Bellway p.l.c. ($BWY)

Thank you. Good morning, and welcome to Bellway's half year results. As usual, I'm joined by Shane and Simon. We've lots of our senior management team also with us today. If I could take you to the first slide. We delivered a good first half performance despite a softer selling period through much of 2025. Half year volume increased to 4,700 homes. That delivered an operating margin of 10.5%. We have an order book of 4,400 homes and a strong land bank largely unchanged at 94,000 plots. Now since the start of the calendar year, trading conditions have markedly improved with a notable pickup in both homebuyer interest and reservations. However, the ongoing conflict in the Middle East clearly has the potential to dampen customer demand and clearly increases the risk of higher inflation. That said, to date, we have not seen any material impact upon sales rates. And for FY '26, given our half year results and our order book, we remain on target to deliver operating profit in the region of GBP 320 million to GBP 330 million. The full year is likely to deliver a higher volume than previous guidance with an operating margin similar to the half year. And while margin headwinds may well continue delivering higher volumes will certainly drive cash generation, and that very much supports our program to be more capital efficient. I will provide the usual detail on ops and outlook later, but first, for our results and update on capital allocation with Shane.

Thank you, Jason, and good morning, everyone. As Jason said, we've delivered a robust performance in the first half despite ongoing challenges in our industry, supported by the order book at the start of the year and despite subdued trading throughout the autumn, volume output increased by 2.7% to 4,702 homes. There was growth in both private and social output and the proportion of social completions was in line with prior year at around 21%. The ASP was up by 3.7% to just over GBP 322,000 and in line with expectations. The increase in the ASP was driven by geographic and mix changes with headline pricing remaining broadly stable. Turning to gross margin. There was a 20 basis point reduction to 16.2%. This slight reduction reflects the benefit of higher-margin land in the mix, which was offset by incremental incentive usage, the absence of any HPI and low single-digit build cost inflation. These factors are also reflected in our order book and combined with the expected contribution of bulk sales in the second half, we currently expect gross margin in FY '26 to be similar to that achieved in the first half. These margin dynamics, together with embedded cost inflation carried in our work in progress are likely to remain a headwind to margin, at least in the near term. And there are clear risks of potentially higher build cost inflation stemming from the ongoing conflict in the Middle East. We'll be in a better position to comment on the potential impact of FY '27 when we report in our June trading update. Looking further ahead, we are working through our WIP balance and growing proportion of our output will benefit from newer high-margin land. With a stable market supported by a more favorable HPI BCI dynamic as seen in previous cycles, we are well positioned to drive ongoing improvements in our margin in future years. In line with our strategy to invest across the group to deliver greater efficiencies and long-term growth, the admin overhead increased to GBP 86 million, and the full year number is expected to be between GBP 170 million and GBP 175 million. Our investments include our new timber frame factory, combined with strategic investments across IT and strength in commercial and finance teams, which means we now have the right structure in place to effectively deliver on all of our strategic priorities. We expect that, that level of increase will not repeat in future years, whilst obtaining operating leverage from it as we drive towards 10,000 units if market conditions improve into the medium term will obviously be a key focus also. The effect of the increased overhead investment, together with the movement in gross margin led to a 50 basis point reduction in the underlying operating margin to 10.5%. Underlying PBT was slightly higher at GBP 151 million, and I'm pleased to report that the interim dividend has been increased by almost 10% to 23p per share. This slide has covered the group's underlying performance. Adjusting items shown in more detail in the income statement in Appendix 1. These include GBP 300,000 to admin expenses relating to the previously announced CMA investigation. The other adjusting items relate to build safety, which I will cover later in the presentation. Turning to our balance sheet. It is robust and well capitalized with a strong land bank and WIP position at its core foundation. These are key focus areas for our capital efficiency drive and critical to our plans for increasing cash generation. I will cover this in more detail shortly as part of our capital allocation strategy. First, to highlight the key balance sheet movements, reflecting our largely land replacement only land strategy, the land balance of GBP 2.5 billion has reduced slightly by around GBP 38 million since the year-end. During the first half, we entered into new land contracts on deferred terms totaling around GBP 130 million, and settled line creditor payments of around GBP 180 million. This led to period-end land creditors of GBP 290 million, representing 12% of our land balance. As previously guided, and as part of our strategy to run the business with a more efficient capital structure, there will likely be an increase in the use of land creditors over the medium term. The range is expected to be between 15% and 20% of land value, which is similar to historic norms. Jason will cover our land bank in more detail later. The work in progress balance, which includes site WIP, show homes and part-exchange properties reduced by GBP 39 million to GBP 2.3 billion. Breaking that movement down into 3 component parts. Firstly, the value of show homes remained flat, reflecting our broadly stable outlet position. The value of part-exchange properties rose by just over GBP 20 million. Part-exchange is an important selling incentive for customers. And whilst its usage increased, it has remained disciplined and represents a relatively modest 6% of our completions. Finally, site WIP reduced by GBP 61 million to just over GBP 2.1 billion. And this highlights some good early progress with our capital efficiency drive, which we spoke about to you in detail last October. To finish on the balance sheet, as you will see from the bottom of the slide, our adjusted, our adjusted gearing, including land creditors, remains low at 10.3% and our net asset value per share has now risen to just over GBP 30. We've continued to make good progress on build safety, and I'm pleased to report that the overall provision remains broadly stable. With regards to movements in the provision, in addition to the GBP 6.5 million adjusting finance expense, which was in line with previous guidance, there was a very modest net increase of GBP 4.2 million in the build safety provision through cost of sales, which relates to the refinement of overall cost estimates. We have now completed the terminations on all of our legacy buildings in England and Wales in accordance with the joint plan. Our provision is based on robust assumptions and prudent cost estimates for both internal and external works