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Edited Transcript of RDW.L earnings conference call or presentation 5-Sep-19 8:00am GMT

Full Year 2019 Redrow PLC Earnings Call

Flintshire Sep 20, 2019 (Thomson StreetEvents) -- Edited Transcript of Redrow PLC earnings conference call or presentation Thursday, September 5, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Barbara M. Richmond

Redrow plc - Group Finance Director & Executive Director

* John F. Tutte

Redrow plc - Executive Chairman

* Matthew Brennan-Pratt

Redrow plc - COO & Director

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Conference Call Participants

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* Ami Galla

Citigroup Inc, Research Division - Senior Associate

* Aynsley Lammin

Canaccord Genuity Corp., Research Division - Analyst

* Christopher James Millington

Numis Securities Limited, 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

* 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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John F. Tutte, Redrow plc - Executive Chairman [1]

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Good morning, everyone, and welcome to Redrow's full year results presentation. You've got slides in front of you anyway, and you said that -- I think what I'm going to say is I'll just do it with the second slide there. We'll be following a similar format to previous years, although there's sort of a bit of a change in the lineup.

I will give a quick overview of the highlights followed by Barbara running through the financial results as usual. And then Matthew, who took up the Chief Operating Officer's role at the beginning of April, will cover off the operational side. And then I will finish touching on our strategy and outlook for -- well our, let's face it, pretty eventful times at the moment before we open up the room as normal for questions.

Well, with that move, don't go. Never. Nothing to move on with. Here we go. Here we go. There we go. Okay. Right. Slide 3. Going through the highlights in -- well, I think I will have to say has been a more challenging year. We have once again delivered record results, our sixth consecutive year of doing so. Profit before tax exceeded GBP 400 million the first time, 7% ahead of GBP 406 million. And interestingly, you've got to see on the chart, since 2014, profits have increased actually by over 200%. The higher profit was driven by an increase in turnover as a consequence of a 13% rise in the number of legal completions up to 6,443, with social housing completions actually increasing by more than 50% in the year. It's the first time the group has delivered over 6,000 homes in a financial year, again, another milestone.

Return on capital employed was maintained at 28.5%. And the group had net cash of GBP 124 million at the year-end after returning GBP 111 million to shareholders early in the year through the B Share Scheme, which, of course, was an addition to the non-dividend payment.

So that's the summary. I'll now hand over to Barbara to take you through the numbers.

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Barbara M. Richmond, Redrow plc - Group Finance Director & Executive Director [2]

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Thanks, John. Morning, everyone. So I'll start off with the highlights. Turnover was up by 10% to GBP 2.1 billion, exceeding GBP 2 billion for the first time. Our earnings per share rose by 8% to 92.3p. And our cash conversion this year was particularly strong to 90%, which I'll talk more about later when we come to cash flow. As a result of that, we're able to both increase our final dividend to 20.5p, which makes 30.5p for the full year, 9% above 2018. And of course, we also paid the 30p per share capital return. So in total, we are distributing 60.5p per share to shareholders for the 2019 financial year, which is more than double of what we paid out in 2018.

Now if we look at the income statement, as I've already mentioned, turnover was up by 10%. As you can see here, all of this growth was attributable to higher homes revenue with our other turnover being flat year-on-year.

Gross profit increased by GBP 35 million to GBP 504 million. As was the case at the half year, the full year gross margin was 50 basis points lower than the previous year at 23.9%. As with the half year, this was due to the change in tenure mix of our residential housing turnover, with 12% of homes revenue coming from affordable homes compared to 7.5% last year.

Operating expenses increased by GBP 6 million as we both continue to invest in existing business and prepared for the opening of our Thames Valley division at the beginning of July. However, they did reduce again as a percentage of turnover from 4.5% to 4.4%.

Operating profit was GBP 411 million, an increase of 8% on 2018 with an operating margin of 19.5% compared to 19.9% last year. There was, of course, no joint venture profits in 2019.

Our interest expense reduced to GBP 5 million due to our improved cash position. And our pretax profit therefore increased by 7% to GBP 406 million, as John said, another record result for the business.

Just a quick note on plot cost. If you look at the average plot cost charge to cost of sales this year, that increased by GBP 1,000 to GBP 82,000. It remains 21% to the private average selling price, and we can see how that compared to what's on the balance sheet later on.

Turnover by geography. Now in the last year or so, we've had reductions in turnover in the Northern region, which we've been through with you in detail. This year, our mature Northern region saw growth of 3.5%, which I think given its maturity is a reasonable number.

Growth in the Central and Southern regions was strong with 18.4% growth in the Central region and 12.3% growth in the South.

Turnover in London was flat as we continued our shift to Outer London from Central London with a commensurate reduction in average selling price.

Looking forward in the first half of 2020, group turnover will be lower than in the first half of 2019. This is due to the fact we had a large number of legal completions on apartment schemes in London and the Southeast of England in the first half of 2019. Whilst this shortfall in the Southern region will be more than made up in the second half of 2020 with more Heritage completions coming through, that will not be the case in London where we expect overall turnover in that region in 2020 to be down by around 15% due to the timing of legal completions. In 2021, we expect the London turnover to return to around GBP 300 million. We expect therefore the half 1, half 2 turnover split for the group in 2020 to be 40-60 compared to 46-54 in 2019.

