Bellway p.l.c. (BWY) Earnings Call Transcript & Summary

Good morning, and welcome to Bellway's full year results. My intention today is, firstly, to provide an overview of the business. Keith will then take you through our results and our balance sheet, and I will close with some details on operational matters, together with an update on current trading. Needless to say, it has been a rather unusual and challenging period since we announced our interims back in March of this year. And it's probably fair to say that the housing sector has fared much better than first feared, in part due to the success of the stamp duty changes and in part due to that pent-up demand generated from lockdown. Operationally, I'm pleased to report that all of our construction sites are now open and continue to operate within COVID safe guidelines. Our sales offices are also open and limited to appointments only. And reassuringly, this has not led to any dampening in demand. The majority of our office-based colleagues are still working from home, albeit our offices do remain open on a rotational basis to perform those tasks essential to support our construction teams. Our first priority whether construction, sales or offices, has always been the safety and well-being of our staff, of our subcontractors and our suppliers and, of course, our customers. Our approach has been cautious, responsible and centered around the principle that safety comes first. Prior to COVID, we have been on target to deliver our 11th consecutive year of volume growth. And whilst the pandemic has changed that course and despite the inevitable challenges in the months ahead, we still very much believe in the medium-term prospects for housing. We have the infrastructure in place with 22 divisions offering a broad geographical spread with a capacity of some 13,000 homes. And that recovery in FY '21 will be very much focused on volume and margin to benefit the years ahead. At this stage, it's a little too early to guide upon margin, but we do expect volumes to grow by around 20% in the year. Now before I hand over to Keith, I just want to highlight some key points within the business. Firstly, we have the benefit of a record order book and are very encouraged by the sales rates achieved at the start of our new financial year. Our WIP is in a robust position, providing that platform for recovery beyond FY '21. We also have the luxury of a strong balance sheet and the immediate capacity to invest in land. Our production rates are improving by the month with some of our housing sites now approaching pre-lockdown levels. And finally, we are planning to pay a dividend for FY '20. Now for Keith.

