Good day and welcome to today's Barratt Redrow third quarter trading update conference call hosted by David Thomas, Group Chief Executive Officer, Steven Boyes, Deputy Group Chief Executive Officer and Chief Operating Officer, and Mike Scott, Group Chief Financial Officer. Throughout today's recorded presentation, all participants will be on a listen-only mode. Later, we will conduct a question-and-answer session. You may register for questions at any time by pressing star one on your telephone keypad. It is my pleasure to hand the call over to David Thomas, Group Chief Executive Officer. Please go ahead, sir.
Thank you and good morning, everyone. Thanks very much for joining us on this, our third quarter trading update call. As usual, Steven and Mike are here with me this morning, and after some opening comments from me, we will then be happy to move on to questions. First of all, I would like to start off by thanking all of our employees, our subcontractors, and our suppliers for their continued commitment and hard work, which clearly underpins the solid performance that I am going to take you through today. I am really pleased with the progress that we have made on the integration of Redrow into the group, and our colleagues are working together closely as we deliver the cost and revenue synergies that we have previously set out. Moving on to trading, the new homes market has been stable throughout the period, helped by a more competitive mortgage environment.
Our private reservation rate of 0.62, excluding PRS and other multi-unit sales, was slightly ahead of last year on an aggregated basis. Performance was broadly consistent across the period, and we have not seen any material impact from the end of the stamp duty holiday. Including PRS and other multi-unit sales, our overall reservation rate was 3% lower than last year, reflecting the timing of transactions and their relatively lumpy nature. As we outlined in February, we still expect to increase our overall participation in the PRS market in the medium term. We operated from an average of 419 outlets in the quarter, which was lower than last year, as we had previously guided. We expect to see outlet openings through the remainder of this year and into FY 2026 as we grow to our medium-term target of 475-525 outlets.
Reservation activity from affordable housing providers remains subdued, but our private order book was up by 3% in the quarter. This increase reflected modest underlying sales price inflation, a lower proportion of PRS units within the order book, and site mix benefits. Consistent with our previous guidance, we expect total build cost inflation will be broadly flat for the year to the 29th of June. Whilst the outlook for build cost inflation is less certain for FY 2026, we currently anticipate this to be between 1%-2%, and we are working closely with our supply chain partners to secure sustainable and competitive pricing and to realize the synergy benefits of the enlarged business. On the Redrow integration progress, our divisional office rationalization is progressing to plan. Integration activities across head office functions are also progressing well, and the migration of Redrow onto Barratt systems is set to begin shortly.
Our procurement teams are also building momentum as we initially harmonize buying terms and then work to ensure our purchasing scale is optimized to unlock the synergies. As a result of these activities, we are making good progress towards our cost synergy target of GBP 100 million per annum. Pleasingly too, on revenue synergies, we have already submitted planning applications on nine of the 45 incremental sales outlets being targeted, with a significant number in the pipeline for the balance of FY 2025. Our financial position remains strong. The share buyback announced in February is ongoing, and as previously guided, we continue to expect to report net cash of between GBP 500 million and GBP 600 million at the year end. Now, turning to the outlook, we continue to expect to deliver FY 2025 total completions at between 16,800 and 17,200 homes, including around 600 joint venture completions.
Whilst macroeconomic activity or uncertainty has increased, we remain encouraged by the government's ongoing commitment to increasing house building activity and proposed supply-side support. As we outlined at our Capital Markets Update, we look forward to the future with confidence as we leverage our three differentiated brands and our strong land bank. Together with our commitment to quality, service, and sustainability, and our position as a partner of choice, this means that we are well positioned to grow the business to deliver 22,000 home completions in the medium term. Thank you, and we will now be happy to move on to questions.
Thank you, sir. As a reminder, to ask a question, please signal by pressing star one on your telephone keypad. Please make sure the mute function on your phone is switched off to allow your signal to reach our equipment. If you find that your question has already been answered, you may remove yourself from the queue by pressing star two. Again, it is star one to ask a question. The first question is from Zaim Beekawa from J.P. Morgan. Please go ahead.