Now specifically looking at the homes turnover itself, legal completions were up 13% to 6,443. The overall private average selling price increased by 2% to 38 -- GBP 389,500. The average selling price of private houses increased by 5% mainly due to geographical mix, and the average selling price of private apartments reduced by 6% as a result of the move out to Central London that I mentioned earlier.

Apartments were just under 20% of revenue. Affordable homes represented 12% of turnover and 27% of volumes in 2019, significantly up from the 7.5% and 19%, respectively, in the previous year. In 2020, I expect affordable homes to be around 11% of turnover. And going forward, 11% of turnover is a reasonable assumption for affordable housing.

Now if we look at private turnover in a bit more detail. That increased by 5% to GBP 1.84 billion, with volumes up 2% to 4,731.

The Heritage Collection represented 79% of turnover and Bespoke, 21%, compared to the 72-28 split in the previous year. Again, this was due to fewer apartment completions in London in the South of England and this being at the lower average selling price.

There were 1,985 Help to Buy legal completions in the year, representing 42% of private legal completions versus 1,850 or 40% in 2018.

And just for comparison with others in this sector, of total legal completions, that represents 31% of the total legal completions compared to 32% last year.

Now cash flow. Our cash generation, as I said earlier, was very strong in 2019. Our EBITDA was up by 7.5% to GBP 414 million. Our net investment in land was GBP 66 million lower than in the previous year of GBP 25 million, with significant deferral on from new land purchases. The increase in work in progress was only GBP 3 million, with fewer outlets in June 2019 than we originally anticipated. Work in progress will increase in 2020 as we increase the number of outlets.

Other working capital movements comprised a GBP 15 million outflow due to reduced overseas deposits on London apartment schemes.

Cash conversion in 2019 was therefore 90%, up from 72% in 2018. The other significant cash outflow was with the GBP 77 million we paid in tax and the GBP 218 million shareholder cash returned through the normal dividend and the B Share Scheme.

Our net cash generation was therefore GBP 61 million giving a closing balance of GBP 124 million. And again, the average monthly net cash balance for the year was GBP 80 million compared to GBP 22 million in the prior year.

Looking forward again to 2020, I expect our operating cash conversion to reduce to between 50% and 60% as investments in new land and work in progress happens but also a reduction in land creditors as we're due to pay out over GBP 270 million in deferred land payments this year. In addition, as you are probably all aware, the new legislation for the timing of corporation tax payments takes effect throughout in this financial year. The impact of this is that it's a one-off in 2020 -- financial 2020. We will pay 6 corporation tax payments instead of 4. Thus, we'll be paying close to GBP 120 million in corporation tax versus the GBP 77 million we paid in 2019. As a result of these various items, I expect our net cash position in June 2020 to be higher than June 2019, but not materially so.

Because of the additional corporation tax payments being first-half weighted, the final dividend payment obviously in November and the phasing of legal completions I've already mentioned, I'm anticipating we may well have a small net debt position at the end of December 2019.

Now if I focus on the balance sheet, overall, our land's increased by GBP 76 million. Our land creditors increased by GBP 51 million to GBP 438 million, which is 29% of gross land value. As I've already said, due to the phasing of deferred land payments with over 60% of those land creditors payable in the current financial year, I expect the land creditors to be lower in June 2020 than 2019. And the 2020 land creditors, we estimate to be between 20% and 25% of gross land value.

Work in progress only increased marginally and represented 37% of turnover, a reduction from the 41% in 2018 and within our target range of below 40%. And I would expect that we can maintain the work in progress level before 40%. However, in absolute terms, it will increase because of the increase in outlets.

The only other significant change in the cash balance -- the only other significant difference, sorry, was the change in the cash balance, which I've already been to in detail. So overall, our net assets increased by GBP 102 million to GBP 1.6 billion and net asset per share amounted to GBP 4.50, up from GBP 4.01.

Now finally, I want to talk about the plot cost on the balance sheet. Our owned and contracted plot cost increased by GBP 1,000 to GBP 74,000 and remains 19% of the average selling price of private legal completions in 2019. It's lower than the GBP 82,000 eliminated in cost of sales due to the reduced number of inner London plots.

And with that, I'll pass you on to Matthew to talk about operations.

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Matthew Brennan-Pratt, Redrow plc - COO & Director [3]

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Whilst this is my first results presentation since being appointed as Chief Operating Officer, this is my 16th year with Redrow. In that time, I've had a number of senior management roles including Regional Commercial Director, Managing Director, Regional Chief Exec for the North, Central and South.

I intend to cover the areas of land outlet. So there's some further operational successes highlighting how our long-term strategy are differentiating Redrow from the competition and delivering value for customers and shareholders.

I'll then hand back to John who will conclude with our strategy and the market outlook.

Okay. Firstly, the land highlights. The market remains attractive with plenty of opportunities to purchase quality land in good selling areas where our customers want to live. However, we continue to remain cautious of land acquisition, and we'll continue to do so until the wider political uncertainty is clarified.

