Earnings Call: H2 2021

Oct 19, 2021

Good morning, and welcome to Bellway's Full Year Results. Hopefully, you would have had the opportunity to read our statement this morning, and you will have seen a strong set of results, which Keith will take you through in a few moments' time. There are a few key highlights that I would like to mention. Housing revenue has recovered to within 3% of FY 'nineteen. Underlying PBT rose by 72 percent to 531,000,000 We have the benefit of a record order book totaling almost £2,000,000,000 And we've made a record investment in land, with a land bank now comprising of around 90,000 plots. Going forward, we have 3 strategic priorities: volume growth, value creation and our Better with Bellway approach, a commitment to act in a responsible and sustainable manner. But first, I want to spend a few moments talking about volume growth and explain the reasons behind that record land investment and what it does to the shape of the business going forward. Keith will then pick up value creation and better with Bellway later in the presentation. Previously, you would have heard me talking about building a stronger platform and adopted a similar front footed approach to buying land to when we emerged from the financial crisis back in 2,008. So I'm very pleased to report that we've contracted on almost 20,000 plots in the period. And certainly, in the first half, those plots were acquired at a time when there was notably less competition from other house builders. There are 3 key drivers behind their appetite for investment: firstly, the opportunity to be front footed and acquire sites at good margins secondly, strengthen the land bank, providing greater depth and a solid footing for growth. And finally, and most importantly, increased selling outlets. I'm very keen to position the business in a place that mitigates the loss of Help to Buy in spring 'twenty three, and the way to do that is to increase selling outlets. So what does that do to the shape of our business? It means we can grow more quickly, but still in a disciplined manner. And I tend to look at growth in 2 ways: firstly, short term and then the longer term opportunity. In the short term and by July 'twenty three, we will increase annual output by around 20%, and that's despite the challenges posed by the supply chain. And that Growth of 10% per annum can be achieved because of our land investment, because of our increased selling outlets and, of course, our strong order book. And I also think it's important to note that we can deliver without any compromise to our build quality or our customer first program. Longer term, we believe that we can grow the business To a similar size to that achieved currently by our larger peers, we believe that a volume target of 16 to 18,000 homes per annum is achievable in the longer term. And that is more than the 14,000 homes that I've previously guided. So I think it's right to articulate the reasoning behind those more ambitious plans. There is clearly a long term structural demand for new homes. There is also continued political support to achieve that ambition and increase volumes to around 300,000 homes per annum. Our strengthened land bank with over 5 years forward supply And our further investment into strategic land provides a solid footing. We also have scope for further divisional expansion, And our financial returns remained strong with the balance sheet able to support our investment program. Now I'm very happy to take questions on this towards the end, but first for our results, Keith. Thank you, Jason, and good morning, all. I will start with a summary of some key financial metrics for the year just gone. Housing revenue increased by 41 percent to £3,100,000,000 and is now just 2.3% lower than the FY 2019 peak. The underlying operating margin rose to 17% And return on capital employed recovered to 16.9% with further improvements in both expected in the year ahead. We provided an additional net amount of £52,000,000 in relation to fire safety on legacy apartment buildings. And after taking this into account, earnings per share rose by 102% to 316.9p. We sold over 10,100 homes with completions biased towards the first half as previously guided. This is a reflection of the strong pent up demand in WIP investment at the start of the financial year, when construction progress was weighted towards units In the latter stages of production, the average selling price was over £306,000 With the increase of almost 5% influenced by our focus on higher value homes prior to the March 2021 reduction in the Help De Buy price caps. There was also some underlying house price inflation perhaps 3% to 5% for the full year. As a result of these pricing benefits, I now expect the average selling price for the year ahead to be around £295,000 slightly higher than previously guided, although still lower than FY 2021. This moderation is driven by mix changes as we strategically position the business to deal with the withdrawal of Help to Buy from March 20 Our share of profit from joint venture completions rose to £10,000,000 But as I've said before, this can be quite uneven due to the profile of build and sales completions. And so in FY 2022, I expect it to half to around £5,000,000 The market has been strong across the UK With Scotland, Manchester and the Midlands all performing well in the north. The recovery was more pronounced in the south Where there was a 43% increase in completions with this reflecting construction progress and the greater fall in volume in the south in FY 2020. Our Ashbury brand now represents 7% of homes sold and is used successfully on larger sites The site layout and sales market justified 2 selling outlets. 