Cairn Homes plc (CRN) Earnings Call Transcript & Summary

Welcome to the Cairn Homes 2019 Preliminary Results Call. [Operator Instructions] Just to remind you, this conference call is being recorded. Today, I'm pleased to present Michael Stanley, Cofounder and CEO. Please begin your meeting.

Thank you, Mark. Firstly, apologies for the slight delay. We seemed to have a tactical issue. So thank you for your perseverance. Good morning, everybody. Thank you for joining our 2019 preliminary results call. I'm joined by my colleague, Ian Cahill, Head of Finance, and together, we are going to guide you through our performance in '19 and our outlook for this current year and beyond. I'm delighted this morning to be reporting another strong set of results. When we brought Cairn into the market in 2015, we did so with a very clear objective, to be a leading Irish homebuilder, building in great locations to create places and homes where people love to live. With the support of our shareholders and our talented team, we have spent 4 years scaling our business to ensure that we have the capability and capacity to realize this objective. If I bring you to Slide 3, which are our highlights for the year. 2019 was a year of exceptional sales performance. We closed 1,080 sales. Importantly, we have 853 closed and forward sales as of today from the 740 that we reported in January, underpinning our unit delivery targets for this year. We grew our revenues by 29% to EUR 435 million and our operating profit by 28% to EUR 68 million. We commenced capital returns in '19, and have proposed a full year dividend of EUR 0.0525 per ordinary share and over EUR 100 million returned to shareholders since last September, including our EUR 60 million share buyback program. And today, we are updating our future guidance. We expect 1,250 to 1,300 sales completions in 2020, and we are off to a great start. We are increasing our medium-term guidance to 1,700 to 1,800 expected sales completions in 2022. Slide 4 captures the essence of Cairn. We acquire our land well, the best sites and the best locations. We have a peerless track record in turning this land into active developments through the planning process, enhancing value. Right from the start, we have placed a huge emphasis on the quality of design of our homes. We also invest heavily in the places and communities that emerge when we build these new homes. This is evidenced by the awards Cairn has won from our industry peers and by feedback from our customers after they purchase their new loans. Scale is a key differentiator for us. Our well-established platform drives operational efficiencies right across our construction activities. We offer the Irish market a diverse range of new homes, from duplex units and 3-bedroom starter homes for first-time buyers, to well-appointed apartment for institutional investors or customers looking to trade down. And we do this profitably, which enabled us to commence shareholder returns last September. I will now elaborate on each of these attributes. On Slide 5, we acquire our land well. We floated our business in 2015 to secure a capital base, which would take advantage of a once-in-a-career market condition. We deployed our capital at a pace, and in doing so, we acquired a long-term land bank at historically low cost. Our average housing site cost is EUR 32,000, and our average apartment site cost is EUR 63,000. We've bought exceptionally well-located large sites. Our average site's size even excluding our largest site in Clonburris is nearly 350 units over the remaining 33 sites that we own. Meaning that we can deliver economies of scale on multiyear, multiphase developments. The scale and quality of this land acquisition means that we will drive long-term shareholder value. By way of illustration, our land cost as a percentage of net development value is exceptionally low at 11.5%, which will support margin growth into the future. On Slide 6 now. Our track record in planning is, I believe, unparalleled and underpins the credentials of Cairn as a well-organized, resourced and efficient business. Our expertise in planning is providing a constant conversion of sites from our land bank into active developments. We have delivered 140% more units through the strategic housing development planning process than our nearest industry peer. We've already -- we have full planning permission for 100% of our forecasted 2020 completions and 83% of our forecasted 2021 completions, which, for me, provides a great level of comfort and confidence. Moving on to Slide 7, which talks to our award-winning design in placemaking. You'll see a good example of this on the slide. Oak Park at 248-unit starter home scheme in Naas, we delivered an 8-acre park to coincide with the first residents moving in. Our approach is to front-load our infrastructure investments and to ensure that we can deliver amenities to our residents, which support and encourage a sense of community. We planted an average 6 trees for every house we built in 2019. We opened numerous new playgrounds, and we spent over EUR 25 million (sic) [ EUR 125 million ] last year on public realm and infrastructure projects. This investment not only benefits our new homeowners, but also the broader communities in which they