Earnings Call: H2 2021

Sep 2, 2021

Hello, and welcome to the Barrett Developments 2021 Early Results Call. My name is Jess, and I'll be your coordinator for today's event. For the duration of the call, your lines will be on listen only. And you will be connected to an operator. I will now hand you over to your host, David Thomas, Group Chief Executive to begin today's call. Thank you. Thank you, Jess, And good morning, everyone, and welcome to our full year results presentation. I have with me as ever, Steven and also John Messenger. John is going to be covering our financial presentations Until Mike Scott joins us. So I will start with an overview of our performance, revisit our medium term targets And then look at our progress in the year. Stephen will then take you through our operational performance. John will cover our financial performance, And I will then return to review the industry fundamentals, sustainability, and finally, current trading and outlook. Turning first to Slide 3. Clearly, our priority through this period has been the health and safety of our employees, subcontractors and customers. Given the strength of the sales market, Our results this year have been governed by our ability to build and it is therefore very pleasing to report a 37% increase in our completions. Just as importantly, we have done this Whilst also further improving our industry leading position in terms of build quality and customer service. The housing market has clearly been strong throughout the year, but our operational and financial delivery I would like to just take time to express my thanks to our team and also our subcontractors and suppliers who have helped us to generate such a great performance in FY 'twenty one. Our disciplined operating framework and the decisive actions that we've taken over Jess. I have maintained the group's resilience and created a platform that allowed us to rebuild Jess, following the initial walk down, and you can see all of this in today's results. Careful management Both build and sales activities have helped us to deliver a gross margin above our medium term target, Which coupled with our control of capital employed has resulted in a recovery in Rocky I am also delighted to announce the final dividend of 21.9p which results in a full year dividend of 29.4p This dividend is in line with our revised dividend policy and restores our ordinary Full year dividend back to a level just ahead of the 29.1p declared in FY 2019. Clearly, the housing market fundamentals remain strong, and we are focused on growth. Looking now at Slide 4, which details our progress in the year and areas of focus for FY 'twenty two. Firstly, looking at home completions, we exceeded our expectations on home completions for the year. Our focus in FY 'twenty two remains anchored on further completion volume growth To at least the level achieved in FY 2019. As you are all aware, We have maintained our infrastructure and capacity to allow us to deliver up to 20,000 completions. Our adjusted gross margin improved by 4.70 basis points To 23.2 percent and exceeded our 23% gross margin land acquisition hurdle rate. In FY 2022, our focus will be on managing both building material supplies and build cost inflation And also delivering the additional step up in build activity required Our medium term target remains unchanged and centered on securing land At a minimum 23% gross margin. We are delighted that through all our actions, coupled with a positive market Backdrop, we unlocked a significant rebound in ROCCAT to 28.3%. In FY 'twenty two, we will be striking a careful balance between investing in our land bank and working capital To ensure that we support our medium term growth, whilst ensuring we deliver the growth in profitability Jess. I will now hand over to Stephen, who will take you through more details around our operational performance. Thank you, David, and good morning, everyone. I'd now like to take you through the operational aspects of the business, starting with our sales performance on Slide 6. We have produced an excellent performance, delivering a sales rate for the year of 0.78 reservations per outlet per week, Jess. Some 30% ahead of the performance in FY 2020, but also 11.4% ahead Of the 0.7% rate in FY 2019, a more normal comparator and a year when our sales rate already showed significant strength. Our sales rate was also consistent to the 2 halves, registering 0.77 in the first half And 0.78 in the second half, notwithstanding the impacts of the changes to Help to Buy and the tapering of the stamp duty holiday. Looking at our wholly owned outlet position, as expected, with the disruption created by our land buying pause through to August last year, Our average sales outlets in the year declined 6.2% from 357 in FY 2020 to 335 In FY 2021, we expect to operate with approximately 3% more average sales outlets in FY22. Turning now to completions on Slide 7. For the year, we achieved 17,243 completions, Including joint ventures. This 36.8% recovery on the prior year reflected three factors at play. Firstly, the benefits of the elevated level of work in progress carried into the year along with the forward sales position, Both created by the initial national lockdown secondly, the strength of underlying market demand for our homes and thirdly, Jess. The way our site employees, subcontractors and suppliers have delivered an excellent recovery in our construction activity. We built an average of 311 construction equivalents each week through FY 2021, improving from 298 in the first half to 324 in the second half. Completions in the first particularly benefited from the elevated working capital carried into the start of the year, but our build performance in the second half helped deliver second half completions Jess. Ahead of both original budget as well as our revised guidance back in May. Our build performance also benefited from increased use MMC ahead of the 21% in FY 2020 and we met our FY 2025 target 4 years early. We are now targeting 30% of completions using MMC in 2025, and we see timber frame in particular Continuing to help grow our construction activity in FY 2022. The increase in JV completions followed a similar path. Given the qualification changes made to Help to Buy and the stamp duty holiday tapering, our commitments to customers around completion timing Jess. Have been particularly important this year through disciplined control of and communication between both build and sales. We have delivered to these commitments with the quality and service standards we demand and our customers expect. Now looking at pricing. Our wholly owned average sales price improved by 3% to £288,800 Our private average selling price improved by 4.8 percent to 325,500 a reflection of house price inflation seen across the country and a slightly higher proportion of completions from London. The 10.1% decline in the affordable average selling price reflected a lower proportion of affordable London homes in the mix, A repeat of the same dynamic seen in the first half. The affordable average selling price in FY 2021 at £146,500 It's also a good guide for FY 2022, reflecting a similar geographic mix of anticipated completions in the coming year. Now taking a look at our homebuyer mix on Slide 8. Part exchange related completions shrank to 5% of completions When compared to 11% in FY 2020, this a function of the strength in the secondhand market making it so much easier for our buyers to complete their existing home The changes in Help to Buy, effective for sales reservations from mid December 2020, saw Help to Buy related completions increased to 38% of total completions in FY 2021 from 35% in FY 2020. 