Vistry Group PLC (VTY) Earnings Call Transcript & Summary

Good morning all. Let's make a start, and welcome to the half year results of Vistry Group 2023 and importantly, our strategy update. I'm delighted to be joined today by the big guns, Tim Lawlor, Earl Sibley. And we've even brought along Stephen Teagle, the CEO of Countryside Partnerships. Stephen is so enthusiastic. It positively makes me feel and look [ miserable ] at time. So you'll enjoy his section when we get to it. So today, introduction by me, financial review, obviously, Tim, strategy update will be myself, Earl and Stephen. Capital allocation back to Tim, which is another update today. And I will finish off with an outlook. So as the 2 [ runners ] used to say, an absolute pack agenda tonight. So let's get on with it. So let's start with the evolution of the strategy. There is an acute shortage of affordable housing in this country. And a market commentator in the last week or 2 has actually said, it's no longer a housing crisis, it's a housing disaster. That's where this country is. And Vistry, I'm delighted to say is firmly as a leading, the leading provider, of affordable mixed tenure housing. And the group is to focus its operations fully on a successful high-return, capital-light partnerships model. It positions the group to deliver sustained growth output, and it also has the market resilience, which we've demonstrated with our partnerships business over the last few years. The implementation of the strategy is absolutely well developed, and the businesses will fully merge by the end of 2023 and it is important that all the senior management team are on board with the new strategy and structure. And we've had to make some very, very difficult decisions, even the senior management team that have been adversely affected by the new strategy, have all said to me they completely get the strategic logic of what we're doing, which is a good endorsement, I think. Synergies and benefits from the Countryside, our company retained. So we're currently saying from Countryside, a full run rate of GBP 60 million in 2024, and we're expecting further synergies on top of that of GBP 25 million per annum from this simplified operating structure. So if you just look at that in the cold line today, and we'll be expecting to beat these numbers, has GBP 85 million worth of synergies, if you like, directly related to the acquisition of Countryside. The group's medium-term targets, 40% return on capital, which is our number one priority. Revenue growth of between 5% and 8% per annum, and operating margin of plus 12% and an operating profit of GBP 800 million in the medium term. They're pretty much all what we said at the time of the acquisition of Countryside that GBP 800 million will now come 100% from partnerships as opposed to 50-50 partnerships and housebuilding. Our capital allocation policy has been confirmed and we're targeting 1 billion capital -- GBP 1 billion capital distribution over the next 3 years with the alumina of net debt. So we are addressing the country's acute need for affordable, mixed tenure housing and is at the core of Vistry being responsible and you'll keep hearing that word today responsible to do better. So our half year performance. First thing to say, our half year performance is in line with our expectations that we set at the start of the year against more challenging conditions. The integration of Countryside has proceeded well ahead of our expectations. Partnerships has seen strong levels of demand demonstrating market resilience once again with the half year revenues up by 7.1% on a pro forma basis against half year '22 and operating margin up 130 bps to 11.5%. So a really strong performance there from partnerships in a really strong market. Housebuilding operated well, particularly against the peer group in far more challenging markets with revenues down 28.3% on a pro forma basis and the gross margin down to 19.8%. But importantly, maybe when some of you draw parallels to what happened with the Countryside, we have a very good housebuilding business. Housebuilding leverage the group's relationships with RPs and local authorities to increase delivery supporting the sales rate, and that's aligned with the group's new strategy in the first half of the year. Strong progress on renegotiating, our supply chain arrangements, and we fully expect to offset, again, unlike the peer group, any inflationary build cost in 2023 and with post-synergy savings. And I am confident now that we will actually see some net deflation in the second half of this year. You can't have housebuilder coming back as much as they are without subcontractors, and we're speaking to them. Our peer group is speaking to them, and we would expect some savings to be starting to come through, which maybe aren't built into everyone's models yet. Net debt of GBP 328 million was in line with expectations, and we would expect that to reduce to around GBP 100 million at the end of the year. So partnerships delivering revenue and profit growth against more challenging market conditions, proving again its countercyclical has resilience against the market, and there's a massive shortage in this country. As you know, we've been incredibly busy since the acquisition of Countryside. So the last 10 months have been pretty manic. But against that, delighted to be able to say that we have won and again, on a pro forma basis, more NHBC, local authority, Premier Guarantee awards than ever before. I'm delighted that our staff have taken time out on an over 200,000 thus far is higher than that already for Alzheimer's Society, our chosen charity for the year. Delighted with the deal we did with Sage for Home stepper, which is our new shared equity vehicle, which is going very, very well. And importantly, from an HBF customer satisfaction survey perspective, we continue to be 5-star, and it's important that both our housebuilding individually and our business is our 5-star with our 9-month score, which we're focusing on more and more these days at 80.2% and our 8-week score at 91.2%. So none of our KPIs have dropped even though we've been incredibly busy. And on that, I'll pass over to Tim.

