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Edited Transcript of BVS.L earnings conference call or presentation 10-Sep-19 8:00am GMT

Half Year 2019 Bovis Homes Group PLC Earnings Call

Longfield, Kent Sep 13, 2019 (Thomson StreetEvents) -- Edited Transcript of Bovis Homes Group PLC earnings conference call or presentation Tuesday, September 10, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Debbie Meachen

Bovis Homes Group PLC - Area Sales Director

* Earl Sibley

Bovis Homes Group PLC - Group Finance Director & Executive Director

* Gerald Fitzgerald

Bovis Homes Group PLC - Vice Chairman of the Board & CEO

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Conference Call Participants

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* Christopher James Millington

Numis Securities Limited, Research Division - Analyst

* Clyde Lewis

Peel Hunt LLP, Research Division - Analyst

* Gavin Jago

Peel Hunt LLP, Research Division - Analyst

* Glynis Mary Johnson

Jefferies LLC, Research Division - Equity Analyst

* Gregor Kuglitsch

UBS Investment Bank, Research Division - Executive Director, Head of European Building & Construction Research and Equity Research Analyst

* John Fraser

HSBC, Research Division - Global Equity Head of Building Materials and European Building Materials Analyst

* Jonathan Matthew Bell

Deutsche Bank AG, Research Division - Research Analyst

* William Jones

Redburn (Europe) Limited, Research Division - Partner of Construction & Building Materials Research

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Presentation

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Gerald Fitzgerald, Bovis Homes Group PLC - Vice Chairman of the Board & CEO [1]

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Good morning, everyone, and welcome to our half year results to June 2019 presentation. But before we start, I will do an intro script, which would be the only thing I actually read. So this is all being done at the last minute as it were. So before we go on to the half year results, let me briefly comment on the other announcement that we made this morning. We have reengaged in discussions with Galliford Try via the potential combination of our housing businesses, so a combination of Bovis Homes with Linden Homes and Galliford Try Partnerships and Regeneration business. This would leave Galliford Try construction business as a stand-alone entity.

In the statement, we have outlined the agreed high-level terms on which the potential transaction would be implemented with a valuation of GT's housing businesses at GBP 1.075 billion. This is expected to be funding through the issue of Bovis shares and Galliford Try shareholders to the value of GBP 675 million. The payment of GBP 300 million in cash and the transfer of Galliford Try's 10-year debt private placement of GBP 100 million.

Discussions, I would say, are at an early stage, and we still have a lot of work to do, completing our due diligence, finalizing the potential synergies, which we think will be substantial and raising the required equity. And any equity we raise, as I always do, I will fully partake in because this is a great deal and debt funding. Of course, I am very familiar with both businesses, and I see this as an exciting and transformational opportunity for Bovis to create a leading U.K. housebuilder. With enhanced scale, we would be better positioned to make the most of the current market opportunities and risks and drive forward on our commitment to deliver high-quality homes and excellent customer satisfaction.

Galliford Try partnerships business is a fantastic brand. If you spoke to Homes England today and said, "Who is the market leader of affordable housing in the country?" They would say, Galliford Try partnerships, I'm pretty confident of that. Fantastic brand and holds a very strong position in the U.K. market. Combining it with our newly launched partnerships and housing division would enable us to be the partner of choice for delivering more affordable homes at a time when affordable homes are needed the most. Both as CEO and a substantial shareholder in Bovis, I see this as a massive opportunity for the group. We have some work to do to get to a formal offer, but I'm hopeful that we will get there in the not-too-distant future. So as I'm sure you understand, we won't be giving any more specific details to date beyond what is already in the statement. But I'm -- with that said, I'm sure we'll take some questions at the end of the presentation.

So with that, we'll put away the script, and we'll get on with our half year results.

So all of the photos are from our new Phoenix housing range, which we've now got plenty of show homes around about the place. We've had our first completions in June. And customer feedback and visitor feedback has been excellent and better than we could have originally anticipated.

So the agenda. Highlights, that will be me. Earl will obviously talk through all of the financials. I'll come back and do a CEO review, an operational update, strategy update and our medium-term targets and finish off with our outlook, and then we'll take questions, which will be, no doubt, subtle to do with the presentation and all to do with Galliford Try. So I'm wasting my time for the next half an hour. But anyway, we will carry on.

So we've had an excellent first half performance: record profits. A journalist this morning said to me on the phone, "Is that a record in the last few years?" No, I said, "A record is a record, isn't it?" It's a record. We've never made as much money as we've just done in the 6 months, increasing profit by 20% to GBP 72.4 million. That includes a step-up in profitability, which is 140 basis points up to 16%, impressive; a 15% increase in private sales rate to 0.6 per week in an uncertain market, and we've managed to keep 0.6 all the way through the summer period. And I would say now, 3 weeks ago, after Boris Johnson came into power, all the uncertainty around about our place, Bovis Homes sold more houses in a weekend than we've ever sold in the entire history again of the group. Explain that.

5-star customer satisfaction score. I'll come back to that later on. Further improvement in build quality metrics, and one obviously follows the other; and the first completions, as I've said, in June from our new exciting Phoenix housing range. And we've made excellent progress because we got it over the line with our joint venture -- with our site at Wellingborough, and we've managed to now put that into a JV with Riverside Housing Association, and that improved the balance sheet by about GBP 67 million.

Strong position for the full year. So we continue to acquire land. We acquired just over 2,000 plots in the 6 months over 12 sites at a margin of in excess of 26%. We've got excellent visibility on land with all the land we need for 2020 in place and 80% of what we need for 2021 in place. Our investment, which has been substantial over the last couple of years in our people, which is what it's all about, processes and systems, is now turning into profit as it were because the dividends of that are starting to come through, although it's still at an early stage. We achieved a staggering GBP 250 million of net cash from our balance sheet optimization initiatives, well done to the team, well ahead of our original, I thought stretched target, of GBP 180 million. We further strengthened the balance sheet with an increase of net cash of GBP 102.4 million at the end of June. And if you like, although that's massively up GBP 42.8 million a year ago on that number, that was the only disappointment for me from a personal perspective in the whole results. I was hoping that could have been and should have been probably over GBP 120 million, but nevertheless a great performance. Against all of that, the interim dividend has been increased by 8% to 20.5p, and we are in a very strong position for sales for this year, and in fact, going into 2020 and are very confident of achieving our results in line with expectations.

Earl?

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Earl Sibley, Bovis Homes Group PLC - Group Finance Director & Executive Director [2]

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Thank you, Greg. Morning. Plenty going on. So I will swiftly go through these, following Greg's lead. On the screen is houses at Wellingborough. So as Greg said, that's our joint venture that completed in April. As expected, the contribution from Wellingborough in the first half was largely a share of interest costs, but we did get our first 3 completions on the site. So I know a number of you will be pleased that those disclosures are starting to flow through this presentation, and there will be more on joint ventures as we go forward, and we'll try and be as clear as we can on the subject.

So as Greg said, excellent set of results in terms of the absolute profit and the improved operating margin. And so our revenue up 9% to GBP 472 million. That came from a 4% increase in volume and 2% up in terms of ASP, and I'll come back to that. Gross profit up 13% to GBP 101.8 million. Our admin expenses down slightly, reflecting our now optimized structure and the changes in processing systems more than offsetting what our increased employee costs. So giving operating profit of 75.8% and a profit before tax of GBP 72.4%, up 20%, as Greg mentioned.

