Persimmon Plc (PSN) Earnings Call Transcript & Summary

Hello, and welcome to the Persimmon Trading Update Analyst Conference Call. My name is Jesse, and I'll be your coordinator for today's event. [Operator Instructions] I will now hand you over to your host, Dean Finch, Group Chief Executive, to begin today's call. Thank you.

Thank you, Jesse. Good morning, everybody. Thanks for joining us this morning. Mark and I can't promise you the drama and excitement of last night, probably a relief to all of us. We'll try not to score any own goals and I've confiscated the green laser tags. So here it goes. So in March, we set out 5 key priorities for the business: building right first time every time, putting customers first and strengthening the brand, responsible growth with build quality, driving profits and cash, and driving sustainability in the business. And I think we've made some important progress against these so far this year. I'm really pleased we've achieved 7,406 completions, which takes us almost back to pre-COVID volumes and indeed PD is up 2.5% on 2019. And very importantly, a much higher rates of customer satisfaction and build quality. Today, nearly 92% of our customers would recommend us to a friend. Whereas at the same point in 2019, only 82% of our customers would recommend this. And what's more, our warranty providers, our rates have improved significantly, showing improvements of between 15% and 35%, which I think is a real achievement for the business. Back in March, I said that I wanted us to be known for both outstanding service as well as outstanding value. Whilst our ambitions are to go much further, I believe these scores in terms of customer recommendations and build quality show how far we've come in a short space of time. And I'm really proud of the teams in Persimmon, who are delivering these fantastic results. I see a real buzz of excitement around the place, not just because of the proceeds amongst our constructions and operations teams and I see this getting stronger every day. The focus on quality and our service along with the fact that our houses are still priced at some 15% below-the-market average shows the strength of commitment there is to our customers after all who pay our wages and our dividends. Sales have been incredibly strong in the first half, with rates up over 30% compared to 2020 and over 20% up over 2019. As I said, these are remarkable performances given where we started the year when we were played by COVID, labor shortages, lockdowns and unusually challenging weather. All of these contributed to a slowing down in build in the other part of the year, but we are now catching this back up. As we go into the second half of this year, we benefited from an order book that is just short of the record we achieved this time last year and 12% above 2019. We're also benefiting from a very strong cash position with cash over GBP 1.3 billion at the end of June. And this gives us the confidence to confirm the payment of the surplus capital dividend of 110p by the middle of August. We've also made some very good progress in terms of adding to our land holdings. We brought over 10,000 plots into the group in the first half of the year, which represents a consumption rate of over 100 -- a replacement rate of over 130% over consumption. And since September, we brought in nearly 14,000 plus. We've maintained a disciplined and responsible approach to buying land. I'm very pleased to confirm that we've maintained our hurdle rates when buying on the open market, where we've had some really good successes buying some high-quality sites around the country with strong margins. The strength of demand we've seen since the end of the first lockdown together with the other delays we've seen in securing planning approvals because of COVID has caused the outlet position to shrink. But I'm pleased to say that we can see a good line of sight in terms of rebuilding our strength, both in the second half of this year and the first half of next. As reported in the statement in the second half, for instance, we can see our way to some 85 new outlets coming into production. And subject to planning by this time next year, our outlet position will be substantially above where we are now and this should enable us to trade on a great, very strong solid platform. Following our cutting announcement earlier in the year, we set up a team internally and we've engaged with customers throughout the country, helping them to secure EWS1 certificates, replace band planning and remediate fire-related build defects. We're getting on with this. I'm also pleased that we've reached assessment with the CMA, the voluntary undertakings we've given are the right thing to do for customers and will cost Persimmon very little. We've all seen the headlines of build cost inflation and material shortages. Persimmon has been affected to some extent, but also protected as a result of the brick and tile factory in Space4. We anticipate that house price growth we have seen will absorb build cost inflation. Overall, I'm delighted with the performance of the business in the first half of the year, and I'd like to take this opportunity to thank my colleagues for all their hard work. The outlook is strong and we anticipate a second half performance broadly similar to the first half. Persimmon enjoys a tremendously strong land bank that will enable us to continue to follow our strategy of pursuing responsible growth, whilst maintaining industry-leading margins. But we've also got a great opportunity to continue to build on the strength of the market and the strength of customer demand as well as take advantage of the many self-help opportunities that will come through building right first time as well as strengthening our brand by putting customers first against the backdrop of a very strong market. So thanks very much, and I'll now open up for any questions.

