Cairn Homes plc (CRN) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to Cairn Homes 2023 Preliminary Results Analyst and Investor Call, which will be hosted by Michael Stanley, Chief Executive Officer; and Shane Doherty, Chief Financial Officer. Afterwards, there will be a moderated Q&A session where we welcome questions from anybody on the line. I will now hand you over to Cairn's CEO, Michael Stanley.

Good morning, everybody, and thank you all for joining us for our analyst and investor call as we review our 2023 full year results. I'm joined this morning by our -- for our presentation by Shane Doherty, our CFO; Stephen Kane, our Director of Corporate Finance and Investor Relations; Declan Murray, our Head of Finance and Treasury; and Tara Grimley, our Co. Sec and Head of Sustainability. The success of our strategy and momentum of our business is most clearly demonstrated by delivery. Our closed and forward order book comprises just shy of 2,500 homes with a net sales value of nearly EUR 1 billion. We have been consistent in delivering on our commitments. Ours is a differentiated strategy that is clearly working, delivering quality houses and apartments at pace and scale. We've created a sustainable long-term business with real visibility and will continue to make future significant contributions to Ireland's housing needs into the future. We have a talented team supported by a mature subcontractor base and supply chain, and we are delivering for our homebuyers and for you, our shareholders. I'd like you to turn to Slide 4, please, on the investor presentation, and I'll take you through a few of our key financial highlights for 2023. The company has, as I said, a record forward order book, and we continue to scale our delivery platform in tandem with executing our growth strategy. We grew by 14% in 2023, and we will deliver an ambitious 30% growth in 2024. Our margins are consistent and attractive with a gross margin of 22.1% and an operating margin of 17%. We delivered an operating profit of EUR 113.4 million in '23, and we expect to increase this to circa EUR 145 million in the current year. We are very confident in our continued momentum and remain on track to achieve a 15% ROE in 2024. Moving to Slide 5. Our growth is supported by continued reinvestment in our business, allowing us to grow our operating platform across both housing and scaled apartment developments. We commenced construction of 2,100 new homes during 2023, a circa 20% increase in the previous year, and have over 9 new site commencements planned for the next 12 months. As you can see from the growth in our closed and forward order book, the demand for our new homes is rock solid. Our EUR 334 million WIP investment is 2.8x covered by our forward order book valued at EUR 947 million. We have also agreed our first 3 forward-funding transactions with state-supported counterparties, and this will accelerate the delivery of our scaled apartments developments. We are delivering energy-efficient, quality built homes at speed and scale for these customers. Total investment in our business is just over EUR 1 billion between our land bank and work in progress across our active sites. And today, we have 4,000 people in full-time employment across these developments. We are disciplined in our capital and have a progressive dividend policy. Today, we are declaring a final proposed dividend of EUR 0.032, bringing our total full year '23 dividend to EUR 0.063. Since 2019, we have returned over EUR 350 million to shareholders. This represents 1/3 of our current market cap today. We will continue our progressive dividend policy and our EUR 75 million buyback, which should complete over the next number of months. And following that, we will issue a further capital allocation update to our shareholders. Just moving on to Slide 6. You can see the growth this year in our order book. Our pipeline year-on-year has increased by circa 1,000 new homes. I've spoken about our intention to grow our long-term sales pipeline. And today, we have over 750 homes forward sold beyond the current year. Our low-cost land bank and construction efficiency means we can retain strong and consistent margins at competitive price points. The average selling price in our order book is EUR 383,000 net of VAT. We have seen very strong sales this year in our core starter home market sites at competitive ASPs, including Parkleigh, Seven Mills, where we will launch an additional 100 homes next weekend. We've materially increased commencements of well-located and scaled social affordable apartment schemes. Moving to Slide 7, the correlation of new homes completions relative to state capital funding initiatives introduced over the past number of years. Every successful business needs a good operating environment, and we believe we are operating in a supportive environment for housing output, which is expected to increase in the years ahead. Since 2018, completions in Ireland have increased by 14,000 units per year, while state funding has increased by -- from EUR 3.2 billion to EUR 5.1 billion, as you can see in the slide, in the same period. The increase in units completed have largely been driven by apartment completions over the last number of years. The structural demand for new homes is circa 50,000 per year, which will require a 53% growth rate above current levels. Moving on to Slide 8. Our 2023 average selling price was EUR 389,000 net of VAT. Most importantly for us, our starter home market, which is a critical market for Cairn Homes, we were delivering homes at a price to the customer, including VAT, of just sub EUR 400,000. Our trade-up/trade-down markets for housing and apartments is -- the change in our trade-up/trade-down housing and apartment pricing is purely reflective of mixed impacts. We are delivering starter homes at extremely competitive price points, as I've already mentioned. And it's important to note that we've achieved these price points while absorbing approximately EUR 45,000 of build cost increase. Our platform and competitive advantages allows the majority of our homes to qualify for the supportive schemes introduced by the government where pricing caps exist for Help to Buy and First Home shared equity schemes. These government initiatives are important for young families. Our apartment ASP reduced by over 10%, which is in part driven by mix, but also a function of the competitive pricing and our focus on providing value for money for our state customer base where we are delivering social and affordable homes. Slide 9 covers a number of the key operational highlights, each of which are important for the progression of our business. Just to highlight a couple, our procurement will grow considerably over the coming years with over EUR 2 billion forecast in the 3 years to 2026. We are over 75% procured on our current active sites for 2024 and 50% procured for '25, ensuring visibility over our costs and delivering certainty to our supply chain partners and our subcontractors. In 2023 we spent, on average, EUR 15 million with each of our top 20 subcontractors. We will continue to leverage these long-standing relationships to deliver value for money for our customers. Our ongoing investment in innovation and standardization continued in '23 with significant investment in IT and digital transformation. In 2023, we successfully obtained 9 grants of planning, representing over 2,350 new homes. And onto the next slide, Slide 10. This outlines our apartment delivery capability as we continue to leverage the knowledge capture and experience from our proven scaled delivery capability with over 4,500 apartments delivered or under construction to date. In January, we outlined our first 3 agreed and approved forward fund transactions at our Seven Mills, Parkside and Piper's Square developments. This new capital-efficient transaction structure will allow us to continue to materially increase our delivery of energy-efficient, social and affordable apartments at very competitive price points. And onto Slide 11, which outlines the progress we have made on our EUR 2 billion GDV development in Seven Mills, Clonburris in Dublin. The scale and pace of this progress is very evident by the photos which we're showing here and how construction has advanced over the last 12 months. Following on from the commencement on site of Phase 1 in January 2023, we have now commenced Phases 2 and 3 of this development, and we will deliver a further 765 homes on those phases. This brings the total to over 1,300 new homes commenced at Seven Mills in just 12 months. We have also commenced our second Passive House apartment scheme at Seven Mills also. As another proof point of Cairn's capability based on BCMS data, we are 15% faster at building apartments than the broader industry. And I think that speed and efficiency is critical in the environment that we are in today in Ireland and the requirement for scaled apartment developments in particular. Slide 12 outlines a selection of social initiatives that we have progressed in '23. We are really proud that these underpin our Built For Good brand. The Cairn Apprenticeship Academy, which we think is really important, will see us invest EUR 10 million over 5 years with the objective of enhancing the long-term health and viability of not just our business, but the broader construction sector in Ireland. And it will see us increase the number of and financially support new construction apprentices across the full residential sector in Ireland. More recently, we've announced that we are the new title sponsor for the Community Games in Ireland. This partnership will see us invest EUR 3 million over 4 years to grow awareness and participation of the games, which incredibly involve over 160,000 young people across every community in Ireland to participate in these games. And we want to grow that participation, and we're really proud of our new partnership with the Community Games in Ireland. I will now pass you over to Shane to bring you through our full year financial performance and our progress on sustainability.