A bit of detail within the finance costs. We have implemented IFRS 16 for leases from the beginning of the year, so from the 1st of January. It's an immaterial impact in the finance costs, and there's the share of JVs, which is largely a share of interest costs at both Sherford and Wellingborough. Tax charge of 18.9%, largely in line with the underlying tax rate. So in terms of that volume and pricing. So our private completions broadly flat with a significant step-up in our affordable completions, so 12% up. That represented 37% of the mix in the first half. And typically our sites are 30% or 40% affordable, so that does reflect the natural construction across those sites.

That said, we expect that proportion to be a little bit lower for the full year, so more like 34% for the full year. We did do 25% of our total completions on Help to Buy, and that's a similar number to last year. And whilst it's nudging up 9% on part exchange, it's still a very low number, and we're doing it in a very controlled way. So as at the end of June and as at today, we don't own any properties that are over 3 months old unsold. In fact, as of today, we only own 2 properties that are unsold at all. And we are trading that part exchange at no profit, no loss. So in reality, we'd be happy to do more in the second half in terms of supporting our sales rate, but only on that very controlled basis. Average site, 88 for the half year. It's been broadly consistent for a while, but the increased sales rate that Greg mentioned means we are confident in terms of the expected growth for the year.

On pricing, underlying pricing, we've seen broadly flat in terms of market pricing, but we have seen a 2% increase on that private ASP and a 15% increase on the affordable, largely reflecting the geography and certainly the tenure of that affordable product coming through. In terms of other income, about GBP 8 million of other income, the largest part of that was the continued disposal of our PRS properties out for 2 PRS JVs. So GBP 4.1 million of that came from there. And then during the period, we did do 3 what we're calling partnership land transactions. So these are transactions we have done with housing associations to effectively transfer land across, but Bovis has now entered into a development agreement with those housing associations to develop both private and affordable homes on those sites, and we are already in discussion on further transactions of the same nature that may well come through in the second half or certainly into next year as well.

So this just splits out the one land sale that we did in the period. So that was our last out-of-area site, a site up at Penwortham, which is Preston. And then really, the focus here is the 70% -- sorry, 70 basis point improvement in the gross margin year-on-year, driven by the ongoing margin initiatives that we've talked to you about in the past. We also have a program of cost initiatives running at the moment, right the way across all our build costs, and that definitely reflects the more efficient construction model that we've got on each of our sites as well as we have seen a lessening in build inflation in recent weeks. So very much working with our supply chain in terms of reducing those costs. And of course, the improvement in the embedded land bank margin; again, I will come back to.

Worth noting, there are still costs in our profit and loss that do actually spread themselves evenly over the year. So site-specific sales costs and our admin costs are spread evenly first half, second half, rather than being weighted with either volume or turnover. So that does have an impact on the margins in the first half. So therefore if you're looking at the trend from full year 2018 and on to 2019, that will have an impact. And as Greg will come back to, we are still aiming for a 23.5% gross margin to 2020. Our overhead is more efficient. First half this year saw 5.5% of revenue and combining that with the increase in gross margin, the 140 basis point increase on operating margin to 16%.

So the prices and construction costs. The usual slides just touch on the 2 circled numbers. So I've already said underlying pricing broadly flat. So the 4% increase on private sales price per square foot is really about product mix and the geography of where we are building. We might then have expected our construction cost per square foot to actually move more like 7% or 8% because you might expect it to move the same 4% as the sales prices, plus we have been reporting 3% to 4% of build cost inflation during the period. In reality, with our cost initiatives and our margin improvements, we've actually mitigated that. So we've seen a 6% increase per square foot in our build costs.

Strong cash generation in the period. So GBP 64.7 million of operating cash flow was impacted by the timing of some housing association receipts, which are expected to unwind in the full year as they did last year. The expenditure on land represents the unwind of both the creditors and new land spend. The dividend payment reflects the higher final dividend paid back in May. And importantly, as Greg mentioned earlier, the cash flow from JVs reflects the Wellingborough transaction, both the reduction of GBP 36 million in terms of the Homes England loan, that is effectively transferred into the JV and a GBP 33 million proceeds from Riverside Housing Association.

The nontrading items included the usual tax, interest and pension contributions. So overall, a net cash outflow of GBP 24 million, but a really strong cash position of GBP 102 million at the end of 6 months. Another good period for land, as you can see on the map. So this is actually the year-to-date position. So you can see the 12 additions to the land bank over 2,000 plots. They are, in fact, the gray and the red dots. While I'm on the map, the blue dots are new strategic options that we entered into during the period as well. And in particular, the red dots are those that source from our strategic land bank, so strong period. As I put there, only 6 of the plots we bought do we anticipate selling for more than GBP 600,000 at any time. So continuing our strategy of, on average, lower-sized units, 2- and 3-bed homes and a lower ASP. All of that land bought on average actually are over 26% gross margin and giving that excellent visibility. So we've secured all our land for 2020 and 79% of the land for 2021.

A little bit more on the land bank. We now own 13,161 plots, but there are just over 3,000 in the 2 major JVs that share through Wellingborough. So if I take our own plots and then our 50% share of those 2 JVs and take the targeted 4,000 completions, I would get a 3.7-year land bank as shown.

Also important on that slide. So our current expectation of the gross margin in our land bank now up to 24.9%, giving us confidence on margin growth going forwards in addition to those land acquisitions coming in with an expected margin in excess of 26%. Still a low-risk land bank. So the pie chart on the right gives a spread of pricing to 96% of our land bank. We expect sale for below GBP 600,000. I can't tell you, actually, 90% are below GBP 0.5 million. And actually, the other numbers are then given to you there. But also only 4% now apartments, and our greenfield is up to 92%. Finally, looking at -- or finally from me, at least, looking at our balance sheet. So you see our land creditors as a proportion of our net land has decreased. So that's around 32%, happy at that level. In fact, as I've said before, we'll be happy with the deferred terms are available for that to be a little higher as well. The work in progress reflects ongoing investment in a number of new sites and some of our larger strategically sourced sites that are feeding development for both our normal housing and our partnership business as well as feeding the higher weighting of completions in the second half. And then our other assets and other liabilities do include the impact again of implementing IFRS 16 in the period, that's about a GBP 22 million impact. There's much more detail in the appendix for those of you that are interested.

Net assets per share, 796p, that, along with the improved profitability, driven the significant improvement in return on capital to 19.8%.

And with that, I'll hand you back to Greg.

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Gerald Fitzgerald, Bovis Homes Group PLC - Vice Chairman of the Board & CEO [3]

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Okay. Thanks very much. I made a note. So for me, the key takeaway there is that we've implemented IFRS 16 in relation to leasehold. So that's really interesting. So on to the operational side of things, more photos there of the Phoenix range. And what's really interesting is we're just about to start on that site in Wales, the first house which is actually going to have a thatched roof. So another first for [ramp over.] So I would hope in 6 months' time, we'll show you a thatched roof, which again is so unlike Bovis from the past.

