Taylor Wimpey plc (TW) Earnings Call Transcript & Summary

Hello, everyone, and welcome to the Taylor Wimpey Trading Update Call, and thank you for your patience. My name is Devy, and I'll be coordinating today's call. [Operator Instructions] I would now like to hand the call over to your host, Jennie Daly, the Chief Executive of Taylor Wimpey to begin. So Jennie, please go ahead.

Thank you, Devy. Good morning all, and thank you for joining us. I'm joined as usual this morning by Chris Carney, our Group Finance Director. So you'll have already seen the trading statement this morning, and I'd expect much of your focus will be around what we're currently seeing in the market. So I'll concentrate my introductory comments there. And I'll give you a bit of color on how we're managing the business in the current environment before we move on to your questions. So from [indiscernible], I'm pleased to say that despite the backdrop, we're on track to deliver group operating profit for 2022, in line with expectations. Although the ship of that will look a little different than we anticipated with good completions totally flat on last year. This performance has been achieved through the dedication and hard work of our people across all of our business for which I thank them and through our continuing focus on margin and are driving to deliver operational efficiency, ensuring that we deliver maximum value for our stakeholders. In line with our strategy of operational excellence, we remain focused on cost control areas of business, including appliance and procurement and, of course, benefiting from our last strategy. Despite continuing in terms of the operation of the planning system at all levels and the challenges and frustrations this presents to our business and teams on the ground, I'm extremely pleased to see that their focus has been rewarded by the increase in outlets coming through. This is also a testament, I think, to our strong land position, which gives us and so our customers more choice. While providing the business with the opportunity to adapt more rapidly to the market conditions in front of us. Since I last spoke with you, there's no doubt that the landscape for customers has changed as a result of cost of living concerns, the increase in mortgage rates and the resultant market uncertainty. As you know, mortgage availability came under pressure in late September as lenders temporarily with 3 products. And a lot quickly returned to the market, they were at significantly higher levels. So on surprisingly, we saw an increase in cancellations around these events, predominantly from customers early in the home buying process. Many lenders had already factored in last week's Bank of England base rate announcement in their pricing and as a result, have not raised rates. And I'm pleased to report that we have started to see a number of lenders moving to bring mortgage weights down from their peaks with a good range of mortgage availability across all LTVs. So for example, last week, we saw Barclays reduced their 85% LTV 5-year fix by 0.5%. And I think actions like this will go some way to supporting our customer confidence and stabilize mortgage rates and pricing. Underlying demand does remain, and we don't see this abating in the longer term. The customer desire to get on to or move up the housing ladder continues to be encouraging with our teams reporting good levels of early interest. Albeit, as you might expect, we're seeing slower conversion rates. For customers in the order book with mortgages agreed prior to the recent changes or for those who have exchange contracts, we see them continuing to be extremely keen to progress their home purchase. For customers whose mortgage deals are coming to an end and will need to renew. I don't think it will surprise you to hear that it's no longer a case of rolling over the same deal as mortgage severance and costs have risen materially in the last few weeks. So their decisions are more finally balanced. So all this has played out in slower sales rates in the traditionally strong autumn selling season. So in terms of business and our strategy, I said our approach at the Investor and Analyst Day in May, and that team focused on operational excellence and efficiency, I think, has positioned us well for the more challenging conditions we see today. We've acted quickly and decisively to mitigate risk. We further increased cost control, introducing a freeze on recruitment, increased management controls around bands and investments. And in respect of building infrastructure work releases specifically, these are being closely managed as we transition build to reflect changes in the sales rate. We will continue to open new outlets, whilst with the managing western infrastructure prudently because having these outlets open gives us and our customers choices and importantly, allows us to flex and respond more quickly to changing market conditions. And then looking at sales. Site presentation has been reviewed to ensure an even more positive customer experience with every visit, and mystery shops in which our teams have a history of scoring very well have increased. We've also completed refresher training for all of our sales staff to ensure that they're fully equipped for selling in a tougher market. And though anecdotally, I visited a number of sites across the businesses in recent weeks. They look good. And our sales teams are remaining positive about the quality and attractiveness of our homes and sites. So we have and will continue to run the business with the cycle in mind and are monitoring changes in the market and the wider economic environment closely. And then moving on to land. As you know, we're in a very strong position here. And so we've had more choices than most. We are confident in the locational quality of our land bank in areas customers want, which is what we and our customers see as primary locations, which gives a greater resilience. It has also allowed us to be very selective with land acquisitions throughout 2022, something we expect to continue given current market conditions. With a strong land position, we've continued to be highly selective. And as a result, year-to-date approvals are around 7,000 plots, similar to our half year position. And although we are cautious given the current market dynamics we retain the ability to be opportunistic if it's the right thing to do. And the optionality and flexibility provided by our strategic land portfolio will remain, I think, a key differentiator. Driven by our cautious approach to land and tight control and WIP, we now expect our year-end cash position to be higher at about GBP 800 million. So looking ahead, I do remain confident in the medium- to long-term fundamentals of our markets and in the strength and resilience of Taylor Wimpey. While there is clearly a good deal of wider macro uncertainty, we operate from a position of financial strength. And combined with the strength and positioning of our land bank and our sharp operational focus, we remain confident in our ability to maximize value for our stakeholders. I am confident that we are well positioned for changing market conditions that should they arise to take advantage of opportunities. So I hope that's been a helpful overview. Thank you for your time. And I think Chris and I would be happy to take your questions now.