33% of completions were delivered under the original Help to Buy scheme with 5% from Help to Buy 2, Jess. Where completions began from 1st April. It is worth flagging too that the changes in the Help to Buy scheme have seen a smooth transition into the market. We are currently seeing around 20% of weekly reservations using the revised Help to Buy scheme. While significantly lower than the prior year, Jess. Our overall sales rate has seen minimal impact from this shift. Those no longer qualifying for Help to Buy appear to be either Adjusting their expectations in favor of smaller or less expensive homes, accessing additional savings to support their purchase Jess. Or taking on more traditional mortgages at higher loan to value terms in what has become a more competitive mortgage market Jess. To the benefit of homebuyers, now taking a look at our land bank on Slide 9. Our land bank in plot terms has, as anticipated, Jess. Reduced on the same point last year, but has begun to move ahead of the position at the half year, reflecting the rebuild of momentum as we recommenced land bank from early August last year, over 79% of our owned land bank are 52,000 775 plus has detailed consent compared with 52,641 and 77% At the half year, we are particularly pleased to have held and slightly grown the owned land bank plots with detailed planning consent. Our land bank remains strong with just over 77,600 owned and controlled plots equating to 4.7 years of supply. Jess. Notwithstanding the disruption created by the national lockdown, our suspension of land buying through to August and an under resourced planning system getting to grips with digital Our land approvals rapidly accelerated from 5,635 plots across 35 sites approved in the first half To 12,432 plus across 62 sites in the second half from January to June, All whilst remaining disciplined and selective in our land purchasing. Looking forward, The availability of land and limited land price inflation continue to support our shorter land bank model to which we remain committed As we seek to maximize return on capital employed. Reflecting our increased completions in FY 2021 and the modest reduction in our owned and controlled land bank, We are now much closer to our targeted operating framework of 3.5 years of owned and 1 year of controlled land. Continue to see a very good range of land buying opportunities coming to the market and have a good pipeline of offers accepted. With this backdrop, we expect our owned and controlled land bank to grow, reflecting the flow through to legal completion of accelerating land approvals in FY 'twenty one with further growth in land approvals planned in FY 'twenty two to between 18,000,000 and 20,000 plus. We expect to invest around £1,000,000,000 in land in FY 2022. This reflects around £105,000,000 of land spend, which through Timing was delayed into FY 2022, payments due on land creditors and the cash component of new land purchases in the year ahead. Turning to Slide 10. It is well understood that the housebuilding sector has had supply chain challenges in recent months. So far, it would be helpful to Thanks to a concerted focus and significant investments over the past few years in our supply chain, We've been able to deliver a smooth and expanding flow of construction activity with minimal disruption from industry supply issues. Our approach to ensuring security of supply has many elements to it, but the foundation rests with the skills and focus brought to procurement By our centralized procurement team, which manages 95% of our build requirements from foundation through to kitchen units and appliances. Jess. The team's starting point is their supplier selection with a review of supplier capabilities and control. Several years ago, we began to conduct supplier capability audit and we continue to use this as an assessment tool for our key suppliers. We look into a lot of detail at areas like capacity planning, manufacturing process controls, quality controls, IT resilience and back office processing controls are each of our key suppliers. We work hard with our suppliers for mutual benefits And two way communication is key. We have regular feedback meetings with our divisions, subcontractors and suppliers to understand issues and maintain an open dialogue. We also regularly review and assess our risk exposure relating to single sources of Supply, but as a general rule, we mitigate single point supply risk by at least dual absorption. The second strand is providing forward visibility of our build material needs to our supplier base. This puts a greater responsibility back on But our supply chain plans can only plan capacity and production effectively if they have visibility of demand over both the short and longer term. To communicate our longer term build material demand needs, we rely on group and individual supplier engagement. The most prominent is our Annual Supplier Conference. During this event, we share information with all our group controlled supply chain partners Regarding future business plans, including volume aspirations, as well as other objectives. This seeks to encourage suppliers to align their businesses with our future requirements and provide support for their own investment plans. So to summarize on build cost on Slide 11, I've covered a lot of detail around materials, but to update on our pricing position today, We have fixed price agreements in place for 96% of our materials to December 2021 and 71% for the full year to June 2022. The 6 month forward position is very much in line with where we were a year ago, but our fixed price agreements covering the next 12 months Jack. So to June 22 at 71%, a usefully ahead of the equivalent 62% price fix last year. Timber remains one area where there is limited ability to secure price for any more than 3 months, but this reflects the unique situation seen The onset of COVID-nineteen with our suppliers reluctant to commit given the volatility in their input costs and from our perspective, a desire not to lock in at pricing levels, Labor cost inflation remains more muted at present with the subcontracted base keen to secure work from developers who offer good visibility Jess. Our consistent and growing work have relative certainty of build material supply to keep their people working and can be relied upon Jess. These all play to our advantage in the current market. We're also putting increased emphasis on recruitment. We had 426 apprentices, graduates and trainees at the 30th June 2021. And we see apprenticeships Jess. There's a vital route to develop skilled tradespeople for our industry. As a result, we have doubled the recruitment of apprentices In FY 2021 for our FY 2022 year intake. Pulling this all together, we now expect build cost inflation of between 4% and 5% in In FY 2022, the 1% movement since our last trading update in mid July reflects the additional inflationary impact of logistics and haulage, We saw significant in terms of delivered building material costs and which I'm sure everyone on this call has been following in the news over the last few weeks. To summarize on Slide 12, we have delivered an excellent operational performance in the year. Our sales rate has shown a strong recovery With consistency through both halves of FY 2021. Our construction activity improved through the year and we are confident in our ability to build our completion guidance. Additional sites and increased use of MMC will both help drive construction activity in FY 2022, where year to date we are 15.5% Jess. Our 45 construction equivalent homes per average week ahead of the position this time last year. Above everything is our continued Focus on the health and safety of our employees, subcontractors and customers. Here we saw an increase in minor incidents Jack. As our sites recommenced production in mid-twenty 20, which created a disappointing increase in our injury incidence In FY 2021, action plans for improvement have been underway for several months and we've seen a much improved performance And FY 'twenty two, we'll see an increasing focus on sustainability, An area on which David will outline more in a moment or 2. With that, thank you. And I'll