[Operator Instructions] And the first question comes from the line of Rajesh Patki from JPMorgan.

The first one is on build cost inflation, if you could provide an update on what you're seeing on that? I mean your previous comment was for 3% to 4% of build cost inflation, how have you seen that evolve in the first half? And what do you expect for the full year for both materials and for wages? The second one was on plot additions, which for the first half were around 10,000. Do you see more opportunities to do a similar amount in the second half? And what are the key constraints to it? And lastly, just on the mix of the proportion of partnership units picked versus the second half of last year was at 18%. Do you see it getting back towards the 20% you've mentioned earlier?

Thanks, Rajesh. I mean, yes, the build inflation we've seen is probably around 4.5% to 5% now and we expect to continue to see this through the second half of the year. It's ebbing and flowing and there's regional variations across the country. But broadly, that is the picture, but we're seeing the increases in selling prices are absorbing it, and we expect that to continue to be the case in the second half. Very pleased with the performance in terms of buying plots in the first half. We expect that to continue in the second half. I think -- and this is where Persimmon's strength comes in. I think whilst there's quite a lot of competition maybe at the smaller end, at the larger end, where we are particularly -- typically pitching ourselves. The competition is not so intense and we were able to buy some really good opportunities and with really good margins. So very pleased with the progress there and expect that will continue into the second half. Yes, the mix is about 82% private 18%. We expect that will probably turn back to 80-20 during the course of the second half. But we're in a very strong place.

Just on that, Rajesh, on the HA coming back, I mean, that's driven by outlet numbers and opening up the new outlets as they come through because as you know, they'll be on a turnkey contract. We'll be selling the 20%, 25%, 30% volume on each site to the registered social landlords. So as we open up these new sites, we've got good visibility there, as Dean pointed to. We should see that sort of sales mix normalize, as Dean said, over the next sort of 12 to 18 months, I would expect.

The next question comes from the line of Will Jones from Redburn.

Three, if I could, please, just around a few of the different operating metrics. Just, firstly, exploring sales rates, clearly, a very strong first half. I just wondered how you were thinking more generally about what the second half might bring. I think historically, in normal years, you've been back in the 0.6% for the sales rate typically in the second half of the year. But do you think that might still remain, I guess, above trend in the current market? The second moving from sales rates, I guess, to build rates. I think if we look at the equivalent unit data you've given today compared to where you were in December. I think now the completions have come out. My math may be wrong, but I think it implies the build rate per week at somewhere around 250, 260 in the first half. Correct me if I'm wrong on that. But if so, that's obviously a bit down versus where you were, maybe that's the weather in the first half of the year, the availability constraints. I guess just more general comments around build rates and the prospects from here would be great, please. And then just tying that up with site numbers, 285 for the first half. I think you're still talking of roughly 300 for the full year. Are your openings in the second half more higher than normally the case that 85% or so number? Again, assuming the sales rates are going to remain pretty good. So just wondering how that average gets back up to 300 from 285.

Thank you. Yes, look, we expect more -- return to more normal seasonal pattern, which is obviously a bit weaker over the summer period and then a return to strength during the autumn. Look, the forward order book is very strong. So we expect a strong performance in the second half from where we're standing at the moment. Build rates were really impacted at the start of the year. When I was talking to you in January, I could see what was going on there and the business was struggling. We had COVID everywhere. The weather was terrible. We had lots of people not come back from Europe because of Brexit. And that just impacted build rates and impacted build rates during January and February, but that has now recovered. And we're now back to building ahead of what we're selling across the business. But we're also, to some extent, a victim of our own success. So for instance, it's a different regional picture across the country in terms of what we're seeing. I was in Kent on Tuesday. They're not seeing a particularly short -- a particular shortage of brick layers down there. But yesterday, I was in South Yorkshire and Lincoln and Grimsby, yes. But having said that, across the north of the business, we've currently got something like 294 brick laying gains, which is a record for us, but we think we need another 62 more. And it's just the strength of demand at the moment. So the business is in great shape, really straining at the lease, but build rates, we do not expect are going to impact on our performance in the second half. Yes, it's cut out there, but our guys are resourceful and they're managing it very well, in my opinion. Site numbers, yes, we've got some good numbers coming through, through the second half. As you said, we think outlet numbers are going to be around about 300 average, of course, across the course of the year. And we -- as I said in my opening a few words, the outlook position into next year, subject to planning, is very strong.

