Vistry Group PLC (VTY) Earnings Call Transcript

Good morning, everyone. We'll make a start. Welcome to the Vistry Group at Full Year Results for 2019. So agenda today, I'll run through a couple of slides of our full year highlights. I struggle to get it onto 2 slides, of course; there's so many of them. Financial review will be Earl, and different this year than we've had in the past, the strategy and operational priorities, I will share between -- or we will share between myself and Graham. And talking about that, welcome to Graham. Great to have you here. And when I look over at Graham and Earl and I think back on my career. Between them, they've been the butt of most of my great jokes over the last 8 years. So good to have a choice today. I'll run through the outlook. Great photo to start there. Earl and myself have been -- and Graham have been together all week, Board meetings, et cetera, et cetera. But we did have time to nip out to one of our -- good morning, everyone -- one of our London developments. And we met these couple of young apprentices. The 3 of us had a long chat with them and got on well with them and asked them what they're all about. They asked us what we're up here for this week and told them we're coming to do our results today. And at the end of the session, which was a good 0.5 hour, I wrote down on a bit of paper, which is what they're studying now, who do you think will come over the most energetic, enthusiastic, et cetera, et cetera, between Earl and Graham? And as you can see there, they're struggling with the concept of the question. So moving on to the Bovis full year highlights. So it's another year. Well, first of all, to say, we're really, really proud of the people that produce these results and the results themselves, of course. So it was another year of record profits, with profit before tax increasing by 12% to GBP 188.2 million, a record. Operating margin, maybe against the trend of our peer group, progressed again to 17% against a backdrop of market uncertainty. And just putting that into context, just as a reminder, if you take 2019, it's -- in its entirety, the first 6 months and to June of 2019, we saw no sales inflation, but we still build inflation of between 3% and 5%. And then in the 6 months to December, we saw no build inflation, but we saw sales deflation of 1.5% to 2%. So both those factors together, I think, really underlying how well we've done improving that margin to 17%. We've seen a sustained step-up in our average sales rate to 0.58 per sales per week per outlet from 0.5. It was a controlled and disciplined period end. That's the third one that Bovis have had with unit numbers, completions up 3% to 3,867 units. Delighted to be able to say that Bovis now are officially a 5-star housebuilder, great result, massive amount of work done to get there. And that follows, obviously, all the trials and tribulations of where we were at the end of 2016, beginning of 2017. One doesn't come without the other. Further improvement in build quality metrics with our reportable items, that's from the NHBC, down 28% to 0.23, which is significantly ahead of the build benchmark. We've talked a lot about the Bovis Phoenix range, which was introduced in the last 18 months. And last year, we delivered 358 completions, which is 14% of the overall. Improvement in health and safety scores in every single region within the business. And there was another year of strong land acquisition, including conversion of our very valuable strategic land bank. And overall, the land, and Earl will go into in more detail, that we acquired in 2019 was bought at an average margin of a very good 27%. Moving on to probably more interesting for most of you, the Vistry Group. So with the acquisition, which we completed, or merger as I'm calling it, on the 3rd of January, we undoubtedly became a 5 -- a top 5 U.K. housebuilder. It's a transformational acquisition. We should look at it. This is 3x -- it's closer to 3x than twice. So we were 7 business units. We were 27. We're now 23 because we've already closed 4. So 3x, it's a huge, huge undertaking bias. But as I say, it does firmly position us as a top 5 housebuilder with a market-leading position in the attractive, very high-growth partnership sector. So for 2020, the focus is on the successful integration. And most of the integration work is within the housing businesses and continued growth in the exciting partnerships area, Vistry Partnerships. We've already established the best operating platform to maximize future growth and returns. And we have made -- Graham will talk about it, Earl will talk about it, a lot of hard work in the last couple of months, but we have made excellent progress to date. Whatever I said in the acquisition, leading up to Christmas, I'm even happier 2 months in than I was at the time. It's going really, really well. And we are confident, very confident that we will deliver the significant benefits that we talked about, including a minimum of GBP 35 million per annum cost savings. And on that, I'll hand you over to Earl.