Thanks, Greg. Good morning, everybody. There's a lot more to cover in our half year results presentation than normal today. So I will try and cancel through the half year results highlights. So just to reiterate what Greg has already said, has a very strong set of numbers in the half year, given the market uncertainty and given that we were busy integrating Countryside in the first half of the year. Headline revenue was up 30%. Now of course, that was largely driven by the acquisition of Countryside. On a pro forma basis, we were down 12.9%, but particularly noticed that partnership's pro forma growth was 7.1%. In terms of profit before tax, we came in, in line with expectations, the GBP 174 million that we recorded in the first half year is just shy of 40% of the full year. We expect it to be in the low 40s in a normal year, but we were somewhat impacted by the slowdown in Q4 at the end of last year feeding through to the start of this year. But catching up. And as Greg said, we've reiterated our guidance for this year of GBP 450 million or in excess of GBP 450 million PBT for FY '23. EPS is obviously impacted by the shares issued for the Countryside combination last year, which explains why EPS is down 40% year-on-year. Return on capital employed was 21.9% for the 12 months. Now of course, that's a slightly distorted figure because 12-month, we have ROCE a 12-month rolling basis, and the start of the year, it was just Vistry standalone. However, we'd expect it to be low in the first half of the year anyway because of the seasonal buildup of capital. So moving into a bit more detail, let's go to the partnerships' financials. So great progress with the integration this year. We are now operating very clearly as a single history partnerships business under the brand of Countryside partnerships. We're reporting against pro forma here because the year-on-year numbers obviously are most distorted. The details of the pro forma units are in the appendix of the slides. So up over 5% on completions, up over 7% on revenue year-on-year. And the operating profit margin has increased year-on-year. Again, this is partly due to the combination and an increased proportion of mixed tenure activity in partnership and mixed tenure comes with higher operating profit. The 6-month ROCE 34.8%, below our target of 40%, but on the right trajectory to get back to 40% for year-end and 12 months in excess of 40%. So the usual metrics here for partnerships. The one thing I'd bring to your attention on this slide is that the proportion of mixed tenure is now over 75% of the business. So as we've indicated for moving much more to a mixed tenure business and away from partner delivery and contracting. Housebuilding, solid period, obviously more impacted by market conditions than partnerships. Total completion is down 22.4% on a pro forma basis. And margins were impacted by the multi-unit sales, which obviously came with some degree of discount, somewhere between 5% and 15% with the normal discount range on multi-unit, but that sustained a higher level of completions. And in terms of the housebuilding metrics, a greater shift to affordable related to that multi-unit deal profile. I think last year, we were about 23% of our business was affordable. And in the first half of the year, 30% of completions were affordable in housebuilding. So already starting a move towards a greater affordable mix in that business. Build cost is becoming less of an issue and more of an opportunity. This time last year, there was a lot of discussion about inflation. We've been ahead of the pack, I think, in saying that we've got control of build costs. We benefited from the Countryside combination, which has given us greater scale and greater length of contract offering because of the resilience of the business. So we've already said that we've been able to mitigate the material unit cost increases through our negotiations with suppliers. We're seeing subcontractor rates hold and actually, we're seeing that as an area of opportunity in the second half of the year as we engage more with subcontractors particularly on the back of the new strategy, which should enable greater commitment and greater long-term certainty of offering to our subcontractors. Greg has already mentioned the Countryside synergies are ahead of target. Now that's about pace rather than absolute quantum. We're sticking with the GBP 60 million per annum run rate at the end of next year with the extra GBP 25 million to come on the combination of housebuilding and partnerships. But rather than the GBP 25 million that we were previously indicating for this year, we're now saying at least GBP 35 million for this year, and that's because we've done deals with our procurement with our suppliers faster than expected, and we've been able to realize the overhead savings faster than initially targeted. In terms of the total costs of delivering that, it's been broadly in line with what we originally anticipated. So it's not come at any extra cost delivering those extra savings this year. In terms of land activity, we have continued to buy, we're highly selective in the first half of the year. You can see from the map there that it's a well geographically dispersed land activity in the first half of the year. Land bank has dropped slightly. And we are seeing evidence of a softening in some areas of the market. We've been able to negotiate a few deals at better-than-expected terms and conditions on the basis that it's a slightly less competitive environment that we are in. We'll come back with a little bit more on the land bank and what this means and what the strategy means for our land bank later in the presentation. In terms of the cash flow, so how do we get to the half year net debt position of GBP 329 million. So we opened the year with GBP 118 million of net cash. We obviously delivered GBP 174 million of profit. Then there was an outflow from work in progress of about GBP 200 million, of that GBP 200 million is largely seasonal trends and the seasonal trend is more pronounced with the Countryside business. So the multi-tenure and the Countryside profile is slightly more seasonally weighted than the previous visual partnerships business. And there's also a bit of a buildup of WIP because it's more second half weighted this year than normal, again, going back to Q4 last year, which slowed down WIP at the end of last year, and there's been a bit of catch up this year. So we expect some of this WIP to unwind in the second half of the year. In terms of land, the absolute land cash spend in the half year was about GBP 280 million, which is similar to last year, but less land has gone through cost of sales, which is why it looks like a net investment in land in the first half of the year, and that's because it's been a slower or a lower profitability in the first half of the year as things become more second half weighted. So that's land. Fire safety, I'll just point out that it's only GBP 11 million in the first half of the year, which is a lower number than we might originally have expected. And that's because more of the fire safety activity in the first half of the year has been about planning and preparation we'll get out much more into sites in the second half of the year, and I expect that about GBP 30 million will be spent on land -- on fire safety in the second half of the year. Integration costs from the Countryside acquisition are largely done. There will be a bit of cash in the second half of the year, but largely spent the GBP 33 million includes GBP 23 million related to restructuring activity. And it includes GBP 10 million of transaction costs that were actually paid this year rather than last year. The tax payments in the first half of the year were lower as well. That's just due to the timing of the payment profile. We'd expect that to be significantly higher in the second year -- the second half of the year, maybe GBP 50 million-ish higher in the second half of the year. So what does that mean for year-end. As Greg said before, we're signaling net debt to be were around GBP 100 million at the end of the year. Our average net debt in the first half of the year was GBP 360 million we'd expect it to be around that sort of level closer to GBP 400 million perhaps in the second half of the year. So fire safety again, the underlying assumptions of fire safety are not significantly changed. We've got a few more sites that we're looking at, but they're offset by lower costs in some of the original 305 sites that we had. So 317 sites that we have a plan for delivering remediation work on. What has changed in the half year is that there's been a move on the second staircase regulation, which is related to providing greater fire safety protection. And that has -- the regulation has moved from it being a 30-meter expectation or buildings taller than 30 meters were requiring a second staircase. The expectations moved for that to now be 18 meters. Now the impact of that is that it's made some of our London schemes less viable. There's one scheme we've had to cease and has led to a write-off of about GBP 6 million through exceptional charge. And there's 2 that we are committed to, but which are now -- expect loss making, we've made a loss provision of GBP 12 million for that. So that explains the increase of the GBP 12.3 million in the provision for the -- at the half year right. This isn't a slide for everybody. Operating profit to profit after tax but has got some important elements in there. First of all, to note the finance costs. And all elements of finance costs have increased during the year. So first of all, bank interest has gone up because of the higher average net debt, but of course, the higher interest rate environment has impacted bank interest costs. Second, following the countryside acquisition, we have a greater quantity of leases and land creditors. So the discounting of that flows through net finance costs. And finally, JV interest where, again, the interest rate environment and the greater number of JVs coming in from Countryside has increased the JV interest, so significant increase year-on-year in finance costs. I've covered the exceptionals, I think, already. I think the final point to make on this page is just around the tax expense, where clearly, we are bearing like others, a greater burden of tax with the increase in corporation tax from 19% to 25%, and we're continuing to pay RPDT of around 4%. So we're assuming an underlying effective tax rate for this year of 27.2%, which will move towards 29% next year. On the balance sheet, bring particular attention to capital employed here. So capital employed is deviating somewhat from TNAV, which is often thought of as the same thing as capital employed. And the reason for that is because the fire safety provision is included in TNAV and we feel it's inappropriate to include that in capital employed. The costs of fire safety have gone through exceptional and by including a capital employed, it would effectively boost our ROCE, so it would be great for window dressing perhaps, but it would be inappropriate to treat that provision within capital employed. The other piece to point out is goodwill. So goodwill has increased as part of the finalization process from our acquisition accounting from Countryside. It's increased by GBP 23 million largely due to one particular site that with the transfer to new management no longer looks viable. So there's been a write-down of inventory on that site. Now in theory, we have another 2 months to finalize our Countryside acquisition accounting. You've got 12 months after the date of acquisition. But what we're going to do is hopefully draw a line where we are now and not reopen that for the next couple of months. So our hope is that, that's done, of course, if something exceptional comes out the back dates to November last year, then we'll look at it, but it's unlikely. So hopefully, acquisition accounting is now done. And with that, I'll pass back to Greg.

Thanks, Tim. All very exciting. So moving on to market trends. So we continue to see strong demand for mixed tenure housing from local authorities, RPs and PRS providers. And of course, the breadth of the companies that we work with in this country is second to none. Open market private sales slowed further since June with higher mortgage rates. But I would say the last 4, 8 weeks have been pretty stable. So nothing going back any further, I don't think. There's been strong demand for our first-time buyer product predominantly home stepper, and it's good that, that's supported by GBP 150 million worth of direct grant we're now getting from Homes England which is the maximum amount that they can give to a private sector partner. On pricing, open market pricing remains firm, but we've seen the increased use of incentives 3% to 5%. And in housebuilding transactions with RPs and local authorities since the start of the year have averaged between 5% and 15% down against asking prices, not forecast prices. And as I said earlier, we see a significant opportunity to achieve a reduction in output costs in the second half of this year. So our full year outlook. So partnerships has a strong order book totaling GBP 3 billion with 90% of forecast for mixed tenure units and all partner delivery revenues for this year already secured. Housebuilding forward order book, GBP 1.3 billion, and that's 80% -- 87%, sorry, of this year's forecast already in place about the same as we were last year. Housebuilding and Partnerships continue to secure transactions with RPs and local authorities to deliver on the full year '23 forecast, which will help mitigate the slowdown in open market sales. Impact of market slowdown in full year '23 forecast is offset, in part, as Tim said, through the acceleration of synergies. Now we're expecting at least GBP 35 million. As we said at the last update, we were expecting GBP 25 million, but it's interesting to note at the start of the year, that was GBP 19 million. And the group remains very, very selective in the land market and all the land we've acquired over the last few months fits in with the new strategy, i.e., 65% presold. And the Board reiterates its guidance of GBP 450 million at least adjusted profit for this year, and that's 15% higher and consensus at the first of January. And that's an interesting point before we start into why are we going into the new strategy. That is we've looked at all the numbers from the peer group. And on average, the peer group are all about 7 -- sorry, 12% down on consensus. So there is a 27% delta between us and the majority of the peer group. And that's predominantly because of the strength of our partnerships business. So the strategy evolution, why now you may ask. So we've obviously bought Countryside. We've got much more exposure to the affordable market. So we do have confidence in the market opportunity. The need for mixed tenure housing development strengthening is further -- is going on further, massive. The recognition of urgent need for housing solutions from all stakeholders is massive, including all political parties and most importantly, the labor party. So we also have spoken to all of Homes England and all of our major RP, PRS provider partners, and they are -- to say they are pleased with the new strategy would be an understatement. They are absolutely ecstatic with the way we are going down the road and I think it's absolutely right for major householders. So we've got the confidence in the ability to execute. So we are well through the integration of Countryside and progress, as Tim said, is ahead of schedule. We've got a really deep understanding of the markets and strong relationships with our partners, which have taken years and years and years to develop. Let's not forget that. And having been around in housebuilding for 40-odd years, I can tell you there's that affordable housing, housing association people like to deal with people who talk to them when it's a rainy day like it is today as well as on a sunny day like it might be again next year. So they want to deal with people who will be around for them in all markets. High return on capital commercial delivery model has been proven since the acquisition of Countryside. And I can't reiterate enough, we have got a really strong management team, both in partnerships and the parts of housebuilding that are coming into the new organization. So I think it also gives you guys clear direction over our future strategy. It removes the uncertainty over the future of the Housebuilding division, and it gives us a clear differentiation against housebuilders and it is completely in line with the group's new capital allocation policy, which Tim will talk about in more detail later. So on that, Stephen.