The next question comes from the line of Arnaud Lehmann from Bank of America.

Three on my side, please. Firstly, can you give us an update on the Help to Buy 2.0? Obviously, we're well ahead into this process now. Are you happy with the way it's running our customers help you with it? Any disruption in terms of the regional price cuts, et cetera? That's my first question. Secondly, we've seen many press articles reporting shortages of building materials, including timber. I think timber frame is one structure that the industry has been expanding over the last years. So have you seen any slowdown on building sites so far because of materials missing? And lastly, would you mind commenting on the U.K. building safety rules that came out, I think, a couple of days ago, maybe 3 days ago now, where the government, I guess, is trying to get some of the developers to pay some extra costs. So do you see any implication for Persimmon?

Thanks, Arnaud. I mean, generally, I think on Help to Buy, look, we didn't miss a beat, really. So it's about half of demand in the first half. Certainly, we have not really encountered any regional difficulties because of price caps across the course of the country. Demand is just really very strong at the moment. Mike, I don't know whether you've got anything you want to add.

Yes. I mean just a little bit of additional detail. The -- as Dean points to, about half the PD legals in the first half were sold to customers choosing to use the Help to Buy scheme. And within that, about 30% was old scheme, 20% was new scheme. And that seems to continue. The new scheme has gained good traction in the market and good numbers of first-time buyers are taking advantage of it. So I think we continue to see good support to customer demand from that angle. So yes, it's been a bit of a seamless transition for ourselves.

On -- look, on building supplies, it's another day, it's another issue. I mean you name it, and we've seen challenges, whether it's timber, plastics, chips for appliances, checkboards. Yes, look, but the message is, yes, it's tight out there. COVID has partly impacted that. Strength of demand has partly impacted that. But we are coping. It's the message, we are coping. The guys are being resourceful, getting ahead of the problem. And we're an important consumer for our supply chain. And -- we're also helped, of course, by our own vertical integration, we've not suffered a tiles issue. For instance, I was at the brick and tile factory yesterday. And we've got our own bricks, obviously, and that's helping the business. Our own pavers, that's helping the business. Tim frames also, obviously, self-help going on there for us. So yes, look, it's -- we've already in the papers, it is true, is affecting production, but we're coping with it, and we're managing it and we're not signaling to you that we think it's going to cause us a problem in completions in the second half. In terms of the U.K. building safety rules. I mean, it's only just out to consultation, I believe. So -- and I've seen various fairly alarmist accounts of it. I mean, first of all, look, we're not building high rise. Secondly, I think Persimmon seems in a strong place here in terms of the work we've done on cavity barriers, in terms of the work we're doing on clouding. And in terms of the quality programs we've got in place and the strength of our internal teams and the focus on safety within the business. I mean, it doesn't come as a surprise to me, remotely, frankly, coming from a different sector that there should be an interest in having regulation of safety in the construction industry. I mean, surprise to me is that we don't have it and that might impose build costs on some. I don't think it's going to have much impact on Persimmon. But as I said, we have got to see what the bill finally says. It's got to return through consultation. So there's a lot of water to pass under that bridge before I think there's anything too much for us to worry about.

The next question comes from the line of Jon Bell from Deutsche Bank.

And 3 questions from me, if I can. I thought I'd soften you on that one first.

You couldn't resist it, Jon.

I can't. It's too much for me. I think I've got 3 questions. First one really is on land. I think you've mentioned that the -- you maintained your hurdle rates on new land acquisitions. Can you just remind us what those hurdle rates are, please? The second one is on net cash. And the question is really how much is too much? You've made a tweak to the dividend, an acceleration from December to August, but clearly, your cash number is rising. And I just wonder where your red lines are really in terms of that number. And the third one, which you're definitely not going to answer, but could you give us a sales rate in the last couple of weeks, please?