on the 457 buildings in scope for remediation. We have started our completed work on 172 buildings with the majority of spend expected by FY '30. We've spent GBP 212 million on legacy build safety since the start of the program, including GBP 21 million in the first half of FY '26. The strengthened team at our dedicated Build Safety division is focused on completing works as promptly and as efficiently as possible. For FY '26, we continue to budget for total spend of over GBP 150 million, although I must caveat that this level of spend remains dependent on receiving requests for payment from the government for works carried out on our behalf for the build safety fund totaling around GBP 90 million. I think it's important to point out today that for prudence, our shareholder returns capital allocation modeling assumes significant disbursements around build safety over the next 3 years. The provision at the 31st of January '26 was GBP 507 million, and I'm confident that we are well provided for the remediation works required across the legacy portfolio. In terms of recoveries, we've recognized GBP 81 million to date. We do, of course, continue to actively pursue further supply chain recoveries. But as these are not virtually certain at the balance sheet date, no additional reimbursements have been recognized. Turning next, just to remind you of our priorities for capital allocation, which we covered in detail last October. In short, it is a flexible framework with our strong balance sheet and well-invested land bank as the foundations of the business, which support our balanced approach to continue to invest for growth and delivering enhanced returns for shareholders from increased cash conversion and generation. As part of our strategy, we are sharply focused on driving greater efficiencies and our WIP balance presents a significant opportunity for much greater cash generation, which I will cover next. We generated good operating cash flow in the first half. The cash flow bridge chart shows the movement from a small net cash position to ending the period with modest net debt at GBP 72 million, in line with our plans to run a more efficient balance sheet and increase returns to shareholders. To run through our key movements, you can see the decrease in total WIP that I referenced earlier amounted to GBP 39 million. In relation to land, the monetization of land through cost of sales was GBP 283 million. This was slightly lower than the cash spent on land and together with the movement in land creditors, this led to a GBP 38 million decrease in land on the balance sheet in the period. After other working capital movements and tax, the operating cash generated before investment in land, build safety spend and distributions to shareholders was GBP 314 million. As a result, the conversion of operating profit to adjusted operating cash flow was 2x. As I highlighted in October, we are aiming to maintain the conversion level at a minimum of 2x over the 3 years to FY '28. As I've said previously, adjusted cash flow is the fuel for future investment opportunities in the business and ultimately, greater value creation and returns for our shareholders. In this regard, we invested GBP 302 million in land, including settlement of land creditors and dividend payments and share buybacks totaled GBP 105 million. We also spent GBP 21 million on build safety, which I referenced earlier. After taking account of all of these disbursements, we closed the half year with net debt at a modest GBP 72 million. I will now cover our cash generation targets for the second half, which I think is important in the context of what we're discussing this morning and the tougher trading backdrop that may emerge, together with our longer-term ambitions in the context of driving shareholder value against this potential backdrop. As I've said many times, driving WIP efficiency is a key area of focus across all of our 20 operating divisions and a significant opportunity for the group to deliver cash generation. We've increased our volume guidance for the year by between 100 and 300 units on our original volume guidance of 9,200 units. And the combination of this increased monetization with tighter controls around WIP spend will see us increasing our operating cash flow conversion targets significantly year-over-year. As the chart shows, operating profit will grow by between GBP 20 million and GBP 30 million year-on-year in FY '26. But we expect operating cash flow will increase substantially more than that by between GBP 100 million and GBP 150 million year-on-year. This leaves the company in a strong position to drive future value for shareholders by continuing to drive volume appropriately against this tougher trading backdrop. This will provide greater opportunity to invest in more high-margin land and potentially returning more excess capital to shareholders. Overall, we are targeting adjusted operating cash flow of between GBP 750 million and GBP 800 million for the full year. Looking beyond FY '26, we have a greater proportion of units at an advanced stage of build than a couple of years ago, which should support a faster monetization of our WIP balance. This drive for improvements in WIP turn and to lower our WIP balance will enhance asset turn and support cash generation. This will help fund our build safety disbursements, further land investment and returns for shareholders. We'll maintain our underlying dividend cover of 2.5x, and this will be supplemented by returns of excess capital. In this regard, we are making good progress on our GBP 150 million share buyback launched in October with around GBP 64 million completed so far, and we have a clear intention of returning excess capital in future years. To finish my section, a summary of guidance for FY '26. We, of course, recognize the risks to inflation and customer demand from the ongoing situation in the Middle East. Notwithstanding this and supported by a robust first half and our current order book, we are well placed to deliver FY '26 underlying operating profit in the range of GBP 320 million to GBP 330 million. So for guidance, we are targeting volume of between 9,300 and 9,500 homes, the final outcome of which is dependent on completions from our bulk sales pipeline. The average selling price will be around GBP 325,000 with the increase over FY '25 driven by mix. It's important to point out when we give that guidance, we are not in any way giving that guidance in the context of any potential negative impacts that it might have on FY '27. It's all based on the strong work that we've been doing, monetizing our WIP and broadening the pipeline of opportunities that we see both in private sales and potential bulk sales. The admin overhead will be between GBP 170 million and GBP 175 million. We currently expect the operating margin to be similar to the first half level at around 10.5%. The finance expense will be around GBP 20 million, and adjusted operating cash flow is expected to be strongly ahead of prior year at between GBP 750 million and GBP 800 million. Finally, land spend is expected to be in the region of GBP 500 million to GBP 600 million, reflecting our largely replacement-only land strategy. Despite the headwinds facing our industry, I'm confident that our self-help and drive for capital efficiency will mitigate the impact on our strategy to increase cash generation and value for shareholder returns. I'll now pass back to Jason, who will cover the operational review and outlook.