So excellent levels of customer satisfaction. Customer satisfaction undoubtedly remains our #1 priority. The group is now trending as a 5-star HBF customer satisfaction score. That's above 90%. In actual fact, as of this morning, we're at 91.6%. So well over the 90% and right up there with the top in the industry now. The majority of responses, that's from over 1,350 responses. So we don't expect to get a lot more, and I'll eat my hat if we don't end the year as a 5-star housebuilder, not that I've got a hat. And it's consistent across all of our operating regions. So of our 7 businesses, 4 are 5-star, 2 are just under 5-star and one is at 84%. So there's no real laggard. Both of our divisions, west and the east are 5-star. So Darrell, who runs the west division, is currently second at 90.5%; or you could say, he's last, depending on how you want to look at it. We've launched our Keys, customer relation management system in May, and that is enhancing the customer experience. All customer interactions can take place in one place, and we are nearly there with a portal that will enable our purchases to actually log their own defects.

Building high-quality homes. As I've said before a couple of times, delighted with the quality of our site managers around about the group. Really, really pleased with some of the young ones that we've got who are raising the standards yet again. All construction for 2019 is very well progressed. We've seen improvements across all of our construction metrics. NHBC reportable items are, for 2019, are down 33% and are about 0.22, industry average is about 0.28; we're well under there. NHBC in the half year 2019 CQRs improved by 8%, and we're now 1% better than the industry benchmark, and all of that is led to site manager head turn or -- head churn, sorry, below 15%. When I joined the business, it was 66%. So no wonder we couldn't build anything as we would like to. We won 6 NHBC Pride in the Job awards, and we've made great progress on health and safety. With the rollout of our new procedures, the group monthly score has improved over the last period by 8%.

First Phoenix completed, as I said. So it was launched in April, 28 new house types. First completed in June, as I said earlier, excellent customer feedback. 880 Phoenix units currently under construction, 15% of this year's completions will come from Phoenix and about 50% of 2020, and we're confident that the new range delivers enhanced sales propositions for our customers. It's got to be one of the reasons why our sales rate has gone from an historic 0.5 to 0.6, 20% improvement. Improved build efficiency. If you speak to our site managers, they'd much rather build these new house types, which leads to a reduction in build costs and an increased competitiveness in the land market. So we have been much more successful since April 2018 in the land market than we were before. Why? Because we are more -- because the house types that we are now designing in and are building give us a bit of an edge, we think, on the land market. That actual -- that's the inside of The Maple at Bishops Itchington, which is West Midlands. I would actually say, being around for a long time and I'm not being biased, that might be the best show home I've ever been in.

So huge investment in the business. From a brand perspective, you would have seen the new bird up here. So that was a lot of effort went into that, but it was cheap. So I'm pleased that we didn't spend too much money on it. Customer relationship system, Keys, is up and running, and that will soon go on to our sales teams as we go to the end of this year. People, employee management, learning, development, payroll. People get their expenses now. We don't mess on paper, more on now through e-mail. Sales and commercial website, which was a bit outdated, has been modernized again, but still a bit more to go. And COINS, basically the last one, we're now on to implementing Phase 2 with regards to things like biller quantities, et cetera. So huge investment. But as I said at the start of the presentation, that investment is starting to just pay dividends now.

Again, as I've said for a while, we've got a great strategic land bank at Bovis Homes and we've got a great team dealing with it, and they've been dealing with it for a number of times. And we quite often say within Bovis, we're in a golden period at the moment for strategic land, which I agree with. We've made major progress on a number of significant land projects in 2019, delivering high-quality developments in the near to mid-future. If you look here on the right-hand side, where we've got planning agreed, 6,178; planning applications, 2,690; all of those have got some sort of designation from a planning upfront. I think most of those parts, if not all, will come through over the next 5 years, and they will come through at a margin, if we're being prudent, in excess of 27%. We converted 372 plots in the year-to-date, and planning was granted over a further 1,131 plots. And it's not just reaping the past, but for now, we are continuing to invest heavily in strategic land, and we entered into options on 4 new strategic bits of land in a period totaling 865 plots; been a real success story there. Progress with our partnerships division under Keith Carnegie. So we launched it back in February. We're working alongside our operating regions to start with, and we have significantly improved relationships over the last couple of years with our housing associations. The land led strategy has allowed us to optimize returns from our land investment; enable us to acquire larger sites because we can do things in joint ventures, larger sites over 500 units; facilitate much better working capital, hence we reported improvements in return on capital; and it's developed a much, much less cyclical business than pure housebuilding in isolation, which again isn't one of the other benefits that comes from Galliford Try. And we've made excellent progress in the year-to-date and have entered into JVs with 5 different housing associations around about the country.

People, as I've said, all along, remain the key priority. Today, people want to come and work for the Bovis. It's not unusual that our construction director, for instance, in Mercia hasn't used the Headhunter for the last 2 years. He is inundated by people who wanted to come, site managers who want to come and work for the business. We get consistent high scores in our Peakon engagement surveys, which we do every 3 months, and we've seen a further overall reduction, not just in site manager head turn but in -- across the whole group.

We're investing in full training and development programs, 1,870 training days in the year. Leadership development program and frameworks, et cetera, et cetera, nearly 200 attended that program during the year. 20 assistant site managers going through the books at the moment at Bovis. We've currently got 48 apprentices and 20 more will join towards the end of the year. And another lovely photograph there, that's our Scott Curtis, who runs internal comms for us, looks a little bit like Roger Whittaker. And a lot of you in the room will remember Roger Whittaker. I don't know what this is, but this is the question that Roger is asking there. Right, so the background is, everybody in the room was English, and Roger -- sorry, Scott was asking the question, "Do you think Wales will win the Rugby World Cup?" And it looks as though everyone thinks they will.

High quality is being recognized across the business. So we were awarded the gold Armed Forces Covenant and Employer Recognition Scheme, and we're the only housebuilder to have achieved that to date, and that's massively helped by our learning and development director called Roger Morton, who up until recently was in the army. He was a colonel or a sergeant major or something, but he is now fully acclimatized to civilian life. I just wish he wouldn't bring his rifle to all of the meetings.

We won 6 NHBC Pride in the Job awards. NHBC Health & Safety Award. We've been shortlisted for the big award, which is the Building Awards as Housebuilder of the Year; shortlisted for housebuilding awards, Best Customer Satisfaction Initiative; and Housebuilder Star Award. And we've also in Construction News in the Talent Awards Apprentice of the Year; Equality, Diversity & Inclusion, which about covers just everything, I think, Leader of the Year, and Excellence in Learning and Development. So quite rightly for our people, we are being recognized externally about the achievements that we've done over the last couple of years, which is great.

So "do the right thing" you see there, which is the company ethos, which is all the way through the organization. So land acquisition. We're increasing the proportion of smaller product as we move into a world in the not-too-distant future, we're helped by -- drops down to first-time buyers. We think there is a stronger demand for smaller product, and it will drive even higher sales rates. We fully expect to maintain our strategy of 3.5 to 4 years land supply. It's controlled volume growth. We're more interested in margin, but we can go to above 4,000 units by 2020. And the growth of our partnerships business will deliver incremental value on top of that. And with the increased investment in our Partnerships business, which is really just starting to take off now, the return on capital target of 25%, is now not expected until 2022.

