Taylor Wimpey plc (TW) Earnings Call Transcript & Summary

Hello, everybody. Thank you for standing by and welcome to the Taylor Wimpey Trading Update. My name is Harry and I will be your operator today. [Operator Instructions] It's now my pleasure to hand over to Jennie Daly, Taylor Wimpey's Chief Executive Office. Please go ahead when you're ready.

Thank you, Harry. And good morning, everyone, and thank you for joining us. As usual, I have Chris here with me. So today, we've released a statement ahead of our AGM this morning. As you'll have seen, we've reiterated our guidance and remain confident in our ability to deliver this year and importantly, ensure that we are positioned for growth from 2025, assuming a supportive market. I'll make a few brief comments before we open up to Q&A this morning. So I know you'll be very interested in how the spring selling season has progressed. And while there remains some market uncertainty as well as affordability issues for some of our customers, the period has been in line with what we expected. Mortgage rates have remained below last year's highs with very good product availability. More recently, we have seen some movement in swap rates and some small upward moves in mortgage rates since we last spoken. We note that market expectations for interest rate cuts have moved further out. So as you'd expect, we'll be watching this closely. The sales rate for the year-to-date is 0.73, and excluding bulks, it's 0.69. So this has increased from the rate we spoke to you about in February at 0.67 and there's also a small uplift from what we reported at this point last year on an underlying basis. The cancellation rate is 13% and is back to normalized rates having been at 18% in 2023, which we see as a sign of improved customer confidence and more resilient chains. So I'm pleased with how we've performed, which comes from a lot of hard work from our teams and is a testament, I think, to our marketing strategy as well as the quality of our excellent locations. Build cost inflation on new work remains around 1% and reduces to 0 due to our self-help measures and net house price have been flat. Outlet openings are in line with our plans. We now have 215 outlets open and have operated from an average of 230 during the period. In terms of guidance, we expect to deliver 9,500 to 10,000 completions for 2024, and this hasn't changed from what we said at the full year. But as flagged back then, first half operating margin will be lower than the second half of 2023, principally due to embedded build cost inflation and slightly lower pricing working its way through the order book. We have had a consistent strategy over several years to build a strong and resilient business, and we are set up to manage the business through the cycle for the benefit of all our stakeholders. I think a great demonstration of this is our differentiated ordinary dividend policy, which provides a reliable income stream for investors through the cycle. So subject to approval at today's AGM, the final dividend today of 4.79p per share will be paid to shareholders in May, meaning that we will have returned a total 9.58p per share or GBP 339 million to shareholders via the 2023 dividend. I did say I'd keep it brief. So in summary, the encouraging signs we flagged previously have continued. Of course, we aren't complacent. We have a general election later in the year as well as global conflicts and uncertainty, but we continue to execute in line with our strategic priorities and to focus on prioritizing value, driving increased operating efficiency, cost savings and value improvement and also continuing to invest in areas that matter for the long-term success and sustainability of the business. All this, together with our excellent land bank means we are poised for growth from 2025 assuming a supportive market. So now let's open up to go to questions.

[Operator Instructions] Our first question today is from the line of Chris Millington of Deutsche Numis.

A few if I could, please. First, I'd just like to explore the sales rate, the evolution over the year-to-date first. And perhaps you can remind us where the spot rate was at the back end of February when you last reported, just so we can put this rate into context? That's number one. Second one is just really about what you've been doing on pricing and incentives. Any change there and perhaps have you changed your desire to do bulk deals in relation to this supportive backdrop? And then the final one is just a bit of a checking query, Jennie. Did you mention your currently off 215 in outlets and if that is the case, how would you expect these to evolve over the year? It just surprises me it's down at 215 at the moment relative to that first half average.

Okay. If I take the last two questions, Chris, if you could just take us through the evolution of the sales rate?

No problem.

Okay. Just on outlet, Chris, we're exactly where we expected to be. We've opened 10 outlets year-to-date. I think at the prelims, I mentioned that our expectation was that we would open more outlets in the first half of this year than we opened in the first half of last year. And as you also know, we don't give outlet guidance. But I'm comfortable we are where we expect it to be.

Got it. Jennie, just really quickly, so would you expect it to build a little bit as we head through the back end of the year?

I will just say, Chris, I'm not going to give...

Okay. All right. No problem.

On incentives, there hasn't been much movement. I think we reported it, again, prelims sort of 5% to 6% incentive rate and we're still at that level. There is movement on a site-by-site basis. But overall, I think incentives remain an important tool in the market. And as regards to bulks, I mean I think there are a few things that I would say we've always sort of been clear that our preference is to use bulk preferably planned from the outset of sites, particularly our large sites to maximize returns and that very much remains our outlook. And probably, this first few months of the year are generally quieter. If you can remember, last year, we had one large bulk that we talked about with the MOD on the DIO, I think, is now referred to at one of our sites in Bristol. So there was probably a higher level of bulk from the comparator last year than this year. But it's probably also fair to say that I am conscious that as market stabilizes and the opportunities in the private market firm up that we don't want to sell too deep into our developments on bulk sales. So just generally, no change in strategy, still a preference on a planned basis. And the sale rate, Chris?

