Taylor Wimpey plc (TW) Earnings Call Transcript & Summary

Good morning. And welcome to the Taylor Wimpey plc Trading Update Call. Today's conference call will be hosted by Taylor Wimpey's Chief Executive, Pete Redfern; and Group Finance Director, Chris Carney, followed by a Q&A. I would now like to hand the conference over to Pete Redfern, Chief Executive. Please go ahead, sir.

Thank you. Good morning, everybody, and thanks for joining us. I will focus almost entirely on today's statements. I don't plan, unless it's particularly relevant, to go back over the sort of statements we've made during this crisis over the last 2 or 3 weeks. Although, obviously, given we haven't done a conference call with most of them, very happy if you were to ask questions, but I won't bore you by repeating them. And just couple of Board comments before I sort of start. Two things we're not doing today. We're not reinstating guidance for this year. I think you would be surprised if we were and sort of slightly concerned. We do think we're able to map out a plan, which is largely within our own control. But obviously, there are still plenty of variables. And very much our focus is on making sure we have options, both options if conditions give us opportunities and options if conditions sort of get tougher than they are today. So it doesn't feel the time to set out significant guidance. But I am not sort of trying to draw you away from asking the natural questions that I know you will all want to ask. So we won't be able to answer, but we'll do our best, particularly where it is giving you a view on what is happening at the moment and how we see it. Obviously, where you start to want to translate that into what numbers might look like, then we will probably resist, but very happy to discuss how we see the environment at the moment. The other thing that we are not doing today is we are not calling the market. I think -- yes, again, recognized that any decision to start build, which I'll spend some time on, absolutely connects into a view about the market. But we're not saying sort of there is no future market risk, but we're not saying that COVID-19 will not have an impact on the housing market. I think what we are saying, which I will come back to, is the early signs are perhaps a bit more positive than people would expect, but also that there's certainly no inevitability to, yes, material downside in the market with the exception, obviously, of volume in quarter 2 and probably sort of into quarter 3. So we'll come back to those. But I don't want you to go away from it thinking we have a suddenly buoyancy at the market. We think there's a range of outcomes and that our plan allows us to deal properly with all of that possible range. The thing I will spend the most time on is the decision to restart construction activity on sites today, what's behind that and some of the implications and certainly the philosophy of our views as to why now is the right time, and I will then touch on the sales stats and Chris probably open up to give you a chance to talk about the movements in cash since our previous statements. I think since we closed sites, and you will remember that we were the first to take that decision and though it was our decision rather than government imposed, we've been working hard to work out how best to open up sites, particularly from a safety point of view, putting in place method statements and protocols to be confident that safe distance, in particularly, can be operated on our normal construction sites, but also looking at the changing environment, changing perceptions, how our own people feel about it and sort of what the environment is like and the process. And I'm sure you will ask questions, and we'll try and cover off some of those in advance on how we feel the supply chain will respond, whether we feel subcontractors will be there, which are obviously key parts of the decision. I think the reason we're making this announcement today, and we've sort of been working on it closely over the last few weeks is we now feel we do have the systems and processes and, if necessary, the equipment in place to be able to actively start work on site. We think that process is best handled in a staged and managed way. One element of that decision is behavioral. What was very clear, if you go back to the 20th, 21st of March, is that sort of ordinary subcontractors are not that different to the average person in the population and did not immediately naturally feel that safe distance can apply to them. And trying to make that behavioral change stick overnight with the number of people we'd have on-site would have been difficult, arguably impossible. Whereas now, once people have got used to that more, they're used to it in their daily lives, actually, we feel as well as having the systems and the processes that we can set up, there's also a much better behavioral balance with our subcontractors. And I think the strong action of stocking sites, but then supporting subcontractors, gives us the moral high ground to say to them, "These are the rules. We're doing it to protect you. We want you to do it to protect us." And we think that gives us a position that makes it much easier to be confident that our site managers have a realistic task to make sure that these procedures are adhered to. I'll talk a little bit about the phasing. And the main reason I'm talking about it is because it gives you a sense of how we're setting it out. Obviously, sort of -- I know that you'll sort of try to then draw numerical conclusions from it. It is quite difficult to do that sort of -- and our focus is on getting it right, getting activity back, getting activity back in the right way and rather than it is on how quickly can we get back and get to sort of completions and cash back. And I'll touch on that in a second more directly. But the first step of the phasing is our own site management teams, which tends to be about 4 people per site, arriving on site on the 4th of May. And they will spend that week and on some of the more complex sites a little bit longer preparing the site for return to work from subcontractors. And so preparing the site means sort of changing layouts of toilets, canteens, putting up signage, changing where appropriate and necessary some of the traffic management routes to make them wider or put in passing places, where it's an option and where it's necessary putting in additional car parking spaces to reduce or move completely the need to use public transport and also going through training themselves in the new methodologies so that when the first subcontractors arrive, sort of during the week commencing the 11th of May in relatively small numbers at first, they're lined up there and confident, and we hit the ground running in the right way. That first week, number of subcontractors will be focused towards finishing trades. But, and this is important, I said I would touch on our views on the cash dynamics. We're not chasing nearly complete plots. That first week, the reason we're bringing in finishing trades is partly from a customer point of view because we have customers in the order book whose homes are nearly complete who now want to complete. But it's also because we think it's the best way to do it. It gives us a longer lead time with our suppliers, particularly the heavy side suppliers on bricks, on plasterboard and the like, to be certain navigate, which is one reason for announcing it so strongly today. And so they've got time to plan and prepare and know exactly sort of what we want. So as we speak, buyers in individual regions are converting their plans sort of into orders and sort of that gives a time line that we think is realistic. So it's more focused on that than we want to tackle a plot and just sort of try and grab immediate plots. We don't, as you can see and Chris will come back to, have a near-term challenge with liquidity at all. So it's more about making sure we manage value. And if we steal the easy plots and sort of -- and don't continue to build sort of our pipeline for the future, then I think we hit a bigger problem further down the line. And we have a long-term view of this. Our focus is not on 2020 completions and absolute performance. It's actually on how we make sure the business is set up very well, particularly as we get to late this year and exit this year so that 2021 can be as strong and as normal as it could possibly be subject, obviously, to market conditions, which we'll come back to. And I think that may be a difference between us and others. If you are more cash-starved, though to be honest, if you have a more short-term mentality, you're more likely to take those short-term plots. We will be focused on starting to do work on new outlets, whether that be sort of planning work, we already have planning permissions coming through at the course of last few weeks. So whether that be early infrastructure work, we'll be disciplined about the amount of infrastructure, but it is not a case of stopping the future pipeline. I think even with that, with the pause and the slowdown, it inevitably will have an impact on future outlooks. But I'm making that as limited as possible is a key part of the objective. And again, I sort of go back to that may be different to what you hear from others, but we feel very strongly that's the right balance for us. So going back to the plan, week 3, we start to bring on more trades. Week 4, we're into late May, early June, we're getting towards. And certainly by early June, we're at what we see as a new normal operating capacity while social distancing rules are in place. And we're not calling whether that's going to be another month or another 6 months to the end of the year, but a level at which we think we can sustain the business profitably. The level of inefficiency is low and is very much weighted towards the extra supervision costs rather than having natural inbuilt efficiency because of the slower throughput. But we feel at a level of somewhere around 80% for our normal sites. And I don't want that to get too closely focused into mathematical models because at this point, it's an estimate, and it will vary from site to site. But it gives you an indication of what we think is realistic. But somewhere around 80% of normal capacity, we feel we can operate these sort of restrictions and rules. I think it is also worth saying that we have designed this process and this approach. So