Thanks, Greg. Good morning. Okay. So a lot going on forward-looking that Greg's touched on. Graham will talk more, but I will take a brief moment to talk about the very good performance in old Bovis, if you like, in terms of the financial review. So income statement showing a significant step-up in profit and the operating margin, driven by a 7% increase in our revenue and a 3% increase in volume. Gross profit up 10% to GBP 253.4 million. And our admin expenses do reflect the optimum structure that we've got, the further enhancement in systems supporting that but also the growth in the business and the increase in employee costs. So overall, operating profit before exceptional items up to GBP 192.6 million. Finance costs were flat year-on-year, and that does include the small impact of implementing IFRS 16 on leasing. And got the first real contribution from our 2 development joint ventures at Sherford and Wellingborough. We entered into that Wellingborough joint venture during the year back in April 2019. So overall, 12% increase in profit before tax to GBP 188.2 million. We did have some exceptional costs in the year. So GBP 13.5 million going through the income statement. If you add to that the cost of refinancing and the costs for the placing, very much in line with the guidance we gave at the time of the acquisition. Tax rate, 20.7% reflects the underlying tax rate, plus the fact that some of the exceptionals are not deductible and an adjustment for the prior year. Should say we will have some more exceptional costs this year coming through as we restructure the business. Early days but certainly we guided at the acquisition that, that could be up to GBP 32 million. We will obviously be looking to come in lower than that. So in terms of volume and pricing, the 3% increase in volume, led by a 2% increase in our Private volume, the Affordable largely flat, and that reflects a 31% of our mix. Pretty much the same as last year and very typical of the average Affordable on our sites of somewhere between 30% and 35%, and again, that first contribution from our 2 development joint ventures with 58 completions. 23% of our completions came from Help to Buy and 7% from part exchange, which is still a relatively low number, still well controlled, no part exchange at the end of the year held unsold for more than 3 months. And actually, we'd be happy in this market to do a little bit more of that so that represents an opportunity going forward. We had about 88 active sites throughout last year. That's changed quite a bit now. So we are on about 175 housing sites at the moment, 19 partnership sites. And I expect that level to stay broadly the same during the year, but we are on over 50 of those sites in some form of joint arrangements. Overall ASP, up 3%, led by actually the location and tenure of the Affordable in the mix. And in terms of other income, GBP 14 million, half of that coming from near and after final sales of our PRS properties. So we've literally got a handful of those left and a couple of commercial sales in there as well. And also during the year, we did 6 partnership land transactions, so selling land, 2 housing associations on which we will then develop those houses, and that brought in just over another GBP 40 million of turnover. So in terms of the profit, just splitting out that 1 land sale we did externally. Gross margin up 22.4%. As Greg touched on, that is reflecting the market we had, so flat sales inflation in the first half and a decrease in the second half. Cost inflation in the first half and flat in the second half, but also importantly, does reflect the improving embedded margin in our land bank and the operational improvement, including our margin initiatives. And I'll come back to that in a moment. So take the overhead percentage of 5.4% and you got the 60 basis points increase in operating profit to 17%. So sales prices, construction costs, just touch on the 2 numbers in the circles. So Private sales price per square foot, up 1%. I mean broadly flat out there, but that does reflect the location of where we've been building. Really pleasing number is the other one circled, which is finally, the construction cost per square foot showing a 2% decline. So that's despite inflation in the first half of last year and absolutely does reflect the changes we've been putting through the business. So the lower cost of the Phoenix house type range, all the work we've been doing on specification as well as, I would say, giving our commercial teams the tools to do the job in terms of new systems. Cash generation, strong operating cash generation. We also spent a bit more on land during 2019 than the previous year of GBP 185 million, both settling [ 9 ] creditors and new land. The dividend payment was -- looks down from 2018, but that actually reflects, we paid the special dividend from 2019 as a special bonus share. Cash flows from joint ventures reflects the formation of the Wellingborough joint venture and the loan from Homes England going into that joint venture. Non-trading items, the usual things in terms of tax, interest and pension. And then we have the successful placing in November, raising over GBP 150 million. So closing net cash, GBP 362 million, but that position did change quite quickly at the beginning of this year. So as Greg said, a very successful year again in terms of land activity. The dots on the map show you where we have been purchasing land. So the gray dots are where we've been acquiring land out in the open market. The darker dots, pleasing to say are those that we have pulled through from our strategic land bank, and we continue to feed that strategic land bank. So the red dots are the new strategic options. So over 4,500 plots bought across 18 developments and again, following our strategy of looking to buy more sites with 2- and 3-bedroom houses. So only 7 of those plots we bought do we expect to sell for more than GBP 600,000 in due course. That conversion of strategic land to 2,146 plots, including conversions at Comeytrowe and Cambourne, and they have been a number of years in the making, very good margins on those sites coming through. We have got further planning on 1,131 plots in the strategic land bank. So that will continue to flow through. And all that land, as Greg said, bought, on average, at a 27% margin. And I'm pleased to say we are very active in the land market as we start this year. So already secured another 7 sites across the business. And finally, in terms of the balance sheet, so looking at our optimized balance sheet at the end of last year. Land creditors at 36% of gross land, still happy to buy land. If we can buy now, pay later and in the mid-30s percent, that's okay. And within that, we've actually got a number of pretty long-term sites with creditors out a little bit further. The work in progress does reflect investment in some of our larger sites where we're already operating on a number of outlets. The investment JVs reflects the increase from Wellingborough going in there. And we entered into a further joint venture at the end of the year with Metropolitan Thames Valley at Cambourne. Overall, net assets per share at GBP 8.57. Just a bit more guidance or just reiterating what we said at the acquisition that we're looking to get that gearing, including land creditors down to just under 30% by the end of this year and then decrease it again to the end of 2021. And with that, I'll hand it back to Greg.