Yes. So Chris, when we updated you at the prelims, our sales rate, which was week 1 to 8 was 0.67. The sales rate, including bulks for weeks 9 to 16 was 0.81. And you remember that there were no bulks in week 1 to 8, so the rate for 1 to 8 without bulks is exactly the same at 0.67. And if we strip bulks out of weeks 9 to 16 the rate is 0.72.

Our next question today is from the line of Will Jones of Redburn Atlantic.

I'll try three if I can, please. The first is when you think about lead indicators and seasonality as we look to the summer months. Any feel that this will be any difference to normal seasonality in 2024? I know it's obviously are quite a bit over the last number of years for different reasons. But any thoughts there? And maybe just perhaps returning to price. Obviously, you've got the strategy focusing on value over volume, and you had a good start to the year on sales rate. Are we closer to testing the market on either price or incentive or is it just not quite ready for it yet? And then lastly, on land, I think 3,000-or-so plots combining this strapline conversions and the new approvals, perhaps actually a reasonably decent run rate probably relative to completions, do you think it wouldn't be unfair to suggest that you could be on track for kind of 1x replacement, i.e., land bank plot count holding as things currently stand in '24?

Okay. So quite a bit there. I mean I think in terms of customer inquiries, early lead indicators, the likes of sort of brochure downloads website registrations, a bit down on last year. But what we are seeing is the quality of the customer and appointments to site remaining strong. The feedback from our sales execs are that customers in the pipeline and walking through our doors are better quality than last year. So realistically, we need less of those early indicators to deliver the sales rate. On sort of normal seasonality, it's really hard to actually to think back and find a year that is normal. No, there's nothing that I'm hearing or seeing that suggest that we're not going to see some slowing down as we head into the summer. So that's our expectation is that you will see a slowdown towards the summer. Hopeful that last year's interest rate spike in May probably accentuated that. So we'll be watching trading coming into sort of the May and early June quite carefully. On price, I mean, we do, as you know, we test price on a regular basis plot-by-plot, side-by-side, all with looking at the opportunity. I think it's probably fair to say that there's a mix. There's definitely some sites where we're seeing the ability to pare back on incentives and looking at potential price opportunity on other sites, those parts of the market aren't quite ready for it. And so overall, we're on a like-for-like basis on incentives, but something that we're really focused on. And then on land, generally, I talked about being selective and thoughtful that we'll be active where there's opportunities. And that remains our view, but as to reflect on the market overall, I think land availability remains tight in most areas, but competition has increased for those sites that are available as competitors come back to the market. I'm very pleased with the strategic land pull-through in the sort of the first few months of the year, particularly given the headwinds that we've talked about in planning. So that gives us some confidence there. And I think I said at the prelims that we didn't expect land approvals to carry on at the piece that we were reporting at the prelims because that reflects some hard work that the teams have been doing around sort of reshaping and sort of working with landowners through the back end of last year. So whilst that never rule anything out because we will always be sort of looking at opportunities. It's not my expectation that we would be at replacement levels as well.

Our next question today is from the line of Marcus Cole of UBS.

I've got two questions. The first one is just looking at the consensus numbers, I think there's about 10% volume growth for next year. Just thinking about where do you need the order book to be to get there by the end of this year? And then the second one is just around the CMA investigation. Is there any update to say?

Yes. I mean, look, I said in my opening comments that we remain focused on the opportunity for growth in 2025 assuming supportive market and that remains our focus. And I think also with the prelims, we did say that we had a very good handle on the land that would be delivering those opportunities. Building the order book is a real focus on and for the business. And we will continue to be focus on that. But I think it's too far towards to the end of the year for me to really sort of give a really clear indication of how that will help us carry into 2025. But I know that you recognize that the order book is a fundamental building block for any year's delivery. And then on CMA. Marcus, we are still very much in the information gathering stages with the CMA. We will, of course, comply with all of their request, but it's really not something that I can sort of speculate on or comment on any further than that at this point.

Our next question today is from the line of Arnaud Lehmann of Bank of America.

Two questions on my side, please. Firstly, on the gross margin, Jennie, you commented in your introduction about the pressure in the first half. Could you give us a bit of color heading into the second half? I mean, I think you're going to -- we will have more completion and hopefully the cost side will help a little bit. So are you confident that the gross margin can start to recover from H2? And my second question is a bit of a follow-up on the point you made around the 2025 recovery. And obviously, we take a view on the more than mortgage rates. But setting that aside, what is the potential for completions to increase in '25, assuming demand is normalized, thinking about planning, opening outlets, the pace of construction. Where is the range that you could give us today in terms of the potential for the completion recovery?

Thank you, Arnaud. So I'll try to give you a response on the 2025 and Chris will help you on the gross margin question. I mean, look, I'll remind you, I understand we've talked about our ability to grow in 2025, subject to that supportive market. There's no doubt that planning and the availability of outlets is a key component of any growth aspiration right across the sector and that there are headwinds there. But as I mentioned at the prelims, I think we are in a good place for our land in 2025, and I'm not going to lean into it any further today. But Chris, on gross margin?