So Mike has done a sliding tackle across the desk. And he choke me out of answering question one. So sorry Mike, but that's it. I'm on the floor. He has taken me out. That's it. Net cash -- well, look, obviously, we're in a strong position, and we keep it under review, guys. We've signaled what we would do for this year. It supports the payment of the dividend next year. But I think Mike, as I think painted over the year is a very clear story about the robustness of the Persimmon dividend. I think as [indiscernible], it's a huge strength of the company. So we keep it under review, but the payout is very much as we signaled to the market. I mean, Mike, I don't know whether you got anything more...

You're right, Dean. I don't think there's any change really. I mean, we're pleased that we're able -- on the back of the strong performance, Dean outlined earlier, and you can see in the statement, it puts us in a great position to be able to accelerate and consolidate that surplus capital repayment to shareholders in August that Dean pointed to at the top of the meeting. But we keep it under review. And we book in the capital structure through the sort of circa GBP 700 million liquidity requirement to cover off the annual working capital amplitude and a bit of firepower to invest a bit more in land at the right time. So I think there's no change to that. And I think the Board as a whole is -- has been clear with that stance for over many years. So yes, we seem to continue to have a little bit extra liquidity here. But at times like this, that will -- a little bit of a stronger hedge against future risk is not a bad place to be. And we remind -- we were reminded of that early on last year when the pandemic hit when we didn't need any support from government with respect to furlough or funding schemes, et cetera. So given that we spent a large number of years creating such a strong platform, we were reminded that the strategy works and at times of distress, that's why the strategy is there to support the interest of all stakeholders in the business. So I think as a Board, we're very, very pleased with the discipline that we're continuing to pursue in terms of the operational execution of the strategy of the business.

And then just in terms of sales rates, I think all I would say at this stage, we'll give more color at the half year, but they still remain strong. They are still strong and a smidge above normal at the moment. So we're in very solid place.

And all the lead indicators, Jon, when we look at our website activity, cancellation rates, reasons for cancellation in terms of down valves and mortgage application rejections and elements like that, there's no spike or red flags being waived at this point in time. So it all looks to be running along with a pretty sound market, albeit we're all aware of, obviously, that things can change given that we've got a third wave that we're sort of facing into. And you've got to be a little bit concerned about the consequences of that. So I think we're pleased with where we are. We like more outlets and a bit more work in progress and choice for customers, as Dean has already pointed to. But as Dean said, in a way, we're a little bit of a victim of our own success on sales rates. And indeed, on a number of sites, we're now holding back to let build catch up. So it's a good place to be. It's a good place to be at this point.

Yes. As Mike says, look, I think the market remains very healthy. I was -- as I said, I was in Kent on Tuesday, looking out my first GBP 1 million Persimmon house that I've seen anywhere and our customers early birded that one. It's very strong across the country still. Yes, business is in a good place. We're well forward sold. Yes, we're in a good place.

I mean another tidbit there, Jon, it's probably a subsidiary question that you're hesitating to ask, but in terms of the roll-off of the stamp duty window, we're already well sold beyond the end of September. When you look at the round about 5,000 private sales that we've got forward sold at June, around about 50% of those are beyond September to deliver it. So it's another indication of the strength in the market that Dean points to.

And look, when I was in South Yorkshire yesterday, they're selling into next year now.

Can I just ask 1 supplementary, if I can. I mean, the theme of the hour when you guys speak to the market is inflation. If I look at financial markets, the kind of reflation trade seems to be hanging by a thread. What's been your previous experience at the margin level if HPI and build cost inflation start tempering, start trending down in 3 months' time. How does that tend to impact the margin?

