Redrow plc (RDW) Earnings Call Transcript & Summary

Thank you for joining us today. I'm sure most of you in the room know myself and Barbara very well, but for those that are on the webcast, my name is Matthew Pratt. I'm the CEO of Redrow. As always, I'm joined by Barbara Richmond, our Group Finance Director. I'll start by giving a short summary of our half year results before taking your questions. In the first half, we delivered revenue similar to the record first half of last year at GBP 1.03 billion and profit before tax of GBP 198 million. We experienced a positive start to the second half trading with lucrative private reservation volumes per outlet per week in the first 5 weeks of the second half at 0.51. Redrow's proven business model has played an important role during a time of significant political and economic uncertainty. We have award-winning homes and places, a strong forward order book and land acquired in the last few years at good margins. And while 2023 will be a challenging year as the market resets, early indications have are better than anticipated, and the market appears to be finding a new natural level. So with that, I'm going to take some questions. But first, if I hand over to the operator.

[Operator Instructions]

Glynis?

Johnson, Jefferies. Three, if I may. The first one just in terms of incentives. If you can just talk us through what you have done since the start of the year. You talked about using November, December as a way of taking a step back in marketing in order to gear up into January. What have you got in terms of what you're offering customers, part exchange, cost of living incentives? Your customer base is slightly different than the other housebuilders we talked to. So it'd be interesting to hear your angle. Second of all, the land buying strategy. Obviously, we can see what you've done so far. But how long can you stay at the land market given what's happening in terms of the planning, particularly in the South, given the lack of housing targets? Do you need to come back into land market quicker in the South than the North? Just a little bit more about that. And then in terms of air-source heat pumps, underfloor heating coming in ahead of what the regulations require, is there anything in terms of costs that we need to be thinking about? Is there anything in terms of revenue and pricing and extras that we can be thinking about?

Do you want to take the incentives? And I'll take the other piece.

Yes. So incentives, so prior to the mini-budget, our incentive level would have been between 0 and 0.5%. So very, very little. Currently, our incentive level would be around 2.5%. The -- we're not doing any part exchange, not move headline prices significantly. So the major incentive that's additional to what we were doing before December is that we are on selected plots on selected developments offering a deposit contribution of up to 5%. And to give you some sort of flavor for what I mean by that, it's predominantly apartments and first-time buyer properties. Basically, that means as a consequence of that, we're looking at the Southeast, where we've got a larger proportion of apartments; and in terms of semi-detached and terrace properties, the Midlands Central region as we would call it from a statutory point of view. So that's where we are on incentives.

Okay. If I go to land bank strategy, we bought the majority of our land bank in 2021. We bought that at a very good margin. So we're very pleased with what we got there. Planning is incredibly slow, continues to be incredibly slow. And basically, we're going to try and work our way through those land -- that land that we bought and bring that into outlets going forward. In terms of we are being incredibly selective, and I emphasize the word incredibly, if not very selective, on what we are buying. Ultimately, what we probably bought in the last 6 months were stuff that we'd already contracted anyway. So we've been -- we are being incredibly selective on what we're doing going forward. In terms of -- I think it's too early to say that we don't even consider where we go, coming back into the market in terms of land bank. We remain with the opinion that it's -- the market is still -- we're seeing good -- it's been good to date in terms of what we're seeing in sort of the sales market. But ultimately, it's -- where it goes from there isn't going to be a question. We're confident with what we've got so far. But I think if I move on to air-source heat pumps, yes, we went early on air-source heat pumps. I think there were several reasons why we went early. I think a lot of times, it was driven by our customers. I think customers see the energy efficiency of them. I think there's huge saving in carbon with regard to using them. They will use 1/3 less carbon -- or 1/3 less energy than that of a gas boiler. But ultimately, the cost of electricity is higher, and therefore, the cost of using an air-source heat pump is very similar. We've done some trials across the country. But in terms of costs, we -- 2023 was -- we always have to do this stepping stone towards [ parcel ]. And we allow GBP 5,000 of plotting for that stepping stone, which started by -- we're going to use PV, but we felt as we moved to air-source heat pumps early that we'll get ahead of the game. Customers are asking for it, and therefore, we move to it. I think the air-source heat pumps, the overall cost is about GBP 5,600 for the air-source heat pumps, so a little bit higher than we probably originally anticipated. But I think we can get that back in terms of value. In terms of underfloor heating, the additional cost of that, about GBP 1,600 to GBP 1,800 a plot. But I think the fact that air-source heat pumps tend to have larger radiators, I think the fact that we're moving the radiators giving customers more space to use their property was an advantage in terms of getting that back on selling price.

Chris Millington at Numis. I just wanted to firstly ask just about the profile of sales through January. Have we seen a consecutive improvement? And kind of where is the exit rate on that sales rate point? Perhaps you can also just roll into that something on cancellations as well. I'll come back in a second [ in a minute ].

Yes. Yes, I'll take that. So basically, yes, we did see a slow start to the second half, and it has built up consistently from that level. I would say that we are -- in the last week or so, we've been running at north of 0.6. So we've been pleased with that. In terms of cancellations, well, we're running at about 17% at the moment, which would be below -- although it's higher than this time last year, which we know was exceptional, it's below the rate of the full year for last year and the year before. So again, we're quite pleased with that, to be honest, particularly compared to the 50% cancellation rate we had in the second half of last year.

