Cairn Homes plc (CRN) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the Cairn Homes Full Year 2022 Preliminary Results Analyst and Investor Call, which will be hosted by Michael Stanley, Chief Executive Officer; Shane Doherty, Chief Financial Officer; and Tara Grimley, Company Secretary and Head of Sustainability. [Operator Instructions] I will now hand you over to Cairn CEO, Michael Stanley.

Good morning, everyone, and thank you for joining us on our analyst and investor call as we review 2022 and a look forward to 2023 because Alan mentioned, I'm joined by Shane, Tara, Declan and Ian here this morning and you'll hear from some of my colleagues later. It's no exaggeration to say that 2022 was a milestone year for Cairn. It was our first full year out of COVID-19, and we certainly put the foot to the floor in terms of delivery. We have scaled our delivery platform and closed 1,526 new homes in 2022, 1/3 of which were social affordable and affordable. Cairn is certainly playing an increasing influential role in tackling Ireland's housing crisis for first-time buyers or people looking to trade up and trade down, institutional buyers and for the state. The delivery trajectory accelerated in the second half of 2022. And I'm pleased to say that this momentum is carried through into this year. Delivery of this scale and nature is enabled by a huge investment in our work-in-progress. In our 2022 -- in 2022, our financial commitment to work-in-progress is EUR 470 million. That commitment will be even greater this year. This in turn is enabled by operating profit, which has grown to over EUR 100 million in 2022. Before I bring you through the presentation, I'd like to sincerely thank all of my colleagues throughout the business in Cairn and also across our subcontractors and suppliers who continue to work hard to deliver high-quality homes for people in [indiscernible]. And now to the key financial highlights, if you want to turn to Slide 3. As I mentioned in my intro, the company closed 1,526 new homes in '22, a very significant increase of 36% on the previous year and 495 of these were delivered to our state partners. With a 46% increase in revenue to EUR 617 million, we delivered an operating profit of EUR 103 million, almost entirely delivered from our core housebuilding activity and this does represent a 76% increase in 2021. Our higher gross margin of 21.7% was supported by many factors, not the least that Cairn is generating appropriately higher profit margins from our more capital-intensive apartment projects. Our operating margin was therefore increased by nearly 3% in the year from 13.8% to '21 to 16.7%. During a challenging year and to underpin 2023, our net investment in construction work-in-progress was EUR 71 million. Our total investment in our business today, as you can see from the slide, is just shy of EUR 1 billion between our landbank and work-in-progress on our active sites. We are particularly pleased to be making progress towards our 15% ROE target with 11% outturn in 2022, a significant jump from the 6% delivered in 2021. On shareholder returns, ordinary dividends were declared at EUR 42 million, which brought our total shareholder returns to EUR 117 million for the year. And today, we are announcing a EUR 40 million buyback, which Shane will cover in more detail in his finance section later. On to Slide 4, operational highlights. I will speak later about the current market conditions and how we are looking ahead. But it is very encouraging that at this early stage in the year, the company has a current closed and forward sales pipeline of over 1,500 new homes and in excess of EUR 0.5 billion revenue. Included in our forward sales pipeline are 300 units, which will be delivered next year in 2024. And as this year progresses, we will look to continue to grow this longer-term sales pipeline. We are extremely confident in the opportunity that lies ahead for Cairn. We have backed this up by increasing our workforce in 2022 by 30%, increasing our new homes commencements by 30%, increasing our work-in-progress spend as I already mentioned, to EUR 469 million and also by strategically investing in planning consensus land in early 2022, all of which in product will support our ambitious and predictable growth trajectory this year and future years. This investment is not only important for our shareholders, but it is critical for how our subcontractors plan and scale their businesses in support of ours. They need to know and trust that Cairn will deliver on the growth plans that we have committed to them and that we will support the 3,500 that are employed full-time across our active sites. Later in the presentation, Tara Grimley will bring you through some real progress in our sustainability strategy and execution. I'm particularly proud that the company has set our Scope 1, 2, and 3 carbon reduction targets. And we are moving closer to the top of the class on our CDP score, having been awarded an A minus grade in our 2022 GDP submission, up from a B in 2021. I'm not used to looking at As in report cards, Tara. I can take no credit for this one, but it's in a great achievement by the team to have achieved an A minus grade in 2022. Slide 5, sales pricing in 2022. You can see across our various customers, sales prices increased with a pretty consistent average of about 6% across the business. Our average starter home price was EUR 366,000 during the year. And at this price point, we continue to see significant realizable demand from first-time buyers. They are also now much better supported by government with the recently introduced first homes shared equity scheme added to help to buy support and a slight improvement in the [indiscernible] lending rules. The combined effect of this is allowing more people to realize their dream of owning their first home. Scaling these effective measures is our only call out for policymakers in government this morning. Bill cost inflation during the year was substantial, but we managed to leverage our scale and track record to limit this impact to EUR 20,000 per new home completed. And moving on to Slide 6, the analysis on our sales. Looking at our buyer profile of our sales last year, our market was roughly [ segment ] into 4 quarters between institutional sales, including successful completion and handover and apartment schemes like Griffith Wood and Shackleton Park, first-time buyer homes sold across 10 different developments, trade-up, trade-down homes sold across 5 different developments. And as I mentioned, an increase in the number of homes that we delivered for state partners. In terms of sales rates, the company achieved an average in excess of 4 new homes sold per week per active selling site and quarter 1 has seen us maintaining that impressive sales rate. Moving on to Slide 7. And as many of you know on the call, homeownership can transform people's lives, both in terms of their family wellbeing and also financially. It is appropriate, we feel now to also think about monthly energy costs when one compares the cost of owning or renting a home given the significant cost savings associated with a new A2-rated Stardom. Assuming that a customer qualifies a full state support, the total monthly cost of energy and mortgage repayments combined is more than 50% lower than the high rents and higher energy bills those people would face for a standard rental home in the market. Even in a rising interest rate environment, this gap is very likely to remain very significant. Slide 8 and some commentary around our supply chain collaboration and build cost inflation. I mentioned earlier that in 2022, each home costs us EUR 20,000 more to build and I'm pleased to say that the expected build cost inflation for this year will fall significantly to approximately EUR 10,000 per unit. Our scale, our longer-term committed pipeline of orders and subcontractor packages is a great benefit to us. Broader industry new site commencements actually fell by 12% in 2022 in comparison to our 13% increase in new starts. Our central procurement function is leading to greater penetration of manufacturers at source to provide not just better pricing, but better product quality control and consistency. Today, we are circa 78% procured on our active sites for 2023 and 54% procured for 2024, reflecting the strength and trust developed between Cairn and our supply chain. I'm going to pass you over to Shane to bring you to our 2022 financial performance and 2023 guidance. And I'll talk to a little bit latter.