Great. Thanks, Earl. And if you're not funny, use the old joke, have someone walk in late and get him to trip up on the stairs. Fantastic. And with my improved IT skills, and I've been struggling to sleep lately, I have just ordered a copy of IFRS 16 on leasing. So I can read that through to help my sleep pattern. So we're uniquely positioned, as I say, as a top 5 housebuilder. Vistry Group, 2 areas, housebuilding, high-quality housing provider, 2 leading housebuilding brands, Bovis and Linden, national scale and coverage, valuable land bank, very good strategic land bank and capability, and controlled volume growth and margin opportunities. On the partnership side, I think we are the leading provider of Partnership Housing in the country, excellent reputation. And I'd say, Stephen would have said that at the time with acquisition, Stephen Teagle, and I've obviously done my due diligence, and I would underline that, and firmly established relationships, national scale and coverage, high growth, countercyclical revenue model. And I've been bowled over already in the 2 months that we've owned the business of how many opportunities are coming through the door and some of the scale of those opportunities, supported by, of course, 2 leading housebuilding brands, Bovis and Linden, and significant not just -- significant revenue growth and margin expansion expected. And if we see at the bottom there, you've got our 3 customer-facing brands, Bovis, Linden and Vistry, and it's important to note, having had a discussion and meeting with the HBF, that the cumulative of the HBF customer satisfaction scores for those 3 businesses put the Vistry Group as a 5-star housebuilder. So you add the whole 3 together, and we are a 5-star housebuilder, not just Bovis. The group's strategic aims are exactly the same as we put in place at Bovis 3 years ago, which has put us in very, very good stead. Number one, front and center, no doubt about it: People satisfaction, all built around, do the right thing. We take health and safety of our people very seriously as we do of our supply chain. On customer satisfaction, if you don't look after your customers, and Bovis Homes really do know this, you will not go forward, let alone make a profit, even more so today than maybe in 2016/'17. And I think it's a great testament to the people of the company. And if you look at the last 3 or 4 months leading up to Christmas 2019 when the acquisition was under really going into it really into the due diligence. And then even more so, the first 2 months of the acquisition, January and February, when there's been absolutely all hell on, closing 4 offices, redundancies, lots and lots going on, our customer satisfaction score since the first of October, has actually risen. So as a group now, we're at 92%, well, well in the 5 star. So if I really have to describe how culturally that customer is front and center of everything we do, in spite of everything that's been going on in the 4 or 5 months leading up to Christmas, and the 2 months since Christmas, the customer satisfaction scores are rising. If you get all 3 of those right, enhanced shareholder returns will follow. We've got a highly experienced operational management team. On the housebuilding side, Darrell White, Bovis; Andrew Hammond, Linden; Michael Stirrop, Bovis; Darren Maddox, Linden. It's pretty well spread. The whole thing I'm treating as a merger. And on partnerships, Stephen Teagle, CEO; Stuart Brodie, Stuart Munro, James Warrington, everybody on that list has been around for at least 5 years, some of them even more. And my script says it's a great balance between young, enthusiastic leaders and more mature, older, dour even, leaders. And if you -- I'm not sure who wrote the script, but looking around, and they're all in the room. I'm not sure where the young ones are, but I'm sure they're there somewhere. So on housebuilding, our strategic priorities, we're looking to maximize output through controlled volume growth. So there will be no growth. It's a standstill in housebuilding in 2020, exactly as we said at the time of the acquisition because that is where most of the integration issues, things to deal with are, but we are looking for a steady incremental volume growth from 2021. And we would look to get to 8,000 units as soon as practical. Really excited, and it's one of the main strategic aims or benefits of the deal of the dual branding. The dual branding will enable us to sell quicker on our existing sites and make us even more competitive, I think, in the land market. We're continuing to invest in our people. And going forward, it's still all about hands on leadership, not leadership from computer screens, hands on leadership, getting out there. And the focus remains on having quality site managers and quality site teams. And Linden and Bovis want to be the partner of choice for our supply chain as well as local authorities and housing associations. Vistry Partnerships, we are looking -- there's less integration issues in partnerships. It's pretty much as it was. So we are looking to continue the aggressive growth in 2020. So no real growth in housing on unit numbers, but there will be growth in the partnership side on day one because there's less integration going on. So the 6,000 units that can be achieved in the medium term, and that's from 4,000 units today. Importantly, though, we are looking to increase -- the growth is going to come from what I would call housebuilding as opposed to contracting. So we are looking to increase the amount of housebuilding that the partnerships side of things does, but retain the very important contracting revenues or maybe grow them slightly, but not at the same rate as the housebuilding side. And we are looking to expand into new geographies, and Graham will touch on that in a minute or 2. And we do expect and are confident to see a step-up in the margin from around 5.6% to 10% in the not-too-distant future. And that will come from the housebuilding side, which will be generating operating margins of between 14% and 18%. So exciting times for Vistry Partnerships. We've got a very, very good land bank. So pro forma we've got 40,135 plots. We're continuing to target a 3.5- to 4-year owned supply. And that -- and we are seeing an increase in land supply for Vistry Partnerships to get them up to that 10% margin that we are expecting, demanding even. Increased competitiveness, this has all given us increased competitiveness in the open market on land. We were already -- as we said, we bought land at 27%. We bought a lot of land last year, but bringing together Linden and Bovis and the 2 current house type ranges that they've got, the Phoenix Range and the Linden Collection, which Graham is currently leading the charge on, tweaking slightly to bring in the best practice of both. I've already seen evidence in the first 2 months of the year, where our land bids are even more competitive than they were. So I think we're even more competitive going forward than we were in that important area. Significant opportunities from strategic land. And I've been around for a long time, and I do think the strategic land team that Bovis have got is exemplary. I haven't really worked with too many, but there are some great people and that strategic land team has. Nothing to do with me being a very, very good bedrock for Bovis over the years and continues to be, and we continue to go through a golden period within Bovis and now the Vistry Group, with strategic land coming through. Nearly 32,000 plots within the strategic land bank. Nearly 9,000 of those already have some form of consent. We made good progress in 2019. There were just under 2,150 conversions. And we would expect that to continue this year and next year, with a strong pipeline of high-quality developments coming through: Collingtree, already done in the first 2 months, Salisbury, Macclesfield, Coggeshall and Bideford. And strategic land will continue to be a focus, and we're continuing to invest in it this year and going forward. Graham?