it's sustainable, not just in the way that I talked about because we are continuing to build forward on future plots but also that it is sustainable because we can adapt and control it if lockdown rules change. One of the things we wanted to avoid is a rush back to site and the risk that then actually you sort of have to then shut down again in 6 weeks' time because the rules have changed. And we feel this is adaptable and a clear sign from government since they have been very supportive last night and this morning on this decision and the communication of it. The clear sign from government is this is what they want to see sort of happen. So they will try to avoid putting any accidental roadblocks in our way. And of course, making it clear, and this is absolutely where we have started from, but our people support this, our subcontractor support this, our site managers support this. We are not forcing anybody back to work that doesn't want to go. We are very focused on making sure that anybody who's vulnerable, who's sheltering somebody who's vulnerable or who actually isn't ready yet themselves because they are fearful or they have family constraints that those things have to take priority. But to be honest, with this phased start-up, we think that will be something we can actually manage anyway, but we'll definitely start from those principles. So that -- if this goes to plan, we therefore see by early to mid-June, we're up to that new normal capacity. These sort of plans don't, at the moment, imply in Scotland. We hope that as we set out ways of working and they're clear on them, that will be one factor and the Scottish government becoming more relaxed with construction activity starting up. But it's early days to form that judgment. And I think in London, there are more likely to be more sort of constraints, just the nature of sites. And I don't think there are many sites, if any, that we would expect not to open. But with the constraints about public travel, the constraints on the size of car parks we could build and the sheer density of sites, it is harder. So I think on average, it's unlikely, but that 80% level is going to apply to certainly Central London sites, I think Greater London site and more like country as a whole. But hopefully, that gives you a clear view of the sort of structure we are accepting. Coming on to the supply chain, you can imagine on the subcontract side, people sort of response to this is very positive. People are keen to get back to work. They are very positive about the decisions that we have taken so far, both the decision to exit sites in the first place and also the support that we've given them through early payments and the pay-it-forward scheme. And so relationships and communication are very strong. I think on the material supply chain, relationships and communication are also very strong. And I think we have clear indications on all the key elements that this announcement will be one of the key steps in them regearing. And you've seen other comments and we've seen them come out to the other comments of other parts of the supply chain starting to think about mobilization. People, to a certain extent, need a lead to jump off, I think, and we think this will provide it. That doesn't mean there won't be friction, but we see that as friction rather than any one roadblock that means that the whole process holds because we cannot get hold of a particular material or because there's another element of our broader supply chain, like the valuation process or service connections that sort of isn't available. None of those things will be totally straightforward and will run totally smoothly, but we have tested all of them. And we do believe that all of them can be managed and we can get to a process at a slower rate of delivering sort of build completions and then sort of sales completions as well. I think that's the main thing I want to say on the mobilization process. I think on the sales side, sort of around mobilization, it doesn't feel tenable to us, the point when most nonessential shops are closed, to open our sales centers. It is an area our employees tend to be more sensitive about because they're not confident that sort of if somebody comes in off the street, that they will necessarily adhere to the same rules. So that will be slower. I have to say, in my view, the construction limitations will take longer to unwind for simply practical reasons. And so actually being able to get that mobilization underway sort of -- and looked away, not too far away, partial remobilization of a physical sales presence, I think, feels right anyway. I think with a strong order book, and I'll come on to the stats on that, that gives us confidence that we have the customers there for the production that we will engage in over the first few weeks or months anyway. I've seen others refer to and debates go around will you focus on sites that have a strong forward order book, will you focus on those plots? I think I've made it clear on plots that we will focus across the site. We don't have a site that doesn't have a strong order book. So sort of -- I guess the answer is yes, but that still means that if we can manage the site safely, we will be developing on it. And I have not seen all the way through the financial crisis, for instance, an environment where sales was so bad that you shouldn't actually have every site open that you wanted to. You might -- and although you possibly could. You might run them at a slightly slower pace depending on the sales environment, but you would still choose to have every outlet open. That was an option. And I don't see anything in this that is going to be worse than that from a sales perspective. I think moving on to sales more directly. We are not, as I say, calling what the housing market is going to do, but we have been pleased both by the performance of our own teams and our own systems. Sort of on the sales side, we have kept more salespeople on furlough than most of our competitors. We have a salesperson who came from each site who is sort of still responsible for that site. They stay in regular contact with every customer in the order book. I know others in the sector have gone to more sales management teams doing that, but we feel it's important to have somebody who knows the site, deep in -- yes, sort of in-depth and actually so the customer have the confidence of talking to somebody they probably met before. And certainly, if it wasn't the main sales person that they spoke to, it was somebody who sat next to them and who knows the ins and outs of the site. And we think that's pretty important and helps and that also gives as a good read across of confidence, and we have not seen our customers sort of looking to exit. Now we all know that if prices fell, as we go through the next few months, then that's the sort of thing that would trigger more meaningful cancellations. But at the moment, that's not what those customers are expecting or want to happen. They will wait and see to a degree. But one of the elements that we think will come from starting a construction process is even more confidence in that sort of environment. And you can see from the stats, cancellations have been, I think, surprisingly low. We've quoted it as a percentage of the full order book, which I think is a fair way of doing it. So -- I mean I pointed out perfectly validly that we should perhaps create it as a percentage of the private order book, which is a fair point. If we did that, it will be something like 1.4%. So I think it still tells you the same story. Just as an aside, we've also quoted the level of exchange as percentage of the whole order book, but it would still be pretty close to 50% if we go to the private order book. It's something like 44% or 45% from memory of the private order book. So the level of exchanges is strong, and we have continued to make exchanges. On cancellations, the level of cancellations in this, sort of the statistic that Chris used in the phone call last night and I hadn't quite made this comparison but I think it's quite powerful, the number of cancellations we've had in the last 3 weeks has been slow -- has been lower than the number of cancellations we had in the same 3 weeks a year ago. So it does give you a sense that, yes, forward reservations are slower than normal, but cancellations have not suddenly spiked. On those forward reservations, we've taken, I think, 285 new forward reservations since we shut our sales sites, and those have happened by Microsoft Teams, by other video conferencing methods and by phone. And the majority of them are people who had already visited the site and aware of it, although it is important to remember that the vast majority of our customers anyway come from so close to our sites for their current homes, but they're used to the sites and know them anyway. But we have also taken sort of reservations, which have been totally new from people who haven't visited the site before. We haven't -- and this is a trading update, we're on the call, we haven't put up our usual charts looking at forward sales activity. But I think the most significant one is probably website visit because it just gives you the simple snapshot of level of interest and activity. That is down year-on-year, but it's down from, I think, 540,000 hits to about 495,000 hits. So it's down about 8% or 9%. So sort of -- I think if you said to me you have to physically close all your sales offices and everybody is going to be staying at home from a pandemic and you're still going to make sort of net sales and have 90% of the same level of interest, then I'll be pretty surprised. As I say, none of that says, "Oh, everything is fine with the market. It will all be okay." But it does give you a sense that there is a natural resilience sort of out there. And I think as we open up sites from a construction point of view, that will give our salespeople a strong lead to talk to both existing customers and new ones and start to let us complete on some of the near-term plots in the order book, which, as I say, is more for us about getting customer service right than it is about an immediate need for cash because very much the focus is on a normal sort of a stable, steady return to work as in so much as it can be managed in this environment. As I say, I won't dwell on many of the other issues. Chris, do you want to talk about cash and probably pick up anything else that I've missed?

