Taylor Wimpey plc ($TW)

Hello, everyone. Thank you for attending today's trading update call. My name is Ken, and I will be your moderator today. [Operator Instructions]. I would now like to pass the conference over to our host, Jennie Daly, to begin. Please go ahead.

Thank you, Ken. So good morning, everyone, and thank you for joining the call. As usual, I'm joined by Chris Carney. So I'll start with a few quick words before opening up for your questions. You'll have seen from the statement that trading in the year so far has been steady, only slightly down on a strong comparator at this point last year. Nevertheless, we are not immune to the uncertainty and challenges posed by the macro backdrop, and I'll talk about this shortly. Suffice to say, our excellent sales teams remain focused on driving our database and supporting customers through their buying journeys. Our net private sales rate for the year-to-date was 0.74 per outlet per week compared to 0.77 at the same point last year with a cancellation rate of 14%. Excluding bulk sales, our net private sales rate for the year-to-date is 0.72 per outlet per week compared to 0.76 at the same point last year. Our total order book stands at GBP 2.2 billion compared to GBP 2.3 billion at the same point last year, representing around 7,700 homes compared to around 8,200 homes. The pricing environment has been more challenging in recent weeks, particularly in the South of England, where affordability is more stretched and overall pricing in the order book is around 1% lower year-on-year. You'll recall that at the start of the year, we talked about a proactive approach, particularly in London, where we are working our way out of certain apartment schemes. And it's fair to say that some of this pricing weakness reflects decisions taken here to make sure we keep recycling capital in line with our strategic goals. Elsewhere, pricing is softer with some geographies, particularly in the North being more resilient than others, as you would expect. Overall, and encouragingly, new customer visits to sites and engagement remains pretty consistent throughout the spring selling season, helped by increased sales and marketing spend. As we discussed at full year, we are seeing customers visiting sales centers multiple times before making buying decisions. And given the outlook for prolonged higher interest rates this year, they are deal and incentive focused. Cancellation rates to date also remain consistent with recent experience. Another area of focus given the backdrop is build costs. In terms of our suppliers, as we said at the full year, we've negotiated strongly on contracts for this year with some success, but are seeing increasing requests for price increases and surcharges due to rising energy and fuel costs as a result of the conflict. In that context, and it is still relatively early in the year, the outlook for build cost inflation in 2026 is now perhaps more like low to mid-single digit rather than the low single digit, I talked about when I spoke to you at our full year results. Of course, we continue to scrutinize all supplier requests closely and work to defer and mitigate increases where possible. So it is hard to call it right now. The duration of the conflict will be a key determinant, but this is what we're seeing currently. And of course, we will keep you updated as we move through the year. We're making good progress with the share buyback program. And as of the close of business on the 24th of April 2026 have purchased 39 million shares, equating to GBP 34.9 million of the planned GBP 52 million, which we continue to expect to complete in the first half. Pleasingly, we continue to see good progress on planning and are prioritizing outlet openings. And in the year-to-date, we operated from an average of 219 sales outlets compared to 208 for the same period last year and are currently operating from 218 and on track to open more outlets in 2026 than in 2025. We are taking a highly selective approach to land buying given the backdrop and have approved around 1,000 plots in the year-to-date compared to around 1,700 plots at the same point last year. But our strong land position gives us some flexibility here, and we will see how market conditions evolve going forward. When we set out our guidance for 2026 at the prelims, we were very clear that it did not assume any impact from the situation in the Middle East. At that point, it was an emerging event with a high degree of uncertainty around how it might develop. Since then, it's fair to say that market conditions have become more challenging. Bringing that together, while we're not setting revised guidance today, we are being open with you about what we're seeing on the ground. For the first half, we now expect U.K. volumes to come in slightly ahead of our previous half 1 guidance. That said, the pricing and cost pressures I mentioned earlier more than offset this benefit. So we now expect half 1 profitability to be slightly below our prior expectations. The increased uncertainty means that there are a wider range of potential outcomes for the full year 2026 than we were previously planning for and a lot will now depend on how long the conflict persists and the implications that has for both interest rates and consumer confidence. We will update you further in the interim results when the outlook for 2026 will be clearer. For now, we are facing into this uncertainty, laser-focused on keeping a tight rein of what we can control, staying close to the customer, making proactive choices where we believe it's the right thing to do and tightly managing costs. And I want to thank our teams in this regard for their strong operational discipline. We remain confident that we have highly experienced teams in place, great product, excellent land position and the right strategy, and we will remain agile to respond to changing conditions to optimize performance in all markets. So thank you for that, and I'll now open up for your questions.

