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

Good morning, and welcome to Bellway's half year results. My intention this morning is to firstly provide an overview of the business. Keith will then take you through the numbers. And I will close with some detail on land and operational matters, together with an update on current trading. I'm pleased to report that productivity levels are now returning to normal as the impact from COVID reduces. Whilst December and January were understandably challenging months, I've been hugely impressed with the response and resilience from our build and sales teams whose collective performance has resulted in a record half year volume of 5,656 homes. And despite the restrictions imposed from the current lockdown, the selling environment has been surprisingly robust. Sales rates have generally held up well. Private reservations were 3% ahead in the first half and in the first 6 weeks in H2, behind by 9%, but that's against a strong post-election comparator period in 2020. So overall, it gives me cause for optimism for the spring selling period. And that optimism is further strengthened by the health of our order book, totaling around 6,000 homes. You will also have noticed our record investment in land. In the 6-month period from the first of August, we have contracted on nearly 9,000 plots at attractive rates of return. And that appetite continues, driven by our desire to increase outlets and also to deliver volume growth. And that front-footed approach to land investment will naturally promote margin recovery as trading margins tend to improve and the higher volumes allow us to naturally absorb our overheads. Now before I hand over to Keith, there are a few key highlights that I would like to mention. Notably, we are building a stronger platform and a deeper land bank to deliver volume growth in the years ahead. And despite that investment in land, we still have a strong net cash position of around GBP 350 million, and that gives me the capacity to continue with our investment program if the opportunities arise. And finally, you'll see from our statement that the strength of the market has enabled us to upgrade profit guidance for the current financial year. Thank you. I'll now hand over to Keith.

