Barratt Redrow plc (BTRW) Earnings Call Transcript & Summary

Good day, and welcome to the Barratt Developments analyst call. Today's conference is being recorded. At this time, I would like to turn the conference over to Chief Executive Officer, David Thomas. Please go ahead, sir.

Thank you, and good morning, everyone, and thank you very much for joining us on this year-end trading update call. I'm joined this morning by Steven and also by John Messenger. Initially, I mean if I reflect on where we were as a business 12 months ago, I would just like to take this opportunity to thank all of our employees, our subcontractors and also our suppliers for their commitment in delivering what has clearly been an excellent performance over the past year. The market has remained very strong throughout the year, and we have seen this across the country. Our sales performance has been strong with the sales rates in FY '21 at 0.78 versus 0.6 in FY '20. The sales rate was also 11% ahead of 0.7 achieved in FY '19. We have seen good levels of house price inflation throughout the year, but particularly in the second half. Our sales outlets, as expected, have remained below the average in FY '20, but we operated from an average of 343 outlets for the year as a whole, and we finished the year with 358 outlets. We are building momentum with 144 new outlets launched during the year, dramatically ahead of the 75 that we opened in FY '20. We are also increasingly confident about the pipeline of sites coming through to both active build and sales for FY '22 and FY '23. We have approved more than 18,000 plots in FY '21, of which around 12,500 were in the second half of the year. The market and our sales performance has been strong, but so, too, has been our rebuild in terms of our construction activity. Our construction teams have really stepped up, and it has been very pleasing to see construction activity move forward with an average of 311 equivalent homes constructed each week through FY '21, with 290 equivalents in the first half and 324 in the second half. This strength in our build performance has secured total completions of 17,243 and wholly owned completions of 16,517, almost 400 homes ahead of the midpoint of our guidance from early May. Crucially, too, not only are our construction teams delivering this rebuilding activity, they are doing so without in any way compromising quality and customer service. This is demonstrated by our continued industry-leading build quality scoring with the NHBC. Our rating is 5 star by our customers for the 12th consecutive year, which is a unique achievement amongst the national housebuilders. And of course, the NHBC Awards in June, where, with 93 awards, we received more awards than any other housebuilder for the 17th consecutive year. We have seen build cost inflation of 2% in FY '21, which is in line with our original guidance from last calendar year. As we flagged in May, build cost inflation has clearly stepped higher in recent months and is currently running at between 3% and 4%. The results of both our strong sales and home completion performance, its pretax profitability on an adjusted basis is expected to be marginally above the top end of the range of market expectations, which as at the 12th of July sat at GBP 899 million. Our financial strength has also improved once again with net cash of around GBP 1.3 billion at the end of June, some GBP 300 million ahead of our May guidance. This better-than-expected net cash position reflects both the timing of land deals with a number of land transactions equating to around GBP 100 million falling into the start of FY '22 as well as the delivery of additional completions relative to our expectations in early May. But do bear in mind that pre-COVID, we would have expected FY '21 land spend to be in excess of GBP 1 billion. So we are focused on increasing land acquisition, and we have guided to 18,000 to 20,000 plots in FY '22. And as you know, we've reinstated our dividend with the interim paid in May and the larger final payment due to be paid in the autumn. Now looking ahead, firstly, we are focused on driving our completion volumes back to FY '19 levels in FY '22, and then on and towards our medium-term target over the next 3 to 5 years of 20,000 wholly owned completions. Our ability to build has dictated completions in FY '21. And this looks set to apply once again in FY '22 given the strength of both our order book position and market demand. But we are confident that with our build disciplines, a full year of uninterrupted build activity and increased outlets, we can deliver our targeted growth back to FY '19 completion volumes in FY '22. We are also substantially more forward sold for FY '22 than we were at the same point in 2019. And this clearly creates increased visibility for our build programs looking forward. Our wholly owned forward order book at GBP 3.2 billion has advanced more than GBP 200 million on the already high position we ended FY '20 with. It is also worth noting that the private average selling price in our order book is some 6% ahead, providing a significant cushion relative to current build cost inflation. We don't expect completion growth in the medium term to come from sales rates. As such, we are focused on land and work-in-progress investment and driving our outlet growth. This combination of land and work-in-progress investment will ensure that we are well positioned for FY '22 and FY '23 whilst also making sure we maintain our commitment to industry-leading build quality and customer service. So overall, a very strong and very pleasing performance. And Steven and I will now be very happy to take your questions. Thank you.