Morning. Thanks for taking my questions. Just a few on my side. One would be just on the incentives level where we are now. I think you mentioned at the start, but just confirming no material impact from the stamp duty land changes there. The second question would be on, as you know, we've seen from the Labour government enacting GBP 2 billion investment in social and affordable homes and more to come post the Spending Review. Maybe can talk about sort of your expectations or what would be on your wish list then? Thank you.
Okay. Hi, good morning. I think Mike will pick up in terms of the incentive levels, and if I pick up in terms of stamp duty and affordable housing. I think we've said that we've not seen any material impact from the end of the stamp duty holiday. I think that's very consistent with what we said back in February, that generally at Barratt Redrow or within the house building industry, there does not tend to be a lot of stock availability. When it was confirmed at the budget in November that the stamp duty holiday was still going to come to an end at the end of March, I think most of the activity around that would have been in the second-hand market rather than the new build market. No real impact there. In terms of affordable homes, I think just to make two points.
I mean, one, the government have been very clear that they want more homes of all tenures to be built. Whether that be private rental or affordable homes within the Section 106 program, we would expect all tenures to increase as we move forward. In terms of affordable homes in particular, the housing associations are looking for a settlement that is certainly at or above the rate of inflation, and they are also looking for a settlement that would be beyond the five-year horizon. We would clearly support that and understand the need for the housing associations to receive that, but we will just need to wait and see what the government says with regard to the settlement.
Morning, Zaim. Just on incentive levels, I think pretty consistent with what we said in February, to be honest. Still around the 6% mark. Customers are still very deal-focused when they come onto site. The incentive levels have been a little bit sticky through the quarter. Similar to what we were seeing in February, if you look at sort of underlying pricing, underlying house price inflation, probably running around the 1% mark on a like-for-like home basis. That is all pretty similar to where we have been trending through the last few months.
Okay. Thank you very much.
Thank you. We'll then move to our next question from Clyde Lewis from Peel Hunt. Please go ahead.
Morning all. I think I've got two, if I may. One probably on the sort of government's attitude, I suppose, to supporting demand rather than supply. David, I think you talked about, again, the supply side sort of help that the government have come through. Do you think they've got to a point where they actually think they need to do something to help demand side? I mean, obviously, we've talked about stamp duty holiday ending. I mean, right now, there's nothing supporting the demand side. I'm just wondering on your take on that. The second one was really around cancellation rates and whether you've seen any sort of noticeable change on that side. Also within that, I suppose, a sub-question around sort of mortgage appraisals, again, whether you've noticed any sort of different pattern.
You talked about sort of mortgages becoming more competitive in terms of the products that are out there. I'm just wondering whether you've seen any sort of tweak to how the banks are approaching sort of mortgage sort of requests from customers.
Hi, good morning. If I pick those up, I mean, just first of all, in terms of the sort of backdrop of cancellation rates, as you know, we clearly monitor cancellations. We monitor downvaluations. We get evidence coming through of mortgage refusals. I would say that that is just an unchanged landscape. The cancellation position has been stable. In terms of downvaluations, they're kind of at record low levels. Very, very low levels in terms of downvaluations. We do not see any issues in terms of mortgage approvals. In terms of the government on the demand side and demand side stimulus, I think we've been clear and I think quite consistent that we can clearly see benefits of demand side stimulus. I mean, if you are a first-time buyer, then there is clearly a kind of generational inequality in terms of your access to a government product.
There has been government support in the market for first-time buyers over a very long period of time, and there is no effective support in the market for first-time buyers. We have been clear about that. We also think that it is not unreasonable that if the government put in place that type of scheme, the house builders should pay to access the scheme. That would be no different from New Buy, which the house builders launched in conjunction with government back in 2012, and the house builders paid for access to that scheme. I think the first-time buyers in certain parts of the country have clearly very significant challenges around affordability. In terms of the government's view of that, ultimately, the government's view of that will be determined as to whether they do or do not launch demand side support. That is a question for them to answer.
Thanks, Clyde.
Okay. Perfect.
Thank you. Thank you. Our next question is from Charlie Campbell from Stifel. Please go ahead.