Thank you, Michael, and good morning, everyone. Before I present our 2023 results, I would like to introduce you to Stephen Kane, who joined us from Goodbody Stockbrokers in May 2023 as Director of Corporate Finance and Investor Relations. Stephen is a seasoned senior finance professional with 20 years investment banking and capital markets experience and will be joining us on our upcoming road show. Stephen takes over the reins from Declan, who many of you will know well from his years leading our Investor Relations team. Declan has now fully transitioned into his new role of Head of Finance and Treasury. I'm delighted to present a very strong set of financial results for Cairn for the 2023 financial year to you this morning as well as reiterating the very strong outlook for the business after we closed out on what was another record financial year in terms of volume, revenue and profit generation. Over the next few minutes, I will walk you through full year 2023 financial results as well as our forward-looking guidance. Moving to Slide 14, you'll see we had a very strong year in 2023 in terms of profitability. Some of the key highlights include revenue of nearly EUR 670 million from 1,741 sales completions for the full year. That's an increase of 8% in revenue and 14% in volumes. Gross margin improved to 22.1%, an improvement of 40 basis points, predominantly due to product mix, supply chain and construction efficiencies as well as pricing. OpEx investment increased to EUR 34.2 million. This EUR 3 million net investment in our ambitious growth agenda was across key disciplines, including IT, health and safety, innovation and construction, which Michael covered earlier in the presentation. This resulted in operating profits of EUR 113.4 million, that's a 10% increase year-on-year, and operating margin of 17%. Finance costs rose significantly to EUR 14.1 million from EUR 9.6 million in 2022. As we continued to invest in growth and expansion, there was an increase in working capital throughout the year. This resulted in higher average debt drawings with an increase in variable borrowing costs during the year due to the higher interest rate environment compared to 2022. Profit after tax of EUR 85.4 million, a 5% increase year-on-year, delivered earnings per share growth of EUR 0.012 to EUR 0.127. Our net asset value of EUR 1.156 per share at the year end demonstrates the strength of our balance sheet. That includes our wholly owned land bank of just over EUR 600 million, a significant portion of which was acquired at very competitive prices dating back to our IPO in 2015 and in the periods thereafter. It is important to highlight our market position. Our relative market share with 1,741 sales completions last year was 6.5% when [ one-off ] homes are excluded. Our growth continues to be at a faster pace than the broader market. And to Slide 15, where you can see the strength of our forward order book. As of today, we have forward-sold nearly 2,500 units with a net sales value of nearly EUR 950 million. More than 1,600 of these units are expected to complete during 2023, supporting our expected volume growth of 26% in 2024. The growth in both the number and value of new forward homes sold compared to previous periods is supported by our investments in WIP. In terms of value of those forward sales, we are 2.8x covered on our closing WIP balance at year-end, which is an extremely comfortable position for us to be in. We've consistently invested in our construction activities in recent years, which is reflected in the volume, revenue and profit growth that we've delivered, in particular since 2020. The market opportunity remains very strong, as Michael has outlined. On Slide 16, our balance sheet position continues to be supported by land at historic low cost and WIP investment that is, I've just mentioned, backed by our forward order book of nearly 2,500 units. At EUR 334 million, our closing WIP balance has reduced by nearly EUR 5 million in the year. When we released our 2023 interim results in September, we had invested more than EUR 80 million in WIP in the first half of last year with a closing WIP at that point of EUR 419 million. I advised at the time that this investment would unwind during H2 as the bulk of 2023 new home sales completed, as evidenced by the H1 to H2 WIP reduction of EUR 85 million. Similarly, our net debt position increased to EUR 228.6 million at the half year, and this dropped very significantly during a very cash-generative H2 to close out at EUR 148.3 million, slightly below our 2022 closing position. Our net asset position of EUR 757 million is after shareholder returns totaling more than EUR 315 million made over the last 2 years through both dividends and share buybacks. Our capital allocation policy is well understood and reflective of both the scale and the stage of growth of our business. At just under 18%, our debt to gross asset value ratio reflects the relatively conservative leverage on our balance sheet. We outlined the key cash flow movements during 2023 on Slide 17. We maintained an available liquidity position of EUR 200 million at year-end, reflecting the normal liquidity cycle of our business, where the majority of