Redrow plc (RDW) Earnings Call Transcript & Summary

In terms of build costs, we expect it certainly to be higher in half 1 than half 2. But it certainly depends on whether that concrete figure comes down between the split, but it is still in half 1 as we rolled over. We're certainly rolling over orders that are already in place so that will drive it and then we can get any discount on it, I mean we can get on those new sites. In terms of the Auto market, we are reasonably hopeful. It's got to improve. I think, ultimately, you've got to always rely on the fact there is a chronic shortage of houses in this country. And there's people who still want to buy them. It's just got to be on the right economic state. And therefore, as the situation levels off with mortgage rates, we expect it to come back to through the market. The fundamentals of the market is still there. We don't build enough houses for the number of people who live in this country.

Clyde Lewis from Peel Hunt. 3 for me as well. Just coming back to the land market. Are you starting to think about different geographies or different size, different mixes because if land prices don't change, how long do you stay out to the market for us, I suppose, what you do because ultimately, you've got a pipeline issue. The whole industry will have a pipeline issue. So I'm just sort of wondering what you're thinking of what options you might have around that if it doesn't start changing? Second one was on government policy thoughts, your views, obviously, the election, the autumn statement. Are we going to get help to buy for first-time buyers back in. Some of us are old enough to remember [ Myra's bits and bobs ] like that. So do you think the government will do anything in the autumn statement there is a question? Then last one really around parcel you've obviously moved hard on air-source heat pumps, be useful to sort of understand your experience around costs against your original expectations and whether that's better or worse in terms of sort of meeting the new regs as we go through this first part and then obviously through the second part in a couple of years' time.

