Vistry Group PLC (VTY) Earnings Call Transcript & Summary

Hello, and welcome to the Vistry Trading Update Conference Call hosted by CEO, Greg Fitzgerald; and CFO, Tim Lawlor. My name is Alex and I will be coordinating the call today. [Operator Instructions] I'll now hand it over to Greg Fitzgerald to begin.

Thanks, Alex. Hi, everyone. As Alex said, it's Greg Fitzgerald, I'm delighted I'm joined by Tim Lawlor, Susie Bell and Stephen Teagle. So thank you all for joining the call today. And I'd like to start by going straight into the detail of the cost issues we previously reported in our South division. Here, I'll focus on 3 key areas: First, what the issues were and the steps we have taken to review our entire business; two, the reasons for the incremental negative impact on our forecast versus October 8. And third, most importantly, why despite these changes, we are confident in the company's future and our ability to deliver substantial shareholder value going forward. So first, the issues we found in our 4x housebuilding businesses that make up our South division. Poor commercial forecasting largely focused on large, older former housebuilding sites where build costs were run to the tune of 10% to 12%. A divisional leadership, which consisted of former housebuilding businesses carrying previous mistakes. Management capability in certain areas has been an issue, noncompliance with our processes and poor divisional culture are all related to the South division. And what do we do in response to this? On top of the independent review, which is set out in the statement, I initiated the most thorough internal review that I have seen in my 40-year-old career. All sites, all regions have been thoroughly reviewed with CVRs and for those of you who don't know that, that's [indiscernible] cost reviews. And the scope of the reviews covered 6 divisions of 26 business units, and this has been conducted at a senior level with the ELT, executive leadership team leading the process. In fact, I sat in the CVR reviewing the south of our largest site earlier this week. We have looked at compliance with processes, the quality of reporting and most importantly, the quality of people within the business. That's demonstrated that the issues in the South division principally relate to sites on the former housebuilding business. And critically, we found no systemic issues outside of the South division, and that's the big takeaway. So let's address head on the negative that came out of this exhaustive review. There were 3 primary reasons for our reduced profit guidance. First, the review shows that the financial impact of the issues in the South division were greater than we previously estimated. But I can tell you now, following the exceptionally deep review, we are extremely confident that we have now uncovered in the last 5 weeks, the full extent of the issues and there will be no more adjustments. The second reason, we have gone through the rest of the business side by side with a fine-tooth comb and found a number of individually small items, business as usual, I would say, in aggregate that reduced some profits for the year by GBP 8 million. And third, as you've heard from other house buiders, market conditions have generally been weaker than we had hoped. We have reflected these weaker conditions in our forecast. And again, this may prove conservative, we'll wait and see. That's the negatives. Now let's look at just a few of the positives that give us confidence they can rebuild over the next 12 months and put the company back on a path to deliver our previous medium-term targets. Most importantly, the issues relate entirely to the South division and predominantly one of the 4 business units. We have reviewed our entire business and can say with confidence that the other divisions are healthy and operating well. In fact, our partnership sites have some of the best cost management in our business, and they are typically lower risk as the projects are completed faster. As I mentioned, the impacted sites were nearly all legacy housebuilding sites. That's important as it's not reflective of our partnerships model, and that remains the right model for value growth. The second reason to be confident, the issues in the South division are very fixable. We will be stronger and a better organization after this. We know what best-in-class operational standards look like as they already exist in other divisions. We have a number of our partnerships that is already producing 12% margins and return on capital employed in excess of 40%. And those best-in-class standards will become our norm across the entire businesses. Also, we can and will make necessary managerial tweaks such that an issue like this never happens again. This year has been through 2 major acquisitions and a major strategy shift in the past several years. And in some ways, the issues are a function of too many organizational layers developing. These changes, I'm making, will eliminate these layers and seem -- operating much closer to the core place. Third, we will move past these issues. The issues on the specific site in the South division will largely work their way through the system by the end of next year when these projects conclude and are replaced with new healthy projects that are underwritten at higher standards. At that point, I believe we will largely be on track -- back on track for our medium-term growth trajectory, and there may be a step function improvement in our profitability in term of 2026 and beyond. Four, our performance. We are performing well on our critical operational metrics such as on-time delivery, build quality, safety, customer satisfaction and employee retention. In fact, we have just conclude biannual independence staff survey, the results of which put us in the upper quarter of the manufacturing sector. This is our foundation and gives us confidence that we can quickly get back on track. And finally, the overwhelming support we've had from our partners, customers and subcontractors. They absolutely see this delivering high-quality homes on time and are committed to grow with us going forward. So in summary, very disappointing to find further issues in the South, but we are addressing them and they are not symptomatic of the wider business. And I'll just finish with on the positive side, they are one-off as we clear the housebuilding legacy land [indiscernible] the business has had a robust, if you like, [NOT] through the independent review and the phenomenal amount of work that we've done in the last month, and we are absolutely now confident that we have the controls in place going forward. We remain financially strong and anticipate finishing the year with a small amount of debt and indeed, lower than the debt we had at the end of 2023. Our partnerships model remains the right one for driving value, right for the political environment and right for capturing further [indiscernible]. We remain in a leading position for working with our partners and are completely aligned with the government's ambition and that's important. Before we move on to questions, can I just ask Tim to put a little bit more color around the movement of the numbers. Please, Tim?

