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Earnings Transcript for PSMMY - Q3 Fiscal Year 2017

Executives: Jeffrey Fairburn - Group Chief Executive and Executive Director Michael Killoran - - Group Finance Director
Analysts: Gregor Kuglitsch - UBS Jon Bell - Barclays Will Jones - Redburn Chris Millington - Numis Chris Fremantle - Morgan Stanley Clyde Lewis - Peel Hunt Aynsley Lammin - Canaccord Genuity Glynis Johnson - Deutsche Bank
Operator:
Jeffrey Fairburn: All right. Good morning, everyone. We'll make it start. And welcome to the Persimmon 2017 results presentation. In the usual way, I intend to give you a brief overview followed by a detailed review of operations for the year. And now a view of how things are looking going forward. Mike will then give some details on the financials, and then we'll move through to Q&A after a summary. I am delighted to build a focus this morning on the excellent performance of the business. The numbers speak for themselves. I think we're really pleased with the top line growth at 9% revenue, operating performance ahead by 24% to GBP 966 million and the excellent margin improvement, which will give you a bit more color on later on. And a strong cash generation that we've produced during the year given us a net closing position at the year of GBP 1.3 billion. And the combined effect of that, given us a 51.5% return on capital employed figure for the year. And I think earnings per share also stands out in that respect to 26% in the year to 258p. The whole of the management of Persimmon is very focused in the business as you imagine on producing these results. And we're really pleased in the year to have exceeded 16,000 new homes, so good growth in the year. And we are maximizing our opportunity in a supportive market. The fundamentals are sound with excellent operating efficiency and I think, it's a good start of the year with forward sales revenue standing at increased 7.5% to over GBP 2 billion. Good free cash generation in 2017 over GBP 800 million, which was an 18% increase over the prior year. And this as -- the strong performance has enabled us to enhance the capital return further and so today, we're very announce a commitment additional payments of GBP 1.25 per annum in March or early April of each year for next 3 years on top of running dividend of GBP 1.10, which will be paid in July. So that equates to more than GBP 725 million of the cash return to shareholders for each of the next 3 years. On Friday, the executive team has advised reductions 2012 LTIP plan and our continued commitment to Persimmon for the future. So moving through to the review. I intend to give you a bit on the strategy, an overview of the business operations for the year, the land bank, which has performed very well, current trading the surplus capital position and then the outlook. So just to remind everybody of the of the strategy, the fundamental parts of this were to grow the business to optimal scale in the marketplace, control the cost effectiveness and cost efficiency of the business, which I think we've done very well, strong investment and disciplined investment during the cycle at the right time, leading to a review of surplus capital and the return of that surplus cash to shareholders. So as we say, we have got strong operational fundamentals and we've got a good outlook position. We've been attempting to grow that over recent years, but we are pleased we've manage to maintain that. We've improved infrastructure in the business, so 6 new operating companies in the last 3 years. Noting an opened in the beginning of 2017, which is now performing very strongly and quickly got up to speed. And we opened our new business, Ipswich and Suffolk at the beginning of this year. So expanding the network, given those opportunity to grow and maintain efficiencies as we go forward. And we believe that the operating companies can operate very well at around 650 units per annum. We've got the flex on that from 350 units. Of course, we can operate very efficiently. We've continue to target the more affordable end of the markets. So our average selling price is still at the lower end of the industry. And that is very much intentional. The lenders are very supportive of the new home building and there are some excellent mortgage rates. In fact the rates have continue to trend down slightly over the next 6 months. Demand remains very strong. And I'm also pleased to say that during the course of the year, customer care has shown good improvement, increasing the HSBC school rating by nearly 5% during the course of the year. So looking at the issues in the business. As I mentioned, we work really hard to meet the demand we're seeing, that we've seen during the course of the year, nearly 900 extra units lately completed to over 16,000 units. That really tight cost control, which Michael will explain bit more detail but we've concentrated on all aspects of the business to control that cost base and make sure that we can be as efficient as we possibly can, which is driving a very strong margin as I see, operating margin actually up 340 basis points in 2017 and still showing some further improvement as we have gone into the second half of last year. So strong fundamentals and good investment in work in progress. We are pleased to have invested not over GBP 100 million in work in progress, which gives us that platform that continues to grow the business. Looking at the regional performance, you can see the North has performed strongly with 7% completion growth in the year. Charles Church, similar pattern to previous years where we have reduced the volume of Charles Church properties given where we see the strength in the market and the position in all of our product in the market. But generally, a good picture right across the board. Partnerships are strong improved in volume during the course of the year but that's largely down to the timing of sites as they come on stream during the course of the year, and I think you can see from that the plot count in terms of land bank, how well we are positioned across the group to continue to trend strongly with a sustainable business into the future. So let's have a look at our land. I think the key future for me are still a very good supportive landmark. We are seeing excellent opportunities in the markets and we are keen to capture those. Our lower land cost are supporting further improvements in the margin. Again, Michael will give us bit more detail on that later. And I think the strategic -- ex-strategic content on landmark is important and enables us to continue to drive further value of the project. So we're very happy with the shape of the land bank, nearly a 100,000 plots, we've replaced over 17,000 plots in the year and we have actually strongly over GBP 600 million invested into land during the course of the year, which is quite a sizable increase over the prior year. So there's a lot of good value embedded in the land bank to give us confidence for trading into the future Persimmon. Strategic land is working well. We've got a really good team there. They are driving plan concerns through the system. And with good conversion rates as you can see, over 8200 plots converted in the year from 28 locations, the average size of the sizes are increasing. Again, another feature of the system over 300 plots -- unit plots per site of those sites that we pull-through in comparison on the market sties that were around about 2 plots per site. So that's a feature of the planning system at the moment. And actually is an issue for the