[Operator Instructions] We will now take our first question from Will Jones from Redburn.

Three from me, if I could, please. The first is just exploring, I guess, build rates. Perhaps you could just talk more generally about how you're managing that, where the constraints are, just thinking about the interplay of labor and materials and just, I guess, more generally around the confidence to build at a higher rate that you need in 2021 to get to -- sorry, 2022, to back to 2019 completions. The second one was just around build cost. If you could just remind us of your latest kind of visibility profile across labor and materials. And we have seen, I guess, in some price indices some early signs of a rollover in the likes of timber and steel in some of the commodity indices. I just wondered if there's any early signs that might be coming your way from the peaks, I guess, we've seen in the last few months. And maybe it's too early for that. And then the last one was really just around, I guess, early gross margin thoughts into 2022 and you referenced there the significant cushion you've got from price when you think about build costs. Would you be willing to expand on that for potential margin implications next year?

So Will, I'll start off in terms of gross margin cushion and just make a brief comment about build rates. And then I'll pass over to Steven to give you the sort of full answer on build rates and also pick up in terms of build cost, build cost inflation. So in terms of margin, I mean I think we're very set in the fact that our margin intake is at a minimum of 23%. I think we've demonstrated that we can deliver 23-plus through the P&L. And we're certainly not increasing that guidance, but we're absolutely standing behind that guidance in terms of our gross margin intake. In relation to build rates, I mean I would say in overall terms, we have a high level of confidence. We clearly have built at this level previously. And I think we've demonstrated in FY '21 that we have recovered build rates significantly during the course of FY '21. But if I pass over to Steven, he'll talk more about build rates and then also build cost. Thanks, Will.

Thanks, David. Taking productivity first. Yes, as David said, we've got a pretty high level of confidence in achieving what we need to achieve. Throughout '21, we saw consistent improvements right from the very first half. So if you remember from the first half, it was about restarting production. We ramped up build rates from a flat start. H1, we averaged something like 298 equivalent units per week. And in H2, we have been hitting on average 224 equivalents per week. So that gives an overall equivalent performance of 311 for the year. The last 8 weeks, we've been hitting something like 250, 252 EUs per week, and we started building on our productive outlets at a rate around about 0.8 per week. So we've seen a good recovery in terms of build. The key thing around there is obviously labor. Currently, we're not experiencing any issues with labor. We've got around about 20,000 trades on our sites. We've got adequate number of bricklayers. We've got something like 3,300 bricklayers working across our developments. And what is key is our sites are well organized. Trades are attracted to the site on the basis that we make it easy for them to produce, which is in our interest as well as theirs. We've got a good flow of materials coming through. And importantly, they can see good continuity ahead of them. So if they come on a site, they can be there for 3, 6 months producing with no problem. So that's a big, big attraction to them. And of course, we have a high proportion of standard product than we've ever had, which also aids production. The other element is materials, and we are seeing some pressures on the materials. But at the moment, we've had no real issues in getting materials onto our site. There's been some pressure points. We're conscious of the risks around that, but we're getting the materials we need. It's not affecting any of our programs in any way, and we're grateful that we've got a very strong supply chain with strong relationships built over a number of years. In terms of build cost inflation, as we said, we're looking around about -- for '21, that circa 32%. Clearly, with the demand we've seen in the strength of the market, we are seeing inflation on materials and that's running around about 3% to 4% currently. You mentioned about timber pricing. We've seen timber pricing has been our sort of highest pressure point. We've seen pricing on timber around about 25% to 30% depending on tightened grade of timber in the year. Other components like steel has gone up about 8$% and there's been pressure on plastic drainage, UPVC, which is circa 12%. But that's within our 3% to 4% expectation. In terms of timber pricing, yes, we're aware the U.S. timber pricing has come down something like 50% in the last few weeks. But at the moment, we've not seen any evidence of that flowing through into our pricing in the U.K. But hopefully, that sort of gives you a bit of a feel for how the build rates and build cost inflation is running.

