Half Year Trading Statement.
Despite the continued uncertainty in the Euro-zone and global economy, the UK housing market has remained stable throughout the first half of 2012 and we will report improvements across all key financial metrics at our half year results.
These improvements are the result of the continuing implementation of our strategy, driven by a combination of: increasing the proportion of strategic land sites; improving returns from land purchases since the downturn; an ongoing tight focus on costs and value optimisation; and the increasing benefits from our new housetype range.
We continue to focus on the creation of medium to long term value for our shareholders, which we believe is best delivered through the core skills of strategic land management, targeted and well-timed land acquisition and providing our customers with high quality, desirable homes that are efficient to build. While we retain an overall cautious approach, maintaining tight control over the level of debt and exposure to land creditors, we continue to take advantage of selective opportunities to acquire land at attractive return levels.
In the short term, assuming that current stable UK housing market conditions continue, we expect to continue to achieve improved performance period on period and to deliver full year returns in 2012 that are ahead of our cost of capital and in line with our expectations. Should market conditions weaken, our high quality land portfolio, increased order book and strong balance sheet put us in a strong position.
UK market conditions remain stable, with underlying pricing unchanged over the course of the first half of 2012. Mortgage lending continues to be restricted, although we have been encouraged by the introduction of a number of higher loan to value products since the start of the year, most notably under the NewBuy scheme.
We have maintained our strong sales performance during the first half of this year, achieving an average private net reservation rate of 0.60 sales per outlet per week (H1 2011: 0.56). This rate includes a total of 201 home reservations under the NewBuy scheme since its launch in March 2012, representing around one-third of overall industry reservations. We have increased our use of the government-backed FirstBuy scheme, although we retain our cautious approach to the use of shared equity incentives in general. Cancellation rates remain below the long term average at 15.1% (H1 2011: 15.1%).
We completed a total of 5,083 homes during the first half of 2012 (H1 2011: 4,707), of which 4,137 were private completions (H1 2011: 3,675), 893 were affordable completions (H1 2011: 1,004) and 53 were our share of joint venture completions (H1 2011: 28). The overall average selling price of these completions increased to circa £175k (H1 2011: £168k). The average selling price on private completions increased to circa £188k, reflecting a higher quality product mix in terms of both size and location (H1 2011: £182k). The average selling price on affordable completions decreased to circa £115k (H1 2011: £117k).
Having completed the roll-out of our new housetype range during 2011, the benefits to the business are increasing as they are plotted on a growing number of sites. These homes, which are designed to be high quality, desirable, extremely energy efficient, cost effective and safe to build, have been well received by our customers.
As previously announced, following the disposal of our North American business, the Group will no longer be reporting a 'Corporate' segment in our financial statements, with the former 'Corporate' overheads now being accounted for within the UK Housing segment. We expect to report an operating margin for the first half of approximately 11% (H1 2011 restated: 8.4%).
Our continuing prioritisation of margin improvement ahead of volume growth is also reflected within our order book, where we have achieved additional margin progression since the year end. The total order book value, excluding completions to date and joint ventures, was £960 million at 1 July 2012 (3 July 2011: £932 million), representing 5,720 homes (3 July 2011: 5,989 homes). This growth in the value of the order book has been driven by private reservations, with an 18% increase in the value of the private order book more than offsetting a decline in the value of the affordable order book.
Following the recommencement of the dividend at the 2011 full year results, the Group intends to pay an interim dividend. In line with the policy outlined at that time, this interim dividend will be calculated with reference to the net asset value of the Group and is expected to represent around one-third of the total dividend for the year.