Barratt Developments' (BTDPF) CEO David Thomas on Q1 2017 Trading Update Conference Call (Transcript)

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Barratt Developments Plc (OTC:BTDPF) Q1 2017 Trading Update Conference Call November 16, 2016 3:30 AM ET

Executives

David Thomas - Group CEO

Neil Cooper - CFO

Analysts

Mark Harrison - HSBC

Andy Murphy - Bank of America

Gavin Jago - Peel Hunt

Will Jones - Redburn

Charlie Campbell - Liberum

Clyde Lewis - Peel Hunt

Jon Bell - Barclays

Kevin Cammack - Cenkos

Operator

Good day, and welcome to the Barratt Trading Updates Analysts and Investor Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. David Thomas. Please go ahead.

David Thomas

Thank you. Good morning, everyone. As usual I’ve got Neil here with me. Today, we will update you on trading for the period from the July 1st through to November 13th. So just to start-off, overall we see that market conditions have remained very healthy. We’re supported by strong consumer demand and great mortgage availability. We’ve seen an increase in our net private reservations per active outlet of 4%. Forward sales are also very encouraging and including joint ventures total over £2.6 billion, we particularly like to note wholly owned forward sales up strongly by nearly 20%.

Operationally, we see that the business is performing well, and we continue to lead on customer service and construction excellence. We have maintained our HBF five star status for the second consecutive year. And our site managers won more NHBC Pride in the Job awards than any other house builder for the 12th consecutive year.

At the AGM, this afternoon, as previously announced, we have proposed a record dividend payment of £240 million, and that will take the total for the year to £308 million. So let me give you a little bit more detail. Our net private reservations per active outlet for a week increased to £0.74 from £0.71. We have launched 69 developments in the period, and we’re currently operating from 385 sites compared to 380 at the same point last year. Our net private reservations per week were in line with the prior year at 265.

Whilst overall sales remained strong, as previously outlined, higher-end London sales have become more challenging. And as such, we have taken some pricing action on some of our higher selling price sites. We’ve also taken further action to de-risk London delivery, including an exchange build and sale agreement on a bespoke development of 39 apartments for a total value of £47 million. These actions may impact our gross margin ratio achieved in FY '17, but they also reduce the delivery risk profile.

We see that the land market remains very attractive. We continue secure land opportunities that meet or exceed our minimum hurdle rates. We've approved around £200 million of operational land during the period, now it's just under 2,900 plots. This is a lower number than we would normally expect over the period, but it just reflects the cautionary stance that we took immediately following the referendum. We expect to approve around 15,000 plots in the full-year, and we remain on track to achieve our targeted 3.5 year own land bank for the year-end.

Bear in mind that in FY16, we approved just over 24,000 plots. On strategic land, we've approved options of 15 sites or 4,258 plots. We are on track to achieve our target of 20% completions from strategic land for FY17, and we continue to target 25% of completions from the strategic in the medium term.

So looking forward, we remained positive on outlook. We are on track to achieve our medium term target of a minimum return on capital employed of 25%, and we are focused on our 20% gross margin target for the full year. But we do recognize that the high-end London market presents some specific challenges. The strong performance in cash generation of the business is reflected in our payments that will take the proposed total dividend payment to over £300 million. And we continue to expect to return close to £1 billion to shareholders over the free years of our capital return program. So there is no doubt that the business is performing well. And we continue to operate in a way supportive market environment.

Neil and I will now be happy to take any questions.

Question-and-Answer Session

Operator

[Operator Instructions] We will now take our first question from Mark Harrison from HSBC. Please go ahead, your line is open.

Mark Harrison

Just a couple of things. Can you give us a feel for -- obviously, in the light of -- I think, on the press I can see you're talking about potentially 5% to 10% off in Central London, to get things out; and recycle the capital, which is an understandable thing to do. But can you give us a feel for where you think that JV line will be in 2017 and is that guidance -- views on that changed from where we were before? Previously, I think you were talking about £45 million, and last year it was £72 million. Can you give us a feel for your views on ’17? That's the first question.

David Thomas

I mean I think the short answer is there is no change on that guidance. And we gave very specific guidance in September. So we said the JV line would be around 700 completions and around £45 million of profit, so no change on that position.