Thanks, Greg. Good morning, everyone. As Greg has highlighted, our strategy responds directly to the enduring supply side deficit. What I'm going to do is run through that market opportunity. But in particular, I can't resist highlighting how our model differentiates itself. So 3 important differentiators for our model aligns with that market opportunity. But first, whether you see it as a market opportunity, a crisis, as Greg said, a disaster, we can't deny that the U.K. housing market is failing far too many people. So let's just see where that's particularly an issue in terms of -- if I get to the right page. Thank you. We'll go forward rather than some of that -- acute need for affordable housing, which is absolutely where the demand is. So that's -- I now get used to some figures. We're used to being bombarded with figures. We might become immune to housing needs figures for those of us who look at them regularly, but that's just be data rational for a moment. Over 1 million households, that's households, not people, over 1 million households on local authority waiting lists. 1 in 10 people in the U.K. housed inadequately living in poor quality accommodation. And the increase in temporary accommodation, households requiring temporary accommodation, those households, the majority of them include children is weighing heavily on local authority budgets and resources, meaning that local authorities need to do something about it. And there's the statistic that highlights that homelessness at its highest level for 25 years. Greg talked about responsibility. There's a key responsibility for our sector to respond to that. But it's not just about statutory homelessness. It's about pressures across the whole system. So that historic undersupply is really hitting affordable housing. The long-term trend for affordable housing delivery is around about 54,000, 55,000 homes a year. But we're seeing delivery, when you take account of right to buy and you take account of staircasing. That's where people with shared ownership staircase out of affordable and demolitions, the underlying level is about 30,000. And with a short of 100,000 of housing a year, that's pumping additional pressure into the system. If you take account of the inadequate stock and the fact that our over the person housing as a country is adequate, what you end up with is a real decline in affordable lettings. What a statistics, 17% fewer lettings for affordable housing now than a decade ago. It's into that market that we face. Those lengthening queues are what we're setting our strategy to address. Here are the 3 queues that we're facing into. So this is key. Look at those 3 queues, they're getting longer. The first queue at the top for social and affordable rent, over 1 million people in that queue that movement in that queue is determined by the amount of subsidy available and the level of build in the country. About 40% of the supply in that queue comes from Section 106. Section 106 and less being built, that's going to go backwards. The bottom queue for home ownership and private rented sector are affected by mortgage availability, mortgage affordability, and that's leading to increased demand within the private rented sector for people denied options looking for rent. And that middle queue, this queue is getting deeper and longer. This is the deepest queue. It's the queue that politicians are focused on because here are our future voters, this is people, particularly the under 45 all looking for forms of intermediate housing. They don't qualify for affordable rent and social rent. They can't access affordably full homeownership. They're looking for solutions. And that requires discounts, guarantees and subsidy in order for that queue to also be moving. The differentiator here, the first differentiator for our model is that our partnerships business addresses all 3 queues, not just looking for homeownership and treating affordable housing as an abnormal, but absolutely focused responsibly on delivering into those 3 queues. And the market is evolving to that demand. So it's evolved since Help to Buy has been withdrawn. And we're seeing increasing demand for shared ownership. And as Greg said, our Home Stepper products working with Sage, but also talking to our registered provider partners, all seeing an uptick in the demand for shared ownership as prospective Help to Buy purchases have migrated towards shared ownership. Increasing demand for PRS, as I've already mentioned, and a big uptick in new money flowing into new For Profit Providers. These are new forms of housing association. There are 80 of them around at the moment. And they, along with local authorities for the reasons that I mentioned earlier are looking to respond to that demand. And Homes England rightly recognizing that what's needed is long-term investment and ability to see strategically forward for forward programs. So as Greg said, we benefit from one of those forward programs looking to invest between 2021 and '26. There are headwinds for the traditional registered providers undoubtedly decarbonization investment building safety, dealing with the additional challenges that we've got in the operating environment at the moment, has led some to cut back some of their development plans. But there's a deep commitment and deep capacity within that sector, and we can continue to see cut their volumes and the investment programs coming forward over the next decade. They're also working with some of those for-profit providers to ease the pressure on their balance sheets. So that longer-term visibility of opportunity is key, and that's what's helping drive our strategy. And it's a political momentum behind it. As you saw last week, unsurprisingly, all of the politicians are recognizing the opportunity and the demand but you need to respond to that in a responsible way and show your commitment across the supply chain for delivery. This second differentiator in our business is -- and here is a definition of a Partnerships business, a business that only develops sites with partners. We work with the private and public sector partners in delivering. And there are 3 key categories that we work with. The majority of our work has been with registered providers, 2.74 million homes across the country, they're managing to just over 200 RPs, so a big constituent and they're funded through bank debt, bond issuance and grant all assisting them in looking to bring forward schemes. And although there are challenges to that sector and particularly in interest rate cover at the moment, the regulator responding on a quarterly basis continues to see them as extremely well-hedged businesses with long-term robust plans. It is a very financially sound form of public and private sector investment. And that's reflected in those new supply figures, GBP 13 billion invested over delivery for the next year. And should we be surprised at the time of rental growth at the private rented sector is looking for opportunities, particularly portfolio opportunities in order to deliver both single-family and multifamily. That's the flatted developments in urban areas, the multifamily. The single-family dwellings focused on dispersed housing stock, exactly reflecting the sort of land bank that we've got, the land holdings that we have and we can draw down and meet some of that supply. But a key new constituent for us is the local authorities. We already work with local authorities from Gateshead to Cornwall. And I think in the last 6 months, we've announced working with local authorities Enfield with Camden, with Bristol, with Warwickshire, you will have seen that, that is a market that we're particularly keen on working more with and they can see the benefits of that approach. And the majority of local authorities through housing companies and through JVs looking to deliver. So that platform and experience of work is what's helping us meet the demand. But that's amplified by our relationship with government agencies. The Homes England is a key partner for us. And our strategy is completely aligned with theirs. Homes England want to see mixed tenure, affordable mixed tenure delivery. They want to see delivery at pace and fast absorption and a commitment to placemaking and quality development. And we tick all of those boxes, that's what our strategy is focused on working with our partners and supporting the wider industry. Through engagement with SME, through working with supply chain partners, through using the resources industry works our factory in order to support that. That's key. And as Greg has said, we work across their funding programs and there's the affordable housing program being most obvious, but also there are debt and equity opportunities to work with Homes England and on delivery as well. Following the combination, our relationship with our other public sector body that's commissioning housing, GLA, has been really strengthened, really mature relationships mature platform of delivery within London through Countryside partnership, and that's really amplified that opportunity as well, which is great. And with responsibility for land about Homes England, about 40% of the land that has come into partnerships over the last 2 years has been sourced from the public sector. And we're currently building 12,500 homes on 35 sites. If that was on a single site, by the way, we'd be building well in Garden City. That would be the headline or a city the size of Chichester. Our strengths and our unique capabilities come from our people, our relationships and as Greg said, our track record. So we've engineered our model to align with partner investment strategies and importantly, we've got an operational platform that is very difficult to replicate. Many touch points within each business platform with our partners, and that's absolutely key. That allows us to be successful. We understand the language. And that track record of performance is key. So partners want to see a covenant, they want to see culture and they want to see a capability that allows us to deliver and that's important. And on the right-hand side there, all of those have been strengthened. I'm pleased to say our culture and great people that have joined us from Countryside partnership and our placemaking and regeneration skills, all strengthening our offer those partners in terms of delivering that responsible developer platform. Now I don't know whether you think of defensible features as being moats or barriers but they are certainly deeper and taller now than they were as a result of the combination, which is important. And as Greg has said, our partners see end-of-cycle behaviors when somebody is knocking on the door, on a transactional or short-term transactional basis, they understand the difference. So we can be enormously confident as we face into that strategy because we know it works, and we have the relationships. And when you start looking at the scale, you can see why that's the case. So there's 4 boxes there, please don't add them up and make GBP 40 billion because there's some overlap with each of those boxes. But first, on the left there, GBP 6 billion in registered provider contracts. So we are currently, the ink is dry, we are building 30,000 homes. It includes a 12-month defects period. So some of them might be handed over now, but 30,000 affordable homes being delivered in contract. Go to the right of the slide, and our track record of work in joint ventures, and this doesn't include our very good joint ventures with some private sector partners like XXXXXXXXXXXXXXX and TW. This is just our registered provider joint ventures. And you can see the partners there, 33, a total value of GBP 18 billion, an enormous track record fantastic. And that's supported by our work with 93 housing associations or registered providers. And look, that color chart there is indicative of the true percentage of work that we have with each of them. We're not working more than 7% with any specific -- of our total involvement with any single RP. Great capacity for us to do more with those RPs. And then my favorite number on that slide is that GBP 22 billion. That's what we call our work on the bench. So somebody in our business is working on every pound of that GBP 22 billion. That includes our forward order books across the whole group includes our presold of across our whole group, our forward sales. It includes where we're preferred bidder where we've had an award. We're working on it, and we hope to announce it shortly. And it includes our mixed tenure affordable land bank, which we want to bring forward, GBP 22 billion. That's our third differentiator that we have scale to succeed. So I'm going to hand over to Earl now to tell you about the fourth differentiator, which is our capital-light returns-based model.

