Taylor Wimpey plc

Good morning, everyone, and thank you for joining us expertly this morning. As usual, I'm joined by Chris Carney, our Group Finance Director. So I'll start this morning with a few very brief comments, none of which I think will come as a surprise to you, and then we'll open up for Q&A. So I would like to start this morning by acknowledging the hard work and commitment of our team's who have helped us to deliver a resilient performance in what continues to be a challenging housing market backdrop. We are pleased with the sales rate, which reflects the locational quality of our sites, supporting our sales efforts. And we continue to demonstrate that Taylor Wimpey is a strong and agile business with high-quality products and locations, underpinned by an excellent land bank and robust balance sheet. As I said, I think this continues to be a challenging period for the housing sector. And while we've seen reductions in mortgage rates from the highs we saw over the summer, they continue to be elevated compared to recent years. And this, together with the broader cost of living pressures, continues to pose affordability challenges for our customers. Though mitigated, I think, to some degree by continuing wage growth. Despite this, it is worth, I think, reiterating that early customer inquiry activity remains strong, comparable to inquiry levels seen in 2019. So against this backdrop, we reported a year-to-date sales rate of 0.63 homes per outlet per week, which excluding the impact of bulk bills was 0.57. So far in the second half, our sales rate is 0.51 and excluding the impact of bulk bills is 0.48. Importantly, this isn't driven by price, which remains reasonably firm. And while incentives are being used to secure customer commitment, these continue to be well controlled. Joint valuations have remained low in the period. So overall, our sales teams are working hard and proactively with customers all along the customer journey. Moving on to land, I think you'll have seen from the statement that we continue to be cautious in our approach benefiting from our strong land bank and high-quality locations, positioning us very well. The current land environment continues to show few signs of the sort of value movements which would encourage us back to the land market in any meaningful way, given the current trading conditions. That said, we own and control all of the land for 2024 and have planning in place for the vast majority. We've already started on site on 37 future outlets, which are due to open the end of this year and the first half of next year, and continue to make good progress on others. You'll have seen that we're reiterating our guidance for the year of 10,000 to 10,500 UK completions, but now expect group operating profit to be at the top end of our guidance range of 440 to 470 million. This is because of our focus on optimising prices and sharp cost discipline. Looking to next year, the sales environment remains uncertain and the operating environment tough, with second staircase and new building safety procedures delaying progress on high-density sites, the failure of legislation to resolve neutrality constraint sites in the near term, and ongoing planning inertia more generally. While of course it is far too early to give guidance for 2024, you can see from our statement that we will come into the year with a reduced order book compared to our position last year. This will, of course, impact us next year. But overall, our ethos remains, that is, to protect value, as we have discussed many times before. As always, we at Taylor Wimpey recognize the value of our partners and of supporting each other through challenging times and ensuring that we are ready for recoveries. Our teams continue to be in the detail with our suppliers and subcontractors to find ways both sides can work together more efficiently and challenge cost fairly. I think it's pleasing that we do see bill cost inflation continuing to abate as a result of these actions and, of course, the wider environment. A good example of this is as part of our annual sales spec review, we have engaged extensively with with our suppliers and contractors and align this to the increased customer insights that we have now and which we've spoken about in the past. We've challenged ourselves to ensure our customer offering continues to be of the high quality and specification value by our customers, whilst at the same time targeting cost savings. We will continue to work hard to manage the business tightly against the current market backdrop, but also put the business in the best possible position to optimize performance in all market conditions. And because our strong balance sheet, excellent land bank, and highly experienced teams, we have choices. We have a differentiated dividend policy to return 7.5% net assets to give investors increased visibility. And as I said earlier, our focus in the short term remains on tight cost control and protecting values. While the short-term market is challenging the sector, there's no doubt that the UK housing market remains an extremely attractive market with the opportunity to deliver much-needed homes in an undersupplied market in the medium and long term. So hopefully that's given you a bit of an overview and quite happy to go to questions.

The first question comes from Will Jones at Redburn Atlantic. Please go ahead. Thanks.