industry in terms of delivery of volume going forward. We are producing more volume on the same number of sites, which does drive efficiency but also is a bit limited in terms of opportunity in the market for buyers and for resource. So I think good that we have managed to acquire more strategic land replacing the land we brought through. And closing the year at over 16,000 acres still held in strategic land bank. So we had a strong position for the future. I think looking at trading. We are encouraged by the start that we are seeing in 2018 all be it it's only 8 weeks of trading. we've seen sales rates up 7% over those first 8 weeks of the years so that's encouraging of a very similar number of that last in the prior year. But that's just the start of year there's still a long way to go. But it does give us confidence to invest, to continue to invest in the work in progress. But we have mentioned before the challenges are in how we manage to respond through build and we have a number of issues that are helping us to do that. But it is challenging. Space4 is certainly seeing good increases during the course of the year, producing good volumes for us both in House kits and also roof systems as well. And we expect to open around about of 100 new sites during the course of first half of this year. So looking at that forward sales position, we maintained that going forward. And as you can see, there is good revenue improvement year-on-year. But that gives us confidence to continue to move the business forward. I'd now like to turn to the return of surplus capital which is obviously a big announcement today. And we are very pleased to be able to announce the significant increase to the capital return plan once again. Last year, we've made payments of GBP 1.35 and to date, we've returned a total of GBP 1.5 billion since we introduced the plan in 2012, which is significantly ahead of plan. So today, we're pleased to announce that we are now more than doubling the value that return to shareholders over this planned period to 13 pounds per share, which as well as the running dividend of 100p per share paid in July each year we're also paying for the next 3 years, GBP 1.25 in late March, early April of each year. So a total of GBP 2.35 total per share per year or over GBP 700 million per year. We'll continue to review that on an annual basis. And we will report as usual going forward in that respect. And so how we are seeing the current market? The economy range is good. We are seeing good disciplined lending, good mortgage offices as I mentioned. And whilst the key challenges remain, 2 in terms of volume growth and construction, we see a supportive market and one which gives us confidence to continue to invest as we go forward. So the priority for the business now is to continue to invest in the outsourced network as we say, we have good sites coming forward, increase the construction further, there is a challenge. We continue with our more traditional sort of site and the standardization of house type is still delivering good results in terms of cost efficiency. And the investment in off-site manufacturing is important. We do anticipate further investment in Space4 as we go forward. We have our Brickworks manufacturing now, which is working of 2 shifts and we expect to move 3 shifts very shortly. So that will produce up to 2/3 of our volume of bricks going forward. And today, we're also announced that we have committed to building a roof tile manufacturing facility on the same site just south of Doncaster. And we expect that to be constructed during the course of this year and delivering tiles to our sites during the course of next year. And again, that will be sized to about 2/3 of our requirement. So that's an important feature really, as we try as Persimmon to control our ability to deliver volume going forward to de-risk some of the supply issues that we have been seeing over the last few years. But also, the skills aspect is important. It is challenging. Its -- we continue to try but it takes time to bring new skill to people through the system. So the incremental increases in production, we hope to continue to see as the industry continues to move forward. So that's it from me at the moment. Now I'd like to pass to Mike for further financial review.
Michael Killoran: Thanks, Jeff. In the usual way, what we're going to look at is key features of the trading. We'll look into the balance sheet in a bit more detail and the cash generation and returns and I think it's important to perhaps, just sort of track to the philosophy around the capital return. And the levels of cash that the business, certainly the board considers it as appropriate to hold, albeit that change depending on where we perceive we are in the cycle. And I wanted to comment on the LTIP unwind, the rear end of the section. So looking at the trading review. I think, I mean, Jeff has already touched on the highlights. I think the obviously, an outstanding element to the numbers is the gross margin level. And we'll see -- we'll have a look at that in a bit more detail in a second. And I think the growth of the business is all about growth, quality and cash generation. I think there are the three key headlines, which we would like to try and emphasize in terms of the focus of what we're trying to deliver with the business for shareholders. It's all about appropriate growth, to sustainable market share in regional market of the highest quality. Jeff is maniac about excellence in all areas. And I think that is something that we will continue to pursue. And the results of all that work will generate higher levels of free cash generation. And I think the margin level, the businesses is delivering record all-time highs as possible the delivery together with the 25% increase in pretax profits. Looking at the operating profit improvement year-on-year. Again, touching on those key features. Volume increase is obviously important, its cash generator and its on right. So to continue to grow each of our 30 businesses now in those regional market to sustainable scale is important. Market conditions provide us with firm pricing conditions. We’ve seen some growth as you can see in the headline numbers in the private sale market, which is most encouraging in terms of where the tone of the market is. Obviously, we understand the second hand market is -- appears to be a little bit more challenged at this point with the lack of instructions coming through. But as always, pricing in terms of new build, I mean, we all realize that we are price takers. We are not price setters. That is one of the basic fundamental principles of being a house builder. And indeed, mortgage lenders, valuers will look for H1precedent in the market to set pricing of security values for those, for the principal lenders in the market. So the lenders are always looking at the second hand market for a lead in terms of pricing. And I think that tightened regulation around lending should support hopefully, a more sustainable market moving further out in terms of the Bank of England provision that we have with the MMR and other movements, other changes that have happened over recent years. You can see the contribution of the gross margin improvement coming through that through year-on-year improvement. So why don't we now turn to looking that in a little bit more detail. 350 basis points increase in gross margin year-on-year to this record high of 3H1.3% for the business. That is delivered essentially, through a combination of 3 things
Jeffrey Fairburn: Efficiency savings.