Thank you, Jason, and good morning, all. The strength of the brought-forward order book, the open investment and work in progress and better-than-expected trading conditions have all supported a strong first half performance. Housing revenue grew by 12.5%, beyond last half year's pre-COVID outturn to a record GBP 1.7 billion. And the operating profit was similar to last half year at GBP 298 million. The underlying profit before tax rose by 3% to over GBP 300 million. Return on capital remained high at 19.3%, with the reduction in operating margin mostly offset by an improved asset turn, driven by the strong revenue growth. We incurred a further net expense of GBP 20 million in relation to fire safety on legacy apartment buildings, which I will elaborate on later. After taking this into account, earnings per share fell by 4.4% to 185.9p. In the second half of the prior financial year, we concentrated our WIP investment on housing units that were in the latter stages of the production process. The intention was that this would facilitate better cash collection at a time of heightened uncertainty. In addition, we have been mindful of the April 2021 changes in the Help to Buy rules for some time. Our construction and sales efforts have therefore been directed towards accelerating the completion of higher-value homes, which would not qualify under the new rules. Together, these actions have resulted in the number of private homes sold rising by 8.8% to 4,435, and the number of total homes sold rose by 6.3% to 5,656. A reduced WIP position at the start of the second half will mean that volume growth is expected to moderate for the full year to around 10,000 homes. The overall average selling price rose by 5.8% to GBP 303,000, driven partly by the emphasis towards higher-value private homes. As well, there was also a greater proportion of higher-value social completions arising in certain divisions such as Thames Gateway and Thames Valley. For the full year, anticipated mix changes mean that the average selling price is likely to moderate slightly, but it will still be in excess of GBP 295,000. Our share of completions from joint ventures was 105 homes, with the rise reflecting the phasing of completions on our London apartment block. The associated profit from all joint ventures was almost GBP 8 million. And for the full year, I expect the total JV profit to approach GBP 10 million. The growth in volume was most pronounced in the south, mainly reflecting construction progress as opposed to any material difference in trading conditions. In addition, our new Eastern Counties division is gathering momentum and provided an additional 78 homes in the period and has ambitious growth plans for the future. For the full year, the North-South split is likely to be similar before output begins to catch up again in the north in H1 of the following year. London accounted for 7% of completions with a private average selling price of GBP 440,000. This reflects our investment in more affordable outer commuter zones such as developments at Beckton, Bexleyheath and Hornchurch where demand is strong. A total of 334 homes were sold using our Ashberry brand, accounting for almost 6% of output, continues to provide a valuable second selling outlet for some of our larger sites. In relation to building safety, MHCLG issued guidance in 2020 which clarified their interpretation in respect of the previous 2010 building regulations. There are various aspects, complications and interpretations of this guidance. In broad terms, rather than focus solely on aluminum cladding, this consolidated advice note considered whole wall systems. Importantly, this requires an assessment of the combination of materials used to determine whether they adequately prevent the spread of fire. Taking into account this guidance and as a result of further assessments undertaken by building owners and warranty providers in the half year, we have provided a further GBP 34 million in the period. We've also recovered GBP 14 million from those in the supply chain, including architects and subcontractors, resulting in a net legacy build and safety expense of GBP 20 million. As a result, we built up a total provision of GBP 132 million since 2017. Amounts relating to this were first disclosed separately on the face of the income statement in FY '20 as the issuance of the revised government guidance in that financial year resulted in a larger material amount being required. After utilization, the remaining provision at the 31st of January was GBP 92 million. Going forward, building owners and their agents remain responsible for undertaking regular fire risk assessments. There is therefore a risk that further issues could arise as they perform ongoing investigative work. In addition, establishing fully costed solutions for known issues is difficult as we have found that the scope and cost of work often increases once on site. So while we have taken a prudent and a responsible approach in line with normal accounting requirements, there could be a further build in safety expense in the second half of the financial year. I would stress, however, that we believe the vast majority of potential liabilities are now provided for. We continue to actively pursue recoveries from third parties, but this process is complicated and, in many cases, it will take several years to resolve. Before net fire safety costs, the operating profit was GBP 298 million, and the operating margin was 17.3%. Drawing out larger items in the operating profit bridge, and the extra volume and average selling price added a total of GBP 43 million to the operating profit. This was partially offset by a downward movement of GBP 34 million in the underlying gross margin. And to explain this a little more, the gross margin in the period was 20.8%. This is around 2% below the expected outturn based on our land intake margin of around 23% over recent years. The difference is made up of a cost of GBP 12 million in relation to extended site durations because of COVID. This is not an additional cost over and above that reported last year, but it is instead the proportion of the extra COVID costs which have traded through the income statement in the period. The remaining shortfall of some GBP 22 million is the site-based drag caused by previously reported historical cost increases. These include fire safety requirements on new properties and supply chain cost rises. The margin drag from both COVID and historical cost rises will begin to diminish. However, the affected sites will continue to bear a lower margin until we trade out of them. For the second half, the gross margin will begin to improve. But with a lower H2 volume output, the absorption of administrative, selling and marketing overheads will not be as efficient. I, therefore, expect a full year operating margin of around 17%. Beyond this year, the additive effect of new land, together with several commercial cost control initiatives which remain underway, will continue to help the margin recovery. Our balance sheet is robust and transparent. I will cover larger items separately, but briefly, our fire provision of GBP 92 million is shown on a separate line. Land creditors, which we use only when cost effective to do so, remain low in the context of the balance sheet at GBP 372 million. Looking at cash in more detail, the growth in completions, supported by the unwinding of the bought-forward investment in WIP, meant that we were able to generate GBP 428 million from operations. The cash tax bill was GBP 41 million. And after paying this, last year's final dividend of GBP 62 million and obtaining other receipts of GBP 19 million primarily from joint venture partners, we ended the period with net cash of GBP 346 million. Including land creditors, adjusted gearing was negligible at 0.8%. Going forward, we have committed bank facilities of GBP 495 million and have now fully drawn our recently issued USPP loan notes which totaled GBP 130 million. Before considering land creditors, this provides a total debt capacity of GBP 625 million. In this context, not only do we have a very robust liquidity position, but we retained significant financial resource to invest in compelling land opportunities while maintaining the underlying strength of the balance sheet. For the year-end, net cash is likely to reduce debt over GBP 100 million, depending, of course, on the final outturn and the overall investment in land. Moving on to the top tier of the land bank. There were 27,000 plots with an implementable detailed planning permission at an associated cost of GBP 1.7 billion. Additions in the period have an anticipated average selling price of GBP 270,000. Looking forward, this section of the land bank has a carryforward expected average selling price in excess of GBP 285,000. So while this year, the average selling price may be more than GBP 295,000, in FY '22, I expect the average selling price will be around GBP 290,000, followed by a further moderation in FY '23. The reduce in average selling price is a deliberate strategy to maintain sales rates as the Help to Buy rules change and the scheme ultimately expires. Our pipeline of owned and controlled land, where DPP is expected within the next 3 years, has risen to 21,700 plots. This means because of our land-buying activity in the period, the overall owned and controlled land bank has risen to some 49,000 plots, which is around 4.9x this year's anticipated volume output. This strength in land bank is healthy for the business and will ultimately lead to more outlets to help achieve future growth. Land contracted in the period has an expected gross margin of around 23%. And as already mentioned, this will help to drive margin improvement in the years ahead. Our strategic landholdings have risen to almost 28,000 plots 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 around 77,000 plots. Investment in construction-based work in progress stands at GBP 1.3 billion, a reduction of GBP 187 million compared to the first of August. In addition, plot owned earlier stages of production compared to 6 months ago. This will, therefore, be a constraint to completions in the second half of the financial year. The investment in part-exchange stock was just GBP 10 million, a GBP 43 million reduction compared to the last half year. Initially, this reduction was because we curtailed the use of part-exchange after last year's lockdown in order to protect the balance sheet. Since then, trading has been strong. And as such, we have had a reduced need to offer this incentive, and hence the balance remains low. I expect it to increase in the next financial year as the changes in Help to Buy and SDLT come into effect. We are delighted to be able to restore the interim dividend of 35p per share, which follows the payment of last year's final dividend of 50p per share. The full year dividend payment will be weighted towards the second half, and we broadly expect to maintain a full year dividend cover of around 3x earnings. It is right to allocate the majority of earnings back into the business given the attractive land opportunities in the market and the continuing growth potential. So to summarize today's presentation. Firstly, substantial revenue growth was achieved in the first half as a result of the positive market, strong brought-forward order book and open and WIP investment. Secondly, our strength in land bank will drive further improvement in the gross margin, and we retain significant financial resource to continue investing in new sites. Thirdly, we have restored the interim dividend, and we expect to maintain a full year dividend cover of around 3x earnings. And finally, the long-term industry fundamentals are positive. The business is in good health, and the capacity for Bellway to grow remains strong. I will now pass it back over to Jason.

