Taylor Wimpey plc

Ladies and gentlemen, welcome to the Taylor Wimpy Trading Update. My name is Neil, and I will be coordinating your call today. If you would like to ask a question during the presentation, you may do so by pressing star 1 on your telephone keypad. Now I'll hand you over to Jenny Daly. She's executive from Taylor Wimpy to begin. Jenny, please go ahead.

Thank you, Neil. And good morning, all, and thanks for joining us. I know it's a busy day today. So as usual, I'm joined by Chris, but I'll start with some brief comments before opening up to questions. So I think you'll see from our statement today a consistent message to our comments at half year and you should take away that we're on track and very happy with how we're positioned. If I was to describe the market, I think I'd use words like steady and stable. It's certainly much better than it was at this point last year and it's ticked up from the summer. This has continued in quarter three. albeit we did see an element of consumer caution in the run-up to the recent budget. So in that context, I think we're pleased to have produced a good sales rate of 0.7 for the second half year to date, which is 0.68 excluding bulks, reflecting a relatively low level of bulk activity as we continue to focus on delivering value from our sites. This is testament to our attractive locations and our experienced teams. Our year-to-date cancellation rate remains at normalized levels, so as I say, much improved on last year, though perhaps not back to levels we saw before this downturn. In terms of what we're seeing from customers, generally confidence is good, but we know that there has been a bit of waiting for the budget and potentially for lower interest rates. So with this backdrop, our teams have been working hard to drive sales and educate customers with the help of our IFAs to give them the confidence to commit to their buying decisions. So turning now to outlets, we've operated on an average of 209 outlets in the second half to date and taking into consideration the prevailing sales rates and planned outlet openings, we expect to end the year with just over 200 outlets as we have continued to sell well. Importantly, we continue to have excellent visibility in all of the sites needed to deliver growth from next year, assuming a supportive market, with 95% of our 2025 volumes coming from outlets that will be open by the end of the year. And even though planning does remain challenging, we've had a number of successes recently, so we still expect to open more outlets in 2025 than we did in 2024, but those are likely to be weighted towards the second half. I also know that you'll be very interested in how we are selling into next year. Clearly, there is an improving sales rate, and our current order book is around 2.2 billion, but do bear in mind that this includes year-end completions at this stage. Underlying, we're about 150 private units up on last year, with an affordable slightly lower than last year. But I think, as you know, these sell further out, and so I think we are still well positioned for 2025 affordable deliveries. Overall, with a stronger sales rate, we're in a good position to continue to build the order book to support next year. As I mentioned in the summer, there's been a little bit more opportunity in the land market, and this has been helped in recent weeks by vendors acting ahead of potential changes at the recent budget. We have been active and opportunistic in reviewing land deals And as a result, our year-to-date approvals are around 11,000 plus. So we now expect to end the year with net cash of around 500 million, subject, of course, to the timing of land purchases in the remainder of the year. In terms of the new government initiatives, the big planning announcements came earlier in the summer, and these will be supportive of the industry, albeit implementation will take some time. On the budget, it was pleasing to see continuing commitment to growth in housing and some much-needed investment in planning capacity and local authorities. Whilst funding has increased in the affordable housing sector, and that's to be welcomed, we still haven't seen any meaningful action in respect of the Section 106 affordable housing issues we mentioned at the half-year results. For the business overall, I think it's early yet to assess the impact of the budget on bill cost inflation more broadly. But we are very mindful of the potential impacts of higher national insurance, particularly as regards our subcontractors. So back then to the outlook for 2024, you will see that we reiterated our expectations to deliver full year volumes towards the upper end of our guidance range of 9,500 to 10,000 UK homes, excluding JVs, and to deliver group operating profit in line with current market expectations. Looking ahead, we will continue to monitor the economic environment, but we remain encouraged by the improving customer demand and affordability. And though we will hear more later today, expected rate cuts during 2025 will hopefully provide a tailwind to release some pent-up demand. So we've talked to you previously about how we are set up to run throughout the cycle, and that this gives us the agility to optimise performance in all market conditions. This year has been very much about preparing for the next phase and ensuring all of our teams and operations are ready to take advantage of a better market when it arrives. So while there remain market uncertainties, there is an improved outlook and we remain on track to grow from 2025, assuming supportive market and have strong visibility on the land in place to deliver that growth. And with that, I'll now open up for questions.