Yes. Arnaud, as you know, we've given a pretty detailed guidance for the margin in the first half. I think where it goes in the second half as a function principally of the balance between house price inflation and build cost inflation, the net impact, obviously, is still going against us in half 1, 2024, but it's more balanced now in the prevailing sort of annualized spot measures, which are both flat. So as you look into the second half, we've guided a volume split this year of 45-55. And because some of the fixed costs are in gross margin, then volume growth does improve overhead recovery.

Our next question today is from the line of Sam Cullen of Peel Hunt.

I've got a couple, if possible. You chatted a bit about sales rates already, but can you give us an idea of the build rate currently on site, how quickly you're building out plots? That's number one. And then secondly, related to that and coming back to a point that's been touched on a couple of times in terms of not asking for '25 forecast, but just trying to explore your confidence all things being equal in terms of market backdrop and sales rate, the ability to open outlets at a net rate of 10 or 15 per year on a 3- to 5-year view and how comfortable you are with assumptions of that sort of nature?

So Sam, I'm really not going to be drawn any further on 2025. But I will happily talk to our sales rate and build rate, in the current year. We talked quite -- in quite some detail last year. And at the end of 2022 about our aligning our build rates to sales rates. And that's a discipline that we have retained sort of quite faithfully through the last 18 months. So we continue to pace our build to sales demand. And as we did as the market tightened and sales rates fell, we are in a good position to increase our build rates and output as sales rates increase. So quite responsive. Clearly, there is a degree of lag, but there is also levels of aspiration or speculation or gut feel if we feel that sales rates in any given site are improving.

Our next question is from the line of Ami Galla of Citigroup.

Two questions from me. First one was on trading. I mean were there any significant regional trends that you could discern from the trading to date, both on demand and in terms of pricing? I think in the market data point, there's a little bit more commentary. There's some trend in pricing in slightly higher larger homes. Is that a dynamic that you see at the site level? The second one was on order book. If you could give us a split of the current order book between private and social? And on social volumes, are you experiencing any sort of bottlenecks in the take-up by housing associations in that market?

Okay. Thank you, Ami. I mean, on regional trading, we've talked in the past, but we haven't seen sort of great differentials over the normal deltas that you might see regionally. But I have commented that we can see differences on a site-by-site basis, bearing in mind the location and other elements. In terms of larger homes or higher ASPs, I think that there they have been fairly reliant on chains and so I think it is particularly pleasing that we've seen cancellation rates falling and that we've seen more resilient chains. And I think with that, that is benefiting some of those further of the chain sales. On order book, I'll ask Chris to answer to the breakdown between private and affordable, but around behavior of affordable housing providers in the market, we have seen some sort of reluctance or withdrawal of certain affordable housing providers in certain markets. I think you'll all be aware that there is a level of pressure on some of those organizations with either legacy issues, fitness and future investment required to address and environmental standards, and that has affected some of their appetite for the purchase of affordable housing and it's something that we monitor very carefully. I'm very pleased we have some very long established relationships with affordable housing providers and our teams are very engaged with them to ensure that we're delivering to their needs and timing.

And the order book split is 3,709 private and 3,977 affordable.

Our next question is from the line of Clyde Lewis of Peel Hunt.

Just I'm intrigued as to how maybe your engagement with the labor party has gone over the last few months, whether they're stepping up their talks with you? And I suppose attached to that, what's your view of the sort of possible gray belt that Keir Starmer was talking about now and whether that would have a beneficial or a detrimental impact, you think, for TW?

Okay. I mean, look, we do engage both with government and with our opposition parties. And we had quite a busy period, I think, on all fronts towards the end of last year and the very early start of this year. But I'm sure you won't be surprised to hear that as both the mayoral, local and potential general election comes closer into view that all political parties are more focused on the election hearing than the business engagement end but we keep all of our lines of communication open. In terms of the gray belt and sort of announcements, I think it's useful to see parties engage with some of the sort of more challenging ends of planning policy. And I think it's welcome to see sort of recognition that the green belt is not intended to be a permanent fixed sort of feature. It's a planning policy designation and I think that the gray belt discussion for wants of better terminology does give an indication or an openness to discussion on land of lesser quality that may be well located, which I think fits very well along lines of good time planning and settlement growth. As to the labor announcement, there were some caveats there. I think I understand the aspiration, but to look at sort of a designation and think that everything is capable of viability no matter where it's located, I think, is going to be a challenge, but I see it as a net benefit that we've opened the discussion that green belt is a policy designation as there are certain conditions under which it could be brought forward for development.

We have no further questions in the queue at this time, so I'd like to hand back to Jennie for any closing remarks.

Thank you, Harry. Yes, just very briefly. Thanks for joining us and for your questions today. Just to sum up, given our excellent land bank and disciplined focus on protecting and enhancing value, we remain on track to deliver in line with our guidance for 2024. And as we've discussed a few times on the call and for growth in 2025, subject to a supportive market. Thank you all for your time, and have a good rest of the day.

Thank you. This will conclude the Taylor Wimpey Trading Update. Thank you, everyone, for joining. You may now disconnect your lines.