In the year, we acquired 7,371 plots, of which 2,909 represented nearly 40% of pull-through from forward land.

As highlighted in our previous year's presentations, we continue to target larger sites. In the year, our average size was circa 200 plots, which is a strategic advantage of relieving pressure on replacement sites and ultimately slowing down the number of closing outlets. Larger sites also have a benefit due to our scale, have been easier to create better places to live and the design is less constrained. Our customers are choosing Redrow because of our distinctive, beautifully designed homes, great street scenes and the creation of thriving local communities.

The current landholding has increased by 936 plots as we continue to take a more cautious approach to land acquisition. It is worth noting that despite our caution, the current landholding provides around 4.4 years of supply as of 2019 completion rate.

Even with our success in [drawing through] forward land in the year, we've increased our overall size of our forward landholdings from 30,700 plots to 31,500 plots. The number of allocated plots has decreased in the year as most of the pull-through has come from this category. Overall, our forward landholdings remain strong and will continue to play an essential part in delivering the homes to business needs to maintain our overall growth projections.

By geography, the current land bank remains weighted to the South of the country and broadly in the same percentages as last year. Our forward landholdings remain strong in the North due to the origins of the business. However, we are continuing to search for more strategic opportunities in the South. For example, John will shortly cover our new Thames Valley division.

Our current landholdings in Greater London continue to fall in line with our expectations as London continues to be most affected by the political uncertainty around Brexit and the end of Help to Buy in 2023. We are particularly cautious about future investment unless we can derisk the investment with either PRS or partnership agreements.

The growth in forward landholdings in London relates mainly to a reassessment of our current strategic land and what we can realistically deliver on the addition of a joint venture deal in Brentford. The current estimated GDV of our current and forward landholdings is approximately GBP 20 billion.

Average outlets has increased in the year from 124 to 126. We forecast an average of 130 outlets last year, but due to a more cautious approach to land buying and the ongoing planning delays, this has reduced to 126. Looking forward, we expect to have an average of 131 outlets for next year and already have the sites to achieve this subject to the planning process. And it should be noted that will -- this will include a number of larger sites from which we expect to deliver the same number of units as previously forecasted.

Overall, for the year, we had a 3% reduction in our net reservations from GBP 1.73 billion to GBP 1.67 billion. Last year, the private sales rate was 0.7 compared to 0.66 this year. This is partly due to the number of outlets being lower than expected and as previously announced relating to last November and December when the market was affected by heightened Brexit caution. We saw a steady improvement from January 2019, and this momentum has since been maintained.

The private order book in the year-end was GBP 720 million. The total order book was just over GBP 1 billion, was lower than last year but still very strong at almost 50% of the 2019 turnover. At 16%, the cancellation rate remained broadly similar.

We are leading the industry in the use of technology, not just improving the company's customers' experience but ensuring quality, reducing cost and creating efficiencies. Our IT systems have been designed in-house and are completely integrated together to ensure a seamless flow of information between customers, colleagues and subcontractor partners. The value this creates within the business and the cost of supply chain should not be underestimated. We continue to invest in quality control. As introduced in the last Capital Markets Day, we have now successfully tested and completed the full introduction of our new iPad-based quality control system. This system allows our site managers to efficiently carry out build inspections on all points during the build process, therefore, improving quality and reducing costs. The accumulated data including

photography, identifies common faults and specifications to prevent repetition as well enabling us to share best practice across the wider business. This system is also a valuable training tool.

Over the year, we have seen build cost increases of between 3.5% to 4%, as nearly 80% of our homes are from the award-winning Heritage Collection. We have an accurate process of reviewing our build cost across the country.

In the main, our subcontract base remains stable and our labor prices seen little movement. Margin cost movement is related to material increases, increases in supervision to improve quality or health and safety requirements to ensure safer systems of work reflecting our commitment to constantly raise in health and safety and environmental standards.

Looking forward, we expect build cost inflation to reduce and are anticipating 3% to 3.5% build cost inflation in 2020.

The technology strategy was being replaced for a number of years and has resulted in a sophisticated level of integration -- integrated services and capabilities. Unique in our industry, is now delivering significant efficiency benefits for the group, customers, partners and colleagues.

Our investment in systems, controls and training has delivered notable customer service success during the year. We were pleased to be awarded the HBF 5 star award for customer service. In the most recent published 12-month rolling score, we continue to trend above the 5 star builder status with a 92% recommendation score.

Redrow created another industry first when we launched online reservation, completely changing the way our customers reserve their home, saving time, strengthening compliance and vastly improving their overall experience. Our new system allows the customers to review all the information they require in the comfort of their own home at a pace they are comfortable with, being able to dip in and out of the process until it is complete. Once they have reviewed all the information and agreed to sign the relevant documents online, they can progress to paying the reservation fee and securing their property. This process is time-restricted currently to 5 days. And they cannot simply try and reserve home without it being released due to reserve by our sales team.

These are notable achievements but not the end of the journey. We continue to strive to better and become more widely recognized as a house builder that constantly delivers the best customer experience. This will be key in our strategy to capitalize on the opportunities we have identified within the secondhand market.