Mark Harrison

And, secondly, just in terms of the dividend. I mean obviously, it's good to see that you're sticking with £125 million and £175 million for the year after. But I mean you still -- there was a presentation, a week or so ago, from Persimmon, that highlighted that under quite tough scenarios, they were prepared to pay out their dividends as they have been, even if the dividend was uncovered from -- in income statement perspective, as long as the cash was there, in advance and also, they stopped buying land. They're happy to do that. What's your view? When you -- where do you sit with that and obviously the 3 times cover on the ordinary dividend?

David Thomas

I think just in brief, I mean we obviously said so back in originally in calendar '13 we would move to a dividend policy of 3 times cover. And I think at that time we outlined that in the 10-years up to 2007, our policy have been around 5 times cover. So quite a big shift for us in terms of the ordinary cover, and I think that was just reflecting at the time that we saw that the pace of growth of the business would be perhaps a slower rate than we’ve seen back in early 2000s.

The second thing that we then outlined in ’14 was the special dividend program. We said that we saw that we have surplus cash over three year period of around £400 million. And as you know, we’re just about to make the second payment under that program. And we’ve said that we will keep that position under review. I mean we see that one-third cover is a very appropriate policy. And we’ve said that we’ll continue to look at the extent to which there is surplus cash that can be distributed. And that’s something that the Board will look out on an ongoing basis.

Operator

We will now take our next question from Andy Murphy from Bank of America. Please go ahead, your line is open.

Andy Murphy

I've got three questions. I'll keep on a dividend tack, first of all. Just interested to know what the timing is perhaps around any refresh of guidance, in terms of a three-year dividend? Will you wait until perhaps the full-year results next year before you announce anything to the market? And, secondly, on the site numbers, it looks like you're expecting to be flat year-on-year. Just wondering whether you're signaling that, in terms of site numbers, that you've reached your optimum size, or whether you're likely to see that edging forward over a period of time? And then, finally, on the forward sales element. Would it be fair to say that trying to back out the price moves in the forward sales that private is up around £14 million, and the social about £7 million? Could you confirm or give us some steer around those figures, please?

David Thomas

I think Andy so just before we answer, can we just go back over that third question again, so just on the fasting on forward sales.

Andy Murphy

Yes, I was just looking for the growth in the average selling price, private versus social, in the forward order book.

David Thomas

Yes. So, okay, now I understand. So I think in terms of dividend, I mean, look it’s obviously something that sits with the Board. But my sense would be that the Board are likely to look at this thing in terms of full-year results. I mean that’s how we’ve positioned it previously. So, I think it’s more or like to be September than any other time. But clearly, we will update you if there is any change on that.

And in terms of site numbers, I mean the first thing I would say is that, I’m very pleased that we’re in a situation that our site numbers are ahead on a year-on-year basis. So, we’re saying in overall terms, 385 sites compared to about 380 in the prior year. We’re guiding that for the whole year we think average site numbers will be around flat on a year-on-year basis. But nonetheless, I think we’ve had good momentum in terms of offsite opening.

I don’t think that it indicates a ceiling on site numbers, and I think we’ve said historically that we think site numbers can operate certainly above 400. So, I don’t think 385 is anyway ceiling in terms of site numbers. And in terms of the forward sales position, I think Neil will comment on the forward sales position.

Neil Cooper

Yes. In terms of your point about social versus private, I mean, what is -- is it about the individual price points of each line that you’re commenting on or the balanced?

Andy Murphy

Well, just really what inflation you're seeing in the order book, in terms of the ASP.

Neil Cooper

If you look at the wholly-owned data, we are seeing a relatively high move in terms of private from somewhere around 290 this point last year to around 330 this year. Now that’s on private. Now I would -- I am I’d clearly be causations that does not reflects underlying house price inflations, and is much more a factor of the mix. And in that context, I would remind that we talked at the prelims about London in particular having a higher skew to higher value shop just because of the mix of size coming down the line.

I think when you then move to look at affordable, there is a little bit of growth in that affordable ASP, somewhere around 114, plays 120. But that is much more about the skew of sites I don't think you can read that as a view on underlying inflation.

David Thomas

As Neil touched on, we said in September that on the private forward sales, in relation to London, you’ve got a reduction in terms of joint ventures, which you can clearly see in the forward order book. What you’re seeing coming through in the wholly-owned order book are sites like Blackfriars and Landmark Place where the average selling prices are relatively high, and that’s clearly going to skew the overall averages.

Operator

[Operator Instructions] We will now take our next question from Gavin Jago from Peel Hunt. Please go ahead, your line is open.

