're very busily measuring that. Some of our clients now are obtaining funds and capital, where being able to report upon their performance in their sustainability index is important, and so we collect this sort of data. So you can see the additional value of the affordable homes, the amount that we've spent within local supply chains, the employment that we've generated, public open space and even measuring the capital asset value of the trees we provide. Really important element of Partnerships work is capturing and measuring social value, and indeed we're winning work where we're able to show that we can capture that and measure it. We're not alone, of course. We're not unique, so a quick look at our competitors. So there they are. I would say Countryside, Lovell and Keepmoat are our principal competitors. We do have some competitors in the regions and some private bodies that look to enter our space, but we tick all the boxes. So not everybody, certainly Countryside, are involved in both mixed tenure and partner delivery. And having a national footprint is really important. Some of our clients who are based in regions, housing associations who've grown from regional bases, want to participate in different markets with different strengths, so having a national platform is really helpful when you're looking at strategic alignment. And of course, we've got a great housebuilding brand. And I'm sure Lovell's and Keepmoat's are excellent homes, but they're certainly not the sort of brand to discuss over supper. And we've actually got 2. And that helps us to achieve the unrivaled scale that we've got and really allow us to win work. So a few things on there that are key strategic assets for our business. We've got a sector-leading platform of joint ventures; delighted to see a scale of GBP 6 billion of turnover, delivering over 20,000 homes, working with housing associations. I was involved many years ago in setting up the first trading subsidiary for a housing association to allow to undertake mixed tenure with a developer. It's great to now be with a developer with that scale of opportunity. Our Homes England relationship is absolutely first class. We've secured 1/3 of the public sector land that's been released over the last 3 years. And that's where covenant, capability and culture really count with that relationship, as does our relationship with over 75 housing associations. We've got a close relationship with 25. And we're actively working with 25 local authorities on delivery, And that's spread right the way across the country. So we're working with Manchester. We're working in Gateshead, with Sunderland, down in Eastleigh, Bristol and even Cornwall. Great to see that spread of work with local authorities. And we're also working with a range of PRS providers, some of whom are looking for urban apartment solutions, some of which are looking for low-rise dispersed housing across the U.K. So familiar names there, Legal & General, Sigma, Sage and Fizzy Living. And we were one of the first adopters to get involved in the emerging older persons market. We've now delivered over 56 extra care schemes working with partners. That really is industry leading. So on then to our market analysis and capacity. That's a great picture of a scheme that we've developed with Manchester City Council. We're involved in a big neighborhood regeneration scheme there. And Manchester, of course, is city with 2 great football teams, but the pavements are red and that tells you everything you need to know. So I want to just spend a moment looking at the opportunity; and the market, the U.K. market, as viewed through the partnerships space, a partnerships lens. So if you were to arrive in the U.K. and look for a housing opportunity, you would see 3 queues. The first queue is for affordable rented housing. That's where we have the products called social rent, affordable rent and supported housing. There are 2 constraints to that queue. Firstly, you can only join it if you're eligible, and that's based on your income and your vulnerability and need. And then secondly, the constraint is the supply of housing. There's a very tight constraint on that supply of housing, and that's linked to the amount of government subsidy and the amount of subsidy that goes into what is a subsidized form of housing. On your right is another queue. That queue is for people who can access full home ownership. They may require a mortgage. They may have the money in their back pocket, but they are only constrained by either, a, mortgage availability; or planning consents coming through to allow homes to be built. And then there's a third queue. Now the third queue is actually the deepest and the broadest, and that's the queue that has more people under 45 in it than any other queue for housing in the U.K. And that's for the intermediate market. That's for people who don't qualify for affordable rented housing or social rented housing. And they're not able to access full home ownership. They won't qualify for a mortgage and they don't have sufficient assets, so they're looking at products like the government initiatives of Help to Buy, of First Homes, of Shared Ownership. PRS market. People in this queue are looking into the PRS market. Those form the 3 markets, the 3 queues of the U.K. housing market. We operate in the top 2 particularly. So 80% of what Partnerships builds is in the top 2 queues. That's directly inverse to what Housebuilding would be doing. Our Housebuilding are looking at 80% of their output in the bottom queue. The other aspect to this market is the fundamentals remain absolutely unchanged. There's an historic and enduring supply-side deficit. There's continued public investment and public support, so there's cross-party support to get all of those 3 queues moving. It's all about how you turn up the throttle on any particular queue. That's the difference between the parties. We've got a very strong and financially robust purchasing sector. So housing associations, local authorities, the wall of capital sitting behind PRS providers looking for long-term solutions, but what's really important is that those commissioners are not vertically integrated. They're all looking for partnerships which will deliver land and build solutions. There's a huge reliance on the private sector to achieve that supply. We also have some great data on the scale of affordable housing, and this is just affordable housing now looking forward. So we know the demand sits between 80,000 and 150,000 homes a year. Probably 100,000 to 125,000 is what most commentators would fix at. We're delivering 50,000 homes per year within the U.K. So that enduring supply-side deficit is not going away. It's actually getting bigger; and all of the housing associations, local authorities and investors therefore have growth plans. And you can see that infographic on the right: currently investing GBP 10 billion, planning to invest a further GBP 7 million. There's another GBP 13 billion that could go in. This market could be 3x its size it is now. And the only constraint is not appetite for investment. It's not finance. The key constraint is land with planning permission and importantly people who those investors can work with to deliver the supply. It's about capacity to build and the expertise and management control to deliver it. That purchasing sector has fantastic balance sheet. And you can see there that's a graphic on the right-hand side that looks at the top 250 housing associations, looks back a few quarters. And then we can look at and extrapolate demand over the next 4 quarters. And you can see how, in the light blue, that's their commitment; and the dark blue shows what they were seeking to achieve, really important here. Now you may have heard that some housing associations are looking very closely at actually their asset obligations. So they're looking to green their stock. They're looking to address building safety issues. Really interesting to talk to the housing associations that we're close with, who we're working with. They all have plans where the continuing majority of their expenditure is on new supply. I've spoken to one this morning. 