Yes, of course. So good morning, everyone. The GBP 836 million gross cash position as of yesterday translates to GBP 198 million of net cash, which is GBP 33 million more than the GBP 165 million of net cash we reported at the time of our last update a month ago. We've taken nearly 900 legal completions over that period with the majority in week 13, the last week of Q1, which is typically a busy week and also happen to be the week where we were closing our sites up. And some of those 900 completions also took place during April, where customers expressed the desire to move into homes that were already fully built, complete. Contracted land payments during the period since that last update have been relatively modest at GBP 16 million. But we have not skimmed at all on payments to subcontractors and suppliers, and in fact, we've sought to make payments as fast as we can process them because we strongly believe that that's the right thing to do. And that has resulted in payments to suppliers and subcontractors in excess of GBP 200 million over that period. Looking at the future liquidity and the cash outflows associated with, I suppose, the remaining unwind of our trade credits position, our existing land commitments and our ongoing operating costs, we are very confident that even in a scenario where our sites were to stay closed all the way through to the end of the year, which obviously on the basis of today's announcement looks very, very unlikely, we'd be very confident we have enough liquidity to see us through that. And having said that and as you will have seen from our previous announcements, we're taking the preservation of liquidity very seriously. We've stopped a discretionary land spend. We canceled the dividend. We've drawn down the RCF, and management have obviously voluntarily reduced remuneration as well. And although we demonstrate that I think that we're taking all the right actions to preserve liquidity, we don't anticipate our sites remaining closed, as you can see from today's announcement. So our balance sheet remains strong. And so our focus on cash and liquidity is geared much more towards opportunity rather than survival, and I think that's a really important point to stress. And then the other thing that I'll pick up on, and it is probably a very obvious point for those of you who are close to the company but one I think that's worth emphasizing, we have a huge amount of experience across the whole of the group management team. And within the operational roles, I think I've clocked up the least time in the industry at 14 years, and all of my colleagues have significantly more time under their respective belts. And that combined experience of both the good times and the bad really matters at times like these, I think, to all stakeholders, especially employees, but subcontractors, government and shareholders, too. And hopefully, you can see that in the way that we're communicating and I think the different approach that we're taking compared to, say, 2008.

Thank you, Chris. I think, Sarah, if we could open up for questions now.

[Operator Instructions] And our first question comes from the line of Brijesh Siya from HSBC.

I have 2 questions, if I may. The first one is on the supply side. You talk about the supply size -- side is aligned to your plan. How confident are you about these big supplies, which takes obviously a couple of weeks to fire up the kiln and start producing again? So I'm trying to look at your inventory and how much supply is with you and how long it can last before the supply chain is fully streamlined. And the second question is -- relates to, obviously, on the pricing front. You talked about the pricing being in line with Q1 over the small 200 units, which have [ take in consideration ]. Have you seen any kind of price negotiation people are trying to entering into? And -- or any color on that would be great.