Thank you very much. Ladies and gentlemen, if you would like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two to withdraw your question. When preparing to ask your question, please ensure your phone is unmuted locally. We will now take our first question from Ainsley Lemon from Infested. Please go ahead.

All right. Thanks. Morning, Jenny and everybody else. Morning. Two questions from me, please. First of all, on the kind of completion, so say call it 10,000 for the year, how much of that is actually already exchanged and completed at this point? And then the second question, just interested to hear your view just a bit more on the cost kind of outlook, particularly with any estimate of what you think the next change could be. on the group and just generally your kind of view into next year, I guess, fit fill for the margin progression and any cost inflation change of view over the recent weeks. That would be helpful.

Thanks. Yeah. Okay. So completions, nice straightforward one. I think we're 88% exchange are completed for 2024 Ainslie. So, you know, in a decent position at this point. You know, on national insurance, I think our overhead impact in 2025, that will be April through to December, will be about 3.5 to 4 million. So on an annual basis, probably around that 5 to 6 million level. So, you know, obviously that's something that we will look to as we go into next year. I mean, on sort of bill cost inflation, I mean, on a spot basis, I would still say, you know, we are seeing a new tenders at zero. We talked earlier in the year about self-help and the various sort of cost management measures that we had put in place in the business. And they're still giving us some benefit on that. I mean, I think it's too early to tell what the sort of the flow through will be. It is something that we're mindful, and you heard it in my sort of opening overview. But, you know, we're not going to be passive in that either. We'll engage with our supply chain, and, you know, we'll continue to look at sort of self-help measures. I think we've got a very good track record of that, and, you know, we'll just sort of keep tightening the nuts and bolts sort of over the interim period.

Thank you very much.

Thanks, Ainsley.

Thank you. We will now take our next question from Chris Millington from Deutsche Bank. Please go ahead.

Thank you. Morning, everybody. Morning, Chris. Morning, Jenny. A bit of a follow-on from Ainsley. Can you just break down that exchanged and completed number year-to-date? I just want to kind of reconcile where the order books likely to be sitting at year-end. That's the first one. Second one is I know it's difficult to generalize on these sort of things, but how do you think about the increase in net investment required per one outlet increase? We've had one of your peers talk about kind of 10 million net investment per one outlet increase. I'm just curious about how you think about that. And then the final one I just wanted to ask was, I suppose it's a bit theoretical, but we've seen HMRC transactions recover to within 9% of 2019 in 2024 so far. What would the strategy be of Taylor Wimpy if this is the new current demand environment, you know, in light of higher rates, lack of help to buy? You know, how would you think about the business going forward? Would you keep it the same? Would you like to invest more? I'm just curious about, you know, kind of what the options would be.

Okay, so maybe Chris, you can help me out with the breakdown of exchange and completions?

Yeah, it's 17% exchanged and 71% completed. Thank you.

So you got that, Chris, yeah?

Yeah, got that, thank you.

And then on net investment required to open an outlet, I think to the extent you answered your own question, every site is different in the investment profiles. very quite considerably from small sites that you would take off the back of an existing highway to some of the larger sites with a significant element of highway opening or infrastructure that needs to go in. Your third question is interesting. It's not our thesis that, you know, we're going to sort of enter a persistent sort of low demand period. We see, you know, really good customer, you know, sort of activity, improving customer confidence. We see, you know, a huge sort of level of all met demand and an under supply. But, you know, look, if those conditions were to appear, then, you know, we would have to look at, what we thought was going to drive the best value for our shareholders, both in sort of the infrastructure and the business and the way that we hold and the quantum with which we hold our land. If demand was going to remain subdued over a longer period, then we would be running down what we think is a very strong land bank and poised to drive growth through the next cycle. But if that wasn't to materialise, then we would look at winding that back.

And I hear you on that. That's very clear, Jenny. Thank you. If you were to dial down the investment in the land bank, could you hold outlets where they are, or would that just follow in suit? Is there something which would kind of change the correlation there?

I mean, again, I think that there's a range of sort of colour, size, shape and location within our land bank, the answer would be in some areas you would be able to sort of wind back the overall quantum of the land bank and still hold a strong level of outlets. In other locations, we don't get to order up land in a nice shape. It can be very, very hard. So, look, the answer, probably unhelpful to an extent, is... In some areas, yes, we could absolutely do that. In other geographies, it would be a bit more challenging.

