Taylor Wimpey plc (TW) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the Taylor Wimpey Trading Update Call. My name is [ Seb ], and I'll be the operator for your call today. [Operator Instructions] I will now hand the floor over to Jennie Daly, Chief Executive, to begin the call. Please go ahead.

Thank you very much, and good morning, everyone, and thank you for joining us extra early this morning. As usual, I'm joined by Chris Carney, Group Finance Director. So I'll start this morning with a few very brief comments, none of which I think will come as a surprise to you, and then we'll open up for Q&A. So I would like to start this morning by acknowledging the hard work and commitment of our teams who have helped us to deliver a resilient performance in what continues to be a challenging housing market backdrop. We are pleased with the sales rate, which reflects the locational quality of our sites, supporting our sales efforts. And we continue to demonstrate that Taylor Wimpey is a strong and agile business with high-quality products and locations, underpinned by an excellent land bank and robust balance sheet. As I said, I think this continues to be a challenging period for the housing sector. And while we've seen reductions in mortgage rates from the highs we saw over the summer, they continue to be elevated compared to recent years. And this, together with the broader cost of living pressures continues to pose affordability challenges for our customers who mitigate it, I think, to some degree by continuing wage growth. Despite this, it is worth, I think reiterating that early customer inquiry activity remains strong comparable to inquiry levels seen in 2019. So, against this backdrop, we reported a year-to-date sales rate of 0.63 homes per outlet per week, which excluding the impact of bulk sales was 0.57. So far in the second half, our sales rate is 0.51 and excluding the impact of bulk sales is 0.48. Importantly, this isn't driven by price, which remains reasonably firm. And when incentives are being used to secure a customer commitment, these continue to be well controlled. Total Valuations have remained low in the period. So overall, our sales teams are working hard and proactively with customers all along the customer journey. Moving on to land. I think you'll see from the statement that we continue to be cautious in our approach, benefiting from our strong land bank and high-quality locations, positioning us very well. The current land environment continues to show a few signs of the sort of value movements, which would encourage us back to our land market in any meaningful way, given the current trading conditions. And that said, we own and control all of the land for 2024 and have planning in place for the vast majority. We've already started on-site on 37 future outlets, which are due to open at the end of this year and the first half of next year and continue to make good progress on others. You will see that we are reiterating our guidance for the year of 10,000 to 10,500 in U.K. completions, but now expect group operating profit to be at the top end of our guidance range of GBP 440 million to GBP 470 million. And this is because of our focus on optimizing price and sharp cost discipline. Looking to next year, the sales environment remains uncertain, and the operating environment tough with second staircase and new building safety procedures delaying progress on high-density sites, the failure of legislation to resolve neutrality constrained sites in the near term and ongoing planning inertia more generally. While, of course, it is far too early to give guidance for 2024. You can see from our statements that we will come into the year with a reduced order book compared to our position last year. This will, of course, impact us next year. But overall, our ethos remains, that is to protect value as we have discussed many times before. As always, we, at Taylor Wimpey recognize the value of our partners and a recovery. Our teams continue to be in the detail with our suppliers and subcontractors to find ways both sides can work together more efficiently and challenge cost fairly. I think it's pleasing that we do see build cost inflation continuing to a bit as a result of these actions and of course, the wider environment. A good example of this is as part of our annual sales back review. We have engaged extensively with our suppliers and contractors and align this to the increased customer insights that we have now, which we've spoken about in the past. We have challenged ourselves to ensure our customer offering continues to be of the high quality and specification value by our customers, whilst at the same time, targeting cost savings. We will continue to work hard to manage the business tightly against the current market backdrop but also put the business in the best possible position to optimize performance in all market conditions, and because our strong balance sheet, extra land bank and highly experienced teams, we have choices. We have a differentiated dividend policy to return 7.5% net assets to give investors increased visibility. And as I said earlier, our focus in the short term remains on tight cost control and protecting value. While the short-term market is challenging the sector, there's no doubt that the U.K. housing market remains extremely attractive market with the opportunity to deliver much needed homes in an undersupplied market in the medium and long term. So hopefully, that's given you a bit of an overview and quite happy to go to questions.

[Operator Instructions] The first question comes from Will Jones at Redburn Atlantic.

A couple for me, please, if I can. First, just maybe exploring recent trading, if that's okay. We had someone earlier in the week talking about more customer positivity in October, specifically. Just wondered if you've noticed any changes you've gone through autumn? Do you see any difference, I guess, October relative to September? Or would you say it's been more consistent? I suppose it's linked to that, as you look forward, just wondering how you're thinking about your bulk sales strategy as you exit this year and then enter next as well? And then the second name was released around build cost. I think you've mentioned abating inflation, but just wondering to what extent you're managing to achieve any absolute gains as you push back on the supply chain.

