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

Good morning, and welcome to Bellway's Full Year Results. Hopefully, you would have had the opportunity to read our statement this morning, and you will have seen a strong set of results, which Keith will take you through in a few moments' time. There are a few key highlights that I would like to mention. Housing revenue has recovered to within 3% of FY '19. Underlying PBT rose by 72% to GBP 531 million. We have the benefit of a record order book totaling almost GBP 2 billion, and we've made a record investment in land with a land bank now comprising of around 90,000 plots. Going forward, we have 3 strategic priorities: volume growth, value creation, and our Better with Bellway approach, a commitment to act in a responsible and sustainable manner. But first, I want to spend a few moments talking about volume growth and explain the reasons behind that record land investment and what it does to the shape of the business going forward. Keith will then pick up value creation and Better with Bellway later in the presentation. Previously, you would have heard me talking about building a stronger platform and adopted a similar front-footed approach to buying land to when we emerged from the financial crisis back in 2008. So I'm very pleased to report that we've contracted on almost 20,000 plots in the period. And certainly, in the first half, those plots were acquired at a time when there was notably less competition from other housebuilders. There are 3 key drivers behind their appetite for investment. Firstly, the opportunity to be front-footed and acquire sites at good margins. Secondly, strengthen the land bank, providing greater depth and a solid footing for growth. And finally, and most importantly, increase selling outlets. I'm very keen to position the business in a place that mitigates the loss of Help to Buy in spring '23. But the way to do that is to increase selling outlets. So what does that do to the shape of our business? It means we can grow more quickly, but still in a disciplined manner. And I tend to look at growth in 2 ways: firstly, short term, then the longer-term opportunity. In the short term, and by July '23, we will increase annual output by around 20%, and that's despite the challenges posed by the supply chain. And that growth of 10% per annum can be achieved because of our land investment, because of our increased selling outlets and, of course, our strong order book. And I also think it's important to note that we can deliver without any compromise to our build quality or our customer-first program. Longer term, we believe that we can grow the business to a similar size to that achieved currently by our larger peers. We believe that a volume target of 16,000 to 18,000 homes per annum is achievable in the longer term, and that is more than the 14,000 homes that I've previously guided. So I think it's right to articulate the reasoning behind those more ambitious plans. There is clearly a long-term structural demand for new homes. There is also continued political support to achieve that ambition and increase volumes to around 300,000 homes per annum. Our strengthened land bank with over 5 years forward supply and our further investment into strategic land provides a solid footing. We also have scope for further divisional expansion, and our financial returns remain strong with a balance sheet able to support our investment program. Now I'm very happy to take questions on this towards the end. But first, for our results, Keith.