revenue and free cash generation occurs in the second half of each financial year, with year-end typically being the low point on our working capital cycle. Our land investment reduced by EUR 19.2 million in the year following the release of land held from our 1,741 sales completions in 2023, which offset by strategic land acquisitions of EUR 57.9 million. It's important to point out, all of these are accretive quick asset turn developments with full planning permission. The increase in trade receivables and liabilities of EUR 41.6 million includes the balance of EUR 22.1 million relating to funds due from a block sale to a customer, which was subsequently received post year-end. Our net debt position was broadly flat year-on-year at EUR 148.3 million after shareholder returns of EUR 84.6 million. And finally, to capital allocation and guidance on Slide 18. As I mentioned earlier, we have consistently delivered annual growth in volumes, revenue and profitability, and this is over a number of years. We are very focused on balance sheet efficiency and having grown our ROE to 11.3% in 2023 from -- it must be remembered, 5.6% in 2021, and this will grow to 15% in 2024. We remain committed to distributing surplus capital after investing in our business to shareholders through a combination of share buybacks and/or special dividends. Our business is in a period of significant cash generation. And as I said, we've distributed nearly EUR 310 million to shareholders since 2019. Our forward sales order book, along with our proven track record of scale delivery, enables us to reaffirm already strong 2024 guidance: a circa 30% growth in output and circa 2,200 units; an operating profit of circa EUR 145 million from EUR 113 million delivered in 2023; an ROE of 15%; and we continue to target EUR 115 million to EUR 120 million shareholder returns on an annual basis. I will now bring you through the sustainability update on Slide 20 and the significant progress which we have made over the last 12 months in continuing to embed our broader sustainability agenda in every aspect of our business. We successfully retained our CDP grade of A-, which shows our commitment and leadership position in terms of disclosure on environmental performance. Furthermore, in September 2023, our Scope 1, 2 and 3 near-term targets were [ validated ] with the Science Based Target Initiative. By 2030, this will see a combined absolute reduction of 46.2% in our Scope 1 and Scope 2 emissions and a 61% intensity reduction in our Scope 3 emissions. We have also committed to achieving net zero by 2050, and we'll publish our Climate Transition Plan in 2024. We are publishing our 2023 Sustainability Report today. Within this report, we have aligned our disclosures with the 17 UN Sustainability Development Goals. Furthermore, we are also continuing our preparation for the upcoming EU requirements around CSRD and EU taxonomy, which we will report on from the 2025 financial year. Turning next to Slide 21. In 2022, Ireland had the third highest greenhouse gas emissions in the EU by household for heating and cooling. Passivhaus standards will be a critical lever to accelerate decarbonization across our sector and is the internationally recognized standard for the most sustainable buildings that can be built. Piper's Square in Charlestown is our first Passivhaus development, and we will deliver 598 ultra-low-energy apartments. We've also commenced construction of Phase 2 of our Seven Mills development, which will see us deliver a further 608 apartments built to this standard. Both Piper's Square and Seven Mills will be purchased by state-supported agencies, and we have taken full responsibility to deliver these 1,200 apartments to Passivhaus standards and future-proofing them for years to come. As discussed in our last results in September 2022, Passivhaus not only reduces carbon emissions, but also delivers outstanding levels of energy efficiency and generates significant cost savings to building occupants. In the middle of the page, we've outlined the annual lifetime saving utility bill for a Passivhaus apartment relative to an equivalent nZEB apartment. While an nZEB-compliant apartment is highly efficient, an equivalent Passivhaus apartment will reduce ongoing utility bills by over 40%. These 2 schemes combined will deliver savings of nearly EUR 40 million. And finally, to Slide 22. This was a very late addition to our investor presentation today as we were only presented with the prestigious Green Construction Award for 2024 on Tuesday night. As you'll see on the slide, the Green Awards recognize the extraordinary contribution and commitment that companies now make towards growing a greener future in Irish business today. We were competing against some of the biggest main contractors in our sector, including large Irish-based contractors. And for us, it is one of the most important awards that we've ever received. The award demonstrates the hard work we're putting into embedding our sustainability agenda into every aspect of our business and how this is truly part of the Cairn DNA. Thank you for your time this morning, and I'll now hand back to Michael to discuss the strong outlook for our business.