Morning. A couple of questions just to sort of follow up as well. Comments on the build cost inflation of 1% or 2% for FY 2026. Do you think there's any benefit from changes in commodity prices, energy prices, maybe goods coming out of the Far East sort of since the tariff changes that might impact that as well? The second question just on mortgages again, and I know this is sort of obviously very new news, but Lloyds changing kind of stress tests. What sort of impact do you think that might have on mortgage availability going forward? Thank you.
Good morning, Charlie. Thank you very much. If I pick up on mortgages, and then I think I'll ask both Steven and Mike to comment in relation to build cost inflation. I think what Steven can do is maybe just give you some flavor in terms of our sourcing, whereas you know that the majority of our sourcing is from the U.K. Mike can talk about the kind of 1%-2% in terms of our guidance position.
Yeah. Thank you.
In terms of mortgages, I think the reality is, Charlie, that any freeing up in relation to mortgage lending is clearly a positive in terms of consumer demand position. Now, we recognize that there's got to be discipline around mortgage lending. If you look at where the market is now from a lending point of view compared to where the market was 15-plus years ago, I think you would say it is a very, very disciplined market. There is very, very clear governance and guidelines around the way that the banks lend. The stress testing regime was put in place for a reason. I think as bank-based rates have moved up substantially from where they were three years ago, say, you can understand that some of these stress tests need to be looked at in terms of the way that they're applied in the market.
There have been different announcements over the last 18 months, and all of them will help in terms of the availability of mortgage products for the customer.
Thank you.
Steven, would you like to just talk about the sourcing?
Certainly, David. Yes. Good morning, Charlie. In terms of material sourcing, if you put into context, Charlie, that about 90% of our materials that are manufactured are assembled in the U.K., which is a pretty high proportion. Within that, there's about 30% of the product that has an overseas content. An example of that would be our kitchen units, which are clearly manufactured in the U.K., predominantly from U.K. materials. Items such as drawers, hinges, handles are imported. As I said, 30% of that would be imported. In terms of our main imports, that's mainly appliances, garage doors, things like that, which come in from Germany generally. If you look to the Far East, China, Asia, we import very, very little. Things like bathroom taps, door furniture, handles, stuff like that. I think maybe one area where we may see some movement would be around PV.
A lot of the PV is coming from China. There may be some sort of reductions in PV going forward. Predominantly, as I said, the vast majority of our materials are U.K.-sourced, manufactured, minimal imports in terms of items, but some overseas content where there's very little movement we see. Over to Mike.
Thanks, Charlie. The only thing I'd add to that is just in terms of the overall shape of the inflation. Again, labor inflation is probably running ahead of materials. We're seeing things like the National Insurance increase come through in the supply chain and so on. Within that 1%-2%, the labor would be sort of towards the upper end of that range and materials probably to the lower end, if that makes sense.
Yeah. Yeah. Thanks very much .
Thanks, Charlie.
Our next question comes from Marcus Cole from UBS. Please go ahead.
Hi, morning. Yeah, I've got two questions as well. I just wondered in terms of since the planning policy changes, has there been any noticeable difference in terms of the time it's taking to actually receive detailed planning permission? In terms of the second one, I just noticed that where the swap rate has reduced over recent weeks given US tariffs and this morning's U.K. inflation print, I just wondered what your latest thoughts on what mortgage rates you think is needed before we start to see house prices inflecting? Thanks.
Marcus, thanks. I mean, I think if I pick up both of those, I mean, just in terms of the planning policy changes, as you know, the backdrop has been that since July 2024, the government have been crystal clear about the direction of travel on planning. That was outlined in letters to the local authorities from the Deputy Prime Minister back in July. However, the production of the bill in terms of the Planning and Infrastructure Bill and the passing of that bill into an act clearly takes time. We are now at the stage where that is going to go through the House of Commons and then the House of Lords. The legislative policy backdrop has not changed. I would say overall, there is a more positive sentiment to planning.
The government have underlined that at a national level with decisions around airports, around the Lower Thames Crossing, and so on. In terms of any material change to the planning environment, I would say no. Clearly, we would expect that material change will come when the act comes into law. In terms of mortgage rates overall, look, I think it is not just about mortgage rates. I mean, we had a very, very strong environment for house building and house building demand back in 2006, 2007, where base rates were at higher levels than they are now. I think it is much more about the overall affordability equation. Where we are seeing modest increases in house prices, we are seeing quite significant salary inflation, and we are seeing a reduction in the bank base rate, then that is a positive recipe in terms of demand.