Thank you, Jason, and good morning all. I will start with a summary of some key financial metrics for the year just gone. Housing revenue increased by 41% to GBP 3.1 billion and is now just 2.3% lower than the FY '19 peak. The underlying operating margin rose to 17% and return on capital employed recovered to 16.9%, with further improvements in both expected in the year ahead. We provided an additional net amount of GBP 52 million in relation to fire safety on legacy apartment buildings. And after taking this into account, earnings per share rose by 102% to 316.9p. We sold over 10,100 homes with completions biased towards the first half, as previously guided. This is a reflection of the strong pent-up demand in WIP investment at the start of the financial year when construction progress was weighted towards units in the latter stages of production. The average selling price was over GBP 306,000, with the increase of almost 5% influenced by our focus on higher value homes prior to the March 2021 reduction in the Help to Buy price cuts. There was also some underlying house price inflation, perhaps 3% to 5% for the full year. As a result of these pricing benefits, I now expect the average selling price for the year ahead to be around GBP 295,000, slightly higher than previously guided, although still lower than FY '21. This moderation is driven by mix changes as we strategically position the business to deal with the withdrawal of Help to Buy from March 2023. Our share of profit from joint venture completions rose to GBP 10 million. But as I've said before, this can be quite uneven due to the profile of build and sales completions. And so in FY '22, I expect it to half to around GBP 5 million. The market has been strong across the U.K. with Scotland, Manchester and the Midlands all performing well in the North. The recovery was more pronounced in the South, where there was a 43% increase in completions, with this reflecting construction progress and the greater fall in volume in the South in FY '20. Our Ashberry brand now represents 7% of homes sold and is used successfully on larger sites by the site loud and sales market justified to selling outlets. 7% of homes were completed in London, and our average -- private average selling price in the capital is now just over GBP 400,000, which reflects our ongoing investment in the more affordable outer zones, where demand remains strong. We put aside an additional gross amount of GBP 67 million to deal with legacy building safety issues. This relates to developments where initial investigative works had not been previously concluded. It also includes a widening of the scope of works on certain more complex sites, where provisions have been made in prior financial years. We recognized GBP 15 million in cash recoveries from third parties throughout the supply chain, and this results in a net charge of GBP 52 million, with GBP 32 million of this incurred in the second half of the financial year. As you know, this is a complex industry-wide issue where we are trying to act responsibly. From a financial point of view, we have now set aside a total of GBP 165 million since 2017 with a provision of GBP 116 million remaining at the 31st of July. There are still a handful of schemes, which have been investigated, both by us and in collaboration with warranty providers. And therefore, I expect as these investigations are concluded, that we will incur further costs in the year ahead. It is, however, fair to say that I believe most issues are fully provided for, and I see these costs primarily is a balance sheet item. And we do, of course, continue to pursue further recoveries from third parties, where they have fallen short of the standards required, and we will recognize these going forward in line with normal accounting criteria. The underlying operating profit was GBP 532 million, and the underlying operating margin was 17%. Drawing out larger items in the operating profit bridge. The extra volume and average selling price added a total of GBP 186 million in the year, and improvements in the underlying gross margin added a further GBP 44 million. The underlying gross margin of 20.9% is still below our recent land intake margin of 23%. The shortfall is in part made up of a cost of GBP 22 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. In addition, there are still some effective legacy cost increases as we have reported in prior financial years, which still sit within the valuations. There will be further improvements in the gross margin in the year ahead as we bring a new recently acquired land and continue our program of commercial cost saving initiatives. We will also benefit, to some extent, from higher site-based margins because of some recent house price gains, as I mentioned earlier. I note, however, that there remain upward cost pressures in the construction supply chain. In relation to administrative expenses, the recommencement of divisional incentive schemes mainly accounts for the increase in the year. There will be further increases in the year ahead as we expect to incur additional costs to attract and retain quality people to achieve growth in a competitive market. In addition, we will incur some extra costs because of items such as higher pension contributions, insurance, IT security and our investment in ESG matters. Overall, taking everything into account, I expect that we will achieve a full year underlying operating margin of around 18%. Beyond this current financial year, we can deliver a normalized sustainable operating margin broadly between 18% and 19% with the potential for this to rise further if there's ongoing underlying house price inflation. Unusually, I've included a slide on tax, and the reason is that our effective tax rate, which was 18.4%, will go up in the years ahead. Firstly, in April 2023, the standard rate of corporation tax in the U.K. is due to increase to 25%. Secondly, there was just concluded a round of additional technical consultation in relation to the residential property developer tax. And the indications are that this could affect groups such as Bellway from April 2022. The combination of these 2 taxes together could result in our effective tax rate, along with others in the housebuilding sector, rising in stages by some 50% in relative terms to over 30% of profits by FY '24. A few summary observations on the balance sheet before I look at the detail. Our pension assets increased to GBP 10 million. The remaining 5 provision of GBP 116 million is shown separately and land credit has increased to GBP 456 million because of our additional land buying activity. Our