Thanks, Greg. Good morning, everybody. Yes, a few moving parts within the numbers. So just to try and provide a little bit more clarification beyond what is in the trading statement. Let's start with the direct impact of the South numbers. So we did -- we came up with an initial estimate back at the start of October as the issues broke that the total impact of the cost issues would be 115 million over the life. We have now concluded that numbers are GBP 165 million. So an increase of GBP 50 million over the life. That GBP 50 million, we will see GBP 25 million of that hitting the FY '24 profit, GBP 20 million impacting the FY '25 profit and the balance of GBP 5 million in later years. So that means the total impact of the South issues in this year in FY '24 is GBP 105 million and the total impact in FY '25 is GBP 50 million, which then leads us into our revised profit expectations in the statement today. We are now saying we're expecting profit before tax to be circa GBP 300 million in FY '24, reduction of GBP 50 million from the previous guidance, GBP 25 million is from the South division as I just mentioned, the GBP 8 million that Greg mentioned from our detailed review across the rest of the business, and the balance is due to a lower expectations on volumes for the year, which is partly due to market and are partly due to a slowdown in taking stock in the South Division. So our guidance for volumes for the year is now circa 17,500. In terms of cash, the South Division issues had already been reflected in the cash forecast for the year, but previously, we talked about getting a net cash balance for the end of the year, we now believe it will be a net debt position that we're in at the end of the year due to that reduction in volumes that I just mentioned. However, we still think that we're going to end up in a strong net debt position against last year despite these challenges, and we expect our net debt for the year-end will be at a lower value than the GBP 89 million reported by the end of FY 2023. For FY '25, it's too early to provide any formal guidance. What we would say though is that we would expect analyst forecast to come down as a result of what we're announcing today. And we've named the -- or identified the specific GBP 20 million reduction in relation to the South division. On top of that, we'd expect volumes to be lower into '25 than account in consensus for 2 reasons. One is that we've got a lower starting point, the 17,500 this year and the second is that we're taking a more conservative view on growth given the market conditions and the need to stabilize the South division. In terms of the medium-term targets, Greg said we remain committed to those medium-term targets and to be a capital-light business that distributes to shareholders. What we need to do though is we need to review the time frames in light of what we've discovered. We need to take account of the fact that we're starting from a lower point. And over the next couple of months, we're going to be reviewing the direct impact of the South, the impact of the changes that we're putting in place as a result of the South issues and also complete the budget process that is going through. So we'll provide greater updates on the time frame of the midterm targets in the new year. And with that, I'll pass back to you, Greg.

Great. Very good, thank you. So we'll now take questions. Alex, please.

[Operator Instructions] Our first question for today comes from Aynsley Lammin of Investec.