As I've said, we're continuing to focus on margin as opposed to volume. The cost savings around about the group, I think we've picked up all the low-hanging fruit. We're up to savings at shoulder level, but there's still plenty of savings out there. We haven't seen -- I haven't seen any build inflation, I would add, over the last 3 or 4 months. We did at the start of the year, but as the markets got tougher, we're finding it very easy to backpack subcontractors and suppliers. So we're not seeing any inflation, and there's still plenty of work that Galliford -- I said Galliford, Christ -- Bovis can do for self-help. And with things like the new Phoenix housing range, which is definitely coming through and our Select extras range, which is only just about getting off the ground, which gives our purchases the opportunity to bespoke their houses. And as Earl said earlier, the embedded margin in the land bank has risen to 24.9%, and we have bought land in the period at over 26%, and the strategic land that is going to come through is over 27%. So we're in very, very good shape on land.

Progress with medium-term targets. I won't dwell on these. 4-star, that's done, and we're trending as a 5-star, and we will end the year as a 5-star housebuilder. 4,000 completions, 4% increase in completions in the half year just gone; 3.5- to 4-year land bank done; 23.5% margin by 2020, still very much on target for that and the margin increased by 70 basis points in the half year. 5% overhead, nearly there, but have no doubt we'll get there for 2020 -- sorry, 2019, this year. Minimum GBP 180 million of cash, managed to do GBP 250 million. And 25% return on capital, we increased it to 19.8% in the half year and are still confident we'll get to the 25%.

Enhanced cash returns to shareholders, again, being a cornerstone of our strategy. So we have a strategy of maximizing sustainable dividends to our shareholders and the half year 2019 dividend has been increased by 8% to 20.5p. And special cash returns, we paid the first payment of GBP 60 million back in November 2018, and shareholders will receive a further GBP 60 million of capital, which we returned in the second half of this year, probably in November again.

Market environment. Earl has touched a little bit on this. So supportive market fundamentals, low interest rate environment. No signs of that changing at the moment. Competitive -- very competitive mortgage market with appetite to lend. Government support for the sector going out to 2023 and high levels of employment. That does, however -- we have the Brexit overhang. But I have to say, whether it's to do with our new brand, with the new Phoenix range, we have sold surprisingly well through the summer, even to the last weekend. So sales rates are proving robust. Our forward order book is very strong. We probably already sold 10% of what we need to sell going into 2020 because there's some deals we've done with housing associations. And we have no problems with the increased use of part exchange because we are running it very, very well.

And we are seeing an increased appetite from housing associations with their large cash resources to buy properties, and we are obviously fully partaking in that, which, of course, is something we couldn't do a couple of years ago because our reputation in the housing association fraternity was pretty poor. As I said, we're not seeing any build inflation over the last 3 or 4 months, and the land market remains very attractive.

So we're very well positioned with a strong outlook for the full year. Group turnaround, I would say, is nearly complete. We can always get better, of course. We're trending as a 5-star housebuilder, high-quality build with all the metrics coming through from the NHBC, first-class people, excellent land supply, including strategic land. Investment in systems and processes is starting to come through, and we've launched excitedly our Partnerships business.

Strong sales position. 96% of 2019 total completion is now secured. So we're only -- we have a cut-off at week 39, so we are very, very prudent. So week 39 is, if it's not sold by the end -- well, 2.5 weeks' time from now, we won't be including it in this year. So we are very confident that we're going to get to where we need to get to this year. We are having to work hard in the current market. So sales are coming through, but we're dealing a bit here and there, ducking and diving, but we are getting the sales through. So we're well positioned to deliver a very strong performance in 2019, and we're confident going into 2020 with already 10% forward sales booked, and we're not even into the sales period where those sales will come through generally in the forward order book, which is October, November and December.

So all in all, great set of results, and we're in great shape for the full year and great shape going into 2020.

So on that, we'll take any questions. [Dennis]? Sorry. Oh, sorry.

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Questions and Answers

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Gavin Jago, Peel Hunt LLP, Research Division - Analyst [1]

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Start at the back. Gavin Jago, Peel Hunt. Three, if I could, please. First one, Greg, just to clarify on that build cost statement. Just given what your peers have been saying, what are you doing differently? What are you seeing? I mean is it just -- is it literally the last couple of months? Or is it certain regions that you're seeing as flat?

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Gerald Fitzgerald, Bovis Homes Group PLC - Vice Chairman of the Board & CEO [2]

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Yes. I mean we're actually seeing there's plenty of examples at the present moment in time, where we've got sites around the country, where for the first time we've got brick laying barons actually having dutch auctions because they're looking for work. So you can't have these initiatives out there and all housebuilders should be doing it, and I'm not sure where they are all coming from. But if you read the stats on construction -- the construction market, generally outside of housebuilding, hasn't just gone along like that, it's gone flat in the last 6 months. So the last time I looked, bricklayers, carpenters, roofers work for contractors as well as housebuilders. So if they are working for contractors as well as housebuilders, one, there isn't any work or it's not as much work as there was, and all my mates are subcontractors, and most of them don't want to work for contractors anyway for fear of being paid because of their financial position. So they all want to come and work for housebuilders. If they all want to come and work for housebuilders, we need to make hay while the sun shines, and that's where we are. And I'm very, very surprised if now the housebuilders aren't doing that as well.

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Gavin Jago, Peel Hunt LLP, Research Division - Analyst [3]

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The second was just around competition in the Partnerships side, kind of what, I guess, what you've seen trending over the last 12, 18 months or so. Are you seeing the housebuilders wanted to get in? And how comfortable do you feel with the opposition in it?

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Gerald Fitzgerald, Bovis Homes Group PLC - Vice Chairman of the Board & CEO [4]

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We were encouraged to go into it by housing associations because they are saying there is a lack of competition in there. So they have only got 1 or 2 people that they feel they can go to. So that's why we've been encouraged in to go back to the Galliford Try thing. I think it's a -- that's a huge part of what we're looking to do there. It's a great business. It's in a great sector, and I know that too well. And I can't see any downside and who are the big competitors? They are having financial issues, whether it's Kier as well, aren't they? So I think the housing associations are actually looking at their supply chain and more often not they're looking at a supply chain and they're actually concerned about it. So they would welcome any new entrants or probably welcome from a limited feedback of how to date Galliford Try coming over to -- Partnerships coming over to us.

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Gavin Jago, Peel Hunt LLP, Research Division - Analyst [5]

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Last one is just around incentives. Just maybe just give an example of what you've seen, maybe outside of the partakes? What you've been seeing in terms of the tick up anywhere?

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Gerald Fitzgerald, Bovis Homes Group PLC - Vice Chairman of the Board & CEO [6]

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I would say, if I was being brutally honest, we are seeing over the last 5 months, probably around about 1% discount. So I think it's pricing. So it's manageable. It's all in the range. But with Bovis, I'm not saying Bovis are the best because I'm certainly not saying that. I'm saying that we started from such a low base, we're still making those improvements, and we can basically cover off a 1% discount to forecast price better than other housebuilders who were and are maybe still better than them, better than we are.