Michael Killoran: And efficiency savings. So there are number of things. Space4, we've have increased the throughput and the output from the Space4 factory to over 6,500 units combined of kits and the roof systems. You know that translates into GBP 150 pounds, GBP 200 per unit on the Space4 volume becoming more efficient within the factory. We pass that on to the building operations. Space4 is isn't our profit center it's a supplier to the house building operations. Jeff is very keen to drive the cost efficiency in that manufacturing facility, which is then passed on to the house building businesses. And that translates into lower build costs. If you translate the GBP 150 to GBP 200 per unit improvement on Space4 over [606,500] units to [16,000]. Well, that sort of maybe 50, 60 quid a plot but all these little things you've got to keep on working very hard to deliver these operational gains. And this comes back to Jeff's mantra, operational excellence in every area. All adds up to deliver these sorts of performances. And that's why, Jeff mentioned Brickworks. Mentioned Tile Works. These are further steps in the our direction to support margin. We can't guarantee a further improvement in margin. But it supportive of margin levels of these sorts of levels because obviously, no one knows what the future holds and as we can see margin obviously, is the net result of a large number of drivers. So hope that gives a bit of color around the build costs, the fact that we are being very focused on every element of what we are delivering. The intensity of scrutiny within the business through our evaluation processes is very disciplined. And being a large group, we have got procurement opportunities, but equally, we've got benchmarking opportunities that we can compare best in breed of just, for example, skip higher. We know each business, how much each business plans on skip higher. And there'll be a question. Well, look if this business over here can achieve that cost, well, what's the problem over here if it's higher? And the management team is very diligent on scrutinizing down to that sort of level to make sure that when you throw all the bits of the jigsaw together, you get this sort of picture, which is one of fantastic delivery. And as I say, record high for Persimmon. I haven't bored everybody to death by now. I hope so. And operating margins managed to keep most of the gross margin improvement and operating margin level as you can see. And its again, it's a function of discipline around operating expenses. So I think the operating expense line continues to show the same sort of story. And looking at the balance sheet. And Jeff's has already touched about. I mean Jeff is very proud about the quality that's embedded in the land bank as we all are. I think the cost of revenue percentage is the manifestation of that. I think you guys all know that this is just but one dimension of margin delivery. It's an important I mentioned but it compliments the other developing costs we have already seen in the margin structure. So again, please don't take this away thinking about those other 200 bits of margin to drop through next year. Because you guys know it doesn't work like that. The mix and the sales is different from the mix and land bank for start of. And indeed, there's a lot of development cost to examine that have to be delivered in terms of delivering the margin as well. So there's all the offset enter the market for such a well that is tied to one of the 6 agreements and the like on the planning eight items have to be delivered in terms of constructing schools and immunity value in the local communities that again, we're very proud. But all that comes together to deliver our end margins. I think the one thing that we can say, when we look at the pipeline of our new sites, then it seems to us that at this point in time looking at spot pricing, if you will, then the margins in the future land and our expectations around delivering margins are similar to some improvements some perhaps, possibility of improvement moving on the track from where we are today. We've talked about margins plateauing away eventually. There's always so much yet you can squeeze out of the scorn. We will keep on squeezing. But it is being realistic margin that we are platter off at some points, I mean, Jeff is very demanding. And he wants like to be shown into every dark corner to try and deliver a bit more value, if we can and we'll continue to do that. And tirelessly. So but I think the margin prognosis is positive at this point, we'd like to think that certainly we'll be delivering similar, if not a better moving forward for this year into next. But again, as I've said already, there's a lot of moving parts in this equation and we'll have to see what the future holds. Look just touching on the balance sheet very briefly. I think land is the key. Obviously we've spent just over GBP 600 million on land through 317. The land creditor is at about GBP 207 million. so around about of our GBP 330 million going out on front end cash cost on new land deals in the period. The land value is edged of net of recoveries just over GBP 2 billion in the end of '17 compared with the [195] more or less at the end of '16. Work in progress, as you know, we've been working very hard to try to put more money in the ground, build is the key constraints within the business as Jeff's already touched on both. As you can see, we have managed about GBP 100 million extra in the ground of work in progress, which is great in terms of supporting future delivery, but we are very keen on maintaining this higher level of asset turn because that speaks to the cash intensity of the business. And I think an -- absolute outstanding feature of these numbers is the return on capital employed at 51.5%. I think that's got to be industry high ever, unless you tell me something different. I'm guessing it's a pretty high number. And I think this is delivering more from last time venture. We have delivered 24% increasing operate profit, but GBP 296 million from average capital employed, which is 5% down on last year. It's about GBP 100 million down on last year, GBP [1867] million on our numbers as been the average capital through ever since. So I think that speaks volumes about the capital discipline in the business. Capital return, well, cash generation first. Couldn’t have the cash generation, without no capital return. Obviously, very strong cash generation in '17 over GBP 800 million. As Jeff said, that's the key feature of the business. Cash generation as we talked about before is a combination of great performance and battery management. But you can see in the graph, it's all about at this point in the cycle, the combination of that growth quality cash generation's come through clearly, I'm thinking in that slide, where you've got the cash from operating activities going hand-in-hand with the underling operating profit, which is your redline. They are almost identical. The Delta there is your working capital peace, which is your balance sheet absorption or release, which is that's things slither of about GBP 20 million in '17. The record of the business you can see there is powerful reminder of the cash generative nature of this business, which has been a permanent feature of Persimmon over the years, which allows us to look at capital return, the level of capital return in a positive fashion. I'd like to think that we are progressive in terms of our annual reviews, our continued reviews of the amounts of capital we do return. Jeff's already touched on the announcement today of increasing the capital return provide committing to 3 specials, 125p per share over the next 3 years. But also the liquidity that we generate does give us all the opportunities. And I think the I think its worthwhile just very quickly touching to the philosophy around, how we deal with our capital -- excess capital that we generate? Firstly, we have got to attend to the working capital cycle in the business. Whilst minimizing financial risk through the cycle. Together with the reinvestment needs and assessing that the reinvestment needs, not for now but also in the short-term over the next 2 to 3 years perhaps. We want the liquidity to invest in the business at the right time, in the right land, in the right locations. Amplitude -- so what's the amplitude of working capital cycle at the moment for us? I can hear the question going through your minds. And I guess, you've got to be looking at around GBP 400 million to GBP 450 million terms of profit, in terms of working capital cycle. You then put on -- a bit of a wall-chest in terms of being able to support land investment. We've got huge amounts of strategic landing in terms of pipeline that we able to support bringing out through to deliver the value from -- for our shareholders. So in our estimate, we say may be 300, 350 on top to give you a feel for this point in the cycle where we believe an appropriate June, December, the peak of liquidity point in the annual cycle as I signaled to where perhaps, the cash should be positioned as a minimum. The [758] remarks, I think, is reasonable position to take. So over in both terms, we came into the year at [900], so arguably, slightly longer for that sort of position. But obviously, through this year, we have done exceedingly well in generating further cash, which has obviously been a real fill-it for the board to be able to assess the additional return. But over and above the working capital requirement and the reinvestment needs in terms of land or additional land opportunities, we then get into surplus capital and that's what on the rights, the GBP 1.10 longer term commitment. I am emphasizing words here because it's ways of just sort of structuring a hierarchy of capital deployment and allocation. So first column, cash, working capital cycle, reinvestment need. Seconds here, surplus capital, underwrites a long-term GBP 1.10 a share. Have we got any cash here on the book that surplus capital? Well, we named that excess capital. So next year, beyond that how much excess capital have we got? Well, that's then available for the corporate capital matters as we turn it, first look on that is specials. Obviously, there's the issue of net settling again to ensure that this is the altered, net settling the LTIP. This is ensuring that we remain fully aligned the quarter strategy, which is capital discipline. Because the only choice for settling the LTIP is the equity settle. The LTIP has issued more shares. Why would we do that? Why would we expand our equity base, when we're trying to deliver more from lass? As we've said before, so an entirely logical to look at if we have excess capital, if we have the choice, if you will, if we've earned that choice. Do we deploy a bit of cash there to prevent a further extension of the equity base? As being a preferable choice to expanding the equity base, which would be contradictory to stra -- the philosophy behind our strategy operate. And I think the board has concluded that, that is the right choice to make for the 40% of the LTIP has invested December. And moving on to that. We've put a few numbers together on the next 2 slides. Just to clarify where we are at the end of all that in terms of share numbers. The number of shares that are issued, that are likely to be issued, drop to around about GBP 4 million for the 40% invested at the end of December. And if the board decides to net settle and still is and if, that decision has not yet been taken. Why hasn't it been taken? Well, there is still sort of a few months to get there probably on the back of the announcement on the capital returns for this year is likely the GBP 6.20 is likely to be paid by early July, that's a second-best. That triggers the second best event. If the board tries to settle at that point, you can see that share count drops or the number of shares should be issue will drop from 11.2 million to 5.4 million as a result of that with cash going to HMRC on a net settle basis. With that point, I'll pass back to Jeff.