All right. Thanks, Clyde. They've all got some questions below them. So let's talk about the landmark in terms of mix. I think we've done a couple of deals last year before obviously the market changed where we bought large sites, and we sold a percentage of those sites off to a housing association that gave us a big cash flow advantage but in that instance, they were purchasing the land with us or behind us. They were less worried about the return on capital as they tend to be in terms of where they get their borrowing from and therefore, they paid a large percentage of our payment [indiscernible] we're going to infrastructure it for them, but ultimately, they're going to build. That's the mix that tends -- that's sort of a deal that tends to work quite well for us. So that might be another one that we're working. We know some of the local authority sales and Homes England sales are very much focused. They understand the issue of the market at the moment. And some of the deals that we're looking at with those guys are plot specific in terms of how much you pay the land you pay by the completion going forward. So that's another alternative there. But we're still as a business, still focused on what we do. The land market will be the land market. The land market will correct. You did say that if all players stay out for a long time, the land market is going to reflect that price. It's got to reflect that price. So there's going to be time to go back into that market. As of today, you're all wondering whether that's going to happen. But it's just going to happen. It's like anything happens. The auto market comes back as long as those land prices reflect the risk, we'll be back in there. We have to be back in there. It's how our business works. In terms of government, I don't know where to start really. You've got a situation with the government at the moment that's working on today's [ voters ] working on exactly what we talk about with today's policy and the policy is incredibly short term. I think on top of that, they're telling us policy that does not in effect that everyone is taking note of, I think if you look at local plan led systems, it's not working. The planning system is a big driver in this country. We've -- got it's a long-term issue for the industry. It's a long-term issue for the government. And we've got to get hold of there. I mean everything we do with regard to planning is growth, whether that's all local -- a new restaurant with a new sign or anything, wind farm, anything. Everything that is planning-led is about growth for this country. And at the moment, they're completely looking at stifling growth come through planning -- planning system that's failing completely. And if they can get it sorted, they'll get growth within the country. We're talking about billions and billions of pounds, which has been held up, and it's crazy. And you know that we call the government to deal with that. And I have said in a statement today, at the moment, we've got a problem where we know the population growth in this country. We know the immigration growth of this country. We know for the next 10 years we predict it, we've got a country that ultimately has got growth in its population, although European countries are actually going back within their population. We should have a policy system or a plan-lead system that homes those people. And at the moment, it depends on whether somebody's back garden view is going to be changed or not rather than actually whether we should home people, and it's crazy. So I'm a very big believer in terms of what we need to do in terms of the long-term policy. We can't continue this short-term arguments between parties as to who is complaining next and who doesn't want houses next to them. We've got to really change the focus on that and make sure that we've got a long-term view for this country to make sure it succeeds. In terms of government views, the big question is whether they'll do something in the autumn statement. There is a possibility of that. I think ultimately, stamp duty always helps. However, I don't particularly like stamp duty holidays. I think the reality of stamp duty holidays is to turbocharge the market for a bit and then you get a drought straight afterwards until it returns back to normal as people wish to get those homes during that period. So you sort of call on government to try and do something specifically for stamp duty. It's a barrier to moving. And if they really want to make it work, lower it to more sensible levels. And it needs to be equivalent across the board, not just massive at the top end because ultimately, that top end, that has been a top end sale, releasing a first-time buyer house at the end of the day. The whole chain has to work. And then on top of that for us, those people at the top of them tend to use it for the pensions and tend to downsize and use that money for that pension going forward. So it's not people who is mass wealthy, who can afford not to be paying stamp duty. So I'd like to see something on stamp duty. I think there's a big talk about first-time buyers. The mortgage rates are very difficult for those first-time buyers at the bottom, whether the government can do anything, I think the Help to Buy was -- it was a good scheme at this time, but it was really designed around the fact people can get deposits. And I don't think that's the issue at the moment. It's not about deposits, it is about those mortgage rates. But I think the mortgage rates are here to stay. I think we will survive very well if we can get consistency in terms of mortgage rates. We just don't want to see them going up and down. So inconsistently like they have been in 40 rises in one go. So ultimately, I'd like to see something for those stamp duty, but a long-term policy, I'd like to see something built that we're planning, so that the country can get that growth that it needs. In terms of parcel, parcels, the prices are coming in as we expected in terms of the homes. We are working strongly. I mean in terms of things like network availability within the grid. We're learning all the time with what we do. Many of the suppliers or the network suppliers are overestimating what we require. And therefore, we're able to go through process that are working out with them to lower it. The problem is when they think that we need more -- they need more reinforcement, which we end up paying for. So it's just making sure that we get that right balance between supplying enough electricity, but not putting a huge infrastructure in to deal with it. But ultimately, it's company and our customers want it. I mean, our customers are asking, many of them want to see their house future proof. They are -- they will see the fact that in 5 years' time they can't replace their own house with a gas boiler because it has to go to air-sourced heat pump so more renewable thing. So they want that reassurance that they've got something that's more future-proofed. So there's a big advantage in terms of using that. And the fact of retrospectively changing the house from boiler to air-source heat can cost GBP 20,000, but it don't cost us anything like that because we're replacing products for products. So there's a big issue with customers in terms of the fact that they want to make sure their home is a future proof, so we don't have to pay for replacement in the future. It's a 10, 20, 15 years' time when that boiler breaks down.

Marcus Cole UBS. 2 questions as well. Given your comments around the land market, where do you think the outcome for land creditors will be at the end of the year? And then have you got any comments on the CMA review.

Right. You do on credit. I'll do CMA first. So since CMA have gone through that investigation and narrowed it down to 3 areas, which I'm sure you're all aware of, which is the state management charges, land banking, planning, competition, barriers to entry, which is effectively planning again. So we were very much welcome the investigation, certainly into planning and the issues that it's causing and the barriers to entry which we believe that the planning system causes. So that really takes out those 2. Competition. We're confident that our prices are dealt with by the secondhand market. We are not price setters, we're price taker. We take our price from what the market dictates as values out there. We value our properties to ensure for the mortgage lenders. So we're pretty confident that our prices are right in terms of that. Land banking, I mean how many of more reports that need to go into or how many more investigations do they need to conclude there is no such thing as land banking. I think I've got 5 written down here, the last on the [indiscernible] report, which completed that there's no evidence of any land banking whatsoever in the industry, which is clear. We don't do land banking, and you guys all know about that. State management charges, we're again welcoming investigation into state management charges. Historically, we've always dealt with the fact that the local authorities take in nonpublic open spaces and the like, and we've paid a contribution to that. The fact that, that's no longer available to us so that we have to provide these state charges on that basis. So it's something that we're forced to do. So again, we would welcome an investigation to that. So we're more than happy with where we are in the CMA.