Thank you, Keith. I want to start by taking a closer look at the sales market. As I mentioned in my introduction, sales have held up well. If I could refer you to the slide on the screen, you can see despite the ups and downs over the past 6 months, private sales are still ahead by 3%. And I also think it's useful to see what Help to Buy is doing now we've transitioned into the new scheme. Since the first of January, new Help to Buy sales have made up a lower proportion of total sales compared to the period between August and December. But for me, still very encouraging. My feeling is that they won't continue at this rate, but the key point here is that there has not been a material reduction in numbers. And I am similarly encouraged by the prospect of competitive 95% mortgages. And whilst there is a bit more work to do, it does fuel confidence for life without Help to Buy. And with regard to the SDLT holiday and the recently announced extension, I think the real benefit with SDLT has been to kickstart the whole housing market and government intervention has been very effective. However, I would caution about the prospect of returning to the original scheme rules. The success of the SDLT holiday has been to revitalize that whole housing market, new or old, big or small, it frees up that housing ladder, to return to a system that heavily focuses on first-time buyers with higher taxes on larger properties seems to me to be a backward step. In terms of house price inflation, we have experienced price rises of 1% or 2% on some housing sites across the U.K., although I would say that apartment prices tend to be a little more rigid in value. Turning now to land. As I mentioned earlier, we've had a very successful period, having contracted on nearly 9,000 plots, and at a time where there have been fewer competitors in the market. We have invested in some really good quality housing sites in strong locations, such as Cherry Hinton in Cambridge, Sniperley Park in Durham and Kings Hill in Kent. And that appetite continues for the second half. We hope to acquire around 16,000 plots for the full year, albeit I do recognize the market is becoming a little more crowded. And as ever, we're very much focused on outlet growth. And you may also note that our ASP on recent transactions is a little lower as we deliberately target the lower end of the market. Now for production. We do still have some cost pressures, but they are modest, 1% or 2% per year. We do have the extra costs of the new building regulations planned for 2023 and designed to reduce carbon emissions, although these costs are already included in our viabilities. Our focus has really been on improving efficiency, as the use of our Artisan house-type range expands across the group, aside from the obvious cost benefits that I've mentioned previously, such as reduced design fees, lower site overheads and lower customer care costs. The bigger gain has been on the reassessment of site layouts at preplanning stage. We have taken on a new group resource to optimize layers to complement the approach taken by our divisions, and we have been very encouraged by the benefits, and those benefits are particularly pronounced on larger sites. Notably, we've been able to improve not only margin and coverage, but also create a better place to live and a more salable product. And we also continue with our back-to-basics campaign, which is all about improving margin through a variety of initiatives, such as groundworks design and cost reviews, margin improvement plans and, of course, optimizing layouts. Turning now to the customer. I'm pleased to report that we have retained our 5-star rating for the fifth consecutive year and achieved our highest score to date of 93.5%. But we plan to take that further for our Customer First project, which launches next month with much enthusiasm across the group. The purpose is to improve quality and service and put the customer at the center of everything we do. Relationships with our customers can often last up to 3 years. And we engage at several key stages: planning, building, selling right through to aftersales service. And every one of our colleagues will be part of that customer journey, with our purpose and our ambition to be a 5-star housebuilder with a 5-star service. Moving on to the environment. We are working towards embedding a new sustainability strategy across the group and have established a 0 carbon team at head office. We have also appointed The Carbon Trust to help us establish science-based target reductions. Meeting net 0, together with other environmental goals will clearly have a significant impact on how we plan and build our homes. We have started that journey and are very much committed to creating sustainable and enjoyable places to live. We have identified sites to trial new technologies to develop lower carbon solutions, and we're also working with the Future Homes task force to work collaboratively on common solutions. I also want to talk about the issue of building safety. We have made good progress on ACM cladding replacement works on buildings above 18 meters. Our attention now is very much focused on the wider issue of building envelopes on legacy buildings. And remediation strategies can be complex and are subject to an evolving view of expert interpretation of a safe building. The issue is further exacerbated by the introduction of EWS forms, where lenders may have their own view on a fire safe building. That said, Bellway takes the issue very seriously, and we have adopted a responsible approach to the issues. We have established a fire safe team to engage with building owners, local authorities, fire engineers and, of course, the residents. And as Keith has mentioned, we have set aside a total of GBP 132 million over recent years and have a remaining provision of GBP 92 million to support affected residents. Now for current trading, if I could refer you to the slide on the screen. The first 6 weeks since the first of February, we have achieved a weekly sales rate of 263, overall, a reduction of 5.4%, but to be expected given lockdown. Outlets have marginally decreased from 277 down to 267, and we have the benefit of a strong order book of around GBP 1.6 billion. Finally, outlook. As we emerge from lockdown, Bellway is in an excellent position to continue its long-term disciplined growth strategy. There is still strong customer appetite to purchase new homes, supported by a recovery in economy, 2 more years of Help to Buy and the prospect of competitive 95% mortgages. And I think that backdrop, coupled with our stronger land position and their operational strength, creates a very good business case going forward. And finally, we plan to upgrade volumes to around 10,000 homes for the current financial year. And as a reminder, we still have the capacity to deliver up to 14,000 homes. Thank you. I'll now hand over to the moderator for questions.