[Operator Instructions]. We have our first question from Carlos Caburrasi from Kepler.

Just one from my side. And apologies because I know you said you don't want to speak about guidance. But I mean, in today's trading update, you have not reiterated the full year completions target, which I mean could raise some concerns given the current macroeconomic backdrop. And at the same time, you've said that pricing and build cost inflation will be worse than what you were previously expecting. So I mean, can you please shed some light on the potential impact this could have on the GBP 400 million operating profit target?

Thank you, Carlos. I'll hand over to Chris.

Yes. Thanks, Carlos. So we're not setting revised guidance today. When we set out our 2026 guidance at the prelims, as Jennie said, it assumed no impact from the situation in Middle East. And I can understand there might be a bit of frustration by this, but uncertainty has clearly increased, which inevitably means a wider range of potential outcomes. But we are trying to be helpful in the statement as well. So pricing in the current order book is around 1% down year-on-year. In January, we said it was down about 0.5%, which implies that the pricing on more recent sales have softened a little further. And on that basis, the current run rate pricing is around 1.5% down weighted towards the South. And from here, the direction is hard to call with several moving parts in play. On build costs, we previously guided to low single-digit build cost inflation for 2026, so say 2% to 3%. That's clearly moved up, and we're now thinking around the 4% for the year as a whole. Given the level of volatility, it could be higher or lower, but that gives you a sense of how we are thinking about it. And then on volumes, just to step back, our net sales rate in both 2024 and 2025 was 0.75. When we set the 10,600 to 11,000 U.K. volume guidance range at the prelims, we assumed a rate slightly below that at the bottom end and slightly higher at the top end. But the volume guidance wasn't just driven by sales rates alone. We started the year with a smaller order book and the key offset was an expectation that higher outlet numbers would more than offset that and allow us to grow volumes through 2026. If you look at the year-to-date performance in the statement, the sales rate, I think, is around 4% behind a strong comparative from last year, while average outlets are higher. So in combination, we're broadly tracking in line with our expectations. That said, since we set the guidance, both interest rates and mortgage rates have increased, which has weighed on affordability and customer confidence. And cancellation rates are actually pretty good, actually lower than last year, likely reflecting customers with mortgage offers secured pre-March, proceeding with a decent amount of urgency.

We have our next question from Will Jones from Rothschild & Co Redburn.

Maybe 3 for me, please. First, you described as a steady-ish sales rate, but could you just help us with how that pattern has evolved in April and any differences you may or may not be seeing around lead indicators and inquiries and visits and the like? Second, on pricing really just to confirm that there's no particular change to the pricing picture in the Midlands and the North. And any sense perhaps if you can, on what's left to do on London apartments? And then on build costs really just what communications you've had so far from manufacturers? And does the low to mid-single digit allow for kind of formal price increases being agreed rather than just the delivery surcharges you've seen so far?

Okay. Thanks for that, Will. I'll take the first 2, and then Chris will pick up on the build cost. Yes. So I mean, we talked about sort of customer engagement remaining resilient. So we have seen good levels of inquiries. It's notable that appointments in particular, have held up really strongly. I did sort of make it clear in the narrative that we've invested quite strongly in sales and media spend. So that needs to be factored in. What we are seeing and a bit of a repeat, but maybe more so of what we said at the full year, customers visiting sites multiple times. There's a high level of inventory. I think it's about 11-year high inventory across the market. So there's a lot of choice. There's obviously a lot of macro noise. So customers are cautious, and we can see that flowing through the GFK. So that's really where that sort of price weakness, particularly weighted to the South and London is coming in. So forward indicators generally held up fairly well. We've seen a bit of a drop off in recent weeks. It's hard to see through that. Easter was earlier this year than last. We tend to see a bit of a dropoff in the weeks following Easter, aligning with school holidays. So modest drop-off, but really now seeing how that develops in the coming weeks. But I would say around the sales pattern that we've seen in the last few weeks has probably been a bit of softening, but gradual. And again, not unusual given where Easter has fallen at this point. Really, we'll see more in the weeks ahead of us. Around sort of London apartments, I mean, we've been talking about that for a while. And Chris last year in October talked about sort of the unwind and that, that was sort of run out to 2029. So we are on exit. We haven't invested in London for a long time. But clearly, the complexity of the schemes, some of the delays that we've seen with BSR and other things have really elongated sort of developments there. London is effectively unwinding. It is a diminishing part of the business and a diminishing part of the land bank, but it will take some time for us to exit. And around the Midlands and North, they have remained resilient. There are some pockets of weakness on a location-by-location basis, but they're holding up pretty well.