And for more on that, I'll pass you back to John.

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John F. Tutte, Redrow plc - Executive Chairman [4]

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Thank you, Matthew. And let me now wrap up the presentation by touching on strategy and outlook.

Given the current political and economic uncertainty we face, I would like to say a little about what we're doing to ensure that we continue to deliver first-class homes for our customers and excellent returns for our shareholders.

To start, it's perhaps appropriate that I put the market and trading conditions into perspective. The overall housing market has been subdued for some time and as this chart published by HMRC shows, transactions have reduced in recent months. Brexit uncertainty and its potential impact upon the economy is understandably making many buyers think twice about committing to moving, and the high cost of doing so are a real barrier, with stamp duty being very expensive particularly at the higher end of the market. I very much hope and speculate it, the government will, at the earliest opportunity, reduce stamp duty to stimulate the wider housing market and give a boost to the economy.

New home sales have remained resilient helped by the support of Help to Buy. We are seeing an increase in the uptake of Help to Buy, especially in London. The changes to the scheme proposed in 2021 will least affects London but the ending of the scheme in 2023, however, will most affect London unless some transition arrangements or an extension are put in place.

The secondary market is an important part of our business, so any measures the government takes to stimulate the wider market will, of course, be a benefit. This said, even in these subdued times, the secondary market is 4 to 5x the size of the new and offers us a large pool of buyers.

Our strategy is to tap more into this market, which as well has given us more buyers to target, will also see us through the transition to trade in a post-Help to Buy era. Our Heritage Collection is designed to attract customers that wouldn't ordinarily consider buying new. It appeals to a broad range of buyers and is recognized as having the character that so many buyers of secondhand homes desire. Our homes are more spacious, they have higher ceilings, higher doors. We predominantly built 2 stories, and there are options that allow customers a degree of customization.

But more and more buyers are not just being interested in the new home buying. They're also equally interested in the neighborhood in which they live. Over recent years, we have built on our reputation of designing great individual homes to also ensure collectively that make great places to live. Our developments now focus more on healthier lifestyles and getting people closer to nature. To achieve this, earlier in the year, we published Designing a Better Way to Live, a comprehensive guide for our teams that sets out 8 principles of the core ingredients to make our developments great places to live. The guide is also a pragmatic response to the government's growing interest in design quality.

Our key strength is undoubtedly our product, and it will continue to be at the center of our strategy to grow. And that growth will come from our divisional businesses. As Barbara said and Matthew mentioned, we've recently opened a new office in the Thames Valley area, based in Oxford, where we have been successful in putting through a number of forward land opportunities and we have other major allocations in the pipeline.

London is our most challenging market, particularly given the capital-intensive nature of the schemes and the potential impact of Help to Buy finishing in 2023. We have been cautious in the London market for some time and there are few, if any, indicators that we should think differently. We are consolidating our operations into 1 center based at Colindale, and we will continue to manage our exposure through working in partnership and negotiating private rented scheme deals where the returns are attractive.

Our current divisional structure has capacity to grow to circa 8,000 completions a year.

We have, over the past year, expanded the Harrow Estates team. They now share a second office with our colleagues in Thames Valley. Harrow Estate is very much focused on managing the group's forward landholdings, which have proved to be a valuable source of land for the business in recent years.

And finally, let me take you through the outlook and the first 9 weeks of trading in the new financial year. As I said earlier, the new homes market has been resilient and remains stable supported by Help to Buy. Mortgage availability is good with competitive pricing, making homes by most historic measures affordable.

As Matthew explained, outlet growth has slightly stalled in the consequence of both a more cautious approach to land buying and negotiations and ongoing planning delays. The impact of this, together with lower revenue from London which Barbara mentioned earlier, will mean turnover will be more than usual weighted to the second half. On a positive note, our shift to trade for more larger sites does mean we're able to offer a broader range of product in these developments, which is delivering a stronger rate of sale. This is reflected in trading over the past 9 weeks.

Reservations in terms of values over the period are 5% ahead as a result in the sales rate running at 0.69 sales per week per outlet compared to 0.65 last year. In addition to this, we have secured a further PRS sale at Colindale Gardens for 347 apartments.

With a relatively strong order book, a healthy balance sheet and a great product that is central to our strategy, Redrow is well positioned to counter the headwinds and deliver another year of growth. Thank you.

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Questions and Answers

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Ami Galla, Citigroup Inc, Research Division - Senior Associate [1]

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Ami Galla from Citi. Just 2 questions from me. The first one, you've touched upon your cautious approach to the land market. I was wondering if you could talk a bit more on the competition that you see out there. And has that converted into land prices pushing up?

My second question is on the cost optimization measures that you had touched upon in the release. If you could give us some more color as to how do these impact the P&L over the next couple of years?