25% of their capital commitment next year is on their existing stock. 75%, and we're talking many hundreds of millions, is on new supply. That remains an abiding concern for housing associations, and it's an abiding concern for the government as well. So this just looks at the last 10 years and forward 5 on the government finance through the Homes England, which is the government quango, through their affordable homes program, the level of investment. And the lower 5 boxes are the important part on this graphic, GBP 2.44 billion going in each year over the next 5 years, a commitment from this government; absolutely reinforces what we've known since 1945, that the U.K. housing economy is absolutely reliant upon forms of state aid. And the affordable sector, that 20% of supply which is in that top queue, is absolutely dependent upon that continued government investment. We're also seeing growth in what we call our submarkets. So our submarkets are particular types of housing, particular commissioning of housing. And local authority delivery, that stepped up incredibly over the last 5 years and we expect that to grow more. Savills expect to see that delivering an extra GBP 15 billion of investment in terms of the capacity within local authorities to deliver up to 100,000 new homes over the next 10 years. And that's because of additional freedoms they've been given with their Housing Revenue Account. And what's interesting is we see some local authorities very early adopters of working in partnerships to deliver, and they're sweating their assets and coming forward with schemes. And we've seen other local authorities just learning their way. And we've got a series of examples. I'm hoping that we'll be able to announce one shortly where we're working with the local authority which will be a great example for others to follow. We're also involved in looking at the older persons housing not in terms of the broader market, if you often read commentators talking about the demographics of the older persons market. That's not the signifier of growth for me. The signifier for growth is more around the affordable part of older persons housing, looking at that lower- and medium-quartile supply that's so important. And that's an area where we know some of our partners are keen to invest, and we want to work with them on that investment. The PRS market, which I've mentioned, is very important. We've got about GBP 680 million worth of PRS work going through the business and on the books. And that graphic clearly identifies how that has grown over the last 10 years. And we expect that growth to continue and the level to be at least sustained, if not going higher. You can see from the stats there the amount of the investment that's gone into that sector. And we're involved in that PRS market, as I said earlier, both in terms of low rise and more apartment delivery in urban areas. So that's the projections of growth within the industry across different types of housing. What does that mean for us? Well, going forward in terms of our short-term delivery, as I say, we can absolutely sit here today and be very proud of what we're achieving and the route and trajectory we're going to take in order to deliver that GBP 1 billion business. It's within our grasp. And everybody here is focused on delivering that, which is great. That means that we will be the largest private sector provider of affordable housing in the U.K., which is a great achievement. And I'm really proud of everybody's commitment towards that, but there's more to come. So the more to come, we have some visibility of as well. So this is new. I don't think we've shared these figures previously. We have the figures on the left. So you can see there in terms of forward sales. Our forward order book sits at GBP 808 million; and our mixed tenure forward sales, that's sales where we have exchanged or reserved, at GBP 448 million. Now the ink is dry on the GBP 808 million of contracts and that's why you may have seen that in the announcement. So that's GBP 1.25 billion that we have forward sales. We then have what we call work on the bench. Now work on the bench is where we are 95% certain, or more, of those schemes coming through. And you can see from the figures on the right there we have GBP 328 million if you add up the public sector wins and the partner delivery anticipated contracts, where we are preferred bidder. It's probably the case that our partners have not yet ready to announce our position, not yet ready to announce to the market that we've succeeded or we're finalizing the contracts. And then in addition, we've got GBP 2.8 billion of value within the land that we control, often in joint venture with our partners, to deliver those mixed tenure solutions. So when you put those two together, you can see we've got GBP 4.5 billion of visibility of future years work. That's a great position to be in. And that allows us to look forward to the potential for our next strategy for growth. So what does our medium-term growth and margin progression rely upon? 4 key things: continued optimization of our operating businesses, extending those strategic partnerships so that we use our partners' capital for growth, continuing that transition towards increased percentages of mixed tenure and the introduction of new operating businesses to support our expansion. Now I'll come back to the first 3 bullets in a moment, but let's just focus on that last one, the geographical expansion. So you can see there on the slide an indicative heat map, if -- that shows you where we're currently operating. And you can see that it's actually a very good spread across the country. There aren't many areas of the country where we absolutely do not yet have any operation. So we're going to fill in some of those gaps so that we get dark blue. So we would expect to grow our business in the Thames Valley. There's the potential for a further Midlands business that we are looking at introducing; and then into the eastern parts of the country, that line up to Cambridge. And we're really missing a trick around London and into the South East and Kent, where we can see further growth; and also our North West business. So we've got plans for looking at increasing our operational business base in order to deliver more. And that's supplemented, now as we go back to those first 3 bullet points. Firstly, optimization of our business platforms. So a typical Partnerships business when it's running full bore and efficient is probably looking at a turnover of GBP 110 million, GBP 120 million; and 17 operational sites. That's roughly. It will vary slightly, depending upon the nature of those sites and the size of the team, but that's roughly the optimum size. Not all of our businesses are at that size yet, so there's more to be done in optimizing those businesses. That will give us more growth. Outside London, those 9 businesses that we've got need to get to that sort of level, but the second optimization is really capturing the benefits that we've got sight of in the first 18 months of Vistry. So the real opportunity to bring through all the great work that's being done by the marketing teams and the sales teams in terms of digital platforms and getting that across our business; capturing all the benefits of our sales infrastructure, the economies of scale through our procurement strength and the overhead efficiency by working within the group; and that great strategic land that we can access and, if I capture it on the right day, getting some capital investment as well. And our strategic alignment with our partners, using our partners' growth. So we've just last week put in a bid to Homes England for -- to become a strategic