Thank you, Jason, and good morning all. The disruption caused by COVID-19 had a significant effect on the financial performance of the group. Housing revenue fell by 31% to GBP 2.2 billion, and pre-exceptional operating profit fell by 52% to GBP 322 million. We incurred a total exceptional charge of GBP 73 million, comprising COVID-related costs of GBP 26 million and GBP 47 million to help owners of legacy apartment schemes where fire safety improvements are required. I will elaborate on both later. After taking these into consideration, profit before tax fell by 64% to GBP 237 million, and earnings per share fell by a similar percentage to 156.6p. Pre-exceptional return on capital fell to 11%, partly because of the reduction in profit and also understandably a much reduced asset turn. Prior to lockdown, completions were ahead. And in fact, by the 23rd of March, we completed 6,030 new homes, 7% above the equivalent period in the prior year. That outperformance did, however, quickly unwind. And for the full year, completions fell to 7,522, which is a decrease of 31%. The reduction fell evenly across private and social homes with social housing representing 22% of the business, a similar proportion to FY '19, with this being a reasonable guide to the likely private-social split in FY '21. The overall average selling price remained broadly unchanged at GBP 293,000, and pricing in general has remained firm. There is still some downward pressure in relation to more expensive homes, particularly in London and the Southeast, and especially for product approaching the current Help to Buy threshold of GBP 600,000, although we have only a handful of homes which are close to this price point. In the year ahead, the average selling price is expected to be around GBP 290,000. Although beyond FY '21, there is likely to be a modest reduction. This is a result of anticipated mix changes as we continue to refocus our land buying efforts with the new regional Help to Buy price cuts in mind, and I will set out some analysis in that regard in a short while. Looking at our geographic performance, you will see that we retained a balanced spread with broadly an equal split between homes sold in the North and the South of the country. This widespread national approach enables us to pursue land opportunities in areas of strong demand while limiting the exposure to localized market volatility. COVID has obviously reduced output, but there are still areas of strong performance. Our Manchester, Northern Home Counties and Essex divisions each completed more than 500 new homes, benefiting from strong market conditions in those areas and the affordable average selling price of our product. London accounted for 6% of completions at an overall average selling price of under GBP 450,000, which reflects our investment in the outer commuter zones, where demand is stronger, such as our developments at Poplar, Bexleyheath and Hornchurch. And as a reminder, the higher London output in FY '19 included 214 units at Nine Elms, where the average selling price was GBP 820,000. In FY '20, there were only 29 completions from this development, and it is now fully traded out. Our Ashberry brand, designed to increase output on larger sites, is still performing well, accounting for just under 6% of output. This provides a valuable resource to increase sales rates and improve return on capital employed. The exceptional COVID costs of GBP 26 million include GBP 15 million in relation to nonproductive site-based overheads incurred during the lockdown. This consists of items such as site manager salaries and plant and machinery hire, which would have otherwise been capitalized had they met the normal accounting criteria. We also walked away from land deals where we had incurred speculative costs of GBP 10 million. We did this simply because our assessment is that the expected returns from those sites in a post-COVID world are not commensurate with the capital outlay, and we believe better opportunities lie elsewhere. In relation to fire, we set aside an additional GBP 47 million to help building owners of legacy apartment schemes where remedial work is required. Our approach has been to identify instances where fire safety measures may not comply with the most up-to-date interpretation of building regulations and so far as they were applicable at the time the apartments were built. This is a complex area where our assessment of liabilities and the scope of works is likely to evolve over time. We will, of course, be pursuing recoveries from third parties, but have not yet recognized any asset in the balance sheet given the uncertainty over collectibility. On a pre-exceptional basis, the operating profit was GBP 322 million and the operating margin was 14.5%. Looking at the operating profit bridge. Nine Elms made a significant contribution to FY '19, not only because of the high average selling price, but also because the gross margin was more than 35%. The rest of the bars on the chart show the underlying movement in the air, that is with Nine Elms excluded from the analysis. The reduction in volume resulted in profit falling by GBP 214 million. The movement in the underlying selling price had a modest upward effect, and there was downward pressure on the margin for several reasons. Firstly, the absorption of semi-variable selling overheads was less efficient than normal due to the reduction in output. Secondly, there was ongoing margin normalization as historic sites, which benefited from house price inflation, have largely traded out in prior years. And lastly, there were costs associated with revised building regulations covering fire safety and carbon reduction in addition to rising subcontract prices in and around London and the Southeast. We have several initiatives in place to help the margin recover in the year ahead, which Jason will outline in a short while. Other movements on the profit bridge include a nonexceptional charge of GBP 19 million in relation to expected extra COVID site costs arising from extended site durations and additional health and safety requirements. There was a GBP 12 million reduction in the administrative overhead, principally due to savings in divisional incentive schemes. This is a one-off saving, but with the forecast growth in revenue, I expect a similar absorption rate of 4.4% in FY '21. Overall, the range of outcomes for the operating margin in the year ahead is clearly volatile. And hence, it is too early to give specific margin guidance. I would note, however, that we expect some improvement from the 14.5% achieved in FY '20. Our balance sheet is robust and transparent. We are an asset-backed business with almost GBP 3.9 billion invested in land and work in progress, much of this supported by our strong order book, which is convertible into cash in the short term. Land creditors are used sparingly and remained low at GBP 344 million with GBP 227 million of this expected to fall due within the current financial year. Looking at cash in more detail. The substantial reduction in completions not only reduced the amount of cash collected, but it also resulted in a significant increase in the balance of both land and work in progress. Despite this, we still generated GBP 56 million from operations. The cash tax bill was GBP 108 million, an unusually high 46% of profit before tax, with this due to the legislative change, which aligns payment debts to financial years. After paying this, last year's final dividend of GBP 123 million and a few other minor items, we ended the year with net cash of GBP 1.4 million, an ungeared position. Even including land creditors, adjusted gearing was just 11.4%. Average bank debt was under GBP 60 million, is expected to be a little lower in the year ahead. This is in the context of committed bank facilities of GBP 545 million and good long-term relationships with supportive U.K.-based banks. In this context, not only do we have a very robust liquidity position, but we retain significant firepower to invest in compelling land opportunities should the market support it. Moving on to land. There are 28,000 plots with the benefit of an implementable detailed planning permission and an associated cost of GBP 1.7 billion. The additions to the top-tier of the land bank have a plot cost of GBP 60,000 and an expected average selling price of around GBP 275,000. It's not a perfect science, but the chart shows the percentage of plots within our land bank, which are likely to be eligible for Help to Buy as the new rules are introduced. The analysis looks only at private units in England, which are due for completion beyond the 31st of March 2021. So to be clear, the change in price cuts will only affect around 15,500 plots in the DPP landbank. Of these, we believe over half will still be eligible under the new rules. Even only around 7,500 homes, which could be priced above the new limits. That said, there are regions such as the Northeast and Yorkshire, which are unlikely to benefit from the scheme. Our strategy, therefore, is twofold: firstly, purchase new land with a good saleable product mix and with the new price cuts in mind; and secondly, work with the HBF government and mortgage lenders to try to fill in the 95% LTV gap. I would also point out that our Scottish businesses do very well with a much lower Help to Buy price limit of GBP 200,000. Only 9% of customers use the scheme in these 2 divisions. Our pipeline of owned and controlled land like DPP is expected within the next 3 years remains at 16,300 plots, our strategic land holdings division to 27,300 plots, a modest increase on the prior year as we continue to supplement this additional tier of the land bank. In total, the owned and controlled land bank, together with our investment in strategic land, has a balance sheet value of GBP 2.2 billion and provides Bellway with access to over 72,000 plots. All land is in place with DPP to meet this current year's forecast. This healthy overall position enables the group to be selective when acquiring land in the year ahead. Yet with the support of a strong underlying balance sheet, Bellway has substantial resource to target further opportunities in the land market. The investment and construction-based work in progress has risen to GBP 1.5 billion. The increase is a reflection of the reduction in completions in Q4 last year. As a reminder, our order book on the 4th of October was approaching GBP 1.9 billion. And we are, therefore, on track to deliver a solid H1 performance in the year ahead. The amount invested in part-exchange properties reduced to GBP 26 million, a result of group balance sheet restrictions introduced since lockdown, together with the strong second-hand market. As you know, the interim dividend was canceled in the unprecedented position, where the ability to collect cash from completions were severely curtailed, the duration of lockdown was unknown, and employees reclaiming government grants for around 10 million furloughed jobs. It seemed neither prudent nor appropriate to return cash to shareholders. However, we are now in a position with our strong order book and investment in WIP gives us some visibility for the months ahead. Our liquidity and cash flow forecast looks solid and our balance sheet has the resilience to cope with a potential second lockdown. We have no restrictions on capital, have not accessed government funding through the CCFF fund nor the Coronavirus Job Retention Scheme. Against this backdrop, the directors are proposing a final dividend of 50p per share, a 50% reduction compared to the final dividend last year. While the amount is reduced, this strikes a balance between maintaining ongoing cash returns and ensuring that the balance sheet remains strong, given the uncertainty in the market. It also provides significant capacity for land investment. If approved, the payment will continue our unbroken record of always paying a dividend, including throughout the global financial crisis in 2008 and 2009. Going forward, it's just too early to commit to a prescriptive dividend cover, although the Board does expect to increase the quantum of payments over time commensurate with the group's recovery in earnings. So to summarize today's presentation, we achieved a resilient financial performance given the unprecedented circumstances. We have an ungeared balance sheet that provides strength, flexibility and capacity for investment. Our asset-backed business and strong order book affords good liquidity, and we have substantial forecast headroom in the year ahead. We expect to increase the dividend over time in line with the recovery in earnings. And finally, the business is in good shape. Beyond the current international crisis, long-term industry fundamentals and capacity for Bellway to grow remains strong. I'll now pass you back over to Jason.