Jeffrey Fairburn: Thanks, Mike for a very comprehensive H1explanation. And so in summary, I think, just to recap on some things. We’ve enabled growth and scale, we have improved efficiency in the business which you see through the build course. We have grown the work in progress platform. We enhanced the margin, we have shown good improvement in the year-end customer care. We have invested in good quality land and we have generated strong free cash flow through the course of the year, whilst minimizing the risks to the business. And we have also as the combination of substantial increase in the return to the share -- to our shareholders. And I think it is fair to say, we have had a good start to the year, will stay 8 weeks to trading still an awful a lot to do. It's an encouraging start but there's a long way to go. A lot of sites to get up and running. And we have got those challenges that we have already discussed. And I think in all of this is really the combination of many years work that we've -- that I've worked through in my obsessive behavior of ensuring that all of those things happen. But it really is only possible with a fully committed management team. So I think that we have all done a fantastic job in that respect. Persimmon is in great shape for the future. I think it I'd also like to refer to the notice that went out about Nicholas Wrigley and his resignation from the board as of yesterday's date. And I would like to take the opportunity to thank Nicholas for his many years of excellent service to Persimmon. And we wish him very well in that respect. Finally, I'd like to say that -- we thank everybody who has assisted in the process of all of our contract to supply chain and all the other stakeholders in the business who support us so well. And I would now like to open up to Q&A. I'm sure there's a few questions. So will get the microphone to individuals, we can tell us your name, organization and we'll do best to answer your questions.
Operator:
Q - Gregor Kuglitsch: Gregor Kuglitsch from UBS Investment Bank. Can just go back to the margin point of clarity? Obviously, the second half I think we were kind of just shy of [29], [28.8]. Is that the reference point when you think about the future. you're think about the second half, 28.8 and I guess, what you were saying was flat to maybe after depending a little bit on market conditions just to clarify that statement. The second question is on.
Michael Killoran: Can we do this one at a time?
Gregor Kuglitsch: Maybe, its easier this way.
Michael Killoran: We will lose record of it. Maybe, as I said, there's a lot of moving parts. Excuse me. There's a lot of uncertainty in the market. There's a lot of headwinds out there. I think you're right as a reference point to cash forward, the second-half margin is right to take that. Where we get to from there, is obviously we are positive about future delivery. I think the balance sheet is in great shape. The quality of land bank is outstanding. And we have a very efficient operational team, our processors are continually being redefined to try and reak [ph] out more value. We can't guarantee an answer. We're not really in the business of giving forecasts, publicly. But I think we can be positive and would like to think the second-half level is a benchmark there to be bettered. I think they are pretty good levels anyway. If it turns out first '18 like '17, I'd take that, given the changes that are out there. But that doesn't mean to say that we aren’t going to start improving on it. So to be fair to me, Gregor, I don't -- I can't really add anything.
Gregor Kuglitsch: It's fair enough. I guess, the borrowings is -- its raised we the better you're doing fortunately.
Michael Killoran: We always tried to do our best.
Gregor Kuglitsch: So then the second question on cash consumptions. Last year, you said GBP 20 million, which is obviously extremely low considering the growth. Want to get a better sense of how you think about next few years if the business continues to grow, do you actually start thinking about net expansion of your net capital more or less?
Michael Killoran: Exactly. I mean -- the 2 big drivers of that is the land and work in progress. I think that we'd love to carry more, money in the ground from work in progress. But build is immensely challenging, perhaps, we've not emphasized out enough.
Jeffrey Fairburn: It is. It's a bit key feature really for us. We're working hard to bring the size forward. But actually building the houses at scale. Okay, it seems a relatively small increase 6% growth in terms of additional houses built in the year but if you think of what 900 houses look like. It's a lot extra. It's 1.5 operating income worth of extra houses, which is awful lot in the year. So it continues to be challenging. We're pleased with the progress we have made. And we're happy that we have invested a bit more in the ground. So I think we're in reasonable shape there. But it continues to be incredibly challenging not because of those constrained in but terms of availability in terms of labor.
Michael Killoran: The key feature of what we're trying to do on the site is there a share per build, isn't that Jeff? It's getting ahead of where we think it sensible to get ahead. Where we've got the confidence in terms of the rhythm of sales on particular sites and then we'll try to push it ahead.
Jeffrey Fairburn: Yes.
Michael Killoran: So it's all about trying to get ahead of what we're delivering to allow us to move the Bill forward. Because it is efficient as well if you count the
Jeffrey Fairburn: Yes, I mean if you look at the feature of the industry is that we have moved more towards the bigger size. And those bigger sites, we're pushing the boundaries in terms of volume of houses being built per site. And its' a feature of planning system actually, which isn't helpful. We could do with more sites of smaller scale. I think both from a sales perspective because it gives more choice for purchases in different localities but it also gives your different pool of resource to pull out from as well. And at operate sites 150 to 200 houses being built per year on a site is significant operation. And there's a review at the moment, by the government on that but I'm pretty confident that they will arrive in the position that we understand, which is the reason extremely challenging. We’re pushing the boundaries all the time. So we've always one to move from more signs but as they say, we could really only follow the market in terms of what the planning system is delivering, the big air size. And it drives efficiency. So more houses built per site is an efficient operation. But there's an upper ceiling of what can actually be achieved on those developments. So I think it's going to continue to be the main feature in terms of volume delivery going forward.
Gregor Kuglitsch: Then final one.
Michael Killoran: You're hogging the microphone.
Gregor Kuglitsch: It is do you get tax H1deductibility on the LTIP settlement, so the GBP 88 million, for example, do you...?
Michael Killoran: There is no change to Corporation tax treatment, in terms of.