I've got 3 questions, actually. Just on the medium-term kind of outlook, the targets, you especially mentioned the GBP 800 million operating profit, I guess that still is in place. And when we think about that, is it just a question of pushing out the timing of that? I mean, 5 of the -- I think, 60% of the costs relate to 5 big sites once they work through, is it correct to kind of be of the view that actually your GBP 800 million still in place, and you see no negative impact from whether it's reputationally impact on partners, the willingness to do business with a group, and once you work through those sites, you're back on track, as you say? And if you give any kind of indication of the issues that might push the kind of time delivering the GBP 800 million, that would be helpful? Secondly, just on average net debt, I'd be interested in an update on what your average net debt is expected to be for this year? And then the last question, I think there's a line in and you're also reviewing your building safety provisions. Just a bit more color around that in terms of the scale of the actual provision increase you might expect before any recoveries or the tax impact would be helpful?

Okay. I'll hand over to Tim for all 3 of those. But just on the -- before I get to them with the numbers, with regards to our partners, as I said in my opening remarks and we've spoken to them all during the course of last night and this morning or Stephen Teagle particularly has, they remain incredibly supportive and see this as the South division issue, particularly the transfer of housebuilding sites into partnerships. So in a strong place with our partners. Tim, on the...

Okay. So the first one, in terms the medium-term targets, yes, the GBP 800 million remains part of our target, but clearly, that's a question of timing. So the demand is there for the business. We can achieve the volumes that we previously talked about. But we are starting from the lower point so that AOP target will be pushed out exactly to when we need to work through it. In terms of average net debt, we are expecting average net debt to be in the region of GBP 500 million for the full year. And in terms of the billing safety provision, so we are midway through the review process. There's a lot to consider in this area, and we've got to work with our auditors and other advisers to conclude. So talk about the total quantum of the provision increase. In terms of the cash impact next year, there are 2 things at play here. One is the timing, and we'll provide a clear update in terms of the timing because the profile of the spend is moving around, and we'll provide clearer guidance on exactly where '24 finishes up with [indiscernible] '25 on the timing and the overall building safety provision increase will have some impacts on cash. But as we said in the statement, we don't expect that to be material because while the total costs going out in the provision are likely to go up, we will expect our recoveries to go up as more sites [indiscernible] and also there is a tax benefit or a tax deduction on that provision as well, which means that the cash impact in the year from the additional provision won't be material.

Thanks, Tim. Thanks, Aynsley.

Just one. Yes. Could I just have one last one. Will you name the accounting firm, the big accounts firm that did the independent review?

We can't do that, Aynsley. This is a stipulation from them. And the reason is pretty simple, is that, it just requires them to go through more steps and hoops in their process, and we wanted them to get on with it as quickly as we could. So we didn't want to have to wait 2 weeks to go through their internal risk programs. So that's the reason why we didn't negotiate to get them, but you can take it as well, it is one of the larger accounting firms.

Our next question comes from Charlie Campbell of Stifel.

Yes, just sort of one question, but it's probably quite broad, actually. It's just still early just to understand the change in the volume guidance a bit more and just sort of try and understand kind of that 500 unit change, what's market and what's kind of a deliberate policy to slow down a bit. And just if you could just explain in that context and also kind of sort of looking further out, just a bit more color around kind of some slower demand around partnerships, around rates going up. Is that a temporary thing? Or should we be thinking about just -- there's a bit less appetite from that sector than we might have otherwise thought before. Just if you could help us out on those that would be really, really appreciated?