Thank you, Michael, and Good morning, everyone. I'm delighted to present a record set of financial results for Cairn to you this morning as well as reiterating the very strong outlook for our business that Michael gave you just now. Over the next few minutes, I will walk you through our 2022 financial results as well as our forward-looking guidance. Starting with Slide 10, you'll see that we made substantial financial progress in 2022, continued profit generation of 87% in 2022 has enhanced return on equity growth and shareholder returns, with the balance sheet size reduced by 4% as a result of returns to shareholders. With some key callouts this morning. Revenue of more than EUR 617 million from 1,526 unit sales closes in the year, further strengthening of gross margin up to 21.7% in 2022. OpEx investment has remained broadly in line with the H1 rates that we reported in September. That critically enables innovation and evolution across a number of key disciplines, including construction, IT and health and safety. We anticipate the top line growth combined with well-considered investments in OpEx will continue to drive operating leverage expansion into 2023. Delivering EUR 103 million of operating profit, equating to operating margin of in excess of 16.7% demonstrates the robust fundamentals of our business. And we also returned more than EUR 115 million to our shareholders in that period by way of dividends of more than EUR 40 million and EUR 75 million of share buybacks. And today, as Michael has outlined, we've announced a final dividend for 2022 of EUR 3.1 per share. A net asset value of EUR 0.110 per share at the end of 2022 demonstrates the strength of our balance sheet. That includes our wholly owned landbank of almost EUR 630 million, most of which was acquired at very competitive prices. A forward order book of more than 1,500 units and EUR 500 million in value as well as our proven and ever-increasing operating platform, all of which makes for a very compelling valuation thesis for our business. Turning to Slide 11. This demonstrates the strength of our forward order book. As of today, we have forward sold in excess of 1,500 units with a net sales value of more than EUR 534 million. More than 1,200 of those units are expected to complete in 2023. This represents more than 2/3 of our sales target for the year forward sold. The growth in both units and value of our forward order book compared to previous years is supported by increased investment in WIP. In terms of the value of these forward sales, we are approximately 1.6x covered on our closing WIP balance at the end of 2022. Turning then to Slide 12. Our balance sheet position continues to be supported by land at historic low cost and the WIP investment backed by our forward order book of more than 1,500 units. At EUR 339 million, our WIP support and order book with a value of EUR 534 million and represents an increased net investment of more than EUR 70 million compared to a year earlier. And when you consider that we also increased shareholder returns by more than EUR 77 million compared to the previous year, our net debt grew by just less than EUR 40 million. At the end of last year, we still had available liquidity of almost EUR 200 million after all those returns and increased investment. Our net asset position of approximately EUR 750 million is down after shareholder returns of more than EUR 200 million. At just 17%, our debt to GAV ratio leaves us very well capitalized to leverage the continued strong demand for our products. We have outlined the cash flow movements during 2022. Turning to Slide 13. We maintained an available liquidity position of EUR 200 million through strong sustained cash generation as we continue to scale and make significant shareholder returns. Our net debt position increased by less than EUR 40 million despite the returns to shareholders in that period of EUR 117 million and significant WIP investments in unit growth delivery. To contextualize that a bit further, this investment in WIP of EUR 470 million will enable us to increase our unit output again in 2023 by between 15% and 18% following volume growth of 36% in 2022. Turning to Slide 14. We outline the value that we have and will continue to create for our shareholders. The growth opportunity for us is very significant. The continued monetization of our landbank as we build and sell more units will allow us to generate operating cash of over more than 50% and the net profits generated into the medium term. Having returned EUR 40 million to shareholders during 2021 and a further EUR 117 million in 2022, we have today announced continued progression in our ordinary dividend payments as well as a further EUR 40 million share buyback. Moving to Slide 15. Our capital allocation strategy over the last 3 years has seen us continue to invest substantially in our WIP profile as well as make well-considered ROE-enhancing investments in land that will deliver units for us in the near term. Increased profitability coupled with shareholder returns of EUR 157 million since 2021 have seen us increase our ROE from just 2% in 2020 to 11% last year. Looking forward, our journey to a 15% ROE will represent more than 36% growth compared to 2022. This will be delivered through continued P&L progress on balance sheet efficiency. And this is also underpinned by a net asset value that is already 13% higher than last night's closing share price. We will continue to distribute excess capital through our progressive dividend policy as well as other distributions as evidenced by today's dividend and share buyback announcement. And finally, to recap on guidance on Slide 16. The company continues to make progress towards our 15% ROE target. Our closed and forward sales order book, along with a proven track record of delivery allows us to deliver a strong 2023 guidance. We are, therefore, confidently guiding in excess of EUR 650 million of revenue from 1,750 to 1,800 unit sales closings, gross margin of 21% for the year, continued growth in operating profit as well as declaring a final 2022 dividend of EUR 0.031 per share today. We expect to distribute 40% to 50% of profit after tax by way of ordering dividends in 2023 and our EUR 40 million share buyback announced today will form another part of our 2023 capital returns. Thank you for your time this morning, and I'll now hand you back to Michael. Probably mean to Tara, I should say.