As we move through 2025, we are expecting to see further base rate reductions. Whilst some of that is in the forward yield curves, the forward forecasts, I think for the consumer, the actual change in base rates is very, very important. I think that really adds the confidence that we are heading in the right direction rather than just the thought that we might be heading in the right direction.
Okay. Thank you very much.
Thank you. Allison Sun from Bank of America. Please go ahead.
Hi, morning. Just one question from my side. Following up on the cost inflation, 1%-2% in 2026, do we have a sense that the housing price growth might be higher than that level based on the pricing you have seen in the order book right now? Thank you.
Yeah. Just coming back to what I said, Allison, I think if we look, we have a measure which looks at the same house type on the same development year- on- year. It is the closest we can come to a like-for-like measure. It probably covers about a third of the portfolio, so it is not everything. That measure is running at roughly 1% year- on- year. Obviously, within the structure of the P&L, 1% of house price inflation would be enough to cover broadly 2% of build cost inflation. That is how we see it playing through at the moment.
Okay. Thank you.
Our next question is from Ami Galla from Citi. Please go ahead.
Yeah. Thank you. Just a few questions for me. The first one was just coming back to current trading. In terms of the sort of site visits and website traffic trends that you've seen, can you give us some color of the profile of buyers that you've seen into this year? Has it at all changed into the sort of spring trading at all? The second question I had was on the land market. If you can give us some color as what are you seeing in land availability and as well as the competition in the land market? The last one was on London mix. There's been a couple of sort of snippets in the press around some appetite of looking at London land. Can you give us a color as to where does London stand within the sort of current mix?
How are you seeing that market, one on the land side as well as maybe on the demand profile?
Ami, hi. Good morning. If I pick up in terms of current trading and also London, and then Steven can just talk about the land market. We have published numbers this morning on land in terms of our land approvals. Steven can talk a bit about what we are seeing in the land market. In terms of current trading, I would say overall, there is no noticeable change in relation to trends as we moved through the first quarter in terms of buyer types. Generally, what I would say on buyer types, what we have seen over the last couple of years is that the increase in interest rates and the general uncertainty particularly affects for different reasons the first-time buyer and the downsizer. All of our brands will clearly have first-time buyers, and they will have downsizers.
Barratt, I would particularly, Barratt Homes particularly, call out in terms of first-time buyers. Inevitably, there has been less first-time buyers in the market. We have documented that through our updates over the last couple of years. If you look at downsizers, Redrow would have seen a high proportion of downsizers coming through 2022. I think for the downsizers, for different reasons, they can choose to sit tight in their existing property. My sense is that both of those are seeing an improving position from what we saw during, say, 2023. Nonetheless, they are still relatively subdued parts of the market. In terms of London, just before I pass over to Steven on land, on London, we are very, very positive in terms of the London market. We have operated in the London market for 40 years.
There is 9.5 million people in Greater London. We see that the opportunities in the market are very significant. If you went back to around about 2017, we said that really we saw that our operation in London would mainly be about Zones 3 to 6, that we would not look at development particularly in Zone 1 and 2. That is still very much our position. We have been active in the London market, and we see that we have a very strong pipeline of sites coming through in London. We have said previously that we are in a preferred partner status with Tf L in the West London partnership. That gives us access to a number of Tf L sites. Some really, really fantastic opportunities that are already coming through into the market. Affordability in London, we recognize, is a challenge.
London, particularly in the first-time buyer market, has been much more subdued in the last couple of years. When we look forward over the next three to five years, we unquestionably see growth coming from our London business. Steven?
Thanks, David. Yeah, good morning. In terms of land, we're seeing pretty good availability. That's evidenced by the approvals we've had year to date of something like 15,300 plus across 82 sites. A pretty strong performance. We've got good visibility of a number of excellent opportunities on the horizon. Generally, I'd say there are sites that have been held back for the last two years when the market was a bit subdued that have been flowing through in the last six months. Hence, there's been a good flow of land availability. In addition to that, there are more consented sites coming through on the horizon. We monitor the plan applications being submitted. There's a lot of new plan applications in the planning system that we expect to come through in the next 12 months.