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Jonathan Matthew Bell, Deutsche Bank AG, Research Division - Research Analyst [7]

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Jon Bell from Deutsche. Got 3, I think. Just on customer satisfaction, I just wondered to what extent you're looking at the 9-month scores now in addition to the 8-week score?

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Gerald Fitzgerald, Bovis Homes Group PLC - Vice Chairman of the Board & CEO [8]

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I'll answer that. So the 9-month score is currently 67%. Again, that was down in the 30s, early 40s, and the industry average is just under 70. So we're within 2% of the industry average, and we focus not quite as much on the 9-month as the 8-month (sic) [8-week], but I can tell you it gets brought up every week at a detailed meeting we have; so a lot.

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Jonathan Matthew Bell, Deutsche Bank AG, Research Division - Research Analyst [9]

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And the second question was, when we look at the existing split or mix of partnerships in Galliford Try, would you expect to be rolling out the mix to 10-year element of that more aggressively than they currently do?

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Gerald Fitzgerald, Bovis Homes Group PLC - Vice Chairman of the Board & CEO [10]

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So we would have -- pretty much on day 1, we would have some sites that we would put into that vehicle. So at a very strong headline, I think, Galliford Try partnerships have done remarkably well with the uncertainty around funding, et cetera, et cetera, caused by construction. They won't have that if and when it comes part of the new vehicle. So we will be looking for a tweak, if you like, to the strategy to go more land-led, and I think their margins are around 6%. We would be looking for that to be double digit, and I see no reason why that can't happen. And we would have, obviously, the balance sheet and ability to do that.

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Jonathan Matthew Bell, Deutsche Bank AG, Research Division - Research Analyst [11]

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And just a final question. I came for your thoughts on the new Help to Buy price caps? And whether you envisage that they might get tweaked at some point?

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Gerald Fitzgerald, Bovis Homes Group PLC - Vice Chairman of the Board & CEO [12]

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Well, we're lobbying and the trades that we have, 7 business units. 6 of the business units, we're actually quite happy with the -- I'm looking at James and Darrell, we're happy with -- and Keith, we're happy with the range. In the West Midlands, we think it's a little bit low, but we think it's a bit high in other areas. So we're lobbying. But overall, we feel we can work within them. And the main thing is, we've got plenty of time to make sure our land buying and our pricing strategy is correct.

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Jonathan Matthew Bell, Deutsche Bank AG, Research Division - Research Analyst [13]

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Just one follow-up. Do you feel there is any traction being gained so far on that lobbying process? Or is it just too early to tell?

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Gerald Fitzgerald, Bovis Homes Group PLC - Vice Chairman of the Board & CEO [14]

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I think there is some traction. I think the government when they get a minute are kind of listening. So even if you go back to Help to Buy, when Help to Buy was extended to 2023, that's it. That's the end of it. I'll have a tenure that they won't stop it in 2023 for first-time buyers, but that's just my personal view. We're planning that it will be. But that's already kind of -- or maybe we'll look at this. So it's gone from end of story to "you're getting an audience here on it.

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Glynis Mary Johnson, Jefferies LLC, Research Division - Equity Analyst [15]

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Glynis Johnson, Jefferies. Three, if I may. The first one is in terms of your margins, how should we think about the margins that Bovis can achieve, putting Galliford to one Try -- to one side. I'm trying. Two tries even. If your gross margin in land bank is 24.6%, your admin cost, 5%, should we assume the industry averages where you will top out at? Or should we still be thinking about those other margin initiatives? I notice we don't have those percentage upside from margin initiatives, specifically later anymore. So just if you can give us a bit of color, given the context of what others in the industry are achieving what Bovis can get to? The second one is in terms of customer service. You talk about allowing your customers to lock their own defects. For how long would you allow them to lock their defects? Is it a week? Is it a day? Would it go on for 6 months post moving in? How do you -- does Bovis look at customer service and after care?

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Gerald Fitzgerald, Bovis Homes Group PLC - Vice Chairman of the Board & CEO [16]

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I'm looking at our customer experience director at the back. What did you say, Debbie, to answer?

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Debbie Meachen, Bovis Homes Group PLC - Area Sales Director [17]

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It's full period of that warranty.

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Gerald Fitzgerald, Bovis Homes Group PLC - Vice Chairman of the Board & CEO [18]

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Full period of that warranty for 2 years.

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Glynis Mary Johnson, Jefferies LLC, Research Division - Equity Analyst [19]

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Two years. And then the last one, just in terms of the strategic sites, where you have planning agreed. What is making those not move into the consented land bank? Is it negotiations on price? Is it conditions?

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Gerald Fitzgerald, Bovis Homes Group PLC - Vice Chairman of the Board & CEO [20]

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No, it will be predominantly negotiations on price. And when we want to take them, we'll take them on. We wouldn't bring it into the land bank. And so we've actually contracted it, and there's a couple of sites there, maybe we don't want to contract this week. We might want to leave it to next week. So price.

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Earl Sibley, Bovis Homes Group PLC - Group Finance Director & Executive Director [21]

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And some of them are drawdowns on existing sites. So we've already got land. So we will draw that down in future.

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Gerald Fitzgerald, Bovis Homes Group PLC - Vice Chairman of the Board & CEO [22]

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So if we got 1,000 plot, we don't need the other 1,000. So we'll keep that back. Although, it's nothing as big as that. So go back to the first question, Earl, on the margin.

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Earl Sibley, Bovis Homes Group PLC - Group Finance Director & Executive Director [23]

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So the margin -- the embedded margin was 24.9%, and therefore gives you confidence in terms of the trajectory, as I said earlier, confident in terms of delivering the 23.5% in 2020. We are buying in excess of 26%. And as Greg mentioned, the strategic land still coming through stronger than that, 27% plus. And so over time, that is the trajectory of where we are heading. The margin initiatives ongoing, build cost program that Greg's described as well some of that is mitigating a bit of pressure on the revenue line at the moment, but there's plenty of opportunity in those build costs we're going in.

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Glynis Mary Johnson, Jefferies LLC, Research Division - Equity Analyst [24]

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So the target margin is above industry average?

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Gerald Fitzgerald, Bovis Homes Group PLC - Vice Chairman of the Board & CEO [25]

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Yes. And of course, if the GT thing comes to pass, you go from 4,000 units or less than 4,000 units Bovis to over 10,000 units if you wrap these 3 together. So the synergy savings come from procurement. You should be buying a brick and a block cheaper at over 10,000 than 4,000, of course, plus there is some other synergies in and around Bovis and Linden. But you would overall, with that kind of revenue numbers, those kind of offices, you would expect that overhead, for want of a better word, at 5% to be much closer to 4%.

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William Jones, Redburn (Europe) Limited, Research Division - Partner of Construction & Building Materials Research [26]

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Will Jones, Redburn. I think 3, as well, if I could, please. The first, just when you reflect on actually the Linden Homes with the Galliford Housing business, which is still, I guess, the vast majority of the profits. Do you look at that today and think there's improvement potential in it? Or do you think actually it's been run pretty well since you left, and therefore actually the deal benefits are outside necessarily improving Linden per se? The second one, which is if we come at the balance sheet, in terms of where you expect to drop at the year-end, assuming you don't pay the GBP 60 million special because of the deal in terms of...