7% of homes were completed in London And our average private average selling price in the capital is now just over £400,000 which reflects our ongoing investment in the more affordable outer zones where demand remains strong. We put aside an additional gross amount of £67,000,000 to deal with legacy building safety issues. This relates to developments where initial investigative works not been previously concluded. It also includes a widening of the scope of works on certain more complex sites where provisions have been made in prior financial years. We recognized £15,000,000 in cash recoveries from third parties throughout the supply chain. And this results in a net charge of £52,000,000 with £32,000,000 of this incurred in the second half of the financial year. As you know, this is a complex industry wide issue where we are trying to act responsibly. From a financial point of view, we have now set aside a total of £165,000,000 since 2017 with a provision of £116,000,000 remaining at the 31st July. There is still a handful of schemes which have been investigated, both by us and in collaboration with warranty providers. I therefore expect as these investigations are concluded that we will incur further costs in the year ahead. It is, however, fair to say that I believe most issues are fully provided for and I see these costs primarily as a balance sheet item. And we do, of course, continue to pursue further recoveries from third parties, where they have fallen short of the standards required. And we will recognize these going forwards in line with normal accounting criteria. The underlying operating profit was £532,000,000 and the underlying operating margin was 17%. Drawing out larger items in the operating profit bridge. The extra volume and average selling price Added a total of £186,000,000 in the year and improvements in the underlying gross margin added a further £44,000,000 The underlying gross margin of 20.9 percent is still below our recent land intake margin of 23%. The shortfall is in part made up of a cost of £22,000,000 in relation to extended site durations because of COVID. This is not an additional cost over and above that reported last year, but it is instead the proportion of the extra COVID costs, Which have traded through the income statement in the period. In addition, there are still some effective legacy cost increases as we have reported in prior financial years, which still sit within the valuations. There will be further improvements in the gross margin in the year ahead as we bring in new recently acquired land And continue our program of commercial cost saving initiatives. We will also benefit to some extent From higher site based margins because of some recent house price gains as I mentioned earlier. I know however that there remain upward cost pressures in the construction supply chain. In relation to administrative expenses, the recommencement of divisional incentive schemes It mainly accounts for the increase in the year. There will be further increases in the year ahead as we expect to incur additional costs To attract and retain quality people to achieve growth in a competitive market. In addition, We will incur some extra cost because of items such as higher pension contributions, insurance, IT security and our investment in ESG matters. Overall, taking everything into account, I expect that we will achieve a full year Underlying operating margin of around 18%. Beyond this current financial year, We can deliver a normalized sustainable operating margin broadly between 18% 19%, With the potential for this to rise further if there is ongoing underlying house price inflation. Unusually, I've included a slide on tax and the reason is that our effective tax rate, which was 18.4% We'll go up in the years ahead. Firstly, in April 2023, the standard rate of corporation tax in the U. K. It's due to increase to 25%. Secondly, there has just concluded a round of additional technical consultation in relation to the residential property developer tax. And the indications are that this could affect groups such as Belway from April 2022. The combination of these two taxes together could result in our effective tax rate Along with others in the housebuilding sector rising in stages by some 50% in relative terms to over 30% of profits by FY 'twenty four. A few summary observations on the balance sheet before I look at the detail. Our pension assets increased to £10,000,000 The remaining fire provision of £116,000,000 is shown separately And land creditors increased to £456,000,000 because of our additional land buying activity. Our cash position is strong and we ended the year with net cash of £330,000,000 Even accounting for the increase in land creditors, adjusted gearing was very low at under 4%. We generated £520,000,000 from operations, a strong figure as you'd expect given the elevated brought forward investment in WIP. In the year ahead, I still expect the group to be in an average net cash position, Perhaps £75,000,000 or so and I expect some utilization of our bank facilities in the springtime as we focus on WIP investment to deliver year end completions. Committed debt lines, including bank debt And our recently issued USPP loan notes total £500,000,000 And they expire in tranches through to 2,031. This provides excellent resilience and strategic flexibility. Moving on to the top tier of the Alarm Bank. There are 31,000 plots with an implementable detailed planning permission And an associated cost of £1,800,000,000 Additions in the period Have an anticipated average selling price of £280,000 Looking forward, This section of the Larm Bank has a carried forward expected average selling price of £290,000 So while this year the average selling price may be around £295,000 In FY 2023, I expect the average selling price to moderate further to around £290,000 Unless, of course, you benefit from some house price gains over that period. This reducing average selling price is a deliberate strategy To maintain sales rates as Help to Buy ultimately expires. Our pipeline of owned and controlled land where DPP is expected within the next 3 years has risen to 24,300 plots. This means because of our land buying activity in the year, the Belway owned and controlled land bank has risen to some 55,000 plots, Which is around 5.4 times the FY 2021 volume output. This strengthened down bank is healthy for the business And will ultimately lead to more outlets to help achieve future growth. Land contracted in the period Has an expected gross margin of around 23%. And as already mentioned, this will help to drive margin improvement in the years ahead. Our strategic landholders have risen to over 30,000 plots As we continue to supplement this additional tier of the land bank, in total, the owned and controlled land bank Together with our investment in strategic land has a balance sheet value of £2,500,000,000 And provides Belway with access to around 87,000 plots. Investment and construction based work in progress stands at £1,400,000,000 which is a reduction of £65,000,000 compared To last year, in addition, the completion of additional units in FY 2021 means that the remaining plots are in Earlier stages of production compared to a year ago. Coupled with manageable yet ongoing sector wide constraints throughout the supply chain, This means that H1 output in FY 'twenty two is likely to be similar to last year, And full year volume growth will be loaded towards the second half. The Tarion value of pot exchange units at under £2,000,000 is unusually low, and I have no doubt that the balance sheet value and the cost of running this scheme We'll revert to normal higher levels in the future. The final dividend is proposed to increase by 65% to 82.5p which means a total dividend of 117.5p for the year. It is covered 3 times by underlying earnings. And given the growth potential for Bellway, this is a reasonable guide to dividend cover the foreseeable future. Over the next 2 financial years, our volume growth and operating margin targets Should result in cumulative underlying profit before tax of around £1,250,000,000 After paying tax, we broadly expect to return around onethree of the residual amount to shareholders. Before I conclude, I wanted to briefly outline better with Belway. This is our new long term approach The sustainable and responsible business practices, which we are currently developing in consultation with several external stakeholders. The intention is that Better with Bellway will become an integral part of our culture and our day to day operations. Not only will this result in a positive influence on our stakeholders and the environment, but it will set a solid foundation for Future operational and financial success across all aspects of the group. Our 3 flagship priorities are likely to be our customer first program, our desire to become an employer of choice and our carbon reduction strategy. Jason will cover the first two of these in his operational review. With respect to carbon reduction, we are using internal and external experts to help measure our base carbon output using an in-depth assessment of the embedded carbon emissions within our business. We will measure not only carbon output from our daily operations, but also embodied carbon, which is generated throughout supply chain And also carbon horizon through household emissions over the lifetime of our product. We will then develop We have already established a working group To meet the targets of the future home standard as it will apply to our product from 2025, and Jason will touch upon some of our initiatives in that regard. But more widely within the group, we have moved all of our controllable office, stock plot and site compound energy supplies to renewable sources. This action in particular has helped us to achieve a 24% reduction in scope 1 and scope 2 carbon emissions per home sold since 2018. There's more to do and there's more to learn, but we have plans to go further. We are currently investigating the use of site based biofuel. We are also considering wider carbon emissions, which are outside the scope of Belway's reporting obligations. This includes a review of our company core incentive that we offer to certain colleagues to determine whether we can encourage individuals to make We look forward to March next year when we will publish our new science based carbon reduction targets I'd also hope to report performance against a range of new KPIs for each of the priorities in our Better with Belway sustainability strategy. To summarize, I thought it would be useful to set out key aspects of guidance. In the year ahead, we expect to deliver volume growth of around 10% to over 11,100 homes at an expected underlying operating margin of around 18%. In FY2023, We expect to deliver further compound volume growth of another 10%, increasing annual output for around 12,200 homes. The operating margin in FY2023 is likely to be between 18% 19%. Over the next 2 years, cumulative underlying profit before tax could be around £1,250,000,000 Beyond FY 'twenty three, we have significant growth potential and should be able to produce a long term sustainable operating margin Without house price inflation of between 18% 19%. Our responsible and sustainable approach to growth Together with our balanced yet growth weighted dividend policy should generate significant long term value for shareholders And a positive impact on all of our stakeholders. I will now pass it back over to Jason. Thank you, Keith. If I could start with trading. I'm still encouraged by the current selling environment. It very much feels to me as though the market has now normalized, and we're getting back to a more traditional autumn selling period. At the start of our last financial year in August 'twenty, sales were largely inflated by that pent up demand and boosted by the stamp duty holiday. Reservations then moderated a little bit following the introduction of the new Help to Buy rules and a further lockdown. Overall, private sales were ahead by 20%, although it's very difficult to make meaningful comparisons to such a disrupted period of trading. That said, we were still 6% ahead of FY 'nineteen, and that demonstrates the underlying demand for new homes. We have also enjoyed a strong period of house price inflation, around 3% to 5% in the year. But I do expect this to moderate now the market enters a more normal trading period. The mortgage market also remains supportive, albeit there are no widely available 95% LTV products. But we are encouraged by growing lender participation in the Deposit Unlock trial, a 95% mortgage indemnity guarantee scheme. And with the recent introduction of Nationwide, this could lead to some momentum in this space. Help to Buy accounted for 30% of reservations despite the introduction of the regional price caps. And notably, in the last 3 months of our financial year, Help to Buy reservations fell to around 20%. And today, its use seems to be more prevalent in the Midlands or the South of England. Turning to land. As I mentioned in my introduction, our investment in land has very much changed the landscape for Bellway, certainly across the next 2 years. Our investment of over £1,000,000,000 securing almost 20,000 plots Across 109 sites has resulted in a land bank stretching across more than 5 years. And we've purposely acquired some larger housing sites as we lay the foundations for growth, having deployed capital previously invested in London. And these larger sites tend to attract higher margins, particularly those acquired in the first half of our financial year. That's not to say we've lost the love for London, but we have reduced our exposure to around 7% volume with our focus on predominantly edge of London sites or commuter zones, such as Barking, Bexley Heath and Croydon. A final point on land is that we've restructured and made further investment into our strategic land teams. Our intention is to target a wider selection of sites, including larger and longer term opportunities as we set out to deliver our longer term growth objective. Strategic land will become a more important