Thanks, Stephen. Good morning. So I'm actually going to take you through the 4 key priorities we see for implementing this evolving strategy. But before I do, as Stephen said, I will just remind you of our partnerships model. So a high level of secured revenue, a capital-light business risk-based approach to each development, but the absolute priority, as Greg said, a 40% return on capital across the business. So that secured revenue, always looking for at least 50% presale happy for that to flex as far as 100% either upfront or through the development, if that is the right thing to do. Capital-light, put simply, we like to build with somebody else's money. Typically, that is our partner's money. We sell land, develop houses and get stage payments, but also very open to other sources of capital, typically, loans in from Homes England, local authorities, RPs as well as our banks. A balance of risks and opportunities on each development does determine our approach, but as I say, always targeting 40% return on capital. You've heard both Greg and Stephen talk a lot about a responsible developer. We are already a responsible developer. And as such, we are supporting the sector to modernize. It is embedded in exactly what we do. So addressing the country's social need in terms of affordable mix tenure housing and all those additional costs in terms of housing waiting list, the cost locally of housing people, the knock on in terms of health and welfare is exactly what we are doing. We are focused on a high level of delivery, a focused on regeneration and brownfield development as well as our aspiration to grow significantly to sustainable timber frame manufacturing in our business. It's inherent within how we work with our partners in terms of that extensive list of joint ventures Stephen mentioned, but in the way we help them with our stewardship and governance working together. Responsible developer also runs all the way through how we work with our supply chain. And in terms of delivery to our clients and customers, a clear commitment to go at a pace to accelerate deliver right the way across every aspect of the sector and looking to the future, future proofing our product and looking at new technologies to deliver. Okay. Strategy implementation. So 4 areas. Firstly, the migration of our Housebuilding land bank into a partnership model, looking to combine the very good strengths of both our housebuilding and partnerships businesses into one simplifying our organizational structure and the way we work to be just one consistent way of working and then driving that production efficiency, increasing the level of production. Our land bank. So you can see here on the left of the screen is our land bank at the end of June. So our partnerships land bank over 46,000 plots, housebuilding just over 30,000 plots, our valuable strategic land over 66,000 plots. And then as you go to the right-hand side is our current view of how we're going to migrate that housebuilding land bank into the partnerships model. Firstly, 27% or around 8,000 homes are already designated affordable by planning agreement. So that will be social rent, affordable rent, shared ownership being delivered. In addition, a further 1,000 already presold within that land bank and looking further forward, we expect to presell something in the region of 8,500 plots over the next 2 to 3 years. We've identified around 20 parcels of land that could go to an SME or be a land swap with competitors that actually could be between about 1,200 and 2,000 plots. And then, of course, we do intend to sell around 35% to 40% of that housebuilding land bank as private sales and particularly tapping into those shared ownership products, so Home Stepper has been mentioned, and that could be as many as 12,000 homes out of the land bank. There will be a few schemes that we will deliver using the partnership's model, but they are slightly higher capital. So in the short term, there will be a little drag on the return on capital from them. But across those, the numbers on the screen are actually where I would say, the middle of the range for each of those opportunities. You've already heard from Stephen, the size of the market for each of those opportunities. So that should give you some reassurance in terms of the deliverability of that migration. And in addition, the Housebuilding business has already exchanged on 23 multi-unit transactions this year. So that's 1,172 plots, and we have at least another 500 with terms agreed already. And I'll come back to that strategic land bank. It really will support the partnership's model, particularly in terms of some of the key large schemes that are coming through. And yes, I suspect it will also deliver further land sales and swaps into the future. So here are the various parties that we will be working with transacting with in terms of that housebuilding land bank. I'm not going to go through them all because you've heard quite a lot already. But I would say that we are in discussions with a number of parties for what I would say a more strategic long-term transactions of some scale, and we will update you on those as we progress. I'll draw your attention to the fact that we have our own RP, Linden First, and that really could become a delivery destination for a significant amount of our product in the medium term, and we're already out talking to potential providers of capital to support Linden First. And linked to that, already mentioned, we are the only PLC housebuilder with a grant program directly with Homes England. That's already delivering on a number of sites but could also support capitalizing and using Linden First ourselves. Okay. The leadership team, always good to see some pictures on the screen. So the exec team going forwards reduced to 7 people from 9 as we simplify our business, Stephen is taking a business development, business growth roles have absolutely focused on all our clients and customers. Michael Stirrop, who's here this morning, already responsible for manufacturing, strategic land and a couple of other areas will take a wider end-to-end supply chain roles, so picking up design, technical and commercial. Mike Woolliscroft remains responsible for London. Sorry, Mike is here this morning as well. But it will also be instrumental supporting me in the change required to make our business operate absolutely consistently across the whole. And there really is strength in depth in that -- 134 years of experience within the ELT and a further 127 years of experience within the 6 divisional chairs that will run the business day to day. So simplifying the organization. We currently have 2 overlapping geographies, and we're looking to simplify that to one, as you can see on the screen. I think it's worth noting that the 2 divisional chairs that will lead the North and Midlands have been operating across that patch since the beginning of the year. So the split of geography you see on the screen is as much to retain some key internal and external relationships. And I know that James and Adam will continue to work very closely together. We expect to operate across 27 business units going forward, but that will give us plenty of capacity to grow. So we think 27 businesses can deliver 24,000 homes in due course, and that's plenty of growth from where we are today. And then we are absolutely looking to combine the best of Vistry Housebuilding and Countryside partnerships and have one way of working whether that's constructing on site, our passion for pride in the job, whether it's selling and marketing our products, standard design, specification, use of timber frame or even how we contract with partners looking for consistency across the mall. And the simplification will make us an even more agile business, and agility is something we already pride ourselves on. And finally, as a natural consequences of the changes we're making, we do expect annual savings of GBP 25 million, the majority of which will come through in 2024. So we've already said high level of delivery, accelerated production, high asset turn, absolutely key to the strategy. And therefore, going forward, we do expect a good level of output no matter what the short-term trends in the housing market are. That high level of presale ensures that we're able to commit to new sites and to continue to work in progress investment on each of our sites, really important with all our supply chain in terms of being able to give them that surety of delivery surety of supply, and that is to their benefit. And in response, we do expect the highest level of service and the best value for money. So we are communicating with them all this week in terms of the update to the strategy, and we will continue those discussions in the coming days and weeks to our mutual benefit. And then our ambitions with Vistry Works totally aligned with the strategy in terms of looking to improve the speed of build and also drive a more sustainable approach to production. So our capacity is now over 7,000 homes across the 3 factories. We're looking to double the production next year to around 5,000 homes from those factories. We've already added in some other timber product manufacture into those factories. So roof trusses and joists is going to be a key part of our route map to future Home Standard 2025. And looking further to the future, we are running a number of trials, whether that's around brick slips or incorporating solar and PV panels with our timber frame and some other simple ones in terms of looking at things like stairs. So overall mandating the use of Vistry Works, our timber frame across the business and expanding the geography is also key to our strategy. And with that, I'll hand you back to Tim to talk about capital allocation.