Thank you, Shane. And I'll just add my congratulations to our team in winning that very prestigious award. And it's really important for us, an area that we hope we are providing leadership in and particularly as we build apartments and houses that -- where their owners can enjoy lower costs into the future. We know we're all dealing with a situation where housing costs are increasing. And being able to not just reduce our carbon footprint on new housing, but to reduce the energy cost into the long term is really important for customers. And it's a great recognition for all the hard work done by the team. So thank you for that, Shane. Shane and Stephen and I will be on the road show next week. It'll be Shane's last, so -- and sadly so. So thank you to Shane for -- he's been our CFO through many difficult years, including starting around COVID, and I think you've helped steer the business, Shane. So thank you for that in a great way. And Stephen will look forward to meeting many of you for the first time in his new role. So to wrap up, we're extremely confident about our future. We have an immensely talented team in Cairn. We're an established business. We have an established platform, and we have a sustainable business platform. This will help us to deliver over 2,200 homes this year, a very significant increase, as I said earlier, 30% growth in the business; and to grow our profits to EUR 145 million circa and, importantly, to achieve that 15% ROE. The exceptional demand for new homes is illustrated by our record closing order book, and it's evidence of our strong position in the Irish market. We have returned, as Shane mentioned, over EUR 300 million to our shareholders. And we will continue to reward your faith in us with continued progressive dividends and buybacks. We are operating in a country with strong economic -- with strong macroeconomic growth and supportive housing policies. So thank you for your continued support, and we'd be delighted to take your questions. And I'll hand now back to Sam who will manage the Q&A.