Thank you, Shane. But now for trading. In the first half, we achieved a private sales rate of 0.47 with January being our strongest month at 0.6, and that momentum has continued to build into the start of the spring selling season. With regard to the mortgage market, improved affordability and changes to lending criteria have both contributed to those better trading conditions. That said, recent increases in mortgage rates due to the events in the Middle East clearly has the potential to impact upon future demand. And that brings me on to current trading. In the first 6 weeks since the 1st of February, we have achieved a private sales rate of 0.66 and bulk sales made an additional but modest contribution of 57 homes. And from a geographical and mix point of view, the picture hasn't really changed much with Scotland, the North of England and the Midlands all remaining stronger than the South. But those regional differences are quite pronounced with Midlands and upwards all delivering a strong sales rate of around 0.75, significantly higher than the 0.5 being achieved in the South. Headline pricing remains firm, although incentives are full at 5%. And we find that prices for houses are more robust or more resilient than those for flats. And as I referenced in my introduction, the last 2 weeks of our current trading period have coincided with the conflict in the Middle East. Both of those weeks have delivered a consistent sales rate of 0.65 or the equivalent of 155 private homes per week. We continue to progress bulk sales to support both this year and next. We are over 85% sold for FY '26, hold an order book of over GBP 1.5 billion or 5,300 homes as at the 13th of March. The next slide shows our land bank totaling some 94,000 plots, half of which are owned and controlled and half are strategic. Now I'm happy with the size and the shape of the land bank. It supports our short-term growth ambitions. We are still buying land but with caution. In the period, we contracted on 4,700 plots across 15 sites including 1 site in Scotland for 1,900 homes that was converted from our strat pipeline. And strategic land continues to play an important role in our growth ambitions. Within this financial year, we will have 80 strat planning applications or around 17,000 plots in the system. And to put that into context, that has increased threefold in just 2 years. And that is a significant change in our business. And these strat plots will support both margin recovery and outlet numbers from FY '28 onwards. Overall, we have detailed planning consent on over 95% of our plots to meet our volume for FY '27. And as a consequence, we've got good visibility on outlets. We're on target to open 55 outlets this year and a further 55 to 60 next year. And we expect average outlet numbers to hold at around 240 for both this year and the next with growth up to 250 in FY '28. With regard to planning, I would describe planning reform as positive rather than perfect. Overall, and outside of London, the planning environment is generally supportive. Moving on to costs. Overall, cost inflation remains modest at around 1% or 2% and we currently have no issues with regard to availability, either labor or materials. That said, we are very mindful of the heightened inflationary risk caused by the events in the Middle East. And as a consequence, our focus on being more cost efficient seems ever more relevant today. And I'll give you a few examples of our approach to saving costs to support margin. Firstly, we intend to phase out the Ashberry brand as it is proving too expensive to fund a separate brand to sell just 9% or 10% of our volume. We plan to adopt a single brand approach that will play on our 80-year history. It will be clearer to the customer, a digital-first approach, less expensive and without any overall impact upon outlet numbers. Secondly, we will shortly launch our new house type range, the Bellway Collection, which has been designed to be timber-frame friendly. And by that, I mean, optimize panel widths and ceiling heights to improve both speed and efficiency and also reduce waste in the process. And with our new house type range, our single brand approach, we have the perfect platform to personalize homes and offer extras and additions on a much greater scale to drive incremental revenue and profit growth. And thirdly, we successfully opened our timber frame facility, Bellway Home Space back in January. And we have already started delivering timber kits to our divisions. Our investment in technology that supports Category 2 closed panel systems is hugely important as I firmly believe that Cat 2 is a key part of the future of housebuilding. And one final point before outlook, build quality and customer service. I'm pleased to report that we are rated as a 5-star housebuilder for the 10th consecutive year. But more important is our position with HBF's new scoring system, which has been designed to be more challenging. Housebuilders are now measured by their customers at both 8-week and 9-month intervals and based upon both quality and service. Bellway have achieved an overall score of 4.38, the highest of any national listed housebuilder, a phenomenal effort by our ops teams and a direct result of their hard work. And finally, outlook. We're on track to deliver a volume of 9,300 to 9,500 homes. As you've heard from Shane, regardless of the wider backdrop, we have a sharp focus on improving cash generation, and we expect to deliver a significant increase in operating cash flow this year. And should we find ourselves in a prolonged turbulent period. Our business is in good shape. We have a flexible capital allocation framework and a strong and experienced management team and are well able to navigate our way through any challenges. Thank you. Now happy to take questions.