Yes. And on build costs, at our last update, we were feeling reasonably comfortable with how we manage build cost pressure in the early part of the year. Since then, we've seen a shift, as you might expect. We've received a significant number of surcharge and price increase requests from across the supply chain, driven primarily by higher fuel and energy costs. And the proposals range from low single digits to, in some cases, high teens percentages. Now our default position has been and remains to resist surcharges. We require suppliers to evidence genuine underlying increases to their cost base, and we robustly challenge both the timing and content. Now we use our scale and our long-standing relationships to make it clear that costs have to move down as well as up. But that said, we also have to be realistic. And where suppliers are being transparent and are sharing the pain and are prepared to share upside as conditions normalize, then we're prepared to engage constructively. And it's against that context that we're now sort of indicating that the build cost inflation for the year is higher than our initial expectations.

We have our next question from Aynsley Lammin from Investec.

I think I've got 3 actually. Just going back on the kind of guide your comments that you said were quite helpful around pricing and costs. I mean is it -- is my math correct, if I was to assume kind of where we were at the full year results and the incremental news you said today on weaker pricing and the cost inflation, that it's kind of around 150 to 200 bps hit to margins back from where we were expecting them to be a few weeks ago when you had the results. Would that be right? So the EBIT of GBP 400 million would be down, call it, GBP 70 million or so or 18% to 20% cut from the GBP 400 million, if we just assume what's changed on pricing and cost inflation at this point and the expectation for the full year? That's the first question. Second question, I just one, are you taking any cost out kind of reacting to what you're seeing on build cost inflation and what looks like probably a slower market? And then just any comment around kind of cash, how you're managing that and what your expectation is for the full year based on your new kind of view of where margins and profits go?

Thanks, Aynsley. Well, I'll ask Chris to take sort of your first and third sort of questions on the sort of margin and sort of cash. But on cost out, look, we're a really disciplined business. We run a sort of a zero-based budgeting sort of philosophy. We have a history of taking swift action when market conditions change. We are sort of as ever focused on sort of cost management and value improvement right across the business. At this point, we're not signaling any immediate sort of structural cost action, but we are sort of focusing on driving those material cost reductions and the engagements that Chris talked about with the surcharging and a really sort of incremental way. We're looking at optimizing the opportunities from our logistics business, and we'll focus on sort of a range of other sort of simplification improvements across the business. So really sort of digging in there.

Yes, Aynsley. And on guidance, look, the reason we're not giving in your guidance today is simply that there are just still too many moving parts to give you a number that we have confidence in. So our focus right now is on mitigating downside where we can and understanding how these uncertainties translate into outcomes. And we'll be in a much better position to do that by July, and that's when we intend to give you more color.

Sorry, just following up on that, Chris. So just following up on the kind of what you've said today compared to what you said at the beginning of the year, though, is it correct to assume that it's kind of an extra 1% on price erosion and kind of, let's call it, 100, 120 bps of erosion due to the higher assumption around build cost inflation. I mean, is that the right way to think about it? If we look at -- start with the GBP 400 million of profit full year guidance, and then we kind of expect -- we calculate today roughly 200 bps hit to margin on what you've said incrementally today. Is that fair?

So Aynsley, when we give guidance, it's really important to us that it's meaningful. And with the range of outcomes still very wide and evolving, what we're saying is July is the right point to update when we've got better visibility. On cash, the business remains in a strong balance sheet position. We guided to net cash at the half year to be in a range of GBP 0 to GBP 50 million. We are fully sold for the first half. So assuming those sales rates convert to completions in the usual manner, I'd expect to be towards the top end of that range. Probably a bit less land spend, lower land sales receipt than anticipated, but those offset to some extent.

We have our next question from Zaim Beekawa from JPMorgan.

First one just on the incentives. Can you give an indication of where we are now? I think you were around 6% at the sort of full year results. And then secondly, on the -- on bulk, is there a level that you had assumed for the year-end? And how do you think about that evolving? And then thirdly, I sort of know you mentioned lower land spend, but I guess I echo some of your peers have spoken about reducing activity in the land market going forward given the outlook. Is that something you think you'll follow in a meaningful way?