cash position is strong and we ended the year with net cash of GBP 330 million. Even accounting for the increase in land creditors, adjusted gearing was very low at under 4%. We generated GBP 520 million from operations, a strong figure, as you'd expect, given the elevated brought-forward investment in WIP. In the year ahead, a select expect the group to be an average net cash position, perhaps GBP 75 million or so, and I expect some utilization of our bank facilities in the springtime as we focus on WIP investment to deliver year-end completions. Committed debt lines, including bank debt and our recently issued USPP loan notes, totaled GBP 500 million, and they expire in tranches through to 2031. This provides excellent resilience and strategic flexibility. Moving on to the top tier of the land bank. There were 31,000 plots with an implementable detailed planning commission and an associated cost of GBP 1.8 billion. Additions in the period have an anticipated average selling price of GBP 280,000. Looking forward, this section of the land bank has a carried forward expected average selling price of GBP 290,000. So while this year, the average selling price may be around GBP 295,000, in FY '23, I expect the average selling price to moderate further to around GBP 290,000 unless, of course, you benefit from some house price gains over that period. This reducing average selling price is a deliberate strategy to maintain sales rates as Help to Buy ultimately expires. Our pipeline of owned and controlled land, where DPP is expected within the next 3 years, has risen to 24,300 plots. This means because of our land buying activity in the year, the Bellway-owned-and-controlled land bank has risen to some 55,000 pots, which is around 5.4x the FY '21 volume output. This strengthened 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 over 30,000 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 2.5 billion and provides Bellway with access to around 87,000 plots. Investment and construction-based work in progress stands at GBP 1.4 billion, which is a reduction of GBP 65 million compared to last year. In addition, the completion of additional units in FY '21 means that the remaining plots are in early stages of production compared to a year ago. Coupled with manageable yet ongoing sector-wide constraints throughout the supply chain, this means that the H1 output in FY '22 is likely to be similar to last year and full year volume growth will be loaded towards the second half. The carrying value of part exchange units at under GBP 2 million is unusually low, and I have no doubt that the balance sheet value and the cost of good in this scheme will revert to normal higher levels in the future. The final dividend is proposed to increase by 65% to 82.5p, which means a total dividend of 117.5p for the year. It is covered 3x by underlying earnings. And given the growth potential for Bellway, this is a reasonable guide to dividend cover in the foreseeable future. Over the next 2 financial years, our volume growth and operating margin targets should result in cumulative underlying profit before tax of around GBP 1.25 billion. After paying tax, we broadly expect to return around 1/3 of the residual amount to shareholders. Before I conclude, I wanted to briefly outline Better with Bellway. This is our new long-term approach to sustainable and responsible business practices, which we are currently developing in consultation with several external stakeholders. The intention is that Better with Bellway will become an integral part of our culture and our day-to-day operations. Not only will this result in a positive influence on our stakeholders and the environment, but it will set a solid foundation for future operational and financial success across all aspects of the group. Our 3 flagship priorities are likely to be our customer-first program, our desire to become an employer of choice and our carbon reduction strategy. Jason will cover the first 2 of these in his operational review. With respect to carbon reduction, we are using internal and external experts to help measure our best carbon output using an in-depth assessment of the embedded carbon emissions within our business. We will measure not only carbon output from our daily operations, but also embodied carbon, which is generated throughout the supply chain, and also carbon horizon through household emissions over the lifetime of our product. We will then develop ambitious science-based carbon reduction targets. We have already established a working group to meet the targets of the future home standard as it will apply to our product from 2025, and Jason will touch upon some of our initiatives in that regard. But more widely within the group, we have moved all of our controllable office stock plot and site compound energy supplies to renewable sources. This action, in particular, has helped us to achieve a 24% reduction in Scope 1 and Scope 2 carbon emissions for homes sold since 2018. There's more to do, and there is more to learn, but we have plans to go further. We are currently investigating the use of site-based biofuel. We are also considering wider carbon emissions, which are outside the scope of Bellway's reporting obligations. This includes a review of our company current incentives that we offer to certain colleagues to determine whether we can encourage individuals to make more environmentally friendly lifestyle choices. We look forward to March next year when we will publish our new science-based carbon reduction targets and also hope to report performance against a range of new KPIs for each of the priorities in our Better with Bellway sustainability strategy. To summarize, I thought it would be useful to set out key aspects of guidance. In the year ahead, we expect to deliver volume growth of around 10% to over 11,100 homes at an expected underlying operating margin of around 18%. In FY '23, we expect to deliver further compound volume growth of another 10%, increasing annual output to around 12,200 homes. The operating margin in FY '23 is likely to be between 18% and 19%. Over the next 2 years, cumulative underlying profit before tax could be around GBP 1.25 billion. Beyond FY '23, we have significant growth potential and to be able to produce a long-term sustainable operating margin without house price inflation of between 18% and 19%. Our responsible and sustainable approach to growth, together with our balanced yet growth weighted dividend policy, should generate significant long-term value for shareholders and a positive impact on all of our stakeholders. I will now pass you back over to Jason.