Thank you, and good morning, everyone. We're just on Slide 18 of the deck here and here we detail some of our environmental highlights and in particular, the progress we've made in setting our ambitious decarbonization targets. We submitted our greenhouse gas reduction targets covering Scope 1, 2 and 3 for verification to the corporate [ goals foundered ] science-based target initiatives, which is aligned to a 1.5-degree trajectory. And we are in the process of further developing our climate transition plan. As part of our Scope 3 measurements of energy and use, we completed lifecycle assessments on all of our high sites, including our duplex and apartment specifications. We've added technological and material solutions for achieving Scope 3 reductions in our new homes, including air source heat pumps, [indiscernible] and timber-free installation. Undertaking these LCAs allows our in-house preconstruction design and technical teams to understand the embodied carbon in our homes and determine the best ways to reduce it at the earliest stages of our design process. In relation to Scope 1 and 2 emissions, you can see on the slide there that we have made incremental progress from 2019 in reducing our Scope 1 and 2 GHG emissions. And in 2022, we partnered with a third party to supply hydro-treated vegetable oil for use in all plants and machinery across all of our active sites in Ireland, meaning diesel is no longer purchased, which will substantially reduce our Scope 1 emissions in the coming years. And as Michael mentioned earlier in his presentation in recognition of all of our carbon reduction achievements and ambitions, we were delighted to be awarded an A minus rating from the Carbon Disclosure Project, an improved score from our initial B rating received in 2021 following our first full submission. During 2022, we also implemented the Home Performance Index certification for all of our new development teams. The HPI is a green building certification, specifically designed for the Irish market. It's verified by the Irish Green Building Council and is seen as best-in-class for sustainability, design and build residential developments in Ireland. Biodiversity remains a key focus for us, having integrated it into our executive remuneration strategy in early 2021. We continue to realize our biodiversity net gain ambitions with 100% of our new sites commencing to have a biodiversity baseline assessment completed and an associated net gain strategy developed at the planning and design fields. Turning then to the next slide. One of our major achievements under our social pillar in 2022 was that Cairn retained its great place to work certification for a second consecutive year and was recognized as one of Ireland's best workplaces ranking in the top 20 best places to work in the large company category. Some of the proof points that contributed to that certification being retained included having received silver level of accreditation from the Irish Center for Diversity and the ongoing work of our equality, diversity and inclusion forum. Establishing a mental health awareness partnership with the Lighthouse Club Charity and the publication of our second gender pay gap report, noting progress made in 2022 and how we intend to further close that gap. On the right-hand side of the slide there, under governance, you can see that investment in sustainability facilitated through our sustainability-linked loan facility is fully aligned with our decarbonization and social strategies. And more specifically, greenhouse gas emission reductions, biodiversity met the end targets on people-related targets. We continue to improve on our sustainability reporting and further details of each of the items I touched on this morning will be included in our second annual sustainability report, which will be published in the coming weeks with our 2022 annual report. Turning then to my final slide and focusing on health and safety, which is our #1 priority here in Cairn and the key element of our social pillar. We have maintained our grade A for a second consecutive year under the safety search program with 3 new training programs also delivered during 2022. We launched our internal health and safety rewards initiative, which is a weekly reward theme recognizing excellence in health, safety and environmental practices. As you can see there at the bottom of the slide, we have also invested in training an additional 17 mental health [ facilitators ] during 2022, taking our total to 31 with plans to extend these services further in 2023. Thanks to all. Michael, I'll hand back to you.