partner. Homes England have just opened the door to private sector bodies to bid for strategic partnership funding, which gives you grant funding to go out into the land markets to purchase land to deliver affordable housing over the next 5 years. That will be great. And we expect to succeed on that having had a program with Homes England for over 10 years, but we also are talking to a number of providers who are looking at filling their long-term aspirations with partnering around land and build, which is a great opportunity for us to engineer our products, great opportunity for us to sit down with somebody and agree 2,000 homes delivery over a certain timescale. And that's leveraging their capital to give us greater forward visibility and give them certainty of delivery as well. So that strategic alignment is key. And then thirdly, the margin progression that I mentioned already, driven by increased percentages of mixed tenure. So our 5-year plan posits a balance of about 60-40. So 60% of our turnover being mixed tenure in 5 years and 40% being partner delivery. That allows us to retain the discipline in terms of our capital management, and it allows us to also see that margin progression that we're seeking of being north of 12%. So that is a great image of Brunel Street Works, which is atypical because we don't build many 26-story towers, but this is a 975-home scheme on the banks of the Thames on land that we bought through the Greater London Authority's land sale program. And it's 3/4 presold, so we've sold -- or 2/3 presold. We've sold 1/3 to Fizzy Living for PRS, which is the Qatari-backed PRS investment vehicle. We've sold 1/3 as affordable housing to London & Quadrant. And 1/3, we're selling in joint venture with Metropolitan Thames Valley. So it's a great example of a scheme. Stuart has done a great job with the team there managing logistically very challenging site. It's selling very well and it's a great success for the business. Just a quick diversion on to our land sourcing. So when we look at these schemes: Our land is really coming from 3 routes. And you can see 45% of our land is coming from public sector wins, and 45% is coming from the open market. So we're able to succeed, if we're bidding and competing in the open market. And we're winning on public procurement platforms. And in pink there, really exciting, really important, is 10% of our land. And these are -- this pie chart relates, by the way, to full year '22. So we've looked at where our land comes from on the delivery in full year '22. And 10% of that is coming from strategic land, so there's an immediate example of how we're capturing the synergies within the group. So one of our first examples here is Lea Castle joint venture. So this is a scheme in Kidderminster. It's on public sector land. We're delivering 600 homes, really competitive claim to the market, lots of housebuilders interested in this one as well. We put together a deal with Citizen Housing association as a joint venture. And we put a bid in, which lifted the percentage of affordable that was being delivered to 40%. So this is 40% presold, so a little less than [ 50 ]. And as -- by virtue of doing that, we are able to apply a faster build-out rate, and that's also supported, that absorption rate, by us using 2 brands. So this is the first scheme, new scheme, that we're delivering where we'll have both the Bovis and the Linden brands. And that's contributing to the absorption rate. Now one of the interesting things about public land is it often released with an obligation to build at a certain pace. And you're incentivized through the overage arrangements on that pace, so being able to build quickly really helps in a rising market. The other thing that has helped is our relationship with Homes England. So we were nominated as preferred bidder on this site just before COVID struck and we were able to negotiate deferred terms with Homes England as a result of the delay, which has been great. And you can see there the margin and the return on capital reflecting the presold positions, and you'll see that across each of these examples. It's also a great example of synergy because, after the ink was dry on this deal with Citizen, they also approached us and said, "Would you work with us to negotiate a GBP 41 million contract?" on land they own on a site not too far away. By contrast, this is a large-scale neighborhood regeneration scheme, brownfield scheme in North London working with Enfield Council. This also was very competitive. I think, Stuart, there were 16 bidders for this site when it came out. And we were really pleased because we beat certain partnerships businesses and housebuilding businesses to this one. And one of the reasons we built -- we beat them was because we were confident and able to deliver on our presold position. So we entered discussions with the council for this 750-unit site and we've increased the presale up to 74%. We were also able to show how we would manage, incidentally, social value and measure it. That was an important consideration for the council, and we've now moved on. We've just got planning consent -- reserved matters consent for the first 300 homes. And we're now talking to the council about this being a larger development of 970 homes. And again that margin reflecting the presold element. We're not going to deliver this in joint venture. We're doing this on our own, but it's still got an excellent return on capital and again further synergy. Having won this job, we were then talking to the council, and we were able to negotiate to be preferred bidder on another parcel of land where we're delivering a GBP 90 million contract. North Whiteley. So this is the strategic land. This is pink in that pie chart that we just looked at. So this is a site that's been acquired through some skillful negotiations through our strategic land team. So there we are, 1,700 homes. And we're sharing this with Housebuilding. So a couple of parcels coming across to us early doors. So we're picking up a 54-unit land-led scheme, where we've presold at a very respectable 20% gross margin; and also a mixed tenure scheme for 112 homes that we will be delivering on that site. So we'll have Housebuilding over here delivering with Bovis. We'll be delivering with Linden and Drew Smith on our parcels, great example of how Vistry works for both Housebuilding and for Partnerships. And then finally, Kirkleatham, which I touched on earlier. One thing I didn't mention earlier was one of those advantages of those presold positions is that, where you're working with a PRS provider, you can create a streetscape. You can create a sense of place earlier than you would if you were just working for sale. And so this has given us the ability there to somebody who visits those show homes. Go around the corner. You've got a ready-made community that they can see coming out of the ground, which is great. Okay, in summary then. So we've got a very clear strategy through our differentiated returns-based Partnerships model. It's a great model and it's allowing us to capture market growth going forward. We really are uniquely placed through our reputation, through our scale, through our knowledge. And that's shown in the strong pipeline that we have of work going forward. We can work across the cycle. So our partnerships and relationships with our partners has hedged us in terms of how the market performs. And we've got a great business platform with room for growth within the existing business platform and the intention to increase that with further platforms. We're capturing those group synergies, which are really benefiting the business already, and a lot more to come. And that allows us to really, with confidence, deliver sustained shareholder value going forward: a great growth plan for a great business. Okay, I'm now going hand to you over to [ Scott ] for some questions. Who is going to facilitate? [ Scott ].