Thank you, Keith. If I could start with trading. I'm still encouraged by the current selling environment. It very much feels to me as though the market has now normalized, and we're getting back to a more traditional autumn selling period. At the start of our last financial year in August '20, sales were largely inflated by that pent-up demand and boosted by the stamp duty holiday. Reservations then moderated a little bit following the introduction of the new Help to Buy rules and a further lockdown. Overall, private sales were ahead by 20%. Although it's very difficult to make meaningful comparisons to such a disruptive period of trading, that said, we were still 6% ahead of FY '19, and that demonstrates the underlying demand for new homes. We have also enjoyed a strong period of house price inflation, around 3% to 5% in the year. But I do expect this to moderate now the market enters a more normal trading period. The mortgage market also remains supportive, albeit there are no widely available 95% LtV products. But we are encouraged by growing lender participation in the deposit unlock trial, a 95% mortgage indemnity guarantee scheme. And with the recent introduction of nationwide, this could lead to some momentum in this space. Help to Buy accounted for 30% of reservations despite the introduction of the regional price caps. And notably, in the last 3 months of our financial year, Help to Buy reservations fell to around 20%. And today, its use seems to be more prevalent in the Midlands or the South of England. Turning to land. As I mentioned in my introduction, our investment in land has very much changed the landscape for Bellway certainly across the next 2 years. Our investment of over GBP 1 billion securing almost 20,000 plots across 109 sites has resulted in a land bank stretching across more than 5 years. And we've purposely acquired some larger housing sites as we lay the foundations for growth, having deployed capital previously invested in London. And these larger sites tend to attract higher margins, particularly those acquired in the first half of our financial year. And that's not to say we've lost the love for London, but we have reduced our exposure to around 7% of volume with our focus on predominantly edge of London sites or commuter zones, such as Barking, Bexleyheath and Croydon. A final point on land is that we've restructured and made further investment into our strategic land teams. Our intention is to target a wider selection of sites, including larger and longer-term opportunities as we set out to deliver our longer-term growth objective. Strategic land will become a more important tier of our land bank as the group grows in size. Now for production. Production and costs represent the most challenging aspect for both the sector and the wider economy. But to be clear, we are in a very good position. We have realistic construction plans and strong management teams to deliver the year ahead. And that's what gives me the confidence to forecast growth of 10% per annum for the next 2 financial years. That said, constraints in the supply chain still exist, and I do not expect them to ease in the immediate future. Since July, our teams have been faced with the pandemic, limits on labor and materials, haulage constraints and more latterly, fuel shortages, which were particularly acute in the Southeast of England. All of this puts pressure on costs with increases averaging by around 5% in the year, but we do have examples such as structural timber, which increased by as much as 100% at a certain point within the year. But in the main, we are happy that the majority of our suppliers are acting responsibly. For example, we have recently extended our annual agreement for Plumbing & Heating products for only a modest annual increase, whereas our new brick and block agreements are subject to a 10% to 15% increase, which is largely due to the raw materials. But we have been here before, we are fully prepared. We have good relationships with our suppliers. We treat our subcontractors fairly, and we have a strong operational vein running through the group. Our Artisan range of standard house types is also proven to be helpful, having been plotted across 29,000 plots over some 200 developments and is proving to be very useful in terms of procurement for both economies of scale and mitigating those cost pressures. And by way of example, we're currently refining our standard house type designs to remove unnecessary wind posts, but also rationalize our above and below ground drainage. And whilst that doesn't sound very glamorous, it all helps to save costs against the backdrop of the current inflationary environment. The Artisan range also embodies our approach to high standards and attractive street scenes, helping to create a sense of place and community. And it gives us a good canvas to incorporate forthcoming building regulations in '23 and 2025. And a benefit from our standardized approach is that we control Artisan centrally, so design changes can be reviewed and refined more quickly to establish the most cost-effective solution, avoiding the duplication of costs from our previous and more bespoke approach. Our zero-carbon team are also making good progress with future home standards with 3 sites identified as case studies to develop our knowledge on energy efficiency and running costs as we plan to deliver lower carbon homes. In our case studies, we will be assessing fabric efficiency, renewable energies, heating solutions and energy monitoring devices, as we seek to establish the best performance to establish volumes on the scale that we require. And interestingly, we have partnered with Salford university for a research and design project. Sorry, I'm going to have to start again. I've tripped out the previous one. I'm going to go from and whilst, yes? And whilst this doesn't sound very glamorous, it all helps to save costs against the backdrop of the current inflationary environment. The Artisan range also embodies our approach to high standards and attractive street scenes, helping to create a sense of place and community. And it gives us a good canvas to incorporate forthcoming building regulations in '23 and 2025. A benefit from our standardized approach is that we control Artisan centrally, so we can review design changes quickly and establish the most cost-effective solution, avoiding the duplication of costs from our previous more bespoke approach. Our zero-carbon team are also making good progress with future home standards with 3 sites identified as case studies to develop our knowledge on energy efficiency as we plan to deliver lower carbon homes. In our case studies, we will be assessing fabric efficiencies, renewable energies, heating solutions and energy monitoring devices. So we seek to establish the best performance to deliver on a scale that we require. And interestingly, we have partnered with Salford university for a research and design project, where we plan to build a house in laboratory conditions to trial new low-carbon technologies. We hope to start in the spring of next year, researching air source heat pumps, underfloor heating and battery storage, to name just a few ideas. Now moving on to people. Being an employer of choice is a key priority for our Better with Bellway approach. Our ambition is not only to attract new people, but to upskill and retain our best talent, ensuring the ongoing and long-term success of Bellway. And we are working hard in all corners of the business. And that is demonstrated in our latest employee engagement survey, where almost 90% of our workforce said Bellway was a great place to work. Some key initiatives are our flexible working policy, our senior leaders' development program, early careers with over 8% of our workforce now in earn and learn roles. Women in construction. We're very proud to have won our first female construction quality award. And our London divisions are setting the standards for group and attracting people from different race and ethnic backgrounds. And I'm also very keen to create some space and opportunities for young people with disabilities and learning difficulties, something that we are working on for the summer of '22. Another key priority for Better with Bellway is our customer-first agenda. And customer first is about further improving our build quality and creating a step change in customer service levels. We have long held a 5-star rating with 94% of our customers recommending Bellway. But ask those same customers the very same question 9 months later, and that approval rating drops to around 80%. In part, this is due to lower response rates, but also taking too long to fix those post-completion snagging items. And it's too easy to blame COVID. It's too easy to blame the supply chain. We need to improve our customer service levels. And our customer first agenda seeks to address those issues by training all of our staff with our new policies, training our business partners to be part of the same journey, increased quality inspections, new technology, more resource in our customer service teams and the appointment of a group Customer Experience Director to raise the profile of customer service in the group. Now for current trading. If I could refer you to the table on the screen. The first 9 weeks since the 1st of August have delivered robust reservations of 218 per week. And whilst behind by 9%, that was against an unusually strong period that I've referred to earlier. Interestingly, Help to Buy reservations have now dropped to 18% since the start of our new financial year, and this does not appear to be having a material impact upon sales volumes. Outlets are slightly lower than last year, but they will recover in the second half, and that trend will continue into FY '22 and beyond as we benefit and take advantage from our land buying program. And we also have the benefit of a strong order book totaling almost GBP 2 billion. And finally, outlook. I am very optimistic about the prospects for the group. We have the capacity to deliver substantial volume growth. In the short term, our land and operational strength can produce growth of 10% per annum for the next 2 financial years. In the longer term, underlying demand, coupled with our financial strength, provides the opportunity to expand beyond 16,000 homes per year. Our growth strategy coupled with our anticipated improvements to operating margin will deliver significant value for our shareholders. And finally, our Better with Bellway framework sets out our responsible and sustainable approach to business, and we look forward to reporting our new targets in the new year. Thank you. I'll now hand back to the operator for questions.

