Peter Redfern - Group Chief Executive & Director Chris Carney - Group Finance Director & Executive Director

Aynsley Lammin - Canaccord Genuity Limited Gavin Jago - Peel Hunt Gregor Kuglitsch - UBS Investment Bank Jonathan Bell - Barclays Bank Ami Galla - Citigroup Andrew Murphy - Bank of America Merrill Lynch Kevin Cammack - Cenkos Securities

Thank you. Good morning, everybody, and thank you for joining us.

As usual, just a sort of few opening comments to give you a flavor of what I think are the main elements of the statement and then we'll open up for questions. Just so you know, Chris and I are in different venues so we'll have to sort of be clear over the phone who's taking which bits of which questions.

Overall, I think if I spend the most time on the market, which is probably about people most interested in terms of the short term. In 2018, you can see a very stable environment, still.

I'm sure a number that you will have picked out most is the sales rate in the second half of 2018, which is about 8.5% ahead '17. That shows you that market is fine.

I think it shows you that we have the rightsize in right places, and we've been working hard to make sure product and positioning and pricing and everything else is in the right place, which I think we're very pleased with that performance in the context of the wider market, which is more flat. I think you can see from our statements, and what would surprise you from all those comments, Southeast generally quieter, but not massively different.

I think generally, overall, a pretty stable market. And overall pricing in that market roughly flat, when they combine the pricing and the order book, flat.

Probably up marginally from April, May just because of the follow-through of previous increases. But in the market today, yes, sort of very little movement either way.

And those sort of sales rates have not been achieved with material incentives or anything like that, sort of, I'm talking about net growth with all incentives imbued. Obviously, 2019 is reasonably hard to quote.

We're not looking at it truly, deeply worried, but it's felt to me, saw this before, that you should be sensibly cautious with all the wider uncertainty. I think going into 2019 with a stronger order book as possible has probably been our most important target for 2018, and those strong sales rates are sort of testimony to that.

I think we've always felt that sort of in more uncertain market that's when a longer order book really pays off, and making sure that sort of we've kept the focus on that has been sort of at the forefront our minds. And probably the slight disappointment in the numbers is the outlook, which is slightly down.

The single biggest reason for that is planning. It felt cheat to me just to put planning down there, because that always sees things as always sort of a long list of things, and so it's always easy to turn around and blame just planning.

This is more general sort of issue. But if you look at those higher sales rates, inevitably high sales rates tends to be you close out with slightly quicker, and that's also a factor.

Another thing just generally once you have planning, as we've said many times, getting sites opened through the commencement conditions in the early stage of infrastructure takes longer than you would like. We do expect the outlook to increase during 2019.

But I would say, and it goes back to our strategy conversations in April, May, there is undoubtedly some elements that sales rates outperformance that is down to that strategy. And we do see that as payment balancing position with the outlook numbers.

So whilst we see growth, we also see the potential for us to manage sales rates in a different way to historically maybe how we'll see of it that gives us a balance. So I still would not want you to be too focused on outlook numbers being the only driver of volumes in the market.

The land environment has remained benign. I would say, actually, and we haven't put an end in sort of black-and-white terms in the statement because it's sort of anecdotal, but I will say generally land environment is even easier than we have seen over the last couple of years.

I think we see definitely less competition from land promoters and some sales from land promoters sort of existing stocks, sort of competing in the strategic land environment. We have pushed our path because now hurdle rates just kind of - with the view of the overall environment and because of the land that's available.

And as we look ahead at the next 18 months to 2 years, we see a very good supply of large sites coming through our strategic landbank would give us quite a lot of choices. So sort of a combination of those 2 things has led us to push hurdle rates up a little more.

I'll come back to sort of outlook and margins and impacts of that in timing towards the end. I think, just touching briefly on politics.

First of all, obviously, to Help to Buy decision whilst - we're all nervous about the withdrawal of help around some levels. Our view is 4.5-year view of how long the incentive will last.

This is the opportunity to form our own plans for - to a certain extent the mortgage market adjust. And probably, most importantly, a chance for us to factor into that planning decisions in our land acquisition.