Gregor Kuglitsch: It's not expensed?
Michael Killoran: Pardon?
Gregor Kuglitsch: So its not expensed?
Michael Killoran: You are talking about 2 different things. You're about accounting treatment but accounting treatment I mean, in share based payment offer us to dictate how we account the share-based payment and there's is no change in that regard. There's no change on the tax treatment. So the decision to net settle and equity settle. There's no change except that there is an amendment coming through to for us through which is yet to be endorsed by the EU, which will I mean, we can talk about that afterwards but ...
Jonathan Bell: Jon Bell from Barclays. 3 from me I think. Firstly, just on the net segment issue. Just to clarify on accounting. I think you told us that GBP 88 million goes out in cash to HMRC?
Michael Killoran: Yes.
Jonathan Bell: How are we going to see that in the income statement, in terms of where it will appear?
Michael Killoran: Yes, I mean, in IFRS accounting it dictates the charge we have taken in terms of basically accruing for the cost of that obligation to the company has been charged through the last sort of 6 to 7 years. The cash payment would effectively be a reserve moment. So one advantage of net settling is its supportive of higher levels of return on equity, rather than equity settling. But also there's the other advantage as I have touched on before is its the discipline around the capital in the business. In that to expand the equity base, when you got a choice not to, when a central pillar of your strategy is to keep your capital tight to deliver more from that operationally. It would seem contradictory to expand your equity base at the time when you're trying to constrain your capital base through the additional capital return, which obviously, is the charge against your reserves by way of dividends.
Jonathan Bell: Sounds like a net settled but one played out?
Michael Killoran: Not this is. I mean, that's the important part. I mean as a logic would suggest that is the case, John. But as you know, circumstances can change. And as you know, circumstances in our market can change very quickly. We only need to look back to 2007, 2008 to be reminded of that. So I think it's judicious on behalf of the board to retain flexibility and optionality around that conclusion.
Jonathan Bell: Okay. My second question is just around Space4. You've hinted in the past that you can perhaps, roll out -- I mean nearer launching a second site may be in the south of England, along those lines?
Jeffrey Fairburn: Yes, I think it's a real possibility. It’s are very supportive of what we're doing. And the current facility has gone some additional capacity still to go but I think there's a logic to having some support to that with their being a manufacturing facility that is so important to the business. And I think at this stage, we think that is merit in further investment there. So we're starting to look at that. But it is only at very early stage. And we haven't decided where would be the best location for that. It does depend on a number of factors. We do have sufficient land hours to build a new operation there as well. So in the foremost time, it might well happen but it may not necessarily be the next opportunity. So we're keeping under review. But I'm certain its working well for us.
Jonathan Bell: And then finally, one from me. You’ve told us some of the cost recovery gains are volume related. And you're also telling us the land market is continuing to be very kind. How should we think about volume growth from here with those things in mind, or maybe in 3 or 4-year overview?
Jeffrey Fairburn: I think, the volume growth, John, really depends on outlook position. And as I mentioned, we're pushing the boundary in terms of output per outlet. So really, we see the next level of growth being delivered through further expansion of the infrastructure and outlook network to a large degree. I think there may be some marginal incremental improvement on the basis of where we are at the moment, but really any further substantial volume growth would be deliverable through a bigger network-based. And we continue to invest in land. But as fast as you bringing side, we're closing them. So it's a fast turnover at the moment. We hope to continue to see further improvements in the planning regime, which should release more size and possibly more smaller size. And that point has been made. We hope to continue to see that improved.
Will Jones: Will Jones from Redburn. 3, if I could. Just around the own land bank land. I think you said 77,000 owned plots at the moment, which I think is about 4.8 years of supply against last year's completions, which I think is a recent high. And if you went back pre-crisis, we are in often in the 3 to 3.5 year tight range. And I appreciate this bigger sites in there. How much of that fat issue accounts for the change in land bank length, and we do think that should settle medium term?
Michael Killoran: Just around this I think, the key thing is the split of those owned plots. And if you look at the element that we own and have a detailed implementable planning concerns, we've go about 52,600 plots, which is very similar to last year, which was 52,800 plots. This is by the way in the RNS, what we have seen, a bit of growth come through is in plots that we own, which are progressing towards detailed consent. Where have got outstanding planning conditions, which to just earlier point, hopefully the changes that are we going to see coming, the revised MPPF in March. If it does come through in March, hopefully will perhaps simplify things a little bit in that regard. So I think overall, yes, we've got great visibility in terms of the land in the pipeline. But as Jeff said, it is still pretty frustrating in getting onto site. And allowing ourselves that opportunity. Because going back to the plots that we have got a detailed planning consent. It's pretty similar to where we were last year. So we -- to look at it in a slightly different way, we only managed to replace the plots we have consumed in terms of the front end of our consent land bank. And obviously, we're working very hard to improve on that. With that, sort of managed, that sort of demonstrates the tension within that pro- all those processes. That allows our plots to be released for development actively. And, which I guess, everybody gets sick of house builders complaining. But there's a frustration, So when you talk about 4.5 year, it's not really. It's maybe 3, or nearly 3 at least. And each of our businesses do need good visibility to plan that business properly. We're employing people, we're committing to sourcing everything that we need for a good number of months and years. So we do need that sort of visibility. Because all that supply chain depends on that as well. If we can only commit for 3 months worth of provision of door kits or whatever it is, well that's all of bit, Stops starts Here we go again, we are into 2008. Where's the work coming from. If we can give good solid commitments for 12 months, 2 years than that will encourage supply chain to investment, which is part of the solution as Jeff already said, in delivering an industry that can to form in delivering more output
Jeffrey Fairburn: I think the linked point to that, the size the sites that I've been referring to is those tend to lead to more significant infrastructure having to be installed before you can actually access the housing and deliver regular completions of them. So there's delay in that regard is quite a significant form of investment as well. So the bigger the site, tends to be more complicated and time-consuming it is before you can actually start to get legal completions of that. Again that's another important feature.
Michael Killoran: Its a very important point because we've said quid 100 million . The bulk of that is an external infrastructure. It’s not set on plots, you know superstructures, and it’s off site works, enabling works, as Jeff says. That we put a lot of money into opening up larger sites to get on.
Will Jones: And second one on the land. Just around the cost being added through this year, you've got couple of months and lots of strategic land visibility. Is there any reason to get plot cost of land you buy this year will be materially different from 2017 you think?
Michael Killoran: Yes, in terms of the fresh?
Will Jones: Yes.