[Operator Instructions] The first question comes from Shane Carberry from Goodbody.

Three for me, if I may. First is probably to go back to Slide 11 for a minute in terms of Seven Mills. And Michael, you mentioned kind of commencing 765 new homes this year. I guess just to get a little bit more color and delve into a little bit more detail now that you're really starting to deliver on the site, like how many units per annum could we be looking at here at full capacity? Are there any learnings from operating on a site of such scale? And should we be thinking about more forward-funded opportunities perhaps on this site, too? The second is and probably kind of continues on that kind of forward-funded theme. You mentioned as well about how kind of forward funding is enabling you to -- with your proven capability in the apartment market, I suppose, deliver even more apartments. How should we think about the business mix going forward from here? And then the third is, and it's kind of on that apartment theme again, I suppose, is around the kind of passive apartments -- Passivhaus apartments, I should say. Where is the next evolution of this? And how should I see that kind of segment progressing?

Thanks, Shane. I suppose -- well, let's talk about Seven Mills first. Look, for us, it's incredibly important development and opportunity for us to create probably what's desperately needed. We can move into certain areas, Shane, and we can deliver on -- we deliver on quite large sites, and they can be 300-, 400-, 500-, 600-unit developments. That often takes us 2 or 3 years and, in some cases, it's up 6, and we're moving that team to another opportunity. Obviously, Adamstown was just shy of 1,100 units. It's our biggest development to date. But Clonburris is a new town potentially for 25,000 to 30,000 people. And it's located -- it's very, very well located on an electrified train link to the city center. So I suppose, reflecting on it 1 year in, what have we learned? I suppose we've learned that it was probably the right time for us to start it. We needed our business to be mature and scaled to handle something that is this ambitious and to deliver at this speed. So I suppose that's one learning. I suppose we were able to bring the experiences of other large developments, but also it gave us an opportunity to build up the relationships that are needed even outside the business to deliver something of this scale, including with local authority, local community, supply chain, et cetera, et cetera. And there's a number of initiatives that we brought to Seven Mills for the first time. And our output there, to answer your other question, we would like to get to an output there of somewhere between 800 and 1,000 units a year, and we will probably achieve that from next year. We have a launch there next weekend. We'll release another 100 houses for private sale, and we have an inquiry list that runs into the thousands for those homes, mainly because of location, but also because the low land bank cost and efficiency is able to -- it allows us just to bring homes there at price points where customers can get mortgages. There's a bigger addressable market when you're at a lower price point, which is critically important, and when people know they're moving into an area with all of the wonderful facilities that we're bringing in tandem with the housing we're building. In terms of next steps, and Tara has joined us here, I mean we've got -- Passivhaus standards are, I suppose, the high waterline when it comes to building homes that are truly efficient into the long term. If you take, for example, in the U.K., quite a number of homes are not yet even built to nZEB standards. And we're already, I suppose, leaping that into Passivhaus standards. And we're probably taking the lead in Ireland there because we believe that's appropriate. I think we better get this one right for the next number of years, Shane. We have a lot of projects that we want to build Passivhaus standards on to. There's a lot of changes we have to make to our buildings in terms of how we -- not just the materials we use, but how we deal with thermal bridging. We're using triple glazed windows, which we source from our partner, with a Scandinavian company that are providing those windows for us. The workmanship around air tightness needs to be at an incredibly high standard, and there's a lot of additional things we have to do around the design of the buildings to meet those standards. So we have a lot of work to do. But our intention, to answer your question, is to roll that standard out across as many of our apartment schemes as we can. And the first 2 that we're doing it on are for our state partners in Charlestown and in Seven Mills. Tara, do you have anything to add...