Thank you, Stephen. Today, we're going to be taking audio questions. [Operator Instructions] And we'll take questions in turn. [Operator Instructions] We'll just pause for a moment while people raise their hands. We're going to take our first question from Dean Grant.

Can you hear me correctly?

Yes. Go ahead, Dean.

Okay. So it's Dean Grant from Bank of America. I just have 2 questions from my side. Firstly, I just want to understand if you've updated your volume targets now. Because previously I understood it was 6,000 units with a 50-50 revenue split between mixed tenure and partner delivery and 3,000 mixed tenure and 3,000 on the partner delivery side. Is that now 5,500 units with a 51-49 split, revenue split, for mixed tenure and partner delivery? I just want to clarify that, if possible, please.

Okay, do -- I'll try address that, Dean, first. So yes, we are on target to deliver 5,500 homes. That GBP 1 billion turnover and the 10% margin, we achieved before we deliver 6,000 homes, so our pace of delivery of new homes is slightly different to what we'd forecast. then that partly reflects the value of the homes that are being commissioned and the value of the homes that are being sold. That's a key element of it, but -- and working with our partners and looking at the profile of sites, it obviously varies. The number of homes we deliver has always been indicative in Partnerships. It's a great way to explain to the uninitiated what it is that we're delivering. And people can understand the business in terms of the number of homes, but obviously our focus has been on then metrics in terms of turnover and margin. And we can deliver that on the 5,500 homes and we're very confident of doing that.

Okay. It makes sense. My second question was just at the trading update it was mentioned, and you obviously mentioned it today as well, that -- the medium-term operating margin target of above 12%. I think it was -- at the trading update, it was mentioned, that 12% to 13%. I just want to maybe clarify in terms of getting to the bottom end of that [ band's to the ] 12%. What is sort of the time line perhaps in terms of getting to that number?

So is that the forward projection?

Yes. So that's in terms of the medium-term operating margin target of 12% or above 12%.

So yes, absolutely. So the 12% is a minimum. So that's the first thing to say. And the rate of growth and the delivery is interesting. Well, if you look at, our focus is on disciplined and carefully managed growth. So we're just beginning to color in how we're going to get that over the next 5 years. We're very confident that we will get past halfway. We're looking at GBP 1.6 billion, GBP 1.7 billion business in 5 years time, with a minimum of a 12% margin. It would be foolish to try and say anything beyond that at this stage. We clearly need to have a little bit more color in order to be able to define that, but that's our focus. And that GBP 3 billion is a projection out to 10 years, but our focus is very much on managing a controlled, disciplined growth. One of the interesting things is, if you look at that growth out to 5 and 10 years, we're looking at about a 12% compounded growth. We're confident we can deliver that. And if you look back at the growth on the slide that I showed you over the last 4 or 5 years, I'll let you run a slide rule over that to see whether you think we can be confident in delivering a 12% growth trajectory.

We're now going to take our next question from Clyde Lewis.

I've got a couple if I may please, Steve. One, you flagged obviously the ability to have presale levels vary a lot by scheme and also that impacts the margins. Can you sort of maybe talk us through a couple of examples of how it will impact the return on capital employed if you are pushing a return level of 70% or 80%? What will that do to that capital employed? The second one I had was around MMC. Clearly, this loads of demand and loads of potential. Fill I expect will be a little bit of a limiting factor. What are you thinking about in terms of sort of offsite construction? And the third I had is sort of when you are discussing, I suppose, with the different interested parties sort of housing associations, local councils, PRS partners, what are you finding in terms of how the margins and the returns on capital vary across those 3 types of sort of customers effectively that we're working in. Is there a spread across those 3? Or do they tend to fit in different sort of pots in terms of how the margin in turn will play out?

Thanks, Clyde. So I'm going to actually deal with the MMC question first, then I'm going to hand over the return on capital to Mark. He'll deal with that, if you wouldn't mind. So in terms of MMC, Clyde, we've taken the view that we'll continue to work with our supply chain on different types of MMC solutions. So it's quite interesting. We've got a varied platform at the moment. We are involved in delivering steel frames on sites. We are involved in timber frames, closed panel and open panel. We've got a scheme where we're trialing modular construction, working with Ilke Homes down in Bristol. And we've got schemes where we're using pods. There's a great scheme that I went to in North London that Stuart is involved with where we're actually bringing in the bathroom pods, the ensuite pods and the utility cupboards, all being winched in, and it's plug and play and away you go. There are also different forms of MMC that qualify as MMC that use different forms of foundation and sub-base and we're using those as well. So at the moment, our approach is to continue to work with our partners in the supply chain on different forms of MMC. It is not a barrier to winning work. We are always ticking the MMC box on the public sector land that we acquired. So we're using different forms of MMC to deliver. And our view is that MMC is not going to displace traditional forms of delivery. All it can do is add to the potential capacity within the sector. So we'd expect to continue to work with partners on different MMC solutions and build traditionally.