Okay. Thank you. From an incentives, yes, you're right. At the prelims, we said 6%. I think that we're just a nudge above that at the moment. Regarding bulks, our sort of philosophy and approach on bulks really hasn't changed. In the sort of the year-to-date, it's slightly ahead, but actually really a relatively sort of low number. They're hard to plan forward given the sort of the sickness of that market, and they're also very sensitive to interest rate movements as well. We do have sort of a few perspective, but really, they're not done until they're done. On land, I've talked about being highly selective. We're obviously monitoring events on the macro and monitoring the land market sort of carefully at this stage. You can see that our approvals year-to-date are down, and that's sort of being selective around where we are willing to invest at this point given all of the moving parts that we're talking about this morning.

We have our next question coming from Alastair Stewart from Progressive Equity Research.

Just is it possible to give a bit more detail on the London apartments position? I know Will asked about it earlier. For instance, can you give a rough idea of the outstanding number of the -- number of outstanding apartments roughly on discounts, have you contained these to within single digits? Are the apartments clustered around any specific areas? Are there any 1 or 2 big developments? And who are you selling to? Is it bulk investors or a mix with individuals?

Okay. I mean I think the thing that I'd say about London apartments is to stand back to start with and look at what the sort of the dynamics of the London market are. There's a really high stock of availability in London right across both new and existing markets. Affordability is constrained. We have the sort of post Help to Buy sort of sense of that equity supported 40% that really supported affordability. There's overlay of investors effectively selling out or seeking to sell out of the market, both as a response to increasing tax sort of issues on a personal level and then a degree of sort of the rental reform sort of act flowing through. And I think it's also fair to say that there's a bit of a sentiment sort of overhang from sort of post grant [ fell issues ] around planning, just that's leaving sort of the apartment market sort of feeling sort of very, very heavy sitting in the market. So that's the backdrop that we're looking at in London. As I mentioned, we have a number of apartments schemes sort of they're dotted around. So in terms of concentration, Alastair, I don't feel that we're overly exposed to one market. We've got good distribution. They would be in areas that you and I would have considered to be sort of good prospects. And we're working our way through them. But as I said at the top of the Q&A, it will take a few years to unwind it entirely. There's no sort of response to a specific operator or sort of specific actions by others. We're really following a market that is sort of under pressure for price. So I don't feel that we've got a specific sort of issue. It's really just how the London market is operating. I mentioned that -- and I think it is important that you understand what the environment is like there. But we're not sitting on our hands. We are being active, and we're making those proactive choices, I think, consistent with a strategy of redeploying our capital. So we are sort of taking sort of price action in order to move that stock on. There's a mixture of some bulks, but also private sales that we're playing through. So it's really the amalgam that we're leaning into today. And I'm not really going to get drawn into specific sort of numbers, but I think I've given you enough of a sense of...

Just one specific point you brought up. Did you say overhang of the 40% you mean the London Help to Buy scheme? Is there an overhang? And can you just give a bit more color on that? I hadn't heard that mentioned before.

Yes. It's really just in terms of sort of the overall sort of change in affordability that's happened with the withdrawal of sort of the Help to Buy support, which was significant in London has left affordability really very, very constrained.

Did I mishear you when I thought you said there was an overhang. Is there a glut of people who bought under Help to Buy and wanted to move -- London Help to Buy and wanted to move on, but couldn't because they're facing some form of negative equity. Am I misunderstanding you there?

Well, I'm not making any comment at all on negative equity answer. Look, it's really a sense that affordability in London has been supported for a number of years with Help to Buy. And in the absence of that, there's now an increasing number of sort of purchases that really just can't make the stretch on affordability.

We have our next question coming from Chris Millington from Deutsche Bank.

I'd just like to explore this pricing point a little bit more first. I mean, perhaps you could provide some color about when pricing starts to go backwards. I vaguely remember that at the start of the year, you said you were 0.5% down on the order book, but you caught it up, I think, by kind of spring time. So it suggests there's obviously been quite a lot of incremental movement. And perhaps you could also just comment on pricing about whether or not the trend has been deteriorating over time, i.e., it's been declining month-on-month. That's number one. Sorry, it's a bit long. Next one, Chris, you mentioned H1 is likely to be worse than guidance. Can you just remind us what guidance was and what has changed there? And perhaps if you could just link into that, under what circumstances would margins rise from H1 to H2 because I think there was quite a big movement in the second half. And then look, finally, and you probably won't like me asking this, but just a final question on your thoughts around distribution policy still if we are looking at profits, which are, again, 20% lower or so.