[Operator Instructions] Our first question today comes from Will Jones from Redburn.

Three, if I could, please. And I think they're unrelated. But the first one is just exploring the -- the recent sales trends, that dip of around 5% since February. Just looking at the final slide you just showed, and I think the outlets are down by a similar percentage. So perhaps it's really an outlet issue rather than underlying. But I just wondered within that, when you think about product availability compared to this time last year given the work in progress position at January, has that been a slight constraint on the last couple of months? And does it improve going forward? Appreciate again it was against a tough comp. The second one was just around, I guess, just exploring the interplay of, I guess, dividends and land buying. But with your 3x cover, when you forecast forward and look at how you think the budget might evolve for the next kind of 2 or 3 years, do you see net cash building up quite sharply with that kind of dividend cover policy? Or actually is the message here that the added land investment will be the balance back down again? And then the last one was just a technical one. But looking at your medium-term pipeline, I think the plot count has gone up by over 5,000 from July to January, that 21,700 number today. Is there a definitional change in the way you think about the pipeline? Or is that just literally some of the -- some new sites coming in?

Will, I'll just start on the sales rate. I hear what you say on outlets are down 5% and several volumes. But the figures being compared to this time last year, for me, most incomparable that such disruptive periods is difficult to make anything out that the statistics really for me about. All I could say is that I'm very optimistic about a spring selling season because I can probably see a little bit further ahead than we've reported. We're almost sold out for this year. So the next sort of 18 or 19 weeks of our financial year, it's all about building our order book. So we're going to be in a very strong position from an order book point of view at the start of next financial year. And on top of that, Will, I'd expect outlet numbers to grow again in H1 of next year. So I've put all that in a port when I just think, well, sounds we're pretty strong at the moment and I'm comfortable with it. So sales at the moment don't keep me up at night. Will, I hope that answers your question. I refer to Keith the dividend one.

Yes. I mean on the cost position, I do expect the cost position to moderate. Obviously, it depends on the final completion number on what we ultimately spend on land. But if we assume we spend something like GBP 850 million to GBP 900 million on land, which is quite ambitious, that cash balance at the end of the year could moderate to somewhat in excess of GBP 100 million, let's say. Now thereafter, you get a little bit into the unknown, but I think the point I'm trying to make is we still see opportunities for growth. So it's not yes, top of our priority list is to pull down that dividend because we still feel the best return is to invest in land. Now the bigger we get, the harder the growth rate charge we achieve. And then ultimately, the dividend cover has a longer-term potential to moderate. But for the foreseeable future, I think along 3x is the right answer. And I don't envisage building up a big cash balance as a result of that.

Will, I'll do the land bit. And I'll try not to be too vague, but increasing our pipeline is certainly by design. Historically, we've had -- we've always wanted a land bank 4 to 5 years. And it's all often tended to be at the lower end of that scale. And Keith would say that's very efficient. And I would say it's quite modest. So our ambition certainly last summer was to grow the land bank so it's got more depth in it and probably to be at the 5-year end of that scale as opposed to the [ fore end ] because we very much believe in the medium-term prospects for housing. So we see it as a good time for investment.