now hand over to John. Thank you, Stephen, and good morning, everyone. I will now take you through the key aspects of our financial performance. First, a look at our headline numbers on Slide 14, where we have included FY 2019 and FY 2020 comparatives. Our revenue was €4,800,000,000 almost 41% ahead of last year and 1% ahead of FY 2019. The adjusted gross profit was €1,115,000,000 and the adjusted gross margin at 23.2%. The adjusted gross margin benefited from strong completion recovery and net inflation, moving 4.70 basis Jess. When compared with FY 2020 and 40 basis points ahead of our FY 2019 results. Adjusted operating profit was €919,000,000 81.2 percent ahead of the €507,000,000 reported in FY 2020 and 1.6% ahead of the FY 2019 results with the adjusted operating margin at 19.1%. Our full year results have been impacted by adjusted items. More in a moment, but at the operating profit level, these costs Totaled $107,900,000 As a result, we delivered an operating profit of 811,100,000 Jess. At a margin of 16.9%. Profit before tax was $812,200,000 $320,000,000 ahead of last year. Adjusted earnings per share was 73.5p at 81.5 percent of banks On the 40.5p in FY 2020 and just under 1% behind the adjusted earnings per share in FY 2019, We closed the year with a very strong net cash position at $1,300,000,000 Finally, return on capital employed rebounded sharply To 28.3% from 15.6% in FY 2020. Now revisiting our cost structure on Slide 15. This chart shows our contribution per completion over the past 3 years. You will see that the contribution margin Inbalu has been very consistent over this period, accepting the impact of the initial national lockdown in H2 FY 2020 The adjusted gross margin in green has been impacted by the operating leverage around our fixed operating costs carried within cost of sales. After the negative impact in H2 FY 2020, we had a particularly positive impact in H1 Jack. And the lower level of H2 FY 2021 completions resulted in a modest reversal of this cost efficiency. The cost structure highlights how important completion recovery has been in our drive to optimize activity relative to our capacity And deliver our minimum 23% gross margin hurdle rate. The chart on Slide 16 breaks down the components of our operating margin improvement. In FY 2020, before the impact of legacy property costs and furlough grant income, our adjusted operating margin was 14 point 8%. The chart lays out all the detail, but I would highlight, firstly, the impact of completion volumes, Which through fixed cost efficiency gains delivered a 310 basis point improvement. 2nd, inflation relative to build costs Warehouse price inflation ahead of build cost inflation benefited margin by 90 basis points. Thirdly, our ongoing margin initiatives continue to drive underlying improvement with a 60 basis points in benefits Jack. Unlocked from our regional business where new sites, the continued rollout of our standard house types and refinement of our house type designs All contributed to margin gain. Finally, administrative expenses reduced margin by 150 basis points, primarily reflecting the resumption of performance incentive schemes. With these and other small movements, we delivered the full year adjusted operating margin 19.1%. Adjusted items then reduced the operating margin by 220 basis points to 16.9%. Turning to adjusted items on Slide 17. First here is the reversal of furlough grant income received during the 1st national lockdown. This was shown as an adjusted income last year and this year the repayment is shown as an adjusted cost. We also incurred 81 point £5,000,000 of net costs in relation to legacy properties in the year. This consisted of £81,900,000 of operating costs with a $400,000 provision release in relation to joint ventures. The operating charge of 81,900,000 Included $49,400,000 in relation to Cityscape and the associated review, we're reflecting our commitment to put our customers first. We have covered all the costs of remedial works. With evolving government advice on external wall And fire safety for multi storey buildings, we are working with building owners and management companies. Jeff. There was an adjusting charge of $32,500,000 in the year for a small number of developments with respect to external wall systems And associated reviews. In total, adjusted items for the year were 107,500,000 Our clear and disciplined operating framework is detailed in Slide 18. This framework, its evolution over a number of years And the discipline it has instilled have served us well and have been fundamental to both the resilience and the speed of our recovery over the last The operating framework is unchanged over the last year, but we have included FY 2019 as well as FY 2020 comparative Jess. To provide a useful summary, with our land bank moving back towards our target length, land credit is now funding 22 point 3% of our land bank inside the revised range set last September and average net cash, year end net cash And total indebtedness all showing year on year improvement. Turning to our balance sheet on Slide 19. Our gross land bank Has decreased by $166,000,000 and lung creditors by $134,000,000 a result of the pause in land buying And the inevitable time delay between restarting and land deal completion. WIP was $176,500,000 lower than last year. This reduction reflects the conversion of the elevated working capital carried over at the last year end into completions, particularly those in the first half. Net assets at 30th June 2021 were $5,450,000,000 an advance of 12.6 percent And I will take you through some of the detail. We made net cash interest and tax payments of CHF152,500,000. This is down CAD 43,000,000 on last year's cash outflow despite the step up in profitability. This is because we paid 4 quarterly installments In the first half of FY twenty twenty, with respect to the government's changes to quarterly corporation tax payments, The $175,400,000 inflow on other non cash working capital reflects 2 major items. The adjusting item charges in the year yet to translate into cash outflows as well as the payments relating to employee incentive costs, Which will be paid later this month and where there were no equivalent payments made in FY 2020. The cash release from WIP and the reduction in part exchange properties together created a cash inflow of 216,000,000 Land spend for the year was down $35,000,000 on the prior year at $745,000,000 reflecting the dislocation created by the lockdown and the land buying pause, As well as around €105,000,000 of land purchases, which shifted into FY 2022. We expect land spend In FY 2022 to be around $1,000,000,000 The operating cash inflow for the year as a result of these items and the other details Jess. It was $1,103,000,000 relative to a $52,300,000 outflow in FY 2020. After deducting the interim dividend Paid on the 10th May 2021 and other items, the net cash inflow for the year was CHF 1,900,000,000. Now to cover some guidance points for FY 2022 not covered previously, which are detailed in Slide 21. With respect to wholly owned completions, we expect a 1% increase in affordable mix to 21% And with the elevated working capital position from 30th June 2020 removed, our completion profile We'll return to the more normal phasing of first half, second half completions in FY 'twenty two. With respect to administrative expenses, We anticipate a charge of around €230,000,000 in the coming year. The increase on FY 2021 Jess. Of circa €29,000,000 reflects the absence of 1 off sundry income receipts in FY 2021, equating to approximately half of the anticipated increase, As well as inflationary pay increases and the impact of disciplined investment in IT systems and headcount following a freeze Expenses seen across FY 2020 FY 2021. Our interest guidance is $30,000,000 with $10,000,000 of cash interest And $20,000,000 of non cash charges around land creditors. The non cash charge very much