Yes. So if we take bricks as an example -- and you can imagine, we have had very detailed conversations over the last week with all of our main suppliers. So we know what stocks there are. We know where they sit. We know sort of to what extent they are allocated, either specifically to us or potentially on call or for us. So we have a very good handle on where things sit. If you take bricks specifically, we actually went into this crisis as a country with more than usual stocks of bricks. Some of the excess stocking that we had talked around sort of through last year over the Brexit process was still in underlying brick supplies. And actually, the level of capacity in the first quarter in the industry as a whole ran ahead of what the demand actually was, that I think the step-up in volume was quite as big as has been estimated by brick manufacturers. That means for mainstream ordinary bricks, the vast majority of our sort of requirements, actually, stock levels are good. And yes, we are confident there are enough to buffer that sort of initial start-up period. And some brick manufacturers have also kept some of their kilns running, which is at least partly to do with the nature of the kilns and their age and sort of what's most efficient for them. Sort of -- I think what you cannot rule out, and it will be -- this will be true to some extent, is there will be exceptions. So if you're looking for a very specific soft mud brick on a bespoke site sort of -- and that kiln has been turned off and stocks have been worked out on that, so there will be exceptions. And that's why I think you actually will see prices arguably on materials go both ways. So you'll see in some places where suppliers actually need cash and there isn't the level of sort of demand or activity in the early weeks, and you'll see some areas where relatively short stocks are in short supply. So yes, you'll see both movements there, I think, and it'll be quite specifically related to individual items. And you can sort of extrapolate that same thought process across quite a lot of the supply chain. So -- but we have thought through the timing. And whilst we think the phasing of the timing we're talking about is absolutely right from a safety point of view, we also think it's right from a supply chain point of view. So we know when we are going to need plasterboard and in what quantities, and we know how that ties into suppliers' plans. So there will be -- you'll probably hear the word friction a lot, but friction rather than sudden stoppages. And I think that does make it hard for us to be absolutely clear on what we're doing next. We are not setting volume targets for our sites because we want to be very clear they do it right. But we're going into this not expecting that, suddenly, a site will have to stop for 2 weeks because we cannot get sort of critical materials. A lot of planning has gone in to make sure that we understand those limitations, some tweaks to exactly what materials are used in specific circumstances. But overall, we think the supply chain will be there. It's just the 1 or 2 specifics on individual plots with a slightly more specialist that they'll properly need to friction. And then just going on to the second question on pricing. I mean first of all, a lot of it depends on how we go into it. And we have not gone into sales in this period chasing sales. We -- our primary role for our sales peeps has been maintaining contact with customers. We have, to a certain extent, deliberately driven website traffic, and then we have seen sort of what comes out of that in terms of potential new sales. And so we have not been looking to sell at a discount, and we haven't been selling at a discount. And we haven't had significant pushback from those customers on that. In any environment, you always get one person who comes and says, "I think I should have a discount on x." But that is very much the exception rather than norm. There is no sort of underlying expectation there that we're going to sell at a discount in the near future. And in fact, if you looked at the prices to date, sort of -- and this is obviously consistent with them being at the same level we were selling up in the first quarter. They are still ahead of the price that we were selling at in the fourth quarter of last year, having pushed up our prices at the beginning of 2020. So we haven't gone backwards from that position. I think if you are trying to reconstruct a 2020 P&L, it's very tough. But we will tell you when we report if we're seeing pressure on prices, and at the moment, we're not seeing that.

And your next question comes from the line of Aynsley Lammin from Canaccord.

And 2 for me as well, please. Just firstly, obviously, you're looking at all the supply chain issues and, with the exception of friction, fairly comfortable there. But just when you look at the whole kind of infrastructure around building, selling a house, whether it's NHB inspectors, the mortgage providers, solicitors, I mean, are you comfortable that enough of that would be in place to kind of get to the 80% capacity you were kind of thinking about? And then the second question, just on the subcontractors. I mean presumably with social distance in place and you get to 80% of normal capacity, what do you do in terms of pricing for the subcontractors? Do you kind of adjust prices downward because there's less productivity? Are they paid kind of by the job rather than hour, et cetera? Just interested in your thoughts about how pricing for sub is -- changes.

I think on the wider sort of questions, I kind of build this into the whole supply chain answer to a degree. So the NHBC is still operational, although it has furloughed a large number of staff. But we are confident talking to them that they will respond to demand. And again, the time line we set out, let's just say we're going to want this level of inspection sort of in 2 weeks' time. And if we suddenly click -- I think as been said we want those tomorrow, they're ready, then that will be tough. But we think we can get them. And what we are picking up is the timing is right. But sort of -- as long as people can look at it and say, yes, we understand the rules, we understand how that fits in, people want to make that step. So all of those bodies not -- this is true sort of not just of the NHBC. It's true on sorts of connections. It's true on valuations. It's true on conveyancing. Conveyancing process can generally be sort of done totally remotely. I think we saw some what was with it at the end of March and early April because I think they were -- because it's a series of small businesses, they were less set up to cover working from home and the like. But we've seen that then stabilize. And from a bank lending point of view, which is obviously key, I mean, we have sort of information on this, but so do you. And actually, if you put it together, you get a consistent sort of picture of banks starting to normalize their lending, sort of not quite back to normal yet. So definitely, our focus towards Help to Buy and therefore new build, but starting to get back to a more normal loans to value. Because of the strength of the order book and because of the fact that the action they took on extending mortgage offers sort of means that we have some time for that to fully normalize. And of course, you're then having an estimate of about what's a reasonable expectation as we get on to completions needing to come from new reservations and therefore new sorts of mortgages. Sort of if we -- again, if we try to get up to 80% tomorrow across the board, I think it will be challenging. But as we see it staged through, we think that's a realistic balance. And you are starting to see a real sea change in a sort of a will to get things done. And again, sort of setting out strongly sort of with government support sort of actually give something for others to base their plans off.

And just on the subcontractor cost, any change?

Yes, sorry. And it's hard enough. To be honest, Aynsley, it's one I probably will slightly duck because it will come back to relationship with individual subcontractors and the circumstances. So sort of the vast majority of our subcontractors in the large firms will come back to site, I doubt there will be very many, sort of because they know that we will have put the rules in place and that gives them the credibility with their own people. I don't think there will be many who won't. But we won't really know until we get into that, whether there are any shortages in different areas. I think there is more likely to be, sort of if we get this right, more sort of people proportionately relative to what we're doing than there was sort of before. And that will, in the end, lead to downward pressure on prices. But I wouldn't want to give you a sense that we're going to be going out there aggressively on day 1 and saying, "You can come back to site if you go do it for 20% less." We will feel our way through that in a way that is sort of, okay, if I can put it, as commercially sound but sensitive and let it find its natural balance over the course of the next few weeks. So I probably want to give you a better update on at the half year sort of rather than now.