[Operator Instructions] And we will take our first question from Brijesh Siya in HSBC. Please go ahead.

I have a couple of questions on land. The land bank length is, obviously, has gone off now. But given that historically, your numbers kind of was getting around 4 years. Is that something you are looking to in future as well or the current plan you're happy to carry on? And the second question is around the tax land bank -- sorry, carry on.

Well, we only caught the first question there, Brijesh, and I think that was about land bank lands on what we think is the right size of the business going forward. We've always said it's not about how artificial metric for the land bank. It's about having a land in place to meet the growth plans. And that's why we have more ambitious growth plans for the next 2 years because we have obviously certain decision. But to try and put that in terms of figures, I do think a land bank at 5.4x is unusually high, and it is in part a reflection of a very strong period we've had. I would expect that naturally to come back down. And I think 4.5 to 5x is probably what the math related to in terms of a normalized land bank, which should give the business the opportunity to grow, but we're not -- too much of a drain on capital.

Okay. Got you. And coming to the operating margin for the midterm guidance of 18% to 19%, the current land you are buying is around 23% gross margin and you kind of guide the admin cost figure of 4.1%. So what kind of prevents us to kind of look at 90% more sustainable margin does then put that at 18% to 19%?

Well, look, it's a fair comment. I think in a steady stage, administered an overhead of around 4% of revenue, it is achievable. And you're right, since we do in the March '23, that's 4%, equals 19%, as you rightly said. And that is, of course, within the range which we're guiding to for a midterm operating margin within Bellway. And again, I would say, if you have house price inflation in the system, you mean that we're able to obey that and deliver in excess of that range. But without house price inflation, in any given year, not everything will go perfectly to plan and sometimes you will just deliver slightly below a 23% margin, if you have a problem on the ground or whatever it might be. So I think it's sensible to suggest 18% to 19%. This is sustainable, achievable target for the group. But of course, house price inflation for all land bank.

Okay. And last one is on your kind of plan for research into how the heating system stopped it in future. Interesting, you mentioned air source heat pump as one of the research areas. I'm curious to know whether you have explored that area just preliminarily whether you have looked into ground source heat pump and some other source of heating as well?

Sorry Brijesh, I struggled to hear that. Is it ground source or other source heat pumps is the question?

Yes. You're kind of -- you're on air source heat pump. I just wanted to understand whether you have moved into ground source heat pump as well.

Well, listen, we're doing a lot of tests. Some of the suppliers that we're working with, we're at the moment are all claiming to have the best air source heat pump or the best ground source heat pump. So we're doing our own trials on our developments. We've even got one with Homes England that we're starting in Portsmouth next year, where we're going to build part of the site to the 2025 building rate. So that's without any fossil fuels, and that's with the introduction of air source heat pumps. Our advice at the moment or -- and our experience is we view some of them is that air source heat pumps are better suited to housing and ground source heat pumps are better suited to apartment-led schemes, but that whole picture, Brijesh, is really changing quite quickly at the moment. So that's why we're doing our own test and our own assessments through the group.

Our next question comes from Sam Cullen in Peel Hunt.

Just a couple of questions for me, please. Given the volume targets are pretty ambitious, can you talk around potential constraints over the medium term, whether that the rate of site openings or kind of labor as a bottleneck to ensure you can open sites completely -- complete sites to hit those numbers? And then secondly, just a follow-up on the heating systems. I know you pointed out air source to housing department. Have you looked to kind of pulled ground sources -- ground source heat pumps for housing development at all, it'd be interested to hear on that.

Sam, good to hear from you. Did you say ground source, have we looked at them?

Yes, I kind of pulled ground -- I know some of the developers are looking at kind of centralized ground source heat pump for housing estates and whether you can kind of pull ground fleet pumps in that way?