Okay [indiscernible]. Shall I start with half 1 guidance and distribution, then we go back.

Yes.

So just to recap what we previously said on half 1 performance, Chris, I think in January, we flagged that 2026 volumes would be more second half weighted with around 40% in the first half. Then in March, when we updated, we said half 1 operating margin would be lower than half 1 last year being 2025, reflecting lower pricing in the order book, ongoing build cost inflation and that second half volume weighting. And at that point, we estimated roughly 30% of the full year operating profit being delivered in half 1. So that 30% of the GBP 400 million. So the half 1 profit guidance was effectively GBP 120 million. Since then, U.K. volumes are actually tracking slightly ahead of our previous half 1 guidance. However, as today's update shows, pricing pressure and build cost inflation have both been a bit stronger than we anticipated. I think it's worth noting that consistent with standard industry practice, when we assess cost to complete at the site level through our regular evaluation process, any increase in cost to complete is spread across all the blocks on that site from the first legal completion in the period through to the final completion. And that means homes legally completing earlier in the year will still bear their proportionate share of the updated site cost to complete, even where the plot itself was largely built complete before any supplier surcharge or price increase takes effect. So whilst half 1 volumes a little bit better than that sort of 40% estimate, the combined pricing and cost pressure mean that half 1 profitability is now expected to be slightly softer than we previously anticipated. And then in terms of capital allocation, obviously, a fair question. What I would say is the business is in a good position with a strong balance sheet and low adjusted gearing. We're holding our AGM later today and the proxy voting shows very strong support for the payment of the 2025 final dividend in May. And as we have said previously, we keep our distribution policy under regular review, but nothing has changed in terms of our approach or our priorities. And the assessment of the 2026 interim dividend will take place in the coming months as usual, and we will remain disciplined on that.

We have our next question...

We have some pricing questions that we didn't get to. So I think it was just a little bit more pricing color on the timing. So yes, so you're quite right, we entered the year this year. And in January, we indicated that pricing was in the order book down 0.5%. That then rolled forward to the prelims. And in that period, pricing -- net pricing was broadly flat. And I think that's what we were very clearly saying at that update. And what we've seen since then is a gradual sort of deterioration in pricing as consumer confidence has sort of weakened and many our customers have just been more interested in incentives and the deal that they can secure. And what I should say as well is all of these decisions are made locally on a site-by-site basis. So what we're aiming to do is drive the best return that we can from each one of those assets, and that's a balance. We've got some locations generally more towards the north of the country where we are seeing a reasonably resilient market. And that strength allows a slightly different approach. And then as Jennie has outlined, in the South, that is much more stretched with affordability and so much more pricing pressure down there. So yes, that's the color, I think.

We have our last question coming from Rebecca Parker from Goldman Sachs.

I was just wanting to go back to this pricing discussion. What is attributable to in London? And have we seen any of the London, I guess, worsening of pricing come through after your full year results? And what can we kind of see as underlying pricing...

Thanks, Rebecca. Yes. Look, I think there are sort of 3 parts to this sort of pricing story. And I would say London, where we are seeing very price sensitive. I gave you sort of earlier on the Q&A, some of the building blocks of that very high stock, quite a significant amount of sellers across new and existing markets. So the London specific market is very price sensitive. That's more than the sort of the wider Southeast and South. And then as Chris has said, also, we're seeing more resilience the further north we go. So there is a London weighting to that pricing element.

And then just wondering if you're seeing any other inflationary impacts outside of those supply increases maybe on your admin costs or on labor costs?

So at the moment, the sort of the build cost sort of inflation story is really focused on materials. We're not seeing sort of movement on the labor side of the equation. We're still in a relatively sort of low volume environment from a supply chain perspective. And we would -- we're not hearing any specific signals around labor costs at this point, but it is worth noting.

Thank you. I can confirm that there's no further questions.

Okay. Well, thank you very much for your time. I understand that it's a busy morning this morning. And Chris and I look forward to seeing you at the half year results on the 31st of July. Thank you.

Thank you very much. That concludes today's call. Thank you for your participation, and you may now disconnect your line.