live. The quality of our design and our approach to placemaking has been recognized by our industry peers, and we are pleased to have won 2 prestigious awards in '19 for our developments in Oak Park and our Six Hanover Quay. On to Slide 6 -- sorry, on to Slide 8 now. As the largest homebuilder in Ireland, scale brings significant cost and operational advantages. We've invested heavily in our work in progress in recent years, which provides us with significant buying power. Our experience of build cost inflation in the last 12 months is 2.5%. Our top 20 subcontractors account for 66% of our total spend, with average total contracts between those 20 subcontractor of EUR 23 million each. And each of those 20 top subcontractors is working on average across 8 of our sites and developments. Our loyal and established subcontractor base is a very valuable asset for Cairn Homes. We continue to convert our planned grounds into active developments, and we will be active on 20 sites by the year-end, with 86% of our construction cost fixed for 2020 and 60% of these costs already fixed for 2021. We are also a very significant direct and indirect employer. 2,500 people work full-time across our current active sites. All of the above enables us to manage build cost inflation in a disciplined fashion. Moving on to Slide 9. Our agile operating model and our significant capacity enables Cairn to leverage the material supply-demand imbalance which exists in Ireland today. As can be seen from the table, we offered a diverse range of new homes to our purchasers in 2019. We're ideally positioned within the housing and apartment markets to meet the demand from a deep buyer pool, chief among them first-time buyers and families. Over 3,250 customers have chosen a Cairn home to date and over 2,500 have already moved into the homes that we've built. We have sold 1,850 new homes to first-time buyers in our starter home schemes, which makes Cairn Ireland's most significant contributor to addressing the housing supply in Ireland. Last year, the average price of a Cairn starter home was EUR 356,000. Our low land cost, operational efficiencies mean that we will continue to sell our starter homes at competitive prices to first-time buyers at a price point where they can get access to mortgage finance. Our sales absorption rates are strong at 3.3 weekly sales per active housing development. Cairn also delivered EUR 345 million in revenue from completed and forward-sold multifamily PRS transactions. We are a well-established and highly credible counterparty for this institutional capital. Moving on to Slide 10. The graph on Slide 10 illustrates the significant profit growth and associated shareholder returns. In 2019, we spoke about EUR 500 million free cash generation by 2022. We have generated EUR 100 million of this, and this free cash is now committed to shareholder returns by way of buyback and ordinary dividends. We have spoken also about a 4- to 5-year land bank duration as being optimal. Based on updated guidance today, this means a land bank of 8,000 units approximately. And also that we will exit 2022 with circa 30,000 units, allowing for significant additional cash generation beyond the number we've spoken about today. Slide 12. I will now bring you to our sustainable -- sustainability and innovation initiatives. Our CSR pillars embrace community, environment, people and industry. We are committed to building homes and creating places that contribute positively to society and improve the quality of life of our customers. High quality and imaginative placemaking strengthens the social fabric of communities. In common with other sectors, we are also committed to reducing our carbon footprint. Cairn is in business for the long term, and as a consequence, the investment in our people for them to reach their potential and to experience a fulfilling career is a key pillar to which we are committed. Turning to Slide 13, which is an area of real importance to us. Here, we outlined some of our initiatives in more detail across each of the pillars I mentioned earlier that we undertake in CSR. We are now in the process of transitioning from a CSR to a sustainability agenda. As part of this, we are aligning our business practices with the UN Sustainability Goals and will embed sustainability even further into our activities in the future. We will continue to update you as we progress in this area. Slide 14 looks at how we embed innovation into our business. From off-site manufacturing materials program gains and consistent quality through to green walls, which are an environmentally friendly engineering solution, we continue to seek more efficient and environmentally friendly ways to build our new homes. All of our homes are now built using timber frame construction. While the adoption of nZEB and the installation of EV charging points are all ways of working to reduce the carbon footprint of our developments, we have incorporated other efficient, modern methods of construction, particularly in our apartment developments, such as steel frame structures and precast construction elements. Innovation will continue to drive results for our business. I will now hand you over to Ian, who will run through our financial performance in 2019 in more detail.