Yes. I mean it's an interesting equation to think about. It's all about the rates of change of each, isn't it? I mean if you plot the graph and look to different scenarios, then it's all about how steep is which line in relation to other, selling price relative to overall build cost inflation. So I think we've got a good firm market. Obviously, we're well forward sold. That reflects the current market conditions in terms of clearing price. I think the overall activity in the market continues to be strong, including the wider secondhand market, which has been the benefit of the stamp duty window. That -- I think that confidence supported by the FTSE last night, et cetera, will continue. And we're pretty positive about that. We'll see. Dean pointed to early bird activity where customers express good interest before you get to a pre-resin reservation stage. We're still seeing good indications of interest on that level. And on the cost side, well, nobody really knows. I mean we all read the commentary around it. I think the material side is where the more acute inflation is being felt on labor rates, not so much. But those conditions can change. And I think that as the supply chain finds a firmer footing, then hopefully, we'll see some of the cost pressures subside on the material side, albeit we might find labor rates moving in slightly other direction. So it's very -- I mean, your crystal ball is as good as ours really on that. And it's hard to be definitive. But at this point in time, we would say our margin rate, and it's important to emphasize margin rates. We expect that to remain at similar levels that we'll be reporting in August for the rest of the year. We may see a little bit of extra at this point in time. So a bit of optimism there, a bit of risk on the upside. And into next year, well, if we continue to sell well, and there's a balance between those inflationary facts, well, we should see that sort of margin position continue. So -- and as you know, the value driver in our business is the land and Dean's already said that the replacement of land, indeed, has gone well. We're being very disciplined about that. And that will continue to support the superior margins that the business delivers. So we're very confident that we've got a high-quality platform irrespective of what selling price and build costs are during the future because it provides a great support and cushion, if you will, and provides resilience to those margins as we move forward over the next 2, 3 years and beyond.

Your next question comes from the line of Glynis Johnson from Jefferies.

I have a few. I'm not going to say how many. I'm just going to roll them off. They're quite quick. So hopefully, they'll be quite sharp to answer. You talked about outlook counts for the next 12 months being substantially ahead. Can you define substantially? I'm wondering whether you can put in the context of maybe the 350 that you talked about for the year-end '22. And new land intake, I wonder if you can tell us how much of that has been strategic and maybe how much has been freehold strategic. And in terms of the selling price, obviously, the order book has a little bit of selling price upside. What should you be anticipating in terms of the selling price on your PD product? I'm probably being pedantic on wording, you said house price inflation seen will absorb build cost inflation. Is that a difference in timing? If you see continued house price inflation and the cost inflation where it stays, does that margin increase? I think that's what your optimism for H2 is basically saying, I just want to double check. And lastly, just in terms of those outlet counts going up, how should we think about the work in progress requirement? Are we going to see actually that working capital requirement step up and therefore, the surplus cash argument having to absorb that sort of impact?

Well, I'll have a go at all of those and Mike can put me on the straight path when I go wrong. I mean, yes, look, I mean, as we increase outlets, it's bound to absorb work in progress. And we will be getting back towards -- subject to planning, and that's my caveat because planning is really tough at the moment. There's no point to knowing it. There's a delay in the system caused by COVID. But our outlook numbers will be getting towards above 300 and beyond during the course by about this time next year, and we'll -- subject to market conditions, we'll be making progress towards the 350. But as we open those up, that will absorb cash and GBP 750 million of cash, you can easily see get invested in those sites as we build out before we start taking sales. The mix is about 50-50, which is particularly pleasing. I think I've been -- as I alluded to when I spoke, the -- I've been particularly impressed what the guys have been able to bring in from the open market and how we've been able to compete, particularly amongst the larger sites. And I think that's our real strength. And that obviously gives us a platform for further opportunities downstream. Look, I mean, obviously, we're probably going to answer the question about margin 1,000 times today when you ask it 10,000 different ways. It's good at the moment. It's -- we're seeing that inflation is covering build cost inflation. As Mike just said a few minutes ago, we don't know what's going to happen in the second half in terms of those relativities. We're at the 27.5% to 28% at the moment. That's where we hope to be for the second half of the year. Who knows what's going to happen when furlough comes off in terms of what happens to the labor market. I think my view is we could see a bit of easing coming in at that point. But it also is strength of demand. As I said a few moments ago, we're short of -- we think we're short of about 62 gains across North of England at the moment in terms of brick layers but we're at record levels of employment. So it's a complex picture, which is moving all the time. But the business is in really good shape. I mean, Michael, I don't know if you want to...

No, I think that sort of summarizes it. I mean the -- we'll obviously give a bit more color on some of these data points in August as well. So I think we're particularly pleased with that mix of bringing the extra plots into the business with around about a 50-50 split strategic and open market, and we're seeing good quality right across that. So I think we are particularly pleased with that sticking to our disciplines.