Gavin Jago

Just a few if I could, please. The first one is just on the pricing action you've taken in Central London. I wonder if you could give us an idea of the timing of that, if it's coming recently, and to what extent you've seen buyers reacting to that, has it stimulated the demand that you were obviously pushing these prices down for? The second one is on build cost, just wondering your expectations, have they changed at all, certainly in light of sterling's move, and whether that kind of the mix is likely to change between material and labor as we move through 2017? And the final one is just on land spend, obviously there's been a pickup in -- of your activity, post the referendum. I just wondered if there’s been any particular areas of focus or areas that you're still just staying away from?

David Thomas

So if I take out -- good morning, Gavin. If I take out the pricing action in land spend, and Neil will cover the build cost. So just -- I mean on the pricing action, so again just to putting in context, and I appreciate that everyone is pretty aware of the context. But in London we have around 20 sites in Zone 1 and Zone 2 or edge of Zone 2 such as Aldgate and Nine Elms. We have second or eight sites in London.

So we’ve taken pricing action on some of those sites, clearly not all of those sites. For example Landmark Place or Blackfriars are relatively new sites from the sales point of view selling very strong, we’ve not taken price action in terms of downward price action on those sites. In terms of price reductions on sites within the last six or eight weeks, and we would say that yes, there has been some pick-up, but its early days and we’ve got to obviously look at over a period of time to see that sustainable. But I think the pick-up that we've seen in the limited number of sites has been pretty encouraging over the last few weeks.

In terms of land spend, I mean we flagged on land that back in September I knew we guided overall expenditure at round about £1 billion in terms of cash spend. We've noted in the announcement this morning, which are I am sure is not a surprise that we’re a little bit down on a year-on-year basis from where we would expect to be, because we had a pause running through July and August, post the referendum.

We’re confident that we can get to about 15,000 approvals for June. But bear in mind that as I mentioned on the overview at the beginning that in FY16 we approved 24,000 plots. And clearly a lot of those plots were now sticking through into the mix, and therefore coming through in terms of that land spend of £1 billion.

Neil Cooper

In terms of the build cost Gavin, I mean, I think we talked about around 2% to 3% earlier in the year. I think what we're saying is bear in mind around 9% of our purchases are in sterling. So we do have some exposure to currency. But of course underneath the 90% in sterling invoice, some of those inputs for those individual supplies will have their own pressures and energy in particular also. So, I think we’re expecting to be higher on materials this year than we were a last year. But I still think we're comfortable with the 3% build cost inflation when you factor in the impacts of labor.

I think last year we saw higher labor and minimal materials. This year we’re going to see a reduction in the rate of inflation on labor, that's not to say negative. But the base of inflation will, we think, be slightly abated, but materials will be slightly higher; so, still around the 3% mark, but a slightly different mix for those regions.

Operator

We will now take our next question from Will Jones from Redburn. Please go ahead, your line is open.

Will Jones

Thanks, I had a couple related to pricing please, if I could. First, just around, just the outer London business, and £600,000 and below, which I think covers 70%-odd of your product, can you comment on, I guess generally, just conditions there. But to what extent pricing is moving, particularly I'm thinking relative to say June. And then perhaps if you can just comment sequentially on the strength you're seeing in the Midlands and the North, again to what extent that's allowing any price movement again in the last three to six months. And secondly, just coming back on this point about the private ASP in the order book, if I think -- last year I think you said it was about £290, 000, which we can see obviously from your detail, which ended up being about the P&L ASP on private that you had for the full year. When we look at it today, up at £330,000, clearly that's way above I would imagine what anyone's got in their numbers for the private ASP in the P&L this year. And maybe it is Landmark Place and Blackfriars are for later completion. But can you just maybe update us on how we should think about that number in the context of the private ASP for June 2017, please?

David Thomas

One, if I cover the first and in terms of what we’re seeing on pricing generally; and then Neil can cover the private ASP, and the guidance for current year. So I think in terms of London, first of all, I mean we have as you said, the majority of our product would be below £600,000 and we flagged previously that if you look at sites like Catford for example or West Hendon, all of the product would be below £600,000 demand has been very, very strong. And we would have seen some price improvements both year-on-year and also since June. So, I think that’s a very encouraging position in terms of the below £600,000 price point.