Thank you, Michael, and good morning, everyone. Turning to Slide 16. We've set out an overview of our key financial highlights for 2019. Michael has already called out some of the key numbers, but let me constitute the most important highlights on this slide. We are extremely pleased to have generated revenues of EUR 435.3 million for the year, which represents a 29% increase over the previous year. The 1,080 unit closings are 34% ahead of our 2018 numbers. In revenue terms, unit sales amounted to EUR 401.8 million. Also included in revenue were proceeds from a small number of other development site sales amounting to EUR 32.2 million. These sales sites have been identified as noncore to our business. Average selling prices on our housing schemes were just EUR 321,000, excluding VAT, in 2019, demonstrating our ability to deliver homes at price points that are within reach of a large pool of buyers. Our very strong 2020 closed and forward order book of more than 700 units at the close of business yesterday underpins our guidance of between 1,250 and 1,300 units for the year. Moving to Slide 17. Gross profit of EUR 85.3 million is 23% ahead of the previous year and equates to a reported gross margin of 19.6%. Gross margin for the second half of last year was 20.4%. Administrative expenses of EUR 17.3 million for the year equated to just 4% of net revenues and demonstrates that we continue to operate as a lean and efficient housebuilder. Finance cost of EUR 9.5 million for the period are EUR 2.2 million lower than in 2018 and reflects the full year benefits of lower average cost of funds arising from our 2018 debt refinancing. Operating profit for the year was EUR 68 million, an increase of almost EUR 15 million or 28% when compared to 2018. Earnings per share for the year was EUR 0.065, an increase of more than 60% when compared to 2018. Our balance sheet on Slide 18 shows that we have total assets of nearly EUR 1 billion and total equity of more than EUR 760 million at December 31, 2019. Assets included inventories totaling EUR 897 million, which includes our land bank of more than 17,000 units. That land bank is valued at cost and at EUR 693 million is approximately EUR 58 million lower than the end of 2018. That reduction aligns with our commitment to reducing our land bank, and we intend to continue to do so over the medium term. Inventories also includes our construction work in progress of EUR 204 million, up from EUR 181 million at the end of 2018. This reflects the fact that we are actively building on 16 sites and demonstrates continued expansion of development activity across our sites in the year. In May 2019, a EUR 550 million capital reorganization, enabled our Board to announce our first interim ordinary dividend of EUR 0.025 per share in September 2019. This morning, we announced a proposed final 2019 dividend EUR 0.0275 per share, subject to approval at our AGM. That brings total 2019 dividend to EUR 0.0525 per share. We also completed our first share buyback of EUR 25 million in early 2020, and subsequently increased the size of the share buyback program by a further EUR 35 million for a total of EUR 60 million. All repurchased shares have been canceled. Now turning to our cash flow statement on Slide 19. We generated more than EUR 99 million from operating activities in the year, from which we distributed almost EUR 42 million in the form of capital distributions and made facility repayment of more than EUR 50 million. Net debt at the end of the year reduced to EUR 91 million, down from EUR 134 million at the end of 2018. We had available cash of EUR 57 million and further committed undrawn facilities of approximately EUR 200 million at the end of the period, which continue to support our growth plans. Net debt was just 10.2% of inventories at cost, down from 14.4% at the end of 2018. As Michael outlined earlier, we expect to generate significant surplus cash out to and beyond 2022, supported by our intention to monetize a substantial amount of our land bank and reducing it to a more normal level over the medium term. Overall, this is a very strong set of financial results. Furthermore, our Board is committed to distributing surplus capital above ordinary dividends through share buybacks or special dividends. I'll now turn the call back over to Michael.