Allison from Bank of America. Two questions from my side. So first, if the -- let's assume the market activity will be muted given all the impact. Are you guys ready to give out more incentives or not? I think are we expecting maybe incentives will go beyond 5% for the rest of this year? And the second question is what type -- what kind of inflation assumption you put in your fire safety remediation work?

Sorry, I didn't get the second question.

The inflation assumption you have for the fire safety remediation work.

So I'll take the first and you take the second. With regard to incentives, it was our intention at the start of the year to tighten up that incentive level to support margin growth into '27. Today, that looks a little bit too optimistic. But no, I don't have any plans to increase incentives. They're at a level that we're happy with, and we're delivering a sales rate that we're quite comfortable with. Can I hand over to you?

Yes, 3% on the inflation, [ build ] safety.

Aynsley Lammin from Investec. Just two for me, please. Just trying to understand the change in guidance a bit more, more volume and obviously less margin. Is that driven by kind of changing view of the market, what you expect going forward? Or is it just more opportunities to do some bulk sales and you can release some of that WIP? Any color around that would be quite interesting. First question. And then just on the second question, I guess, a bit more color again last couple of weeks, have you seen any change in cancellation rates, the vibe on the ground in terms of the sales rates? Is it kind of beginning to feed through in confidence what we're seeing in the mortgage market?

Thanks, Aynsley. Shall I'll start with the last question and I'll hand back to you. No, sales rates, Aynsley, have held up and likely to hold up through March. And when I think about it in a little detail, it's probably not too much of a surprise. If you're planning to buy a home now, you probably made a decision a month or 2 ago, and you've already got the benefit of a mortgage offer, which probably looks quite good value Aynsley at the moment. So no -- we've seen no immediate impact. And I think our buyers and customers in the market have got a little bit of crisis fatigue. We've been through Brexit and pandemics and Ukraine and Middle East. So there's a bit more resilience amongst our buyers. But I would expect that sales rates to soften into April, not now because you'll see the impact of the margin increase. And I don't think it will be material. I just think it will dampen a little bit. And all that's caveated to what's going on in the Middle East. But you'll probably see a softening into April, but not significant.