Thank you, Keith. I want to start by taking a look at the sales market. If I could refer you to the table on the screen, so I can make a comparison between pre- and post-lockdown sales rates. You may recall that we had a positive trading period earlier this year on the back of the general election, where sales were ahead by around 5%. And that momentum continued until the 23rd of March. During lockdown, we continue to sell remotely, but the sales numbers were fairly modest. Sales started to recover with the phased reopenings of our selling outlets on the 18th of May and further boosted by the introduction of the stamp duty changes on the 8th of July. So the recovery has been quite pronounced. In terms of house price inflation, it's difficult to make meaningful comments to the year with so much disruption. But it's true to say that prices remained firm throughout the lockdown period and any recent HPI has been at fairly modest levels. One key challenge that we face is delays to the sale process. Higher volumes have resulted on additional pressure to lenders and surveyors at a time when some businesses are either understaffed or working remotely. And further, the absence of 90% or 95% loan-to-value mortgages has led to a greater reliance on the Help to Buy product, leading to more administrative delay. Typically, to convert a sale from reservation through to contract would normally take around 6 weeks. In the current environment, that same process is taking 8 to 10 weeks. Turning now to land. Initially, cash preservation took precedence and land spend was stopped. However, gradually across the summer period, we did see some attractive opportunities and acquired 14 sites, producing around 2,000 plots. Some of those land vendors accepted a COVID clause, giving Bellway the right to walk away. Others needed cash, allowing us to acquire them at more attractive margins. Overall, in the year, we contracted on a total of 11,900 plots and at an expected average margin of around 23%, although it is worth noting that some of those sites may be subject to extended site preliminary costs. Going forward, whilst we are cognizant with the pressures on the wider economy and that taper in Help to Buy products, we have started the new year with an appetite and the cash to invest in land. This front-footed approach served us well in 2009, and we intend to replicate that model, providing, of course, we can buy and see good quality assets. And I'm still driven by increasing the number of outlets across the group as I see that as a good way of spreading risk in the years ahead. Moving now to production. Understandably, there appears to be much debate about the rate of production that house builders can deliver in the current environment. Since we started the phased reopening of construction sites on the 4th of May, we have continued to build up speed and return to more normal rates of production. Initially, we started on a limited number of developments. We're just finishing trades, concentrated on homes that were largely built. The purpose being twofold: firstly, to convert WIP into cash, but also to train our staff and learn how to work within COVID safe parameters. Today, I would say that some of our housing sites are now approaching program speeds at pre-lockdown levels, whereas others can be restricted by access issues or kinks in the supply chain, service installations or where staff are showing COVID symptoms or may have tested positive. Any of these issues can lead to a drag on production or even result in a temporary site closure. To put all this into context, I would estimate that as at the end of September, our productivity is around 90%, and that takes into account both those sales delays that I mentioned and also those restrictions on build. However, assuming the second phase of COVID cases are kept under control, I do expect that level to improve as we move into the new calendar year. One production concern that I do have is the volume of new build completions programmed for March 2021. It's unprecedented. Every U.K. house builder is planning an extraordinary volume of completions in the same month, creating pressure on everything from mortgage approvals through to the supply of white goods, and I genuinely hope that we have COVID under control at that particular junction. Moving on to costs. Previously, we have had much debate about rate rising costs. Although today, I would suggest that inflation is negligible for both labor and materials. We still have some cost pressure, principally from extended site preliminary costs and the introduction of new building regulations. But we also have the benefit of our new standard house type range, the Artisan collection, which has enabled us to be more cost efficient. And new house types have been plotted on some 21,000 plots across 164 developments. And whilst we have costs under control, we do recognize the need to repair that margin. Our back to basics campaign launched on the 1st of October does exactly what it suggests. Every business has been challenged with improving margin for FY '22 and beyond. And a few examples of back to basics are quite simple. We've appointed a new architect at head office to independently assess all new site layouts to optimize density and salability. We have a significant reduction in professional fees as we start to get the benefit of that standardization. Our group Commercial Director now works closely with the divisions to review and value engineer or groundworks tenders. GBP 100,000 saving per order can lead to savings of up to GBP 10 million per year. And we have also introduced margin improvement plans to monitor those cost savings as we progress. I also want to talk about people. Despite the pandemic, we are still investing in young people. Bellway has continued to recruit and develop young and diverse talent across all disciplines within the business. We currently employ 258 apprentices, graduates and trainees across the group, an increase of 76 in the year. And we are planning to recruit a further 40 graduates in September '21 and are also keen to participate in the government's Kickstart program, giving young people an opportunity to develop their skills. And I'm very proud to announce the opening of my new Bellway Academy, which is based in Newcastle, is now build complete, and this wonderful new facility allows us to really invest in people. We start to plan our first training modules in the new year, covering everything from construction through to customer service. Staying with customer service, one thing that has not changed throughout the pandemic is our commitment to quality and service. I'm very pleased to report that we have achieved our 5-star rating from the HBF customer satisfaction surveys for the fourth consecutive year, and our customer-first program has continued throughout the lockdown period. And by way of reminder, this is an initiative to raise customer service levels across the group. So our customers not only enjoy a 5-star home, but also a 5-star customer service. We plan to roll out these new processes in 2021. And these include a greater investment in IT, making communication easier for our customers, customer service training for every member of staff in every division and formalizing that culture where the customer is at the heart of everything we do. Now for current trading. If I could refer you to the table on the screen. The first 9 weeks, the period from the 1st of August to the 4th of October, have delivered strong sales with volumes up by 30%. To break that down further, the first 6 weeks of the year delivered record sales as that pent-up demand sought to capitalize on the stamp duty savings. And the subsequent 3 weeks have delivered sales rates at more normal levels, consistent with autumn '19. And I think it's reasonable to assume that sales volumes will be a bit quieter for a period next year as the market adapts and adjusts to the end of the stamp duty holiday and the introduction of the new Help to Buy rules. Outlets have marginally increased from 271 to 276, and we have the benefit of a record order book of some 1.9 billion. But probably the most important statistic for me is that we are now selling beyond March of 2021. There is clearly an appetite from our customers to purchase homes that are planned for completion beyond March of next year, and that gives me the confidence to invest. Finally, outlook. Whilst the short-term outlook necessitates a cautious approach, the medium-term prospects for housing look positive. And I very much believe that house builders can be one of the key drivers in returning the economy back to growth. And I would further conclude that new build housing is more robust than many other industries. We were one of the first sectors to return to work and have spent some 6 months learning how to work within a COVID safe environment. And if lockdown restrictions were to be tightened again, I still think we can operate safely. And Bellway's investment case is simple. Our ability to recover and deliver disciplined volume growth is very strong. Prior to COVID, we achieved 10 consecutive years of growth. We expect to deliver around 9,000 homes this year with around 5,000 in the first half. We are operationally strong, with a focus on margin and customer service, which is exactly where I want the business positioned. We have a strong balance sheet, which gives us substantial capacity to invest in land. And finally, we are returning to paying a dividend, making Bellway the only volume house builder to pay a dividend for 11 consecutive years. Thank you. I will now hand over to the operator.