So on the return on capital question, I mean all schemes are a little different. So there are variations. Generally, our entry point, as Stephen said, is 50% presold and the minimum of 40% return on capital employed. And I guess the extreme end of that in terms of the percentage presold is when you presell 100%, which becomes a land-led partner delivery. And then you'd expect an infinite return on capital employed because we never actually put any cash out. And then there's sort of a see-saw in between of reduced margin and improve return on capital employed, you go from one end to the other. But as I said, there are differences, and we try and get the best out of each scheme. And there was just one other point on the partner. Could you just repeat that quickly for me on...

So Mark, yes, I was just asking whether there's much variation when you're talking with housing associations or registered or the likes of Sigma and the RPs or the local councils in terms of, again, the margin and the retail capital spread that you'll get across those different customer categories, I suppose.

Yes, there are. I mean each scheme is different. But -- I mean we've -- sort of PRS schemes, that would be presold. When we're dealing with local authorities and some housing associations, often the schemes which we do with them will be in joint venture. And of course, what we would seek to do in some of those joint ventures is to introduce partner funding. And when you do that in terms of our returns on capital employed, that can be greatly increased. And we've got several examples of that. So there are differences. Each scheme is different. And what we've got the ability to do is to approach each one with a partner in a different way in order to get the best result for us in terms of profitability and return on capital employed.

James wants to talk a little bit more about Kirkleatham, because, Clyde, as you expect, all the customers, yes, it's a different balance, but we're actually looking for the best blended return on the site. The way we look at every site in terms of the position RP, local authority, PRS, it's appraised in a number of ways. Inevitably, the best return on capital comes out of the PRS position if only because we're able to obtain significant upfront payment for land and build, whereas an RP position or local authority position in contracts probably doesn't give us that advantage. Across the 3, the PRS specification is the highest followed by the local authority, followed by the RP. So factoring in the build cost and factoring in the best offers across the 3, clearly, the return on capital from the PRS would draw the best result for us. But I would expect the margin levels to be similar across the 3.

Clyde, does that answer your question?

Perfect. Yes.

Okay. Thank you, everybody, for your questions that you've had so far. [Operator Instructions] We've got our question from the -- we're going to go to Chris Millington now.

Very interesting presentation. Just 2 if I can, please. Firstly, just on the margin growth forecast. I'm just wondering how much of that is likely to come through the gross margin and how much of that's likely to come through overhead recovery given the additional scale you're looking to [ measure ]. That's number one. And then the second one is a quite a topical one, and it's just really about the protection against cost inflation in light of presales and greater affordable MPRS exposure and just how you cover that off in an environment where things are moving a bit quicker.

Thanks, Chris. So in terms of the contribution to margin, the majority of that is going to be through that transition towards more mixed tenure. Yes, there is more to come in terms of our overhead margin as I mentioned. We haven't optimized that in each of the businesses. Obviously, if the business is growing, until it reaches an optimized size, we've obviously got a suboptimal overhead. And as I said, I expect there to be a transition towards a 5% margin -- sorry, 5% overhead within our business. It's a sensible rule of thumb. Some businesses are already below that. Some are above it, but that is not going to be the major source. There's some advantage, without a doubt, but that's not going to be the major source of us getting that improved margin. And in terms of our costs and our exposure, this is a really good question and a very pertinent question when you start to see build costs. We work very carefully, and Stuart could talk for probably an hour on this, we work very carefully on managing our positions contractually. So we negotiate very carefully with our partners on any indexation that we can introduce on schemes where there's multiple phases or there's a long-term exposure. We also work very carefully on offsetting risk into the supply chain where we're working on procurement packages that are left to obviate that exposure. So those are 2 really key things. We're extremely mindful of not being caught with cost risk. And we also include, I should say, when we actually settle and adjudicate any appraisal or bid in terms of a build price, we work very carefully on adjudicating what our fixed price exposure is and making sure that we've got a percentage in to cover that. Anything anyone wants to add to that?

I think on the -- Stephen has mentioned the point about adjudication. Certainly, this year, also in the last 3 to 4 months, the importance of fixed price allowance in adjudications has been a significant talking point with pricing, particularly on materials moving on an almost weekly basis. So prices from the part and delivery side are based on today's prices. So there's a communications piece with all our [ 3 ] partners, PRS providers, wherever they might be about the fact that there is inflation re-allowance that needs to be included within the offers that are made and that the offer is limited in terms of the delivery period. So we're probably maxing out a 2-year period at the moment in terms of holding on to a fixed price. Stephen makes a fair point about the supply chain and the challenges around fixed price with key supply chain partners are becoming more and more difficult. We talked about MMC earlier. But we're seeing price increase on timber frame at the moment of in excess of 20% where we're using timber frame on some of our sites. So you can expect some significant pushback from supply chain in terms of fixed price. But it's about that negotiation and communication piece so that all involved in the process, be it department delivery or be it the supply chain are fully aware of our positioning on the matter.

I think as Keith says, we've done a lot of work with employers' agents on indexation and that so we're fully up to speed on that. A lot of the intel marketing that we're getting goes out for some years. So we're actually able to track that and look at the market, and now a lot of our supply chain partners are also feeding into that. So when we're doing partner delivery, we're not getting called out. We're able to put that into -- factor into our prices.