Yes. In terms of the guidance, it's probably along the lines and what we flagged when we came out in early February. It's very much probably reflective of what we were seeing in the first half of the year. It's probably easy enough to forget that now because I like the crisis fatigue. That's what it feels at the minute. But the run-up to the budget was a difficult time for everyone. And what we did in the run-up to the budget was we traded appropriately in relation to the value creation thesis that we set out last October, which is that we will drive pricing as appropriately as we need to. But sales rates in the run-up to Christmas were less than 0.5% across the sector. So what you're seeing is the margin uptick that we're seeing coming through is really just reflective of the fact that with good visibility with good forward order book coming into the year, sales rates have picked up. And whilst the kind of 50 basis point margin reduction seems quite significant, those margin reductions become exaggerated, unfortunately, in a market like this where there is very little HPI for the reasons that Jason has outlined and you have kind of BCI running even at 1% or 2%, that is going to hit you to the tune of about 50 basis points on your margin. So that's all you're talking about. It's probably GBP 2,000 per unit in overall terms. It's a pretty small number. The market has picked up quite significantly in the early part of this year across all of our divisions. And if that sales rate was to maintain, I think it's important to make that point, notwithstanding the caveat we put around the emergent situation, that sales rate was to hold at kind of 0.65. We will be looking at a kind of -- we never gave formal guidance into next year, but we did talk about the fact that we were going to get to 10,000 units. So if you storyboard that from the original guidance that we gave, 9,200, 96,000, maybe 10,000, we would have assumed off the current sales rates that we would still be forward sold to the tune of probably 35% of getting to a 9,000, so a flattish volume next year, notwithstanding the emergent situation. So that volume uptick that we're seeing is not at the expense of the overlying market growth opportunity that's still there. And it's very easy to kind of talk yourself into a doom loop because of what might happen at the moment. But the broad reality is as you look out beyond maybe whether it's the end of this year or beyond next year, the demand-supply imbalance still holds. Jason talked about the strat land margin coming through. There will be good, strong underlying margin progression coming through our business. And we've got good volume opportunity, and we've got 20 outlets. So really, what you're seeing at the moment is just us trading appropriate through what has been a challenging environment and emerging from that with little debt and the ability to return capital to shareholders.

Zaim Beekawa, JPMorgan. The first is just to come back on the incentives. Can you give some indication on the cash, noncash portion? And then secondly, in light of the mortgage volatility you sort of alluded to and potential impact, what's your view on your own shared equity scheme like some of your peers? And then third, if I could go on the bulk sales, sort of any indication on the discount on those bulk sales compared to maybe a year ago or 6 months ago?

Should I start with?

Yes.

Sorry, on incentives, it's mostly cash and some additions. I did want to set out a chart to show you the regional differences across -- because you can understand there's probably more in the South than there is in the North at the moment. But nothing surprising in what you see regarding incentives. And in terms of -- shall I do shared equity products. We don't think they're a big part of the market. I get a little bit frustrated because they can confuse customers when you've got a whole series of schemes across the industry. And I've always preferred a housing association on something government backed that people can trust and look into. So we look at it and watch with interest to see if that market moves, but I've got no ambition to bring out a bespoke shared equity product at the moment. Sales are good enough.

What I'd say in relation to bulk is -- I'm not trying to dock the answer. What we do is we tend to take an NPV approach to bulk pricing, and that's kind of using a 10% hurdle rate because whilst you may need to reduce your baseline pricing, you will find savings in other areas, not least your sales costs will be lower and also your running cost as a site can be lower as well, and you may have forward funding opportunities. So looking at it through all those lenses, when we baseline that against private pricing and sales rates and if it has -- and using a hurdle rate of 10%, if that's NPV accretive, then we'll go after that deal. What I'd say in broader macro terms in terms of buyer appetite, it's a lot stronger now than it was 12 months ago, insofar as a lot of the indicative pricing that probably was coming back 12 months ago was reflective of where interest rates were, and you could be looking at maybe 20% discounts on pricing, which is not something that we'd be interested in. But certainly -- and it's not reflected in the numbers at the moment, but it's certainly reflected in our pipeline of opportunities. The gentleman sitting in front of you there is actually living and breathing it at the moment, the 2 actually. We've got a significant pipeline of bulk opportunities, and we'd be confident that we'll see some of that coming through between now and year-end.

Can I just add to that? So there's lots of questions here about incentives. But from a bulk point of view, we did about 600 homes last year. This year, we'll probably do something similar. It's not a major part of our business. And incentives across the board, we've got a strong order book. Our sales rates are good. We were very well organized as we come out into January in the new year. So we've maximized what opportunity is there in the market. And I've got no intention to start discounting properties and being desperate. We can make good decisions. We're in a good place. So I think we're fine at the moment.