And just to add to that very quickly, Will, there hasn't been a definition change in the pipeline. It does, of course, include movements in that, which originate from the strategic land portfolio. And you just so happened to begin to see and giving you some planning gains come through as things move from that strategic element of the land bank, what we do to the pipeline. So that's part of us in the figures as well.

We now move on to our next question, which comes from Aynsley Lammin from Canaccord.

Just 2 from me, quick ones. Maybe if you could just give a bit more color on the land market, you said it's becoming a little bit more crowded. Just wondered, is that the bigger volume housebuilders? Are you seeing a bit more competition from the small- and medium-size players and what price is doing in the market? And then secondly, just on the ASPs. You moved that down a touch. Is that more driven by kind of house size? Or is it regional mix is changing? Just the underlying structural change there going forward?

Yes. Aynsley, in terms of the land market, certainly, the land I'm buying in the month of March is probably land that we've got agreed in December or January. So we're fine at the moment. But the market is, I would say, exceptionally busy at the moment. So if you're bidding on land now, I'd say all cash fillers are back in the market. So you've got big ones, small ones and medium-sized ones. The only people we're not seeing in the land market at the moment is the housing associations there. They still seem to appear to be a bit quiet. So I'm not sure I'd call it frenzy, but it's very active. There's sort of a surge in activity, where everyone's come back to the market. But I would expect it to settle down again. But just at the moment, it's quite busy.

And on the movement in the average selling price, Aynsley, I would say that was driven primarily by product mix. So our aim is to have a good choice of product on any given site, but focusing on those affordable 3-, 4-bedroom houses around 1,000 square feet is a typical ambition we have when we're buying sites. Now that's not to say we won't go into higher-value areas. And that's not to say we won't have a mix of product which goes beyond those sizes. I think it's right to have a choice. Generalization, it's that sort of sweet spot in terms of a target which we're aiming towards, which is driving down our average selling price.

We now move on to Gavin Jago from Barclays for our next question. Please go ahead.

A few if I could, please. The first one is on outlet numbers. I'm just wondering if you could say it a bit more explicit maybe, Jason, how you expect these to maybe trend over the next 12, 18 months? And then the second one is on margin, if I could, please. Just thinking about moving towards that 23% level, and I guess what drag there is over the next few years still from COVID and extended site durations. And then just one on the JV. I think you've been pretty negligible over the last few years, but GBP 10 million for this year. Is that kind of a one-off? Are these going to be carrying on over the next few years as well?

All right. On outlets, look, outlet number is going to move hugely in this current financial year. On average, there might be, I don't know, a flat to 1% up just because we've completed so many units, and we've got to get new sites through the plotting system. But in the next financial year, we're hoping to see growth of 4%, 5% in average outlet numbers. So hopefully, you'll begin to see that come through then. In terms of the margin progression, there are 3 things, I would say, affected the margin. And if we talk it about at a gross level, obviously, we're aspiring to get back towards a 23% gross margin without inflationary benefits, which is what we're prone to buying land there. And the 3 drags on that are COVID costs, historical cost rises and I suppose a little bit about the [indiscernible] selling overhead efficiency just until we get an optimal size. I think the historical cost rises will affect this current financial year, maybe GBP 30 million or so, in terms of the drag which still sits in one site. Will that be a much lower impact next year? Maybe GBP 5 million to GBP 10 million. And then the COVID costs, that we said we incurred GBP 12 million in H1, that might be GBP 20 million to GBP 25 million for the full year. Next year, it could be GBP 15 million to GBP 20 million. And then I think it will begin to diminish thereafter. And then the last one, look, in terms of efficiency of selling overheads, until we get back to optimum output, that's maybe 10 or 20 basis points drag. So it's hard to be really precise on all of those different aspects. But hopefully, it gives you some ballpark figures in terms of what's holding that progression at the moment. And then lastly, on joint ventures, around GBP 10 million this year. I would say GBP 5 million to GBP 10 million in the next couple of years, just because that London [ block ] of apartments will obviously fall away, will be replaced by other schemes, but I still think it will be a profitable GBP 5 million to GBP 10 million.

That's great. And I'm sorry, I just want to just have one quick follow-up. Have you been consulted at all yet or you or any others in the industry on the potential tax that Mr. Jenrick announced to, I guess, pay for the cladding remediation?

Gavin, no, we haven't had any direct contact. We were in discussions with MHCLG on specific developments, but no debate about tax. And we're sort of getting into our own thing at the moment in terms of cladding replacement works. But we are happy to engage when appropriate. We do have a context that we go through via the HBF, but nothing substantial going at the moment.