Many thanks, Greg. Good morning, everybody. Those of you that know me know that I do believe passionately in the strategic and the operational potential of Vistry Group. And the transaction was put together in the right spirit, in a kind of collegiate and constructive nature, the way that we constructed the negotiation. And I'm really pleased to say that the integration has started in the same way and indeed with many of the same jokes, which is nice. It's very, very funny. I mean seriously, there's a huge amount to do, obviously, with this integration. It's complex. It's demanding. And in -- obviously, in the area of people, it's very, very difficult as well. But we are setting about it with energy and pace, and I'm really pleased with the progress that we've made to date. As Greg mentioned, we've reorganized housebuilding into 2 divisions, north and south. I'll talk about that in a moment. We rebranded Vistry Partnerships on day 1. We had to do that. It was a fantastic effort by the teams, and we are really focusing hard on increasing the proportion of higher-margin land-led and mixed tenure work that we bring through that business. As Greg said, our divisional chairs and MDs are all in place and the majority of our business unit Boards are confirmed as well. The difficult process of consultations, of the people consultations, we're well on with that, and we will be through quite early next month. We're making fantastic progress on the procurement renegotiations. And that's both in price alignment in taking the best of both, who's got the best deal, and then, of course, seeking improved terms for the significantly improved -- for the significantly increased size of the business that we now are. As you know, we're targeting some GBP 15 million of savings from -- in that area. And [ John Byrne ] and his team making great progress in -- already. We also refocused our land teams already on larger opportunities because, of course, the increased size gives -- it makes -- means that we can really start to play in those larger sites where the competition is just slightly less and of course, that represents a real opportunity for us. We've aligned our 2 strong health and safety systems. Keith's done a great job. And there, we're pretty much there in terms of a single group policy, which is important, and very quick, which is great. And on the Phoenix Range and the Linden Collection, 2 excellent and quite new -- great new ranges, and we're working hard to compare and contrast and optimize both of those. It builds on the margin initiatives that have obviously been thriving at Bovis last year. We're reviewing both the base specification to get the best of both, where one can learn from the other, and also revisiting and refreshing some of the finishing specs as well. In IT, obviously, a huge exercise there. Really a huge amount of work already done and lots to do, but we've got that. We're well on with that significant work streams in bringing Linden onto the Bovis COINS platform. We'll do -- we'll have that done within the next 2 or 3 months. Bigger exercise to bring Partnerships into its own COINS platform. And then, of course, we need to rebrand and rationalize the whole network. So it will take us a few months, but the guys are doing a great job. So lots of pace and lots of progress. Just turning then to housebuilding specifically. As Greg said, we're going to 13 regions. That does mean that we're closing some 4 offices. We're well on with that. Sadly, that means we will be losing something like just over 250 positions. That's where the redundancies is coming out. Importantly, as I said, divisional chairs and MDs are all in place, and the majority of the Boards are confirmed. We've also taken the opportunity to have a good look at our business unit structures and our teams so that we can harmonize those and optimize our operating structure. And very importantly, where the restructure has meant that sites are changing, i.e., reporting into a different office, we've taken -- we've grabbed that very quickly because it's vital that we retain control of those sites, that we continue to pay our subcontractors and that we continue to look after our customers. As I say, well on with that and got that under control, which is very important. Turning then to partnerships. Obviously, partnerships, significantly less affected by the whole integration process. No change to our region -- experienced regional MDs, as Greg's mentioned, and the business unit teams are largely continuing as they were, although in some cases, slightly expanded, which is great because it's creating opportunities for some of the talented individuals that we might otherwise be losing from the Linden and Bovis businesses, so that's very good news. As I've said, we're focusing hard on increasing that proportion of mixed tenure and not forgetting the important process of growing that Partnerships business. We've been growing it aggressively for the last 2 years within Galliford. And so it's important and exciting that we're already on with our next regional expansion. And those of you that would have heard me in September will realize that this represents a bit of a change of strategy. I think we were gravitating towards East Anglia because it was the gap in the map. But actually, we had a good look at the market kind of during last summer, and Stephen and the team came up with a conclusion that actually it was Thames Valley that was pulling us. The market pull