In terms of land creditors, I mean, basically, up the GBP 272 million at the end of June, we're due to pay around about GBP 170 million of that this year. So that would take you down to GBP 100 million. But clearly, we've got predictive planning deals already expecting to come through, some of that have come through. So certainly, it was north of GBP 100 million because of those deals. And then it depends if we actually go into the land market and something actually calls all the way to legal completion between now and the end of June. So depending on all of that, you're looking at somewhere between GBP 100 million and GBP 150 million. So significantly down on this year.

Ami Galla from Citi. Just a couple of follow-ups from me. One on outlook on the medium term. Given the sort of consolidation of divisional footprint that you've done, can you talk a bit more about how do you see the sort of capacity of your business maybe beyond the sort of interest rate issues that we currently face. How should we think about the sort of volumes and the scale of the business maybe in 2016 and beyond? The second one was really in terms of the outlets. Given the sort of constraints we have in terms of affordability and the land market, which, as you say, is yet to reflect the current dynamics. You've been selective on land. If we remain in the sort of selective phase in the land market over the next 12 months, does it have a meaningful implication on outlets in '25 and '26 or can you still see a more stable pipeline of outlets going forward over the next 3 years? And the last one, just in terms of the sort of your regional footprint as it sits today, are there any particular regions which you would like to expand into once we have a much more favorable sector outlook.

So I think in the medium term, I think almost the first and second you can combine into one. I think that if we remain selective in land buying, then we've already said we expect the average outlets in '24 to be over GBP 17 million in our guidance. I think that looking forward from that, as you go through into '25 and '26, I don't see that number increasing significantly because of a combination of findings constraints and demand. I think beyond that, you could see the numbers picking up more significantly because the whole thing with this industry is it's like turning around the tank, you don't suddenly get a lot more outlets. It's just not -- it just doesn't work that way. So I think it will take time to bring capacity back on stream. So yes, I mean, combining the 2, I struggle to see a huge increase in capacity certainly in the short term, Ami.

Yes. But I think in terms of cash as well, we've got the cash available to buy land, it is when we buy it, we're just picking the right size and when we think it's the right time to do it in terms of our business. So that's very important. Going back to your sort of point about outlets and divisions. Well, divisions more than anything else. I think we have closed 2 divisions. Those 2 divisions were our small divisions. The sites have been taken over by regions close to them. I think it's an interesting point what you raised that we're closing divisions, where would you like to be? Well, I'd like to be back in those 2 divisions I closed, I like very much because they were the areas that we felt that the growth was going to come from. So yes, it answers the fact that we'd like to open them back up again, but it's symptomatic market at the moment. We were going for growth, and that's what we wanted to do. And now we'll plateau in terms of for a few years as to where we are in terms of turnover.

Last one, I would like to follow up. Just 1 on current maybe a follow-up to Emily's question. In terms of appointment bookings and visitor sales, is there any discernible difference that you've seen into September to kind of suggest that maybe some of the potential buyers that are interested are starting to look at it post the holidays.

Right. I mean we were reaching to it from our point of view to when we close. And we can't really work on a week where [indiscernible] It feels like winter now. But it was [indiscernible] last week. So there's always something that will affect. So you can't really see that in terms of going forward. We're still getting a lot of appointments going forward. So people still want to buy the houses. It's just they are being selective. It's taken -- if you look at our inquiry rate to our reservation rate in terms of land time, it's a very long time. It's increased significantly. So to underlying, people want to buy houses and want to move on with their lives and buy new Redrow house and get a new kitchen and everything else that comes in it. But I think when this mortgage market settles down, which we certainly are going to see, we will get some -- it will come back to normal. So I kind of tell you in September, no I can't tell you as of to date. We're talking about 1 week. But now we're helpful to auto market. Auto market tends to be a bit stronger, but we might see a stronger winter but bear in mind that we've had a very quiet summer.

Jon Bell from Deutsche Bank. Just to explore the affordable homes point within the mix. You've already flagged that Colindale as a big driver. And I guess there's also the impact of the lower private sales rate but is there anything else? In other words, have you been able to accelerate affordable homes delivery perhaps in some other regions? And the second one is just on sales rates across your regions, I'm guessing north quite a bit more resilient than south. Any other color that you can give us there?