Will Jones from Rothschild & Co Redburn. Three as well, please. First, around build costs, if that's okay. Just what you've heard from manufacturers since Iran kicked off, visibility you've got generally and whether you have any framing of how you might look at your build cost basket in an energy context, any sensitivities around that? Second, on the balance sheet and the returns, helpful guidance on the operating cash flow for the full year. Do you have any view at the moment as to how that might shake out, net cash net debt, please? And when you think about the ongoing buyback, hopefully, beyond the current year, how would you think about the sensitivity of that to -- broadly speaking, to a lower profit environment if it came through? Or do you think that actually continuing to optimize the assets would mean that, that buyback can carry on? And then the last one just around Ashberry, just a reflection there. What, I guess, proved different to your expectation to make it too expensive? And any implications do you think on sales rates as that winds down?

Okay. I'll pick up build cost in Ashberry and I'll hand back to Shane, Will, if that's okay. On build costs, most of our supplier agreements are fixed from the start of '26 and generally last for around 12 months. If it gets really bad, Will, that counts for nothing. We know that we've been through the pandemic. All we've seen to date is lots of suppliers asking for increased delivery charges, haulage costs, fuel surcharges, those sorts of things, which is all manageable. What has got our interest is where you've got high energy-dependent materials such as bricks, blocks, concrete chips and those sorts of things. So that's where we'll keep an eye on to see if there's any movement there. And like everyone, Will, we look every morning for a quick resolution to the problems in the Middle East to hope they don't transpire, but time will tell. So at the moment, mostly delivery and haulage costs is what's coming our way. And on Ashberry, we did a thorough review of our brands. And I don't want to suggest for a moment that a one-brand approach is better than a multi-brand approach, but it certainly is for Bellway because Ashberry, after our research, our customers were confused with the product. And some people in this room used to get confused when you ask me about what is Ashberry and what does it do? And I found that Ashberry was confusing our customers because it was asking for or selling the same product on the same site, and it was more expensive. So we decided to refresh that Bellway brand. We're going to offer 3 tiers of specification going up to Bellway premium. It's going to be very digital focused, both in our sales offices and on the Internet. And we think we'll make savings and be less confusing to our customers and deliver the dual outlets where we can. And you must remember, Will, we don't have lots of large sites. We've got handfuls of them where we can offer a dual outlet without making any sort of serious impact on outlet numbers.

So in terms of net debt, I mean, I anticipate at the moment, like it's probably worth just saying stripping out the build safety component, if I just assume that's constant, even though I expect that might come in slightly lower, even allowing for that, I think our net debt figure is probably going to be in the region of GBP 100 million, GBP 120 million type range between now and year-end. And that would probably see the buyback running at probably close to maybe GBP 100 million, GBP 120 million by year-end as well. So you have a decent clip of that coming through within that. So we're in good shape from a cash perspective. The only thing, as I say, Will, I could bring that down would be if the build safety spend is lower. But I think it's important to talk about it in the context of it being at normal run rate. So I think that gives us a lot of confidence in terms of the fact that the capital allocation strategy is working against the backdrop of kind of 2 tough economic events running in the background and lower margins, we're still throwing off cash, and that is the underlying strategy going forward. We'll have plenty of cash to buy land. We'll buy land probably -- I won't quite say on a net replacement basis. We may make some incremental investment if we do it, though, it's because it's a compelling opportunity. So we'll be very much focused on the returns to shareholders, I think, in the context of the cash that we'll continue to generate. And the fact that we've identified between 100 and 300 units this year, that's effectively ring-fenced upside from an operating cash perspective, even if it's not necessarily coming through on profitability. But as we all know, the share price is trading at a fundamental discount at the moment to what its net asset value is. And we look at our strat land opportunity. We look at the land margin upside that's coming through. And so it's very compelling for us to continue to look at buyback opportunities in that context.

I'm Rebecca Parker from Goldman Sachs. Just 2 questions. In terms of your outlet opening program, just wondering if you could talk to a bit around why you're expecting, I guess, outlets to be flat into '27. And I think the guidance for '28 has slipped by about 10 outlets there. And then secondly, on that increased proportion of higher margin land coming through, when do you expect that contribution to have more of a material impact? Is that more into 2028? Or can we start to see that come through in '27?

Rebecca, I'll start on outlet numbers. The growth -- let's start with '28, we'll go back to '27. So the growth is a product of our strat land coming through the system. Those 17,000 plots. So if that comes good, we'll get a natural increase in outlet numbers. Outlets are flat this year and next, probably because we had a big jump back in '23, '24, where we opened 80 outlets in 1 financial year. And we've just been buying replacement land. So it's difficult to see how we can grow outlets without that strike coming through. So we've held them flat. And then as long as we get a decent run through the strat planning system, then we're likely to see a little bit of growth again.