was coming from that part of the country. Number of our clients are offering us opportunities in the Thames Valley. So we've said actually, that's where we're going to direct our focus for now. We're already on with that. Very pleasingly, we've got a great resource. A guy called Nick Laugharne who came out of Linden Chiltern, who's going to take on setting up that Thames Valley region. So the small team that is setting that up is already in the business and reporting to Stuart Munro, the Regional Director in -- the Regional Director in the south. Customer service, clearly really important for all of our businesses, and all 3, Bovis, Linden and Partnerships, have made fantastic progress, as you know, in the last couple of years, and as Greg said, already on trending on the [ 8 weekly. ] We're at 5 star, which is fantastic. But we can -- we're absolutely determined to go further. We're already focusing on the 9-month survey and stretching ourselves as to what we can continue to do to stay ahead of the game. The bar is raising externally. As you're aware, the announcement on the Ombudsman last week, we welcome that. We think we're in great shape to make the very best of that and work with that initiative going forward. And an interesting aspect of this for me is the rolling out. Bovis has got a fantastic CRM system called Keys. We'll roll that out across the whole business, but we'll actually enhance it with some features of Linden's sales and prospects tracking system, which was also superb and so we'll take the best of both and optimize that. House types and branding is really -- it's a fascinating area. It's a new proposition really for both. We both just had our own brands before. Now we have the opportunity to play with the 2. It's a complex area. We recognize that. And so we said that -- we created a new position of Group, Brand and Marketing Director, [ Debbie Hume's ] in the room, have a coffee with her afterwards, fascinating area, and it's been a really interesting debate. But the -- we had a bit of luck in the 2 ranges, actually, in that -- the both excellent ranges but they set out from different places. So very much -- both focused on location, on quality and on value but Linden approached the exercise very much around starting with buildability and cost, of course not forgetting the customer, whereas Bovis started from the principle of kind of distinctive design, a sense of space and luxury, but not forgetting buildability and cost. And what that means is that we start out with 2 highly complementary ranges. So it's a real bonus for us because they could have obviously had much more of an overlap. But they don't, they make great stablemates. We're working on both of those ranges to extend the depth of the offer to our customers and to accommodate some types, which Partnerships need within the ranges. And when we finish that work, what we're absolutely clear on is that we'll be absolutely rigorous in enforcing those brands around the business. Really important that we don't undermine our own efforts by messing around at the edges there. And so those -- and the way that we'll operate is that each of the housebuilding businesses can offer both of the brands and Partnerships can offer both of the brands. As I say, once they deploy that brand, they stick to it religiously. And the 2 ranges is exciting because it gives us flexibility in our location and our land buying. And indeed, the prospect of dual branding on our larger sites means that we can -- will help us to accelerate the pace of development and the returns that we can earn from those sites. And finally, just some of the key principles with which we're approaching this whole exercise. Absolutely, as I think, as Greg said right at the start, it's about the best of both businesses. We really are looking at both and optimizing, taking the best of each. It's not about smashing one business into the other. We resolved early that we were going to make our decisions quickly and execute them efficiently. We fully recognize that in some areas, we'll make the old mistake. We might take the odd suboptimal decision. But I'm convinced that the cost of those, hopefully, small mistakes would be far outweighed by dithering or delaying and not getting on with the integration and starting to realize the benefits. And absolutely, as I've mentioned in 1 or 2 places already, adherence to group principles is paramount. We're having the debate now, we're taking the views. We'll make the decision, and then we will stick to those group principles, be that in branding, as I've just mentioned, or in procurement. There'll be no grubby local deals to get an extra [ hefty ] discount and then undermine the whole integrity of the group deal. So that's very much a key principle for us. And I think important to end on a real sense of 1 team, if we're going to make this opportunity work in the market, that's how we have to operate. So we absolutely face our markets as clear and distinctive propositions, but internally we work as a single operation. We're sharing our opportunities and best practice, developing our people and absolutely leveraging our size. It's vital if we're going to deliver on this opportunity. And I would say that's been really great. I think I can absolutely speak for all the Galliford team. The well -- we've received a great welcome within the group, and there's a real positivity right across the team for the fantastic potential in this combination. Thank you.