Okay. I'm sorry, did I make it just in terms of the PD pricing?

Yes. I mean you can see that in the forward order book, we're seeing PD pricing still moving forward compared with 2020. We've got about 3.5% improvement on that. So that's positive. And we're still seeing great support in the mortgage market, more higher LTV product coming in for those that need it. And I think the one contextual point around the prognosis on selling prices is the fact that, obviously, we all worry about the journey we've traveled on the recovery of capital value since the GFC. And one element to consider and reflect on affordability as we all know. And obviously, with the level of interest rates that we're looking at and okay, this -- Jon referred to this reflation trade and the response of longer-term coupons in respect of that but -- and that might click up a little bit in the nearer term, maybe in next year in '23. But -- and yes, from a percentage expected, it's a big increase. But given the majority -- the vast majority of mortgage products are capital repayment, it's a lot less sensitive to interest rate increases. So the real pressure is on buying a ticket to the party in terms of deposit values. And obviously, that's where the Help to Buy scheme that the government provides support with to customers helped. But we are encouraged by the fact that the mortgage vendors are continuing to compete for the new flow of business and they're offering great products into the market at that end. So hopefully, that will continue to develop. And that will support selling prices.

The next question comes from the line of Gregor Kuglitsch from UBS.

Maybe a couple left for me then. Can I just sort of probably...

Ask away. Ask away, it's all fine. We're not charging for it.

So I get probably a little bit more of the volume. So obviously, you were close to sort of '19 levels in H1. Obviously, your guidance implies there's a bit of a pullback, I guess, relative to that baseline of '19 in H2. I guess my question is, what's the variability around that? I mean, could that be materially better? Or is it basically kind of constrained by the constraining factor basically being built. In other words, it's very unlikely to be materially different? And then perhaps related to that, I don't know how you've commented on this, but is your kind of base case that by next year, you'll be back to the '19 level. Is that the right way to think about sort of the volume outlook? And then maybe a second question, if you could just give us some detail what you think the additional costs will be as part of the decarbonization of the Part L as we think about sort of -- I don't know how you look to think about it, but basically per plot or something like that, what the additional cost will be for you or what's your best estimate at this stage?

I think, look, in terms of -- actually, in the first half, the private sales were just short 2.5% up on 2019. And we were maybe 200 or 300 down on HA. The constraint in the second half is going to be outlets and getting back to 2019 levels, I think is perfectly possible. But higher build quality level, which is something not to be missed in here, I think, is a function of us getting the outlets out there, which is itself a function of planning. We can see the line of sight to that coming through during the course of the next 12 months. And with those outlets there, we expect the same rate of sales as we saw in 2019, that will be governed when we're back at our overall level of volume, but profitability on it is good. In terms of additional costs, [GBP 3.45] square foot. And that's how we'll do some at the moment. Very hard to say in terms of 25 regs, which is still to be determined, as you know. There's an awful lot of water to pass under the bridge there. But I suppose when I think about it, I feel it's a relatively low percentage of selling price that we need to recover.

Yes. I mean, Gregor, it's an interesting point that you raised there and there's a lot of talk in the industry together with mortgage lenders and the wider industry supply chain indeed on this in terms of, well, what does the updated 25 reg zero carbon, however, you want to describe it mean for perm values. If you -- does it provide an opportunity in the market to price homes differently if they are totally zero carbon. And I have -- we haven't got the answer to that. As I said, there's quite a lot of discussion around that because the journey to sustain a viable decarbonization journey does rely on all parties to come to the table. And we're working hard with the industry down the supply chain. We're doing a lot of R&D on this. We're ideally placed with our space for construction methodology to continue to develop that. And we feel pretty positive about the opportunities there, albeit there are a large number of challenges. The supply chain is going to have to step up and capital is going to have to be invested. For example, just the capacity to deliver enough air source heat capacity to the market is massive. And if that's an essential ingredient to achieving these end results, we want to make sure that, that capacity is there. So there's a large -- as always, Greg, there's no simple silver bullet to this. We wish there was. But we're full square behind it. And we're working very, very hard to achieve the goals that government policy is trying to deliver because the decarbonization imperative is urgent and we share in that, and we want to do our bit to achieve it.