Yes. Okay. Yes, I think in terms of recent trading, we have seen some marginal changes over the year. I think when we reported at our interims, we have had sort of a 0.47 in July now we're reporting sort of a tick up from that period and 0.51 over this half year so far. There are marginal improvements. We did see some improvements in October. But I think when you slice and dice the trading period, the 18 weeks, based on previous years, it's relatively flat. I think that we are seeing in some of the anecdotal commentary coming from our sales team is a little bit more confidence, a little bit more of a return of first-time buyers seen over October. But I think it is fragile. If we go to sort of bulks, I mean, we've talked before about our push to bulks being predominantly around planned transactions that we factor into financial planning, particularly for our larger sites. And what are our drivers for bulks are predominantly around the quality of the deal, improving capital returns in some of those bigger assets, and we see them as incremental to the order book. We maintain that if there is a place for bulks within our overall strategy, but we're really mindful of that protecting value. And I think also mindful of the challenges that we continue to see in planning the fact that there is little readjustments in the market in terms of overall land pricing and the potential challenges ahead in sort of replacement dynamic around land. But at this point, I think it's part of toolkit. I'm comfortable with the level that we have. And we've got a series of some really good partners that we enjoy working with that's sort of fair and balanced, and it will remain part of the toolkit. I'm going to pass over to Chris for the sort of the depth of build cost inflation. But as I said in my opening, pleased to see sort of it coming in and that the teams are really working hard, sort of right across..

Cost inflation of 6%, and we said we were expecting that inflation to continue to moderate as we progress through the year. That 6% rate from August has dropped to around 3% today. The main driver has continued to be materials with labor inflation at pretty negligible levels, I think, on a 12-month basis because labor rates have really just continued to reduce in line with activity on site. So as work for Savills become more scarce. I think that's provided some opportunity for us to worst hold Savills and, in some cases, negotiated reductions, especially on sites where there is good visibility on future output.

Our next question comes from Aynsley Lammin from Investec.

Just two questions for me. Just wondered on the site numbers. Obviously, year-to-date, they're up the current level of site numbers is a bit lower. Does that -- is that something we should read into where numbers might be on average into 2024? I know it's early days, but just interested to hear that. And then just on the kind of, I guess, any regional difference in trading across the country, price points, anything we should be aware of or of interest there? Is it pretty broad-based, consistent trends across the country in terms of recent trading.

Okay. So in terms of outlets, I think the reason that we've sort of given you some visibility as to the number of outlets that we're already on that yet open is because with the -- our position on the land market, we've been out of the land market for quite some timeline. And that does have implications for future outlets. But nevertheless, I think still showing a very good sort of strong number of openings. And they aren't all the openings going into in 2024. We're working on a number of others, and we're very well planning progressed for 2024. But inevitably, if we stay out of the land market for longer periods, even that does have ramifications there's the two you have consequential impact on each other. We don't give guidance on outlet. So I'm not going to go any further than that. But actually, I'm quite pleased with the number of sort of future outlets that we are working on, given that backdrop. On regional differences. I mean, nothing more than as well reported, London and the Southeast is particularly impacted, albeit I think our teams are trading really well for that backdrop and environment. Probably, I would continue to call out, and I think it's something that I've said before, it is more on a site-by-site sort of basis. We do see that some areas that saw particularly strong house price inflation over the sort of the previous period are more impacted in the current climate, which obviously goes straight back to affordability. But nothing more than we would accept on or expect on sort of general sort of differentiation between regions.

Our next question is from Harry Goad at Berenberg.

I've got Jennie, just to come back on your comment on land, please, I think you said you've not really seen any material change in valuations yet. So I'll add a couple of things, please. Firstly, why do you think that is? Do you think that's just a typical duration thing it takes, I don't know, a couple of years for that to feed through? And secondly, when you think about the movement you've had in build costs and selling prices and sales rates, broadly, what do you need to see land prices drop by before you get interested?

Okay. I think in terms of the valuation, there's very little. I mean in the end, there's just very little moving in the market, I would describe it as a very muted and quiet market. And although there is activity, there's very little final commitment, so we're not seeing sort of transactions completing. So -- and there are always -- there's a few exceptions, but they don't make a market. Why are valuations not moving? I think it comes back to overall land supply. The planning system has been -- we saw it really start to tighten up through sort of COVID, through a clear direction and sort of government policy has left the sort of -- I described it as airshow, I think, this morning, local authority is really not moving things on. And so there's just not enough land coming to the market and that's allowing landowners to feel really quite robust either land part of the market not trading at all or holding very tightly to sort of price expectations that were set pre the market change. You asked how long would it normally take for the land market to sort of feel the heat or feel the change? We're well past where I would normally have expected the land market can start reflecting the level of market change that we're experiencing, Harry, by quite some way. I would say probably 6 months at a push, you would expect the land market to really start to exhibit the change. So I think we are in a slightly different dynamic, and that's something that's obviously on our mind. In terms of what sort of price or what sort of would take us back to the market? It's always on a site-by-site basis. It's always based on the quality of the deal, the quality of the location. So I'm going to sort of side-step that a little bit. We review every site in detail, both locally and centrally and it's where we then see it fitting the balance of the business overall.