When you look at the regional market, I mean we saw a drawn-outs Northern and Midlands. But I would say generally the regional markets overall are very strong. I think there is no doubt that Northern has been particularly strong for the North of England and Scotland, we’re seeing sales trends that are very significantly up on a year-on-year basis. And that is resulting in some pricing improvements. Overall for the business, I’d say that whether you’re looking at it year-on-year or you’re looking at it since June, we’re seeing a little bit of pricing improvement on our overall basis.

Neil Cooper

Just in terms of the forward order book, I mean, as we’ve indicated, we do have the benefit of that higher priced London stock that we flagged, the mix of sites coming towards us for ‘17, would put a bit of pressure on that -- is driving that forwards order book. The guidance we gave at the prelims was for base year views based on the ASP and the land bank which is around 261. Those of course the average across the whole life of the land bank show, looking at how the orders are coming in, I think we will have a bit of upward pressure on that just because of the London mix. But of course it does depend on how London sales go as well.

So, I don’t want to be definitive at this stage. There is still quite a bit of year to go. But I think looking at how the forward order book is shaping up and how that London mix is driving the average selling price up a little in terms of orders we’ve got in this actual, there is I think the potential to see that number float up a little bit.

Operator

[Operator Instruction] We will now take our next question from Charlie Campbell from Liberum. Please go ahead, your line is open.

Charlie Campbell

Just one question from me really, that was on the gross margin. You've repeated guidance, more an ambition to get to a 20% gross margin for the full-year. But it seems to me the price action you've taken in London will have a bigger impact on the second-half gross margin than the first. So should we expect you to hit the 20% gross margin in the first-half and then it then off that a bit in the second half because of the price action you've just taken in London? Is that the right way to look at it, or am I missing anything in that?

David Thomas

Well, I suppose, Charlie we’ll probably not get into that level of detail on the call in terms of first-half and second half. I mean I think if you look at the gross margin, we set the targets back in ’14 for FY17. We said that we wanted to get to 25% return on capital and a 20% in gross margin. And I said in September in Q&A that we’ve never said that the 20% was going to be easy. If you look at our gross margin, historically, I think for the group the highest gross margin that we’ve ever reported is about 20.4%-20.5%.

We’re still seeing a reasonable percentage of legacy land coming through the P&L, which is obviously diluting the gross margin in the year-to-June '17. So I think what we want do this morning rather than simply set out -- rather than set out first half second half, I think it was more about saying that we are still focused on trying to achieve that 20%. But we do see that there is potentially some downside risk, primarily coming out of London. So, I think we’ll have to see how that evolves during the second half of the year where as you say you would expect more significant delivery from the London business in the second half of the year.

Operator

We will now take our next question from Clyde Lewis from Peel Hunt. Please go ahead, your line is open.

Clyde Lewis

A couple if I may. Going back to the land market and obviously post Brexit, I'm just trying to get a flavor for, are you already back at the sort of run rate you want or are you still going up through the gears in terms of buying land and have you tweaked what you want to buy? And then are you looking at hurdle rates again, was the first one. And the second was really, can you just say a little bit about where cancellation rates and visitor levels, both onsite and Web site have gone to over the last couple of months?

David Thomas

Well, I think in terms of to take this action one firstly, in terms of cancellation rates and the visitor levels, I mean nothing unusual to report. We're obviously monitoring both of those on a week-to-week basis. But we have not seen anything unusual. I mean either in London or out of London in term of any pick-up in cancellation rates, on indeed visitor levels. I think it's just consistent with the fact that overall we’re seeing an increase in the reservation rates of 4% or 5%.

In terms of the land market, I mean we’re -- there is no doubt it's taking us time to rebuild some momentum. So I think if you wanted to be quiet in the land market then July and August would definitely be months to be quiet in the land market. There is clearly not huge amount of activity in August than any event. So I think when we look at where we are in October in terms of offers made and offers accepted, we see that we’re absolutely back in terms of the momentum that we need. So we’re guiding for the full year to 15,000 approvals with, as I said, 24,000 last year. So we’re going to be pretty much 40,000 across two years.

And that looks very doable, but we are absolutely saying to the divisions, you need to get back out and make sure that you are securing land to ensure that we’ve got land for growth targets going forward. In terms of hurdle rates, we’ve moved our hurdle rates at various points over the last four or five year now. Most recently we moved them slightly in the first half of the calendar year prior to the referendum. But we haven’t moved them since the referendum. And I think we need to see plenty of approvals coming through before we’d look to move them again since our move earlier in '16.