And your next question comes from the line of Arnaud Lehmann from Bank of America Merrill Lynch.

A couple of question on my side. Firstly, could you give us an indication of your monthly cash burn, whether you give it like before any cost-cutting initiative or including the following, when you said that even if nothing happens before -- between now and the end of the year, you would still be in a comfortable situation? Could we have a feel what's your cash expenses on a monthly basis in the current environment? That's my first question. My second question is just on your financing. You said you've drawn down on your credit facilities. Is there a significant cost associated with that? I mean what's the overall cost of your -- of the debt right now?

Can I hand both of those straight to you, Chris?

Yes, absolutely. So dealing with them in reverse order. Yes, we drew down. Is there a cost? Yes, but clearly it's not a significant one. The -- as you'll appreciate, are relatively low. And obviously, the amount of that cost depends entirely on the duration of the drawdown. So -- and we will monitor that as the sites get underway and we start to generate inflows. I think in terms of monthly cash burn, yes, we've done detailed analysis. And as I said in the intro, we're very confident that we have more than enough liquidity to get us through certainly to the end of this year, and that's in a scenario where sites are completely closed down. So I think, to be honest, with today's announcement and moving towards opening sites, I think that starts to become a slightly irrelevant question, just in the context of moving forward and having the ability, hopefully soon, to start to liquidate the work in progress positions that are on our sites.

And your next question comes from the line of Clyde Lewis from Peel Hunt.

A couple, if I may. Obviously, the government's last advice really was not to move home. How are you sort of -- how are you getting around that? And sort of where are you, I suppose, with the sort of discussing with the government with regards to sort of what's going on? Because there's been quite a mixed message. On one hand, they're saying don't go to work, we don't have to. And the other hand, they're saying construction is still fine. And then obviously thrown in that, that moving home issue. So that was the sort of first question. I suppose the second one was on -- I mean you talked about the wider construction. I think, Pete, you referred to sort of some planning being granted in the period. And sort of attached to that, I suppose, if you can sort of tell us exactly how that process is going within local government because, again, I'm sure there are some sort of technical issues as well as sort of legal issues about taking decisions sort of -- not on council sites, council properties, et cetera, and where your thinking is on new sites. Clearly, you're going to be completing sites more slowly than you might have done. But are you at all tempted to open up any new sites in the next few months at all?

Yes. So in terms of the moving home process and government communication, I think I find it difficult to be too critical of government on their communication overall because I think it's sort of it's easy for us all to be armchair pundits and not sort of really reflect whether we'd be able to do a better job or not, I mean consistency of communication, if we sat in the same place through this. So yes, there is inconsistency there, and that did kind of make that sort of week to 10 days kind of difficult to get the balance right. But actually, it's a fast-moving piece. And I think their position is reasonably clear that sort of they would like to see construction activity. They'd like to see -- and we took our own decision on sales, but my judgment would be, if we had said we were opening sales offices, that, that wouldn't have felt right from a government point of view or for the person in the street and whereas I think that the environment is right for an opening of construction sites. And I think when it comes to moving home process, it's a bit like many of the other sort of things that have gone wrong out there. You have to be careful and real and sensitive about how it is performed, so whether you do it through a lockbox handover of keys or sort of some independent dropoff. For most of them, actually, our salespeople have, from a distance of far more than 2 meters, sort of welcomed customers into their home, but without any physical contact. And it is possible. We have deep clean processes that mean -- I mean we have to deliver homes -- sort of have had an extra level of -- almost surgical clean. So there's all sorts of things like that around the process that I think are really important. And again, I go to if tomorrow we were trying to sort of operate to 100% of capacity or even if tomorrow we would try to operate to 80% of capacity, I think those things will be a limitation. I think to start and build up, we get to a better place starting early and building up steadily than if we wait longer and then try and do it in a rush. So yes, we know that can happen. Whilst government did say we sort of -- it was 3 weeks or so ago, they were specific about moving home. And actually, they have actively moved towards sort of encouraging some of the opening up of bank lending and the other things that support moving home. So I think life has already moved on. And we've had feedback both directly and publicly. In fact, my letter to [ Alex Hall ] may -- he read out of the select committee, today is a good example in terms of our remobilization of industries taking a moral position but also returning to activity. So you can see there is a level of support and you have to have confidence, I think, then but -- subject to the challenges of communicating consistently at this time. But actually, the support will be there. And when you look at some of the obvious sort of questions, which we can't answer today, but what will happen to Help to Buy, will there be a stamp duty kind of holiday or change, which are sort of obvious things that are being talked about, it is early to judge. But we are not sort of holding bated breath and depending on that because I think the level of activity will be slow to start with. I go to the signs we see are more positive than actually might expect. But we will be sort of reviewing those pretty carefully as we go through the next weeks and months. I think on new sites land planning process, et cetera. So we have, I think, 3 planning applications that sort of have received approval in a remote sense, including the first one, which was reasonably significant. Yes, the planning system is not operating normally. You would be amazed if it was, but it's sort of starting to operate. They have changed the rules to allow remote meetings to be held, how long that will last and whether that will ever be the consistent sort of norm over the next kind of few months across different councils. Some councils have the resources and the energy to do that, some do not. So it is piecemeal. I think would we consider opening new sites in that 3, 12 months? Absolutely. I mean in the sense, I think I already said that. But there is no quantification there. If we have a site that sort of we have a planning permission on where the level of infrastructure is not ridiculous, so inevitably always in down certain times, you're less likely to start a brand-new large high-rise scheme because of the level of bit of abnormal housing sites. Generally, I go back to I've never seen an environment where you wouldn't rather be out open even if you are more cautious in an uncertain environment about the scale of WIP and therefore the scale of sort of sales rates that you assume. And I have a similar but slightly further off view on land. The land market does not tend to adjust immediately. You always have a very small number of desperate land sellers whose timing is just unfortunate for them. But broadly, I don't see sort of a kind of a normal land market resuming over the course of the next few weeks. But over the next few months, it may and that we want to be in a position to take advantage of opportunities.