Very helpful. And just as a follow-up, the extended opening hours that the industry is benefiting from at the moment, does that carry on for a while, yes, as far as you can see?

Yes. I mean, yes, Will, in terms of -- yes, we're working our sites longer days. And weekends -- in fact, the weekends is helping us with the supply chain. One of the issues we've had on the supply chain is deliveries or shortage of lorry drivers rather than shortage of materials. So the fact that we're open on a Saturday has encouraged our supply chain to also deliver materials on a Saturday. And that has really helped, in fact.

Thanks, Steven. Thanks, Will.

We will now take our next question from Chris Millington from Numis.

A few from me as well, please. I just wondered, you obviously don't want to be drawn, David, understandably, on the gross margin benefit there from prices versus cost. But I just wonder if you could mention to us what might be tracked from that positive equation you're seeing between the 2. Is there overage or anything like that, which may kind of eat into that benefit? That's the first one. Second one, I just wanted to touch on outlets and whether or not you can build on this year-end number. Obviously, you've had a good move now. I just wonder if closures obviously start eating into that as we go through the following year. And then the final one for me is really just are you seeing any marked differential between apartments and houses in terms of demand and also the price inflation feeding through on those products.

Chris, I'm going to have a go at all of those. So look, in terms of gross margin, I mean over -- clearly, we've got some sites where overage will impact. But I would say that in the overall scheme of things, overage is not a big detractor from gross margin benefits. So I think it's simply that balancing the equation in terms of we know we're confident that we are intaking land at gross margin of 23%-plus. And therefore, it's then just balancing a future view in terms of house price inflation relative to build cost inflation. And we're certainly not signaling any significant upside, but equally we're not flagging any downside. So I think our view on it at this point in time is fairly neutral. In terms of outlets, I know it's a long time low, Chris, for all of us. But if you go back to February '20, we had really good momentum. And we have said pre COVID that we would grow the business by around 3% to 5% per annum, and that growth would come mainly from outlets. And therefore, we were very on the front foot prior to coming out of the land market from roughly March until August. So we've been back in the market since the beginning of September and we closed the year with 358 sites, a precise number, about 358. So we are absolutely focused on growing site numbers. And we recognize that we want to get back into a pattern of growing site numbers by around 3% to 5%. That controlled growth to make sure that we're holding on to our quality and service credentials, so that's the kind of profile we would expect on a go-forward basis. In terms of apartments and houses, I mean, first of all, we are not and haven't been for a number of years a big builder of apartments. I mean it is a relatively small part of our overall mix. And it's primarily, we're building apartments in London in outer zones, so Zone 3 to 6. The demand trends that we've seen have been good and I don't think there's anything discernible in terms of a lack of demand. Unquestionably, people are looking for access to shared spaces, so public spaces within apartment developments. People are looking for private balconies where that can be achieved, and that's something that we're looking to plan both of those in to ensure that our future developments have got as many balconies as possible and that we have got shared open spaces that are suitable for residents of the developments. But I think we're very comfortable with that strategy, which, as I say, is particularly focused on the London market.

We will now take our next question from Arnaud Lehmann from Bank of America.

Three quick question on my side, please. Firstly, just on the sales rate, obviously quite strong relative to 2020 and 2019. However, the last reported one to the end of June is a bit lower than the one you reported to the end of April like the 0.83 versus 0.78. Is it just the usual seasonality of the sales rate? Or have you experience any kind of softening the demand environment in the last couple of months? That's my first question. And secondly, still on the demand side, I guess, what's your outlook? We're going to have a fade in the [indiscernible] holiday, the [ solar ] scheme coming to end, et cetera, maybe COVID making a comeback. Are you worried at all about any slowdown or you're still seeing a good level of activity on the ground and in your outlets? And lastly, if you wouldn't mind splitting the 6% ASP increase in the order book, what is HPI and what is mix effect?