And that has been known factor in our view of portion of sort of longer-term hurdle rates. I think more broadly on politics, sort of, the focus for the last few weeks and inevitably the next few months is likely stay away from sort of specific [indiscernible] policy, which is probably from our sectors point of view not such a bad thing.

I think the land environment continues to improve. The planning changes continue to be positive, and that gives us a good environment in which to pursue our strategy overall.

And coming on to proper guidance, we've been very explicit in the statement that 2019 volumes are expected to be flat. That's not such particularly meaningful change.

I don't think we ever expected much growth in 2019, as we came to the end of that, sort of, previous strategy. Yes, we might have expected 1% to 2% growth, but not much more than that.

I think as we look at 2020 and 2021, particularly as we see those strategic sites coming through hopefully post-Brexit, to kind of bounce in the market. And even without that, we have the potential for growth coming from our landbank that we see coming through.

Yes, and that's more meaningful growth that we've seen during 2018 and 2019, which is always going to be for us relatively flat in volume terms. I think looking at where the balance of costs and price sits, we haven't and we wouldn't normally give you cost guidance into 2019.

We've touched on it in the statements, the increase 4% in 2018 is still being made a pretty reliable number. I would say, on costs, the risk is probably on the positive side going into 2019, but I'm not going to put a number on it quite yet.

But hopefully, a little bit better than that 3% to 4%. On selling prices, I think at the moment kind of base case is pretty flat.

I mean, so as we come out of the year and now pushing the order book quite over its potential, but I think we - the sensible position at the moment is to see pricing as overall flat. I think the underlying prices, the mix sort of effective prices for us - for going into 2019 are probably 1% to 2% up from mix and regional changes, but not very much.

So the margin impacts sort of pricing flat, so then the quite the impact on underlying average selling prices is about 1% to 2%. I think as we look longer term, we do see potential for margin improvement for all the quality of the land purchases over the last couple of years, but coming in, sort of, 2020 and particularly 2021 rather than in 2019.

Chris, is there anything you would like to add?

No. No, nothing to that, Pete.

Good. If we can open up for questions, please?

Yes. Just on the, I guess, a bit of clarification.

You said a lot of bit just 2019. Reading into what you just said, are we right to kind of assume a little bit of margin pressure?

So at this point, when you look at consensus PBT kind of flat at best for '19, is that what you are saying? And I think consensus PBT for FY '18 is about 80 60?

And then secondly just maybe a bit more color on the comments around the - you've seen a bit more caution if you talk regionally, what does that mean in terms of prices being chipped away at a bit in London, South East? Is there a particular price point, is it GBP 600,000 where you're seeing that caution?

Just a bit more color there would be helpful.

Yes. No, I think on the sort of the first comments.

Yes, I think that's pretty fair. A little bit of margin pressure, but I really wouldn't overplay it.

But obviously, if you talk about some costs inflation, probably a bit less than 3% to 4%. And flat selling prices, except for the kind of carry through, sort of, price inflation, that results in a little bit of pressure.

Is that 0.5%? It's in that sort of order.

And I think, yes, if you do the math on what we've talked about on costs and selling prices, you probably say it's a little bit more. But I think we're still then benefiting from the sort of high margin land purchases of 20 - sort of late 2016 through to 2018 starting to give us a boost, which gets a bit stronger in 2020, '21.

So that offsets sort of the more of a shorter-term pressure. So yes, now a little bit of margin pressure, but fairly, fairly small.

And then sort of color on the market, it's - I'm happy to talk about it, I would - it's quite hard to talk about the sort of the [indiscernible] in the marketplace. Again, sales rate is 8% up, because actually if you looked at most of the statistics, if you looked at cancellation rates, and even if you look at things like conversion times, they all look fine.

So it's more about the conversations with individual customers, sort of slight changes in the mix of customers. Overall prices flat, but that might be - but again, somewhere a bit incentive somewhere else if you think moving along.