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John F. Tutte, Redrow plc - Executive Chairman [2]

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Well, I'll deal with the first question and Matthew, you're going to do the second question. In terms of the land market, yes, we have been more cautious than -- what I said -- yes, and part of that is negotiations. I mean one of the reasons we split some outlets is we had a bit of a dispute with the landowner over valuation, which held back aside for many months until we got to a position that we were happy with. And so I think what we've seen in the land market is generally, as Matthew said, there's plenty of supply and good opportunities, which we can acquire them at the right returns. I think there is a bit more competition for smaller sites. I think that might be that's -- there's a great stock craze in there about other than ready sites and people wanting to increase their outlet numbers so they tend to be targeting some smaller sites. And that's probably put a bit of pressure on the prices on those. And we have, periodically, I will say, it doesn't seem to be consistent this, but we've seen housing associations dip in and out of the market and where they do come into the market, they do bid very strongly, I would have to say. So I mean that -- hopefully, that sort of gives you a bit of flavor on where we are in the land market. So Matthew?

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Matthew Brennan-Pratt, Redrow plc - COO & Director [3]

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With regards to cost savings we're looking at the moment, obviously, we're trying to focus really the teams on individual items and the things that we're looking at the moment is pretty in line with supervision. We're trying to drive that down. Waste is a big one across the whole industry. Obviously, it's not just the cost of taking it away, but it's obviously also the cost of what goes into the skips and the likes. And so actually, it's probably a lot more complicated to drive down the cost on waste than you think, because actually the reality is you need to get your hold of supply chain involved and then make sure that the savings that you can provide through reducing waste is actually passed on to yourself. So that's another area. And then the third area is obviously customer service. We know how much obviously it cost to retrospectively go through somebody's -- back to somebody's house and fix the fault. What we're trying to work on incredibly hard at the moment is making sure that we get it right first time and then there's obviously the customer satisfaction is key to us. So it's double win in the sense that we can obviously give a better product but also then obviously drive down our costs.

In terms of P&L, I think the reality is it's there in terms of supporting the margin more than anything else and therefore, obviously, I think we have not seen -- we're not predicting any difference or providing any changes to it.

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Glynis Mary Johnson, Jefferies LLC, Research Division - Equity Analyst [4]

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Glynis Johnson, Jefferies. Five for me [so bold]. Five, maybe. Your reservation per site per week of 0.69, is that constrained by build, is that constrained by demand? And if you could give us any sort of color around that.

Your cautiousness on the land market, is that in a bid to preserve intake margin, or is that because, actually given the uncertainty, you want a higher intake margin because of contingency?

Your rates both on completions, I wonder if you can just break down how you get there. Is it just your number of divisions times a 500, 600, used to be 600? West country, is that going to get ever up to the full level because it's a satellite, London is slightly bigger, how should we just think about the 8,000 in terms of the breakdown? The -- trying to appeal to the secondary market more, does that mean Redrow will start doing PX to any large extent at the very least?

And then the online reservations, I wonder if you can just give us a little bit more color on that. How much of that has been rolled out? Are you seeing, do you think, an increased level of conversions of people actually reserving? How many fail to get through the process, how many cancel after, just anything that would give us just an evidence of how well that's working because I think you're as one of the few, if only, that do it, and so it'd be lovely to hear your experiences.

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John F. Tutte, Redrow plc - Executive Chairman [5]

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All right. Okay. Reservations per week, I think it's probably as much about demand as it is about build constraints, I'd have to say, given a simplistic answer. The land market, why we're being cautious. Well, I think to understand that we're being cautious at the moment where we are politically and what the economic outlook could be depending on where they end up with Brexit. So we've been cautious for some time. We are very protective of trying to maintain margins. So we'd be reluctant to dip into the market and try on the basis of just simply increasing the number of outlets on the back of buying at prices that we don't think are justified. So I think that's where we'd be on that.

In terms of division, the 8,000 were -- tends to be predicated on roughly, probably about 600 units per division. The growth is principally going to come from -- clearly, we've got Thames Valley division, it's just opened. Equally our Eastern businesses got a quite of a scope to expand. Margaret -- Barbara mentioned earlier that...

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Barbara M. Richmond, Redrow plc - Group Finance Director & Executive Director [6]

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Probably a bit more again?

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John F. Tutte, Redrow plc - Executive Chairman [7]

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Yes. Barbara mentioned earlier, I think when we're talking -- I've lost my words on that now.

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Barbara M. Richmond, Redrow plc - Group Finance Director & Executive Director [8]

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I'm lost, too.

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John F. Tutte, Redrow plc - Executive Chairman [9]

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Yes. Yes. Yes. But we're still talking about the divisions and number of units, I think.

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Barbara M. Richmond, Redrow plc - Group Finance Director & Executive Director [10]

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Over London.

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John F. Tutte, Redrow plc - Executive Chairman [11]

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London. London. Sorry. I think Barbara and Margaret both said that it's going to be pretty flat. Your point about the secondary market, I think I would point out to you that 2/3 of our business is the secondary market anyway, and our PX level is very low and we're very disciplined about it. And I don't really see us going forward with increasing our PX exposure to be quite frank.

Online reservations I think are probably -- Barbara, probably it's best to talk about what we've done in terms of online reservations.

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Barbara M. Richmond, Redrow plc - Group Finance Director & Executive Director [12]

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Yes. Yes.

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John F. Tutte, Redrow plc - Executive Chairman [13]

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And the advantages.