Thanks, Earl. So capital allocation, we left you hanging at the full year results in May and said, we were going to go through a period of consultation with shareholders during the course of the summer. And we've conducted that. We're very grateful for all of the feedback we've got from so many shareholders and lots of advice on how we might proceed. And actually, that -- those consultations have been very helpful in forming and concluding on our strategy over the summer as well. So first of all, there was a broad agreement over some of the key tenets. So first of all, a very broad agreement that the partnerships model should be very cash generative. There is a view that we need to prioritize the strengthening of the balance sheet and maintaining a strong balance sheet position. And there was also a view that we needed to make sure we retained a good degree of flexibility for our future investment needs so that we could be opportunistic. There's probably greater disparity of views about the form of distribution of the shareholder returns. So what have we concluded? If I work down this from top to bottom. So first of all, in terms of cash generation, as I said, I'd expect a significant improvement in our overall cash generation as a result of moving to the partnerships model. There will be some lumpiness in that. So as we conclude some of the big deals and we do some preselling, there will be some greater lumpiness in terms of the cash inflow. And of course, we are committed to a couple of areas of cash spend, in particular, fire safety, which is factored into our models. We'd expect that fire safety will diminish over time. We're probably expecting it to be in the region of GBP 60 million over the next 3 years or so, but then it will diminish. And similarly, some of the tax burden may -- we would hope might drop over time. So then into maintaining the strong balance sheet. We believe we can return to a year-end net cash position at the end of FY '24, and we will eliminate our average net debt position over the medium term. But we're happy to carry some debt intra-period between now and then. Where we're looking to retain our bank facility, and we'll get into discussions with our banks on the back of this strategy announcement about retaining our existing facilities to ensure that we've got plenty of headroom and flexibility as we execute it over the next 12 to 18 months. We'll, of course, keep sufficient reserve to make those investment decisions as we go through. And we'll continue to use deferred payments for land sale, we would expect land creditors to continue to tick up over time. So then getting to how we're going to return cash to shareholders. Well, the first thing is that we have concluded that we're able to maintain a 2x cover ratio in terms of distributions. In other words, 50% of our net adjusted earnings will be returned to shareholders on a 6 monthly basis. The form of that distribution was determined based on the prevailing conditions at the time. So we'll be looking at, among other things, share price at the time and the Board's view of valuation to determine whether we go down the dividend routes or the buyback routes. We're not waiting out either. We're not waiting on either route, and we may have some blend of it. However, as we'll come to in a second, we have concluded that at the moment, share buybacks makes sense, given the undervaluation of the business. Then because of these lumpy returns, we would expect to generate excess capital over and above that 2x cover return. The timing and the quantum of those is not predictable. So the way that we would expect to distribute those is in the form of a special dividend or a special buyback at the time. And as with ordinary distributions, we'd expect that, that split would be determined based on the prevailing conditions at the time. So the summary of all of that then is that we would expect to distribute GBP 1 billion to shareholders over the next 3 or so years. And when we say over the next 3 years, we're really talking about including the cash generation of FY '26. And also, we'll be eliminating the net debt in that period as well. So this slide just puts that capital allocation policy in a narrative form, I won't go through that again. And to confirm our H2 '23 proposal is that we will distribute on the basis of the expected earnings for the year. We'll be commencing a buyback of shares in November, which is when we would have paid the dividend. So we commenced that in November, we'll be targeting GBP 55 million of share buybacks before the end of the -- or before the full year results next year. So just for -- if it's not clear already, just a bit more clarity on how we get to the GBP 1 billion. Well, slightly more than half, we would expect it to come from the adjusted earnings of the group. As we work towards our medium-term targets of 800 AOP, when I say medium term, I'm really talking about a 3- to 5-year horizon. As we work towards that, we would expect that the earnings of the business will yield sufficient ordinary distributions that more than half of the GBP 1 billion will be distributed in that form. And then the rest will come from the release of capital. So from some of the things that Earl talked about earlier on, some of the deals we will do over the next 2 to 3 years, we should be generating excess capital as we see our capital employed on the balance sheet come down, that will fund the extra bit of the GBP 1 billion. Then of course, we have the undistributed earnings, so the other 50% of adjusted net earnings, which will help fund the repayment of debt, the fire safety provision and any other investments needs. So we covered some of the areas of outlook already. For FY '23, again, we have -- in excess of GBP 450 million profit expected to be delivered this year. There are more moving parts than normal at this time of the year, including a high quantity of land bank deals and multiunit deals still to close for the rest of the year, but we remain confident of in excess of GBP 450 million. I will just call out that there will be an accounting adjustment likely to be required as a result of the transition to the partnership's model. So what we have to do for each site is reevaluate the mix of private, affordable and pre-sale which might lead to a margin adjustment for some sites. The accounting policy within Vistry Group is to go back and reflect that revised margin back from the start of the calendar year in which that reassessment has been done. So there could be a look back to the start of '23 for those schemes that are reevaluated with margin downwards this year. We can't put a number to that yet for FY '23 because, a, we don't know the quantum; b, we don't know the timing because it may not be an FY '23 piece; and third of all, we don't know yet the presentation of that. One way or another, we will pull that number out, and we will inform the market at the right time, but whether that is treated as exceptional or within regular adjusted profit is to be determined. So that's FY '23. It's still early days for FY '24, clearly with the market and with the execution of the strategy to come. However, we recognize we need to give some degree of guidance for FY '24. So what we'd expect is that we would see volumes rising next year, largely due to this move from housebuilding to partnerships and the acceleration of completions as a result, we would expect some margin decline, and we probably expect that those two things would offset each other. As we've said before, we would expect some overhead savings into next year, and we'd also expect our average net debt balance to decrease next year, which will give us some finance cost savings into next year. And then the medium-term targets, I think we've covered. I mean I think the main piece though that has changed within here is the ROCE balance. So we've talked before about GBP 400 million operating profit coming from housebuilding and GBP 400 million from partnerships, and it's no coincidence that we're now talking about GBP 800 million from the combined group. Previously, we said 25% return on capital in housebuilding. Now we're saying 40% for the entire group. So that implies a reduction in capital employed. And it's that, that underpins and helps to fuel this additional distribution that we've talked about. And I think that covers the capital allocation.

Thanks, Tim. So to finish things off then, one last slide. So Vistry Group, the leading partnerships business. So it's a natural evolution of our strategy. It reflects the structural adjustment as we would see in the market and respond to the significant unmet demand. Although transformational, we have the best people, the knowledge and the relationships within our business, I think you can take that as read. It draws on the visibility. We now have our assets following the combination, which Earl and Tim have gone through. We will have a disciplined approach to implementation, capturing those further synergy savings of at least GBP 25 million. The #1 priority of the group going forward is the 40% return on capital. That is #1 priority. We are on it every single day. Potential for EPS growth, if you were to look in your appendix and go to Page 62, we just did a little exercise to see how this would look in the medium term. So if we were, for instance, to buy GBP 1 billion worth of shares at an average price of GBP 10 and achieved the GBP 800 million adjusted operating profit. That would take our EPS to GBP 2.24 against the consensus for this year of 93p, which is a 140% increase just put that down as a market. So our strategy is supported by a clear capital allocation strategy with the group targeting, as Tim has just said very eloquently, GBP 1 billion of shareholder distributions over the next 3 years. So what we're all about going forward is a high-return, capital-light resilient model from a responsible developer. And on that, Sorry, it's taken so long, but there was a lot to go through there. We'll take any questions. So if you put your hands up the microphone will miraculously appear.