Sites that were previously stuck with some of the neutrality issues seem to be now being resolved. There is, again, better availability in those areas. In terms of dynamics, clearly, we're rigorously applying our hurdle rates. There is a trend for larger sites coming through. There are a lot of sites around the 500 units-600 units mark, which are ideal for Barratt Redrow on the basis of three brands. We think there are definitely better terms available on those sort of sites than, say, the sites at 100 units-150 units where we're seeing much more competition from the SMEs. The only other thing I'd say in terms of land going forward, we've got pretty good visibility in terms of our own strategic land flowing through. We've had something like 17 approvals so far this year.
We have got something like another 60 applications currently under determination, which we expect to be coming through in the next sort of six to nine months. Land availability from our point of view is good. Some large sites which are ideally suited to Barratt Redrow. Very positive.
Thanks, Steven. Thank you, Ami.
Thank you.
Our next question is from Rajesh Bhatia from Barclays, please. Please go ahead.
Yes. Hi. I've got two questions, please. First one is on the private order book, which is lower than last year on a unit basis. Do you see that as a cause for worry, or is it just a tougher comparison base? If you could add any color on the mix and underlying pricing in it. Secondly, just to come back on build cost inflation and a point to build cost inflation, sorry about that. This includes procurement synergies, I believe. Could you help understanding the growth figure there? Thank you.
Thanks very much. I think I'll pass both of them over to Mike in terms of both parts of the question.
Yeah. No, that's fine. Hi, Rajesh. First of all, on the order book, I think that's really a function of the lower outlet numbers. As we guided, outlet numbers on average will be lower this year. The sort of trough point was just around Christmas. That has fed into the order book given the sales rate that we've achieved. I do not think anything that we're worried about there. I think that's trending in line with where we would have expected it to be given the other guidance. On pricing, I mean, I think we talked a bit earlier about the underlying pricing that we're seeing across the book. I think within the order book, there's a bit of mix going on there in terms of the sort of north-south mix and so on that affects pricing.
If you look at pricing on an underlying basis, we would see that as being up around 1% on our like-for-like measure. Just the second part, sorry, I did not catch all the question, but I think you were asking how much procurement synergy was in our build cost inflation assumptions. The reality is a little bit, but not a huge amount because we have not realized all of the procurement synergies yet, as we were saying in February. They take a while to negotiate with suppliers and get into our agreements. Obviously, it takes a little bit longer than that to be seen in the P&L. Not a huge amount. There is a little bit in that assumption. Generally, most of it, I would say, is just underlying costs that we are seeing.
That's great. Thank you.
Thank you. Our next question is from Shane Carberry from Goodbody. Please go ahead.
Morning. Just one from me. Just to go back around incentive levels again, just given how consistent, I guess, the sales rate has been now for a sustainable period, when do you start thinking about tweaking that? Do you need to see the sales rates move along a little bit more, or is it the kind of underlying HPI that you need to see tick up slightly more before you'd think about tweaking that?
Yeah. Shane, it is Mike here. Hi. I think, I mean, it is a fair point. As I said, I think the customer mindset is that when they are coming onto site, they want to talk about a deal. They have been seeing that over the past couple of years. We are moving prices, but the way we are doing it really at the moment is through gross pricing. That is what is contributing to the underlying HPI. We are dealing off a slightly higher gross price, if that makes sense. Clearly, if we think demand is firming up and we are seeing sales rates increasing from where they are, we would like to try and reduce the incentive levels over time. I think the customer position is still kind of stable. It is not strong enough to be in that position yet.
We have been able to generate good levels of demand with the pricing and incentive mix that we have. It is obviously something that we keep under review, literally week to week on all of our sites.
Awesome. Thank you.
Thank you. As a reminder, to ask a question, please signal by pressing star one on your phone. We will pause just a moment to allow you to signal. There are no further questions at this time. With this, I'd like to hand the call back over to David Thomas for any additional or closing remarks. Over to you, sir.
Thank you. Yes, just once again, thank you very much for dialing in. Thank you for your questions. We will be back in July for a further update after the full year has closed. Thank you.
Please conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.