Jeffrey Fairburn: I'm not aware of anything. Well, let’s put it this way. I think it should be pretty similar, I would've imagined.
Michael Killoran: I mean I suppose only caveat through that would be if it is one piece strategic successes that we get through planning may influence things a little bit. But that.
Jeffrey Fairburn: Keep it low, can make a difference.
Will Jones: Last one on the missing statement. Last year, it moved around quite a bit half on half in. Just where we are and where we're expected to go?
Michael Killoran: I mean last year, we are -- we certainly took the year as a whole it was 370% on average, which is very similar to the previous year albeit completely reversed picture as you say well, which it was quite, its almost a similar image , in that regard will. It’s difficult again to predict in terms of how that's going to come through. We've already commented that we have got a lot of plots there that are waiting for detailed consent, which obviously, going to deliver a good number of those sites. So I would hesitate predicting what the shape of that. All I would hope is that 370 mark as an average for last year is something that we will be able to match, I think, that's where -- that's all really we can say.
Jeffrey Fairburn: Yes.
Michael Killoran: I mean we have good visibility as Jeff said. We're working very hard to get those up and running. But we're in the hands of planners to a degree. And ...
Jeffrey Fairburn: Then we will move to the other side now.
Chris Millington: Chris Millington from Numis. I just want to ask about the average size of the unit and whether that's playing into the reduction in build cost?
Michael Killoran: It's a good point.
Jeffrey Fairburn: Yes. I mean, actually, we have been pretty consistent over the recent year in terms of size and type of product that we're producing. So we are struck to the game plan in that respect and I think, that's reflective really in our selling place. But there's marginal improvement of about 1.5%, I think in reduction in size of unit from '16 to '17. So there's a bit of a factor there.
Michael Killoran: That's on legal completion because of the 25% increase in affordable content influences that as well. So we're not saying that our standard house types have changed. We're just saying that average size in the legal completion mix. There's a bit of benefit there in terms of build cost, if you will. but its the same point if you will, in terms of mix, I touched on earlier on northern geography, more affordable housing. It's within those considerations really from a build cost perspective.
Chris Millington: Next one is just really about the down-valuation.
Michael Killoran: What.
Chris Millington: Down valuations. You kind of said you always tested by the second hand market? Any more of those creeping out in the moment, now we have seen slightly softer house participation.
Michael Killoran: We do get -- we do get occasional evaluations. It's -- we are price takers. We are very realistic about that. But our teams are keen to achieve the best price in the market for the product. That's part of possibly being in the business. You try and get the best price for the product that you can. And that means that times, the vendor's can take a different view based on precedent. And we do still see down valuations, not massive down valuations but that tension is there in the market.
Jeffrey Fairburn: And I wouldn't say there is any change in the market we're not seeing any change in that respect. It is being fairly consistent.
Chris Millington: And the final one just talks about any house extension, one of your peers mention we might hear something soon, what’s your thoughts on that?
Michael Killoran: Well, we hope to buy -- obviously, the government is hoping to find indication of additional funding stops in the 2020 would have end date, is still the end date. We believe we have not heard and we have not heard any detail that would inform us any with -- to form a different view. I'm just extending that. I think it is important that we do understand the government's policy in that regard sometime over the next few months. Because obviously, impinges are now on a repetitive to invest. We're very mindful of that situation. Currently, in all of the land replacement activity we do, that's why it's important. I mean, Jeff pushes all the teams to do the best land deals that they can. Because that's our - the first line of defense, if you think about it, its a very a defensive position to take. Yes, it delivers and embeds more value in the business for the future. If you've got a constant market but if -- for whatever reason there is a change to the market conditions and change to housing policy in that regard could cause changes. So as long as you've got high, the highest quality land you can acquire on great terms to start off with where you stand going to be in a pretty good position if that's gets diluted for whatever reason. So I think closer you get to 2020 loan is always they become more of an issue.
Jeffrey Fairburn: Yes, I mean, we know -- we are a mix of poser of this game. Because it allows customers to enter the housing market. And it's an investment for U.K. plc Inc. that respect. And I think it's done exactly what intended to do. So we would like to see it extended both we haven't heard any more news in that regard. But we do target particularly the first time, our first time mover markets, so that's why we're a strong user of it. But as to whether it will be continuing beyond that time, I don't know. But I mean, it was preceded by other schemes from through both labor and the correlation government priority helped to buy. And I think it functions very well. The lenders are very keen to support it as well. So yes, Mike's right we will make investment H1decisions from what we're seeing from in front of those. I think it affects the rate of sales. So I mean, if we help to buy was removed you may see us slacking it in for sale, we would anticipate, so I think that's important house builders has been a big driver of the economy. Jobs -- and from that point of view, it's worked very well I think. And we can see that it has generated additional volume.
Michael Killoran: I think help to buy is investment. It's on the government's balance sheet as investment of GBP 8 billion. And is generating a pretty decent return or should be for the taxpayer. So I think that always reaches around that policy, yes, it's part of demanders. As Jeff said, we all recognize that. But it's less than 3% of U.K. housing transactions, since 2013. Yes, it's played its part. It was a necessary move by successive governments to try and support the housing market as a timeline, obviously, because of the financial crisis. Mortgage lenders risk appetite change dramatically. I mean that’s on the record. So the government firstly looking to generate more growth in the domestic economy and secondly, support customers. It's a customer support mechanism and allowing first-time buyers greater access at a time when the mortgage lenders were keen to lend a higher LTV some. I mean everybody in the room knows that. So I think as Jeff said, it's done what it was designed to do. The future -- what the future holds in that regard, we've always thought is the mortgage market matures and the lenders risk appetite develops to a level where higher LTV lending hasn't appropriate support from their balance sheet, then we hope to buy requirement and that's in the Senate? I mean, it's a dynamic situation. And really the solutions to have to is fine in the mortgage market. That's where the solution should be found in terms of supporting younger families to gain access to the housing market. Should they want to make that choice.
Jeffrey Fairburn: Next question over there.
Chris Fremantle: Chris Fremantle from Morgan Stanley. I know you've you talked about the length of the margin sustainability or not? I'm just little bit surprised by your comment that there wasn't another 200 basis points on the margin, given that you've got a plot cost to revenue ratio in the land bank for just 3 percentage points below what you've put through the income statement today?
Michael Killoran: I don't think you should be surprised. I think the first, the first reason for that is the land bank is a large pool of plots. Whereas the legal completions in the financial year is a smaller pool of plot. So mix is very, very important. As you know, our strategic land assets that we've been successful in bringing through in the consent of land bank, do offer higher returns. But these are -- as Jeff said, these tend to be larger size. So the proportion, for example, of the strategic land supported legal completions in the sales mix will always be lower than is in the consent of land bank.
