Taylor Wimpey plc (TW) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the Taylor Wimpey Trading Update. My name is Ezra, and I will be your coordinator today. [Operator Instructions] I will now hand you over to Jenny Daly, Chief Executive, to begin. Please go ahead.

Thank you, Ezra, and good morning, everyone, and Happy New Year to you all. And as usual, I'm joined by Chris this morning. So I know you will all have seen this morning's statement, but I'll start by providing a brief summary of our full year trading and then open the floor for questions. And to open, I'm pleased to report that we've delivered on expectations and traded the year well. We delivered U.K. completions, excluding joint ventures of 9,972 which, as expected, was towards the upper end of our previous guidance range and expect it to deliver a gross margin of around 19%. As a reminder, this includes around a 50 basis points benefit from the land sales we flagged at the interims. Our expectation of operating profit continues to be in line with our previous guidance of GBP 416 million. We retain a strong balance sheet and ended the year with net cash of GBP 565 million, coming in ahead of our guidance due to the timing of land transactions. Our 2024 sales rate of 0.75 is a 21% increase on prior year, whilst excluding bulk sales, our net private sales rate for the year was 0.67. So we've achieved these results while maintaining our high-quality build and customer standards with our customer scores the highest they have ever been, which is really very pleasing and a testament, I believe, to the hard work and dedication of our teams right across the country. The 2024 trading environment was pretty stable, but it's fair to say changing sentiment in particular, the pushing back of expectations of interest rate cuts and some modest mortgage rate rises had some bearing on our customers' confidence in the second half. And in November, we called out that after a few years with no marked regional differences, conditions in the north and south of England has started to diverge with affordability more stretched in the south. This has the effect of softening sales pricing in the south, where average selling prices are higher relative to the north of the country where we have captured pricing gains. As a result, given our mix, underlying price in the U.K. order book is now around 0.5% lower year-on-year. We had a good year in the land market in 2024 and approved 12,000 units that met with our strategy of targeting land in high-quality locations where customers want to live. And this was higher than we originally anticipated due to a number of attractive deals and some increased land owner activity in the lead-up to the budget. And together with our already strong land bank, we are very well positioned for the coming years. We were pleased to see the rapid progress from government implementing the NPPF, which we expect will support sector-wide volumes in years to come. Taylor Wimpey is particularly well positioned in this regard with around 26,500 plots for first principal planning currently in the planning system. A fully functioning planning system remains key to growth, both at Taylor Wimpey and across the sector. And while it will take time for these changes to result in additional sites for the sector, we are well placed with a healthy short-term land bank to bridge the gap. As you know, we don't give guidance for the current financial year with our January post-close trading updates, but I would make some observations, which I hope you will find helpful. We entered to 2025 with a stronger private order book, which is up 25% by volume on last year, amounting to an additional 643 homes compared to the prior year. So we start the year in a good place. As you'll appreciate, it's too early to say much that is meaningful about this year's trading, but we've had a positive start to our Boxing Day campaign. Stop waiting, start living is a call to action for those customers who are in a position to buy, but who have perhaps been waiting on the sidelines. This has landed well with both our sales teams and customers and pleasingly has generated encouraging sales leads. However, there remains market uncertainty with an increase in borrowing costs in January with the potential for that to impact mortgage rates and, therefore, affordability in 2025. Noting yesterday's inflation data, we will be closely monitoring high interest rates as mortgage rates continue to evolve over the coming weeks and months, and we'll, of course, update you more on sales progress at the full year results. Turning now to build costs. We are now seeing signs of build cost inflation returning given cost pressures faced by U.K. businesses, including the impacts of increased employment costs as a result of the taxation changes announced in the budget. It is too early to guide on this in detail given ongoing contractual discussions with suppliers, but we will provide an update at our prelims in February. Progressing lands through planning remains a key priority for our teams. And to remind you of what we said in November, we expect to open more outlets this year than in 2024 with openings weighted towards the second half. So to conclude, we have delivered a strong 2024 performance in line with the expectations. We are now focused on seeing how customer sentiment develops as the spring selling season gets underway. But we are very pleased to be entering the year with a stronger order book and excellent visibility of land and outlets for 2025. This positions us well to grow volumes in 2025 albeit, of course, we do remain vigilant to the evolution of borrowing rates and any impact this may have on customer affordability and confidence to transact. Given the extreme undersupply of new housing and clear government initiatives to address this, we remain excited about the market opportunity and are well placed to capitalize on the substantial underlying demand in the years to come as the market recovers and as government action and planning reform improves visibility for the sector. So we can now open for questions.