tier of our land bank as the group grows in size. Now for production. Production and costs represent the most challenging aspect for both the sector and the wider economy. But to be clear, we are in a very good position. We have realistic construction plans and strong management teams to deliver the year ahead. And that's what gives me the confidence to forecast growth of 10% per annum for the next 2 financial years. That said, constraints in the supply chain still exist, and I do not expect them to ease in the immediate future. Since July, our teams have been faced with the pandemic, limits on labor and materials, haulage constraints and more latterly fuel shortages, which were particularly acute in the southeast of England. All of this puts pressure on costs, with increases averaging by around 5% in the year. But we do have examples such as structural timber, which increased by as much as 100% at a certain point within the year. But in the main, We are happy that the majority of our suppliers are acting responsibly. For example, We have recently extended our annual agreement for plumbing and heating products for only a modest annual increase, whereas our new brick and block agreements are subject to a 10% to 15% increase, which is largely due to the raw materials. But we have been here before. We are fully prepared. We have good relationships with our suppliers. We treat our subcontractors fairly, and we have a strong operational vein running through the group. Our Artisan range of standard house types is also proving to be helpful, having been plotted across 29,000 plots over some 200 developments and is proving to be very useful in terms of procurement for both economies of scale and mitigating those cost pressures. And by way of example, we're currently refining our standard house type designs to remove Unnecessary wind posts, but also rationalize our above and below ground drainage. And whilst that doesn't sound very glamorous, it all helps to save costs against the backdrop of the current inflationary environment. The Artisan range also embodies our approach to high standards and attractive street scenes, helping to create a sense of place and community. And it gives us a good canvas to incorporate forthcoming building regulations in 'twenty three in 2025. And a benefit from our standardized approach is that we control artisans centrally, So design changes can be reviewed and refined more quickly to establish the most cost effective solution, avoiding the duplication of costs from our previous and more bespoke approach. Our 0 Carbon team are also making good progress with future home standards, with 3 sites identified as case studies to develop our knowledge on energy efficiency and running costs as we plan to deliver lower carbon homes. In our case studies, we'll be assessing fabric efficiency, renewable energies, heating solutions and energy monitoring devices as we seek to establish the best performance to establish volumes on the scale that we require. And interestingly, we have partnered with Salford University for a research and design project. Sorry, I'm going to have to start again. I've tripped up the previous one. I'm going to go from whilst, yeah? Yes. And whilst this doesn't sound very glamorous, it all helps to save costs against the backdrop of the current inflationary environment. The Artisan range also embodies our approach to high standards and attractive street scenes, helping to create a sense of place and community. And it gives us a good canvas to incorporate forthcoming building regulations in 'twenty three and 2025. A benefit from our standardized approach is that we control Artisan centrally, so we Can review design changes quickly and establish the most cost effective solution, avoiding the duplication of costs from our previous and more bespoke approach. Our 0 Carbon team are also making good progress with future home standards, with 3 sites identified as case studies to develop our knowledge on energy efficiency as we plan to deliver lower carbon homes. In our case studies, we will be assessing fabric efficiencies, renewable energies, heating solutions and energy monitoring devices, so we seek to establish the best performance to deliver on a scale that we require. And interestingly, we have partnered with Salford University for a research and design project, where we plan to build a house in laboratory conditions to trial new low carbon technologies. We hope to start in the spring of next year research in air source heat pumps, underfloor heating and battery storage, to name just a few ideas. Now moving on to people. Being an employer of choice is a key priority for our Better with Bellway approach. Our ambition is not only to attract new people, but to upskill and retain our best talent, ensuring the ongoing and long term success of Bellway. And we are working hard in all corners of the business, And that is demonstrated in our latest employee engagement survey, where almost 90% of our workforce Said Bellway was a great place to work. Some key initiatives are our flexible working policy, Our Senior Leaders Development Program, early careers, with over 8% of our workforce now in earn and learn roles. Women in Construction, we're very proud to have won our 1st female Construction Quality Award. And our London divisions are setting the standards for group and attracting people from different race and ethnic backgrounds. And I'm also very keen to create some space and opportunities for young people with disabilities and learning difficulties, something that we're working on for the summer of 2022. Another key priority for better With Bellway, it's our customer first agenda. And customer first is about further improving our bill quality and creating a step change in customer service levels. We have long held a 5 star rating, with 94% of our customers recommending Bellway. But ask those same customers the very same question 9 months later, and that approval rating drops to around 80%. In part, this is due to lower response rates, but also taking too long to fix those post completion sagging items. And it's too easy to blame COVID. It's too easy to blame the supply chain. We need to improve our customer service levels. And our customer first agenda seeks to address those issues by training all of our staff with our new policies, Training our business partners to be part of the same journey, increased quality inspections, New technology, more results in our customer service teams and the appointment of a group customer experience director to raise the profile of customer service in the group. Now for