Thank you, Ian. In the next section of our presentation, I'll bring you to, in more detail, our market and our land bank. On Slide 21, Cairn today owns 17,000-unit land bank, and the timing of our acquisitions and upside on signing means that our land cost represents under 12% of our projected net development value, excluding any other -- any future price inflation. We can deliver 12,000 houses over the coming years at an average selling price of less than EUR 340,000 in very well and -- in very good and proven locations. Slide 22 and 23, together, set out what I believe to be a very unique position for Cairn. On Slide 22, we outline our addressable market and show the cumulative number of homes and the percentage of our land bank that we can build at different price points, and then the salary levels needed by our customers to meet those lending rules. We have a growing market opportunity, particularly amongst first-time buyers. And in Ireland, as shown in the bottom of Slide 22, only 16% of all homes are owned by people under the age of 39. If you look at a rental stat on the next slide, you will see that 58% of all homes currently rented in Ireland are people in that same age bracket. The supply-demand imbalance is becoming more extreme. One of the reasons this remains our core market is because it is 45% cheaper to own a home than rent it based on a 30-year mortgage. But if you look at the average selling price of a Cairn house in Dublin in 2019, our customers can own that home within 18 years based on the average rental cost that they would pay in the same location. On to Slide 24. We've witnessed a strong start to the year. With our recent [ 7 new ] site commencements, we will be active on 20 separate developments in 2020, with 5 new homes launches in the coming months. Our improving sales rates per active development reflects our increasing market share and our relative competence. We've seen modest HPI of about 1% across our active schemes in the last 12 months. On to Slide 25. In 2019, Cairn accounted for over 20% of Ireland's PRS multifamily market by value. Long-term institutional capital is attracted to Ireland and still only represents a very small percentage of the residential property ownership here when compared to all other developed economies. The circa EUR 2.4 billion invested in Ireland's residential market last year represented 44% of all real estate investment. And I believe that Cairn will continue to be a very attractive counterparty for these institutional investors. Slide 27 covers our guidance, our capital returns and our outlook. Our business will continue to grow into the medium term to meet the demand of a well -- for well-designed, high-quality and competitively priced new homes. We expect to deliver 1,250 to 1,300 new homes in '19 (sic) [ '20 ] and expect to achieve a gross margin of circa 20%. Similar to 2018 and '19, our revenue and margin will be heavily weighted towards the second half of the year. As we look forward, we continue to increase the number of active sites. And as previously emphasized, we are increasing guidance for both 2021 and 2022. On to Slide 28. Our cash is -- our business today is significantly cash generative and our expected free cash generation in the 3 years to '22, as I previously said, is EUR 400 million. This will convert into capital returns through a progressive biannual ordinary dividend in addition to our share buyback. As I discussed earlier, we are continuing to monetize our land bank to bring it to a more normalized level. We expect our 7-year land bank -- we expect the duration of 7-year land bank at the end of 2022 to further reduce to a 5-year duration by the end of 2024, generating additional free cash as we do that. We finished 2019 with net debt of EUR 91 million. Cairn has significant resources to meet our ambitious future growth plans, but we will continue to distribute surplus capital back to our shareholders. And finally to Slide 29, the outlook for our business is very positive. 7 site commencements this year, a strengthening forward sales pipeline. We will continue to sell starter homes to first-time buyers at prices where they can access mortgages. We are an extremely credible counterparty for institutional investors seeking multifamily PRS opportunities. We are operating in a strong economy with an extreme housing supply-and-demand imbalance. Housing remains the critical issue facing our economy, and we are in an unparalleled position to continue to deliver on our strategy. We have a great team here in Cairn, and I'm delighted with some of the strong appointments that we've made over the past year. Thank you very much for your time this morning, and I will now hand back to the operator to take questions. Thank you, Mark.

[Operator Instructions] Our first question comes from the line of David O'Brien at Goodbody.

Three, if I could, please. Firstly, truth against the context of, I suppose, continued uncertainty in global markets, what's giving you the confidence to increase that guidance for unit delivery out to 2022 and any implications for cash generation as well over that period? And secondly, there's been a lot of talk of forward-funding model in the marketplace over the last number of months. I wonder if you could give us your thoughts on this and any opportunities you see out there for Cairn. And finally, just in terms of your costs. And look, you note that good visibility into 2021 with 60% of costs fixed, can you give us any idea of what level of inflation, even that far out, we should be thinking about? And you've outlined a number of mitigating factors at the interim stage. Can you just give us how that experience has evolved in terms of cost mitigation through the second half of 2019?