Sam, we've actually installed ground source heat pumps in one of our developments a few years back. We did a sort of an eco-led scheme. And it can work, but we had lots of problems with it working operationally. And I just think before we go in feet-first with a combined ground sourced heat pump or independent air sourced heat pumps, we need to work really collaboratively with the suppliers to see what is robust, what's going to last for a decade. And what the running costs are because all the narrative, Sam, around it really is that air source heat pump cost 5 or 6x more than a ground one. So what, we can afford it to start with. What worries me, Sam, is the physical running costs of these things. What does the customer inherit for the next 2 decades? And that's the piece of the puzzle we need to get to the bottom of. Is it affordable for the long term? And whether that leads us to combined systems or independent systems, I just don't know the answer to that, but we are assessing it when we are doing trials. And Sam, I forgot your first question. What was it?

Constraints to volume growth.

So constraints to volume growth. We're pretty -- Sam, we're very confident we can deliver our short-term ambition, Sam, of 10% per annum. We've been here before, I think everyone on the call can remember the global financial crisis when all the -- manufacturers shut down, we couldn't get any bricks. So we sort of understand the length of time there's going to be disruption for, we're prepared for it. So I don't think our short-term growth will be affected. Our longer-term growth ambitions, we have been -- Keith and I have been working on this for some time. We've been preparing the business for future growth. The piece of the puzzle that was missing for us was the depth of land bank. So over the last 2 years, we've built a new head office in Newcastle, which is now able to support a growing number of divisions. We've got our own in-house school, our training facility. We've got our standard house types in place now at head office, which are very much a necessity if you're going to deliver the volume that we're talking about. We've also restructured the business from a strategic land point of view. Our senior management teams are in place across the U.K., and we have very much established an office operational team. So the whole infrastructure for Bellway has changed across the last 2 years, and we are able to deliver that long-term growth objective. That land buying last year for us was really building the platform to enable us to move forward to 15,000, 16,000 homes per year. Sam, I hope I answered your question.

Yes, that's helpful.

Next question from Jon Bell in Deutsche Bank.

Hope you can hear me.

Yes.

I've got 2 questions. Keith, I think you talked about the tax rate earlier and the developer's levy. I think if I caught it right, you suggested that overall tax rate might be north of 30%. Are you expecting the developer's levy to be 5%? Or are you also factoring in that the effective rate, your effective rate is higher than the statutory rate. Could you just kind of help us bridge the gap a little bit there? And then the second question is just on your private order book. Could you give us the percentage that is currently contracted?

Yes. So on the developer's tax, we've got nothing other than speculation, if I'm perfectly honest, Jon. Obviously, we participated in the industry-wide consultation in terms of how we think the tax grows. All we really know is that it's very likely to become effective from April '22, so sooner rather than later. We did hear of ideas in terms of what the rate might be. But I will be sceptered if I was to say what that might be on the quarter. I think we should just wait and see like everybody else. But my reference of 30% is no more than a gas one. Our effective tax rate is typically a little bit less than the standard rate of corporation tax, maybe 50 bps or so to losing the Bellway thinking there, which is made a little unusual. And in terms of the overall order book, which is what we would typically grow, is around 65% of our overall order book is contracted.

Next question from Emily Biddulph in Crédit Suisse.

I've got 3 questions, please. The first one, I just wanted to understand the ASP guidance for the coming year, the mix effect that you're talking about. Is that purely -- is that across sort of both private and affordable? Or is there any component in there where affords are a bigger percentage of the mix or sort of has a disproportionate impact? Secondly, I was hoping you might be able to give us some average outlets guidance for 2022. I know you said that you expected sort of growth later in the year, but where could the average come out? And then thirdly, I appreciate it's a bit far off at the moment. But when we think about sort of growth post 2023, is it entirely unreasonable to think that you could sort of carry on growing the high single digit or when you get to that sort of scale, would you rather sort of assume that, that sort of comes back quite quickly from 10%?

So on the mix effects, I don't expect a dramatic change in mix between private and social than this coming financial year. What you might actually see is a slightly stronger ASP in the first half than what we see in the second half. And that's just as we -- is the mix of product flows through the system towards a gentle graduation. But there isn't a huge dramatic change between privates and social for the full year. On average outlets, my best guess would be that we will average something like 270 outlets in this current financial year, which is very similar to last financial year, albeit we're starting from a lower base. So what you can see is the second half loading in outlet openings, which should be and as we go into FY '23, we start with a higher number, something towards the 280 mark. And that leads to a very solid platform for further growth in FY '23. And I expect average outlets in FY '23 to grow by up at least 5%, if not more. And the reason why we can say that more confidently than we normally would, is just because of that strong land buying program and the visibility that we have over the next 24 months. I think, Jason, are you going to take the post '23 growth.