current trading. If I could refer you to the table on the screen. The 1st 9 weeks since the 1st August of delivered robust reservations of 218 per week. And whilst behind by 9%, That was against an unusually strong period that I referred to earlier. Interestingly, Help to Buy reservations have now dropped to 18% since the start of our new financial year, And this does not appear to be having a material impact upon sales volumes. Outlets are slightly lower than last year, but they will recover in the second half. And that trend will continue into FY 'twenty two and beyond as we benefit and take advantage from our land buying program. And we also have the benefit of a strong order book totaling almost £2,000,000,000 And finally, outlook. I am very optimistic about the prospects for the group. We have the capacity to deliver Substantial volume growth. In the short term, our land and operational strength can produce growth of 10% per annum for the to financial years. In the longer term, underlying demand, coupled with our financial strength, provides the opportunity to expand beyond 16,000 homes per year. Our growth strategy, coupled with our anticipated improvements Operating margin will deliver significant value for our shareholders. And finally, Our Better with Bellway framework sets out our responsible and sustainable approach to business, And we look forward to reporting our new targets in the new year. Thank you. I will now hand back to the operator for questions. And we will take our first question From British Seiya in HSBC. Please go ahead. Thank you. Good morning, Dennis. I have a couple of questions on land. The land bank length is obviously has gone off now. But given that history, your number was kind of was letting around 4 years. Is that something you are looking in future as well or the current land management you're happy with to carry on? And our other question is around the Staxi Glenbank. Sorry, Well, we only caught the first question there, Rajesh. And I think that was about land bank length and what we think is the right size for the business going forward. We've always said it's not about having an artificial metric for Alarm Bank then. It's about having land in place Your growth plans, and that's why we have more ambitious growth plans for the next 2 years because we have obviously strengthened the position. But to try and quote that in terms of figures, I do think the land bank benefit 5.4x is unusually high, It is in part a reflection of the very strong period we've had. I would expect that naturally to come back down. And I think 4.5x to 5x is probably what the maths relates to in terms of a normalized land bank benefit should Okay. Got you. And so coming to the operating margin for the midterm guidance of 80% to 19%, The current plan you are buying is around 23% gross margin, and you kind of guide the headwind cost to be around 4%. So what kind of prevents us to kind of look at 'nineteen percent in its more sustainable margin rather than put out at the 'eighteen percent to 'nineteen percent? Well, look, it's a fair comment. I think in a steady state, in administrative overhead of around 4% of revenue, It is achievable. And you're right, since we do the March 23, that's 4, it was 19, as you rightly said. And that is, of Within the range, it's fair guidance for a mid term operating margin within Bellway. And again, I would say, if you have house price In the system, that will hopefully mean I'll be able to augment that and deliver in excess of that range. But without house price inflation, in any given year, not everything will go perfectly to plan. And sometimes, you will just I delivered slightly below 23% margin if you have a problem underground or whatever it might be. So I think it's sensible to suggest 18% to 19% It's a sustainable, achievable target for the group, but of course, high space inflation for the broadband. Okay. Perfect. And last one is on your kind of plan research How the heating systems should operate in future. Interestingly, you mentioned the air source pump as one of the research areas. I'm curious to know whether you have explored that area in just presumably whether you have looked into ground source heat pump as Sorry, Brigitte. I struggle to hear that. Was it Ground source or air source heat pumps is the question. Yes. Yes, you're kind of viewing on air source heat pumps. I just wanted to understand whether you have moved into ground source heat pump as well. Well, this listen, we're doing a lot of tests So some of the suppliers that we're working with at the moment are all claiming to have the best air source heat pump or the best Ground Source Heat Pump. So we're doing our own trials on our developments. We've even got one With Homes England that we're starting in Portsmouth next year, where we're going to build part of the site to The 2025 building rates, so that's without any fossil fuels, and that's with the introduction of air source heat pumps. Our advice at the moment or on our experience, because we've used some of them, is that air source heat pumps are better suited to housing Ground sourcing pumps are better suited to apartment led schemes. But that whole Picture bridges is really changing quite quickly at the moment. So that's why we're doing our own tests and our own assessments through the group. Thank you. Our next question comes from Sam Cullen in Peel Hunt. Please go ahead. Good morning, guys. Just a couple of questions for me, please. Given the volume targets are pretty ambitious, can you talk around Potential constraints, I think, over the medium term, whether that's the rate of site openings or kind of labor as a bottleneck To ensure that you can open sites and complete site to hit those numbers. And then secondly, just a follow-up on the heating systems. I know you've pointed out air source message to housing versus apartment. Have you looked at and recalled ground sources, ground source heat pumps for Sam, good to hear from you. Did you say Ground source, have we looked at them? Yes. It kind of pulled ground because I know some of the developers are looking at kind of Because it's centralized ground source heat pump for housing estates and whether you can kind of pull ground source heat pumps in that way and Well, we've actually A few years back, we did a sort of an eco led scheme. And it can work. Well, we had lots of problems with it working operationally. And I just think before We go in feet 1st with a combined ground source seed pump or independent air source seed pumps. We need to work really Collaboratively with the suppliers to see what is robust, what's