dependent on the timing and terms of land acquired in the coming year. With respect to adjusted items, we estimate that charges of between $40,000,000 $50,000,000 will be incurred in FY 'twenty two In dealing with legacy property issues around external wall systems and fire safety and our year end net cash position It's anticipated to be between €1,000,000,000 and €1,100,000,000 depending on land buying and our ability to invest in working capital Jess. And finally to flag, whilst we don't yet have line of sight as to the rate which will be applied, The new residential property developer tax is scheduled to impact from the 1st April 2022 and will as such Have a final quarter impact on our tax rate in the coming year. Now to summarize on Slide 22. We delivered an excellent financial performance in the year With a sharp recovery in adjusted gross and operating margins and a materially stronger balance sheet, Jack. We are in an excellent position to invest for future disciplined growth, whilst also delivering sustainable dividend returns To our shareholders. Thank you. And with that, I will now hand over to David. Thank you, John. All very clear. As Stephen and John have highlighted, we have a strong investment proposition. And I will highlight some of these differentiators on Slide 24. Jack. We have a very operational ready to use land bank And a good ratio between the size of Land Bank and the number of outlets. We have a strong and highly experienced build and sales team, which operate to exacting standards And have a relentless focus on the detail to drive both efficiency and improvement. Finally, We lead the industry on sustainability. We understand how important this is, both for our business and also for our stakeholders. These differentiators put us in a very strong position Jack. Now turning to the market on Slide 25. 2021 has demonstrated the strong fundamentals of the market, with strong demand for new homes across the country, The government has a target of 300,000 newbuild homes per annum To address years of undersupply and the government closing policy remains very supportive. I will give a little more detail in a moment, but as Stephen outlined, the land market remains attractive with a great range of land buying opportunities coming to the market. We have also seen a smooth transition with the changes to Help to Buy since December 2020. Jess. Mortgage interest rates are clearly attractive and affordable in a longer term context. The average mortgage rate On a standard 85% loan to value mortgage has moved materially lower to below 2% Looking at planning and the land market, Slide 26 charts the development of planning consents As well as net new build additions in England comparing to the Savills Land Price Index. New planning consents have continued to run ahead of new build additions, Jeff. A situation that we have seen since 2010 and there still remains a healthy spread between new planning consents This is despite the challenges and the resource limitations faced By planning departments across the country in light of both funding challenges and COVID. Development land values have dipped only marginally through 2020 and continue to show relative stability Jess. Looking at the mortgage environment in more detail on Slide 27, This is a chart that I've shown you before looking at the proportion of average income spent on monthly mortgage interest and repayments. Clearly, the affordability of mortgages still remains good. And on average, The proportion mortgage costs as a proportion of earnings still remains usefully below the long run trend. This is a reflection of ongoing low interest rates, increasing wage inflation, which is being offset By recent house price inflation. There remains an absence of any return to 95% lending of the government's mortgage guarantee scheme from mortgage lenders for newbuild lending. Some lenders, however, We are also now piloting across the group a new mortgage product with the Newcastle Building Society. Deposit unlock is a brand new scheme that enables both first time buyers and home movers To purchase a new build home with a 5% deposit up to a value of 330,000 Jack. Turning now to Slide 28. We've said before that our ambition is to be the leading national sustainable house builder. Carbon in use. We have committed to all new standard house type designs being 0 carbon in use This will remove almost 40% of our value chain emissions. Our other Scope 3 emissions are in our supply chain, and we will work with our supply chain partners Jess. We have a science based target to reduce scope fee emissions by 24% per square meter of build by 2,030. Near term ability to reduce emissions. As a result, we have a science based target to reduce emissions by 29% from 2018 levels and to achieve this by 2025. Our carbon reduction targets based on Scope 1 and 2 emissions will be included in our group Long term performance plan awards, which will be granted later this year. We are committed Having 0 emissions from our operations by 2,040. Now turning to 3 specific areas on Slide 29. Our waste intensity increased from 6 point 5 three tonnes or 100 Square Meters of legally completed build in FY 2019 to 7.7 tonnes in FY 2020. Albeit clearly FY 2020 was a very have begun to deliver with waste intensity reducing by 24% to 5.89 And as a result, it is incorporated into our annual bonus scheme for FY 'twenty two. This will ensure we remain on target to deliver a 20% reduction in waste and intensity By 2025 from 2015 levels. The futures home standard will require an emissions reduction of 31% from existing standards. Effective from June 2022 for new developments and June 23 Our technical and design teams through our fabric first approach Are developing specific solutions for our house types to meet these new standards, And we are clearly adapting all of our house type designs to meet the new standards. We also have plans and technical solutions in development to meet the next emission target reduction Of between 75% 80% in 2025. Finally, on biodiversity net gain. All of our sites now going through outline planning are required to deliver Jess. Looking forward, in line with the environment build, We have now also set our divisions a target to ensure that all developments going through planning by 2023 achieve a biodiversity net gain of at least 10%. We recognize that we have a responsibility Jess. To ensure that every development's biodiversity is left in a measurably better position than if our development Now to bring you up to date on current trading, Jess. Summarized on Slide 30. We have started well. Our private sales rate per outlet per week Through until the 22nd August has been 0.83. This is 11.7% below the equivalent period last year. But you will remember that last year was an unusual period, Reflecting pentop demand after the initial national lockdown as well as increased health via activity A net private reservation rate per week of 2.77, 11.8% below the prior year, but 10.8% ahead of the FY 2020 trading period. And our forward sales position, including joint ventures, remains strong particularly elevated order book at this point last year and 30% ahead Jess. Of the equivalent position in FY 2020. As Stephen touched on earlier, we are very confident in our ability To conclude on Slide 31, Thanks to the efforts of our teams across the country, we have delivered an excellent performance in FY 2021. We will continue to manage the risks around COVID with health and safety remaining number one priority. Looking ahead, we recognize that there are economic uncertainties, but the attractive Housing market fundamentals, which have clearly been evidenced over the past year, remain unchanged. We are in a strong financial position with substantial net cash and a strong forward sales position. This helps to underpin our plans to grow our build activity and deliver completion growth In the year ahead and also as we work towards our