Yes. Emily, the purpose that we can be prescriptive on growth for the next 2 years was because it runs in parallel with the Help to Buy scheme. And we have bought a lot of land to support it. And it's an interesting question you asked because it is entirely possible that we can grow in FY '24. But obviously, a lesser, right, I'd suggest probably closer to 5% and 10%. The reason why we might be able to do that is because we're very encouraged by the rate of reservations that we've got with Help to Buy falling away. So you would have heard me talk about Help to Buy now is running at around 18%, so we're less dependent upon that product going forward. So it's entirely possible that you could get to FY '24 and still grow. And I'm never quite sure whether Help to Buy is going to disappear altogether, Emily, or whether it will continue under a different name and a more diluted form. Because for 2 reasons I'd say that. One, it's been very successful, whether it's for government purchases, banks or builders. It's been a successful scheme. There's an election in 2024, some 12 months later. But we've always had some products at the bottom of the market for decades to assist people in getting on the housing ladder, customers need help with deposits. So I'm not suggesting housebuilders need financial support from government by suggesting that a deposit assistance scheme at the bottom of the market is probably likely going forward. So that leads me to believe that -- sorry, this is a long while going by answering your question, but it leads me to believe that growth is possible FY '24, but we're not brave enough to commit to this year.

[Operator Instructions] And our next question is from Glynis Johnson in Jefferies.

I have 2, if I may. And actually, they're both sort of big picture, one to each, if I may. Jason, I wonder if you can just elaborate a little bit in terms of what you view things will look like post Help to Buy. You talked about needing to broaden the number of outlets to try and compensate. But I wonder if you can talk about expectations in terms of selling rates or build rates, dual branding and also just in terms of what is the right price point? Do you need to bring that price point down even further? And then one to Keith, and this is about appetite in terms of gearing. Given those big ambitions in terms of what you could get to in terms of completions, what is the appetite for increasing the level of gearing, including the land creditors in order to get there faster?

Glynis, I'll start the -- see a few from you, Glynis. In terms of land and price point, I think we're probably about where we want to be, 290, 300, that affordable end of the market. I don't see any change there. And I am very much driven by outlet growth, very much. And so we will continue with our land buying program and look at the right balance between big sites and small sites so that we can get outlet growth in years ahead because we see that as a good way to insulate yourself from different market conditions going forward. So if we can get outlets into the 300s beyond FY '23, that's certainly an intention for ours. And we will do brands to support that. But we do a brand predominantly to work the cash farther. At the moment, Glynis, I am less worried about the selling environment. I'm more interested in future home standards, I'm more interested in production issues. The selling environment is really quite robust at the moment. For us to be talking to you with GBP 2 billion, I think 80%, almost 80% sold this year. I've got GBP 2 billion order book. I've reduced Help to Buy down to around 18%. And there's still strong demand for homes. So my intention is to support sales by giving them more outlets, but probably concentrate on future home standards and land buy for the future.

On the debt position, debt or capital really isn't a constraint to our growth ambitions, really at the site which we've looked at or work in progress decision, which we make and think let's maybe delay that because of the capital reason. You might look at the risk in the overall context of the group. But the bigger constraints will either be land or people or resource or ensure that you can maintain quality cost of care. It's those operational things that we don't know too quickly. The cycle in terms of the level of debt within the business, I don't think it's a bad thing at the moment to have actual resilience to the facilities we've got in [indiscernible] for that position. Medium to longer term, I still think a level of depth within the business is appropriate, and I will revert to the historic answer of 20% to 25% average debt levels, inclusive of land process, so a very cautious way of management. Is not a bad long-term cut to half for the business, albeit quite happy operating below at the moment.

Our next question from Gregor Kuglitsch in UBS.

Can you hear me?

Yes.

So I've got a few questions. So perhaps the first one is to just sort of think about the returns that you're looking for. I think last year, I believe you were looking mostly at the sort of line credit adjusted return, which I think was approximately 16%, if I'm not mistaken. Can you just tell us sort of as your growth ambitions unfold and you sort of hit maturity in various metrics where you'd expect that to go? I guess you sort of have an appraisal value when you think about that. So that's the first question. And the second question maybe pushing a little bit more on cost inflation, if you can put a number around what you think sort of total unit cost inflation will be this financial year and maybe compare that to what it ended up being last year in FY '21? That would be helpful.

You'll do the first, and I'll do the second.

Yes. Just maybe best to think about that in terms of a return on capital. And you're right, we maybe look at 2 measures with and without land creditors. Without land creditors, we were just under 17% in the year gone, around 15%. With land creditors, I do think it's right to include both of those -- both forms and debts. I maintain as we are buying land with an anticipated ungeared return on capital of between 15% and 20%. So I see that as a sensible target for the business to continue operating with it. I think you'll migrate towards the other end of that range within the next couple of years. And obviously, if we benefit from house price inflation, that could perhaps take you to beyond that sort of level. But I think the other end of that 15% to 20% target range is a sensible, sustainable level of return for the business, albeit with that outperformance, yes.

Gregor, on build costs, we've suggested build cost inflation was around 5% in the year. And there is -- there are no signs on our sites across the U.K. that suggest build costs or supply chain issues are getting better, and there are no signs that it's getting worse. So I would guess that build cost inflation is likely to be somewhere between 3% and 5% for this forthcoming year. And the reason I say that is because it's likely to moderate. So what often happens in house building is that costs follow revenue. And as the housing market or the selling environment has started to normalize, I would guess that house price inflation follows soon and HPI will moderate, and I would guess, build costs will moderate, too, in FY '22. But I'd expect one still to offset the other. That's what -- does that make sense to you, Gregor?