Our next question is from Marcus Cole at UBS.

Just to be clear on the outlook, where do you expect to exit this year? And then just a couple of questions on the order book. What's the private social volume split? And are there any private ASP movements that we should be aware of?

Okay. I mean I'm not going to predict unless it's going to be a case of where sales rates and other things go through to the end of the year. And I think on -- in terms of private-social split in the order book is probably 48-52 sort of percent something like that in favor of affordable. Chris is that...

Yes. So the precise split, Marcus, is 3,360 private units, 3,682 affordable. So that should get you to the 7,042 in the statement.

Okay. And then just on the private ASP in the order book?

Yes. I think if you just apply the numbers that you can see in the statement, you can see that the blended average selling price in the order book is down by about 3%. And inevitably, there's always sort of mix in that, probably slightly more weighted to higher average selling price plots in London than last year, but it's also got more affordable as a percentage than last year's order book. But I mean, having said that, I think broadly offset and you would always expect that there would be some underlying sort of deflation because the peak in house prices was sort of September time last year. We came into this year around about 2% below that. We updated you at the half year to say we were probably about 3% below the peak. And it's probably a touch more than that now. So that does flow through gradually into the order book. And I think that's what you're seeing.

Our next question is from Chris Millington at DB Numis.

Just quite a high level one. And I know it's not really a traditional trading update or question. But as market conditions remain quite difficult and who knows what we do next year. How resolute are you feeling on your dividend at the moment? Because you do stand out in the sector for maintaining it relative to a few others who have obviously taken a more cautious view? Second one is just on land creditors and what the move has been over the year so far? And then the final one is just going back in time, you mentioned about hoping to actually kind of build an order book to obviously show volume growth into next year. That's obviously not transpired with the way the markets move. I mean, should we now be thinking volumes are going to move backwards somewhat next year with the exception of obviously spring taking up in a decent way?

Right. So I think there's probably a couple for me there, Chris. So I'm really pleased you asked the question on dividends, because it gives me the chance to highlight once again that we have a differentiated policy. I'm very happy to remind you of the policy, but I'm sure you've heard it all before, and there's absolutely no change to it, but perhaps just give you some additional comfort. It's worth reminding you that today's statement says we're expect to end this year with a healthy cash balance, which we've given a range on. And I would also add that I expect to end the year with land creditors at or below our net cash balance, meaning that we would retain a very strong balance sheet. . Group land creditors, I think was your second question, so a nice segue there, peaks in June 2022 was GBP 844 million. The reduction in land buying since then, I mean they fell to GBP 588 million at the end of the first half of this year. And I'm expecting them to continue to reduce through to the end of the year. And then on 2024 volume, we're too early to be giving you guidance on 2024 at this point.

Our next question is from Anthony Manning at Bank of America.

The first one would be just the kind of improved EBIT outlook. Some of that came from better costs. Could you give us some kind of indication of where they came? Is it through growth or more OpEx savings? And are they sustainable going forward? And then secondly, you talked about kind of sales rates firming up through autumn, and we've heard peers saying that as well. Could you talk about the incentive levels and how they've changed throughout the year and particularly through this period?

Yes. I mean I'll take the sales question, and Chris, if you can take the EBIT question. Yes, I mean I think on incentives, I go back to -- we've seen incentives as a sort of a tool for commitment to a commitment rather than they don't create a market. So that's probably the one thing that I'd start with. If you think back to sort of earlier in the year, we talked about a bespoke -- having a bespoke approach to incentives, Anthony, and that means that our teams are in part put together incentive packages that match sort of either the sort of the resistance of the objection that a specific customer has to ease the purchase. So we've seen incentives being deployed, we've seen them dropping back through periods of the year where sales rate was more robust and have seen them pick up since that sort of interest rates peak in the summer. And we're sitting at sort of that around 5%. From a sales rate perspective, yes, we've seen that a little bit of a nudge up. But I'll go back to my comments earlier, which is -- it is relatively flat compared to what you would normally expect to see in the dynamic market and a little bit of sort of incremental benefit, but wouldn't want to sort of go too far on that. We would expect things to quite down in a normal year into the year-end and really looking forward to the spring selling season next year.