Jeffrey Fairburn: The good thing about that is you've got more value into the future to support margin as you go forward.
Chris Fremantle: Can I just ask follow up and so what you've bought this year, is a plot cost to sales of what you bought this year about around what you have put through the income statement? Or is it higher, is it lower? Can you just give us a little bit of color?
Michael Killoran: I think -- I mean what I just caution you to getting to focused on plot cost of revenue percentage has been the sole reason for why margin can change. As I said earlier, plot costs, if you look at the numbers, plot cost is about 1/3 of the building of the direct costs. Yes, it is an important part of the equation, but it's not all of the equation. And as we've already referenced, we are putting a lot of money in the ground in terms of infrastructure works et cetera, which complement the land -- That just to play a simpler example. We find a 10-acre site in the middle of whales, which requires a lot of heavy in engineering and ground works to cut levels into hillside. Now the plot costs to revenue ratio there might be 10%. So you look at that, if you got one dimensional view that what margin would be delivered from that? That is going to be a super margin. Because it is a 10% cost of revenue percentage. What you have to consider is the fact that all the engineering work and the groundwork cutting those levels into the hillside will yes, be more expensive. So what you have to do is put every components of the cost base into place to deliver the gross margins. So I think the best way we can answer your question is, when we look at the land that we have acquired and is coming through our pipeline to be acquired, the margin is pretty similar.
Chris Fremantle: The overall margin?
Michael Killoran: The overall margin, yes.
Jeffrey Fairburn: It's an indicator really, it's a good indicator.
Chris Fremantle: Okay, fine. And then the second question was on this land banking review. You are expecting anything there slightly to impact the economics of your business. Anything you can say about what we should expect there and what it means to for you? Might be.
Jeffrey Fairburn: We don't consider that. I think the key point is we looked at specifically in the moment is the issue of is the industrial building at suitably faster rate, given the demand in the market. So what we're looking at specifically is just really that point. Could you not build more houses more quickly? And this is quite a narrower sort of point actually. But I think you'll come back to around all the other aspects, that will then fall into that debate. So we are quite quiet -- we haven't got anything to fear about use of land. It's been looked at extensively in the past. And there been some pretty comprehensive reviews. And on that particular narrow point from -- as I've explained, the - you've got to look at when would expect to start getting legal completions of the site. So on the big site, it can be quite lot further into the process. And thereafter, how many completions program could be supported from a local workforce and the local demand requirement from a sales perspective. So we are quite confident about the outcome of that, from our perspective but I think it will drive into a further debate going forward. So we'll see where that goes.
Chris Fremantle: Right. You’re not expecting some sort of blanket policy response, that this going to be.
Jeffrey Fairburn: I don't personally, think so no.
Clyde Lewis: Clyde Lewis from Peel Hunt. I've got 3, but I'll do the easy quick ones first. In terms of land creditors, is this sort of high watermark relative to total land value? Should we all -- should we all be modeling.
Michael Killoran: I think its very hard to predict from the balance a lot from payments is the way the deferred. I think one thing we would say is that the planning backdrop in one supply one release backdrop, yes, 5-year plans is and a lot of local authorities are yet to be completed. And hopefully, they'll revise in PPM that we'll see in March that will provide further impieties to get us there. And I think that perhaps, with a little bit more competition coming in for the land that is released. Because we have some market competition in one or two spots. Then the ability to defer maybe [indiscernible] moving forward. But how all of that sort balances out? I think we -- from a financial point of view, I mean, we're continuing debate in the business. None of us want to see a big refinancing wall coming towards us in the future. So GBP 500 million to GBP 600 million is nice with a nice amortizing tail on it. Because basically its future refining requirement. Last year, as I say, we paid GBP 217 million of land creditor servicing, if you will in that 12-month period, which is fine.
Jeffrey Fairburn: So that turn it out reasonably well. And I think another important point is that we do buy land usually on a subjective planning basis. So we only contract or complete on it -- completion as I say, at the point we've got a suitable planning consent and that's important from a land creditor perspective because land creditor is not create until this point. And really, it's a land creditor is that we have that are generally in relation to the bigger size that lasts a lot longer work from the return of capital perspective, rather than anything linked to planning permission per say. And I think that's an important point.
Clyde Lewis: Second one was on standard house types. Where are you in terms of your percentage of terms of total output. How do you see that moving in next a couple of years?
Jeffrey Fairburn: Yes, I think we'll get in the sort of what is achievable. I would say we're about 75% to 80%. But we are meeting further challenges now across the U.K. where we are getting pushed back on various standards again being introduced by the individual local authorities, which is very unhelpful for the industry to continue to drive volumes forward. And we're having to adapt and change for local circumstances, which as I say, is not -- I don't think is in anybody's interest. So that's a bit of a challenge. If we've got standards that have introduced across the U.K., we develop house type of suitable standards as a whole. But if you have got individual situations developing, it becomes more difficult. But yes, we're probably reached the level of coverage in terms of standardization.
Clyde Lewis: The last one I had was on, I suppose the margin. The -- I think the average price of selling went up 3.2%, you talked about the 1.5% smaller unit size. And I think Mike, you talked about the geographic shift up north. And in that margin bridge, you only showed, I think it's 0.8% of the benefit from HBI. I am struggling to wrap all that together that seems a low number for HBI as a benefit, obviously you have been working on the cost and I am just wondering ....
Michael Killoran: It’s a pound. We are looking at it on a per unit basis. It's the GBP per unit type of approach that really drives the cash. That delivers also the profit per unit, which is a very important H1dimension.
Jeffrey Fairburn: That's a good question. You to also get geographical differences within those locations, so even in the North, believe it or not, those places are expensive to buy houses. And so it does depend on where your sites are in that geographical location as well, driving that individual sort of plot number.
Aynsley Lammin: Aynsley Lammin from Canaccord Genuity. And just kind of oversee good start of the. Just wanting to change any incentives preventing to the share? And secondly, just wondering what your expectations to more trends and material cost and labor inflation for 2018?