Okay. So on the numbers, the GBP 500 million reduction, I mean, all I can say it's a view here with less than 2 months of the year to go. And it is a review we found the market-leading up to the budget, the private market. A little bit uncertainty caused reservations to be slightly lower than we would have expected. And we're also -- whilst we've been focusing so much on going through everything in the South division and it's been extensive other than the rest of the group, we've just taken a view that there will be, particularly in the South, a couple to 300 units less coming out of that, as we've been focusing on the management structure of that business going forward. With regards to the market, I mean, before I go into the market, the [foreign] market, if you know, with regards to the budget, the PRS market we've found that has been the best market for us in the last 12 months. I don't think the budget entirely helps that going forward. So I'm sure the interest rates drop yesterday would have helped, but the PRS market needs to think about what the government has said and potentially there's a little bit more inflation. With regards to the affordable market, and this is the major part of our strategy, what I would say and you can all take this however you like, 12 months ago, we introduced the partnership strategy and the partnership strategy was on the back of a government coming in during the course of '24, that would actually be focusing on housebuilding and particularly partnerships in affordable housing to drive the unit members up. And so at the time of the strategy enhancement, we had a conservative government who had made planning on removal of local plan members incredibly difficult. No money got really going into the affordable housing program, et cetera, et cetera. One year on, we have a labor government that have come that talked nothing but since we had more than 0.5 million homes delivered and we [indiscernible] deliver affordable homes going forward. So in the budget a few days ago, they announced a GBP 0.5 billion steadiness because we are at the end of the 2001 and '26 affordable housing program, which we knew. So at the time of enhancing the strategy, most of the cash available in that program finishing in '26 was either spent or allocated. So the GBP 0.5 billion that they announced in the budget is helpful. We know the government and housing associations are currently talking about rent reviews at CPI plus 1% and maybe 5 years, maybe 10, we'll see how consultation does which is very, very helpful. And the noise and music from the government is, as we expect, the replacement to the 2021, '26 affordable housing program taking us to around 2031 will be announced in the spring, but the government absolutely know that the only way they're going to get anywhere near 1.5 million homes is to absolutely put more money into that program. But that program will be the first time -- whatever goes into it, would be the first time in the last 2 years where there is new money available for affordable housing. So on the affordable housing side, the strategy, we're in a better place today than we were as I explained to our Board yesterday. If we haven't had to see issues in the south of the country, in the South division and [indiscernible] didn't get into power. And we continue to make this year's forecast. Our strategy will be more [indiscernible] in my opinion, and having issues in the South division with a conservative party still in power carrying on with issues with regards to planning and where they are with affordable housing. Our strategy is in much better place with this new labor government as long as they convert their ambitions into absolute targets. So long I did answer that, Charlie, but what I'm basically saying is, I think on the PRS market, a few schemes may be delayed in a month or 2 as they look at the potential of inflation going forward. But on the affordable market, very happy that we've got GBP 0.5 billion worth of additional savings going into the sector, which is much needed and incredibly [indiscernible] by the talk from the government with regards to rent agreements with housing associations and local authorities, in particular, the [indiscernible] segment put into the replacement for the 2021, '26 affordable housing program. Thank you.

Our next question comes from Will Jones of Redburn Atlantic.

I'll try 3 if I can, please. So, the first is back on the Southern division and the cost hits, which are heavily condensed into '24 and '25. I appreciate the house building element of it. Some of that will be looking back as well probably before '24 to catch up. But could you just reassure us that when you think about the land that has been bought by that division, reasonably that the cost errors have not spilled into those land buying assumptions that may impact I guess, further out? And second one was just -- I think the release mentions the pressure being felt by the business as a contributing factor. I just wondered, do you think it's more the pace of change in the business or the pace of growth being sought? And how do you just -- how do you think about the appropriate either rate of sale, level of volume, degree of growth that is appropriate without maybe similar issues reoccurring in the future? And I think, the last one was just you mentioned about organizational layers, Greg, in your opening remarks and how they contributed, perhaps some more color on that and what might change on those layers?

Okay. I'll take the second and third, but Tim will take the first part.

Yes. Okay. So yes, actually, in some ways, it's comforting. After all this review, we found that the issues are centered on '24 and '25 because what I've said is that they are largely relating to sites that are nearing their completion. So there's a minimum amount in '26. What we continue to do through the year was ensure that any new land acquisition comes through in the [indiscernible] model. So everything that we sign off is at 40% plus [ROCE] and we haven't been making investments to any of those contracts during this process.

And then on your second point, which is pace and pressure, yes, the pace and pressure has clearly impacted to an extent in the South division, but what I can say is that the build cost was on by 10% to 12% growth. So they weren't wrong last week or 6 weeks ago. They've been wrong for a period of time. And the land sites that we talked about on October 8, the build cost of those 9 sites was not 1 million miles away from GBP 1 billion. So 10% to 12%, I've seen that kind of number before lots of times, but not on 9 sites altogether, 9 sites, 1 particularly being very, very large, but the pace and pressure, I think, is not to do with the capability around certain individuals within the division because the pace and pressure I can say with an absolute straight face is at least the same in the other 5 divisions, and the other 5 divisions are dealing with that pace and pressure exceptionally well and are a little bit dumbfounded as to what's happened in the South division. So the pace and pressure of the change is no different in the West, East, North Midland divisions and London. So there's no real issues there. But you obviously need people to be able to deal with that pace and pressure. And then on the organizational layers, I think because of the acquisitions of Galliford and Countryside, up until Christmas last year, they had an organizational structure of the COO and then [indiscernible] we had a CEO of partnerships and the CEO of Housebuilding, then divisional chairs [indiscernible] which is a function of the acquisitions and in hindsight, looking at it now, too many layers. So one of those layers was removed. And as we came into this financial year, January '24 with CEOs of partnerships and housebuilding no longer there with the divisional chairs reporting through to the COO. So some of that divisional layers have already been taken away, and we are currently reviewing what else we can do primarily, and I have to say, get me closer to the [indiscernible], but we'll probably be able to make further announcement on that as we get into January with the next trading update. Do you want to add?