That's very clear. Thanks for all the answers.

No problem, Chris.

Thank you very much. We will now take our next question from Will Jones from Wetburn Atlantic. Please go ahead.

Thank you. And morning. I might try three if I can, please. First, perhaps you could just talk us through your tactics around price through the autumn, be it incentives or gross pricing. The second was maybe just coming back on land, another quite big step up in Q3 there with regard to the 11,000. I think there's an additional 4,000 from strategic year to date as well. Perhaps you could just give us more colour around what you're seeing and able to purchase. And I don't know if it's possible to give any kind of view on the average site size that that intake is providing. And then the last one was just around 2025. Clearly outlets order, but we've got some moving parts to work with. You've got a view in mind around 25 completions. I just wondered whether you were any closer to sharing with us what a possible range might look like. Thank you.

Okay. I'm going to answer your last question first, Will. you know, I'm going to stick to the knitting. This is a 2024 trading update, and I'm not going to get teased into 2025. But look, we'll be very happy, obviously, to talk to you at the prelims. On pricing, you know, sort of broadly stable, you know, pretty flat. I would say, you know, you'll have heard me say over a number of calls when asked about regional variation that I didn't feel the various regions were acting significantly out of their normal offset or the normal differential other than London. I think more recently we have seen the South more reliant on incentives than we have in the past. And, you know, there's a little bit of offset, you know, sort of the North is perhaps doing a little better. So, you know, when that all averages out, incentive levels are still sitting on average at that 5% to 6%. So, you know, overall, pretty flat. The 11,000. So first of all, the 4,000 sort of strategic land conversions, you know, really happy sort of with that, given the backdrop that we've seen in that sort of strategic land environment and local plans, delays and the likes. So, you know, very, very happy, you know, have aspirations for more. And you'll have seen me referring in the statement that, you know, we continue to sort of poise ourselves for more. sort of the adoption of the MPPF and sort of to drive more opportunities from our strategic land sort of position. And the 11,000, I mean, look, it's definitely a higher number than I would have expected going into the year. And there's two elements to that. There was a bit more sort of opportunity in the market at the start of the year. You'll remember me saying that some of that was sort of deals that we, that we sort of brought in really delayed and had reworked and reworked from 2023. And then the budget, I mean, look, that's just once in a parliament sort of opportunity, really. I would say that there were a couple of new deals in there that we were really pleased to have, but there's a little bit of... landowners that we've been negotiating with over a, you know, sort of protracted period who'd, you know, been sort of holding out and, you know, there was certainly an incentive for them to transact. And so a little bit of sort of catch up from 2023 and a little bit of pull forward where it was advantageous for us to do it from what might otherwise have been an early 2025 deal. But, you know, land transactions of the size and technical complexity that we do We don't tend to see them dropping out with really short timelines too often. So, opportunity. And average site-wise in the approvals, I think under 250 would be the average site size.

Great, thank you.

Thank you. We will now take our next question from Alison Sun from Bank of America. Please go ahead.

Good morning, everyone. Two questions from my side. So first question is on the land margin, because you guys saying you are more active in land purchase. So I wonder how do you expect the future land margin to trend? That's number one question. Number two is, it looks like you guys still have a quite solid cash position, even considering all the land creditors. So, you guys have any thoughts on the share buyback? Thank you.

Okay. I'll leave Chris to answer the share buybacks, Alison. I mean, in terms of land margin, we don't disclose margin, but I'm really sort of pleased with the sort of the overall sort of margin in the land sort of being purchased. I would describe parts of the market competition is quite intense, not everywhere, but it is pretty strong. So I'm pleased with the quality of the deals that our teams have been presenting. And we do have still some advantage in those approvals as a reasonable chunk of strategic land that's in drawdown and, you know, we get a sort of benefit to a sort of margin for those sites as well.