going to last for a decade and what the running costs are Because all the narrative, Sam, around it really is that an SLC pump costs 5 or 6 times more than an oil. Well, so what? We can afford it to start with. What worries me, Sam, is the physical running cost of these things. What does the customer Inherit, for the next 2 decades, and that's the piece of the puzzle we need to get to the bottom of. Is it affordable for the long term? And whether that leads us So combined systems or independent systems, I just don't know the answer to that, but we are assessing it when we are doing trials. And Sam, I forgot your first question. What was it? Constance to volume growth. So constraints to volume growth. Well, we're pretty saying we're pretty confident we can deliver our short term Ambition, Sam, of 10% per annum. We've been here before. I imagine everyone on the call can remember the global financial Prices went on the brick, kilns and manufacturers had shut down and we couldn't get any bricks. So we sort of understand the length of time that There's going to be disruption for we're prepared for it. So I don't think our short term growth will be affected. Our longer term growth ambitions, we've been Keith and I have been working on this for some time. We've been Preparing the business for future growth, the piece of the puzzle that was missing for us was the debt of land bank. So Over the last two years, we've built a new head office in Newcastle, which is now able to support A growing number of divisions. We've got our own in house school, our training facility. We've got our standard house types in place now at head office, With which are very much a necessity if you're going to deliver the volume that we're talking about. We've also Restructured the business far from a strategic land point of view. Our senior management teams are in place across the U. K, and we have a very much established head office operational team. So the whole infrastructure So Bellway has changed across the last two years, and we are able to deliver that long term growth objective. That land buying last year for us was really building the platform To enable us to move forward to 15,000, 16000 homes a year, Sam. I hope I answered your question. Yes, that's helpful. Thank you. Thank you. Our next question is from John Bell in Deutsche Bank. I've got two questions. Keith, I think you talked about the tax rate earlier and the developers' Levy. I think if I caught it right, you suggested that overall tax rate might be north of 30%. Are you expecting the developers' levy to be 5%? Or are you also factoring in that the effective rate your effective rate is Higher than the statutory rate. Could you just kind of help us bridge the gap a little bit there? And then the second question is just on your private order book. Could you give us the percentage that is currently contracted? Many thanks. Yes. So on The developers' tax, we've got nothing other than speculation, if I'm Perfectly, honest, John. Obviously, we participated in the industry wide consultation In terms of how we think the tax rate, all we really know is that it's very likely to become effective from April Thank you, too. So sooner rather than later. And we did hear of ideas in terms of what the rate might be. Well, I would be speculative, if I was to say what that might be on the call. So I think we should just wait and see like everybody else. Well, my reference to 30% is no more than a guess. Our effective tax rate is typically a little bit less The standard rate of corporation tax, maybe 50 bps or so. So there's losing the Belway thinking there, which is maybe a little unusual. In terms of the overall order book, which is what we would typically quote, is around 65% of our overall Order book is contracted. Yes, very clear. Thank you. Okay, thanks. Next question from Emily Bittles in Credit Suisse. Hey, morning, guys. I hope you're well. I've got three questions, please. The first one, I just wanted to understand. The ASP guidance for the coming year, The mix effect that you're talking about, is that purely so is that across sort of both private and affordable? Or is there any component in there where affordable is a bigger percentage of the mix or sort of Has a disproportionate impact. Secondly, I was hoping you might be able to give us some average outlet guidance for 2020 I know you said that you expected sort of growth in the later in the year, but where could the average come out? And then thirdly, I appreciate it's a bit far off at the moment, but When we think about sort of growth post 2023, is it entirely unreasonable to think that you could sort of carry on growing high single digit? Or When you get to that sort of scale, would you rather sort of assume that, that sort of comes back quite quickly from 10%? Thanks very much. So on the mix effect, I don't expect a dramatic change in mix between Private and social in this coming financial year, what you might actually see is a slightly stronger ASP In the first half and what we see in the second half, and that's just as we is the mix of product Flows through the system, so it's almost a gentle graduation, but there isn't a huge dramatic change between private and social for the full year. On average outlets, my best guess would be that we will average Something like 270 outlets in this current financial year, which is very similar to Last financial year, albeit we're softened for a lower base. So what we will see is a second half loading of outlet openings. It should be, and as we go into FY 'twenty three, we start with a higher number, something towards the 2.80 mark. I'm much at least to a very solid platform for further growth in FY 'twenty three, and I expect average outlets in FY 'twenty three To grow by at least 5%, if not more. And the reason why we can't say that more confidently than we normally would is It's because of that strong land buying program and the visibility that we have over the next 24 months. I think Jes, we are going to take the Bill, can you speak to us? Yes. Emily, the purpose that we can be prescriptive on growth for The next 2 years was because it runs in parallel with the Help to Buy scheme and We have bought a lot of land to support it. And it's an interesting question you asked because it is entirely possible that we can grow In FY 'twenty four, but obviously, a lesser rate, I'd suggest probably closer to 5 10%. The reason why we might be able to do that is because we're very encouraged by The rate of reservations that we've got with Help to Buy falling away. So you would have heard me talk about Delta buyer now is