So there isn't one sort of overall pattern. I would say, generally, you are seeing some more softness in higher price points and therefore particularly in London in the South East still, but they're new trends.

But sort of still that same trend. I wouldn't say it's dramatically different.

I think sort of bit [indiscernible] kind of London and South East is really tough and everywhere else is [indiscernible] completely overstates what we're seeing. We're having to really focus and to get the sales rate [indiscernible] so a risk you reading that as having to reduce prices, hence the sort of the firmness to know prices are flat.

We're having to make sure that we've got our sales people on some the products and the positioning of each site really in the right place. And it's been a relatively sales - easy sales environment for quite a number of years, and we've been very conscious throughout 2018 in making sure we're all disciplined around quite some people are very sharp is important.

So I think the world is - if we look into [indiscernible], we see that as being the biggest change from the first half of 2018 to the second half, if you [indiscernible] that actually a lot of the work we were doing early on in the year just get people really sort of sharply focused is paying off, rather than that it reflects the underlying market.

So just a couple for me, please. First was just around from the mix within the forward order book, just in terms of private versus affordable.

Is there any kind of real change in there? And just if you could give us an update on sort of build cap - your build catch-up from earlier in the year?

Obviously, you have some delays. Where are you?

And how confident are you in terms of that catch-up at this stage?

Yes. I think on the sort of build catch-up, as we've said in September, sort of the weather delays kind of largely cause is over and the summer, so we feel reasonably comfortable with where that sits.

In terms of mix shift in the order book, there is a slight shift towards affordable, which was particularly low at the end of '18. If you remember, it was sort of recent year low, but the balance hasn't particularly sort of shifted in a significant way.

I think probably the one though, which does affect the average selling price is and is been a trend for last 18 months and nothing new. But that Central year out - our Central London business is coming to the end of it sort of size that we're bought before the - yes, sort of market started to change.

And the newer sites that we brought like Mount Pleasant are now selling and selling well. But since it's going to replace the order book, so the mix is Central London, then the order book is lower.

And the contribution we expect from Central London in 2019 is sort of less. But that's kind of what we would expected 6 to 8 months ago, so it's not new.

But yes, that definitely just changes the mix of selling price in the order book slightly.

My question is just - can I sort of push you a little bit on the hurdle rate comment on the land. So you've kind of given us a sense what you've kind of increased by recently?

And I guess, specifically, I think you were alluding to the fact that you're kind of integrating the end of Help to Buy. Obviously, we appreciate that's now, five years or so out, but interested to know how you think about the impact of Help to Buy on the sort of margins and therefore as a result how you think about bidding for new land as we sit here today?

Yes, I think - I'm happy to answer both parts of the question. But I'll exercise caution on the first one because we're seeing a set of land environment conditions but sort of whether there's probably more caution from the wider land market than we see them sort of in sales and customers.

So we're making sure that we take the maximum advantage of that and pushing it a bit harder. So as I have said before, I wouldn't necessarily see those margins as being sustainable land purchase margins than the right point in time.

So - and that's probably 1% to 2% higher than we were looking at 3 to 4 months ago. So in the 22%-plus range.

I think in terms of the impact of Help to Buy, it sort of - we obviously can see the impact. I'm sure you've asked others about what the impact we think the regional caps have.

I think probably about 15% of that Help to Buy sales would be impacted by those regional caps. But I think we would feel reasonably comfortable that those 15% - more than 15%, they were all more likely to able to happen without Help to Buy anyway.

So more about that level in terms of the two-year extension. I think it's more about making sure that you have the right product focused on the right parts of the market, if you're assuming customers are going to use Help to Buy in those two years.

I think we feel that 2-year extension is a real two year extension and the impacts of the caps, apart from the odd high-value site in sort of some of the regions with lower caps, where those are the choices that you can take anyway. The impact of those sort of price caps is very manageable.

I think what is interesting, in fact, kind of longer-term piece that sort of 4.5 years out, we've always argued the [indiscernible] question there around forever, so that we can't really complain that it's not around forever. And I think sort of some of the things we were talking about back in April and May, we've now got time, so to really look at.