So we've had quite a few questions from the chat. If I can just start with our first one. Do you have enough evidence to establish whether MMC has a lower build cost as it scales? If so, why did you say that it will only be incremental rather than substituting traditional building methods?

There isn't yet a platform of volume to demonstrate that, that efficiency is there. There are manufacturers, and it is often manufacturers who are proposing that it will come down as we see volume increase. That's what you'd expect. You'd expect it to be more efficient. But at the moment, and we -- I'm looking at planning for now and over the next 2 or 3 years in terms of the commissioning through our suppliers, we're not seeing the cost space come down. So there's normally an extra over cost to forms of MMC in terms of delivery.

Thank you for that, Stephen. Next question is from Glynis Johnson. Can you explain the difference between private for sale in Partnerships to private for sale in Housebuilding in terms of capital employed and also risk?

Thanks, Glynis. So first thing to say is that there may be a different product. So there's a different risk profile to selling GBP 0.5 million or GBP 0.75 million 5-bed detached to a 2 or 3 bed terraced, which is much more the type of product that Partnerships would be selling. So there is a product differential within Housebuilding. In terms of the margin, no. When we assess, there's no difference. So when we assess our market sale element of sites, we apply exactly the same hurdle rates as we would in Vistry Housebuilding. So we are expecting the same return for investing GBP 1 on an outright sale unit as we would within our Housebuilding business. Now the return on capital is often different because we blend our return on capital across the whole site. And if you've got a presold position, then obviously, you've got a slightly different scenario or a considerably different scenario to Housebuilding. But the actual hurdle rates that we apply to 20% of the site is outright sale. We will apply the same profitable hurdle rates on that 20% within Partnerships as you would in Housebuilding.

Stephen, I mean, one of the slides you put up earlier in terms of the percentage of the sites which we get through public land procurement. And often were as easy for us to get deferred land payments on the public sector procured land than maybe private sector procured land. And of course, it you delay paying for your land. that's going to help the return on capital employed on all aspects of the site including the private tenure units. Glynis, :p id="E01" name="Unknown Executive" type="E" /> Glynis, I might add in terms of sales at the end of the day, the sales process, the customer experience, we're looking for very much the same. So using the Linden brand, we're now using the Bovis brand as well in places in Partnerships, so very much from a customer point of view, and the quality, et cetera, absolutely they're looking for the same experience.

Thank you. Another question from Glynis. It looks like the proportion of mixed tenure is targeted to increase on a 5-year view. Your return on capital employed target looks unchanged, but this implies you're taking less revenue from the higher ROCE delivered. Can you give us more color on the ROCE of mixed tenure on average?

Yes. I mean as we said earlier, our hurdle rates for land acquisitions for mixed tenure is a 40% minimum. As we increase the proportion of mixed tenure and of our total delivery, you'd expect with partner delivery being infinite return in terms of return on capital employed and the return on capital employed to reduce. So at the moment, our return on capital employed is in excess of 40%. The strategic plan in terms of where we're headed to is taking us down towards that 40% and that's where we seek to end up. So it's a decline in return on capital, if you like, to some extent, but a great increase in profits due to the higher profit margins from the mixed tenure delivery.

Okay. Thank you. And we're going to go to our next question from Will Jones.

Can you hear me? I just had a few questions, please, around the capital side of the equation, you see that growth, maybe if we pick up on that 5-year target of [ GBP 1.6 billion ] plus of revenue. But I don't know if there's any numbers you can throw way around, for example, the plots in the land bank for a number here, around 5,000 at the end of last year for I think it's the mixed tenure business. But is there an equivalent number that you need to be at, I guess, to deliver that kind of revenue number in, say, finding its time or maybe it's easier to translate into an incremental capital employed figure? I can probably back it out from what you said today on returns by [ generating the GBP million] number in your mind. And maybe just to check, when I think about these agenda and strategy for Partnerships over the next number of years, is there any implication for the Vistry Housebuilding business in terms of what it can do over that time frame? Or that's still a very much its own, at least in terms of strategy?

I'm going to bring Earl in on the Housebuilding, please? And on the land banking piece, you've got to remember the point I made earlier about us turning land very quickly. So we'll continue to do that. So we can feed our hopper at relatively short-term basis, but we already have 11,000 plots within the Partnerships land bank or allocated to Partnerships. So that's about 76% of that land bank is housing. And that allows us to draw on that and going into those strategic discussions with partners that I mentioned earlier, allows us to align that land and deliver that supply. So as we stand here today, I'm very, very comfortable with the amount of land we've already got. I can see further land coming to us. We're not having a difficulty in acquiring either public or private land at the moment. It's fairly -- it's more competitive in the private land market at the moment than it has been. But we're still able to secure land because of the unique nature of our offer. So that's working. So I think we've got sufficient visibility of land bank and opportunity to deliver what we need to over the next 5 years. Hopefully, that answers your question. Earl?