running at around 18%. So we're less dependent upon that product going forward. So it's entirely possible that you could get to FY 'twenty four and still grow You could get to FY 'twenty four and still grow. And I'm never quite sure Will that help Tobias going to disappear altogether, Emily, or whether it will Continue under a different name than a more diluted form because for two reasons, I say that. 1, It's been very successful, whether it's for government purchases, banks or builders. It's been a successful scheme. There's an election in 2024, some 12 months later. But we've always had Some products at the bottom of the market, for decades to assist people In getting on the housing letter, customers need help with deposits. So I'm not suggesting housebuilders need financial support From government, I am suggesting that a deposit assistance scheme at the bottom of the market is probably likely going forward. So that leads me to believe that sorry, this is a long way ago about answering your question, but it leads me to believe that growth is possible in FY 'twenty four, but we're not brave enough to commit to it to share. And our next Question is from Glynis Johnson in Jefferies. I have 2, if I may. And actually, they're both sort of big picture. 1 to each of you, if I may. Jason, I wonder if you can just elaborate a little bit in terms of what you view Things will look like post Help to Buy. You talked about needing to broaden the number of outlets to try and compensate. But I wonder if you can talk about expectations in terms of Selling rates or build rates, dual branding and also just in terms of what is the right price point, do you need to bring that price point down even further? And then one of the key messages about appetite in terms of gearing. Given those big ambitions in terms of what you could get to in terms of completions, What is the appetite for increasing the level of gearing, including the land creditors, in order to get there faster? Glynis, it's Stefan from Pfizer. I'm nice to see here a few from you, Glynis. In terms of Land and price point, I think we're probably about where we want to be, €29,000,000,000 300,000,000 that affordable end of the market. I don't see any change there. And I am very much driven by outlet growth very much. And so we will continue with our land buying program and look at the right balance between big sites and small sites so that we can get Outlet growth in years ahead because we see that as a good way to insulate itself from Different market conditions going forward. So if we can get outlets into the 300s Beyond FY 'twenty three, that's certainly an intention for us. And we will Dual brand, to support that. Look, we dual brand predominantly to work the cash harder. At the moment, Glynis, I am less worried about the selling environment. I'm more interested Future home standards are more interested in production issues. The selling environment is really quite robust at the moment. For us to be talking to you with £2,000,000,000 I think I'm 80% almost 80% sold this year. I've got £2,000,000,000 order book. I've reduced Help to Buy down to around 18%, and there's still strong demand for Homes. So my attention is to support sales by giving them more outlets, but probably concentrate on future Home standards Sand and landline for the future. Good morning, good, Glynis. On the debt position, Debt or Tappas Hill really isn't a constraint to our role foundations. There isn't a site Which we've looked at or work in progress decision which we make and think, let's maybe delay that because of the capital reason. We might look at the risk The overall context of the group, but the bigger constraints will either be land or people or resource or ensuring that you can maintain quality, Customer care, it's those operational things that we don't grow too quickly. But that aside, though, in terms of the level of debt within the business, I don't think it's a bad thing at the moment to have us extra resilience through the facilities. We've got a modest cash For that position, medium to longer term, I still think a level of debt within the business It's appropriate, and I will revert to a historic answer of 20% to 25% average debt and asset levels Increasing the brand promises, so we're very cautious way of measuring it, is not a bad long term cap to have for the business or be Thank you. Next question from Gregor Kuklitz in UBS. Hi, good morning. Can you hear me? Yes. Good morning, Hey, Clint. Good morning. So I've got a few questions. So perhaps the first one is to just sort of think about The returns that you're looking for, I think last year, I believe you're looking mostly at a sort of land creditor adjusted return, which I think was approximately 16%, if I'm not mistaken. Can you just tell us sort of as your Growth ambitions unfold, and you sort of hit maturity on various metrics where you'd expect that to go. I guess you sort of have an appraisal value when you think about that. That's the first question. And the second question, maybe pushing you a little bit more on cost inflation, if you Care to put a number around what you think sort of total unit cost inflation will be this financial year and maybe compare that to what it ended up being Last year in FY 'twenty one, that would be helpful. Thank you. You'll do the first and do the second. Yes. So it's maybe best to think We both asked in terms of a return on capital. And you're right, you maybe look at 2 measures With and without land creditors, without land creditors, we were just under 17% in the year ago and around 15%. With land in front of this, I do think it's right to include both of those in your both forms of debt. I maintain that we are buying land with an anticipated Ungared return on capital of between 15% 20%. So I see that as a Sensible target for the business to continue operating within. I think we'll migrate towards the upper end of that range Within the next couple of years and obviously, if we benefit from house price inflation, that perhaps take AT To beyond that sort of level, but I think the upper end of that 15% to 20% target range is a sensible, Just said, we'll level of return for the business. We'll be able to outperform and certainly as. Craig, on build costs, We've suggested build cost inflation was around 5% in the year and there is There are no signs on our sites across the U. K. That suggest Bill costs or supply chain issues are getting better, and there are no signs that it's getting worse. So I would guess that bill cost inflation is likely to be somewhere between 3% 5% For this forthcoming year, and the reason I