Okay. Then there was one quick follow-on. I wondered, I suppose, sort of whether or not you will extend out, either side, your working hours on site. I suspect there are probably sort of local council sort of rules that might limit that. But would you like to sort of start at 6 and finish at 7 or something? Is that something that's possible for you guys over the next 4 to 6 months?

We would and particularly staggering. That enables us to stagger sort of canteen facilities, but particularly signing in books and the like. And so our working practices sort of do aim for that. It will be one of the sort of specific actions of next week before we get back to sites and the following week when our site managers are on site to work that through site by site. We think local authorities will broadly be supportive of that, but we do want to be even more sort of aware and careful with our labors on site than we would ever normally be. So we normally try and be pretty careful and pretty cautious, but actually sort of making sure that if they are at home, that we are aware that they are at home and that actually sort of their awareness of site activity is therefore greater. I'm particularly thinking about issues like subcontractors parking on a sort of existing occupied streets, which is a continual battle for us anyway. We're always going to warning our subcontractors off that, but you can imagine this particular set of circumstances. That is particularly important. So there's a few things there where we're well aware that we're going to have to manage it carefully, and working hours is one of them. Yes, we would like to extend working hours so that we can stagger people and have less individuals on site at any one time. I think a lot of councils will be supportive. I doubt they all will because that's the way these things tend to be.

And your next question comes from the line of Will Jones from Redburn.

Yes. So 3, if I could. First is just on build rates. It was very helpful that you gave a broad number around potentially getting back to 80% of the capacity, but clearly heavily caveated. But I guess then the question becomes, what was your capacity? And I know, obviously, last year, you sold at around one per site per week. This year, you're going to read that back to 0.9. But presumably, last year, you built to something similar to the one. You made big virtue of building up the factories and the build teams and stuff over the last couple of years. So how would you encourage us to think about what the capacity of the business might be on from a build rate perspective?

Yes. I think I would start from sort of the sales rate for this year. And to be honest, the 80% isn't scientific enough for it you to get a materially wrong answer if you start from the slightly higher sales and build capacity of last year. The difference is not great enough. I think you lose it in the roundings. So yes, if you think of 80% of that sort of level on average, that's essentially sort of what we're talking about.

Understood. That's great.

And so I'm sorry, Will, you asked another question, and I didn't make a note of that.

No, no, no. And you answer it. It was -- the second was on sales rates and you said that how that might have the ability potentially to bounce back more quickly than build rates. But I guess just big picture, to what extent would that potential be curbed by the fact that you're not able to reopen show homes and sales centers and have all your staff back on site. And you mentioned, I think, in the release about being governed more there around the government's nonessential retail advice. Any kind of hints on when that might change? And then just to be clear as well. Are -- presumably buyers can't visit the site at the moment or can they? Just -- that the only physical visiting really for the handover of homes. I don't know, just any color on that because it would all feel like that there would reasonably be constraints on ability to sell, although, obviously, the last 3 weeks have been reasonably encouraging in that context. And then the last one which is really in the chemical one. Can you remind us when buyers do come in, the reservation fee, is that just a few hundred quids? Quite small, isn't it, from memory. And then deposits these days in exchange contracts, is that more -- obviously, with Help to Buy in mind, is that more to 5% mark than 10%? That would be great.

Yes. No, no. No problem. So -- and I'm not sure I captured all of that, but let me work backwards through it. So yes, reservation fee, sort of few hundred quid. Yes, sort of exchange fee, aim to 10%. We do sometimes accept 5% on sort of Help to Buy sort of for obvious reasons, given the deposit constraints. I think the sort of initial question and the core question, yes, I'd probably just mix it to sort of make my comments clearer. The way we thought about starting up sites, I mean it's the same as starting up sales. It's from a key 0 concept. So we haven't spent the last month agonizing about when sort of lockdown will end because it feels like a fairly fruitless exercise. You have a date in mind. And for us, effectively, that T-0 is now the 4th of May. So we have now fixed that. And we know what we think is the right sort of platform from that date and what the right buildup sort of profile is. What I'm saying on sales is once you get to that T-0 date, which I do think is slightly more dependent on government advice in the construction date, given where government advice was on construction, when you get to that T-0, our practical ability to, yes, return to normal from our point of view, from a sales perspective, is much quicker. We don't need a month's phasing on the sales side to get back. We don't have many people on the site. It's much simpler and clearer what the rules are sort of when you have a small -- yes, and it's simple things like not -- sales execs not showing customers around show homes since we have far more ability than we did 8 and 5 or 6 weeks ago to do things remotely anyway. So the whole series of things that we can do. So it's more look at -- yes. So I think to say -- and this is totally speculative. So please don't sort of -- kind of place any store in the date. But say the return to sort of relative normal of the first retail outlets and we will -- but with social distancing in place, happens at the beginning of June, a month after we have our site managers arrived on site, I'm not saying that suddenly sales rates will get back to normal. But I am saying that we'd absolutely be in a good place very quickly to do our part of the sales process at an almost 100% level very quickly. So -- and then we respond to the market. Whereas on site, those social distancing rules are more complex and take longer to put in and have more of a constraint. So does that make sense?

Yes, very clear.

Thanks. I think there was another small question about customers visiting sites. I think, yes, technically, sort of -- I think it would be hard to classify it as an essential operations. So I think technically, people couldn't, albeit you do start to see just more people sort of using their daily exercise for slightly sort of more variant trips, don't you, but -- I think technically at the moment. So that would be hard -- and we certainly won't be encouraging customers to sort of visit sites [indiscernible]. But I think -- I do think most expectations, and this is true for the retail outlets are, that a month from now, it won't be back to normal. But if it hasn't already been sort of released to a reasonable -- or at least have a clarity on when it might be, if that makes sense.

And your next question comes from the line of Gregor Kuglitsch from UBS.