Jonny Cooper from Numis. Thanks for the detailed presentation. Could I ask firstly a question on what you're seeing from competition? I mean you said in the presentation, Stephen, that you're seeing end-of-cycle behaviors from competitors. Does that mean there's a big reduction in capital going into the sector and also are you seeing better opportunities to win longer-term schemes?

No, I'll take that to start with. What that means is we're seeing all housebuilders speaking to a number of the housing associations, RPs and PRS providers that we are, which in turn is maybe giving them a better hand and driving down or driving up the level of discount that they're looking to do and on bulk deals as we call it, end-of-cycle. So typical what a housebuilder at what I would do in this kind of market. That's what that means. Anything else to that, Stephen.

That's exactly right. The main point was, that's a purely short-term transactional arrangement, not a long-term commitment to delivery, which is what the funding programs require and what our partners want to see, which is long-term commitment to supply.

And just on that, we're talking to RPs and PRS providers about a number of major, major deals as we speak, which will take us long past this year.

And just as a follow-up, what are you seeing on longer-term partnership schemes with local authorities? Are you seeing a change in competition in that space?

Stephen?

No, that's continuing. The usual players are still active working with local authorities. Local authorities are very much replicating the best examples of different local authorities have undertaken. So the longer-term estate regeneration schemes, which are becoming an increasing focus are being worked through. They take longer, the gestation period is longer, but local authorities are absolutely recognizing, as I said, the burden of dealing with temporary homelessness and dealing with how many households means they need to stretch their assets and their partnerships in order to encourage supply. So I think that's a growing area, not -- we're seeing more interest in talking to us, not less.

It's Charlie Campbell, Liberum. Two really. First one is big picture question, second is may be detailed. I just wonder how opportunistic you think the change of strategy is. In other words, meaning that if the private market was stronger now, would you be as bold in the speed at which you are progressing into partnerships? Just to understand that. And then the second question is just help us with the financial modeling. Just trying to understand really what the differential would be in normal year between year-end net cash or debt and the average level through the year? Just to help us reconcile those two to sort of, I suppose to sort of see the glide path into the medium term?

Tim will take your latter one. The first one, it's got nothing to do with market conditions. It's a strategy I've been thinking about for the last 3 months, and it's evolved on how well the acquisition or Countryside has gone since the date with the actual integration, the strength of the market conversations with all of our partners. We had Homes England at a Board meeting. Plc Board meeting 3 months ago, this is exactly what they want. And with a larger partnerships business, you could say it's been easy to see the light with the number of opportunities and the demand that is out there. So I would hand in hat and say it's got nothing to do with the housing market. And on that, as a Plc, the housing market, the housing market is the same for every developer and our housing business has done I wouldn't say the best, but it's done pretty well against the peer group. We're certainly not coming into this from -- we haven't got a very good housing business. We need to come up with a new strategy. We've got an excellent housing business with some excellent people who I think will move into the new strategy incredibly well. Tim, did you want to take the...

Yes. So we're still learning the gap between average net debt and year-end net debt because we're a new business haven't come together last year, but take this year's numbers, it looks like the gap between averaging year-end is something in the range of 300-350, that sort of range. Now with the partnerships model, we would expect that to squeeze slightly, should be less dependent on those year-end completions. And also just for good cash management, we'd like to find a flatter profile during the year. So you're probably modeling why should be near GBP 200 million to 250 million.

Will Jones from Redburn Atlantic. Three, if I can, please. First, if you could just talk more widely around the macro or business level inputs that you've made when striking the medium-term assumptions, be it sales rate pricing outlets? Just a general feel for what underpins those numbers, please.

Earl, do you want to take that one?

Yes, can do. So I mean, where we are at the minute, as we've given all the figures, I think, or most of them in terms of sales rates, so the market is depressed, as you know. We have been very good at supplementing, particularly in our housebuilding business in terms of the bulk sales rates. So I'm going to give you more detail, but the first 6 months was pretty good overall. It's been a bit slow for the last 3, and we continue to monitor, but the level of interest in those bulk sales continues to be strong and what we see going forward. So I talked about another 500 at least already with terms agreed. And Greg mentioned I mentioned some significant deals being looked at in terms of those. In terms of pricing, we have largely maintained our pricing through the period, not least supplementing with those bulk deals, but -- our view is that we're not going to see a significant uptick in transactions. Shared ownership has been a really important one. So the deal that we announced back in June in terms of Home Stepper. So shared ownership, and we've got some other options we're looking at to boost that in terms of the market going forward, but the bigger picture is probably the market, Stephen, talked about and the assumptions going forward.

And second one, just bringing about to back to group volumes. You mentioned the capacity, I think, of 17,000 to 24,000 medium term. Could you help us with where you think that will be as a base this year? And then when we're trying to put that against the GBP 800 million of EBIT as a target, which I think is the same numbers you introduced this time last year. I think you'll be a lower-margin business overall because of the partnership shift. So do you need to be bigger on volumes and...?

We do need to -- yes, at the time of the acquisition of Countryside, we wouldn't have been getting to 24, we would have been probably closer to 20. So yes, the margin will come back. We have to make that up by volume. We've got a huge strategic land bank. We've got a huge number of very, very large sites and it's very simple. And gone other days now where we've got a couple of sites, which are 4,000 units. We would have been on those for 15, 20 years because your build rate will match how quickly you can sell houses on that particular site. Now we're going to be asking a different question, how quickly can we build 4,000 units? Having presales 65% of them, and that's an entirely different question, and we'll get through that very, very quickly in maybe 4 to 5 years. So we will be burning through the land bank at a very, very quick period. And interestingly, your question could then be, are you confident about buying land with the new -- in competition with housebuilders in the new -- when the market gets better. And we are. We were buying land in partnerships all the way through 2022 in a strong market. And as I think I may be touched on in my presentation, all the land we bought in the last 3 or 4 months. We've had half an eye on how we'll outlook with the new strategy, and it all works and meets the criteria that we set. So -- and some of those pieces of land were in the Southeast of the country as well on prime sites.

And the broad idea of the base volume?

For this year?

Yes.

What are we saying?

Including JVs, somewhere between 16,000 and 17,000 units.

Up to 24, yes.

And then, sorry, the final sub-question was just around working capital. I think you're flagging to us that it's going to be a positive inflow over the next number of years in aggregate, correct me if I'm wrong. I just wonder how that stacks up against the business is growing quite a bit from a volume perspective and the land bank needs that come with that, maybe it's more than paid for by the extra cash upfront in terms of pounds million number, you'd throw away on that or not, but just need to play in those two?

Yes. I mean that's exactly right. So the amount released from the housebuilding land bank will not only fund that extra distribution, but we'll also provide funding for that extra investment and the growth of working capital.

It's John Fraser-Andrews, HSBC. Three for me, please. Just looking at the partnership's map, clearly, very strong in England. Only gap seems to be, Cumbria, Wales and Scotland, to be potential. So any thoughts on that, please?

Just on that, because we'll forget, John. Wales, we are moving into Wales. Great place to be. He says Barnsley and Scotland, no plans to move into Scotland as we sit here, I'm standing at the moment.

And then Vistry Works, can you just elaborate what this is generating in terms of opportunity for the business, and also where the costs are versus traditional build at the moment?

Earl?

Yes, can do. So look, it's a massive opportunity for the business piece I didn't comment on, but is absolutely the housing market is going to take off. There is going to be a labor shortage in the sector. So timber frame is going to be a benefit to that in terms of production on site, right. The second, the costs are close, probably a little bit more in terms of the timber frame, but the drive for absolutely using the capacity, standard home, standard designs, we can see a way where this will actually be a better and more cheaper form of production into the future. And we've been working through things like logistics. So virtually most of our production in partnership in the Midlands is already timber frame, but we can see how we can expand that logistics across the whole country. So it is a significant opportunity, and I have even mentioned, of course, the sustainable nature of that production and how that helps us hit our targets in the future. Well, that's exactly what I was talking about in terms of hitting 2025 and beyond in truth in terms of some of the technologies that we are already using with some of our partners, which I'm pleased to say they are also paying for. So the opportunities in the future through the manufacturing internally are significant.

Are any partners mandating timber frame panel construction?

Tim?