say that is because it's likely to moderate. So what often happens in house building Is that costs follow revenue? And as the housing market or the selling environment has Started to normalize. I would guess that house price inflation follows soon and HPI will moderate, and I would guess Bill costs will moderate too in FY 2022, but I would expect one still to offset the other. That's what does that make sense to you, Gregor? Yes, it does. Sorry, Keith, just to be clear, on the 15% to 20%, is that Including land creditors in the capital base or without? Sorry, I didn't catch that. Yes. Yes. Yes. For that target. It is. That will be included in landholders in the capital base. But obviously, be mindful that Next question is from Amy Gala in Citi. Yes. Good morning, guys. Just two questions from me. The first one is on the land bank. I mean, between the decision on strategic land holdings versus short term land, Could you give us some color as to what sort of margin differentials do you get at the intake level? The second question is really on the sort The capacity in the business to deliver nearly 16000 to 18000 units, I mean, Could you give us some color or context of how do you see the your market share as a percentage of the industry volumes move up Over the long term. Thank you. In terms of I mean, in terms of Strategic land, there are 2 parts to this. Initially, in the strategic Landings, we were focusing on short term strat land that comes into play In 2 to 5 years, and often, that is quite a sought after space, and the margins are very Similar to buying market land in the open market, our restructure and our increased investment To buy a strategic land beyond head office, so we've sort of evolved authority into the region so we can accelerate The rate of strategic land, we've asked the divisions now to look up longer term and larger sites. That will then become, what Cees would say, margin accretive because you're making you're buying it in with bigger discounts Because you're taking a little bit more risk. And the reason we want to do that is because we see that as an important piece of the jigsaw to deliver bigger volumes going forward. And your second question was on the market? How the market share Mike, it's Bob. Look, I don't think it's right to predict a movement in our share of the overall Mark, and certainly, our intention isn't to buy to take the market share of others because that could lead to a disciplined Land volume, we see the overall housing market is continuing to grow, and Belvieu wants to be part of that growth story and actually has the capacity The ability to be part of that growth story. It's not about going there and undergoing competitors that they feel a little disciplined, glam buying mentality. It's about growing With the overall market forecast. Sorry, anything to add on that, Ami, and something I didn't mention to Sam when he asked the question. To deliver the longer term objective, we will need we've got the infrastructure and the management teams in place, But we will need more divisions. So it's likely that to deliver 16,000 homes, you need up to Four new divisions across the U. K, which is quite easily done. We've set up I think you go back as to 2013, we had 13 divisions. Today, we've got 22. So We're quite good at setting up new businesses. So to deliver that volume, we do need to open a few more offices. Thank you. That's very helpful. Thank you. And our last question comes from Dean Grant in Bank of America. Hi, gents. Congratulations on the results. My first question is Just in line with your land synergy, for the next or in the shorter term, your land bank length is at Yes, 5.4x at the moment. How should we look at land investment into 2022 and 'twenty three? I know you're talking about normalizing Of the land bank on to 4.5 to 5 times. But as we get to sort of 2023 volumes, we get to this range. So maybe just any color there would be helpful. My second question is just a clarification in terms of volumes and obviously Talking about growth being weighted into H2. And just maybe any color in terms of the weighting between the two halves. Is it Flat H1 versus 2021. And then maybe, sorry, just the last question on Cost inflation, in the presentation, you spoke about bricks increasing by around 15%. Is the 3% to 5% cost inflation, is that built into your 18% operating margin guidance already? And maybe any color in terms of HPI expectations with that as well would be helpful. Thank you. Well, if I start on land and then maybe Keith can help out on volumes and fuel cost inflation. So in terms of our approach to land, I never Fixed on what we're going to do in the year ahead because I like to see how the selling market unfolds. We'd like to look at prices. I suspect if I was to spend £1,000,000,000 this year on land, I wouldn't be able to buy 20 Lots of plots, prices have been pushed up and margins have been pushed down a little, but it's certainly our intention Going forward to carry on with our land investment, and I would suggest that in the next year or 2, We will continue to buy more than what we used to because we used to buy around 12,000 plots a year, Look, we won't buy as much as 20,000 plots. We won't stretch that land back beyond 5 years, Well, we can afford to be selective at the moment. So whilst it's quite busy, we'll sort of cherry pick the sites We particularly like the ones that we need, a way for the market to calm down a little bit. So We'll sort of make out as we go along, dependent upon the sales and the land market, Dean. And then with respect to your second two questions, with regards to volume output in FY 'twenty two, I would suggest H1 will be similar to H1 in FY 2021. And then you will see the year on year growth It will happen in the second half of the financial year, albeit the profiling of that could still mean Yes. You have a slightly strong A FY overall in FY 'twenty two, which is a reflection of our build progress more than anything else. And then respect to the margin guidance of around 18%, that fully reflects All known cost increases today, which we would extrapolate across the balance of our sites where orders haven't yet been placed And it also reflects the current pricing environment. It doesn't take into account future inflation On either costs or house prices, but as Jason said, if history is anything to go by, usually Well, that sets the other and that gives us the confidence to guide that 18% margin for the current financial year. That's great. Thank you very much. Thank you. And this will conclude today's conference call. Thank you for your participation,