Hi, Alison. Yes, you're quite right. We do have a strong balance sheet that is very much, you know, intended. And as you've heard from Jenny, our principal sort of focus at the moment is investment in land and WIP to drive future growth. And obviously, that is, as you can imagine, a priority in terms of capital allocation. And then, obviously, paying the ordinary dividend. And, you know, once we've sort of maintain that strong balance sheet. We've invested in lands and whips, drive growth. We've paid the dividend. If we then determine that we have excess cash, it's at that point that we would look to return it to shareholders. We've got a very good track record of having done that over recent history. And depending on the conditions at that time, that will drive whether that return is a buyback or whether it's a a special dividend. There are no plans for an excess sort of return at this point in time, but the board does keep that under regular review.

Thank you very much.

Thank you. We now take our next question from Marcus Cole from UBS. Please go ahead.

Hi, yeah, good morning both. I've got three questions as well. The first one is, can I just push you a bit more on your bill cost commentary? I think one of your competitors yesterday was talking around increased bill costs for next year around nutrients, heat pumps, and wider bill cost inflation outside of the NRI increase. So I just wondered what your impact was there. That's the first one. The second one is just more about, I know you don't want to give commentary in terms of 25% but I wondered in terms of how we should think about the trajectory of net sales outlet opening. We had 25,000 owned plots without detailed planning permission at the first half. And then the last one is just more around your comments on Section 106 funding. I know you sort of said that there was no impact from the budget, but I just wondered how constrained is that and what do you think is needed before that market starts moving again?

Okay. Thanks for that, Marcus. On build cost, so I think we've been talking for quite a long time about building in the cost of LFOS, I think got at it along the way, and then the next step to future home standards. And we've been embedding those costs into all of our land acquisitions from that time. So, you know, the fact that some local authorities are running ahead of policy is something that, you know, would already have been calculated into sort of our land transactions. And generally where local authorities are running ahead of policy, it has to be a policy that they've adopted somewhere along the way. And, you know, so the teams will have assessed that. So, look, the changes in the building regulations aren't fully confirmed. You'll recall that future home standards consultation closed in March. We talked about at the prelims the fact that there were two quite extreme solutions, option one and option two, one which we felt was probably more costly and maybe practically undeliverable, and the other which was much more cost effective. And we've been assuming costs that would sit within that spectrum, I think, quite comfortably. Nutrient neutrality is a bit of a different and difficult one because if you remember back to when we first talked about this issue landing on all our desks, it was unexpected. And there was a need to absorb some additional costs. And the spectrum of costs that are applied to neutrality are really variable. So you can go from some really quite passive, we've got a site over in East Anglia that really some of the open space land we just had to put into fallow land, right up to pumping stations and treatment works and quite costly. So there's a really big range there. But, you know, we've been chipping away at sort of neutrality for a few years now. We've got a couple of sites that are still, you know, very stuck. We, you know, they sit predominantly in our strategic land portfolio. They'll require a bigger solution. And so it was really pleasing to see the housing minister write to local authorities just a few days ago to talk about, you know, getting a solution moving. for those sort of larger problems. But generally, particularly with strategic land, we're able to build in the cost of nutrient neutrality into the land deal. And one very recent example of that, we had to buy credits from the Natural England credit system, but that flowed straight through to a cost against the land price. So I'm feeling reasonably comfortable In terms of Section 106 and funding, what's needed? I mean, really, we need government to recognise that we've, as a nation, been issuing lots of planning consents requiring developers to deliver affordable housing And the market for affordable housing through the various headwinds that we know exist with housing associations are such that really they have no appetite or very reduced appetite for Section 106s. So either government need to support housing associations in the acquisition of Section 106 or they need to be more forgiving around the structure of Section 106s in the interim. You know, I think... the CPI plus 1% that's been issued for consultation markets will help housing associations, but they've got a lot of catch-up to do, I think, in terms of they've seen their own cost escalation and they'll need to catch up on that a little bit. So I'm looking to government to try to take a more concerted action that there's still probably an interim problem that they need to advise local authorities how to deal with it. And that's certainly what we are asking ministers for whenever we get the chance. Now, just on your question on 2025, because it sticks out because it's a question on 2025, Marcus, I'm not quite sure that I understand what you're trying to get behind. So maybe if you'd like to either repeat it or reframe it and I'll give it a go.

Yeah, I'll reframe it. I was more asking in terms of, not specifically in terms of 25, but more in terms of if we look at the owned land bank that doesn't have detailed planning permission, that number has gone up materially over the last couple of years. How should we think about the evolution of that in terms of how that converts into sales outlets over, maybe say not next year, but the next couple of years? How should we think about the evolution of sales outlets in that context?