[Operator Instructions] Our first question today is from Lars Kjellberg from Credit Suisse.

I just have 2 questions. I just want to start with the land. So we are seeing some pressure costs coming on U.K. house prices, and you talked about a competitive land market. So what are you seeing in terms of price movements in that planned market today. And also, if you can comment at all how your valuation of your land bank is looking versus current transaction prices? That's the first question. The second 1 is your cash balance is now increasing and it's good to have GBP 800 million. But what do you too redeploying that capital? Or is that sort of nice to have buffer? Or do you see or envisage any potential to increase shareholder returns?

Okay. Thanks. I think, first of all, on the cash balance and deployment, I think it is -- it is too early really for us to be commenting on that at the moment. But on land, I think probably my reflection on land is it does take time for the land market to reset. There is a lag from movements in the market to play through to sort of bedding and sort of offer and negotiation stage. And whilst I think that there's definitely signs of a slowdown in the amount of land coming to the market, I'm not satisfied that prices have fully reset. And I would expect it will take a little bit of time for that to really move its way, way through. So we're taking a very cautious approach at the moment, as I just said, and remaining very cautious as far as to say, I'm feeling under no pressure at all. We've got an excellent land position, and it's been well bought. And to the sort of second point around the valuation in the land bank, repeat. It's been well bought and we have been fairly disciplined in the way that we bring land into our portfolio. And I talked, I think, in me at some length around what I see is the attributes to a quality land bank in split those done and I'm very comfortable that the bank is in good shape from a margin perspective. I think we reported in half 1 that the gross margin in the land bank is 25%. So I think that's a good indication of just how robust our land position is. Chris, is there anything you'd like to add?

No, I don't think so. I think you covered it all. I mean Jennie quite rightly referenced is that gross margin that we achieved in the first half. And I think that is a pretty good indicator of the order of margin that's embedded in our land bank as a result of a very disciplined land investment approach over the years.

Our next question is from Aynsley Lammin from Investec.

Just a couple of questions for me. Firstly, I wondered if you could comment a bit more on pricing and what you've seen over the last 6 weeks. Have you cut prices it's always there? What type of kind of pressure do you see on pricing at the moment? And then secondly, on clouding, I just wondered, obviously, 1 of your peers yesterday revised their clouding provision quite markedly. I wonder if you've seen any kind of need or risk and change in that, whether it's around build costs or kind of increase in scope? And then the third quick question, just could you just remind us, I recall from your Capital Markets Day, I think you said the dividend have been stress tested for a 20% fall in house prices and a 30% fall in volume. Just kind of clarify if that was correct.

Okay. Well, I'll start at the end and work backwards. And maybe Chris, could you pick up the clouding.

Yes. Of course, Yes.

Thanks. Stress test that we referenced was, yes, minus 20% on price and minus 30% on volumes, Aynsley. On pricing, look, it's early days. And it's likely that we've got quite a long way to go. We're seeing, I think, customers at the peak level of uncertainty at the moment. We've not seen any significant movement in price. We're using incentives and other tools in a controlled and targeted way. So not seeing any movement. It would be hard for us to see that over such a discrete period in any event. Chris, just on clouding.