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Gerald Fitzgerald, Bovis Homes Group PLC - Vice Chairman of the Board & CEO [27]

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Why are you saying that?

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William Jones, Redburn (Europe) Limited, Research Division - Partner of Construction & Building Materials Research [28]

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Because of the Galliford deal -- you wouldn't pay that. Isn't that right?

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Gerald Fitzgerald, Bovis Homes Group PLC - Vice Chairman of the Board & CEO [29]

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No. I wouldn't let down our private shareholders like that.

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William Jones, Redburn (Europe) Limited, Research Division - Partner of Construction & Building Materials Research [30]

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Okay. I thought that was a structure, but...

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Earl Sibley, Bovis Homes Group PLC - Group Finance Director & Executive Director [31]

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It's a bonus dividend, yes.

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Gerald Fitzgerald, Bovis Homes Group PLC - Vice Chairman of the Board & CEO [32]

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So that, the shareholders will get. So that's been a big discussion. If the shareholder was wanting GBP 500 to go on holiday, they can just sell the shares, but they will get the benefit of it?

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William Jones, Redburn (Europe) Limited, Research Division - Partner of Construction & Building Materials Research [33]

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Yes. Assuming that happens, I guess, where is the cash position going to be at year-end? Where will you be on an average basis? And just with regards to the extra investments in partnership, I guess, you're flagging, is there a number you can put around that? The delay is slightly the rocky target for the group. And then I guess, we can all work the numbers on the deal, but where are you happy for the balance sheet to sit when all that kind of comes together, maybe 12, 18 months down the track? And then last one was just conceptually why -- if the land bank gross margin is 25% today, and you reported circa 22% in the first half, the gap of 3 percentage points, is that just about the Phoenix penetration or is...

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Gerald Fitzgerald, Bovis Homes Group PLC - Vice Chairman of the Board & CEO [34]

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No, that just is -- we've still have some historic sites. Rather than parking them, we're building through them. So we still have some legacy sites, which are -- which is planned through. We generate much less. We've got couple of sites of 10%, for instance. So they are bringing the margin down, but they are nearly gone. So that will automatically -- and the margin would just get better as that older land flows through. Do you want to go over?

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Earl Sibley, Bovis Homes Group PLC - Group Finance Director & Executive Director [35]

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Yes. I'll cover a couple of those. So cash balance sheet towards the end of the year. Look, there's a range out there of expectations, but consensus is roughly around GBP 170 million at the moment. And we'll be looking to drive the cash as always. But then you would add GBP 60 million on top of that, certainly, because you're right. If the transaction would to go ahead, we would pay the -- or return the capital by way of a bonus dividend. So not uncomfortable with that, but obviously we will be driving to do better than that, but that's what's out there.

In terms of the rocky and moving the target out to 2022, in reality, and Greg alluded to it, if Bovis stand-alone, if we were to move forward on that basis, we are signaling that we would go beyond 4,000 new homes from the existing structure. So there's investment in order to drive that growth that is not in there, but we have got plans potentially for an eight region that would need feeding in terms of land investment, and then also the partnership business. We are investing in that some of the strategic sites are feeding both the partnership business and our existing housing business. So that's what's driving the investment in the shorter term and moving that target further out.

And then talking about in terms of where we're looking to get the balance sheet potentially where the transaction look very important and comes through, hopefully in the structure, having a robust balance sheet for the combined entity is very important, important for the growth of that group, but clearly there is a market -- political backdrop at the moment as well. So the gearing will be highest when we first do it. We think that will come down very quickly. We are very focused on both the cash flow debt and land creditors. But look, we're looking to get that down to 25% or below the combined...

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Gerald Fitzgerald, Bovis Homes Group PLC - Vice Chairman of the Board & CEO [36]

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Including the creditors.

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Earl Sibley, Bovis Homes Group PLC - Group Finance Director & Executive Director [37]

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And creditors as quickly as possible and take it from there. And we would not expect our period-end to hold net debt for more than 2 years.

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Gerald Fitzgerald, Bovis Homes Group PLC - Vice Chairman of the Board & CEO [38]

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And one of the other ways we can drive that down is both companies, but particularly Bovis, have got some very, very large sites. And one of the big opportunities we've got is dual branding. So what we can say is, we'll still be selling houses if the deal goes forward under the Linden banner and the Bovis banner. So whereas, if you've got a site of 300 houses, we'd like to think that we could nearly go through that twice as quickly with Bovis and Linden selling on the same site, which we don't have that opportunity at the moment.

And then your first question, where is Linden? I think Linden Homes have done, from a people perspective, fabulously well to be where they are against a backdrop as it must be very difficult for them. Can we buy this site? Can we take this person on? First of all, if you're in the market at the moment to leave, particularly over the last 9 months, do you join a company, where you are not sure overall group, what's going to happen? There's a lot of uncertainty around Galliford Try, maybe, maybe not.

Do you -- are you able to take people on from Linden? So they are -- do they lose people? Yes, probably are because of that uncertainty, not because of their performance, it's just the uncertainty levels. And then of course, the land. So can we buy this site? I'm not sure -- I'm not quite sure how this claim or this -- whatever do. So when you take all of that into consideration, I think, one, they have turned out really, really well to produce the results that they are producing, but with some stability and a bigger balance sheet and the momentum behind what would happen, they surely got to be some improvements, but that's not criticizing at all.

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Christopher James Millington, Numis Securities Limited, Research Division - Analyst [39]

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Chris Millington at Numis. The first question, while it just links to something you were saying that, Greg and Earl, about it taking Bovis from 4,000 to 10,000 units and also the focus on cash generation in the first instance of the deal. I mean do you feel there will be a period of integration, where volumes aren't probably the combination of the 2 as we've seen in previous deals in the sector, and there's some sort of integration in the first year before you kind of -- the combined businesses give that full output?

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Gerald Fitzgerald, Bovis Homes Group PLC - Vice Chairman of the Board & CEO [40]

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Yes. This is -- the best way to look at it, this is 7 business units of Bovis, go into something like 22 units when we've done some integration as a combined. So it's a huge integration and not one to be underestimated. So our plan is that Bovis and probably numbers for 2019 and probably Linden numbers to June 2019 to be carried forward going into 2020, i.e. any growth that Linden had any growth that Bovis had in that first year. Let's just calm the ship and do the integration absolutely properly. So that's not going backwards, but maybe -- and maybe the market says that's a sensible thing to do as well. What we will carry on with, so that will enable us to carry on with the growth and that goes back to a world question as well in the Partnerships business. So the growth that Partnerships are aspiring to -- Galliford Try-Partnerships are aspiring to at the moment, will continue.

So we think we can let them carry on growing, the cash that they need, particularly on a previous question, I think John asked that, about mixed tenure and the like. We've built into our forecast, including coming back to 25% or thereabouts after 12 months. So they will carry on. The big integration is between Linden and Bovis. And I think it would be wrong in year 1 trying to do something for short term, not for long-term gain. So I would say, 1 and 1 will equal 2 as long as you take one equals Bovis' numbers to 2019, not necessarily what we're saying, which we have a little bit of growth for 2020, and Linden for the 12 months to June 2019, i.e., just done. Add those 2 together and then we can move on after that. But that will enable the Partnership's business to carry on with that exciting and ambitious growth trajectory.