Thanks, Graham. Not sure how much time we got left after that, but I'll -- on the market environment then, you would have heard this before, there's definitely increased market certainty, political stability, progress on Brexit. Fundamentals, historic low interest rates are going to continue, competitive mortgage market and getting more competitive by the day, I would say, strengthening wage inflation, high employment levels, government support for the sector, all lead to a good housing market, which leads us on to strong demand in the year-to-date, which I'll touch on in a minute. Sustained demand from housing associations. I mean, during the course of last year, I think Bovis sold in excess of 500 houses, outside of Section 106 agreements to housing associations. And that appetite from the housing associations continues to be there. We've done very few deals so far in the first 2 months because of the strength of the actual market, but there's a number of deals bubbling away. But it's good to know that there is a sustained -- that's a sustainable area for housebuilders to go to. And the land market, of course, as we proved last year with the land we bought at 27%, remains attractive. So finishing things off then on the outlook. Graham said it, Earl said it and I'll say it again, the integration, the first 2 months, I mean, we'd have done more than take where we are today. A huge amount of work, but we can already start seeing light at the end of the tunnel, and it's kind of been seamless. And it's been -- not every day. Sometimes you have gone home thinking, God. But more days than not, it's been a very, very good experience. We've had a great start to the year. So underlying average sales rate up 15%, positive momentum on underlying pricing. So for the first 7 weeks we're just under GBP 2 million up on forecast. So all very good stuff. A strong forward sales position, and this is interesting. So we're 48% sold on private housebuilding or on our housebuilding business. Exactly the same place as where Bovis were this time last year. If you'd have said to me what was the number on the first of January, it would have been behind because, obviously, it was a difficult time for any consumer-facing business including housebuilding, leading up to Christmas with the election and Brexit. But in 7 weeks, we've caught up that position such has been the strength of the market since Christmas. We've seen it -- we've got an increase in mixed tenure forward sales from Vistry Partnerships, which is great, to GBP 244 million from GBP 159 million. That's exactly where we want Vistry Partnerships to go. That will be the higher-margin stuff. And on the contracting side, an incredibly strong, what we call, work on the bench, which is contracts nearly signed in the last knockings of the negotiations of GBP 1.5 billion and a contracting order book of GBP 890 million, down from GBP 960 million a year ago, but about the same. And if you listen to what I said earlier, we're not looking to grow as aggressively the contracting side of the business as we are the housebuilding side of the business. So you shouldn't expect that to go forward. But we are on the contracting side of it in a great place this year with 88% of the work we need to achieve consensus already secure. So we're in great shape, and we're in a pretty good market. So we're delighted with how things are going. And on that, we'll take any questions.