medium term target of growing completions to 20,000 homes a year. Thank you. And I will now hand back to the conference coordinator, and we will be very happy to And the first question comes from the line of Will Jones from Redburn. Please go ahead. Good morning. Thank you. 3, if I could please just start. The first is really just touching on build and construction. You mentioned a few times how that was Jess. Key to last year's volumes and going to be key again. So really just big picture, when you think about the obstacles you faced and generally overcome, things like material shortages, Jack. Would your best judgment be that you're at the worst or through the worst on that and through the balance of the year, Jack. That becomes probably slightly easier. It was just around just coming up the land bank actually, you've reiterated today around the chart target of, I think, 3.5 year owned land bank length. I think it's for you at the moment. If I look back, the last time you were at that length was, I think, 2017, And you're still guiding for plots rising from here. I'm just wondering the extent to which you're happy that is consistent with extra strategic The higher site numbers, your so the biggest site numbers you've got today. And just when you think your trend towards that 3.5%, I suppose, and maybe you sit above it for Jeff. And the last one was just exploring the comment you made around mortgages and the product you've been developing with, I I think you've also built it to start it. Could you just expand on exactly how that works and whether you're making a contribution to the equity within that? That would be interesting to hear. Thank you. Questions. I mean, I'll start in terms of build and then pass over to Stephen. And then I'll pick up on land bank and Also pick up in terms of deposit on walk. I'm very, very disappointed that I can't put one of your questions to John. Jack. We very much like that interrelationship. I can't do that. Sorry, Will. So if I start on Bill, I mean in terms of big picture, I mean, no, I wouldn't say that we're taking the view that we're past the worst We're trying to measure how far through it we are. I would say that we're very much alert To the challenges regarding material availability, I think we're more relaxed about material pricing Because we can understand some of the dynamics in the market. So, I think it's very much that we are on alert and We're doing everything that we can to manage it. And I think our numbers in FY 2021 demonstrate that. And the fact that we're And guidance into the market for FY 'twenty two on completion volumes, I think underlines our confidence. But Stephen, do you want to maybe talk a little more about the moving parts? Yes, Jess. That's fine, David, and good morning, Will. In terms of build and productivity, we're very pleased with the progress Over the last year, we recovered well from a flat start last May, June time. We saw a very strong build performance in the second half, which clearly helped us deliver our second half completions and which were ahead of budget and guidance we gave in May. And last year, just to put into context, we achieved 311 equivalent units throughout the year. We're currently on track to deliver our plans for FY 2022 and we're in sort of week 8 at the moment. And so far, we've seen an improvement over the same period last year of about 15.5% or 45 equivalent units per week ahead of the same period last year. So that means we're sort of currently producing around about 3 35 equivalent units per week. And we need to be building at 341 to deliver the plans and we're pretty confident we'll be able to achieve this. So that boils down to production of about 0.87 equivalent units per construction outlook per week. Certainly, we find equivalent units a good way of measuring our build performance. We split every unit into 9 stages And we chase every unit every week to make sure we're moving stages. So we're typically producing something like 3000 to 3,250 Construction stages, each week, that's a foundation or a superstructure, a roof, etcetera. In terms of the sort of moving parts, we've got sufficient trades at the moment. Clearly, the trades that you So they're coming back from their summer holidays, which is more trades this year, so they take a summer holiday. And we started just moving into the peak Construction period September, October, one of our peak periods for construction in a year, then March, April, May, Jess. June, of course, with the better weather. So we've got no real shortage of labor. We're regularly achieving something like 20,000 Trades on our sites, we've got over 3,000 bricklayers, which is what we need to deliver our requirements. And clearly, we're finding the trades are attracted well organized, well resourced sites. And what's important currently is that they can see a good flow of materials to give them continuity of work ahead. So in terms of summary, we've got the resource in place, The materials are coming through and we're on track to deliver our planned output growth. Thanks, Stephen. Yes. Well, just in terms of land bank, yes, I mean, we think 3.5 years is reasonable guidance. I mean, we're not Jess. Totally caught up in landing on that number on a year on year basis. But I think if you look at the medium term, if we're trying to grow the business up 20,000 completions. I think we're pretty confident that we can land that, the land bank, no pun intended, In that 3.5 year range. And the 3.5 years is sufficient land for us to operate the A really key part of that is the efficiency of the land bank. So that's something that we're always striving for is to try to create more outlets From the same land bank. And you're seeing touched on this and we touched on this back in February that we did a lot generally is trying to do more in terms of swapping sites and therefore improving the efficiency of land banks for individual house builders and Jess. On Deposit and Walk, I mean Deposit and Walk is an industry initiative led by Many of the major house builders and a number of the medium sized house builders. It's similar to a product that Therefore, we've launched a 95% product back in 2012, which was largely eclipsed by the launch of Help to Buy. But we feel that Deposit Unlock is an attractive product for the consumer offering 90 And it's now going into trial, and we would expect it to roll out nationally during 2020 Yes, there is a contribution from the builder, but I think that's to be expected and that's the same as the contribution in terms of The original scheme that was launched in 2012. And final contributions I've not been agreed. But again, I would expect that they are similar to contributions that we would have seen under NewBot in 2012. The next question comes from the line of Charlie Campbell from Liberum. Please go ahead. Just sort of I saw 3 in no particular order and some of them quite short, So just wondering if you could talk about the math of the land bank. It looked to me as if the plot cost intake this Plotkin's bought this year, maybe about 5% lower than last year, if I've done the math right. And I guess that's mix around London. But just wanted to sort of be clear on that and just make sure I understand the messages on land. As I understand, Land is increasing in prop price, but not necessarily as much as you would think given house price inflation. Then second question was just a clarification around kind of the underlying inflation you've seen in FY20 I think I might have missed that. And just wonder whether that inflation is continuing in July August. And the last question, quite a big picture But as we think about the 20,000 number and we look back in history, compared to When you did 20,000 last, you'll be doing probably quite a lot less high rise in a city and less London. So I just wonder kind of what that means you're doing more of and how you make sure that those sites Charlie, hi, good