[Operator Instructions] We will now take our first question from Gavin Jago from Barclays.

Two questions, If I could, please. And I think the first one is really just a...

Can you hear us okay, Gavin?

We can hear you -- I can you light and clear. Yes. Yes. The first question, if I could, please, just around the London and the Southeast. Just wondering if you could elaborate, Keith, maybe on what you define as, I guess, a handful of homes around that GBP 600,000 mark. And I'm just interested to, I guess, hear about a little bit of modest price pressure in that area. Maybe you could elaborate on that. But also, I guess, the build cost that has been rising here, whether you expect, I guess, either of those trends to move either way? The second question is around the non-exceptional kind of site duration cost. I think it was about an 80 bps drag on the margin in the year. Is that something that's expected to drag into future years because those -- because of productivity levels, et cetera, is maybe an indication of the margin drag going forward? And then the final one is just on the 9,000 units. So the guidance you've given. I just wondered if you could please tell us, I guess, how much of that is locked in with reservations at the moment maybe with the contract against it? And I guess, where you seeing the upside with downside risk?

Yes, yes. Okay. No problem. So when we talk about a handful of homes. If you were to look at our land bank, we've maybe got 2% of plots or so above GBP 600,000. Now if you look at completions we had in the past year, it was probably something like a couple of hundred units in that similar sort of price bracket. And I'm thinking of sites like some apartments we had in idle with a scheme we've got in Greenwich. I think the point I'm making is we haven't got a huge amount of exposure there. But if you're pricing something at GBP 600,000, it can easily be GBP 20,000 out and multiply that by a couple 100 plots. It adds up quite quickly. So it can move things faster than you would otherwise expect. But overall, the exposure there is fairly limited. And obviously, we find very few products, if any, at all, under that sort of price point going forward. And in terms of the build cost point, again, that's perhaps be more pronounced in and around London and the Southeast. I would say where we are now, build cost pressures relatively flat. But in the year, we have seen increase on certain subcontracts tended trades, particularly around groundworks. But in addition to that, where we've looked to comply with new building regulations, particularly in respect to fire in that sort of -- that part of the country, that has added substantial extra costs in some instances where we've had to look at designs, more systems, and that's sometimes led to delays in planning. So that's what we're alluding to in that regard. On the nonexceptional costs of GBP 19 million in relation to COVID. Well, this is something we talked about a little bit at the trading update. So on all of our sites, we're now expecting the time to build and trade-outs will be longer than it otherwise was. And let's say that 6 months or so is a reasonable assumption as we sit today. That adds substantial extra cost to the overall sites. If you think each site costs maybe GBP 30,000 to GBP 50,000 per month to run, that quickly adds up to a large figure. So it will have an impact in FY '20, but that will continue into subsequent years as well. And I think that GBP 19 million, which we incurred in FY '20, if we complete around 9,000 units, could be GBP 24 million, GBP 25 million, that sort of ballpark. And I think, Jason, will jump in on the 9,000 homes.