Thanks, Stephen. I mean, well, just add to that. I mean we've said fairly openly that isn't exact science, but we expect to invest at least GBP 100 million in Partnerships in the current year. And I would imagine, if look at the plans, it will be a similar level in the following year in terms of driving that mixed tenure growth, particularly if that makes sense. And then in terms of the Housebuilding, straight answer is no. I think -- well, you're familiar with the plan for Housebuilding, which absolutely is controlled volume growth, really focusing on the margin, so looking to deliver a 22% gross margin this year and then grow that margin in subsequent years, along with continuing kind of volume growth. And we've got capacity within Housebuilding, the existing structure to move that on to 8,000 new homes a year, and that may be kind of 5 years out from here as well. The one thing I would add in terms of the capital investment that we're really beginning to get our heads around is the value of Partnerships and Housebuilding working together on some of our larger sites. So you saw one example as a case study was North Whitely, which wasn't originally a Bovis site, it was built for Housebuilding. And we're now being able to deploy Partnerships on that scheme, which is improving the return on capital still. We've just bought a site combined up near Peterborough at Great Haddon. And we know there are other sites within our strategic land bank. Stephen mentioned 10% of the land in Partnerships is already from strategic. We do expect that to go up as we move forwards because there are some larger sites that apply in both Partnerships and Housebuilding models will deliver more benefit.

Thank you. The next question taking from the chat. It's part of a 3-part question. Can you outline how you're refreshing the GBP 4.5 billion of forward sales and land bank as you go? And if you think the 10% margin is sustainable into the future? Second part is how far forward are you thinking of buying, taking options on land? And do you see new competitors or complete new entrants entering the market, such as private equity?

Right. Okay. Thank you. So I'm probably going to take those in reverse order. So new competitors entering the market and private equity. No, I don't, other than the opportunity for existing Partnerships businesses to grow through further investment. I can see that. I think -- as I mentioned earlier, the ability for a new entrant to the market is very constrained. The barriers to entry to establish and suddenly promote a Partnerships business are very, very limited. But I am sure there is more capital looking to come into this space and looking to deliver more partnerships. I suspect the very sensible move that was made to combine Bovis with Linden and Partnerships and form a Vistry Group, I suspect there are others out there who wish they had a partnerships business with the quality of this one. And that will always induce others to invest to try and achieve it. So I suspect that is definitely likely. The GBP 4.5 billion and 10% margin, yes, we are confident that we will be delivering north of a 10% margin as we see that GBP 4.5 billion unravel. If that was your question, I think it was. The middle question? There were three.

Of course. The middle question was how far forward are you buying -- still taking options.

Land options, well, that rather depends on how much it costs. So if somebody wants to give me a land option for 10 years, then I'll pay one thing. And if it's a land option only for 5, then I'll pay another. But we're certainly looking at securing land through our strategic land team in excess of a decade. So as you'd expect, there are options and there are options and some land is likely to come through in the next 5 years. Someone will take 10 and some will take a longer-term horizon. What I'm very clear about is that the strategic land expertise and buying land sits as a Vistry-wide resource. And the strategic land ambition is about feeding both Housebuilding and Partnerships within the business, and that's where the expertise will sit in capturing different positions and different amounts of investment to take land options and involve -- be also involved potentially in land promotion.

Add a couple to that. I agree in terms of the length of the land options. I mean we would always typically look for at least 5 years on an option with a renewal for another 5. Also informed within those options is to negotiate deferred terms when we actually purchase the land, so to be able to buy the land on deferred terms as we would do normally in the market. And therefore, we are in the business of taking options on fairly large sways of land as well, again, to feed both parts of the business. And just going back to the first question. Stephen, you answered in terms of new capital, are we going to dwell on the private equity. But certainly, and Stephen mentioned the wall of capital that's trying to get into residential, we definitely see that. It was referred to in terms of PRS. There's significant private capital that wants to get in. So also looking to get in through, I suppose, a housing association or quasi-housing association route, which, again, can be part of the growth for our Partnerships business going forward. So there is significant capital coming in.

Just part 3 of that question for you as well. Do you see new competitors or completely new entrants such as private equity entering the marketplace?

We don't see -- I don't see new entrants coming in. It isn't quick and easy to establish a partnerships business. I see a desire for growth of the existing Partnerships businesses. That's undoubtedly the case. And some businesses are beginning to get more interested in some public sector land positions. It's partly a reflection of the cycle. What we do expect is that end of cycle behaviors, particularly among some of the more traditional house builders begins to influence their desire to get involved in Partnerships positions. But I'm not seeing any particular growth in that at all other than a desire for others to have a partnerships business with a sort of scale we have.

And I think what we have seen -- our selected examples of this -- those companies that were -- have been developing PRS in city centers coming out to the outskirts to the surrounding towns. There are certain examples of that in the Northwest. But we shouldn't forget that on our Homes England opportunities that we look at, there's a significant push for SME businesses to provide housing for registered providers, and there are several examples of that, certainly in the East and West Midlands where smaller businesses are delivering 100, 200 units a year and looking to build using private investments.

One of the ambitions of Homes England through its delivery partner panel is to get larger players like ourselves to work with SMEs on particular parcels of land on the larger sites in order to diversify delivery. And we've got examples where we're already in partnership with SMEs on sites where we've handed over a parcel, effectively, for that SME to deliver. So I'd expect that to continue.

Okay. Next question from the chat is how reliant is the Partnerships business on the Help to Buy scheme and how does the potential end of Help to Buy scheme after 2023 affect the return on capital employed margin algorithm?

So that's a good question. So Help to Buy constitutes about 30% -- 30%, 35% of our sales year-to-date. So it's an important enabler. So that being removed in '23 obviously will impact our approach. I'd expect a couple of things to happen. Firstly, shared ownership as a tenure will start to pick up some of the prospective Help to Buy purchasers who will choose to get involved in shared ownership through housing associations. And then secondly, we're involved in discussions with other developers, other house builders in looking at a private sector response, which will allow purchases to buy with -- access 95% loan-to-value product, which will replace Help to Buy post '23. So we're involved in looking at that as an option. One of the interesting things about the investment that Homes England has made in Help to Buy over the years is there is now a real history of performance of that investment. One of the things they've been able to demonstrate is that I think about 50% of Help to Buy purchases actually buy out the remaining 20%, buy out the equity after 5 years. And the remaining 50% are continuing to pay the interest rate. There's essentially an interest fee per month with very, very, very low defaults. So there is already an established portfolio of investment through Homes England that shows how that equity product has performed, and I'd expect there will be interest post '23 in the private sector in offering products, which will enable first-time buyers, which will enable the purchasers that currently use Help to Buy to have different products. So I'm not seeing that as a barrier to the future of the business. I think there will be other solutions.

