Taylor Wimpey plc (TW) Earnings Call Transcript & Summary

Hello, and welcome to the Taylor Wimpey Trading Update. My name is Elliot, and I'll be coordinating your call today. [Operator Instructions] I'd now like to hand over to Jenny Daly, CEO. The floor is yours. Please go ahead.

Thank you, Elliot, and good morning, everyone, and Happy New Year to you all, though I know it might feel a while ago now. So thank you for joining us this morning. As usual, I'm joined by Chris Carney, our Group Finance Director. You'll have already seen our short trading statement this morning. So as usual, I'll just take you through some brief introductory comments, and then we can open up to your questions. As you all know, we came into 2023 in a strong position, which I think stood us in good stead in what was a challenging year for the industry coming in the week of the many budget, cost of living challenges for our customers and increased mortgage rates, significantly impacting affordability. Firstly, I would like to thank all of our teams and our partners for their hard work in delivering a good set of results in difficult market conditions. So we completed 10,438 homes in the U.K., including 82 JV completions, which is comfortably within our guidance range, and we expect to deliver operating profit at the top end of our guidance. So very much in line with what we told you back in November. In the year, affordability was the main focus for our customers. And while underlying demand was there, their ability to execute was negatively affected and conversion of interest took longer. Our net reservation rate was 0.62 versus 0.68 last year, which I think is a great result and reflects the quality of our locations and our homes for sale. If I exclude bulk sales, we achieved a net private sales rate of 0.54 versus 0.65 in the previous year. So as we mentioned in November, whilst pricing generally has been reasonably firm, we've seen low single-digit pricing deflation versus the peak of September 2022, which will continue to work its way through the order book in half 1. Build cost inflation continued to moderate as expected, and I'm pleased to say that new tenders are today running at 0% to 1%. But like pricing, I'd remind you here that it takes time to flow through. And as such, completions today reflect prevailing cost environment when those properties were constructed. So you'll see that we've given you guidance in the statement on how we expect that to unfold, which I hope is helpful. We continue to make good progress against our priorities, and I'm pleased that throughout 2023, we have made good headway in customer service improvements, and we're delivering a 5-star performance. The land environment remains challenging in the year. Opportunities existed, but prices didn't move to reflect either the increased market or planning risk environment. With the benefit of a very high-quality land bank and strategic pipeline and with the vast majority of our planning in place for 2024, we have had the advantage of being very selective to meet demand and drive value. So you can see that the approvals are meaningfully down on last year. We continue to assess the balance between risk, demand and value and will be agile in our response to evolving conditions on a side-by-side basis. We retain a very healthy financial position with a strong balance sheet, and we ended the year with net cash of GBP 678 million, slightly ahead of our expectations. We are only 2 weeks, not even that into 2024. So it's too early to call. But of course, there are encouraging signs. We've seen mortgage interest rates come into that towards the end of the year and again at the start of 2024, which is encouraging, particularly as we head into the important spring selling season. Our customers can now get a 5-year fix at a 75% loan-to-value from Halifax at around 4.39% compared to 4.55% a year ago and a 2-year fix from Halifax at 4.7% compared to 4.95% a year ago. And the appetite from lenders remains strong. Our teams are staying close to our customers. And just to give you a bit of an anecdotal sense of what we're seeing. We're seeing pretty high levels of early engagement and inquiry activity. And we're starting to see more interest from first-time buyers than in recent times. Obviously, we'll be able to say more on this in the results in February, when we can talk more about how the spring selling season is evolving. In line with our expectations and as we've previously flagged, we have come into 2024 with a lower order book compared to a stronger 2023. And as you know, sales rates today don't translate into volumes today, there will be a lag. On outlets, these will be impacted in 2024 by our reduced land buying and the continuing slow and under-resourced planning system. Our teams, though, remain very active on getting outlets opened as efficiently as possible. We are, as always, very focused on controlling what we can control and about driving incremental value efficiencies in all areas of the business all the way going to site level. So to summarize, whilst the near-term demand environment remains uncertain, we are really very well positioned with a robust balance sheet, excellent land position and highly experienced teams. We've talked to you a lot about agility in the last 18 months, and this remains very important to us as we seek to maximize the market opportunity available to us now and in the future. We continue to pull all the levers available, ensuring that we are actively progressing our land bank, including our strategic pipeline and positively positioning the business to capture customer demand as we move forward. And as you all know, there is very significant unsatisfied demand for U.K. housing and we remain very confident in the medium and long term for our business. Our priority in 2024 continues to be optimizing value and performance. So that's it from me for now. Chris and I will take your questions. .