Yes, just one thing. So I was asking that pace of change versus pace of growth, if we think about the feedback that we've got from the review talking to people internally as well, the sense is -- the sort of things that we refer to in terms of pace have been very much there's internal looking things around the change program. So what we have been going through as a result of the integration. So that's in our org structure system changes, standardization of processes. We haven't heard people say, we've got too many -- we're trying to build too many houses. We're trying to buy too much land. It's not been volume or growth-related pace issue. It's been a more internal stability point.

And what I can add -- and I can add this from a Bovis perspective in 2017, Bovis was at the time going down a growth program from 2014. And if you look at what happened to Bovis back then, back in 2013, '14, there were a 5-star house builder and their RIs, which is basically a gauge against their build quality independently gets inspected, verified by the NHBC were very, very strong. As you've got to 2016, all of those RIs were getting progressively worse. And by the time we got to 2017, they was 0 stock and there RIs were up the range of [indiscernible]. What I can say in the South division, let alone everywhere in the organization, our RIs, the NHBC would look at our build quality in the upper quartile of the project house builders. So we've won more awards to build quality and we've won before. If you then move to health and safety, our statistics are higher by some distance and the benchmark. If you move to customer satisfaction, we are a 5-star housebuilder, we were and continue to be, and our scores have actually gone up, including on the 9-month survey. And then if you actually then take staff churn, staff churn is [indiscernible] at 10 years. And if you also look at the statistics from the Peakon Survey that I mentioned in my opening remarks, we currently have an engagement score of 8.2, which is up a year ago again. So all of the cases, whether it is build quality, whether it's customer satisfaction, whether it's [indiscernible], whether it's health and safety, all is good if not better than it were a year ago, which shows that the business is coping with the phenomena, and that there's no getting away from it and the amount of change has come from 3 acquisitions, change in processes and a change in strategy.

Our next question comes from Emily Biddulph of Barclays.

And then just 3 please. I think it's probably all for Tim. Firstly, I think the interest cost of debt this year are likely to be in the GBP mid-50 million based on the rates you disclosed in the annual report, we think that implies a daily average net debt position of something north of GBP 800 million. Can I confirm I'm right on that? And then secondly, can you update us on what the peak capital environments are for the business? And then finally, all being linked to this, does growth in here necessitate further investment? Like is the risk that you need to temper your growth ambitions because of the funding requirements? Or are the levers that you can pull on cash or anything else you could give yourselves sort of some extra headwind?

I'll take all 3. Yes. So in terms of the interest costs, I mean, your calculation is not far off because we do have a highly sort of seasonal profile and the dealing debt is great. The average daily debt is great from the average month end net debt. We'd normally say that the average daily debt is something like GBP 200 million higher than the average month end net debt. So slightly lower than what you just calculated that. In terms of the peak capital requirements, I think if you put the second and third one together and peak capital requirements will grow. So we -- ones who have cash flows, they were aware of the seasonality. I'd love to flatten the profile. But that's the sort of nature of the business and it's something that will probably take years to change, but we are not constrained by our capital. So as we are looking at land acquisitions, we're not having to say, we haven't got enough cash to buy the land that we need, and we've got the financing that we need in place. We're going to -- as part of our review of medium-term targets, we'll be looking at all of our balance sheet metrics as well. But at the moment, we're not feeling that, that is a restraint on growth. We are tempering growth into '25, as we've said before, partly as we take stock of these issues and partly because of market conditions, but it's not a capital confront based reduction.

Our next question comes from Chris Millington of Deutsche Bank.