Thank you, Tara. Appreciate that. So I'm going to move you on to Slide 22 and I'll talk a little bit about the macro environment and how we are looking ahead with optimism. There are some very positive indicators that are worth highlighting here. Firstly, Ireland's population is growing. Our population has grown by over 360,000 in the last 6 years, but quite incredibly in that period, our working population has actually grown by 490,000 people. Exchequer returns are exceptionally strong and look like they will remain so into 2023. Household balance sheets are amongst the healthiest in Europe, and Ireland's economy continues to be a top performer. Importantly, we have a supportive and focusing mortgage market, which grew significantly last year. Housing output, a fundamental requirement for our functioning economy and society remains Ireland's biggest challenge. But government policies and initiatives are increasing and we are seeing clear evidence that they are starting to have the impact. First-time buyers are better supported and affordable rental homes through initiatives like cost -- like cost rental are being prioritized. Potential homeowners in apartments are now being financially supported for the first time through the [indiscernible] initiative, which we welcome. Governments also set a target of delivering 144,000 new social and affordable homes through various state entities by 2030. Cairn today is a strategically important and credible partner for the state in helping to achieve this objective. We will continue to strive to offer competitively priced homes for all of our private customers and deliver value for the state, allied with timely delivery. Particularly our market lead position in apartment delivery will allow us to offer scaled solutions in this regard. And moving forward to Slide 23. 23 is a summary of our forward-looking strategy. It calls out some of the ingredients of our scaled operating platform, our quality low-cost landbank and the planning successes that we've achieved. We outlined a diverse range of customers for whom we continue to provide high-quality and well-located homes. We also show how we create value for our important stakeholders, including our shareholders, our direct and indirect workforce and broader society. As we grow, we continue to reinvest in our business and housing output, ultimately creating value for all of these stakeholders. Now moving on to Slide 25. I thought it would be appropriate to bring you up to date on how we are progressing with Ireland's largest new suburbs. I'm pleased to report that we've made great progress at Clonburris in recent months. Not only with the level of infrastructure works well underway, but most importantly, that we will complete and occupy our first family homes in this new community in the current year. Clonburris represents an incredibly exciting opportunity for us. Its scale, low-cost landbank, location and supporting state grant funding all mean that we will be able to deliver thousands of new homes at accessible price points, close to Dublin City for many years to go. Now moving on to Slide 25. As we look ahead to this year, we are again looking to grow our volume by 20%, delivering between 1,750 and 1,800 new homes, following consistent year-on-year growth in previous periods. You can see from Slide 25, what that growth trajectory looks like and on the lower half of the page, the 1,500 new homes that we have forward sold. This is a clear indication of the demand backdrop and more specifically for the quality new homes that we at Cairn build. So to wrap up today's presentation on Slide 26. The Irish economy looks to be in robust health. The supply/demand imbalance continues to worsen. However, the government is responding with decisive policies. Our business will continue to succeed. We will grow our volumes, our revenue and our profitability. We do hope that we would not be an outlier in that regard as Ireland desperately needs a broad, sustainable and much wider housebuilding sector. We will continue to apply a strategic approach to capital allocation, where our significant cash generation in the years ahead will allow us to distribute surplus capital to our shareholders, while importantly achieving our targeted 15% ROE. Thank you all for your continued support of our business and importantly, your time this morning on a very busy day. I will now hand you back to Adam, who will manage our Q&A. Thank you.

[Operator Instructions] And the first question today comes from Shane Carberry from Goodbody.

Well done, it was a really solid 2022. 3 from me, if I may. Firstly, on the order book and look, the significant take-up that we've seen in the order book, particularly between now and year-end. Could you give me a little bit more color on kind of what you're seeing there in the background? Michael, you talked about kind of some of the demand side stimulus. So just how much is kind of shared equity helping? Have you seen any impact yet from kind of the mortgage lending roles moving from 3.5 to 4? Any color there would be helpful. Secondly, just on the build cost inflation side of things. Look, I think kind of build cost inflation of circa 4% is pretty reasonable place to be. So I know you've talked in the past about kind of collaboration with kind of the supply chain, et cetera. So are you starting to really see the benefits now? Or just a little bit more color in terms of that 4% would be helpful. And then lastly, just on the capital allocation side of things. I mean, significant WIP investments through 2022, I think it was net EUR 70 million. How should we be thinking about kind of capital allocation priorities through 2023 and into 2024 as well? I know you've announced the buyback this morning, but kind of beyond that, given the significant amount of free cash flow that you're set to generate.

Sure, Shane. Thank you. Look, frankly, Shane, across on the order book, across all sectors, we're seeing a really strong start to the year. Trade equity at this stage, I think we have had 6 different teams that have qualified where customers have bought homes benefiting from shared equity. It's probably too early for us to call it genuinely whether the impact of the mortgage rules or whether we have specific examples that we could call out there. But we all know the environment we're in with rising interest rates and with build cost inflation. So we absolutely welcome that kind of prudent -- that appears to be quite a prudent change to the lending rules. The growth of our order book is also important and I referenced the fact that we are now looking to extend and continue to extend the length of our order book and not just at scale. And that's important as we scale our [indiscernible]. They are cap intensive and we need to commit to that volume. So it's important for us to grow not just a short-term order book, which tends to be our stardoms, but also the longer term, which is probably more biased towards the [indiscernible]. On build costs, yes, look, I think it's quite possible, Shane, that the broader market did have to suffer a bit more than the EUR 20,000 per unit that we managed to hold our build costs last year. Sadly, we're past the first year anniversary of a war in Europe, none us knew how that would impact our business. And indeed, it's had a much bigger impact than that in many people's lives. So I suppose we just continue to be prudent around how we call the impact of the macro environment, the cost of building crisis, the inflationary environment and some uncertainty. And I would probably suggest that Shane would agree that, that EUR 10,000 number is a reasonably prudent number for us to call for this year.