And any sort of trend with regard to customers or geographies? Obviously, we're [ aware ] first-time buyers are a bit slower to come back, which you obviously don't index as high to, but just a bit of commentary around the market mix.

Yes. I think we -- I mean market mix stays very similar. I think our cash buyers are similar again this time around. So I think we haven't seen any particular change. First-time buyers, we have done some more incentives to first-time buys with deposits, which have had an effect, which helps. But ultimately, we continue to build 4-bedroom detached homes, and those people look based on the profile of what we've seen before.

And the last one is just on build and kind of how you're reacting to this improvement in sales rates. I mean, obviously, we're expecting your volumes to go backwards a little bit next year in the order book. But at what point do you start looking to ramp back up with it if this continues?

Well, I think with regards to our WIP and our build-out pool, we've put a number of foundations in to deal with the [ parcel ] and upfront. And therefore, we have built in front of ourselves. Ultimately, we'd like to get our WIP down. But realistically, we're telling the teams on sites to really concentrate -- make sure they're concentrating on those homes that are sold. But as the sales rate goes up, clearly, ultimately, the amount of plots they can build on goes up as well. So we're trying to balance it. We are being incredibly cautious as to what we do with that to make sure that we conserve cash. But ultimately, the market continues on. We will continue building. In terms of new outlets, we're not stopping any new outlets going forward. We're not holding back on anything. So from our point, we continue -- we want those sales sites open to get the sales. So you buying a piece of land or [indiscernible].

Will Jones at Redburn. Three as well, please. The first, just coming back to the interplay of sales rates and price, I suppose. What's the magic number for you guys over a 12-month period as to what you'd be wanting to achieve in order to not go further on incentives and/or gross prices? Is it something closer to the 0.6 mark that you reached in the last week or 2? The second was just if you can help us around the private ASP. Obviously, it's moved a long way in the last few years. And I think in the presentation, you talked about 4.70 or so in the order book. Is that indicative of the private units in the land bank? Or are there some mix effects in there to have in mind? And then the last one is just what you think the potential might be around build costs as activity drops in the sector over the next few quarters? And how much can you get off, do you think?

Do you want to take build cost and then try to take...

All right.

And then private ASP, do you want to take those 2 or build cost. Yes, build cost, we said 7%, and it's always been driven by energy prices. I think many of the companies are obviously [indiscernible] their energy prices, although energy prices are coming down. I think it's fair to say -- we've said 7%, but there will be competition coming back in the market. And I think the -- let's face it, when our industry is very supply-demand-driven by suppliers and by subcontractors. And when times are good, the prices go up substantially. In the same light, they come down substantially in the same period. So I think we'd expect that we can go forward -- that we get better rates going forward. Certainly, groundworkers are seeing it now. Big lays the upfront trades will see it. But we're all dictated by the sales rate ultimately. But they tend to always follow each other down the road. And ultimately, as the build and the sales rate slows, the build costs will come down and the sales rate increases [indiscernible]. But again, we expect it to -- we said 7% but mainly relating to energy.

Yes. Okay. In terms of sales rate, I think we came into this half, I think probably like the rest of the sector, aiming for from where we were standing a sales rate of around 0.5 for the second half. I think at the moment, it's really difficult to tell. We have a good number at the moment, but you'd expect a good number now because we're running into the peak of the season. So we'll then see a drift off when we -- in May and June. So if we saw something around 0.55 or up to 0.6 we'd be delighted. I mean, for us, with our average selling price of 0.6 is a good sales rate. So that sort of level, we'd be able to pick up build, and we'd potentially be looking at going back into the land market. But you'd need that consistently. You'd need that consistently for months, not just for a couple of weeks. So we're a bit -- we still need to be very careful how the market moves. So I'm not predicting it, but it would be great. In terms of the order book, yes, there is a degree of mix in that. So you're right, we're at 4.74 at the end of December. In terms of what we're looking for, for the full year, it would be less than that in terms of average selling price. And it's difficult to say what it's going to be next year. But yes, at the moment, I would say that, that is with the mix between geographies and everything else, it's just a little bit [ toughie ]. So I think it will be lower than that and more in line with the first half leading completion selling price.

And just back on the sale of this side of the year, are you able to track how much of that is genuinely new customers as opposed to people that you were dealing with in Q4 that maybe kind of sort of just didn't...

Yes. A very good question. It's very difficult to do. So we don't have an accurate figure. But anecdotally, there's no doubt -- Matthew and I have been on site quite a lot recently, and there are a fair number of people who are coming in who had canceled or who have been looking and decided not to reserve. But is it the majority? Definitely not, no. We have got the normal spring market in that sense of this is the time of year when people who were thinking about it and coming through the door. There's no question out there.

Aynsley Lammin from Investec. Just 2 quick ones, I think. Just on the final form contract, wonder where your thoughts are with that. Obviously, you got to sign that soon. Any risk to the provision? And then just generally on that issue in terms of build costs and scope? And then secondly, just on the revenue target. Is that GBP 2.05 billion, is that total revenue or just homes revenue? Just a quick one.

Yes. Okay. So as was mentioned -- so the long-term agreement expands the scope of the work from just external walls to internal common parts.

Yes. Well, you do this one then. Before I take this, go on. No, you go on.