Oh, okay. Okay. I've got you. I've got you. And I think you might just sneak in under, you know, this is a 2024 call. Look, the nature of planning is, you know, there's a range of different ways that you can sort of achieve planning in full detailed planning or an outline in reserve matters. And for larger sites or sites that we plan on a multi-phase basis, the teams tend to approach them on a rolling reserve matters basis. And that's sensible. It's sensible for a range of reasons, but predominantly in a market that is changing or has changed, it really means that the teams get the opportunity as they look to the next phase to define the sales mix and sales route, how that mix is distributed around the phase optimally. And it also means that we're not allowing infrastructure and all the things to run well ahead of drawing down the land for delivery. So, you know, I'm not overly concerned about that. It's just the discipline of drawing the land down to detail as and when the phase will be opening up.

Okay, thanks very much.

Thank you, Marcus.

Thank you very much. We will now take our next question from Ami Gala from Citigroup. Please go ahead.

Thank you. Morning, everyone. Morning, Annie. Morning, Jenny. One was in trading. Can you give us some color as to the relative mix of the customers that you are seeing in current trading? Is this a market which is pretty much dominated by first-time buyers? Any color in terms of the incremental pressure that you've seen from the different cohorts of customers would be helpful. The second one was on this sort of the operational side of the business. You know, are you deploying multiple built-ins across your largest sites? Or, you know, are we kind of looking at signs of strength before we implement that? And is that a 2025 event that we need to think about? And the last one was just a follow-up on bill cost inflation. You know, as you kind of run through the 2025 negotiations, how far ahead were would you typically be at this point in the year, i.e. would you have had this conversation with most of your supply chain in terms of the projected sort of pricing that you're going out for next year?

Okay. So I think in terms of trends and mixes, we've seen sort of more representation of first-time buyers coming through the sales centers this year. I think it's still a balance. It's not dominated by first-time buyers. We've probably, you know, got slight weighting to second-time buyers at the moment. And, you know, back to that sort of point in the maybe towards the south weighted to second-time buyers with chains. And, you know, that's certainly one of the sort of managing sort of customers to completion that I know our sales execs are, you know, are working really, really hard on. What's the typical issues for first-time buyers? It's very much affordability, getting that first step on the ladder. It's why we like to build our incentives around the customer and the customer needs. Second-time buyer, it tends to be that chain anxiety. Second-time buyer might be in a really good place to transact, but somewhere further down the chain. there's probably a first-time buyer. And if they're in the second-hand market, that can be difficult for us to manage. But, you know, I was quite pleased with the improvement in consumer confidence and sort of the feedback that we were getting from our sales teams through the summer. And clearly you've seen that in the way that we've traded, you know, 38% up on sales rates in the second half to date, you know, which is really, really strong. On multiple build teams, we do have sites with multiple build teams. We have sites that are in really strong market locations and where we have sort of apartments and standard build. So there's a range of reasons. So multiple build teams remains a function and a factor of our businesses and how that develops as we go forward. We'll update you sort of in the prelims. And then supply chain. I mean, whilst there are times of the year, Ami, that are busier, I expect my businesses to be in touch with the supply chain constantly and in constant dialogue with them. We do have national agreements, as you know, through TWL. They're working sort of really well. It's not a surprise that some suppliers come in for price increases, but we've been pushing those away pretty strongly. So I think that we're in a good place looking forward. But as I said in opening, we're not unaware of the potential impact that might come from national insurance and national living wage, but we will address that actively with our supply chain.

Thank you.

Thank you very much. We will now take our next question from Charlie Campbell from Schiphol. Please go ahead.

Morning. A couple of questions from me. First of all, it's on planning. You said in the statement that you're optimistic that things will change in the medium term. I just wondered if anything is changing sort of right now, if you've seen any signs of planning authorities sort of changing their their approaches and perhaps becoming more generous and more amenable. And then secondly, a question just on mortgage availability and just wondering how mortgage lenders are positioning themselves. And it's not so much a question on mortgage rates, but more on kind of acceptance and whether people are getting the mortgages you expect them to get or otherwise. Thanks for answering.