No, absolutely, Michael, it's very much for us, at this point, feasibility study, checking out what the impacts are on programs, availability of labor and supply, skills, advisers to the [ pit ], sourcing materials, all of that good stuff. But yes, [indiscernible] so that we can meet very much our standard approaches there.

And I think you did ask about forward-funding opportunities.

Yes. Exactly, yes, yes.

I think we're in a position, thankfully, with the strength of our balance sheet and how we've managed that, I suppose after the last -- over the last number of years to be able to self-fund large apartment projects. I've said before that an apartment scheme, particularly our larger apartment schemes, our peak working capital can almost reach EUR 100 million by the time we start closing and bringing in revenue on various blocks. So they would be delivered on a phased basis. But in a lot of cases, there's a lot of initial works with large basements to dig out and build and podiums to create and then buildings that come out of the ground simultaneously. It's an expensive process. It compares to a housing scheme where peak WIP might be as low as EUR 15 million to EUR 20 million. So how do we meet the challenge of being able to build on numerous apartment projects simultaneously? And we can certainly self-fund a number of those. The importance of forward funding to us is that we are able to get on more projects, and it effectively just boosts the capacity of our balance sheet and our business. So these first 3 are critically important. We will be self-funding a number of our own as well, which we'll be on. And by this time next year, I would expect Cairn to be building on as many as 12 apartment sites, certainly between 10 and 12 apartment sites. So it's ambitious. It's the type of product that's badly needed. It doesn't mean that we are not still very much a business that builds starter homes. It is our core business and will continue to be. But if you look at an earlier slide, Shane, in the presentation, you will see that Ireland's delivery of low-density housing -- and there's all sorts of good reasons for this in terms of what you'll get planning permission for in Ireland, particularly in areas in Dublin where we've seen a lot of urban sprawl over decades. The vast majority of the increase in housing output over the last number of years has been in the apartments. The output of lower-density housing annually has been largely stuck in terms of the output. So -- and if you look at the number of planning consents in Ireland that have remained uncommenced, again, the vast majority of those are also for apartments. So we estimate about 40,000 apartments are yet to be built in Ireland that are fully planning-consented. So we think being a business that has built a capability, an early capability to provide starter homes, which we believe we've built up a reputation in the market for building incredibly high-quality and sought-after starter homes, but also being prepared to double down and invest and improve our capability for apartment building will be critical to our future. And I think that's recognized now by the state, and I think the government's share -- overall share of housing in Ireland is extremely low. It's sub-10%. That's a very challenging place for the state to be in when the state only owns about 8% or 9% of housing stock and, therefore, can't, in an inflationary environment or in an environment where the population is growing significantly, can't meet the housing needs of those who are on lower income. And that can only be achieved through state-owned affordable apartment projects of scale on transport links near where people work and areas of employment. So we believe we've positioned our business, Shane, in the right way. And we believe that all the hard work we've done will pay back. And we believe when it comes to Passivhaus, we've got to lead the market.

Our next question comes from Jonny Coubrough at Numis.

Well done on the record year. Can I ask, firstly, what you're seeing on the supply side now and whether you've seen any notable new entrants into the market given the strength from both policy and the economy?

Yes. New entrants into the market, certainly, there has been a shift over the last 24 months, which in some ways has been a welcome shift because capacity in residential housing needs to increase. So you've seen in Ireland, over the last 2 or 3 years, a very significant increase in the number of residential units built by main contractors who traditionally would also build everything from bridges to roads. But more particularly, these large contractors would traditionally have been very significant developers of office accommodation in Ireland and hotels and retail and indeed data centers, et cetera, et cetera. So some of the major contractors in Ireland have shifted their attention, probably understandably, with the fall in demand for new office builds into residential development. So that's probably been the most significant change. Unfortunately, a challenge for Ireland as it tries to increase its output is the need for housebuilding companies -- traditional housebuilding companies to grow their businesses more organically. And that's just been very challenging, and it's not a great place for the industry that smaller to mid-sized homebuilders haven't been able to scale substantially. I think it's something that the government is aware of and some of the initiatives that we touched on and indeed some of the funding initiatives like, for example, forward-funding models should hopefully support more of those small- to mid-sized companies to scale more efficiently because unlike main contractors, they are permanently focused on the residential market. That's their core business. Main contractors are very welcome in building more residential housing. But to be honest with you, if margins were higher and circumstances were different, they would move their attention to other sectors. So trying to build up that longer, larger cohort of scaled homebuilders is a big challenge for Ireland, but bluntly, desperately needed to try and address our housing shortage. It's not normal for homebuilders to cross borders. So in terms of new entrants, I saw this historically in the U.K. with various European homebuilders that may not have succeeded in the U.K. market. Similarly, in Ireland, we've seen examples of this in Europe, homebuilders tend to have to be homegrown, if that makes sense. It's very difficult to cross borders and meet the requirements and understand the nuances of local markets. So I'm not sure we'll see a significant new entrant. I hope we see a significant increase in the growth of more traditional Irish homebuilders because that's definitely needed.