Yes. I mean it is quite interesting. Affordable homes delivering no. It tends to be very much [indiscernible] these days. So therefore, it gives you a bit more of a -- historically tended to be a bit more lump. If we got the opportunities, it's very few, and we'll take the opportunity where we can to make sure the premiums are still going. That's our driver really. But ultimately, we can't really switch it on and off again like we have done in the past. In terms of regions, actually, no, we're not seeing a difference. I couldn't tell you the south is any different from the north in our business. They're very, very, very similar in terms of their sales rates. And ultimately, I'd always say a good site is a good site, whether that's in the north or the south, we used to keep selling. And you're addressing prices equally across the board. So we're not seeing any particular geographical difference between any regions. Do we?

No. If we do, we will correct it.

Just 1 more, if I can. 37% cash buyers within the mix is a pretty high number. Those cash buyers are in a position of relative strength in the market at the moment, aren't they against the competitor that needs a mortgage. Are they demanding a particularly big discount of prices?

No. No. There's no. But we always price our houses to get people through the door. We're not -- some of our competitors price the house to give a discount. We've never historically done that. We've given -- we always give a price to get somebody through the door. So it's the right price. And then we try and sell them a home. The one thing you've got to remember about Redrow is, we talk about our products, constantly talk about our products [indiscernible] collection. We're very, very proud of what we do. So we make sure that when we get those people, we wow them with what we do. And that's ultimately what Redrow is all about. Showing them we have got all they want, sort of ceilings, great kitchens, great bathrooms, great space. Everything that comes with it. We are really, really, really product-driven company. And that's what we've set to our business on which many of the others [indiscernible] and things like that. We sell homes, we build homes, but we're a retail lines. We're not a housebuilder or retailer in terms of what we do. So are they demanding anymore? No. I mean a cash buyer or the mortgage person is the same to us. Those are when we come through the door. So we say that anyone that is proceedable is proceedable, because it doesn't really make much difference to us. They are in a position of strength. But in many occasions, they've got to sell their own houses. So you need a longer market to do it. But I would say that our end of the market, our customers are probably a bit more resilient. They're coming with lower mortgage rates. So they're quite strong from that point of view. But ultimately, they obviously are also relying on the sales still as well.

John Fraser-Andrews, HSBC. 2, if I may. First one is on the build costs, the 4%. Could you say whether you expect labor or materials to be more significant in that number? Or are they the same? And how long are your labor expectations locked in within that expectation? That's the first one. The second is on admin expenses. I think you also let some staff go as well as obviously within the divisions, but perhaps elsewhere. Can you give some sort of number as to the staff reduction you've made and whether for the existing staff, there will be a pay rise and its quantum this year?

Okay. Yes. I mean in terms of labor and materials, the labor makes sort of vast majority of our prices in the homes. No, materials are fairly low on that. But labor, you've got to be careful that some of the subcontracts supply their own materials. You can't particularly get the split yourself. You do some group deals. But as I said, materials are coming off, but labor prices tend to be higher. As you know, there are cost of living issues out there as well. So people taking pay cuts at the moment is on the dumping. So they are trying to keep those prices high in terms of making sure their labor is paid back, they're not taking pay cuts. So but most of the houses, labor costs more than materials anyway so for the 4%, I would say definitely skewed toward labor you're probably as much as 3%, 3% and a bit percent is a labor bit and the materials is the other percentage of it. In terms of folks, it is probably expensive, but we put a recruitment freeze in a long time ago, probably 12 months ago in terms of what we're going to do. So in terms of actual staff leaving the business, we probably lost 165 rolls in total. But in terms of the number of people leaving the business, you're talking about 120, 125, something like that through those 2 divisions. And also we'd be try to rightsize our overhead for the new shape of the business going forward. And so that's the sort of number you're doing. But we've been looking at that for a long time in terms of making something we don't take people on, on a recruitment fees.

Thanks. Matthew, just whether there is a pay rise or not this year?

There was a pay rise this year. It was the 3% across the board for the business. Thanks, everybody. Thanks for that. Thank you.