So -- sorry, I know that you're expressing things in per square foot. Obviously, I should probably know this, but if I look at your average property, what is it, 800, 900? Is that about right? To get a sense about, call it, $3,000. That's basically you're saying for the first bit, yes, and then the second bit, I guess.

Yes. And it's a moving piece. I mean -- yes, that is correct. And as Michael was alluding to in there. I think there's -- I mean, the way we're looking at it, on the one hand is there's an awful lot of work to be done in the supply chain yet, which as we're at very low numbers of production of heat pumps in the country at the moment, and that's got to ramp up drastically over the course of the next 5 years, which is going to have, I think, implications for per unit cost, probably on a downward trend, as it moves into mass production. But there's other aspects of it that have got to gear up and that's teeth engineers who can install them and maintain because it's probably not enough of those in the country at the moment. That's an issue that's got to be worked through, too. But we do expect, by the time we get to -- implementing 25 regs that the unit cost would have fallen. We expect an increment beyond where we are now. I can't say what it is, I'm afraid, but it will be less than, I think, first thought. And then you have to conceptualize that in terms of actually, I think there will be a positive customer demand for a zero-carbon house, which will impact both demand and relatively small cost of the overall value of the house as a percentage.

Right. And then maybe a final question. What are your views on the sort of planning bill and the proposals there? I guess maybe they never happen, but what are your kind of high-level thoughts?

I think Tory back-bench is providing a very strong opposition to government at the moment. And therefore, I think that there is a lot of dialogue that's got to go on between the government front-bench and the government back-bench before we know what the outcome of that is going to be. I don't think anybody knows the answer to that yet.

The next question comes from the line of Gavin Jago from Barclays.

Yes, just a few if I could, please. The first one is just around the HBF survey. Just wondering if you're able to share anything on, I guess, any progress you've made in the 9-month survey with customers. Obviously, there's been a strong increase in your 8-week one, but just in terms of a delta on 9 months, I guess, over the same period. The second one is just a reminder, please, of your capacity in your brick and tile factory and I guess, how many -- maybe just give us a number on how many homes you actually can supply with bricks and tiles over a year? And the final one is just a bit of clarity, please, just on Help to Buy reservation rates through the first half rather than legal completions?

We've only about a 10% progress on the 9 months, which is encouraging, but nowhere near where we want it to be. But we're still dealing with the previous server years at the moment. And I do expect with the pull forward on the 8 week that will have an impact on the 9 months as we look ahead for the next 1 to 2 years. Big focus on activity within the business. Look, we're doing a lot on this. We've got a new Head of Customer Care that's just joined the business. And she's building our team and building our infrastructure. We look forward to working, registering with the new homes code and implementing that into the business over the course of the next year. So this is a subject of great focus within the business, and I'm looking forward to continued progress over the course -- over the next couple of years. Still behind -- very much behind where we want it to be, but it's traveling in the right direction. The overall capacity of the brick factory is GBP 80 million. At the moment, we're currently using about half of that within the business. We're doing some good things with the bricks. As I said, I was there yesterday. We'll have Generation 4 out in September that will be available for use within the business. And it's getting better and better. I'm pleased with how the product looks and excited about how we will continue to roll that out in the business. Tiles are great. They look really good, and there's a great take-up rate within the business at the moment. So I see that as all very positive further developments to come in terms of color and range within the business. And broadening out brick pavers, permeable brick pavers, that we'll be introducing into the business and stepping up the take-up rate within the business. It's actually cheaper than tile maker at the moment. So it's amazing. So yes, a lot of self-help there within the business.

And just a question on that. In terms of the number of units that would be both using your bricks, just kind of equivalent units, how many is that roughly per annum? And then I guess on the tiles as well, just to think how much you've got in the hands at the moment.

Well, tiles is a relatively new addition to the business. So I think the penetration rate is quite low at the moment. It's probably just down about 20%, but I do see that expanding rapidly across the business.