[Operator Instructions] Our first question comes from Aynsley Lammin with Investec.

Just two questions from me, please. I guess I appreciate a bit more color around the commentary on pricing, which you said was obviously softer in the southeast. I just wondered if you could give an indication of what incentives have been running at, did you increase them towards the end of the year? And kind of tactically, how you play in the incentives as you go into the spring selling season? And then secondly, I know you're not guiding and made that quite clear. But just on build cost inflation, others in the sector have kind of pointed to low single-digit percentage for this year. Is that kind of something, a level that you'd concur with at this point? I know it's early, but any -- bit more guidance on that would be great.

Yes, first of all, sort of comment on pricing. I mean these are small movements, but as they're pulling in different directions, it's worth flagging them for you. Incentive wise, I think most of last year, we would have been saying 5% to 6%, that has ticked up towards the end of the year sort of 5.5% to 6% to sort of support those sales. You mentioned the southeast, I'll probably just widen that, Aynsley. I'm not talking about just the southeast. It's a more broad size. Now where the line is, I'm probably not willing to get drawn, but it would be wrong to characterize it only as a southeast issue. On build cost inflation, I mean, look, I always want to try and play a straight bat with you. Normally, at this time of the year, we would have completed our negotiations, but we have been working with suppliers to understand their justification a bit more forensic as you've become used to and looking at ways to offset that. So the discussions are a bit lengthier than usual, and it's a dynamic process, and I don't really want to be negotiating in public if -- and I'm sure that you'll understand that. But don't disagree with the peers that have gone earlier this week but we're sticking to our discipline and we'll work through it, and we'll give you more detailed sort of breakdown and color at the prelims.

Our next question comes from Will Jones with Redburn Atlantic.

I'll just try a quick three, if that's okay. The first perhaps if could you elaborate on the encouraging remark with regards to early year indicators. I know you have the various lead ones that you show us chart-wise results but how are they trending, if you might update us on that, please? The second was just around the order book actually because I think if I look at it on a trailing basis, that private business is now 40% of last year's completions, and it was, I think, 30% a year before. So it looks quite high relative to usual proportions. I guess, would you potentially see scope for the order book to maybe ease a bit lower this year to help your completions? And then the last one was just maybe around all things outlets and planning. I appreciate you don't guide on outlets, but the 26,000 number you mentioned, Jennie, is that still applications coming out of strategic land bank? How is the progress going in the owned and controlled? And just any wider planning commentary would be great.

Okay. Well, I'll take the first and third. Chris, if you could pick up the order book. I mean, look, I'm very pleased actually with the early indications, it's really important that we recognize that it's a very short sort of period, and we'll be in a much better position to update you at the full year. But website appointments was quite strongly up. Organic inquiries strongly up. Walk-in appointments was a bit weaker, but I know I'm not supposed to have mentioned the weather, but it was pretty bad, particularly in the north. So all those early indicators are quite positive and I'm very happy with how the new campaign has landed. On outlets, I mean, look, again, we've tried to be helpful, I think, in November, I give you sort of an indication of we expected to open more outlets in 2025 than we did in 2024, which I'm really pleased about. I think even sort of more -- we opened all the outlets that we planned, we opened by the end of last year, which means we're in a good position for trading for this year. So I think 98% of 2025 volumes will come from outlets that we're either already open on or that we're already on site and preparing to open for. So good visibility there, Will. On planning, I mean, you see if you look back 26,500, we've brought that down a bit. We had some success in landing some of our strategic land conversion, still lower than I would like but starting to move in the right direction from a strategic land. We are starting to hear and feel a bit of sentiment change in local authorities. It's not consistent. So we've had some very positive outcomes and I was just reflecting with one of the team this morning, a local authority where we have consistently had to go to planning committee repetitively for one decision, determined our planning -- our next planning application on Tuesday night first time around. And I think that, that is a sentiment change that we are seeing in some authorities. But at this point, I'd say it's still some, not most. Chris?

Yes. On the order book, yes, we're really pleased with that strong private order book position that we've built. And we would always in pretty much every year, look to build a strong order book position ahead of the start of a new year. And that allows us to optimize price, especially in the spring selling season. So I would expect that to be our modus operandi not just this year, but next year as well. And we look at the trading conditions in any market as we approach the end of the year and trade accordingly. So yes, really pleased with our order book position. It's where we want it to be.

Our next question comes from Allison Sun with Bank of America.

I just have one following-up question on the outlets number because it looks like you are left with a little bit extra that you didn't intend on having this year. So will that affect your overall outlook plan in 2025?