Michael Killoran: I think, taking the first one from a sales incentive point, no real notes will change at this point. As I say, the industry shifted quite a bit over recent years. Where the harnessing digital technology sounds quite a strange house builder talking about digital technology. But I think the industry is very keen to pursue the advantages that brings to our how processes work. So long as it's probably thought through and well-designed, it can make us more efficient and as again, as I said, Jeff is very keen to explore as many of those advantages, potential as possible. And I think, and that is making, is helping make our sales processes more efficient. And I think we're in transition, Jeff on that really in terms of the cost of supporting our sales processes. It's a really interesting dynamic at the moment, where all the home finder engines, they are on the Internet now. It's a -- its been there for a while but it seems to be becoming the first choice of customers in terms of looking for a new home. And indeed, then contacting the likes of Persimmon in terms of the call back request, brochure requests, meeting requests. We are now monitoring all those different contacting and inquiry types, and we are seeing a very healthy position in the digital channel to use a retailers phrase perhaps, which is encouraging.
Jeffrey Fairburn: But you know, you've got to continue to upgrade your platform. So comes in investing, reinvested in websites and the optimization of search processes and so far. So there's got a lot of work done in that area. And I think there are other advantages to us going forward in terms of how we sell additional what we finishing touches to customers, trying to upsell our product in that way. I think we are not always as quick as we could be to move with the market. So we do use product change in home change and we keep revisiting these things but there's not been any marketable -- mark-able change over recent times at all anyway. And the cost inflation, I would anticipate something similar to last year. It's a bit difficult to call, but we are seeing pressures in that regard. And there are few on fewer suppliers of materials out there to the industry. But there are significant challenges as well in terms of volume keeping up with volume increase of the industry because the industry showed a significant increase in volume last year. So I think that will continue to be challenging, but similar sort of level to last year maybe 3% to 3.5-ish %, I would say.
Glynis Johnson: Glynis Johnson from Deutsche Bank. I have last 2, if I may. The first one is rather long. The strategic conversion in 2017, can you may give us a bit freehold option and then can you just give us a bit of color around the strategic intake that have taken in? Is there a change in terms of north south of freehold option, density that you're assuming on the sites?
Michael Killoran: Yes, I think the -- I mean, the intake is more about -- it's driven by our teams that is land prospecting in a way sort of very plugged into the assessment of where housing need is and should be, catered for in all the regional markets. But then you've got the - our way of our existing positions. We don't want to keep on tying up new options where we've got pretty good coverage already. And so it's very difficult to summarize that. But its suffice to say we're always trying to achieve a balanced portfolio in support of each of our 30 businesses. But it wouldn't be a surprise to you, if you wish to find some of the businesses are more are well catered for then others in terms of strategic land banking that they have got at any point in time. That's because you know, it's input outputs, that we are continually signing up new options are the same, getting successes out of the front and in terms of introducing ex-strategic in terms of land bank. So its and the speed of -- it's not a smooth convey of bell in terms of tying up new option agreements and delivering the successes out there front-end. So it's quite a dynamic position.
Glynis Johnson: Are you seeing competition step up though for that strategic land that you are intaking or are you finding it harder to get the freehold and seeing more options coming through? Are you seeing discount mark on options decreasing? That's kind of color I am looking for.
Jeffrey Fairburn: Is very regional, actually, depending on who's operating in a particular area. It is quite competitive for strategic land and there are various hard builders and organization, who can invest at the level required to -- for strategic land rather than buying land in the open market. So I think, they think it's a better value. But the deals got to be right. And we have sometimes don't manage to compete on their terms because the deals in our opinion are un-engineered to see what we would want in the long term. And we've got such a good quality strategic land bank that we don't want to deteriorate that. So we're quite choosing. And over the last few years, we have managed to find excellent opportunities in the short-term land with consented land. At on the right deal. So it's just getting the balance right, really. We are constantly reviewing that on a region by region individual site basis. But I was pleased to have replaced the volume of strategic land within the area. I thought it was good conversion rate but also a good replacement rate. So I was pleasantly surprised actually in that regard. And then looking at the freehold options sort of basis. I think what we have delivered during the course of last year looks very positive actually on first glance but I think you've then got to look at even at freehold land in terms of what uplifts are playable to land owners as well. So it's difficult to give you a good, an accurate picture. But certainly, we've brought through a significant probably nearly half of the strategic land was pull-through from freehold in that year. So good.
Glynis Johnson: And the second question is slightly over the with the questions. Your LTIP obviously, we saw changes to your LTIP -- beginning at this week. There were 150 senior executives in the original one. Can you just remind us pullbacks, holding periods, what's been put in place in order to have the extra succession for those obviously very important people in your organization?
Jeffrey Fairburn: Yes, obviously, a key consideration for us and everybody is to make sure they are motivated. There is one year hold period for on the 2012 LTIP, which might give us self extended on the second best for 3 years for ourselves. And then going forward, we have already got the approval last year of a new 2017 PSP as it is called these days scheme, which has already been implemented for new joiners, our people have been promoted in the business since then. And the individuals who will conclude on the current LTIP will they'll take up options under that new scheme once the existing ones come concluded.
Glynis Johnson: And the scale of that 2017 PSP so that we can put in the comparison to what's they'll take from the 2012 LTIP?
Jeffrey Fairburn: I don't know how you would describe that PSP.
Michael Killoran: It's a slightly different type of scheme. Its a more conventional 3-year period on a 2-year hold. So it's -- I think more conventional approach. So the 10-year 2012 LTIP is not replicated.
Jeffrey Fairburn: We found that too difficult. After that, we have time for one more question, please. Over here?
Unidentified Analyst: Just want to come back on Slide 18 on build cost and the margin influence and I realize you've got into in detail. But I remember you 6 months ago, you were saying that we can sort of drive the most efficient way to build and decide the best way of -- best practices are? But actually it takes a while to sort of roll them around through your business. Are you seeing that sort of comminatory still holds and while you sort of make all of these positive comments here. We should still think about these not being employed everywhere and actually you have sort of ongoing margin tailwind because of that so while sort of talk conservative on the margin outlook theoretically, all else you pull these D provided on your ongoing support here?
Jeffrey Fairburn: I think that's right. It's difficult to really express the extent of that. But it's a constant process this and a moving picture right across the country in all other businesses and the challenges that they've got at any one time. So we've got initiatives that we are rolling out all the time in the business to look at areas, where we can make more efficiency serving because a lot of this is efficiency now, driving best practice right across the board. And you know that job will never be finished. We'll keep on at that. We'll keep challenging. And I think you're right. That will certainly help to mitigate some of the other cost increases that we are seeing going forward. It all comes in battle and journey. Thank you.
Jeffrey Fairburn: Thanks, so much for joining us everyone. Much appreciated. And will be back reporting to you again soon. Thanks, very much. ++