morning. Charlie, sorry, if I just walk my way through that. But just in terms of question 2, underlying inflation in terms of build cost inflation? Sorry, selling prices, I meant. Sorry, yes. Okay, fine. Okay, well, I mean, if I kick off in terms of land and just Headlines and then I'll pass over to Stephen in terms of what we're doing in relation to land buying around the country. Jack. And then I'll pick up the question regarding inflation and also the mix of business at 20,000. So Jess. Just in terms of land bank, I mean, I used the slide in the presentation. We presented that slide many times over the last few years. And I think this has been a key point of the market is that, whilst the land market is always competitive, I mean, we're always competing with other house builders and other purchasers of residential land. The reality is that the land price index Jack. That land prices have not risen proportionately to house price inflation. And this is a byproduct of the dramatic increase in planning consents that we saw in the run up to 2020, so pre pandemic. In terms of the pricing in the land bank for FY 'twenty one, yes, absolutely less intake in terms of London. But we have got very good pipeline coming through for London. So therefore, we'd expect to see a pickup in terms of that Jack. In terms of the land market, generally, Charlie, we're seeing a good level of land coming Certainly on the back of the high level of consents in the last few years, the planning sense come through. We've seen a lot more off market deals than we've seen for the last few years, and we're putting that down to the fact that during the lockdown period, our land teams were very active in terms of Site searches and contacts. So it continues to progress in those deals, which has meant we've done some pretty good off market deals, which we're pleased about. Jess. See more cash based deals rather than deferred terms, certainly less opportunities on deferred terms than there has been in the last few years. The market is very competitive in the sort of 150 unit site category, Sites up to that size and in fact on those sort of sites, we have actually seen some there's something coming in from some of the smaller Medium sized builders on those sites. We were sort of to a certain degree, we're out of those sort of 150 unit sites. We're tending to see a greater number Large sites, so the 500 unit size category, which is ideal from a Barrett David Wilson point of view, where we're able to dual brand the site And certainly less competition in the market for those sort of sites, which is helping us. We've got a very strong Big pipeline, we've got something like 35,000 plots where we've got bids to prepare for 120 locations. So no shortage of land, good consistent opportunities generally around the country. Thanks, Ian. Charlie, just in terms of underlying So clearly, house price inflation across the country, more muted in the Southeast, but positive house price inflation across Jack. I would say in overall terms 4% to 5% if you're looking at it on a year on year basis. Just clearly, some of it is going to be above that, some of it is going to be below that. The House price inflation over the 12 month period, I think for everyone has been surprising. And you can see that It's likely that will become more muted as we move forward over the next 12 months. In terms of 20,000 completions, look, this is an absolutely key Point Shaw, just fundamental. If you go back to 2,007, I mean, I think our Pro form a completion volumes when we acquired David Wilson would have been above 20,000 for that year. And as you said, a fundamental difference in terms of the mix between houses and apartments. And it's an absolutely key point when you start looking at labor Because the industry shortage of labor is in areas like bricklayers And also roof tileers. Clearly, bricklayers and roof tileers would be much less required on apartments Jack. So the fact that the mix for the industry is probably moving to something more like 80% housing is 20% apartments compared to something that was maybe more like 65%, 35% is a fundamental point. In terms of our 20,000 completions, we expect to grow volumes in London. We're going to see a substantial Step up in volumes in London this year and next year compared to FY 'twenty one. So getting back towards 1700, 1800 completions coming out of our London business. All of that, as you know, in Zone 3 to 6. And then around the country, we have 25 divisions around the country. We're trying to target divisions that between 70750 units, and we see that as being very achievable. And Chloe, those divisions are predominantly building houses. But as you say, it will be very much more a house led 20,000 The next question comes from the line of Gregor Kuglitsch from UBS. Please go ahead. Hi, good morning. Thanks for the slide, especially the one on CO2, which is sort of value chain CO2 emissions. So the first question, maybe a point of clarification. So the home and use statistic there, is that an Annual CO2 emission or is it sort of the life cycle of the house? I'm guessing it's So I think the 31% that you referred to applies to that part of the pie, so the 31% in That's sort of pie chart, I guess. So just maybe some clarification around that. And then obviously, I think the government is essentially forcing you to be Jess. Net neutral on that anyway. So just maybe if you could clarify that. And then as a sort of secondary question to that, I was surprised to see Ground preparation being such a high proportion, it's second biggest element of 20 Jack. Why is that? And what can you do specifically to reduce that? I'm guessing raw mats is sort of out of your control. That's The manufacturers, but brand preparation and I guess build is where you can do a little bit more perhaps yourself. So that's sort of the first question. The second question is just sort of thinking about the normalization of the business in terms of sales. I mean, I know to think, for instance, PodExchange, your balance is nearly not quite nil, but it's extremely low. So just maybe your thoughts as to how the business normalizes over Time by channel, so thinking about Help to Buy, Part Exchange and other types of channel and maybe related to that, the capital intensity. And then maybe the third question is on margin. So you've now, I think, produced a record margin, at least as far as my spreadsheet goes So I want to explore what the opportunities are to expand that from here or whether you think you're kind of at the end of the road? I guess I'm more focused on EBIT margin than on any other kind of metrics. Thank you. Okay. Gregor. Jess. Yes. Thanks very much, Gregor. Yes, I'm just going to have a go at those, okay? I hesitate to ever say that I'm at the end of the road. But if I just walk through those, Gregor, I mean, look, first of all, you're absolutely right. In terms of Customer in use is a lifetime measure. Now there is a formula that sits behind it, But that 40% is effectively the in use carbon generated over the house's life cycle. And yes, the government are going to regulate on that, but the timing of that regulation 3 to 0 is not clear. We've asked for that timeline to be set out, Jess. But presently, we only have a plan through 2025. But that is not getting in our way, And we are making sure that we are pressing ahead in terms of the development of homes that will be Jess. Generating 0 carbon in use over their life cycle. In terms of ground workers, yes, I mean, A huge amount of heavy equipment used in relation to ground works, ground preparation, remediation and so on. Clearly, a lot of that coming through in terms of diesel and 2 really Schools of thought with regard to that and plenty of information available on the Internet, but two schools of thought. 