Okay. Yes. So I think when we spoke in November, we talked about expecting to end the year with just over 200 outlets. We've got, I think, 23 at close, and I think we're at -- sorry, 213 at close and we're I think, on a spot basis, 213 today. It's just the effect of closing outlets. It's an art, not a science. There have been just a few stragglers. So we would expect the number to come in. So as you say, just a small number of delayed outlet closing to take into account there also.

Our next question comes from Zaim Beekawa with JPMorgan.

Just two from my side. One on land, can you just sort of give us a view as to what you're expecting in '25 in terms of maybe pricing and availability? And then secondly, to come back on the build cost inflation, I appreciate you not guiding just yet, but I think historically, you've also mentioned kind of a positive impact on the self-help? Could you just remind us what you're doing and how you see? What the measure you're able to put in '25 also?

Yes. Thanks. Good to speak to you, Zaim. From a land market perspective, I mean, I would say it's still competitive, but it is variable. It depends on the local market and pricing has everything to do with availability in the area that you're looking to acquire on. So I would expect it to be still quite variable and choppy through the year. As we start to see maybe sort of the benefits of NPPF and land supply coming up, then I would hope that we would see some going in land price. What we do this year, look, I'm not feeling under any pressure. We had a good year last year. Really happy with the quality of what we've acquired. So we'll just reflect on how the market sort of plays out and just make sure that we're doing the right thing on that basis. On self-help, I mean we are busy. The teams are consistently sort of pushing. So cost management is well ingrained in our business. We have a zero-based approach to budgeting each year. The teams will be working through both value improvement and cost management schemes at some pace. And as I mentioned earlier, we do take a partnership approach with our supply chain and engage with how we can both come out at with a better result and those are part of the discussions that are ongoing at the moment. So working hard through all of those elements and I'd probably be able to give you a little bit more sort of color around that too at the full year.

Our next question comes from Marcus Cole with UBS.

I've got two questions. Well, the first one is just on Spain. There's obviously quite a lot of news reports in terms of 100% property tax. I just wondered what you think about the implications for your Spanish business? And the second one is on margins. I know you don't want to give any guidance at this stage. But if I sort of put together the building blocks you've given us on house prices, underlying slowdown, build cost inflation coming through and the one-off impacts of gross margins in terms of land sales in '24, it seems directionally they'll be down. I just wondered if you could flesh out any thoughts on that.

Okay. I'll take Spain and Chris, you pick up on the margin. So I mean, Spain is a small business, you'll have seen from the statement, delivering approximately 500 units, have performed really well, and you'll also see from the statements that they carry a pretty strong order book. I mean the announcement has no real details to it at this point or indeed, what the tax is taxing or when it would be introduced and we have a minority government that would require the support of sort of conservative parties to pass. So something that I think we'll watch, but not unduly concerned about at this point. Just to give you an idea, we're predominantly sort of -- EU nationals are our predominant market, probably 75%, 80%. So of the 20%, 25%, 10% would be British buyers historically. And then there's a number of Schengen and we don't know because there's very little detail as to whether they're included or not. But something for us to watch, but not unduly concerned at this point, Marcus.

And yes, you're quite right, we aren't providing guidance for 2025. But I think you can see from the statement that we are trying to be helpful. We confirmed that the gross margin position for 2024 excluding land sales is around 18.5%, which is obviously a good starting point. We have an increased order book to start 2025, but it does come with an underlying price, which is down 0.5% due to price growth in the north being more than offset by lower pricing in the South, as Jenny mentioned. Also, as we've talked about already, we're seeing signs of build cost inflation. But as Jennie said, it's too early to guide on that given the ongoing discussions with suppliers. And yes, the other factor influencing the margin in 2025 is the degree of house price inflation that can be captured in the remaining sales for the year. And clearly, that is quite hard to gauge at this point with borrowing costs being reasonably volatile, which is why we provide guidance at the prelims. But of course, Marcus, if house prices were to stay exactly where they currently are, then yes, that together with the build cost inflation would obviously push the gross margin lower year-on-year.

Our next question comes from Ami Galla with Citigroup.

Just two questions from me. The first one was on the demand trends that you're seeing this year. Can you give us some color between how is the mix between first-time buyers and home movers? And is there at all any urgency or the thinking behind stamp duty changes in April working in their mind? Is there some pent-up demand that we've seen in January market, which is a function of them anticipating stamp duty changes? The second one is, could you give us some update in terms of Section 106 takeup? Has that seen any improvement on the back of the measures that the government has laid out so far?