Yes.

And I think it's the right way for us to think about it. On the site itself, which I didn't have a lot of time to go into, we talk about some of the things that we can do to mitigate and obviously, scale is one, but also we're now into 6, 7, 8 year of our relationships with many of the big subcontractors we do business with and indeed, the supply chain. And led by our Commercial Director Fergus, we are continuing to develop more central procurement initiatives. And I talked a little bit about how that allows us to go more directly to source. And that just gives us more meaningful conversations with the main manufacturers of a lot of the materials we use in our homes and not just from a pricing perspective, as I said, to absolutely guarantee quality and product consistency. We probably come out the other side of a standardization journey that's taken us 3 or 4 years as well. So we build, as many of you know, very standardized homes and not just on housing, but also on our profit schemes. It doesn't mean that we don't change elevations and we have different landscaping treatments, et cetera, et cetera. But fundamentally, the vast, vast majority of current homes that are built are standardized. And not just as to sort of leverage the value chain right through planning, design, pre-con, construction. So there are some of the factors that have probably helped us manage that build cost inflation as well as [ regular ] initiatives. And on your third question, I'll hand over to Shane, I think it's a capital allocation point change.

Yes. Yes. Thanks, good morning to you, Shane. Yes, look, on capital allocation. We feel we're in a really strong position. I think one of the things we want to emphasize this morning is it's not just talking of what we're going to do, but it has to be underpinned by what we've done. I think reflecting on that ROE journey from 2% to 11% in such a short period of time, kind of shows what we've done. And I think that should give everyone on this call conference around what we're going to do. So we're in the very strong position that we've got a really good landbank competitively acquired, as we said on the call. We've got a lot of it through planning. And we've got a lot of cash resources as well. And so what we're working to emphasize this morning is that we're absolutely committed to driving the ROE as high as we can as quickly as we can. And that will be done through a combination -- well, first and foremost, through profit generation, which leads to cash generation. And as I said on the call, like our cash generation, certainly for the foreseeable future will be at least 50% higher than the profits that we throw off. So that gives us a lot of fuel to return and a capital to shareholders and we think we've pointed that at again this morning with the fact we're doing another EUR 40 million buyback. But I think more interesting as well for our shareholders is that we're investing in WIP where we see the opportunity. I think that's particularly important when you see the issues around broader supply and the demand to client balance in Ireland. And we are very confident that we can continue to return significant amounts of capital to shareholders and we continue to invest in our business, which we think is a really good sweet spot for our business. And I think how that underpinned by a dividend is really important as well because that makes us very accountable to grow our profits every year, which we're confident that we'll do as paying stand. And there's good cash yield coming off that for our shareholders, which will be supported by share buybacks, which, frankly, as we all know, because a bit of a no-brainer where the share price is where it is at the moment, where it's trading so significantly lower than its net asset value. And when you look at our track record, particularly over the last couple of years, the compounded growth of ROE, we would be very confident that we will get to that 50% ROE target. So we will throw off a lot of cash this year. So it does tend to be back-ended. We're very comfortable with the EUR 40 million buyback and there will absolutely be more returns to shareholders over time, which will be appropriately weigh off against all the commercial opportunities that we see in the business.

The next question is from Jonathan Coubrough from Numis.

The first one would be on the work you're doing selling to the state now and clearly, it's a big feature of the Irish market. You've been clear that all of that work that you're doing is going to be on Cairn-owned land. I'd be grateful for your thoughts on what the differences in economics between building for the state on Cairn-owned land relative to what it would look like if you're doing that on state owned public land?

Yes. I suppose just to -- I suppose, put a bit of a backdrop on this and why the side of just the housing crisis, this government is appropriately looking to increase its proportion of ownership, particularly to try and help the affordable rental crisis. We all know the situation with rental values and rental rates and costs in Ireland. We step back a little bit and look internationally. In order for the Irish government to own the number of homes, state-owned homes that were just put it in the average of all of the EU 27, it needs to increase state ownership by about 60,000 to 70,000 homes today. And to get to kind of over quartile to the better performance, it would be double that. The state should own another 120,000 or 130,000 homes. And unfortunately, even the existing stock even from an energy perspective as we know the state's direct ownership has been declining since the '60s and '70s. So it's an absolute part of that the government increases its ownership. Therefore, the government's fundamental question is, how do we achieve value and how do we do this quickly and how do we do it at scale? So it's up to us to absolutely illustrate to the government why they will absolutely and should deliver as many homes they can on their own land that Cairn can deliver comparative value, speed, scale, quality solutions quickly on our lab. And the evidence, and I don't really want to get into specifics, but we can deliver. I think we have illustrated this completed homes, including our land cost and all other costs, which are not actually comparable when the state builds directly, including development levies, part 5 contribution, et cetera, et cetera. We are still delivering homes cheaper than direct state builds on state land, including all of those costs and our land costs at our development margin. So I think that makes us a competent partner. It doesn't mean that we want to discourage the state in any way from adding value to state-owned land because [indiscernible] is much more valuable when it has homes on it. So we think we're in a good position, but we have a responsibility as a business, as does our industry to ensure that we can bring value to the state and help them increase the volume of state-owned housing, particularly for affordable rental.