Okay. Sure. So increased guidance. Well, look, we -- when we started our business back in '15, we talked to -- hoping to achieve 1,000 units annually, and we're pleased to have hit that number last year. We certainly have increased our medium-term guidance, and we believe it's credible to do that considering the maturity of our planning grants, the amount of active sites we're on. We've achieved about 3 -- just over 3 units per active site last year. And if you look at our forward guidance, it's based on a more conservative 2 sales per week across each site. So we're really comfortable with those numbers. But in the name, because we acquired the land so early, we've had 13 separate large schemes through the SHD process, all granted with -- towards with no refusals. And I think most importantly. And I emphasized a lot around our price points in the presentation, we have proven demand because of the locations we -- where we bought our sites. And particularly now as the city has expanded multimodal transport links, locations that are close to where people are employed, there are things that we see really reflecting on our sales absorption. So we're comfortable with that guidance. On the forward funding, forward funding is certainly a very common form of funding internationally in mature markets for PRS multifamily. There has been a couple of attempts in Ireland to forward fund projects over the last couple of years. So I welcome successful forward-funding opportunities, and obviously, it would be something that we would look to. You would probably just -- the only thing we would consider is that it wouldn't impact on margin. If you're using somebody else's capital, there's obviously a cost there. But capital costs are low, and therefore, forward funding is certainly something that would be great to see coming into the Irish market. On the cost side, I think we covered it quite well in the presentation. And we felt we set about a pretty unique way to scale our business. We decided to scale in a considered way. We concentrated on the Greater Dublin Area. It doesn't mean we don't have ambitions. And we would like to see ourselves as a national house builder, where we currently receive planning permission for the large site in Cork. But part of that logic was to build a subcontractor base and supply base and to allow our subcontractors a platform to grow their businesses. As we scale, and obviously, our procurement and purchasing power increases, and I think we've procured just shy of EUR 300 million, about EUR 288 million last year, it does give us significant advantage. So I would be really disappointed if we weren't, I suppose, being in the market on build cost inflation. And we really -- we think that kind of 2% level is absolutely sustainable over the next coming years. Probably in the main, driven by wage inflation, which you have to remember, if there is wage inflation in the economy, and even if it's at levels that are reasonably sustainable, we've seen levels around 3% or 4%, that absolutely helps affordability. And with the presence of lending rules in Ireland, wage inflation is a positive thing for our market and for ourselves. So we'd certainly take modest build cost inflation, particularly if it's gone out of salaries.

Our next question comes from Arnaud Lehmann of Bank of America.

Three questions, if I may. Firstly, on your gross margin, about 20% the last couple of years, and you're guiding to around 20% for this year as well. Is the 20% kind of normalized level that you would expect to deliver over time? Or do you see there could be a bit of scale effect or side effect to it in the medium term? My second question on your dividend payout, I think, around 80% for 2019. Is that a sustainable level? Will you -- are you planning to grow your dividend in line with your profits? And lastly, you mentioned a couple of times the possibility to monetize the land bank. Is it something that we should expect to be a meaningful contributor to the EUR 400 million cash flow for 2020, 2022? Or that's just a way to adjust?

Yes. Gross margin, I suppose what we'd like to do -- I suppose, we don't have HPI, obviously, in our numbers, and we've seen modest HPI, Arnaud, over the last 12 months certainty. We are providing and building a lot of, we call, entry-level homes, and we believe they're very competitively priced. We've introduced duplex products quite substantially in 2019 and 2- and 3-bed starter homes. We're moving on to sites and starting to monetize sites this year and next year, particularly where we've achieved substantial planning gains. Griffith Avenue, for example, which we're well advanced on. And we'll be building close to 400 apartments there. We certainly didn't acquire that site with expectations of 400 apartments. But we only show those margin benefits as we exit some of those schemes. I think our operating profit margin is also worth emphasizing because we achieved 15.6% last year. So we're starting to look at -- kind of at an improving operating margin. But if you look at our increased guidance and our increased turnover over the next couple of years, that operating margin is going to tick up because we believe we've kind of reached maturity in terms of our central overhead. So I think it's important to emphasize that operating margin as well, Arnaud. So we'd like to think that circa 20% is a safe guidance, and we'd like to kind of meet it there for the moment, Arnaud, and work hard to try and improve that through our mix and our operational efficiencies. The land bank, yes, I mean, we believe -- and we obviously -- we've increased guidance today into the medium term at a 4- to 5-year land bank. As we said, Arnaud, we certainly won't have fully monetized that land bank opportunity by the end of 2022. So if we are going to reduce our land bank by circa further 3,000 units without replenishing that, and those ASPs are -- even if we take a reasonably conservative low 300s in ASP, that's another EUR 1 billion of revenue. And we believe we will release the land value, and we will release the operating profit margin on that land. So yes, that would be a considerable addition to our free cash flow over the coming years.