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Christopher James Millington, Numis Securities Limited, Research Division - Analyst [41]

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Now clearly, I understand this is all at an early stage, but the synergies have been outlined as procurement savings and the operational footprint really of the organization. I mean historically, we kind of see synergies range between 1% and 2% of combined revenue. I mean is it likely to kind of fall within that sort of range? I mean I'm not asking for a firm figure, but it sounds like it could be pretty significant from the deal.

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Gerald Fitzgerald, Bovis Homes Group PLC - Vice Chairman of the Board & CEO [42]

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We'll go as far and say, we think they are substantial, and we're still working through them. And I think they are higher than where we were back in May.

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Christopher James Millington, Numis Securities Limited, Research Division - Analyst [43]

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Okay. That's helpful. Final one, just bulk sales in the period. I just wonder if you could give us some detail on that. And whether or not it's been a tailwind or a headwind relative to the first half of last year?

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Earl Sibley, Bovis Homes Group PLC - Group Finance Director & Executive Director [44]

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On bulk sales, I would say, pretty consistent through the year in terms of deals that we're doing with housing associations, modest discount, but we save selling overhead. I would actually compare last year we did -- we disclosed over 400 plots with Heylo housing. We haven't done any more deals with them this year, but what we have done is largely replace those through the year with a number of deals with about a dozen different housing associations. So much happier to have spread that business across many of our housing association partners.

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Gerald Fitzgerald, Bovis Homes Group PLC - Vice Chairman of the Board & CEO [45]

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Those both deals -- so it's more and it's across a broader financially stronger set of customers.

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Gregor Kuglitsch, UBS Investment Bank, Research Division - Executive Director, Head of European Building & Construction Research and Equity Research Analyst [46]

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Gregor Kuglitsch from UBS. I've got a few questions. Can you just come back to the volume targets? Can you just explain the 4,000, where the JVs and the Partnerships sort of flow into that? Is that kind of included, is that on top?

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Gerald Fitzgerald, Bovis Homes Group PLC - Vice Chairman of the Board & CEO [47]

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The JVs are included. The Partnerships isn't. So any growth from Partnerships will be incremental to the 4,000.

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Gregor Kuglitsch, UBS Investment Bank, Research Division - Executive Director, Head of European Building & Construction Research and Equity Research Analyst [48]

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And then on the Partnerships, can you just perhaps explain a little bit the economics, and how that impacts the returns in the short term? And then perhaps related to that, how it differs to the Galliford Try business? And to what extent when you -- I presume, you will combine the 2, you kind of get a blend of a asset-light business model and a...

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Gerald Fitzgerald, Bovis Homes Group PLC - Vice Chairman of the Board & CEO [49]

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Yes, we will combine the 2. I mean ours is at a relative infancy, that theirs isn't. So all of what Bovis done at the moment is land-led. So we control or own the land, do you want to do a deal, this is the price, are you happy to do it? So we're not doing any and don't intend to give us a job can we tender for some work or negotiate even for some work. I think that's fine where we are at the moment. Obviously, with GT, they do some of that, but they also do a lot of straightforward tendering for work around about the place, and that will carry on. But as I said earlier, we would just like that maybe not carry on as much as it is at the moment and shifted more to the land-led scenario, and we can give them, at Bovis, a huge kick start with our land bank. We were talking earlier about the strategic land. We can bring some of that strategic land forward quicker with a different customer base.

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Gregor Kuglitsch, UBS Investment Bank, Research Division - Executive Director, Head of European Building & Construction Research and Equity Research Analyst [50]

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And the returns of this? Isn't it supposed to be much higher in return on capital?

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Gerald Fitzgerald, Bovis Homes Group PLC - Vice Chairman of the Board & CEO [51]

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Return on capital would be far greater than what a pure housebuilder is, but the margins would be lower. So just as Bovis, we would have been looking at a margin probably of somewhere on a small scale, keep 15%, 16%, and return on capital of 30%...

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Earl Sibley, Bovis Homes Group PLC - Group Finance Director & Executive Director [52]

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Yes, 30%, 40%.

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Gerald Fitzgerald, Bovis Homes Group PLC - Vice Chairman of the Board & CEO [53]

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30%, 40%. With the combination of GT -- because in an ideal world, you do GBP 1 billion of purely land-led, but it just won't work like that. I think we should be looking and aiming and are definitely aiming to take the 6% margin within Partnerships to 10% while still carrying on trying to grow quite quickly to the GBP 1 billion revenue, right?

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Gregor Kuglitsch, UBS Investment Bank, Research Division - Executive Director, Head of European Building & Construction Research and Equity Research Analyst [54]

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And then just on the dividend. So I think in the statement there is also the final becomes kind of the interim level, which I think is 20p around it roughly. And then there's still another installment of the special next year. So you committed to that one in cash. Is that right?

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Gerald Fitzgerald, Bovis Homes Group PLC - Vice Chairman of the Board & CEO [55]

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I might have made a mistake, as Earl said.

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Earl Sibley, Bovis Homes Group PLC - Group Finance Director & Executive Director [56]

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So we've announced the interim of 20.5%. What we've actually said is that if the deal goes ahead, that would effectively be a second interim, which is a technical. The read is that's the final. No reason why your -- you should have a different number for that interim than you would have as the final at the moment. But what we are saying is, we'd effectively go ex dividend prior to the transaction happening, so that would attribute to just the existing both the shareholders at the time and not the enlarged shareholder group if the transaction goes for what?

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Gerald Fitzgerald, Bovis Homes Group PLC - Vice Chairman of the Board & CEO [57]

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2019 final dividend gets paid in or used to get paid in May and will going forward, which goes ex dividend in February. We'll go ex dividend in December. And because of that, you have to call it a second interim, and it will be paid in February or March, but it will only be to, obviously, because it goes ex dividend for the deal happens to Bovis shareholders.

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Gregor Kuglitsch, UBS Investment Bank, Research Division - Executive Director, Head of European Building & Construction Research and Equity Research Analyst [58]

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Okay. And then there's another special next year.

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Gerald Fitzgerald, Bovis Homes Group PLC - Vice Chairman of the Board & CEO [59]

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No, the special next year, we will probably -- we're still looking at it to defer to 2021.

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Gregor Kuglitsch, UBS Investment Bank, Research Division - Executive Director, Head of European Building & Construction Research and Equity Research Analyst [60]

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So one final one. Sorry if this is a little hard to make do. What's the book value? I guess we'll see it tomorrow, but what's the actual book value you're acquiring against GBP 1.75 million?

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Earl Sibley, Bovis Homes Group PLC - Group Finance Director & Executive Director [61]

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I think you have to see that tomorrow, in fairness.

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Gregor Kuglitsch, UBS Investment Bank, Research Division - Executive Director, Head of European Building & Construction Research and Equity Research Analyst [62]

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Okay. Fine. Should have never said that, right?

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Gerald Fitzgerald, Bovis Homes Group PLC - Vice Chairman of the Board & CEO [63]

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We're happy. We're happy with the deal, obviously.