One or two from me, please. I'd just like to explore the cost inflation point you referred to in the statement a little bit more, perhaps the details about what's driving that and perhaps your best estimate of what that cost inflation is likely to be in '25. Perhaps just a [indiscernible] to that, can you confirm how that maybe works against some of the fixed price deals you've done in the PRS market? The second one is just about your point on-time delivery drag. Perhaps could you just give us a feel as to how much more there is to do in 2024 with regard to completions? And perhaps just talk around the phasing of completions around the quarters because it does look like you're getting a little bit back-end loaded with that profile of leverage?

Okay. So thanks, Chris. So on that cost inflation, we're broadly neutral this year. As they've generally been inflationary pressures during 2020, absolutely. But when you're building a number of houses that we are, which is more than anybody else, we are finding that with subcontracted and suppliers, we are doing and continue to do some great deals. So I believe we are in an inflationary environment in '24, but because of the change in strategy which gives subcontractors visibility, which they absolutely treasure, we are managing to hold on to cost through this year. As we go into '25 and getting initial reactions from discussions we're having with suppliers and subcontractors, I do believe there will be some -- which are not going to be based on our lower number, I do believe we have a lower cost base because of our size, not because we're any better than the other house builders, I do believe we will see some inflation. And I believe we'll see inflation of around 3%. That would be what I see. And part of that 3% will be in relation to those subcontractors and suppliers passing on the national insurance cost that the government introduced in the budget that we will also see during 2025 onwards, but also a little bit more to it than that. You also then mentioned, Chris, what does that mean for PRS where we have fixed price contracts. As you have probably heard me say before, where we have a fixed price contract, we have very healthy contingency and more importantly, very healthy fixed price allowances. So those fixed price allowances would be more than the 3% that I've just raised where I think I and our procurement team think we would get to. So we are covered on increased costs on those fixed price contracts. Is that right, Chris?

There [indiscernible] you have completions and what's left this year?

Yes. What I can say -- I mean, that's a detailed question. But what I can say to you is here now with our revised expectations, we have less to do and less risk than we did at the end of October last year. So at the end of October '23 and was up to GBP 419 million kind of profit. We were in a stronger position today. The difference between that where we're now expecting to get to, which is circa GBP 300 million.

Our next question comes from Gregor Kuglitsch of UBS.

So maybe -- I have a few questions. Maybe can I just sort of come back to the leverage point. So you're basically saying this year in the end, GBP 500 million of average debt, which is sort of stable sequentially. I guess my first question is, do you think that can go down next year? Or given where things are, do you think that, that will be challenging? And I guess, related to that, you've, I think, reiterated your share buyback program that's ongoing. But I think at the same time, have kind of put the sort of GBP 1 billion, I think, that you previously didn't disclosed or announced sort of under review. And I guess I wonder given the situation on debt and profit, why you've chosen not to suspend the buyback? Perhaps once things stabilize, you can then recommend. I just want to wonder what the thinking is around capital distribution, I guess, at this point, given the performance of the business?

I'll pass onto Tim, but the share buyback, we will certainly be looking at the share buyback with regards to our current share price. And so I'd rather begin the shares buyback at base price than they were. So that will be the direction of travel on that. But Tim, do you want to take it too?

Yes, it's probably a bit early to be talking about specific average net debt targets for '25 given we've not got profit guidance out there. This is a general principle that we would be looking to reduce it slightly given that the GBP 500 million number that I mentioned just before is higher than we had been targeting for this year. And we're expecting some free cash generation from some of our projects next year. So would be hoping it will come down, but I'm not going to quantify that at this stage. In terms of buyback program, you'll be aware we're operating at a fairly modest weight at the moment, but staying in the market, continuing to buy over the course of the next couple of months has past of our review of the time frames. We'll be looking the time frames of the future buybacks and the GBP 1 billion, all as part of the speed of achieving the medium-term targets. Obviously, there was going to be a lower ordinary distribution arising from the fact that there were lower earnings for '24 and '25 than previously expected, which will be factored into the GBP 100 million. And we need to look at what was the rate of capital release that we have over the course of the next 12 months to determine the level of special buybacks that will be on top of those ordinary distributions.