And Arnaud, Just on your final question in relation to dividends. So what we've been clear in terms of how we're outlining dividends both at September and now being our EUR 0.025 per share interim dividend, that progression to EUR 0.0275 this morning is a 10% uplift. So that's the progressive biannual ordinary dividend, which, yes, you could model through the end of '22 and say, takes care of the -- one portion of that free cash generation we're anticipating. So equally, we have -- we're currently working our way to EUR 60 million buyback. And it's the Board's intention to continue to distribute surplus capital through those mechanisms over the coming years as well. So while we're not committing to the absolute quantum, we have said we -- any surplus capital, we are -- our intention is to distribute that through additional buybacks or special dividends.

Okay. That's very clear. Do you mind if I go for one last one. I guess you're giving us visibility on your volumes for the next 3 years, but you do that at the time when I guess the political uncertainty is probably a little bit higher than it was a few months back. Shall we read into that, that you're not particularly worried about whatever outcome may happen to the Irish government and the implications for your sector?

I think Ireland absolutely needs a stimulant, Arnaud, and that would be certainly helpful to not only our economy broadly but our industry. That being said, it's rare that an election would be run with that much emphasis on housing, and to be fair, social and affordable housing and homelessness in Ireland and while -- as the central message. I think whatever government is formed, Arnaud, supply is going to be absolutely at the -- in the forefront of their minds. We only achieved 21,000 homes last year in Ireland. And what's quite extraordinary is that only 7,000 to 8,000 of them were bought by homeowners, traditional private buyers. So we're not seeing that -- we're not seeing hard-working people and couples in Ireland getting access to homes. We touched on a few of those points in terms of that extraordinary difference between the cost of renting and owning. So I suppose, yes, we'd all like to see some more stability. But as you know, Arnaud, many, many parts of Europe and North America -- but maybe less so North America, but certainly parts of Europe have governments which have very different views on policy. But our market functions well in that environment because, ultimately, our population is growing, our economy currently is growing and people need access to homes. And we just think we're in a unique position, Arnaud, because of our, I suppose, our first-mover advantage, our scale and our site costs, I suppose, to leverage that opportunity. And irrespective of who's in government, I think that's a sustainable opportunity for us, absolutely.

Our next question comes from the line of Ronan Dunphy of Investec.

I will just comment with 2. First of all, on Clonburris. It's obviously a very significant location for you. And the as Ian said, has been a little slower to progress probably at times for factors outside your control. So I'm just wondering what's the latest at this site. And when do you expect maybe to be on-site and selling units? And then a question about your premium apartment sites for the owner-occupier segment. So Donnybrook Gardens in the near term and then Montrose coming after. We hear that the high end of the market is not as strong. That's first-time buyer segment, plus in saying that your Marianella scheme has been quite successful, strong demand there. So I'm just wondering, has your thoughts evolved following Marianella? Or how do you see sort of that end of the market and your specific product fitting in there?