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John Fraser, HSBC, Research Division - Global Equity Head of Building Materials and European Building Materials Analyst [64]

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John Fraser-Andrews, HSBC. Three for me as well, please. The first one, the robust sales rate, Greg, that you alluded to, does that mean you've maintained the step change in the first half in the business? Or are you referring to a year-on-year comparison?

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Gerald Fitzgerald, Bovis Homes Group PLC - Vice Chairman of the Board & CEO [65]

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No, we've managed to set at 0.6 through over the last -- well, July, August and first week of September.

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John Fraser, HSBC, Research Division - Global Equity Head of Building Materials and European Building Materials Analyst [66]

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And you put that purely down to the Phoenix?

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Gerald Fitzgerald, Bovis Homes Group PLC - Vice Chairman of the Board & CEO [67]

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No, I put it down to -- actively looking for sales. I put it down to Phoenix, and I put it down to our improved reputation in the marketplace, being a 4 or 5-star housebuilder depending on what you're saying at that particular time.

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John Fraser, HSBC, Research Division - Global Equity Head of Building Materials and European Building Materials Analyst [68]

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And the second...

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Gerald Fitzgerald, Bovis Homes Group PLC - Vice Chairman of the Board & CEO [69]

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But I can't put my finger on it totally, but we are -- every week that comes through surprise with everything going on at the present moment in time with the number of sales that are coming through.

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Earl Sibley, Bovis Homes Group PLC - Group Finance Director & Executive Director [70]

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To be fair that the peers, even the larger ones have been seeing year-on-year similar rates. So they haven't seen that decline they had in the first half.

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Gerald Fitzgerald, Bovis Homes Group PLC - Vice Chairman of the Board & CEO [71]

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Maybe because we are starting at a lower base again. But yes, so maybe if you were at 0.9, maybe it would. But 0.6, I mean, let's be honest, it was probably about -- I mean, we are in the game of underpromise and overdeliver. So it might have been a bit better than 0.6%, but it's 0.6 during the last 2.5 months.

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John Fraser, HSBC, Research Division - Global Equity Head of Building Materials and European Building Materials Analyst [72]

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Okay. Second one is the land market. Clearly, you've been meeting your own gross margin targets. Some of the competitors have been saying the small sites have become a bit more competitive, and I don't know if you have seen any difference?

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Gerald Fitzgerald, Bovis Homes Group PLC - Vice Chairman of the Board & CEO [73]

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I would say, a site of 100 units is more competitive than the site of 600 units. But I would still say it's a soft market for 100 and a soft market of 600. So -- but yes, I can see it is more competitive, the smaller it is.

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John Fraser, HSBC, Research Division - Global Equity Head of Building Materials and European Building Materials Analyst [74]

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And is there anything to read into sort of larger sites that you're picking up? Is that because the business is maturing, the recovery plan is enabling that?

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Gerald Fitzgerald, Bovis Homes Group PLC - Vice Chairman of the Board & CEO [75]

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Yes, our cash position allows us to take that on, and that would be another great benefit with the GT acquisition/merger. We would be able to buy bigger sites, and we feel with dual branding that we would be able to maximize a sales rate and return better than we can if we were just Bovis. So we've got 809 sites at the present moment in time that we've got now in the Bovis plan, that we know as we go into 2020. We would do that different if and when this deal happens.

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John Fraser, HSBC, Research Division - Global Equity Head of Building Materials and European Building Materials Analyst [76]

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And the final question, the substantial synergies. Just thinking about the overlap with geography is clearly substantial. What does the Linden Homes business give you in terms of geography? What extra territory I can think of Yorkshire and perhaps more London?

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Gerald Fitzgerald, Bovis Homes Group PLC - Vice Chairman of the Board & CEO [77]

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Yorkshire, Peterborough and -- that would be the main area. Bristol would be quite strong and maybe a bit stronger on the South Coast. But there are some overlaps. But yes, there are some extensions as well. It's a very nice fit.

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Clyde Lewis, Peel Hunt LLP, Research Division - Analyst [78]

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Clyde Lewis at Peel Hunt. Three as well for me, Greg. Just coming back to, I suppose, your thoughts on optimum size for a regional unit. I mean you flagged the sort of 7 that you currently got. Obviously, ideas and thoughts of an 8th and obviously the Linden ones, I mean, put Partnership to one side. But for a optimum housing region, what are your current thoughts because obviously it does vary across the industry and...

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Gerald Fitzgerald, Bovis Homes Group PLC - Vice Chairman of the Board & CEO [79]

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5 50 to 65.

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Clyde Lewis, Peel Hunt LLP, Research Division - Analyst [80]

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Very clear. Secondly, Help to Buy, have you seen any change at all in the take-up of Help to Buy, either regionally or sort of a price point over the last 3 years?

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Gerald Fitzgerald, Bovis Homes Group PLC - Vice Chairman of the Board & CEO [81]

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If anything, it's slightly gone back a little bit over the last 6 months where part exchange has gone up a little bit over the last 6 months. So -- but nothing, but Darrell, James, I don't -- I'm seeing nothing. No.

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Clyde Lewis, Peel Hunt LLP, Research Division - Analyst [82]

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And the last one I had was on sort of I suppose, build programs versus sales rates. I mean your sales rates, as John just flagged, and the industry sales rates held up pretty well. How your build rates continued to match those sales rates? Or have you backed off a little bit in terms of sort of build programs, given the uncertainty that we've got, whether it's end of October or the end of January or God knows what you have?

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Gerald Fitzgerald, Bovis Homes Group PLC - Vice Chairman of the Board & CEO [83]

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We haven't backed off because we're thinking about Brexit. We backed off on a few sites where the sales rate has been quicker -- slower than what we currently build. So we haven't accelerated at all any sites, but we have brought a couple back. We're looking at a couple of deals with housing associations at the moment where we might actually, between now and Christmas, accelerate the build. So going back to John's point about the housing associations and the private sales they have been doing, we are looking at quite -- again, a spread over a number of different housing associations some great opportunities to take forward with housing associations, which would make our position going into 2020, very, very strong -- abnormally strong, I would say. But also, we might want to maximize that from a cash position, beginning up to Christmas. So I could probably more likely see us accelerating on 10 to 15 sites leading up to Christmas.

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Clyde Lewis, Peel Hunt LLP, Research Division - Analyst [84]

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And fourth, if I may. Just in terms of -- I mean, you flagged planning and land being still very attractive. Have you noticed any sort of deterioration in terms of local council's attitude to planning, i.e., have they started to dig their heels in a little bit in terms of sort of those final stages of planning because that's something that's been flagged elsewhere?

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Gerald Fitzgerald, Bovis Homes Group PLC - Vice Chairman of the Board & CEO [85]

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Yes, we would. You get the high level planning permission, it is still taking frustratingly too long a time to actually get the permission. Because I wouldn't say they are digging their heels in, I would say that it's a lack of resource more than anything. They just haven't got anybody there to actually take that [1 0 6] or take that condition forward. Again, would you -- yes. So it's not a digging their heels in. It's just a lack of resource. And they're trying to find ways of not being found out by coming up with something that comes in at the last minute of the deadline that is supposed to respond by which is, what the hell is that all about? But in theory, it gives them an extra month, 2 months to sort themselves out. But it is a severe, in some places, lack of resource, I would say.

Brilliant. Okay. Thank you very much. All the best.