Was it sales, Gavin, you asked about on the 9,000 homes?

Yes. Just around kind of, I guess, what you've got in the order book, how -- what have you got secured of that 9,000? And how much is left to do, if you like, for the current year?

We're in a quite comfortable position, Gavin. We've already completed on 2,000 homes so far this year, which is 700 ahead of this time last year. And the majority of our order book of 6,000-plus units will fall due in this financial year. So we're quite far forward sold for now. My concerns are not really sales. My concerns are other issues, really. And that's why there's sort of a tone of caution in our numbers. And if you listen to any of that waffling or nonsense that I was talking in my presentation, those pinch points of March of next year are genuine concerns. If there's a COVID 2 or a COVID 3 at that junction, that can have a material impact on our numbers. So I think I agree that you'll conclude that we're in a comfortable position on sales. But just around the corner in the new year, we've got to contend with Help to Buy, to stamp duty holiday, Brexit, COVID 2, COVID 3, the furlough scheme coming to an end. So there's a lot of hurdles to overcome. So that's why there's a little bit of caution in our numbers.

We'll now take our next question from Chris Millington from Numis.

I'll go with the usual three as well. In the commentary, you mentioned you're looking at ways to kind of mitigate the impact of the Help to Buy change. I just -- firstly, I would just like a little more commentary on that, if possible. Second one is just about your attitude to land investment in London. I don't know if you're seeing better conditions at the lower price points, but does that go kind of hand-in-hand with your desire to invest more in London? Just related to that, and this the third question, if the market is sensible this year, I mean, what do you anticipate spending? I understand it's subject to deals, et cetera, but just to get a feel of the direction of travel.

Yes. So I'll do the 1 and 3, if you don't mind. So in terms of Help to Buy, what do we mean by trying to manage the impact. Well, as you're always going to have a mix of product on site, and you're not going to get everything below the Help to Buy threshold because you do need to have a reasonable sales mix. But it's about making sure when we're investing in land that, that sales mix is reasonable. There isn't a predominance. If large 4-bedroom homes, there isn't a predominance to 5 bedroom homes on there and gradually nudging down the average selling price on those sites were requiring. And perhaps the best example I could give is if you look at the additions to the top tier to the land bank in the period, they had an average selling price of around GBP 275,000. So it gives you some sort of color in terms of the direction of travel. In the background, of course, we work with third parties. We talk to people about what a replacement scheme might be in terms of a private scheme, whether that's 95% lending, whether that's a mix or some other sort of products. All of those, I think, have got legs, but all of them are complicated and will not happen overnight and will need a lot of effort to get over the line. Do you want to do the land in London?

Yes. Sounds good. So I think our exposure to London, Chris, is probably reduced from as high as 15% or 20%. I think we're down to 5% or 6% at the moment in London. But I've got no ambition to leave London at all. I'm still very keen on that market. I suppose across the past 5 years, our approach to London has been more commutable as opposed to those more central zones. But my only caution on London is higher density apartments. So I think I'll be reluctant to buy any similar schemes at the moment. But certainly, if we were in places where we are at the moment, Bexleyheath or Hornchurch, dark for those commuter areas, where we've got lower density apartments and housing schemes, we're finding that, that market is very robust at the moment.

And then with regard to your last question on overall land spend, I mean, just a big caveat with it, that it will depend on the quality of opportunities and where the market goes. But if you take a best case of around 9,000 units, we feel we could comfortably expand in excess of GBP 700 million on land, which could give over investments of GBP 150 million to GBP 200 million in the year ahead, if you look at what might go through the P&L. Now that's not a promise. It's a guide. If the market is stronger, if completions are higher, clearly, we would have capacity to do more. I think our intention is to repeat what we did in '09 and to use our balance sheet strength to invest when there are good opportunities to rebuild the margin and to rebuild the volume output as quickly and as robustly as we can if the market supports that.

Our next question comes from Aynsley Lammin from Canaccord.

Just three for me as well, actually. Just on your ASP guidance of GBP 290,000. Just wondered how much kind of that -- I know it's only slightly down, but is there much assumption for house price inflation being negative. You mentioned the Southeast and a bit of pressure there. So just wondered how much of that is mix in HPI? And secondly, just can you give the Help to Buy percentage of sales for this year? And thirdly, obviously, you'd curtailed the kind of plans to open new divisions earlier this year. You've reinstated the dividends. Where are you on your thoughts about divisions you're just still holding back cautiously until we've resolved some of the macro issues, just further thoughts on that, really.

So in terms of our average sell price guidance, that's based on the current expected completion mix based on the prices we currently have in our evaluations, they take into account any pressure we've seen in London and they taken into account any pricing that we've been achieving recently. There's no future inflation or deflation assumptions in there. So really, it's just a very modest mix change coming through which close out that down slightly. But just to be clear, you talked about guiding within a few thousand pounds, we're not that precise in terms of our forecast. On Help to Buy percentage, last year, it was 35% of completions. What we saw throughout lockdown is that rate of usage step up quite steeply. I think at one point, it was between 50% and 60% as the higher LTV product was withdrawn by banks from the market. I would say now at a run rate of around 40% or so of Help to Buy usage. What that will be for the full year, what -- we'll have to see as the rules change.