Look, again, I'm going to have a go at all of those. So look, in terms of the ASP, if we take that one, first of all, I mean it is mainly HPI. I think we flagged pretty consistently over the last 2 or 3 years that after we moved away from significant delivery in Zone 1 and 2, that there has been relatively little mix effect coming through the business. So I would say predominantly on a year-on-year basis, HPI. In terms of the sales rates and current sales rates and current consumer interest, our reference point is mainly against '19 rather than '20 for obvious reasons. And I would say that when you look at traffic and you can look at Rightmove or Zoopla and so on, when you look at traffic, traffic levels are still very high relative to '19, and therefore, we are seeing good sales trends. It's a positive backdrop. And as you know, a key focus for us is to get our business back to FY '19 trading levels in FY '22. So we see that as being very achievable given the backdrop that we're seeing presently. In terms of the demand profile, I mean, I think if we look at the positives. For the industry, I think there has been enormous positives over the last 6 months in terms of the transition on Help to Buy and how seamless that transition has been for the industry. So we've moved from a universal scheme to a scheme that since December has only been applicable to first-time buyers. And we've also moved to a scheme that was GBP 600,000 across anyone, different levels in Wales and Scotland, but GBP 600,000 across England, to a scheme where we're going from GBP 186,000 in the North of England to GBP 600,000 in London but a significantly tapered scheme. We have no Help to Buy program in Scotland. And yet year-on-year, we're still seeing very, very strong performance trends. I would say as a generalization -- I appreciate it, it's a generalization, I don't think that the housebuilders have been big beneficiaries of stamp duty because I think our issue has been about availability. And I think that goes to your sort of final part of that question is that, yes, there is a seasonal effect. I mean our business is very focused on delivery for June. As we move through May and June, clearly build delivery and getting customers into the homes becomes a big area of focus. But the other thing is availability. I mean our product availability is down dramatically on a year-on-year basis, and we've seen significant reductions in product availability throughout most of FY '21 simply because we are driving very, very hard to improve our build rates, as Steven talked about, but we've seen an erosion of product availability. And that's true for the whole of the housebuilding industry, which again is why we've not been big beneficiaries of stamp duty because if you want to buy a house from us 6 months ago, for us to deliver for June would in any event have been a big challenge from a January or February start.

We will now take our next question from Glynis Johnson from Jefferies.

Yes. I have actually just 2, if I may. The first one just in terms of the land market, I wonder if you can just give us a little bit of color on the land market in terms of we've had competition picking up a little bit for the smaller sites. Is that something you're seeing? Is the opportunity still at larger sites unchanging the sites that you're looking for? And then second, just in terms of work in progress, how should we assess what kind of level of work in progress that you do need on your site in order to maintain your quality profile that you've got? How should we think about whether it's equivalent units as you go into each year? Some sort of context would be really useful.

Glynis, thank you. So Glynis, I'll just talk about work in progress and then I'll give a very short view just in terms of the land market and then pass over to Steven on the land market. So I think in terms of work in progress going through with it, I think the best starting point is really to go to FY '19. FY '19 and the end of '19 was clearly a normal operating period. And at that point in time, we were operating off around 370 sites, whereas at the end of June, as I said, we're off just under 360 sites. So some differential there. Then secondly, I think factoring the fact that we're going for growth, we were going for growth in '19. We're going for growth now in terms of moving up to 20,000 units. So as we move through to FY '22, we've got to have more sites and more work in progress in the ground. And that will clearly drive a higher investment on the balance sheet in terms of work in progress relative to the FY '19 position. So I think that's the way to build it up and the number of sites that we've got will obviously be a direct reflection on that. And we would certainly like to be thinking that we can get 3% to 5% more sites in the ground for the end of June '22. In terms of the land market, just really 2 comments. We won -- we have seen a dramatic change in terms of planning approvals. Now this has been well trailed, but under the planning policy framework, we've been getting up to around 400,000 planning consents coming through per annum. Now I understand that COVID has interrupted the market in many ways and the planning market is something that has also been interrupted. But there is plenty of land out there available for development. And despite the backdrop of COVID and residue of Brexit, I think the government have maintained an absolute commitment to those 300,000 homes per annum. And therefore, we have to be on a growth trajectory. And land has got to be available to fuel that growth trajectory. I think the second point is that a land is always competed. I mean we're never buying land with new competition. So I think it is always a competitive market. And our principal area of focus has tended to be larger sites rather than sites that are 150, 100 plots and less. But if I pass over to Steven, he can give you a little bit more flavor in terms of land.