1 is battery. Jess. In the long term, the battery will eliminate the use of diesel and the other is that hydrogen will eliminate the use of diesel. If If you look at JCB, who clearly will produce a very high proportion of machinery, they are very much looking at hydrogen solution. And the challenges around battery are about getting sufficient power on the machines relative to the weight To give you the talk that is required for a lot of this machinery. So very much solvable, But there is no clear timescales as to when that will be solved. And that obviously sits within our supply chain as I touched on. In terms of the business mix and the sort of normalization, Well, I mean, I think you call out Tx as an example. I think it's an important example. I mean, we need to recognize always that Our biggest competitor is the secondhand market. And part exchange is a very, very important part of the mix Jack. Normally for the house builder. So in a normal or more normal market, you might expect part And therefore, to some extent, the Help to Buy program has shut down part exchange. I was hoping that when you move to Market where there is not help to buy, then you look for More balanced profiles, so probably less first time bars. We're going to tend to over index presently on first time bars Because of the availability of 95% loan to value is through the Help to Buy program. So we see as we move beyond Jess. But that balanced mix of product, 1 bedroom through to 5 bedroom And more part exchange will definitely be features in the market. And we've always made an assumption that in a non health buy environment, we will see More part exchange and we will see slightly higher levels of incentive. In terms of margin, yes, I mean, we're We set out a story regarding margin in terms of self help and improvement Going back to 2016, and we think we've executed well on that, but it isn't it's not a never ending story. We can't continue Improve margin forever. So I think we're very clearly saying that we expect there can be Some improvement in margin, but it will be quite limited. And we see that the principal lever for us to pull over the next few And our different routes to growth, first of all, to get back to FY 'nineteen levels and then to start moving towards The next question comes from the line of Emily Biddulph from Credit Suisse. Please go ahead. Hey, good morning guys. Thanks for taking my questions. I've got 3 as well, I think. The I just wanted to understand the ASP in the order book. Obviously, it looks relatively strong. I think it's up to 4% or so. But a mix effect We need to bear in mind when we're sort of thinking about ASPs that are coming year or sort of anything we shouldn't extrapolate. Just coming back Jess. Just sort of this or secondly, just going back on this mortgage scheme you're trialing with Newcastle Building Society. Jess. Just to be completely clear, sort of following up on David's last comments, the cost that you're likely to incur here, presumably this is completely consistent. When you've been buying land at a sort of at least a 23% gross margin and buying land for sort of post-twenty 23, The kind of costs you're likely to incur here are presumably consistent with exactly what you've been assuming and factoring in. So We shouldn't be sort of viewing this as being margin dilutive. And then thirdly, just on the order book, obviously, it's still very strong with 2,000 private units ahead of where you were at the start of 2019. How should we think about that? Is there a temptation at some point to sort of Stop selling quite so far ahead and sort of trying to maximize price or just how should we think about if completions this year are in line with where guidance is today, And how should we think about the order book and sort of sales rates trending through this year? Thanks very much. Emily, hi, good morning. So, John will take the question in terms of ASP and Looking at the order book, and I'll pick off in terms of the mortgage scheme deposit on Moab. And then I'll give a few comments in terms of forward sales generally and then pass across to Stephen who can talk more about that. So John, would you like to just pick up in terms of the ASP in the order book? Hi, Emily. John here. Yes, just in terms of When we look at the order book at the end of week 8, the private ASP in there is around the 340,000 mark. It's probably just worth bearing in mind that there is So mix impact in there in terms of completions that will flow through in FY 'twenty three, not just in FY 'twenty two. So probably, I think what we look to highlight to people is, look, if you look at the embedded ASP in the land bank, that's around the 289,000 mark. Jack. Looking at the average selling price for FY 'twenty two. And obviously, we mentioned 1,046,500 as a good fit here in terms of the Affordable price, and you can see that we were at 325,500. So making an assumption on that in terms of inflation, putting the mix together in terms of that increase 21% affordable should get you to a pretty close view on whether price should be for the year ahead. Hope that's a help. Thank you. Thank you. Thanks, John. Just in terms of deposit unlock, so as I touched on earlier, Emily, so it's an industry initiative We're involved in the trial with the Newcastle Building Society. And yes, absolutely, when we've looked at post helped by environment And the acquisition of land, we have assumed that there will be higher transaction or higher incentive costs. And Part of that will be about schemes like deposit unlock. Part of it, as I just touched on, would be things like party exchange. So there's going to be a whole mix of things that In terms of the order group, we recognize that it's been a pretty unusual 15 month plus period. And we've unquestionably become far more forward sold than we would normally be. My sense is that it will naturally settle over the next 12 to 18 months. But Steve, do you want to Yes. Just add a few extra bits in there, David. In terms of being forward soloing, what's important to us is we protect the customer journey. So for example, we're not selling houses or anything unless we've got the foundations in. So we're not sort of selling grass or anything like that. Jess. You have to also bear in mind, we've got new sites starting where there aren't any sales. So we've got a lot of sales to achieve on new sites than existing phases, which we're opening up. We went through a process last year, which David took on earlier, where we sort of created some extra outlets out of dual branding, where it was previously single branded We've now sort of dual branded it David Wilson or vice versa. So again, that sort of created additional sales opportunities for us. And as I say, I think the key thing is we're not selling in advance where we haven't got foundations Already installed and key to us is protecting the customer journey. Thanks, Steve. Thank you, Emily. Thanks, guys. The next question comes from the line of Clyde Lewis from Peel Hunt. Please go ahead. Good morning, gents. Okay. And I'll stick to the format of having 3, if I may. The first one, I suppose, is around the balance sheet and Jess. The lack of any sort of news on special dividends or a commitment to pay a bigger dividend going forward. I mean, I think you've guided Jess. $1,000,000,000 to $1,100,000,000 in net cash this year, but the operating framework is obviously set at a lower level. We've got a bit of cash outflow probably in terms of the exceptionals, the working cap rebuild, probably land credit has creeped up a bit this year. So I can understand Jess. Why it's not going to jump forward, but when do we get to a point where having $1,000,000,000 of net cash at the year end gets too big, I suppose this is a question around the dividend. The second half, I suppose, going back to sort of margins, I suppose, Just trying to find out whether there is still very much of a sort of COVID drag factor in terms of sort of costs. Jeff. Steven Knox, you made the comment about sort of build rates climbing back up. So I suspect there's very little there, but I