So I'll pick up point 3, Aynsley, on divisional structure and growth, which is a good question. I have changed my view and my plans as the result of COVID. So previously, we were looking at new divisions and divisional expansion. So I suspended all that for the time being and changed the approach. So I'm creating 4 super divisions, as I call them, within the group, so that we can grow some existing bigger businesses to run volumes of 800, 900 units per annum. And the reason being is that I don't want the expense and risk of a new division in today's market. But I can still grow some of our divisions and still deliver growth in the next 2 or 3 years. So if I've got a division like Manchester or Milton Keynes, where I've got very good geography and a very strong management team, then I think they're capable of delivering bigger numbers out of those offices. So that's our plan to deliver growth within the existing divisional structure at the moment. I hope that explains it.

Our next question comes from Jon Bell from Deutsche Bank.

I think I've got three as well. First one is, could you just tell us the percent of your 2020 units that were in apartment format and how that might evolve going forward? And the second one, if you could just update us on -- I think you got a scheme down in Croydon, which you had on hold because there were some quite big costs coming up. I'm guessing that may now have started, but maybe you can just update us on that. And then third, on the fire safety costs provision. Just to clarify, was it originally the plan to take the provision over 3 years? Or was it that you expected that GBP 40 million or so to land over that period in cash terms?

All right. Well, I'll do 1 and 3. So apartments, I think it's about 15%, 16% of the business. Bizarre -- or maybe not bizarrely, but we have around about 1/3 of those in London, 2/3 outside of London. And I think that's probably a core level of output now. The reason why I say it's a little odd is we used to be led by London in terms of apartments. But as we moved into the outer zones and have less exposure there, you've seen that percentage figure actually come down. So that 15%, 16%, I think, is a reasonable run rate we expect going forward based on the land we're buying at the moment. On the fire costs, the cash outflow is very difficult to predict because the schemes are obviously quite complicated. But the 2- to 3-year point is the reasonable expectation in terms of when the cash outflow will be, but the P&L charge obviously has to be reflected in the year, which we did that because that is the obligation we feel we will have, even though it might take 2 or 3 years to spend it.

Jon, just on Croydon, good spot, really, from you. I've put the foundations in Croydon, but I've not released it beyond that for the time being, which is the only development that I haven't released across the group. Our East Croydon site is very well located, but it's a 24-story block next to a train station that runs into London in 15 minutes. And for me to start that just at the moment, I'm a little bit nervous of the sales market, particularly where it's situated, and I don't particularly want to invest GBP 30 million into the WIP at the moment. I'd prefer to spend GBP 30 million on land than invest in that particular site at the moment. So I'm just going to see how the wider sales market evolves in the new year before I release forward. I hope that makes sense.

Our next question comes from Marcus Cole from Liberum.

Hope you can hear me. I've got three questions as well. So historically, the target was to have 500 Artisan collection completions in FY '20. What was the outcome of this? The second question is, could you please give some color on land buying in FY '21? Should we expect this to be in line with the 9,000 unit completions guidance? And the last one is, has there been any signs of slowing demand in forward-looking measures such as Internet?

2, 3.

Well, on Artisan, we -- you're right, we initially said we'd do around 500, but that came out at around 300 in the year. In terms of land buy, well, I probably refer you to our earlier answer, we expect to spend in excess of GBP 700 million, which could give an over investment of GBP 150 million to GBP 200 million. If you assume 9,000 plots in terms of completions. And on the Internet and demand...

Yes. If I just answer the Internet of the wider sales market. So the window we're looking at is that 9 weeks from the 1st of August to the 4th of October. And in that 9 weeks, you had 6 steady weeks of sales that I mentioned in the presentation. We then returned to what I call more normal sales levels consistent with autumn '19. And more luckily, what we've noticed is the social restrictions across the U.K. have started to tighten. We've noticed that our footfall has started to reduce, but sales have held up. So what we're seeing at the moment is just people who are in a tenant on moving as opposed to any other footfall. Now whether that changes in the weeks ahead, is anyone's guess at the moment because we're unsure how the restrictions will evolve. But the only real change of late is footfall is reduced a little. I hope that explains that okay.

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

Just a couple of questions from me. My first one was on the land market. As the sales rates have recovered across the market, have you seen competition intense -- become more intense in this market? I mean I'm wondering if the small- and medium-sized developers are also participating in the sort of deals that you are looking at? And again, is there any difference between, say, short-term land versus a strategic land? My second question, you touched briefly on supply chain pressures becoming a sort of a delay point in the sort of build cycle. Has that experience improved since reopening? Or are you seeing more tighter material availability across some of the product categories?

I'll start with the land mark, Ami. Certainly across the summer, there was very few, if anyone in the land market. So we were pleased to pick up a few deals at better margins, but the numbers were fairly modest. As we've got into the autumn market, where the land market is generally a busy period, I would say the most competitive part of the market is the medium-sized sites. 100 to 200 units seems to be competitive. The only people buying at the moment, and I'm exaggerating a little to make a point, are the volume house builders with decent balance sheet. So we get to see the smaller private players return in any numbers. And there are no housing associations buying land at the moment. So it's just sort of restricted to medium-sized or bigger volume house builders. And I wouldn't call the market -- the competition intense. I'd just say it's busy around the medium-sized outlet. So if you want to buy a site for 1,000 units, there's very few buyers, but there's still a few on the medium-size stuff. And in terms of the supply chain issues, still today, and we've been back to work for 6 months, we have what I'd call kinks in the supply chain in some parts of the country that still persist today and some of the leading periods for all sorts of materials, whether it's plastic or bricks are still extended. And I do worry about March of next year when you've got all the stress on the supply chain. Whether it's a mortgage approval or a mortgage consent or white goods or floor coverings, that's going to be huge pressure in the industry at a time when everyone is not really at full pace. So I think they're all manageable at the moment, the supply chain issues, but they could return to us in the new year.