Michael, that's really helpful. My second question would be on the order book, which has seen a very large increase, which gives great visibility. But how are you thinking about balancing that with the ability to respond to market conditions and specifically pricing, if it does pick up? I realize most of the growth in the order book is from the forward funds, but just grateful to hear how you're thinking about that.

Well, look, the order book, it's important, particularly in longer-duration projects, that your supply chain has real visibility. It's not just important for us in terms of being able to comfortably talk about our sustainable margins. I think Shane in his presentation was able to give everybody some comfort that we've got good sight of where our margin is going to be as a business into the kind of short to medium term. I think it's fair to say, Shane?

Yes.

And I think supply chain certainty is really important around that. And a strong forward order book, particularly when you're on complex large apartment schemes, is critically important. I don't know if you have anything else to add to that, Shane.

Yes, I think Michael has spoken to a lot of it thematically. You will read a lot in the media about shortage of labor and supply chain and what that might do. I mean, the good news for us is, from a BCI perspective, things have moderated. We're never complacent around that. But if you think of some of the themes that Michael has covered, whether it's around the forward-funding opportunity, our apartment building capability, our investments in IT and innovation, and I think which you can lose sight of when you talk about the forward-funding opportunity, the strength of our balance sheet, all of that means that we provide massive supply chain certainty to our partners. So we are absolutely the #1 go-to for the supply chain that's out here. So even in the event that there was a supply chain shortage, which we're not seeing at the moment, we have a lot of resilience because we provide that supply chain certainty. Even from a procurement strategy perspective, we've made a lot of investments even around the whole digital agenda around procurement and showing that pipeline of opportunity to people. That gives a lot of reassurance to the supply chain. So when you're even looking at our growth and volume, that translates to very significant WIP investment as well. And what people see when they see Cairn is that they see someone who's going to be consistently investing in that and can do that in a number of kind of scenarios that may pivot in the market.

Our next question comes from Colin Sheridan from Davy.

A few for me, if I can. The first one is on the land markets. Obviously, you were pretty active in 2023. I just wonder if you can give us a feel for what that market is like at the moment, particularly in relation to the supply of land coming through, the competition that you're seeing for it and ultimately, how satisfied you are with the economics of what you're buying. Just maybe a little bit more color on the build cost. I know Shane just mentioned it, but how that's breaking down in terms of labor and materials and if there's anything in particular in there driving it upwards or downwards in either end of that range that you've given? And then maybe lastly, just picking up on the point you were making on the faster speed of construction in apartments that you were talking about, will you give us a bit more color on that? And what it is specifically to Cairn that you think has you outperforming the rest of the market? And I guess more importantly, how that is putting you in an advanced position relative to the sector in relation to winning things like government tenders and state agency deals going forward?