Yes. I suppose talking about first, Ronan, look, location has always been extremely important. And one of the things that apartment sites in Ireland, we have spent the last 4 or 5 years building a substantial number of offices on some of the free land we've had close to city center. And I'm still an absolutely believer that the right location and good locations close to city center are exceptionally good opportunities for Cairn. That high-end uncertainly, the second-hand market certainly took a wobble last year on Brexit, and that was certainly discussed. But I'm still a believer, and we've proved out in Marianella that people not only need apartments because they are professionals, and they want to work close to the city center, but also, it offers a compelling opportunity for people to trade down. And in Marianella, a very, very small percentage of our customers even got access to mortgage finance. They were cash buyers because they were selling their principal private residence and trading into an apartment, which gave them a much lower cost of living and a much better environment for them to live in. So I'm a big believer in some of our great sites. And it provides a spread of products for the business. And we have to look at the long term, the business in the long term. Our focus last year and certainly, our bias, even if you look at our current active sites, is towards the first-time buyer market. Certainly, some of the sites that we might have previously considered as trade down opportunities for apartments may evolve into more PRS apartments or PRS opportunities. I think we've already proven that last year in Citywest and plus even in Hanover Quay, which probably initially would have been designed as more a build-to-sell project. So the market will evolve, and we'll respond, and I think we showed our agility last year. Clonburris is just a really unique opportunity, Ronan. There's thousands and thousands of people in cars driving past that fabulously located site every day, driving a further 20, 30, 50 miles where they own their homes. Where we believe that a site of that scale, where we and one -- and a local authority collectively own over 80% of the land, and already has the rail networks, just offers a fabulously unique opportunity to deliver for us probably over 5,000 homes at price points where I don't believe any of the site in Dublin will deliver close to city center. And to me, that is the real value of the market. There is a substantial number of people in Ireland earning EUR 40,000 to EUR 60,000 that can't get access to new homes. And so we're really excited about Clonburris. And we want it to be right before we start. So we're very heavily engaged in discussions around the infrastructure that's needed beyond what's already in place, and there is substantial infrastructure needed there. And that discussion and that plan is probably the thing that has taken a little bit longer to figure out and rightfully so. So the summer is a reasonable target for us, Ronan. And it's unlikely that we will deliver finished units this year, but I would be really pleased, and I'm confident that we should be delivering substantial units in Clonburris in 2021.

Our next question comes from the line of Andy Murphy of Whitman Howard.

Three questions, if I can. Just sort of looking at the 17,000 land bank, can you outline to what extent that is all units that are purchased versus units that have been replanned? And the sort of the second question is related to that. Given the political situation, is there some risks, some chance that you would look to perhaps replan either some of the units or duplexes into smaller units to trying to address political will? And then finally, third question was around the environmental activities you're putting in, which sound quite encouraging. And I think it should be encouraged overall. But first wondering, to what extent there's a margin impact for those? And how do you think about the trade-off between doing the right thing and trying to sort of maintain margins?

Yes. Thanks, Andy. Dealing with the -- I suppose that the planning gains, Andy, we have previously guided, about 3,500 of those 17,000 units is what we consider planning gains on site and savings. And a lot of them would tend to be on our larger sites and a bias apartments. And again, that's -- just to reemphasize, that means to us as we exit certain larger sites, we'll start to see the benefit feeding through. And I suppose that one of the things that as it evolves and the political situation evolves, Andy, the state responds to social and affordable housing, and number of initiatives have been mentioned in various manifestos during the election. But obviously, one of those, which was central in all of those manifestos across parties, was the use of state land. And for me, for the state to build, the state needs housebuilders of scale to support and partner that. And what's really interesting about our industry is we've got this extremely long tail of small housebuilders trying to scale, and they will, but it will take time. And in the meantime, and it's one of the reasons we may be able to consider into the future a slightly tighter land bank where many of our industry counterparts in U.K. that you know, Andy, operate off of 4-, 5-year land banks but also may build on other land as well, whether that's state land or joint ventures. So we believe that sort of efficiency, that credit -- that credible scale that we have and that -- the -- all of those advantages may also offer unique advantage for us to leverage that situation and maybe support and partner governments on the affordable delivery. You mentioned -- Declan Murray is in the room here beside me. So we'll give him that last tricky question then on the -- the last one you asked was about the sustainability agenda, is that right?

Yes. Environmental costs.

I think -- will there be any more -- I mean the -- there will be longer-term benefits from this in terms of building technologies. What we will be delivering from this year are A2-rated homes. So I think into the long term, we are -- certainly, in the near term, we're focusing on the energy efficiency of our end products.