In terms of margin progression, again, it's probably easier to talk about that in the context of how we were planning this before. And we have to take note of what we're hearing at the moment in terms of all the stagflation risks that are there in terms of potential BCI risk and interest rates going up. But we know that, that can also change quickly. So therefore, I think to answer your question most effectively, it's probably worth just talking about what the underlying margin upside that we were seeing coming through on the land bank. So in simple terms, gross margin this year is going to be around 16.3%. We had in our head that, that could be probably getting up to 18%, maybe even 18.5% over the next 2.5 years as you get to FY '28. So you would have been looking at margin progression of probably 17% and then 18%. And I think the big question, Rebecca, that we're all asking is what impact is that 17% now coming under as a result of what's happening globally. I think the comfort that you can take today is that hedging, it seems to be order the day at the moment. Everyone is talking about hedging in the context of BCI and stuff like that. I think our land margin uptick that you're seeing coming through is an effective hedge for what's potentially coming down the track in terms of higher interest rates and potentially higher costs. So that's the most effective way I can answer that question at the moment for you.

Can I -- sorry, Rebecca, can I just add to that because we've taken a more sober view of the outlook. We take the view that even if the war stops in the morning, there's still going to be a ripple of cost inflation in the system. That's already in existence. It's unlikely that the trading environment is going to change from a deal led market. So there's no house price inflation in the market. So we've just taken a more cautious realistic view of what's happening in the world. And then we see margin progression probably feeding through back end of '27 into '28. That's a sensible view to take today.

Alastair Stewart from Progressive. A couple of questions, please. First, in terms of the trading over the last 2 or 3 weeks, I think we're on week 4 now from what I hear. But in terms of that, you've been clear in terms of the weekly sales rates been holding up. But in terms of anecdote from sites, if there is any reticence anywhere among your potential buyers, is there a trend? Is it more traders up are more comfortable than the first-time buyers? And is there a regional disparity in terms of comfort about the situation? That's the first question. In terms of the second, it's more of a sector-wide question. You're chasing the supply chain for recoveries. Everybody says that. But in terms of the bigger picture, are you and other housebuilders chasing -- do you see more upside in terms of recoveries from, say, big materials groups who have strong balance sheets, but also very strong lawyers? Or is it from the supply chain that probably have very little legal status, but no balance sheet to depend on really?

I'm just going to start recoveries with Simon, who can talk -- turn around without a microphone it would be fine.

Hear me now? That's better. So it's aimed at not just the supply base and their insurance, of course, it is also aimed at the larger suppliers and manufacturers. So we're very actively considering our options there. And there's quite a bit going in that space. I can't say any more at this moment in time, but we are very determined to secure as much recoveries as we can from as wide a pool as possible.

But just if you had to take one side of the divide, the big guys, the small guys, who do you think you've got most chance to get?

Well, it's a real mixed bag because even the small guys as it were, we're looking at them from their insurance position. So it's big guys behind them. So it's a real wide pool that we're looking at. But just to reassure, there's lots going on in that area.

And I'll come back to your trading point, Alastair. And I'm not sure I was surprised, but there's certainly resilience amongst our buyers because they have got crisis fatigue. It seems to be -- it's just too often, but I'm not naive enough to think it won't come and get them in the end, but everyone is very sensitive to the news at the moment. So I certainly think that March will continue with -- until we get to the end of March, there will be some decent sales rates we'll deliver. And there's new spring buyers coming to the market, there may be a little more caution where people take the view, well, I might just wait for this war to end because mortgage offers are going to -- mortgage rates are going to come down. So there will be more caution in the market. I don't think significant, but I think it will just take the gloss off the very good sales rates that people in this room have been delivering so far this year.

Chris Millington, Deutsche. First one, just following on what you just said there, Jason. If we're going to see a slowdown in April, do you think you would have seen anything in inquiries, visitor levels? Is anything happening to that extent at the moment? Well, let's go one at a time.

Yes. We've just noticed visitor rates slowed down this week, which leads me to think that's not inquiries. It's what passing traffic. So serious buyers are still there, Chris. So just starting to moderate. And when you say sales start to slow down, I don't think we're going to move back to 2025. I just think the gloss will come off ourselves. We've been working quite hard to deliver that sales rate. But it seems to me it's a little bit inevitable unless something changes in the news, Chris, in the short term. That's my view.

Next one is about buying land. I mean as you say, you're on replacement, but you're still expending a lot of money. How do you deal with kind of the price cost inputs when you're going through trying to work out whether or not you should be committing to this stuff in times like this?

I think that's a very good point. And last October, I spoke to you about we're going to adopt a replacement-only policy, Chris, for land because that was going to help Shane's capital efficiency program. I'm not sure we'll ever do that this year. That's the level of caution. And you're quite right, until I can understand what that ripple of cost inflation that is almost inevitable going to come into the market, it's probably best to buy as little as possible or just the good deals that you've got on the table. That's probably my approach.