Yes, last one first, I suppose, Colin. Firstly, I suppose it's really important to emphasize that we don't build on state land. Therefore, we are not in the business of tendering or contracting projects for the state. Our job is to bring our state customer solutions on our own land and to create mixed tenure developments of scale where we not only are selling individual homes to first-time buyers and often to trade-up/trade-down people, et cetera, et cetera, but also to deliver affordable homes and social homes. And we can't deliver large schemes without the support of the state. And I suppose when we step back from this today and we look, Colin, across the Irish residential market and I believe every residential market in the developed economy -- in developed economies, the state is playing a bigger and bigger role. And that really, unfortunately, is due to the fact that we may never go back to a situation where the average home in a country is 4 or 5x an industrial wage. Unfortunately, housing this time around, it is pure build cost. It's not land inflation that's largely driven this. It's appropriate regulations, it's appropriate standards, it's also the cost of base raw materials. And those materials, if they are natural resources, which most of them are, are unlikely to reduce cost. And it's unlikely that labor, I suppose, Colin, the medium term in my view, will reduce because the reality is this is a tough labor market. It's not going to get cheaper to have people doing tough work in civils, in construction, in block laying, in plastering, in external and internal environments. So I suppose we've got to accept that challenge. So if you look at the state's role in Ireland, the U.K. or abroad, the state is either supporting by helping first-time buyers with maybe a portion of equity or, in some cases, with other supports. Thankfully, Ireland is in a situation where our banks are offering green loans at low rates to our customers, which is very supportive. And I met with the CEO of one of the major banks in Ireland last week, and he doubled down on his intention to really support our buyers with continued low-mortgage costs. That's incredibly important. So I think the responsibility for us is to be able to try and bring value to our customers, whether it's starter homebuyers, as I said, our average ASP is sub-EUR 400,000 including VAT for starter homes this year. That's largely stable for over 2 years now. And we have to be able to try and absorb as much of the build concentration within the market as we can. I think we've proven that we've done that, and we can do that through innovation, some of the things Shane talked about in terms of partnering with our supply chain. That's why we can confidently predict, particularly with between 75% and 50% forward procured for 2 years, that we're not going to breach probably 3% build cost inflation this year, Colin. So we're in a very stable situation on build cost and, therefore, pricing. The speed, it's down to a number of factors. So -- because we are perfecting, as we go, our capability on apartments, that's the design development we do with the design team, with our supply chain, the standardization, more and more of the materials being manufactured off site, a very significant proportion of the components that we put into our apartments are actually manufactured in our suppliers' factories and yards. And we collaborate with them and we innovate with them. We also are designing our own projects. So in a lot of cases, apartments are built, they're designed by one team, maybe appointed by a local authority or an AHB and then delivered by a different design team working for a main contractor. We own that design journey right the way through preconstruction and indeed construction. And bluntly, it's knowledge capital. We learn as we build each project, the efficiencies we get, we bring to the next project. We also set up our sites very, very professionally, we believe. We are incredibly focused on health and safety on our projects and creating the right working environment for the people that work there. There's close to around 1,000 people a day now reporting into Seven Mills, for example, and working there every day. That's a big responsibility for us. So our preliminaries, our site setup, the way we deal with materials handling, our logistics, the way we deal with the people that work there, all feeds into program. And the reason speed of program is really important, Colin, is, on average, an apartment development operates at about a 15% to 16% prelim cost. So bluntly, if it takes you 4 years to build an apartment project, you're running that prelim cost for 4 years. If it takes you 2.5 to 3 years to build that project, you are significantly reducing your prelim cost because your project duration is much shorter. So that's the big win, and then we can pass those savings down to our customers. Does that answer the question, Colin?

Yes, it does.

Thank you. The land market -- I knew there was something else I jotted down, Colin. Yes, the land market, still reasonably benign, Colin. I mean independent reports are putting in about EUR 350 million, EUR 400 million last year. That's not a massive market for land. But probably a little bit worryingly, we are seeing -- and to be honest, any land that Cairn acquired last year, we had an immediate solution for that land. We only acquired it to deliver it to a customer or a partner, in most cases, to either the land development agency or to one of our large AHB customers. So we acquired lands for specific projects as opposed to increasing our land bank, important to say. I suppose we also didn't buy anything on the market. I think one of the advantages we might have, Colin, and maybe only a couple of companies in Ireland have in this sector is we have the capital. Maybe private equity landowners that don't want to double down on land with planning permission and fund the WIP finance are more likely to knock on the door of one of the couple of very large homebuilders that present an opportunity that, in some cases, suits us. So we haven't bought anything on market. And bluntly, our land buying was pretty -- was at a pretty low level for 5 or 6 years. So it's important that we replenish it. I had that 1-800 number to ring there for about 4 or 5 years, Colin, and they talked me down to use a Warren Buffett [ saying to buy land ].

We have no further questions on the call at this time, so I will hand the floor back to Michael.

Yes. Well, look, thank you all. We look forward to seeing many of you next week, both today and tomorrow or next week, and thank you for your continued support. Thank you, Declan, Tara, Shane and Stephen. We'll see you all soon. Thank you.

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