Morning. Morning. A couple from me, please, if I can. First, just maybe exploring recent trading, if that's okay. We had a seminar earlier in the week talking about more customer positivity in October specifically. Just wondered if you've noticed any changes as you've gone through autumn. Do you see any difference, I guess, October relative to September, or would you say it's been more consistent? I suppose to link to that as you look forward, just wondering how you're thinking about your bulk sales strategy as you exit this year and then into next as well. And then the second main one was released around build costs. I think you've mentioned abating inflation, but just wondering to what extent you're managing to achieve any absolute gains as you push back on the supply chain.

Thanks. Yeah. Okay. Good morning, Will. Yeah. I think in terms of recent trading, we have seen some marginal changes over the year. I think when we reported at our interims, we had had, sort of a 0.47 in July, now reporting sort of a tick-up from that period and 0.51 over this half year so far. There are marginal improvements. We did see some improvements in October, but I think when you slice and dice the trading period, the 18 weeks, based on previous years, it's relatively flat. I think that we are seeing in some of the anecdotal commentary coming from our sales teams is a little bit more confidence, a little bit more of a return of first-time buyers seen over October, but I think it is fragile. If we go to sort of bulks, and we've talked before about Our approach to bulks has been predominantly around plan transactions that we factor into financial planning, particularly for our larger sites. What our drivers for bulks are predominantly around the quality of the deal, improving capital returns in some of those bigger assets, and we see them as incremental to the order book. We maintain that there is a place for bulks within our overall strategy, but we're really mindful of that protecting value. And I think also mindful of the challenges that we continue to see in planning, the fact that there is little readjustment in the market in terms of overall land pricing and the potential challenges ahead. in sort of replacement dynamic around land. But, you know, at this point, I think it's part of a toolkit. I'm comfortable with the level that we have, and we've got, you know, a series of some really good partners that we, you know, enjoy working with that's sort of fair and balanced, and it will remain part of the toolkit. I'm going to pass over to Chris, you know, for the sort of the depth of bill cost inflation. But, you know, as I said in my opening, you know, pleased to see sort of it coming in and that the teams are working really, really hard sort of right across the group to drive down sort of our bill cost.

Morning, Will. Yeah. I mean, in August, we reported a prevailing annualized rate of bill cost inflation of 6% and said we were expecting that inflation to continue to moderate as we progress through the year. That 6% rate from August has dropped to around 3% today. The main driver has continued to be materials, with labor inflation at pretty negligible levels, I think, on a 12-month basis. because labor rates have really just continued to reduce in line with activity on site. So as work for sub-E's has become more scarce, I think that's provided some opportunity for us to at worst hold sub-E rates and in some cases negotiate reductions, especially on sites where there is good visibility on future output.

Great. Thank you. Our next question comes from Ainsley Lamin from Investec. Please go ahead.

Hi. Morning. Just two questions from me. Just wondered on the site numbers. Obviously, year-to-date, they're up, but the current level of site numbers is a bit lower. Is that something we should read into where site numbers might be on average into 2024? I know it's early days, but just interested to hear that. And then just on the kind of, you know, I guess any regional differences in trading across the country, price points, anything we should be aware of or of interest there? Is it pretty board-based, consistent trends across the country in terms of recent trading?

Thanks. Okay. Morning, Ainsley. Yeah, so in terms of outlets, I think the reason that we've sort of given you some visibility is to the number of outlets that we're already on that yet to open is because with the You know, our position on the land market, you know, we've been out of the land market for quite some time now. And that does have implications for, you know, for future outlets. But nevertheless, I think, you know, still showing a very good sort of strong number of of openings, and there aren't all the openings going into 2024. We're working on a number of others, and we're very well planning progress for 2024. But inevitably, if we stay out of the market for longer periods, then that does have ramifications for outlets. The two have consequential impacts on each other. We don't give guidance on outlets, so I'm not going to go any further than that. But actually, I'm quite pleased at the number of sort of future outlets that we're working on given that backdrop. On regional differences, I mean, nothing more than, you know, is well reported. You know, London and the Southeast is particularly impacted, albeit, you know, I think our teams are trading really well for that backdrop and environment. Probably, you know, I would continue to call out, and I think it's something that I've said before, you know, it is more on a site-by-site sort of basis. You know, we do see that some areas that saw particularly strong house price inflation, you know, over the previous period, you know, are more impacted in the current climate, which, you know, obviously goes straight back to affordability. but nothing more than we would expect on general differentiation between regions.