And my next question would be on the planning system and where you reapply for planning on site, that's just one trade? What opportunities do you have to improve the development potential of those sites by taking them back re-planning?

I think you're seeing some evidence that 2022 talked a little about some of the margin benefits of the planning gains that we've got in particularly in the apartment schemes. We acquired Griffith Wood, for example, with planning commission for a member, right, about 160 units. We completed the development of 387 units. So that obviously improves our margin even with allowing for the very significant increase in cost over that period of delivering those homes. So we -- mix is important to us and we certainly feel that there are opportunities there in planning. However, we do already have a substantial portion of our landbank through the planning system. And we are probably now more fundamentally focused on putting our foot to the floor and increasing our volume and output as evidenced by the target for this year. And while we are not in a position, we don't believe it's prudent to talk about future years, I think it's pretty clear from our presentation where our ambitions lie as a business.

And my last question, perhaps one for Tara, is on your Scope 3 emissions targets and clearly, for the construction sector, a large chunk of emissions are in the supply chain. Do you find that suppliers are willing to take action on this? And how you work towards that target?

Absolutely. And it's a really good question actually because we've been through 2022, having workshops with many of our Tier 1, Tier 2 and Tier 3 suppliers to understand where they're at on their sustainability ESG journey and their understanding of it. And it is a mix side, we have some larger suppliers that would be very advanced in their carbon reduction strategies and transition on purely because of the nature of the industry that they're in and the materials that they're supplying. And then we would have smaller contractors who this world would be quite new to them and they would like us to help them with their carbon reduction story and partner with them to achieve this because it's something that will help them with their marketing of their services to other companies as well. So I'd say it's the next 5. But I said there's a real appetite from all of our suppliers to get on the journey with us and to support us in what we need and for us to then in turn support them in their requirements as well.

Yes. I'd add to that if I need to remind the people, I need to remind them that it's up to us to support our supply chain if I reflect back on COVID-19, and Shane told us it's EUR 200 million of undrawn funds. So we managed to negotiate for us previously and we were able to draw that down, Shane, and support our [indiscernible] factors and in fact, forwarding many of those suppliers to try and support into that period. I think that brought us and then further enhanced our relationships. And it means when we engage on things like our sustainability plans where we have a captive audience there. But really it's up to us to support them to try and get them on the journey.

The next question is from Colin Sheridan from Davy.

Congrats on great set of results in '22. A few from me, if I may. The first one, just following up on Shane's points on build cost. Mind if you could maybe just give a little bit more color on what you're seeing different trends on the labor versus materials side and the makeup of those that build cost inflation talking about. I wouldn't usually push for this time of the year, but since you're so far forward procured into 2024 held that 4% is likely to trend into 2024 percent of the build costs already secured. And second one then, is just on social and affordable, a bit of a follow-up from [ Johnny's ] comments. I just wonder, excluding Part 5, which we also know how it works when you're dealing with other government agencies whether it's [indiscernible] associations. How should we think about the economics relative to the private market? I mean they're still buying at market value effectively, is it the same margin we should be thinking about when you're doing social sales to those types of bodies versus being able to sell them yourself into the private market? And then finally, I guess just on land market and around Shane's comments on capital allocation. It feels like an environment. I mean you made the comment, Michael, a bit of build costs likely being worse amongst the smaller players and in the rest of the sector. It feels like you might be operating on tight margins on those vacant site levies coming in and things like that. Does it feel like an environment where opportunities are coming down the line on the land market to maybe buy a little bit more as the year goes on? Or have you seen any of those opportunities already?