A couple of questions just for me. So the first one is just in terms of the speed of taking legal completions. I know you don't want to give forecast. But under the scenario that you've painted in terms of getting everything going kind of by mid-June, the sort of mid-May and then obviously full operational or whatever you called it normalize by early June, what's actually realistic in terms of how quickly can you say -- I don't know if we take till the end of June, how many completions do you think is sort of realistic in terms of the conversion of the order book, right? Just if you can give us a broad sense. I don't want to pin you down to a specific number. And then the second question is on the operational inefficiencies. So in a scenario where, I guess, we are at social distancing, say, for the remainder of the year and you operate at that 80% level, what's your best estimate in terms of some margin drag, everything else equal? So assuming, obviously, pricing and so on is stable. But just in terms of the OpEx inefficiency loss that you get as a result of running kind of 20% below normal, just so we can at least have a bit of a reference point for that. And then, obviously, we can take our own assumptions on the macro.

Yes. I'm quite pleased that we've gotten this far into conversation before we got to questions, but I kind of have to say, I can't really answer. And of course, we can guess. But at this point, on both of those, it would be a guess. So I think we are clear that the process we're talking about sort of can get us to a point by the middle of June, where we can operate an individual site in a sufficiently efficient way that we feel it is worthwhile. Otherwise, clearly, we wouldn't be doing it. But I think sort of if we start sort of guesstimating, and we genuinely don't have an estimate of how many completions by the end of June because that's not the focus, sort of it's about -- and actually, I want us, and to be honest, I want you to be pretty relaxed about whether completion comes in, in the end of June or the beginning of July because it starts everything off on the wrong foot if you're immediately chasing for a sort of 6-week completion target in this sort of environment, it's the wrong priority. So I'm afraid I'm just not going to put a number on that one at all. On the efficiency one, sort of it's -- I can't put a quantification on it. We obviously have some estimates. I think sort of -- we don't see a huge amount of additional cost. There might be a bit of extra supervision cost. But effectively, our sites tend to now run with more supervision than -- and we're certainly not saying we'll reduce the number of site managers on the site. So if they run at sort of 80% of the production level, we'd probably keep more or less the same staff, but that's just on our site management teams. And as we talked about, there's some upside on subcontract costs sort of as well as some downside. So I don't think -- apart from, obviously, for the first 2 or 3 weeks, I think once we get into June and certainly July, I think the level of cost efficiency drag that we see on a site-by-site basis is not particularly material. But because of the timing of where we are with the half year, I think if we get into kind of trying to guesstimate what half year numbers are, then I think sort of we'll not be focusing on the right things internally or externally.

And your next question comes from the line of Chris Fremantle from Morgan Stanley.

Most of my question has been answered. But just on the cash and the revolving credit facility, just wanted to ask there. Can you give us as much detail as you can, please, just on the covenants attaching to the revolving credit facility? I appreciate what you said about restarting activity. I appreciate that you're on the front foot as opposed to in defense mode. But just so that we can understand, in a downside case, how that limits -- how those covenants might limit your room for maneuver, as much detail as you can, please, on the covenants attaching to the RCF, please.

Chris?

We -- you're quite right, Chris. We've not disclosed details of our banking arrangements. But I can say that we have a syndicate of familiar High Street banks and financial covenants that are typical for our sector, such as maximum gearing, minimum tangible net worth and minimum interest cover. And they all had substantial headroom at the start of the year, as you would expect. And our next test date is the end of June on a 12-month rolling basis, and we fully expect to remain in compliance with those.

Would you expect in a downside case that you were describing, where we had very limited activity for the remainder of the year, appreciate that's not what you're saying in the base case, but would you face an interest cover problem in that scenario?

Yes. I mean it's difficult to say. I mean I think you're describing a scenario where sites are locked down for the rest of the year and also, on top of that, we can't take any more revenue whatsoever, yes? Now obviously, the [ interval work phase ] if you're not generating profit, and in that scenario, you wouldn't be able to, then you start -- yes, you start to sort of come under pressure in that perspective. But I mean, even if we didn't take another legal between now and the end of June, I'm very, very, very confident that, that would not be a problem at the test at the end of June. December, obviously, that would be a very, very extreme scenario on the basis that -- of what we're sort of announcing today in terms of the remobilization. But yes, presumably, definitely, there would definitely be more pressure on interest cover in that scenario.

Okay. That's still helpful in terms of trying to underpin the downside.

And your next question comes from the line of John Messenger from Redburn.

Two, if I could please. One is just on coming back to the point about protocols and how you're actually building. Can I just understand where are the biggest challenges? And I'm just thinking about the whole social distancing. Would it be fair to say that it's things like dry lining and those areas where there is a bigger bottleneck or an issue in terms of trying to actually do what you want to do? And how are you getting around that? And then the second one was just on the supply chain. Is your view on supply materials based around effectively direct supply from manufacturers? Or are you relying on some opening up of the merchanting system in the next few weeks for that date in May? And I guess you may have been focused on that, given your position, obviously, inside one of the well-known merchants. So those are the 2, if I could, please.

Yes. And I think sort of in terms of site activity, we talked about one of the bigger areas and I'll talk about another. So one of the biggest areas is, and I'm going to use a gas catchall kind of piece for it, but it's the generalized site interaction. Actually, not when people are doing their active jobs. So not when bricklayer, they're laying bricks or painters are painting. It is relatively easy for us to segregate, for instance, any of the finishing trades in a house. And we've had discussions about and we will review is that one person per floor or one person per house. But it's quite easy for us to set up signage. In the same way we think about it if you -- with electricity, connections. If an electrician is working on a house, they have a padlock that isolates the unit. And we have a similar sort of system with signage that says if somebody working in this house, don't come in. And that's relatively easy. So similarly with bricklayers, you've got to think through, which is what we've been doing, things like loading out because naturally sort of bricklayers would have juniors loading out for them. But people don't carry holds anymore, you load bricks out by forklift. So actually loading out in advance and having stage work, it's pretty straightforward to do. So the first category is those generalized interactions. It tends to be in the kind of loosely social area. So toilets, canteens, sort of signing in areas. Areas where everybody passes through. So that's where staggering site times sort of taking meetings and things like that and site managers being held outside rather than inside, sign in books being outside because we've tended to favor signing in books being inside manager's office. So he naturally sees first thing in the morning who's arriving on site and sort of -- and obviously, in this circumstance, a different set of priority. So we're moving them outside. The other sort of area which was difficult and where I think we struggled slightly with the construction leadership council rules and where we think there is a need for a specific PPE as in visors and sort of mass masks. Is -- there are a certain number of jobs, which are inherent to 2 person. Largely due to carrying a certain weight, they have been designed for 2 people. And you caused a whole series of other issues if you then try to move lintels or heavy windows or jumbo stairs with one person. Then you're kidding yourself if you think they're not going to come within 2 meters of each other, and that's where we think PPE has a place. Sort of so that actually those specific parts of the job, which can only be done by 2 people work in close proximity, we'll be aiming for PPE to be there as people start. And I think there was another question, John, sorry.