Thanks, David. Yes, as David said, I think the big thing here is that the planning consents over the last 3 years or so, where they've been running at around about 400,000 per annum has made a big difference. There's a lot of good land opportunities coming through into the market. And that was sort of evidenced in our H2 performance, where you saw something like maybe 12,500 approvals we gave in the second half to come through at LDLG process. In terms of what we're seeing, yes, lots and lots of land. Where we're seeing competition is on the sort of the smaller sites, 150 units and below, where there's sort of more of the more medium-sized regional builders competing to that. But we're seeing some really good opportunities on the sites 250 to 500 to 750, which is ideal from our perspective because we got 2 brands and it enables us to sort of carve out most of these larger sites into at least 2 outlets. In terms of sort of what's on my pipeline in the next few months, I've got something like, on our bid pipeline, 130 potential bids we can make, something like 40-odd thousand plots. So there's a really good supply of land. A lot of that is now moving on to the sort of larger-scale sites. I think part of the NPPF, you initially saw a lot of the 100-, 150-unit sites come through, the sort of easy wins from a planning perspective. And what we're now starting to see is some of the larger scale developments, which have maybe taken a bit longer to get through the planning process, and they're coming on to the market. And clearly, there's less competition for those sort of sites. But we're very, very positive about the progress and very much on target to achieve our objectives.

Now just to follow up on those. Do they mean that you need more work in progress put in before you start taking delivery? Should that increase that WIP requirement that we need to be thinking about for Barratt? Or is that just in line with what's been happening previously anyway?

Glynis, from my point of view, I would say largely in line. I mean, I think Steven indicated that just say hypothetically, we're taking a site for 500 units, we might split that as 300 Barratt and 200 David Wilson. But I don't think implicitly that it significantly increases the work in progress because we're able to split it and just get on to the site and operate through 2 brands.

We will now take our next question from Gregor Kuglitsch from UBS.

All right. A couple of -- maybe 3 questions, actually. The first one is on the balance sheet. So obviously, you ended the year at GBP 1.3 billion of cash. I think you're flagging some of that will unwind, and obviously, land credit is against it. But nevertheless, it looks like your sort of excess -- or total indebtedness will be, I think, GBP 600 million, GBP 700 million maybe this year and perhaps a bit lower next year but maybe not much. So the question is why aren't you deploying that balance sheet or perhaps returning some of that to shareholders? I can't quite remember, but I think from memory, your target is to be net 0 on that sort of total indebtedness numbers. That's the first question. Second question is on the housing safety bill. I don't know if you've -- I presume you've looked at it, but there's obviously some very large costs that are being kind of at least the government thinks there will be. Can you just give us a sense to what extent you think they matter for Barratt, I mean either the one-off transition costs or some of the recurring costs that are being flagged in that bill? Or do you think it's largely irrelevant for you? And then you didn't mention it, but could you give us a little bit of extra maybe color on the sort of appointment of your new CFO and what you obviously saw in the candidate that you ended up recruiting?