Yes, definitely. So first thing to recognize is that the investment made by Homes England through its strategic partnering program does give an additional grant level for every affordable home that is using a form of MMC, and our factories tick that box. So that is an additional income that helps us deliver, which is very good. And then on public land, you wouldn't be surprised to learn that Homes England and some local authorities are also asking for uses of MMC in developing homes, they can see the advantage in terms of faster delivery, but also looking to have an investment in the MMC itself. And that's an opportunity for us to work with some of our smaller SME partners going back to that responsible developer piece as well, where they can draw on some of our capacity in our factories and draw on our experience in order to participate in modern methods to meet those 2025 requirements.

And just on that, if you take the land market, Homes England, the GLA are huge landowners, which have been added to all the time. And our success rate because of the way we can bid for these pieces of land, which just isn't always just price with regards to timber frame or sustainability credentials, et cetera, et cetera. Stephen is what, are we winning, waning, every bit from House England?

Yes, maybe 1 in 3, Greg.

Yes. So our success rate is huge, which is important with them being such a huge provider of land.

Final one is on those 30,000 housebuilding plots and the transition to partnerships. Can you just flesh out how in practice this is to work, particularly those private sale ones, I get the forward sales element that is easier to stack those higher? And are there any consequences on land value for the redesigned partnerships developments on them?

Short answer to the last bit is now in terms of the value, although we will accept a lower margin for a lower risk business in terms of the level of presale. But in terms of the private sale, let's be honest, it's what we do day in day out. It's what we do through the partnerships business right now in terms of a proportion of our sales. So I think I'm right in saying we had 89 private sales outlets in partnerships through the first half. So what we are saying is we will continue with a level of private sales. So I said with between 35% and 40% of the existing housebuilding land bank, I think there was a number of 11,000 on the screen. 40% is about 12,000, so it could be a bit more within a range. And we will continue to sell as we are, as I say, really boosted a bit at the minute by the shared ownership options we've got through Home Stepper and others, and we've got further opportunities in that respect going forward. So business as usual, to some extent, John, and still maintaining all the good things we do within our housebuilding business in that respect.

So pretty much every site retains its existing land value?

Yes. As I said, we will be accepting a lower margin because that is the partnership model, and we're taking away a big -- a significant part of the sales risk. We're also in a position then where we've got the forward sales production for our supply chain so we can manage the cost base, but there shouldn't be an impact on land value per se.

Aynsley Lammin from Investec. Just two for me, please. On the -- you talk about medium term, obviously, the GBP 1 billion. And just -- I think FY '24 to '26. Should we assume that that's also where you see you get to the GBP 800 million operating profit. You said it's more resilient business, good growth, I was just interested in the answer that?

That is no. We've said between 3 and 5 years. I mean that will be our aim, but we'll be looking probably a year or 2 later than that.

Okay. And then secondly, at the time when you did the acquisition of Countryside, you talked about you'd be looking to consider splitting the businesses into to deliver value if the market didn't recognize that value. Did you consider that this time? And looking at the way you've gone down the kind of capital return route focused on partnerships, should we read into that, that actually you see the outlook for housebuilders very structurally on relatively unattractive. You think the capital return is more valued by shareholders. Just interested in your thoughts there why you've gone down this route and not the split in the business if you consider that?

We can go down the route that we've gone down straight away. What we said would be at least 2025, I think that we would look at in the housebuilding route. And then if you look at the risks associated with demerging, selling, whatever you want to put term it's a housebuilding business, which we saw with Countryside themselves, the risks are huge. This has got risk because we're taking housebuilding, slightly different culture into the partnerships area, but we've got everyone on board, and I'm confident of doing that. It's a hell of a lot less risky than going down the road of openly and transparently saying you're going to do something with our housebuilding business. So as of now, it's been quite difficult over the last 6 months where every day, someone in housebuilding says, you're talking about partnerships again. You only have partnerships in this and the other. This will make things much, much more straightforward and less risky, but with some risk.

It's Harry Goad from Berenberg. I've got two questions, please. So firstly, the piece you talked about the circa 65% forward sales position. Can you talk a little bit about where, I guess, the risk lies on the margin and risk, obviously, those being an upside thing and down, so I think, how should we think about that? I appreciate vast majority of developments are probably structured in slightly different ways. But can you talk through how you think about your planning for that? And then the second piece is with regard to the open market sales, I think you said about 35% on average. And I guess the benefit you have from what you're saying is you've got typically a third-party capital provider. So how should we think about the margin you're looking to achieve on those open market sales on a partnership side?

Do you want to take that, Earl?

Yes, I'll try to remember all of that. Harry, thank you. Let me take the margins because it's easier just to think about the partnerships model as a whole. So we will flex our margin. So if we are 50% presold, we would expect a higher overall margin to be delivered -- to deliver a 40% return on capital than if we're 75% or even 100% presold, which we would be happy to do in the right circumstances, we would expect a lower margin for that and still look to deliver a 40% return on capital. So the margin we will flex in terms of delivering. We've talked about some of the presale deals that we've done through housebuilding this year. So that is, I suppose, the first parts of migration. And we've said we've seen discounts of somewhere between 5% and 15% on those deals. And that impact will flow through on a proportion of the housebuilding land bank, and therefore, the margin. And we might expect to see the same sort of thing going forward as we migrate. But every new development, as I've just described, it is a range of margin to hit 40%.

In simplicity as well adding to that, on the 35% for sale, we would still be looking to have a 25% gross margin on that. So that's where we are on that. So what we're looking to do is if we had -- housebuilding had lots of schemes of 100 houses, if you just take the last few years, 25 of those 100 would be affordable. And Section 106, do a deal with the housing association. What we're looking to do on all of the housebuilding sites is take that 25%, which could be 30 just keep it to simply 25% between 50 and hopefully, 65%, leaving 35% to sell. So the overall margin will come down from the housebuilding side of 25%. It will come down lower, nearer to that 12% overall blended margin, which we said about 12% plus. It's as simple as that. And that's all we're looking to do is to presell over and above what we have to do as a planning obligation in housebuilding in any case, which is what housebuilding, our housebuilding business have been doing successfully over the last 9 months anyway in the face of tougher market conditions and it's what other housebuilders are doing as well. What we're doing is we are strategizing what we've been doing in an extent. Other housebuilders will go back to the in-house builder as and when the market gets better.

Alastair Stewart from Progressive Equity Research. Really just a question on the sales rate, excluding the multiunit sales. It was 0.41 for the first half in total, but it started off pretty strong up until April-ish went down after the inflation figures. And you've said that it's been pretty stable for the last 4 weeks?

Wait. So we've been about 0.35.

For the last -- 0.35 for the...

For the last 4 weeks and probably about 0.4 for the last 8 weeks. That's excluding any [indiscernible], but it does include Home Stepper, which is our shared equity vehicle.

And how low did it get after the bad inflation data May, June?

We probably had a couple of weeks where it might have gone a little bit lower than that, but not much. And the encouraging thing has been it would generally in a normal market, get lower anyway, and you go through July and August, it should be starting to pick up now, probably the last couple of slightly better. But -- so some of that will be urban market. But I think it's been encouraging broad and housebuilders that it's been relatively stable with prices holding firm and the increased use of incentives over the last couple of months.

Sam Cullen from Peel Hunt. Two from me, please. Firstly, on the -- I think you said 32 going to 27 regions. Can you give us an idea of where those 5 are likely to disappear from?

I think I don't -- well, one is London. We're going from 4 to 3, and I can say that because that's already London like Mike underway. And I think we'd rather not say because obviously, we're starting consultation over the next couple of days with staff. So that's...

Yes, understood. Secondly, just Stephen's numbers around the order book and the work on the bench. Can you give us some comments around sort of the breadth and depth of the work on the bench, and how that's going to change in terms of versus 6 months ago, your ability is to kind of pull it off the bench and into production gets paid in the ground?

Okay. So it's fairly much a continuum. I wouldn't say that, that is slowing down in terms of planning. We've definitely seen in London, there's been an impact in terms of the speed with which we can bring things forward and convert because of the planning process associated with second staircases, and that has definitely had an impact. In terms of people wanting to work with us, in terms of work on the bench, which we've been awarded or where we're winning, we're still bidding for land. We're still having conversations with local authorities and registered providers who are bringing schemes to us. And we're also continuing to take our land opportunities to them as well. So the work on the bench is sustained. And I would say the opportunity, as I say, with local authorities, is growing and the PRS providers are wanting to see those portfolio deals, particularly the single-family opportunity.