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Barbara M. Richmond, Redrow plc - Group Finance Director & Executive Director [14]

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Yes. So we, with online reservations, it is the full legal reservation. So you go through and you go through all your plots, you go through with signing off all the legal documents, so it isn't just, I'd like this house and I'll come in and do the reservations. Every legal stack, including finally paying the reservation fee. And we piloted it initially on 2 divisions and it was very, very successful. And so we're now live in every division, except London. London about to go live. But every other division is live on all new phases of sites, existing sites. And obviously, we're not going to do tail-end sites and brand-new sites. And so far, it's been incredibly successful. We've had a significant proportion of reservations done online now. It's less than 50%, but it's still a significant proportion considering we've not been live very long. And customers are really happy with it. As Matthew said, they've got 5 days to do their reservation once the plot goes under offer. People are definitely doing that legal work often in the evening when our offices are closed generally, and they doing it pretty quickly. So it's definitely ensuring we maintain that retail momentum. Customers are enjoying the process, they enjoy coming into sites and speaking with the sales consultants as well. But to have that freedom to go away and just do all that legal paperwork, which takes a long time, online with the family at home. I mean, we've lots of anecdotal evidence, particularly from families with young children where they said, it's been an absolute delight not to have to try and look after the kids while going through all these important legal documents in the sales office. They can do that at home where they put the kids and they can play around, do what they want and the parents can sit down and do the legal paperworks. So thrilled to pieces with how it's going so far, and I'm sure it's going to be a major tool for us going forward.

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John F. Tutte, Redrow plc - Executive Chairman [15]

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The one that I would add to that, by the way, they helped us from a regulatory point of view because of any challenges after misunderstanding all the documentations there, they have all the plans that they can access all the time.

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Barbara M. Richmond, Redrow plc - Group Finance Director & Executive Director [16]

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Yes.

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Glynis Mary Johnson, Jefferies LLC, Research Division - Equity Analyst [17]

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Just to be clear, the price is negotiated before they go through that process, or it's just they tick the price, the list price and...

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Barbara M. Richmond, Redrow plc - Group Finance Director & Executive Director [18]

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Absolutely. It's before they go through that process.

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

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The price is set, so they know what price they're paying. They've already had that discussion. So any incentives that might be given.

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John F. Tutte, Redrow plc - Executive Chairman [20]

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Yes. It's not an auction site.

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William Jones, Redburn (Europe) Limited, Research Division - Partner of Construction & Building Materials Research [21]

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Will Jones from Redburn. A few as well if I could, please. The first, just exploring the issue of site numbers. Can you help us of where you are today and where you expect to be at year-end rather than just the average, please?

And then I think you had talked about hoping to be at around 140 this year. I think 131 is the number as things stand, and you've talked about land buying and planning delays as issues for that. But just to be sure how confident are you that there aren't any internal kind of shortcomings, if you like, in terms of over optimism by the local guys or whatever it might be because it has been a reasonably repetitive feature I guess over the last 2 or 3 years.

Second one was just touching -- just being sure that when you put together your land buying commentary for the year finished, did you broadly match the P&L gross margin, do you think, in terms of the intake margins?

And then the last one is just there's a couple of references in the statement to the issue of the price caps on Help to Buy from 2021. You talked about it at the half year in fairness, but perhaps you can just update us with thinking there and how that -- it might impact the business as things are done?

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John F. Tutte, Redrow plc - Executive Chairman [22]

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Well, Barbara do you want to deal with the where we are with outlet numbers, I mean with...

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Barbara M. Richmond, Redrow plc - Group Finance Director & Executive Director [23]

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Yes. Yes. I mean basically, if you look at 2019, as you say, we've closed on the lower number of outlets than we expected. So the outlet is 126, but we actually closed on 129. Our expectation in 2020 is that, that will grow, and we'll close on probably around about 134 outlets. And then from there on, obviously, we'll continue to see that grow. So that's our target for 2020. I think it's safe to say we've got the land to achieve that, so it's purely a question of planning.

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John F. Tutte, Redrow plc - Executive Chairman [24]

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The second bit was gross margins I think, Will. And we're happy that the land that we bought over the past year will support the gross margins that we've been showing in the business moving forward. And the last one I think was on price caps, wasn't it, on Help to Buy, which we have mentioned before. I mean we don't think these price caps are right and whether the government is going to change them or not, I don't know, which is why we really embarked upon this strategy, which is to ensure that we have less reliance upon Help to Buy for 2 reasons, really. One, it does get restricted to first-time buyers in 2021. And equally, the price caps, as soon as you get towards the Midlands and the North, are significantly lower than they are in the South, which doesn't seem to be right. So the price caps would affect us in the North and Northwest to GBP 224,000, and our selling prices in the Northwest is probably around about GBP 350,000, GBP 360,000. So -- but I would have hasten to add that actually, if we look at where we are in the last 9 weeks on Help to Buy in the North, it's a significantly lower proportion than it is in the South. So in places like Northwest business in Help to Buy, we got a 20-some-odd percent rather than in the figure of 40%. So yes, I mean it's focused on lines, put it that way. And I think we're happy with the strategy. We've got to deal with it.