just wanted to sort of confirm on that. And Then I suppose the last one was around the latest news in terms of sort of the government's commitment to getting affordable homes Jess. Built in a bigger number, does that change any of your thinking in terms of the sort of sites that you're likely to be tackling over the next 2, 3, 4 years? If I start on Jeff. Just the balance sheet position. And then John will pick up on the COVID and any potential drag. And then I'll just touch briefly in terms of our thoughts in relation to sites going forward in terms of any Jess. Comments from government about affordable housing. So I mean, first of all, just in terms of balance sheet, we've obviously reinstated the dividend. Jess. Chloe, it's been an unusual period of time and we ran for 12 months effectively with no dividend. So we reinstated the dividend at 2.5 times cover. We've said that we're very focused on growth and we want to be out in the market buying land and that is Principal area that over and above the ordinary dividend, we want to deploy cash. Obviously, the Board are going to keep this position under review. So as we move into calendar 2022, we'll keep looking at what we're buying and what our growth Jess. And then if it is appropriate to do so, the Board will consider any further distribution. So that's just going to be an ongoing review and discussion. In terms of sites, I mean, I would say Generally, that we in looking at routes to growth, we're not going to go down a route in terms of affordable There is an opportunity to do affordable only development, but we don't necessarily see that that's an opportunity that's best suited to us. We have it was announced that we had signed an agreement with Lloyds To their new subsidiary, Syntra, to look at to redevelop more PRS, particularly PRS within the regional That's very early stages, but that's something that we will be exploring over the next 12 months. And then the government's own land lease program led by Homes England, we feel gives opportunity. We've always been a big participant there in the Homes England Land Release Program. Typically, they are pending to have a high And that's something that we will continue to participate So those would be the 2 main areas over and above what we're already doing. Bear in mind that we are Jess. Delivering more affordable housing than anyone else in the marketplace. Clive, just coming back on COVID drag effects. 2 things really. I guess, first, if I look from a site by site basis, Given the investment we made during the period of lockdown and income back with our sites active, no material impact going forward in terms of any incremental In terms of just site by site costs, one thing to flag is that site extension factor that was 0.3% So no real material impact from COVID drive as we look forward over the next 2 to 3 years. Okay. The next question comes from the line of Andy Murphy from Edison Research. Please go ahead. Morning, gents. Thanks for taking my questions. I've got 3, if I may. Just looking at Slide 26, you put an interesting start up around Net new home additions and planning consents. I was wondering if you could just give us a little bit of color on the gap between the two as to Where those consents have disappeared to, it looks like it's between sort of $50,000 $100,000 a year. So it's Quite a pile of consents that have not been acted on this. So that's the first point. The second two questions All around sustainability. I thought those slides you put up about what you're doing around the carbon footprint and waste were really very interesting. So the first question was about the 0 emissions on the houses in use. I was wondering to what extent That's going to add to your own costs if you're talking about putting in solar panels or Grand Source Heat Pumps. And allied to that, does that therefore mean that those houses have lower costs in use and therefore Jack. There's some value to be gained in that from Bharat's point of view. And then secondly, around the biodiversity net gains Jess. You also talked about. I'm just wondering what the industry practice is here because just on a personal level looking around and watching what I see going on around me. I see sites being developed, but before they're developed, I see a lot of trees being chopped down and that sort Jeff. So I was wondering whether you could give us some color around whether there's any sort of industry gaining going on around that biodiversity and When the sort of starting point is sort of net gains and the endpoint, where that net gain is then measured? Jeff. Okay, Andy. Thanks. And then I think I'll just walk through those, Andy. So First of all, in terms of planning consent, so yes, a change in terms of the way that the data is gathered. Between sites on outline and sites on detailed consent. So we've picked up the revised data And we're now reporting on that revised basis. I think that the numbers I would certainly just add an additional flavor that Over the last 12 to 15 months, the local authorities have found the planning process to be very challenging with the COVID backdrop, Initially because they were not meeting, then they were meeting online and now they're not allowed to meet online. They don't I have legal permission for online meetings, so they're having to have physical meetings. So that has unquestionably reduced Numbers over the last 12 to 15 months. But once that position normalizes, we would expect to see a higher level of consents coming through. In terms of homes in use, I think The short answer is that there are higher costs associated with building homes to a 0 carbon standard. The detail around it is, 1st of all, those costs will reduce. So clearly, we have seen this, Jack. As more volume has come into the marketplace and we would expect to see that with technology such as, for example, heat pumps. Secondly, the consumer is prepared to pay and the consumer is seeing lower costs As a result, because their heating bills are clearly lower, but the reality is a very key part of that is the Emergence of green mortgages, and we are starting to see some movement in terms of green mortgages. The banks Clearly want to have more sustainability credentials in terms of their mortgage lending book And therefore, being able to demonstrate that they're lending to EPC Energy Performance, particularly like ratings A or B is increasingly important to the banks. All of our homes would be compliant with B or better. And therefore, the banks will offer some reduction in respect to green mortgages. We've seen that being piloted, for Example, by Barclays, and that will be a key part of the proposition for the consumer. In terms of the biodiversity net gain and the environmental, Bill, I mean, I think you're right to find that. I mean, part of the reason why This is coming into legislation is to eliminate any potential gaming of the system. And therefore, The site has got to be assessed and it has to be assessed pre and post. So The environmental act when it comes in is not going to be a position where you can go in and cut down the trees and then assess it. It's going to have to be assessed in a precondition. And we see it as being very, very important that there is that frame But we would also say that if you look at the way we've developed our sites over a number of years, I think we've been very, very conscious of Jack. Biodiversity Credentials. And to be frank, it's a very, very powerful part of the sales tool to be able to demonstrate to consumers that you are putting in ponds, that you are putting in trees, that you are putting in things that are bio positive. We see that as being very positive from a sales perspective. But Thanks, Andrew. And I think we can do one more and then we need to cut. We have no further questions in the queue. So I'll hand the call back to your host to conclude today's call. Okay. Well, I'm pleased that we were able to pick up all the calls.