In the tile capacity, we could supply the whole business, but we choose not to because we -- it's all about security supply, and we need a healthy supply chain, and we're happy to invest in the supply chain as well as have the vertical integration. So we're never going to put all our eggs in one basket, but we do have the capacity there to, in extremis, secure the supply, which was the whole premise around the investment in the CapEx. So we're quite pleased to have that. And at times like this, it reminds us why we've done it because there is anecdotal evidence around the industry that others are getting pinched here and there in terms of brick supply and roof tile.

It depends on the vernacular as well. It won't be applied to render. Slap floor, it won't be on that either, which is large ways of the country as well. So you've got to -- you can't think about it as 100%.

And actually, when you think about it, it is all about security of supply. It was never really to provide a cost advantage. But where we're going through a period of inflation on manufactured building supply and anything, well, actually, it does provide some mitigation to that in the face of an external inflationary environment. So I think that -- it's not the main reason for investing and providing more capacity to ourselves and the wider industry. There's a second-round effect. But it does help to mitigate those cost pressures as well at times like this. So on both fronts, it works pretty hard for us. On the Help to Buy reservation rates, well, yes, I think you're alluding to what was how is the new scheme picked up relative to the old scheme. There's been a bit of a transition. Obviously, we're only able to reserve tech reservation on new homes on the new scheme from the middle of December last. So obviously, we've got a maybe 6 months under our belt and it's gone well. We've already said -- I think we said that in our forward sales, we've got 33% sell forward to customers choosing to use the Help to Buy scheme. It's going pretty well, Gavin. We're not seeing any major dislocation because as Dean said earlier, price caps, okay, the trim around the edges, but it's not as we anticipated. It's not a major issue for us. And you can see it in our sales rates. If you want evidence, the sales rates remain pretty strong and all indications are that the fact that Help to Buy scheme now excludes non-first-time buyers, isn't a particular issue for us. And that probably reflects the fact that we've positioned the business with a good range and choice of homes across price points, but with a waiting to the lower price points. So I think we feel confident that the businesses continues to be positioned well in the market.

[Operator Instructions] And the next question comes from the line of Christopher Fremantle from Morgan Stanley.

Just a very brief follow-up to, I think it was Glynis' question. Just on the outlet numbers, and I think you were talking about trying to move towards 350, subject to planning. So about mid-teens percent higher than the average you're talking about for 2021. Are these, the outlets that you're targeting, are they similar in size and selling price? I mean, are we talking about getting to a point of an average 350 outlets? And I mean, I'm asking that, obviously, because if I look at revenue consensus a couple of years out, we're only sales side consensus only about 10% higher than where we are in 2021. So I mean I know there are lots of moving parts, and I appreciate you might not want to be raising the bar too high for yourselves at this stage, but are we talking about getting back to a sort of average 350?

Well, look, as I said to you earlier, it depends on progress through planning, which I think will slow things down at pace and also market conditions. We're not chasing volume for volume's sake, but we do have an ambition to grow responsibly at a steady pace over the course of the next 2 or 3 years, subject to markets remaining as they are now. I think 350 is a decent ambition for the business with the back end of '22 into '23 subject to planning. So that's -- rather than a crossed hand around our next, that is a target that we're working towards. And I think for me, the thing to focus on is not so much that, but the potential uptick in -- from where we are now in terms of outlets to where we might get to back end of next year and halfway through next year or back end of next year and beyond. And I think that is potentially quite exciting for the business.

I think if you look at volume guidance, Chris, I think we said it earlier on, I think Gregor sort of pointed to it in his question, that for '22, we've got the ambition to grow back to '19 volumes. And obviously, that strength of outlets comes through next year towards the back end of next year into '23. As Dean said, that puts us in a great position to grow further from there. But as always, planning is a particularly difficult place to be at this point in time. So I guess there's risk on slippage there in terms of timings of getting outlets through into production and being able to offer new homes for sale around the country. So I think we've got to remain ambitious but realistic, if you know what I mean, because there are challenges there, but we'd like more sooner if we can, and that's what we're driving for.

There are no further questions in the queue. So I'll hand the call back to your host for any closing remarks.

That's great. Thanks very much. Thanks for joining us. We were expecting another hour of questions, but we'll take it and run. Well, thanks for joining us, guys, and let's look forward to the result on the weekend.

Thank you.

Thank you for joining today's call. You may now disconnect your lines.