Yes. It's on the supply chain in terms of obviously forgetting materials on the sites. Yes. Are you really thinking direct? Or because of your role at Travis, is there a view that actually the merchanting guys are going to slightly flex their existing policies with a view to that date on the 9th of March that will bring in the smaller items and the infill product that you're going to need to actively kind of do what you're doing?

So obviously I can't, in this context, comment specifically on Travis, it wouldn't be appropriate, except to say what I would know publicly, which is that they have said they're starting to look at how they open up the click and collect orders for general builders as well as sort of emergency supplies. And they haven't yet put a date on that, but I think they're sort of well on with that. But our plans are largely based on direct supply because that is predominantly how we work. So it tends to be our subcontractors who then buy through merchants rather than us directly. But we do start to see -- in the same way as in other areas, we do start to see a slow but gradual opening up of the merchant sector. If you look sort of at the moment, you can see things starting to move. And again, I don't want to sort of point to anything too specific because it's sort of commercially sensitive to them. But sort of I do think that will start to move.

And your next question comes from the line of Marcus Cole from Liberum.

I was just wondering if you'll answer a quick question on the dividend. I was wondering what level of activity you need to see for readdressing dividend policy.

I think it's not so much, Marcus, the level of activity, and it's too early, I think, to make sort of comments about what the main drivers would be. It's more about underlying certainty of environment and sort of -- so yes, I don't think it's -- we need to get to 80% and see it. Obviously, it will depend on confidence in the sales market. It will also, I think, depend on being sure that sort of we dealt with the health side of this crisis, which clearly we're not at the end of at this point. So we need to see those things not wholly resolved, but certainly to be moved along much further than they are at the moment. So I don't see that as being a near-term thing. I think the thing I could say is people should absolutely not get themselves up to expect us to comment on that in a meaningful way at the half year. Sort of -- and beyond that, we will just have to see. But it's more about the broad environment than it is about any specific measure or trigger of activity.

And your last question is from the line of Ami Galla from Citi.

Just a couple for me. My first question is really a follow-up on planning. I mean I'm wondering what sort of flexibility do you have on your existing permission if you have a larger site which you choose not to proceed with. Or do you materially change the phasing of a larger site? Does that impact your existing permission? My second question is on Help to Buy. If it does get extended in the second half, should we be assuming that there could be some level of upside to the initial intake land margin on plots?

I think on the first question, relatively easy to answer. Generally, sort of the phasing is within our control. And so generally -- so there is no direct contractual link within that information, the timing of the phasing. The exceptions tend to fall into 2 different sort of categories. One, on the new side, particularly with large infrastructure, that can be infrastructure which we are required to put in before completions can go past certain level. Now we looked at those at the moment. So I don't think there's anything that you would need to sort of model in to take account of that. It does not have a big enough and broad enough effect. It's a handful of larger sites. And generally, we would expect -- in the same way as we would expect, it is highly likely that planning permissions will be extended, which is not a particularly big issue for us because we're normally well on with planning permissions as well before they come to the end of the day. But for smaller developers, that's quite important. So to say we expect it to be extended anyway. But in the same way, I would expect local authorities to be quite linear with some of those timings under this kind of circumstance. I'm sorry. Could you just repeat the second question, Ami?

The second one was really on Help to Buy. If the taper does get pushed forward to later years, does that really mean that what you had budgeted in terms of sales rate on potential plots that you were acquiring, there's probably an implied upside to the initial margin?

I think sort of I'd be -- I think I'd have to be brave to count it in those terms. So technically, you are right. I think we see Help to Buy in a sense as a balancing kind of position in that it does -- and if the market's more challenged, I think there is a much greater likelihood that it is extended. And so sort of rather than a big upside to what our original assumptions would've been. Now of course, there's a scenario where what you've just set out is true. But I think it'd be optimistic to say that house prices will be higher in, say, 18 months' time than they would've been anyway because of the effect of Help to Buy. I do think there is a much stronger argument that actually this is another factor that extends the current cycle in a way that is actually quite beneficial for us, because in some sectors, there will be the elements of a sort of cyclical correction in this. And if there is government support that actually sort of support the housing market and underlying supply/demand sort of characteristics are obviously in our favor, I do think, again, you have another set of circumstances, which means that interest rate increases are probably pushed further back. So I think there's a -- the positive piece from a market point of view is if you get through the next sort of few months and confidence is intact and redundancies and unemployment are not a significant problem, then I think you could look to a longer sort of run of a stable market. But I would struggle to look for outperformance on sites that have already done on the base of price of [indiscernible], I think. Yes, too many things would have to go right and nothing would have to go wrong for that to be the right balance of judgment at this point.

And that concludes our Q&A session for today. I will now hand over back to Pete Redfern for your closing remarks.

Thank you, Sarah, and thank you, everybody, for the time today. I hope, as John said, that everybody is well and stays well and so are the ones that are close to you. Take care, and we will look forward to catching up with you properly at the half year, although there still seem to be an environment where there's an announcement a week, so it may be before that. Take care, and see you soon.

Thank you for joining the Taylor Wimpey plc Trading Update Call. This call has been recorded and will be available to listen on demand on Taylor Wimpey's website later today. You may now all disconnect.