Okay. Could I also maybe follow up on -- so that I'm not clear on the debt roughly. Where are you looking land creditors will land? You were 600 before? And can I push you a little bit more on the provision point? I appreciate you get some tax relief and stuff like that, but give us an idea. We're talking GBP 50 million, GBP 100 million extra fire safety provision. Just to sort of give us a little bit of a range of what's possible.

You can [indiscernible], but I really don't want to give a number on that at this stage. We haven't presented anything to the Board yet in terms of what that number is and there are lots of internal challenges still to come. So I'm not going to give a number on that at this stage.

And that's right. But we did say in the statement that we think it would be -- it will be used modest...

We said not material.

Not material cash which is the main thing from that point of view.

So what was the second part of the question, Gregor, was that...

Line credit balance.

Yes. Line credit, there no reason to change what you've already assumed in terms of land creditors, stable. We're buying a good level of land. We talked about the land acquisitions in the second half of the year. So we're in a good place in terms of lands for next year.

Our next question comes from Alastair Stewart of Progressive Equity Research.

Yes, just following on from your reference to being sort of ahead of the budget. I know that the open market sales aren't such an issue then for you these days. But most of the other house builders have reported a slowdown ahead of the budget. Just asking [indiscernible] because you're the latest one. Did you see things about -- and I know it's only been a week and a bit. Has there been any change in site visitors who just click the website and so on, on the basis that maybe it is traveling and arising, things were quite bad as expected before the budget?

So we could hardly hear that, Alastair. But I think you're saying, has there been anything on the private market in the 8 to 9 days into the project with regard to visits and the numbers of visits on the website. Tim, do you want to take that?

We've seen a sustained demand in terms of the demand growth of market sales. We haven't seen an uptick following the budget announcements. We've certainly got levels of interest coming into our business and volumes of inquiry have been sustainable at a good level. Affordability remains an issue in certain parts of the country, particularly in London. I think that's why it's most [indiscernible], but I think what we're expecting is a continuation of increasing the positive sentiment as interest rates move downwards.

Sure. Just to be clear, this sounds a bit bad. And I was just trying to get a sense of what it really fear of the worst before the budget and things haven't been quite as bad at least in terms of consumer sentiment after the budget. Have you've seen any change at all?

Yes. That would be our take on the situation, Alastair, but I think it's just too early to actually make a thing on it. But that would be -- people -- at the end of the day, the budget was the first budget done by new government and labor government in 14 years, and rumor was right, et cetera, et cetera. Now undoubtedly impacted people reserving property in the 5 or 6 weeks leading up to the budget, and I'd also say actually impacted people taking a reservation into an exchange or actually contracting. So our gut feel is, the budget didn't affect too much people buying our properties with an ASP in the region of GBP 350,000. So our feeling is on top of the interest rate cut yesterday, the market will gradually improve as we go through 2025. That's our feeling. Too early to say probably right or wrong.

Our next question comes from Ami Galla of Citigroup.

Just 2 questions for me. One was in the order book. Can you give us some color as to how that unwinds in the future year? And the second one was just on your PRS investors. Do you anticipate the discount then would widen on the back of what we heard on the budget duty side?

Sorry, Ami, can you repeat the second question?

It's really to understand the discount that you offer to PRS investors. Do you anticipate that widening further?

No, we don't. In actual fact, we would hope that, that would get less in what we've negotiated over the last 12 to 15 months. So that's the answer to that. And I think your first question was with regards to the order book, how much of that order book is in relation to 2025 and how much is it in ongoing years? I'm [indiscernible] because I'm looking at Tim who can now answer that question.

Thank you. So of the GBP 4.8 billion in the order book, about 20% is actually related to FY '24. So we'll unwind before the year-end and about 40% related to 2025, something in that sort of range.

But we do find ourselves in a positive place for 2025 only on that order book against previous years. As you would expect with our new strategy, which gives us far more visibility of future years than a pure housebuilding business.

Our next question comes from Harry Goad of Berenberg.

Just regarding your comments around, I think you said weaker or uneven demand from RPs, can you just remind me on your business model, do you need to have all of your partners contractually signed before you progress with every land purchase? I'm just wondering whether any delays are from HA, RP demand holds up on this land purchase or start on-site process as we think about volumes over the next couple of years?