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Christopher James Millington, Numis Securities Limited, Research Division - Analyst [25]

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Chris Millington at Numis. Firstly, at this point you're making about talks in the secondhand market. You've always spoken about charging a premium price relative to have a new home builders because of the product you produce. Where do you think that premium is to the secondhand market at the moment? That's -- maybe I can do one at a time, it's up to you. I mean, I haven't got a lot -- I'll do one.

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John F. Tutte, Redrow plc - Executive Chairman [26]

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You haven't got 6, have you?

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Barbara M. Richmond, Redrow plc - Group Finance Director & Executive Director [27]

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Yes. You haven't got 6. It's not a competition.

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Christopher James Millington, Numis Securities Limited, Research Division - Analyst [28]

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Planning issues, exactly, what's going on there? Is this getting first-time consent or is it reserve matters, et cetera? And then just a quick comment around London pricing, maybe Central and Outer?

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John F. Tutte, Redrow plc - Executive Chairman [29]

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Okay. Yes. Premium against secondhand market. Do you know it's very difficult to measure that because it's a secondhand market, because we do see people trading up on our sites. So if they've got Redrow house about 2 years ago, then probably the premium, we're going to go over and above that, it's not going to be a lot. But the premium against perhaps a house that was built in the '80s is going to be more significant for a whole host of reasons. One is the argument is we are in a less -- few -- lower maintenance cost, lower running cost and everything else. So I think when we look at it, I think we would expect to get at least a 5% premium in the marketplace against it. That's a very generalized comment against where the secondary market would be. But I think if people look to the potential savings, on energy savings, et cetera, then you can justify that. So that's why we're concerned.

In terms of planning, I mean we sound like a broken record on this, but it doesn't get any better. And it's particularly, what I would say, the reserve at this stage is not necessarily the principle of planning in the first place. It's just trying to get through all the bureaucracy and the very good use of planning committees as well. We will just -- we had a scheme up in that which we spend ages consultation and everything, one counselor made an objection. So we decided to defer it for a month. So that's the sites come back for another month and you never know -- confident that when it gets to committee next time, we'll get the consent. So it continues to be very frustrating. And the one thing we will do is because our product is central to us and what we will not do and resist is being forced to change that product and people trying to tell us that we should call it differently. So we probably don't make life easy for ourselves, but we believe that's important to the integrity of the product and the brand really.

And then London pricing, we really haven't got anything in Central London left, we're out. But there has been (inaudible) on pricing in Outer London. And some of that, by the ways, is not necessarily what I would describe as market-driven. It's valuation-driven. Some of the lenders have gotten nervous about Help to Buy and what the impact might be when Help to Buy finishes. And that some values of the opinion that Help to Buy is perhaps not necessarily supporting the new homes' price, but it might be depressing the secondhand market at the moment as people, they got a choice. If you got GBP 0.5 million to spend, do you go and buy a new one and be able to get 40% free loan from the government or you're going to spend GBP 0.5 million on the second hand one? So there is some issues with pricing in Outer London a bit of pressure, which I think is more to do with where value is at, not necessarily where the market is.

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Christopher James Millington, Numis Securities Limited, Research Division - Analyst [30]

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Just a question a little bit there, John. Are we talking about a couple of percent something like that? I mean I'm just trying to get a feel of the magnitude.

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John F. Tutte, Redrow plc - Executive Chairman [31]

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Yes. It could be that. It could be a bit more than in places. I mean what we have to do sometimes is we have to go and get another valuer because it's not necessarily a science, valuing. One valuer, tell you one thing, another valuer will tell you something else. But again, it frustrates the process.

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Gregor Kuglitsch, UBS Investment Bank, Research Division - Executive Director, Head of European Building & Construction Research and Equity Research Analyst [32]

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Gregor Kuglitsch from UBS. I've got 2 questions. Just coming back to the margin outlook. I think I sort of heard stability is the overall message. I think there was a comment on cost savings and the intake margin. Just want to get the sense if that's the right message. Obviously, there's an HPI versus cost angle there as well.

And then secondly, just going back on London, specifically, Colindale, can you just tell us where we are in the scheme in terms of how far we're through? And I think you were kind of suggesting that you're not really buying any new sites as we go forward into '22, '23. Does that part of the business actually become substantially smaller because you're obviously not putting any new sites into the pipe? I'll stick to 2 lower the average.

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John F. Tutte, Redrow plc - Executive Chairman [33]

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Okay. Barbara, do you want to deal with the margin?

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Barbara M. Richmond, Redrow plc - Group Finance Director & Executive Director [34]

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Yes. I would. I mean I think we've already made this comment, that there is margin pressure because at the moment, with 4% build cost inflation and house price inflation running at 1.5% to 2%, there is some margin pressure there. And that could be up to 50 basis points on the margin. Now I think with the cost measures that we're taking that's going on with the mix of product that we've got coming through, I think we believe that it is possible that there could be some margin degradation in 2020, but it won't be substantial. So I think I've said to people, maybe 10 or 20 basis points is what we think at the moment on where we are. So there is some pressure. And I think we think build cost inflation may start to come down, as Matthew said, in calendar 2020. So overall, we think that we can mitigate most of what will be potential margin pressure. Social should settle at a relatively leveled number. So I think there's some pressure there, but it's not huge.