Yes. So we booked a total of 245 million of provisions relating to fire safety, and that remains our best estimate of the cost of the works that we're committed to, and it is based on us having already completed works on a number of buildings. Now due to the complexity and the likely duration of the work, I'm not necessarily say that there's absolutely no chance that the provision would need to increase at some point in the future. But as of today, it is our best estimate.

Thank you. Our next question is from Brijesh Siya from HSBC.

Jennie, Chris, I have 3, if I may. The first 1 is on the private reservations rate. Could you please give us the rate since the mini budget, how it has kind of -- if you could split that into before mini budget and after mini budget? And the second 1 is on the demand side. Could you please give us a little more flavor about across the price range, how that demand is -- whether the demand is more kind of resilient and the lower price ranges and it's more reflective of how the fill kind of restrain themselves buying high-value houses. And the third 1 is on dividend. I appreciate that's been stress tested, but it's still on a 7.5% net asset. One of your competitors has changed that to your change that to earnings. Are you kind of looking to change that metrics? Or any thoughts around it?

Yes. Okay. So in term of the private reservation rate from mini budget. So I think that's week 39 sort of onwards the rate the last 6 weeks 0.43. Sorry, did you hear that, Brijesh? Yes. And then on the demand side, just checking that your question was around sort of our price points. And I think that we are, I would repeat that we're in really good locations. We've got a broad mix of offer across sort of all the price ranges. And I think that, that will make us both agile and responsive to changes in the market. And Chris, if I can just pass on to you on the sort of dividend question.

Yes, of course. Brijesh, we were very clear earlier this year that operating in a cyclical environment means that earnings fluctuate and basing the ordinary dividend on the net asset position provides an increased degree of certainty for shareholders compared to earnings measures. And as Jenny has already noted, we are committed to continue to pay that ordinary dividend throughout the cycle, including through various planning scenarios based on a normal downturn and including a scenario where the average selling price is reduced by 20% and volumes reduced by 30%.

Got you. Got you. Jennie, just if I can check it, the 0.43x in the 6 weeks, how does that compare with the same period last year?

I think that we were 0.9.

Yes, we have been around about 0.9 at that time.

Our next question is from Chris Millington from Numis.

Yes, a few, as always, I think so, we have got here. Can I just talk about land commitments for the remainder of this year and '23. Obviously, there will be conditional land still coming through. So just a quick comment around that would be helpful. Next 1 is just really around costs and your ability to manage administration costs if you do see lower volumes. What scope is to reduce that? And then sorry for this last one, but it's got to be asked kind of how do you see outlets progressing how we've got this slower sales rates. And obviously, you've got good openings in the second half. But can you just give us a feel for what we you think the averages are going to be in the next couple of years? I know it's obviously got a few moving parts of the sales, right?

We're wrong about it is difficult. Look, I'll start out with the outlet progressing and pass to Chris to take a look at those line commitments while I'm going through them. Look, I've said in my opening, it wouldn't be a comment for me if it didn't include some comment about the fluctuation in planning it. It really is quite a strong headwind. And looking into the future years, a lot of sort of outlet openings going to be a reflection of how resilient the market is and sales rates, and then whether we have appetite to add land that period or not. So there's quite a number of sort of moving parts. But in the land bank that we own and control, we're really focused on continuing to bring land forward to outlet. I think the team has done really well given the current planning environment. And in the discussions that we've had right through the business, it's 1 of their sort of focuses and top priorities to keep that outlet moving. And probably the only other point is to recognize it in a slower sales rate environment that our existing outlets remain open for longer, which will be an overall benefit to sort of a broader customer offering through that period as well. Just on costs, I mean we've acted, I think, really quite quickly as a business to take action to support the changing environment. We talked about pulling back on land that recruitment freeze and focus on build and what releases. We're really focused and continue to look for further efficiencies, Chris, to ensure that we're running the businesses sustainably as possible. Probably -- it's not appropriate to get into layers of the detail. But we're a business where there's no sacred case. We're really quite lean. And we've demonstrated in the past that we will make the tough decisions if they become necessary.