We've got a sort of a real timescale on the end of Help to Buy, and making sure that we adjust that part of mix, make sure the sites that we buy that are heavily sort of helped by the [indiscernible] moment they go outspend and we've reflected that either in product or in pricing. And I think the particular areas where I think we need to careful, not the least expensive products or the most expensive products is the mix ground, but it's tending to buying further up in the market, a bigger home or a better location than they would have otherwise have afforded.

I think those are the ones we need to be careful of. We have pushed up hurdle rates specifically in those areas for most sort of products.

But I think over the course of next sort of few months we'll really be working out what that means for product positioning strategy 4, 5 years out. I don't think now is the right time to talk about it.

But whether through the prelims or the half-year, probably a bit of both then I'm happy to give you our views in a bit more detail.

Couple for me. Firstly, I think you just hinted that Mount Pleasant sales have been progressing quite well.

Just wondering whether you could give us some extra color around that one? And then secondly, apologies if I missed this, I was slightly late dialing into the call, but on your 2019 volume guidance volume being broadly flat, is that the result of the open site numbers that you're currently operating?

Or are you building in a degree of caution about how the start of the next calendar year takes off?

I absolutely decided it before you asked the question, John, if I possibly could, I should get Chris to answer it, because we're at different places. So Chris, you having to take the Mount Pleasant one and maybe talk about 2019 volumes as well?

Yes. Yes, absolutely.

So we started on site, I think back at the end of July, Mount Pleasant, and we launched in September. And we've seen really a very pleasing start both in terms of the volume, both sales and also the pricing.

I think one of the previous questions touched on the overall number of sales that we have at different price brand and even with that good start at Mount Pleasant, the - we're still only talking about 3% of our sales, either in the first-half or in the preceding period, have been round about 3% or above GBP 600,000 . But yes, in terms of Mount Pleasant, we're really, really pleased with where we are with that.

In terms of the volumes then, I think we've approached the view for next year based on current market conditions. It's pretty difficult to take a view of all that politics at the moment and what that might bring.

So it's purely based on the dynamics of both the order book and the outlet and the sales rate that we think we will drive in the current environment.

Just two question for me. I mean, one, I just wanted to understand a bit on the underlying run rate on inflation?

I mean, to what extent - and I think that's reflective of the overall market, but if you can give a bit more regional color across the sites of this order inflation that you've seen in the sales that you've taken in the autumn selling season as well as just a follow-up on the inflation aspect is, have you seen lenders push back on pricing over the last 2 to 3 months? Has there been more caution in their lending practices that you've experienced?

Yes. I think from selling price inflation, I think we've been reasonably clear on the overall piece.

Over the last few months there's been negligible net price inflation. Flat prices - prices are very flat, and that reflects small ups and small downs, not big regional differences.

But there will always be a variations in there, but they're not huge. I think on lenders, no, I don't think we're seeing any pattern of sort of either higher value - greater valuation issues or changes in lenders' rates that are on offer or more caution kind of creeping in through the backlog with lenders.

I think lenders are in the same place. I don't think that's a combination of sort of lenders wanting and needing mortgage volumes and a flat secondhand market.

New build being sort of the price where via those mortgage volumes that are available. And I think a general view sort of lending on U.K.

house - sort of houses is still a good place for most lenders. So I think that makes it feel reasonably sustainable that it's a mix of both of those.

So yes, flat pricing and no sort of air of caution, particularly from lenders.

Can you just perhaps just give us a bit of a flavor around the sales rate? You've obviously kind of gave us the overall sales rate.

But can you strip out of that the private sales rates for the year-to-date and Q3, please?

Yes. No, I'm pausing slightly, I don't have both the split in front of me.

I can't tell you that, that sort of overall trend is similar to local private sales rates. So then if you happen to have them, Chris?

I think the private sales rates for the year-to-date across all 3 positions are remarkably consistent compared to the same periods last year. I think at the half-year the Southern two divisions were running slightly behind what were very strong comparables, which means that if the year-to-date is sort of now falling back in line that, that tells you that the period since the half year those 2 southern divisions have sort of caught up, which is obviously very pleasing.