Sorry, I've got 2 more, but one is pretty quick. Affordable. Any sign that market is starting to wake up at all? Or is it still pretty?

Yes, murmuring. And certainly, the new grant round that comes into play now and next month has got the housing associations more active. I mean we'd like to materially move that market and start delivering more affordable homes and get building, Chris. But it's moving better. It was stuck. It's now got some life in it.

And sorry, my last one. Just about this land bank evolution. You've hopefully given that slide about pre-'24 plots, post '24 plots. Perhaps you can give us a little bit of help with the margins in each category or just talk around kind of what benefit that would have given you.

Well what I was going to do in -- I might get Simon to do a presentation to you on strat land in October, so we can show in a bit more detail. But sometimes on strat land, there's lots of hope. So I'd like to see those 17,000 plots come through the system. So that crystallizes the land value and the margins, Chris. So certainly, it's margin accretive. I'm not sure we can spell out today what that all means. Can you add anything on that, Shane?

Simon, do you want to?

I'll add one quick one there. Back to the margin point that Jason was talking about. Strat land obviously has the benefit to us because you get a discount to market value in the option terms we agree. But the other benefit is that we're not agreeing land value until we've got planning permission, a detailed planning permission. So half of our land bank there hasn't got a land value yet ascertained, which clearly benefits from what we're talking about with the risk in Middle East and build cost inflation, et cetera. We'll agree a price relevance at the time. So it would be better margin protection as well as a consequence of that.

Charlie Campbell at Stifel. Just one actually, just on the WIP and obviously, well plans in place to reduce that. And as you said, you've made good progress. Does that get more difficult in a slower sales environment where buyers are more choosy, more careful and maybe want to see more finished stock on the ground. Just wonder how you juggle the WIP reduction in a more difficult market.

Can I start? May be you can look at the headlines. Yes. We put the properties on the market, Charlie, that are more advanced. So that's what's for sale. So we're not particularly selling anything other than stock. So we engineer what we sell on those sites. And I wouldn't describe today's market as bad. A selling rate in 2/3 of the U.K. at 0.75. It's not bad at all. It's in the South of England and the Southwest of England, where we're probably a little bit more sensitive to the investment in WIP and sales rate. Are you okay to talk about the headline numbers, please, Shane?

Yes. Well, I mean, I think you've probably answered the bulk of the question insofar as, look, clearly, there's a volume correlation in terms of how many units you're selling. That's the tightest control you can have around WIP. But we have put a lot of hygiene -- additional hygiene controls in place around WIP spend in itself as well. So clearly, if we're in a situation where unit output wasn't where we anticipate it's going to be next year, that would actually have an impact on with monetization. But we are well set up to manage our WIP spend proactively in relation to that. And we can see that in terms of KPIs that we have in place around a number of foundations, number of unreserved production. All of those percentages are substantially lower than where they were a couple of years ago. So if we maintain those at that level and run our business that way, you will see a commensurate reduction in WIP spend vis-a-vis what you're monetizing. But clearly, the opportunity to get to 10,000 units and doing that without overspending on WIP is where the significant cash monetization opportunity is.

A few from me, if possible. So Kate Middleton, Panmure Liberum. The first one is just on timber frames and vertical integration. So just wondering how many of the business units are currently utilizing timber frames and whether the rollout is phased or more discretionary and perhaps how that will link in with the new house types that you're bringing in? The second is on cancellation rates and if you've seen any movement on those since the beginning of this year? And just finally, I know you've alluded to no real house price inflation, but just wondering whether on a regional perspective, you're seeing any underlying variation in ASPs at all?

Okay. I'll do those. On timber frame, we've started on our journey, and we've got 7 divisions out of 21 feeding into our facility. And we'll -- until we get up to speed and more proficient at it, we'll keep it with just those 7 surrounding the factory. The next step for us was to scale it up within the factory, work 2 or 3 shifts in a day and possibly in the future, build another factory somewhere else in the U.K. That's our thoughts. In terms of cancellations, we've not seen anything yet. Who knows what's going to happen in the month of April? I certainly don't. And sorry, your third question was on.

Whether you're seeing any regional underlying movements in ASPs?

No, we haven't. You always get a good site that's selling really well that you might be a bit braver on. I think the market is sensitive. It's deal led. Our next step won't be to push house prices. It will be to reduce incentives, which is sort of the same thing, but you're keeping your headline the same. So it will be in those better selling areas in Scotland and the North of England, we've discussed as a team, should we reduce incentives down to 2%, for instance. I'm not quite brave enough to do that just yet, but maybe across the spring, early summer. Is that okay? All done? Thank you very much, indeed. Thank you.

Thank you.