We have had some superb questions from everybody so far, so thank you for those. And next question is, can you talk about the impact of future home standard regulations on the Partnerships business? And how you're planning for dealing with that? And that's from Dudley Shanley from Goodbody.

Thanks, Dudley. It's a good question. And of course, we're not alone in that. So the first thing to say is dealing with those regulatory changes. Dealing with the introduction of future homes is something that the whole industry is adapting to. So you would expect us to be involved in our discussion with other businesses through the HBF, through the housing forum in looking at solutions that technically work and will work on scale. We've got a very accomplished technical team within the business that's already modeling the impact of the progression towards future home standards. We've already taken that into all of our land buying equations. So we have looked at and costed what we think it's going to be in terms of meeting those standards going forward, both the initial round of standards coming just down in the next 2 years, in '22, but also looking out beyond that of what might be further standards associated with decarbonization and allowing for that in our land appraisals and in how we're planning our work going forward. So we're looking at technical solutions. We're not alone in doing that. There are many others. There are others in the supply chain. But the important thing is that we're factoring in the cost and the impact on our business.

Good point. In terms of the number of the projects that we currently have live, their large span means that there won't be any impact to future homes. So risk is limited on the next 2, 2.5 years. There are a limited number of projects where we've had to make adjustments to the forecast to factor in the potential uplift of future homes post -- during '23. So that's all embedded now. And all the businesses are appraising on the basis of the future homes requirement. The important thing that we need to address is to ensure that our client base, partner delivery, RPs, local authorities and PRS providers are also understanding the potential cost impact of the future home standards and how it needs to be factored into the offers that they are making and future contracts with us.

Right. We take the next question from Aynsley Lammin. Would you expect Partnerships to be broadly procyclical with the wider housing market? Or is there a significant degree of countercyclicality in Partnerships?

Right. Thanks, Aynsley. Good question. So of course, we've got a business that is a blend of mixed tenure sales and forward delivery through our partner delivery. So Partnerships is exceptionally well equipped to deal with countercyclical conditions. So we're in that position whereby our relationship with housing providers and housing commissioners allows us to deal with different parts of the cycle. So let me just give you an example of that. If we're working on a scheme for 400 homes and we're in joint venture with a housing association, so we're coinvesting on 50% of that site. We've done 2 things. Firstly, we are dealing with a product when we designed that product, which is lower and middle quartile. So it's a product that can become an affordable product if there is some grant funding available, if there is an alternative way of financing those homes rather than being sold. So in the event that we saw a deterioration in the market on a site, joint venture site like that, and we were left with stock that we weren't able to move in the extreme, we would work with our joint venture partner. And our joint venture partner and ourselves, would be in a very strong position to access forms of grant and convert the tenure to those homes. If you're building 5-bed detached homes and the market moves against you, you're caught. You don't have anywhere to go. You've got to basically cut your price until somebody is able to purchase that home. If you're selling homes that could also be affordable homes because they're of the right size and the right design, then you have another alternative. So we take that. That's what I mean by that bullet point when I refer to a hedge position. By virtue of the nature of the product we build and the fact that we're coinvesting investing with partners who are commissioning different tenures of housing, we're in a very good place in terms of dealing with countercyclical conditions. Hopefully, that helps.

Thank you, Stephen. [Operator Instructions] Next question. You talked of asking Greg for capital. What do you need capital for?

It was a slip of the tongue. I meant Earl. So that was a slip of the tongue. Seriously, what we -- in order to grow the business, there clearly needs to be some capital allocation. We need to justify the rationale for that capital allocation through us maintaining the discipline of our appraisals, through maintaining our return on capital and our hurdle rates. And on that basis, whether we ask Greg or Earl or both for that additional GBP 100 million, that's something that we'll be doing in order to grow the business.

I'll probably just add, I'm going to move away from the finance and people asking me for money. But in terms of other investment, I think the exciting bit that the team are building the plan for is the human capital that going to be required in terms of the growth, the location of new offices, and that's already in motion to some extent with Thames Valley. But that's what's really needed going forward.

We have no further questions at the moment, Stephen, I'll pass back to yourself for closing remarks.

Okay. Right. Thank you, everyone, for joining us this afternoon. I hope you'll leave us as evangelists for the Partnerships business. And you can see, I'm sharing some of our confidence in the business, which is an absolutely great business, which's been assembled over a number of years. The strength of that human capital, as Earl just referred to, is hopefully a bit manifest for you this afternoon. It's incredibly valuable. Our relationships with our clients and our ability to look at different solutions is absolutely valuable. And that will put us in a very good place as we move forward. And using those strategic assets to deliver that sort of scale of growth that we've highlighted today. And in doing so, we need to maintain our cash and our commercial control and our discipline as a business. And our growth will remain very disciplined, ensuring that we've got the sort of outputs that we've enjoyed over the last 5 years. So hopefully, that covers everything. So I look forward to seeing some of you in reality at some point in the future. So thank you for finding time to join us today. Thank you.