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John F. Tutte, Redrow plc - Executive Chairman [35]

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I'll take the second question, which revolved around Colindale as much as anything else, where we are with that in terms of planning. Colindale, got an outline permission originally, and we now have detailed consent on a significant proportion of the site. It was for 2,900 units. We've been chipping away and we're probably -- it's broadly broken down into 3 phases, not necessarily the same sites but the 3 substantial phases. We probably managed to fit 2,700 of the units on 2 phases, which leaves us a final phase, which is probably at the moment, just technically only carrying 200 units. We're expecting the numbers to increase by at least 800 overall. So it gives us more longevity I think on Colindale, which actually gives us some visibility with our London business because we've also got Row Hampton estate coming through. So those 2 schemes alone will take us through quite a number of years ahead and will underpin our London business. And we do that. We've got a commitment to London. We want to stop in London. We think it's probably the biggest housing market in the country, why would you turn your back on it? But it's hard to really make firm commitments at the moment bearing in mind where the uncertainties lie. So we're in a fortunate position I think of having, say, quite a bit of visibility, which will take us forward, maintaining all sorts of turnover levels and get out to GBP 300 million for some time to come actually.

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Barbara M. Richmond, Redrow plc - Group Finance Director & Executive Director [36]

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After 2020.

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Aynsley Lammin, Canaccord Genuity Corp., Research Division - Analyst [37]

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Aynsley Lammin from Canaccord. Just 3, please. First of all, just confirm that you haven't changed any of your behavior in terms of sense of you're offering or anything to get to the higher kind of sales rate we see out there. I mean is that just the market being strong as opposed to anything you've done in a more uncertain market to encourage sales?

And secondly, just on the special dividend. Should we see the 30p as a real one-off and not to be repeated for the foreseeable future. It doesn't sound like you plan a special dividend for FY 2020.

And then thirdly, just on the average selling price, you talked about the kind of big shifts in mix for the first half. Just wonder if you could give us some help if you take the GBP 324,000 average selling price, what's the kind of mix impact you expect for FY 2020?

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John F. Tutte, Redrow plc - Executive Chairman [38]

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I think in terms of sales right now, there's nothing there. I mean it's a like-for-like comparison. We said that some of these bigger sites tend to be supporting a stronger sales rate. A lot of that has to do with the broader mix that you can offer. So that's helping it. But no, we've not done anything else that really has driven up the sales rate. In terms of the special dividend and average selling price, I think Barbara can pick those up.

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Barbara M. Richmond, Redrow plc - Group Finance Director & Executive Director [39]

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Yes. I think it's fair to say, based on what I've told you on the cash flow for 2020, we certainly won't be making -- paying a special dividend in 2020. I think it's fair to say, it's difficult to say anything about going forward from that. If we did end up in a -- with a significant surplus in the future years as we did in 2019, then clearly, the Board is committed that if that surplus is ongoing, that we would pay that out. But the earliest you could do that is 2021 and we certainly won't be committing to do anything in 2021. But definitely not in 2020.

As far as average selling price is concerned, I think that the average selling price will move marginally in 2020. And the reason for that is the social going from 12% to 11% more than our private average selling price. I expect that the average selling price for private and social to remain the same in 2020 as in 2019. So that's the GBP 389,500 and GBP 145,000. It's just a question of mix that's causing the average selling price to rise slightly. And there will be a bit of a difference between half 1 and half 2 but nothing material.

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Jonathan Matthew Bell, Deutsche Bank AG, Research Division - Research Analyst [40]

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Jon Bell from Deutsche Bank. Just a question on your land creditor. Quite a significant unwind this year. I just wonder whether there's something lumpy in there.

And then secondly, really by extension, can you still get those deferred terms in the market when you're buying land?

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Barbara M. Richmond, Redrow plc - Group Finance Director & Executive Director [41]

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Well, obviously, there are some lumpy numbers in there. It's just the way timing for us. With deferred land payments are a bit like apartment schemes, you just get so many -- it just happens that we've got several in this one particular year. I think we can get deferred terms on land, and we are getting deferred terms on land. It's just the way things have fallen this year. And it's fair to say that we have taken our usual prudence on our forecast on land buying in terms of how much defer we get. We might get a little bit more than that. But I think in the current political climate, we shouldn't be assuming that. Anybody selling in London at the moment is keen to get the cash for it, to be honest. So I think we should see land creditors pick back up again. If you're asking me is 20% to 25% the new norm when we're targeting 25% to 30%, no, it isn't. It's just the way the timing's fallen this year with lower land buying combined with these deferrals from prior years coming through. John?

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John F. Tutte, Redrow plc - Executive Chairman [42]

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I think in terms of the land market, one comment I would make is that we are more cautious and equally landowners have become more cautious because of potential tax implications as well. So we are now -- something is in there. It's happened in the past but now reoccurring. Some landowners are talking to us about tax planning, which is making some differences when payment terms might be made in tax years, et cetera.

Okay. I think that's the lot. So thank you very much.