We've probably done the same for our packet this year in terms of looking at the overall tax burden and what valuation could be. And it's not -- once we haven't got any more detail, they're not huge figures, if we just [ extol ] the government's ambition, there is GBP 2 billion, I think it is.

From Jefferies, we have Glynis Johnson with our next question. Please go ahead.

I have 2, if I may. The first one is just pushing you a bit more in terms of house price inflation. The ONS numbers have just come out, and they are very substantially ahead of both what you say and actually what your industry peers say as well. I wonder if you can talk about any sort of regional or product price differences that may account for why your hedge presentations doesn't match from what we're being told from the sort of industry figures. And then secondly, just in terms of those recoveries that you talk about in terms of the buyer safety. I wonder if you can just elaborate a bit more on that. Do you think there will be substantial amount that you'll be able to claim? And are we talking about -- are you talking about the contractors? And forgive me, I didn't get the second bit. Are we also talking about the supply chain as well?

Glynis, I'll just start on house price inflation. I mean, it's quite encouraging. I couldn't hear what you said at this time in terms of -- I think you said lower than someone else, but we're seeing 1% or 2% on housing sites -- on a number of housing sites across the U.K. I wouldn't suggest it's any stronger than that. Sometimes, some of the figures that banded about include secondhand houses. So as much as it [ waters ] a little bit. I would add that we find that apartment prices tend to be a little bit more rigid in value where surveyors a bit more cautious in terms of valuation.

And then on -- if you look at the recoveries that's in front of the complicated process of only assessing remediation, which is required, nevermind getting complexities in recoveries, and to give you an example about the GBP 14 million we've recovered in the period. I mean, some of that we've been working on for a number of years. So this takes a long time to come through. I wouldn't like to predict any sort of figure in terms of recoveries going forward. Suffice to say, we're obviously -- we're diligently through any issues and trying to convert what we can and where we feel it's impertinent to do so. But I wouldn't bake in any companies into our figures. The sorts of people we're working with range from architects to subcontractors to material providers and base components of the wall system. So it's a whole range of different third-party ship who we're looking to work with to make contribution to the works in the years ahead.

And if I may, just a quick follow-up just in terms of the outlook. You've given us outlook to a potential outlook growth for the full year '22. Should we be assuming the land that you're buying in the last 6 months actually doesn't come through quite in that full year '22? Should we be assuming that full year '23 sees a bigger pickup because of the land buying step-up that you've done?

Yes. I think you're spot-on that, Glynis. There's only a few sites that we've managed to capture for '22. But the majority of the benefit comes in FY '23 and beyond.

We now move on to a question from Jon Bell from Deutsche Bank.

Jason, Keith, I think I've got 3. The first one is on supply chain. Any bottlenecks that you're seeing right now? Second one is on potentially growing your regional footprint. Where do you feel in very broad terms that you might be underrepresented or not represented at all across the country? And the third 1 really is if you've seen this increase in competition for land of late, is that impacting the availability of deferred terms at all?

If I start on the supply chain, I wouldn't say that there are any more difficulties than we had at the end of last year, really. There's a few hiccups, a few problems, whether it's roof tiles or timber products, but nothing that we can't manage and nothing that gives me too much cause for concern. I think in terms of the regional footprint that you mentioned, which is quite an interesting point, but there is a little change in the dynamic of where people are keen to live. So even in our existing territory, and I'll use the South Coast as an example, Jon. Historically, we've been cautious for [indiscernible] to do too much on the South Coast because our experience is when the market changes, those places can be a bit tough to sell. But now there is a fair bit of enthusiasm for people to relocate a bit further afield as lots of employers start to introduce flex in working solutions. So we're just finding new patches within our existing territory that are a bit busier. So we're quite like that. The only part of our geography, Jon, I'd say that we haven't covered fully, for these probably South Yorkshire at the moment. So just having a look around the south of Leeds, Sheffield, Mansfield, Doncaster, those sorts of places. I think we could -- there's a bit more to do there. So I'll have to think about that and maybe we'll do something towards the end of the calendar year.

And on the availability of deferred terms. I don't think we really experience it like that. I think more competition in the land market, I don't think it's affecting prices or payment terms. I think it might just affect the number of sites that you're able to acquire. So that, what I say, is the pressure point. This is [indiscernible] to whether we're able to negotiate the deferral if that's right for that particular deal.

We now move on to Sam Cullen from Peel Hunt for our next question.

I just got one left, if possible. Just on Ashberry, obviously, I think you said 6% of completion from Ashberry. How should we think about that growing in the next 3 to 5 years? And where do you want to get that business?