Yes. And again, Chris, just on the land commitments and put it in the context of the cash guidance. Obviously, the guidance the half year was for year-end net cash of GBP 600 million. We've upgraded that by GBP 200 million to GBP 800 million for the year-end. And within that forecast, there is an allowance of around about $800 million of land spend. And in the year-to-date, we've actually spent GBP 660 million on land. So that gives you a pretty good sort of view of commitments for the balance of this year. And then sort of looking into next year, obviously, you've got unwind of some land creditors. And I think that's probably of the order of about $350 million for 2023. But in addition to that, there will be some contracts that are currently conditional that may then turn -- get the conditions satisfied. So that number would then increase. But as of commitments today, that's the position.

Okay. That's helpful, Chris. And just on those commitments, I mean, could that number be as high as the land creditor unwind? Or would it be somewhat low? Just trying to get a feel of the proportion?

Yes. I mean it definitely be lower than the absolute land creditor balance and you'll see you back to the half year that there's an aging analysis of that land creditor balance. So you got pretty reasonable...

I meant versus the GBP 350 million you're talking about unwinding in terms of commitments into '23, not the whole land creditor balance?

Yes. So the GBP 350 million, the vast majority of that will be land creditor unwind. And then as things transition from conditional to unconditional, that's when they typically get them recorded in land creditors. So that's why I was trying to give you a sense of there will be contracts as we progress through the next sort of couple of months as we get to the year-end where we will get -- inevitably get planning and that there will be a condition that satisfies the contract.

Our next question is from Will Jones from Redburn.

I've got a few, if I could, please, as well. First, just to check in about whether the sales issues are pretty uniform from a regional perspective, just to tie that off, please. Second, just I guess more understanding around mortgages. Is it just -- I mean just any changes in criteria? Or is it really just the issue of rates? And then linked to that, what insight do you have or not on what your customers are paying in a given period. And again, just for our understanding, do they agree their rate pre or post the reservation moment, please, as best as you know. And then maybe just to finish any comment you'd make around the ability to start pushing back on labor and labor rates as volumes start to fall?

Okay. So I think in terms of differentials across regions, nothing particularly to flag. I mean we're still relative early days, and we're not seeing any sort of meaningful changes in trends. Just to that point on sort of mortgages and criteria, we haven't seen any significant change in criteria that lenders are offering in our conversations with lenders, they remain committed to lending and to confidence in the U.K. market. But it's the affordability sort of calculators that are sort of playing in at the moment. Just on the mortgage offers pre or post. We run a fairly disciplined approach to prequalification of our customers prior to them coming in for appointment to the vast majority have mortgage offer in principle or 1 being processed at the time that they're coming in for reservations. But obviously, there's been quite a transitional period over the last 6 weeks in particular, which has made some of those mortgages needed to be sort of reevaluated, and then just finally on the labor point. I think Chris and I have spoken to sort of all of the MDs in the last couple of weeks, and it's certainly 1 of the questions that we've been asking them, I say, very early signs of some movement in labor, but look, it's still a really busy time out on site and to contractors are still really busy. So I probably have a bit more confidence in looking at some labor rate movements into the new year than I do just at this point in time well.

Our next question is from Glynis Johnson from Jefferies.

3 if I may, and actually I'm going to steal 1 that Will usually ask. In terms of the reservations that have been done, particularly in the last couple of weeks or so, what is the proportion that has been done on the sort of new world of mortgage rates? How many are you using new mortgage approvals post mini budget? I assume given limited availability that you probably have on the site that's quite a large proportion. But if you can help put any color around that, that would be useful. Second of all, in terms of the incentives that you've talked about that you're using as tools since the mini budget is that to get people over the line. So reservations are already done potentially even where you may have exchanged just to make sure completions happen? Or is that incentives in terms of new customers coming on site, you may have higher mortgage price offers? And then lastly, just in terms of the land market. Clearly, we look at your land bank as a group, but actually it's made up of a whole number of divisions. I'm just wondering how long you can sort of stay out of the land market, how many of the divisions would you classify as having short land banks where actually they will need to buy land as you go through 2023 and how many of them can effectively be very flexible in terms of staying away should market conditions continue to not be reflected in the land market.