John Fraser-Andrews, HSBC. First question is on the sales rate, the step-up from Bovis Home to 0.64, can you say where you see that heading? Is that the natural rate for this old Bovis homes? Linden homes from recollection was sort of half a tick higher. So where is that sales rate going? Is there more structural growth in it that Bovis has achieved over the last couple of years? So that's the first one.

Let me -- I won't remember otherwise, John. So what I would say is point -- last year was 0.57, 0.58, and that was up from 0.5. That's probably because of our build quality, our customer satisfaction scores, our reputation being better. And both Bovis and Linden have said now for about 18 months that on our land going forward, we are looking to do more, bring our ASP down, i.e. do more 2-, 3- and small 4-bedroom houses than the 5- and 6-bedroom houses. So as you bring that comes through, and it started to come through last year and will come through again during the course of this year, you would expect to see the sales rates increase. So somewhere between 0.6 and 0.7 is where we would aim to go with our new mix. And Linden and Bovis, all I can say is in the first 7 weeks of the year have been selling at approximately the same sort of rate because their mix isn't too dissimilar.

Second question, Partnerships mixed tenure margins, the 14% to 18%. Can you just sort of flex where the variations in the types of developments are in those margins? And is the strength of demand -- has there been an underlying -- any underlying increase in that margin in the last year or so?

Stephen, do you want to take that one?

The margin that we achieved on sites is a reflection of the extent to which we presell. So if some of our sites have 2/3 presold as PRS or affordable housing, then that contributes to the overall site margins, but our margin that we aim for on the mixed tenure outright sale is exactly the same margin on as you've seen in the housebuilding business, and Greg mentioned 27%. So that's the sort of threshold that we look for, for our outright sale. But obviously, if 2/3 of the site is affordable, then you're looking at lower margin on that percentage.

Just the last one. Current trading, any regional mix in the sales reservation rate rise and the pricing increase that you've seen?

Yes. On the pricing increase, it's interesting. On the pricing increase, I would say the south is slightly stronger than the north. On the sales rate, it's the other way around; the sales rate has been more encouraging in the north than the south. Both up but the north has been better. But I would put that more down to the integration within the business. So the north, led by Darrell, has got a lot to do with integration, but not as much as the south and that must be impacting the sales rate or at least that's what Andrew Hammond is telling me. So we're encouraged with the sales rate in both areas, but there is a different -- slight difference in the rate between north and South. North being ahead. South are ahead on prices.