Yes. And the improvement in moving to the top of the operating profit guidance range is really due to our focus on optimizing price and controlling costs. So our team is working very hard, applying their experience and a really disciplined approach to grinding out every bit of value. So it's been quite a while since we really started actively engaging with all suppliers to sort of review the scope of works, the materials, the routes of procurement and any alternatives that allow us really to drive down cost without compromising on build quality, on value for our customers and health and safety. So yes, we've been chipping away at it for a time. So I think in answer to your question, you'll see that come through the gross margin line.

Our next question come from Ami Galla from Citigroup.

Just 2 questions for me. One was maybe is that meaningfully stepped up in the second half of this year? And the second one is just on government support measures. Over the next 12 months, what do you think -- or what would you expect coming from the government in terms of the sort of support to the housing market?

Yes. Thanks, Ami. The -- I mean, from a PX point of view, I think we're at about 4% sort of through the year. We did see it pickup in the -- sort of in the latter half. And that we're managing it really well. I'm actually very pleased with the good sort of tool, but the teams are demonstrating their ability to sort of move the stock through. So that continued sort of protecting value playing all the way through to our PX. And around government support. I don't have any more of a crystal ball than anyone else. We're all hearing the messages from treasury around the level of fiscal constraints that's likely to be required. So I don't have great expectations around the November statement. Depending on how sort of the rest of the year plays out in early next year and bearing in mind that it's an election year, all things being equal, we might expect something a little bit more sort of election focused in the spring budget. But yes, I think that there are probably very few levers that are actually available for government to pull in the short term.

Our next question is from Glynis Johnson at Jefferies.

Two, if I may. First one, just in terms of land, you obviously highlighted the strong land bank you did previously. But when do you need to go back into the land market in scale? Or when do you need to make that decision that you need to step back in? And the second one, just trying to actually -- you roughened off the question on the regional differences in terms of selling rights and pricing. But I wonder if I can actually tie it back into your land buying, you're sort of the way you differentiate site, your AA sites, your AB sites, your BA sites, are the sites that you view to be in the best locations, actually the ones that continue to perform best or is it actually there's catch-up that comes through some of the not quite as strong locations?

Okay. Really good sort of question there on the sort of the regional differences. I mean I often go back to it as a site-by-site thing, and I think that that's where you're getting to around the AA and the sort of ABs, and the like. I mean the really premium locations tend to slow down. They tend to be more sort of price preservative so they hold their the rate can be very slow and that makes this type of environment, when you're trying to sort of find that balance sort of challenging. We do see that the quality of our sites is playing through. And the quality of the sites aren't just about sales price, it's about affordability and aspiring sort of population, strong economic sort of backdrop. And I think that discipline is helping support our sales rate through the -- through this quite volatile year On land and when we need to go back, you can see that we're maintaining a really strong short-term land bank given the fact that we've been out of the market for some time. But it is something that we're continually reviewing. If conditions remain tighten the land market as they are, it won't be a mass return to the market, it will be a very subtle and incremental review of where we feel sort of locationally either we've got the most confidence or locationally where we feel there's a need to increase our presence. So I don't see it as a big flick of the switch. I see it as this constant review and assessment.

Our next question comes from Sam Cullen at Peel Hunt.

Just on extension to Glynis' question on land, really, just in terms of how do you think about the flex in your hurdle rates in -- under that scenario, if you're having to top up the short-term land bank in some areas?

Yes. I mean I'm just looking at the list of the sites that we've approved over the last year. And like I say, I know every one of them in detail. We've been through them in significant detail. And it's a combination of the security that we feel in those market locations, the realism that landowners have been willing to express and the confidence that our teams have around other risks, technical, but planning risk as well. So really planning sort of sure in them. And that is where the balance on hurdle rates sort of comes. We're very mindful of the price bell cost dynamic when we're looking at sort of the small number of opportunities that we're committing to you. And I'm very satisfied that we've got sufficient level of headroom in those to sort of withstand sort of movements in the market. And also bear in mind that the land that we're buying today isn't it really going to come into sort of production until 2025, late 2025-2026 and looking at our confidence in that medium-term sort of market.

We have no further questions on the call, so I will hand back to Jennie, to wrap up.

Well, thank you very much. Hopefully, the Q&A was helpful. Just to wrap up, look, we are pleased to have delivered a resilient performance against this tough market backdrop. It is a testament, I think, to the strength of our business, including our highly experienced teams, that sharp operational focus that we've talked about again this morning, strong financial position and our excellent land bank. And I think this means that we are well positioned to navigate current market conditions and really well placed to capitalize on opportunities when market conditions do align. Thank you all for your time this morning and look forward to seeing you all maybe later. Thank you.

This concludes today's conference call. Thank you for dialing in, and you may now disconnect.