Gregor, okay, thank you very much. So yes, again, I'll have a go at those. So just first of all, in terms of cash, and I know you appreciate this, but it's obviously been a very unusual period and we've gone from a position of having -- I think that we've clearly set operational and financial framework to suspending our dividend and then reinstating the dividend over a period of around 12 months. So we've been very clear that we are distributing cash to shareholders. That is, at this point, through an ordinary dividend only. And we see that the balance sheet position as at June '21, I think, is a peak position in terms of cash. And we are going to invest significantly in terms of land acquisition. As we've outlined, we've committed land that we haven't yet paid for and we're going to commit for more land into FY '22. Now we guided at 18,000 to 20,000 plots. But as Steven indicated, we've got a lot more than that under review, and we'd be very happy to spend more on land as we move into FY '22. And along with that, we'll have the associated investment in terms of work in progress. Our final dividend will go out in the autumn. And obviously, that will be the significant chunk of cash in terms of the dividend relating to FY '21. So in terms of future balance sheet and surplus cash, we will keep that under review. And we've obviously indicated previously that we would be happy to deploy a special dividend if the Board considered that appropriate or to look at share buyback if the Board considered that appropriate. But that would be at some point in the future. In terms of the housing safety bill, yes, I mean, of course, this is something that we are looking at very, very closely. We recognize that the whole situation regarding external wall systems or cladding systems, the post-Grenfell events have been very, very challenging for everyone, very challenging for the leaseholders, effectively our customers, challenging for the industry, for the supply chain for government and so on. And there's a lot of moving parts. So we are looking closely at the housing safety bill. And we're looking closely at the proposal in terms of the levy and the taxation levy on the industry. Both of these are evolving. I mean, I think the housing safety bill, the main change as it were -- I mean, I think most of the things in the bill are understandable in terms of safety. The main change is with regard to liability periods and the intention to move liability periods from a 6-year period through to a 15-year period. So the bill goes for a second reading in July, and we'll just continue to look at how that evolves. In terms of our CFO appointment, I mean we obviously covered previously regarding Jessica stepping down. And in looking for a CFO, we were, well, looking for a lot of things as you always are in that type of appointment. I think we were hugely impressed by Mike in terms of his skills and experience, I mean, both with professional firms with Sainsbury's and more recently with Countryside. We felt his fit with the business was very, very good; with the management team was very good; that he's certainly something that has got very sensible views. And I think it's important to get somebody in who can present those sensible views in terms of the strategic direction of the business. So we're very much looking forward to Mike coming onboard. We don't have an agreed start date at this point in time, which is understandable because the announcement was relatively recent, but we're probably thinking towards a start date in early '22 and we'll also go from there.

Okay. Maybe a follow-up on the levy. What's your kind of expectation? What do you think will happen? Is it like a 3% surcharge that you think is likely?

Well, I think in terms of the percentages, I mean I'm not the person to ask. I mean the reality is we said publicly that we felt that a levy was the right route, that we could see that there was a place for I think what we described as an appropriate levy. I think from our point of view, we just want to make sure that the way the levy is applied is fair, i.e., that everyone that has been involved in the process of the construction of high-rise buildings and external wall systems contributes towards the levy. In terms of the percentages, that's a treasury -- ultimately, that will be a treasury decision. And there is an ongoing consultation presently. And obviously, all interested parties are responding to the consultation.

We will now take our next question from John Fraser-Andrews from HSBC.

Two from me, please. The first one is on your build rate, it looks like to achieve 22 -- in '22 to achieve the sort of 17,100 completion. It looks like you've got to sustain the current build rate per site. Would that be about right? And does that assume that you consider with -- you continue with these longer hours, weekend working? And are there any cost implications of those for yourselves? That's the first question. The second one is on land. David, you spoke about the land market, and Steven, plenty of plots out there. Could you comment on land prices, please, in recent months with this industry activity?

Okay. Fine. Well, if -- I'll pass over in terms of build rates to Steven. I mean I assume he's touched on build rates before. But I think when you look at our desire to get back to FY '19 levels, I mean clearly both in terms of wholly owned and joint venture completions, so it's not quite as straightforward as just simply dividing the number by 52 because there is obviously an element of seasonality to build rates. But Steven will talk a little bit more about that. In terms of land market, yes, I mean the land prices are rising. It depends on your reference point. But clearly, if your reference point was 12 months ago or 18 months ago, land prices are rising unquestionably because house prices are rising and house prices have been rising at a faster level than build costs. As you know, land is purchased on a calculation taking account of revenues and costs, and therefore, we see that increase. What I think you have seen over the last 4 or 5 years is that land prices in terms of greenfield land prices have not accelerated in the way that you might have expected given the increases in house prices and the net increase in house price compared to build cost inflation. And that has simply been because of supply because, as we touched on and Steven touched on earlier, we've seen planning consents come through at unprecedented levels. So when we're getting planning consents to a level of circa 400,000 per annum, that is hugely above anything that the market has seen historically. And therefore, that has dampened the land price inflation. And we've said that graphically within our presentations over the last few years. So if I pass over to Steven on build costs.