And we're engaging heavily with our supply chain as well. That's early stages, though, Andy, and at this point in time, it would be early to call the margin impact. But we have a very mature supply base and very substantial suppliers. Thankfully for us, many of them manufacturing their products in Ireland, so it's not difficult for us to engage. And a lot of our products being sourced locally is a big benefit to us as well when we look at that sustainable agenda. And timber frame homes are -- there's things like lower truck movements because we're bringing in the timber frame kits, Andy, straight into the site, which is obviously -- and all of our houses going forward will be timber frame. And nZAB brings us from A3 rating to A2 rating. I'm not sure what it is in the U.K., but we transition to an A2 energy rating this year as well, Andy, all of which is positive.

And our next question comes from the line of Colin Sheridan at Davy.

; Just a few more from me, if I may. I missed a couple of areas, so forgive me if I repeat any questions that have already taken place. First one, just a clarity on the ASP on your forward sales, working out about EUR 312,000. It's obviously below where you are kind of ticking away on the P&L at the moment. And what to expect from the future? I assume there's quite a bit of excitement there, but you might just take us through the mix effects and what might be driving that kind of lower ASP at the moment. Secondly, then on house price inflation and just expanding on Ronan's question, the higher ASP versus your kind of starter home ASP, I mean, is there a meaningful difference on the actual house price inflation number relative to your 1% guidance overall in both of those 2 separate price points? And then finally, just on margin and the mix in the land bank. I mean, clearly, you're flagging a 11.5% land cost as a percentage of NDV. I assume that's significantly below what we've seen in the P&L last year. Just wondering if you could give us quantitatively what the difference is there between that 11.5% and where you are on the P&L? And how much of that gap realistically could be captured in margin improvements in the coming years as these better-margin sites come through?

Colin, I'll take the first 2, just the ASP numbers. Yes, and you will have seen in our release and our presentation, those forward sales ASPs are lower than what we would typically report as an average throughout the year and so on. But in those ASPs, so we've got to remember, a lot of them are indeed the almost 300 units we forward sold at Citywest. So they are lower ASPs. They're on a net ASP basis below EUR 300,000. And there are a number of other -- the other PRS forward selling transactions as in Lucan, for example, similarly, on a net basis, they are well below that sort of EUR 350,000, EUR 360,000, EUR 370,000 that we're typically in across the broader range of our product mix. So it just happens to be concentrated on the lower ASP units. But rest assured that our balance over the remainder of the year and the balance between the 700 and 1,250 to 1,300 is made up of some higher-priced sites, right across our range, but equally on some higher-value sites where we expect higher ASPs. So -- and in terms of our guidance on that side, I wouldn't read too far into the lower ASP on the forward sales.

Yes. And on the -- I suppose a portfolio in HPI, Colin, and higher ASPs, more generally, we have a really broad mix of product, as you know. And we have some schemes to trade up, trade down. And you could say more so than first-time buyers. Mariavilla, we launched in mid-Jan over the last couple of years and -- over the last couple of weeks, I should say, and was very, very successful. And so there are -- there's certainly a core market, and that core market is the starter home, but there's obviously homes that we'll sell in places, like I said, like Mariavilla, which are slightly more expensive, but we're seeing strong demand in that area. I think possibly the weakness last year and possibly is that kind of secondhand market for those very expensive homes, but we're very little in that product range. In relation to the land cost and our margin improvement, I think we did try to cover it quite well, and it's difficult to get more granular than we've already done, Colin. And obviously, we've added significant gains. And because in the main, a lot out of our sites are multiyear and multiphase, we'd like to think we would like to expect to see some benefits from that by way of margin improvement, and I believe we will as we exit some of those larger sites. Shackleton, Gandon Park is over 1,100 units and in the 2.5 years we've been there, we've already built just over 600 units. So we'd like to see some benefits accruing. But it's difficult at this point in time and I don't think it will be wise for us to get any more granular on that, Colin.

[Operator Instructions] There seem to be no further questions at this time.

Thank you, Mark. Thank you, everyone, for listening in today, and we look forward to speaking with you in the near future.

Thank you, guys. Thank you very much.

Thank you. This now concludes the conference. Thank you all very much for attending. You may now disconnect your lines.