Well, we said Ashberry has delivered fairly consistently around 5% of output, at that sort of level, for the past few years. And because it's a product which is limited to use on larger sites, it's designed entirely to improve sales rates by those larger sites can accommodate and therefore improve return on capital employed. It will have limited usage. It's never going to be a substantial part of the business for those reasons. So I think the 5%, 6%, 7% mark is the level of likely outlook for the foreseeable future, and I don't think that will change much.

Our next question comes from Marcus Cole from Liberum.

Just sort of most of the questions have been sort of asked, but I just wondered if your sort of capacity per division sort of assumptions have changed in the 14,000 from sort of 30,000 historically?

Not particularly. We've introduced 4 senior divisions, as I call them, where we've got strong management teams in strong geographical areas. So if you've got a Manchester or an Essex, where we believe we can grow the businesses up to 800, 900 units, then that's what we're doing in those specific locations. But we may need to open up a 23rd division to support 14,000. But I think, generally, we've got the infrastructure in place to deliver the volume. It's more land capacity that tends to be the issue, not how we operate.

We'll now move on to a question from Ami Galla from Citi.

Just 2 questions from me. The first one on the outlet growth that you're planning for the next 2 years. I'm wondering if you could give us some sense of the work-in-progress investments and overheads, the right size of the overheads in the business going forward? And the second one really is a follow-up on pricing on the back of the pricing environment in the market. Has there been any change in the behavior of the mortgage lenders?

From the work in progress on the overhead, I think there will be a tick-up in the work-in-progress investment by the end of this current financial year. My estimate's on that we might have a further GBP 100 million or so invested compared to the half year figure. Thereafter, I would broadly assume work in progress moves in line with turnover. We would ideally like to improve our book term a little bit beyond that year-end position, which will obviously moderate compared to the half year. But I think the back-line offer is at this stage when there's still some wider longer-term uncertainties in the market is partly premature. So investment this year of GBP 100 million and then broadly in line with turnover thereafter. And then for the overheads for the business, look, we have the divisional structure in place, but we still don't have all of the people that we need in place. There will be barriers in the presence as we go forward with IT cost or reward on keeping the property. So again, for the foreseeable future, I think it'd become increased volume next year by at least 5%. I think that's probably a reasonable guide in terms of how the administrative overhead might move in the next financial year as well. And then maybe just clarifying what the second question -- just in terms of mortgage availability, was that your question, Ami?

No, I was just asking whether there have been any pushbacks on pricing from the lenders?

No, no, no. We have not experienced that. I think the issue on mortgages, if there is one, is that there's still this [indiscernible] 90% and 95% mortgages, and that's particularly exacerbated for the newbuild sector. Obviously, we welcome the government's aid, but we have to see how and when that price to new build, whether the banks will ultimately support that. But we haven't seen any down valuations, if that's what you're alluding to [indiscernible] 6 months.

Anastasia Solonitsyna from UBS has our next question.

I just got a quick follow-up on margins here. If you could just give us some more color around H2 margins. I understand that volumes of Q2 or the first half is a portion of GBP 57 million, which we implied by the guidance. But why does that imply margins to drop by like 50 basis points as a result from first half? Assuming that in the second half, you had some benefit from operating efficiency measures, of some productivity ramp-up versus first half and also lower coverage costs, so how does it stack up? And is there anything else apart from lower completions to impact margins in the second half versus the first half?

The line broke up a few times there, but I'll do my best to answer. But from what I picked up in terms of how the margin progresses in the second half, I think the best way I would explain that is if you look at our current order book. The anticipated gross margin in that order book, which can move as costs move, as prices move over the balance of the rest of the site. But that current anticipation is around 21.5% is a gross margin. So that whether we'll get to the full 21.5% in H2 gross margin is not certain, but it gives you a reasonable expectation in terms of what that outturn could be. And what you will find is that the whole legacy build cost increases, which you see over the past few years in our gross price inflation, will have a lower effect on the margin going forward as we take fewer completions for old land and we continue to replace it with new land at around 23%. And so that's the direction of travel. And I think further improvements in FY '22 as well as, again, there's obviously build cost increases have a continuing diminishing effect.

We now move on to Shane Carberry from Goodbody for our next question.

Just 2 from me. Look, firstly, on the build cost front, I know it's said in the statement, that kind of low single digit was kind of what you're seeing. But if you could give us a little bit more color, I know you touched on the materials aspect of things, but what you're seeing in terms of labor would be quite helpful. And then secondly, look, you mentioned already you kind of bet the longer-term capacity to deliver 14,000 homes. What kind of time frame should we be thinking about that over?