No problem, Charlie. On planning, we are seeing some improvements, but it's really sporadic. At this point, it's probably in the local authorities that you'd expect to see it. I was speaking to one of our divisional chairs yesterday. We got a planning approval for a scheme in 13 weeks for reserved matters. which shouldn't be a big shock or surprise. That's what it used to be. But we were really pleased. And that authority were motivated to get that approval and to get the site open because that will help them in their five-year housing land supply and defend themselves from potential unwanted schemes. And so we've been having similar types of conversations around I mean, until the MPPF is, you know, black and white and the full weight of it can be applied, you know, I didn't expect much. But we are seeing, you know, we are seeing sort of chinks of movement. But we've also seen a number of authorities try to erase through local plans with, you know, much reduced housing numbers and, you know, and that's a worry as well. And, you know, certainly it was one of the issues that we flagged in the consultation response to the NPPF. Overall, as you know, I think it's a really good document. There was two issues that I was concerned about. The first was the way that they were generalizing affordable housing for all green belts, because I think it's much more sensitive than that. And the second was on the transition arrangements. I think the government needs to be, if they have this aspiration for 1.5 million, homes, they need to be more focused on the importance of getting transition right, and I think it's too open. And on mortgage lenders, it's a really good question, Charlie, because there's been some news from the lenders over the last month or so, and I was speaking to one of the main banks myself on Friday, and they are sort of tweaking and changing their affordability criteria You know, they're definitely working their way through the benefit on an affordability basis of, you know, better energy efficient homes. And, you know, they're looking at the benefit of new homes to a first time buyer in terms of, you know, sort of fixed or sort of more predictable sort of costs of maintaining a home. So you can see that the banks are looking at their acceptance criteria and they are sort of tweaking their sort of SBR sort of levels and making it sort of easier to hit that affordability. And we can see that there's some benefit in that. But, you know, I come back, there is still affordability challenge. And, you know, we do still see, even with sort of IFA sort of support requirements, customers being rejected on affordability growing by the banks. But it's reducing, but it does still factor.

Thank you very much. Thank you.

Thank you very much. We will now take our next question from Sam Cullen from Teal Hunt. Please go ahead.

Hi, morning everyone. Yeah, I've just got kind of one more kind of semantic question, I guess, and I'm following on a bit from Charlie's question and a bit from Chris's at the start. If I think about kind of price versus cost and leaving aside the direct and indirect impacts of NI and I take comments on board about kind of what you're seeing on new tenders, but if I think more kind of medium term and the relative tightness or capacity on the demand supply side of your market and where affordability is for your for your customers and where that's likely to go given mortgage rates seem like they're probably not going to come down as fast as we thought and wage growth might slow do you think the industry has capacity to move price forward which is to offset that kind of latent bill cost inflation seems to be kind of lurking around the corner and are you still kind of confident that that those two sides of the equation can reach equilibrium and push out the impact of black bill cost inflation that you've kind of called out for the last 12 months or so?

Yeah, I mean, look, I think that's where it's at, isn't it? You know, from a bill cost and inflation perspective, you know, as I've said before on the call, you know, we've worked really well with the supply chain, you know, componentization, things like You know, our logistics, you know, there's a lot of self-help that we can do. And I don't think that we're done yet in terms of working with parts of the supply chain to help them and us become more efficient. And, you know, if there is a cost challenge, then it will just drive us to innovate more and more. And I'm confident that that's how our business is set up and that we just keep pushing along. I mean, from a price perspective, we've said that we're broadly stable. I think with every rate reduction, albeit maybe slower than expected, that does bring more people potentially into the market. We're seeing reports from the wider indices of some house price growth in the broader market, and we'll just have to keep watching how that develops. But affordability remains a challenge, and we'll just have to keep working our way at it. Okay, thank you.

Thank you. We will now take our next question from Shane Picawa from JP Morgan. Please go ahead.

Morning, Jenny. Morning, Chris. Just one quick clarification question on my side. You said the build concentration was flat on new tenders. Is it still running sort of slightly deflationary with the self-help? Thank you.

More or less, yes.

Great. Thanks.

Thank you very much. We currently do not have any further questions from the line. I'll now hand over back to Jenny for any closing remarks. Thank you.

Okay, guys. I know it's a busy day. So thanks for joining us and for your questions today. And Chris and I look forward to speaking to you in the new year.