Clyde Lewis

Can I have a follow-up as well on the, I think Saatchi Javed [ph] has obviously said good poking sticks again at that the main house builders, the big three in particular, about the lack of volume growth the three house in particular, you've been earmarked, as well as the industry as a whole. But what is, I suppose, your fear in the budget, if you've got any at all, that yet another team of ministers is coming in and accusing your land banking and not upping output. What's your biggest worry that you might get next week?

David Thomas

I do think we’ve got a lot of worries as it were out with regard to next week. I mean clearly we'll need to see what said regarding next week. I mean our message in terms of the outlook statement is simply being to say that we think more of the same would be good. So help to buy a focus in terms of the planning system and the land release program would be really all we would be looking for.

We can see that there are measures that have already been announced, and there maybe strengthening those measures in terms of the medium and small house builders. In terms of the common trend, I mean we understand the government is very, very keen that the level of house building is increased for everyone for the UK. And that has to come from all places I mean that's got to be about local authorities, that has to be about the register providers, small, medium and large house builders. I mean we believe that our record of delivery in terms of bad out, we’ve grown volumes by 55% over five years. We’ve grown volumes in the last two years by 15%.

So I think our volume stat stand-out well with any of the other house builders. But we’re also saying to government you’ve got to be very focused on quality. So you can’t just be in a situation that the only target you've got is volume. We know that the U.K. built 400,000 houses on a couple of occasions during the 60's and I don’t think anyone would be too proud of the quality. So, there has to be a balance between the delivery of volume and the delivery of quality. And that’s the message that we are delivering very formally with the government.

Operator

We will now take our next question from Jon Bell from Barclays. Please go ahead, your line is open.

Jon Bell

I’ve got three questions. First of all...

David Thomas

Jon, you’re very faint...

Jon Bell

Is that better, can you hear me now?

David Thomas

You’re loud and clear now.

Jon Bell

Good, thank you. Three from me if I can. First of all, on whether you've got any thoughts on concrete brick use, one of your peers seems to be moving further down that avenue? Secondly on London, just to help us on the price action points. Would it be fair to say that the price cuts that you're making are broadly equal to the increase in stamp duty that we've seen at those price points in the last couple of years? And then thirdly, any guidance on cash at the end of December?

David Thomas

Okay, thanks Jon. Yes, that was all very clear. So, if I do one and two in terms of bricks and pricing action, and Neil can just cover cash, in terms of December. I mean, we've seen the announcement from Persimmon, and we know that Persimmon have, for a period of time, they’ve had more vertical integration than any of the other house builders. So clearly they have a big facility in terms of space for timber. And to be honest I think it’s being widely true that Persimmon have been looking out a brick facility over the last 18 months two years.

So, from our point of view, I mean I think it’s really more for Persimmon’s comments on. We are not a user of concrete bricks. But clearly concrete bricks have a big place in the market, and there is significant use of concrete bricks within the marketplace. Our view would be anything that takes the pressure off the supply chain is a good thing. So whether it’d be concrete bricks or whether it’d be timber, it all takes the pressure off the supply chain. So, from that point of view, it has to be positive. If there is more capacity in the industry for bricks or timber frame, or anything else, I mean, we have a small facility in-house where we produce our own bedroom furniture, wardrobes. And so we use that exclusively. And I’m sure that take some pressure off in terms of supply wardrobe; so all of that stuff has got to be good for the industry.

In terms of price action, I mean no, I mean, I’d say typically that price actions has probably been a little above the level of 3%. So, we’ve seen comments in the market about pricings where people are taking price action, it being more in the order of 5% to 10%. But bear in mind that it’s Zone 1 for us, it's seven or eight developments, we haven’t taken price action in all of those developments. And it’s just a question of looking at the particular characteristics, which is probably about local supply compared to local demand. And therefore taking appropriate price action in that situation.

Neil Cooper

Yes, I mean we haven’t guided on half year yet, or at all Jon in terms of cash. I mean I’ll remind you, we’ve always said on cash, because we expect to be cash positive in line with our wider balance sheet strategies by the end of fiscal ’17, which is obviously June. That all said, I think we will be drawn at the half year, difficult to give you an exact number, but probably by around £100 million in debt. I mean we run typically £200 million to £300 million on average indebtedness in any event through an average year. And I think that’s probably well will be at the half year. So, I’m not expecting to have a lot of cash in hand with the half year.