Great. Thank you very much.

Our next question is from Harry Goad at Berenberg. Please go ahead.

Yeah. Hi, morning. Thanks for my question. I've got, Jenny, just to come back on your comment on land, please, where I think you said you've you've not really seen any material change in valuations yet. So on that, a couple of things. Firstly, why do you think that is? Do you think that's just a typical duration thing? It takes, I don't know, a couple of years for that to feed through. And secondly, when you think about the movement you've had in bill cost and selling prices and sales rates, broadly, what do you need to see land prices drop by before you get interested? Thanks.

Okay. I think in terms of the valuations, there's very little. I mean, in the end, there's just very little moving in the market. I would describe it as a very muted and quiet market. And although there is bid activity, there's very little final commitment, and so we're not seeing sort of transactions completing. So, you know, there are always, you know, there's a few exceptions, but they don't make a market. You know, why are valuations not moving? I think it comes back to overall land supply. You know, the planning system has been, you know, sort of particularly morbid, you know, and worsening probably, you know, since 2018. We saw it really start to be tightened up through sort of COVID, the COVID years, you know, the sort of lack of real clear direction in sort of government policy has left, you know, this sort of, I described it as inertia, I think, this morning, you know, local authorities really not moving things on. And so there's just not enough land coming to the market and that, you know, allowing landowners to feel really quite robust, you know, either taking the land out of the market and not trading at all or holding very tightly to price expectations that were set pre the market change. You asked how long would it normally take for the land market to feel the heat or feel the change. We're well past where I would normally have expected the land market to start reflecting the level of market change that we're experiencing, Harry, by quite some way. You know, I would say, you know, probably six months at a push, you would expect the market to really start to exhibit the change. So I think we are in a slightly different dynamic, and that's something that's obviously on our mind. In terms of what sort of price or what sort of would take us back to the market, it's always on a side-by-side basis. It's always based on the quality of the deal, the quality of the location. So I'm going to sort of sidestep that a little bit. We review every site in detail, both locally and centrally, and it's where we then see it fitting the balance of the business overall. Brilliant. Thanks, Jenny.

Our next question is from Marcus Cole at UBS. Please go ahead.

Hi, morning. Thanks for taking my questions. Just to be clear on the outlets, where do you expect to exit this year? And then in just a couple of questions in the order book, what's the private social volume split? Are there any private ASP movements that we should be aware of?

Thank you. Okay. I mean, I'm not going to predict outlets. There's going to be a a case of where sales rates and other things go through to the end of the year.

And I think in terms of private social split in the order book, it's probably 48%, 52%, something like that, in favor of affordable. Chris, is that?

Yeah, so the precise split, Marcus, is 3360 private units, 3682 affordable. So that should get you to the 7,042 in the statement. Okay, thank you.

And then just on the private SP and the order book?

Yeah, I think if you just apply the numbers that you can see in the statement, you can see that the blended average selling price in the order book is is down by about 3%. Inevitably, there's always sort of mixed in that, probably slightly more weighted to higher average selling price plots in London than last year, but it's also got... you know, more affordable as a percentage than last year's order. But, I mean, having said that, you know, I think broadly offset and you would always expect that there would be some underlying sort of deflation because, you know, the peak in house prices was sort of September time last year about 2% below that. We updated you at the half year to say we were probably about 3% below the peak. And it's probably a touch more than that now. So, you know, that does flow through gradually into the order book. And I think that's what you're seeing.

Okay. Thank you very much. Our next question is from Chris Millington at DB Numis. Please go ahead.