If I do the first one and then maybe Keith to do another one. In terms of build cost inflation, it's quite a mixed bag because you've got some timber products going up by 10%, 12%. But then you've got labor costs quite flat in many areas. So we've been able to place many orders within budget, Shane, because people are keen to build up their order book, get some turnover guarantee as we emerge from lockdown. So we've been able to get some favorable prices from good contractors. I think build costs don't worry me at the moment, Shane. But going forward, as we move towards meeting net 0, that's when you'll see more -- higher costs coming through the systems because the technologies don't exist and the costs are a little bit higher. So that's what worries, but that's probably in 2 or 3 years' time. And if I could just hand over to Keith for...

Yes. Forecast growth over a long period of time is obviously difficult to say that could be. But where I think of it is in the next financial year, we'd like to deliver at least 5% on the volume line. If the market's strong and supportive, we would like to do more than that. We would have the capacity to do more than that and probably get back to FY '19 volumes. But that does require the market to remain supportive over that next 12- to 18-month period. If you go beyond FY '22, then really it's going to be out that numbers. And obviously, the market is still relevant. But we think sort of 5% per annum is a sensible target to aim towards in terms of volume growth thereafter as we go in with our capacity of around 14,000 homes. Now I would caveat that if we don't see good land opportunities in the market, I think it's a wrong thing to do to overinvest in lower-margin land. So we're quite prepared to pull that growth rate. But as and when land mortgage changes, it presents less or more opportunities, as I'm sure it will, but gives you a broad direction of travel.

Our last question today comes from Andy Murphy from Edison Research.

Jason, Keith. I've got 3, if I may. Just thinking about the stamp duty extension. I was just wondering whether you could give us a bit of color around what impact the original end of that extension was having on demand and what you may have seen as a result of the extension that's been announced. Secondly, just thinking about the government's Future Homes Standard. I was wondering what Bellway needs to do to comply. And maybe you can give us any sort of indication of what costs that might be adding on as a per standard house development? And then finally, on sort of ESG, I was wondering whether you could perhaps flesh out what the costs there might be on your future plans, again on the sort of cost per house basis?

Andy, I'll take 1 and 2. Yes, you're right on SDLT. I mean, the good thing about SDLT is it got the whole housing market going. It wasn't focused on new build like Help to Buy is. So that enthusiasm was sector wide and it was very effective, I have to be honest. I'm sure anyone who goes on right where you can see the number of properties that are moving, whether they're new, or small. The whole market is active. Going forward, do I see a surge in activity for June? Not really. We're selling beyond June now in our business. So we're probably selling towards the latter part of the summer and into the autumn now. And it's planned to end, I think, at the end of October as it tightens off. But as a house builder, we can use SDLT as an incentive. If we wanted to, we could write our own product going forward. But just at the moment, I think we're fine. I just don't want to return to the old days where you've got higher taxes on the bigger properties, Andy, and everything is focused on the lower end of the market. Because I think it's unhealthy and it doesn't create a smooth, good quality housing matter really. But in terms of your Future Homes task force, as we look at reducing carbon emissions going forward, all I can say to you at the moment is the building rates planned for 2023 reduce carbon emissions by 31%. And those costs are GBP 3,000 to GBP 4,000 a plot are already included in our viabilities. When we get to 2025, we've got to reduce carbon emissions by 75% against today's standards' prebuilding rates. So that -- there, the costs are unknown at the moment because we haven't concluded the design solutions. We don't know how we're going to achieve that. And it will be a mixture of improving the fabric of the building, new technologies in the building, more renewable energy in the building. And we've got to start looking at decarbonizing a whole grid. So that's the next step, I think, Andy, what are the costs for 2025 and how are we going to do it.

And I suppose on the wider ESG piece, I mean, frankly, [indiscernible] 2025, building regulations is likely to be worth a majority or the future holders [indiscernible] it's likely to be where the majority of any future cost increases the line. More broadly than that, though, [indiscernible] targets in place at the moment. We're having a more holistic review. We're bringing in some third parties to help us. And lastly, in particular, we've just appointed the Carbon Trust to help us establish science-based carbon reduction products, which will be looking of what we call Scope 3 carbon reduction throughout the supply chain and set the costs for what that might be. And frankly, we don't know yet. We need to understand that better and that's why we have those experts help us look at those sorts of things. The aspects of what we're doing on ESG, whether that's waste diversion or waste reduction or reduce the waste usage or water usage or plastic usage, I actually think over the medium term, should at worst be cost-neutral because reducing waste makes you more efficient. It's good in-house discipline to have, and we're already good at those sort of metrics. But I don't see why we can't get any better and not necessarily incur substantial extra costs. So I don't see it as a huge long-term cost risk, I see it part as an opportunity, which we should all try to embrace.

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