Our next question comes from Emily Biddulph from Crédit Suisse.

I've got two questions, please. The first one, I just wanted to come back on volumes. I appreciate the sort of the 9,000 guidance and the points you went through in response to Gavin's question, just around the sort of potential risk to sort of delivery later in the year and sort of visibility on sales rate later in the year. But I just wanted to sort of get a sense of like if actually, there isn't too much disruption through the spring? Like what's the upside scenario here? Like is it possible that you can go through 10,000 units? Or is that a sort of completely impossible number because of the rate of build at the moment? I just also wanted to get a sense of sort of how conservative the 9,000 is? And kind of what you potentially could do in a sort of relatively perfect world? And then, secondly, on gross margin. I appreciate you don't want to guide on the full year at the moment. But presumably, you've got pretty good visibility on the gross margin on those 5,000 units in the first half of the year. I just wondered if you sort of -- yes, you'd like to quantify that at all? Or can you give us any sort of sense of how we should be thinking about the H1 gross margin?

Emily, I'll do the first one and maybe Keith will do the other one on margin. But on the volume, I mean, it's a good question because our sales and our WIP is in a very robust position. But we don't look at where -- if it's a perfect world where we could be in July. We do look at the opportunity to upgrade at various points in the year, Emily. So it's not beyond the realms of possibility that we could deliver 25% growth this year. That's the next target for us to hit. At the moment, we guided 20% to take us to 9,000, I guess, 25%, takes us 9,400, 9,500. So is the sort of mist clears in the new year, that would be our next target to look at. And then we'll review it from there. That's all I can really offer, I'm afraid, Emily.

And with regards to the margin, Emily. We do -- I suppose the only firm that you have in terms of H1 is you know what revenue you've contracted those plots at. We obviously take a site-based margin, which will vary and evolve throughout the duration of the site, and those assumptions will evolve in the next 6 months. So that's why we can't say precisely what that will be in H1 at this stage. What I would say is the overall margin we expect to deliver in the order book is most likely to be in excess of 20%. That will be, I suppose, a reasonable level of outcome for the full year. I'd take those figures with a pinch of caution in terms of how precise we are approaching at in excess of 20% for the gross margin for the full year. And as I sit there, I suspect both volume and margin will be stronger in H1. And that strengthen H1 is not just the order book in terms of volume, but also that will help you recover overheads more efficiently in H1 most likely as well. But to give you a more precise split than that, I think, would be making a trouble out of it.

We'll take our next question from Sam Cullen from Peel Hunt.

Yes. I've got three, I think. First one is kind of when you talk about the land deals that you converted this year and you talk about Croydon and some of the other and the lowering apartment -- level of apartment schemes you guys are looking for. Is that kind of related that you're thinking about a post-COVID world with apartment schemes being less attractive than perhaps they once were? So just some comments around that would be interesting, whether they're related or whether I'm just making connections when there aren't any?. Secondly, just your thoughts about the potential to continue to rebuild margins towards the sort of 20% level without underlying HPI, if you're still going to have that kind of GBP 3,000 to GBP 4,000 increase in cost on the back of the energy schemes? It would be interesting to hear some comments there. And then, lastly, kind of related to the stress you're alluding to in the supply chain. Were we to have, say, a 2-week cold snap in November, how much capacity do you have to hit the build targets you need to hit to -- in order to make the numbers you think you're going to make for March next year? It would be interesting to hear your comments around that.

Can I do the -- I'll do the apartments schemes. My view on apartment schemes is there is still customer demand for apartment schemes. But we do like, if we're doing them in the future to have, what I'd call, some sort of social infrastructure in the building. So if it's an apartment scheme, I'd like to do low or medium density. And I'd want a residence gym in there and I'd also want an office suite in there to use by the residents. So it's just creating some other parts of the building that are interesting to residents so they can live, work and keep fit in the building. I don't have an appetite to high-density, residential-only buildings at the moment because I think there's too many negatives in the market against that. So I'm not against the apartment, it's just specific apartments that interest us at the moment. In terms of the supply chain, if there was a 2-week cold snap in December. There's no impact on us at all. We are very operationally focused as a business. That's probably one of our strengths. So unless the cold snap was for 6 weeks, it wouldn't affect us. We're well managed, well organized. So we'll be fine in that regard.

And I think you're asking around normalized margin and particular cost pressures going forward. The way I would answer that is we've contracted on land in the period at a gross margin of around 23%. That takes into account expected additional cost of complying with building regs of around GBP 3,000 to GBP 4,000 plus. Yes, there could be a bit of downward pressure on that margin because of COVID. But prior to COVID, that was the expected intake margin. And in addition to that, we have made an assumption in the majority of our valuations, plots which complete beyond most -- probably December 21, that the new building regs will become applicable and therefore, we'll shift it from those costs. And we've got that embedded within our margin guidance. So once we begin to normalize and you haven't got this COVID issue anymore, I still see no reason why a 23% gross margin over the long term shouldn't be something that we aim towards, albeit it will take a good 2 to 3 years, I expect before we get back up to that sort of level. And of course, it assumes that the land market continues to offer opportunities at that sort of price point.

We will now take out next question from Alastair Stewart from Progressive Equity Research.