Thanks, Colin. I'll start with the last one. I think the time for us to be decisive and it wasn't a massive investment for us, Colin, but we all know the challenges that the planning system has broad for our sector and we're not immune to that. I suppose we were fortunate that having bought our landbank in 2015 and '16 that we have managed to easily work a very large portion of that through the planning system before some of the most recent court-based challenges became more prevalent. So that was good for us. But it still doesn't mean that as a business that we should not be opportunistic. I think we made some smart decisions in May '21 and May '22 to actually buy some land on the stock market with planning commission that would actually deliver units, a small number in 2022. But those sites, we actually acquired was a deliver close to 400 units, I think, back then in 2020, in this current year. So we're absolutely allowed to that. But as we look through the next 2 or 3 years, the number of schemes that we have coming through the system and these recent successes would probably mean that Cairn's land buying activity will be quite limited for the years ahead. We have a substantial landbank. It doesn't mean we won't be opportunistic possibly, strategic land -- long-term strategic land might be of interest, but maybe that might be more U.K. style acquisition of option purchasing, et cetera, et cetera, which was -- really isn't prevalent in the land market in Ireland today. But that would be attractive. So -- but more broadly that land market remains fairly benign. It has been for a number of years and we haven't really seen -- I actually believe most of the land inflation we saw in Ireland was probably between 2016, '15, where we hit the floor and probably quite quick '17 or '18. It's remained pretty benign for the last 3 or 4 years, might point in my view. So it will be interesting to see how that they can cite that, what impact that will have, Colin. And I think once it's targeted towards land that is serviced as infrastructure is truly ready to build and all of [indiscernible] will be an effective measure, we are in a housing crisis. I'm working backward, your second question on the kind of economics around social and affordable housing. I think we need to think less about whether the margin we generate there is better are lower, higher or lower than whether we would sell those homes privately. I think what we are doing is we are targeting the portion of our landbank that offers value to the state. It is generally at lower margins because we've got to drive efficiencies for the state there. But it also tends to be, in certain cases, at a slightly different specification. So it's important that we value engineer the projects. And the fundamental difference between our model to try and explain how we achieve that. And let's say, the more traditional rate of direct procurement on the state plan is on the direct procurement column, as you probably know, the main contractor enters the fray at a very late stage in the value proposition. They are basically presented with a finished design, fully planned, fully consented. They're offering a contract situation to the states where often the entry contract price differs greatly from the exit price that state pay. And that caused serious challenges. Our approach is very different. We have to absolutely value engineer every aspect of the delivery process. We have to ensure that we target some of these units on our lower cost landbank. We have to absolutely ensure we are designing the right sort of products. We have to ensure the specification is appropriate and we have to make sure that our scale gives us efficiencies. So I don't really think about margin. I think about trying to bring value to state because that's our responsibility. And if we do that and we can illustrate that, then it represents a long-term sustainable business for Cairn and not just an opportunistic business for us. If that answers your question. Labor and material markets. I suppose it probably reflects back on the previous point when I said labor that we felt it was important for us to meet the volume commitments we made to our supply chain. And that's particularly relevant to labor because the way to control labor costs in a construction company is to ensure that the vast majority of people working on your sites are employed full-time. If they're on a salary, then the conversation that you have with those or you're so comfortable how are those employees an annual conversation and it tends to be controlled -- more control and more long-term relationship between the employee and the employer. You can only do that if you're offering consistency and we look through on your pipeline and you're needing those commitments. If in my view, your volumes are moving up or down dramatically, that makes it really hard to keep our labor cost under control. Because what it means is you've got to go back into the market and price individual work from subcontractors that probably might have worked for you a year or 2 years before, but then you have to stop down. And so as a result, we think that the labor cost of our build is going to be very stable for the next 12 to 18 months. We are conscious of cost of [ inflation ] trying to support our people. And if our subcontractors need to continue to support theirs, we will have to shift towards that. But I suppose most importantly, the commodities, which is where we see most of the risk, we're seeing some dramatic shifts down in certain commodities and we're still seeing tightness in other areas. On an overall explosive I think I referenced it earlier, I think Shane would probably agree with me. I think the 10 house number that we've talked about is the 4% new reference deals like a prudent number for us, where we feel -- and we feel it's the right environment to be prudent around where build cost inflation would be. So I would -- I certainly wouldn't be expecting any surprises outside of the things that we can't control, the broader macro environment, which probably does lead us to just be a bit more prudent in [indiscernible].

Yes, I think that's right, Michael. I mean, I think one thing to reflect on is there has been significant [ capacity ] increases in build cost inflation over the last number of years. They're pretty much embedded now in the cost section. So I think that kind of gives additional context of what [indiscernible] official said it is absolutely prudent, we think, to put it in what we said of EUR 10,000 per unit, but more fundamentally, there has been significant increases in build cost inflation for the last number of years. I think that has been to our operating model, but yet still seen significant gross margin correction in our business in that context.

The next question is from Lukha Aggarwal from Bank of America.

2 quick questions from my side. One is on your sales and reservation rates going for this year. I can see that currently based on the forward sales of March this year, it's around 2/3. Do you have any guidance on how you started to change over the years -- over this year? And also your ASP for this year, any guidance on that seem sort of competitors kind of lowering the ASP? So yes, any guidance on that as well.

And when you say competitor is lowering ASPs, is that U.K. based house-builders? Or where would that come from?

Yes. U.K.

Yes. Yes. Look, I suppose it is a very different market here, Lukha. It doesn't mean that it doesn't have its challenges, but I think we did cover on all of that. And I think it is important for us to kind of point out some of those differences. It doesn't mean that we, as a business and we never have guided on house price inflation. I think we can kind of leave that to you guys. We can only talk about our macro environment and how we see the business and how we see demand and what we're seeing is really strong demand. And that's across spectrum. And the reason why we will grow our forward pipeline that has grown so much is that we believe that as we continue to scale and particularly as I said earlier, as we are building more and more apartments. It is important for us. And indeed, our customers want to be able to forward commit to that pipeline, particularly whether it's state or institutional buyers and they need return planning. And whether it's on a forward commit or a forward fund, it tends to be contracted at a very early stage in construction. And that's important for us as we try and manage our sustainable growth level in the years ahead. So that's the main reason, as I said earlier. Current year is very well covered, absolutely, as you said at roughly 2/3, but we've already booked 300 units for next year. And I think when we come out and report again in June and September, I would be hopeful that, that kind of longer-term pipeline should continue to grow in our favor. I answer both your questions? I apologize if I didn't.

Yes, yes.

The next question is from Andy Murphy from Edison Research.