Yes, thanks, David. Yes, in terms of build rates, we've increased the business to where it's sort of historically we've been achieving. There's more to go, clearly, a bit more to go. I think one of the things that's helping us is we have got a greater percentage of MMC and timber frame in particular, which sort of falls on from when we bought Oregon, our timber frame manufacturer, back in 2019. So a greater proportion of timber frame is certainly helping our production rates. Obviously, we're conscious of risks with the teams with sort of the track and trace, self-isolation issues. And at the moment, we've been very sort of fortunate we've had nothing sort of seriously impacting our production levels. But as we stand today, we're on course to deliver the build rates and are, in fact, delivering the build rates. We need to be able to deliver that objective we've talked about. Hopefully, that helps.

Yes. And just one small follow-up, if I may, on the land prices. Is the inflation coming through, David, similar to the build cost inflation that you've reported this morning either for the '21 level or the pickup in build cost inflation just as a reference point?

Yes. I think difficult really to be that precise. I mean the reality is it will depend on geography and so on. But in the round, I think what we are seeing is that land prices are not accelerating in a way that is causing us any concern.

[Operator Instructions] We will now take our next question from Clyde Lewis from Peel Hunt.

I've got, I think, 3, if I may. Apologies, I may have missed the number, but did you give a reference point for what your build rate was back in 2019? That would be helpful just to sort of understand where that's sort of 324 and then the 350 that you flagged for the last 8 weeks. The second one I had was, I suppose, around Part L, Part F, how your thinking has evolved there in terms of sort of where you think the best solutions for your business will be in terms of sort of what product changes you are likely to push through. The third one was on, I suppose, incentives and how you are, I suppose, carrying out sort of price rises at a sort of site-by-site level and sort of what approach you've adopted there just to sort of understand how we've been coming back on incentives or are our incentives effectively 0 and it's very much just a topping up of the list price as and when new stock is -- or new product is put up for sale.

Okay. Clyde, so I think if I sort of start off in terms of incentives and also give a very short view in terms of Part L, Part F. And then I'll pass to Steven for build rate and also Steven's view in terms of Part L and Part F. So Clyde, I think some points in terms of incentives. I mean we've seen 2 parts of the equation, I suppose, headline price and incentives. And what we've seen as a generalization is increasing headline prices and reducing incentives, which is clearly a strong combination. We look at headline price and incentive on a site-by-site basis release by release. And there will be certain sites where the incentive levels are quite literally at 0 and there'll be certain sites where we are still providing incentives depending on the rate of sale because we've got to keep balancing rates of build and rates of sale on a site-by-site basis. When you look at it in the round, incentive levels, I would think, would be at the lowest level that we've seen certainly in the last decade. And as we touched on earlier, we're seeing the house price inflation positive. In terms of Part L, Part F, I mean, the overview and Steven will talk to you about in more detail. But in terms of an overview, I mean we recognize that there isn't a complete road map for how we get to zero carbon for homes in use. We used to have a road map through the different code levels and the code for sustainable homes. And we wrote the government with a number of other companies back in 2019 to say, look, we need to have a road map in place and we called for zero carbon homes for 2028. So the reality is that we are looking at a transition that will take place relatively soon, and we're looking at a transition that will take place in 2025. But we also need to be looking at a transition that will take place in 2028 or thereafter. And we're trying to align all our activities against those clearly big transitions that will take place. So if I pass over to Steven to just pick up on the build rate for 2019 and then talk a little more about what we're doing in terms of looking at a transition on Part L. Thanks, Steven.