A couple of questions. First of all, Keith mentioned you could take advantage of, I think, the words were compelling opportunities in the land market. Are they starting to present themselves just now? And is there any change in the landscape as where -- it's a more sort of redevelopment of retail sites coming along with the new planning reg? And the second question refers to Jason's comments on the 6-week sales period going up to 8 to 10 weeks. Is that now the new normal? Or do you think it could speed up if banks and surveyors bring on more resource? And if it doesn't, could this present difficulties ahead of what looks like a really -- quite challenging February and March for you?

I'll tackle both of those, Alastair. So I think what Keith means with compelling land opportunities due to the -- there are some very good locations, what we call robust, desirable locations with a Bellway-type ISP that we are very interested in, and they're good for us for the medium term. So I don't think land prices have changed materially, certainly not at the moment. I would describe them as stable. So it's the number of opportunities that are on the market, they interest us because it gives us choice as opposed to just bidding on whatever comes next. In terms of the retail market, we've already started building and buying land in places, like site, where Hammerson has been selling off retail land. I would expect that space to grow, as you suggest in the next year or 2 as more of it gets sold off across the U.K. So it's something that interests us very much because we've been quite successful in that area. And in terms of the stresses on the sale system, I think they are going to ease, principally because the problem we have at the moment is that lenders and surveyors are sort a little bit overwhelmed, even the help to buy agents across the U.K. have seen less spike in volumes. But I think once they digest that through the system, I think as we roll into the new year, that position will ease and we'll move back to a 4- to 6-week reservation to contract period, although you might see a little problem in March again as it goes through the funnel at the end of March. But I do think they'll ease. I think it's a short-term problem, Alastair.

And just one very quick final question, Jason, you mentioned that housing associations are out of the land market. How's that?

Well, I haven't spoken to them. Certainly, a number of the ones in London have been concentrating on their existing pipeline program. They've been concentrated on some fire issues as well. They've not been investing in the land market since March of this year. Whether that changes again, Alastair, I'm not so sure. But they've got big management issues to handle, haven't they, which we don't have. So I think they're concentrating on those for the time being.

We'll take our next question from Andy Murphy from Panmure Gordon.

I'll go with the standard three, if I may. On productivity, you talked about being sort of 85% to 90%. Just wondering whether you could give us a flavor of when and if you think you can get back to the full 100%. Secondly, just thinking about house layouts and sort of the impact on people's sort of behavior and requirements under a sort of lockdown scenarios. So I was wondering where you're at in terms of whether you're thinking about introducing garden pods as offices or putting sort of -- make more use of rooms in lots of spaces, and WiFi and that sort of thing to help people along? And whether people are actually demanding those sorts of changes? And then, finally, on the Artisan collection and the cost savings around that. I was wondering whether you could give us a flavor of what level of cost savings have come through and what further efficiencies in terms of sort of annualized pound notes are there to be taken?

Andy, I'll do the first two, maybe Keith will help out on the Artisan. So productivity, I would suggest we're at 90%, Andy, at the moment, if I was to be honest, of productivity compared to pre lockdown levels. It's not I think the exact science, I'm sure some pretended to be changes by the week. I've got a number of developments across the U.K. that are building at pre-lockdown levels, whereas others are sometimes restricted by access issues or those kinks in the supply chain that I mentioned earlier or sometimes we have staff or contractors that test positive or even show symptoms. So we close the site automatically for a period of time. And also, you'll have some apartment schemes across the group that are still limited by social distancing. Because of the footprint nature of the site, there's only so much well-care facility you get on-site instead of having 200 people on that particular development, you might be restricted to 125. So there's still some issues in the system that put a drag on production. But to answer your question, we still think we can grow that 90%, assuming COVID 2 is kept under control. So we still think that can improve again in the new year. Maybe up to 95%. It's just subject to COVID, really, at the moment, Andy. And in terms of the house-type layout, you're quite right to mention it. Those office-type layouts that we look at -- sorry, not the offices, the apartment schemes that we're now introducing business suites and gymnasiums. Similarly, on our standard house-type range, we've got opportunities for customers now to have homeworking within the building, certainly in 4- and 5-bedroom homes. But we're also offering garden rooms or office pods as a customer-extra that you can have in your garden as well. Can you answer the Artisan?

Yes. On Artisan, Artisan is one of the number of things going on in the business to try and intensify that focus on cost control. And it will take several years though before you really do see benefits come through. The reason why I say that is well, as we plot it off to sign on 21,000 plots. They take time to come through the current system to be build complete. We have something like 4,000 to 5,000 expected to come through in the next couple of years or so, but that won't dramatically change the P&L. It will take longer before you have a higher level of compliance with all of our divisions. But the scope for savings is initially around things like design and engineering fees. We will not have to repeatedly pay architect fees. We will not have to repeatedly revise site branch. We'll only have to comply with evolving building regs once rather than 22x in 22 different solutions. And you must spend something like GBP 15 million to GBP 20 million in the group on professional fees, which is, I suppose, the ultimate price under saving. In addition to that, though, there's efficiency savings, there's familiarity with the product. And then there's, what I would call, value engineering, which runs in parallel with this. And that's things like, can we get a better group deal on our [ boilers ], for example, because you got less variety because you have a standard product and you have one solution. Can you get a better deal on your roof tiles or whatever it might be as a result of having a standardized approach. And I can't give you a precise figure because it just continues to evolve, and it will change year in, year out. But I think the underlying message is that it's a directional thing. It's right for the business. It creates consistency and it helps maintain the quality which we strive to achieve.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.