Thanks very much. Morning, everyone. Thanks for taking my question. Just quite a high-level one, and I know it's not really a traditional trading update sort of question, but as market conditions remain quite difficult and who knows what we do next year, how resolute are you feeling on your dividend at the moment? Because you do stand out in the sector for maintaining it relative to a few of us who have obviously taken a more cautious view. Second one's just on land creditors and what the move's been over the year so far. And then the final one is, is he's just going back in time. You mentioned about hoping to actually kind of build an order, but to obviously show volume growth into next year, that's obviously not transpired with the way the markets move. I mean, should we now be thinking volumes are going to move backwards somewhat next year, you know, with the exception of obviously spring taking up in a decent way. Thanks so much.

Right. So I think there's probably a couple for me there, Chris. Um, you asked the question on dividend because it gives me the chance to highlight once again that we have a differentiated dividend policy I'm very happy to remind you of the policy but I'm sure you've heard it all before and there's absolutely no change to it but perhaps to just give you some additional comfort it's worth reminding you that today's statement says we're expecting to end this year with a healthy cash balance which we've given a range on And I would also add that I expect to end the year with land creditors at or below our net cash balance, meaning that we would retain a very strong balance sheet. 2022 at £844 million. The reduction in land buying since then meant they fell to £588 million at the end of the first half of this year, and I'm expecting them to continue to reduce through to the end of the year. And then, you know, on 2024 volume, you know, we're too early to be giving you guidance on 2024 at this

I totally understand. Sorry, Jenny.

Okay.

Okay, thanks so much.

Thanks, Chris.

Our next question is from Anthony Manning at Bank of America. Please go ahead.

Good morning. Thanks for taking my questions. The first one would be just the kind of improved EBIT outlook. Some of that came from better costs. Could you give us some kind of indication of where they came? Is it through gross or more OPEC savings? And are they sustainable going forward? And then secondly, you talked about kind of the sales rate is firming up, you know, through autumn. And we've heard peers saying that as well. You know, could you talk about the incentives levels and how they've changed throughout the year and particularly through this period? Thank you.

Yeah, I mean, I'll take the sales question and Chris, if you take the EBIT question. Yeah, I mean, I think on incentives, I go back to, you know, we have, we've seen sales incentives as a sort of a tool for commitment to aid commitment rather than, you know, they don't create a market. You know, so that's probably the one thing that I'd start with. You know, if you think back to sort of earlier in the year, we talked about a bespoke, having a bespoke approach to incentives, Anthony, and And that means that our teams are empowered to put together incentive packages that match sort of either the resistance or the objection that a specific customer has to aid their purchase. So we've seen incentives being deployed. We've seen them dropping back through periods of the year where sales rate was more robust and have seen them pick up since that sort of interest rates peak in the summer. And, you know, we're sitting at sort of that around 5%. From a sales rate perspective, yes, you know, we've seen that little bit of a nudge up. But, you know, I'd go back to my comments earlier, which is, you know, it is relatively flat compared to what you would normally expect to see in the dynamic market. and, you know, a little bit of, you know, sort of incremental benefit, but, you know, wouldn't want to sort of go too far on that. You know, we would expect things to quiet down now, you know, in a normal year into the year end and really looking forward to, you know, the spring selling season next year.

Yeah, and the improvement in moving to the top of the operating process price and controlling costs. So our team's working very hard, applying their experience and a really disciplined approach to grind So, you know, it's been, you know, quite a while since we, you know, really started actively engaging with all our surveys and suppliers to sort of review the scope of works, the materials, the routes of procurement, and any alternatives thereof. without compromising on build quality, on value for our customers, and health and safety. So, yeah, we've been chipping away for a time, so I think in answer to your question, you'll see that come through the gross margin line. Really helpful.

Thank you. Our next question comes from Amy Galla from Citigroup. Please go ahead.

Yeah, thanks. Just two questions for me. One was maybe tied to incentives again. In terms of part exchange, can you give us some colour if that meaningfully stepped up in the second half of this year? And the second one is just on government support measures. Over the next 12 months, what do you think or what would you expect coming from the government in terms of the sort of support to the housing market?