Okay. Thanks for that, Glynis. I think, first of all, on the sort of new mortgage world sort of versus old mortgage world, the relationship with our -- for our customers is with IFAs. So other than anecdotally, what they might talk to the sales team about -- I really can't put very much color on that. In those conversations that we've been having with MDs, I think that those customers coming in post the mini budget who are sort of new to the market or didn't have sort of a mortgage promise in hand. They're obviously sitting in a new reality and maybe more settled or at piece with that. And I would expect that sort of transitional shift that we're experiencing to play out relatively quickly now in the market. On the land market and divisions, look, we are -- our divisions are sort of multi-business units rather than I know that some of our peer group we call divisions, each operational business. But we're in a really good place. Land doesn't flow like water. So it's not universal. But I think I used the term earlier, I'm not feeling under any pressure. I'm not feeling under any pressure in any particular business. We're in a good place. And on incentives, I think just sort of stepping back and what are we using an incentives for we are really controlled and quite disciplined around the use of incentives. I think my experience in this kind of environment when there's an expectation of price movements, it's important that we watch and carefully monitor. That's not, not doing anything. It's -- but watching -- and the first thing that we would do is ensure that we got all the basics right. So not going straight to incentives. And I've mentioned some of those in my opening site presentation and sales team training and the like. We've got great site well located and they're in good and resilient markets. And we're opening more outlets as you see. So I'm very careful that we're not using incentives in a way that effectively is going to lead the market doing. I'm not intending to lead the market doing, their tools. And we'll use them if there's good opportunities for a sustainable sale. But throwing incentives into an uncertain environment, not going to retain sales, and that's not something that I'm or the teams are keen to do. So targeted looking at what is specific sort of objection or a concern of a customer and applying them on a sort of plot-by-plot basis. And as we open new sites, I think it's fair to say, dynamics wise, we will hold our price because we believe in the quality and the resilience of that market. There might be a little bit more flexibility on some older sites. There's a bit of dynamics in there as well. So not using them to get completions over the line would be the summary on that, Glynis, being quite controlled. Incentives [indiscernible].

Can I just come back on the sort of the comment about the number of customers who are in the new world, so to speak in terms of the mortgage offers. What is the availability of your stock, if someone is coming on to site now, can they buy -- can they reserve something, which will be delivered within 6 months of when the mini budget was. So within 6 months of the start of October, do you have availability for people to use previous approvals, pre mini budget approvals to buy homes on your sites?

Yes. I mean it is improving, availability is improving. And certainly, we have availability into the first half of next year. So that would cut that criteria.

Our next question is from Marcus Cole from UBS.

Two questions. I was just wondering when you're running your stress test exercise what sort of level of house price decline would be needed to start seeing some land impairments? And then the second one, is on the SAP software. It seems to be working now. I just wondered now you're using it. Have you got an updated cost assumption for part now?

Okay. I'll take the SAP and have the stress test to you because the SAP software is up and running. And the assumptions that I think I mentioned in the summery that we were making on the basis of our assessments on tactical pack are solid. So I think that we're in a good place from ALF and haven't had to modify any of our assumptions. And Chris, just on that stress test.

Yes. So I mean, Marcus, I'm going to go back to -- we reported gross margin of 25% in the first half. And on that basis, you can see we have a pretty significant degree of action against the need to be making NRV provisions, and when I last did the exercise, which would have been around the half year, there was only around about 5% of our blocks that have gross margins of less than 20%.

Our next question is from Harry Goad from Berenberg.

Question for me, please. Can you talk a little bit about how you think about sort of almost tactics of trading in the next 6 months or so? And how do you -- when you're talking to your business units, how you're prioritizing the sort of trade-off between, I guess, volume, sales rates, profit? What are the key metrics that you're targeting? And maybe within that, is there a sales rate below which you were just unwilling to fall. And then the supplementary to that is in that context, how do you think about alternative or possible alternative sales channels next year with regard to bulk sales, sort of PRS deals, maybe more with HA. Just anything around that would be interesting.

Thanks, Harry. Look, I think I mentioned the word iterative earlier. It is an iterative process around field rate, and we're working with all of our teams to sort of assess the resilience of our business, and they're obviously undertaking various modeling. It's difficult to say what an acceptable or sales rate is. If you look back to industry, there's been quite a range. So over the last 15 years, you did quite a range. And we size our business and our sort of build expectations on a side-by-side basis, and you'll apparel say that we're working with our team on our weapon cost control on sites now to transition our bill to reflect sales rates. It really is a balance of all those 3 that you mentioned no volume, sales rate and profit. To drive a sales rate where you're really taking sort of lump sort of audit profits, not a good approach, but we want to try and find a sustainable volume on which to run the business. So an iterative process that we'll continue to work on our no doubt, we'll talk about more as we get to the prelims next year. And on alternative sales channels, I think it's a really good question. We haven't needed to really use bulk sales in recent years. But we do have established relationships with a number of the institutions. It's fair to say that they're not immune to sort of the theoretic behavior in the markets and any of them that are sort of debt facing have been culling their heels, so to speak, in recent weeks also. But it's certainly something that we're very open-minded about and we'll take it on a side-by-side case-by-case basis.