Yes. Thanks, David. In terms of build rate, I think I mentioned our more recent performance we've been hitting something like 0.8 build equivalent per week on the production sites, which is very similar to the 2019 and historic levels. Clearly, we'd like to see that further improve. And with the adequate number of trades we have on site, and hopefully, the continued good flow of materials coming through, we should see further improvements. In terms of the Part L and Part F, first of all, I think it is not a great sort of Part L being termed efficiency, Part F being ventilation. I don't think there's a sort of great issue around the ventilation in terms of cost or implications, times and things like that. But in terms of Part L, yes, that was announced back in, I think, it was April -- yes, April time, government announced a 31% reduction in emissions. In terms of how that affects us, our new sites which are registered from June '22 will need to be built to the increased standards. And for the existing sites where there's -- we've already been a start on site, we have a 1-year transition period. Any foundation we start after June '23 will need to comply with the improved Part L standards. We've been factoring these additional costs into our liabilities for some time now. In terms of what the additional cost is looking like, depends on the house type, size, if it is detached, semi or flat, or indeed, whether it's timber frame. But our sort of house type additional cost is similar between GBP 2.50 to GBP 4 a square foot. The lower end of the cost is timber frame. Timber frame is a more effective solution to achieve Part L than traditional method of construction because we've got to do more with masonry construction than we do need to do with timber frame because we can put greater levels of insulation within the timber frame. In terms of what we're doing, as I say, it's mainly extra insulation in the walls. We'll be sort of adding some heat recovery technology to the gas boiler flues. And at this stage, we're not talking about heat pumps or anything like that. We'll have photovoltaics on our roofs. So we've got solutions now designed for all our house types. And we're still waiting for some software to come out of government. That's sort of holding on the FEES, Fabric Energy Efficiency Standard. And government needs to issue that, and we've been lobbying government to get that out of, the software that works out the heat loss, et cetera. And we're working with the supply chain to make sure the extra items we need, photovoltaics, gas boiler recovery units are in place. I think we said beyond '25 before we -- 2025 before we start looking at lower gas boilers, et cetera and we're currently working on those solutions. So hopefully, that gives you an indication, Clyde, of where we are.

Perfect. One follow-up I had, David, as well -- rather than a follow-up, but one sort of question around planning. I mean you flagged obviously the step-up in plots to over 400,000 and that's obviously sort of outlined. How are you finding local authorities with just getting the detailed planning because without that, obviously, you can't get the site started? Is that improving post COVID now?

Look, I mean I think it's been challenging. I mean, let's face it, it's been a challenging time for everyone. And I think local authorities and the operational planning committees, it's been particularly challenging. I think a particular issue that has arisen has been the ability of planning committees to be held online and local authorities no longer have that ability to hold online planning committees, and that has been causing issues and delays. But in the overall scheme of things, we've still got to stand back and recognize that the planning framework is giving us far more approvals than it did previously. And therefore, that's going to be a good thing.

We will now take our next question from Ami Galla from Citi.

Just 1 question from me, if I can. It's really a follow-up on the developer tax levy. I was wondering if -- how are the conversations with the government evolving in terms of the quantity of levy in context of the payments that you've already incurred or the cost that you've already incurred on recladding. Is there any leeway that you get in that context?

Yes. Okay. Understand, yes. So this is part of the consultation. I think if we sort of step back from it and say, look, it's not influencing our behavior. We recognize and we have demonstrated that we can see that for the customers to be paying or the leaseholder to be paying is not right. The leaseholders haven't created this issue. You can debate for a long time who has created the issue, but it's certainly not leaseholders. And therefore, where we feel that it is appropriate that we as a business should be stepping up and making payments to deal with cladding, then we are doing so. And we've said that publicly before and we've demonstrated that we will step up. We can see that there is an inequity in that if you are a company that is stepping up and doing the right thing and you're then going to be taxed to pay for people who have not done the right thing, then clearly, there is an inequity. And we -- and I'm sure many other people have made that point to government. But the key point is it's not stopping us doing what we think we should do. We're not waiting for an outcome to that point. And we can understand the difficulty for government of trying to arbitrate in terms of what would and wouldn't be allowable for the purposes of a tax. The consultation will be closed shortly. And if government are going to introduce this in '22, which is their intention, they're going to need to move pretty quickly. So I think you'll start to see public commentary from government on their proposals in terms of a percentage and whether payments will be offsetable or not. That will all come out in later this year.

There appears to be no further questions, I'd like to turn the conference back to the host for any additional or closing remarks.

Okay. Thank you very much. Well, look, just to say to everyone, thank you for dialing in, and we will be back again for the full year results in early September. Thank you very much.

This concludes today's call. Thank you for your participation, ladies and gentlemen. You may now disconnect.