Christopher Millington at Numis. I'd just like to firstly ask just on synergies. It sounds like you're making pretty good progress on the integration. I'm just wondering kind of what line of sight you've got and kind of maybe just give us a bit of a feel as to kind of the exact split there. That's the first one. Second one is just about the embedded land bank margin between the 2 groups. I don't know if there's been any distortion there. And then really, just how you're feeling about the Help to Buy price caps.

Help to Buy price caps, I'll do that, and then Earl will take your first 2 questions. The Help to Buy price caps are exactly as the government said when they initially announced the scheme. So we're pretty happy with them. If we try to get any of them changed through the HBF, it was the West Midlands. So we think the West Midlands is a bit low. We think other areas are quite generous. So overall, we're not really concerned. But if you push me, the West Midlands is a bit tighter than the other areas. Earl, first 2 questions?

Yes. So in terms of synergies, obviously, at the time of the acquisition, we talked about a minimum of GBP 35 million. GBP 15 million as was mentioned for -- around the procurement, which as Graham touched on, we are progressing very well with. And John's doing a great job, who's with us today as well. And then in terms of the sight on the operating cost savings of GBP 20 million in terms of the difficult process of restructuring, we can see good sight on how we will achieve those synergies as well. So on target, as Greg said. We are ahead of where we might have hoped to have been with the integration in terms of delivering those through this year.

So we are -- we're definitely ahead of where we expected to be. And because we're ahead, we're very, very confident of the overall number.

Okay. In terms of the embedded land margin, in terms of Bovis, which we've given you, holding that steady at 24.8%, same as June, really pleased with that. In fact, given as we've said, pricing pressure in the second half of last year, which is all that reflects because we did that in land bank margin at the end of December. So we've been able to counter that with some of the cost savings and I think the natural increase. So pleased with that. We haven't quoted a Linden margin at the moment, but it was similar when we put it out at the time of the acquisition. And look, we're going to have to do some work and the accountants will maybe look at each of the sites as part of the acquisition accounting. So we'll come back and actually give the numbers in due course, but they were similar, land bank margins.

There's going to be no -- I think it will complement each other.

Exactly.

Will Jones from Redburn. A few as well, if I could please. The first, can you just help us maybe establish what the pro forma base is on various metrics? Because we've got different year ends of the 2 businesses, JVs, lack of JVs. I'm thinking particularly the base housebuilding volumes, say for calendar '19 if possible against the 8,000 long-term target. And then just, obviously, one thing is land bank gross margin. But in terms of the P&L gross margin, I think roughly, Linden reported 24% gross in the last financial year. And you guys, old Bovis was circa 22%. So is it -- is 23% roughly the kind of carryforward into calendar 2020 on P&L gross margin?

Just on that point, and I'll pass back to Earl. On margin, I mean, we are happy to go out there and say, we're looking at an operating margin as a combined business for 2021 of 18.5% to 19%. And add your overhead onto that, and that will get your gross margin. And for 2020, we're very much in the camp of put aside the margin. We're happy with consensus, and which is in line with what we said at the time of the acquisition, which will be against consensus at the time of the announcement, about 10% EPS growth on -- against consensus of where Bovis were for 2020. If you just put that at EPS growth against the results we've just announced at GBP 188 million, it's probably nearer 14% to 15% growth in 2020 from 2019. That will obviously do things to the margin, but we're going to keep quiet on the margin this year, but we are happy to put out there that in 2021, 18.5% to 19% operating margin. Earl?

In terms of volumes, so talking about flat housebuilding volumes, you've obviously got 3,867 was the Bovis number. I think I'll probably take you back to 12 months to June for the Linden number, but assume that for the 12 months that we are in -- you're going to be somewhere 6,500 to 7,000 in terms of housebuilding units. And remember the quantum of JVs that are in there, so they are gross numbers that are quoted in terms of what you'll see coming through, and that will then step-up in due course, but not this year.

And the Partnerships is about 4.

Thanks. And then just perhaps you could update us on expected balance sheet evolution. Obviously GBP 360 million net cash, but then money has gone out in January. And I know you gave some indications at the time of the announcement, but has any of that changed? And I guess, at what point would you be happy to reduce that dividend cover, but lower, again, as you indicated, to the 1.75x kind of level?

Okay. So guidance at...