[Operator Instructions] First question today comes from Aynsley Lammin with Investec.

Just few from me, or maybe 3, actually. Just interested to hear your comments on expectations for pricing and how you're tactically kind of going into the spring selling season with incentives versus kind of what you had to use last year? And then second related question. I guess if you're kind of looking at maybe, call it, 2% to 3% build cost inflation on average for the year next year, underlying margins still kind of expected to be down on that assumption that pricing is broadly flat. Is that fair? Are you doing anything kind of cost wise to maybe support the margin, a bit more interested to hear your thoughts how much you could offset that underlying erosion? And then just lastly, on the site numbers, you flagged up the planning issues and challenges. I mean at this point, what do you assume average outlets to be this year? Would it be kind of in line with the [indiscernible] that is delivered on average last year or slightly less, slightly more. Interested to hear your thoughts there.

Okay. Thanks, Aynsley. So in terms of expectations on pricing, I think last year, we talked about agility. We talked about assessing plot by plot, site by site. And that behavior is well embedded in our business. From a -- so from a pricing point of view, it will be really a matter of the strength of the market. And I do expect it to vary on a site-by-site basis. more than necessarily on a regional basis. Incentives, we've seen the use of incentives. We've been really targeted. It still remains around 5%. We saw when the spring selling season last year was doing well, but we eased in our incentives, declined a little bit again through the year. But overall, actually, we were at circa 5%. So I'm really happy with the way that our sales teams deploy incentives. You'll remember that we've built a fairly bespoke approach to incentives for customers. And so I do see that oscillating and it certainly would be one of the first places for us to go to compress if demand pulls through. On site numbers and sort of outlet, you know Aynsley, that we don't give guidance around outlets. I mean I'm pleased that you'll note that the outlet number that we've given is sort of 10% -- sorry, 10 sites more than we reported in November. Despite the backdrop, those planning challenges, and they're very real and the reduced land buying. I'm still pretty happy with the outlet number that we've got to open this year. But where we get on average outlet is really going to be a function of how the sales market sort of plays through, so I'm not going to try and crystal ball out for you at this point. And Chris, can you pick up the build cost?

Yes. Aynsley. So obviously, today, that inflation rate on new tenants is around 0% to 1%. Actually, if you look at materials, it's probably a bit high and maybe 1% to 2%, and that's been partly offset by slightly lower labor costs. There's still quite a lot of noise on price increases from material suppliers in general, but I think we'll be able to navigate our way around most of that and labor costs on average, obviously slightly less than this time last year because subcontracts or order books have come under pressure over the last 6 months as the build rates across the industry have fallen in line with sales and we sort of anticipate that and retendered where we felt there was value. How it then progresses as we go through the year, I don't have a crystal ball, but there's plenty of moving parts. We tried to give you some help in the statement, so you can understand the dynamics of the first half and yes, I mean, we -- as you would expect, notwithstanding whatever happens in the markets with costs, we have quite an extensive program certainly over the last couple of years, that's continued right up to the current date where we look to share knowledge with the supply chain to really identify areas where we can improve value without impacting quality, customer experience or health and safety. And each one of our business units has a detailed value improvement plan as a result of that process. So yes, we'll be doing everything that we can to offset any increases that come through.

We now turn to Will Jones with Redburn Atlantic.

I'll go with 3, please, if I could. First, maybe just on planning, there was the latest iteration of the NPPF published in December. I just wondered if you thought that left any scope for planning to get maybe a little less bad. Second, around land buying, no more approvals. I don't think in the last couple of months of the year, but what would you say is most important for you when you consider that the appetite to get back to purchases, is -- would an improving sales market be enough? Or do you feel like you do need lower prices as well? And maybe link that to whether there's any scope for the strategic land bank to help out if the open market doesn't. And then just finally, the bulk sales, I think, 13% of the mix last year, is there a base case for thinking on how that trends in '24? .