Operator

[Operator Instruction] We will now take our next question from Kevin Cammack from Cenkos. Please go ahead, your line is open.

Kevin Cammack

I apologize in advance because these are very anal questions I'm afraid. But I'm just slightly scratching my head on a couple of things regarding London. Firstly, to be clear, when you talk about price adjustment, are you talking about headline asking price or price less incentives, are they mutually exclusive in this exercise or not? That's the first one. Do you want me to do the other two?

David Thomas

Yes, please. Go ahead and we’ll try to answer.

Kevin Cammack

The second one is, just going back to the bulk sale that you'd exchanged. And it was in reference to that when you were speaking that you brought up the subject of gross margin impact. As an example, can you -- are you prepared to tell us what the gross margin differential on that sale was, as against what you would have budgeted in sale? And the last one, which again it's my own stupidity I'm sure. But when I look at the JV line on the forward sales, and I look at your JVs, predominantly they're very much London centric. But the pure arithmetic on the forward sale of JVs gives you an average selling price of less than your subsidiary PD sales. And I'm just trying to tie that up. It just seems an incredibly low number for what I always understood to be basically London sales.

David Thomas

Okay. And can I...

Kevin Cammack

They're not that -- they're just bloody anal aren't they, really? They're not terribly relevant questions. But I'm just completely foxed by it.

David Thomas

No, not at all. Could I just start, could you just go back on the first one in terms of price side...

Kevin Cammack

Right, the first one, to be very clear, when you're talking about reduced prices on a selected number of Central London sites, are you talking about headline price cut or are you talking about the effective price cut including incentives? Because obviously, you're advertising a couple of sites that we can all see in the papers with stamp paid and all that sort of thing. So what I'm after is, is that comment about price cut mutually exclusive to what you're doing on incentives, or is it inclusive?

David Thomas

I think that comment is inclusive of what we’re doing on incentives. So it's essentially looking at our net-net price position. And aside, there would be very few of them, two or three, sites that we were offering stamp -- stamp duty paid, that will be a very good example of site where we’re taking price action. And those adverts would run and you would see those, and they would run from other developers as well. So it's very specific but it is on a net basis. And generally we have tended to find that stamp duty paid can be a significant incentive, and beyond that it probably tends to be an actual reduction in price.

I don’t think this is about saying we’ll provide you with floor coverings and carpets, so it's more significant than that, but on a very limited number of sites. And as we touched on we’re probably initially in six or eight weeks ago it's early days and we’ll see how it goes. But we want to make sure that we’ve got appropriate rates of sale relative to our build programs. And although there is some scope to always slow build there is limits to how you can slow build on sites and still be cost effective. In terms of those sales...

Kevin Cammack

So far your view would be that you've got traction on what you've done so far, you've seen some very attractive...

David Thomas

Yes, very definitely. We have had good traction, good sales in London. So I’ll say generally the sales trends in London over the last five or six weeks have been encouraging. In terms of bulk sale, I am not going to go into the detail of the specific bulk sale. But I think what would be fair to say is that we’ve got a couple of very tangible moving parts on genuine of bulk sale. So first of all, in recent past, we have done two significant bulk sales. We undertook a bulk sale at Nine Elms, which we signed in December 14th. And we undertook a bulk sale at Enderby Wharf, which we signed in August 15th.

So these are not new initiative, these are things that are a feature of our business, both of those bulk sales were undertaken on joint venture sites. And therefore wouldn’t have impacted in terms of gross margin, but would have impacted the joint venture delivery. This bulk sale is a wholly owned site, 39 apartments, and therefore it would impact our gross margin. The benefit that we are seeing from that is certainty of sales, so big take.

Secondly some slightly altered cash flows, so rather than 10% on exchange and the balance on completion, we’re seeing slightly better cash flow. And it should be built and sold through by June 17th. And thirdly, because it is effetely the whole site, we haven’t had to sale for sales office. We haven't had to allocate sales advisers, a show flat, or anything. So therefore from that point of view, yes negative on gross. But when we look at it on a post interest basis, we’re very happy it's the right thing to do. And I think Neil was going through answer in relation to the JV.

Neil Cooper

Yes, I mean I think there are a couple of things that are driving what you’re seeing. I think the first -- and I’ll preface all of this by saying that of our 11 JV sites, around 50% are non-London. So I think that's just the point to note. But I think there is combination of factors. Firstly, we are seeing a highest share of affordable within that JV line, and as a percentage of the total. And secondly, the average affordable unit in the book is lower than at the same point last year. So, that's the first general comment.