Yes, that does. Sorry, Keith, just to be clear, on the 15% to 20%, is that including land creditors in the capital base or without? Just sorry, I didn't have...

Yes. It is. That will be included in land creditors in the capital base. But obviously, being mindful of returns, you might have been overall underinvested in land or in any given year as well, so [indiscernible].

Next question is from Ami Galla in Citi.

Just 2 questions from me. The first one is on the land bank. I mean, between the decision on strategic land holdings versus short-term land, could you give us some color as to what sort of margin differentials do you get at the intake level? The second question is really on the sort of the capacity in the business to deliver nearly 16,000 to 18,000 units. I mean, could you give us some color or context of how do you see your market share as a percentage of the industry volumes move up over the long term?

In terms of -- I mean, it's Jason. In terms of strategic land, there are 2 parts to this. Initially, in the strategic land change, we were focusing on short-term strat land that comes into play in 2 to 5 years. Often, that is quite a sought-after space and the margins are very similar to buying market land in the open market. Our restructure and our increased investment to buy strategic land beyond head office. So we've sort of evolved authority into the region so we can accelerate the rate of strategic land. We've asked the divisions now to look at longer term. And larger sites that will then become what Keith would say margin accretive because you're making -- you're buying it in with bigger discounts because you're taking a little bit more risk. But the reason we want to do that is because we see that as an important piece of the jigsaw to deliver bigger volumes going forward. And your second question was on the market?

On your markets over the medium-term?

The market share might evolve. Look, I don't think it's right to predict a movement in our share of the overall market. And certainly, our intention isn't to buy -- to take the market share below us because that could lead to disciplined land buy. And we see the overall housing market is continuing to grow. And Bellway wants to be part of that growth story and actually has the capacity and the ability to be part of that growth story. It's not about going in there and undercutting competitors. If you are a little disciplined at land buying entirely, it's about growing with the overall market.

Sorry, and to add on that, Ami, and something I didn't mention to Sam when he asked the question. To deliver the longer-term objective, we will need -- we've got the infrastructure and the management teams in place, but we will need more divisions. So it's likely that to deliver 16,000 homes, you need up to 4 new divisions across the U.K., which is quite easily done, we've setup, I think if you go backwards to 2013, we had 13 divisions. Today, we've got 22. So we're quite good at setting up new businesses. So to deliver volume, we do need to open a few more offices.

And our last question comes from Dean Grant in Bank of America.

Congratulations on the results. My first question is just in line with your land strategy for the next -- or in the shorter term, your land bank length is at 5.4x at the moment. How should we look at land investment into 2022 and '23? I know you're talking about normalization -- normalizing of the land bank down to 4.5 to 5x. But as we get to sort of 2023 volumes, we get to this range. So maybe just any color there would be helpful. My second question is just a clarification in terms of volumes and obviously spoken about growth being weighted into H2. And just maybe any color in terms of the weighting between the 2 halves. Is it flat H1 versus 2021? And then maybe, sorry, just the last question on cost inflation. In the presentation, you spoke about bricks increasing by around 15%. Is the 3% to 5% cost inflation, is that built into your 18% operating margin guidance already? And maybe any color in terms of HPI expectations with that as well would be helpful.

Well, if I start on land and then maybe Keith can help out on volumes and build cost inflation. So in terms of our approach to land, I never fix on what we're going to do in the year ahead because I'd like to see the selling market unfolds, we like to look at prices. I suspect if I were to spend GBP 1 billion this year on land, I wouldn't be able to buy 20,000 plots because prices have been pushed up and margins have been pushed down a little. But it's certainly our intention going forward to carry on with our land investment. And I would suggest that in the next year or two, we will continually buy more than what we used to because we used to buy around 12,000 plots a year. But we might buy as much as 20,000 plots. We won't stretch that land bank beyond 5 years. But we can afford to be selective at the moment. So whilst it's quite busy, we'll sort of cherry pick the sites that we particularly like and the ones that we need away for the market to calm down a little bit. So we'll sort of make out as we go along dependent upon the sales and the land market, Dean.

And then with respect to your second 2 questions, with regards to the volume output in FY '22, I would suggest H1 will be similar to H1 in FY '21, and then you will see the year-on-year growth will happen in the second half of the financial year, albeit the profile, and that could still mean a slightly stronger H1 overall in FY '22, which is a reflection of our build progress more than anything else. And then in respect to the margin guidance of around 18%, that fully reflects all known cost increases today, which we would extrapolate across the balance of our sites, that orders haven't yet been placed and it also reflects the current pricing environment. It doesn't take into account future inflation on either cost or house prices. But as Jason said, if history is anything to go by, usually, one offsets the other and that gives us the confidence to guide that 18% margin for the current financial year.

And this will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.