Okay. Thanks, Will. I'll take the planning point last and sort of address the others. I mean on the land. We've talked about being highly selective. And I'd say with sort of the early signs of improvement around sort of customer inquiries, probably becoming more thoughtful about that. But the constraints in planning do mean that land availability is tight and therefore, prices are moving. And so it's still very much a balance of value, the risk both in planning, technical and timing and ensuring that we're serving the best interest of our shareholders and the deployment of capital. So quality and value, I think, will be very much a focus in our decision to look at actions in the land market but we'll also be looking at locational selectiveness, sort of strong location from a quality and value point of view. But we'll also be considering those parts of the business, maybe where we would like to see a little bit more investment. So quite an iterative process, I think, from here and really looking to see the inquiry levels, which are really pleasing actually sort of manifest into demand and commitment from customers. Around bulk, I mean, we've talked about bulk being part of our Toolkit and I'd still sort of leaned heavily into that. It has a place. But again, we always seek to balance that against the value and what's right for the site. So no change in our strategy overall. Fairly say, we've been maybe a bit more tactical in parts of the year last year, we took what we needed and no more. How it plays out, I think it will be really a matter of how the market develops. There's always a place for some elements, but the size will reflect how the market is staying. . And then on planning, I mean I think that the overall sort of message from me on the NPPF is the NPPF that was sort of issued at the end of the year, is by a slim margin better than the consultation the year before, but the consultation in December 2022 was quite a major negative for the sector. So I still feel that we are in a worse position from a planning -- sort of strategic planning policy position now than we would have been before the consultation was issued in December 2022. We can see the planning approvals continue to fall quite rapidly. And I am contained that with the removal of the 5-year housing land supply when you have an up-to-date plan, that might not sign too scary on an academic basis, but there's a hundred local plans out there that don't have a 5-year housing land supply, but are defined as up to date. Local plan environment is worsening. And by next year, I think less than 30% of authorities will have an up-to-date local plan and we've got no mandatory housing targets. And we're in an election year and actually to the elections, some local authorities affected on a national election. So I do think that it's going to be a challenging sort of planning environment for a while.

Our next question comes from Harry Goad with Berenberg.

Can I just -- just coming back on this land topic, and I hope this isn't just repeating Will's question, but if we have another year where, let's say, land prices don't really move because of the constraints you've talked about in the planning environment, how do you sort of almost philosophically think about land purchases? And if you're unable to get to what would have been your sort of target hurdle rates? Are you willing to compromise a little bit in some geographies to start replenishing the land bank? Or how do you think about that? And I appreciate it's a hypothetical, but it may become a real issue in '24?

Yes. I mean, look, I think land acquisition in any market is always a range of compromises and checks and balances. So really, it's no more change. But when we see whether it's market sort of contraction or hopefully, optimistically, market improvement, it doesn't tend to operate universally. It will sort of move -- actually it will be variable for a while, and we'll be following that variability. And we'll also be looking at the land availability dynamic, where land is available, then it's likely that pricing would be better and the ability to conserve or drive margin, which would be improved versus areas that are really under pressure. So it's quite a patchwork and it really comes down to the point that I was making with -- well, which is it's sort of a site by site by area assessment. I don't see -- I think maybe in November, I might have said something about clicking a switch, it's not that dramatic. It will be more sort of -- it will evolve and be more iterative.

We now turn to Glynis Johnson with Jefferies.

Just 2 from me. I guess the first one I have a couple of parts. But the first one just, you referenced, Jenny, actually the fixed rate mortgages for 75% loan-to-value mortgage. Is that the typical mortgage that your customers are taking -- are [indiscernible] that improve, I guess a negative 78% loan-to-value, is that -- what you think is most important or is it that we need more than 90% loan-to-value mortgages. And I'm just wondering in terms of [indiscernible] what our lenders telling in terms of their willingness to put money behind some of these lower rates that are coming through. And then the second question, which you've possibly in a better way, but I'm going to ask anyway. You said the outlets will be impacted and I just wanted to kind of be a bit more forensic on that. Do you mean that the number of outlet openings that you do in 2024 will be lower than a normal year? Or are you talking about the net number of outlets?

Okay. Thanks, Glynis. On the fixed rates, I mean, I think in the -- and I don't have sort of the absolutely up-to-date. But when we looked at the information most recently and about 78% or thereabouts, I think, was the sort of the level of loans that our average customer was possibly taking. But your point on first-time buyers is absolutely spot on. What we want to see is better value landing at the higher LTV levels to stimulate more first-time buyer activity. I don't see that a functioning housing market can operate without first-time buyers. And whether that's second steppers or getting onto the market. The lenders, other than Lloyds in terms of big names, there's not many lenders in the 95% category. I would be hopeful that as the sort of the wider environment improves and any concerns that lenders might have of house prices reducing now sort of peeling into the background that they'll get braver and start sort of filling that 95% LTV category. I think it is really important. On outlet, I mean, look, I think in terms of impact, we are calling out the planning situation where we've been very clear about. You can be out of the land market, and you can see how low our approvals were. We thought there being some impact. What I'm not being specific about is the overall time frame because it does play back to sales rates and high sales rates then flow through the outlet dynamic. So not really going to be drawn very much further than that this morning, Glynis.