Andy Murphy from Edison. I'm going to [indiscernible] and only ask a 2, if I may. You talked in the statement about sort of the lack of delivery of apartments and across the piece. I was wondering whether that implies that you'll be changing or re-planning some of your sites to perhaps move from traditional housing to apartments. And if so does that imply additional costs or delays or indeed a change of sort of future land purchasing in terms of the emphasis of the types of that? And then secondly, a question for Tara about the sustainability targets on greenhouse and biodiversity. I was wondering if you could talk me through a little bit about whether that implies any additional costs to the business overall? And secondly, I highlighted that, you mentioned earlier about pressure being applied to suppliers. I was wondering if there's any examples where pressure from your side has encouraged a building material supply to up their game in terms of greenhouse gas emissions? Or indeed whether you've actually switched suppliers because you weren't satisfied with an answer from a particular supplier?

Okay. On the apartment side, Andy, so just to try and paint a picture on a mentioned area about the really low level of state-owned housing in Ireland. And the challenge is that any economy faces, particularly in economy that's absolutely trucking and has this widening gap of a widening cohort of what we might refer to as that kind of stuck middle they require support. And they require affordable rent, particularly. And therefore, one of the ways of addressing that is not to only be dependent on the private sector, but for the state to have one bigger ownership and play a bigger part. And we believe it's absolutely obvious that apartments mostly a role of that. It isn't the only answer. But just to give you some comparisons in the U.K., Andy, I think about 20% of people live in apartments in the EU 27, at around 50% of people live in apartments and in Ireland less than 10% of people live in apartments. We have been allergic to heights. We've seen urban sprawl for decades. And unfortunately, and this is according to Eurostat research, it's very, very good research on Eurostat website. It points out that not only is our housing stock run, but to maybe even not to the [ tower arches ] here and the energy efficiency of our housing stock is appalling, amongst the worst performance in Europe. Because what a problem for Ireland is that we have a massive stock of large 3 and 4 that has as many of them are under-occupied. It's Eurostat research actually calls out the under occupation of our housing stock show. What it kind of means is, which is pretty tragic is that we have enough of address to house our population, but we don't have enough individual units and that's the reason. The reason that is it's not enough about 1 or 2 vacants. So we're in a strong position as a result of all of that. It doesn't mean we need to buy more land. We already have a very significant landbank that allows us to build lower density mixed tenure developments, but also to build apartments and we believe that we were right to bring ourselves through that learning experience of improving our [indiscernible]. It's been a steeper learning curve where it started to pay -- it started to reward us in our performance as a business and it caps so well.

Thanks, Michael. And Andy, just in relation to your 2 questions on the ESG, first taking the first one around additional costs. To the extent that we have introduced initiatives that are carbon-reducing, so for example, they are Scope 1 and our switch to [ HDO ] fuels, there's a very marginal change in the cost of presence of that due to increased costs of diesel and fuel, as you know, in the macro climate at the moment. So I'd say for that one, that's quite marginal. And if anything, supply of the product is going to be more of a challenge of us there on a consistent ongoing basis as opposed to the cost. In terms of Scope 3, some of the items that we've already introduced there like -- that I referred to in my presentation around heat pumps and timber frame, we've been building A-rated energy-efficient homes since 2019, they're in that compliance. So a lot of those costs are already absorbed as our business as usual as such. We do have to complete lifecycle assessment to understand the embodied carbon in our product and those are expensive and there's no doubt with, but there are efficiencies that can be gained through what Michael talked about in terms of standardization of products and we do manage those as much as we can. I suppose looking forward in terms of other things that we might do to reduce our carbon footprint. In particular, in Scope 3, the only real game-changing item for us is probably to look at something like patio standards. And if you know the 5 key principles of that, you're looking at things from air tightness to high-performance window blazing. Again, looking at that, we're going through feasibility studies on that line to consider everything from program impacts, costs, product availability, et cetera. And all of that will be scoped out. There may be additional costs there, but we're looking at it early enough. And as you know yourself, it's much better to have -- it's much better to build an end at the design phase and have to retrofit these buildings to be green certified building. So I would say we're managing that quite well. In terms of the upping of the game of those suppliers that you mentioned are changing suppliers again, it's not going to be a case of changing supplier because of just the cost. It will be if we change our products on it, it's a change in supplier for that reason. And...

It's the initiative start.

Or the initiative, exactly, and someone else offers it, that's the only reason I can say that we would change supplier. It wouldn't just be a cost consideration of the supplier.

Yes. Good example, Tara, that is. So if you take [indiscernible] stabilization around [indiscernible].

Yes.

But if you take sales stabilization, what that really means is the thousands of truckloads of the material need to move on and off our sites. And [ sorter ] stabilization allows us to actually compress and keep the sorter on site to avoid all of those truck movements. That's now -- sorter stabilization is across 5 of our sites now in the current portfolio have just piloted that last year. So that's one example of how a new technology just changed behavior rather than necessarily changing the supplier.

Exactly. Yes. I said there's enthusiasm among our supply team to look at this with us. There's always opportunity for the sector to be more innovative. And the more they are part of that journey with us and getting credit for some of those innovations and improvements in product to then sell on to other customers, we're seeing a lot of good traction in that space.

We have no further questions. I'll hand back to the management team for any concluding remarks.

Nothing else from us, but just to thank you. I know it's a really busy day and we're only one of many PLCs reporting today. So thank you very, very much for your time, your continued support and we look forward to seeing many of you individually over the coming days. Thank you again.

Thank you.

Thank you.

This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.