So we're a partnerships business now. So in an ideal world, when we buy land, we tie up with a housing association, but not every time, far from it to [indiscernible], but what we do have is an in-principle deal with the housing association. And because we're in partnership and they are our trusted partners, we would always expect by the time we actually start paying out the money for -- on deferred terms for the land, the housing association, all of authority will be in contract with us, and we'll follow those land payments to ensure that we remain a capital-light business. But we understand their business plans. We know what they want, et cetera, et cetera. Sometimes, we have to jump in and secure the land, but we would only do it if you like, on the back of a handshake for a point of a better word, with the housing association that we are working with. And that handshake will be the housing association that we have worked with time and time again, over a number of years, and we have a fantastic relationship with them. So it's absolutely -- and we've never been let dow yet, by the way.

Our next question comes from Clyde Lewis of Peel Hunt.

I think I've still got 3 as well, if I can. Given where you're now at, does it change your thought processes around what you might want to do with Vistry Works and how quickly you might look to expand the activity there? That's the first one. When we're looking at the sort of split between open market and partner funded volumes going forward, again, are you thinking you're going to see a slightly different mix in the next couple of years than you were before? And then the third one was around, I suppose, the land buying criteria again. Have you sort of tweaked your thoughts around targets mix, big, small, regional differences, et cetera, again, in light of what we've been talking about?

I'll take that in reverse then. So on the land buying, one year on from the announcement of the strategy. So we have no cash constraints to buy land. The strategy is in a better place than it was when we first announced it because of the government's ambitions. So we are actively out there and buying land. And as Tim just said to an earlier question, land creditors will be broadly similar to where they were. But that said, we're also one year on, and we're learning all at the time. There are certain parts of the country where housing associations, local authorities of England have a greater appetite to move forward than others. So for instance, in the Midlands and the North, we are absolutely flying where we have mayors wanting to really get going on [indiscernible] and local authorities really pushing to get it going and housing associations that are better funded than say, those in London, for instance. So there will be -- it will be lumpy. We will definitely have, going forward, business units in certain parts of the country doing more than in others. But being absolutely no doubt, London, I think, is where housing associations are struggling the most. We're still doing deals. I'm pleased to say that they are struggling the most, but that is where the future's shortage absolutely is [indiscernible] effect price points, but every confidence over the next 10 to 12 months, that will be fixed by the labor government. With regards to Vistry Works, and then I'll let Tim answer the open market versus partnerships won. I would -- with what just happened in the South division, I would suspect where we were looking for around 7,000 plots from Vistry Works next year. The growth trends remain in place. I would say that will now because of 6,000 to 6,500 units. So not much of a change. And we've got down the [indiscernible], partly there's speed and it the right thing and also because of building regulation and the building regulation changes of future home standards coming through. So no change to our growth expectations up albeit, I suspect, will be 500 to 700 less in Vistry Works next year than the 7,000 we previously set. With regards to open market, Tim?

Yes. So none of what we've discovered changes our view on the optimal business model and the split between open market and partner funded Vistry Works, so that's probably 2/3 partner funded, 1/3 open market volumes by year in the optimal position. As you know, we are 75 to 25 this year. Partner-funded market is more attractive than the open market. We think next year is going to be similar sources level, it's going to be -- partner funded will be in the 70s next year. The profile of when we get from that low 70s down to the 66:33 split, we need to work through over the next month or so and whether -- but we will get there for the medium term.

Thank you. I'll now hand back to Greg Fitzgerald for any further remarks.

Okay. Thanks, everyone, and thanks for listening. Good questions. I'll just finish by saying the vast majority of the reduction in profit comes from our South division, which have 4 -- made up 4 housebuilding businesses converted into partnerships. The changes has got nothing to do with them really converting into partnerships. It's to do with a few more now, but predominantly 9 large housebuilding sites, which have their build costs wrong by 10% to 12%. And when we made the announcement on October 8, all our sales, but still costs weren't wrong on October 7. They were wrong before that. So this hit, which is very unfortunate, very upsetting, I totally accept that, and it's basically coming from predominantly 9 sites, few more now, where the build cost has just been wrong, and it's been wrong for a little bit of time. And on that, I'll just say thank you very much for listening, all the best and have a good day. Thank you.

Thanks.

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