And Q3 specifically, that's the picture there's been very solid trading across all 3 divisions.

Yes. Sorry, Andy.

And Chris sort of gave me a chance to think. I didn't give you the obvious answer because I wanted to check if some of them can be given and then feel really stupid very soon.

Those are private sales rates in the statement. The 0.81% is private - the private sales rate.

And so if you look at affordable sales rates, then they'd would either be higher. And I think I've been reasonably confident to note sort of the affordable order book was a reasonable low point this time last year and it is in a better place now.

The affordable rate will be - the difference will be greater.

Can I just follow-up the sales rate thing. Obviously, in the statement, you're pointing to 0.77% achieved in the second half, 9% growth and a fantastic number, really.

But essentially, you're selling off pretty much the same sites. You're not really - your branding - if anything, the underlying market backdrop is - has been sort of similar, maybe a touch tougher in certain areas.

And you've said today that the average selling price is broadly unchanged. And I'm just sort of wondering how you managed to get that increase in sales rate through the second half?

And whether that is - whether we should take that as more indicative of what you can achieve through '19?

Kevin, I mean, I think it's a fair question. I'll try to answer, but I understand that sort of the answer isn't sort of easy and black and white.

If you go back to May and sort of strategy launch, in its end, this is the [indiscernible] book probably the same. That we believe that with the mix of sites we have coming through, if we really thought about our delivery pipeline from a construction point of view and opened up our own people's eyes to what could be done from a sales point of view rather than people seeing it as high to some historic norm in a very different environment with very different qualities of sites and locations and with very different levels of local competition, then there was meaningful upside per site on those level of sales rates.

And in a sense that's one of the key components that you see here, and probably the biggest one in terms of the difference year-on-year. So we could see at that point already in some of our businesses sort of in particularly the South West and Midland regions, and we did spend some time really analyzing it, trying to work out sort of whether that was site specific, how replicable it was, what we could assume as being reasonable norms going forward.

If we dealt with those historic limitations on the construction side, I think what you see in the sales rate and what Chris and I have seen over the last week sort of week or so in terms of our own businesses volume forecast going into 2021 is a growing belief that actually that can be done not on every site, because some sites have local absorption issues, but in a more general sense. And so some of it is sort of very specific work on sales and skills and sales force.

Some of it is making sure that what have been historic build limitations are reduced at least, so that we're able to sell to a greater sort of capacity, irrespective to year, but our main limitation on sales rate has been our ability to build on that products. We've not solved all those problems overnight, we wouldn't pretend that we have.

But there is a significant component coming through and that I think needs sales rates in our views, particularly 2020 and 2021. I think 2019 is difficult, partly because we're in a transitional year.

We would definitely expect sales rate to be higher. And given what we're doing than we would have done it would've been somewhere around with our previous strategy.

But exactly where the base level will be is quite difficult to call because of the market. So that makes us a bit more sort of cautious.

And I think if we're going to 2020, 2021 we have potential for outlets to building and those higher sales rates seems to make it a little bit easier for us to be confident. So I know that doesn't quite answer your question, but it does relate it very much back to what we are seeing in May.

The biggest limitation we've seen over the last few years has been how we planned out our sites and how we set things up to be able to access that market that's there. And what you see in this is changing that making sure that the sales skills and the sales processes are as [indiscernible] as they possibly could be to make the most of the opportunity that are there.

All right. So to be clear, from your perspective there has been no change in the incentives that you've given either to your sales - your own sales people or indeed to the customers?

No, that's absolutely true. I think it's absolutely, categorically, true in every case in terms of our own people.

I think with customers you win from here, you lose from there, but that's always the case, but no overall change.

Thank you. And thanks, everybody, for the time today.

I mean, clearly, an interesting year at the moment, very pleased with 2018 sales performance, particularly. And I think the goal that we set out to go into next year with the best order book we can and with a strong balance sheet and strong land positions, we're well on track for.

So I look forward to catching up again early on in 2019.