Our next question is from Charlie Campbell from Liberum.

A couple from me, please. Just wonder if you could help us split the order book between private and social be really helpful. And then -- and I realize this might be kind of fall into the category of customers and IFAs, but just wondering if you're hearing from them about people taking longer mortgages. So switching to 25 to 35s and 40s or even to variable rate mortgages to kind of 1 way of mitigating the affordability challenge?

Okay. I'll take the last one. I think Chris could get the number on the split for you. I mean, as you noted, we don't have direct relationships. So this is anecdotal. We have heard from some customers extending their mortgages. I have to say, not in the 35% to 40% range in my hearing. Charlie, it's certainly 30 years is something that we've seen some customers use and in terms of variable rate, look, that's an individual customer choice based on their own sort of personal circumstances, but it's an option with way that the mortgage market is at the moment. And we are hearing of some customers choosing to take variable in order to let that market settle.

Yes. And Charlie, on order book split, the private units in the order book of 505 and the affordable of 4,148. Hopefully, I've got my maths right to add up to the numbers in the statement.

Our next question is from Clyde Lewis from Peel Hunt.

Jennie, Chris, I think I still got 3, if I may. One on -- obviously, your comments around sort of planning ahead and sort of managing the infrastructure work and new sites and the cash that goes into there. But how does that tie in with obviously the extra costs from Part L, Part F, Part L in particular and where you are, I suppose, in your thoughts about putting down foundations in particular ahead of sort of June next year? That's the first one. And the second 1 was on land hurdle rates factoring in, I suppose, softer pricing going forward again. I appreciate your comments around. You backed away from the land market. But traditionally, obviously, you've used current prices and current cost to look at hurdle rates. Are you getting to a point where given the risks potentially of sort of soft selling prices over the next 12, 18 months? Are you starting to factor that into maybe higher hurdle rates or sort of a different calculation when it comes to looking at the gross margins that you're trying to get. And the last 1 was around your comment about customer visits to the website continuing to be at good levels. I mean I'd be interested to hear a little bit about that, particularly in the last 6 weeks. Did that drop very sharply and then has recovered and also not just website but maybe sort of sales appointments as well and whether you sort of track that and how that pattern has evolved?

Okay. I mean, look, I think it's actually a really good question on Part L and Part F. If the -- if we haven't sort of been going through the market dynamic that we're now seeing, the likelihood is that there'll be a lot of businesses sort of across the sector looking to get their foundations in. We're well advanced and our foundations for 2023, as you would expect at this point and heading into the winter. But I think, no, we do need to balance that around is a good work in progress? Is it sustainable? We want slower sales rate assessment, how long would it take you to get to that foundation and therefore, is it a good quality investment. And foundations are going on their own. There's other sort of roads and infrastructure that goes with them. So we're taking sort of a reassessment on that and ensuring that we're investing in good quality and sustainable and balancing that against whether there's a benefit or just benefit on the Part L and Part F. On land hurdle rates, I think in the current climate, you've heard me and I've repeated it that we're cautious in the market, not feeling under any pressure. On a purely academic basis, Clyde, you've got to start an appraisal from somewhere. And so current price, current cost is still going to be where you start and you put in, as we've been doing for a couple of years now visible future costs like Part L and Part F or future home standards and then you apply a really good dollop current market, not necessarily reflecting outlook downside scenarios and you'd really stress test that. But that's on the basis that you want to do that and that you feel that you have to, there might be good opportunities. Usually, they stand out a mile. And whether it's quality of location or the quality of the price or a combination of all of them. I'm not going to get too twisted around sort of hurdle rates, and it always tends to imply then that the low bar, I'd be setting a very high bar in the current climate. And then customer visits to the website, we have seen good levels absolutely flag for you that some of that is driven by more paid sort of advertising and media than we've seen in the past. We did talk about increasing our sort of media spend at the half year, but there's good levels of interest. And some of those early conversations with our sales teams show that customers are still really interested in new homes. But if not converting to appointments, and we've seen appointments continue to fall and then the conversion rate then from those visitors also increased. And you can see that the playing item and how the sales rate has moved and high correctly it's moved. Does that help you?