Yeah, thanks, Amy. The... From a PX point of view, I think we're at about 4% through the year. We did see a pickup in the latter half. We're managing it really well. I'm actually very pleased. It's a good tool, but the teams are demonstrating their ability to move the stock through. That's continue sort of protecting value playing all the way through to our PX. Around government support, you know, I don't have any more of a crystal ball than anyone else. You know, we're all hearing the messages, you know, from Treasury around the level of fiscal constraints that's likely to be required. So, you know, I don't have, you know, great expectations around the November statement. You know, depending on how sort of the rest of the year plays out and early next year and bearing in mind that it's an election year, all things being equal, you know, we might expect something a little bit more sort of election focused in the spring budget. But, yeah, I think that there are probably very few levers that are actually available for government to pull in the short term. Thank you.

Our next question is from Glynis Johnson at Jefferies. Please go ahead.

Good morning. Two, if I may. First one, just in terms of land, you obviously highlighted the strong land buying you did previously, but when do you need to go back into the land market in scale or when do you need to make that decision that you need to step back in? And the second one, just trying actually – you often get asked the question on the regional differences in terms of selling rates and pricing, but I wonder if I can actually tie it back into your land buying, your sort of – the way you differentiate your sites, your AA sites, your AB sites, your BA sites. Are the sites that you view to be in the best locations actually the ones that continue to perform best, or is it actually there's catch-up that comes through some of the not quite as strong locations? Yeah.

Okay, I think a really good sort of question there on the regional differences. I mean, I often go back to it as a site-by-site thing, and I think that that's where you're getting to around the AA and the sort of ABs and the like. I mean, the really premium locations tend to slow down. They tend to be more sort of price preservative, so they hold their price, but rates can be very slow, and that makes this type of environment more where you're trying to sort of find that balance sort of challenging. But, you know, we do see that the quality of our sites, you know, is playing through. And, you know, the quality of the sites aren't just about sales price. It's about, you know, affordability, you know, an aspiring sort of population, you know, strong economic sort of backdrop. And I think that discipline, you know, is helping support our sales rate through this, you know, quite volatile year limit. You know, on land and when we need to go back, you know, you can see that, you know, we're maintaining a really strong short-term land bank given the fact that we've been out of the market, you know, for some time. But, you know, it is something that we're, you know, continually reviewing. If conditions, you know, remain as tight in the market as they are, it won't be a, you know, a mass return to the market. It will be a very subtle and incremental, you know, review of where we feel sort of locationally. Either we've got the most confidence or locationally where we feel, you know, there's a need to, you know, to increase our presence there. So, you know, I don't see it as a big flick of a switch. You know, I see it as, you know, this constant review and assessment.

Thank you.

Our next question comes from Sam Cullen at Peel Hunt. Please go ahead.

Yeah, morning everyone. It's an extension to Glynis' question on land, really, just in terms of how do you think about the flex in your hurdle rates under that scenario, if you're having to top up the short-term land bank in some areas?

Yeah, I mean, I'm just looking at a list of the sites that we've approved over the last year. And, you know, and I can say I know every one of them in detail. You know, we've been through them in, you know, significant stages. And it's a combination of the security that we feel in those market locations, the realism that landowners have been willing to express, and, you know, the confidence that our teams have around, you know, other risks, technical, but planning risk as well. You know, so really planning sort of sure in them. And that is where the balance on hurdle rates, you know, sort of comes in. We're very mindful of the price-bill cost dynamic when we're looking at sort of the small number of opportunities that we're committing to. And I'm very satisfied that we've got a sufficient level of headroom in those to sort of withstand sort of movements in the market. And, you know, also bear in mind that, you know, the land that we're buying today isn't really going to come into sort of production until, you know, 2025, late 2025, 2026. And, you know, looking at our confidence in that medium-term sort of market.

Okay, thanks. We have no further questions on the call, so I will hand back to Jenny to wrap up.

Well, thank you very much. Hopefully the Q&A was helpful. Just to wrap up, we are pleased to have delivered a resilient performance against this tough market backdrop. It is a testament, I think, to the strength of our business, including our highly experienced teams, that sharp operational focus that we've talked about again this morning, strong financial position, and our excellent land banking. And I think this means that we are well positioned to navigate current market conditions and really well placed to capitalize on opportunities when market conditions do align. Thank you all for your time this morning. I look forward to seeing you all maybe later. Thank you.