The second general comment is that the share of renovations from London in that book is also smaller than it was at the same point last year. So, you've got less London weighting in that number. You've got a higher affordable weighting and the affordable, in and of itself, just because of the mix of sites involved is lower.

Kevin Cammack

All right, thanks for the help. Very good.

David Thomas

No, that’s not all. I mean Kevin you need to bear in mind I mean as Neil talked and outlined, Milton Keynes we have a very significant joint venture in Milton Keynes with places for people. So that is producing significant units. I think Milton Keynes standalone last year was about 250 units off one site. So, that will be a big part of the JV forward order book.

Neil Cooper

And I would you know just to reiterate, we have flags and we are continuing to flag much reduced volumes in the JVs in '17 versus '16.

Operator

We will now take our next question from Andy Murphy from Bank of America. Please go ahead, your line is open.

Andy Murphy

Just another question on London. I was just wondering if you could talk a little bit about the location or origin of the buyers that you're seeing. Whether you're seeing more or less overseas buyers registering an interest or actually making purchases, given the change in the currency?

David Thomas

Yes, I mean I think, at this point in time, Andy, we’ve not seen anything by way of a step-up. So I’d say that we’re pretty neutral. So two things to add to that one is, for the first time in March, or first time as far as I know we’re in March ‘16, we’ve employed an International Sales Director, not something that bad as previously had within our London business. And that international sales team are now marketing into more overseas locations than we have previously done. So, that’s giving us more reach. But it will take time for that naturally to feed through in terms of sales. I think we’re seeing some evidence of increasing sales.

So for example two years ago, 12 months ago, we would have not -- we would not have been marketing into the Middle East. We would have been typically focused on Singapore, Hong Kong, and Mainland China. And therefore, we’re broadening our reach now into Middle East. We’ve also been marketing into Turkey, into Russia, for example. I think what we have seen a pick-up of, in terms of interest, has been an interest in terms of PRS funded by overseas money; typically dollar denominated money. But that again, from our perspective, that doesn’t seem to have filtered through yet in terms of completed transactions.

But, I would imagine as we move into ’17 then there maybe some completed transactions that start to come through. But you would assume that if you’re U.S. dollar denominated, everything looks a bit more attractive than it did pre-June.

Andy Murphy

And just on that subject of overseas offices and overseas sales, what -- do you get any pushback from the government on that, because clearly the government want more houses built, but I assume for the domestic consumption yet the sector is selling abroad in some cases. Does the government have, in your conversation with them, give you any pushback on that?

David Thomas

I think it’ll be mainly through the mayor’s office. I mean there was an agreement signed by a number of house builders. We were one of the signatories to the agreement. In 2015, that we would market all developments to the UK first. And the vast majority of developers in London are signed-off to that agreement, which the mayor at the time shown some really restriction for. So, I think there is a commitment from Barratt and the commitment from many of the house builders that they’ll market in UK first.

And I think that’s reasonable. I mean if you’re marketing on a UK first basis, and you see the initial demand from the UK, and then if you have surplus supply, particularly at the high end, then to market to overseas can actually makes a lot sense.

Andy Murphy

On that agreement, what is the basic parameter around that, and do you have to market in the UK for a day, a week, a month? How does that pan out in reality?

David Thomas

Well, I mean I think it's in essence our offering it in the UK first. So, I mean there is not a time, as I understand there is not a timing commitment. I mean you don’t need to market it in the UK for certain number of days or weeks. But you some point need to make product available in the UK initially.

Andy Murphy

All right, okay, thanks.

David Thomas

Just to add to that. I mean bear in mind again that when you look at our footprint of sites in London, the majority of our sites we have no overseas purchasers. So, if we’ve got 20 sites in London and we’ve got seven or eight sites in Zone 1 edge of Zone 2, we’ve got 12 or 13 sites that just wouldn’t have overseas purchasers on them. And therefore, it’s predominantly down to probably five or six sites are being marketed overseas.

Operator

[Operator Instructions] There are no further questions over the audio.

David Thomas

Okay. All right, everyone. Thank you very much for dialing in. And we will be back to update you again in January. Thank you.

Operator

Ladies and gentlemen, that will conclude today's conference call. You may now disconnect.

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