Yes. No, no, very. But would there have been an improving or deteriorating trend obviously mini budget and probably the 2 weeks after that, I suspect, was probably the worst moment in terms of that sort of activity. But have you seen it pick up at all? Or is it continuing to fall?

No. I mean it has been on a downward trend since the mini budget. But I'd also say, look, we're now in the second week of November. And we would traditionally expect to see appointment requests starting to slower so quite meaningfully. So looking I'm not trying to sort of make it opaque, but we're in the time of view they would expect it to close along with any event, but yes, appointments of trending downwards.

Our next question is from Jon Bell from Deutsche Bank.

I think I've got 3. Jennie, you mentioned the Barclays mortgage rate cut from last week, which is helpful, but it still leaves their rate very high relative to swaps. I just wonder what noise is you hear when you have your discussions with the lenders about their appetite and any future mortgage rate changes or it might have coming down the pipe. The second 1 is a follow-up to a previous question. Apologies it's on the dividend. Just to clarify, you're happy for your dividend to be uncovered if they need to be, should profitability fall materially over the next year or 2. And the third 1 is on pricing discipline. You've outlined your position very clearly. What do you see around you? Anyone breaking rank, because obviously, that can have a knock-on effect.

Okay. I think all that mortgage rates still high relative to swaps, yes. And in our conversation with lenders again, sort of anecdotally there. We are expecting rates to start coming in. Just how quickly that happens, I'm unclear about. But that's certainly the intent and the nature of the conversations that we're having with lenders. So I remain hopeful that there will continuing stabilization of rates and maybe a little bit of good news for customers in coming weeks. On pricing discipline, -- as I said, I think in my experience a good position is to watch and monitor. But in the end, we do -- we need to watch what's happening around us. I'm not necessarily going to call out any particular competitor. But we can't see that incentives are becoming increasing part of sort of the dialogue and you can see that in advertising across some parts of the sector. And you saw part exchange starting to increase. We'll be responsive to market changes. We're not going to defy gravity. We'll look to the market around us. But as I say, I don't feel we need to lead the market there and the use of incentives in a controlled way remains our position at this point. And Chris, just on that dividend question.

Yes. I think, Jon, you probably know the answer because if we take the scenario that I mentioned sort of earlier on the call, where average selling prices reduced by 20%, and we're currently operating at a 20% operating margin. Then by default, that would mean that the ordinary dividend wouldn't be uncovered. But what we say is that we're basing our commitment on a normal downturn. And in any sort of normal downturn, you would expect to see a recovery as well. So it's not that, that scenario stays at 20% down and 30% down on volume for perpetuity. So yes, I think that you can work the numbers through the spreadsheet as well as I can.

Our final question today comes from Ami Galla from Citigroup.

Just 1 question from me. One on the social order book. I'm wondering if you can give us some color in terms of the response that you've had from housing associations on the back of the sort of higher mortgage rates and the downturn in the market that we've seen so far. How has their appetite for future volumes change? And the second is, I mean, connected to that, the social order book that sits here, is that bulk of that for delivery into 2022?

Okay. Maybe Chris, if you could just pick up the order book questions. Just in terms of rising associations, I mean we've got very long established relationships, Ami, with housing associations and anything reflected in our order book is contracted. So that's fully secured. Appetite wise, actually, I'd probably say there's quite a diversity out there. There are some housing associations, particularly those who have issues that they need to address around fire safety or those looking at with all the stock, to invest in sort of environmental and energy improvements are being sort of a little bit more cautious and less visible in the market, but we remain and continue to see a significant number of housing associations active and looking to contract and to negotiate deals with our teams.

Yes. And I think your question was, does the bulk of the order book for affordable unwind next year and beyond the answer is yes.

This is all the questions we have today. So I'll hand back over to Jenny for any closing remarks.

Well, thank you, everyone, for joining us this morning and hopefully being a useful Q&A as well, and look forward to seeing you in the new year. Thank you, Devy.