Clyde Lewis at Peel Hunt as well. I think I've still got three, one probably for Stephen, around HA funding and the pressures on housing associations to smarten up their existing stock. Clearly, there's a lot of pressure from GOV and the rest of the government to do that. So it would be useful to just get a bit of an update as to where those pressures lie and how that's evolving?

Can we take that Stephen?

Yes. Okay. So those pressures on housing associations are particularly severe when you're looking at the London-based associations where there are tall buildings and building safety issues. But housing associates are also having to deal with reinvesting in their stock. We would have seen all of the headlines around malls, all of the issues around decent home standards. That's very much a current issue. And so housing associations are increasing. The reason their interest cover is going down. They're increasing their spend on maintenance, and that's been a pressure for them. So those housing associations are having to take that into account and also plan for decarbonizing this old stock which is an issue. So you'll see portfolio sales happening as well, where there's old stock that can't be mitigated. So that's all weighing on housing associations. They are -- it's weighing in an uneven way. So there are some housing associations who are saying, our response is to cut back our development program for the next period by 20% or 30%. And there are housing associations who don't have those liabilities, perhaps don't have lots of tall buildings, perhaps don't have stock that's older are able to invest and continue to deliver new homes. So it remains very much a liquid sector there. A lot of their funding is long-term dated. So I think something like 56% of their loan book is still a 10-year fixes. So they're not feeling the pressure of current interest rates coming through. So their housing associations as a whole are continuing to invest in scale and -- but you need to make sure that you're working with the partners who are keen to invest in that area at that time because it's not as even as it was before.

Second question I had was around the forward order book, I think Tim mentioned sort of bulk sales. And obviously, that's going to become probably a much bigger part of the group going forward. How should we expect that forward order book to evolve? I mean if you've got 65% sort of presold, should we be thinking you've got some yard 65% of the full year revenues sold. Or are you going to get some big lumps within the [indiscernible] lumps?

That's what you should do, but it would also evolve as you go through the year when we buy a piece of land and with the partnership model, you can buy a piece of land during the course of the year. and take a profit because you'll do a return with a housing association, for instance, on day 1, you don't get that with housebuilding. So housebuilding were to buy a piece of land during the course of 2023. We'd be lucky to make a profit in 2024 with the issues with planning, which you're getting no easy, by the way. With the partnership model, you buy the land and you're turning it to a partner every single site that we work with as a partner. There was a profit to be made on day 1. So it gives us more flexibility on that. But yes, but generally, the forward order book has got to get better and greater.

And the last one was really around partner delivery and joint ventures, and I suppose, a bigger focus on partnerships. Does that mean partner delivery actually increases a little bit now going forward, but not as fast as the rest of the business?

I would say the partner delivery part of the business will be relatively stable. It might grow a little bit, but was -- we're looking to the mixed tenure development where we're looking to the growth account, which is a high margin. But we won't be looking for a partner delivery to drop probably grow a little bit, but mostly be stable over the next couple of years, I would say.

Okay. and JVs as the share of the group would be smaller, the same or...?

No, I think about the same. So it will be a bigger. But the partnership business will be bigger with housebuilding. So there will be some all JVs coming through on that. Glynis, we missed you.

So many questions at that time. Page 32, you talked about the proportion. You've talked to the press stage, but proportion of forward sold you'd like to have. Can we just clarify, are we talking revenue or are we talking proportion of units? I guess I'm asking is the selling price on the forward sold stuff the same as the private for sale.

Do you want to take that, Earl?

So look, it's not an exact science, Glynis. But we would look normally at the number of homes to be honest. And yes, we're talking about a discount for the presales. So the ASP and the private will be higher on average than those presales.

Okay. But the numbers there are units' proportions. Okay. Second of all, the 8,500 plots in housebuilding that you're looking to presell. Should we assume that comes at the 5% to 15% discount?

Yes, I wouldn't say 5% to 15%, I would say, closer to the 15%, Glynis.

Okay. And...

And discussions are going on with that as we speak.

Perfect. The Linden First, the RP, is that going to be on balance sheet? Or is that going to have a partner to be off balance sheet?

It's a good question. We'd like to see it off balance sheet. We are not a long-term holder of property of capital. So we would like a provider of capital to come in and take, I suppose, long-term financial reward of that but to be a very significant delivery destination for a full range of 10 years of product that we are delivering in the 1,000 year-on-year.

So we will be going out with Linden First. I mean, from a strategy perspective, it's a massive potential for us, which is pretty much untapped, and we'll be looking to go out and get funding for that as a sort of a full-profit housing association, and that could be a huge option.

It's a great opportunity for someone to invest in.

Well, done, Stephen.

In terms of the regional split, South Midlands and North in 3 different areas and forgive me, I only know really the sort of the Miles Newcastle to Chester and there's about 200 haven't done it recently?

In that area, that's a lot to do with the two divisional Chairman and their geographies where they live plus the business units that they've currently got and their relationships. So that's the only area we -- the rest of that is geography -- those two areas are geography plus existing relationships internally and externally.

So each of those 3 divisions will -- each of these 3 parts of the division will have someone looking at it because a long way to [indiscernible] for overview?

No, no, no. The 3 purple bids are 1 division looked after by the same divisional Chair. There's another divisional chair looking after the light blue. And as I mentioned in the presentation, those 2 people have been responsible looking after that geography as a whole since the beginning of the year. So as Greg just said, we split it based on internal and external key relationships and the 2 people, James and Adam work very closely together, and I'm sure that will continue.

Sorry. One last thing that the 6 divisional chairs come from housebuilding, old history partnerships and Countryside partnerships. So there's a split amongst it.

The benefit of housebuilding partnerships, you told us previously was getting a number of brands on site. What's going to happen to Bovis, what's going to happen to Linden?

We'll still have those 3 brands.

All under the partnership banner.

Yes.

Okay. two more, sorry. Tim, actually, you talked about potential for tax to reduce in the medium term. I didn't see a time limit in terms of residential developers' tax. It was supposed to be 10 years, but I don't believe that was in there. So what are you knowing that we don't know?

I know nothing. I'm just hoping.

Okay.

I mean you should say we are looking at is partner delivery of residential property tax. I don't know, is what we're doing, which is for the greater good we will certainly be having discussions with the relevant people as to whether it's a -- all the profits we make should come out of the extra 4% residential property tax. We're looking at that.

Okay. One final one would be glad to hear. Tim, again. You talked about eliminating net debt. If 1/3 of your 1 billion returns is coming from capital release. When you talk about eliminating net debt, is that net debt after land creditors? One would assume so, given the partnership structure doesn't really use those line creditors?

Well, partnership does land creditors. We -- I think our target -- the target we're setting out is for average -- is to eliminate average net debt before land creditors. I think we're happy that there could be some degree of adjusted net debt on the balance sheet. In other words, land creditors could be higher than our cash balance at the end of the year. And so there's not an immediate target within 3 to 5 years. But I think in terms of an overall adjusted gearing level, we'd want to reduce that. We're not firm on a target, but a rough order of magnitude of sort of 10% adjusted given.

Ami from Citi. Just two questions from me. One was on strategy. Partnerships with a 50% presales level, how different is it structurally from your housebuilding business, given that you're retaining all the other brands as well?

If you just take that with what the housebuilding business has been doing over the last 9 months in a more difficult market, it isn't that big of a shift as you might think. So it's not that big of shift.

The other question was just on the overheads in the business. Once we have switched the strategy by 2026 potentially. How does the business look from an overhead perspective, structurally is there something...?

About 5%.

Okay. And the last one, just on the 2024 guidance. Do we assume that at the operating level, you are guiding for a similar level, and you get financial cost savings on top of that?

No. At a gross profit level, yes. We'd then be looking to save on interest, which would go to profit. And we'd also be looking to save on overheads as well. So a proportion of that GBP 25 million additional synergy savings from bringing this in, not all of it would also come into that. Okay, Tim?

Yes.

Okay. Thanks very much. 10 past 10. Not bad. Thank you.